2002
annual report and accounts
delivering
sustainable
growth performance
our performance culture is
driving global sales growth 
and margin improvement 
2002 2001
£ million £ million
turnover 11099 10817
profit before taxation
before goodwill amortisation and exceptional items 2099 1809
after goodwill amortisation and exceptional items 1779 1936
earnings per share before goodwill amortisation and exceptional items 1602p 1396p
earnings per share after goodwill amortisation and exceptional items 1211p 1407p
dividends per share 480p 465p
we are committed to setting new standards
in patient treatment and recovery
contents
directors’ report
01 financial highlights
02 chairman’s statement
04 chief executive’s statement
10 board  group executive committee
12 financial review
14 corporate social responsibility
16 corporate governance
17 remuneration report
accounts
20 directors’ responsibilities for the accounts
21 auditors’ report
22 group profit and loss account
23 group balance sheet
24 group cash flow statement
25 statement of total recognised gains 
and losses
25 movement in shareholders’ funds
26 parent company balance sheet
27 accounting policies
29 notes to the accounts
50 group five year summary
52 subsidiary and associated undertakings 
ibc information for shareholders
financial
highlights innovation
our commerciall y orientated
research and development is
contributing to a strong
new product pipeline
trust
our sustainability progress
has been recognised by our
entry into the dow jones
sustainability index for 2003
as well as delivering on our promise of healthy
returns to our shareholders
1602
961
1088
1219
1396
2002 1998 1999 2000 2001
151
164
178
147
171
2002 1998 1999 2000 2001
1110
1053
1120
1135
1082
2002 1998 1999 2000 2001
1084
714
800
912
978
group turnover
continuing sales
£ million
group margins  
before goodwill 
amortisation and
exceptional items
earnings per share
before goodwill 
amortisation and
exceptional items 
pence
where this icon appears more information can be found at
an alternative source for more detailed financial information
visit wwwsmithnephewcominvestorsprofilehtml 02 smith  nephew 2002
trigen
a summer time car crash
landed this university
bound student on a
surgeon’s operating table
with a femoral fracture
the lessinvasive trigen
femoral nailing system
helped to mend her
broken bone and
restored her to walking
so she could start the
autumn term in time
financial performance and dividend 
group sales grew strongly led by the
orthopaedics business underlying growth of
14 was augmented by acquisitions which
added a further 4 our drive to deliver innovative
products across all our businesses is paying off
and we are also benefiting from the past two
years’ sales force expansions 
we achieved an ongoing operating margin 
before exceptional items of 165 despite the
dissynergies of the restructuring divestments 
of this and last year the underlying margin
increased by 07 before goodwill amortisation
the margin was 181 
investors continue to recognise the company’s
strength and share price growth potential smith
 nephew was one of the uk’s bestperforming
stocks in 2002 outperforming the ftse 100 by
more than 20the recommended final dividend
is increased to 300p making a total dividend 
for the year of 480p 465p in 2001
people
our people take pride in our products which
enable patients to regain their lives they are an
extremely talented group of individuals and we
thank them for their commitment creativity and
energy in serving the company and the medical
community
in 2002 we achieved our targets within the
orthopaedics endoscopy and advanced 
wound management markets each of smith 
 nephew’s businesses strengthened its
positions in the markets in which it operates
through a combination of sales growth new
products and technology acquisition 
in march 2002 we acquired and have since
successfully integrated oratec interventions
inc establishing our endoscopy business as 
a leader in radiofrequency technology and
minimally invasive spinal surgery we also
acquired the remaining half of the dermagraft
and transcyte joint arrangements from
advanced tissue sciences inc gaining full
strategic control of those products 
we disposed of our rehabilitation business 
to abilityone corporation also in march 2002
retaining a 215 interest in the expanded
business this focused the group on our three
chosen areas of expertise
chairman’s
statement
we have had another excellent year of growth
within each of our three businesses smith  nephew 2002 03
trivex procedure
she faces the same
problems every mother
does dressing the kids
making lunches finding
time for herself faced
with an uphill battle of
another type – one
against unsightly painful
varicose veins she
received treatment with
the trivex procedure
she can now handle 
the challenges of
motherhood without the
added difficulty of leg
pain which allows her
more time to concentrate
on what matters most –
her family
we pay particular tribute to larry papasan 
for his valued contribution as president of the
orthopaedics business he retired at the end 
of 2002 and we welcome david illingworth 
who has joined us to lead the division to 
further success
board
tim lankester has chosen not to stand again 
for reelection to the board and will be standing
down at the agm in april we thank him for 
his contribution over the last seven years 
corporate governance has been a priority 
over the past year – particularly as we are listed
on both the london and new york stock
exchanges smith  nephew is committed to 
an open and constructive relationship with our
shareholders and the overall investment
community we are working to comply with the
new us sarbanesoxley act and the ongoing
detailed guidelines being supplied by the 
securities and exchange commission
outlook
the markets on which we focus continue to
demonstrate robust growth smith  nephew 
is achieving sales growth that outpaces the
industry and is demonstrating its ability to grow
share and position within the orthopaedics
endoscopy and advanced wound management
markets in 2003 we will see the impact of 
our strong ongoing sales and profit growth
on our reported results without the impact 
of divestments 
we have a leading range of technology and
products that repair and heal the human body
we will maintain our progress by investing in 
new and differentiated technologies which bring
benefits to patients and in the specialist sales
forces to bring these products to the medical
community we will continue to invest in our
businesses by increasing sales force strength
adding manufacturing capacity and enhancing
new product development to generate vigorous
growth we will also acquire businesses or
technologies that strengthen our long term
prospects 
we remain confident of delivering sustainable
growth and believe we are well placed to 
achieve our midteens underlying pregoodwill
amortisation eps growth target going forward
dudley eustace
chairman
we remain confident in our ability to deliver
sustainable growth for the future
dermagraft
a keen golfer he has
suffered from diabetes 
all his life he ignored 
a wound on his foot
thinking it would clear 
up but when he lost
sensation in his lower 
leg he finally went to see
his doctor the foot ulcer
was so serious he was 
in real danger of having
the limb amputated 
after 12 weeks of being
treated with dermagraft
a bioengineered human
dermal replacement 
he was out of the danger
zone and looking forward
to resuming his golf 04 smith  nephew 2002
advanced wound 
management 30
orthopaedics 43
endoscopy 27
africa asia  
australasia 14
america 56
uk 8
continental 
europe 22
our new products are driving our growth and 
setting new standards of care
chief executive’s
statement
market growth remains buoyant and
demographics and lifestyle trends remain positive
healthcare expenditure continues to grow in all 
our major markets technology is expanding the
marketplace through the growth of less invasive
and longer lasting surgical techniques and
implants with the introduction of new orthopaedic
bearing materials led by oxinium from smith 
nephew surgeons are increasingly treating
younger patient groups new techniques
continue to simplify and make procedures faster
and less invasive techniques in orthopaedics and
endoscopy are taking hold as patients increasingly
drive demand technology advancements in
treating hardtoheal wounds are driving strong
growth in the active healing sector of the
advanced wound management market
we aim to raise operating margins before
goodwill amortisation from 18 in 2002 to 21
in 2005 moving half a percentage point closer 
to that goal in 2003 through improvements in
operational performance and product mix at the
same time we will continue to invest in product
innovation and in growing our sales teams by 
at least 10 a year for the foreseeable future
orthopaedics
orthopaedics sales rose by an underlying 20
and its performance continued to outpace the
market reconstructive implant sales grew 
by an impressive 20 boosted by continued
delivering sustainable growth
in 2002 our markets grew strongly – and once
again smith  nephew outpaced the industry 
i am pleased to report excellent growth in our
orthopaedics endoscopy and advanced wound
management businesses
we now have formidable teams in place and 
we are focused on three highgrowth markets
we bring truly innovative and differentiating
technologies that meet the needs of physicians
patients and healthcare systems we are
marketing our products ever more effectively
through expanded and specialised global 
sales forces
our underlying group sales increase was 14 in
2002 sales in north america grew 15 and the
region now represents some 56 of the group’s
business sales growth in europe was 12
reflecting increased healthcare spending and
ageing populations sales in the rest of the world 
grew 16
product markets 
sales from ongoing operations
geographic markets 
sales from ongoing operations smith  nephew 2002 05
oxinium knee implants
his dream of early
retirement and new life 
of golf and sailing went
on hold as osteoarthritis
crippled his plans
frustrated by increasing
pain and lack of mobility
he consulted his surgeon
for a solution thanks 
to bilateral oxinium 
knee implants this 
retired banker is back 
on course
our operational performance and product mix 
is constantly being refined to improve margins
surgeon response to the additional oxinium 
knee products launched in 2002 we once again
recorded industryleading growth in this sector
led by knee growth of 33 10 of which was
contributed by the introduction of our joint fluid
therapy product supartz hip sales grew by
17 led by continued growth in revision
procedures increased penetration of our highly
cross linked polyethylene liners and continued
strength in our platform hip systems including
synergy and echelon trauma grew at 10
sales pricing in orthopaedics remained positive
by 2 
the oxinium knee has been an outstanding
success since its launch in 2001 we have
continued to invest in the oxinium programme
and computer assisted surgery throughout the
year where we have received us regulatory
approval for hip knee and trauma applications
we have developed an oxinium femoral head 
for hips and have already launched the product 
in 2003
we are creating two divisions within our
orthopaedic business reconstruction and
trauma this initiative is aimed at sustaining 
our industry leading performance by improving
the focus on these separate market sectors 
this structure will enable us to bring technology
to market faster and increase our customer
responsiveness and satisfaction each division
will have responsibility for developing global
strategy and its own product development
marketing and sales functions they will share
common manufacturing and support
organisations the sales forces in major 
us cities will be specialised into separate
reconstructive and trauma units on a phased
basis beginning in the first quarter of 2003 
endoscopy
endoscopy sales grew at an underlying 10 
with strong growth coming from outside the us
the company acquired the oratec minimally
invasive joint and spine business in the year
which added 9 to sales growth and has given
us a leading position in radio frequency
technology in arthroscopy 
knee and shoulder ligament repair products
grew particularly strongly at 21 making the
group the market leader in arthroscopic repair
new repair products were launched during the
year to strengthen our position in the arthroscopy
market including twinfix a specialised shoulder
repair device new bioresorbable screws for
ligament fixation performed well electroblade
has brought us a unique product that combines
simultaneous resection with coagulation of soft
tissue we also introduced a bipolar cutting 
and ablation system for the vulcan generator 
electroblade resector
from twenty years
experience as an
aerobics instructor 
she understands the
importance of fitness in 
a wellbalanced lifestyle
that’s why when she
suffered a torn ligament
in her right knee a year
ago she wasted no time
agreeing to her doctor’s
recommendation for
minimally invasive
surgery due to reduced
pain and recovery time
she was back at the gym
soon after the procedure
and enjoying the benefits
of a healthy lifestyle  orthopaedics
a comprehensive highly advanced range of orthopaedic
implant and trauma products sales £470m
 implants for hips knees and shoulders
 trauma products for severely broken bones utilising
internal and external fixation methods
 clinical therapies including ultrasound bone healing
devices and joint fluid therapy
business overview served markets and
growth in 2002
06 smith  nephew 2002
we have a unique range of technology and
products which repair the human body we are
business
overview
endoscopy
industry leader in the development and commercialisation 
of endoscopic minimally invasive surgery products and
techniques sales £292m
 access – fluid management and insufflation instruments
for better surgical access
 visualisation – digital cameras digital image capture
central control multimedia broadcasting scopes 
light sources and monitors to assist with visualisation
 resection – stateoftheart radiofrequency wands
electromechanical and mechanical blades and hand
instruments for resecting tissue
 repair – specialised devices fixation systems and
bioabsorbable materials to repair damaged tissue
advanced wound management
advanced treatment for hardtoheal wounds offering 
a complete range of products from initial wound bed
preparation through to successful wound closure 
these products are targeted particularly at wounds
connected with the elderly sales £322m
 pressure ulcers
 venous leg ulcers
 diabetic foot ulcers
 serious burns
world market value
growth 13
£52bn
market position
6th
world market value
growth 6
£30bn
market position arthroscopy
1st
world market value
growth 12
£15bn
market position
1st
idet procedure
after years of struggling
with lower back pain
resulting from a herniated
disc he was able to use
his landscaping skills
once again after being
treated with intradiscal
electrothermal therapy
also known as the idet
procedure 
for more detailed business
and product information visit
wwwsmithnephewcom
businesses  expanding patient pool
 increasing numbers of
elderly people living longer
 expectation of better
quality of life
 new longerlasting
materials technology
 demand for less invasive
procedures
 patient knowledge due 
to the internet and media
 grew sales 20
 expanded global sales
team by 12
 over 10000 oxinium
knee implants
 over 250 computer
assisted total knee
procedures newly
branded as achieve
 supartz joint fluid
treatment exceeding
expectations
 completed new
manufacturing facility
 continued rollout 
of oxinium knee
applications
 accuris minimally invasive
unicompartmental knee
instrumentation 
 exogen 3000
 orthoguard ab
antimicrobial sleeve 
the orthopaedic
industry’s first antibiotic
coated medical device 
to be cleared by the us
regulatory agency
what is driving 
market growth
our achievements 
in 2002
our key new products
and developments in
