annual report 2012
annual report 2012
smith  nephew plc
15 adam street
london wc2n 6la
united kingdom
t 44 0 20 7401 7646
f 44 0 20 7960 2356
wwwsmithnephewcom
015914smithnephewar12coverindd   1 26022013   0921 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 occuring resin
the inks do not contin any toxic heavy metals and therefore do not pose a problem if placed in landfill
designed by radley yeldar
printed by rr donnelley 472599
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 4 billion in 2012 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 
2012 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 90 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 and 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 162 to 163 the product names 
referred to in this document are identified by use of capital letters and are 
trademarks owned by or licensed to members of the group
presentation
the group’s fiscal year end is 31 december references in this annual report to 
a particular year 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 19 february 2013 the bank of england rate was 
us15443 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 in 
particular statements regarding expected revenue growth and trading profit 
margins discussed under ‘outlook and trend information’ market trends and 
our product pipeline are forwardlooking statements phrases such as ‘aim’ 
‘plan’ ‘intend’ ‘anticipate’ ‘wellplaced’ ‘believe’ ‘estimate’ ‘expect’ ‘target’ 
‘consider’ and similar expressions are generally intended to identify forward
looking 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 integrating acquired 
businesses and numerous other matters that affect us or our markets 
including those of a political economic business or competitive nature 
specific risks faced by the group are described under ‘risk factors’ on pages 
146 to 148 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 forwardlooking 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
smith  nephew annual report 2012
contents
1
2
3
4
5
6
7
overview
our business today 2
financial highlights 4
chairman’s statement 5
strategy and performance
creating sustainable value 7
chief executive officer’s review of strategy 8
how the group measures its strategic performance 16
marketplace and  
business segment review
our marketplace 19
business segment review 22
advanced surgical devices 22
advanced wound management 28
sustainability  
review
sustainability strategy  35
healthy economic performance 36
healthy social performance 37
healthy environmental performance 40
sustainability progress 41
financial review  
and principal risks
financial review  43
outlook and trend information 53
principal risks and risk management 54
corporate 
governance
governance introduction 57
our board of directors 58
our executive officers 60
corporate governance statement 62
directors’ remuneration report 74
accounts and  
other information
directors’ responsibilities for the accounts 89
independent auditor’s uk report 90
independent auditor’s us report 91
group accounts 92
notes to the group accounts 96
independent auditor’s report for the company 139
company accounts 140
notes to the company accounts 141
group information 144
investor information 151
015914smithnephewar12coverindd   2 26022013   0921 overview strategy and performance
mar ketplace and 
business segment r eview
sust ainability 
review
f inancial review  
and pr incipal risk s
c or porate  
g o vernance
acco unts and  
other information
section 1 o verview 1
reshaping smith  nephew
 “smith  nephew delivered good underlying 
revenue and profit growth and a strong 
trading profit margin in 2012 
 “there is no doubt that we are benefiting 
from implementing our strategic priorities 
our choices to invest in higher growth 
products franchises and geographies 
are enabling us to drive greater value 
for our company and stakeholders” 
olivier bohuon 
chief executive officer
015914smithnephewar12p109 working copyindd   1 26022013   0926 smith  nephew annual report 2012 2
our business today
group
smith  nephew is a global medical 
technology business dedicated to 
helping improve people’s lives
revenue
2
41bn  2
average number of employees
3
10477 
revenue by geography m
a united states 1651
b other established markets 2003
c emerging and international 
 markets 483
b
c
a
employees by geography
3
a united states 4000
b continental europe 2098
c uk 1706
d china 801
e other 1872
b
c
d
e
a
key
established markets
emerging markets
international markets
015914smithnephewar12p109 working copyindd   2 26022013   0926 overview strategy and performance
mark etplace and 
business segment re view
susta inability 
review
f inancial review  
and prin cipal risk s
c orp orate  
g ove rnance
accou nts and  
other information
section 1 o verview 3
advanced surgical 
devices
advanced wound 
management
we have leadership positions in orthopaedic 
reconstruction advanced wound management 
sports medicine and trauma we group these product 
franchise areas into two global divisions advanced 
surgical devices and advanced wound management
revenue by business division bn
a advanced surgical devices 31
b advanced wound 
 management 10
a
b
revenue by franchise m
a knee implants 874
b hip implants 666
c sports medicine joint repair 521
d arthroscopic enabling 
 technologies 409
e trauma 462
f other asd 176
c
d
b
f
e
a
smith  nephew’s advanced surgical devices 
global business has leadership positions in 
orthopaedic reconstruction sports medicine 
and trauma it is headquartered in the usa in 
andover ma and memphis tn 
revenue
2
31bn  2
2011 33bn
operating profit
2
06bn  7
2011 06bn
employees
7194  5
2011 7 611
trading profit
12
07bn 8
2011 07bn
operating profit
2
02bn  nil
2011 02bn
employees
3
3283  5
2011 3132
trading profit
12
02bn  1
2011 02bn
smith  nephew’s advanced wound management 
global business is a leader in advanced wound care 
dressings negative pressure wound therapy and 
other advanced wound management technologies 
it is headquartered in hull uk
revenue
2
10bn  4
2011 10bn
revenue by geography m
a united states 202
b other established 
 markets 705
c emerging and 
 international markets 122
b
c
a
revenue by geography m
a united states 1449
b other established 
 markets 1298
c emerging and 
 international markets 361
b
c
a
1 explanations of these nongaap financial measures are provided on pages 44 to 46
2 underlying growth percentage after adjusting for the effect of currency translation and disposals
3 healthpoint was acquired in december 2012 the average employee number does not include the 460 healthpoint employees who joined us through this acquisition
revenue by franchise m
a infection management 127
b exudate management 269
c other awm 633
c
a
b
015914smithnephewar12p109 working copyindd   3 26022013   0926 smith  nephew annual report 2012 4
financial highlights
revenue
2
2
 
 
 
 4270
 4137
 3801
 3772
 3962
 
2008
2009
2010
2011
2012
4137bn
 
 
 
 961
 965
 776
 857
 969
 
2008
2009
2010
2011
2012
trading proﬁt
12
965m 6
trading proﬁt margin
1
trading proﬁt to cash conversion
233 80bps
104
 
 
 
 862
 846
 630
 723
 920
 
2008
2009
2010
2011
2012
operating proﬁt
846m 5
2
operating proﬁt as a percentage 
of cash generated from operations
operating proﬁt margin
204
71 
20bps
 
 
 
 745
 757
 556
 656
 736
 
2008
2009
2010
2011
2012
adjusted earnings per share
1
 epsa
757 cents 2
 
 
 
 653
 813
 426
 534
 693
 
2008
2009
2010
2011
2012
earnings per share eps
813 cents 25
 
 
 
 1740
 2610
 1308
 1439
 1582
 
2008
2009
2010
2011
2012
dividend per share
2610 cents 50
 
 
 
 167
 171
 152
 155
 151
 
2008
2009
2010
2011
2012
research  development expenditure
171m 2
1 explanations of these nongaap financial measures are provided on pages 44 to 46
2 underlying growth percentage after adjusting for the effect of currency translation and disposals
015914smithnephewar12p109 working copyindd   4 26022013   0926 overview strategy and performance
mark etplace and 
business segment re view
susta inability 
review
f inancial review  
and prin cipal risk s
c orp orate  
g ove rnance
accou nts and  
other information
section 1 o verview 5
chairman’s statement
dear shareholder 
smith  nephew made good progress in 2012 both 
financially and strategically as we delivered on our 
commitments to reshape the company 
our underlying revenues were up 2 to 4137m with 
reported revenue reflecting the successful transaction 
to create bioventus trading profit was up 6 underlying 
at 965m giving an 80 basis points increase in trading 
profit margin which was up at 233 free cash flow at 
637m was again healthy demonstrating the vitality of 
our business
this performance shows the effects of the major strategic 
programme announced last year to make smith  
nephew fit and effective for the future throughout the 
year we made great progress driving efficiencies and 
liberating resources this has allowed us to invest to 
realise the opportunities we see in our higher growth 
markets and sectors 
we have achieved all this and maintained our commitment 
to health and safety ethics and the environment 
enhanced returns for shareholders
our financial strength – and confidence in continued 
strategic progress – enabled the board to review the 
dividend policy during the year 
as a result we increased the level of the interim dividend 
payment by 50 to 99¢ per share the board is pleased 
to propose a final dividend for the year of 162¢ per share 
also up 50 on 2011 we intend to pursue a progressive 
dividend policy going forward
board changes
we were very pleased that julie brown joined us as chief 
financial officer in february 2013 she brings toplevel 
financial expertise commercial experience and a deep 
knowledge of the healthcare sector julie replaces adrian 
hennah who left with our very best wishes and thanks for 
his significant contribution to smith  nephew 
we have also welcomed two new nonexecutive directors 
during 2012 ajay piramal is one of india’s most impressive 
businessmen and baroness bottomley brings a wealth of 
experience from her successful career across both private 
and public sectors we said farewell to rolf stomberg and 
geneviève berger who we also thank for their valuable 
input
in april we shall welcome michael friedman to our 
board who is renowned for his us healthcare expertise 
in particular gained leading the prestigious city of hope 
cancer institution in california 
thank you
my board colleagues and i visited a number of our global 
sites during the year we welcome these opportunities to 
meet our employees and would like to thank everyone at 
smith  nephew for their continued dedication to serving 
our customers
we are also fortunate to meet and hear from shareholders 
regularly both institutional and private your support and 
feedback are both appreciated and continue to inform 
our thinking 
smith  nephew is evolving we are already seeing the 
material benefits of our choices and actions there is 
much more to come and we look forward to continuing 
to build ever more value for you into the future
sir john buchanan
chairman
“ our financial strength – and confidence in continued  
strategic progress – enabled the board to review the  
dividend policy during the year”
015914smithnephewar12p109 working copyindd   5 26022013   0926 smith  nephew annual report 2012 6
strategy and performance 
this section outlines the group’s 
growth strategy and what has been 
done to deliver against this strategy
2
creating sustainable value 7
chief executive officer’s review of strategy 8
how the group measures its strategic performance 16
015914smithnephewar12p109 working copyindd   6 26022013   0926 overview strategy and performance
mar ketplace and 
business segment r eview
sust ainability 
review
f inancial review  
and pr incipal risk s
c or porate  
g o vernance
acco unts and  
other information
7 section 2 strategy and performance
creating sustainable value
at smith  nephew we believe that being a sustainable company  in every sense of 
the word truly sets us apart positively contributing to the needs of our stakeholders at the 
economic social and environmental level is important this is seen in our values in how 
we support our customers and the way our products improve the quality of life of patients
trust
innovate
perform
smith  nephew continues 
to create value through our 
core values
distributors
health departments
hospitals
healthcare professionals
procurement
government spending
the decision to use our 
products can be influenced 
by many parties including
nurses
patients
caregivers
healthcare systems
surgeons
the value of our products 
is recognised by many  
including
smith  nephew’s quality products are selected 
because it has built trusted relationships
015914smithnephewar12p109 working copyindd   7 26022013   0926 smith  nephew annual report 2012 8
chief executive officer’s review of strategy
our strategy
smith  nephew’s strategic priorities are about making 
choices for the long term benefit of the group delivering 
higher returns to shareholders than its peer group
1
established markets
in established markets us europe japan australia new zealand 
and canada smith  nephew sees opportunities to build upon 
existing strong positions to win market share through greater 
innovation and drive efficiencies to liberate resources through 
these actions the group seeks to meet the challenges of subdued 
markets and maximise both revenue growth and profit margins
2
emerging and 
international markets
smith  nephew believes it can secure market leadership 
in the emerging markets building upon its initial success in 
china and expanding to create sustainable businesses in 
india brazil and russia in particular the group sees significant 
opportunities to build value through augmenting its existing portfolio 
with new products specifically designed for and manufactured in 
these markets
3
innovate for value
the group’s future success depends upon continuing to offer 
new technologies and innovative business models to customers 
around the world smith  nephew is accelerating its rate of 
innovation by increasing the research  development budget 
and identifying and investing in the projects that will deliver 
maximum value
4
simplify and improve 
our operating model
smith  nephew will work to ensure the business structure and 
processes support our innovation agenda and the group seeks  
to maximise efficiency in everything it does there are opportunities 
to streamline the group’s operations and manufacturing processes 
and to remove duplication smith  nephew is building strong 
global functions – human capital regulatory quality compliance 
sustainability finance and legal affairs – to support its 
management teams in their quest to serve the group’s markets 
and customers better
5
supplement organic 
growth through 
acquisitions
the group aims to augment its organic growth through acquisitions 
smith  nephew will continue with its successful strategy of 
acquiring complementary technologies seek to support our 
emerging markets ambitions by acquiring local manufacturing  
and distribution businesses and remain alert to larger opportunities 
to support expansion in attractive sectors such as advanced 
woundcare extremities or minimally invasive surgery
015914smithnephewar12p109 working copyindd   8 26022013   0926 overview strategy and performance
mar ketplace and 
business segment r eview
sust ainability 
review
f inancial review  
and pr incipal risk s
c or porate  
g o vernance
acco unts and  
other information
9 section 2 strategy and performance
dear shareholder 
in august 2011 we announced an ambitious set of 
strategic priorities to make smith  nephew stronger 
faster growing better balanced and fit and effective for 
the future across the group we are implementing this 
programme we are investing in highergrowth products 
franchises and geographies and adapting our commercial 
models and cost structure
emerging markets
in the emerging markets we are delivering strong revenue 
growth benefitting from our investments to strengthen the 
management team and sales force and the successful 
registration of more of our existing products for sale 
our strategy is to build upon this platform by expanding 
our distribution capability and delivering portfolios for the 
midtier segments we will develop these through our own 
rd and by acquisition and we expect to bring our first 
products to market in 2013 
we are also investing to ensure that all employees and 
third party representatives follow our code of conduct and 
local requirements we have what i believe to be a world
class compliance programme sharing this expertise is 
integral to building a sustainable business everywhere we 
operate 
investing for growth
in the established markets we continue to successfully 
deliver a high rate of innovation in 2012 we launched 
new hip knee and trauma systems and more than 30 
advanced wound management products  we increased 
our rd budget and expect to do so again in 2013 
we are also putting more resources into our highergrowth 
franchises and geographies in trauma and extremities 
our actions to refine the commercial model and build the 
sales force is delivering good results in japan we are 
strengthening our leadership position in advanced wound 
management following the launch of negative pressure 
wound therapy  
these and other investments like them are possible 
because we are making smith  nephew more efficient 
we generated annualised savings of around 100 million 
by the end of 2012 and are continuing to implement 
further improvements  
healthpoint biotherapeutics
the acquisition of healthpoint biotherapeutics 
expands our platform by giving us a strong position in 
bioactives the fastest growing area of advanced wound 
management this perfectly complements our exudate 
and infection management and negative pressure 
expertise the integration is proceeding to plan 
corporate social responsibility
whilst working to transform smith  nephew we have 
not lost sight of the importance of our social ethical and 
environmental obligations our commitment to customers 
patients employees shareholders and communities 
remains strong in 2012 we again earned the distinction of 
being featured in both the ftse4good index and the dow 
jones sustainability index 
delivering value 
in 2013 we are continuing to build delivering efficiency 
improvements and accelerating investment – in our 
highergrowth portfolios in geographic expansion in 
more rd and in further acquisitions i am pleased at the 
progress we have made excited about the opportunities 
that we see and confident we will continue to deliver 
greater value for our company and stakeholders
olivier bohuon
chief executive officer
“ we are investing in highergrowth products franchises and geographies 
and adapting our commercial models and cost structure” 
015914smithnephewar12p109 working copyindd   9 26022013   0926 smith  nephew annual report 2012 10
1
established  
markets
focused on success
within the established markets we have dedicated 
management teams in advanced surgical devices and 
advanced wound management who are focused on 
meeting the needs of our customers 
the formation of the advanced surgical devices division 
– created through the combination of our endoscopy 
and orthopaedics businesses – delivered benefits at a 
slightly faster rate than expected this new structure has 
allowed us to better share the benefits of our experience 
and scale whilst supporting the sales force in utilising 
their local market knowledge and relationships to secure 
and service customers in each and every market 
chief executive officer’s review of strategy 
continued
015914smithnephewar12p1015 working copyindd   10 26022013   0927 overview strategy and performance
marke tplace and 
business segment rev iew
sustai nability 
review
f ina ncial review  
and princ ipal risk s
c orpor ate  
g over nance
accoun ts and  
other information
11 section 2 strategy and performance 11
2
emerging  
markets
new markets new products
we have recruited experienced leadership to drive 
us into the emerging markets and invested in new 
headquarters and infrastructure 
throughout 2012 we made progress registering and 
selling more of our existing products in our emerging 
markets – with many new introductions across our 
franchises 
we are also developing specific products for the 
middle tier in these countries investing in determining 
both the right product categories and the right 
business model to serve these customers effectively
015914smithnephewar12p1015 working copyindd   11 26022013   0927 smith  nephew annual report 2012 12
chief executive officer’s review of strategy continued
015914smithnephewar12p1015 working copyindd   12 26022013   0927 overview strategy and performance
13 section 2 strategy and performance
accou nts and  
o th er i nfor matio n
c orp or ate  
go v er nanc e
financi al r evi ew  
and pri ncipal r isks
sustainabili ty 
r evi ew
mar k etpl ac e and 
business segment r evi ew
3
innovate  
for value
c entre of innovation
in april we opened a new innovation c entre in 
memphis which we are using to deliver bestinclass 
surgeon training programmes 
this is a worldclass multidisciplinary facility joint 
reconstruction sports medicine and trauma that 
allows surgeons from different specialties and 
locations to share learning and innovation its 140seat 
auditorium five conference rooms two classrooms 
and 17 labs have already hosted multiple groups of 
surgeons from around the world keen to experience 
the latest products and surgical techniques 
designed for r eal l ife
in june we launched all evy n l ife a unique new 
foam dressing that extends our all evy n family of 
foam products this product innovation addresses the 
findings of new smith  nephew research into the real 
life concerns of patients living with wounds 
allevyn life offers multiple benefits for the patient and 
clinician these innovative features include a change 
indicator to avoid unnecessary dressing changes a 
hyperabsorbent core to prevent leakage of exudate 
and masking to prevent patient embarrassment caused 
by visible exudate through the dressing this is all 
combined with unique shapes to ensure better 
dressing retention and our ‘gentle border’ silicone 
adhesive to minimise pain at dressing change
015914smithnephewar12p1015 working copyindd   13 26022013   0927 smith  nephew annual report 2012 14
chief executive officer’s review of strategy continued
4
efficient manufacturing
we have been successful in reducing our cost of goods 
to combat the effects of continued price pressure in 
manufacturing we have refined our footprint especially 
in c hina during 2012 the group closed the old l inhe 
orthopaedic plant moving it to our new facility in beijing 
ahead of schedule we completed the extension to our 
wound factory in suzhou – on time and on budget – 
and have started equipping the plant
the european process o ptimisation programme 
will rationalise and upgrade our commercial and 
it platforms allowing us to drive efficiencies while 
better serving our customers
simplify and improve 
our operating model
015914smithnephewar12p1015 working copyindd   14 26022013   0927 overview strategy and performance
marke tplace and 
business segment rev iew
sustai nability 
review
f ina ncial review  
and princ ipal risk s
c orpor ate  
g over nance
accoun ts and  
other information
15 section 2 strategy and performance
5
growth through 
acquisitions
augment organic growth  
through acquisitions 
in december 2012 smith  nephew completed 
the acquisition of healthpoint biotherapeutics 
a leader in bioactive debridement dermal repair and 
regeneration wound care treatments for 782m 
in cash 
this acquisition had compelling strategic and financial 
rationale for smith  nephew 
it gives us a strong position in bioactives the fastest 
growing area of advanced wound management it 
brought a complementary range of bioactive 
debridement dermal repair and regeneration products 
led by c ollagenase santyl ointment ‘santyl’ an 
enzymatic debrider for dermal ulcers and burns it 
added an established rd capability in nextgeneration 
bioactive therapies for the treatment of chronic wounds 
and will double our us awm sales and strengthen our 
commercial scale and capabilities 
the combination creates a wound business which is 
unique – having leadership positions across exudate 
and infection management negative pressure and 
bioactive wound care
015914smithnephewar12p1015 working copyindd   15 26022013   0927 smith  nephew annual report 2012 16
2011 39
2012 41
how the group measures its strategic performance
2  emerging and 
international markets
1 established markets
strategic priority measurement
3 innovate for value
5  supplement organic 
growth through 
acquisitions
4  simplify and improve 
our operating model
revenue from emerging and 
international markets
2
483m 11
rd expenditure
171m 2011 167m
as a  of group revenue
revenue from established markets
2
3654bn 1
trading profit
2
965m 6
trading profit margin
233 80bps
acquisition spend
4
813m 
2011 961
2012 965
2011 3816
2012 3654
2011 454
2012 483
2011 11
2012 12
2011 225
2012 233
2011 106
2012 813
rd expense as a percentage  
of group revenue
2 underlying growth percentage after adjusting for the effect of currency translation and disposals
4 includes complementary technology spend
2011 clinical therapies revenue of 237m
2012 clinical therapies revenue of 107m
2011 clinical therapies trading profit of 48m
2012 clinical therapies trading profit of 16m
015914smithnephewar12p1617 working copyindd   16 26022013   0929 overview strategy and performance
marke tplace and 
business segment rev iew
sustai nability 
review
f ina ncial review  
and princ ipal risk s
c orpor ate  
g over nance
accoun ts and  
other information
17 section 2 strategy and performance
performance why we measure global outlook
smith  nephew businesses in the established markets grew 
by 2 in the us and 1 in the other established markets 
where a weak macro environment in europe partially offset 
strong results in japan and australia
 – by franchise our performance relative to estimated global 
market growth was below in hip reconstruction at market in 
knee reconstruction sports medicine and trauma and above 
in advanced wound management
 – for more detail on the market and competition see pages 19 
to 33
established markets for smith 
 nephew are the us europe 
japan australia new zealand 
and canada in these markets we 
expect the challenging economic 
conditions to continue requiring 
realigned business models and 
focused investment
 – track the relative strength  
of our market positions
emerginginternational markets grew at 11 exceeding 
established markets rates and contributing over 40 of 
annual revenue growth for the group these geographies 
now represent 12 of the group’s overall revenue
during 2012
 – china successful model revenues above 120m
 – significant infrastructure operational and talent investment
 – refined new rd model to develop midtier product portfolio
emerginginternational markets 
represent those outside of the 
established markets including 
brazil china india and russia 
the healthcare environment in 
these markets is rapidly expanding 
and with the right investments 
offers significant opportunities for 
the group
 – track underlying growth  
of emerging markets to global 
growth
 – monitor progress in key 
market segments
rd investment now represents 41 of revenue an increase 
in spending of 2 we have maintained our momentum of 
introducing new products
 – over 30 new awm products launched
 – in asd extensions to our established legion knee and 
periloc plate ranges a new hip revision system and 
further innovation in sports medicine
 – over 230 existing products now available for emerging
international markets
 – innovation centre opened in memphis
innovation offers the key to 
meeting the realities of healthcare 
and economic paradigm in both 
established and emerging markets 
new products technologies and 
surgical techniques hold the 
promise and potential of reducing 
the overall cost of healthcare
 – monitor the impact from 
innovation
 – monitor the underlying 
investment in rd
trading profit grew by 6 aided by targeted efficiency and 
cost initiatives which offset market pressures and enabled 
continued targeted organic investments trading profit margin 
was 233 an 80bps improvement key initiatives included
 – on track to deliver 150m efficiency savings by end of 2014
 – reorganisation of asd and realignment of awm
 – refining our manufacturing footprint expansion of the 
suzhou facility move and closure of linhe plant both in 
china
 – reduction in cost of goods
 – reduction in energy use and increased waste recycling
by simplifying and improving our 
operating model we can liberate 
resources to invest in growth 
opportunities and meet the 
persistent price pressure a simpler 
and more efficient organisation 
allows us to make faster and better 
decisions
 – track our underlying trading 
profit growth and trading 
profitability
 – reduce the amount of energy 
and waste for the group our 
customers and the environment
2012 has been an active year from a business development 
perspective we have invested in talent and capability which 
has delivered several exciting opportunities including
 – acquisition of healthpoint biotherapeutics
 – acquisition of complementary technology businesses 
lifemodeler inc kalypto medical inc aderma range of 
dermal pads
 – bioventus venture formed and divestment of biologics 
and clinical therapies business
acquisition and partnerships 
are important elements which 
supplement the organic investment 
and provide increased opportunity 
for high growth and value
 – monitor value created 
for shareholders
015914smithnephewar12p1617 working copyindd   17 26022013   0929 smith  nephew annual report 2012 18
marketplace and 
business segment review
we look at our business in relation 
to issues in the wider marketplace 
in which we operate
3
our marketplace 19
business segment review 22
advanced surgical devices 22
advanced wound management 28
015914smithnephewar12p1821 working copyindd   18 26022013   0929 overview strategy and performance
mar ketplace and 
business segment r eview
sust ainability 
review
f inancial review  
and pr incipal risk s
c or porate  
g o vernance
acco unts and  
other information
section 3 marketplace and business segment review 19
our marketplace
global population
population by age  
1950
25bn
1950
019 2064 65
44
51
5
2050
2050
90bn
27
57
16
2000
60bn
2000
39
54
7
global obesity 
05 510 1015 1520 2025 2530 3035 35 no data
smith  nephew operates in a complex marketplace 
spending is heavily influenced by governments who are 
seeking to balance the demands placed upon healthcare 
systems from longterm trends such as ageing populations 
and obesity with requirements to restrain budgets patients 
are becoming more discerning and demanding and 
healthcare providers are increasingly making choices based 
on both clinical outcomes and cost 
smith  nephew’s sales and marketing models reflect 
these factors the group invests in developing innovative 
products and services and in marketing these through 
the most appropriate direct or indirect channels sales 
trends reveal a number of longerterm forces at work within 
our markets the importance of government funding to 
our business remains and there is a need to meet ever 
more stringent regulation global manufacturing supply 
and distribution operations seek to maximise their efficiency 
whilst supporting the sales and marketing process 
innovative new products are brought to market through 
highly focused research and development and there is a 
robust policy of protecting intellectual property the group 
seeks to minimise the impact of currency on its business
sales and marketing
smith  nephew’s customers are the providers of medical and 
surgical services worldwide
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 there has been some 
consolidation in the group’s customer base as well as amongst the 
group’s competitors and these trends are expected to continue in 
the long term smith  nephew competes against both local and 
multinational corporations including some with greater financial 
marketing and other resources
the group’s business reflects a wide range of distribution channels 
purchasing agents and buying entities in over 90 countries 
worldwide the largest single customer worldwide is a purchasing 
group based in the uk that represented 6 of the group’s worldwide 
revenue in 2012
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 the 
group’s 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 healing treatment regimes
in the us the group’s products are marketed directly to healthcare 
providers hospitals and other healthcare facilities with each 
business segment operating dedicated sales forces the us 
sales forces consist of a mixture of independent contract workers 
and employees sales agents are contractually prohibited from 
selling products that compete with smith  nephew products our 
advanced surgical devices are principally shipped and invoiced 
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 in most 
other established markets each division typically manages 
employee sales forces directly and also ships and invoices products 
both directly to healthcare providers hospitals and other healthcare 
facilities and to wholesale distributors
in emerging markets and international markets the group operates 
through direct selling and marketing operations and through 
distributors in these markets orthopaedics and sports medicine 
frequently share sales resources the advanced wound management 
sales force may be separate where it calls on different customers
sales trends
smith  nephew’s divisions participate in the global medical devices 
market and share a common focus on the repair of the human body 
smith  nephew’s principal geographic markets are in our established 
markets healthcare economies of the us europe japan canada 
australia and new zealand in addition we are building our business 
in the emerging markets brazil russia india and china and our 
international markets such as south africa mexico and turkey
015914smithnephewar12p1821 working copyindd   19 26022013   0929 smith  nephew annual report 2012 20
our marketplace continued
smith  nephew’s markets are characterised by increased longevity 
more active lifestyles obesity increased affluence and an increase 
in the average age of the population caused by the immediate post
world war ii ‘baby boomer’ generation approaching retirement
together these factors have created significant demand for more 
effective healthcare products which deliver improved outcomes 
through technology advances furthermore pressure to resist 
increases in overall healthcare spending has led healthcare 
providers to demand products which minimise the length of hospital 
stays and use of surgeon and nursing resources
increasing patient awareness of available healthcare treatments 
through the internet and directtocustomer advertising has led 
to some increased patient influence over product purchasing 
decisions
for a description of the impact on each division refer to the ‘business 
segment reviews’ on pages 22 to 33
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 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 changes in 
reimbursement policy tax policy and pricing which may have an 
adverse impact on sales and operating profit in particular changes 
to the healthcare legislation in the us are due to impose 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
regulatory standards and compliance in the 
healthcare industry
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
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
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 and the state food and drug administration in 
china
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 ‘legal proceedings’ 
on page 52
manufacturing supply  distribution
the group’s manufacturing production is concentrated at 12 main 
facilities in memphis mansfield and oklahoma city in the us hull 
warwick and gilberdyke in the uk aarau in switzerland tuttlingen 
in germany fort saskatchewan and calgary in canada and suzhou 
and beijing in china
the group operates a number of central distribution facilities in the 
key geographical areas in which it operates products are shipped to 
group companies which hold small amounts of inventory locally for 
immediate or urgent customer requirements 
the advanced surgical devices division operates a distribution 
facility in baar switzerland which acts as the main holding and 
consolidation point for markets in europe in the us the advanced 
surgical devices distribution hub is located in memphis
advanced wound management distribution hubs are located in 
neunkirchen germany derby uk and atlanta us
the group has a central operations function which continues to 
implement lean manufacturing throughout the factories and the 
supply chain which is designed to improve and sustain higher levels 
of service quality productivity and efficiency
core competencies include materials technology high precision 
machining in advanced surgical devices and highvolume 
automated manufacturing in advanced wound management
each business segment purchases raw materials components 
finished products and packaging materials from certain key 
suppliers these principally include metal forgings and stampings 
for orthopaedic products optical and electronic subcomponents 
and finished goods for sports medicine products active ingredients 
and finished goods for advanced wound management and 
packaging materials across all businesses suppliers are selected 
and contracts negotiated by a centralised group procurement team 
wherever possible with a view to ensure value for money based on 
the total spending across the group
015914smithnephewar12p1821 working copyindd   20 26022013   0929 overview strategy and performance
marketplace and 
busin ess segme nt review
sustaina bility 
review
f inanc ial review  
and principa l risk s
c orporat e  
g overnan ce
accounts and  
other information
section 3 marketplace and business segment review 21
the group outsources manufacturing where necessary to obtain 
specialised expertise or where it is possible to gain lower cost 
without undue risk to intellectual property suppliers of outsourced 
products and services are selected based on their ability to deliver 
products and services to specification and establish and maintain 
a quality system suppliers are trained and are monitored through 
onsite assessments and performance audits that include quality 
service and delivery finished goods purchased for resale include 
screen displays optical and electrical devices in the advanced 
surgical devices division and skincare products in the advanced 
wound management division
research and development
smith  nephew manages a portfolio of short and longterm 
product development projects designed to meet the future needs 
of customers and continue to provide growth opportunities for 
the business the group’s research and development is directed 
towards each business segment expenditure on research and 
development amounted to 171m in 2012 2011 – 167m 2010 – 
151m representing approximately 41 of group revenue 2011 – 
39 2010 – 38
the group continues to invest in future technology opportunities 
for clinical needs identified from across the smith  nephew 
businesses
research and development expenditure m
2010 151
2011 167
2012 171
171m 
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 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
research and development is primarily carried out at the group’s 
principal locations notably in memphis us orthopaedics 
mansfield us endoscopy and hull uk advanced wound 
management there are a number of other smaller research and 
development units situated at other locations around the group 
inhouse research is supplemented by work performed by academic 
institutions and other external research organisations in europe 
america and asia
following the acquisition of healthpoint biotherapeutics the group 
has a research and development capability in nextgeneration 
bioactive therapies for the treatment of chronic wounds  the 
principal pipeline product is hp802247 for the treatment of venous 
leg ulcers which has entered phase 3 trials
intellectual property
smith  nephew has a policy of protecting the results of research 
and development carried out by the group patents have 
been obtained in a wide range of fields including orthopaedic 
reconstruction and trauma sports medicine and advanced wound 
management patent protection for group products is sought 
routinely in the group’s principal markets currently the group’s 
patent portfolio stands at approximately 4700 patents in force and 
patent applications pending
smith  nephew also has a policy of protecting the group’s products 
by registering trademarks under local laws of markets in which such 
products are sold the group vigorously protects its trademarks 
against infringement
in addition to protecting its market position by filing and enforcing 
patents and trademarks smith  nephew may oppose thirdparty 
patents and trademark filings where appropriate in those areas that 
might conflict with the group’s business interests
in the ordinary course of its business the group enters into a 
number of licensing arrangements with respect to its products none 
of these arrangements individually is considered material to the 
current operations and the financial results of the group
currency fluctuations
smith  nephew operates across many jurisdictions and therefore 
the group’s 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 
intragroup sales 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 ‘financial position 
liquidity and capital resources’ on page 50
015914smithnephewar12p1821 working copyindd   21 26022013   0929 smith  nephew annual report 2012 22
advanced surgical devices
business segment review
smith  nephew has leadership 
positions in orthopaedic reconstruction 
sports medicine and trauma
revenue
2
2010 3050
2011 3251
2012 3108
3108m 2 8
trading proﬁt
12
2010 736
2011 714
2012 728
728m 
product franchise growth
2
 
hip implants 3
sports medicine joint repair 8
knee implants 3
arthroscopic enabling technologies 2
trauma 3
other 5
 
7
operating proﬁt
2
2010 700
2011 630
2012 632
632m 
trading proﬁt margin
1
2010 241
2011 219
2012 234
234 150 bps
revenue by franchise m
a knee implants 874
b hip implants 666
c sports medicine joint repair 521
d arthroscopic enabling 
 technologies 409
e trauma 462
f other asd 176
c
d
b
f
e
a
1 explanations of these nongaap financial measures are provided on pages 44 to 46
2 underlying growth percentage after adjusting for the effect of currency translation and disposals
015914smithnephewar12p2227 working copyindd   22 26022013   0930 overview strategy and performance
marketplace and 
business segment re view
susta inability 
review
f inancial review  
and prin cipal risk s
c orp orate  
g ove rnance
accou nts and  
other information
section 3 marketplace and business segment review 23
overview
in 2012 the advanced surgical devices global division 
asd developed manufactured and sold products in the 
following franchise areas 
– knee implants
– hip implants
– sports medicine joint repair
– arthroscopic enabling technologies
– trauma
products are manufactured at sites around the world the 
main facilities are located in memphis tn mansfield 
ma and oklahoma city ok in the us products are also 
manufactured in aarau switzerland tuttlingen germany 
leamington spa warwick uk beijing china and calgary 
canada as well as by thirdparty manufacturers major 
service centres are located in the us uk germany japan 
and australia
strategy
asd was created in 2011 with the merger of the orthopaedic 
and endoscopy business units the momentum gained 
from this merger continued in 2012 the division continues 
to take a disciplined and objective approach to resource 
allocation among its core hip implant knee implant and 
arthroscopic enabling technologies and growth sports 
medicine joint repair trauma and other including 
gynaecology franchises in the core franchise areas 
asd will continue to position itself through innovation 
and process improvement to grow with the market and 
deliver earnings in the growth franchises the division 
is investing increasing amounts in innovation rapid 
iterations and market development to take both share 
and leadership positions
the emerging and international markets have become an 
increasingly important opportunity for advanced surgical 
device products significant progress was made in these 
markets in 2012 with investment in division management 
local management sales teams and products
in april asd along with the advanced wound 
management division announced the start of a major 
initiative to align and optimise the infrastructure and 
operational activities across smith  nephew in europe 
known as the european process optimisation this multi
year commitment will deliver a standard and simplified 
set of processes underpinned by a common enterprise 
resource planning platform and business intelligence 
system
asd also began phasing out slow and nonmoving 
product components in 2012 the division has plans to 
address the number of product components further by 
reducing the number of platforms
asd provides medical education through a variety of 
training and education services tailored to individual 
surgeon needs the group also focuses on knowledge 
sharing utilising the world’s top specialists and key 
opinion leaders the asd business supports its medical 
education strategy with investment in surgeon education 
programmes global fellowship support initiatives 
partnerships with professional associations and surgeon 
advisory boards
in january 2012 the group announced its intention to 
sell its biologics and clinical therapies business ct to 
bioventus llc ‘bioventus’ the creation of bioventus gave 
ct the resources to address longer term development 
projects smith  nephew has a 49 shareholding 
in the new venture maintaining access to the area of 
orthobiologics whilst realising value for reinvestment in 
nearer term opportunities this transaction was completed 
on 4 may 2012 for a total consideration of 367m and 
resulted in a profit before taxation of 251m ct’s revenue 
in the four month period to disposal was 69m and profit 
before taxation was 12m ct was reported within the 
other franchise
acquisitions
in 2012 the group acquired lifemodeler inc lmi 
lmi is the leading provider of biomechanical human body 
simulation tools and services and the developer of the 
groundbreaking software used in creating the journey 
bcs knee system with this new software orthopaedic 
innovations can be tested and validated faster and more 
cost effectively prior to the production of a physical 
prototype potentially shortening the time it takes to 
develop new products and take to market
market and competition
in 2012 weaker economic conditions worldwide continued 
to create several challenges for the overall surgical devices 
market including continued deferrals of joint replacement 
procedures and heightened pricing pressures
these factors contributed to the lower overall growth of 
the worldwide surgical devices market versus historic 
comparables however over the medium term several 
catalysts are expected to continue to drive sustainable 
growth in surgical device procedures including the 
growing and ageing population with active lifestyles 
rising rates of comorbidities such as obesity and 
diabetes patient desire for minimally invasive procedures 
technology improvements allowing surgeons to treat 
younger more active patients and the increasing strength 
of the demand for healthcare in emerging markets
global orthopaedic reconstruction segment
smith  nephew estimates that the global orthopaedic 
reconstruction segment is worth approximately 
136bn and the segment served by smith  nephew 
grew by approximately 3 in 2012 competitors in the 
orthopaedics reconstruction segment include zimmer 
stryker johnson  johnson and biomet
global orthopaedic trauma segment
smith  nephew estimates that the global orthopaedic 
trauma segment is worth approximately 45bn 
and the segment served by smith  nephew grew 
by approximately 3 in 2012 competitors in the 
orthopaedics trauma segment include zimmer stryker 
and johnson  johnson
015914smithnephewar12p2227 working copyindd   23 26022013   0930 smith  nephew annual report 2012 24
giving surgeons access 
to innovative design  
legion hk hinge knee
the legion hk hinge knee 
gives surgeons access to an 
innovative design that transforms 
a complex salvage procedure into 
an anatomicallybased joint rescue 
procedure 
business segment review continued
global sports medicine segment
smith  nephew estimates that the global sports 
medicine segment representing access resection 
and repair products is worth approximately 41bn 
and the segment served by smith  nephew grew by 
approximately 7 in 2012 competitors in the sports 
medicine segment include arthrex johnson  johnson 
and stryker
financial performance
revenue
2012
revenue m
a knee implants 874
b hip implants 666
c sports medicine joint repair 521
d arthroscopic enabling 
 technologies 409
e trauma 462
f other asd 176
c
d
b
f
e
a
asd revenue decreased by 4 to 3108m from 3251m 
in 2011 of this decrease underlying growth of 2 is offset 
by 2 due to unfavourable currency movements and 
4 due to the effect of disposal of the clinical therapies 
business 
the underlying increase in asd revenue reconciles to 
reported growth the most directly comparable financial 
measure calculated in accordance with ifrs as follows
2012 

2011 

reported growth 4 8
constant currency exchange effect 2 4
disposals effect 4 –
underlying growth 2 4
in the established markets revenue decreased by 163m 
to 2747m 6 
in the us revenue decreased by 118m to 1449m 8 
this movement is attributable to underlying growth of 1 
and 9 due to the effect of the disposal of the clinical 
therapies business in the established markets outside 
of the us revenue decreased by 45m to 1298m 3 
underlying growth was 1 with 4 due to unfavourable 
currency movements
in emerging and international markets revenue increased 
by 20m to 361m 6 underlying growth was 10 with 
4 due to unfavourable currency
2011
asd revenue increased by 7 to 3251m from 3050m 
in 2010 of this increase 3 was attributable to 
underlying growth and 4 was due to favourable currency 
movements
in the established markets revenue was 2910m this 
represented an underlying increase of 2 from 2010
in the us revenue was 1567m which represents an 
underlying growth of 2 from 2010 in the established 
markets outside of the us revenue was 1343m which 
represented an underlying increase of 1 from 2010
in the emerging and international markets revenue was 
341m which represents an underlying increase of 21 
from 2010
trading profit
2012
trading profit increased by 14m 2 to 728m from 
714m in 2011 trading profit margin increased from 
219 to 234 these increases reflect the early benefits 
of implementing the strategic priorities in particular 
restructuring the group to provide the right commercial 
models and cost structure
2011
trading profit decreased by 22m 8 to 714m from 
736m in 2010 trading profit margin decreased from 
241 to 219 this decrease was due to continuing 
pricing pressure adverse mix and some delay in the 
execution of our efficiency programme
operating profit
2012
operating profit increased by 2m from 630m in 2011 
to 632m in 2012 this comprises the increase in trading 
profit of 14m discussed above and the recognition of 
a legal claim of 23m in 2011 offset by an increase of 
10m in the amortisation of acquisition intangibles and 
a 25m increase in restructuring and rationalisation 
costs operating profit the most directly comparable 
financial measure calculated in accordance with ifrs 
reconciles to trading profit as follows
2012 
m
2011 
m
operating profit 632 630
restructuring and rationalisation costs 57 32
amortisation of acquisition intangibles 39 29
legal settlement – 23
trading profit 728 714
015914smithnephewar12p2227 working copyindd   24 26022013   0930 overview strategy and performance
marketplace and 
busin ess segme nt review
sustaina bility 
review
f inanc ial review  
and principa l risk s
c orporat e  
g overnan ce
accounts and  
other information
section 3 marketplace and business segment review 25
asd revenue
2
31bn 2
2011 33bn
trading profit
12
728m 8
2011 714m
advanced surgical devices trading profit and operating 
profit as a percentage of group trading profit and 
operating profit was as follows
2012 

2011 

2010 

trading profit 75 74 76
operating profit 75 73 76
2011
operating profit decreased by 70m to 630m from 
700m in 2010 this comprised of a decrease in trading 
profit of 22m discussed above an increase of 3m in the 
amortisation of acquisition intangibles a 22m increase 
in restructuring and rationalisation costs and 23m in 
respect of the legal provision
regulatory approvals
in 2012 the advanced surgical devices division obtained 
regulatory clearancesapprovals for several key products 
and instrumentations
in the us 510k clearance was obtained for hip knee and 
trauma franchise products including polarcup with ti
ha coating redapt revision femoral system journey 
ii cr knee system and journey ii deep dished articular 
inserts in addition 510k clearance was obtained 
for twinfix ultra pk ti ha gluteal tendon indications 
footprint ultra pk gluteal tendon indications bioraptor 
osteoraptor labral reconstruction indications and 
allograft transplant indications
several products were approved in japan including 
anthology hip stems legion verilast cr ps and 
revision knee systems biolox delta ceramic femoral 
heads genesis ii constrained articular inserts and 
trigen low profile bone screws
in europe the division renewed approval for journey 
bcs knee system and obtained approval for journey 
ii bcs knee system in canada polarcup xlpe 
acetabular liners were approved
franchises
underlying revenue growth for key product lines are
2012 

2011 

reconstruction
– knee implants 3 5
– hip implants 3 1
sports medicine 8 11
arthroscopic enabling technologies 2 –
trauma 3 3
orthopaedic and sports medicine procedures tend to be 
higher in the winter months quarter one and quarter four 
when accidents and sports related injuries are highest 
conversely elective procedures tend to slow down in 
the summer months due to holidays
orthopaedic reconstruction
the division offers a range of specialist products for 
orthopaedic reconstruction through its hip implant and 
knee implant franchises 
both the knee and hip implant markets continue to 
experience economic pressure knee implant franchise 
revenue increased by 1 to 874m in 2012 which 
represented an underlying revenue growth of 3 and 
unfavourable foreign currency translation of 2 this 
compared to a market growth rate of 3 growth slowed 
in the second half of 2012 as a result of a weakening of 
the overall knee market in europe and the division’s knee 
product cycle between 2009 and 2011 when the division 
materially outperformed the knee market it benefited 
from the launch of verilast technology and visionaire 
patient matched instrumentation this benefit has now 
been annualised 
in the global hip implant franchise revenue decreased 
by 39m to 666m 6 in 2012 representing a 3 
underlying revenue decline in the face of the continuing 
metalonmetal headwinds and 2 due to unfavourable 
foreign currency translation the hip implant franchise led 
by the anthology hip with verilast technology has 
also continued to perform well in its focus product areas 
sales of our birmingham hip resurfacing system 
continued to decline during the year the birmingham 
hip resurfacing system is a clinically proven system for 
hip resurfacing which preserves bone and is particularly 
suited for younger more active male patients
asd launched several new products across its 
orthopaedic reconstruction portfolio in 2012
1 explanations of these nongaap financial measures are provided on pages 44 to 46
2 underlying growth percentage after adjusting for the effect of currency translation and disposals
015914smithnephewar12p2227 working copyindd   25 26022013   0930 smith  nephew annual report 2012 26
in the hip implant franchise the redapt revision 
femoral hip system was launched offering surgeons one 
reproducible system for any type of hip revision also the 
polarcup dual mobility hip system widely available 
in europe was introduced in the us in knee implants 
the launch of the legion hk hinge knee system and 
the legion narrow femoral components continue to 
expand the versatility of the legion total knee system 
in japan the legion revision knee system and verilast 
technology for primary knee replacements were approved 
to market 
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 asd’s proprietary verilast technology 
in hip implants the combination of a ceramicised 
metal head and a polyethylene lined cup have been 
shown in joint registry data to have superior fiveyear 
survivorship 979 compared to implants made from 
any other material in knees the legion primary knee 
with verilast technology is the only knee implant with 
a 30year wear performance claim – more than double 
the length of wear performance testing of conventional 
technologies
another driver of knee implant growth has been 
visionaire patient matched 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 steps and instruments 
needed in the operating room
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 the journey active knee solutions is a family 
of advanced customised products designed to treat 
early to midstage osteoarthritis patients and provide 
more normal feeling and motion through bone ligament 
preservation and anatomic replication in 2012 the second 
iteration of the journey knee system the journey ii 
bcs commenced a limited commercial release 
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  
trauma
the division’s trauma franchise offers both internal and 
external devices as well as other products such as 
orthobiological materials used in the stabilisation of severe 
fractures and deformity correction procedures
in the us the division is implementing a refined 
commercial model that increases the focus and resources 
needed to address the opportunities in the highgrowth 
trauma and extremities markets 
global trauma revenue increased by 5m to 462m 1 
representing underlying revenue growth of 3 and 2 
unfavourable foreign currency translation 
in 2012 both the vlp foot percutaneous calcaneus 
plating system and the periloc ankle fusion plating 
system were launched as part of the group’s all 28 
foot and ankle portfolio both systems are available 
to surgeons in north america europe and australia 
and offer solutions for increasingly popular surgical 
approaches the vlp foot percutaneous calcaneus 
system is designed for the percutaneous approach and 
is the only plating system to offer variableangle locking 
technology the periloc ankle fusion plating system 
is the only system to offer surgeons options for the 
posterior approach which minimises soft tissue irritation 
and preserves the fibula
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 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 foot  ankle surgeons and hand  
wrist surgeons 
giving advantages to both 
the patient and the surgeon  
redapt revision hip system
the redapt revision hip system 
gives advantages to both the patient 
– through more anatomic function – 
and the surgeon who benefits from 
a versatile product and a shorter 
learning curve
business segment review continued
015914smithnephewar12p2227 working copyindd   26 26022013   0930 overview strategy and performance
marketplace and 
busin ess segme nt review
sustaina bility 
review
f inanc ial review  
and principa l risk s
c orporat e  
g overnan ce
accounts and  
other information
section 3 marketplace and business segment review 27
a major advance for  
noninvasive surgeons  
healicoil pk suture anchor
the healicoil pk suture anchor 
is a major advance for noninvasive 
surgeons as its unique open 
architecture provides significantly 
more thread engagement and greater 
pullout strength 
sports medicine joint repair
the division’s 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
global revenue from sports medicine joint repair 
increased by 30m to 521m 6 of which 8 was 
underlying growth and 2 unfavourable foreign currency 
translation 
the franchise benefited from the launch of several class
leading products during the year these included the 
healicoil pk suture anchor for both shoulder and hip 
repair endobutton cl ultra 10mm fixation device 
clancy flexible drill system and acufex pinpoint 
anatomic acl guide system the group also obtained 
us fda clearance for expanding the indications of the 
healicoil pk suture anchor and the osteoraptor 
suture anchor for use in hip arthroscopy
the healicoil pk suture anchor features a revolutionary 
openarchitecture design that uses less material than 
traditional solidcore anchors while still providing 
significantly more thread engagement and greater pullout 
strength than its competitors the endobutton cl 
ultra 10mm fixation device is the franchise’s shortest 
continuous loop it is designed for the growing number 
of surgeons who want to maximise the interface between 
the graft and the femoral tunnel a feature especially 
important when using the anatomic technique to repair 
the acl
joining other offerings such as the acufex pinpoint 
anatomic acl guide system clancy anatomic 
cruciate guide and biosure interference screws the 
endobutton cl ultra 10mm fixation device is part of a 
complete portfolio of options for surgeons performing a 
wide variety of anatomic acl reconstructions 
arthroscopic enabling technologies aet
the division’s arthroscopic enabling technologies 
franchise offers 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 radiofrequency rf probes 
electromechanical and mechanical blades and hand 
instruments for removing damaged tissue 
aet revenue decreased by 16m to 409m 4 in 2012 
which represented an underlying revenue decline of 2 
and 2 of unfavourable foreign currency translation 
key aet products include the wide range of dyonics 
shaver blades acufex handheld instruments and a 
wide range of radiofrequency probes launched in 2011 
the dyonics platinum series shaver blades are single
use blades that provide superior resection due to their 
unequalled sharpness and virtually eliminate clogging 
due to their improved debris evacuation capabilities 
in 2012 the aet business obtained regulatory clearance 
in the united states and europe for the dyonics platinum 
blades 4555mm
other
the division’s other franchise includes smaller 
businesses such as gynaecology and the clinical 
therapies business the latter of which was transferred to 
bioventus in may 2012 
the revenue in this other franchise excluding clinical 
therapies increased by 2m to 69m 5 which 
represented an underlying revenue growth of 7 and 2 
of unfavourable foreign currency translation
the franchise’s key gynaecology product is the truclear 
system a firstofitskind hysteroscopic morcellator that 
pairs continuous visualisation capabilities with minimally 
invasive tissue removal providing safe and efficient 
removal of endometrial polyps and submucousal fibroids 
the group also sells a hysteroscopic fluid management 
system which provides uterine distension and clear 
visualisation during hysteroscopic procedures
in 2012 the franchise introduced two additions to 
the truclear system the smallersized truclear 
50 system and the truclear ultra reciprocating 
morcellator 40 
015914smithnephewar12p2227 working copyindd   27 26022013   0930 smith  nephew annual report 2012 28
advanced wound management
smith  nephew has leadership 
positions in exudate and infection 
management negative pressure 
wound therapy and bioactives
business segment review continued
revenue
2
2010 912
2011 1019
2012 1029
1029m 4
trading proﬁt
12
2010 233
2011 247
2012 237
237m 1
operating proﬁt
2
2010 220
2011 232
2012 214
214m nil
trading proﬁt margin
1
2010 256
2011 243
2012 231
231 120 bps
product franchise growth
2
 
exudate management 1
other awm 7
infection management 2
revenue by franchise m
a infection management 127
b exudate management 269
c other awm 633
c
a
b
1 explanations of these nongaap financial measures are provided on pages 44 to 46
2 underlying growth percentage after adjusting for the effect of currency translation
015914smithnephewar12p2833 working copyindd   28 26022013   0931 overview strategy and performance
marketplace and 
business segment re view
susta inability 
review
f inancial review  
and prin cipal risk s
c orp orate  
g ove rnance
accou nts and  
other information
section 3 marketplace and business segment review 29
overview
smith  nephew’s advanced wound management 
division awm offers a range of products from initial 
wound bed preparation through to full wound closure 
these products are targeted at chronic wounds 
associated with the older population such as pressure 
sores and venous leg ulcers there are also products 
for the treatment of wounds such as burns and invasive 
surgery that impact the wider population 
the main products within the awm business are for 
exudate management predominantly the allevyn brand 
and the recently added durafiber products infection 
management including the acticoat brand and 
negative pressure wound therapy npwt 
at the end of 2012 smith  nephew announced the 
completion of the acquisition of substantially all the 
assets of healthpoint biotherapeutics ‘healthpoint’ the 
acquisition gives smith  nephew a leading position in 
bioactives the fastest growing area of advanced wound 
management the purchase price of 782m in cash has 
been financed from smith  nephew’s existing cash 
resources and bank facilities
the awm business has its global headquarters in hull 
uk and its north american headquarters in st petersburg 
florida the products are manufactured at facilities in hull 
and gilberdyke uk suzhou in china fort saskatchewan 
in canada and also by thirdparty manufacturers around 
the world
strategy
awm’s strategy is to be customerled and invest for 
growth by focusing on high growth high value segments 
in particular exudate and infection management through 
improved wound bed preparation moist and active 
healing further penetration of the npwt market and 
building its bioactives platform 
there has been a continued focus on operational 
efficiency and excellence since 2007 efficiency 
improvements have been delivered through various 
projects including support function consolidation 
outsourcing of manufacturing to low cost suppliers 
distribution rationalisation projects and the start of 
manufacturing in suzhou china 
our strategic focus builds from an understanding of 
the increasing tensions between clinical and financial 
imperatives – and looks for the optimistic ground that 
resolves them our commitment is to improve wound 
outcomes for patients and at the same time conserve 
resources for healthcare systems
an aligned approach across awm is designed to ensure 
that our employees are developed and work on common 
objectives to deliver consistent execution of the group’s 
plan 
acquisitions
healthpoint
in december 2012 smith  nephew completed the 
acquisition of substantially all the assets of healthpoint 
for 782m in cash healthpoint is a leader in bioactive 
debridement dermal repair and regeneration wound 
care treatments its headquarters are in fort worth texas 
and it has approximately 460 employees including an 
established sales force of 215 
this acquisition had compelling strategic and financial 
rationale for smith  nephew 
it gives the group a strong position in bioactives the 
fastest growing area of advanced wound management 
bioactives offer novel treatments for a range of hard 
toheal wounds including the large and increasing 
prevalence of diabetic foot ulcers
it brought a complementary range of bioactive 
debridement dermal repair and regeneration products 
its principal marketed product is collagenase santyl 
ointment ‘santyl’ an enzymatic debrider for dermal 
ulcers and burns healthpoint’s offering also includes 
the oasis family of leading acellular skin substitutes 
for venous leg ulcers and diabetic foot ulcers and 
regranex a growth factor for treating diabetic foot 
ulcers these products generated revenues of around 
190m in 2012 not included in smith  nephew revenues 
for 2012 its revenues are growing at a double digit 
percentage rate driven by santyl ointment
it added an established rd capability in nextgeneration 
bioactive therapies for the treatment of chronic wounds 
the principal pipeline product is hp802247 for the 
treatment of venous leg ulcers using cellbased therapy 
containing keratinocytes and fibroblasts in august 2011 
healthpoint reported positive data from a phase 2b clinical 
trial for hp802247 in the treatment of venous leg ulcers 
demonstrating that the compound met both its primary 
and secondary endpoints the compound has recently 
entered phase 3 trials for this indication and commercial 
launch could occur as early as 2017
the healthpoint acquisition will double our us awm sales 
and strengthen our commercial scale and capabilities 
the combination creates a wound business which is 
unique – having leadership positions across exudate and 
infection management negative pressure and bioactive 
wound care
the agreement for the acquisition of healthpoint’s assets 
contains customary representations and warranties by the 
parties
015914smithnephewar12p2833 working copyindd   29 26022013   0931 smith  nephew annual report 2012 30
aderma
the purchase of the aderma dermal pads range in 
january 2012 gave us a leading position in the market to 
treat pressure ulcers up to one in 10 patients admitted to 
hospitals in the uk will suffer this debilitative condition 
costing approximately £21bn per year developing skin 
damage causes great discomfort to the patient and 
depending on the grade of the ulcer can take many 
weeks to heal whilst the majority of pressure ulcers can 
be prevented aderma dermal pads are made from a 
unique polymer gel that redistributes pressure allowing 
clinicians to protect bony prominences to help prevent 
skin damage 
kalypto
in 2012 the company acquired kalypto medical securing 
innovative complementary technology to expand our 
npwt platform 
mark e t and compe tition
in 2012 weaker economic conditions worldwide continued 
to create several challenges for the overall advanced 
wound management market including significant price 
pressures and increased austerity measures in europe
the awm market is focused on the treatment of chronic 
wounds of the older population and other hardtoheal 
wounds such as burns and certain surgical wounds and 
is therefore also expected to benefit from demographic 
trends growth is driven by an ageing population and by a 
steady advance in technology and products that are more 
clinically efficient and cost effective than their conventional 
counterparts the market for advanced wound treatments 
is relatively unpenetrated and it is estimated that the 
potential market is significantly larger than the current 
market management believes that the market will 
continue the trend towards advanced wound products 
with its ability to accelerate healing rates reduce hospital 
stay times and cut the cost of clinician and nursing time as 
well as aftercare in the home
smith  nephew estimates that the global wound 
management segment is worth approximately 60bn and 
the segment served by smith  nephew grew by 1 in 
2012 global competitors vary across the various product 
areas and include kinetic concepts molnlycke convatec 
and coloplast
financial performance
revenue
2012
awm continues to outperform the market with revenue 
growing at 4 in 2012 on an underlying basis excluding 
a 3 unfavourable currency impact to 1029m 
management estimates that the overall market grew at 1 
underlying growth in advanced wound management 
revenue reconciles to reported growth the most directly 
comparable financial measure calculated in accordance 
with ifrs as follows
2012 

2011 

reported growth 1 12
constant currency exchange effect 3 5
underlying growth 4 7
in the established markets revenue increased from 
906m to 907m in 2012 this represents an underlying 
growth of 3 which was offset by unfavourable currency 
movements of 3
in the us revenue increased by 7 from 189m to 202m 
in the established markets outside of the us revenues 
decreased 2 from 717m in 2011 to 705m in 2012 this 
represents an underlying growth of 2 after adjusting for 
4 of unfavourable currency movements 
revenue in the emerging and international markets 
increased from 113m in 2011 to 122m in 2012 8 
the underlying movement was 11 offset by 3 of 
unfavourable currency movements exudate management 
grew at 1 and infection management was down 2 
impacted by a distributor consolidation project in canada
2011
revenue increased by 107m or 12 to 1019m from 
912m in 2010 comprising 5 favourable currency 
translation and 7 underlying growth exudate 
management grew in underlying terms by 2 and 
infection management by 4 as targeted marketing 
investments in europe delivered good returns the group’s 
npwt portfolio has had another good year with excellent 
feedback since the launch of pico during 2011 this was 
launched in the us during january 2012
in the us revenue increased by 11m to 189m 6 all of 
which is attributable to underlying revenue growth
outside the us revenue increased by 96m to 830m 
13 this is represented by an underlying growth of 
7 and 6 of favourable foreign currency translation 
european revenue increased by 39m to 493m 9 
of which 4 was underlying growth coupled with 5 of 
favourable currency translation
a leading position 
in the market  
aderma dermal pads
the purchase of the aderma dermal 
pads range gave us a leading position 
in the market to treat pressure ulcers 
which cost the nhs approximately 
£21bn per year
business segment review continued
015914smithnephewar12p2833 working copyindd   30 26022013   0931 overview strategy and performance
marketplace and 
busin ess segme nt review
sustaina bility 
review
f inanc ial review  
and principa l risk s
c orporat e  
g overnan ce
accounts and  
other information
section 3 marketplace and business segment review 31
trading profit
2012
trading profit reduced by 10m to 237m from 247m 
and trading profit margin decreased from 243 to 231 
the decrease in the year is primarily attributable to the 
additional costs arising from investment in new products 
throughout the year
2011
trading profit increased by 14m 6 to 247m from 
233m in 2010 and trading profit margin decreased from 
256 to 243 the comparative was assisted by a 25m 
settlement in respect of bluesky ignoring the impact of 
this in the comparatives the equivalent margin for 2010 
was 228 the increase in margin in 2011 was driven by 
the increase in underlying revenues 
operating profit
2012
operating profit decreased by 18m to 214m in 2012 this 
comprises a decrease in trading profit of 10m discussed 
above and an increase of 11m in connection with the 
acquisition related costs on the purchase of healthpoint 
these costs were partially offset by a reduction of 3m in 
the amortisation of acquisition intangibles
operating profit the most directly comparable financial 
measure calculated in accordance with ifrs reconciles to 
trading profit as follows
2012 
m
2011 
m
operating profit 214 232
acquisition related costs 11 
restructuring and rationalisation costs 8 8
amortisation of acquisition intangibles 4 7
trading profit 237 247
advanced wound management trading profit and 
operating profit as a percentage of group trading profit 
and operating profit was as follows
2012 

2011 

2010 

trading profit 25 26 24
operating profit 25 27 24
2011
operating profit increased by 12m to 232m this 
comprises an increase in trading profit of 14m and 
a reduction of 1m in the amortisation of acquisition 
intangibles these were offset by an increase of 3m in 
restructuring and rationalisation costs
regulatory approvals
in 2012 regulatory clearance for sale was obtained for 
allevyn life in the eu us canada and australia and for 
the introduction of a range of german specific allevyn 
variants
durafiber ag was approved as a class iii medical device 
in the eu
versajet and the renasys product range were both 
approved in japan enabling smith  nephew to extend 
its operations into this important space the renasys go 
pump also received regulatory approval in china in 2012 
sterile pump versions of the pico product launched in 
2011 obtained regulatory approval in the us eu canada  
australia
pico and versajet ii were both certified as compliant 
with the 3rd edition of iec 60601 an important new 
standard for the safety of electromedical devices which is 
now required to comply with regulations in the eu
additional awm products approved in the emerging 
markets in 2012 include opsite flexifix and leukostrip 
in china and eight new products in india allevyn and 
allevyn ag variants durafiber and acticoat flex
awm revenue
2
10bn 4
2011 10bn
trading profit
12
237m 1
2011 247m
1 explanations of these nongaap financial measures are provided on pages 44 to 46
2 underlying growth percentage after adjusting for the effect of currency translation and disposals
015914smithnephewar12p2833 working copyindd   31 26022013   0931 smith  nephew annual report 2012 32
franchises
underlying revenue growth for key product lines are
2012 

2011 

exudate management 1 2
infection management 2 4
other awm 7 10
due to the nature of its product range there is little 
seasonal impact on the advanced wound management 
business
advanced wound care 
exudate management
exudate management revenues decreased by 2 from 
275m in 2011 to 269m in 2012 this represents an 
underlying growth of 1 offset by 3 in unfavourable 
currency exchange
exudate management products focus on efficient fluid 
management and creating the optimal moist wound 
environment that helps promote faster healing of the 
wound and reduces the risk of maceration the principal 
technologies in this franchise are foam allevyn family 
and gelling fibre dressings durafiber
the allevyn gentle border success story has continued 
with above market growth in 2012 becoming the 
largest variant of the allevyn family this year this 
was possible through focus on market share gains and 
further expansion of the range through new product 
development in particular the lite and shaped versions 
have further enhanced our ability to offer customers 
unique products that meet their clinical and economic 
needs durafiber commercialisation has also gained 
momentum in 2012 
allevyn life was launched in 2012 this is the latest 
generation of allevyn products offering unique benefits 
and a significant advancement in managing wounds that 
diminish the quality of life of hundreds of thousands of 
patients every year the product was born out of extensive 
international ethnographic research to understand how 
product design and performance can improve patient 
wellbeing leading to improvements in concordance 
clinical outcomes and as a result improved economic 
outcomes both clinician and patient feedback have been 
overwhelmingly positive
infection management
infection management revenues have fallen from 133m 
in 2011 to 127m in 2012 5 this also represents an 
underlying decline of 2 along with 3 of unfavourable 
currency exchange
awm has two significant technologies in its infection 
management portfolio silver acticoat and allevyn 
ag and iodine iodosorb market conditions for silver 
containing products have continued to be difficult in 
europe but our focus on appropriate use evidence based 
outcomes and cost effectiveness have demonstrated 
the differentiation within our products and stabilised our 
business in 2012 the iodinebased iodosorb product 
has benefited from new evidence claims and geography 
expansion adding growth to our infection management 
portfolio
acticoat flex continues to perform well following its 
introduction in 2009 by offering the customer benefits of 
ease of use class leading efficacy and patient comfort 
the acticoat brand was further expanded in 2012 
with acticoat surgical delivering the antimicrobial 
performance of acticoat in a specialist format designed 
for incision management – for use as part of strategies to 
reduce surgical site infections – a significant and costly 
postsurgical complication
other
advanced wound management also offers a wide range 
of other wound care products which means we offer 
one of the most comprehensive ranges of wound care 
solutions in the industry these other products include 
our film and postoperative dressing offerings skincare 
products and gels
iv3000 awm’s specialist iv dressing utilises reactic 
film technology and a unique patterned adhesive to 
create a highly breathable product which by keeping the 
iv site dry helps to reduce the risk of bacterial growth 
and infection iv3000 has continued to grow especially 
through expansion into our emerging markets and a 
continued focus on product training and education in 
2012
opsite post op visible is an incision management 
dressing innovation that combines the attributes of the 
ideal dressing with the ability to see the incision without 
having to remove the dressing this unique product has 
gone from strength to strength since its introduction 
bringing it to new customers and countries significantly 
contributing to the advanced wound care brands growth 
in 2012
enhanced wound healing  
and improved patient comfort  
renasys negative pressure
renasys negative pressure wound 
therapy system which offers 
enhanced wound healing and 
improved patient comfort launched 
in japan in august
business segment review continued
015914smithnephewar12p2833 working copyindd   32 26022013   0931 overview strategy and performance
marketplace and 
busin ess segme nt review
sustaina bility 
review
f inanc ial review  
and principa l risk s
c orporat e  
g overnan ce
accounts and  
other information
section 3 marketplace and business segment review 33
advanced wound devices 
negative pressure wound therapy npwt delivers 
vacuumassisted pressure to help promote healing 
it consists of a wound dressing a drainage tube and 
a transparent film that is connected to a suction device 
smith  nephew offers the renasys ez and renasys 
go pump systems together with a range of foam and 
gauze dressing kits the npwt range was enhanced 
with the introduction of pico the first of its kind – a fully 
disposable npwt system
the npwt strategy is to be customerled and invest for 
growth by offering the flexibility and simplicity within the 
product range to help address both the clinical and cost 
considerations of the customer within the traditional 
npwt segment the group is focusing on gaining share 
through offering a flexible renasys portfolio range of 
npwt product offerings including foam gauze speciality 
kits and portable and institutional pump systems within 
the disposable npwt segment the group offers the 
simplified pico portfolio range and is investing in creating 
this new market segment
smith  nephew’s npwt business continued strong 
growth in 2012 reflecting share gains continuing 
across north america and europe and new product 
introductions in japan and emerging markets in 
addition the recently launched pico system disposable 
npwt accelerated sales growth as the product gained 
awareness and adoption across a range of therapeutic 
areas incision sites chronic indications and care settings 
or discharge environment and community care
the global npwt market growth for 2012 showed modest 
decline compared to 2011 the increase in patient therapy 
and volumes was offset by price declines in most markets
within north america market price declines are a 
reflection of business model changes to a single purchase 
transaction and away from the rental revenue model 
in addition unit price pressure continues in various care 
settings in response to pay or pressure and changing 
healthcare delivery dynamics therapy days increased 
slightly as a result of new technology offerings to provide 
greater therapy availability in transition care and discharge 
environment – offset by general trends in reduced hospital 
stay for europe price pressure is a reflection of increased 
competition in key markets and the general economic 
environment across most markets npwt therapy was 
introduced in japan in 2010 and the market continues to 
reflect strong growth as the therapy adoption increases 
across the market
the group continues to invest in medical education 
across the therapy category investment in clinical trials 
consensus papers and general customer education 
and training remains a component to the overall value 
the group brings to the advanced wound device 
market space
during 2012 smith  nephew entered into a global 
settlement agreement with wake forest university that 
resolved all existing npwt patent litigation between the 
two parties 
versajet hydrosurgery debridement system 
sales were slightly down for 2012 over 2011 revenue 
performance is a reflection of business model changes 
transitioning customers from a loaner to purchase 
equipment which positions the product line for better 
future growth the transition phasing is effected by capital 
budget cycles but allows for improved therapy adoption 
within facilities and thus providing a better platform for 
future growth in addition the economic conditions within 
health systems to pay for higher price capital equipment 
limits the ability to effect the change in business models
new in 2012 was the introduction of renasys and 
versajet systems to the japan market japan is one 
of the world’s largest healthcare markets where the 
npwt and hydrosurgery segments are relatively new 
and growing the early presence of the group product 
offerings in these growing market segments provide a 
platform from which to sustain future growth
throughout 2012 the group continued to invest and 
introduce a range of product improvements across the 
portfolio designed to improve adoption and customer 
satisfaction the pico range was extended to include new 
incision site shapes and renasys system adaptions were 
introduced to make the pumps easier to operate in the 
hospital environment
015914smithnephewar12p2833 working copyindd   33 26022013   0931 smith  nephew annual report 2012 34 smith  nephew annual report 2012 34
4
sustainability review
 
 
as a business dedicated to 
helping improve people’s lives our 
approach to sustainability focuses on 
positively contributing to the needs 
of stakeholders through improved 
environmental social and economic 
performance
sustainability strategy 35
healthy economic performance 36
healthy social performance 37
healthy environmental performance 40
sustainability progress 41
015914smithnephewar12p3441 working copyindd   34 26022013   0931 overview strategy and performance
market place and 
business segm ent revi ew
sustainability 
rev iew
f inan cial review  
and princip al risk s
c orpora te  
g overn ance
account s and  
other information
section 4 sustainability review 35
overview strategy and performance
mar ketplace and 
business segment r eview
sust ainability 
review
f inancial review  
and pr incipal risk s
c or porate  
g o vernance
acco unts and  
other information
section 4 sustainability review 35
sustainability strategy 
smith  nephew has been measuring reporting and 
improving on its sustainability performance since 2001 
during this time the group has made good progress and 
has been looking for ways to align sustainability more 
closely with our overall strategic priorities 
with this objective in mind and under the leadership of 
chief executive officer oliver bohuon smith  nephew 
developed a new sustainability strategy in 2011 as 
described below the strategy aims to reinforce a healthy 
brand and strengthen corporate reputation by focusing on 
three distinct priorities
 – healthy economic performance
 – healthy social performance
 – healthy environmental performance
objectives
smith  nephew developed a comprehensive set of 2015 
targets across each of these areas these are outlined 
below
smith  nephew continues to make progress 
in achieving the objectives in our sustainability strategy 
which seeks to meet stakeholder expectations of a 
sustainable business 
sustainability vision
smith  nephew will continue to build a sustainable 
business based on a global commitment to healthy 
environmental social and economic performance 
by working with stakeholders and inspiring employees 
the vision will create shared value for all people that 
come into contact with the business by
 – reducing risk and cost
 – building a better place to work
 – innovating differentiated products and services 
and increasing engagement with customers
 – increasing shareholder value
build on our brand and corporate reputation
 be an industry leader incorporating sustainability  
objectives to reduce costs innovate and differentiate  
our products and solutions
 better engage with our customers
be a ‘best place to work’
increase our shareholder value
our sustainability aim
our sustainability priorities
healthy economic  
performance
healthy social  
performance
healthy environmental 
performance 
delivering revenue growth and shareholder 
value through efficiency performance and 
innovation 
delivering a safe and healthy work 
environment with strong ethics and values 
which embraces diversity and plays a 
leadership role in the communities where 
the group operates
minimising environmental impact by 
reducing use of energy carbon water 
and other key resources 
sustainability is a healthy business – the journey to 2015
015914smithnephewar12p3441 working copyindd   35 26022013   0931 smith  nephew annual report 2012 36
sustainability review continued
healthy economic performance 
our sustainability targets
achieving healthy economic performance will also yield cost 
savings and increased revenue
deliver a higher return to our shareholders than our peer group 
over the longer term
incorporate sustainability considerations into 100 of new 
product design by 2015
incorporate sustainability considerations with 100 of our major 
supply chain partners by 2015
smith  nephew makes a major contribution to the health 
and wellbeing of individuals and communities across 
the world our pioneering technologies enable nurses 
surgeons and other medical practitioners to provide 
effective treatment quickly and affordably more than this 
they help increase accessibility and save and improve the 
quality of people’s lives – all while helping the business 
thrive
product design
revenue growth through innovation
in order to grow thrive and combat some of the world’s 
most widespread health issues smith  nephew place 
a strong emphasis on new product development and 
innovation
by designing products instruments and techniques that 
provide both clinical and cost benefits the group’s work in 
this area has a major impact on improving the efficiency of 
health services from reducing the frequency of dressing 
changes and shortening operating room time to reducing 
infection rates and length of time spent in hospital – the 
group’s efforts in this area have a significant impact on the 
lives of people across more than 90 countries
in 2012 smith  nephew launched an entirely new 
concept in advanced wound care management with 
allevyn life which focuses on the patient’s overall 
quality of life patientcentric in design and considering 
the entire healthcare chain from provider to patient 
allevyn life allows more healthcare providers the 
opportunity to help patients with hard to heal or hard to 
manage wounds research has shown that improving 
patient wellbeing is fundamental to reducing the 
economic cost of wound care allevyn life offers 
unique benefits that help deliver this and is a significant 
advancement in preventing wounds that diminish the 
quality of life of many patients every year
smith  nephew also introduced the redapt femoral 
revision system which was specifically designed to bring 
the concept of personalised patient treatments to the 
revision hip market the redapt system allows surgeons 
to recreate a patient’s specific functionality effectively 
while quickly and easily addressing issues such as poor 
bone quality and proximaldistal mismatch the redapt 
instruments maximise surgical efficiency and improve 
accuracy and reproducibility of implant position
business continuity
by creating a more sustainable business smith  
nephew is building resilience and flexibility to adapt to 
change with the demand for medical technology set 
to increase well into the future we are applying more 
sustainable ways of behaving to ensure longterm 
business continuity
product development is driven by three specific 
considerations on healthcare systems and patients 
cost outcomes and access design teams look at the 
overall cost of a product and how it impacts healthcare 
stakeholders consider the benefits or outcome of new 
products and question how to enable new patients access 
to our new products and capabilities
supply chain
our major supply chain partners have clearly spelled out 
sustainability targets mostly around reducing carbon 
footprint in addition we are working on initiatives that will 
deliver further improvements by switching distribution 
freight services where possible to lower carbon emissions 
such as from air to road and deep sea container service
we now require sustainability reports to be provided for 
new suppliers and for each contract renewal and these 
are weighted in our assessments there are challenges 
with small local suppliers in some countries but we are 
making progress
research  development expenditure
171m 
2011 167m
research  development  of revenue
41
2011 39
015914smithnephewar12p3441 working copyindd   36 26022013   0931 overview strategy and performance
market place and 
business segm ent revi ew
sustainability 
rev iew
f inan cial review  
and princip al risk s
c orpora te  
g overn ance
account s and  
other information
section 4 sustainability review 37
healthy social performance
our sustainability targets
 a safe and healthy work environment strive for zero injuries 
and attain a position in top quartile of industry for safety 
performance through 2015
 a healthy workforce implement wellness programmes 
in at least 60 of our major facilities by 2015
 a diverse workforce at least 40 of our global talent pool will 
be women by 2015
 an ethical work environment employees must continue to 
complete annually assigned compliance training and certify 
adherence to our code of conduct and business principles
 a responsible leader in the community contribute more 
than 1 of adjusted pretax profits annually towards corporate 
citizenshipphilanthropy through 2015
smith  nephew touches the lives of millions of customers 
communities and people across 90 countries to deliver 
our technological innovations we rely on the commitment 
and hard work of a network of more than 10000 
employees 
a safe and healthy working environment
smith  nephew has a longstanding commitment 
to the safety and health of employees visitors and 
contractors by reinforcing the responsibility of employees 
and contractors to work safely and follow our policies 
standards and procedures we are building a safe and 
healthy place to work
in 2012 we achieved a 9 improvement in the 
occupational safety and health administration total 
recordable incident rate tir and a 17 improvement 
in the lost time injury frequency rate ltifr in addition 
the severity of lost time injuries as measured by number 
of days lost reduced by 10 these improvements were 
achieved through determined management leadership 
and engagement of our employees
wellness programmes
by the end of 2012 structured wellness programmes were 
in place at eight out of 18 of our major facilities covering 46 
of our employees smith  nephew defines major facilities 
as those in which more than 100 people report to work 
wellness programmes typically include lifestyle screenings 
and health assessments and preventative programmes 
based on nutrition and fitness advice in some locations 
there are on site fitness facilities and classes
diversity at smith  nephew
smith  nephew believes that diversity fuels innovation 
we focus on creating an inclusive engaging environment 
where employees are valued and drive achievement of 
our goals such an environment fosters strength in our 
business because the variety of perspectives experiences 
and work styles enhance creativity and 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 
the board and executive continue to recognise the 
importance of diversity and over the last two years have 
expanded their own diversity profile 
an ethical work environment
we earn trust
trust is the foundation on which smith  nephew is built 
and it is the hallmark of its interactions with stakeholders 
both inside and outside the group a code of conduct 
and business principles defines the standards of 
behaviour for the group’s employees as well as suppliers 
contractors and distributors authorised to do business on 
the group’s behalf
smith  nephew fosters trust through open 
communication and a collaborative environment where 
ideas are encouraged recognised and rewarded 
communication channels include groupwide newsletters 
and intranet platforms as well as a variety of forums for 
open dialogue including quarterly reports from the ceo 
and quarterly employee meetings on the state of the 
group and important initiatives
lost time injury rate 
17
2011 1
corporate citizenship philanthropy spend
14m 
2011 14m
group safety rates
2011 tir 116
2012 tir 106
2011 ltifr 058
2012 ltifr 048
015914smithnephewar12p3441 working copyindd   37 26022013   0931 smith  nephew annual report 2012 38
sustainability review continued
employees help raise community 
awareness for child survival programme
our employees participated in many volunteer 
programmes during 2012 including the manlymanado 
walk to raise funds for compassion’s child survival 
programme in manado indonesia employees from our 
offices in sydney new south wales australia joined 
others in the community to help raise awareness 
of why water sanitation and hygiene matter in a 
developing community
code of conduct and business principles
smith  nephew aims to be honest and fair in all aspects 
of its operations and expects the same from those 
with whom it does business our code of conduct and 
business principles governs the way we operate so that 
we respect stakeholders and seek to build open honest 
and constructive relationships
smith  nephew takes account of 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 
and where we have the necessary regulatory approvals 
our code also states that we have a nonretaliation policy 
against anyone who makes a report in good faith
new employees receive training on our code of conduct 
and business principles we also assign annual 
compliance training to employees in 2012 we created 
two courses ‘i earn trust’ and ‘data privacy’ to use for our 
annual training the ‘i earn trust’ module focused on the 
key elements that make up trust – goodwill ability and 
integrity – and gave employees an opportunity to practice 
earning trust in different scenarios
global compliance programme
smith  nephew aims to have a worldclass global 
compliance programme that helps our business mitigate 
risk and comply with global laws in 2012 smith  
nephew continued to strengthen its comprehensive 
compliance programme which includes global policies 
and procedures onboarding and annual training for its 
employees and managers around the world monitoring 
and auditing processes and reporting channels we 
provide resources and tools to guide employees through 
a global intranet web site we require approvals for any 
significant interactions with healthcare professionals or 
government officials new distributors are subject to due 
diligence required to commit to compliance with our code 
and take training
in 2012 under the terms of the company’s fcpa 
settlement see legal proceedings we retained an 
independent monitor to review the effectiveness of our 
compliance programme and make recommendations as 
appropriate for further enhancements to the programme 
the monitor completed his initial review in august 
and we are now in the process of implementing the 
recommended enhancements
a responsible leader in the community
for smith  nephew corporate citizenship and 
philanthropy play an integral role in the achievement of 
the group’s strategic objectives of creating commercial 
value building a strong reputation and creating deeper 
engagement for employees
smith  nephew adopts a shared value approach to 
philanthropy and citizenship which focuses on leveraging 
the group’s resources to be a force for good the principal 
focus is on support for research prevention treatment 
and recovery of joint and bone health and wound care 
in 2012 a new philanthropy policy was agreed and will 
be deployed in 2013 details of this will be given in the full 
sustainability report to be published later this year
in 2012 smith  nephew’s support for community 
charitable causes grants sponsorships and medical 
education was approximately 14m including 2m in 
product donations as a matter of policy smith  nephew 
makes no political contributions
smith  nephew has developed relationships through 
healthcare professionals around the globe to support 
medical missions and medical education in 2012 this 
charitable outreach included mission work in vietnam 
through the prosthetics outreach foundation in ecuador 
and guatemala and the us through operation walk and 
canvasback missions in majuro republic of the marshall 
islands 
our initiatives into medical education included being the 
first sole sponsor of an orthopaedic facility when the 
kwazulunatal orthopaedic training centre at the inkosi 
albert luthuli central hospital south africa opened 
its doors in june 2012 this centre provides training 
and education opportunities for surgeons from across 
africa looking to learn minimallyinvasive arthroscopic 
techniques
015914smithnephewar12p3441 working copyindd   38 26022013   0931 overview strategy and performance
market place and 
business segm ent revi ew
sustainability 
rev iew
f inan cial review  
and princip al risk s
c orpora te  
g overn ance
account s and  
other information
section 4 sustainability review 39
our people and communities
our people strategy which outlines our approach to 
leading our workforce and supports the delivery of our 
business strategy is built on three key pillars attract 
recruit and retain talent develop leaders and engage 
employees through value driven strategies
smith  nephew’s vision is to be the best at improving 
people’s lives and this vision extends to our employees 
our employees are dedicated to our core values of 
performance innovation and trust which represent the 
foundation of our culture 
investing in our people and communities will help us 
ensure the longterm sustainability of our business 
in 2012 our workforce included more than 10000 
employees based in 32 countries our employment 
practices are designed to help us create the right 
workplace culture in which all employees feel valued 
respected empowered and inspired
we strive to have the communities in which we work 
prosper as our business grows our community 
investment strengthens our business by supporting the 
local economies where we operate helping us build 
strong relationships and capitalising on the philanthropic 
spirit of our workforce 
attracting the best talent and developing and engaging 
our employees is critical to achieving and sustaining 
our business objectives and overall performance our 
appointments are made on merit and in alignment with a 
core set of competencies and values of which ethics and 
integrity are central our priority lies in the development 
and promotion of our 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 solid development plans we continue to work on 
succession plans for critical positions across our business 
and have taken proactive steps to recruit specialist and 
leadership talent to augment our current team we pride 
ourselves in maintaining a robust leadership strategy to 
identify and develop our leaders and offer a wide range 
of learning opportunities to our employees current 
programmes include the ceo forum designed to develop 
talent and provide exposure to the broader business and 
the general managers meeting held annually to align 
these key leaders with the group’s strategy and goals 
in addition the board reviews succession plans for key 
executive roles
our performance management process means 
employees are set business aligned objectives and 
behavioural goals that are rewarded on high performance 
reward systems are focused on promoting high 
performance and helping to attract and retain the 
best people
smith  nephew strives to create a more engaged and 
productive workforce and focuses on four 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 and value their opinions in 2012 more than 
90 of our workforce responded to our global survey
015914smithnephewar12p3441 working copyindd   39 26022013   0931 smith  nephew annual report 2012 40
sustainability review continued
reduction in co
2
 emissions of 100  
metric tonnes by rerouting vehicles  
for improved efficiency
our advanced surgical devices facility in alberta 
canada has reduced the number of miles that 
materials and products are transported by rerouting 
some vehicles for improved efficiency this initiative 
has reduced the number of journeys and therefore 
the overall distances driven by 120000 miles per 
year this equates to an approximate reduction in co
2
 
emissions of 100 metric tonnes
healthy environmental performance
our sustainability targets
 reduce nonrenewable energy use by 15 by 2015
 r e d u c e co
2
 emissions by 15 by 2015
reduce water use by 15 by 2015
 reduce packaging materials by 15 by 2015
reduce total waste by 15 by 2015
increase the percentage of total waste recycled by 15  
by 2015 all normalised for growth
smith  nephew is committed to reducing the impact 
of its activities on the environment to create a healthier 
planet by focusing on energy and waste reduction the 
group is also reducing costs and becoming more efficient 
energy and carbon reduction
smith  nephew recognises that emissions resulting 
from its global operations represent one of the key 
environmental impacts arising from the business in 
2012 initiatives to reduce our energy consumption and 
associated carbon emissions have resulted in a reduction 
in energy usage of 15 and 18 reduction in carbon 
emissions
there has been tracking of energy savings initiatives at all 
of the major facilities these range from lighting to heating 
and air handling to water cooling
lighting upgrades in warehousing and manufacturing 
centres have contributed to significant energy savings 
improvements to equipment and processes have resulted 
in reduced power consumption across a number of 
production facilities
water
water consumption has risen by 26 in 2012 achieving a 
reduction in water usage is particularly challenging as the 
majority of the water used wthin the group is consumed 
at one individual facility where water is used for many key 
processes this will be reviewed in 2013
packaging waste and recycling
waste reduction including that related to product 
packaging is a priority for smith  nephew given that 
a large amount of medical products are shipped and 
transported it is vital to ensure that these are protected 
from the point of manufacture through to the point of 
delivery product packaging plays a critical role in ensuring 
this safe delivery 
establishing an effective strategy to meet our target 
for reduction in packaging materials is challenging 
due to the highly regulated environment and long lead 
times for change approvals however by considering 
design exploring ways to reduce and using new more 
sustainable materials we are making progress in this area 
in 2012 one of our supply chain teams developed a 
specific process to optimise how our products are 
shipped and reduce shipping ‘air around the world’ 
by implementing this process for outbound packaging 
operations corrugated cardboard usage was reduced by 
over 6 tonnes and co
2
 emissions reduced by 6148kg in 
2012 these reductions will have a further positive impact 
in 2013 when the process is fully implemented
change in  waste sent for recycling
18
15
water
total group waste
co
2
energy
26
51
213
2012 key performance compared 
to normalised 2011 baseline 
 smith  nephew uses a normalisation process based on cost of 
production which is deﬁned as the cost of goods sold adjusted for opening 
and closing inventory levels as production efﬁciencies are realised the 
cost of goods sold reduces and this can distort the effects of real 
environmental beneﬁts making them appear less than actually achieved 
smith  nephew will include a longer commentary on the normalisation 
process in its full sustainability report published later this year
energy usage
15
water consumption
26
015914smithnephewar12p3441 working copyindd   40 26022013   0931 overview strategy and performance
market place and 
business segm ent revi ew
sustainability 
rev iew
f inan cial review  
and princip al risk s
c orpora te  
g overn ance
account s and  
other information
section 4 sustainability review 41
waste recycled
213
total waste produced
51
in 2012 our overall waste rose by 51 largely due to 
equipment and layout changes inventory adjustments 
arising from relocations and some building and demolition 
work we are not satisfied with this and in 2013 we will 
increase our focus on the waste hierarchy in particular 
prevention at source
significant improvements have been made in recycling 
waste which rose in 2012 by 213 and now stands 
at 58
sustainability progress
smith  nephew retained its membership of the 
ftse4good the ftse4good index and ratings have 
been designed to measure the performance of companies 
that meet or exceed globally recognised standards
the dow jones sustainability index djsi world was 
established to track the performance of the world’s 
largest companies that lead the field in terms of corporate 
sustainability smith  nephew’s score improved this year 
and our inclusion in the index was maintained
smith  nephew has been commended by the 
carbon disclosure project cdp which represents 655 
institutional investors with 78 trillion in assets for its 
approach to the disclosure of climate change information 
for the first time in 2012 smith  nephew is featured in 
cdp’s ‘carbon disclosure leadership index’ this index 
a key component of cdp’s annual ftse 350 report 
highlights the constituent companies within the ftse 
350 index which have displayed a strong approach 
to information disclosure regarding climate change 
companies are scored on their climate change disclosure 
and high scores indicate good internal data management 
and understanding of climate change related issues 
affecting the company
our goodlett farms innovation centre in memphis 
tn usa achieved the internationally recognised leed 
leadership in energy and environmental design gold 
certification from the us green building council this 
is the first leed certified building in the global smith  
nephew portfolio 
looking ahead
a more detailed review of smith  nephew’s 2012 
sustainability performance will be featured in our 2012 
sustainability report to be published later this year
since 2001 smith  nephew  
has proudly reported on corporate 
sustainability you may access our  
past and current sustainability reports 
through our corporate website  
wwwsmithnephewcom 
contact us directly regarding sustainability 
at sustainabilitysmithnephewcom 
suzhou 55 energy saving for 
facility lighting
the lighting in the warehouse at the advanced wound 
management facility in suzhou china has been 
upgraded by fitting electrodeless lamps resulting in 
a 55 energy saving this equates to a reduction in 
use of over 85000 kwh per annum and associated 
annual cost savings the advantages also include 
extended lamp life and therefore lower maintenance 
and replacement costs
015914smithnephewar12p3441 working copyindd   41 26022013   0931 smith  nephew annual report 2012 42
5
financial review and principal risks
 
 
the group remains in a strong cash 
generative position with a healthy 
balance sheet to fund further growth
financial review 43
outlook and trend information 53
principal risks and risk management  54
015914smithnephewar12p42p53 working copyindd   42 26022013   0933 overview strategy and performance
marketpla ce and 
business segment review
sustainabi lity 
review
f inancial review  
and principal r isk s
c orporate  
g overnance
accounts an d  
other information
section 5 f inancial review and principal risks 43
financial review
financial highlights
group revenue was 4137m for the year ended 
31 december 2012 representing a 3 decline compared 
to 2011 this comprised of underlying revenue growth of 2 
unfavourable currency translation of 2 and the disposal 
impact from the sale of the clinical therapies business 
totalling 3
attributable profit in 2012 was 729m compared to 582m 
in 2011 adjusted attributable profit calculated as set out in 
‘selected financial data’ on pages 156 to 157 increased 2 
to 679m in 2012 from 664m in 2011
basic earnings per ordinary share were 813¢ compared to 
653¢ for 2011 epsa as set out in ‘selected financial data’ 
was 757¢ in 2012 compared to 745¢ for 2011 representing a 
2 increase
2012 
m
2011 
m
2010 
m
financial highlights i iii
revenue 4137 4270 3962
underlying growth in revenue  2 4 4
trading profit 965 961 969
underlying growth in trading profit  6 4 11
trading profit margin  233 225 245
operating profit 846 862 920
attributable profit for the year 729 582 615
adjusted attributable profit 679 664 654
basic earnings per ordinary share 813¢ 653¢ 693¢
epsa 757¢ 745¢ 736¢
growth in epsa  2 1 12
dividends per ordinary share ii 261¢ 1740¢ 1582¢
cash generated from operations 1184 1135 1111
trading cash flow 999 838 825
trading profit to cash conversion  104 87 85
i  items shown in italics are nongaap measures reconciliations to reported figures 
are on pages 44 to 46
ii  the board has proposed a final dividend of 162 us cents per share which together 
with the first interim dividend of 99 us cents makes a total for 2012 of 261 us cents 
the final dividend is expected to be paid subject to shareholder approval on 
8 may 2013 to shareholders on the register of members at the close of business 
on 19 april 2013
iii all items are m unless otherwise indicated
group revenue
2
41bn 2
2011 43bn
basic earnings per ordinary share
813c 245
2011 653c
2 underlying growth percentage after adjusting for the effect of a currency translation and disposal
015914smithnephewar12p42p53 working copyindd   43 26022013   0933 smith  nephew annual report 2012 44
measuring performance
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 international financial reporting 
standards ‘ifrs’ and is therefore a measure not in accordance with 
generally accepted accounting principles a ‘nongaap’ 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 effect’ described 
below
the ‘constant currency exchange effect’ is a measure of the 
increasedecrease in revenue resulting from currency movements 
on nonus dollar sales this is measured as the difference between 
the increase in revenue translated into us dollars on a gaap basis 
ie current year revenue translated at the current year average rate 
prior year revenue translated at the prior year average rate and the 
increase measured by translating current and prior year revenue into 
us dollars using the prior year closing rate
the ‘acquisitions effect’ is the measure of the impact on revenue 
from newly acquired business combinations this is calculated by 
excluding the revenue from sales of products acquired as a result of 
a business combination consummated in the current year with non
us dollar sales translated at the prior year average rate additionally 
prior year revenue is adjusted to include a full year of revenue from 
the sales of products acquired in those business combinations 
consummated in the previous year calculated by adding back 
revenue from sales of products in the period prior to the group’s 
ownership these sales are separately tracked in the group’s internal 
reporting systems and are readily identifiable
the ‘disposals effect’ is the measure of the impact on revenue 
from the disposal of business operations during the year this is 
calculated by excluding the revenue from sales of products the 
group no longer sells as a result of the disposal in the current year 
with nonus dollar sales translated at the prior year average rate 
additionally prior year revenue is adjusted to remove a full year 
of revenue from the sales of products disposed 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
2012 

2011 

2010 

reported revenue growth 3 8 5
constant currency exchange effect 2 4 1
disposals effect 3 – –
underlying revenue growth 2 4 4
operating profit the most directly comparable financial measure 
calculated in accordance with ifrs reconciles to trading profit as 
follows
2012 
m
2011 
m
2010 
m
operating profit 846 862 920
acquisition related costs 11 – –
restructuring and rationalisation costs 65 40 15
amortisation of acquisition intangibles and 
impairments 43 36 34
legal claim see page 53 – 23 –
trading profit 965 961 969
a reconciliation of reported revenue growth to underlying revenue 
growth by business segment can be found on pages 22 to 33
financial review continued
015914smithnephewar12p42p53 working copyindd   44 26022013   0933 overview strategy and performance
marketpla ce and 
business segment review
sustainabi lity 
review
f inancial review  
and principal r isk s
c orporate  
g overnance
accounts an d  
other information
section 5 f inancial review and principal risks 45
trading profit
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 intangible assets and 
impairments significant restructuring events acquisition costs and 
gains and losses resulting from legal disputes and uninsured losses
a reconciliation of operating profit to trading profit by business 
segment can be found on pages 22 to 33
adjusted earnings per ordinary share
growth in ‘adjusted earnings per ordinary share ‘epsa’’ is another 
measure which presents the trend in the longterm profitability 
of the group epsa is not a recognised measure under ifrs and 
is therefore a nongaap financial measure the most directly 
comparable financial measure calculated in accordance with ifrs is 
earnings per ordinary share
epsa excludes the same impact of specific transactions or 
events that management considers affect the group’s shortterm 
profitability is used by the group for similar purposes and is subject 
to the same material limitations as set out and discussed in the 
above section on trading profit
adjusted attributable profit represents the numerator used in 
the epsa calculation adjusted attributable profit is reconciled to 
attributable profit the most directly comparable financial measure in 
accordance with ifrs as follows
growth in ‘trading profit’ and ‘trading profit margin’ trading profit 
expressed as a percentage of revenue are measures which present 
the growth trend in the longterm profitability of the group excluding 
the impact of specific transactions or events that management 
considers affect the group’s shortterm profitability the group 
presents these measures to assist investors in their understanding 
of the trends the group’s international financial reporting budgets 
monthly reporting forecasts longterm planning and incentive plans 
focuses primarily on profit and earnings before these items trading 
profit and trading profit margin are not recognised measures under 
ifrs and are therefore nongaap financial measures
2012 
m 
2011 
m
2010 
m
attributable profit for the year 729 582 615
acquisition related costs 11 – –
restructuring and rationalisation expenses 65 40 15
amortisation of acquisition intangibles and 
impairments 43 36 34
profit on disposal of net assets held for sale 251 – –
legal claim see page 53 – 23 –
taxation on excluded items see page 104 82 17 10
adjusted attributable profit 679 664 654
the material limitation of these measures is that they exclude 
significant income and costs that have a direct impact on current and 
prior years’ profit attributable to shareholders they do not therefore 
measure the overall performance of the group presented by the 
gaap financial measure of operating profit the group considers 
that no single measure enables it to assess overall performance 
and therefore it compensates for the limitation of the trading profit 
measure by considering it in conjunction with its gaap equivalent 
the gains or losses which are identified separately arise from 
irregular events or transactions such events or transactions are 
authorised centrally and require a strategic assessment which 
includes consideration of financial returns and generation of 
shareholder value amortisation of acquisition intangibles will occur 
each year whilst other excluded items arise irregularly depending on 
the events that give rise to such items
earnings per ordinary share 2012 2011 2010
basic 813¢ 653¢ 693¢ 
diluted 809¢ 650¢ 692¢
adjusted basic 757¢ 745¢ 736¢
adjusted diluted 754¢ 742¢ 736¢
trading cash flow and trading profit to cash 
conversion ratio
growth in trading cash flow and improvement in the trading profit to 
cash conversion ratio are measures which present the trend growth 
in the longterm cash generation of the group excluding the impact 
of specific transactions or events that management considers affect 
the group’s shortterm performance
trading cash flow is defined as cash generated from operations less 
net capital expenditure but before acquisition related cash flows 
restructuring and rationalisation cash flows and cash flows arising 
from legal disputes and uninsured losses trading profit to cash 
conversion ratio is trading cash flow expressed as a percentage of 
trading profit the nature and material limitations of these adjusted 
items are discussed above
the group presents those measures to assist investors in their 
understanding of trends the group’s internal financial reporting 
budgets monthly reporting forecasts longterm planning and 
incentive plans focuses on cash generation before these items 
trading cash flow and trading profit to cash conversion ratio are not 
recognised measures under ifrs and are therefore considered non
gaap financial measures
the material limitation of this measure is that it could exclude 
significant cash flows that have had a direct impact on the current 
and prior years’ financial performance of the group it does 
not therefore measure the financial performance of the group 
presented by the gaap measure of cash generated from operations 
the group considers that no single measure enables it to assess 
financial performance and therefore it compensates for the limitation 
of the trading cash flow measure by considering it in conjunction with 
the gaap equivalents cash flows excluded relate to irregular events 
or transactions including acquisition related costs restructuring and 
rationalisation costs and cash flows arising from legal disputes and 
uninsured losses
015914smithnephewar12p42p53 working copyindd   45 26022013   0933 smith  nephew annual report 2012 46
trading cash flow reconciles to cash generated from operations 
the most directly comparable financial measure calculated in 
accordance with ifrs as follows
2012 
m
2011 
m
2010 
m
cash generated from operations 1184 1135 1111
less capital expenditure 265 321 315
add cash received on disposal 
of fixed assets – – 8
add acquisition related costs 3 1 –
add restructuring and rationalisation 
related expenditure 55 20 16
add legal settlement 22 – –
add macrotexture expenditure – 3 5
trading cash flow 999 838 825
trading profit 965 961 969
trading profit to cash conversion ratio 104 87 85
2012 financial highlights
the following table sets out certain income statement data for the 
periods indicated
2012 
m
2011 
m
revenue i 4137 4270
cost of goods sold ii 1070 1140
gross profit 3067 3130
marketing selling and distribution expenses 1440 1526
administrative expenses
 