2002
smith  nephew 2002 07
focusing on three research areas – noninvasive
stimulation tissue engineering bioabsorbables
 more elderly people 
living longer
 more clinically advanced
methods of healing wounds
 therapies that reduce
nursing time and speed
recovery for cost efficiency
 twothirds of global market
still to be converted to
advanced wound healing
 new advanced
technologies expanding
breadth of market
 grew sales 11
 world leadership in
advanced wound care
strengthened
 allevyn our largest
product grew 21
 acticoat burns dressing
increased sales by 65
 successful launch of
wound bed preparation
concept
 100 ownership of
dermagraft and transcyte
 88 coverage of us
outpatient population for
dermagraft
 improved and extended
allevyn range launched
 continued global rollout
of acticoat silver burns
dressing
 global launch of cutinova
hydro and range
extension
 dermagraft full us launch
proguide
having developed 
a venous leg ulcer
nurses at his local
hospital agreed to take
part in the clinical trial 
of proguide a twolayer
elastic compression
system designed for
venous leg ulcers this
allowed the correct
pressure to be applied
and reduced the number
of dressing changes
ilizarov technique
both legs had been
deformed since birth but
on september 11 2001
she walked down nearly
50 flights of world trade
center stairs to safety 
a surgeon had corrected
her limbs using the ilizarov
technique 
 increase in sports injuries 
 more active lifestyles
 increased surgeon use 
of endoscopic techniques
 innovative technological
developments 
 need for costeffective
procedures in hospitals
 growing demand for
digitallyintegrated 
or equipment
 growth in ambulatory
surgery centres
 payer support driven 
by supporting clinical
evidence
 twinfix bioabsorbable
suture anchor for 
shoulder repair
 electroblade resector
 vulcan system rf
generator 
 vision 337 autoclavable
camera system
 decompression catheter
for herniated discs 
 saphyre bipolar ablation
probe
 grew sales 10
 entry into the minimally
invasive spinal market
through oratec
acquisition
 launch of the digital
operating room concept
 major growth in implants
for soft tissue repair
 launched industry’s first
electromechanical
resection device
 reached 30000
procedures for trivex
 launched worldwide
network of surgeon
training sites
on an underlying basis 08 smith  nephew 2002
our commercially orientated innovation is
contributing a strong new product pipeline
oxinium hip implant
although he could have
delayed his total hip
replacement surgery 
until after his daughter’s
wedding smith 
nephew’s miniincision
technique in concert 
with an oxinium implant
restored his painfree
mobility in time to give
away the bride and take
a full part in this important
day in his daughter’s life
chief executive’s
statement continued
sustaining our growth rate
over the past few years we have maintained
consistently strong investment in expanding the
sales force and expanding our product pipeline 
in 2002 we expanded the orthopaedics sales
team by 12 the endoscopy team by 30
including the sales force acquired with oratec
and the advanced wound management team 
by 4 
we invested 5
1
⁄ 2 of sales revenue in research 
and development across our businesses in
2002 products introduced in the last three years
rose to 18 of sales our group focus on unique
methods to repair and heal the human body 
has led to group wide research in three fields
bioresorbable materials to facilitate healing and
surgical reconstruction tissue engineering to 
help replace repair and regenerate damaged
tissue and noninvasive devices to stimulate
tissue repair
enhancing manufacturing capacity and quality
to meet future sales growth we expanded our
orthopaedics and endoscopy manufacturing
capacity orthopaedics enlarged its production
space in memphis tennessee by about a third
endoscopy expanded two factories and moved
its headquarters to new premises near its
production facility in andover massachusetts
advanced wound management has begun
and a thermal decompression catheter for
herniated spinal discs the digital operating
room concept gained ground with installations 
in leading hospitals 
advanced wound management 
in its first full year as an advanced wound
management business we strengthened our
worldleading position in advanced treatments
for hardtoheal wounds underlying sales
growth was 11 with the allevyn product range
achieving 21 we have successfully integrated
into the business the advanced wound products
of beiersdorf and the acticoat silver product for
burns acquired in 2001 and these products are
growing strongly
towards the end of the year we secured 100
ownership of the dermagraft and transcyte
arrangement by acquiring ats’s 50 share
reimbursement for dermagraft continues to
progress well with 88 of the outpatient
population now covered in the us sales of
dermagraft in its us launch year achieved £3m
acticoat
she tried to help her
mother with the cooking
but she pulled a pan of
boiling water off the
stove causing mixed
partial thickness burns 
to her arms and upper
torso in the burns unit 
at the hospital acticoat 
a unique antimicrobial
barrier dressing was
applied to the affected
areas helping to minimise
the risk of infection and
scarring the burns
healed quickly allowing
her to rejoin her
playmates at nursery
school smith  nephew 2002 09
allevyn
following a long illness
she suffered from a
severe pressure ulcer
around the sacral area
causing much pain and
discomfort and limiting
her mobility despite the
efforts of a district nurse
it wasn’t until allevyn
sacral was used a
shaped highly absorbent
hydrocellular dressing
that the ulcer showed 
any signs of improvement
after a few weeks the
pain was alleviated the
pressure ulcer healed and
mobility was restored
twinfix bioabsorbable 
suture anchor
he was a talented tennis 
player in college and he 
never lost his love for the 
sport after suffering a 
serious rotator cuff injury 
his days of swinging a 
racket seemed to have 
vanished forever but 
thanks to the use of 
a twinfix bioabsorbable 
suture anchor by his 
surgeon he is back on 
the court twice a week 
and easing the stress of 
work with some friendly 
competition from the 
other side of the net
and surgeon medical education programmes
are continuing to speed product adoption
building a new manufacturing plant in largo
florida near its existing facilities 
we continue to maintain rigorous quality
assurance and control systems that are subject
to regular internal and external review we take
product quality very seriously and are committed
to the highest standards of manufacturing quality
business development
in march we completed our restructuring with 
the disposal of our rehabilitation business to
abilityone in the us we received £71m in cash
and retained a 215 interest in the enlarged
company to benefit from the substantial value
that we believe will be created by combining 
the two businesses
our joint venture with beiersdorf bsn medical
had a successful trading year bsn and
abilityone made a combined operating profit
contribution of £25m in 2002 
corporate social responsibility
we are committed to sustainable development
reducing our impact on the environment while
contributing to the quality of life enjoyed by
society at large we support local communities
around our manufacturing operations and play 
a substantial role in professional education in 
our clinical fields 
our complete sustainability report is published 
on our website at wwwsmithnephewcom
outlook
we are in the next phase of our company’s
development we have focused our businesses
on three highgrowth medical device sectors 
we are delivering sustained growth in sales and
underlying operating margins 
we have excellent management teams in place
intent on building sales and market share as well
as improving the financial performance of their
businesses our new products are advancing
clinical performance by benefiting both patients
and healthcare systems our sales people
continue to be excited by our product ranges
and we have every reason to expect that our
markets will themselves continue to grow we
remain confident that we can deliver sustainable
growth over the next three years
christopher o’donnell
chief executive  dr alan suggett 59
group director of
technology he joined the
group in 1982 and was
appointed to the group
executive committee in
1986 
 david illingworth 49
president – orthopaedics
he joined the group and 
was appointed to the group
executive committee in
2002 
christopher o’donnell 
chief executive 
see above
peter hooley 
finance director
see above
 jim taylor 46 
group director indirect
markets he joined the
group and was appointed
to the group executive
committee in 2000
10 smith  nephew 2002
we feel that our innovative and responsive company
is in a good position for future growth
group
executive
committee
the 
board
••
dudley eustace 66
chairman
appointed deputy
chairman in 1999 and
chairman in january
2000 he is chairman
of the nominations
committee non
executive chairman 
of sendo holdings plc
and a nonexecutive
director of klm royal
dutch airlines nv 
aegon nv  hagemeyer
nv  royal kpn nv and
sonaecom sgps
•
christopher
o’donnell 56 
chief executive 
he joined the group 
in 1988 and was
appointed a director 
in 1992 he was
appointed chief
executive in 1997 
he is a nonexecutive
director of boc group
• nonexecutive
directors
• members of the
remuneration
committee
• members of the
audit committee
• members of the
nominations
committee
kenneth kemp is
honorary life president
peter hooley 56
finance director
he joined the group
and was appointed 
a director in 1991 
he is a nonexecutive
director of cobham plc 
••
dr pamela kirby 49
appointed a director 
in march 2002 
she is chief executive
officer of quintiles
transnational
corporation
 peter huntley 42 
group director strategy
and business development
he joined the group and 
was appointed to the group
executive committee 
in 1998   paul williams 56 
group director human
resources he joined the
group and was appointed 
to the group executive
committee in 1998
 jim ralston 56 
chief legal officer 
he joined the group in 1999
and was appointed to the
group executive committee
in 2002
smith  nephew 2002 11
with 7500 employees who commit their energy
and expertise to its continual improvement
••
warren knowlton 56
appointed a director 
in november 2000 
he is chairman of the
audit committee and
group chief executive
of morgan crucible plc
••
brian larcombe 49
appointed a director 
in march 2002 he 
is chief executive of 
3i group plc 
•••
richard de schutter
62 appointed a
director in january
2001 he is a non
executive director 
of varian inc ing
americas incyte
genomics medpointe
pharmaceuticals and
general binding
corporation
••••
dr rolf stomberg 62
a director since 1998
senior independent
director and chairman
of the remuneration
committee he is
chairman of
management
consulting group plc
and a nonexecutive
director of scania ab
stinnes ag reed
elsevier plc cordiant
communications plc
deutsche bp ag tpg
group and hoyer
gmbh
•••
sir timothy lankester
60 a director since
june 1996 he is
president of corpus
christi college oxford
also an independent
director of the london
metal exchange and
deputy chairman of
the british council
 jim dick 50 
president – wound
management he joined 
the group in 1977 and was
appointed to the group
executive committee 
in 1999
 ron sparks 47 
president – endoscopy
he joined the group in
1983 and was appointed
to the group executive
committee in 1999 12 smith  nephew 2002
financial review
transactions and presentation
during the year the group completed the final steps in its
restructuring programme by disposing of the rehabilitation
business on 27th march for £71m and taking a 21
1
⁄ 2
interest in abilityone corporation abilityone the acquiring
company 
on 28th march oratec interventions inc oratec 
was acquired for £191m net oratec is engaged in the
application of radiofrequency energy to medical devices 
and is being integrated with the endoscopy business
group turnover and operating profit include the results 
of rehabilitation up to the date of disposal as discontinued
operations the group’s interest in abilityone has been
accounted for under the net equity method the results 
of oratec following acquisition are included in ongoing
operations
trading results
group sales for the full year amounted to £1110m 
a 3 increase reflecting the divestment referred to above
before this the sales of ongoing operations grew 15 
of which 14 was underlying sales growth 4 from
businesses acquired this and last year and 3 of adverse
currency translation selling price increases accounted 
for approximately 1 of underlying sales growth
profit before tax goodwill amortisation and exceptional items
amounted to £210m of this £196m was operating profit of
ongoing operations £2m profit of divested operations £25m
our share of operating profit of the bsn medical joint venture
and abilityone less £13m of interest costs 
the operating margin of ongoing operations before goodwill
amortisation and exceptional items was 18 the same 
as in 2001 and was after absorbing over 
1
⁄ 2 of divestment
dissynergies
bsn medical had a successful second trading period
achieving operating margins of 12
1
⁄ 2 a 2 improvement
from integration and rationalisation benefits and abilityone
started to see the benefits of integrating and rationalising 
its two businesses
exceptional items
exceptional items comprise an £18m gain on the disposal 
of rehabilitation less £15m of rationalisation and acquisition
integration costs of which £3m was our share of rationalisation
costs of bsn medical and £17m of write off of the whole 
of our holding of advanced tissues sciences inc ats
shares following its filing for bankruptcy the net exceptional
loss was therefore £14m 
eps and taxation
earnings per share before goodwill amortisation and
exceptional items were 1602p an increase on 2001 of 15
the underlying tax charge of £62m was 29 a tax charge
of £4m arises on the net exceptional loss because nontax
deductible goodwill is included in the rehabilitation gain
adjusting for the dilutive effects of the disposals of this and
last year and the formation of the bsn medical joint venture
the increase in earnings per share before goodwill
amortisation and exceptional items rises to 19
dividend and shareholders’ funds 
the recommended final dividend of 30p per share together
with the interim dividend of 18p makes a total for the year 
of 48p the cost of the dividends will be £45m compared to
earnings before goodwill amortisation and exceptional items
of £148m – a dividend cover of 33 times retained profit 
of £68m has been taken to reserves and shareholders funds
have also been augmented by £6m of new shares issued 
for share options £30m of acquisition goodwill on the
rehabilitation business previously written off and £9m 
of exchange translation movements the net movement 
in shareholders’ funds was an increase of £113m
investment
capital expenditure of £85m on tangible and intangible 
fixed assets amounted to 8 of sales the principal areas
of investment were manufacturing capacity expansions 
at all of our major sites instrument sets and equipment 
orthopaedic implants and endoscopy and information
technology 
as well as acquiring oratec the group also acquired from
ats its 50 interest in the dermagraft joint arrangements
for £8m 
the rd investment for the ongoing businesses was 5
1
⁄ 2
of sales and the dermagraft programme involved further
revenue investment of £8m we continue to invest in sales
and marketing worldwide with our direct and independent
sales forces now totalling 2496 a 12 increase during 
the year
employees
the average number of employees during the year declined
5 to 7500 as a consequence of the restructuring
programme the result is that sales per employee improved
a further 9 to £148000
cash flow and net debt
operating cash flow before outgoings on rationalisation
divestment and acquisition integration was £142m a 72
conversion of pregoodwill amortisation and exceptionals