iii iv v 610 575
research and development expenses 171 167
operating profit i 846 862
net interest receivablepayable 2 8
other finance costs 3 6
share of profit from associates 4 –
profit on disposal of net assets held for sale 251 –
profit before taxation 1100 848
taxation 371 266
attributable profit for the year 729 582
i  group revenue and operating profit are derived wholly from continuing operations 
and discussed on a segment basis on pages 22 to 33
ii  in 2012 3m of restructuring and rationalisation expenses were charged to cost of 
goods sold 2011 – 7m
iii  2012 includes 51m of amortisation of other intangible assets 2011 – 42m
iv 2012 includes nil relating to legal provision 2011 – 23m
v  2012 includes 62m of restructuring and rationalisation expenses 43m relating 
to amortisation of acquisition intangibles and 11m acquisition related costs 
2011 – 33m of restructuring and rationalisation expenses and 36m relating to 
amortisation of acquisition intangibles
revenue
group revenue decreased by 133m 3 from 4270m in 2011 to 
4137m in 2012 underlying revenue growth was 2 of which 2 
growth was attributable to unfavourable currency translation and 3 
was attributable to the effect of disposing of the clinical therapies 
business advanced surgical devices revenues decreased by 
143m 4 underlying growth was 2 of which 2 was due to 
unfavourable currency translation and 4 due to the disposal of 
the clinical therapies business advanced wound management 
revenues increased by 10m 1 underlying growth was 4 with 
3 due to unfavourable currency translation
a more detailed analysis is included within the ‘revenue’ sections of 
the individual business segments that follow on pages 22 and 33
cost of goods sold
cost of goods sold decreased by 70m to 1070m from 1140m 
in 2011 which represents a 6 decrease of this movement 1 is 
due to favourable currency translation movements the remaining 
movement is largely attributable to the continued focus on costs and 
partly attributable to the sale of the clinical therapies business in 
may 2012 which impacted both sales and cost of sales
further margin analysis is included within the ‘trading profit’ sections 
of the individual business segments that follow on pages 22 to 33
marketing selling and distribution expenses
marketing selling and distribution expenses decreased by 86m 
6 to 1440m from 1526m in 2011 the underlying movement 
of 4 is after adjusting for favourable currency movement of 2 
increased cost savings in established markets were partly offset by 
investment in emerging and international markets and promotion of 
new products particularly in advanced wound management
administrative expenses
administrative expenses increased by 35m 6 to 610m from 
575m in 2011 favourable currency movements offset 2 of this 
increase the main factors contributing to the underlying movement 
of 8 were an increase of 16m in amortisation on acquisition and 
other intangibles and an increase of 11m in acquisition costs
research and development expenses
expenditure as a percentage of revenue increased by 02 to 41 in 
2012 2011 – 39 actual expenditure was 171m in 2012 compared 
to 167m in 2011 the group continues to invest in innovative 
technologies and products to differentiate it from competitors
operating profit
operating profit decreased by 16m to 846m from 862m in 
2011 this comprised an increase of 2m in advanced surgical 
devices and a decrease of 18m in advanced wound management 
advanced surgical devices started to see the benefits of its focus 
on costs more than offsetting the additional restructuring expense 
whilst advanced wound management has continued to invest in 
new products throughout the year and also acquired healthpoint 
biotherapeutics in december 2012 both increasing costs
net interest receivablepayable
net interest payable reduced by 10m from 8m payable in 2011 to 
a receivable of 2m in 2012 this is a consequence of the overall 
reduction of borrowings within the group a reduction in the 
applicable interest rates and the 7m interest receivable on the 
bioventus loan note issued following the disposal of the clinical 
therapies business
financial review continued
015914smithnephewar12p42p53 working copyindd   46 26022013   0933 overview strategy and performance
marketpla ce and 
business segment review
sustainabi lity 
review
f inancial review  
and principal r isk s
c orporate  
g overnance
accounts an d  
other information
section 5 f inancial review and principal risks 47
other finance cost
other finance costs in 2012 were 3m compared to 6m in 2011 this 
decrease is attributable to an increase in the expected return on 
pension plan assets
taxation
the taxation charge increased by 105m to 371m from 266m in 
2011 the rate of tax was 337 compared with 314 in 2011
the tax charge increased by 82m in 2012 2011 – 17m reduction 
as result of the profit on disposal of the clinical therapies business 
partially offset by an increase in restructuring and rationalisation 
expenses amortisation of acquisition intangibles and acquisition 
related costs the tax rate was 299 2011 – 299 after adjusting 
for these items and the tax thereon
group balance sheet
the following table sets out certain balance sheet data as at 
31 december of the years indicated
2012 
m
2011 
m
noncurrent assets 3498 2542
current assets 2144 2080
assets held for sale  125
total assets 5642 4747
noncurrent liabilities 828 422
current liabilities 930 1119
liabilities directly associated with assets held for sale  19
total liabilities 1758 1560
total equity 3884 3187
total equity and liabilities 5642 4747
noncurrent assets
noncurrent assets increased by 956m to 3498m in 2012 from 
2542m in 2011 this is principally attributable to the following
 – goodwill increased by 90m from 1096m in 2011 to 1186m in 
2012 of this movement 73m arose on the acquisition of 
healthpoint the balance relates to favourable currency movements 
totalling 17m
 – intangible assets increased by 641m from 423m in 2011 to 
1064m in 2012 intangible assets totalling 662m arose on the 
healthpoint acquisition amortisation of 94m was charged during 
the year and assets with a net book value of 3m were writtenoff a 
total of 68m relates to the cost of intellectual property and software 
acquired the balance relates to favourable currency movements 
totalling 8m
 – property plant and equipment increased by 10m from 783m in 
2011 to 793m in 2012 depreciation of 212m was charged during 
2012 and assets with a net book value of 9m were writtenoff 
these movements were largely offset by 197m of additions relating 
primarily to instruments and other plant  machinery and 27m of 
additions arising on the healthpoint acquisition the balance relates 
to favourable currency movements totalling 7m 
 – deferred tax assets decreased by 59m in the year
 – the total investment in associates has increased from 13m in 2011 
to 283m in 2012 this movement predominately relates to the 
acquisition of bioventus during the year totalling 114m plus 160m 
in the form of a loan note to bioventus
current assets
current assets increased by 64m to 2144m from 2080m in 2011 
the movement relates to the following
 – inventories rose by 42m to 901m in 2012 from 859m in 2011 of 
this movement 46m arose on the healthpoint acquisition and it 
includes 9m relating to favourable currency movements 
 – the level of trade and other receivables increased by 28m to 
1065m in 2012 from 1037m in 2011 this movement includes 
31m arising on the healthpoint acquisition and 8m related to 
favourable currency movements 
 – cash and cash equivalents have fallen by 6m to 178m from 184m 
in 2011
noncurrent liabilities
noncurrent liabilities increased by 406m from 422m in 2011 to 
828m in 2012 this movement relates to the following items
 – longterm borrowings have risen from 16m in 2011 to 430m in 
2012 this increase of 414m is attributable to the acqusition of 
healthpoint for 782m cash in december 2012
 – the net retirement benefit obligation decreased by 21m to 266m 
in 2012 from 287m in 2011 this was largely due to the group’s 
additional pension contributions which were partialy offset by net 
actuarial losses for the year
 – deferred acquisition consideration remains at 8m at the end of 
2012 this relates to the acquisition of tenet medical engineering 
during 2011
 – provisions increased from 45m in 2011 to 63m in 2012 the 
pricipal component of this movement is 13m arising on the 
healthpoint acquisition
 – deferred tax liabilities decreased by 5m in the year
current liabilities
current liabilities decreased by 189m from 1119m in 2011 to 930m 
in 2012 this movement is attributable to
 – bank overdrafts and current borrowings have decreased by 268m 
from 306m in 2011 to 38m in 2012
 – trade and other payables have increased by 92m to 656m in 2012 
from 564m in 2011 the primary cause of this increase is the 
acqusition of healthpoint which increased trade and other payables 
by 49m
 – provisions have decreased by 19m from 78m in 2011 to 59m in 
2012 the most significant item contributing to this decrease is the 
payment of 22m to settle the legal provision see note 3 
 – current tax payable is 177m at the end of 2012 compared to 171m 
in 2011
015914smithnephewar12p42p53 working copyindd   47 26022013   0933 smith  nephew annual report 2012 48
total equity
total equity increased by 697m from 3187m in 2011 to 3884m in 
2012 the principal movements were
total equity 
m
1 january 2012 3187
attributable profit 729
currency translation gains 37
hedging reserves 7
actuarial loss on retirement benefit obligations 13
dividends paid during the year 186
taxation benefits on other comprehensive income 
and equity items 20
net share based transactions 117
31 december 2012 3884
2011 financial highlights
the following table sets out certain income statement data for the 
periods indicated
2011 
m
2010 
m
revenue i 4270 3962
cost of goods sold ii 1140 1031
gross profit 3130 2931
marketing selling and distribution expenses iii 1526 1414
administrative expenses iv v vi 575 446
research and development expenses 167 151
operating profit i 862 920
net interest payable 8 15
other finance costs 6 10
profit before taxation 848 895
taxation 266 280
attributable profit for the year 582 615
i  group revenue and operating profit are derived wholly from continuing operations 
and discussed on a segment basis on pages 22 to 33
ii  in 2011 7m of restructuring and rationalisation expenses were charged to cost of 
goods sold 2010 – nil
iii  in 2011 no restructuring and rationalisation expenses were charged to marketing 
selling and distribution expenses 2010 – 3m
iv  2011 includes 42m of amortisation of other intangible assets 2010 – 34m
v  2011 includes 23m relating to legal provision 2010 – nil
vi  2011 includes 33m of restructuring and rationalisation expenses and 36m 
relating to amortisation of acquisition intangibles 2010 – 12m of restructuring 
and rationalisation expenses and 34m relating to amortisation of acquisition 
intangibles
revenue
group revenue increased by 308m 8 from 3962m in 2010 to 
4270m in 2011 underlying revenue growth was 4 and 4 growth 
was attributable to favourable currency translation
advanced surgical devices revenue increased by 201m 7 
to 3251m in 2011 from 3050m in 2010 the underlying 
revenue growth was 3 with favourable currency movements 
also contributing 4 to the growth in the year advanced wound 
management revenues increased by 107m 12 of which 7 was 
attributable to underlying growth and 5 due to favourable currency 
translation
a more detailed analysis is included within the ‘revenue’ sections of 
the individual business segments that follow on pages 22 and 33
cost of goods sold
cost of goods sold increased by 109m to 1140m from 1031m in 
2010 which represents an 11 increase of this movement 4 is due 
to adverse translation movements leaving an underlying movement 
of 7 compared to an increase in underlying revenue of 4 the 
residual movement is largely attributable to continued pricing 
pressure across all of the group’s markets which smith  nephew 
was not able to pass on to suppliers and an adverse movement in 
the mix of products sold towards lower gross margin product
further margin analysis is included within the ‘trading profit’ sections 
of the individual business segments on pages 22 to 33
marketing selling and distribution expenses
marketing selling and distribution expenses increased by 112m 
8 to 1526m from 1414m in 2010 after adjusting for an 
unfavourable currency movement of 3 the underlying movement of 
5 is broadly in line with increased group revenues
administrative expenses
administrative expenses increased by 129m 29 to 575m from 
446m in 2010 unfavourable currency movements contributed 
towards 5 of this increase the factors contributing to the 
underlying movement of 24 were the nonrecurrence of the one
off benefit of 25m arising from the bluesky settlement in 2010 a 
charge of 23m relating to legal provision an increase of 21m in 
restructuring and rationalisation expenses an increase of 12m 
in the bad debt expense and an 8m increase in the amortisation 
charge on intangible assets other factors contributing to this 
increase included the additional investment in china and emerging 
markets during 2011
research and development expenses
expenditure as a percentage of revenue increased by 01 to 39 in 
2011 2010 – 38 actual expenditure was 167m in 2011 compared 
to 151m in 2010 the group continues to invest in innovative 
technologies and products to differentiate it from competitors
operating profit
operating profit decreased by 58m to 862m from 920m in 2010 
comprising a decrease of 70m in advanced surgical devices offset 
by an increase of 12m in advanced wound management
net interest payable
net interest payable reduced by 7m from 15m in 2010 to 8m in 
2011 this is a consequence of the overall reduction of borrowings 
within the group and a reduction in the applicable interest rates
other finance cost
other finance costs in 2011 were 6m compared to 10m in 2010 
this decrease is attributable to an increase in the expected return on 
pension plan assets
financial review continued
015914smithnephewar12p42p53 working copyindd   48 26022013   0933 overview strategy and performance
marketpla ce and 
business segment review
sustainabi lity 
review
f inancial review  
and principal r isk s
c orporate  
g overnance
accounts an d  
other information
section 5 f inancial review and principal risks 49
taxation
the taxation charge decreased by 14m to 266m from 280m in 
2010 the effective rate of tax was 314 compared with 313 in 
2010
the tax charge was reduced by 17m in 2011 2010 – 10m as 
a consequence of restructuring and rationalisation expenses 
amortisation of acquisition intangibles and legal provision the 
effective tax rate was 299 2010 – 308 after adjusting for these 
items and the tax thereon
group balance sheet
the following table sets out certain balance sheet data as at 
31 december of the years indicated
2011 
m
2010 
m
noncurrent assets 2542 2579
current assets 2080 2154
assets held for sale 125 –
total assets 4747 4733
noncurrent liabilities 422 1046
current liabilities 1119 914
liabilities directly associated with assets held for sale 19 –
total liabilities 1560 1960
total equity 3187 2773
total equity and liabilities 4747 4733
noncurrent assets
noncurrent assets decreased by 37m to 2542m in 2011 from 
2579m in 2010 this is attributable to the following
 – goodwill decreased by 5m from 1101m in 2010 to 1096m in 2011 
goodwill totalling 37m was transferred to assets held for sale 
following the acquisition of tenet medical engineering during 2011 
an amount of 44m was capitalised as goodwill the balance relates 
to unfavourable currency movements totalling 12m
 – intangible assets decreased by 3m from 426m in 2010 to 423m 
in 2011 intangible assets totalling 14m were transferred to assets 
held for sale amortisation of 78m was charged during the year and 
assets with a net book value of 2m were writtenoff a total of 92m 
relates to the addition of intellectual property and software the 
balance relates to unfavourable currency movements totalling 1m
 – property plant and equipment decreased by 4m from 787m in 
2010 to 783m in 2011 property plant and equipment totalling 3m 
were transferred to assets held for sale depreciation of 217m was 
charged during 2011 and assets with a net book value of 7m were 
writtenoff these movements were largely offset by 229m of 
additions relating primarily to instruments and other plant and 
machinery the balance relates to unfavourable currency 
movements totalling 6m
 – trade and other receivables decreased by 22m to nil in 2011 from 
22m in 2010 due to noncurrent receivables switching to current 
receivables during the year
 – deferred tax assets and other noncurrent assets decreased by 
3m in the year
current assets
current assets decreased by 74m to 2080m from 2154m 
in 2010
the movement relates to the following
 – inventories fell by 64m to 859m in 2011 from 923m in 2010 
inventories totalling 15m were transferred to assets held for sale 
of the remaining movement 10m related to unfavourable currency 
movements
 – the level of trade and other receivables increased by 13m to 
1037m in 2011 from 1024m in 2010 trade and other receivables 
totalling 49m were transferred to assets held for sale of the 
movement in the year 18m related to unfavourable currency 
movements
 – cash and bank has fallen by 23m to 184m from 207m in 2010 
of the movement 2m related to unfavourable currency movements
assets held for sale
assets held for sale totalling 125m relate to the underlying assets 
of the clinical therapies business the proposed sale of which was 
announced on 4 january 2012 and completed on 4 may 2012
noncurrent liabilities
noncurrent liabilities decreased by 624m from 1046m in 2010 to 
422m in 2011 this movement relates to the following items
 – longterm borrowings have fallen from 642m in 2010 to 16m in 
2011 this decrease of 626m is mainly attributable to the longterm 
loan repayable in may 2012 switching to a current liability
 – the net retirement benefit obligation increased by 25m to 287m 
in 2011 from 262m in 2010 this was largely due to actuarial losses 
of 70m which were only partly offset by pension contributions
 – deferred acquisition consideration was 8m at the end of 2011 
an increase of 8m from nil at the end of 2010 as a result of the 
acquisition of tenet medical engineering during the year
 – provisions decreased from 73m in 2010 to 45m in 2011 which 
is largely due to a number of settlements during the year
 – deferred tax liabilities decreased by 3m in the year
current liabilities
current liabilities increased by 205m from 914m in 2010 to 1119m 
in 2011 this movement is attributable to
 – bank overdrafts and current borrowings have increased by 249m 
from 57m in 2010 to 306m in 2011 mainly as a result of the 
longterm loan repayable in may 2012 switching to a current liability
 – trade and other payables have decreased by 53m to 564m in 
2011 from 617m in 2010 trade and other payables totalling 19m 
were transferred to liabilities directly associated with assets held for 
sale an amount of 8m is attributable to favourable currency 
movements
 – provisions have increased by 41m from 37m in 2010 to 78m in 
2011 the most significant item contributing to this increase is the 
23m legal provision see note 3
 – current tax payable is 171m at the end of 2011 compared to 203m 
in 2010 of the 32m reduction 1m is attributable to favourable 
currency movements
015914smithnephewar12p42p53 working copyindd   49 26022013   0933 smith  nephew annual report 2012 50
liabilities directly associated with assets held 
for sale
liabilities held for sale totalling 19m relate to the underlying liabilities 
of the clinical therapies business the proposed sale of which was 
announced on 4 january 2012 and completed on 4 may 2012
total equity
total equity increased by 414m from 2773m in 2010 to 3187m in 
2011 the principal movements were
total equity 
m
1 january 2011 2773
attributable profit 582
currency translation losses 36
hedging reserves 14
actuarial loss on retirement benefit obligations 70
dividends paid during the year 146
taxation benefits on other comprehensive income 
and equity items 22
net share based transactions 48
31 december 2011 3187
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 
strengthened from 139 to 128 8 sterling weakened from 
160 to 158 1 the swiss franc weakened from 113 to 107 
5 the australian dollar strengthened from 103 to 104 1 and 
the japanese yen stayed flat at ¥80
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 less 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
financial position liquidity and capital resources
cash flow and net debt
the main elements of group cash flow and movements in net debt 
can be summarised as follows
2012 
m
2011 
m
2010 
m
cash generated from operations 1184 1135 1111
net interest paid 4 8 17
income taxes paid 278 285 235
net cash inflow from operating activities 902 842 859
capital expenditure net of disposal of 
property plant and equipment 265 321 307
acquisitions net of cash acquired 782 33 –
equity dividends paid 186 146 132
proceeds from own shares 6 7 8
issue of ordinary share capital 77 17 15
treasury shares purchased  6 5
change in net debt from net cash flow see 
note 21 of the notes to the group accounts 145 360 438
exchange adjustment 5 6 13
opening net debt 138 492 943
closing net debt 288 138 492
net cash inflow from operating activities
cash generated from operations in 2012 of 1184m 2011 – 1135m 
2010 – 1111m is after paying out nil 2011 – 3m 2010 – 5m 
of macrotextured claim settlements unreimbursed by insurers 
3m 2011 – 1m 2010 – nil of acquisition related costs 55m 
2011 – 20m 2010 – 16m of restructuring and rationalisation 
expenses and 22m 2011 – nil 2010 – nil relating to a legal 
settlement
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 recent years capital 
expenditure on tangible and intangible fixed assets represented 
approximately 6 of continuing group revenue
in 2012 gross capital expenditure amounted to 265m 2011 – 
321m 2010 – 315m 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 2012 4m 2011 – 9m 2010 – 15m 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 2012 815m was 
spent on acquisitions funded from net debt and cash inflows this 
comprised 33m for tenet medical engineering during 2011 and 
782m for healthpoint acquired in december 2012 there were no 
acquisitions in 2010
during 2012 the group completed the transfer of its biologics and 
clinical therapies business ct to bioventus lcc ‘bioventus’ for 
total consideration of 367m as part of this transaction the group 
paid 104m for 49 of bioventus and subsequently invested a 
further 10m
financial review continued
015914smithnephewar12p42p53 working copyindd   50 26022013   0933 overview strategy and performance
marketpla ce and 
business segment review
sustainabi lity 
review
f inancial review  
and principal r isk s
c orporate  
g overnance
accounts an d  
other information
section 5 f inancial review and principal risks 51
liquidity
the group’s policy is to ensure that it has sufficient funding and 
facilities in place to meet foreseeable borrowing requirements in 
december 2010 the group entered into a fiveyear 1bn multi
currency revolving facility with an initial interest of 70 basis points 
over libor
at 31 december 2012 the group held 178m 2011 – 184m 2010 
– 207m in cash and balances at bank the group has committed 
and uncommitted facilities of 10bn and 03bn respectively 
the undrawn committed facilities totalling 06bn expires after two 
but within five years 2011 – 10bn expires after two but within five 
years 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 16m of which 6m extends beyond five years
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 2013 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 decreased 
from 943m at the beginning of 2010 to 288m at the end of 2012 
representing an overall decrease of 655m 
the group’s planned future contributions are considered adequate 
to cover the current underfunded position in the group’s defined 
benefit plans
further disclosure regarding borrowings related covenants and the 
liquidity risk exposures is set out in note 15 of the notes to the group 
accounts the group believes that its borrowing facilities do not 
contain restrictions that would have significant impact on its funding 
or investment policy for the foreseeable future
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 54 
to 55 the financial position of the group its cash flows liquidity 
position and borrowing facilities are described under ‘financial 
position liquidity and capital resources’ within the ‘financial review’ 
section set out on page 50 in addition the notes to the financial 
statements 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
payment policies
it is the group’s and company’s policy to ensure that suppliers are 
paid within agreed terms at the yearend the company had no trade 
creditors
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 ‘marketplace and business segment review’ on pages 
19 to 33 and ‘taxation information for shareholders’ on pages 154  
to 155
critical accounting policies
the group’s significant accounting policies are set out in notes 1 to 
24 of the notes to the group accounts of those the policies which 
require the most use of management’s judgment are as follows
inventories
a feature of the advanced surgical devices division whose finished 
goods inventory makes up approximately 83 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 
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 judgments 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
015914smithnephewar12p42p53 working copyindd   51 26022013   0933 smith  nephew annual report 2012 52
retirement benefits
a number of key judgments have to be made in calculating the 
fair value of the group’s defined benefit pension plans these 
assumptions impact the balance sheet liability operating profit 
and other finance incomecosts the most critical assumptions 
are the discount rate and mortality assumptions to be applied 
to future pension plan liabilities for example as of 31 december 
2012 a 05 increase in discount rate would have reduced the 
combined uk and us pension plan deficit by 28m whilst a 05 
decrease would have increased the combined deficit by 33m a 
05 increase in discount rate would have decreased profit before 
taxation by 1m whilst a 05 decrease would have increased it 
by 1m a oneyear increase in the assumed life expectancy of the 
average 60 year old male pension plan member in both the uk and 
us would have increased the combined deficit by 23m in making 
these judgments management takes into account the advice of 
professional external actuaries and benchmarks its assumptions 
against external data
the discount rate is determined by reference to market yields on 
high quality corporate bonds with currency and term consistent with 
those of the liabilities in particular for the uk and us the discount 
rate is derived by reference to an aa yield curve derived by the 
group’s actuarial advisers
see note 19 of the notes to the group accounts for a summary of 
how the assumptions selected in the last five years have compared 
with actual results
contingencies and provisions
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 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
legal proceedings
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 
the provision or will not have a significant impact on the group’s 
results of operations or financial condition in the period in which 
they are realised
product liability claims
in august 2003 the group withdrew voluntarily from all markets the 
macrotextured versions of its oxinium femoral knee components 
a number of related claims have been filed most of which have 
been settled the aggregate cost at 31 december 2012 related to 
this matter is approximately 214m 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 
and trial is expected to commence in 2014 an additional 22m was 
received in 2007 from a successful settlement with a third party
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 management believes 
that the 17m provision remaining is adequate to cover remaining 
claims given the uncertainty inherent in such matters there can be 
no assurance on this point
the group faces other claims from time to time for alleged defects 
in its products and has on occasion recalled or withdrawn products 
to minimise risk of harm or claims 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
currently there is heightened concern about possible adverse 
effects of hip implant products with metalonmetal bearing surfaces 
and the group expects to incur expenses to defend claims in this 
area 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
business practice investigations
in march 2005 the us attorney’s office in newark new jersey 
issued subpoenas to the five largest sellers of hip and knee implants 
to us orthopaedic surgeons including the group’s orthopaedic 
business asking for information regarding arrangements with 
orthopaedic reconstructive surgeons in september 2007 the group 
and the other four companies involved settled the charges that 
could have resulted from this investigation without admitting any 
wrongdoing as part of the settlement at the same time the group 
entered into a corporate integrity agreement ‘cia’ with the office 
of the inspector general ‘oig’ of the us department of health 
and human services which requires certain compliance efforts 
this agreement was for a fiveyear term
on 11 december 2012 the oig notified the group that it had 
met its cia requirements and that the fiveyear term of the cia 
had concluded
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 
financial review continued
015914smithnephewar12p42p53 working copyindd   52 26022013   0933 overview strategy and performance
marketpla ce and 
business segment review
sustainabi lity 
review
f inancial review  
and principal r isk s
c orporate  
g overnance
accounts an d  
other information
section 5 f inancial review and principal risks 53
on 6 february 2012 smith  nephew announced that it had 
reached settlement with the sec and doj in connection with this 
matter smith  nephew has 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 to 
both the sec and doj the settlement agreements impose detailed 
reporting compliance and other requirements on smith  nephew 
for a threeyear term failure to comply with these requirements 
or any other violation of law could have severe consequences 
for the group
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 united states and other jurisdictions 
and also before agencies that examine patents outcomes are rarely 
certain and costs are often significant
from the group’s entry into the negative pressure wound therapy 
business in 2007 kinetic concepts inc ‘kci’ pursued claims of 
patent infringement against the group in the us uk germany 
and other jurisdictions asserting both its own patents and others 
exclusively licensed to kci by wake forest university during the 
course of 2012 the group reached agreements with kci and wake 
forest to resolve all pending claims 
the group has twice won jury verdicts in the us district court for 
oregon against arthrex inc for infringement of the group’s patents 
relating to suture anchors judgement was entered in favour of the 
group after the first verdict but reversed on appeal and remanded 
for a new trial the verdict in the new trial was overturned by the 
district court but then in january 2013 reinstated on appeal
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
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 the group has 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 in the past primarily from the orthopaedics business 
may have originated from countries that are not eligible for such 
sales except with government consent government auditors 
subsequently conducted an onsite visit at the group’s orthopaedics 
business 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
outlook and trend information
the discussion below contains certain forwardlooking statements 
that may or may not prove accurate for example statements 
regarding expected revenue growth and trading margins market 
trends and our product pipeline are forwardlooking statements 
phrases such as ‘aim’ ‘plan’ ‘intend’ ‘anticipate’ ‘well placed’ 
‘believe’ ‘estimate’ ‘target’ ‘consider’ and similar expressions 
are generally intended to identify forwardlooking statements 
forwardlooking statements involve known and unknown risks and 
uncertainties and other important factors that could cause actual 
results to differ materially from those projected in forwardlooking 
statements for smith  nephew these factors include economic 
and financial conditions in the markets we serve especially those 
affecting healthcare providers payors and customers price levels 
for established and innovative medical devices developments in 
medical technology regulatory approvals reimbursement decisions 
or other government actions products 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 depositions and our success in 
integrating acquired businesses and numerous other matters which 
affect us or our markets including those of a political economic 
business or competitive nature
additional information on factors that could cause the group’s 
actual results to differ from estimates reflected in these forward
looking statements can be found under ‘principal risks and risk 
management’ section on pages 54 to 55
information regarding the recent and longer term market growth 
trends is given for each of the group’s divisions in the relevant 
‘market and competition’ sections under ‘business segment reviews’ 
on pages 22 to 33
smith  nephew expects the market conditions seen in 2012 
broadly to continue in 2013 
during 2013 the group expects to maintain its excellent record in 
advanced wound management and again grow at above the market 
rate 
trauma and extremities are expected to continue to build upon 
recent investments and grow slightly ahead of the market rate
in sports medicine the group anticipates growing at around the 
market rate with a stronger finish to the year as new products are 
introduced in the second half of 2013
orthopaedic reconstruction is likely to grow more slowly than the 
market reflecting the group’s position in the product cycle and 
the metalonmetal headwinds albeit with performance improving 
throughout the year as we realise the benefits of recent and planned 
product launches
the group exceeded its trading profit margin expectation for 2012 
and remains focused on creating a business capable of delivering a 
sustainable 24 margin 
during 2013 the group expects further benefits will be gained from 
our efficiency programme and will continue investing for growth the 
first effects of the us medical device excise tax and the healthpoint 
acquisition which is initially dilutive to the group margin will be seen 
in 2013 taking all these factors together our trading profit margin in 
2013 is expected to be below the 233 achieved in 2012
smith  nephew exited 2012 with a much stronger platform than we 
entered the year in 2013 we will continue to focus on our strategic 
priorities to deliver greater value for our company and stakeholders
015914smithnephewar12p42p53 working copyindd   53 26022013   0933 smith  nephew annual report 2012 54
principal risks and risk management
risk context specific risks we face
disruptive 
technologies
the medical devices industry has a rapid rate of new product 
introduction the group must be adept at monitoring the landscape for 
technological advances make good investmentacquisition choices 
have an efficient and valuable product development pipeline and secure 
protection for its intellectual property
 – 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 markets
 – failure to successfully commercialise a pipeline 
product or failure to receive regulatory approval
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 china and switzerland and finished products are exported 
worldwide
 – reduced reimbursement levels and increasing 
pricing pressures
 – reduced demand for elective surgery
 – increased focus on health economics
 – government policies favouring lower priced 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
supply  
system and site 
disruption
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
 – 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 could disable critical systems
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
 – noncompliance with product regulations and 
standards could result in fines penalties and 
prosecutions
 – product defect could result in lost sales and inventory 
writeoffs
 – third party liability claims
 – damage to reputation
compliance  
with laws  
and regulations
business practices in the healthcare industry are subject to increasing 
scrutiny by government authorities the trend in many countries is 
towards increased enforcement activity the group is also subject to 
increased regulation of personal information acquisitions and expansion 
into emerging markets could also pose additional compliance risks
 – violation of healthcare data privacy or anticorruption 
laws could result in fines loss of reimbursement and 
impact reputation
 – serious breaches could potentially prevent the group 
from doing business in a certain market
 – failure to conduct adequate due diligence or to 
integrate appropriate internal controls into acquired 
businesses could result in fines and impact return 
on investment
as an integral part of planning and review group and business 
area 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 ceo 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 reports on the effectiveness of the operation of the 
risk management process
015914smithnephewar12p54p55 working copyindd   54 26022013   0935 overview strategy and performance
marketpla ce and 
business segment review
sustainabi lity 
review
f inancial review  
and principal r isk s
c orporate  
g overnance
accounts an d  
other information
section 5 f inancial review and principal risks 55
possible impacts risk management actions link to strategic priority 
 – loss of market share 
profit and longterm 
growth
 – increasing productivity prioritisation and allocation of rd funds
 – increasing rd investment in order to enhance clinical capability invest 
in biomaterials
 – strengthen intellectual property rights and support an emerging market 
portfolio
 – business development to augment the portfolio
 – increasing speed to market of new products
 – innovate for value
 – simplify and improve our operating model
 – supplement the organic growth through acquisitions
 – loss of revenue profit  
and cash flows
 – develop innovative economic product and service solutions for both 
established and emerging markets
 – 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 cogs skus and inventory management
 – the group transacts forward foreign currency commitments when firm 
purchase orders are placed to reduce exposure to currency fluctuations
 – simplify and improve our operating model 
established markets
 – innovate for value
 – loss of revenue profit  
and cash flows
 – ensure crisis responsebusiness continuity plans at all major facilities 
and for key products
 – audit programme for critical suppliers and second sources or increased 
inventories for critical components
 – implement enhanced travel security and protection programme
 – it disaster and data recovery plans are in place and support overall 
business continuity plans
 – simplify and improve our operating model
 – established markets
 – loss of profit and 
reduction in share price
 – negative impact on 
brandreputation
 – enhanced leadership and resources
 – standardise the group’s quality management and practice
 – maintain auditing programmes to assure compliance
 – groupwide practices to drive design and production line performance 
and dependability
 – post launch review of product safety and complaint data
 – simplify and improve our operating model
 – innovate for value
 – loss of profit and 
reduction  
in share price
 – negative impact on 
brandreputation
 – strong compliance expertise and infrastructure
 – code of conductglobal policies and procedures ‘gpps’ providing 
controls for significant compliance risks
 – training and eresources to guide employees and third parties with 
compliance responsibilities
 – monitoring and auditing programmes to verify implementation
 – independent reporting channels for employees and third parties to 
report concerns with confidentiality
 – due diligence reviews and integration plans required for acquisitions
 – simplify and improve our operating model
 – emerging markets
 – established markets
there are known and unknown risks and uncertainties relating to 
smith  nephew’s business the table below provides 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 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
015914smithnephewar12p54p55 working copyindd   55 26022013   0935 smith  nephew annual report 2012 56 smith  nephew annual report 2012 56
6
corporate governance
 
 
ethics and compliance are at the heart 
of everything we do and underline our 
commitment to strong governance we 
believe effective governance requires 
both leadership and collaboration
governance introduction 57
our board of directors 58
our executive officers 60
corporate governance statement 62
directors’ remuneration report 74
015914smithnephewar12p56p73 working copyindd   56 26022013   0935 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 57
overview strategy and performance
mar ketplace and 
business review
sust ainability 
review
f inancial review  
and pr incipal risk s
c or porate  
g o vernance
acco unts and  
other information
section 6 c orporate g overnance 57
governance introduction
dear shareholder 
i am pleased to present the corporate governance statement for 2012 
before we get into the technical detail of specific corporate goverance 
requirements i wanted to highlight the governance areas we have focused 
on in 2012
board changes
we have continued to make changes to our board throughout the year as 
you will have read elsewhere in this annual report we are delighted that 
julie brown has joined us as chief financial officer on 4 february 2013 she 
will continue to build on the strong foundations laid by adrian hennah who 
left the board on 31 december 2012 adrian has contributed enormously to 
the success of the company over the past six years and we are sorry to see 
him leave but wish him well in his future career
we have also made a number of changes to our nonexecutive team on 
12 april 2012 rolf stomberg left the board following 14 years’ service as a 
nonexecutive director during which time he served periods as senior 
independent director and chairman of the remuneration committee on 
1 november 2012 geneviève berger left the board owing to other time 
commitments during the year we were pleased to welcome ajay piramal 
to the board on 1 january 2012 and baroness bottomley on 12 april 2012 
finally we shall be appointing michael friedman to the board in april these 
three new appointments reflect the changing focus of the group as we build 
a board that will take us into the future ajay brings experience of emerging 
markets and baroness bottomley brings her knowledge and experience 
of european public healthcare systems whilst michael friedman brings 
exceptional experience of the us healthcare market these are all areas vital 
to our future growth and prospects
ethics and compliance
ethics and compliance remain at the very heart of our business and 
everything that we do the independent monitor appointed to review our 
efforts recognised and supported the enhancements we have made over 
the past five years to our ethics and compliance programme whilst making 
some very valuable suggestions about further improvements in what is a 
constantly evolving aspect of our business we continue to remain vigilant in 
these areas and the ethics  compliance committee of the board sets the 
tone at the top in overseeing our ethics and compliance programme which 
pervades the entire organisation
nomination  governance committee
in recognition of all the external developments in corporate governance we 
have expanded the remit of the nominations committee to cover governance 
matters and to rename the committee the nomination  governance 
committee for some time the committee has considered certain 
governance matters such as the independence of nonexecutive directors 
diversity and the board evaluation process this change of remit formalises 
the role of the committee which now includes board succession planning 
independence of nonexecutive directors diversity conflicts of interest 
oversight of the effective governance of the board and its committees the 
board evaluation process the induction of new directors and directors 
training in general as well as keeping abreast of external governance 
activities
review of the board’s effectiveness
having conducted our own internal evaluation of the board’s effectiveness in 
2010 and 2011 we asked independent audit to facilitate the review process 
in 2012 this took the form of a series of interviews with each member 
of the board the company secretary and other members of the senior 
management team who interact with our board independent audit also 
reviewed the board and committee papers over the past year and observed 
our december board meeting their comments and observations gave us a 
useful perspective into the way we operate as a board you can read more 
about this review in the statement that follows a key takeaway for us was the 
need to give even greater focus to succession at board level 
as ever whilst we recognise the importance of sound governance we are 
continually focused on the board’s responsibility to promote the longterm 
success of the company for the benefit of customers employees and 
shareholders
sir john buchanan
chairman
20 february 2013
015914smithnephewar12p56p73 working copyindd   57 26022013   0935 smith  nephew annual report 2012 58 smith  nephew annual report 2012 58
board committee membership
audit nomination  
governance
ethics  
compliance
remuneration 
1 sir john buchanan •
2 olivier bohuon •
3 julie brown
4 ian barlow •
5 baroness bottomley •
6 richard de schutter • • • •
7 michael friedman
8 pamela kirby • •
9 brian larcombe • • •
10 joseph papa • • •
11 ajay piramal
1 2 4 3
6 7 8 5
9 10 11
our board has the depth and breadth of experience 
necessary to help the business take full advantage 
of the opportunities and challenges ahead
our board of directors
 
board gender
a male 8
b female 3
 
board nationality
a american 3
b british 5
c french 1
d indian 1
e new zealand 1
balance of nonexecutive  
and executive directors
a chairman 1
b  executive 
director 2
c  nonexecutive 
director 8
a
b
b
d
c
e
a
c
a
b
susan swabey 51
company secretary
susan was appointed company secretary in may 
2009 she has nearly 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 a member of 
the gc100 group executive committee and the cbi 
companies committee and is a frequent speaker on 
corporate governance related matters
nationality
british
015914smithnephewar12p56p73 working copyindd   58 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 59
overview strategy and performance
mark etplace and 
business review
susta inability 
review
f inancial review  
and prin cipal risk s
c orporate  
g ove rnance
accou nts and  
other information
section 6 c orporate g overnance 59
1 sir john buchanan 69
chairman
sir john was appointed independent nonexecutive 
director in 2005 and was appointed chairman 
and chairman of the nominations committee in 
april 2006 now the nomination  governance 
committee
sir john has broad international experience gained in 
large and complex international businesses he has 
substantial experience in the petroleum industry and 
knowledge of the international investor community 
he has held various leadership roles in strategic 
financial operational and marketing positions 
including executive experience in different countries 
he is a former executive director and group financial 
officer of bp serving on the bp board for six years 
until 2003
other directorships
 – chairman of arm holdings plc
 – senior independent director of bhp billiton plc
 – chairman of international chamber of commerce 
uk limited
 – chairman of uk trustees for the christchurch 
earthquake appeal
nationality
britishnew zealand
2 olivier bohuon 54
chief executive officer
olivier joined the board and was appointed chief 
executive officer in april 2011 he is a member of the 
nomination  governance committee
olivier has had extensive international and 
leadership experience within a number of 
pharmaceutical and healthcare companies prior to 
joining smith  nephew he was president of abbott 
pharmaceuticals a division of abbott laboratories 
based in the us where he was responsible 
for the entire business including rd global 
manufacturing and global support functions
other directorships
 – nonexecutive director of virbac group
nationality
french
3 julie brown 50
chief financial officer
julie joined the board on 4 february 2013 as chief 
financial officer julie is a chartered accountant and 
fellow of the institute of taxation with international 
experience and a deep understanding of the 
healthcare sector she trained with kpmg and then 
worked for astrazeneca plc where she served as 
vice president group finance and more recently 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 she has previously held vice president 
finance positions in all areas of the healthcare value 
chain including commercial operations rd and 
business development 
nationality
british
4 ian barlow 61
independent nonexecutive director  
chairman of the audit committee
ian was appointed nonexecutive director in march 
2010 and chairman of the audit committee in may 
2010 
ian is a chartered accountant and has had 
considerable financial experience both 
internationally and in the uk prior to his retirement 
in 2008 he was a partner at kpmg latterly senior 
partner london during his career with kpmg he 
was head of their uk tax and legal operations and 
he acted as lead partner for many large international 
organisations operating extensively in north 
america europe and asia
other directorships
 – lead nonexecutive director chairing the board of 
her majesty’s revenue and customs
 – nonexecutive director of the brunner investment 
trust
 – chairman of the racecourse association
nationality
british
5 the rt hon baroness bottomley of 
nettlestone dl 64
independent nonexecutive director 
baroness bottomley was appointed nonexecutive 
director on 12 april 2012
baroness bottomley has extensive experience and 
understanding of healthcare she was appointed a 
life peer in 2005 following her career as a member 
of parliament between 1984 and 2005 and served 
successively as secretary of state for health and then 
national heritage she holds a number of positions 
within the public and private healthcare sector 
other directorships
 – director of international resources group limited
 – member of the international advisory board of 
chugai pharmaceutical company limited
 – chancellor of university of hull 
 – pro chancellor of the university of surrey 
 – governor of the london school of economics 
 – trustee of the economist
nationality
british
6 richard de schutter 72
senior independent nonexecutive director
richard was appointed nonexecutive director in 
january 2001 and senior independent director in 
april 2011 
richard has had extensive us corporate experience 
at chief executive and chairman level in a number 
of major corporations with primarily a scientific 
chemical engineering or pharmaceutical focus 
including gd searle  co monsanto company 
pharmacia corporation and dupont pharmaceuticals 
company
other directorships
 – nonexecutive chairman of incyte corporation
 – nonexecutive director of durata therapeutics inc 
 – nonexecutive director of navicure inc
 – nonexecutive director of sprout pharmaceuticals
 – nonexecutive director of celtic therapeutics
nationality
american
7 michael a friedman 69
independent nonexecutive director
michael will be appointed nonexecutive director 
in april 2013 and will immediately offer himself to 
shareholders for reelection
michael has been chief executive officer of city of 
hope the prestigious cancer research and treatment 
institution in california he also serves as director of 
the institution’s comprehensive cancer centre and 
holds 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 has served as deputy 
commissioner and acting commissioner at the us 
food and drug administration he has also served 
on a number of boards in a nonexecutive capacity 
including riteaid corporation
other directorships
 – chief executive officer of city of hope
 – nonexecutive director of celgene corporation
 – nonexecutive director of mannkind corporation
nationality
american
8 pamela kirby 59
independent nonexecutive director  
chairman of the ethics  compliance committee
pamela was appointed nonexecutive director 
in march 2002 and chairman of the ethics  
compliance committee in april 2011 
pamela has extensive commercial and product 
development experience within the international 
pharmaceutical and healthcare industry her last 
executive position was chief executive of quintiles 
transnational corp in the us having previously 
held senior positions in various pharmaceutical 
companies including astrazeneca and f hoffmann
la roche she is now a nonexecutive director of a 
number of international companies
other directorships
 – nonexecutive chairman of scynexis inc
 – nonexecutive director of informa plc
 – nonexecutive director of victrex plc
 – nonexecutive member of the board of simmons  
simmons llp
nationality
british
9 brian larcombe 59
independent nonexecutive director
brian was appointed nonexecutive director in 
march 2002 brian spent 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 is well known in the city and 
has held a number of nonexecutive directorships
other directorships
 – nonexecutive director of gategroup holding ag
 – nonexecutive director of incisive media holdings 
limited
nationality
british
10 joseph papa 57
independent nonexecutive director  
chairman of the remuneration committee
joseph was appointed nonexecutive director in 
august 2008 and chairman of the remuneration 
committee in april 2011 
joseph has had nearly 30 years’ experience in the 
pharmaceutical industry working for a number of 
companies both in the us and switzerland he is now 
chairman and chief executive of perrigo one of the 
largest over the counter pharmaceutical companies 
in the us having held senior positions at novartis 
cardinal health inc and pharmacia corporation
other directorships
 – chairman and chief executive of perrigo company
nationality
american
11 ajay piramal 57
independent nonexecutive director
ajay was appointed nonexecutive director on 
1 january 2012 ajay is one of india’s most respected 
businessmen he enabled the piramal group to 
transform from a textilecentric group to a us20bn 
conglomerate in diversified areas he has extensive 
industry and market knowledge and international 
experience he has held a number of global healthcare 
leadership positions in both india and internationally
other directorships
 – chairman of piramal enterprises limited piramal 
glass limited allergan india pvt limited indiareit 
fund advisers pvt limited and director of db corp 
limited
 – chairman of the board of governors of indian 
institute of technology indore
 – member of the board of dean’s advisers at harvard 
business school
 – chairman of pratham india
nationality
indian
015914smithnephewar12p56p73 working copyindd   59 26022013   0936 smith  nephew annual report 2012 60 smith  nephew annual report 2012 60
our executive officers
4
8
10
7
2
6
9
3
5
olivier bohuon is supported in the daytoday 
management of the group by a strong team of 
executive officers
1
015914smithnephewar12p56p73 working copyindd   60 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 61
overview strategy and performance
mark etplace and 
business review
susta inability 
review
f inancial review  
and prin cipal risk s
c orporate  
g ove rnance
accou nts and  
other information
section 6 c orporate g overnance 61
1 julie brown 50
chief financial officer
julie joined the board on 4 february 2013 as chief 
financial officer julie is a chartered accountant and 
fellow of the institute of taxation with international 
experience and a deep understanding of the 
healthcare sector she trained with kpmg and then 
worked for astrazeneca plc where she served as 
vice president group finance and more recently 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 she has previously held vice president 
finance positions in all areas of the healthcare value 
chain including commercial operations rd and 
business development
nationality
british
2 jack campo 58
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
previous 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 
3 francisco canal vega 51
president emerging markets
joined smith  nephew in january 2012 and leads 
the emerging markets division focusing particularly 
on achieving market leading growth in brazil russia 
china and india he is based in dubai
previous experience
francisco has held senior management positions in 
global companies including gambro ab and baxter 
international he has lived and worked in many 
countries including switzerland germany china 
japan us and spain francisco was also formerly a 
board member of eucomed
nationality
spanish
4 mike frazzette 50
president advanced surgical devices
joined smith  nephew in july 2006 as president 
of the endoscopy business since july 2011 he has 
headed up our advanced surgical devices division 
and is responsible for the orthopaedic trauma and 
endoscopy business in established markets he is 
based in andover massachusetts
previous experience
mike has held a number of senior positions within 
the us medical devices industry he was president 
and chief executive officer of micro group a us 
manufacturer of medical devices and spent 15 years 
at tyco healthcare becoming president of each of the 
patient care and health systems divisions
nationality
american
5 gordon howe 50
senior vice president global planning and 
development
joined smith  nephew in 1998 and since august 
2007 has headed up the global planning and 
business development teams he is based in 
memphis tennessee
previous experience
gordon has held a number of senior management 
positions within the smith  nephew group first 
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
6 kelvin johnson 61
president international markets
joined smith  nephew in 1980 and was appointed 
to lead the international markets division covering 
all countries outside the established and emerging 
markets in 2011 he is based in dubai
previous experience
kelvin has held a number of key international roles 
with smith  nephew firstly in south africa and 
then leading the emerging market strategy he has 
spent some time leading the group’s increased 
focus in china
nationality
south african
7 helen maye 53
chief human resources officer
joined smith  nephew in july 2011 and leads 
the global human resources and internal 
communications functions she is based in london
previous 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
8 cyrille petit 42
chief corporate development officer
joined smith  nephew in may 2012 and leads the 
corporate development function he is based in 
london
previous experience
cyrille spent the previous 15 years of his career with 
general electric where he held progressively senior 
positions beginning with ge capital ge healthcare 
and more recently as the general manager global 
business development of their transportation 
division cyrille’s career began in investment banking 
at bnp paribas and then goldman sachs 
nationality
french
9 ros rivaz 57
chief technology officer
joined smith  nephew in november 2011 she is 
responsible for manufacturing supply chain and 
procurement it systems corporate sustainability 
and regulatory and quality affairs and is focused on 
improving efficiency in smith  nephew processes 
she is based in london
previous experience
ros has held senior management positions in 
global companies in the areas of supply chain 
management logistics manufacturing procurement 
and systems including exxonmobil ici tate  lyle 
and diageo she has 30 years’ experience across all 
areas of operational excellence
nationality
british
10 roger teasdale 45
president advanced wound management
joined smith  nephew in 1989 within the wound 
management business he was appointed president 
of advanced wound management in may 2009 he 
is based in hull uk
previous experience
roger has held a number of key roles within the 
smith  nephew group in both the uk and the 
us and has been responsible for leading the 
transformation of the wound business in recent 
years
nationality
british
015914smithnephewar12p56p73 working copyindd   61 26022013   0936 smith  nephew annual report 2012 62
compliance statement
we are committed to the highest standards of corporate governance and 
comply with all the provisions of the uk corporate governance code the 
‘code’ the company’s american depositary shares are listed on the 
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 sec applicable to foreign private 
issuers we comply with the requirements of the sec and nyse 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 directors’ remuneration report 
how we have applied the provisions and principles of the fsa’s listing rules 
disclosure  transparency rules ‘dtr’ and the code throughout the year
board
the board is responsible for determining the strategy of the chief executive 
officer and his executive team implement that strategy more detail about 
the structure of the board the matters we deal with and the key activities we 
undertook in 2012 is on page 63
roles of directors
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 
and responsibilities of the chairman and chief executive officer are clearly 
defined
chairman
 – building a well balanced board
 – chairing board meetings and setting board agenda
 – ensuring effectiveness of the board and ensuring annual review 
undertaken
 – encouraging constructive challenge and facilitating effective communication 
in the board
 – promoting effective board relationships
 – ensuring appropriate induction and development programmes
 – ensuring effective two way communication and debate with shareholders
 – setting the tone at the top with regard to compliance and sustainability 
matters
 – 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 up to date 
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
the nonexecutive directors meet regularly prior to each board meeting 
without management in attendance the roles of nonexecutive directors 
and in particular the senior independent nonexecutive director are 
defined as follows
nonexecutive directors
 – providing effective challenge to management
 – assisting in development of strategy
 – serving on the board committees
senior independent nonexecutive director
 – chairing meetings in the absence of the chairman
 – acting as 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 annual evaluation into the board’s effectiveness
 – leading search for a new chairman as necessary
independence of nonexecutive directors
we are sensitive to the need for our nonexecutive directors to remain 
independent from management in order to exercise our independent 
oversight and effectively challenge management as necessary we are 
mindful that some of our nonexecutive directors have served on our board 
for periods that some might regard as likely to impact their independence 
we therefore continually assess the independence of each of our non
executive directors and 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 receive 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
however 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 
board room and sometimes between board 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 value the input we receive from our longserving directors given their 
deep understanding of the group we are however focused on planning 
for the future to build a balanced board with the skills and experience fit 
to face the challenges that lie ahead we have identified the key skills and 
experiences we need and have welcomed the specific experience that 
ajay piramal and baroness bottomley have brought to the board since their 
appointment in 2012 ajay brings his skills as a successful businessman 
within the emerging markets where growth in emerging markets is 
one of our strategic priorities baroness bottomley brings her indepth 
knowledge of uk governmental healthcare policies and processes which 
is also of key importance for us given the pricing pressure we face from 
european governmental authorities purchasing our products following 
his appointment in april 2013 michael friedman will bring his exceptional 
experience of the us healthcare market and the challenges we face in 
established markets we continue to search for other suitable nonexecutive 
directors whose experience will align with our strategic objectives and in 
due course our longer serving directors will step down 
corporate governance statement
015914smithnephewar12p56p73 working copyindd   62 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 63
board membership
nonexecutive chairman sir john buchanan
chief executive officer olivier bohuon 
chief financial officer adrian hennah  
resigned 31 december 2012
chief financial officer julie brown appointed 4 february 2013
eight independent nonexecutive directors
 – richard de schutter senior independent director
 – ian barlow
 – baroness bottomley appointed 12 april 2012
 – geneviève berger retired 1 november 2012
 – michael friedman to be appointed 11 april 2013
 – pamela kirby
 – brian larcombe
 – joseph papa
 – ajay piramal appointed 1 january 2012
 – rolf stomberg retired 12 april 2012
role of the board 
strategy
 – approving the group strategy including major changes to corporate and 
management structure acquisitions mergers disposals capital 
transactions over 10m annual budget financial plan business plan major 
borrowings and finance and banking arrangements
 – approving changes to the size and structure of the board overseeing 
succession planning and the appointment and removal of directors and the 
company secretary
 – approving group polices relating to corporate social responsibility health 
and safety code of conduct and code of share dealing and other matters
performance
 – reviewing performance against strategy budgets and financial and 
business plans 
 – overseeing group operations and maintaining a sound system of internal 
control 
 – determining dividend policy and dividend recommendations
 – approving the appointment and removal of the auditors and other 
professional advisers and approving significant changes to accounting 
policies or practices
 – approving the use of the company’s shares in relation to employee and 
executive incentive plans
risk
 – determining risk appetite regularly reviewing risk register and risk 
management processes
shareholder communications
 – approving preliminary announcement of annual results annual report half 
yearly report quarterly financial announcements the release of price 
sensitive announcements and any listing particulars circulars or 
prospectuses
 – maintaining relationships and continued engagement with shareholders
key activities in 2012  
in addition to regular annual activities
 – review and oversight of the implementation of new strategy and 
organisational structure
 – oversight of risk management process and review of strategic risk
 – approval of fiveyear plan
 – review of effectiveness of board
 – review of ongoing board composition and appointment of ajay piramal and 
baroness bottomley to the board
 – consideration and approval of the acquisition of healthpoint lifemodeller 
and kalypto
 – approval and oversight of european process optimisation programme
 – six physical scheduled meetings three scheduled telephone meetings and 
two unscheduled telephone meetings 
 – four day strategy review and visit to our emerging and international 
markets head office and middle eastern business
 – two day visit to our memphis operations
015914smithnephewar12p56p73 working copyindd   63 26022013   0936 smith  nephew annual report 2012 64
corporate governance statement continued
board and committee attendance
the table below details attendance of directors at board and committee meetings held throughout the year
board 
1 1 meetings
audit 
committee 
8 meetings
nomination  
governance 
committee 
7 meetings
ethics  
compliance 
committee 
5 meetings
remuneration 
committee 
7 meetings
sir john buchanan i 9 – 7 – –
olivier bohuon 11 – 7 – –
adrian hennah ii 11 – – – –
ian barlow i 10 8 – – –
geneviève berger iii 7 – – 3 –
baroness bottomley iv 6 – – – 2
pamela kirby 11 – – 5 7
brian larcombe iv 9 7 5 – 7
joseph papa i 11 8 – 4 7
ajay piramal vi 7 – – – –
richard de schutter i v 9 7 7 5 7
rolf stomberg vii 4 3 2 – 2
i attended all scheduled meetings but unable to attend certain unscheduled meetings due to prior commitments 
ii retired from board on 31 december 2012
iii retired from the board on 1 november 2012 
iv appointed to the board on 12 april 2012 and to the remuneration committee on 19 september 2012
v appointed to the nomination  governance committee on 12 april 2012
vi appointed on 1 january 2012 and unable to attend certain meetings due to arrangements agreed prior to his appointment 
vii retired from the board on 12 april 2012
in all cases where a director is unable to attend a scheduled or unscheduled meeting they have the opportunity of asking questions raising issues and making 
their views known before the meeting 
from time to time directors also attend committee meetings at the invitation of the committee chairman even if they are not members of the committee in 
order to gain a better understanding of the activities of that committee
015914smithnephewar12p56p73 working copyindd   64 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 65
board development programme
we continue to focus our board development programme around the specific 
needs and interests of our directors this means that there is a greater focus 
on facilitating a deeper understanding of our business rather than on formal 
director training we value our visits to different smith  nephew sites across 
the world as we are able to see the daily operation of the business and to 
meet and talk to the people leading and working in our business about the 
challenges they face and how they are planning to meet those challenges 
we are able to handle our products and hear how our people are innovating 
and developing the products of the future this direct contact with our 
businesses helps us when making investment and strategic decisions and 
when considering succession planning below board level
we receive updates at the board and committee meetings on external 
corporate governance changes likely to affect the company in the future in 
2012 we reviewed the proposed changes to narrative reporting as well as 
changes to the uk corporate governance code and the audit committee 
guidelines the remuneration committee has been monitoring changes 
to the way we will report on executive remuneration in the future and the 
chairman of the remuneration committee met with the holders of 25 of the 
company to discuss remuneration issues
ajay piramal and baroness bottomley who joined the company during the 
year took part in tailored induction programmes which included visits to 
our businesses in hull in the uk andover and mansfield in the us and to 
mumbai in india as well as onetoone meetings with senior head office 
executives and briefings on uk company law and corporate governance 
practices
month activity
february presentations from roger teasdale president of advanced 
wound management and mike frazzette president of 
advanced surgical devices on their distinct business 
strategies
september visit to our dubai head office for our emerging markets and 
international markets divisions
presentation on our middle eastern business
presentations from the entire executive team as part of the 
board’s strategy review
november visit to advanced surgical devices offices in memphis
series of presentations from our advanced surgical devices 
senior executives on the challenges faced by the business 
and our strategy and initiatives to meet these challenges
board effectiveness review
having conducted internal reviews into the effectiveness of the board in 
2010 and 2011 we carried out an externally facilitated review in 2012 during 
the year we evaluated the varying service provided by the different firms 
of advisers who practise in this area and selected belinda hudson and 
richard sheath of independent audit limited to help facilitate our review 
given their experience conducting similar reviews for other companies of 
a similar size and complexity independent audit has no other business 
relationship with the company or any member of the board following an 
initial planning meeting with the chairman they reviewed the minutes and 
papers of the board and committee meetings held in the past year and then 
interviewed each member of the board and the company secretary they 
also interviewed helen maye chief human resources officer and gary 
luck of towers watson who support the remuneration committee and 
james goodwin head of internal audit and les clifford of ernst  young 
who work with the audit committee finally they attended and observed our 
december 2012 board meeting
they concluded that the board was very effective with a strong and 
professional chairman a strong cadre of nonexecutive directors with a 
broad range of expertise and experience and a chief executive officer 
who takes a very positive and open approach to support the board 
independent audit made some suggestions for further improvement which 
we discussed at our february 2013 board meeting we have agreed that 
in 2013 we shall focus on the following areas to improve our effectiveness 
further
succession planning at board level will be discussed regularly at full board 
meetings as well as by the nomination  governance committee to 
ensure that there is a common understanding around the future structure 
of the board 
the activities and strategies of our competitiors will be discussed in greater 
detail to ensure that the board better understands our position in the 
market place and the competitive pressures we face 
further opportunities will be explored for ensuring that nonexecutive 
directors meet more frequently with senior executives below board level 
to aid succession planning and to gain a greater understanding of the 
business and its challenges 
company secretary and independent advice
the company secretary susan swabey is responsible to the board for 
ensuring that we comply with all corporate governance requirements and are 
kept updated on our responsibilities we all have access to her individually 
and collectively
we may also from time to time obtain independent professional advice 
at the company’s expense if we judge it necessary in order to fulfil our 
responsibilities as directors if we are unable to attend a board meeting or 
board committee meeting we ensure that we are familiar with the matters to 
be discussed and make our views known to the chairman or the chairman 
of the relevant committee prior to the meeting
management of conflicts of interest
none of us nor our 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 19 february 2013
each of us 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 possibly may conflict with the interests of the company this duty is in 
addition to the existing duty that we owe to the company to disclose to the 
board any transaction or arrangement under consideration by the company 
if we become aware of any situation which may give rise to a conflict of 
interest we inform the rest of the board immediately and the board is then 
permitted under the articles of association to authorise such conflict the 
information is recorded in the company’s register of conflicts together with 
the date on which authorisation was given in addition we certify 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 able to participate in the 
discussion and a conflict is only authorised if we believe that it would not 
have an impact on our ability to promote the company’s success in the 
long term additionally we may as a board determine that certain limits or 
conditions must be imposed when giving authorisation we have identified 
no actual conflicts which have required approval by the board we have 
however identified 10 situations which could potentially give rise to a conflict 
and these have been duly approved by the board and are reviewed on an 
annual basis
reappointment of directors
in accordance with the code with effect from the annual general meeting 
held in 2011 all directors including baroness bottomley who was appointed 
on 12 april 2012 julie brown who was appointed on 4 february 2013 and 
michael friedman who will be appointed on 11 april 2013 offer ourselves to 
shareholders for reelection annually each director may be removed at any 
time by the board or the shareholders
015914smithnephewar12p56p73 working copyindd   65 26022013   0936 smith  nephew annual report 2012 66
corporate governance statement continued
directors’ 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 judgement 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 executive directors meet regularly with 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 2012 the 
executive directors held meetings with institutional investors including 
investors representing approximately 46 of the share capital as at 
december 2012
as part of this programme of investor meetings during 2012 as chairman 
of the company i met with investors representing 14 of the share capital 
over the last three years i have met investors representing in aggregate 20 
of the share capital also during 2012 joseph papa met with shareholders 
holding 25 of the share capital to discuss remuneration policies and plans
we receive a short report at every board meeting reviewing our major 
shareholders and any significant changes in their holdings since the 
previous meeting olivier bohuon and adrian hennah and his successor 
julie brown routinely advise us of any concerns or issues that shareholders 
have raised with them in their meetings we also receive copies of analysts’ 
reports on the company and our peers between board meetings
the company’s website wwwsmithnephewcom contains information of 
interest to both institutional investors and private shareholders including 
financial information and webcasts of the results presentations to analysts for 
each quarter as well as specific information for private shareholders relating 
to the management of their shareholding
share capital
as at 19 february 2013 the company’s total issued share capital with voting 
rights consisted of 904988045 ordinary shares of 20 us cents each 
59503197 ordinary shares are held in treasury and are not included in the 
above figure
as at 19 february 2013 notification had been received from the undernoted 
investors under the dtr in respect of interests in 3 or more of the issued 
ordinary shares with voting rights of the company
number of 
shares 
invesco 105165112 116
blackrock inc 44811205 50
legal and general group plc 28331119 31
in addition to the above the company is aware that walter scott  partners 
limited hold approximately 39m ordinary shares 43 otherwise 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
dividend
the board has proposed a final dividend of 1620 us cents per share which 
together with the interim dividend of 990 us cents makes a total for 2012 
of 2610 us cents the final dividend is expected to be paid subject to 
shareholder approval on 8 may 2013 to shareholders on the register of 
members at the close of business on 19 april 2013
annual general meeting
the company’s annual general meeting is to be held on 11 april 2013 at 
200 pm at iet london savoy place 2 savoy place westminster london 
wc2r 0bl registered shareholders have been sent either a notice of 
annual general meeting or notification of availability of the notice of annual 
general meeting as appropriate
code of ethics for senior financial officers
we have adopted a code of ethics for senior financial officers which is 
available on the group’s website wwwsmithnephewcom and on request 
this applies to the chief executive officer chief financial officer group 
financial controller and the group’s senior financial officers there have 
been no waivers to any of the code’s provisions nor any amendments made 
to the code during 2012 or up until 19 february 2013
evaluation of internal controls procedures
management is responsible for establishing and maintaining adequate 
internal control over financial reporting as defined in rule 13a15f and 
15d15f under the securities exchange act of 1934
we as a board are responsible overall for reviewing and approving 
the adequacy and effectiveness of internal controls operated by the 
group including financial operational and compliance controls and risk 
management we have delegated responsibility for the review of financial 
ethical compliance and quality management systems controls to the audit 
committee which reviews the internal control process on an annual basis 
and evaluates its effectiveness to ensure that it remains robust and to 
identify any control weaknesses the latest review covered the financial 
year to 31 december 2012 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 2012 based upon this 
evaluation the chief executive officer and chief financial officer 
concluded on 19 february 2013 that the disclosure controls and procedures 
were effective as at 31 december 2012
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 2012 in accordance with the requirements in the us under 
s404 of the sarbanesoxley act in making this 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 2012 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 2012 this report appears on page 91
015914smithnephewar12p56p73 working copyindd   66 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 67
there is an established system of internal control throughout the group and 
our divisions the main elements of the internal control framework are as 
follows 
 – the management of each division is responsible for the establishment and 
review of effective internal 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 the internal auditors on their 
findings on internal financial controls
 – the audit committee reviews the group whistleblower procedures
 – the audit committee reviews regular reports from the group financial 
controller and the heads of the 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 
limitations 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 this process 
complies with the turnbull working party guidance revised october 2005 
and additionally contributes to our compliance with the obligations under 
the sarbanesoxley act 2002 and other internal assurance activities 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
principal accountant fees and services
fees for professional services provided by ernst  young llp  the group’s 
independent auditors in each of the last two fiscal years in each of the 
following categories were
2012 
m
2011 
m
audit 3 3
audit related fees – –
tax 2 2
other – –
5 5
audit fees include fees associated with the annual audit and local statutory 
audits required internationally a more detailed breakdown of audit fees may 
be found in note 3 of the notes to the group accounts
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 auditors 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 auditors are aware of such 
information
auditors
ernst  young llp have expressed their willingness to continue as auditors 
and resolutions proposing their reappointment and to authorise the directors 
to determine their remuneration will be proposed at the annual general 
meeting as approved by the audit committee
directors’ report
the directors’ report includes the following sections ‘marketplace and 
business segment review’ pages 22 to 33 ‘sustainability review’ pages 
3541 ‘financial review and principal risks’ pages 43 to 54 ‘corporate 
governance’ pages 57 to 74 and ‘group and investor information’ 
pages 144 to 159
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 wc2n 6la uk registered 
in england and wales no 324357 tel 44 0 20 7401 7646 website www
smithnephewcom
committees of the board
we delegate some of the board’s detailed work to four committees each 
of these has their own terms of reference which may be found on the 
group’s website at wwwsmithnephewcom the company secretary or 
her designate is secretary to each of the committees the chairman of 
each committee reports orally to the board and minutes of the meetings are 
circulated to all members of the board
015914smithnephewar12p56p73 working copyindd   67 26022013   0936 smith  nephew annual report 2012 68
corporate governance statement continued
audit committee
ian barlow
 
 
 
 
 
membership
 – ian barlow chairman independent and financial expert
 – brian larcombe independent
 – joseph papa independent
 – richard de schutter independent
 – rolf stomberg independent retired 12 april 2012
 – in addition all meetings were attended by the chief executive officer the 
chief financial officer the head of internal audit the external auditors and 
key finance personnel
eight meetings
one matter agreed by written resolution
main responsibilities
financial reporting
 – ensuring the integrity of the financial statements and their compliance with 
uk and us statutory requirements
 – reviewing significant financial reporting judgments and compliance with 
accounting standards policies and practices
 – monitoring announcements relating to the group’s financial performance
internal controls and risk management
 – monitoring the effectiveness of internal controls and compliance with the 
sarbanesoxley act specifically s 302 and 404
 – reviewing the operation of the group’s risk management processes and 
the control environment mitigating compliance and quality management 
system risk
receive reports on fraud and whistleblowing
internal audit
 – agreeing internal audit plans and reviewing internal audit reports
 – monitor the effectiveness of the internal audit function
external audit
 – overseeing the board’s relationship with the external auditors monitoring 
and reviewing their performance evaluating their effectiveness and making 
recommendations to the board for their reappointment
key activities in 2012 in addition to main responsibilities
 – reviewed plans for continuing the reformatting of the annual report  
in light of the new narrative reporting requirements
 – considered the management of strategic risk by the tax function
 – received and considered a report from the treasury function
 – reviewed an external report on the effectiveness of the internal audit 
function and monitored implementation of its recommendations
 – reviewed capabilities of finance function
nomination  governance committee
sir john buchanan
 
 
 
 
 
membership
 – sir john buchanan chairman independent on appointment
 – olivier bohuon
 – brian larcombe independent appointed 12 april 2012
 – richard de schutter independent
 – rolf stomberg independent retired 12 april 2012
seven meetings
main responsibilities
 – review size and composition of board
 – oversee board succession plans
 – recommend director appointments
 – oversee governance aspects of the board and its committees
 – oversee review into the board’s effectiveness
 – consider and update the schedule of matters reserved to the board  
and the terms of reference of the board commtitees
 – monitor external corporate governance activities and keep the board 
updated
 – oversee board development programme and the induction process  
for new directors
key activities in 2012 in addition to main responsibilities
 – recommended the appointment of julie brown as chief financial officer
 – recommended the appointment of baroness bottomley as an additional  
nonexecutive director
 – considered the appointment of michael friedman as an additional 
nonexecutive director
 – expanded remit of the committee to include governance matters
 – continued consideration of diversity issues
015914smithnephewar12p56p73 working copyindd   68 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 69
ethics  compliance committee
pamela kirby
 
 
 
 
 
 
membership
 – pamela kirby chairman independent
 – geneviève berger independent to 1 november 2012
 – joseph papa independent
 – richard de schutter independent
five meetings
main responsibilities
 – review ethics and compliance programmes
 – review policies and training programmes
 – review compliance performance based on monitoring auditing and 
investigations data
 – review allegations of significant compliance failures
 – review group’s internal and external communications relating to ethical 
and compliance issues
 – review external developments and compliance activities
 – receive reports from the group’s ethics and compliance meetings and from 
the chief compliance officer and the chief legal officer
key activities in 2012 in addition to main responsibilities
 – approved fcpa settlement with the us department of justice and 
securities and exchange commission
 – met with independent monitor appointed under the dojsec settlement  
to discuss the effectiveness of our global compliance programme review 
his initial report and consider further enhancements
 – continued to review compliance programme for third party sellers  
and other third parties doing business with the company 
 – reviewed development of employee compliance training programmes
 – considered level and trend of investment in the company’s compliance 
efforts
 – considered compliance implications relating to potential acquisitions 
including due diligence findings and integration plans
remuneration committee
joseph papa
 
 
 
 
 
 
membership
 – joseph papa chairman independent
 – baroness bottomley independent appointed  
19 september 2012
 – pamela kirby independent
 – brian larcombe independent
 – richard de schutter independent
seven meetings
three matters agreed by written resolution
main responsibilities
 – determine remuneration policy for executive directors and senior 
executives
 – approve individual remuneration packages for executive directors and 
executive officers at least annually and any major changes to individual 
packages throughout the year
 – determine the use of longterm incentive plans and oversee the use of 
shares in all executive and allemployee plans
 – approve appropriate performance measures for shortterm and longterm 
incentive plans for executive directors and senior executives
 – determine payouts under shortterm and longterm incentive plans for 
executive directors and senior executives
 – approve directors’ remuneration report ensuring compliance with related 
governance provisions
 – maintain constructive engagement on remuneration issues with 
shareholders
 – have regard to remuneration policies and practices across the group
key activities in 2012 in addition to main responsibilities
 – approved package for incoming chief financial officer
 – approved joining and leaving packages for all direct reports  
to chief executive officer
 – implemented new remuneration arrangements for top 70 senior executives 
to align remuneration with the updated group strategy
 – continued engagement programme with major shareholders to explain 
new remuneration arrangements
 – reviewed policies on termination payments and compensation payments 
for lost incentives by new hires
 – monitored external developments relating to remuneration best practice
015914smithnephewar12p56p73 working copyindd   69 26022013   0936 smith  nephew annual report 2012 70
corporate governance statement continued
audit committee
dear shareholder
the audit committee had a busy year with five main meetings supplemented 
by three telephone meetings to approve quarterly financial reports the 
topics covered the membership and the principal duties of the committee 
are set out in the table on page 68 of this report its terms of reference can be 
found on our website wwwsmithnephewcom i comment in this report by 
exception on our main responsibilities and in more detail on one off work
the members of the committee who are all independent directors bring 
a variety of relevant expertise from their current or prior roles as chief 
executives of substantial businesses both in the uk and us and from their 
roles as nonexecutive directors at other corporations i am the designated 
finance expert being a chartered accountant and former senior partner at 
kpmg uk retiring in 2008
main responsibilities
financial reporting
our review of the appropriateness of the group’s principal accounting 
policies practices and accounting judgments concentrated on the valuation 
of inventory and receivables on the carrying value of goodwill intangible and 
tangible assets on the valuation of retirement benefits contingencies and 
provisions in light of current market conditions we paid particular attention 
to the review of the management of receivables derived from trading in 
southern european countries
we continued to review the style and format of the annual report during 
2012 building on the improvements we made in 2011 in particular this 
year we have concentrated on the disclosure of metrics around our key 
performance indicators and have changed the ordering of sections to 
provide a better flow through the document
internal controls and risk management
we ensured compliance with the uk corporate governance code and the 
sarbanesoxley act
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 2012 and up to the date of approval of this 
annual report
no concerns were raised with us in 2012 about possible improprieties in 
matters of financial reporting or other matters
we continued to work with the full board to improve the clarity of evaluation 
of risk by the executive and board and the systems for reporting and 
managing risk and for how it is dealt with in this annual report the 
underlying purpose is to enable the board to focus on the key strategic risks 
both on the upside – not doing things – and on the downside aside from 
routine reporting the board conducted a strategic discussion on risk during 
the year
internal audit
our internal audit function carries out work in three areas our financial 
systems and processes our systems that ensure compliance with regulation 
and laws and our 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 own assurance activities during 
the year they completed 67 reviews the results of which were seen by the 
committee which also oversees the effective and timely remediation of any 
recommendations
we also considered an external review of the effectiveness of the internal 
audit function undertaken by pricewaterhousecoopers llp  the report was 
positive about the team and made recommendations principally related 
to further strengthening the internal audit team improving methods of 
managing its workload and communicating its work to external stakeholders 
and the scope to extend the reach of its work
in this context from 2013 the scope of the internal audit function has been 
widened to include auditing clinical and regulatory assurance 
receipt of functional reports
during the year we received reports from the group financial controller 
on shared services from the heads of tax and treasury in relation to their 
functions from the chief information officer in relation to it security and 
from the svp of quality and regulatory affairs on quality assurance in all 
cases we concentrated on the risk environment the risk parameters within 
which the board wishes to operate and the effectiveness of the systems and 
processes to manage those risks
review of the work of the external auditors
we monitored the work of ernst  young our external auditors throughout 
the year their work provided essential assurance over the financial systems 
and reporting that valuably supplements the work of internal audit they 
continue to evidence their independence in the challenge they provide to 
management and the insight they bring to the committee from their work 
with us and comparative observations of other companies
we formally reviewed their effectiveness through review of their regular 
reports on accounting matters governance and control and accounting 
developments in addition we utilised formal year end feedback from all 
our operating units as a result of which we asked for improvements to be 
made in two operating locations and conducted a formal questionnaire of 
committee members we reviewed the inspection reports from the auditor 
oversight boards in the uk and the us finally we reviewed the fees of 
the auditors using benchmarking against groups of comparable size and 
complexity
our conclusions were that the external audit was carried out effectively 
and with necessary objectivity and independence this is the basis for 
our recommendation to the board and shareholders that ernst  young be 
reappointed for 2013
we also considered the financial reporting council’s proposals on auditor 
rotation and in light of the recent change in chief financial officer agreed 
that the implications for the company should be reviewed during 2013
auditor independence policy
we have determined a schedule of approved nonaudit services for the 
group external auditors to undertake our auditor independence policy 
prohibits the external auditors from performing services which would 
result in the auditing of their own work participating in activities normally 
undertaken by management acting as advocates for the group and creating 
a mutuality of interest between the auditors and the group by for example 
being remunerated through a success fee structure on an annual basis 
we preapprove the budget for fees relating to audit and nonaudit work 
including taxation compliance services in accordance with a listing of 
particular services in the event that limits for these services are expected to 
be exceeded or the group wants the external auditors to perform services 
that have not been preapproved my approval is required the committee is 
subsequently advised of any such services and fees in this way all services 
provided by the external auditors during the year were preapproved by the 
audit committee 
the auditor independence policy also governs the policy regarding the audit 
partner rotation in accordance with the auditing practices board ethical 
standards in the uk and the sec rules in the us partners and senior audit 
staff may not be recruited by the group unless two years have expired 
since their previous involvement with the group no such recruitment has 
occurred we consider that the implementation of this policy helps ensure 
that auditor objectivity and independence is safeguarded 
2013
in addition to our main responsibilities we will be looking at the systems of 
control and risk management over the group’s recent acquisitions
ian barlow
chairman of audit committee
015914smithnephewar12p56p73 working copyindd   70 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 71
nomination  governance committee
dear shareholder
i am pleased to present my report on the activities of the nomination  
governance committee in 2012 the membership and the principal duties of 
the committee are set out in the table on page 68 of this report
in 2012 we dealt with the following matters
appointment of julie brown
we recommended the appointment of julie brown as chief financial officer 
to replace adrian hennah who left the company at the end of 2012 to take up 
a position elsewhere
appointment of nonexecutive directors
in 2011 we recommended the appointment of ajay piramal who joined the 
board in 2012 bringing a wealth of experience as a succesful businessman 
in india we also conducted and completed the search for baroness 
bottomley who joined the board in april 2012 she too brings a great deal of 
experience in the area of governmental healthcare policy
we have throughout the year continued our search for additional 
nonexecutive directors in particular focusing on the skills experience 
independence and diversity each candidate can bring to the board all 
nonexecutive director appointments are linked to the strategic priorities 
identified by the board 
 – emerging market experience
 – us healthcare experience
 – european healthcare experience
since the year end we have recommended the appointment of michael 
friedman who will join the board on 11 april he brings exceptional 
experience of the us healthcare market
as and when we find further appropriate candidates willing to join our board  
we will replace some of our longerserving directors
where appropriate we use the services of external search agents 
recognising however that suitable candidates may sometimes come to our 
attention by other means 
expanded the remit of the committee
we reviewed the remit of the committee during 2012 and agreed to expand 
its role to cover governance matters as part of our role in recommending 
appointments to the board we were already considering matters of 
governance such as the independence of nonexecutive directors 
succession planning diversity and conflicts of interest the committee also 
oversees the process around the review into the board’s effectiveness it 
therefore made logical sense to recognise this formally by changing the 
name of the committee to the nomination  governance committee and 
expanding its role to consider wider areas of governance 
the expanded role includes oversight of the effective governance of the 
board and its committees the review of terms of reference of the board and 
its committees supervision of the induction process for new directors and 
the ongoing board development programme we will also monitor external 
governance activities to ensure that the board is kept up to date on changes 
that might affect us
the whole board remains responsible for ensuring that the company is 
governed appropriately but the more detailed work to support this will now 
be carried out by this committee
 
sir john buchanan
chairman of nomination  governance 
committee
015914smithnephewar12p56p73 working copyindd   71 26022013   0936 smith  nephew annual report 2012 72
dear shareholder 
i am pleased to present my report on the activities of the ethics  
compliance committee in 2012 the membership and the principal duties of 
the committee are set out in the table on page 69 of this report
in 2012 we dealt with the following matters
settlement with us securities and exchange commission ‘sec’ 
and us department of justice ‘doj’
in january 2012 we reviewed and approved the final terms of the settlement 
between the company and the sec and doj in connection with their foreign 
corrupt practices act ‘fcpa’ investigation of the medical devices industry 
this has been a matter that we as a committee have monitored closely 
since the formation of the committee in 2008 the settlement included the 
appointment of an independent monitor who worked with the company over 
most of 2012 to evaluate the effectiveness of our compliance programme and 
make recommendations as appropriate for further enhancements to the 
programme we have been working collaboratively with the monitor for this 
purpose the committee reviewed his initial report and continues to review 
the company’s progress towards implementation of his recommended 
enhancements 
compliance programme for distributors
we continued to review and improve our compliance programme with 
third party sellers such as distributors and sales agents particularly in 
the emerging and international markets we have initiated a semiannual 
communication to our sellers to reinforce our commitment to ethical and 
legal behaviour and making it clear that we will not tolerate any improper 
inducements in the sale of products we also developed a set of resources to 
help sellers build or enhance their own compliance programme our sellers 
can customise and brand these materials which have been translated 
compliance programme for other third parties
we have continued to strengthen our controls over vendors service 
providers and other third parties engaged by us but that do not sell our 
products based on the supplier type and risk profile we have created 
guidance on the smith  nephew code of conduct and business principles 
for third parties to highlight the areas of our code that apply directly to third 
parties and that we expect them to follow when working on our behalf
employee compliance programme
new employees are trained on our code of conduct which sets out the basic 
legal and ethical principles for carrying out business and applies both to 
employees and others who act on the group’s behalf it sets out in detail how 
persons covered by the code of conduct are expected to interact ethically 
with healthcare professionals and government officials a copy of the code 
of conduct can be found on the group’s website wwwsmithnephewcom
the code of conduct includes our whistleblowing policy which subject 
to local law requires covered persons to report any breach either directly 
or anonymously through an independent provider members of the public 
are also encouraged to report concerns all reports are reviewed and the 
appropriate action taken including referral to senior management or the 
board where warranted the code also states that we have a nonretaliation 
policy against anyone who makes a report in good faith the ethics  
compliance committee is advised of any potentially significant improprieties 
which are reported 
we have also monitored the development and enhancement of the 
employee compliance training programme employees are required to 
undertake compliance training and managers are encouraged to discuss 
ethical matters with their teams some training is tailored for employees in 
specific job situations further support is provided through a comprehensive 
set of tools and resources located on our global intranet platform
compliance infrastructure
we are mindful that an effective compliance programme requires both a 
culture of integrity and investment in the necessary infrastructure to give 
effect to that culture 
with that in mind the committee reviewed the level and trend of investments 
in the company’s compliance programme as well as the costs of compliance 
defects as the company grows in new markets we continue to expand our 
global network of regional compliance officers and use them to reinforce 
the importance of compliance with our employees and third parties around 
the world 
compliance implications around acquisitions
finally as members of the board discussing acquisition opportunities we 
ensure that the compliance implications of each acquisition are considered 
as part of both the due diligence process and plans for integration of the 
acquired business 
 
pamela kirby
chairman of ethics  compliance committee
corporate governance statement continued
ethics  compliance committee
015914smithnephewar12p56p73 working copyindd   72 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 73
executive risk committee
olivier bohuon chairs our executive risk committee which includes the 
executive directors and executive officers of the group as an integral part of 
our planning and review process the management of each of our divisions 
identifies the risks applicable to their business the probability of those risks 
occurring the impact if they do occur and the actions required and being 
taken to manage and mitigate those risks the executive risk committee 
meets twice a year to review the major risks they identify across the group 
and the mitigation processes and plans as appropriate the executive 
risk committee may recategorise risks or require further information or 
mitigating action to be undertaken we receive an annual report from the 
executive risk committee which details the significant risks categorised 
by potential financial impact on profit and share price and by likelihood 
of occurrence details of new key or significantly increased risks along 
with actions put in place to mitigate such risks are also reported to us as 
appropriate we have provided further information on the principal risks 
identified through this process in ‘principal risks and risk management’ on 
pages 54 to 55 of this annual report
disclosures committee
olivier bohuon chairs the disclosures committee which includes the chief 
financial officer and various additional senior executives the committee 
meets as required and approves the release of all major communications to 
investors to the uk listing authority and to the london and new york stock 
exchanges
 
sir john buchanan
chairman
20 february 2013
other committees
015914smithnephewar12p56p73 working copyindd   73 26022013   0936 smith  nephew annual report 2012 74 smith  nephew annual report 2012 74
the remuneration committee has focused 
on ensuring that our executive remuneration 
arrangements continue to reinforce and 
support the delivery of the company’s new 
strategy
 
directors’ remuneration report
015914smithnephewar12p7488 working copyindd   74 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 75
dear shareholder 
i am pleased to introduce the directors’ remuneration report for the year 
ended 31 december 2012 which has been prepared by the remuneration 
committee and approved by the board 
2012 has been a strong year for the company despite a challenging external 
environment as the executive team led by olivier bohuon continues to drive 
the new strategy from a strong and stable financial base the committee 
has been working to ensure that our executive remuneration arrangements 
continue to reinforce and support the delivery of that strategy
the current remuneration framework was introduced last year with the aim 
to simplify the overall remuneration structure drive the delivery of the new 
strategy and strengthen the link between pay and performance our key 
financial goal remains to deliver a higher return to shareholders relative to 
our peer group over the long term as measured by total shareholder return 
tsr and free cashflow these key performance indicators are reinforced 
by our executive incentive arrangements the annual incentive is based 
primarily on revenue profit and cash generation and the performance share 
programme rewards superior tsr relative to our peer group and longerterm 
sustainable free cashflow
the company’s remuneration policy is set out on the following page the 
committee believes the policy continues to be appropriate for the 2013 
financial year as it is closely aligned with our strategic goals and hence our 
shareholders’ interests is highly resultsoriented and rewards sustained 
superior performance
as a board we take seriously the views and feedback of our shareholders 
on remuneration matters although the shareholders we consulted were 
broadly supportive of our moves towards simplification and alignment with 
our changing corporate strategy we received some feedback in connection 
with the 2012 agm that the explanation of the new annual incentive plan 
could be improved we have undertaken to address this in the following 
report and i hope you find this new layout helpful in understanding our 
approach to remuneration
i also took the opportunity in december 2012 to meet with some of our 
largest shareholders to discuss any concerns relating to remuneration the 
shareholders i met acknowledged the changes we have made to align the 
remuneration of our executive population more closely with the strategic 
priorities detailed on page 8 they also appreciated our clearer explanation 
of how we operated the annual incentive plan and understood how we 
determined an appropriate remuneration package for julie brown our new 
chief financial officer we also spent time talking to them about the new 
remuneration reporting requirements that will apply from 2014 and how we 
operated our shareholding guidelines
joseph papa
chairman of the remuneration committee
015914smithnephewar12p7488 working copyindd   75 26022013   0936 smith  nephew annual report 2012 76
directors’ remuneration report continued
compliance statement
we have prepared this directors’ remuneration report the ‘report’ in 
accordance with the large and mediumsized companies and groups 
accounts and reports regulations 2008 the ‘regulations’ it also 
meets the relevant requirements of the financial services authority ‘fsa’ 
listing rules in addition we have been mindful of the bis proposals on 
remuneration with a view to improving the transparency of our reporting 
as required by the regulations a resolution to approve the report will be 
proposed at the annual general meeting on 11 april 2013
smith  nephew’s remuneration policy
smith  nephew’s remuneration policy is designed to attract and motivate 
talent to drive the strategy over the short medium and long term which in turn 
will lead to higher returns for our shareholders the committee believes it is 
important for remuneration arrangements to be consistent across our senior 
executive team in setting the policy and making remuneration decisions the 
committee takes into account pay and conditions elsewhere in the group and 
our policy for the remuneration of our executive management group is broadly 
consistent with that for the executive directors
this section of our report describes the key components of the remuneration 
arrangements for executive directors that were in place for 2012 and remain 
largely unchanged for 2013
component objective operation
base salary and benefits
base salary
to attract and retain high performing 
talent by setting base salaries at rates 
comparable to what would be paid in 
an equivalent position elsewhere
salaries are reviewed annually with any increase applying from 1 april
salary levelsincreases take account of
 – scope and responsibility of the position 
 –  performance potential of the individual by reference to the median salary 
for the relevant geographical market and
 – average increase awarded across the company
pension
to provide marketcompetitive 
retirement benefits
executive directors receive an allowance fixed as 30 of salary in lieu of 
membership of a company run pension scheme base salary is the only 
element of remuneration that is pensionable
benefits
to attract and retain high performing 
talent by providing benefits 
comparable to those that would be 
provided for an equivalent position 
elsewhere
includes healthcare and deathinservice provision and company car
allowance
relocation costs if required
annual incentives 
annual incentive plan
to motivate and reward the 
achievement of specific annual 
financial and business objectives
to encourage sustained high 
standards through the application of a 
‘malus’ provision over three years on 
the equity element of the plan 
the annual incentive plan comprises a cash and equity element both 
based on the achievement of financial and business objectives set at the 
start of the year see right
at the end of the year the committee determines the extent to which these 
have been achieved and sets the award level
this award has a cash element paid in full at the end of the performance year 
and an equity element comprising conditional share awards made at the time 
of the cash award with vesting phased over the following three years 
the equity element vests at the end of each of the next three years 
1
⁄3 
1
⁄3 
1
⁄3 
only if performance remains satisfactory over each of these three years 
otherwise awards 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
longerterm incentives
performance share 
programme
to motivate and reward longerterm 
performance
the group operates one longterm incentive plan
conditional share awards vest after three years subject to the achievement 
of stretching performance targets 
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 
perfomance period
executive shareholding
executive shareholding
to support alignment with shareholder 
interests by requiring our senior 
executives to act like shareholders
executive directors must retain 50 of all shares vesting under annual 
and longterm incentive plans after tax until their holding requirement has 
been met 
015914smithnephewar12p7488 working copyindd   76 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 77
opportunity performance measures for 2012 changes for 2013
normally the annual salary increases 
for executive directors will be in line 
with that for the group as a whole 
na none
na na none
na na none
cash element
target 100 of salary maximum 
150
equity element
target 50 of salary maximum 65
70 of the annual incentive is based on financial performance measures – 
including revenue trading profit and trading cash – with the remaining 30 
based on other business goals
the committee has the discretion to apply a multiplier – adjusting the 
outcome up or down by up to 10 to reward or penalise conduct in terms 
of reputational leadership and organisational behaviours 
the maximum opportunity shown left cannot be exceeded through the 
application of the multiplier
none
target face value of awards are 95  
of salary maximum 190 
50 of an award vests subject to threeyear total shareholder return 
relative to industry peers
the remaining 50 of award vests on achievement of threeyear 
cumulative free cashflow targets
none
2x salary na none
015914smithnephewar12p7488 working copyindd   77 26022013   0936 smith  nephew annual report 2012 78
directors’ remuneration report continued
payforperformance scenario analysis
the following chart shows the potential split between the different elements 
of the executive directors’ remuneration in 2013 under three different 
performance scenarios ‘below threshold’ ‘target’ and ‘stretch’
target
below 
threshold stretch
base salary
0 £1m £2m £3m £4m £5m
pension other beneﬁts annual incentive cash
annual incentive equity performance share programme
o bohuon
j brown
o bohuon
j brown
o bohuon
j brown
base salary
annual base salary 
€1081500 for the ceo £500000 for the cfo
pension
30 of salary
other benefits
taxable value of annual benefits provided 
€95000 for the ceo £25000 for the cfo
‘below threshold’ ‘target’ ‘stretch’
annual incentive plan cash element
0 of salary 100 of salary 
target opportunity
150 of salary 
maximum opportunity
annual incentive plan equity element
0 of salary 50 of salary 
target opportunity
65 of salary 
maximum opportunity
performance share programme
0 vesting 100 vesting 
95 of salary
200 vesting 
190 of salary
ceo data assumes an exchange rate of €100  £080
service contracts
we employ executive directors on rolling service contracts with notice 
periods of 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 as such pay them an amount 
equivalent to the salary pension and benefits they would have received if 
they had been required to work their notice period in addition we may also 
in exceptional circumstances exercise our discretion to pay the executive 
director a proportion of the annual incentive that they would have received 
had they been required to work their notice period any entitlement or 
discretionary payment may be reduced in line with executive directors’ duty 
to mitigate losses subject to applying our noncompete clause 
in the case of a change in 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 and 12 months target annual incentive plus 
pension and benefits
in 2012 we received comments from some of our shareholders about the 
provisions contained in our executive directors’ service contracts relating 
to the entitlement to an attarget annual incentive payout on a change of 
control as well as eligibility to earn an annual incentive whilst serving notice 
in the course of the year we have reviewed these provisions and going 
forward the payment of any annual incentive following a change of control 
will be entirely discretionary and reflect the individual’s performance and 
contributions this new policy applies to any executive director appointed 
after 1 november 2012 including julie brown our new chief financial officer 
in the first year of employment julie brown’s notice period will be six months 
from the company and three months from her 
executive 
director
date of service 
contract
effective  
date
notice period  
from company
olivier bohuon 9 february 2011 1 april 2011 12 months
julie brown 7 november 2012 4 february 2013 6 months
we encourage our executive directors to serve as a nonexecutive director 
of a maximum of one external company such appointments are subject 
to the approval of the nomination  governance committee and any fees 
earned are retained by the executive director olivier bohuon is a member of 
the supervisory board at virbac sa and adrian hennah is a nonexecutive 
director of reed elsevier plc during 2012 olivier bohuon received €19000 
and adrian hennah received £65000 in respect of these appointments
t ermination policy
our policy regarding termination payments is to limit severance payments on 
termination 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 employee 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 pension and benefits in the event 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 committee’s 
assessment of performance to date performance share awards will be 
prorated for time worked during the relevant performance period and will 
remain subject to performance over the full performance period for all other 
leavers annual cash incentive will generally be forfeited and outstanding 
equity incentive awards and performance share awards will lapse the 
committee retains discretion to alter these provisions on a casebycase 
basis following a review of circumstances and to ensure fairness for both 
shareholders and participants
t ermination arrangements for mr hennah
adrian hennah voluntarily resigned as chief financial officer with effect 
from 31 december 2012 to take up employment elsewhere he was therefore 
not entitled to receive any termination payment he worked up until 31 
december 2012 and was paid and received benefits up to that date in 
accordance with his service contract as he was employed throughout the 
year the remuneration committee has decided that it is appropriate for 
adrian hennah to receive an annual cash incentive of £585800 in respect 
of the work he undertook during 2012 further details are given on pages 80 
and 81 all unvested performance share awards deferred bonus awards 
options and equity incentive awards lapsed on cessation of employment
policy on recruitment arrangements
we have clarified our position on the appointment of executive directors who 
are recruited externally in many cases someone appointed externally will 
forfeit sizeable cash bonuses and share awards if they choose to leave their 
former employer and join us the committee therefore believes that we need 
to retain the ability to compensate new hires for any bonus or share awards 
they give up in choosing to leave another employer to join smith  nephew 
we will use our discretion in setting any such compensation which will be 
decided on a casebycase basis as a point of policy we will not provide 
compensation of greater value than the new appointee is giving up 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 
whilst at the same time aiming for simplicity
we have followed this policy when determining compensation for julie 
brown our new chief financial officer who was appointed on 4 february 
2013
015914smithnephewar12p7488 working copyindd   78 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 79
remuneration arrangements for julie brown
julie brown’s remuneration package has been set in line with the company’s 
existing remuneration policy and for 2013 will be as follows
element of remuneration
base salary £500000
pension 30 of salary
annual incentive plan cash
target
maximum
100 of salary 
150 of salary
annual incentive plan equity
target
maximum
50 of salary 
65 of salary
performance share awards
target
maximum
95 of salary 
190 of salary
in addition to the above julie brown will receive partial compensation for 
unvested incentive awards forfeited on joining smith  nephew she will 
be granted an award over 75000 shares vesting in three equal tranches in 
february 2014 february 2015 and february 2016 subject to her continued 
employment this award partially reflects the value of unvested share 
awards from her previous employer that she forfeited when leaving their 
employment on joining smith  nephew julie brown has forfeited shares 
to the value of £1434000 which were due to vest from march 20132015 as 
follows
performance 
shares
£1099000 vesting between march 2013 and march 
2015 subject to performance conditions 
relating to tsr and cash flow being 
satisfactorily met
restricted shares £335000 vesting in march 2014 and subject to no 
further performance conditions other than 
continued employment 
the committee therefore believes that this award of 75000 shares which 
is valued at £526500 as at 19 february 2013 is appropriate and will help 
align mrs brown’s interests with those of our shareholders from the outset 
of her appointment given that the total value of the shares to be awarded is 
significantly less than the face value of shares forfeited and that not all the 
shares forfeited were subject to performance conditions the committee did 
not believe that it was appropriate for performance conditions to be applied 
to these shares over and above her continued employment
nonexecutive directors
nonexecutive directors are engaged by the company on the basis of 
letters of appointment they are normally appointed for terms of three years 
terminable at will without notice by either the group or the director and 
without compensation the chairman is engaged on a letter of appointment 
and has a sixmonth notice period
date of 
appointment
date of  
current letters
anticipated expiry 
of current termi
sir john buchanan 3 february 2005 27 april 2012 26 april 2015
ian barlow 5 march 2010 5 march 2013 4 march 2016
pamela kirby 1 march 2002 1 january 2013 31 december 2013
brian larcombe 1 march 2002 1 january 2013 31 december 2013
joseph papa 1 august 2008 1 august 2011 31 july 2014
ajay piramal 1 january 2012 1 january 2012 31 december 2015
richard de schutter 1 january 2001 1 january 2013 31 december 2013
baroness bottomley 12 april 2012 12 april 2012 11 april 2015
i subject to the annual reelection of directors at the company’s agm
the board reviews the pay of the nonexecutive directors and aims to 
set fees that are competitive with other companies of equivalent size and 
complexity nonexecutive directors are not entitled to receive awards under 
the company’s longterm incentive plans we do however require our non
executive directors to hold a personal stake in the company equivalent to 
their basic annual fee these shares may be held as ordinary shares or as 
adss held either by themselves or their immediate family details of the non
executive directors’ current shareholdings can be found on page 83
nonexecutive directors are paid a fixed basic annual fee the chairmen 
of the audit remuneration and ethics  compliance committees and the 
senior independent director also receive an additional fee in recognition 
of their added responsibilities an additional fee is also payable to non
executive directors in cases where intercontinental travel is necessary to 
attend board and committee meetings
remuneration in 2012
main activities of the remuneration  
committee in 2012
the main work of the remuneration committee this year is described on 
page 69 key activities have been
 – continued development of the new remuneration policy introduced last 
year and implementing new remuneration arrangements for the top 70 
senior executives to align remuneration with the updated group strategy 
 – determination of remuneration package for julie brown new chief financial 
officer and certain other executive officers on recruitment
 – consideration and updating of remuneration policies on compensation for 
amounts forfeited by executives recruited externally termination payments 
in the event of a change of control and policy on shareholding guidelines
 – continued engagement with our largest shareholders and certain 
shareholder advisory bodies
 – consideration of new remuneration reporting requirements being 
introduced in 2014
remuneration committee membership in 2012
as set out on page 69 of this annual report my fellow members of the 
remuneration committee are baroness bottomley joined the committee on 
19 september 2012 pamela kirby brian larcombe and richard de schutter 
details concerning the number of meetings held and the scope and role of 
our duties may be found on this page
from time to time in 2012 attendees included olivier bohuon chief 
executive officer susan swabey company secretary helen maye chief 
human resources officer adrian hennah chief financial officer and 
bob newcomb svp global rewards the chairman attended some of the 
meetings by invitation 
independent advice
during the year the committee received information and advice from 
towers watson an independent executive remuneration consultancy firm 
appointed by the committee in 2011 they provided advice on market trends 
remuneration benchmarking and remuneration issues in general towers 
watson also provided other human resources and compensation advice to 
the company for levels below the board 
throughout 2012 we were also advised by aon hewitt and mercer limited in 
relation to salary data and by kepler associates in relation to the structure 
and content of the directors’ remuneration report all these consultants 
comply with the code of conduct for remuneration consultants and we are 
satisfied that their advice is objective and independent
base salary and benefits
with effect from 1 april 2012 we approved the following base salaries for the 
executive directors
olivier bohuon €1050000
adrian hennah
£ 585800 left company on  
31 december 2012
015914smithnephewar12p7488 working copyindd   79 26022013   0936 smith  nephew annual report 2012 80
directors’ remuneration report continued
in february 2013 we reviewed the base salaries of the executive directors 
having considered general economic conditions and average salary 
increases across the rest of the group of around 3 the committee has 
agreed that chief executive officer olivier bohuon will receive an increase 
in his salary in line with the group average this is the first increase in chief 
executive officer pay since he joined the company in april 2011 mrs brown’s 
salary for 2013 set on her appointment is £500000 as a result the base 
salaries for the executive directors with effect from 1 april 2013 are as follows
olivier bohuon €1081500
julie brown £500000
pensions
during the period olivier bohuon and adrian hennah both received a 
salary supplement of 30 of basic salary to apply towards their retirement 
savings in lieu of membership of a company run pension scheme they also 
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 any 
spouse and dependant pensions
the same arrangements will apply in 2013 for olivier bohuon and julie brown
2012 annual incentive plan award
during 2012 the annual incentive plan for executive directors was based on 
the achievement of specific financial and business objectives 
for 2012 the financial and business objectives were as follows
financial objectives revenue 30 70
trading profit 30
trading cash 10
business objectives rd investment 30
succession planning
employee engagement
compliance
development of product portfolio 
olivier bohuon only
shared services adrian hennah only
in 2013 the financial and business objectives will remain the same 
at the period end the committee conducted an assessment of each 
executive director against their financial and business objectives
in addition the committee has the discretion to apply a multiplier – positively 
or negatively – to the annual incentive assessment of an executive director 
adjusting the total up or down by up to 10 this rewards or penalises an 
executive director for ‘how’ they conduct themself in terms of leadership 
corporate reputation ethics and organisational behaviours and represent the 
company both internally and externally 
over the period underlying revenue growth was 2 between target and 
maximum trading profit was 965m between target and maximum and 
the trading profit to cash conversion ratio was 104 above maximum 
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 each year and will reflect some of the most important areas of 
strategic focus for the group where objectives are repeated yearonyear 
the committee will set annual measurement criteria that are appropriate to 
motivate and measure an executive director’s performance in any one year 
for instance innovation for value is at the heart of our strategic priorities our 
success here is measured in terms of how we manage our rd programmes 
and continue to develop our product portfolio to reflect the need to bring 
forward new technologies appropriate for our markets and customers 
globally ultimate responsibility for these vital programmes rests with our 
executive directors and we believe it was right to reflect the importance in 
their 2012 personal business objectives 
similarly compliance – and all that follows from it relating to ethics and quality 
– is the responsibility of the executive directors who must set the standards 
for the whole group and be measured on their execution this is also true 
on employee engagement where we want to motivate our leaders to exceed 
in providing vision and leadership and living our values of performance 
innovation and trust 
the committee reviewed the performance of olivier bohuon and adrian 
hennah against their agreed business objectives for 2012 and determined 
that olivier bohuon delivered very strongly against his objectives and 
that adrian hennah had consistently met his objectives for the year their 
achievements during the year include
business objective
commentary on 2012 performance
olivier bohuon adrian hennah
rd investment successfully managed investment levels during the 
year to fully support progress towards longerterm 
revenue targets in emerging markets 
succession planning ensured focus on robust 
succession planning 
resulting in minimal 
disruption or turnover of 
key roles 
completed succession 
planning for all key 
finance roles 
employee engagement made significant effort 
to ensure employee 
engagement and 
effective 2way 
communication with 
the wider employee 
population during a 
period of significant 
transistion including a 
91 participation rate 
in the global employee 
survey 
achieved a 90 
participation rate by the 
finance function in the 
global employee survey 
identified key focus areas 
for action in 2013 
compliance reinforced expectation 
for the highest levels of 
ethics and compliance 
through communication 
with and training 
of wider employee 
population 
ensured that all strategic 
plans new products 
and new businesses 
were fully assessed for 
compliance risks 
development of product 
portfolio  
olivier bohuon only
oversaw the successful 
delivery of a significant 
number exceeding 
expectations in some 
cases of planned 
product launches and 
registrations during the 
year 
focused on delivering 
a balanced product 
portfolio globally 
na
shared services 
adrian hennah only
na completed 
implementation of 
shared services model 
and realised targeted 
cost savings 
successfully managed 
customer satisfaction 
survey with overall score 
of 86
the committee also considered the multiplier to the annual incentive 
assessment of olivier bohuon and adrian hennah and agreed that no 
multiplier was appropriate in respect of 2012 
015914smithnephewar12p7488 working copyindd   80 26022013   0936 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 81
the executive directors’ performance against the targets set for 2012 was 
therefore as follows
olivier bohuon 2012
below 
threshold
between 
threshold 
and target
between 
target and 
maximum
above 
maximum
revenue 30 ✓
trading profit 30 ✓
trading cash 10 ✓
business objectives 30 ✓
multiplier 10 na
adrian hennah 2012
below 
threshold
between 
threshold 
and target
between 
target and 
maximum
above 
maximum
revenue 30 ✓
trading profit 30 ✓
trading cash 10 ✓
business objectives 30 ✓
multiplier 10 na
the 2012 opportunity under the annual incentive plan comprised two parts
a a cash element 100 of salary at target 150 maximum opportunity and
b an equity element 50 of salary at target 65 maximum opportunity 
the cash element is paid following the performance year the equity element 
is a conditional award over ordinary shares made under the global share 
plan 2010 vesting in equal annual tranches over three years provided that 
individual and group performance is sustained at an acceptable level each 
year share awards are subject to malus and will lapse in the event that 
individual and group performance is not sustained over the respective 
performance period
the assessment of the committee resulted in the following awards for 2012
executive  
director
cash element equity element
 of salary amount  of salary amount
olivier bohuon 126 €1321950 65 €682500
adrian hennah 100 £585800 na – left on 31 december 2012
the equity element of the annual incentive plan was introduced in 2012 so 
there were no awards due to vest from outstanding cycles in the year under 
review it is intended that the annual incentive plan will be operated in a 
similar manner for 2013 there will be no change to the target or maximum 
opportunities for the coming year or in the split between financial and 
business objectives
2012 performance share programme
the group operates one longterm incentive plan – the performance share 
programme
under the performance share programme conditional awards of shares 
vest after three years subject to the achievement of stretching performance 
targets relating to total shareholder return tsr and free cashflow 
generation awards may be subject to clawback in the event of material 
financial misstatement or misconduct
performance share awards were made to executive directors under the 
global share plan 2010 during the year the levels of the awards in 2012 
were as follows
market value 
of award 
vesting at 
maximum
market value 
of award 
vesting at 
target
executive directors 190 of salary 95 of salary
50 of the award will vest based on the company’s tsr performance 
relative to a bespoke peer group of companies in the medical devices sector 
over a threeyear period commencing 1 january 2012 as follows
tsr ranking within comparator group
award vesting 
–  of salary
below median nil
median 2375
upper quartile 95
awards will vest on a straight line 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 2012 awards comprises the following 
companies
– arthrocare
– bard
– baxter
– becton dickinson
– boston scientific
– coloplast group
– conmed
– covidien
–  edwards life  
sciences corp
– medtronic
– nobel biocar
– nuvasive
– orthofix
– stryker
– st jude medical
– wright medical
– zimmer
the group’s tsr performance and its performance relative to the comparator 
group will be independently monitored and reported to the remuneration 
committee by towers watson
50 of the award is subject to free cashflow performance the free cashflow 
target is a cumulative performance target over the threeyear performance 
period the inclusion of a cash measure in both the annual and longterm 
plans reflects its importance over both timescales the measure for the 
longterm target is free cashflow which is defined as net cash inflows from 
operating activities less capital expenditure free cashflow is considered 
to be the most appropriate measure of cashflow performance because it 
relates to the cash generated to finance additional investment in business 
opportunities debt repayments and distributions to shareholders this 
measure includes significant elements of operational and financial 
performance and helps to align executives’ rewards with shareholder value 
creation
the 50 of the 2012 award that is subject to free cashflow performance will 
vest as follows
cumulative free cashflow award vesting –  of salary
below 141 billion nil
141 billion 2375
162 billion 475
183 billion or more 95
awards will vest on a straight line basis between these points if the 
company’s cashflow performance is below 141 billion none of this part of 
the award will vest
015914smithnephewar12p7488 working copyindd   81 26022013   0937 smith  nephew annual report 2012 82
directors’ remuneration report continued
it is intended that the committee should have the discretion to adjust but on 
an exceptional basis only the free cashflow target during the performance 
period for material factors that would otherwise distort the performance 
measure in either direction for example adjustments may be required to 
reflect exchange rate movements significant acquisitions or divestments 
or major legal and taxation settlements any major adjustments to the 
calculation will be disclosed to shareholders there is no retesting of 
performance executive directors do not receive share options under the 
performance share programme 
performance targets for 2013 performance share 
programme ‘psp’ awards 
it is proposed that awards made under the psp in 2013 will vest after three 
years with 50 vesting on threeyear relative tsr performance and 50 on 
cumulative free cashflow no changes are proposed to the operation of the 
tsr element described above for 2012 psp awards for awards to be granted 
in 2013 the cumulative free cashflow targets for awards to be granted in 
2013 will be as follows
cumulative free cashflow award vesting –  of salary
below 15 billion nil
155 billion 2375
178 billion 475
201 billion or more 95
no other changes are proposed to the performance share programme
deferred bonus arrangements prior to 2012
prior to 2012 onethird of any annual bonus earned was compulsorily deferred 
into share awards that vest in equal tranches over three years subject to 
the participant’s continued employment outstanding tranches of awards 
made to executive directors previously are shown on page 86 no further 
performance conditions apply to these deferred share awards on leaving 
employment voluntarily adrian hennah’s unvested share awards lapsed
longterm incentive arrangements prior to 2012
prior to 2012 conditional share awards were made to executive directors 
under the 2004 performance share plan and to other executives under the 
global share plan 2010
the vesting of awards made to executive directors was linked to adjusted 
eps ‘epsa’ growth and the number of shares could then be increased 
subject to tsr performance relative to the major companies in the medical 
devices industry
adrian hennah’s unvested awards granted in 2010 and 2011 lapsed on 
his leaving smith  nephew olivier bohuon was first granted an award 
under the 2004 performance share plan in 2011 which will vest subject to 
performance over the three years ending 31 december 2013 details of these 
awards can be found in the table on page 85 of this report and the vesting 
outcome will be reported in next year’s directors’ remuneration report 
espa growth over the three years ended 31 december 2012 was 187 
adjusted for the bioventus transaction against the compounded market 
growth rate of 117 over the same period the company was ranked 10th 
out of 19 companies in the medical devices comparator group which meant 
that the multiplier of one was applied to the number of shares vesting under 
the espa target as a result the following award made in 2010 to a former 
executive director will vest on 1 march 2013
number of adrs 
under 2010 award
number of adrs 
vesting in 2013  vesting
david illingworth 16720 4347 26
i  the award granted to david illingworth will be settled prior to 15 march 
2013 in accordance with s409a of the us internal revenue code 
ii  the number of shares under the 2010 award has been prorated for 
service during the performance period 
prior to 2012 share option awards were also made to executive directors 
under the 2004 executive share option plan and to other employees under 
the global share plan 2010 options granted to executive directors are 
subject to tsr performance relative to the major companies in the medical 
devices industry
adrian hennah’s unvested awards granted in 2010 and 2011 lapsed on his 
leaving smith  nephew olivier bohuon was first granted an award under 
the 2004 executive share option plan in 2011 which will vest subject to 
performance over the three years ending 31 december 2013 details of these 
awards can be found in the table on page 85 of this report and the vesting 
outcome will be reported in next year’s directors’ remuneration report 
over the three years ended 31 december 2012 the company was ranked 
10th out of 19 companies in the medical devices comparator group which 
meant that 33 of the options granted to a former executive director in 2010 
will vest on the 9 september 2013 as follows 
number of adrs 
under option 
granted in 2010
number of adrs 
under option 
vesting in 2013  vesting
david illingworth 11073 3654 33
i  the option granted in 2010 has been prorated for service during the 
performance period 
other share schemes
the company also operates uk and international sharesave plans and an 
employee stock purchase plan – espp – in the us which are allemployee 
schemes that enable our employees to save on a regular basis and then buy 
shares in the company the executive directors are permitted to participate 
in the sharesave plan and details of their participation are included in the 
table on page 86
single figure
to aid transparency to our shareholders the table below sets out a single 
figure for the total remuneration received by each executive director for the 
year to 31 december 2012
2012 
000
fixed pay
salary benefits
salary 
supplement in 
lieu of pension subtotal
olivier bohuon €1050 €93 €315 €1458
adrian hennah £584 £23 £175 £782
2012 
000
pay for performance
annual 
cash 
incentive
annual 
equity 
incentive
perfor 
mance 
shares
share 
options subtotal
olivier 
bohuon €1322 €683 na na €2005
adrian 
hennah £586 na na na £586
2012 000 total remuneration
ceo €3463
cfo £1368
015914smithnephewar12p7488 working copyindd   82 26022013   0937 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 83
the figures have been calculated as follows
base salary the actual salary earned for the year
annual benefits the taxable value of benefits received in the year
pension the value of the salary supplement paid by the company in lieu of a pension
annual cash incentive the value of the cash incentive payable for performance over 2012
equity incentive award the value of share awards granted for performance over 2012
performance shares the value on 31 december 2012 of shares vesting in 2013 subject to performance over the threeyear period ended 31 december 2012
share options the embedded gain on 31 december 2012 of options vesting subject to performance over the threeyear period ended 31 december 2012
ceo data assumes an exchange rate of €100  £081
shareholding requirements
we believe that one of the best ways our senior executives can act and feel like shareholders is for them to hold a significant number of shares in the 
company we therefore expect our executive directors to build up a holding of smith  nephew shares of two times their base salary in order to reinforce 
this expectation we require them to retain 50 of all shares vesting under 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 holding requirement when calculating whether or 
not this requirement has been met we will include ordinary shares or adss held by the individual and by their immediate family and the intrinsic value of any 
vested but unexercised options 
we also require our nonexecutive directors to hold a personal stake in the company equivalent to their basic annual fee
the table on page 86 shows the sharesadrs held by the directors 
dilution headroom
the committee ensures at all times that the number of new shares which may be issued under any sharebased plans including all employee 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 share plans the committee 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 ten years 2003 to 2012 the number of new shares issued under out share plans has been as follows 
allemployee share plans  8349735 092 of issued share capital as at 19 february 2013
discretionary share plans  34234721 378 of issued share capital as at 19 february 2013
nonexecutive director fees
nonexecutive director and chairman fees in 2012 were as follows
fee in uk sterling fee in us dollars fee in euros
basic annual fee £63000 120000 €84250
committee chairman and senior independent director fee £15000 27000 €20000
intercontinental travel fee per meeting £3500 7000 €5000
chairman’s fee £400000 – –
distribution statement
for the year to 
31 december 2012
for the year to 
31 december 201 1  change
attributable profit for the year 729m 582m 25
dividends declared and paid during the year 186m 146m 27
total group spend on remuneration 886m 930m –5
015914smithnephewar12p7488 working copyindd   83 26022013   0937 smith  nephew annual report 2012 84
directors’ remuneration report continued
directors’ emoluments and pensions
the following sections of the report up to ‘total shareholder return’ have been audited by ernst  young llp in accordance with the regulations
a salaries and fees
salaries  
and fees benefits i
annual  
incentive
salary 
supplement in 
lieu of pensions total 2012 viii total 201 1 viii
thousands
chairman nonexecutive
sir john buchanan £407 – – – £407 £420
executive directors
olivier bohuon €1050 €93 €1322 €315 €2780 €3507
adrian hennah ii £584 £23 £585 £175 £1367 £1308
nonexecutive directors
ian barlow £85 – – – £85 £80
baroness bottomley iii £52 – – – £52 –
geneviève berger iv €75 – – – €75 €87
pamela kirby £85 – – – £85 £75
brian larcombe £70 – – – £70 £65
joseph papa 189 – – – 189 173
ajay piramal v £74 – – – £74 –
richard de schutter 189 – – – 189 181
rolf stomberg vi €24 – – – €24 €98
i benefits shown in the table above include cash allowances and benefits in kind
ii retired on 31 december 2012
iii appointed on 12 april 2012
iv retired on 1 november 2012
v appointed on 1 january 2012
vi retired on 12 april 2012
vii  david illingworth who retired in august 2011 received a consultancy fee of 40109 and benefits of £13880 during the year to 31 december 2012 in 
accordance with his retirement arrangements
viii total executive and nonexecutive directors’ emoluments for 2012 amounted to 7468000 2011 – 10423000 
015914smithnephewar12p7488 working copyindd   84 26022013   0937 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 85
b directors’ share options
options as at
1 january 2012
number
granted during 
2012
number
exercise price 
of options
granted
exercised 
during 2012
number
lapsed during
2012
number
options as at
31 december
2012
number
average 
exercise
price
range of 
exercisable 
dates of 
options held at
31 december
2012 v
date
olivier bohuon i 151698 – – – – 151698 607p
092014
092021
adrian hennah i 430713 – – 229905 200808 – 53758p
david illingworth i 294612 – – 294612 – – 59243p
ii v 173935 – – 113825 4745 55365 3955 iv
082013
032014
total 468547 – 408437 4745 55365
i options over ordinary shares granted under executive share option plans at prices below the market price at 31 december 2012 of 67950p 
ii options over adss granted under 2004 executive share option plans figures in the above table show the equivalent number of ordinary shares 
iii options granted under the uk sharesave scheme
iv per ads
v the number of shares under option at 1 january 2012 has been reduced to reflect options over 170055 shares which lapsed during 2011
the range in the market price of the company’s ordinary shares during the year was 58000p to 69300p and the market price at 31 december 2012 was 
67950p the gain made by adrian hennah on his exercise of options during the year was £35778913 2011 – £nil 2010 – £2781 in 2012 the gain made by 
david illingworth on exercising share options was 329564 plus £38310 2011 – nil on 7 february 2013 67 of the options granted to david illingworth 
under the 2004 executive share option plan lapsed following completion of the performance period the remainder of options will vest and become capable 
of being exercised on the third anniversary of the grant in august 2013
c longterm incentive plan awards
award type
number 
of shares 
awarded at
1 january
2012 
number
awards 
during 
the year 
number
market price 
on award
vested award 
number
market price 
on vesting
lapsed 
award 
number
number 
of shares 
awarded at
31 december
2012 
number
latest 
performance 
period date
olivier bohuon
i rsa 200000 – – 66667 6335p – 133333 032014
ii psp 227547 267304 622p – – – 494851 122013
iii eia – 91446 622p – – – 91446 122014
total 427547 358750 66667 – – 719630
adrian hennah
ii psp 451008 177170 622p 141920 665p 486258 – –
iii eia – 46623 622p – 46623 –
total 451008 223793 141920 532881 –
david illingworth
iii iv psp 261455 – – 156510 5018 v 21345 83600 122012
i award made over ordinary shares under listing rule 9
ii awards made over adss under the 2004 performance share plan figures in the above table show the equivalent number of ordinary shares 
iii or date of retirement if earlier
iv  the number of shares awarded at 1 january 2012 has been reduced to reflect awards over 256185 shares which lapsed and 45578 shares which vested 
during 2011
v per ads
015914smithnephewar12p7488 working copyindd   85 26022013   0937 smith  nephew annual report 2012 86
directors’ remuneration report continued
on 7 february 2013 74 of the awards granted to david illingworth in 2010 under the 2004 performance share plan lapsed following completion of the 
performance period in accordance with s409a of the us internal revenue code the remainder of david illingworth’s award will be paid out prior to 15 march 2013
d deferred bonus plan
the vesting of awards under the deferred bonus plan is dependent upon continued employment within the group throughout the threeyear vesting period 
provided the condition of continued employment is met one third of the total award will vest in each of the three years on the award’s anniversary
total as at
1 january 2012
awarded 
during 2012
vested during 
2012
lapsed  
during 2012
total as at
31 december 
2012 i
adrian hennah 67407 – 34398 33009 –
i lapsed 31 december 2012 
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 58 to 61
in respect of the financial year 2011 the total compensation excluding pension emoluments but including cash payments under the performance related 
incentive plans paid to the senior management for the year was 14941000 2011 – 17403000 2010 – 11689000 the total compensation for loss of office 
was nil 2011 – 1161000 2010 – nil the aggregate increase in accrued pension benefits was 229000 2011 – increase of 387000 2010 – increase of 
16000 and the aggregate amounts provided for under the supplementary schemes was 537000 2011 – 711000 2010 – 1141000
during 2012 senior management were granted equity incentive awards over 365276 shares performance share awards over 857210 shares and conditional 
share awards over a total of 29700 shares under the global share plan 2010 and options over 3027 shares under the employee sharesave plans as of 19 
february 2013 the senior management 11 persons owned  156491 shares and 44423 adss constituting less than 01 of the issued share capital of the 
company senior management also held as of this date options to purchase 832759 shares conditional share awards over 282512 shares and 20346 adss 
equity incentive awards over 318653 shares performance share awards over 1032415 shares and 38134 adss awarded under the 2004 performance share 
plan and the global share plan 2010 and awards over 19119 shares and 6319 adss under the deferred bonus plan
directors’ interests
beneficial interests of the directors in the ordinary shares of the company are as follows
1 january 2012  
or at date of appointment
31 december 2012  
or at date of retirement 19 february 2013 i
shareholding as 
 of base salary 
annual fee for 
neds ii
numbers shares options shares options shares options 
sir john buchanan 159483 – 162695 – 162695 – 286
julie brown – – – – – – –
olivier bohuon ii – 151698 37015 151698 37015 151698 29
adrian hennah 167968 430713 279511 – – – –
ian barlow 18000 – 18000 – 18000 – 201 
geneviève berger 1750 – 1750 – – – –
baroness bottomley – – 17500 – 17500 – 195 
pamela kirby 15000 – 15000 – 15000 – 167 
brian larcombe 40000 – 40000 – 40000 – 446 
joseph papa 5000 – 12500 – 12500 – 113 
ajay piramal – – – – – – – 
richard de schutter 250000 – 220000 – 220000 – 1990 
rolf stomberg 13100 – 13100 – – –
total 670301 582411 817071 151678 522710 151698
i the latest practicable date for this annual report
ii  calculated using closing share price of 702p per ordinary share and 5428 per ads on 19 february 2013 and an exchange rate of £1€11562
iii  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 calculated using the latest practicable date share price 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
the total holdings of the directors represent less than 1 of the ordinary share capital of the company
the register of directors’ interests which is open to inspection at the company’s registered office contains full details of directors’ shareholdings and share 
options
015914smithnephewar12p7488 working copyindd   86 26022013   0937 overview strategy and performance
marketplace and 
busines s review
sustainability 
review
f inancial review  
and principal risk s
c orporate  
g overnance
accounts and  
other inf ormation
section 6 c orporate g overnance 87
total shareholder return
a graph of the company’s tsr performance compared to that of the tsr of the ftse100 index is shown below in accordance with schedule 8 to the 
regulations
smith  nephew
jan 09 dec 07 jan 10 jan 11 jan 12
ftse 100
source datastream
–40
–30
–20
–10
0
10
20
30
smith  nephew – five year total shareholder return measured in uk sterling based on monthly spot values
however as we compare the company’s performance to a tailored sector peer group of medical devices companies see page 70 when considering tsr 
performance in the context of the 2004 performance share plan and global share plan 2010 we feel that the following graph showing the tsr performance of 
this peer group is also of interest
smith  nephew
jan 09 dec 07 jan 10 jan 11 jan 12
medical device – median
source datastream
–50
–40
–30
–20
–10
0
10
20
smith  nephew  five year total shareholder return measured in us dollars based on monthly spot values
015914smithnephewar12p7488 working copyindd   87 26022013   0937 smith  nephew annual report 2012 88
7
accounts and other information
 
 
our business model and strategy will 
drive longterm financial performance
directors’ responsibilities for the accounts 89
independent auditor’s uk report 90
independent auditor’s us reports 91
group accounts 92
notes to the group accounts 96
independent auditor’s report for the company 139
company accounts 140
notes to the company accounts 141
group information 144
investor information 151
015914smithnephewar12p7488 working copyindd   88 26022013   0937 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 89
directors’ responsibilities for the accounts
 