operating profit the proceeds of divestment of rehabilitation
and other capital receipts comprise £78m which partly
offsets the total cost of acquisitions of £206m smith  nephew 2002 13
financial review
net cash flow and movements in net debt during the year
were
£m
operating cash flow 142
rationalisation divestment and integration 19
joint venture 10
interest tax and dividends 106
acquisitions 206
divestments 72
issues of share capital 6
net cash flow 101
exchange movements 68
opening net debt 244
closing net debt 277
closing net debt of £277m compares to group capital 
and reserves of £517m interest cost of £13m was covered 
17 times by operating profit before amortisation and
exceptional items
capital structure treasury policy and pension funding
the directors have established a set of policies to manage
funding currency and interest rate risks the group only
uses financial instruments to manage the financial risk
associated with underlying business activities and their
financing
our policy is to ensure that there are sufficient funding 
and facilities in place to meet foreseeable borrowing
requirements unused bank facilities amounted to 
£432m of which £199m were committed facilities
in order to provide additional financing capability we 
will be requesting shareholders to increase the group’s
borrowing powers by adding back to capital and reserves
for borrowing multiple purposes goodwill previously set 
off on acquisitions
shareholders’ funds are protected by matching foreign
currency assets including acquisition goodwill with foreign
currency liabilities where practicable these liabilities take
the form of either borrowings or currency swaps at the
yearend group borrowings were £316m mainly in foreign
currency cash and bank balances were £22m and a net
£17m was receivable on currency swaps gross currency
swaps amounted to £563m of which 73 were to 
redenominate internal borrowings into us dollars
group borrowings take advantage of shortterm interest
rates we use interest rate swaps to protect borrowing
costs and the differentials between borrowing and deposit
rates fixing interest rates on major exposures for the
coming year by the beginning of the financial year 
the majority of interest costs and differentials have been
protected through to december 2003 with some protection
carrying over into 2004
the group trades in over 90 countries and as a
consequence manages £270m of foreign currency
transactions by using forward foreign exchange contracts
of which the major transaction flow is euros into dollars 
our policy is for firm commitments to be fully covered and
forecasts to be covered between 50 and 90 for up to
one year it is group policy for operating units not to hold
unhedged monetary assets or liabilities other than in their
functional operating currencies
the falls in the stock market values of the last three years
have adversely affected the funding levels of both our 
major defined benefit plans these plans continue to be
accounted for under ssap24 and their combined deficits
are estimated as £80m this is less than the combined
deficits under frs17 of £111m which is due to the non
investment return discount rate required to be applied 
to liabilities under frs17 the ssap 24 deficit is to be
funded over future working lives
it is company policy to ensure that suppliers are paid 
within agreed terms at the yearend the company’s 
trade creditors amounted to £3m the equivalent of 
30 days credit
peter hooley 
finance director corporate social
responsibility
14 smith  nephew 2002
we aim to make our values of performance innovation 
and trust integral to the way we operate and are
committed to the principles of sustainable development
this was recognised by our admission in 2002 – on our 
first application – to the dow jones sustainability index
this is the most widely recognised arbiter of good practice
and we achieved the highest rating in our business sector 
we published our second sustainability report in april
2002 outlining our progress in corporate social responsibility
csr it was more detailed and wider in scope than the
first with increased measurement data and information 
on our activities 
the third sustainability report will be published on our
website in april and will include new measurement
initiatives especially in the social area at the same time 
we will be publishing a new code of business principles
which brings together policies that currently appear in
different sections of our website updated and broadened 
in scope we have included purchasing policies with
particular emphasis on human rights and suppliers’
practices on health safety and environmental standards
through this code we ensure that our planning and
business decisions take account of ethical social legal 
and financial considerations thereby minimising risks 
and balancing the interests of all our stakeholders 
our sustainability efforts focus on
environmental management
minimising the impact of our activities on the environment –
particularly regarding energy and water use waste
emissions and discharges
social responsibility 
employees maintaining high standards of health and safety
providing training and development giving people the
opportunity to let us know how they feel about working 
for smith  nephew – and acting on what they tell us
community investing in and working with the communities
in which we operate
customers educating healthcare professionals in the
techniques related to our product ranges and providing
opportunities for their continuing professional development
suppliers working in partnership with suppliers and
fostering open ethical relationships with them
economic impact
making a positive contribution to society through creating
shareholder value paying taxes investing capital and
creating employment maximising the economic benefits 
of our products for healthcare providers patients and 
those who pay the costs 
more detail on our policies and the work which we 
do in these areas is provided in the following text
environmental management
we are committed to continuing reduction in our
environmental impact we use renewable resources
wherever possible and reduce any adverse effect from
products and processes to a practical minimum our
business units must take effective action to control risks 
and minimise environmental impacts through systems 
and procedures based on a thorough understanding 
of the risks and provision of appropriate training and
support progress is reviewed annually by the board
over the past 10 years our environmental management
systems have delivered cost savings as well as
environmental benefits our manufacturing processes 
are relatively low in environmental impact with locations in
the us uk and germany our main environmental impact
comes from waste generated at manufacturing sites 
we operate waste prevention and minimisation programmes
throughout the group and are examining ways of assessing
sustainable development aspects of our products in the
past year we have focused on reducing waste the
improvement in recycling made in 2001 has been sustained
and emissions are down 12 this is a significant
achievement considering the manufacturing expansion
which took place during the year
social responsibility
employees our business units are required to provide safe
working conditions plant and equipment at all their facilities
we maintain high standards and are determined to raise
them even higher through sharing best practice business
unit plans include measures to improve performance
monitoring enhance hazard analysis and risk assessment
refine emergency plans and business continuity plans and
deliver better targeted training
our employment policies emphasise equality of opportunity
continuous training and development open communications
and rewards appropriate to local markets vacancies are
filled within the company wherever possible we treat
employees with dignity and fairness and have policies and
procedures to encourage this culture we welcome disabled
people and make every effort to retain any employee who
becomes disabled our new code of business principles
underpins the high standards we expect from our people 
we recognise the importance of good employee
communications this year we have greatly improved
groupwide measurement and data collection systems to
monitor such areas as employee satisfaction performance
appraisal development and career progression we have
also set up a reporting system to collect data on training
throughout the group these measures will monitor progress
in the coming years and help ensure that we target our
efforts in the most effective manner 
more information is available on our website at 
wwwsmithnephewcomsustainability2002 smith  nephew 2002 15
in 2002 we conducted our second global opinion survey
and communicated the results to staff worldwide once
again we had over 80 of employees participating in the
survey with positive scores in all areas covered in addition
91 of respondents indicated that they were proud to work
for the smith  nephew group significant improvements
over 10 increase in scores in many areas were seen
compared with the year 2000 results particularly in
management style communication with employees
anticipating change and the way people feel about their job
confirming that we have made good progress in all areas
over the past two years but we still have work to do
scores for questions about promotion and reward were 
still lower than we would like and this will stimulate action 
to address these issues
the communications functions at our group head office
group research centre and global business units work
closely with the human resources departments at each 
site on all forms of internal communication our linked
business unit and corporate intranets are increasingly well
used allowing easy twoway communication worldwide and
increasing people’s awareness of financial economic and
market factors affecting company performance electronic
communication in general continues to reduce internal
paperwork throughout the company 
community we recognise a strong obligation to contribute
to the communities in which we operate we encourage
and support employees at all levels who undertake
community work providing resources and paid time off 
to participate in projects we support a range of charitable
causes mainly at local level by donations of money gifts 
in kind and employee time the company is a member 
of uk business in the community and we are committed 
to corporate community involvement across the whole
group wherever practical of course we are also committed
to meeting our community obligations under the law 
examples of the programmes we support around our
manufacturing sites can be found in the performance
section of the sustainability report on our website
in 2002 our direct donations to charitable and community
activities totalled £804000 of which £400000 went to 
the smith  nephew foundation to fund individual research 
for doctors and nurses during the year we restructured 
the foundation to focus solely on nursing research where 
it makes a major contribution in the uk we again made 
no political contributions in 2002
customers educational support to the medical community
which we serve is an integral part of the way we do business
all three of our business units run extensive educational
programmes ranging from seminars and dedicated training
facilities to webbased information sites during 2002 our
endoscopy business alone hosted 144 courses training over
1700 surgeons 
suppliers we treat suppliers with dignity and fairness 
and expect them to do the same with their own employees
and suppliers our code of business principles makes clear
that we support the un’s universal declaration of human
rights and states that we will only work with suppliers 
who adhere to business principles and health safety social 
and environmental standards consistent with our own
specifically these prohibit the use of forced compulsory 
or child labour
economic impact
our business policies aim to achieve longterm growth and
profits – which in turn bring continued economic benefits to
shareholders employees suppliers and local communities
our sustainable development depends ultimately on our
ability to provide a satisfactory return in 2002 we generated
an operating return on capital employed of 29 
we continue to invest in comprehensive rd programmes
focused on delivering better outcomes for patients and
improvements in application and use for practitioners
importantly we also aim to deliver overall cost savings 
to healthcare systems through such benefits as reduced
dressing changes and shorter operating theatre times 
our products seek to reduce patients’ time in hospital 
and return them to health faster potentially improving 
their productivity and bringing broader social and 
economic benefits corporate governance
16 smith  nephew 2002
the board is committed to the highest standards of
corporate governance and considers that the company 
has complied throughout the year with the combined 
code of best practice on corporate governance
the board
the board meets regularly during the year and is
responsible for the strategic direction policies and overall
management of the group there is a clear division of
responsibilities between the chairman and chief executive
the board consists of an independent nonexecutive
chairman two executive directors and six independent
nonexecutive directors all directors have full and timely
access to all relevant information and independent
professional advice nonexecutive directors meet regularly
without management in attendance and appropriate
induction programmes are offered to new directors 
the board is assisted by the following committees
the audit committee the audit committee monitors 
the operation and effectiveness of internal financial controls
and ensures that the accounts meet statutory and other
requirements it selects determines the fees and reviews
the performance independence and objectivity of 
the auditors all nonaudit work is preapproved by
the committee 
the remuneration committee the remuneration
committee sets the pay and benefits of the executive
directors and members of the group executive committee
approves their main terms of employment and determines
share options and longterm incentive arrangements 
it also reviews management succession planning
the nominations committee the nominations committee
oversees plans for board succession and recommends
appointments to the board
the group executive committee the group executive
committee assists the chief executive in the management
of the group
the terms of reference of the audit remuneration and
nominations committees may be found at wwwsmith
nephewcom
membership of board committees and of the group
executive committee is shown with the biographical 
details of directors on pages 10 and 11
directors
all directors are subject to reelection every three years 
and in accordance with the articles of association dudley
eustace and peter hooley retire by rotation and being
eligible offer themselves for reelection at the forthcoming
agm sir timothy lankester will be retiring at the agm 
but will not be offering himself for reelection 
no director had a material beneficial interest in any contract
involving the company or its subsidiaries in 2002
shareholders
the group issues summary financial statements in place of
full annual accounts unless shareholders request the latter
the summary financial statement is received by over 90 
of shareholders at the half year an interim report is sent 
to all shareholders a copy of the full annual accounts is
available on the smith  nephew website along with press
releases institutional presentations and audio webcasts
there are regular dialogues with individual institutional
shareholders together with results presentations twice a
year there is an opportunity for individual shareholders to
question directors at the agm and the company regularly
responds to letters from shareholders on a range of issues
risk management  internal control 