the directors are responsible for preparing the group and company accounts 
in accordance with applicable united kingdom 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 united kingdom law the directors have elected to prepare the company 
accounts in accordance with united kingdom generally accepted accounting 
practice united kingdom 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 judgments 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 
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 united kingdom 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 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  
by order of the board 20 february 2013  
susan swabey  
company secretary 
015914smithnephewar12p89164indd   89 25022013   1145 smith  nephew annual report 2012 90
independent auditor’s uk report  
independent auditor’s report to the members of 
smith  nephew plc 
we have audited the group accounts of smith  nephew plc for the year ended 
31 december 2012 which comprise the group income statement the group 
statement of comprehensive income the group balance sheet the group cash 
flow statement the group statement of changes in equity and the related notes 
1 to 24 the financial reporting framework that has been applied in their 
preparation is applicable law and international financial reporting standards 
ifrss as adopted by the european union  
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  
respective responsibilities of directors and auditor  
as explained more fully in the directors’ responsibility statement set out on 
page 89 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 apb’s ethical standards for auditors  
scope of the audit of the accounts 
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 if we become 
aware of any apparent material misstatements or inconsistencies we consider 
the implications for our report 
opinion on financial statements 
in our opinion the group financial statements  
– give a true and fair view of the state of the group’s affairs as at 31 december 
2012 and of its profit for the year then ended  
– have been properly prepared in accordance with ifrss as adopted by the 
european union and  
– have been prepared in accordance with the requirements of the companies 
act 2006 and article 4 of the ias regulation  
opinion on other matter prescribed by the 
companies act 2006 
in our opinion the information given in the directors’ report for the financial year 
for which the group financial statements are prepared is consistent with the 
group financial statements  
matters on which we are required to report 
by exception 
we have nothing to report in respect of the following  
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 51 in relation to going concern and  
– the part of the corporate governance statement relating to the company’s 
compliance with the nine provisions of the uk corporate governance code 
and 
– certain elements of the report to shareholders by the board on directors’ 
remuneration 
other matter 
we have reported separately on the company financial statements of smith  
nephew plc for the year ended 31 december 2012 and on the information in the 
directors’ remuneration report that is described as having been audited  
separate opinion in relation to ifrss 
as explained in note 1 to the group financial statements the group in addition to 
complying with its legal obligation to comply with ifrs as adopted by the european 
union has also compiled with ifrs as issued by the international accounting 
standards board  
in our opinion the group financial statements give a true and fair view in 
accordance with ifrs of the state of the group’s affairs as at 31 december 2012 
and of its profit for the year then ended  
les clifford senior statutory auditor  
for and on behalf of ernst  young llp statutory auditor  
london  
20 february 2013  
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 2012 and 2011 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 2012 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  
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 
account presentation we believe that our audits provide a reasonable basis 
for our 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 2012 and 2011 and the consolidated results of its operations 
and cash flows for each of the three years in the period ended 31 december 
2012 in accordance 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 2012 based on criteria established in 
internal control – integrated framework issued by the committee of sponsoring 
organisations of the treadway commission and our report dated 20 february 
2013 expressed an unqualified opinion thereon  
ernst  young llp  
london england  
20 february 2013  
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 2012 based on criteria established in internal control – 
integrated framework issued by the committee of sponsoring organisations 
of the treadway commission 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 
‘management’s report on internal control over financial reporting’ 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 authorisations of management and directors of the company 
and 3 provide reasonable assurance regarding prevention or timely detection 
of unauthorised 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 2012 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 2012 and 2011 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 2012 and our report dated 20 february 2013 
expressed an unqualified opinion thereon  
ernst  young llp  
london england  
20 february 2013  
015914smithnephewar12p89164indd   90 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 91
independent auditor’s uk report  
independent auditor’s report to the members of 
smith  nephew plc 
we have audited the group accounts of smith  nephew plc for the year ended 
31 december 2012 which comprise the group income statement the group 
statement of comprehensive income the group balance sheet the group cash 
flow statement the group statement of changes in equity and the related notes 
1 to 24 the financial reporting framework that has been applied in their 
preparation is applicable law and international financial reporting standards 
ifrss as adopted by the european union  
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  
respective responsibilities of directors and auditor  
as explained more fully in the directors’ responsibility statement set out on 
page 89 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 apb’s ethical standards for auditors  
scope of the audit of the accounts 
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 if we become 
aware of any apparent material misstatements or inconsistencies we consider 
the implications for our report 
opinion on financial statements 
in our opinion the group financial statements  
– give a true and fair view of the state of the group’s affairs as at 31 december 
2012 and of its profit for the year then ended  
– have been properly prepared in accordance with ifrss as adopted by the 
european union and  
– have been prepared in accordance with the requirements of the companies 
act 2006 and article 4 of the ias regulation  
opinion on other matter prescribed by the 
companies act 2006 
in our opinion the information given in the directors’ report for the financial year 
for which the group financial statements are prepared is consistent with the 
group financial statements  
matters on which we are required to report 
by exception 
we have nothing to report in respect of the following  
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 51 in relation to going concern and  
– the part of the corporate governance statement relating to the company’s 
compliance with the nine provisions of the uk corporate governance code 
and 
– certain elements of the report to shareholders by the board on directors’ 
remuneration 
other matter 
we have reported separately on the company financial statements of smith  
nephew plc for the year ended 31 december 2012 and on the information in the 
directors’ remuneration report that is described as having been audited  
separate opinion in relation to ifrss 
as explained in note 1 to the group financial statements the group in addition to 
complying with its legal obligation to comply with ifrs as adopted by the european 
union has also compiled with ifrs as issued by the international accounting 
standards board  
in our opinion the group financial statements give a true and fair view in 
accordance with ifrs of the state of the group’s affairs as at 31 december 2012 
and of its profit for the year then ended  
les clifford senior statutory auditor  
for and on behalf of ernst  young llp statutory auditor  
london  
20 february 2013  
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 2012 and 2011 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 2012 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  
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 
account presentation we believe that our audits provide a reasonable basis 
for our 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 2012 and 2011 and the consolidated results of its operations 
and cash flows for each of the three years in the period ended 31 december 
2012 in accordance 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 2012 based on criteria established in 
internal control – integrated framework issued by the committee of sponsoring 
organisations of the treadway commission and our report dated 20 february 
2013 expressed an unqualified opinion thereon  
ernst  young llp  
london england  
20 february 2013  
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 2012 based on criteria established in internal control – 
integrated framework issued by the committee of sponsoring organisations 
of the treadway commission 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 
‘management’s report on internal control over financial reporting’ 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 authorisations of management and directors of the company 
and 3 provide reasonable assurance regarding prevention or timely detection 
of unauthorised 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 2012 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 2012 and 2011 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 2012 and our report dated 20 february 2013 
expressed an unqualified opinion thereon  
ernst  young llp  
london england  
20 february 2013  
015914smithnephewar12p89164indd   91 25022013   1145 smith  nephew annual report 2012 92
group income statement 
 notes  
year ended 
31 december
2012 
 million 
year ended  
31 december 
2011  
 million  
year ended 
31 december
2010 
 million 
revenue 2 4137 4270  3962 
cost of goods sold 1070 1140 1031
gross profit 3067 3130  2931 
selling general and administrative expenses 3 2050 2101 1860
research and development expenses 171 167 151
operating profit 2  3 846 862  920 
interest receivable 4 11 4  3 
interest payable 4 9 12 18
other finance costs 4 3 6 10
share of results of associates 11 4 –  –
profit on disposal of net assets held for sale 22 251 –  –
profit before taxation 1100 848  895 
taxation 5 371 266 280
attributable profit for the year i 729 582  615 
earnings per ordinary share i 6 
basic 813¢ 653¢ 693¢
diluted 809¢ 650¢ 692¢
 
group statement of comprehensive income 
 
 
 
 
notes
year ended 
31 december 
2012 
 million 
year ended  
31 december  
2011  
 million  
year ended 
31 december 
2010
 million 
attributable profit for the year i 729 582  615 
other comprehensive income  
cash flow hedges – interest rate swaps  
– losses arising in the year – 1 1
– losses transferred to income statement for the year – 1  4 
cash flow hedges – forward foreign exchange contracts  
–lossesgains arising in the year 1 1  3
–gainslosses transferred to inventories for the year 6 13  1 
exchange differences on translation of foreign operations  36 32 66 
exchange on borrowings classified as net investment hedges 1 4 14
actuarial lossesgains on retirement benefit obligations 19 13 70 26 
taxation on other comprehensive income ii  5 20 24  7
other comprehensive incomeexpense for the year net of taxation 37 68 72 
total comprehensive income for the year i 766 514  687 
i attributable to equity holders of the company and wholly derived from continuing operations 
ii taxation on items relating to components of other comprehensive income comprises a credit of 18m related to retirement benefit obligations  
2011 – credit of 27m 2010 – charge of 7m and a credit of 2m related to cash flow hedges 2011 – charge of 3m 2010 – nil 
the notes on pages 96 to 138 are an integral part of these accounts 
 
group balance sheet 
notes
at  
31 december  
2012  
 million 
at 
31 december 
2011 
 million
assets  
noncurrent assets  
property plant and equipment 7 793 783 
goodwill 8 1186 1096 
intangible assets 9 1064 423 
investments 10 2 4 
investments in associates 11 116 13 
loans to associates 11 167 –
retirement benefit asset 19 6 –
deferred tax assets 17 164 223 
 3498 2542 
current assets  
inventories 12 901 859 
trade and other receivables 13 1065 1037 
cash and bank 15 178 184 
 2144 2080 
assets held for sale 22 – 125 
total assets 5642 4747 
  
equity and liabilities  
equity attributable to owners of the company  
share capital 20 193 191 
share premium 488 413 
treasury shares 20 735 766
other reserves 121 91 
retained earnings 3817 3258 
total equity 3884 3187 
noncurrent liabilities  
longterm borrowings 15 430 16 
retirement benefit obligations 19 266 287 
other payables 14 8 8 
provisions  18 63 45 
deferred tax liabilities 17 61 66 
 828 422 
current liabilities  
bank overdrafts and loans 15 38 306 
trade and other payables  14 656 564 
provisions 18 59 78 
current tax payable 177 171 
 930 1119 
liabilities directly associated with assets held for sale 22 – 19 
total liabilities 1758 1560 
total equity and liabilities 5642 4747 
the accounts were approved by the board and authorised for issue on 20 february 2013 and are signed on its behalf by 
sir john buchanan olivier bohuon 
chairman chief executive officer 
the notes on pages 96 to 138 are an integral part of these accounts
015914smithnephewar12p89164indd   92 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 93
group income statement 
 notes  
year ended 
31 december
2012 
 million 
year ended  
31 december 
2011  
 million  
year ended 
31 december
2010 
 million 
revenue 2 4137 4270  3962 
cost of goods sold 1070 1140 1031
gross profit 3067 3130  2931 
selling general and administrative expenses 3 2050 2101 1860
research and development expenses 171 167 151
operating profit 2  3 846 862  920 
interest receivable 4 11 4  3 
interest payable 4 9 12 18
other finance costs 4 3 6 10
share of results of associates 11 4 –  –
profit on disposal of net assets held for sale 22 251 –  –
profit before taxation 1100 848  895 
taxation 5 371 266 280
attributable profit for the year i 729 582  615 
earnings per ordinary share i 6 
basic 813¢ 653¢ 693¢
diluted 809¢ 650¢ 692¢
 
group statement of comprehensive income 
 
 
 
 
notes
year ended 
31 december 
2012 
 million 
year ended  
31 december  
2011  
 million  
year ended 
31 december 
2010
 million 
attributable profit for the year i 729 582  615 
other comprehensive income  
cash flow hedges – interest rate swaps  
– losses arising in the year – 1 1
– losses transferred to income statement for the year – 1  4 
cash flow hedges – forward foreign exchange contracts  
–lossesgains arising in the year 1 1  3
–gainslosses transferred to inventories for the year 6 13  1 
exchange differences on translation of foreign operations  36 32 66 
exchange on borrowings classified as net investment hedges 1 4 14
actuarial lossesgains on retirement benefit obligations 19 13 70 26 
taxation on other comprehensive income ii  5 20 24  7
other comprehensive incomeexpense for the year net of taxation 37 68 72 
total comprehensive income for the year i 766 514  687 
i attributable to equity holders of the company and wholly derived from continuing operations 
ii taxation on items relating to components of other comprehensive income comprises a credit of 18m related to retirement benefit obligations  
2011 – credit of 27m 2010 – charge of 7m and a credit of 2m related to cash flow hedges 2011 – charge of 3m 2010 – nil 
the notes on pages 96 to 138 are an integral part of these accounts 
 
group balance sheet 
notes
at  
31 december  
2012  
 million 
at 
31 december 
2011 
 million
assets  
noncurrent assets  
property plant and equipment 7 793 783 
goodwill 8 1186 1096 
intangible assets 9 1064 423 
investments 10 2 4 
investments in associates 11 116 13 
loans to associates 11 167 –
retirement benefit asset 19 6 –
deferred tax assets 17 164 223 
 3498 2542 
current assets  
inventories 12 901 859 
trade and other receivables 13 1065 1037 
cash and bank 15 178 184 
 2144 2080 
assets held for sale 22 – 125 
total assets 5642 4747 
  
equity and liabilities  
equity attributable to owners of the company  
share capital 20 193 191 
share premium 488 413 
treasury shares 20 735 766
other reserves 121 91 
retained earnings 3817 3258 
total equity 3884 3187 
noncurrent liabilities  
longterm borrowings 15 430 16 
retirement benefit obligations 19 266 287 
other payables 14 8 8 
provisions  18 63 45 
deferred tax liabilities 17 61 66 
 828 422 
current liabilities  
bank overdrafts and loans 15 38 306 
trade and other payables  14 656 564 
provisions 18 59 78 
current tax payable 177 171 
 930 1119 
liabilities directly associated with assets held for sale 22 – 19 
total liabilities 1758 1560 
total equity and liabilities 5642 4747 
the accounts were approved by the board and authorised for issue on 20 february 2013 and are signed on its behalf by 
sir john buchanan olivier bohuon 
chairman chief executive officer 
the notes on pages 96 to 138 are an integral part of these accounts
015914smithnephewar12p89164indd   93 25022013   1145 smith  nephew annual report 2012 94
 
group cash flow statement 
 notes
year ended 
31 december 
2012 
 million
year ended  
31 december  
2011  
 million 
year ended 
31 december 
2010
 million
cash flows from operating activities   
profit before taxation 1100 848  895 
net interest receivablepayable 4 2 8  15 
depreciation amortisation and impairment 312 297  273 
loss on disposal of property plant and equipment and software 12 9  15
sharebased payments expense 24 34 30  21 
share of results of associates 11 4 –  –
dividends received from associates 11 7 –  –
profit on disposal of net assets held for sale 22 251 –  –
increase in retirement benefit obligations 36 44 31
decrease in inventories 12 40  21 
increase in trade and other receivables 5 47 100
increasedecrease in trade and other payables and provisions 5 6 2
cash generated from operations i ii 1184 1135  1111 
interest received 4 4  3 
interest paid 8 12 20
income taxes paid 278 285 235
net cash inflow from operating activities 902 842  859 
cash flows from investing activities   
acquisitions net of 2m of cash received in 2011 22 782 33 –
proceeds on disposal of net assets held for sale 22 103 – –
capital expenditure 2 265 321 315
investment in associate 11 10 – –
proceeds on disposal of property plant and equipment and software – – 8
net cash used in investing activities 954 354 307
cash flows from financing activities   
proceeds from issue of ordinary share capital 77 17  15 
treasury shares purchased – 6 5
proceeds of borrowings due within one year 21 40 78  17 
settlement of borrowings due within one year 21 296 330 –
proceeds on borrowings due after one year 21 415 92  277 
settlement of borrowings due after one year 21 1 232 714
proceeds from own shares 6 7  8 
settlement of currency swaps 21 1 1 3
equity dividends paid 20 186 146 132
net cash fromused in financing activities 54 521 537
net increasedecrease in cash and cash equivalents  2 33 15 
cash and cash equivalents at beginning of year 21 161 195  174 
exchange adjustments 21 4 1 6 
cash and cash equivalents at end of year 21 167 161  195 
i includes 55m 2011 – 20m 2010 – 16m of outgoings on restructuring and rationalisation expenses 
ii includes 3m 2011 – 1m 2010 – nil of acquisition related costs and nil 2011 – 3m 2010 – 5m of costs unreimbursed by insurers relating to macrotextured knee revisions 
the notes on pages 96 to 138 are an integral part of these accounts
 
group statement of changes in equity 
 
share 
capital 
 million
share 
premium 
 million
treasury
shares ii
 million
other 
reserves iii 
 million 
retained 
earnings 
 million
total 
equity 
 million
at 1 january 2010 190 382 794 63 2338 2179
total comprehensive income i – – – 53 634 687
equity dividends declared and paid – – – – 132 132
purchase of own shares – – 5 – – 5
sharebased payments recognised – – – – 21 21
cost of shares transferred to beneficiaries – – 21 – 13 8
issue of ordinary share capital iv 114 – – – 15
at 31 december 2010 191 396 778 116 2848 2773
total comprehensive income i – – – 25 539 514
equity dividends declared and paid – – – – 146 146
purchase of own shares – – 6 – – 6
sharebased payments recognised – – – – 30 30
deferred taxation on share based payments – – – – 2 2
cost of shares transferred to beneficiaries – – 18 – 11 7
issue of ordinary share capital iv – 17 – – – 17
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
i attributable to equity holders of the company and wholly derived from continuing operations 
ii refer to note 202 of the group financial statements 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 2012 were 124m 2011 – 87m 2010 – 123m 
iv issue of ordinary share capital as a result of options being exercised 
the notes on pages 96 to 138 are an integral part of these accounts 
015914smithnephewar12p89164indd   94 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 95
 
group cash flow statement 
 notes
year ended 
31 december 
2012 
 million
year ended  
31 december  
2011  
 million 
year ended 
31 december 
2010
 million
cash flows from operating activities   
profit before taxation 1100 848  895 
net interest receivablepayable 4 2 8  15 
depreciation amortisation and impairment 312 297  273 
loss on disposal of property plant and equipment and software 12 9  15
sharebased payments expense 24 34 30  21 
share of results of associates 11 4 –  –
dividends received from associates 11 7 –  –
profit on disposal of net assets held for sale 22 251 –  –
increase in retirement benefit obligations 36 44 31
decrease in inventories 12 40  21 
increase in trade and other receivables 5 47 100
increasedecrease in trade and other payables and provisions 5 6 2
cash generated from operations i ii 1184 1135  1111 
interest received 4 4  3 
interest paid 8 12 20
income taxes paid 278 285 235
net cash inflow from operating activities 902 842  859 
cash flows from investing activities   
acquisitions net of 2m of cash received in 2011 22 782 33 –
proceeds on disposal of net assets held for sale 22 103 – –
capital expenditure 2 265 321 315
investment in associate 11 10 – –
proceeds on disposal of property plant and equipment and software – – 8
net cash used in investing activities 954 354 307
cash flows from financing activities   
proceeds from issue of ordinary share capital 77 17  15 
treasury shares purchased – 6 5
proceeds of borrowings due within one year 21 40 78  17 
settlement of borrowings due within one year 21 296 330 –
proceeds on borrowings due after one year 21 415 92  277 
settlement of borrowings due after one year 21 1 232 714
proceeds from own shares 6 7  8 
settlement of currency swaps 21 1 1 3
equity dividends paid 20 186 146 132
net cash fromused in financing activities 54 521 537
net increasedecrease in cash and cash equivalents  2 33 15 
cash and cash equivalents at beginning of year 21 161 195  174 
exchange adjustments 21 4 1 6 
cash and cash equivalents at end of year 21 167 161  195 
i includes 55m 2011 – 20m 2010 – 16m of outgoings on restructuring and rationalisation expenses 
ii includes 3m 2011 – 1m 2010 – nil of acquisition related costs and nil 2011 – 3m 2010 – 5m of costs unreimbursed by insurers relating to macrotextured knee revisions 
the notes on pages 96 to 138 are an integral part of these accounts
 
group statement of changes in equity 
 
share 
capital 
 million
share 
premium 
 million
treasury
shares ii
 million
other 
reserves iii 
 million 
retained 
earnings 
 million
total 
equity 
 million
at 1 january 2010 190 382 794 63 2338 2179
total comprehensive income i – – – 53 634 687
equity dividends declared and paid – – – – 132 132
purchase of own shares – – 5 – – 5
sharebased payments recognised – – – – 21 21
cost of shares transferred to beneficiaries – – 21 – 13 8
issue of ordinary share capital iv 114 – – – 15
at 31 december 2010 191 396 778 116 2848 2773
total comprehensive income i – – – 25 539 514
equity dividends declared and paid – – – – 146 146
purchase of own shares – – 6 – – 6
sharebased payments recognised – – – – 30 30
deferred taxation on share based payments – – – – 2 2
cost of shares transferred to beneficiaries – – 18 – 11 7
issue of ordinary share capital iv – 17 – – – 17
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
i attributable to equity holders of the company and wholly derived from continuing operations 
ii refer to note 202 of the group financial statements 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 2012 were 124m 2011 – 87m 2010 – 123m 
iv issue of ordinary share capital as a result of options being exercised 
the notes on pages 96 to 138 are an integral part of these accounts 
015914smithnephewar12p89164indd   95 25022013   1145 smith  nephew annual report 2012 96
 
notes to the group accounts
1 basis of preparation 
smith  nephew plc the ‘company’ is a public limited company incorporated in 
england and wales in these accounts ‘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 2012 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 2012 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 retirement benefits 
contingencies and provisions and are discussed under critical accounting policies 
within the ‘financial review and principal risks’ section on page 51 although these 
estimates are based on management’s best knowledge of current events and 
actions actual results ultimately may differ from those estimates 
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 
consolidation 
the group accounts include the accounts of smith  nephew plc the ‘company’ 
and its subsidiaries for the periods during which they were members of the group 
a subsidiary is an entity controlled by the group control comprises the power to 
govern the financial and operating policies of the investee so as to obtain benefit 
from its activities and is achieved through direct or indirect ownership of voting 
rights 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 intercompany transactions balances and unrealised gains and 
losses on transactions between group companies are eliminated on 
consolidation all subsidiaries have year ends which are coterminus with 
the group’s 
recognition of financial assets and liabilities 
financial assets and liabilities are recognised on a trade date basis in the group’s 
balance sheet when the group becomes party to the contractual provisions of the 
instrument the group carries borrowings in the balance sheet at amortised cost 
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 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 
foreign operations 
balance sheet items of foreign operations are translated into us dollars on 
consolidation at yearend rates of exchange income statement items and the 
cash flows of overseas subsidiary undertakings and associated undertakings are 
translated at average rates as an approximation to actual transaction rates with 
actual transaction rates used for large one off transactions 
goodwill and fair value adjustments arising on the acquisition of a foreign entity 
are treated as assets and liabilities of the foreign entity and translated at the year
end rates of exchange 
the following are recognised in other comprehensive income and are presented 
in ‘other reserves’ within equity 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 
all other exchange differences are taken to the income statement 
the exchange rates used for the translation of currencies into us dollars that have 
the most significant impact on the group results were 
2012 2011 2010
average rates   
sterling 158 160 154
euro 128 139 132
swiss franc 107 113 096
yearend rates  
sterling 163 155 157
euro 132 129 134
swiss franc 109 106 107
new ifrs accounting standards 
a number of new standards amendments to standards and interpretations are 
effective for annual periods beginning after 1 january 2012 and have not been 
applied in preparing the group accounts none of these are expected to have a 
significant effect on the financial statements of the group except for ifrs 9 
financial instruments the group does not plan to adopt this standard early and 
the extent of the impact has not been determined 
 
 
2 business segment information 
the orthopaedics and endoscopy business units reported separately in the 
group accounts for the year ended 31 december 2011 have been combined into 
a single operating division named advanced surgical devices this segmentation 
reflects the revised group structure announced in august 2011 revenue trading 
profit operating profit total assets total liabilities capital expenditure depreciation 
amortisation impairment other significant information and average employees 
by business segment comparative figures have been restated to reflect this 
revised segmentation 
for management purposes the group is organised into business segments 
according to the nature of its products and has two business segments – 
advanced surgical devices and advanced wound management the types 
of products and services offered by each business segment are 
– smith  nephew’s advanced surgical devices business offers the following 
products and technologies 
o orthopaedic reconstruction implants which include hip knee and shoulder 
joints as well as ancillary products such as bone cement and mixing systems 
used in cemented reconstruction joint surgery 
o orthopaedic trauma fixation products consisting of internal and external 
devices and other products including shoulder fixation and orthobiological 
materials used in the stabilisation of severe fractures and deformity 
correction procedures 
o sports medicine products which offer surgeons a broad array of instruments 
technologies and implants necessary to perform minimally invasive surgery 
of the joints including knee hip and shoulder repair 
o arthroscopy enabling technologies which offer healthcare providers a variety 
of technologies such as fluid management equipment for surgical access 
such as 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 
– smith  nephew’s advanced wound management business offers a range 
of products from initial wound bed preparation through to full wound closure 
these products are targeted at chronic wounds associated with the older 
population such as pressure sores and venous leg ulcers there are also 
products for the treatment of wounds such as burns and invasive surgery 
that impact the wider population 
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 investments in associates and loans 
to associates is 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 
 
 
2012  
 million 
2011 
 million
2010 
 million
revenue by 
business segment  
advanced surgical 
devices 3108 3251 3050
advanced wound 
management 1029 1019 912
4137 4270 3962
there are no material sales between business segments 
 
2012  
 million 
2011 
 million
2010 
 million
revenue by 
geographic market  
united kingdom 297 291 283
other established 
markets 1706 1769 1606
united states 1651 1756 1707
emerging and 
international markets 483 454 366
4137 4270 3962
revenue has been allocated by basis of origin no revenue from a single customer 
is in excess of 10 of the group’s revenue 
 
  
015914smithnephewar12p89164indd   96 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 97
 
notes to the group accounts
1 basis of preparation 
smith  nephew plc the ‘company’ is a public limited company incorporated in 
england and wales in these accounts ‘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 2012 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 2012 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 retirement benefits 
contingencies and provisions and are discussed under critical accounting policies 
within the ‘financial review and principal risks’ section on page 51 although these 
estimates are based on management’s best knowledge of current events and 
actions actual results ultimately may differ from those estimates 
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 
consolidation 
the group accounts include the accounts of smith  nephew plc the ‘company’ 
and its subsidiaries for the periods during which they were members of the group 
a subsidiary is an entity controlled by the group control comprises the power to 
govern the financial and operating policies of the investee so as to obtain benefit 
from its activities and is achieved through direct or indirect ownership of voting 
rights 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 intercompany transactions balances and unrealised gains and 
losses on transactions between group companies are eliminated on 
consolidation all subsidiaries have year ends which are coterminus with 
the group’s 
recognition of financial assets and liabilities 
financial assets and liabilities are recognised on a trade date basis in the group’s 
balance sheet when the group becomes party to the contractual provisions of the 
instrument the group carries borrowings in the balance sheet at amortised cost 
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 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 
foreign operations 
balance sheet items of foreign operations are translated into us dollars on 
consolidation at yearend rates of exchange income statement items and the 
cash flows of overseas subsidiary undertakings and associated undertakings are 
translated at average rates as an approximation to actual transaction rates with 
actual transaction rates used for large one off transactions 
goodwill and fair value adjustments arising on the acquisition of a foreign entity 
are treated as assets and liabilities of the foreign entity and translated at the year
end rates of exchange 
the following are recognised in other comprehensive income and are presented 
in ‘other reserves’ within equity 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 
all other exchange differences are taken to the income statement 
the exchange rates used for the translation of currencies into us dollars that have 
the most significant impact on the group results were 
2012 2011 2010
average rates   
sterling 158 160 154
euro 128 139 132
swiss franc 107 113 096
yearend rates  
sterling 163 155 157
euro 132 129 134
swiss franc 109 106 107
new ifrs accounting standards 
a number of new standards amendments to standards and interpretations are 
effective for annual periods beginning after 1 january 2012 and have not been 
applied in preparing the group accounts none of these are expected to have a 
significant effect on the financial statements of the group except for ifrs 9 
financial instruments the group does not plan to adopt this standard early and 
the extent of the impact has not been determined 
 
 
2 business segment information 
the orthopaedics and endoscopy business units reported separately in the 
group accounts for the year ended 31 december 2011 have been combined into 
a single operating division named advanced surgical devices this segmentation 
reflects the revised group structure announced in august 2011 revenue trading 
profit operating profit total assets total liabilities capital expenditure depreciation 
amortisation impairment other significant information and average employees 
by business segment comparative figures have been restated to reflect this 
revised segmentation 
for management purposes the group is organised into business segments 
according to the nature of its products and has two business segments – 
advanced surgical devices and advanced wound management the types 
of products and services offered by each business segment are 
– smith  nephew’s advanced surgical devices business offers the following 
products and technologies 
o orthopaedic reconstruction implants which include hip knee and shoulder 
joints as well as ancillary products such as bone cement and mixing systems 
used in cemented reconstruction joint surgery 
o orthopaedic trauma fixation products consisting of internal and external 
devices and other products including shoulder fixation and orthobiological 
materials used in the stabilisation of severe fractures and deformity 
correction procedures 
o sports medicine products which offer surgeons a broad array of instruments 
technologies and implants necessary to perform minimally invasive surgery 
of the joints including knee hip and shoulder repair 
o arthroscopy enabling technologies which offer healthcare providers a variety 
of technologies such as fluid management equipment for surgical access 
such as 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 
– smith  nephew’s advanced wound management business offers a range 
of products from initial wound bed preparation through to full wound closure 
these products are targeted at chronic wounds associated with the older 
population such as pressure sores and venous leg ulcers there are also 
products for the treatment of wounds such as burns and invasive surgery 
that impact the wider population 
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 investments in associates and loans 
to associates is 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 
 
 
2012  
 million 
2011 
 million
2010 
 million
revenue by 
business segment  
advanced surgical 
devices 3108 3251 3050
advanced wound 
management 1029 1019 912
4137 4270 3962
there are no material sales between business segments 
 
2012  
 million 
2011 
 million
2010 
 million
revenue by 
geographic market  
united kingdom 297 291 283
other established 
markets 1706 1769 1606
united states 1651 1756 1707
emerging and 
international markets 483 454 366
4137 4270 3962
revenue has been allocated by basis of origin no revenue from a single customer 
is in excess of 10 of the group’s revenue 
 
  
015914smithnephewar12p89164indd   97 25022013   1145 smith  nephew annual report 2012 98
 
notes to the group accounts continued 
2 business segment information continued 
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 uninsured losses operating profit reconciles to trading 
profit as follows 
 notes
2012 
 million
2011  
 million 
2010 
 million
operating profit 846 862 920
acquisition related costs 3 11 – –
restructuring and rationalisation expenses 3 65 40 15
amortisation of acquisition intangibles and impairments 8  9 43 36 34
legal provision 3 – 23 –
trading profit 965 961 969
trading profit by business segment   
advanced surgical devices 728 714 736
advanced wound management 237 247 233
 965 961 969
operating profit by business segment 
reconciled to attributable profit for the year  
 
advanced surgical devices 632 630 700
advanced wound management 214 232 220
operating profit 846 862 920
net interest receivablepayable 2 8 15
other finance costs 3 6 10
share of results of associates 4 – –
profit on disposal on net assets held for sale 251 – –
taxation 371 266 280
attributable profit for the year 729 582 615
 
 
 
23 assets and liabilities by business segment and geography 
business segment 
 
2012 
 million
2011  
 million 
2010 
 million
balance sheet  
assets  
advanced surgical devices 3518 3396 3547
advanced wound management 1776 819 755
operating assets by business segment 5294 4215 4302
assets held for sale relating to advanced surgical devices business segment – 125 –
unallocated corporate assets 348 407 431
total assets 5642 4747 4733
liabilities  
advanced surgical devices 530 526 581
advanced wound management 256 169 146
operating liabilities by business segment 786 695 727
liabilities directly associated with assets held for sale relating to  
advanced surgical devices business segment – 19 –
unallocated corporate liabilities 972 846 1233
total liabilities 1758 1560 1960
unallocated corporate assets and liabilities comprise the following 
 
2012 
 million
2011  
 million 
2010 
 million
deferred tax assets 164 223 224
retirement benefit asset 6 – –
cash and bank 178 184 207
unallocated corporate assets 348 407 431
longterm borrowings 430 16 642
retirement benefit obligations 266 287 262
deferred tax liabilities 61 66 69
bank overdrafts and loans due within one year 38 306 57
current tax payable 177 171 203
unallocated corporate liabilities 972 846 1233
 
 
2012 
 million
2011  
 million 
2010 
 million
capital expenditure  
advanced surgical devices 188 334 285
advanced wound management 839 31 30
 1027 365 315
 
  
015914smithnephewar12p89164indd   98 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 99
 
notes to the group accounts continued 
2 business segment information continued 
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 uninsured losses operating profit reconciles to trading 
profit as follows 
 notes
2012 
 million
2011  
 million 
2010 
 million
operating profit 846 862 920
acquisition related costs 3 11 – –
restructuring and rationalisation expenses 3 65 40 15
amortisation of acquisition intangibles and impairments 8  9 43 36 34
legal provision 3 – 23 –
trading profit 965 961 969
trading profit by business segment   
advanced surgical devices 728 714 736
advanced wound management 237 247 233
 965 961 969
operating profit by business segment 
reconciled to attributable profit for the year  
 
advanced surgical devices 632 630 700
advanced wound management 214 232 220
operating profit 846 862 920
net interest receivablepayable 2 8 15
other finance costs 3 6 10
share of results of associates 4 – –
profit on disposal on net assets held for sale 251 – –
taxation 371 266 280
attributable profit for the year 729 582 615
 
 
 
23 assets and liabilities by business segment and geography 
business segment 
 
2012 
 million
2011  
 million 
2010 
 million
balance sheet  
assets  
advanced surgical devices 3518 3396 3547
advanced wound management 1776 819 755
operating assets by business segment 5294 4215 4302
assets held for sale relating to advanced surgical devices business segment – 125 –
unallocated corporate assets 348 407 431
total assets 5642 4747 4733
liabilities  
advanced surgical devices 530 526 581
advanced wound management 256 169 146
operating liabilities by business segment 786 695 727
liabilities directly associated with assets held for sale relating to  
advanced surgical devices business segment – 19 –
unallocated corporate liabilities 972 846 1233
total liabilities 1758 1560 1960
unallocated corporate assets and liabilities comprise the following 
 
2012 
 million
2011  
 million 
2010 
 million
deferred tax assets 164 223 224
retirement benefit asset 6 – –
cash and bank 178 184 207
unallocated corporate assets 348 407 431
longterm borrowings 430 16 642
retirement benefit obligations 266 287 262
deferred tax liabilities 61 66 69
bank overdrafts and loans due within one year 38 306 57
current tax payable 177 171 203
unallocated corporate liabilities 972 846 1233
 
 
2012 
 million
2011  
 million 
2010 
 million
capital expenditure  
advanced surgical devices 188 334 285
advanced wound management 839 31 30
 1027 365 315
 
  
015914smithnephewar12p89164indd   99 25022013   1145 smith  nephew annual report 2012 100
 
notes to the group accounts continued 
2 business segment information continued 
23 assets and liabilities by business segment and geography continued 
capital expenditure segmentally allocated above comprises 
 
2012 
 million
2011  
 million 
2010 
 million
additions to property plant and equipment 197 229 250
additions to intangible assets 68 92 65
capital expenditure excluding business combinations 265 321 315
acquisitions – goodwill 73 44 –
acquisitions – intangible assets 662 – –
acquisitions – property plant and equipment 27 – –
capital expenditure 1027 365 315
 
 
2012 
 million
2011  
 million 
2010 
 million
depreciation amortisation and impairment 
advanced surgical devices 274 259 236
advanced wound management 38 38 37
 312 297 273
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 
 
2012 
 million
2011  
 million 
2010 
 million
amortisation of acquisition intangibles 43 36 34
depreciation of property plant and equipment 212 217 203
impairment of goodwill in austrian associate 4 – –
amortisation of other intangible assets 51 42 34
impairment of investments 2 2 2
 312 297 273
impairments of 6m were recognised within operating profit in 2012 and included within the administrative expenses line 2011 – 2m 2010 – 2m this is segmentally 
allocated to advanced surgical devices 2011 – advanced surgical devices 2010 – advanced surgical devices 
geographic 
 
2012  
 million 
2011 
 million
assets by geographic location  
united kingdom 257 283
other established markets 895 1068
united states 2122 920
emerging and international markets 54 48
noncurrent operating assets by geographic location 3328 2319
united kingdom 279 190
other established markets 528 806
united states 999 762
emerging and international markets 160 138
current operating assets by geographic location 1966 1896
assets held for sale – 125
unallocated corporate assets see page 99 348 407
total assets 5642 4747
 
 
24 other business segment information 
 
2012 
 million
2011  
 million 
2010 
 million
other significant expenses recognised within operating profit 
advanced surgical devices 57 32 10
advanced wound management 19 8 5
 76 40 15
the 76m incurred in 2012 relates to 65m restructuring and rationalisation expenses and 11m acquisition related costs 2011 – 40m relates to restructuring and 
rationalisation expenses 2010 – 15m relates to restructuring and rationalisation expenses 
 
2012 
numbers
2011  
numbers 
2010 
numbers
average number of employees  
advanced surgical devices 7194 7611 7179
advanced wound management 3283 3132 2993
 10477 10743 10172
3 operating profit 
accounting policies 
research and development 
the group considers that the regulatory technical and market uncertainties inherent in the development of new products means that development costs should not be 
capitalised as intangible assets until products receive approval from the appropriate regulatory body substantially all development expenditure is complete by the time 
the product is submitted for regulatory approval consequently the majority of expenditure on research and development is expensed as incurred 
advertising costs 
expenditure on advertising costs is expensed as incurred 
 
 
2012 
 million
2011  
 million 
2010 
 million
revenue 4137 4270 3962
cost of goods sold i 1070 1140 1031
gross profit 3067 3130 2931
research and development expenses 171 167 151
selling general and administrative expenses  
marketing selling and distribution expenses ii 1440 1526 1414
administrative expenses iii iv v vi 610 575 446
 2050 2101 1860
operating profit 846 862 920
i 2012 includes 3m of restructuring and rationalisation expenses 2011 – 7m  2010 – nil 
ii 2012 includes nil of restructuring and rationalisation expenses 2011 – nil 2010 – 3m 
iii 2012 includes 51m of amortisation of other intangible assets 2011 – 42m 2010 – 34m 
iv 2012 includes 62m of restructuring and rationalisation expenses and 43m of amortisation of acquisition intangibles 2011 – 33m of restructuring and rationalisation expenses and 36m of 
amortisation of acquisition intangibles 2010 – 12m of restructuring and rationalisation expenses and 34m of amortisation of acquisition intangibles 
v 2012 includes nil relating to legal provision 2011 – 23m 2010 – nil 
vi 2012 includes 11m of acquisition related costs 2011 – nil 2010 – nil 
note that items detailed in i ii iv v and vi are excluded from the calculation of trading profit 
 
015914smithnephewar12p89164indd   100 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 101
 
notes to the group accounts continued 
2 business segment information continued 
23 assets and liabilities by business segment and geography continued 
capital expenditure segmentally allocated above comprises 
 
2012 
 million
2011  
 million 
2010 
 million
additions to property plant and equipment 197 229 250
additions to intangible assets 68 92 65
capital expenditure excluding business combinations 265 321 315
acquisitions – goodwill 73 44 –
acquisitions – intangible assets 662 – –
acquisitions – property plant and equipment 27 – –
capital expenditure 1027 365 315
 
 
2012 
 million
2011  
 million 
2010 
 million
depreciation amortisation and impairment 
advanced surgical devices 274 259 236
advanced wound management 38 38 37
 312 297 273
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 
 
2012 
 million
2011  
 million 
2010 
 million
amortisation of acquisition intangibles 43 36 34
depreciation of property plant and equipment 212 217 203
impairment of goodwill in austrian associate 4 – –
amortisation of other intangible assets 51 42 34
impairment of investments 2 2 2
 312 297 273
impairments of 6m were recognised within operating profit in 2012 and included within the administrative expenses line 2011 – 2m 2010 – 2m this is segmentally 
allocated to advanced surgical devices 2011 – advanced surgical devices 2010 – advanced surgical devices 
geographic 
 
2012  
 million 
2011 
 million
assets by geographic location  
united kingdom 257 283
other established markets 895 1068
united states 2122 920
emerging and international markets 54 48
noncurrent operating assets by geographic location 3328 2319
united kingdom 279 190
other established markets 528 806
united states 999 762
emerging and international markets 160 138
current operating assets by geographic location 1966 1896
assets held for sale – 125
unallocated corporate assets see page 99 348 407
total assets 5642 4747
 
 
24 other business segment information 
 
2012 
 million
2011  
 million 
2010 
 million
other significant expenses recognised within operating profit 
advanced surgical devices 57 32 10
advanced wound management 19 8 5
 76 40 15
the 76m incurred in 2012 relates to 65m restructuring and rationalisation expenses and 11m acquisition related costs 2011 – 40m relates to restructuring and 
rationalisation expenses 2010 – 15m relates to restructuring and rationalisation expenses 
 
2012 
numbers
2011  
numbers 
2010 
numbers
average number of employees  
advanced surgical devices 7194 7611 7179
advanced wound management 3283 3132 2993
 10477 10743 10172
3 operating profit 
accounting policies 
research and development 
the group considers that the regulatory technical and market uncertainties inherent in the development of new products means that development costs should not be 
capitalised as intangible assets until products receive approval from the appropriate regulatory body substantially all development expenditure is complete by the time 
the product is submitted for regulatory approval consequently the majority of expenditure on research and development is expensed as incurred 
advertising costs 
expenditure on advertising costs is expensed as incurred 
 
 
2012 
 million
2011  
 million 
2010 
 million
revenue 4137 4270 3962
cost of goods sold i 1070 1140 1031
gross profit 3067 3130 2931
research and development expenses 171 167 151
selling general and administrative expenses  
marketing selling and distribution expenses ii 1440 1526 1414
administrative expenses iii iv v vi 610 575 446
 2050 2101 1860
operating profit 846 862 920
i 2012 includes 3m of restructuring and rationalisation expenses 2011 – 7m  2010 – nil 
ii 2012 includes nil of restructuring and rationalisation expenses 2011 – nil 2010 – 3m 
iii 2012 includes 51m of amortisation of other intangible assets 2011 – 42m 2010 – 34m 
iv 2012 includes 62m of restructuring and rationalisation expenses and 43m of amortisation of acquisition intangibles 2011 – 33m of restructuring and rationalisation expenses and 36m of 
amortisation of acquisition intangibles 2010 – 12m of restructuring and rationalisation expenses and 34m of amortisation of acquisition intangibles 
v 2012 includes nil relating to legal provision 2011 – 23m 2010 – nil 
vi 2012 includes 11m of acquisition related costs 2011 – nil 2010 – nil 
note that items detailed in i ii iv v and vi are excluded from the calculation of trading profit 
 
015914smithnephewar12p89164indd   101 25022013   1145 smith  nephew annual report 2012 102
 
notes to the group accounts continued 
3 operating profit continued 
operating profit is stated after charging the following items 
 
2012 
 million
2011  
 million 
2010 
 million
amortisation of acquisition intangibles 43 36 34
amortisation of other intangible assets 51 42 34
impairment of goodwill in austrian associate 4 – –
depreciation of property plant and equipment 212 217 203
loss on disposal of property plant and equipment and software 12 9 15
impairment of investments 2 2 2
minimum operating lease payments for land and buildings 29 33 31
minimum operating lease payments for other assets 21 32 28
advertising costs 74 90 83
31 staff costs 
staff costs during the year amounted to 
 notes
2012 
 million
2011  
 million 
2010 
 million
wages and salaries 886 930 817
social security costs 97 99 91
pension costs including retirement healthcare 19 64 64 60
sharebased payments 24 34 30 21
 1081 1123 989
32 audit fees – information about the nature and cost of services provided by auditors 
 
2012 
 million
2011  
 million 
2010 
 million
audit services group accounts 1 1 1
other services   
local statutory audit pursuant to legislation 2 2 2
taxation services  
compliance services 1 1 1
advisory services 1 1 1
total auditors’ remuneration 5 5 5
arising  
in the uk 2 2 2
outside the uk 3 3 3
 5 5 5
  
 
 
33 acquisition related costs 
acquisition related costs of 11m 2011 – nil 2010 – nil were incurred in the twelve month period to 31 december 2012 these costs relate to professional and 
advisor fees in connection with the acquisition of healthpoint biotherapeutics which was completed on 21 december 2012 
34 restructuring and rationalisation expenses 
restructuring and rationalisation costs of 65m 2011 – 40m 2010 – 15m were incurred in the twelve month period to 31 december 2012 charges of 65m 2011 – 
26m 2010  nil were incurred relating mainly to people costs and contract termination costs associated with the structural and process changes announced in august 
2011 during 2012 no charges 2011 – 14m 2010 – 15m were incurred in relation to the earnings improvement programme which was completed in 2011  
35 legal provision 
in 2011 the group established a provision of 23m in connection with the previously disclosed investigation by the us securities and exchange commission ‘sec’ and 
department of justice ‘doj’ into potential violations of the us foreign corrupt practices act in the medical devices industry 
on 6 february 2012 smith  nephew announced that it had reached settlement with the sec and doj in connection with this matter and committed to pay slightly less 
than 23m in fines and profit disgorgement which have all been paid smith  nephew also agreed to maintain an enhanced compliance programme and appoint an 
independent monitor for at least 18 months to review and report on its compliance programme  
4 interest and other finance costs 
41 interest receivablepayable 
 
2012 
 million
2011  
 million 
2010 
 million
interest receivable 11 4 3
interest payable  
bank borrowings 7 6 7
other 2 6 11
 9 12 18
net interest receivablepayable 2 8 15
interest receivable includes net interest receivable of 2m 2011 – 1m 2010 – nil on interest rate and currency swaps and interest payable includes 1m 2011 – nil 
2010 – 5m of net interest payable on currency and interest rate swaps the gross interest receivable on these swaps was 2m 2011 – 4m 2010 – 4m and the 
gross interest payable was 1m 2011 – 3m 2010 – 9m 
42 other finance costs 
notes
2012 
 million
2011  
 million 
2010 
 million
retirement benefits interest cost 19 63 66 64
retirement benefits expected return on plan assets 19 60 59 55
other – 1 1
other finance costs 3 6 10
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 5m loss in 2012 2011 – net 3m gain 2010 – net 8m gain 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 
015914smithnephewar12p89164indd   102 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 103
 
notes to the group accounts continued 
3 operating profit continued 
operating profit is stated after charging the following items 
 
2012 
 million
2011  
 million 
2010 
 million
amortisation of acquisition intangibles 43 36 34
amortisation of other intangible assets 51 42 34
impairment of goodwill in austrian associate 4 – –
depreciation of property plant and equipment 212 217 203
loss on disposal of property plant and equipment and software 12 9 15
impairment of investments 2 2 2
minimum operating lease payments for land and buildings 29 33 31
minimum operating lease payments for other assets 21 32 28
advertising costs 74 90 83
31 staff costs 
staff costs during the year amounted to 
 notes
2012 
 million
2011  
 million 
2010 
 million
wages and salaries 886 930 817
social security costs 97 99 91
pension costs including retirement healthcare 19 64 64 60
sharebased payments 24 34 30 21
 1081 1123 989
32 audit fees – information about the nature and cost of services provided by auditors 
 
2012 
 million
2011  
 million 
2010 
 million
audit services group accounts 1 1 1
other services   
local statutory audit pursuant to legislation 2 2 2
taxation services  
compliance services 1 1 1
advisory services 1 1 1
total auditors’ remuneration 5 5 5
arising  
in the uk 2 2 2
outside the uk 3 3 3
 5 5 5
  
 
 
33 acquisition related costs 
acquisition related costs of 11m 2011 – nil 2010 – nil were incurred in the twelve month period to 31 december 2012 these costs relate to professional and 
advisor fees in connection with the acquisition of healthpoint biotherapeutics which was completed on 21 december 2012 
34 restructuring and rationalisation expenses 
restructuring and rationalisation costs of 65m 2011 – 40m 2010 – 15m were incurred in the twelve month period to 31 december 2012 charges of 65m 2011 – 
26m 2010  nil were incurred relating mainly to people costs and contract termination costs associated with the structural and process changes announced in august 
2011 during 2012 no charges 2011 – 14m 2010 – 15m were incurred in relation to the earnings improvement programme which was completed in 2011  
35 legal provision 
in 2011 the group established a provision of 23m in connection with the previously disclosed investigation by the us securities and exchange commission ‘sec’ and 
department of justice ‘doj’ into potential violations of the us foreign corrupt practices act in the medical devices industry 
on 6 february 2012 smith  nephew announced that it had reached settlement with the sec and doj in connection with this matter and committed to pay slightly less 
than 23m in fines and profit disgorgement which have all been paid smith  nephew also agreed to maintain an enhanced compliance programme and appoint an 
independent monitor for at least 18 months to review and report on its compliance programme  
4 interest and other finance costs 
41 interest receivablepayable 
 
2012 
 million
2011  
 million 
2010 
 million
interest receivable 11 4 3
interest payable  
bank borrowings 7 6 7
other 2 6 11
 9 12 18
net interest receivablepayable 2 8 15
interest receivable includes net interest receivable of 2m 2011 – 1m 2010 – nil on interest rate and currency swaps and interest payable includes 1m 2011 – nil 
2010 – 5m of net interest payable on currency and interest rate swaps the gross interest receivable on these swaps was 2m 2011 – 4m 2010 – 4m and the 
gross interest payable was 1m 2011 – 3m 2010 – 9m 
42 other finance costs 
notes
2012 
 million
2011  
 million 
2010 
 million
retirement benefits interest cost 19 63 66 64
retirement benefits expected return on plan assets 19 60 59 55
other – 1 1
other finance costs 3 6 10
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 5m loss in 2012 2011 – net 3m gain 2010 – net 8m gain 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 
015914smithnephewar12p89164indd   103 25022013   1145 smith  nephew annual report 2012 104
 
notes to the group accounts continued 
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 rates that have 
been enacted or substantively enacted by the balance sheet date the accounting policy for deferred taxation is set out in note 17 
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 
taxation charge attributable to the group 
 
2012 
 million
2011  
 million 
2010 
 million
current taxation  
uk corporation tax at 245 2011 – 265 2010 – 28 53 56 52
overseas tax 248 214 238
current income tax charge 301 270 290
adjustments in respect of prior periods 17 16 18
total current taxation 284 254 272
deferred taxation  
origination and reversal of temporary differences 88 18 4
changes in tax rates 3 3 2
adjustments to estimated amounts arising in prior periods 2 3 6
total deferred taxation 87 12 8
total taxation as per the income statement 371 266 280
deferred taxation in other comprehensive income 20 24 7
deferred taxation in equity – 2 –
taxation attributable to the group 351 244 287
the tax charge was increased by 82m in 2012 as a consequence of the profit on disposal of net assets held for sale after adjusting for acquisition related costs 
restructuring and rationalisation expenses and amortisation of acquisition intangibles in 2011 and 2010 2011 – 17m and 2010 – 10m the tax charge was reduced 
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 united kingdom standard rate of corporation tax of 245 2011 – 265 2010 – 28 overseas taxation is calculated 
at the rates prevailing in the respective jurisdictions the average effective tax rate differs from the applicable rate as follows 
 
2012 

2011  
 
2010 

uk standard rate 245 265 280
nondeductiblenontaxable items 04 05 02
prior year items 13 16 15
tax losses incurred not relievedutilised not previously recognised 08 03 02
overseas income taxed at other than uk standard rate 93 67 48
total effective tax rate 337 314 313
the enacted uk tax rate applicable from 1 april 2013 was reduced to 23 and the uk government announced policy to reduce the tax rate to 21 it is expected that 
if the stated policy is enacted deferred tax credits will arise 
 
 
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 where material 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 gains and losses arising 
from legal disputes and uninsured losses and taxation thereon 
the calculations of the basic diluted and adjusted earnings per ordinary share are based on the following earnings and numbers of shares 
 
 
2012 
 million
2011  
 million 
2010 
 million
earnings  
attributable profit for the year 729 582 615
adjusted attributable profit see below 679 664 654
  
adjusted attributable profit  
attributable profit is reconciled to adjusted attributable profit as follows 
notes
2012 
 million
2011  
 million 
2010 
 million
attributable profit for the year 729 582 615
acquisition related costs 3 11 – –
restructuring and rationalisation expenses 3 65 40 15
amortisation of acquisition intangibles and impairments 8  9 43 36 34
profit on disposal of net assets held for sale 22 251 – –
legal provision 3 – 23 –
taxation on excluded items 5 82 17 10
adjusted attributable profit 679 664 654
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 
 2012 2011 2010
number of shares millions  
basic weighted average number of shares 897 891 888
dilutive impact of share options outstanding 4 4 1
diluted weighted average number of shares 901 895 889
earnings per ordinary share  
basic 813¢ 653¢ 693¢
diluted 809¢ 650¢ 692¢
adjusted basic 757¢ 745¢ 736¢
adjusted diluted 754¢ 742¢ 736¢
share options not included in the diluted eps calculation because they were nondilutive in the period totalled 82m 2011 – 129m 2010 – 25m 
015914smithnephewar12p89164indd   104 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 105
 
notes to the group accounts continued 
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 rates that have 
been enacted or substantively enacted by the balance sheet date the accounting policy for deferred taxation is set out in note 17 
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 
taxation charge attributable to the group 
 
2012 
 million
2011  
 million 
2010 
 million
current taxation  
uk corporation tax at 245 2011 – 265 2010 – 28 53 56 52
overseas tax 248 214 238
current income tax charge 301 270 290
adjustments in respect of prior periods 17 16 18
total current taxation 284 254 272
deferred taxation  
origination and reversal of temporary differences 88 18 4
changes in tax rates 3 3 2
adjustments to estimated amounts arising in prior periods 2 3 6
total deferred taxation 87 12 8
total taxation as per the income statement 371 266 280
deferred taxation in other comprehensive income 20 24 7
deferred taxation in equity – 2 –
taxation attributable to the group 351 244 287
the tax charge was increased by 82m in 2012 as a consequence of the profit on disposal of net assets held for sale after adjusting for acquisition related costs 
restructuring and rationalisation expenses and amortisation of acquisition intangibles in 2011 and 2010 2011 – 17m and 2010 – 10m the tax charge was reduced 
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 united kingdom standard rate of corporation tax of 245 2011 – 265 2010 – 28 overseas taxation is calculated 
at the rates prevailing in the respective jurisdictions the average effective tax rate differs from the applicable rate as follows 
 
2012 

2011  
 
2010 

uk standard rate 245 265 280
nondeductiblenontaxable items 04 05 02
prior year items 13 16 15
tax losses incurred not relievedutilised not previously recognised 08 03 02
overseas income taxed at other than uk standard rate 93 67 48
total effective tax rate 337 314 313
the enacted uk tax rate applicable from 1 april 2013 was reduced to 23 and the uk government announced policy to reduce the tax rate to 21 it is expected that 
if the stated policy is enacted deferred tax credits will arise 
 
 
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 where material 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 gains and losses arising 
from legal disputes and uninsured losses and taxation thereon 
the calculations of the basic diluted and adjusted earnings per ordinary share are based on the following earnings and numbers of shares 
 
 
2012 
 million
2011  
 million 
2010 
 million
earnings  
attributable profit for the year 729 582 615
adjusted attributable profit see below 679 664 654
  
adjusted attributable profit  
attributable profit is reconciled to adjusted attributable profit as follows 
notes
2012 
 million
2011  
 million 
2010 
 million
attributable profit for the year 729 582 615
acquisition related costs 3 11 – –
restructuring and rationalisation expenses 3 65 40 15
amortisation of acquisition intangibles and impairments 8  9 43 36 34
profit on disposal of net assets held for sale 22 251 – –
legal provision 3 – 23 –
taxation on excluded items 5 82 17 10
adjusted attributable profit 679 664 654
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 
 2012 2011 2010
number of shares millions  
basic weighted average number of shares 897 891 888
dilutive impact of share options outstanding 4 4 1
diluted weighted average number of shares 901 895 889
earnings per ordinary share  
basic 813¢ 653¢ 693¢
diluted 809¢ 650¢ 692¢
adjusted basic 757¢ 745¢ 736¢
adjusted diluted 754¢ 742¢ 736¢
share options not included in the diluted eps calculation because they were nondilutive in the period totalled 82m 2011 – 129m 2010 – 25m 
015914smithnephewar12p89164indd   105 25022013   1145 smith  nephew annual report 2012 106
 
notes to the group accounts continued 
7 property plant and equipment 
accounting policies 
property plant and equipment 
property plant and equipment is stated at cost less depreciation and provision for impairment where appropriate freehold land is not depreciated freehold buildings 
are depreciated on a straightline basis over lives ranging between 20 and 50 years leasehold land and buildings are depreciated on a straightline basis over the 
shorter of their estimated useful economic lives and the terms of the leases 
plant and equipment is depreciated over lives ranging between three and 20 years by equal annual instalments to write down the assets to their estimated residual 
value at the end of their working lives assets in course of construction are not depreciated until they are brought into use 
the useful lives and residual values of all property plant and equipment are reviewed each financial yearend and where adjustments are required these are 
made prospectively 
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 
 
 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 2011 131 53 964 786 67 2001
exchange adjustment – 1 13 7 – 21
additions 4 2 144 32 47 229
disposals 2 2 86 – – 90
transfers – – – 72 72 –
transferred to assets held for sale – – – 5 – 5
at 31 december 2011 133 52 1009 878 42 2114
exchange adjustment 2 – 3 15 1 21
acquisitions see note 221 8 – – 7 12 27
additions – 1 122 46 28 197
disposals – 1 92 37 – 130
transfers – – – 10 10 –
at 31 december 2012 143 52 1042 919 73 2229
depreciation and impairment   
at 1 january 2011 41 25 638 510 – 1214
exchange adjustment – – 9 6 – 15
charge for the year 4 3 139 71 – 217
disposals 2 1 80 – – 83
transferred to assets held for sale – – – 2 – 2
at 31 december 2011 43 27 688 573 – 1331
exchange adjustment 1 – 2 11 – 14
charge for the year 2 3 137 70 – 212
disposals – 1 89 31 – 121
at 31 december 2012 46 29 738 623 – 1436
net book amounts   
at 31 december 2012 97 23 304 296 73 793
at 31 december 2011 90 25 321 305 42 783
 
 
land and buildings includes land with a cost of 15m 2011– 14m that is not subject to depreciation assets held under finance leases with a net book amount of 11m 
2011 – 12m are included within land and buildings and nil 2011 – 8m are included within plant and equipment 
capital expenditure represents the group’s expected annual investment in property plant and equipment and other intangible assets this varies between 7 and 8 
2011 – 8 of annual revenue 
group capital expenditure relating to property plant and equipment contracted but not provided for amounted to 4m 2011 – 9m 
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 orthopaedics and endoscopy business units reported separately in the group accounts for the year ended 31 december 2011 have been combined into a single 
operating division named advanced surgical devices this segmentation reflects the revised group structure announced in august 2011 for purposes of impairment 
testing goodwill is allocated to the related cgus monitored by management being the business segment level advanced surgical devices and advanced wound 
management the comparative goodwill figures previously allocated to the orthopaedics and endoscopy business segments have been restated and reported under 
the single business segment advanced surgical devices 
the provisional goodwill of 73 million arising on the acquisition of healthpoint which was completed on 21 december 2012 has been provisionally allocated to the 
advanced wound management business segment and cgu the recent transaction price provides the best evidence of fair value and supports the provisional carrying 
amount of the goodwill therefore the goodwill arising from the healthpoint acquisition was excluded from the impairment review below and as a result the future 
expected cash flows relating to this acquisition were not included in calculating the valueinuse for the advanced wound management 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 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 
 
notes
2012  
 million 
2011 
 million
cost  
at 1 january 1096 1108
exchange adjustment 17 12
acquisitions 22 73 44
transferred to assets held for sale 22 – 44
at 31 december 1186 1096
impairment  
at 1 january – 7
transferred to assets held for sale 22 – 7
at 31 december – –
net book amounts 1186 1096
each of the group’s business segments represent a cgu and include goodwill as follows 
 
2012  
 million 
2011 
 million
advanced surgical devices 886 872
advanced wound management 300 224
 1186 1096
in september 2012 and 2011 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 in line with the group’s strategic planning process 
015914smithnephewar12p89164indd   106 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 107
 
notes to the group accounts continued 
7 property plant and equipment 
accounting policies 
property plant and equipment 
property plant and equipment is stated at cost less depreciation and provision for impairment where appropriate freehold land is not depreciated freehold buildings 
are depreciated on a straightline basis over lives ranging between 20 and 50 years leasehold land and buildings are depreciated on a straightline basis over the 
shorter of their estimated useful economic lives and the terms of the leases 
plant and equipment is depreciated over lives ranging between three and 20 years by equal annual instalments to write down the assets to their estimated residual 
value at the end of their working lives assets in course of construction are not depreciated until they are brought into use 
the useful lives and residual values of all property plant and equipment are reviewed each financial yearend and where adjustments are required these are 
made prospectively 
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 
 
 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 2011 131 53 964 786 67 2001
exchange adjustment – 1 13 7 – 21
additions 4 2 144 32 47 229
disposals 2 2 86 – – 90
transfers – – – 72 72 –
transferred to assets held for sale – – – 5 – 5
at 31 december 2011 133 52 1009 878 42 2114
exchange adjustment 2 – 3 15 1 21
acquisitions see note 221 8 – – 7 12 27
additions – 1 122 46 28 197
disposals – 1 92 37 – 130
transfers – – – 10 10 –
at 31 december 2012 143 52 1042 919 73 2229
depreciation and impairment   
at 1 january 2011 41 25 638 510 – 1214
exchange adjustment – – 9 6 – 15
charge for the year 4 3 139 71 – 217
disposals 2 1 80 – – 83
transferred to assets held for sale – – – 2 – 2
at 31 december 2011 43 27 688 573 – 1331
exchange adjustment 1 – 2 11 – 14
charge for the year 2 3 137 70 – 212
disposals – 1 89 31 – 121
at 31 december 2012 46 29 738 623 – 1436
net book amounts   
at 31 december 2012 97 23 304 296 73 793
at 31 december 2011 90 25 321 305 42 783
 
 
land and buildings includes land with a cost of 15m 2011– 14m that is not subject to depreciation assets held under finance leases with a net book amount of 11m 
2011 – 12m are included within land and buildings and nil 2011 – 8m are included within plant and equipment 
capital expenditure represents the group’s expected annual investment in property plant and equipment and other intangible assets this varies between 7 and 8 
2011 – 8 of annual revenue 
group capital expenditure relating to property plant and equipment contracted but not provided for amounted to 4m 2011 – 9m 
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 orthopaedics and endoscopy business units reported separately in the group accounts for the year ended 31 december 2011 have been combined into a single 
operating division named advanced surgical devices this segmentation reflects the revised group structure announced in august 2011 for purposes of impairment 
testing goodwill is allocated to the related cgus monitored by management being the business segment level advanced surgical devices and advanced wound 
management the comparative goodwill figures previously allocated to the orthopaedics and endoscopy business segments have been restated and reported under 
the single business segment advanced surgical devices 
the provisional goodwill of 73 million arising on the acquisition of healthpoint which was completed on 21 december 2012 has been provisionally allocated to the 
advanced wound management business segment and cgu the recent transaction price provides the best evidence of fair value and supports the provisional carrying 
amount of the goodwill therefore the goodwill arising from the healthpoint acquisition was excluded from the impairment review below and as a result the future 
expected cash flows relating to this acquisition were not included in calculating the valueinuse for the advanced wound management 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 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 
 
notes
2012  
 million 
2011 
 million
cost  
at 1 january 1096 1108
exchange adjustment 17 12
acquisitions 22 73 44
transferred to assets held for sale 22 – 44
at 31 december 1186 1096
impairment  
at 1 january – 7
transferred to assets held for sale 22 – 7
at 31 december – –
net book amounts 1186 1096
each of the group’s business segments represent a cgu and include goodwill as follows 
 
2012  
 million 
2011 
 million
advanced surgical devices 886 872
advanced wound management 300 224
 1186 1096
in september 2012 and 2011 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 in line with the group’s strategic planning process 
015914smithnephewar12p89164indd   107 25022013   1145 smith  nephew annual report 2012 108
 
notes to the group accounts continued 
8 goodwill continued 
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 and for the advanced wound management business it is 9 2011 – 9 
in determining the growth rate used in the calculation of the valueinuse the group considered the annual sales growth and trading profit margins 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 growth rates for the fiveyear period for the advanced 
surgical devices business vary up to 7 and for the advanced wound management business up to 9 2011 – 8 
specific considerations and strategies taken into account in determining the sales growth and trading profit margin for each cgu are 
– advanced surgical devices – in the advanced surgical devices cgu management intends to deliver growth through continuing to focus on the customer high quality 
customer service innovative product development and through continuing to make efficiency improvements 
– advanced wound management – management intends to develop this cgu by focusing on the higher added value sectors of exudate and infection management 
through improved wound bed preparation moist and active healing and negative pressure wound therapy and by continuing to improve efficiency 
a longterm growth rate of 4 2011 – 4 in pretax cash flows is assumed after five years in calculating a terminal value for the group’s cgus management considers 
this to be an appropriate estimate based on the growth rates of the markets in which the group operates 
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 valueinuse 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 31 for the advanced surgical devices business 
and 49 2011 – 51 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 straight line 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 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 
  
 
 
 
 
acquisition
intangibles
 million
software
 million
distribution 
rights 
 million 
patents 
intellectual
property
 million
total 
 million
cost  
at 1 january 2011 440 145 53 113 751
exchange adjustment 4 1 – – 3
additions – 32 7 53 92
disposals – 5 – 1 6
transferred to assets held for sale – 3 – 22 25
at 31 december 2011 436 170 60 143 809
exchange adjustment 11 1 – 2 14
acquisitions see note 221 i 662 – – – 662
additions – 37 – 31 68
disposals – 3 17 – 20
at 31 december 2012 1109 205 43 176 1533
amortisation and impairment  
at 1 january 2011 200 47 24 54 325
exchange adjustment 2 – – – 2
charge for the year 36 22 10 10 78
disposals – 3 – 1 4
transferred to assets held for sale – 1 – 10 11
at 31 december 2011 234 65 34 53 386
exchange adjustment 6 – – – 6
charge for the year 43 26 10 15 94
disposals – – 17 – 17
at 31 december 2012 283 91 27 68 469
net book amounts  
at 31 december 2012 826 114 16 108 1064
at 31 december 2011 202 105 26 90 423
i the vast majority of this balance relates to the acquisition of the product rights for two established healthpoint products see note 221 these product rights will be 
amortised over 15 years 
group capital expenditure relating to software contracted but not provided for amounted to 4m 2011 – nil 
commitments 
in 2011 the group was contractually committed to four milestone payments which totalled 60m and related to the us approval and commercialisation of durolane 
which would become payable under the terms of the agreement with qmed ab signed in june 2006 this commitment transferred to the group’s new associate 
bioventus llc following the disposal of the clinical therapies business during 2012 this transaction is detailed further in note 222 
  
015914smithnephewar12p89164indd   108 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 109
 
notes to the group accounts continued 
8 goodwill continued 
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 and for the advanced wound management business it is 9 2011 – 9 
in determining the growth rate used in the calculation of the valueinuse the group considered the annual sales growth and trading profit margins 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 growth rates for the fiveyear period for the advanced 
surgical devices business vary up to 7 and for the advanced wound management business up to 9 2011 – 8 
specific considerations and strategies taken into account in determining the sales growth and trading profit margin for each cgu are 
– advanced surgical devices – in the advanced surgical devices cgu management intends to deliver growth through continuing to focus on the customer high quality 
customer service innovative product development and through continuing to make efficiency improvements 
– advanced wound management – management intends to develop this cgu by focusing on the higher added value sectors of exudate and infection management 
through improved wound bed preparation moist and active healing and negative pressure wound therapy and by continuing to improve efficiency 
a longterm growth rate of 4 2011 – 4 in pretax cash flows is assumed after five years in calculating a terminal value for the group’s cgus management considers 
this to be an appropriate estimate based on the growth rates of the markets in which the group operates 
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 valueinuse 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 31 for the advanced surgical devices business 
and 49 2011 – 51 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 straight line 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 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 
  
 
 
 
 
acquisition
intangibles
 million
software
 million
distribution 
rights 
 million 
patents 
intellectual
property
 million
total 
 million
cost  
at 1 january 2011 440 145 53 113 751
exchange adjustment 4 1 – – 3
additions – 32 7 53 92
disposals – 5 – 1 6
transferred to assets held for sale – 3 – 22 25
at 31 december 2011 436 170 60 143 809
exchange adjustment 11 1 – 2 14
acquisitions see note 221 i 662 – – – 662
additions – 37 – 31 68
disposals – 3 17 – 20
at 31 december 2012 1109 205 43 176 1533
amortisation and impairment  
at 1 january 2011 200 47 24 54 325
exchange adjustment 2 – – – 2
charge for the year 36 22 10 10 78
disposals – 3 – 1 4
transferred to assets held for sale – 1 – 10 11
at 31 december 2011 234 65 34 53 386
exchange adjustment 6 – – – 6
charge for the year 43 26 10 15 94
disposals – – 17 – 17
at 31 december 2012 283 91 27 68 469
net book amounts  
at 31 december 2012 826 114 16 108 1064
at 31 december 2011 202 105 26 90 423
i the vast majority of this balance relates to the acquisition of the product rights for two established healthpoint products see note 221 these product rights will be 
amortised over 15 years 
group capital expenditure relating to software contracted but not provided for amounted to 4m 2011 – nil 
commitments 
in 2011 the group was contractually committed to four milestone payments which totalled 60m and related to the us approval and commercialisation of durolane 
which would become payable under the terms of the agreement with qmed ab signed in june 2006 this commitment transferred to the group’s new associate 
bioventus llc following the disposal of the clinical therapies business during 2012 this transaction is detailed further in note 222 
  
015914smithnephewar12p89164indd   109 25022013   1145 smith  nephew annual report 2012 110
 
notes to the group accounts continued 
10 investments 
accounting policy 
investments other than those related to associates are initially recorded at fair value plus 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 nonmarketable 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 the group assesses whether there is objective evidence that the investment is impaired any objective 
evidence would include a significant or prolonged decline in the fair value of the investment below its cost 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 whereupon an impairment is 
recognised as an expense immediately 
 
 
2012  
 million 
2011 
 million
at 1 january 4 6 
impairment 2 2
at 31 december 2 4 
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 net income and equity the group’s share in the results of its associates is included 
in one separate income statement line and is calculated after deduction of their respective taxes  
at 31 december 2011 and 31 december 2012 the group holds 49 of the austrian entities plus orthopedics gmbh and intraplant gmbh and 20 of the german 
entity intercus gmbh in 2012 the profit after taxation recognised in the income statement relating to the plus entity was nil 2011 – nil  
in january 2012 the group announced its intention to dispose of its clinical therapies business this was completed on 4 may 2012 as part of the consideration the 
group received a 49 holding in a company called bioventus llc the profit after taxation recognised in the income statement relating to bioventus llc for the period 
from acquisition was 4m 
the following table summarises the financial position of the group’s investment in these associates 
 
2012  
 million 
2011 
 million
share of results of associates  
revenue 80 11
operating costs and taxation 76 11
share of associates profit after taxation recognised in the income statement 4 –
investments in associates at 1 january 13 13
investment of 49 in bioventus 104 –
additional investment in bioventus 10 –
dividends received   7 –
impairment of goodwill in austrian associate 4 –
other noncash movements 4 –
investments in associates at 31 december 116 13
investments in associates is represented by  
assets 213 10
liabilities 97 1
net assets 116 9
goodwill – 4
 116 13
loans to associates   
loan note receivable from bioventus  160 –
accrued interest on loan note receivable 7 –
 167 –
  
 
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 judgments on effectiveness of 
inventory deployment length of product lives phaseout of old products and efficiency of manufacturing planning systems 
 
 
2012
 million
2011 
 million 
2010
 million
raw materials and consumables 138 140 159
workinprogress 45 24 23
finished goods and goods for resale 718 695 741
 901 859 923
reserves for excess and obsolete inventories were 332m 2011 – 322m 2010 – 322m during 2012 84m was recognised as an expense within cost of goods 
sold resulting from the write down of excess and obsolete inventory 2011 – 65m 2010 – 66m the cost of inventories recognised as an expense and included 
in cost of goods sold amounted to 906m 2011 – 991m 2010 – 909m 
no inventory is carried at fair value less costs to sell in any year 
  
015914smithnephewar12p89164indd   110 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 111
 
notes to the group accounts continued 
10 investments 
accounting policy 
investments other than those related to associates are initially recorded at fair value plus 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 nonmarketable 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 the group assesses whether there is objective evidence that the investment is impaired any objective 
evidence would include a significant or prolonged decline in the fair value of the investment below its cost 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 whereupon an impairment is 
recognised as an expense immediately 
 
 
2012  
 million 
2011 
 million
at 1 january 4 6 
impairment 2 2
at 31 december 2 4 
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 net income and equity the group’s share in the results of its associates is included 
in one separate income statement line and is calculated after deduction of their respective taxes  
at 31 december 2011 and 31 december 2012 the group holds 49 of the austrian entities plus orthopedics gmbh and intraplant gmbh and 20 of the german 
entity intercus gmbh in 2012 the profit after taxation recognised in the income statement relating to the plus entity was nil 2011 – nil  
in january 2012 the group announced its intention to dispose of its clinical therapies business this was completed on 4 may 2012 as part of the consideration the 
group received a 49 holding in a company called bioventus llc the profit after taxation recognised in the income statement relating to bioventus llc for the period 
from acquisition was 4m 
the following table summarises the financial position of the group’s investment in these associates 
 
2012  
 million 
2011 
 million
share of results of associates  
revenue 80 11
operating costs and taxation 76 11
share of associates profit after taxation recognised in the income statement 4 –
investments in associates at 1 january 13 13
investment of 49 in bioventus 104 –
additional investment in bioventus 10 –
dividends received   7 –
impairment of goodwill in austrian associate 4 –
other noncash movements 4 –
investments in associates at 31 december 116 13
investments in associates is represented by  
assets 213 10
liabilities 97 1
net assets 116 9
goodwill – 4
 116 13
loans to associates   
loan note receivable from bioventus  160 –
accrued interest on loan note receivable 7 –
 167 –
  
 
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 judgments on effectiveness of 
inventory deployment length of product lives phaseout of old products and efficiency of manufacturing planning systems 
 
 
2012
 million
2011 
 million 
2010
 million
raw materials and consumables 138 140 159
workinprogress 45 24 23
finished goods and goods for resale 718 695 741
 901 859 923
reserves for excess and obsolete inventories were 332m 2011 – 322m 2010 – 322m during 2012 84m was recognised as an expense within cost of goods 
sold resulting from the write down of excess and obsolete inventory 2011 – 65m 2010 – 66m the cost of inventories recognised as an expense and included 
in cost of goods sold amounted to 906m 2011 – 991m 2010 – 909m 
no inventory is carried at fair value less costs to sell in any year 
  
015914smithnephewar12p89164indd   111 25022013   1145 smith  nephew annual report 2012 112
 
notes to the group accounts continued 
13 trade and other receivables 
accounting policy 
loans and 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 loans and other receivables are classified as ‘trade and other receivables’ 
in the balance sheet 
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 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 
 
 
2012
 million
2011 
 million 
2010
 million
trade receivables 964 936 952
less provision for bad and doubtful debts 49 36 49
trade receivables – net loans and receivables 915 900 903
derivatives – forward foreign exchange contracts 12 21 23
other receivables 65 50 55
prepayments and accrued income 73 66 65
 1065 1037 1046
less noncurrent portion trade receivables – – 22
current portion 1065 1037 1024
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 expense for the year was 
16m 2011 – 42m 2010 – 30m amounts due from insurers in respect of the macrotextured claim of 137m 2011 – 136m 2010 – 133m are included within 
other receivables and have been provided in full 
the amount of trade receivables that were past due but not impaired were as follows 
 
2012
 million
2011 
 million 
2010
 million
past due not more than three months 225 198 168
past due more than three months and not more than six months 52 51 52
past due more than six months and not more than one year 52 59 57
past due more than one year 80 94 59
 409 402 336
neither past due nor impaired 555 534 616
provision for bad and doubtful debts 49 36 49
trade receivables – net loans and receivables 915 900 903
  
movements in the provision for bad and doubtful debts were as follows 
at 1 january 36 49 47
exchange adjustment – 1 –
receivables provided for during the year 16 42 30
utilisation of provision 3 34 28
provision transferred to assets held for sale – 20 –
at 31 december 49 36 49
in 2012 nil trade receivables from third parties are held under factoring agreements with recourse 2011 – nil 2010 – 11m the amounts disclosed in prior years 
did not qualify for derecognition as the group retained part of the credit risk the associated liability amounted to 4m in 2010 and was accounted for as a part of 
current payables 
  
 
 
trade receivables include amounts denominated in the following major currencies 
 
2012
 million
2011 
 million 
2010
 million
us dollar 258 238 282
sterling 100 75 72
euro 276 317 283
other 281 270 266
trade receivables – net loans and receivables 915 900 903
14 trade and other payables 
 
2012  
 million 
2011 
 million
trade and other payables due within one year  
trade and other payables 646 549
derivatives – forward foreign exchange contracts 10 12
acquisition consideration – 3
 656 564
other payables due after one year  
acquisition consideration 8 8
the acquisition consideration due after more than one year is expected to be payable as follows 8m in 2014 2011 – 8m in 2014 
15 cash and borrowings 
151 net debt 
net debt comprises borrowings and credit balances on currency swaps less cash and bank 
 
2012  
 million 
2011 
 million
bank overdrafts and loans due within one year 38 306
longterm borrowings 430 16
borrowings 468 322
cash and bank 178 184
debit balance on derivatives – currency swaps 2 –
net debt 288 138
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 2012   
bank loans 25 1 415 – – – 441
bank overdrafts 11 – – – – – 11
finance lease liabilities 2 2 2 2 2 6 16
 38 3 417 2 2 6 468
at 31 december 2011   
bank loans 280 1 – – – – 281
bank overdrafts 23 – – – – – 23
finance lease liabilities 3 1 2 2 2 8 18
 306 2 2 2 2 8 322
  
015914smithnephewar12p89164indd   112 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 113
 
notes to the group accounts continued 
13 trade and other receivables 
accounting policy 
loans and 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 loans and other receivables are classified as ‘trade and other receivables’ 
in the balance sheet 
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 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 
 
 
2012
 million
2011 
 million 
2010
 million
trade receivables 964 936 952
less provision for bad and doubtful debts 49 36 49
trade receivables – net loans and receivables 915 900 903
derivatives – forward foreign exchange contracts 12 21 23
other receivables 65 50 55
prepayments and accrued income 73 66 65
 1065 1037 1046
less noncurrent portion trade receivables – – 22
current portion 1065 1037 1024
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 expense for the year was 
16m 2011 – 42m 2010 – 30m amounts due from insurers in respect of the macrotextured claim of 137m 2011 – 136m 2010 – 133m are included within 
other receivables and have been provided in full 
the amount of trade receivables that were past due but not impaired were as follows 
 
2012
 million
2011 
 million 
2010
 million
past due not more than three months 225 198 168
past due more than three months and not more than six months 52 51 52
past due more than six months and not more than one year 52 59 57
past due more than one year 80 94 59
 409 402 336
neither past due nor impaired 555 534 616
provision for bad and doubtful debts 49 36 49
trade receivables – net loans and receivables 915 900 903
  
movements in the provision for bad and doubtful debts were as follows 
at 1 january 36 49 47
exchange adjustment – 1 –
receivables provided for during the year 16 42 30
utilisation of provision 3 34 28
provision transferred to assets held for sale – 20 –
at 31 december 49 36 49
in 2012 nil trade receivables from third parties are held under factoring agreements with recourse 2011 – nil 2010 – 11m the amounts disclosed in prior years 
did not qualify for derecognition as the group retained part of the credit risk the associated liability amounted to 4m in 2010 and was accounted for as a part of 
current payables 
  
 
 
trade receivables include amounts denominated in the following major currencies 
 
2012
 million
2011 
 million 
2010
 million
us dollar 258 238 282
sterling 100 75 72
euro 276 317 283
other 281 270 266
trade receivables – net loans and receivables 915 900 903
14 trade and other payables 
 
2012  
 million 
2011 
 million
trade and other payables due within one year  
trade and other payables 646 549
derivatives – forward foreign exchange contracts 10 12
acquisition consideration – 3
 656 564
other payables due after one year  
acquisition consideration 8 8
the acquisition consideration due after more than one year is expected to be payable as follows 8m in 2014 2011 – 8m in 2014 
15 cash and borrowings 
151 net debt 
net debt comprises borrowings and credit balances on currency swaps less cash and bank 
 
2012  
 million 
2011 
 million
bank overdrafts and loans due within one year 38 306
longterm borrowings 430 16
borrowings 468 322
cash and bank 178 184
debit balance on derivatives – currency swaps 2 –
net debt 288 138
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 2012   
bank loans 25 1 415 – – – 441
bank overdrafts 11 – – – – – 11
finance lease liabilities 2 2 2 2 2 6 16
 38 3 417 2 2 6 468
at 31 december 2011   
bank loans 280 1 – – – – 281
bank overdrafts 23 – – – – – 23
finance lease liabilities 3 1 2 2 2 8 18
 306 2 2 2 2 8 322
  
015914smithnephewar12p89164indd   113 25022013   1145 smith  nephew annual report 2012 114
 
notes to the group accounts continued 
15 cash and borrowings continued 
152 assets pledged as security 
assets are pledged as security under normal market conditions secured borrowings and pledged assets are as follows 
 
2012  
 million 
2011 
 million
finance lease liabilities – due within one year 2 3
finance lease liabilities – due after one year 14 15
total amount of secured borrowings 16 18
total net book value of assets pledged as security  
property plant and equipment 11 20
 11 20
153 currency swap analysis 
all currency swaps are stated at fair value gross us dollar equivalents of 175m 2011 – 112m receivable and 173m 2011 – 112m payable have been netted 
currency swaps comprise foreign exchange swaps and were used in 2012 and 2011 to hedge intragroup loans and other monetary items 
currency swaps mature as follows 
at 31 december 2012 
amount receivable  
 million 
amount payable 
currency million
within one year  
euro 76 eur 58
japanese yen 19 jpy 1500
canadian dollar 17 cad 17
 112 
 
at 31 december 2012 
amount receivable 
currency million 
amount payable 
 million
within one year  
new zealand dollar nzd 1 1
swiss franc chf 35 38
swedish krona sek 33 5
australian dollar aud 14 15
japanese yen jpy 335 4
  63
 
at 31 december 2011 
amount receivable  
 million 
amount payable 
currency million
within one year  
euro 1 eur 1
japanese yen 20  jpy 1500 
canadian dollar 33  cad 34
 54  
 
at 31 december 2011 
amount receivable  
currency million 
amount payable 
 million
within one year  
swiss france chf 18 19
swedish krona sek 20 3
australian dollar aud 36  36
  58
 
  
 
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 mediumterm cash forecasts having regard to the maturities of investments and 
borrowing facilities 
bank loans and overdrafts represent drawings under total committed facilities of 1017m 2011 – 1259m and total uncommitted facilities of 341m 2011 – 375m 
the group has undrawn committed facilities of 597m 2011 – 1003m of the undrawn committed facilities 586m expires after two but within five years 2011 – 
1000m expired after two but within five years the interest payable on borrowings under committed facilities is at floating rate and is typically based on the libor 
interest rate relevant to the term and currency concerned borrowings are shown at book value which approximates to fair value 
in december 2010 the company entered into a fiveyear 1 billion multicurrency revolving facility with an initial interest rate of 70 basis points over libor the 
commitment fee on the undrawn amount of the revolving facility is 245 basis points the company is subject to restrictive covenants under the facility agreement 
requiring the group’s ratio of net debt to ebitda to not exceed 30 to 1 and the ratio of ebita to net interest to not be less than 30 to 1 with net debt ebitda ebita and 
net interest all being calculated as defined in the agreement 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 2012 the company was in compliance with these covenants the facility is also subject to customary events of default none 
of which are currently anticipated to occur 
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 2012  
nonderivative financial liabilities  
bank overdrafts and loans 42 4 418 – 464
trade and other payables 646 8 – – 654
finance lease liabilities 3 3 9 6 21
derivative financial liabilities  
currency swapsforward foreign exchange contracts – outflow 1422 – – – 1422
currency swapsforward foreign exchange contracts – inflow 1424 – – – 1424
 689 15 427 6 1137
at 31 december 2011  
nonderivative financial liabilities  
bank overdrafts and loans 305 – – – 305
trade and other payables 549 – – – 549
finance lease liabilities 4 39 925
derivative financial liabilities  
currency swapsforward foreign exchange contracts – outflow 1053 – – – 1053
currency swapsforward foreign exchange contracts – inflow 1052 – – – 1052
 859 3 9 9 880
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 
  
015914smithnephewar12p89164indd   114 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 115
 
notes to the group accounts continued 
15 cash and borrowings continued 
152 assets pledged as security 
assets are pledged as security under normal market conditions secured borrowings and pledged assets are as follows 
 
2012  
 million 
2011 
 million
finance lease liabilities – due within one year 2 3
finance lease liabilities – due after one year 14 15
total amount of secured borrowings 16 18
total net book value of assets pledged as security  
property plant and equipment 11 20
 11 20
153 currency swap analysis 
all currency swaps are stated at fair value gross us dollar equivalents of 175m 2011 – 112m receivable and 173m 2011 – 112m payable have been netted 
currency swaps comprise foreign exchange swaps and were used in 2012 and 2011 to hedge intragroup loans and other monetary items 
currency swaps mature as follows 
at 31 december 2012 
amount receivable  
 million 
amount payable 
currency million
within one year  
euro 76 eur 58
japanese yen 19 jpy 1500
canadian dollar 17 cad 17
 112 
 
at 31 december 2012 
amount receivable 
currency million 
amount payable 
 million
within one year  
new zealand dollar nzd 1 1
swiss franc chf 35 38
swedish krona sek 33 5
australian dollar aud 14 15
japanese yen jpy 335 4
  63
 
at 31 december 2011 
amount receivable  
 million 
amount payable 
currency million
within one year  
euro 1 eur 1
japanese yen 20  jpy 1500 
canadian dollar 33  cad 34
 54  
 
at 31 december 2011 
amount receivable  
currency million 
amount payable 
 million
within one year  
swiss france chf 18 19
swedish krona sek 20 3
australian dollar aud 36  36
  58
 
  
 
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 mediumterm cash forecasts having regard to the maturities of investments and 
borrowing facilities 
bank loans and overdrafts represent drawings under total committed facilities of 1017m 2011 – 1259m and total uncommitted facilities of 341m 2011 – 375m 
the group has undrawn committed facilities of 597m 2011 – 1003m of the undrawn committed facilities 586m expires after two but within five years 2011 – 
1000m expired after two but within five years the interest payable on borrowings under committed facilities is at floating rate and is typically based on the libor 
interest rate relevant to the term and currency concerned borrowings are shown at book value which approximates to fair value 
in december 2010 the company entered into a fiveyear 1 billion multicurrency revolving facility with an initial interest rate of 70 basis points over libor the 
commitment fee on the undrawn amount of the revolving facility is 245 basis points the company is subject to restrictive covenants under the facility agreement 
requiring the group’s ratio of net debt to ebitda to not exceed 30 to 1 and the ratio of ebita to net interest to not be less than 30 to 1 with net debt ebitda ebita and 
net interest all being calculated as defined in the agreement 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 2012 the company was in compliance with these covenants the facility is also subject to customary events of default none 
of which are currently anticipated to occur 
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 2012  
nonderivative financial liabilities  
bank overdrafts and loans 42 4 418 – 464
trade and other payables 646 8 – – 654
finance lease liabilities 3 3 9 6 21
derivative financial liabilities  
currency swapsforward foreign exchange contracts – outflow 1422 – – – 1422
currency swapsforward foreign exchange contracts – inflow 1424 – – – 1424
 689 15 427 6 1137
at 31 december 2011  
nonderivative financial liabilities  
bank overdrafts and loans 305 – – – 305
trade and other payables 549 – – – 549
finance lease liabilities 4 39 925
derivative financial liabilities  
currency swapsforward foreign exchange contracts – outflow 1053 – – – 1053
currency swapsforward foreign exchange contracts – inflow 1052 – – – 1052
 859 3 9 9 880
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 
  
015914smithnephewar12p89164indd   115 25022013   1145 smith  nephew annual report 2012 116
 
notes to the group accounts continued 
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 
assets held under finance leases are capitalised as property plant or equipment and depreciated accordingly the capital element of future lease payments is included 
in borrowings and interest is charged to profit before taxation on a reducing balance basis over the term of the lease 
future minimum lease payments under finance leases together with the present value of the minimum lease payments are as follows 
 
 
2012  
 million 
2011 
 million
within one year 3 4
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 6 9
total minimum lease payments 21 25
discounted by imputed interest 5 7
present value of minimum lease payments 16 18
present value of minimum lease payments can be split out as 2m 2011 – 3m due within one year 8m 2011 – 7m due between one to five years and 
6m 2011 – 8m 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 the fair value of forward foreign exchange contracts is calculated by reference to current forward exchange rates for contracts with 
similar maturity profiles the fair value of interest rate swap contracts is determined by reference to market values for similar instruments and includes counterparty 
credit risk 
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 when 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 swaps 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  
  
 
 
161 foreign exchange exposures 
the group operates in over 90 countries and as a consequence has transactional and translational foreign exchange exposure the group’s policy is to limit the impact 
of foreign exchange movements on equity by holding liabilities where practical in the same currencies as the group’s nonus dollar assets these liabilities take the 
form of either borrowings or currency swaps the group designates a portion of foreign currency borrowings in nonoperating units as net investment hedges as at 
31 december 2012 chfnil 2011 – chf32m of group borrowings were designated as net investment hedges the movement in the fair value of these hedges 
attributable to changes in exchange rates is recognised directly in other comprehensive income the fair value of these hedges at 31 december 2012 was nil  
2011 – 34m 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 twelve 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 2012 the group had contracted to exchange within one year the equivalent of 1250m 2011 – 940m 
based on the group’s borrowings as at 31 december 2012 if the us dollar were to weaken against all currencies by 10 the group’s net borrowings would decrease 
by 8m 2011 – increase of 11m 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 decrease by 4m 2011 –  increase of 16m excluding borrowings designated as net investment hedges the decrease 
would be 4m 2011 – increase of 13m this would be fully offset by corresponding movements in group loan values 
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 2012 would have 
been 23m lower 2011 – 17m which would be recognised through the hedging reserve 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 2012 would have been 30m higher 2011 – 24m 
a 10 strengthening of the us dollar or euro against all other currencies at 31 december 2012 would have had the equal but opposite effect to the amounts shown 
above on the basis that all other variables remain constant 
since it is 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 the group uses floating to fixed interest swaps 
to meet its objective of protecting borrowing costs within parameters set by the board interest rate swaps 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 with the fair value of the interest rate swaps recorded in the 
balance sheet the cash flows resulting from interest rate swaps 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 at 31 december 2012 the group had no interest rate swaps 2011 – nil 
based on the group’s gross borrowings as at 31 december 2012 if interest rates were to increase by 100 basis points in all currencies then the annual net interest 
charge would increase by 5m 2011 – 4m excluding the impact of the group’s interest rate hedges the increase in the interest charge would be 5m 2011 – 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 2012 was 14m 2011 – 21m being the total debit fair values on forward foreign exchange 
contracts interest rate swaps and currency swaps the maximum credit risk exposure on cash and bank at 31 december 2012 was 178m 2011 – 184m 
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 
  
015914smithnephewar12p89164indd   116 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 117
 
notes to the group accounts continued 
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 
assets held under finance leases are capitalised as property plant or equipment and depreciated accordingly the capital element of future lease payments is included 
in borrowings and interest is charged to profit before taxation on a reducing balance basis over the term of the lease 
future minimum lease payments under finance leases together with the present value of the minimum lease payments are as follows 
 
 
2012  
 million 
2011 
 million
within one year 3 4
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 6 9
total minimum lease payments 21 25
discounted by imputed interest 5 7
present value of minimum lease payments 16 18
present value of minimum lease payments can be split out as 2m 2011 – 3m due within one year 8m 2011 – 7m due between one to five years and 
6m 2011 – 8m 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 the fair value of forward foreign exchange contracts is calculated by reference to current forward exchange rates for contracts with 
similar maturity profiles the fair value of interest rate swap contracts is determined by reference to market values for similar instruments and includes counterparty 
credit risk 
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 when 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 swaps 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  
  
 
 
161 foreign exchange exposures 
the group operates in over 90 countries and as a consequence has transactional and translational foreign exchange exposure the group’s policy is to limit the impact 
of foreign exchange movements on equity by holding liabilities where practical in the same currencies as the group’s nonus dollar assets these liabilities take the 
form of either borrowings or currency swaps the group designates a portion of foreign currency borrowings in nonoperating units as net investment hedges as at 
31 december 2012 chfnil 2011 – chf32m of group borrowings were designated as net investment hedges the movement in the fair value of these hedges 
attributable to changes in exchange rates is recognised directly in other comprehensive income the fair value of these hedges at 31 december 2012 was nil  
2011 – 34m 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 twelve 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 2012 the group had contracted to exchange within one year the equivalent of 1250m 2011 – 940m 
based on the group’s borrowings as at 31 december 2012 if the us dollar were to weaken against all currencies by 10 the group’s net borrowings would decrease 
by 8m 2011 – increase of 11m 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 decrease by 4m 2011 –  increase of 16m excluding borrowings designated as net investment hedges the decrease 
would be 4m 2011 – increase of 13m this would be fully offset by corresponding movements in group loan values 
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 2012 would have 
been 23m lower 2011 – 17m which would be recognised through the hedging reserve 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 2012 would have been 30m higher 2011 – 24m 
a 10 strengthening of the us dollar or euro against all other currencies at 31 december 2012 would have had the equal but opposite effect to the amounts shown 
above on the basis that all other variables remain constant 
since it is 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 the group uses floating to fixed interest swaps 
to meet its objective of protecting borrowing costs within parameters set by the board interest rate swaps 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 with the fair value of the interest rate swaps recorded in the 
balance sheet the cash flows resulting from interest rate swaps 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 at 31 december 2012 the group had no interest rate swaps 2011 – nil 
based on the group’s gross borrowings as at 31 december 2012 if interest rates were to increase by 100 basis points in all currencies then the annual net interest 
charge would increase by 5m 2011 – 4m excluding the impact of the group’s interest rate hedges the increase in the interest charge would be 5m 2011 – 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 2012 was 14m 2011 – 21m being the total debit fair values on forward foreign exchange 
contracts interest rate swaps and currency swaps the maximum credit risk exposure on cash and bank at 31 december 2012 was 178m 2011 – 184m 
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 
  
015914smithnephewar12p89164indd   117 25022013   1145 smith  nephew annual report 2012 118
 
notes to the group accounts continued 
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 2012    
us dollar 432 62 494 478 16 71 4
euro 7 76 83 83 – – –
other 29 35 64 64 – – –
total interest bearing liabilities 468 173 641 625 16  
at 31 december 2011    
us dollar 85 58 143 126 17 71 5
swiss franc 35 – 35 35 – 30 2
euro 126 1 127 126 1 50 2
other 76 53 129 129 – – –
total interest bearing liabilities 322 112 434 416 18  
at 31 december 2012 16m 2011 – 18m of fixed rate liabilities relate to finance leases in 2012 the group also had liabilities due for deferred acquisition 
consideration denominated in us dollars euro and yen totalling 8m 2011 – 11m 2010 – nil 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 interest rate relevant to the currency concerned the weighted average interest rate on 
floating rate borrowings as at 31 december 2012 was 1 2011 – 2 
currency and interest rate profile of interest bearing assets 
 
cash
and bank
 million
currency
swaps
 million
total assets 
 million 
floating
rate assets
 million
at 31 december 2012  
us dollars 59 113 172 172
other 119 62 181 181
total interest bearing assets 178 175 353 353
at 31 december 2011  
us dollars 56 56 112 112
other 12856184 184
total interest bearing assets 184 112 296 296
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 2012 
or 31 december 2011 
  
 
 
165 fair value of financial assets and liabilities 
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 
forward foreign exchange contracts are recorded at fair value these are regarded as level 2 financial instruments measured at fair value level 2 financial instruments 
are defined as valuation techniques for which all observable inputs have a significant effect on the recorded fair values either directly or indirectly the group only has 
level 2 financial instruments measured at fair value 
the group enters into derivative financial instruments with financial institutions with investment grade credit ratings derivatives valued using valuation techniques with 
market observable inputs are mainly interest rate swaps and forward foreign exchange contracts the most frequently applied valuation techniques include forward 
pricing and swap models using present value calculations the models incorporate various inputs including the credit quality of counterparties foreign exchange spot 
and forward rates interest rate curves and forward rate curves 
as at 31 december 2012 and 31 december 2011 the marktomarket value of a derivative asset position 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 
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 at 31 december 2012 and 31 december 2011 the fair value of the group’s longterm borrowing was not materially 
different from amortised cost 
17 deferred taxation 
accounting policy 
deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences arising between the carrying amount of assets and 
liabilities in the accounts and the corresponding tax bases used in computation of taxable profit 
deferred tax liabilities are recognised for all taxable temporary differences except in respect of investments in subsidiaries 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 profit will be available against which the temporary difference can be utilised 
their carrying amount is reviewed at each balance sheet date on the same basis 
deferred tax is measured on an undiscounted basis and at the tax rates that have been enacted or substantively enacted by the balance sheet 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 dealt with in 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 
 
 
2012  
 million 
2011 
 million
deferred tax assets 164 223 
deferred tax liabilities 61 66
net position at 31 december 103 157 
the movement in the year in the group’s net deferred tax position was as follows 
2012  
 million 
2011 
 million
at 1 january 157 155
exchange adjustment – 1
movement in income statement – current year 85 15
movement in income statement – prior years 2 3
movement in other comprehensive income 20 24
movement in shareholders’ equity – 2
arising on acquisition 13 –
transfers – 7
at 31 december 103 157
 
  
015914smithnephewar12p89164indd   118 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 119
 
notes to the group accounts continued 
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 2012    
us dollar 432 62 494 478 16 71 4
euro 7 76 83 83 – – –
other 29 35 64 64 – – –
total interest bearing liabilities 468 173 641 625 16  
at 31 december 2011    
us dollar 85 58 143 126 17 71 5
swiss franc 35 – 35 35 – 30 2
euro 126 1 127 126 1 50 2
other 76 53 129 129 – – –
total interest bearing liabilities 322 112 434 416 18  
at 31 december 2012 16m 2011 – 18m of fixed rate liabilities relate to finance leases in 2012 the group also had liabilities due for deferred acquisition 
consideration denominated in us dollars euro and yen totalling 8m 2011 – 11m 2010 – nil 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 interest rate relevant to the currency concerned the weighted average interest rate on 
floating rate borrowings as at 31 december 2012 was 1 2011 – 2 
currency and interest rate profile of interest bearing assets 
 
cash
and bank
 million
currency
swaps
 million
total assets 
 million 
floating
rate assets
 million
at 31 december 2012  
us dollars 59 113 172 172
other 119 62 181 181
total interest bearing assets 178 175 353 353
at 31 december 2011  
us dollars 56 56 112 112
other 12856184 184
total interest bearing assets 184 112 296 296
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 2012 
or 31 december 2011 
  
 
 
165 fair value of financial assets and liabilities 
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 
forward foreign exchange contracts are recorded at fair value these are regarded as level 2 financial instruments measured at fair value level 2 financial instruments 
are defined as valuation techniques for which all observable inputs have a significant effect on the recorded fair values either directly or indirectly the group only has 
level 2 financial instruments measured at fair value 
the group enters into derivative financial instruments with financial institutions with investment grade credit ratings derivatives valued using valuation techniques with 
market observable inputs are mainly interest rate swaps and forward foreign exchange contracts the most frequently applied valuation techniques include forward 
pricing and swap models using present value calculations the models incorporate various inputs including the credit quality of counterparties foreign exchange spot 
and forward rates interest rate curves and forward rate curves 
as at 31 december 2012 and 31 december 2011 the marktomarket value of a derivative asset position 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 
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 at 31 december 2012 and 31 december 2011 the fair value of the group’s longterm borrowing was not materially 
different from amortised cost 
17 deferred taxation 
accounting policy 
deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences arising between the carrying amount of assets and 
liabilities in the accounts and the corresponding tax bases used in computation of taxable profit 
deferred tax liabilities are recognised for all taxable temporary differences except in respect of investments in subsidiaries 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 profit will be available against which the temporary difference can be utilised 
their carrying amount is reviewed at each balance sheet date on the same basis 
deferred tax is measured on an undiscounted basis and at the tax rates that have been enacted or substantively enacted by the balance sheet 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 dealt with in 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 
 
 
2012  
 million 
2011 
 million
deferred tax assets 164 223 
deferred tax liabilities 61 66
net position at 31 december 103 157 
the movement in the year in the group’s net deferred tax position was as follows 
2012  
 million 
2011 
 million
at 1 january 157 155
exchange adjustment – 1
movement in income statement – current year 85 15
movement in income statement – prior years 2 3
movement in other comprehensive income 20 24
movement in shareholders’ equity – 2
arising on acquisition 13 –
transfers – 7
at 31 december 103 157
 
  
015914smithnephewar12p89164indd   119 25022013   1145 smith  nephew annual report 2012 120
 
notes to the group accounts continued 
17 deferred taxation continued 
movements in the main components of deferred tax assets and liabilities were as follows  
retirement 
benefit 
obligation
 million
macro 
textured  
claim  
 million 
other  
 million 
total 
 million
deferred tax assets   
at 1 january 2011 54 52 118 224
exchange adjustment – – 2 2
movement in income statement – current year 7 – 11 18
movement in income statement – prior years – – 2 2
movement in other comprehensive income 31 – – 31
charge to equity – – 1 1
transfers 1 – 10 9
at 31 december 2011 79 52 92 223
exchange adjustment – – 1 1
movement in income statement – current year 4 – 85 89
movement in income statement – prior years 2 – 4 2
movement in other comprehensive income 17 – 1 18
charge to equity – – – –
acquisition – – 13 13
transfers 9 – 9 –
at 31 december 2012 85 52 27 164
the group has unused tax losses of 61m 2011 – 29m available for offset against future profits a deferred tax asset has been recognised in respect of 1m 2011 – 
1m of such losses no deferred tax asset has been recognised on the remaining unused tax losses as these are not expected to be realised in the foreseeable future 
accelerated tax 
depreciation 
 million
intangible  
assets  
 million 
other  
 million 
total 
 million
deferred tax liabilities   
at 1 january 2011 25 33 11 69
exchange adjustment 1 – – 1
movement in income statement – current year 3 5 5 3
movement in income statement – prior years 2 – 7 5
movement in other comprehensive income – – 7 7
charge to equity – – 1 1
transfers 5 1 6 2
at 31 december 2011 28 27 11 66
exchange adjustment 1 – – 1
movement in income statement – current year 2 6 4 4
movement in income statement – prior years – – – –
movement in other comprehensive income – – 2 2
charge to equity – – – –
transfers – – – –
at 31 december 2012 27 21 13 61
 
 
 
18 provisions and contingencies 
accounting policy 
in the normal course of business the group is involved in numerous 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 purposes 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 
181 provisions 
 
rationalisation 
provisions 
 million
legal and other  
provisions  
 million 
total
 million 
at 1 january 2011 14 96 110
charge to income statement 22 44 66
utilisationreleased 10 43 53
at 31 december 2011 26 97 123
charge to income statement 29 21 50
provision arising on acquisition – 13 13
utilisationreleased 30 34 64
at 31 december 2012 25 97 122
provisions – due within one year 25 34 59
provisions – due after one year – 63 63
at 31 december 2012 25 97 122
provisions – due within one year 26 52 78
provisions – due after one year – 45 45
at 31 december 2011 26 97 123
the principal provisions within rationalisation provisions relate to the rationalisation of operational sites mainly severance and legal costs arising from the legacy earnings 
improvement programme and people costs associated with the structural and process changes announced in august 2011 
included within the legal and other provisions are 
– 17m 2011 – 17m relating to the declination of insurance coverage for macrotextured knee revisions see note 182 
– nil 2011 – 23m in connection with the previously disclosed investigation by the us securities and exchange commission ‘sec’ and department of justice ‘doj’ 
into potential violations of the us foreign corrupt practices act in the medical devices industry on 6 february 2012 smith  nephew announced that it had reached 
settlement with the sec and doj in connection with this matter smith  nephew committed to pay approximately 23m in fines and profit disgorgement maintain 
an enhanced compliance programme and appoint an independent monitor for at least 18 months to review and report on its compliance programme 
– a provision of 13m has been established following the acquisition of healthpoint biotherapeutics see note 22 
– the remaining balance largely represents provisions for various litigation and patent disputes 
all provisions are expected to be substantially utilised within three years of 31 december 2012 and none are treated as financial instruments 
015914smithnephewar12p89164indd   120 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 121
 
notes to the group accounts continued 
17 deferred taxation continued 
movements in the main components of deferred tax assets and liabilities were as follows  
retirement 
benefit 
obligation
 million
macro 
textured  
claim  
 million 
other  
 million 
total 
 million
deferred tax assets   
at 1 january 2011 54 52 118 224
exchange adjustment – – 2 2
movement in income statement – current year 7 – 11 18
movement in income statement – prior years – – 2 2
movement in other comprehensive income 31 – – 31
charge to equity – – 1 1
transfers 1 – 10 9
at 31 december 2011 79 52 92 223
exchange adjustment – – 1 1
movement in income statement – current year 4 – 85 89
movement in income statement – prior years 2 – 4 2
movement in other comprehensive income 17 – 1 18
charge to equity – – – –
acquisition – – 13 13
transfers 9 – 9 –
at 31 december 2012 85 52 27 164
the group has unused tax losses of 61m 2011 – 29m available for offset against future profits a deferred tax asset has been recognised in respect of 1m 2011 – 
1m of such losses no deferred tax asset has been recognised on the remaining unused tax losses as these are not expected to be realised in the foreseeable future 
accelerated tax 
depreciation 
 million
intangible  
assets  
 million 
other  
 million 
total 
 million
deferred tax liabilities   
at 1 january 2011 25 33 11 69
exchange adjustment 1 – – 1
movement in income statement – current year 3 5 5 3
movement in income statement – prior years 2 – 7 5
movement in other comprehensive income – – 7 7
charge to equity – – 1 1
transfers 5 1 6 2
at 31 december 2011 28 27 11 66
exchange adjustment 1 – – 1
movement in income statement – current year 2 6 4 4
movement in income statement – prior years – – – –
movement in other comprehensive income – – 2 2
charge to equity – – – –
transfers – – – –
at 31 december 2012 27 21 13 61
 
 
 
18 provisions and contingencies 
accounting policy 
in the normal course of business the group is involved in numerous 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 purposes 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 
181 provisions 
 
rationalisation 
provisions 
 million
legal and other  
provisions  
 million 
total
 million 
at 1 january 2011 14 96 110
charge to income statement 22 44 66
utilisationreleased 10 43 53
at 31 december 2011 26 97 123
charge to income statement 29 21 50
provision arising on acquisition – 13 13
utilisationreleased 30 34 64
at 31 december 2012 25 97 122
provisions – due within one year 25 34 59
provisions – due after one year – 63 63
at 31 december 2012 25 97 122
provisions – due within one year 26 52 78
provisions – due after one year – 45 45
at 31 december 2011 26 97 123
the principal provisions within rationalisation provisions relate to the rationalisation of operational sites mainly severance and legal costs arising from the legacy earnings 
improvement programme and people costs associated with the structural and process changes announced in august 2011 
included within the legal and other provisions are 
– 17m 2011 – 17m relating to the declination of insurance coverage for macrotextured knee revisions see note 182 
– nil 2011 – 23m in connection with the previously disclosed investigation by the us securities and exchange commission ‘sec’ and department of justice ‘doj’ 
into potential violations of the us foreign corrupt practices act in the medical devices industry on 6 february 2012 smith  nephew announced that it had reached 
settlement with the sec and doj in connection with this matter smith  nephew committed to pay approximately 23m in fines and profit disgorgement maintain 
an enhanced compliance programme and appoint an independent monitor for at least 18 months to review and report on its compliance programme 
– a provision of 13m has been established following the acquisition of healthpoint biotherapeutics see note 22 
– the remaining balance largely represents provisions for various litigation and patent disputes 
all provisions are expected to be substantially utilised within three years of 31 december 2012 and none are treated as financial instruments 
015914smithnephewar12p89164indd   121 25022013   1145 smith  nephew annual report 2012 122
 
notes to the group accounts continued 
18 provisions and contingencies continued 
182 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 will 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 number of related claims have 
been filed most of which have been settled the aggregate cost at 31 december 2012 related to this matter is approximately 214m 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 and trial is expected to commence in 2013 an additional 22m was received during 2007 
from a successful settlement with a third party 
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 management believes that the 17m provision remaining is adequate to cover remaining claims given the uncertainty inherent in such matters there 
can be no assurance on this point 
the group is engaged as both plaintiff and defendant in litigation with various competitors and others over claims of patent infringement and in some cases breach of 
licence agreement these disputes are being heard in courts in the united states and other jurisdictions and also before agencies that examine patents outcomes are 
rarely certain with costs and settlements often significant 
19 retirement benefit obligations 
accounting policy 
the group’s major pension plans are of the defined benefit type for these plans the employer’s portion of past and current service cost is charged to operating profit 
with the interest cost net of expected return on assets in the plans reported within other finance incomecosts actuarial gains or losses are recognised in full directly 
in other comprehensive income such that the balance sheet reflects the plan’s surpluses or deficits as at the balance sheet date 
the defined benefit obligation is calculated annually by external actuaries using the projected unit credit method the present value of the defined benefit obligation 
is determined by discounting the estimated future cash flows using interest rates that reference highquality corporate bonds that are denominated in the currency 
in which the benefits will be paid and have terms to maturity approximating to the terms of the related pension liability 
a number of key assumptions have to be made in calculating the fair value of the group’s defined benefit pension plans these assumptions impact the balance sheet 
assets 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 most important assumption for the plan assets is the future expected return in determining these assumptions 
management takes into account the advice of professional external actuaries and benchmarks its assumptions against external data 
where defined contribution plans operate the contributions to these plans are charged to operating profit as they become payable 
191 retirement benefit assetsobligations 
the group’s retirement benefit obligations comprise 
 
2012  
 million 
2011 
 million
funded plans  
uk plan 6 24 
us plan 147 168 
other plans i 38 33 
 179 225
unfunded plans  
other plans i 36 24 
retirement healthcare 45 38 
 260 287
i the analysis in this note for ‘other plans’ combines both the funded and unfunded retirement benefit obligations 
the group sponsors pension plans for its employees in most of the countries in which it has major operating companies pension plans are established under the laws of 
the relevant country funded plans are funded by the payment of contributions to and the assets held by separate trust funds or insurance companies in those countries 
where there is no companysponsored pension plan state benefits are considered adequate employees’ retirement benefits are the subject of regular management 
review the group’s major defined benefit pension plans in the uk and us were closed to new employees in 2003 and replaced by defined contribution plans 
defined benefit plans provide employees with an entitlement to retirement benefits varying between 13 and 667 of final salary on attainment of retirement age 
the level of entitlement is dependent on the years of service of the employee 
the present value of the defined benefit obligation and the related current service cost are measured using the projected unit method under the projected unit method 
the current service cost will increase as the members of the defined benefit plans approach retirement the principal actuarial assumptions used by the independent 
qualified actuaries in valuing the major plans in the united kingdom ‘uk plan’ the united states ‘us plan’ and all other plans ‘other plans’ and a breakdown of the 
pension costs charged to income are as follows 
 
 
192 principal actuarial assumptions 
 
2012
 per annum
2011 
 per annum 
2010
 per annum
uk plan  
discount rate 45 49  55 
expected return on plan assets i 51 51  59 
expected rate of salary increases 35 51  55 
future pension increases 30 31  35 
inflation rpi 30 31 35
inflation cpi 22 21  30 
life expectancy of male aged 60 in years 287 286  282 
life expectancy of male aged 60 in 20 years’ time in years 312 310  315 
us plan  
discount rate 40 46  56 
expected return on plan assets i 68 71  75 
expected rate of salary increases 30 45  47 
future pension increases  – –  –
inflation 25 25  27 
life expectancy of male aged 60 in years 229 228  228 
life expectancy of male aged 60 in 20 years’ time in years 246 245  247 
other plans  
discount rate ii 30 39 42
expected return on plan assets i ii 40 45 51 
expected rate of salary increases ii 30 33 30 
future pension increases ii 20 22 23 
inflation ii 19 19  21 
i the assumption for the expected return on plan assets has been determined using a combination of past experience and market expectations 
ii other plans’ actuarial assumptions are presented on a weighted average basis and include all funded and unfunded plans 
193 pension costs including retirement healthcare 
 
2012
 million
2011 
 million 
2010
 million 
current service cost – employer’s portion 29 28  26 
other finance cost 63 66  64 
expected return on assets in the plan 60 59 55
net defined benefit pension costs 32 35  35 
net defined contribution pension costs 32 29  25 
total pension costs charged to profit before taxation 64 64  60 
of the 64m 2011 – 64m 2010 – 60m net cost for the year 61m 2011 – 57m 2010 – 51m was charged to operating profit in selling general and administrative 
expenses the interest cost and expected return on plan assets are reported as other finance costs 
the total cost charged to income 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 as at 31 december 2012 there were nil outstanding payments due to be paid over to the plans 2011 – nil 2010 – nil 
015914smithnephewar12p89164indd   122 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 123
 
notes to the group accounts continued 
18 provisions and contingencies continued 
182 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 will 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 number of related claims have 
been filed most of which have been settled the aggregate cost at 31 december 2012 related to this matter is approximately 214m 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 and trial is expected to commence in 2013 an additional 22m was received during 2007 
from a successful settlement with a third party 
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 management believes that the 17m provision remaining is adequate to cover remaining claims given the uncertainty inherent in such matters there 
can be no assurance on this point 
the group is engaged as both plaintiff and defendant in litigation with various competitors and others over claims of patent infringement and in some cases breach of 
licence agreement these disputes are being heard in courts in the united states and other jurisdictions and also before agencies that examine patents outcomes are 
rarely certain with costs and settlements often significant 
19 retirement benefit obligations 
accounting policy 
the group’s major pension plans are of the defined benefit type for these plans the employer’s portion of past and current service cost is charged to operating profit 
with the interest cost net of expected return on assets in the plans reported within other finance incomecosts actuarial gains or losses are recognised in full directly 
in other comprehensive income such that the balance sheet reflects the plan’s surpluses or deficits as at the balance sheet date 
the defined benefit obligation is calculated annually by external actuaries using the projected unit credit method the present value of the defined benefit obligation 
is determined by discounting the estimated future cash flows using interest rates that reference highquality corporate bonds that are denominated in the currency 
in which the benefits will be paid and have terms to maturity approximating to the terms of the related pension liability 
a number of key assumptions have to be made in calculating the fair value of the group’s defined benefit pension plans these assumptions impact the balance sheet 
assets 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 most important assumption for the plan assets is the future expected return in determining these assumptions 
management takes into account the advice of professional external actuaries and benchmarks its assumptions against external data 
where defined contribution plans operate the contributions to these plans are charged to operating profit as they become payable 
191 retirement benefit assetsobligations 
the group’s retirement benefit obligations comprise 
 