the board is responsible for the maintenance of the group’s
systems of risk management and internal control and for
reviewing their effectiveness an ongoing process has been
in place for the full year identifying evaluating and managing
key risks through a risk committee which reports to the
board annually and by a system of functional reports to 
the board and the review of internal financial controls by 
the audit committee
these procedures are designed to identify and manage
those risks that could adversely impact the achievement 
of the group’s objectives whilst they do not provide
absolute assurance against material misstatements or loss
the directors following a review of the systems described
are of the opinion that proper systems of risk management
and internal control are in place within the group 
share capital
the company has been informed of the following interests 
in its ordinary share capital as at 7 february 2003
 axa investment management 90
 fidelity 71
 legal  general investment management 34
at the agm the company will be seeking a renewal of its
current permission from shareholders to purchase its own
shares no shares have been purchased or contracted for
or are the subject of an option under the expiring authority
auditors
ernst  young llp have expressed their willingness 
to continue as auditors and a resolution proposing their
reappointment will be put to the agm smith  nephew 2002 17
remuneration report
the report is divided into two sections unaudited and audited
information in accordance with schedule 7a of the companies
act 1985 the audited information commences on page 19
the remuneration committee comprises dr rolf stomberg
chairman sir timothy lankester richard de schutter 
and dr pam kirby sir brian pearse and sir anthony cleaver
retired as members of the committee on 28 february 2002
on behalf of the board it determines the broad policy for
executive remuneration it reviews annually the remuneration
including pension entitlements for executive directors 
and members of the group executive committee and
determines the operation of and the participants in the 
longterm incentive plan share option schemes and the
executive bonus plan it reviews the relationship between
the remuneration of executive directors and that of other
employees and the competitiveness of executive
remuneration using data from independent consultants 
on companies of similar size technologies and international
complexity it also reviews management succession
planning the committee is assisted by christopher
o’donnell the chief executive and paul williams the group
hr director both of whom have advised on all aspects of
the group’s reward structures and policies in 2002 it
received information from watson wyatt on a broad range
of remuneration issues towers perrin and hay group on
salary data and monks partnership on longterm incentive
plan comparative group performance all the independent
consultants were appointed by the company watson 
wyatt also act as one of the retirement benefit consultants
to the company
the remuneration committee policy for this and future
years is to ensure that remuneration is sufficiently
competitive to attract retain and motivate executive
directors and group executive committee members 
of a calibre that meets the group’s needs to achieve its
performance against financial objectives and relevant
competitors’ practice remuneration throughout the group
is designed to be competitive in the country of employment
the committee gives full consideration to the requirements
in schedule a of the combined code
the principal components of remuneration which will
remain in operation for the next financial year and thereafter
for executive directors and group executive committee
members are
basic salary and benefits 
basic salary reflects the responsibility of the job and
individual performance the company also provides private
healthcare cover and a company car or allowance
performancerelated bonus 
for executive directors the company operates an annual
bonus scheme 75 of which is based on annual growth 
in adjusted basic earnings per share after deducting
goodwill amortisation and 25 on return on operating
capital employed the scheme is designed to encourage
performance which the remuneration committee considers
would contribute most to increasing shareholder value
achievement of targets should produce a bonus of 30 
of annual salary with a maximum of 100 for over
achievement that demonstrates a step change in group
performance bonuses are not pensionable
for members of the group executive committee with
corporate responsibilities the annual bonus plan is linked 
to earnings per share return on capital employed and
personal objectives for those members with specific
business unit responsibilities targets are linked to earnings
per share return on capital employed and sales and 
profit of their respective business unit
longterm incentives 
the company operates a longterm incentive plan ltip 
for executive directors and members of the group executive
committee to motivate and reward these key executives to
significantly enhance the value of the company under this
plan shares are transferred to participants depending on the
company’s performance in relation to a group of 41 uk listed
manufacturing companies with substantial international
activities using total shareholder return tsr over a 
threeyear period as the prime measure the performance
conditions were identified as those which represented a fair
measure of the company’s performance and would reflect
increase in shareholder value the maximum value of shares
awarded for executive directors will not exceed the
participants’ current annual rate of basic salary at the date 
the award is granted and for members of the group
executive committee it will not exceed 75 of their current
rate of basic salary shares will only be transferred to the
participants if the company’s tsr performance is at or above
the median performance of the comparator companies and 
if growth in the company’s adjusted earnings per share after
deducting goodwill amortisation exceeded growth in the 
rpi in the same threeyear period at the median level 25
of the award shares will vest if the company’s performance
is in the top quartile all the shares will vest for performance
between the median and the top quartile the proportion 
of shares vesting will vary on a straightline basis the
company’s tsr performance and its performance relative 
to the comparator group is independently monitored by
monks partnership
the comparator group comprises the following companies
aga foodservice group imi
astrazeneca group johnson matthey
bae systems laird group 
balfour beatty low  bonar
bba group marconi
boc group morgan crucible company 
bpb industries novar 
british vita pilkington
bunzl reckitt benckiser
cadbury schweppes rexam
charter rmc group
coats rollsroyce
cookson group scapa group
croda international spiraxsarco engineering
de la rue spirent
delta tate  lyle
elementis tomkins
fki tt electronics
gkn unilever uk
halma weir group
ici 18 smith  nephew 2002
remuneration report
share options
executive directors were last granted options under executive share option schemes in 1996 which were not subject to
performance conditions of exercise the exercise of options granted to members of the group executive committee between
1997 and 2000 is subject to growth in adjusted basic earnings per share after deducting goodwill amortisation of not less
than rpi plus 2 per annum in any period of three consecutive years since 2001 under the uk plans the exercise of
options is subject to adjusted basic earnings per share growth after deducting goodwill amortisation of not less than rpi plus
3 per annum on average in a performance period of three consecutive years in the event the performance target is not
met by the end of the third year the performance period is extended to four years if it has not been met after four years the
performance period is extended to five years but if it has still not been met at the end of the fifth year the options will lapse
performance conditions were selected to be in line with market practice at the time options granted under the us plan in
line with market practice are not subject to performance targets but are exercisable cumulatively up to a maximum of 10
after one year 30 after two years 60 after three years and the remaining balance after four years since 2002 members
of the group executive committee are not granted share options except on appointment share options are not offered at a
discount uk executive directors are eligible to participate in the savings related share option scheme
pensions 
executive directors have a normal retirement age of 62 and participate in the defined benefit smith  nephew uk pension
fund and uk executive pension scheme under which pension has been accrued in the year at an annual rate of 
1
⁄ 30 of final
pensionable salary up to a limit of 
2
⁄ 3 of final pensionable salary pensions in payment are guaranteed to increase by 5 
per annum or inflation if lower the company and the pension plan trustees have in the past granted discretionary increases
particularly at times of high inflation death in service cover of four times salary and spouse’s pension at the rate of 
2
⁄ 3 of the
member’s pension are provided on death a supplementary unfunded defined contribution arrangement partially
compensates for the inland revenue earnings cap on final pensionable salary
service contracts
executive directors in line with group policy have notice periods of 12 months all new appointments are intended to have
12 months notice periods but it is recognised that for some appointments a longer period may initially be necessary for
competitive reasons reducing to 12 months thereafter christopher o’donnell appointed to the board in september 1992
and peter hooley appointed in april 1991 have contracts terminable by the company on not more than 12 months notice
and by the director on six months notice termination of the contract by the company would entitle the executive directors
to 12 months basic salary bonus at target of 30 a contribution of 30 of salary to reflect the loss of pension benefits 
an amount to cover other benefits and a time apportionment of the ltip entitlement
nonexecutive directors do not have service contracts and are normally appointed for terms of three years terminable at will
without notice by either the company or the director and without compensation their remuneration is determined by the
nominations committee 
external nonexecutive directorships
nonexecutive directorships provide executive directors with valuable experience beneficial to the company such
appointments are subject to the approval of the nominations committee and restricted to one appointment for each
executive director all fees are paid to the company
directors’ interests
31 december 2002 1 january 2002
beneficial interests of directors in the company’s ordinary shares shares options shares options
dg eustace 49679 – 40909 –
cj o’donnell 122136 517495 120703 331263
p hooley 111571 450682 58789 423723
b larcombe ––––
sir timothy lankester 6096 – 6035 –
dr p  kirby ––––
dr rwh stomberg 6945 – 6864 –
wd knowlton 12501 – 7501 –
r de schutter 200000 – 100000 –
on 7 february 2003 christopher o’donnell became entitled to 155065 shares and peter hooley 96916 shares in respect
of the 100 vesting of the 2000 longterm incentive plan there were no other changes in the interests of directors
between 31 december 2002 and 7 february 2003
the register of directors’ interests which is open to inspection at the company’s registered office contains full details 
of directors’ shareholdings and share options
as a component company of the ftse 100 index a graph of the company’s tsr performance compared to that of the
tsr of the index can be found on page 2 smith  nephew 2002 19
audited information
directors’ emoluments and pensions
total total total total
emoluments incl pension excl pension incl pension
salaries excl pension pension entitlements entitlements entitlements
 fees benefits bonus entitlements entitlements 2002 2001 2001
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
chairman nonexecutive
dg eustace 170 – – 170 – 170 170 170
executive
cj o’donnell 472 22 362 856 34 890 770 790
p hooley 280 19 212 511 72 583 484 545
nonexecutive
sir timothy lankester 30 – – 30 – 30 30 30
dr rwh stomberg 30 – – 30 – 30 30 30
wd knowlton 30 – – 30 – 30 30 30
r de schutter 30 – – 30 – 30 30 30
dr p  kirby 25 – – 25 – 25 – –
from 1 march 2002
b larcombe 25 – – 25 – 25 – –
from 1 march 2002
sir anthony cleaver 5 – – 5 – 5 30 30
to 28 february 2002
sir brian pearse 5 – – 5 – 5 30 30
to 28 february 2002
1102 41 574 1717 106 1823 1604 1685
dudley eustace’s annual fee of £170000 includes a nonexecutive director’s fee of £30000 for cj o’donnell 58 of
total remuneration excluding pension entitlement was base salary and benefits and 42 related to company performance
for p  hooley 59 was base salary and benefits and 41 related to company performance
directors’ share options
range of
exercisable
number of market number of dates of
options granted price profit on options average options held
1 jan during exercise at date of exercise 31 dec exercise at 31 dec
2002 the year exercised price p exercise p £ 2002 price p 2002 
cj o’donnell 170000
1
––––– 170000 1870 897906
–
2
3192 –––– 3192 2960 1105406
161263
3
183040–––– 344303 – 201409
total 331263 186232–––– 517495 – 81997
42009
options granted on 25 sept 2002 at 296p
p hooley 317500
1
– 90000 1680 4035 211950 227500 1580 896906
3349
2
––––– 3349 2890 1104405
102874
3
116959–––– 219833 – 201409
total 423723 116959 90000 1680 4035 211950 450682 – 81996
42009
1 
options granted under executive share option schemes
2 
sharesave options
3 
nilcost options acquired through the vesting of ltip awards 
the range in the market price of the company’s shares during the year was 305p to 430p and the market price at 
31 december 2002 was 3805p all outstanding options at 31 december 2002 were below 3805p the total profit on
exercise of options during the year was £211950 as set out above 2001 – £197542 christopher o’donnell £22171
peter hooley £175371 remuneration report
20 smith  nephew 2002
longterm incentive plan
the maximum number of shares to be allocated to each director under the ltip  all for nil consideration are
maximum market
number price at market number of
of shares awards date of price at shares latest
awarded during market vested award p date of awarded performance
1 jan 2002 the year price p award 8 mar 1999 vesting p 31 dec 2002 period
cj o’donnell 448649 120879 4095 183040 1710 4035 386488 31122004
p hooley 282965 70818 4095 116959 1710 4035 236824 31122004
for the three year plan period commencing 2000 the company’s tsr of 14736 was ranked first in the comparator group
and the earnings per share performance criterion was met enabling the plan participants to be eligible for 100 of the
shares conditionally awarded in 2000
pensions
increase increase 
in accrued transfer value in transfer transfer value
accrued pension accrued of accrued directors’ value over year of accrued
pension at excluding pension at pension contributions less directors’ pension
1 jan 2002 inflation 31 dec 2002 1 jan 2002 during 2002 contributions 31 dec 2002
£pa £pa £pa £ £ £ £
cj o’donnell 119000 32000 153000 1521000 23000 336000 1880000
p hooley 26000 2000 29000 333000 4000 22000 359000
an amount of £69000 was provided for under the supplementary unfunded defined contribution arrangement for 
peter hooley bringing his total benefit under the plan to £319000
by order of the board 7 february 2003
paul chambers
secretary
the directors are responsible for the preparation of the
annual report including the remuneration report in
accordance with relevant legislation and other requirements
the directors are required by company law to prepare
accounts for each financial year that give a true and fair
view of the state of affairs of the company and of the group
as at the end of the financial year and of the results of the
group for the year in preparing the accounts suitable
accounting policies have been used and applied consistently
and reasonable and prudent judgements and estimates
have been made applicable accounting standards have
been followed the directors have satisfied themselves from
internal forecasts and available bank facilities that the group
continues as a going concern
the directors are also responsible for the maintenance 
of the group’s system of internal financial controls 
these are designed to give reasonable assurance that
proper procedures exist for the maintenance of adequate
accounting records safeguarding the assets of the group
and for preventing and detecting fraud and other
irregularities to this end the company has identified and
documented minimum internal financial control standards
annual budgets are prepared and approved by the directors
and the directors have reserved capital expenditure and
treasury authority levels to the board and its delegated
committees the group operates a system of regular
monthly reporting including revised profit and cash forecasts
business risks are identified and monitored on a regular
basis the group operates an internal audit function which
monitors the adequacy of internal financial controls and
systems and compliance with group standards the internal
auditor gives a report to the audit committee and the 
audit committee reviews the operation and effectiveness 
of internal financial controls and reporting of the group 
a copy of the accounts is placed on the website of smith 
 nephew plc information published on the internet is
accessible in many countries with different legal requirements
legislation in the united kingdom governing the preparation
and dissemination of accounts may differ from legislation 
in other jurisdictions
directors’ responsibilities 
for the accounts smith  nephew 2002 21
auditors’ report
independent auditors’ report to the members 
of smith  nephew plc
we have audited the group’s accounts for the year ended 
31 december 2002 which comprise the group profit and
loss account group balance sheet parent company
balance sheet group cash flow statement group statement
of total recognised gains and losses group reconciliation 
of movements in shareholders’ funds accounting policies
and the related notes 1 to 33 these accounts have been
prepared on the basis of the accounting policies set out
therein we have also audited the information in the
remuneration report that is described as having been
audited
this report is made solely to the company’s members 
as a body in accordance with section 235 of the
companies act 1985 our audit work has been undertaken
so that we might state to the company’s members those
matters we are required to state to them in an auditors’
report and for no other purpose to the fullest extent
permitted by law we do not accept or assume responsibility
to anyone other than the company and the company’s
members as a body for our audit work for this report 
or for the opinions we have formed
respective responsibilities of directors and auditors the
directors’ responsibilities for preparing the annual report
remuneration report and the accounts in accordance with
applicable united kingdom law and accounting standards
are set out in the statement of directors’ responsibilities
our responsibility is to audit the accounts and the part of
the remuneration report to be audited in accordance with
relevant legal and regulatory requirements united kingdom
auditing standards and the listing rules of the financial
services authority
we report to you our opinion as to whether the accounts
give a true and fair view and whether the accounts and 
the part of the remuneration report to be audited have been
properly prepared in accordance with the companies act
1985 we also report to you if in our opinion the directors’
report is not consistent with the accounts if the company
has not kept proper accounting records if we have not
received all the information and explanations we require for
our audit or if the information specified by law or the listing
rules regarding directors’ remuneration and transactions
with the group is not disclosed
we review whether the corporate governance statement
reflects the company’s compliance with the seven
provisions of the combined code specified for our review
by the listing rules and we report if it does not we are 
not required to consider whether the board’s statements 
on internal control cover all risks and controls or form 
an opinion on the effectiveness of the group’s corporate
governance procedures or its risk and control procedures
we read other information contained in the annual report
and consider whether it is consistent with the audited
accounts this other information comprises the directors’
responsibilities for the accounts unaudited part of the
remuneration report chairman’s statement chief executive’s
statement financial review corporate social responsibility
and corporate governance statement we consider the
implications for our report if we become aware of any
apparent misstatements or material inconsistencies with 
the accounts our responsibilities do not extend to any
other information
basis of audit opinion we conducted our audit in
accordance with united kingdom auditing standards
issued by the auditing practices board an audit includes
examination on a test basis of evidence relevant to the
amounts and disclosures in the accounts and the part 
of the remuneration report to be audited it also includes 
an assessment of the significant estimates and judgements
made by the directors in the preparation of the accounts
and of whether the accounting policies are appropriate 
to the group’s circumstances consistently applied and
adequately disclosed
we planned and performed our audit so as to obtain all 
the information and explanations which we considered
necessary in order to provide us with sufficient evidence 
to give reasonable assurance that the financial statements
and the part of the remuneration report to be audited are
free from material misstatement whether caused by 
fraud or other irregularity or error in forming our opinion 
we also evaluated the overall adequacy of the presentation 
of information in the accounts and the part of the
remuneration report to be audited
opinion in our opinion the accounts give a true and fair view
of the state of affairs of the company and of the group as 
at 31 december 2002 and of the profit of the group for the
year then ended and the financial statements and the part
of the remuneration report to be audited have been properly
prepared in accordance with the companies act 1985
ernst  young llp
registered auditor
london 7 february 2003 22 smith  nephew 2002
group profit and loss account
2002 2001
for the year ended 31 december 2002 notes £ million £ million
turnover 12
ongoing operations 10837 9430
operations contributed to the joint venture – 353
continuing operations 10837 9783
discontinued operations 262 1034
group turnover 11099 10817
share of joint venture 1550 1236
12649 12053
operating profit 12
ongoing operations
before goodwill amortisation and exceptional items 1960 1708
goodwill amortisation 175 104
exceptional items 3 299 193
1486 1411
operations contributed to the joint venture
before exceptional items – 36
exceptional items 3 – 18
continuing operations 1486 1429
discontinued operations 21 111
1507 1540
share of operating profit of the joint venture
before exceptional items 196 128
exceptional items 3 26 50
1677 1618
share of operating profit of the associated undertaking 49 –
1726 1618
discontinued operations – net profit on disposals 3 180 492
profit on ordinary activities before interest 1906 2110
interest payable 4 127 174
profit on ordinary activities before taxation 1779 1936
taxation 7 658 640
attributable profit for the year 1121 1296
ordinary dividends 8 446 429
retained profit for the year 24 675 867
basic earnings per ordinary share 10 1211p 1407p
diluted earnings per ordinary share 10 1202p 1395p
results before goodwill amortisation and exceptional items
profit before taxation 9 2099 1809
adjusted basic earnings per ordinary share 10 1602p 1396p
adjusted diluted earnings per ordinary share 10 1589p 1384p smith  nephew 2002 23
group balance sheet
2002 2001
at 31 december 2002 notes £ million £ million
fixed assets
intangible assets 11 3172 1878
tangible assets 12 2558 2450
investments 13 82 257
investment in joint venture 14 1150 1140
goodwill 703 706
share of gross assets 1062 1090
share of gross liabilities 615 656
investment in associated undertaking 15 85 –
7047 5725
current assets
stocks 16 2295 2322
debtors 17 2807 2668
cash and bank 18 225 264
5327 5254
creditors amounts falling due within one year
borrowings 18 1519 940
other creditors 20 3096 3345
4615 4285
net current assets 712 969
total assets less current liabilities 7759 6694
creditors amounts falling due after more than one year
borrowings 18 1642 1612
other creditors 20 63 83
provisions for liabilities and charges 21 881 953
2586 2648
5173 4046
capital and reserves
equity shareholders’ funds
called up equity share capital 22 1135 1131
share premium account 24 1438 1358
profit and loss account 24 2597 1554
5170 4043
nonequity shareholders’ funds
called up nonequity share capital 22 03 03
5173 4046
approved by the board on 7 february 2003
dudley eustace chairman christopher o’donnell chief executive peter hooley finance director 24 smith  nephew 2002
group cash flow statement
2002 2001
for the year ended 31 december 2002 notes £ million £ million
net cash inflow from operating activities 25 2093 1919
dividends received from joint venture 39 –
interest received 66 25
interest paid 168 190
net cash outflow from returns on investments
and servicing of finance 102 165
taxation paid 523 762
1507 992
capital expenditure and financial investment
capital expenditure 852 747
disposal of fixed assets 11 41
trade investments 13 24
own shares purchasedvested 07 04
861 726
acquisitions and disposals
acquisitions 2454 693
cash acquired on acquisition of oratec 391 –
disposals 718 617
debt repaid by the joint venture 57 246
joint venture formation costs – 120
1288 50
equity dividends paid 435 420
cash outflow before use of liquid resources and financing 1077 104
financing
issues of ordinary share capital 61 90
increase in borrowings due within one year 25 706 302
increasedecrease in borrowings due after one year 25 181 74
settlement of currency swaps 25 – 140
net cash inflow from financing 948 178
decreaseincrease in cash 25 129 74
after £193m 2001 – £235m of outgoings on rationalisation acquisition integration and divestment costs  smith  nephew 2002 25
statement of total recognised gains and losses
movements in shareholders’ funds
group statement of total recognised gains and losses
2002 2001
for the year ended 31 december 2002 £ million £ million
profit for the financial year 1121 1296
unrealised gain on formation of joint venture – 318
translation differences on foreign currency net investments 91 88
total gains and losses related to the year 1212 1526
included in the profit for the financial year is £103m 2001 – £44m profit relating to the joint venture and £30m 2001 – nil
profit relating to the associated undertaking
group reconciliation of movements in shareholders’ funds
2002 2001
for the year ended 31 december 2002 £ million £ million
profit for the financial year 1121 1296
dividends 446 429
retained profit for the year 675 867
translation differences on foreign currency net investments 91 88
goodwill on disposals 300 –
goodwill on operations contributed to the joint venture – 179
unrealised gain on formation of joint venture – 318
movements relating to the quest note 23 23 21
issue of shares 84 111
net addition to shareholders’ funds 1127 1366
opening shareholders’ funds 4046 2680
closing shareholders’ funds 5173 4046 26 smith  nephew 2002
parent company balance sheet
2002 2001
at 31 december 2002 notes £ million £ million
fixed assets
tangible assets 12 80 82
investments 13 7600 4164
7680 4246
current assets
debtors 17 14447 4696
cash and bank 18 91 148
14538 4844
creditors amounts falling due within one year
borrowings 18 1272 629
other creditors 20 15345 2562
16617 3191
net current liabilitiesassets 2079 1653
total assets less current liabilities 5601 5899
creditors amounts falling due after more than one year
borrowings 18 1623 1546
other creditors 20 13 06
provisions for liabilities and charges 21 26 61
1662 1613
3939 4286
capital and reserves
equity shareholders’ funds
called up share capital 22 1135 1131
share premium account 24 1438 1358
profit and loss account 24 1363 1794
3936 4283
non equity shareholders’ funds
called up non equity share capital 22 03 03
3939 4286
approved by the board on 7 february 2003
dudley eustace chairman christopher o’donnell chief executive peter hooley finance director smith  nephew 2002 27
accounting policies
the accounts have been prepared under the historical cost
convention and in accordance with other applicable
accounting standards and include the disclosures required
by financial reporting standard 17 frs 17
consolidation 
the consolidated accounts include the accounts of the
company and of all of its subsidiaries and associated
undertakings during the year ended 31 december 2002 for
the periods during which they were members of the group
entities in which the group holds an interest on a longterm
basis and are controlled by the group and one other under 
a contractual agreement are joint ventures joint ventures
are included in the consolidated accounts under the gross
equity method 
entities in which the group has a beneficial interest of 50
or less in the equity capital and where the group exercises
significant influence over commercial and financial policy
decisions are associated undertakings associates are
included in the consolidated accounts under the net equity
method 
joint arrangements are those where the group participates
with a third party in an arrangement to carry on the group’s
trade or business joint arrangements are included in the
consolidated accounts in proportion to the group’s interest
in their assets liabilities and cash flows 
turnover
turnover comprises sales of products and services to third
parties at amounts invoiced net of trade discounts and
rebates excluding turnover taxes
foreign currencies
balance sheet items of overseas companies and foreign
currency borrowings are translated into sterling at the year
end rates of exchange profit and loss items and the cash
flows of overseas subsidiaries and associated undertakings
are translated at the average rates for the year
forward currency contracts in respect of contracted and
anticipated amounts payable on purchase transactions 
are accounted for as hedges with the hedge transaction
recorded at the rate implicit in the contract changes in 
the fair value of these forward contracts are recognised 
in the profit and loss account on the ultimate sale of the
item purchased
the following are recorded as movements in reserves
exchange differences on the translation at closing rates 
of exchange of overseas opening net assets including
acquisition goodwill the difference on translation of foreign
currency borrowings or swaps that are used to finance or
hedge group equity investments and the differences arising
between the translation of profits at average and closing
rates of exchange all other exchange differences are dealt
with in arriving at profit before taxation
intangible fixed assets
goodwill representing the excess of purchase
consideration over fair value of net assets acquired prior 
to 31 december 1997 was set off against reserves in the
year of acquisition goodwill acquired since 1 january 1998
is capitalised and amortised on a straight line basis over its
estimated useful economic life up to a presumed maximum
of 20 years except for goodwill arising on the formation of
the bsn medical joint venture and acquisition of the group’s
share of the abilityone associated undertaking which is 
not amortised but is subject to an annual impairment review