2012  
 million 
2011 
 million
funded plans  
uk plan 6 24 
us plan 147 168 
other plans i 38 33 
 179 225
unfunded plans  
other plans i 36 24 
retirement healthcare 45 38 
 260 287
i the analysis in this note for ‘other plans’ combines both the funded and unfunded retirement benefit obligations 
the group sponsors pension plans for its employees in most of the countries in which it has major operating companies pension plans are established under the laws of 
the relevant country funded plans are funded by the payment of contributions to and the assets held by separate trust funds or insurance companies in those countries 
where there is no companysponsored pension plan state benefits are considered adequate employees’ retirement benefits are the subject of regular management 
review the group’s major defined benefit pension plans in the uk and us were closed to new employees in 2003 and replaced by defined contribution plans 
defined benefit plans provide employees with an entitlement to retirement benefits varying between 13 and 667 of final salary on attainment of retirement age 
the level of entitlement is dependent on the years of service of the employee 
the present value of the defined benefit obligation and the related current service cost are measured using the projected unit method under the projected unit method 
the current service cost will increase as the members of the defined benefit plans approach retirement the principal actuarial assumptions used by the independent 
qualified actuaries in valuing the major plans in the united kingdom ‘uk plan’ the united states ‘us plan’ and all other plans ‘other plans’ and a breakdown of the 
pension costs charged to income are as follows 
 
 
192 principal actuarial assumptions 
 
2012
 per annum
2011 
 per annum 
2010
 per annum
uk plan  
discount rate 45 49  55 
expected return on plan assets i 51 51  59 
expected rate of salary increases 35 51  55 
future pension increases 30 31  35 
inflation rpi 30 31 35
inflation cpi 22 21  30 
life expectancy of male aged 60 in years 287 286  282 
life expectancy of male aged 60 in 20 years’ time in years 312 310  315 
us plan  
discount rate 40 46  56 
expected return on plan assets i 68 71  75 
expected rate of salary increases 30 45  47 
future pension increases  – –  –
inflation 25 25  27 
life expectancy of male aged 60 in years 229 228  228 
life expectancy of male aged 60 in 20 years’ time in years 246 245  247 
other plans  
discount rate ii 30 39 42
expected return on plan assets i ii 40 45 51 
expected rate of salary increases ii 30 33 30 
future pension increases ii 20 22 23 
inflation ii 19 19  21 
i the assumption for the expected return on plan assets has been determined using a combination of past experience and market expectations 
ii other plans’ actuarial assumptions are presented on a weighted average basis and include all funded and unfunded plans 
193 pension costs including retirement healthcare 
 
2012
 million
2011 
 million 
2010
 million 
current service cost – employer’s portion 29 28  26 
other finance cost 63 66  64 
expected return on assets in the plan 60 59 55
net defined benefit pension costs 32 35  35 
net defined contribution pension costs 32 29  25 
total pension costs charged to profit before taxation 64 64  60 
of the 64m 2011 – 64m 2010 – 60m net cost for the year 61m 2011 – 57m 2010 – 51m was charged to operating profit in selling general and administrative 
expenses the interest cost and expected return on plan assets are reported as other finance costs 
the total cost charged to income 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 as at 31 december 2012 there were nil outstanding payments due to be paid over to the plans 2011 – nil 2010 – nil 
015914smithnephewar12p89164indd   123 25022013   1145 smith  nephew annual report 2012 124
 
notes to the group accounts continued 
19 retirement benefit obligations continued  
194 actuarial lossesgains recognised in group statement of comprehensive income 
 
2012
 million
2011 
 million 
2010
 million 
experience gains in pension scheme assets 33 9  34 
experience gains on scheme liabilities 18 –  21 
losses due to changes in assumptions underlying scheme liabilities 64 79 29
 13 70 26 
the actuarial losses of 13m 2011 – loss of 70m 2010 – gain of 26m were reported in the statement of other comprehensive income making the cumulative charge 
to date 311m 2011 – 298m 2010 – 228m 
the contributions made in the year in respect of defined benefit plans were uk plan 39m 2011 – 37m 2010 – 37m us plan 27m 2011 – 30m 2010 – 20m 
and other plans 7m 2011 – 9m 2010 – 8m the agreed contributions for 2013 in respect of the group’s defined benefit plans are 39m for the uk plan including 
30m of supplementary payments 17m for the us plan and 6m for other defined benefit plans 
195 scheme assets 
the amount included in the balance sheet arising from the group’s obligations in respect of its defined benefit retirement plans and the expected rates of return on 
investments were 
 
uk plan us plan  other plans
 
rate of
return 
value
 million
rate of
return 
value
 million
 
rate of 
return  
value
 million
31 december 2012   
equities 72 253 87 246 75 7
bonds 32 372 25 110 32 43
other 67 119 23 42 74
market value of assets 744 359  124
present value of defined benefit obligations 738 506   198
surplusdeficit noncurrent assetliability 
recognised in the balance sheet 6 147   74
31 december 2011   
equities 72 248 88 196   82 6 
bonds 32 353 30 93   33  42 
other 67 55 23 9   45 61 
market value of assets 656 298    109 
present value of defined benefit obligations 680 466   166
deficit noncurrent liability recognised in  
the balance sheet 24 168   57
the following tables set out the pension plan asset allocations in the funded uk us and other plans as at 31 december for the last two years 
 
uk plan us plan  other plans
 
2012

2011

2012

2011

 2012 
 
2011

asset category   
equity securities 34 38 69 66   6 6 
debt securities 50 54 31 31   35 38 
other 16 8 – 3   59 56 
total 100 100 100 100   100 100 
3 
 
 
a reconciliation of the fair value of plan assets is shown in the following tables 
 
uk plan
 million
us plan
 million
other plans 
 million 
retirement 
 healthcare 
 million 
total
 million
fair value of plan assets at 1 january 2011 595 272 100 – 967
expected return on plan assets 35 19 5 – 59
experience gainslosses on plan assets 20 12 1 – 9
plan participant contributions 1 – 3 – 4
company contributions 37 30 9 – 76
benefits paid 23 11 6 – 40
exchange adjustment 9 – 3 – 12
fair value of plan assets at 31 december 2011 656 298 109 – 1063
expected return on plan assets 33 22 5 – 60
experience gains on plan assets 324 6 – 33
plan participant contributions 1 – 3 – 4
company contributions 39 27 7 – 7
benefits paid 23 12 – 4
exchange adjustment 35 – 3 – 38
fair value of plan assets at 31 december 2012 744 359 124 – 1227
196 present value of defined benefit obligations 
a reconciliation of the present value of defined benefit obligations is shown in the following tables 
 
uk plan
 million
us plan
 million
other plans 
 million 
retirement 
 healthcare 
 million 
total
 million
present value of defined benefit obligations at 1 january 2011 654 382 158 35 1229
current service cost 10 9 9 – 28
other finance cost 36 21 7 2 66
experience lossesgains on plan liabilities 6 1 3 2 –
losses on change of assumptions 6 66 2 5 79
plan participant contributions 1 – 3 – 4
benefits paid 23 11 6 – 40
benefits paid directly by employer 1 – – 2 3
exchange adjustment 9 – 4 – 13
present value of defined benefit obligations  
at 31 december 2011 680 466 166 38 1350
current service cost 8 11 10 – 29
other finance cost 34 21 6 2 63
experience gains on plan liabilities – 9 9 – 18
losses on change of assumptions 2 29 28 5 64
plan participant contributions 1 – 3 – 4
benefits paid 23 12 9 – 44
benefits paid directly by employer – – 1 – 1
exchange adjustment 36 – 4 – 40
present value of defined benefit obligations at  
31 december 2012 738 506 198 45 1487
  9 
3
4
015914smithnephewar12p89164indd   124 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 125
 
notes to the group accounts continued 
19 retirement benefit obligations continued  
194 actuarial lossesgains recognised in group statement of comprehensive income 
 
2012
 million
2011 
 million 
2010
 million 
experience gains in pension scheme assets 33 9  34 
experience gains on scheme liabilities 18 –  21 
losses due to changes in assumptions underlying scheme liabilities 64 79 29
 13 70 26 
the actuarial losses of 13m 2011 – loss of 70m 2010 – gain of 26m were reported in the statement of other comprehensive income making the cumulative charge 
to date 311m 2011 – 298m 2010 – 228m 
the contributions made in the year in respect of defined benefit plans were uk plan 39m 2011 – 37m 2010 – 37m us plan 27m 2011 – 30m 2010 – 20m 
and other plans 7m 2011 – 9m 2010 – 8m the agreed contributions for 2013 in respect of the group’s defined benefit plans are 39m for the uk plan including 
30m of supplementary payments 17m for the us plan and 6m for other defined benefit plans 
195 scheme assets 
the amount included in the balance sheet arising from the group’s obligations in respect of its defined benefit retirement plans and the expected rates of return on 
investments were 
 
uk plan us plan  other plans
 
rate of
return 
value
 million
rate of
return 
value
 million
 
rate of 
return  
value
 million
31 december 2012   
equities 72 253 87 246 75 7
bonds 32 372 25 110 32 43
other 67 119 23 42 74
market value of assets 744 359  124
present value of defined benefit obligations 738 506   198
surplusdeficit noncurrent assetliability 
recognised in the balance sheet 6 147   74
31 december 2011   
equities 72 248 88 196   82 6 
bonds 32 353 30 93   33  42 
other 67 55 23 9   45 61 
market value of assets 656 298    109 
present value of defined benefit obligations 680 466   166
deficit noncurrent liability recognised in  
the balance sheet 24 168   57
the following tables set out the pension plan asset allocations in the funded uk us and other plans as at 31 december for the last two years 
 
uk plan us plan  other plans
 
2012

2011

2012

2011

 2012 
 
2011

asset category   
equity securities 34 38 69 66   6 6 
debt securities 50 54 31 31   35 38 
other 16 8 – 3   59 56 
total 100 100 100 100   100 100 
3 
 
 
a reconciliation of the fair value of plan assets is shown in the following tables 
 
uk plan
 million
us plan
 million
other plans 
 million 
retirement 
 healthcare 
 million 
total
 million
fair value of plan assets at 1 january 2011 595 272 100 – 967
expected return on plan assets 35 19 5 – 59
experience gainslosses on plan assets 20 12 1 – 9
plan participant contributions 1 – 3 – 4
company contributions 37 30 9 – 76
benefits paid 23 11 6 – 40
exchange adjustment 9 – 3 – 12
fair value of plan assets at 31 december 2011 656 298 109 – 1063
expected return on plan assets 33 22 5 – 60
experience gains on plan assets 324 6 – 33
plan participant contributions 1 – 3 – 4
company contributions 39 27 7 – 7
benefits paid 23 12 – 4
exchange adjustment 35 – 3 – 38
fair value of plan assets at 31 december 2012 744 359 124 – 1227
196 present value of defined benefit obligations 
a reconciliation of the present value of defined benefit obligations is shown in the following tables 
 
uk plan
 million
us plan
 million
other plans 
 million 
retirement 
 healthcare 
 million 
total
 million
present value of defined benefit obligations at 1 january 2011 654 382 158 35 1229
current service cost 10 9 9 – 28
other finance cost 36 21 7 2 66
experience lossesgains on plan liabilities 6 1 3 2 –
losses on change of assumptions 6 66 2 5 79
plan participant contributions 1 – 3 – 4
benefits paid 23 11 6 – 40
benefits paid directly by employer 1 – – 2 3
exchange adjustment 9 – 4 – 13
present value of defined benefit obligations  
at 31 december 2011 680 466 166 38 1350
current service cost 8 11 10 – 29
other finance cost 34 21 6 2 63
experience gains on plan liabilities – 9 9 – 18
losses on change of assumptions 2 29 28 5 64
plan participant contributions 1 – 3 – 4
benefits paid 23 12 9 – 44
benefits paid directly by employer – – 1 – 1
exchange adjustment 36 – 4 – 40
present value of defined benefit obligations at  
31 december 2012 738 506 198 45 1487
  9 
3
4
015914smithnephewar12p89164indd   125 25022013   1145 smith  nephew annual report 2012 126
 
notes to the group accounts continued 
19 retirement benefit obligations continued  
197 history of experience adjustments 
the history of experience adjustments is as follows 
 
present value  
of defined 
benefit 
obligations 
 million 
fair value of 
plan assets
 million
surplus
deficit in
plan
 million
experience lossesgains 
on plan liabilities 
 experience gainslosses
on plan assets
amount –
gainloss
 million
percentage 
of plan 
 liabilities 
 
 
amount – 
 gainloss 
 million 
percentage
 of plan
 assets

at 31 december 2012     
uk plan 738 744 6 – –   3 –
us plan 506 359 147 9 2  24 7
other plans 198 124 74 9 5  6 6
at 31 december 2011     
uk plan 680 656 24 6 1   20  3 
us plan 466 298 168 1 –   12 4 
other plans 166 109 57 3 2   1  1 
at 31 december 2010     
uk plan 654 595 59 21 3   26  4 
us plan 382 272 110 2 –   11  4 
other plans 158 100 58 2 1   3 3 
at 31 december 2009     
uk plan 668 534 134 10 2   36  7 
us plan 343 234 109 – –   34  15 
other plans 137 87 50 7 5   1  1 
at 31 december 2008     
uk plan 516 416 100 1 –   126 30 
us plan 337 180 157 5 1   100 56 
other plans 141 76 65 5 4   10 13 
the group recharges the uk pension plan with the costs of administration and independent advisers the amount recharged in the year was 2m 2011 – 2m 2010 – 
2m the amount receivable at 31 december 2012 was nil 2011 – nil 2010 – nil 
198 retirement healthcare 
the cost of providing healthcare benefits after retirement is determined by independent actuaries the principal actuarial assumptions in determining the cost of providing 
healthcare benefits are those in the uk and the us and are as follows 
 
2012 2011 2010 
uk us uk us uk us
 per annum   
discount rate 45 40 49 46 55  56 
medical cost inflation 70 75 70 80 70  80 
a 1 percentage point change in the rate of medical cost inflation would not affect the accumulated retirement benefit obligations or the aggregate of the current service 
and interest costs of the uk or us plans in 2012 by more than 3m 2011 – more than 2m 2010 – more than 2m 
for the us the retirement healthcare cost trend for 2013 is expected to be 35 above the discount rate thereafter the healthcare cost trend rate is assumed to decrease 
each year by 05 to an ultimate rate of 5 for the uk it will remain flat at 7 
 
 
20 equity 
201 share capital 
 
ordinary shares 20¢ deferred shares £100 
 
thousand  million thousand  million 
total 
 million
authorised   
at 31 december 2010 1223591 245 50 – 245
at 31 december 2011 1223591 245 50 – 245
at 31 december 2012 1223591 245 50 – 245
allotted issued and fully paid   
at 1 january 2010 951021 190 50 – 190
share options 1816 1 – – 1
at 31 december 2010 952837 191 50 – 191
share options 1991 – – – –
at 31 december 2011 954828 191 50 – 191
share options 8752 2 – – 2
at 31 december 2012 963580 193 50 – 193
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 
 
2012
 million
2011 
 million 
2010
 million 
share capital 193 191 191
share premium 488 413 396
treasury shares 735 766 778
retained earnings and other reserves 3938 3349 2964
 3884 3187 2773
 
  
015914smithnephewar12p89164indd   126 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 127
 
notes to the group accounts continued 
19 retirement benefit obligations continued  
197 history of experience adjustments 
the history of experience adjustments is as follows 
 
present value  
of defined 
benefit 
obligations 
 million 
fair value of 
plan assets
 million
surplus
deficit in
plan
 million
experience lossesgains 
on plan liabilities 
 experience gainslosses
on plan assets
amount –
gainloss
 million
percentage 
of plan 
 liabilities 
 
 
amount – 
 gainloss 
 million 
percentage
 of plan
 assets

at 31 december 2012     
uk plan 738 744 6 – –   3 –
us plan 506 359 147 9 2  24 7
other plans 198 124 74 9 5  6 6
at 31 december 2011     
uk plan 680 656 24 6 1   20  3 
us plan 466 298 168 1 –   12 4 
other plans 166 109 57 3 2   1  1 
at 31 december 2010     
uk plan 654 595 59 21 3   26  4 
us plan 382 272 110 2 –   11  4 
other plans 158 100 58 2 1   3 3 
at 31 december 2009     
uk plan 668 534 134 10 2   36  7 
us plan 343 234 109 – –   34  15 
other plans 137 87 50 7 5   1  1 
at 31 december 2008     
uk plan 516 416 100 1 –   126 30 
us plan 337 180 157 5 1   100 56 
other plans 141 76 65 5 4   10 13 
the group recharges the uk pension plan with the costs of administration and independent advisers the amount recharged in the year was 2m 2011 – 2m 2010 – 
2m the amount receivable at 31 december 2012 was nil 2011 – nil 2010 – nil 
198 retirement healthcare 
the cost of providing healthcare benefits after retirement is determined by independent actuaries the principal actuarial assumptions in determining the cost of providing 
healthcare benefits are those in the uk and the us and are as follows 
 
2012 2011 2010 
uk us uk us uk us
 per annum   
discount rate 45 40 49 46 55  56 
medical cost inflation 70 75 70 80 70  80 
a 1 percentage point change in the rate of medical cost inflation would not affect the accumulated retirement benefit obligations or the aggregate of the current service 
and interest costs of the uk or us plans in 2012 by more than 3m 2011 – more than 2m 2010 – more than 2m 
for the us the retirement healthcare cost trend for 2013 is expected to be 35 above the discount rate thereafter the healthcare cost trend rate is assumed to decrease 
each year by 05 to an ultimate rate of 5 for the uk it will remain flat at 7 
 
 
20 equity 
201 share capital 
 
ordinary shares 20¢ deferred shares £100 
 
thousand  million thousand  million 
total 
 million
authorised   
at 31 december 2010 1223591 245 50 – 245
at 31 december 2011 1223591 245 50 – 245
at 31 december 2012 1223591 245 50 – 245
allotted issued and fully paid   
at 1 january 2010 951021 190 50 – 190
share options 1816 1 – – 1
at 31 december 2010 952837 191 50 – 191
share options 1991 – – – –
at 31 december 2011 954828 191 50 – 191
share options 8752 2 – – 2
at 31 december 2012 963580 193 50 – 193
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 
 
2012
 million
2011 
 million 
2010
 million 
share capital 193 191 191
share premium 488 413 396
treasury shares 735 766 778
retained earnings and other reserves 3938 3349 2964
 3884 3187 2773
 
  
015914smithnephewar12p89164indd   127 25022013   1145 smith  nephew annual report 2012 128
 
notes to the group accounts continued 
20 equity continued 
202 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 which was suspended in 2008 
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 2011 769 9 778
shares purchased – 6 6
shares transferred from treasury 14 14 –
shares transferred to group beneficiaries 5 13 18
at 31 december 2011 750 16 766
shares transferred from treasury 10 10 –
shares transferred to group beneficiaries 10 21 31
at 31 december 2012 730 5 735
 
 
no of shares
million
no of shares 
million 
no of shares
million
at 1 january 2011 627 08 635
shares purchased – 06 06
shares transferred from treasury 11 11 –
shares transferred to group beneficiaries 04 11 15
at 31 december 2011 612 14 626
shares transferred from treasury 09 09 –
shares transferred to group beneficiaries 08 18 26
at 31 december 2012 595 05 600
203 dividends 
 
2012
 million
2011 
 million 
2010
 million 
the following dividends were declared and paid in the year  
ordinary final of 1080¢ for 2011 2010 – 982¢ 2009 – 893¢  
paid 9 may 2012 97 88 79
ordinary interim of 990¢ for 2012 2011 – 660¢ 2010 – 600¢  
paid 30 october 2012 89 58 53
 186 146 132
a final dividend for 2012 of 1620 us cents per ordinary share was proposed by the board on 6 february 2013 and will be paid subject to shareholder approval 
on 8 may 2013 to shareholders on the register of members on 19 april 2013 the estimated amount of this dividend on 19 february 2013 is 147m 
 
 
21 cash flow statement 
accounting policy 
in the group cash flow statement cash and cash equivalents includes cash in hand deposits held with banks 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 2010 192 18 27 1090 – 943
net cash flow 9 6 17 437 3 438
exchange adjustment 6 – 1 11 3 13
at 31 december 2010 207 12 45 642 – 492
net cash flow 21 12 252 140 1 360
other noncash changes – – 517 517 – –
exchange adjustment 2 1 27 31 1 6
at 31 december 2011 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
reconciliation of net cash flow to movement in net debt 
 
2012
 million
2011 
 million 
2010
 million 
net cash flow from cash net of overdrafts 2 33 15
settlement of currency swaps 1 1 3
net cash flow from borrowings 158 392 420
change in net debt from net cash flow 155 360 438
exchange adjustment 5 6 13
change in net debt in the year 150 354 451
opening net debt 138 492 943
closing net debt 288 138 492
cash and cash equivalents 
for the purposes of the group cash flow statement cash and cash equivalents at 31 december comprise cash at bank and in hand net of bank overdrafts 
 
2012
 million
2011 
 million 
2010
 million 
cash at bank and in hand 178 184 207
bank overdrafts 11 23 12
cash and cash equivalents 167 161 195
 
015914smithnephewar12p89164indd   128 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 129
 
notes to the group accounts continued 
20 equity continued 
202 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 which was suspended in 2008 
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 2011 769 9 778
shares purchased – 6 6
shares transferred from treasury 14 14 –
shares transferred to group beneficiaries 5 13 18
at 31 december 2011 750 16 766
shares transferred from treasury 10 10 –
shares transferred to group beneficiaries 10 21 31
at 31 december 2012 730 5 735
 
 
no of shares
million
no of shares 
million 
no of shares
million
at 1 january 2011 627 08 635
shares purchased – 06 06
shares transferred from treasury 11 11 –
shares transferred to group beneficiaries 04 11 15
at 31 december 2011 612 14 626
shares transferred from treasury 09 09 –
shares transferred to group beneficiaries 08 18 26
at 31 december 2012 595 05 600
203 dividends 
 
2012
 million
2011 
 million 
2010
 million 
the following dividends were declared and paid in the year  
ordinary final of 1080¢ for 2011 2010 – 982¢ 2009 – 893¢  
paid 9 may 2012 97 88 79
ordinary interim of 990¢ for 2012 2011 – 660¢ 2010 – 600¢  
paid 30 october 2012 89 58 53
 186 146 132
a final dividend for 2012 of 1620 us cents per ordinary share was proposed by the board on 6 february 2013 and will be paid subject to shareholder approval 
on 8 may 2013 to shareholders on the register of members on 19 april 2013 the estimated amount of this dividend on 19 february 2013 is 147m 
 
 
21 cash flow statement 
accounting policy 
in the group cash flow statement cash and cash equivalents includes cash in hand deposits held with banks 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 2010 192 18 27 1090 – 943
net cash flow 9 6 17 437 3 438
exchange adjustment 6 – 1 11 3 13
at 31 december 2010 207 12 45 642 – 492
net cash flow 21 12 252 140 1 360
other noncash changes – – 517 517 – –
exchange adjustment 2 1 27 31 1 6
at 31 december 2011 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
reconciliation of net cash flow to movement in net debt 
 
2012
 million
2011 
 million 
2010
 million 
net cash flow from cash net of overdrafts 2 33 15
settlement of currency swaps 1 1 3
net cash flow from borrowings 158 392 420
change in net debt from net cash flow 155 360 438
exchange adjustment 5 6 13
change in net debt in the year 150 354 451
opening net debt 138 492 943
closing net debt 288 138 492
cash and cash equivalents 
for the purposes of the group cash flow statement cash and cash equivalents at 31 december comprise cash at bank and in hand net of bank overdrafts 
 
2012
 million
2011 
 million 
2010
 million 
cash at bank and in hand 178 184 207
bank overdrafts 11 23 12
cash and cash equivalents 167 161 195
 
015914smithnephewar12p89164indd   129 25022013   1145 smith  nephew annual report 2012 130
 
notes to the group accounts continued 
22 acquisitions and assets held for sale 
accounting policy 
on acquisition identifiable assets and liabilities including contingent liabilities of subsidiaries and associates are measured at their fair values at the date of acquisition 
using the acquisition method the fair value of assets includes the taxation benefits resulting from amortisation for income taxation purposes from which a third party 
separately acquiring the assets would reasonably be expected to benefit goodwill representing the excess of purchase consideration over the group’s share of the 
fair value of net assets acquired is capitalised 
221 acquisitions 
year ended 31 december 2012 
on 21 december 2012 the group acquired substantially all the assets of healthpoint biotherapeutics ‘healthpoint’ a leader in bioactive debridement dermal repair and 
regeneration wound care treatments  
the acquisition is deemed to be a business combination within the scope of ifrs 3 consideration was in the form of a single payment of 782m the fair values shown 
below are provisional if new information is obtained within the measurement period no more than one year after the acquisition date 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 73m it is attributable to the additional economic benefits expected from the transaction including 
revenue synergies and 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  27
inventories  46
trade receivables  31
identifiable intangible assets  662
deferred tax assets  5
payables and accruals  49
provisions  13
net assets  709
goodwill  73
cost of acquisition  782
the group incurred acquisitionrelated costs of 11m related to professional and advisor fees these costs have been recognised in administrative expenses in the 
income statement no ‘acquisition related costs’ were incurred in 2011 or 2010 
in 2012 since the date of acquisition the contribution to attributable profit from healthpoint products was immaterial the unaudited revenues from healthpoint products 
during 2012 were 190m given the proximity of the acquisition to yearend it is impracticable to determine what the consolidated attributable profit would have been had 
the acquisition taken place at the beginning of the year 
  
 
year ended 31 december 2011 
on 23 june 2011 smith  nephew acquired 100 of the voting rights of tenet medical engineering inc for an initial payment of 35m a further payment of 3m 
deferred for 18 months and up to 145m based on the achievement of future revenue milestones the cost is assessed as 46m being the fair value of the 
probable consideration 
  
fair value
 to group
 million 
trade and other receivables  2
inventories  1
trade and other payables  3
cash  2
net assets  2
goodwill on acquisition  44
cost of acquisition  46
  
discharged by  
cash  35
deferred consideration  3
contingent consideration  8
total consideration  46
as the group was the only material customer of tenet medical engineering inc no contribution to revenue was achieved in 2011 the postacquisition contribution 
to attributable profit for 2011 was immaterial 
year ended 31 december 2010 
in the year ended 31 december 2010 there were no acquisitions 
222 disposal of business 
year ended 31 december 2012 
in january 2012 the group announced its intention to sell the clinical therapies business to bioventus llc ‘bioventus’ this was completed during may 2012 for a total 
consideration of 367m and resulted in a profit on disposal before taxation of 251m the revenue of the clinical therapies business in the fourmonth period to disposal 
was 69m and profit before taxation was 12m the details of the transaction are set out below  
   million 
loan note receivable  160
investment in associate  104
cash  103
total consideration  367
net assets of business disposed and disposal transaction costs  116
profit before taxation  251
 
  
015914smithnephewar12p89164indd   130 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 131
 
notes to the group accounts continued 
22 acquisitions and assets held for sale 
accounting policy 
on acquisition identifiable assets and liabilities including contingent liabilities of subsidiaries and associates are measured at their fair values at the date of acquisition 
using the acquisition method the fair value of assets includes the taxation benefits resulting from amortisation for income taxation purposes from which a third party 
separately acquiring the assets would reasonably be expected to benefit goodwill representing the excess of purchase consideration over the group’s share of the 
fair value of net assets acquired is capitalised 
221 acquisitions 
year ended 31 december 2012 
on 21 december 2012 the group acquired substantially all the assets of healthpoint biotherapeutics ‘healthpoint’ a leader in bioactive debridement dermal repair and 
regeneration wound care treatments  
the acquisition is deemed to be a business combination within the scope of ifrs 3 consideration was in the form of a single payment of 782m the fair values shown 
below are provisional if new information is obtained within the measurement period no more than one year after the acquisition date 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 73m it is attributable to the additional economic benefits expected from the transaction including 
revenue synergies and 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  27
inventories  46
trade receivables  31
identifiable intangible assets  662
deferred tax assets  5
payables and accruals  49
provisions  13
net assets  709
goodwill  73
cost of acquisition  782
the group incurred acquisitionrelated costs of 11m related to professional and advisor fees these costs have been recognised in administrative expenses in the 
income statement no ‘acquisition related costs’ were incurred in 2011 or 2010 
in 2012 since the date of acquisition the contribution to attributable profit from healthpoint products was immaterial the unaudited revenues from healthpoint products 
during 2012 were 190m given the proximity of the acquisition to yearend it is impracticable to determine what the consolidated attributable profit would have been had 
the acquisition taken place at the beginning of the year 
  
 
year ended 31 december 2011 
on 23 june 2011 smith  nephew acquired 100 of the voting rights of tenet medical engineering inc for an initial payment of 35m a further payment of 3m 
deferred for 18 months and up to 145m based on the achievement of future revenue milestones the cost is assessed as 46m being the fair value of the 
probable consideration 
  
fair value
 to group
 million 
trade and other receivables  2
inventories  1
trade and other payables  3
cash  2
net assets  2
goodwill on acquisition  44
cost of acquisition  46
  
discharged by  
cash  35
deferred consideration  3
contingent consideration  8
total consideration  46
as the group was the only material customer of tenet medical engineering inc no contribution to revenue was achieved in 2011 the postacquisition contribution 
to attributable profit for 2011 was immaterial 
year ended 31 december 2010 
in the year ended 31 december 2010 there were no acquisitions 
222 disposal of business 
year ended 31 december 2012 
in january 2012 the group announced its intention to sell the clinical therapies business to bioventus llc ‘bioventus’ this was completed during may 2012 for a total 
consideration of 367m and resulted in a profit on disposal before taxation of 251m the revenue of the clinical therapies business in the fourmonth period to disposal 
was 69m and profit before taxation was 12m the details of the transaction are set out below  
   million 
loan note receivable  160
investment in associate  104
cash  103
total consideration  367
net assets of business disposed and disposal transaction costs  116
profit before taxation  251
 
  
015914smithnephewar12p89164indd   131 25022013   1145 smith  nephew annual report 2012 132
 
notes to the group accounts continued 
22 acquisitions and assets held for sale continued 
223 assets held for sale 
the group has classified following assets and liabilities as held for sale 
 
2012  
 million 
2011 
 million
goodwill – 37
intangible assets – 14
property plant and equipment – 3
deferred tax assets – 7
inventory – 15
trade and other receivables – 49
 – 125
liabilities directly associated with assets held for sale – 19
in 2011 the assets and liabilities of the clinical therapies business were classified as held for sale in 2011 this business contributed 237m to revenue and 48m 
to trading profit this transaction was completed during may 2012 for a total consideration of 367m see note 222 
as part of this disposal the group commitment of 60m detailed in note 9 was transferred to the associate 
23 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 
rentals payable under operating leases are expensed in the income statement on a straight line basis over the term of the relevant lease 
future minimum lease payments under noncancellable operating leases fall due as follows 
 
 
 
2012  
 million 
2011 
 million
land and buildings  
within one year 30 31
after one and within two years 24 22
after two and within three years 17 18
after three and within four years 14 15
after four and within five years 8 11
after five years 4 13
 97 110
other assets  
within one year 15 19
after one and within two years 10 12
after two and within three years 4 6
after three and within four years 1 2
 30 39
  
 
 
24 other notes to the accounts 
241 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 
provide for employees to save up to £250 per month and gives 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 
denmark finland germany hong kong japan south korea mexico new zealand norway poland portugal singapore south africa spain sweden switzerland and 
the united arab emirates employees in india ireland and italy participated in these plans for the first time in 2012 the smith  nephew france sharesave plan 2002 
and smith  nephew france sharesave plan 2012 are available to all employees in france 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 are 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 is 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 
015914smithnephewar12p89164indd   132 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 133
 
notes to the group accounts continued 
22 acquisitions and assets held for sale continued 
223 assets held for sale 
the group has classified following assets and liabilities as held for sale 
 
2012  
 million 
2011 
 million
goodwill – 37
intangible assets – 14
property plant and equipment – 3
deferred tax assets – 7
inventory – 15
trade and other receivables – 49
 – 125
liabilities directly associated with assets held for sale – 19
in 2011 the assets and liabilities of the clinical therapies business were classified as held for sale in 2011 this business contributed 237m to revenue and 48m 
to trading profit this transaction was completed during may 2012 for a total consideration of 367m see note 222 
as part of this disposal the group commitment of 60m detailed in note 9 was transferred to the associate 
23 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 
rentals payable under operating leases are expensed in the income statement on a straight line basis over the term of the relevant lease 
future minimum lease payments under noncancellable operating leases fall due as follows 
 
 
 
2012  
 million 
2011 
 million
land and buildings  
within one year 30 31
after one and within two years 24 22
after two and within three years 17 18
after three and within four years 14 15
after four and within five years 8 11
after five years 4 13
 97 110
other assets  
within one year 15 19
after one and within two years 10 12
after two and within three years 4 6
after three and within four years 1 2
 30 39
  
 
 
24 other notes to the accounts 
241 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 
provide for employees to save up to £250 per month and gives 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 
denmark finland germany hong kong japan south korea mexico new zealand norway poland portugal singapore south africa spain sweden switzerland and 
the united arab emirates employees in india ireland and italy participated in these plans for the first time in 2012 the smith  nephew france sharesave plan 2002 
and smith  nephew france sharesave plan 2012 are available to all employees in france 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 are 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 is 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 
015914smithnephewar12p89164indd   133 25022013   1145 smith  nephew annual report 2012 134
 
notes to the group accounts continued 
24 other notes to the accounts continued 
241 sharebased payments continued 
at 31 december 2012 19690000 2011 – 27316000 2010 – 25753000 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 2010 3383 3480–6400 4227
granted 986 4590–5560 4622
forfeited 364 3480–6090 4398
exercised 625 3480–5765 4352
expired 22 3480–6400 4317
outstanding at 31 december 2010 3358 3480–6400 4301
granted 1090 4520–5850 4548
forfeited 122 3480–6090 4276
exercised 602 3480–5765 4547
expired 144 3800–6090 4507
outstanding at 31 december 2011 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
options exercisable at 31 december 2012 152 3800–6090 4008
options exercisable at 31 december 2011 122 3480–6400 4708
options exercisable at 31 december 2010 87 4250–5765 4665
executive plans  
outstanding at 1 january 2010 20000 2650–6375 5471
granted 6249 4240–6750 5209
forfeited 977 4790–6805 5813
exercised 2386 2650–6375 4792
expired 491 4180–6378 5756
outstanding at 31 december 2010 22395 4095–6805 5449
granted 5706 5800–7030 5994
forfeited 763 4790–6378 5655
exercised 2369 4450–6805 5366
expired 1233 4450–6378 5497
outstanding at 31 december 2011 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
options exercisable at 31 december 2012 8512 4095–6805 5627
options exercisable at 31 december 2011 7979 4095–6805 5956
options exercisable at 31 december 2010 5153 4095–6270 5483
the weighted average remaining contractual life of options outstanding at 31 december 2012 was 66 2011 – 66 years 2010 – 61 years years for executive plans and 
26 2011 – 26 years 2010 – 27 years years for employee plans 
 
2012
pence
2011 
pence 
2010
pence
weighted average share price 6405 6399 6193
  
 
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 947 1840 6810 5355 38
executive plans 3046 1487 6500 6500 100
the weighted average fair value of options granted under employee plans during 2011 was 1892p 2010 – 1702p and those under executive plans during 2011 was 
1761p 2010 – 1737p 
options granted under the executive plans are valued using a binomial model 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 options granted under each plan are 
valued separately and a weighted average fair value is calculated 
the binomial model is used for executive plans so that proper allowance is made for the possibility of early exercise at the 2012 grant management expected 90 of the 
options granted under the global share plan 2010 to vest 2011 – 90 2010 – 90 each year an assessment is made of the current vesting estimates and they are 
updated to reflect revised expectations of the number of grants that will vest 
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
 2012 2011 2010 2012 2011 2010
dividend yield  15 15 15 15 15 15
expected volatility  i 250 300 300 250 300 300
risk free interest rate  ii 13 20 25 12 20 25
expected life in years iii 38 39 39 100 100 98
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 
iii an assessment of an executive plan’s option life is based on an exercise model this is based on a mixture of historic experience and generally accepted behavioural traits 5 2011 – 5 
2010 – 5 of executive plan option holders are assumed to leave and exercise their options or forfeit them if under water each year after vesting in addition 50 2011 – 50 2010 – 50 
of executive plan option holders are assumed to exercise by choice per annum providing the gain available is at least 25 for the options granted under the global share plan 2010 2011 – 
50 for the options granted to executives and 25 for other recipients under the global share plan 2010 2010 – 50 for the 2004 plan and 50 for the options granted to executives and 
25 for other recipients under the global share plan 2010 
summarised information about options outstanding under the share option plans at 31 december 2012 is as follows 
 
number outstanding 
thousand 
weighted average 
remaining contract life 
years
employee plans  
3800p to 6405p i  3162 26
above 6405p i – –
 3162 26
executive plans  
4095p to 6405p i  13431 59
6405p i to 6805p 3097 95
 16528 66
i the split has been determined based on the weighted average share price of 6405p 
  
015914smithnephewar12p89164indd   134 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 135
 
notes to the group accounts continued 
24 other notes to the accounts continued 
241 sharebased payments continued 
at 31 december 2012 19690000 2011 – 27316000 2010 – 25753000 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 2010 3383 3480–6400 4227
granted 986 4590–5560 4622
forfeited 364 3480–6090 4398
exercised 625 3480–5765 4352
expired 22 3480–6400 4317
outstanding at 31 december 2010 3358 3480–6400 4301
granted 1090 4520–5850 4548
forfeited 122 3480–6090 4276
exercised 602 3480–5765 4547
expired 144 3800–6090 4507
outstanding at 31 december 2011 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
options exercisable at 31 december 2012 152 3800–6090 4008
options exercisable at 31 december 2011 122 3480–6400 4708
options exercisable at 31 december 2010 87 4250–5765 4665
executive plans  
outstanding at 1 january 2010 20000 2650–6375 5471
granted 6249 4240–6750 5209
forfeited 977 4790–6805 5813
exercised 2386 2650–6375 4792
expired 491 4180–6378 5756
outstanding at 31 december 2010 22395 4095–6805 5449
granted 5706 5800–7030 5994
forfeited 763 4790–6378 5655
exercised 2369 4450–6805 5366
expired 1233 4450–6378 5497
outstanding at 31 december 2011 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
options exercisable at 31 december 2012 8512 4095–6805 5627
options exercisable at 31 december 2011 7979 4095–6805 5956
options exercisable at 31 december 2010 5153 4095–6270 5483
the weighted average remaining contractual life of options outstanding at 31 december 2012 was 66 2011 – 66 years 2010 – 61 years years for executive plans and 
26 2011 – 26 years 2010 – 27 years years for employee plans 
 
2012
pence
2011 
pence 
2010
pence
weighted average share price 6405 6399 6193
  
 
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 947 1840 6810 5355 38
executive plans 3046 1487 6500 6500 100
the weighted average fair value of options granted under employee plans during 2011 was 1892p 2010 – 1702p and those under executive plans during 2011 was 
1761p 2010 – 1737p 
options granted under the executive plans are valued using a binomial model 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 options granted under each plan are 
valued separately and a weighted average fair value is calculated 
the binomial model is used for executive plans so that proper allowance is made for the possibility of early exercise at the 2012 grant management expected 90 of the 
options granted under the global share plan 2010 to vest 2011 – 90 2010 – 90 each year an assessment is made of the current vesting estimates and they are 
updated to reflect revised expectations of the number of grants that will vest 
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
 2012 2011 2010 2012 2011 2010
dividend yield  15 15 15 15 15 15
expected volatility  i 250 300 300 250 300 300
risk free interest rate  ii 13 20 25 12 20 25
expected life in years iii 38 39 39 100 100 98
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 
iii an assessment of an executive plan’s option life is based on an exercise model this is based on a mixture of historic experience and generally accepted behavioural traits 5 2011 – 5 
2010 – 5 of executive plan option holders are assumed to leave and exercise their options or forfeit them if under water each year after vesting in addition 50 2011 – 50 2010 – 50 
of executive plan option holders are assumed to exercise by choice per annum providing the gain available is at least 25 for the options granted under the global share plan 2010 2011 – 
50 for the options granted to executives and 25 for other recipients under the global share plan 2010 2010 – 50 for the 2004 plan and 50 for the options granted to executives and 
25 for other recipients under the global share plan 2010 
summarised information about options outstanding under the share option plans at 31 december 2012 is as follows 
 
number outstanding 
thousand 
weighted average 
remaining contract life 
years
employee plans  
3800p to 6405p i  3162 26
above 6405p i – –
 3162 26
executive plans  
4095p to 6405p i  13431 59
6405p i to 6805p 3097 95
 16528 66
i the split has been determined based on the weighted average share price of 6405p 
  
015914smithnephewar12p89164indd   135 25022013   1145 smith  nephew annual report 2012 136
 
notes to the group accounts continued 
24 other notes to the accounts 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 which replaced the longterm 
incentive plan ltip 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 one third 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 one third 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 vesting of the share awards is dependent upon performance relative to the ftse 100 and an index based on major 
international companies in the medical devices industry 
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 one third each year subject to continued employment and personal performance no further performance conditions will apply to the eia 
the fair values of awards granted under longterm incentive plans are calculated using a binomial model the exercise price for all awards granted under the long term 
incentive plans is nil 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 35 2011 – 40 2010 – 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 and the group’s total shareholder return “tsr” performance over the three year performance period 
the other assumptions used are consistent with the executive scheme assumptions disclosed in note 241 
at 31 december 2012 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 cip 
deferred 
 bonus plan total
outstanding at 1 january 2010 – – 4880 445 292 5617
awarded – – 2386 – 338 2724
vested – – 501 116 101 718
forfeited – – 753 132 7 892
outstanding at 31 december 2010 – – 6012 197 522 6731
awarded 838 – 2282 – 351 3471
vested 44 – 366 – 375 785
forfeited – – 1660 197 6 1863
outstanding at 31 december 2011 794 – 6268 – 492 7554
awarded 18710602190 – – 3437
vested 263491785 – 287 2384
forfeited – 82 1431 – 41 1554
outstanding at 31 december 2012 718 929 5242 – 164 7053
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 2012 was 08 years 2011 – 12 years 2010 – 18 years for the psp 09 years 
2011 – 17 years 2010 – 19 years for the deferred bonus plan 22 years for the eia and 09 years for the other awards 2011 – 15 years there were no awards 
outstanding under the cip in 2012 and 2011 the remaining contractual life of awards under the cip was 02 years for 2010 
  
 
 
sharebased payments – charge to income statement 
the expense charged to the income statement for sharebased payments is as follows 
 
2012
 million
2011 
 million 
2010
 million
granted in current year 9 9 5
granted in prior years 25 21 16
total sharebased payments expense for the year 34 30 21
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 
242 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 
 
2012
 million
2011 
 million 
2010
 million
sales to the associates 14 8 8
purchases from the associates 8 4 4
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 
 
2012
 million
2011 
 million 
2010
 million
shortterm employee benefits 16 19 13
sharebased payments expense 10 9 3
pension and postemployment benefit entitlements 1 1 1
termination benefits – 1 –
 27 30 17
 
  
015914smithnephewar12p89164indd   136 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 137
 
notes to the group accounts continued 
24 other notes to the accounts 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 which replaced the longterm 
incentive plan ltip 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 one third 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 one third 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 vesting of the share awards is dependent upon performance relative to the ftse 100 and an index based on major 
international companies in the medical devices industry 
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 one third each year subject to continued employment and personal performance no further performance conditions will apply to the eia 
the fair values of awards granted under longterm incentive plans are calculated using a binomial model the exercise price for all awards granted under the long term 
incentive plans is nil 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 35 2011 – 40 2010 – 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 and the group’s total shareholder return “tsr” performance over the three year performance period 
the other assumptions used are consistent with the executive scheme assumptions disclosed in note 241 
at 31 december 2012 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 cip 
deferred 
 bonus plan total
outstanding at 1 january 2010 – – 4880 445 292 5617
awarded – – 2386 – 338 2724
vested – – 501 116 101 718
forfeited – – 753 132 7 892
outstanding at 31 december 2010 – – 6012 197 522 6731
awarded 838 – 2282 – 351 3471
vested 44 – 366 – 375 785
forfeited – – 1660 197 6 1863
outstanding at 31 december 2011 794 – 6268 – 492 7554
awarded 18710602190 – – 3437
vested 263491785 – 287 2384
forfeited – 82 1431 – 41 1554
outstanding at 31 december 2012 718 929 5242 – 164 7053
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 2012 was 08 years 2011 – 12 years 2010 – 18 years for the psp 09 years 
2011 – 17 years 2010 – 19 years for the deferred bonus plan 22 years for the eia and 09 years for the other awards 2011 – 15 years there were no awards 
outstanding under the cip in 2012 and 2011 the remaining contractual life of awards under the cip was 02 years for 2010 
  
 
 
sharebased payments – charge to income statement 
the expense charged to the income statement for sharebased payments is as follows 
 
2012
 million
2011 
 million 
2010
 million
granted in current year 9 9 5
granted in prior years 25 21 16
total sharebased payments expense for the year 34 30 21
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 
242 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 
 
2012
 million
2011 
 million 
2010
 million
sales to the associates 14 8 8
purchases from the associates 8 4 4
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 
 
2012
 million
2011 
 million 
2010
 million
shortterm employee benefits 16 19 13
sharebased payments expense 10 9 3
pension and postemployment benefit entitlements 1 1 1
termination benefits – 1 –
 27 30 17
 
  
015914smithnephewar12p89164indd   137 25022013   1145 smith  nephew annual report 2012 138
 
notes to the group accounts continued 
24 other notes to the accounts continued 
243 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 
united kingdom  
smith  nephew healthcare limited medical devices england  wales 
smith  nephew medical limited medical devices england  wales 
t j smith  nephew limited medical devices england  wales 
continental europe   
smith  nephew gmbh medical devices austria
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 orthopaedics 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 orthopaedics ag medical devices switzerland
usa  
smith  nephew inc medical devices united states 
africa asia australasia and other america  
smith  nephew pty limited medical devices australia
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
smith  nephew limited medical devices hong kong
smith  nephew healthcare private limited medical devices india
smith  nephew kk medical devices japan
smith  nephew limited 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 inc medical devices puerto rico
smith  nephew pte limited medical devices singapore
smith  nephew pty limited medical devices south africa 
smith  nephew limited medical devices thailand
smith  nephew fze medical devices united arab emirates 
 
 
independent auditor’s report for the company
independent auditor’s report to the members of 
smith  nephew plc 
we have audited the parent company financial statements of smith  nephew plc 
for the year ended 31 december 2012 which comprise the parent company 
balance sheet and the related notes 1 to 10 the financial reporting framework 
that has been applied in their preparation is applicable law and united kingdom 
accounting standards united kingdom generally accepted accounting practice 
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 
respective responsibilities of directors and auditor 
as explained more fully in the directors’ responsibility statement set out on page 
89 the directors are responsible for the preparation of the parent company 
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 parent company 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 apb’s ethical standards for auditors 
scope of the audit of the financial statements 
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 parent company’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 
if we become aware of any apparent material misstatements or inconsistencies 
we consider the implications for our report 
opinion on accounts 
in our opinion the parent company financial statements 
– give a true and fair view of the state of the company’s affairs as at 
31 december 2012 
– have been properly prepared in accordance with united kingdom generally 
accepted accounting practice and 
– have been prepared in accordance with the requirements of the companies 
act 2006 
opinion on other matters prescribed by the 
companies act 2006 
in our opinion 
– the part of the directors’ remuneration report to be audited has been properly 
prepared in accordance with the companies act 2006 and 
– the information given in the directors’ report for the financial year for which the 
financial statements are prepared is consistent with the parent company 
financial statements 
matters on which we are required to report 
by exception 
we have nothing to report in respect of the following matters where the 
companies act 2006 requires us to report to you if in our opinion 
– adequate accounting records have not been kept by the parent company 
or returns adequate for our audit have not been received from branches not 
visited by us or 
– the parent company financial statements and the part of the directors’ 
remuneration report to be audited are not in agreement with the accounting 
records and returns or 
– 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 
other matter 
we have reported separately on the group financial statements of smith  
nephew plc for the year ended 31 december 2012 
les clifford senior statutory auditor 
for and on behalf of ernst  young llp statutory auditor 
london 
20 february 2013 
 
 
015914smithnephewar12p89164indd   138 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 139
 
notes to the group accounts continued 
24 other notes to the accounts continued 
243 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 
united kingdom  
smith  nephew healthcare limited medical devices england  wales 
smith  nephew medical limited medical devices england  wales 
t j smith  nephew limited medical devices england  wales 
continental europe   
smith  nephew gmbh medical devices austria
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 orthopaedics 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 orthopaedics ag medical devices switzerland
usa  
smith  nephew inc medical devices united states 
africa asia australasia and other america  
smith  nephew pty limited medical devices australia
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
smith  nephew limited medical devices hong kong
smith  nephew healthcare private limited medical devices india
smith  nephew kk medical devices japan
smith  nephew limited 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 inc medical devices puerto rico
smith  nephew pte limited medical devices singapore
smith  nephew pty limited medical devices south africa 
smith  nephew limited medical devices thailand
smith  nephew fze medical devices united arab emirates 
 
 
independent auditor’s report for the company
independent auditor’s report to the members of 
smith  nephew plc 
we have audited the parent company financial statements of smith  nephew plc 
for the year ended 31 december 2012 which comprise the parent company 
balance sheet and the related notes 1 to 10 the financial reporting framework 
that has been applied in their preparation is applicable law and united kingdom 
accounting standards united kingdom generally accepted accounting practice 
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 
respective responsibilities of directors and auditor 
as explained more fully in the directors’ responsibility statement set out on page 
89 the directors are responsible for the preparation of the parent company 
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 parent company 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 apb’s ethical standards for auditors 
scope of the audit of the financial statements 
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 parent company’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 
if we become aware of any apparent material misstatements or inconsistencies 
we consider the implications for our report 
opinion on accounts 
in our opinion the parent company financial statements 
– give a true and fair view of the state of the company’s affairs as at 
31 december 2012 
– have been properly prepared in accordance with united kingdom generally 
accepted accounting practice and 
– have been prepared in accordance with the requirements of the companies 
act 2006 
opinion on other matters prescribed by the 
companies act 2006 
in our opinion 
– the part of the directors’ remuneration report to be audited has been properly 
prepared in accordance with the companies act 2006 and 
– the information given in the directors’ report for the financial year for which the 
financial statements are prepared is consistent with the parent company 
financial statements 
matters on which we are required to report 
by exception 
we have nothing to report in respect of the following matters where the 
companies act 2006 requires us to report to you if in our opinion 
– adequate accounting records have not been kept by the parent company 
or returns adequate for our audit have not been received from branches not 
visited by us or 
– the parent company financial statements and the part of the directors’ 
remuneration report to be audited are not in agreement with the accounting 
records and returns or 
– 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 
other matter 
we have reported separately on the group financial statements of smith  
nephew plc for the year ended 31 december 2012 
les clifford senior statutory auditor 
for and on behalf of ernst  young llp statutory auditor 
london 
20 february 2013 
 
 
015914smithnephewar12p89164indd   139 25022013   1145 smith  nephew annual report 2012 140
 
company balance sheet 
 notes
at 31 december  
2012  
 million 
at 31 december 
2011 
 million
fixed assets  
investments 3 3597 3598 
current assets  
debtors 4 2679 2145 
cash and bank 7 20 25 
 2699 2170 
creditors amounts falling due within one year  
borrowings 7 1 245 
other creditors 5 1871 1607
provisions due in less than one year 6 – 5
 1872 1857
net current assets 827 313 
total assets less current liabilities 4424 3911
creditors amounts falling due after one year  
borrowings 7 415 –
total assets less total liabilities 4009 3911 
capital and reserves  
equity shareholders’ funds  
called up equity share capital 8 193 191 
share premium account 8 488 413 
capital reserve 8 2266 2266 
treasury shares 8 735 766
exchange reserve 8 52 52
profit and loss account 8 1849 1859 
shareholders’ funds 4009 3911 
the accounts were approved by the board and authorised for issue on 20 february 2013 and signed on its behalf by 
sir john buchanan  olivier bohuon  
chairman  chief executive officer 
 
notes to the company accounts 
1 basis of preparation 
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 92 to 138 
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 167m 
2011 166m 
3 investments 
accounting policy 
investments in subsidiaries are stated at cost less provision for impairment 
2012 
 million 
2011
 million
at 1 january 3598 3598
impairment 1 –
at 31 december 3597 3598
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 243 of the notes to the group accounts for the principal trading and manufacturing subsidiary undertakings of the group 
  
015914smithnephewar12p89164indd   140 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 141
 
company balance sheet 
 notes
at 31 december  
2012  
 million 
at 31 december 
2011 
 million
fixed assets  
investments 3 3597 3598 
current assets  
debtors 4 2679 2145 
cash and bank 7 20 25 
 2699 2170 
creditors amounts falling due within one year  
borrowings 7 1 245 
other creditors 5 1871 1607
provisions due in less than one year 6 – 5
 1872 1857
net current assets 827 313 
total assets less current liabilities 4424 3911
creditors amounts falling due after one year  
borrowings 7 415 –
total assets less total liabilities 4009 3911 
capital and reserves  
equity shareholders’ funds  
called up equity share capital 8 193 191 
share premium account 8 488 413 
capital reserve 8 2266 2266 
treasury shares 8 735 766
exchange reserve 8 52 52
profit and loss account 8 1849 1859 
shareholders’ funds 4009 3911 
the accounts were approved by the board and authorised for issue on 20 february 2013 and signed on its behalf by 
sir john buchanan  olivier bohuon  
chairman  chief executive officer 
 
notes to the company accounts 
1 basis of preparation 
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 92 to 138 
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 167m 
2011 166m 
3 investments 
accounting policy 
investments in subsidiaries are stated at cost less provision for impairment 
2012 
 million 
2011
 million
at 1 january 3598 3598
impairment 1 –
at 31 december 3597 3598
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 243 of the notes to the group accounts for the principal trading and manufacturing subsidiary undertakings of the group 
  
015914smithnephewar12p89164indd   141 25022013   1145 smith  nephew annual report 2012 142
 
notes to the company accounts continued
4 debtors 
 
2012 
 million 
2011
 million
amounts falling due within one year  
amounts owed by subsidiary undertakings 2628 2113
prepayments and accrued income 7 5
current asset derivatives – forward foreign exchange contracts 20 25
current asset derivatives – currency swaps 2 –
current taxation 22 2
 2679 2145
5 other creditors  
 
2012 
 million 
2011
 million
amounts falling due within one year  
amounts owed to subsidiary undertakings 1832 1574 
other creditors 19 8 
current liability derivatives – forward foreign exchange contracts 20 25 
 1871 1607 
6 provisions due in less than one year 
during quarter four of 2011 a provision of 5m was established by smith  nephew plc in connection with the previously disclosed investigation by the us securities and 
exchange commission ‘sec’ into potential violations of the us foreign corrupt practices act in the medical devices industry on 6 february 2012 smith  nephew 
announced that it had reached settlement with the sec in connection with this matter smith  nephew committed to pay slightly less than 23m in fines and profit 
disgorgement maintain an enhanced compliance programme and appoint an independent monitor for at least 18 months to review and report on its compliance 
programme of this total amount of slightly less than 23m 54m specifically relates to profit disgorgement imposed by the sec on smith  nephew plc 
7 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  
 
 
2012 
 million 
2011
 million
bank loans and overdrafts due within one year or on demand 1 245 
bank loans due after one year 415 –
borrowings  416 245 
cash and bank 20 25
debit balance on derivatives – currency swaps 2 –
net debt 394 220 
all currency swaps are stated at fair value gross us dollar equivalents of 175m 2011 – 112m receivable and 173m 2011 – 112m payable have been netted 
currency swaps comprise foreign exchange swaps and were used in 2012 and 2011 to hedge intragroup loans 
 
 
8 equity and reserves 
 2012 2011
 
share
capital
 million
share
premium
 million
capital
reserves
 million
treasury
shares
 million
exchange 
reserves 
 million 
profit and 
loss 
 account 
 million 
total
 share
holders’
 funds
 million
total
 share
holders’
 funds
 million
at 1 january 191 413 2266 766 52 1859 3911 3843 
attributable profit for the year – – – – – 167 167 166 
equity dividends paid in the year – – – – – 186 186 146
sharebased payments recognised – – – – – 34 34 30 
cost of shares transferred to beneficiaries – – – 31 – 25 67
new shares issued on exercise of share options 2 75 – – – – 77 17
treasury shares purchased – – – – – – – 6
at 31 december 193 488 2266 735 52 1849 4009 3911 
further information on the share capital of the company can be found in note 20 of the notes to the group accounts 
the total distributable reserves of the company are 1062m 2011 – 1041m 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 167m 2011 – 166m 
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 3 of the 
notes to the group accounts 
9 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 241 of the notes to the group accounts 
10 contingencies 
 