this treatment which is a departure from the requirement 
of the companies act to amortise goodwill is adopted in
order to show a true and fair view see note 14 and note 15
goodwill previously written off to reserves is included in the
calculation of profits and losses on disposals 
the carrying value of goodwill and acquired intangibles is
reviewed for impairment at the end of the first full financial
year following acquisition and in other periods if significant
events or changes in circumstances indicate the carrying
value may be impaired
purchased patents knowhow trade marks licences 
and distribution rights are capitalised as intangibles and
amortised over a period not exceeding 20 years
the carrying values of intangibles are reviewed for
impairment when events or changes in circumstances
indicate the carrying value may be impaired
research and development
revenue expenditure on research and development 
is written off as incurred
tangible fixed assets 
tangible fixed assets are stated at cost and except for
freehold land are depreciated as wasting assets freehold
and long leasehold buildings are depreciated on a straight
line basis at between 1 and 5 per annum short
leasehold land and buildings leases of under 50 years 
are depreciated by equal annual instalments over the term
of the lease plant and equipment are depreciated over 
lives ranging between 3 and 20 years by equal annual
instalments to write down the assets to their estimated
disposal value at the end of their working lives
leasing commitments
assets held under finance leases are capitalised as tangible
fixed assets and depreciated accordingly the capital
element of future lease payments is included in borrowings
and interest is charged to profit before taxation on a
reducing balance basis over the term of the lease
rentals payable under operating leases are charged to 
the profit and loss account as incurred accounting policies
28 smith  nephew 2002
investments
trade investments are stated at cost less provision for 
any permanent diminution in value
stocks 
finished goods and work in progress are valued at factory
cost including appropriate overheads on a firstin firstout
basis raw materials are valued at purchase price and 
all stocks are reduced to net realisable value where lower
deferred taxation
deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the balance sheet
date where transactions or events have occurred at that
date that will result in an obligation to pay more or a right 
to pay less or to receive more tax 
no provision is made for deferred tax that would arise 
on the remittance of the retained earnings of overseas
subsidiaries associates and joint ventures except to the
extent that at the balance sheet date dividends have 
been accrued as receivable
deferred tax assets are recognised only to the extent that
the directors consider that it is likely that taxable profits will
be available against which future reversals of the underlying
timing differences can be made
deferred tax is measured on an undiscounted basis at the
tax rates that are expected to apply in the periods in which
timing differences are expected to reverse these are based
on tax rates and laws substantively enacted at the balance
sheet date
financial instruments
currency swaps to match foreign currency net assets with
foreign currency liabilities are translated into sterling at year
end exchange rates changes in the principle values of
currency swaps are matched in reserves against changes in
the values of the related assets interest rate swaps to protect
interest costs and income are accounted for as hedges
changes in the values of interest rate swaps are recognised
against interest in the period relating to the hedge 
postretirement benefits
the group’s major pension plans are of the defined benefit
type for these plans costs are charged to operating profit
so as to spread the expense of providing future pensions 
to employees over their working lives with the group 
for defined contribution plans contributions are charged to
operating profit as they become payable where the group
provides healthcare benefits after retirement the expected
cost of these is charged to operating profit over the
employees’ working lives with the group
28 smith  nephew 2002 smith  nephew 2002 29
notes to the accounts
note 1 segmental analysis 
group group group group
group operating operating group operating operating
turnover profit assets turnover profit assets
2002 2002 2002 2001 2001 2001
analysis by activity £ million £ million £ million £ million £ million £ million
orthopaedics 4702 982 3098 4046 879 3046
endoscopy 2918 538 2751 2528 468 1308
advanced wound management 3217 440 2226 2856 361 2231
amortisation of goodwill – 175 – – 104 – 
exceptional items – 299 – – 193 – 
ongoing operations 10837 1486 8075 9430 1411 6585
operations contributed to the joint venture – – – 353 36 –
exceptional items – – – – 18 –
continuing operations 10837 1486 8075 9783 1429 6585
discontinued operations 262 21 – 1034 111 220
11099 1507 8075 10817 1540 6805
following completion of the group’s restructuring the group’s segmental analysis is now based on its three core businesses
and comparatives have been restated accordingly
items between group operating profit of £1507m 2001 – £1540m and profit on ordinary activities before taxation 
of £1779m 2001 – £1936m comprise share of operating profit of the joint venture £170m 2001 – £78m share 
of operating profit of the associated undertaking of £49m 2001 – nil net profit on disposals of businesses of £180m
2001 – £492m and net interest payable of £127m 2001 – £174m which are not allocated segmentally
on 1 april 2001 the group’s casting and bandaging and traditional woundcare businesses were contributed to a joint
venture with beiersdorf ag called bsn medical in return for a 50 equity interest the results of these businesses prior 
to contribution represent operations contributed to the joint venture
discontinued operations comprise the results of the rehabilitation business and in 2001 also include the results of the ear
nose and throat business
operating assets comprise fixed assets stocks and debtors less creditors and provisions other than investment in the
joint venture investment in the associated undertaking net debt taxation and dividends
exceptional costs of £299m 2001 – £193m within ongoing operations can be allocated as follows orthopaedics 
£08m 2001 – £06m endoscopy £76m 2001 – £03m and advanced wound management £215m 2001 – £184m
amortisation of goodwill of £175m 2001 – £104m within ongoing operations arises as follows orthopaedics £47m
2001 – £41m endoscopy £71m 2001 – £10m and advanced wound management £57m 2001 – £53m
analysis by geographic origin
united kingdom 1796 217 1534 1629 196 1346
continental europe 2507 211 706 1996 180 694
america 7307 1291 5245 6731 1142 3980
africa asia and australasia 1443 241 590 1335 190 565
amortisation of goodwill – 175 – – 104 –
exceptional items – 299 – – 193 –
ongoing operations 13053 1486 8075 11691 1411 6585
operations contributed to the joint venture – – – 353 36 –
exceptional items –––– 18 –
continuing operations 13053 1486 8075 12044 1429 6585
discontinued operations 262 21 – 1034 111 220
13315 1507 8075 13078 1540 6805
less intragroup sales 2216 – – 2261 – –
11099 1507 8075 10817 1540 6805
exceptional items of £299m 2001 – £193m were incurred as follows £15m 2001 – £117m in the uk £24m 
2001 – £51m in continental europe £259m 2001 – £15m in america and £01m 2001 – £10m in africa asia and
australasia amortisation of goodwill of £175m 2001 – £104m arises as follows £12m 2001 – £09m in the uk 
£21m 2001 – £21m in continental europe £137m 2001 – £69m in america and £05m 2001 – £05m in africa 
asia and australasia notes to the accounts
30 smith  nephew 2002
note 1 segmental analysis continued
2002 2001
analysis of group turnover by geographic market £ million £ million
europe† 3187 2684
america 6105 5349
africa asia and australasia 1545 1397
ongoing operations 10837 9430
operations contributed to the joint venture – 353
continuing operations 10837 9783
discontinued operations 262 1034
11099 10817
† includes united kingdom sales of £873m 2001 – £775m
note 2 operating profit
continuing discontinued continuing discontinued
operations operations total operations operations total
2002 2002 2002 2001 2001 2001
£ million £ million £ million £ million £ million £ million
turnover 10837 262 11099 9783 1034 10817
cost of sales 3136 163 3299 2949 553 3502
gross profit 7701 99 7800 6834 481 7315
marketing selling and distribution 4085 56 4141 3654 267 3921
administration 1250 21 1271 1143 87 1230
research and development 612 01 613 493 16 509
bsn agency and management fees 206 – 206 200 – 200
amortisation of acquisition goodwill 175 – 175 104 – 104
exceptional items 299 – 299 211 – 211
operating profit 1486 21 1507 1429 111 1540
exceptional items of £299m 2001 – £211m were incurred as follows cost of sales £28m 2001 – £95m marketing
selling and distribution £25m 2001 – £66m administration £226m 2001 – £46m and research and development £20m
2001 – £04m
2002 2001
operating profit is stated after chargingcrediting £ million £ million
depreciation 516 481
lossprofit on sale of fixed assets 27 07
amortisation of other intangibles 51 18
operating lease rentals for land and buildings 110 83
operating lease rentals for other assets 98 97
auditors’ remuneration 09 08
payments made to the group’s auditors for nonaudit services amounted to £12m 2001 – £15m in the uk and 
£19m 2001 – £10m outside the uk of these payments £18m 2001 – £17m relates to taxation services and £13m
2001 – £08m to statutory and other certifications and services of the total payments for nonaudit services £12m 
2001 – £13m relates to capital transactions smith  nephew 2002 31
note 3 exceptional items
operating exceptional items within ongoing operations of £299m 2001 – £193m comprise £175m for the writedown 
of the group’s trade investment in the ordinary stock of advanced tissue sciences inc £84m for the acquisition integration 
of oratec and dermagraft and £40m for further rationalisation consequent on the contribution of businesses to bsn medical
in 2001 the exceptional items in 2001 comprised £29m manufacturing rationalisation £75m rationalisation consequent on
the contribution of businesses to bsn medical and £89m integration costs in connection with the acquisition of the advanced
woundcare business from beiersdorf ag operating exceptional items within operations contributed to the joint venture
represent manufacturing rationalisation costs of operations subsequently contributed to bsn medical 
the group’s share of exceptional items of the joint venture relates to its share of manufacturing rationalisation costs 
a net profit of £172m arises on the disposal of the rehabilitation business in march 2002 for a net cash consideration of
£713m and a 215 equity interest in abilityone corporation abilityone the net profit comprised a gain of £472m less
£300m of acquisition goodwill previously written off to reserves in addition a net gain of £08m arises on adjustments in
respect of previous disposals the net profit on disposal in 2001 related to the sale of the ear nose and throat business
note 4 interest
2002 2001
£ million £ million
interest receivable 66 25
interest payable 
on bank borrowings 162 175
other 06 15
168 190
share of joint venture net interest payable 16 09
share of associated undertaking net interest payable 09 –
net interest payable 127 174
interest payable on currency swaps of £233m 2001 – £222m has been set off against interest receivable
note 5 employees
the average number of employees during the year was 2002 2001
united kingdom 1740 1810
continental europe 1279 1281
america 3291 3310
africa asia and australasia 1196 1525
7506 7926
staff costs during the year amounted to £ million £ million
wages and salaries 2611 2450
social security costs 251 257
pension costs note 30 143 104
3005 2811
of the pension costs £110m 2001 – £78m relates to defined benefit plans and £33m 2001 – £26m relates to defined
contribution plans
note 6 directors’ emoluments
aggregate emoluments of the directors including pension entitlements of £106000 2001 – £81000 were 
£1823000 2001 – £1685000 the emoluments of the highest paid director excluding pension entitlement were
£856000 2001 – £770000 the accrued pension benefit of the highest paid director at the end of the year was 
£153000 2001 – £119000
information concerning individual directors’ emoluments pension entitlements shareholdings and share options 
is shown on pages 18 to 20 notes to the accounts
32 smith  nephew 2002
note 7 taxation
2002 2001
£ million £ million
current taxation 
uk corporation tax at 30 2001 – 30 89 95
uk adjustments in respect of prior years 23 15
66 80
overseas tax 385 514
overseas adjustments in respect of prior years 30 36
355 550
share of joint venture tax charge 45 33
share of associated undertaking tax charge 10 –
total current taxation 476 663
deferred taxation 
origination and reversal of timing differences 146 03
adjustments to estimated amounts arising in prior periods 30 12
share of joint venture deferred taxation 06 08
total deferred taxation 182 23
658 640
the tax charge has been reduced by £127m 2001 – £60m of which £06m 2001 – £14m arises in the joint venture as 
a consequence of the exceptional costs of the writeoff of the advanced tissue sciences inc investment and rationalisation
and acquisition integration costs and increased by £169m 2001 – £177m as a result of the exceptional profit on disposal
leaving the tax charge on profits before exceptional items at £616m 2001 – £523m 
the standard rate of tax for the year is based on the uk standard rate of corporation tax of 30 the current tax charge
differs from the standard rate as follows
2002 2001
 
uk standard rate 300 300
nondeductiblenontaxable items 30 39
prior year items 30 11
overseas income taxed at other than uk standard rate 69 58
fixed asset timing differences 33 02
other timing differences 69 10
total current tax rate 267 342
factors that may affect future tax charges
tax rates on the group’s overseas profits are generally higher than the uk corporation tax rate so changes in the proportion
of profits earned overseas will affect the group’s effective tax rate over time tax rates may also be affected by differences
between tax allowances and book depreciation
no deferred tax is recognised on unremitted earnings of overseas subsidiaries associates and joint ventures however no
significant additional tax charges are expected to arise on amounts that are planned to be remitted in the foreseeable future smith  nephew 2002 33
note 8 dividends
2002 2001
£ million £ million
ordinary interim of 18p 2001 – 175p paid 15 november 2002 167 161
proposed ordinary final of 30p 2001 – 29p payable 16 may 2003 279 268
446 429
nonequity preference dividends amounted to £15000 2001 – £15000 
note 9 results before goodwill amortisation and exceptional items
in order to provide a trend measure of underlying performance profit before taxation is adjusted below to exclude goodwill
amortisation and exceptional items and basic earnings per share has been recalculated as set out in note 10
2002 2001
£ million £ million
profit on ordinary activities before taxation 1779 1936
adjustments
continuing operations – goodwill amortisation 175 104
– exceptional items 299 211
share of joint venture exceptional items 26 50
discontinued operations – net profit on disposals 180 492
profit before taxation goodwill amortisation and exceptional items 2099 1809
taxation on profit before goodwill amortisation and exceptional items 616 523
earnings before goodwill amortisation and exceptional items 1483 1286
note 10 earnings per ordinary share
basic earnings per ordinary share of 1211p 2001 – 1407p are based on profit on ordinary activities after taxation and
preference dividends of £1121m 2001 – £1296m and on 926m ordinary shares being the basic weighted average
number of shares in issue during the year 2001 – 921m the calculation of diluted earnings per ordinary share is based 