2012 
 million 
2011
 million
guarantees in respect of subsidiary undertakings 37 42
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 19 of the notes to 
the group accounts 
015914smithnephewar12p89164indd   142 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 143
 
notes to the company accounts continued
4 debtors 
 
2012 
 million 
2011
 million
amounts falling due within one year  
amounts owed by subsidiary undertakings 2628 2113
prepayments and accrued income 7 5
current asset derivatives – forward foreign exchange contracts 20 25
current asset derivatives – currency swaps 2 –
current taxation 22 2
 2679 2145
5 other creditors  
 
2012 
 million 
2011
 million
amounts falling due within one year  
amounts owed to subsidiary undertakings 1832 1574 
other creditors 19 8 
current liability derivatives – forward foreign exchange contracts 20 25 
 1871 1607 
6 provisions due in less than one year 
during quarter four of 2011 a provision of 5m was established by smith  nephew plc in connection with the previously disclosed investigation by the us securities and 
exchange commission ‘sec’ into potential violations of the us foreign corrupt practices act in the medical devices industry on 6 february 2012 smith  nephew 
announced that it had reached settlement with the sec in connection with this matter smith  nephew committed to pay slightly less than 23m in fines and profit 
disgorgement maintain an enhanced compliance programme and appoint an independent monitor for at least 18 months to review and report on its compliance 
programme of this total amount of slightly less than 23m 54m specifically relates to profit disgorgement imposed by the sec on smith  nephew plc 
7 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  
 
 
2012 
 million 
2011
 million
bank loans and overdrafts due within one year or on demand 1 245 
bank loans due after one year 415 –
borrowings  416 245 
cash and bank 20 25
debit balance on derivatives – currency swaps 2 –
net debt 394 220 
all currency swaps are stated at fair value gross us dollar equivalents of 175m 2011 – 112m receivable and 173m 2011 – 112m payable have been netted 
currency swaps comprise foreign exchange swaps and were used in 2012 and 2011 to hedge intragroup loans 
 
 
8 equity and reserves 
 2012 2011
 
share
capital
 million
share
premium
 million
capital
reserves
 million
treasury
shares
 million
exchange 
reserves 
 million 
profit and 
loss 
 account 
 million 
total
 share
holders’
 funds
 million
total
 share
holders’
 funds
 million
at 1 january 191 413 2266 766 52 1859 3911 3843 
attributable profit for the year – – – – – 167 167 166 
equity dividends paid in the year – – – – – 186 186 146
sharebased payments recognised – – – – – 34 34 30 
cost of shares transferred to beneficiaries – – – 31 – 25 67
new shares issued on exercise of share options 2 75 – – – – 77 17
treasury shares purchased – – – – – – – 6
at 31 december 193 488 2266 735 52 1849 4009 3911 
further information on the share capital of the company can be found in note 20 of the notes to the group accounts 
the total distributable reserves of the company are 1062m 2011 – 1041m 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 167m 2011 – 166m 
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 3 of the 
notes to the group accounts 
9 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 241 of the notes to the group accounts 
10 contingencies 
 
2012 
 million 
2011
 million
guarantees in respect of subsidiary undertakings 37 42
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 19 of the notes to 
the group accounts 
015914smithnephewar12p89164indd   143 25022013   1145 smith  nephew annual report 2012 144
 
group 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 15
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 439
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 73
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 wound management manufacturing facility in gilberdyke uk 51
advanced wound management manufacturing facility in suzhou china 283
advanced wound management manufacturing facility in fort saskatchewan canada 76
advanced wound management us headquarters in st petersburg florida us 44
healthpoint headquarters and laboratory space texas us 79
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 and gilberdyke 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 
 
 
 
contractual obligations 
contractual obligations at 31 december 2012 were as follows  
 payments due by period
 
total
 million
less than
1 year
 million
13 years 
 million 
35 years
 million
more than
5 years
 million
debt obligations 452 36 416 – –
finance lease obligations 16 2 4 4 6
operating lease obligations 127 45 55 23 4
retirement benefit obligation 62 62 – – –
purchase obligations – – – – –
capital expenditure – – –
other 18 10 8 – –
 683 163 483 27 10
other contractual obligations represent 10m of foreign exchange contracts and 8m of acquisition consideration provisions that do not relate to contractual obligations 
are not included in the above table 
the agreed contributions for 2013 in respect of the group’s defined benefits plans are 39m for the uk including 30m of supplementary payments 17m for the us 
plan and 6m for other funded defined benefit plans the table above does not include amounts payable in respect of 2014 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 78 
the company does not have contracts or other arrangements which individually are essential to the business 
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 242 of notes to the group accounts no other related party had material transactions or loans with smith  nephew 
over the last three financial years 
  
8 8
015914smithnephewar12p89164indd   144 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 145
 
group 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 15
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 439
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 73
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 wound management manufacturing facility in gilberdyke uk 51
advanced wound management manufacturing facility in suzhou china 283
advanced wound management manufacturing facility in fort saskatchewan canada 76
advanced wound management us headquarters in st petersburg florida us 44
healthpoint headquarters and laboratory space texas us 79
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 and gilberdyke 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 
 
 
 
contractual obligations 
contractual obligations at 31 december 2012 were as follows  
 payments due by period
 
total
 million
less than
1 year
 million
13 years 
 million 
35 years
 million
more than
5 years
 million
debt obligations 452 36 416 – –
finance lease obligations 16 2 4 4 6
operating lease obligations 127 45 55 23 4
retirement benefit obligation 62 62 – – –
purchase obligations – – – – –
capital expenditure – – –
other 18 10 8 – –
 683 163 483 27 10
other contractual obligations represent 10m of foreign exchange contracts and 8m of acquisition consideration provisions that do not relate to contractual obligations 
are not included in the above table 
the agreed contributions for 2013 in respect of the group’s defined benefits plans are 39m for the uk including 30m of supplementary payments 17m for the us 
plan and 6m for other funded defined benefit plans the table above does not include amounts payable in respect of 2014 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 78 
the company does not have contracts or other arrangements which individually are essential to the business 
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 242 of notes to the group accounts no other related party had material transactions or loans with smith  nephew 
over the last three financial years 
  
8 8
015914smithnephewar12p89164indd   145 25022013   1145 smith  nephew annual report 2012 146
 
group information continued
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 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 sales 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 increased competition and unanticipated actions by competitors or customers could lead to downward pressure on 
prices andor a decline in market share in any of the group’s 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 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 changes in reimbursement policy tax policy and pricing which may have an adverse impact on sales and operating profit in particular changes to the healthcare 
legislation in the us are due to impose 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 
macroeconomic conditions 
during 2012 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 
  
 
 
political uncertainties 
the group operates on a worldwide basis and has distribution channels purchasing agents and buying entities in over 90 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 
import quotas taxation or other matters could adversely affect the group’s turnover and operating profit war terrorist activities or other conflict could also adversely 
impact the group 
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 sales 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 ‘financial position 
liquidity and capital resources’ on page 50 
manufacturing and supply 
the group’s manufacturing production is concentrated at 12 main facilities in memphis mansfield and oklahoma city in the us hull warwick and gilberdyke in the 
uk aarau in switzerland tuttlingen in germany fort saskatchewan and calgary in canada and suzhou and beijing in china 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 these suppliers must provide 
the materials and perform the activities to the group’s standard of quality requirements if any of these suppliers is unable to meet the group’s needs compromises on 
standards of quality or substantially increases its prices smith  nephew would need to seek alternative suppliers there can be no assurance that alternative suppliers 
would provide the necessary raw materials on favourable or costeffective terms at the desired quality 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 costeffective substitutes any interruption of supply 
caused by these or other factors could negatively impact smith  nephew’s revenue and operating profit 
the group uses a variety of information systems to conduct its manufacturing supply and selling operations an unrecoverable fault in one of these systems could disrupt 
trading in certain markets and locations 
the group is in the process of outsourcing to third parties or relocating to lower cost countries certain of its manufacturing and other processes as a result of 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 sales 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 
015914smithnephewar12p89164indd   146 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 147
 
group information continued
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 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 sales 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 increased competition and unanticipated actions by competitors or customers could lead to downward pressure on 
prices andor a decline in market share in any of the group’s 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 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 changes in reimbursement policy tax policy and pricing which may have an adverse impact on sales and operating profit in particular changes to the healthcare 
legislation in the us are due to impose 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 
macroeconomic conditions 
during 2012 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 
  
 
 
political uncertainties 
the group operates on a worldwide basis and has distribution channels purchasing agents and buying entities in over 90 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 
import quotas taxation or other matters could adversely affect the group’s turnover and operating profit war terrorist activities or other conflict could also adversely 
impact the group 
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 sales 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 ‘financial position 
liquidity and capital resources’ on page 50 
manufacturing and supply 
the group’s manufacturing production is concentrated at 12 main facilities in memphis mansfield and oklahoma city in the us hull warwick and gilberdyke in the 
uk aarau in switzerland tuttlingen in germany fort saskatchewan and calgary in canada and suzhou and beijing in china 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 these suppliers must provide 
the materials and perform the activities to the group’s standard of quality requirements if any of these suppliers is unable to meet the group’s needs compromises on 
standards of quality or substantially increases its prices smith  nephew would need to seek alternative suppliers there can be no assurance that alternative suppliers 
would provide the necessary raw materials on favourable or costeffective terms at the desired quality 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 costeffective substitutes any interruption of supply 
caused by these or other factors could negatively impact smith  nephew’s revenue and operating profit 
the group uses a variety of information systems to conduct its manufacturing supply and selling operations an unrecoverable fault in one of these systems could disrupt 
trading in certain markets and locations 
the group is in the process of outsourcing to third parties or relocating to lower cost countries certain of its manufacturing and other processes as a result of 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 sales 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 
015914smithnephewar12p89164indd   147 25022013   1145 smith  nephew annual report 2012 148
 
group information continued
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 ‘legal proceedings’ on page 52 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 
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 and the state food and drug administration in china 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 
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 
  
 
 
dividends 
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  
from 2013 the board will review at the time of the full year results 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
2012 2011 2010 2009 2008
pence per share  
interim 6811 4639 4233  3650 3194 
finalsecond interim ii 11656i 7444 6639  6494 6194 
total 18467 12083 10872  10144 9388 
us cents per share  
interim 11000 7333 6667  6067 5511 
finalsecond interim ii 18000 12000 10911  9922 9022 
total 29000 19333 17578  15989 14533 
i translated at the bank of england rate on 19 february 2013 
ii 2008 and 2009 second interim 2010 to 2012 final 
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 2012 final dividend will be payable on 8 may 2013 subject to shareholder approval 
in respect of the proposed final dividend for the year ended 31 december 2012 of 1620 us cents per ordinary share the record date will be 19 april 2013 and the 
payment date will be 8 may 2013 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 19 april 2013 the ordinary shares will trade exdividend on both the london and new york stock 
exchanges from 17 april 2013 
015914smithnephewar12p89164indd   148 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 149
 
group information continued
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 ‘legal proceedings’ on page 52 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 
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 and the state food and drug administration in china 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 
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 
  
 
 
dividends 
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  
from 2013 the board will review at the time of the full year results 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
2012 2011 2010 2009 2008
pence per share  
interim 6811 4639 4233  3650 3194 
finalsecond interim ii 11656i 7444 6639  6494 6194 
total 18467 12083 10872  10144 9388 
us cents per share  
interim 11000 7333 6667  6067 5511 
finalsecond interim ii 18000 12000 10911  9922 9022 
total 29000 19333 17578  15989 14533 
i translated at the bank of england rate on 19 february 2013 
ii 2008 and 2009 second interim 2010 to 2012 final 
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 2012 final dividend will be payable on 8 may 2013 subject to shareholder approval 
in respect of the proposed final dividend for the year ended 31 december 2012 of 1620 us cents per ordinary share the record date will be 19 april 2013 and the 
payment date will be 8 may 2013 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 19 april 2013 the ordinary shares will trade exdividend on both the london and new york stock 
exchanges from 17 april 2013 
015914smithnephewar12p89164indd   149 25022013   1145 smith  nephew annual report 2012 150
 
group information 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    
2008 691 413  6887 3039
2009 642 420  5138 3057
2010 697 538  5394 4129
2011 742 521  6019 4217
2012 693 580  5613 4513
quarters in the year ended 31 december    
2011    
1st quarter 742 650  6019 5083
2nd quarter 715 635  5818 5111
3rd quarter 687 521  5530 4217
4th quarter 626 541  4815 4268
2012    
1st quarter 643 595  5113 4557
2nd quarter 640 580  5123 4513
3rd quarter 693 638  5613 4950
4th quarter 692 638  5577 5101
2013    
1st quarter to 19 february 2013 734 684  5800 5428
last six months    
august 2012 679 650  5292 5133
september 2012 693 661  5613 5267
october 2012 692 644  5577 5127
november 2012 662 638  5277 5101
december 2012 689 663  5566 5328
january 2013 734 684  5800 5553
february 2013 to 19 february 2013 728 694  5743 54 28
 
information for shareholders 
financial calendar 
annual general meeting 1 1 april 2013 
quarter one results 2 may 2013 
payment of 2012 final dividend 8 may 2013 
half year results announced 1 august 2013 i 
quarter three results announced 31 october 2013 
payment of 2013 first interim dividend november 2013 
full year results announced february 2014 i 
annual report available februarymarch 2014 
annual general meeting aprilmay 2014 
i dividend declaration dates 
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 
register your proxy instructions online and elect to receive future shareholder 
communications via the company’s website wwwsmithnephewcom 
ecommunications 
we encourage shareholders to elect to receive communications via email as this 
has significant environmental and cost benefits shareholders may register for this 
service through equiniti at wwwshareviewcouk shareholders will receive a 
confirmation letter from equiniti at their registered address containing an 
activation code for future use 
payment of dividends direct to your bank or building society account 
shareholders who wish to avoid the risk of their dividend payments getting lost or 
mislaid can arrange to have their 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 shareholders to reinvest their 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 as above 
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 as above 
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 excluding vat plus network extras 
lines are open from 830am to 530pm monday to friday excluding uk public holidays  
 
shareholder communications 
the company makes 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 
the company sends paper copies of the notice of annual general meeting and 
annual report only to those shareholders that have elected to receive shareholder 
documentation by post ads holders will also not receive a paper copy unless 
they have elected to do so electronic copies of the annual report and notice of 
annual general meeting are available on the group’s website at wwwsmith
nephewcom 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 
and an accompanying letter notifying them of the availability of the annual report 
and notice of annual general meeting on the group’s website shareholders 
who elect to receive the annual report and notice of annual general meeting 
electronically 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 
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 agm 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 lse under the symbol sn the 
company’s share price is available on the smith  nephew website wwwsmith
nephewcom and at wwwlondonstockexchangecom where it is updated at 
intervals throughout the day 
 
015914smithnephewar12p89164indd   150 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 151
 
group information 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    
2008 691 413  6887 3039
2009 642 420  5138 3057
2010 697 538  5394 4129
2011 742 521  6019 4217
2012 693 580  5613 4513
quarters in the year ended 31 december    
2011    
1st quarter 742 650  6019 5083
2nd quarter 715 635  5818 5111
3rd quarter 687 521  5530 4217
4th quarter 626 541  4815 4268
2012    
1st quarter 643 595  5113 4557
2nd quarter 640 580  5123 4513
3rd quarter 693 638  5613 4950
4th quarter 692 638  5577 5101
2013    
1st quarter to 19 february 2013 734 684  5800 5428
last six months    
august 2012 679 650  5292 5133
september 2012 693 661  5613 5267
october 2012 692 644  5577 5127
november 2012 662 638  5277 5101
december 2012 689 663  5566 5328
january 2013 734 684  5800 5553
february 2013 to 19 february 2013 728 694  5743 54 28
 
information for shareholders 
financial calendar 
annual general meeting 1 1 april 2013 
quarter one results 2 may 2013 
payment of 2012 final dividend 8 may 2013 
half year results announced 1 august 2013 i 
quarter three results announced 31 october 2013 
payment of 2013 first interim dividend november 2013 
full year results announced february 2014 i 
annual report available februarymarch 2014 
annual general meeting aprilmay 2014 
i dividend declaration dates 
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 
register your proxy instructions online and elect to receive future shareholder 
communications via the company’s website wwwsmithnephewcom 
ecommunications 
we encourage shareholders to elect to receive communications via email as this 
has significant environmental and cost benefits shareholders may register for this 
service through equiniti at wwwshareviewcouk shareholders will receive a 
confirmation letter from equiniti at their registered address containing an 
activation code for future use 
payment of dividends direct to your bank or building society account 
shareholders who wish to avoid the risk of their dividend payments getting lost or 
mislaid can arrange to have their 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 shareholders to reinvest their 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 as above 
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 as above 
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 excluding vat plus network extras 
lines are open from 830am to 530pm monday to friday excluding uk public holidays  
 
shareholder communications 
the company makes 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 
the company sends paper copies of the notice of annual general meeting and 
annual report only to those shareholders that have elected to receive shareholder 
documentation by post ads holders will also not receive a paper copy unless 
they have elected to do so electronic copies of the annual report and notice of 
annual general meeting are available on the group’s website at wwwsmith
nephewcom 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 
and an accompanying letter notifying them of the availability of the annual report 
and notice of annual general meeting on the group’s website shareholders 
who elect to receive the annual report and notice of annual general meeting 
electronically 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 
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 agm 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 lse under the symbol sn the 
company’s share price is available on the smith  nephew website wwwsmith
nephewcom and at wwwlondonstockexchangecom where it is updated at 
intervals throughout the day 
 
015914smithnephewar12p89164indd   151 25022013   1145 smith  nephew annual report 2012 152
 
information for shareholders continued 
sharegift 
shareholders with only a small number of shares which would cost more to sell 
than they are worth may wish to consider donating them to the charity sharegift 
registered charity 1052686 which specialises in accepting such shares as 
donations there may be 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 above address 
further information about sharegift is available at wwwsharegiftorg or by 
contacting sharegift at 
sharegift 17 carlton house terrace london sw1y 5ah 
tel 44 0 20 7930 3737 
american depositary shares adss and 
american depositary receipts adrs 
in the us the company’s ordinary shares are traded in the form of adss 
evidenced by adrs on the nyse under the symbol snn each american 
depositary share represents five ordinary shares the bank of new york mellon 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 
the bank of new york mellon po box 358516 pittsburgh pa 152528516 usa 
tel 18662592287 inside the us toll free 
tel 12016806825 internationally 
email shrrelationsbnymelloncom 
a global buy direct plan is available for us residents enabling investment 
directly in adss with reduced brokerage commissions and service costs for 
further information on global buy direct contact the bank of new york mellon 
as above or visit wwwbnymelloncomshareowner
the company provides the bank of new york mellon as depositary with 
copies of annual reports containing consolidated financial statements and 
the opinion expressed thereon by its independent auditors such financial 
statements are prepared under ifrs the bank of new york mellon will send 
these reports to recorded ads holders who have elected to receive paper 
copies the company also provides to the bank of new york mellon all notices 
of shareholders’ meetings and other reports and communications that are 
made generally available to shareholders of the company the bank of new york 
mellon 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 
smith  nephew ads price 
the company’s ads price can be obtained from the official new york stock 
exchange website at wwwnysecom the smithnephew website wwwsmith
nephewcom and is quoted daily in the wall street journal 
ads payment information 
the company hereby discloses ads payment information for the year ended 
31 december 2012 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 
 
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 
002 or less per ads any cash distribution to ads registered holders including payment of dividend
a fee equivalent to the fee that would be payable if securities distributed to holders 
had been shares and the shares had been deposited for issuance of adss  
distribution of securities distributed to holders of deposited securities which are 
distributed by the depositary to ads registered holders 
002 or less per ads per calendar year depositary services
registration or transfer fees 
 
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
a fee of two us cents per ads was paid on the 2011 final dividend and a fee of one us cent per ads was deducted from the 2012 first interim dividend paid in october 
in the period 1 january 2012 to 19 february 2013 the total reimbursed by the bank of new york mellon was 15613856 
 
 
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 five ordinary shares the ads facility is sponsored by the bank of 
new york mellon 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 29 pence 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 and the adss 
continue to represent five ordinary shares 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 19 february 2013 to the knowledge of the group there were 19122 
registered holders of ordinary shares of whom 86 had registered addresses in 
the us and held a total of 183774 ordinary shares less than 02 of the total 
issued because certain ordinary shares are registered in the names of 
nominees the number of shareholders with registered addresses in the us is not 
representative of the number of beneficial owners of ordinary shares resident in 
the us 
shareholdings 
as at 19 february 2013 6478972 adss equivalent to 32394860 ordinary 
shares or approximately  36 of the total ordinary shares in issue were 
outstanding and were held by 84 registered 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 19 february 2013 no persons are known to smith  nephew to have any 
interest as defined in the disclosure and transparency rules of the fsa 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 
19 february 2013

2012 
 
2011 
 
2010

invesco 116 119  50 –
blackrock inc 50 50 50  50 
newton investment management limited 09 49 50 50 
legal and general group plc 31 30  40  50
capital group of companies inc – 07 51
thornburg investment management inc – –  – 41
 
as at 31 december 
19 february 2013
’000
 2012 
’000 
2011 
’000 
2010
’000
invesco 105165 107823 44901  –
blackrock inc 44811 44811 44811  44322 
newton investment management limited 8196 8432 44337  44735 
legal and general group plc 28331 26906 35676  44704 
capital group of companies inc – –  6138  44594 
thornburg investment management inc – –  – 36164 
in addition to the above the company is aware that walter scott  partners limited held approximately 39m ordinary shares 43 at 19 february 2013 
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 
  
–  
015914smithnephewar12p89164indd   152 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 153
 
information for shareholders continued 
sharegift 
shareholders with only a small number of shares which would cost more to sell 
than they are worth may wish to consider donating them to the charity sharegift 
registered charity 1052686 which specialises in accepting such shares as 
donations there may be 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 above address 
further information about sharegift is available at wwwsharegiftorg or by 
contacting sharegift at 
sharegift 17 carlton house terrace london sw1y 5ah 
tel 44 0 20 7930 3737 
american depositary shares adss and 
american depositary receipts adrs 
in the us the company’s ordinary shares are traded in the form of adss 
evidenced by adrs on the nyse under the symbol snn each american 
depositary share represents five ordinary shares the bank of new york mellon 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 
the bank of new york mellon po box 358516 pittsburgh pa 152528516 usa 
tel 18662592287 inside the us toll free 
tel 12016806825 internationally 
email shrrelationsbnymelloncom 
a global buy direct plan is available for us residents enabling investment 
directly in adss with reduced brokerage commissions and service costs for 
further information on global buy direct contact the bank of new york mellon 
as above or visit wwwbnymelloncomshareowner
the company provides the bank of new york mellon as depositary with 
copies of annual reports containing consolidated financial statements and 
the opinion expressed thereon by its independent auditors such financial 
statements are prepared under ifrs the bank of new york mellon will send 
these reports to recorded ads holders who have elected to receive paper 
copies the company also provides to the bank of new york mellon all notices 
of shareholders’ meetings and other reports and communications that are 
made generally available to shareholders of the company the bank of new york 
mellon 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 
smith  nephew ads price 
the company’s ads price can be obtained from the official new york stock 
exchange website at wwwnysecom the smithnephew website wwwsmith
nephewcom and is quoted daily in the wall street journal 
ads payment information 
the company hereby discloses ads payment information for the year ended 
31 december 2012 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 
 
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 
002 or less per ads any cash distribution to ads registered holders including payment of dividend
a fee equivalent to the fee that would be payable if securities distributed to holders 
had been shares and the shares had been deposited for issuance of adss  
distribution of securities distributed to holders of deposited securities which are 
distributed by the depositary to ads registered holders 
002 or less per ads per calendar year depositary services
registration or transfer fees 
 
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
a fee of two us cents per ads was paid on the 2011 final dividend and a fee of one us cent per ads was deducted from the 2012 first interim dividend paid in october 
in the period 1 january 2012 to 19 february 2013 the total reimbursed by the bank of new york mellon was 15613856 
 
 
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 five ordinary shares the ads facility is sponsored by the bank of 
new york mellon 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 29 pence 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 and the adss 
continue to represent five ordinary shares 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 19 february 2013 to the knowledge of the group there were 19122 
registered holders of ordinary shares of whom 86 had registered addresses in 
the us and held a total of 183774 ordinary shares less than 02 of the total 
issued because certain ordinary shares are registered in the names of 
nominees the number of shareholders with registered addresses in the us is not 
representative of the number of beneficial owners of ordinary shares resident in 
the us 
shareholdings 
as at 19 february 2013 6478972 adss equivalent to 32394860 ordinary 
shares or approximately  36 of the total ordinary shares in issue were 
outstanding and were held by 84 registered 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 19 february 2013 no persons are known to smith  nephew to have any 
interest as defined in the disclosure and transparency rules of the fsa 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 
19 february 2013

2012 
 
2011 
 
2010

invesco 116 119  50 –
blackrock inc 50 50 50  50 
newton investment management limited 09 49 50 50 
legal and general group plc 31 30  40  50
capital group of companies inc – 07 51
thornburg investment management inc – –  – 41
 
as at 31 december 
19 february 2013
’000
 2012 
’000 
2011 
’000 
2010
’000
invesco 105165 107823 44901  –
blackrock inc 44811 44811 44811  44322 
newton investment management limited 8196 8432 44337  44735 
legal and general group plc 28331 26906 35676  44704 
capital group of companies inc – –  6138  44594 
thornburg investment management inc – –  – 36164 
in addition to the above the company is aware that walter scott  partners limited held approximately 39m ordinary shares 43 at 19 february 2013 
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 
  
–  
015914smithnephewar12p89164indd   153 25022013   1145 smith  nephew annual report 2012 154
 
share capital continued 
purchase of ordinary shares 
on behalf of the company 
the share buyback programme was suspended in november 2008 in light of 
conditions in the financial markets the programme is kept under review the 
company will seek a renewal of its permission from shareholders to purchase up 
to 10 of its own shares at the agm on 11 april 2013 as at 31 december 2012 
68240200 2011 – 68240200 ordinary shares had been purchased under the 
share buyback programme that commenced in february 2007 no shares were 
purchased in the years between 2009 to 2012 
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 us and canada
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 united 
states a corporation or other entity taxable as a corporation created or organised 
in or under the laws of the united states 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 united kingdom through which a us 
holder carries on a business in the united kingdom or a fixed base from which 
a us holder performs independent personal services in the united kingdom 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 mark to market 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 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 2012 
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 non
corporate 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 information for shareholders 
 
taxation of dividends in the united kingdom 
and the united states 
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 such dividends will not be eligible 
for the dividendsreceived deduction generally allowed to corporate us holders 
dividends paid to certain noncorporate us holders of ordinary shares or adss 
may be subject to us federal income tax at lower rates than 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 
united states and is not a uk national or domiciled in the united kingdom will not 
be subject to uk inheritance tax in respect of adss and ordinary shares a uk 
national who is domiciled in the united states 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 united kingdom 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 united kingdom 
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 us 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 affected in the united kingdom and whether or not the parties to it 
are resident or situated in the united kingdom 
united kingdom 
a charge of stamp duty or sdrt at the rates 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 united kingdom and provided further that any instrument of transfer 
or written agreement to transfer is not executed in the united kingdom and the 
transfer does not relate to any matter or thing done or to be done in the united 
kingdom 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 
 
  
  
015914smithnephewar12p89164indd   154 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 155
 
share capital continued 
purchase of ordinary shares 
on behalf of the company 
the share buyback programme was suspended in november 2008 in light of 
conditions in the financial markets the programme is kept under review the 
company will seek a renewal of its permission from shareholders to purchase up 
to 10 of its own shares at the agm on 11 april 2013 as at 31 december 2012 
68240200 2011 – 68240200 ordinary shares had been purchased under the 
share buyback programme that commenced in february 2007 no shares were 
purchased in the years between 2009 to 2012 
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 us and canada
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 united 
states a corporation or other entity taxable as a corporation created or organised 
in or under the laws of the united states 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 united kingdom through which a us 
holder carries on a business in the united kingdom or a fixed base from which 
a us holder performs independent personal services in the united kingdom 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 mark to market 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 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 2012 
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 non
corporate 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 information for shareholders 
 
taxation of dividends in the united kingdom 
and the united states 
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 such dividends will not be eligible 
for the dividendsreceived deduction generally allowed to corporate us holders 
dividends paid to certain noncorporate us holders of ordinary shares or adss 
may be subject to us federal income tax at lower rates than 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 
united states and is not a uk national or domiciled in the united kingdom will not 
be subject to uk inheritance tax in respect of adss and ordinary shares a uk 
national who is domiciled in the united states 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 united kingdom 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 united kingdom 
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 us 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 affected in the united kingdom and whether or not the parties to it 
are resident or situated in the united kingdom 
united kingdom 
a charge of stamp duty or sdrt at the rates 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 united kingdom and provided further that any instrument of transfer 
or written agreement to transfer is not executed in the united kingdom and the 
transfer does not relate to any matter or thing done or to be done in the united 
kingdom 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 
 
  
  
015914smithnephewar12p89164indd   155 25022013   1145 smith  nephew annual report 2012 156
 
selected financial data 
 
2012
 million
2011
 million
2010 
 million 
2009 
 million 
2008
 million
income statement   
revenue 4137 4270 3962  3772  3801 
cost of goods sold 1070 1140 1031 1030 1077
gross profit 3067 3130 2931  2742  2724 
selling general and administrative expenses 2050 2101 1860 1864 1942
research and development expenses 171 167 151 155 152
operating profit 846 862 920  723  630 
net interest receivablepayable 2 8 15 40 66
other finance costsincome 3 6 10 15 1
share of results of associates 4 – – 2  1 
profit on disposal of net assets held for sale 251 – – –  –
profit before taxation 1100 848 895  670  564 
taxation 371 266 280 198 187
attributable profit for the year 729 582 615  472  377 
earnings per ordinary share   
basic 813¢ 653¢ 693¢ 534¢ 426¢
diluted 809¢ 650¢ 692¢ 533¢ 424¢
adjusted attributable profit   
attributable profit for the year 729 582 615  472  377 
acquisition related costs 11 – – 26  61 
restructuring and rationalisation expenses 65 40 15  42  34 
legal settlement – 23 –  – –
amortisation of acquisition intangibles and impairments 43 36 34  66  51 
profit on disposal of net assets held for sale 251 – – – –
taxation on excluded items 82 17 10 26 30
adjusted attributable profit 679 664 654  580  493 
adjusted basic earnings per ordinary share ‘epsa’ i 757¢ 745¢ 736¢ 656¢ 556¢
adjusted diluted earnings per ordinary share ii 754¢ 742¢ 736¢ 655¢ 554¢
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 
  
 
 
 
2012
 million 
2011
 million
2010 
 million 
2009
 million
2008
 million
group balance sheet  
noncurrent assets 3498 2542 2579  2480 2523 
current assets 2144 2080 2154  2071 1985 
assets held for sale – 125 –  14 –
total assets 5642 4747 4733  4565 4508 
share capital 193 191 191  190 190 
share premium 488 413 396  382 375 
treasury shares 735 766 778 794 823
retained earnings and other reserves 3938 3349 2964  2401 1957 
total equity 3884 3187 2773  2179 1699 
noncurrent liabilities 828 422 1046  1523 1841 
current liabilities 930 1119 914  863 968 
liabilities directly associated with assets held for sale – 19 –  – –
total liabilities 1758 1560 1960  2386 2809 
total equity and liabilities 5642 4747 4733  4565 4508 
group cash flow statement  
cash generated from operations 1184 1135 1111  1030 815 
net interest paid 4 8 17 41 63
income taxes paid 278 285 235 270 186
net cash inflow from operating activities 902 842 859  719 566 
capital expenditure including trade investments and net of disposals of property 
plant and equipment 265 321 307 318 289
acquisitions and disposals 782 33 –  25 16
proceeds on disposal of net assets held for sale 103 – – – –
investment in associate 10 – – – –
cash received from plus settlement – – –  137 –
facility fee paid – – –  – 2 
proceeds from own shares 6 7 8  10 4 
equity dividends paid 186 146 132 120 109
issue of ordinary capital and treasury shares purchased 77 11 10  7 174
 155 360 438  410 16
exchange adjustments 5 6 13  21 6
opening net debtnet cash 138 492 943 1332 1310
closing net debt 288 138 492 943 1332
selected financial ratios  
gearing closing net debt as a percentage of total equity 7 4 18 43 78
dividends per ordinary share iii 261¢ 1740¢ 1582¢  1439¢ 1308¢ 
research and development costs to revenue 41 39 38 41 40
capital expenditure including intangibles but excluding goodwill to revenue 64 75 77 84 77
iii the board has proposed a final dividend of 1620 us cents per share which together with the first interim dividend of 990 us cents makes a total for 2012 of 2610 us cents 
015914smithnephewar12p89164indd   156 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 157
 
selected financial data 
 
2012
 million
2011
 million
2010 
 million 
2009 
 million 
2008
 million
income statement   
revenue 4137 4270 3962  3772  3801 
cost of goods sold 1070 1140 1031 1030 1077
gross profit 3067 3130 2931  2742  2724 
selling general and administrative expenses 2050 2101 1860 1864 1942
research and development expenses 171 167 151 155 152
operating profit 846 862 920  723  630 
net interest receivablepayable 2 8 15 40 66
other finance costsincome 3 6 10 15 1
share of results of associates 4 – – 2  1 
profit on disposal of net assets held for sale 251 – – –  –
profit before taxation 1100 848 895  670  564 
taxation 371 266 280 198 187
attributable profit for the year 729 582 615  472  377 
earnings per ordinary share   
basic 813¢ 653¢ 693¢ 534¢ 426¢
diluted 809¢ 650¢ 692¢ 533¢ 424¢
adjusted attributable profit   
attributable profit for the year 729 582 615  472  377 
acquisition related costs 11 – – 26  61 
restructuring and rationalisation expenses 65 40 15  42  34 
legal settlement – 23 –  – –
amortisation of acquisition intangibles and impairments 43 36 34  66  51 
profit on disposal of net assets held for sale 251 – – – –
taxation on excluded items 82 17 10 26 30
adjusted attributable profit 679 664 654  580  493 
adjusted basic earnings per ordinary share ‘epsa’ i 757¢ 745¢ 736¢ 656¢ 556¢
adjusted diluted earnings per ordinary share ii 754¢ 742¢ 736¢ 655¢ 554¢
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 
  
 
 
 
2012
 million 
2011
 million
2010 
 million 
2009
 million
2008
 million
group balance sheet  
noncurrent assets 3498 2542 2579  2480 2523 
current assets 2144 2080 2154  2071 1985 
assets held for sale – 125 –  14 –
total assets 5642 4747 4733  4565 4508 
share capital 193 191 191  190 190 
share premium 488 413 396  382 375 
treasury shares 735 766 778 794 823
retained earnings and other reserves 3938 3349 2964  2401 1957 
total equity 3884 3187 2773  2179 1699 
noncurrent liabilities 828 422 1046  1523 1841 
current liabilities 930 1119 914  863 968 
liabilities directly associated with assets held for sale – 19 –  – –
total liabilities 1758 1560 1960  2386 2809 
total equity and liabilities 5642 4747 4733  4565 4508 
group cash flow statement  
cash generated from operations 1184 1135 1111  1030 815 
net interest paid 4 8 17 41 63
income taxes paid 278 285 235 270 186
net cash inflow from operating activities 902 842 859  719 566 
capital expenditure including trade investments and net of disposals of property 
plant and equipment 265 321 307 318 289
acquisitions and disposals 782 33 –  25 16
proceeds on disposal of net assets held for sale 103 – – – –
investment in associate 10 – – – –
cash received from plus settlement – – –  137 –
facility fee paid – – –  – 2 
proceeds from own shares 6 7 8  10 4 
equity dividends paid 186 146 132 120 109
issue of ordinary capital and treasury shares purchased 77 11 10  7 174
 155 360 438  410 16
exchange adjustments 5 6 13  21 6
opening net debtnet cash 138 492 943 1332 1310
closing net debt 288 138 492 943 1332
selected financial ratios  
gearing closing net debt as a percentage of total equity 7 4 18 43 78
dividends per ordinary share iii 261¢ 1740¢ 1582¢  1439¢ 1308¢ 
research and development costs to revenue 41 39 38 41 40
capital expenditure including intangibles but excluding goodwill to revenue 64 75 77 84 77
iii the board has proposed a final dividend of 1620 us cents per share which together with the first interim dividend of 990 us cents makes a total for 2012 of 2610 us cents 
015914smithnephewar12p89164indd   157 25022013   1145 smith  nephew annual report 2012 158
 
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 united kingdom 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 2012 
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 
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 threequarters 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 windingup 
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
 
015914smithnephewar12p89164indd   158 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 159
 
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 united kingdom 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 2012 
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 
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 threequarters 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 windingup 
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
 
015914smithnephewar12p89164indd   159 25022013   1145 smith  nephew annual report 2012 160
 
cross reference to form 20f  
this table provides a cross reference from the information included in this annual report to the requirements of form 20f  
  page
part i   
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 156–157
  b – capitalisation and indebtedness na
  c – reason for the offer and use of proceeds na
  d – risk factors 146–148
item 4 information on the company 
  a – history and development of the company 144
  b – business overview 3 19–33 97–101 146–148
  c – organisational structure 3 138
  d – property plant and equipment 144
item 4a unresolved staff comments none
item 5 operating and financial review and prospects
  a – operating results 22–33 43–53
  b – liquidity and capital resources 5051
  c – research and development patents and licences etc 2 1
  d – trend information 19 20 51 53
  e – off balance sheet arrangements 145
  f – tabular disclosure of contractual obligations 145
  g – safe harbor 
item 6 directors senior management and employees
  a – directors and senior management 58–61 65
  b – compensation 7486
  c – board practices 58–66 6869
  d – employees 2
  e – share ownership 85 86 133–137
item 7 major shareholders and related party transactions
  a – major shareholders 153
        – host country shareholders 153
  b – related party transactions 137 145
  c – interests of experts and counsel na
item 8 financial information 
  a – consolidated statements and other financial information 88–138
        – legal proceedings 52–53
        – dividends 149
  b – significant changes none
item 9 the offer and listing 
  a – offer and listing details 150 153
  b – plan and distribution na
  c – markets 153
  d – selling shareholders na
  e – dilution na
  f – expenses of the issue na
item 10 additional information 
  a – share capital na
  b – memorandum and articles of association 158–159
 
inside back cover
 
 
 
  page
  c – material contracts 29
  d – exchange controls 153
  e – taxation 154–155
  f – dividends and paying agents na
  g – statement by experts na
  h – documents on display
  i – subsidiary information 138
item 11 quantitative and qualitative disclosure about market risk 113 119 146–148
item 12 description of securities other than equity securities na
item 12d american depository shares 152–153
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 66 67 70 91
item 16 reserved na
item 16a audit committee financial expert 68
item 16b code of ethics 66
item 16c principal accountant fees and services 67 70
item 16d exemptions from the listing standards for audit committee na
item 16e purchase of equity securities by the issuer and affiliated purchase 153
item 16f change in registrant’s certifying accountant none
item 16g corporate governance 62
item 16h mine safety disclosure na
part iii   
item 17 financial statements na
item 18 financial statements 88–138
item 19 exhibits 
 
inside back cover
015914smithnephewar12p89164indd   160 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 161
 
cross reference to form 20f  
this table provides a cross reference from the information included in this annual report to the requirements of form 20f  
  page
part i   
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 156–157
  b – capitalisation and indebtedness na
  c – reason for the offer and use of proceeds na
  d – risk factors 146–148
item 4 information on the company 
  a – history and development of the company 144
  b – business overview 3 19–33 97–101 146–148
  c – organisational structure 3 138
  d – property plant and equipment 144
item 4a unresolved staff comments none
item 5 operating and financial review and prospects
  a – operating results 22–33 43–53
  b – liquidity and capital resources 5051
  c – research and development patents and licences etc 2 1
  d – trend information 19 20 51 53
  e – off balance sheet arrangements 145
  f – tabular disclosure of contractual obligations 145
  g – safe harbor 
item 6 directors senior management and employees
  a – directors and senior management 58–61 65
  b – compensation 7486
  c – board practices 58–66 6869
  d – employees 2
  e – share ownership 85 86 133–137
item 7 major shareholders and related party transactions
  a – major shareholders 153
        – host country shareholders 153
  b – related party transactions 137 145
  c – interests of experts and counsel na
item 8 financial information 
  a – consolidated statements and other financial information 88–138
        – legal proceedings 52–53
        – dividends 149
  b – significant changes none
item 9 the offer and listing 
  a – offer and listing details 150 153
  b – plan and distribution na
  c – markets 153
  d – selling shareholders na
  e – dilution na
  f – expenses of the issue na
item 10 additional information 
  a – share capital na
  b – memorandum and articles of association 158–159
 
inside back cover
 
 
 
  page
  c – material contracts 29
  d – exchange controls 153
  e – taxation 154–155
  f – dividends and paying agents na
  g – statement by experts na
  h – documents on display
  i – subsidiary information 138
item 11 quantitative and qualitative disclosure about market risk 113 119 146–148
item 12 description of securities other than equity securities na
item 12d american depository shares 152–153
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 66 67 70 91
item 16 reserved na
item 16a audit committee financial expert 68
item 16b code of ethics 66
item 16c principal accountant fees and services 67 70
item 16d exemptions from the listing standards for audit committee na
item 16e purchase of equity securities by the issuer and affiliated purchase 153
item 16f change in registrant’s certifying accountant none
item 16g corporate governance 62
item 16h mine safety disclosure na
part iii   
item 17 financial statements na
item 18 financial statements 88–138
item 19 exhibits 
 
inside back cover
015914smithnephewar12p89164indd   161 25022013   1145 smith  nephew annual report 2012 162
 
 
glossary of terms  
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
durolane durolane is a registered trademark of qmed ab
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 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 
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
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 
 
  
 
 
 
term meaning 
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 bioabsorbable 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 comission
trading profit trading profit is a trend 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 
intangible assets and impairments significant restructuring events acquisition costs and gains and losses resulting from 
legal disputes and uninsured losses 
uk united kingdom of great britain and northern ireland
uk gaap accounting principles generally accepted in the united kingdom
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
015914smithnephewar12p89164indd   162 25022013   1145 overview strategy and performance
marketplace and 
business review sustainability 
review
f inancial review  
and p rincipal risks
c orporate  
g overnance
accounts and  
other information
section 7 a ccounts and other information 163
 
 
glossary of terms  
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
durolane durolane is a registered trademark of qmed ab
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 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 
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
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 
 
  
 
 
 
term meaning 
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 bioabsorbable 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 comission
trading profit trading profit is a trend 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 
intangible assets and impairments significant restructuring events acquisition costs and gains and losses resulting from 
legal disputes and uninsured losses 
uk united kingdom of great britain and northern ireland
uk gaap accounting principles generally accepted in the united kingdom
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
015914smithnephewar12p89164indd   163 25022013   1145 smith  nephew annual report 2012 164
 
index  
2011 financial highlights 48
2012 financial highlights 46
accountability audit and internal control framework 66 70
accounting policies 96
accounts presentation 96
acquisitions 130
acquisition related costs 103
advanced surgical devices – business segment review 22
advanced wound management – business segment review 28
american depository shares 152 153
articles of association 158 159
assets held for sale 132
audit fees 102
board 58 59
business overview 2 3 4
business segment information 97
cash and borrowings 113
chairman’s statement 5
chief executive officer’s statement 9
company auditor’s report 139
company balance sheet 140
company notes to the accounts 141
contingencies 122
contractual obligations 145
corporate governance statement 57
critical accounting policies 51
cross reference to form 20f 160
currency fluctuations 21
currency translation 96
deferred taxation 119
directors’ remuneration report 75
directors’ responsibilities for the accounts 89
directors’ responsibility statement 89
dividends 128 149
earnings per share 105
employeespeople 2 39
employees’ share trust 128
executive officers 60 61
factors affecting results of operations 54 55
financial instruments 116
financial position liquidity and capital resources 50
financial highlights 43
glossary of terms 162
goodwill 107
governance and policy 56
group balance sheet 93
group cash flow statement 94
group history 144
 
group income statement 92
group notes to the accounts 96
group overview 2
group statement of changes in equity 95
group statement of comprehensive income 92
independent auditor’s reports 90 91
information for shareholders 151
intangible assets 108
intellectual property 21
interest 103
inventories 111
investments 110
investment in associates 110
investor information 151
key performance indicators 16
leases 116132
legal proceedings 52
manufacturing supply and distribution 20
marketplace 19
new accounting standards 96
offbalance sheet arrangements 145
operating profit 101
other finance costsincome 103
outlook and trend information 53
parent company accounts 139
payables 113
peopleemployees 239
principal subsidiary undertakings 138
provisions 121
property plant and equipment 106144
receivables 112
regulation 20
related party transactions 137145
research and development 21 46 101
restructuring and rationalisation expenses 103
retirement benefit obligation 122
risk factors 146
risk management 54
sales and marketing 19
selected financial data 156
share based payments 133
share capital 127 154
shareholder return 149
strategy 8
sustainability 34
taxation 47104
taxation information for shareholders 157
treasury shares 128
015914smithnephewar12p89164indd   164 25022013   1145 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 occuring resin
the inks do not contin any toxic heavy metals and therefore do not pose a problem if placed in landfill
designed by radley yeldar
printed by rr donnelley 472599
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 4 billion in 2012 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 
2012 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 90 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 and 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 162 to 163 the product names 
referred to in this document are identified by use of capital letters and are 
trademarks owned by or licensed to members of the group
presentation
the group’s fiscal year end is 31 december references in this annual report to 
a particular year 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 19 february 2013 the bank of england rate was 
us15443 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 in 
particular statements regarding expected revenue growth and trading profit 
margins discussed under ‘outlook and trend information’ market trends and 
our product pipeline are forwardlooking statements phrases such as ‘aim’ 
‘plan’ ‘intend’ ‘anticipate’ ‘wellplaced’ ‘believe’ ‘estimate’ ‘expect’ ‘target’ 
‘consider’ and similar expressions are generally intended to identify forward
looking 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 integrating acquired 
businesses and numerous other matters that affect us or our markets 
including those of a political economic business or competitive nature 
specific risks faced by the group are described under ‘risk factors’ on pages 
146 to 148 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 forwardlooking 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
smith  nephew annual report 2012
contents
1
2
3
4
5
6
7
overview
our business today 2
financial highlights 4
chairman’s statement 5
strategy and performance
creating sustainable value 7
chief executive officer’s review of strategy 8
how the group measures its strategic performance 16
marketplace and  
business segment review
our marketplace 19
business segment review 22
advanced surgical devices 22
advanced wound management 28
sustainability  
review
sustainability strategy  35
healthy economic performance 36
healthy social performance 37
healthy environmental performance 40
sustainability progress 41
financial review  
and principal risks
financial review  43
outlook and trend information 53
principal risks and risk management 54
corporate 
governance
governance introduction 57
our board of directors 58
our executive officers 60
corporate governance statement 62
directors’ remuneration report 74
accounts and  
other information
directors’ responsibilities for the accounts 89
independent auditor’s uk report 90
independent auditor’s us report 91
group accounts 92
notes to the group accounts 96
independent auditor’s report for the company 139
company accounts 140
notes to the company accounts 141
group information 144
investor information 151
015914smithnephewar12coverindd   2 26022013   0921 annual report 2012
annual report 2012
smith  nephew plc
15 adam street
london wc2n 6la
united kingdom
t 44 0 20 7401 7646
f 44 0 20 7960 2356
wwwsmithnephewcom
015914smithnephewar12coverindd   1 26022013   0921


Summary:
 smith  nephew annual report 2012 8
chief executive officer’s review of strategy
our strategy
smith  nephew’s strategic priorities are about making 
choices for the long term benefit of the group delivering 
higher returns to shareholders than its peer group
1
established markets
in established markets us europe japan australia new zealand 
and canada smith  nephew sees opportunities to build upon 
existing strong positions to win market share through greater 
innovation and drive efficiencies to liberate resources through 
these actions the group seeks to meet the challenges of subdued 
markets and maximise both revenue growth and profit margins
2
emerging and 
international markets
smith  nephew believes it can secure market leadership 
in the emerging markets building upon its initial success in 
china and expanding to create sustainable businesses in 
india brazil and russia in particular the group sees significant 
opportunities to build value through augmenting its existing portfolio 
with new products specifically designed for and manufactured in 
these markets
3
innovate for value
the group’s future success depends upon continuing to offer 
new technologies and innovative business models to customers 
around the world smith  nephew is accelerating its rate of 
innovation by increasing the research  development budget 
and identifying and investing in the projects that will deliver 
maximum value
4
simplify and improve 
our operating model
smith  nephew will work to ensure the business structure and 
processes support our innovation agenda and the group seeks  
to maximise efficiency in everything it does there are opportunities 
to streamline the group’s operations and manufacturing processes 
and to remove duplication smith  nephew is building strong 
global functions – human capital regulatory quality compliance 
sustainability finance and legal affairs – to support its 
management teams in their quest to serve the group’s markets 
and customers better
5
supplement organic 
growth through 
acquisitions
the group aims to augment its organic growth through acquisitions 
smith  nephew will continue with its successful strategy of 
acquiring complementary technologies seek to support our 
emerging markets ambitions by acquiring local manufacturing  
and distribution businesses and remain alert to larger opportunities 
to support expansion in attractive sectors such as advanced 
woundcare extremities or minimally invasive surgery
015914smithnephewar12p109 working copyindd   8 26022013   0926 overview strategy and performance
mar ketplace and 
business segment r eview
sust ainability 
review
f inancial review  
and pr incipal risk s
c or porate  
g o vernance
acco unts and  
other information
9 section 2 strategy and performance
dear shareholder 
in august 2011 we announced an ambitious set of 
strategic priorities to make smith  nephew stronger 
faster growing better balanced and fit and effective for 
the future across the group we are implementing this 
programme we are investing in highergrowth products 
franchises and geographies and adapting our commercial 
models and cost structure
emerging markets
in the emerging markets we are delivering strong revenue 
growth benefitting from our investments to strengthen the 
management team and sales force and the successful 
registration of more of our existing products for sale 
our strategy is to build upon this platform by expanding 
our distribution capability and delivering portfolios for the 
midtier segments we will develop these through our own 
rd and by acquisition and we expect to bring our first 
products to market in 2013 
we are also investing to ensure that all employees and 
third party representatives follow our code of conduct and 
local requirements we have what i believe to be a world
class compliance programme sharing this expertise is 
integral to building a sustainable business everywhere we 
operate 
investing for growth
in the established markets we continue to successfully 
deliver a high rate of innovation in 2012 we launched 
new hip knee and trauma systems and more than 30 
advanced wound management products  we increased 
our rd budget and expect to do so again in 2013 
we are also putting more resources into our highergrowth 
franchises and geographies in trauma and extremities 
our actions to refine the commercial model and build the 
sales force is delivering good results in japan we are 
strengthening our leadership position in advanced wound 
management following the launch of negative pressure 
wound therapy  
these and other investments like them are possible 
because we are making smith  nephew more efficient 
we generated annualised savings of around 100 million 
by the end of 2012 and are continuing to implement 
further improvements  
healthpoint biotherapeutics
the acquisition of healthpoint biotherapeutics 
expands our platform by giving us a strong position in 
bioactives the fastest growing area of advanced wound 
management this perfectly complements our exudate 
and infection management and negative pressure 
expertise the integration is proceeding to plan 
corporate social responsibility
whilst working to transform smith  nephew we have 
not lost sight of the importance of our social ethical and 
environmental obligations our commitment to customers 
patients employees shareholders and communities 
remains strong in 2012 we again earned the distinction of 
being featured in both the ftse4good index and the dow 
jones sustainability index 
delivering value 
in 2013 we are continuing to build delivering efficiency 
improvements and accelerating investment – in our 
highergrowth portfolios in geographic expansion in 
more rd and in further acquisitions i am pleased at the 
progress we have made excited about the opportunities 
that we see and confident we will continue to deliver 
greater value for our company and stakeholders
olivier bohuon
chief executive officer
“ we are investing in highergrowth products franchises and geographies 
and adapting our commercial models and cost structure” 
015914smithnephewar12p109 working copyindd   9 26022013   0926 smith  nephew annual report 2012 10
1
established  
markets
focused on success
within the established markets we have dedicated 
management teams in advanced surgical devices and 
advanced wound management who are focused on 
meeting the needs of our customers 
the formation of the advanced surgical devices division 
– created through the combination of our endoscopy 
and orthopaedics businesses – delivered benefits at a 
slightly faster rate than expected this new structure has 
allowed us to better share the benefits of our experience 
and scale whilst supporting the sales force in utilising 
their local market knowledge and relationships to secure 
and service customers in each and every market 
chief executive officer’s review of strategy 
continued
015914smithnephewar12p1015 working copyindd   10 26022013   0927 overview strategy and performance
marke tplace and 
business segment rev iew
sustai nability 
review
f ina ncial review  
and princ ipal risk s
c orpor ate  
g over nance
accoun ts and  
other information
11 section 2 strategy and performance 11
2
emerging  
markets
new markets new products
we have recruited experienced leadership to drive 
us into the emerging markets and invested in new 
headquarters and infrastructure 
throughout 2012 we made progress registering and 
selling more of our existing products in our emerging 
markets – with many new introductions across our 
franchises 
we are also developing specific products for the 
middle tier in these countries investing in determining 
both the right product categories and the right 
business model to serve these customers effectively
015914smithnephewar12p1015 working copyindd   11 26022013   0927 smith  nephew annual report 2012 12
chief executive officer’s review of strategy continued
015914smithnephewar12p1015 working copyindd   12 26022013   0927 overview strategy and performance
13 section 2 strategy and performance
accou nts and  
o th er i nfor matio n
c orp or ate  
go v er nanc e
financi al r evi ew  
and pri ncipal r isks
sustainabili ty 
r evi ew
mar k etpl ac e and 
business segment r evi ew
3
innovate  
for value
c entre of innovation
in april we opened a new innovation c entre in 
memphis which we are using to deliver bestinclass 
surgeon training programmes 
this is a worldclass multidisciplinary facility joint 
reconstruction sports medicine and trauma that 
allows surgeons from different specialties and 
locations to share learning and innovation its 140seat 
auditorium five conference rooms two classrooms 
and 17 labs have already hosted multiple groups of 
surgeons from around the world keen to experience 
the latest products and surgical techniques 
designed for r eal l ife
in june we launched all evy n l ife a unique new 
foam dressing that extends our all evy n family of 
foam products this product innovation addresses the 
findings of new smith  nephew research into the real 
life concerns of patients living with wounds 
allevyn life offers multiple benefits for the patient and 
clinician these innovative features include a change 
indicator to avoid unnecessary dressing changes a 
hyperabsorbent core to prevent leakage of exudate 
and masking to prevent patient embarrassment caused 
by visible exudate through the dressing this is all 
combined with unique shapes to ensure better 
dressing retention and our ‘gentle border’ silicone 
adhesive to minimise pain at dressing change
015914smithnephewar12p1015 working copyindd   13 26022013   0927 smith  nephew annual report 2012 14
chief executive officer’s review of strategy continued
4
efficient manufacturing
we have been successful in reducing our cost of goods 
to combat the effects of continued price pressure in 
manufacturing we have refined our footprint especially 
in c hina during 2012 the group closed the old l inhe 
orthopaedic plant moving it to our new facility in beijing 
ahead of schedule we completed the extension to our 
wound factory in suzhou – on time and on budget – 
and have started equipping the plant
the european process o ptimisation programme 
will rationalise and upgrade our commercial and 
it platforms allowing us to drive efficiencies while 
better serving our customers
simplify and improve 
our operating model
015914smithnephewar12p1015 working copyindd   14 26022013   0927 overview strategy and performance
marke tplace and 
business segment rev iew
sustai nability 
review
f ina ncial review  
and princ ipal risk s
c orpor ate  
g over nance
accoun ts and  
other information
15 section 2 strategy and performance
5
growth through 
acquisitions
augment organic growth  
through acquisitions 
in december 2012 smith  nephew completed 
the acquisition of healthpoint biotherapeutics 
a leader in bioactive debridement dermal repair and 
regeneration wound care treatments for 782m 
in cash 
this acquisition had compelling strategic and financial 
rationale for smith  nephew 
it gives us a strong position in bioactives the fastest 
growing area of advanced wound management it 
brought a complementary range of bioactive 
debridement dermal repair and regeneration products 
led by c ollagenase santyl ointment ‘santyl’ an 
enzymatic debrider for dermal ulcers and burns it 
added an established rd capability in nextgeneration 
bioactive therapies for the treatment of chronic wounds 
and will double our us awm sales and strengthen our 
commercial scale and capabilities 
the combination creates a wound business which is 
unique – having leadership positions across exudate 
and infection management negative pressure and 
bioactive wound care
015914smithnephewar12p1015 working copyindd   15 26022013   0927