on basic earnings and on 933m ordinary shares 2001 – 929m calculated as follows
shares shares
2002 2001
million million
basic weighted average number of shares 926 921
weighted average number of shares under option 19 20
number of shares that would have been issued at fair value 12 12
diluted weighted average number of shares 933 929
diluted earnings per ordinary share 1202p 1395p
the calculation of adjusted basic earnings per ordinary share is as follows
2002 2001
£ million £ million
basic earnings 1121 1296
continuing operations – goodwill amortisation 175 104
– exceptional items 299 211
share of joint venture exceptional items 26 50
discontinued operations – net profit on disposals 180 492
exceptional taxation 42 117
adjusted basic earnings 1483 1286
adjusted basic earnings per ordinary share 1602p 1396p
adjusted diluted basic earnings per ordinary share 1589p 1384p notes to the accounts
34 smith  nephew 2002
note 11 intangible fixed assets
goodwill other total
group £ million £ million £ million
cost
at 1 january 2002 1772 453 2225
exchange adjustment 270 45 315
acquisitions 1677 97 1774
additions – 42 42
discontinued operations – 24 24
at 31 december 2002 3179 523 3702
amortisation
at 1 january 2002 195 152 347
exchange adjustment 16 17 33
charge for the year 175 51 226
discontinued operations – 10 10
at 31 december 2002 354 176 530
net book amounts
at 31 december 2002 2825 347 3172
at 31 december 2001 1577 301 1878
note 12 tangible fixed assets
group group group
land and buildings plant and in course of group
freehold leasehold equipment construction total parent
£ million £ million £ million £ million £ million £ million
cost
at 1 january 2002 621 119 4500 246 5486 220
exchange adjustment 36 02 209 21 268 –
acquisitions – 01 48 04 53 –
additions 01 01 381 427 810 16
disposals 18 02 211 01 232 35
transfers 5323275351––
discontinued operations 13 40 155 01 209 –
at 31 december 2002 608 100 4629 303 5640 201
depreciation
at 1 january 2002 147 43 2846 – 3036 138
exchange adjustment 09 02 133 – 144 –
charge for the year 13 03 500 – 516 15
disposals 17 02 175 – 194 32
transfers 16 05 11 – – –
discontinued operations 02 08 122 – 132 –
at 31 december 2002 116 39 2927 – 3082 121
net book amounts
at 31 december 2002 492 61 1702 303 2558 80
at 31 december 2001 474 76 1654 246 2450 82
group
fixed assets include land with a cost of £47m 2001 – £46m that is not subject to depreciation the net book value of
leases with less than 50 years to run amounted to £61m 2001 – £53m included in tangible fixed assets are assets held
under finance leases with a net book amount of £23m 2001 – £24m there is a property for resale in the group with a 
net book value of £11m 2001 – £13m
parent company
all tangible fixed assets represent plant and equipment smith  nephew 2002 35
note 13 investments
group group parent parent 
own trade group subsidiary own parent
shares investments total undertakings shares total
£ million £ million £ million £ million £ million £ million
at 1 january 2002 25 232 257 4139 25 4164
exchange adjustment – 15 15 – – –
additions 24 13 37 15581 24 15605
disposals – – – 12152 – 12152
impairment – 180 180 – – –
shares vested 17 – 17 – 17 17
at 31 december 2002 32 50 82 7568 32 7600
principal subsidiary undertakings are listed on page 52 trade investments are us dollar denominated they include an
equity investment in advanced tissue sciences inc previously quoted on the nasdaq exchange in the us against which 
a provision has been made taking the book value down to its market value of nil 2001 – book value £186m and market
value £153m following a voluntary petition for reorganisation under chapter 11 of the us bankruptcy code there is no
material difference between the fair value and the carrying value of the other trade investments 
the movements in the parent company’s investments in subsidiary undertakings reflect group restructuring and the 
refinancing of group loans following the oratec acquisition this is also reflected in debtors see note 17 and other
creditors see note 20
own shares represent the holding of the company’s own shares in respect of the smith  nephew employees’ share 
trust see note 32
note 14 investment in joint venture bsn medical
group
£ million
at 1 january 2002 1140
retained profit for the financial year 64
debt repaid by the joint venture 57
exchange adjustment 03
at 31 december 2002 1150
2002 2001
group investment in joint venture is represented by £ million £ million
share of gross assets
fixed 282 279
current 780 760
share of gross liabilities
due within one year 526 570
due after one year 89 86
447 383
goodwill 703 706
loans to joint venture – 51
1150 1140
goodwill arising on the formation of the joint venture is considered to have an indefinite useful economic life and is capable
of separate measurement since the joint venture operates independently of the group it operates in a mature sector of the
medical devices industry has high market shares and long product life cycles significant barriers to entry exist in terms of
technology manufacturing knowhow regulatory compliance market reputation and customer relationships if the goodwill
had been amortised over 20 years operating profit would have been lower by £32m 2001 – £26m and investment in joint
venture would have been lower by £58m 2001 – £26m notes to the accounts
36 smith  nephew 2002
note 15 investment in associated undertaking abilityone
group
£ million
at 1 january 2002 –
initial investment in associated undertaking 75
retained profit for the financial year 30
exchange adjustment 20
at 31 december 2002 85
group investment in associated undertaking of £85m 2001 – nil comprises goodwill of £154m less share of net liabilities
of £69m
goodwill on acquisition of the associated undertaking of £175m comprised the difference between the fair value of the
consideration of £57m given together with transaction costs of £18m and the book value of net liabilities acquired 
of £100m
goodwill in the associate is considered to have an indefinite useful economic life and is capable of separate measurement
since the associated undertaking operates independently of the group it operates in the rehabilitation industry has high
market shares and long product life cycles significant barriers to entry exist in terms of breadth of the product range 
sales force size physical distribution capabilities key customer and professional relationships and market reputation if the
goodwill had been amortised over 20 years operating profit and investment in associated undertaking each would have
been lower by £06m
note 16 stocks
group group
2002 2001
£ million £ million
raw materials and consumables 420 476
work in progress 129 122
finished goods and goods for resale 1746 1724
2295 2322
note 17 debtors
group group parent parent
2002 2001 2002 2001
£ million £ million £ million £ million
amounts falling due within one year
trade and other debtors 2226 2244 19 20
amounts owed by subsidiary undertakings note 13 – – 14185 4610
amounts owed by joint venture 23 74 05 07
amounts owed by associated undertaking 05–––
prepayments and accrued income 224 201 28 23
debit balances on currency swaps 85 28 84 28
2563 2547 14321 4688
amounts falling due after more than one year
pension prepayments note 30 53 56 – –
other debtors 23 22 – –
deferred taxation 40 35 – –
debit balances on currency swaps 128 08 126 08
2807 2668 14447 4696
in previous years debit balances on currency swaps were reported within cash the prior year comparative has been
reclassified deferred tax assets of £40m 2001 – £35m represent short term timing differences and are considered 
to be recoverable 
other debtors falling due after more than one year are non interest bearing and denominated in various currencies 
the fair value of these debtors is the same as the book value smith  nephew 2002 37
note 18 borrowings
group group parent parent
2002 2001 2002 2001
net debt £ million £ million £ million £ million
borrowings
due within one year 1519 940 1272 629
due after one year 1642 1612 1623 1546
3161 2552 2895 2175
cash and bank 225 264 91 148
debit balances on currency swaps 213 36 210 36
credit balances on currency swaps 46 183 46 166
2769 2435 2640 2157
borrowings
bank loans and overdrafts 3151 2538 2895 2173
other loans wholly repayable within five years 10 14 – 02
3161 2552 2895 2175
in previous years debit balances on currency swaps were reported within cash and credit balances within borrowings 
the prior year comparatives have been reclassified 
bank loans and overdrafts represent drawings under committed and uncommitted facilities of £493m and £255m
respectively of the undrawn committed facilities of £199m £3m expire within one year and £196m after more than two
years 2001 undrawn committed facilities – £99m of which £2m expire within one year and £97m after more than two
years borrowings secured on fixed and current assets were £09m 2001 – £11m cash balances on currency swaps
and borrowings are shown at book value which is the same as fair value the group’s liquidity risk management policy 
is set out on page 13
the group and parent company have currency swaps which are retranslated at year end exchange rates and have maturities
ranging from 2003 to 2006 for the group gross sterling equivalents of £5799m 2001 – £4830m receivable and £5632m
2001 – £4977m payable have been netted the net debit balance of £167m 2001 – net credit balance of £147m is
included as £213m in debit balances on currency swaps and as £46m in credit balances on currency swaps 2001 – £36m
in debit balances on currency swaps and £183m in credit balances on currency swaps for the parent company gross
sterling equivalents of £5644m 2001 – £4622m receivable and £5480m 2001 – £4752m payable have been netted 
the net debit balance of £164m 2001 – net credit balance £130m is included as £210m in debit balances on currency
swaps and as £46m in credit balances on currency swaps 2001 – £36m in debit balances on currency swaps and £166m
in credit balances on currency swaps balances on currency swaps are floating interest rate contracts and forward foreign
exchange contracts and are used for hedging foreign investments
group group parent parent
2002 2001 2002 2001
borrowings are repayable as follows £ million £ million £ million £ million
within one year
bank loans and overdrafts 1515 935 1272 627
other loans 04 05 – 02
total within one year 1519 940 1272 629
bank loans and overdrafts
after one year and within two years 572 670 559 618
after two years and within five years 1064 933 1064 928
1636 1603 1623 1546
other loans
after one year and within two years 03 03 – –
after two years and within five years 03 06 – –
06 09 – –
total after one year 1642 1612 1623 1546
3161 2552 2895 2175
in addition to the above borrowings other financial liabilities are £03m being 5
1
⁄ 2 undated cumulative preference shares 
as set out in note 22 notes to the accounts
38 smith  nephew 2002
note 19 financial instruments
the group’s treasury policies are set out in the financial review on page 13 and explain the use of currency and interest 
rate swap contracts disclosure of the group’s borrowings the maturity profile of these borrowings and details of borrowing
facilities are set out in note 18 short term debtors and creditors are excluded from the following disclosures
currency and interest rate profile of interest bearing liabilities
fixed rate liabilities
weighted weighted
average average
currency total floating rate fixed rate interest time for which
borrowings swaps liabilities liabilities liabilities rate rate is fixed
at 31 december 2002 £ million £ million £ million £ million £ million  years
us dollar 2638 3931 6569 935 5634 37 1
euro 48 1323 1371 374 997 37 1
other 475 378 853 853–––
total interest bearing liabilities 3161 5632 8793 2162 6631
at 31 december 2001
us dollar 1883 3616 5499 674 4825 46 1
euro 22 1111 1133 99 1034 40 2
other 647 250 897 808 89 18 1
total interest bearing liabilities 2552 4977 7529 1581 5948
in addition to the above the group has a liability due after one year for deferred acquisition consideration denominated 
in euros totalling £50m 2001 – £65m on which no interest is paid see note 20
currency and interest rate profile of interest bearing assets
fixed rate assets
weighted weighted
average average
cash and currency total floating rate fixed rate interest time for which
bank swaps assets assets assets rate rate is fixed
at 31 december 2002 £ million £ million £ million £ million £ million  years
sterling 09 5799 5808 778 5030 51 1
other 216 – 216 216–––
total interest bearing assets 225 5799 6024 994 5030
at 31 december 2001
sterling 21 4830 4851 891 3960 55 1
other 243 – 243 243–––
total interest bearing assets 264 4830 5094 1134 3960
the above interest rate analysis includes the effect of interest rate swaps
floating rates on both assets and liabilities are typically based on the three month libor interest rate relevant to the
currency concerned smith  nephew 2002 39
note 19 financial instruments continued
foreign exchange and interest rate exposures
as explained in the financial review on page 13 forward foreign exchange contracts are used to hedge trading payables
and an element of anticipated purchases over the following 12 months the group’s operating units hold no material
unhedged monetary assets or liabilities other than in their functional operating currency there are therefore no currency
exposures on monetary assets and liabilities that could give rise to material gains or losses in the profit and loss account
the group also hedges forward its interest rate risk for up to two years using interest rate swap contracts 
fair value of financial assets and liabilities
forward foreign exchange contracts and interest rate swap contracts taken out as hedges are not marked to market
gains and losses thereon are recognised only when the exposure that is being hedged is itself recognised the following
table sets out the book and fair values of the group’s derivative financial instruments market rates have been used to
determine the fair values of interest rate swaps currency swaps and forward contracts
31 december 2002 31 december 2001
derivative financial instruments held to book value fair value book value fair value
manage interest rate and currency risk £ million £ million £ million £ million
net interest rate swaps – 88 – 67
net forward contracts – 58 – 21
unrecognised gains and losses on hedges – 146 – 46
net currency swaps 167 167 147 147
the group’s primary financial instruments are set out in note 18 the fair value of these instruments is the same as book
value
the following table shows the amount of unrealised gains and losses which have been included in the profit and loss
account for the year and those gains and losses which are expected to be included in next year’s or later profit and loss
accounts
total net
unrecognised unrecognised unrecognised
gains losses gainslosses
£ million £ million £ million
unrecognised gains and losses on hedges at 31 december 2000 36 18 18
less gains and losses arising in previous years that were recognised in 2001 28 17 11
gains and losses arising before 31 december 2000 that were not recognised in 2001 08 01 07
gains and losses arising in 2001 that were not recognised in 2001 81 134 53
unrecognised gains and losses on hedges at 31 december 2001 89 135 46
less gains and losses arising in previous years that were recognised in 2002 82 132 50
gains and losses arising before 31 december 2001 that were not recognised in 2002 07 03 04
gains and losses arising in 2002 that were not recognised in 2002 79 229 150
unrecognised gains and losses on hedges at 31 december 2002 86 232 146
of which
gains and losses expected to be recognised in 2003 81 221 140
gains and losses expected to be recognised in 2004 or later 05 11 06 notes to the accounts
40 smith  nephew 2002
note 20 other creditors
group group parent parent
2002 2001 2002 2001
amounts falling due within one year £ million £ million £ million £ million
trade creditors 1414 1451 33 45
amounts owed to subsidiary undertakings note 13 – – 14679 1818
amounts owed to joint venture 42 39 – –
social security costs and other taxes 111 117 – –
accruals and deferred income 540 476 141 109
acquisition consideration 108 152 – –
current taxation 569 677 180 162
ordinary share dividends 279 268 279 268
credit balances on currency swaps 33 165 33 160
3096 3345 15345 2562
amounts falling due after one year
acquisition consideration 50 65 – –
credit balances on currency swaps 13 18 13 06
63 83 13 06
in previous years credit balances on currency swaps were reported within borrowings the prior year comparative has 
been restated 
group amounts falling due after more than one year are payable as follows £28m in 2004 £17m in 2005 and £18m 
in 2006 2001 – £24m in 2003 £20m in 2004 £21m in 2005 and £18m in 2006 parent amounts falling due after 
one year are payable in 2004 2001 – payable in 2003 
note 21 provisions for liabilities and charges
deferred rationalisation retirement
taxation and integration healthcare other total
group £ million £ million £ million £ million £ million
at 1 january 2002 554 213 92 94 953
exchange adjustments 23 03 05 05 36
profit and loss account – current year 146 134 08 22 310
profit and loss account – prior year 30––– 30
acquisitions 152 – – 39 113
movement in deferred tax asset 05––– 05
utilisation – 228 01 39 268
at 31 december 2002 560 116 94 111 881
at 31 december 2002 rationalisation and integration provisions included acquisition integration of £39m 2001 – £54m
the deferred taxation and retirement healthcare provisions are longterm in nature as is the timing of their utilisation
rationalisation and integration and other provisions are expected to be utilised within two years there are no provisions 
for contractual amounts and hence none are treated as financial instruments
the movement in provisions for liabilities and charges within the parent company during the year from £61m to £26m
represents utilisation of provisions and changes in deferred taxation
the provision for deferred taxation consists of the following amounts
group group parent parent
2002 2001 2002 2001
£ million £ million £ million £ million
goodwill timing differences 458 487 – –
other fixed asset timing differences 348 279 14 14
other timing differences 246 212 05 –
560 554 09 14
see note 7 for information on deferred tax assets and liabilities for which no provision has been made smith  nephew 2002 41
note 22 called up share capital
shares shares
2002 2002 2001 2001
authorised ’000 £ million ’000 £ million
ordinary shares 12
2
⁄ 9p 1223591149512235911495
5
1
⁄ 2 cumulative preference shares £1 450 05 450 05
1500 1500
allotted issued and fully paid shares
equity capital ordinary shares 12
2
⁄ 9p ’000 £ million
at 1 january 2002 924812 1131
share options 3948 04
at 31 december 2002 928760 1135
nonequity capital 5
1
⁄ 2 cumulative preference shares £1
at 1 january 2002 and 31 december 2002 269 03
total called up share capital at 31 december 2002 1138
the 5
1
⁄ 2 cumulative preference shares are denominated in sterling and the fair value is not materially different from 
the book value they are nonvoting and carry preferential rights to dividend and distribution on winding up
note 23 share option schemes
at 31 december 2002 19819000 2001 – 19235000 of the authorised but unissued ordinary shares of 12
2
⁄ 9p were
reserved in respect of the following options
exercise shares
exercisable prices per the subject
in stages share range of options
between between ’000
employee share option schemes 2003 – 2008 1240p3727p 4246
executive share option schemes 2003 – 2011 1430p4095p 15573
19819
as the employee scheme is an inland revenue approved save as you earn scheme the company is exempt from
accounting for the difference between the share option price and the market value at the grant date
in 2001 the company established a qualifying employee share ownership trust quest to acquire smith  nephew plc
ordinary shares for transfer to employees exercising options under the smith  nephew employee share option scheme 
the trustee of the quest is smith  nephew employees trustees limited a whollyowned subsidiary of the company
during the year the quest subscribed for 950317 2001 – 837129 shares at a cost of £23m 2001 – £21m and
transferred a total of 950317 2001 – 837129 shares to employees on the exercise of options for a consideration of 
£14m 2001 – £12m all employees of uk group subsidiary companies including executive directors of the company 
are potential beneficiaries under the quest  notes to the accounts
42 smith  nephew 2002
note 24 reserves
share profit and
premium loss account
group £ million £ million
at 1 january 2002 1358 1554
translation differences on foreign currency net investments – 91
retained profit for the year – 675
movements relating to the quest note 23 – 23
goodwill on disposals – 300
share options 80 –
at 31 december 2002 1438 2597
net exchange gains of £682m 2001 – losses of £58m arising on foreign currency net borrowings are included within 
the £91m 2001 – negative £88m translational differences on foreign currency net investments
the cumulative amount of goodwill charged to reserves is £2923m 2001 – £3295m against which £1160m of merger
relief has been offset the decrease is due to goodwill written back on the disposal of the rehabilitation business of £300m
and exchange movements of £72m
share profit and
premium loss account
parent company £ million £ million
at 1 january 2002 1358 1794
retained loss for the year – 408
movements relating to the quest note 23 – 23
share options 80 –
at 31 december 2002 1438 1363
in accordance with the exemption permitted by section 2303 of the companies act 1985 the parent company has not
presented its own profit and loss account the attributable profit for the year dealt with in the accounts of the parent
company is £38m 2001 – £878m smith  nephew 2002 43
note 25 cash flow statement
2002 2001
reconciliation of operating profit to net cash flow from operating activities £ million £ million
operating profit 1507 1540
depreciation and amortisation 742 603
lossprofit on sale of tangible fixed assets 27 07
writeoff of advanced tissue sciences inc investment 175 –
increase in stocks 115 400
increase in debtors 211 179
decreaseincrease in creditors and provisions 32 362
net cash inflow from operating activities 2093 1919
opening exchange closing
net debt cash flow adjustments net debt
analysis of net debt £ million £ million £ million £ million
cash 264 40 01 225
overdrafts 37 89 03 123
227 129 04 102
borrowings due within one year 903 706 213 1396
borrowings due after one year 1612 181 151 1642
2288 1016 368 2936
net currency swaps 147 – 314 167
2435 1016 682 2769
reconciliation of net cash flow to movement in net debt
2002 2001
for the year ended 31 december 2002 £ million £ million
change in cash in the year 129 74
change in net currency swaps – 140
change in borrowings 887 228
change in net debt from cash flows 1016 14
exchange adjustments 682 58
change in net debt in the year 334 72
opening net debt 2435 2363
closing net debt 2769 2435
disposals
the net assets of the rehabilitation business disposed of comprised fixed assets £91m stocks £101m debtors £130m
and creditors £91m
note 26 currency translation
the exchange rates used for the translation of currencies that have the most significant impact on the group results were
average average year year
rate rate end rate end rate
2002 2001 2002 2001
us dollar 151 144 161 146
euro 159 161 153 164 notes to the accounts
44 smith  nephew 2002
note 27 acquisitions
on 28 march 2002 the group acquired oratec interventions inc at a net cost of £1912m in cash its assets are
included in the group’s balance sheet at fair value at the date of acquisition as follows
net fair value fair value
book value adjustments to group
net assets at date of acquisition £ million £ million £ million
fixed assets 65 18 47
intangibles 24 – 24
stock 45 03 48
debtors 61 02 59
creditors due within one year 42 06 36
provisions 39 – 39
deferred taxation –152 152
net assets 114 141 255
goodwill arising on acquisition 1657
1912
discharged by
cash consideration 2225
cash acquired in oratec 391
costs associated with acquisition 78
1912
the fair value adjustments reflect the adoption of group accounting policies and deferred taxation arising due to trading
losses in the acquired entity which are available for offset
in 2001 oratec earned a profit after tax of £06m for the period 1 january 2002 to 28 march 2002 which was the
effective date of acquisition turnover was £79m and the loss after tax of £05m comprised £08m of operating loss and
£03m of interest received there were no other recognised gains and losses in the three months ended 28 march 2002
since acquisition oratec has contributed £216m to the group’s turnover £38m to profit before goodwill amortisation 
and exceptional items and incurred a net operating cash outflow of £61m including capital expenditure of £07m
the impact of other acquisitions including deferred consideration in respect of prior years acquisitions was
£ million
tangible fixed assets 06
intangible assets 73
current assets 37
current liabilities 38
78
goodwill 20
consideration 98
associated undertaking formation costs 18
deferred consideration in respect of previous acquisitions paid in the year 55
total consideration 171
£20m consideration is accrued and payable in cash in 2003 there was no material difference between the fair value and
book value of net assets acquired smith  nephew 2002 45
note 28 financial commitments
group capital expenditure contracted but not provided for amounted to £43m 2001 – £45m 
following the acquisition of advanced tissue sciences inc’s 50 share in the dermagraft joint arrangement all obligations
to make contingent milestone payments ceased 2001 – £34m payable
under the group’s acquisition and joint development agreements with nucryst pharmaceuticals corp amounts of up to
£47m 2001 – £72m could become payable on achievement of certain milestones related to regulatory and reimbursement
approvals with a further £280m 2001 – £309m contingent on achievement of sales milestones
at 31 december 2002 the group was committed to making the following payments during 2003
land and land and other other
buildings buildings assets assets
2002 2001 2002 2001
operating leases which expire £ million £ million £ million £ million
within one year 16 18 18 19
after one year and within five years 36 19 72 65
after five years 36 33 – –
88 70 90 84
note 29 contingent liabilities
group group parent parent
2002 2001 2002 2001
£ million £ million £ million £ million
guarantees in respect of subsidiary undertakings – – 308 378
other – 23 – 23
– 23 308 401
the group is party to legal proceedings in the normal course of business which it is considered will not result in any material
adverse effect notes to the accounts
46 smith  nephew 2002
note 30 postretirement benefits
the group sponsors pension plans for its employees in most of the countries in which it has major operating companies
the plans are funded by the payment of contributions to separately administered trust funds or insurance companies
pension plans are established under the laws of the relevant territory with their assets held in separate trust funds or by
insurance companies in those countries where there is no companysponsored pension plan state benefits are considered
adequate employees’ retirement benefits are the subject of regular management review
for many years the group’s major pension plans in the uk and us have been of the defined benefit type however from
2003 all new employees will be provided with a defined contribution pension plan existing employees will be given the
opportunity to choose whether to remain in their existing plan or change to the new arrangements under the projected 
unit method the current service cost will increase as the members of the defined benefit plans approach retirement
the pension cost for the group’s major defined benefit plans in the uk and us has been determined by independent qualified
actuaries using the projected unit method to give a substantially level percentage cost on the current and expected future
pensionable payroll the deficit of plan assets to plan liabilities is amortised using the percentage of payroll method over the
weighted average of expected pensionable payroll and remaining service lives of current employees in the plan the actuarial
assumptions are as follows
uk us 
 per  per
annum annum
increase in pensionable earnings 46 50
increase in pensions 26 nil
inflation 26 30
net return on investments 70 80
average remaining service lives 10 years 13 years
at the dates of the most recent actuarial valuations in september and december 2001 the aggregate market value of the
assets of the group’s main defined benefit plans in the uk and us was £268m 2001 – £283m valuations in september
2000 and january 2001 representing 93 of plan liabilities for accrued benefits including allowance for projected future
increases in salaries resulting in a net deficit of £198m 2001 – 104 and a net surplus of £100m the estimated deficit
of these plans as at 31 december 2002 was £80m
the unamortised balance of the plan deficits was £227m 2001 – surplus £89m
the contributions made in the uk and us in the accounting period were £26m 2001 – £22m and £52m 2001 – £65m
respectively the contribution rates for 2003 are expected to be 11 of pensionable earnings plus a supplementary
payment of £4m in the uk and 4 of pensionable earnings plus a supplementary payment of £5m in the us
included in debtors due after more than one year is a prepayment of £53m 2001 – £56m and included in creditors 
is an accrual of £64m 2001 – £73m relating to the funding of certain group pension plans 
the group recharges the uk pension plan with the costs of administration and independent advisers the amount
recharged in the year to 31 december 2002 was £04m 2001 – £07m the amount receivable at 31 december 2002 
was £01m 2001 – £06m
the cost of providing healthcare benefits after retirement of £08m 2001 – £01m is determined by independent qualified
actuaries the unfunded liability of £94m 2001 – £92m in respect of the accrued healthcare benefits is included in
provisions the principal actuarial assumptions in determining the cost of providing healthcare benefits are those in the 
uk and the us
uk us
 per  per 
annum annum
interest rate 56 70
medical cost inflation 66 80 smith  nephew 2002 47 smith  nephew 2002 47
note 31 postretirement benefits frs 17
the disclosures below show the effect on the group’s financial statements had frs 17 been adopted and relate to 
the major defined benefit retirement plans in the uk and the us other plans are not material
the principal assumptions used by the independent qualified actuaries in valuing the uk and us plans at 31 december
for frs 17 purposes were
2002 2001
uk us uk us
 per  per  per  per 
annum annum annum annum
increase in pensionable earnings 43 50 40 50
increase in pensions 23 nil 25 nil
inflation 23302530
discount rate 56 70 60 71
the assets and liabilities in the plans and the expected rates of return on investments were
uk plan us plan
rate of value rate of value
at 31 december 2002 return  £ million return  £ million
equities 78 1143 87 344
government bonds 45 340 58 80
corporate bonds 56 – 70 70
property 62 96 – –
other 50 70 42 11
market value of assets 1649 505
present value of liabilities 2214 1052
deficit 565 547
postretirement healthcare 33 70
598 617
related deferred tax asset 179 234
net retirement benefit liability 419 383
uk plan us plan
rate of value rate of value
at 31 december 2001 return  £ million return  £ million
equities 90 1491 100 428
government bonds 49 360 55 84
corporate bonds 60 – 71 68
property 69 94 – –
other 58 66 25 48
market value of assets 2011 628
present value of liabilities 1902 1038
surplusdeficit 109 410
postretirement healthcare 31 74
78 484
related deferred tax liabilityasset 23 184
net retirement benefit assetliability 55 300 notes to the accounts
48 smith  nephew 2002
note 31 postretirement benefits frs 17 continued
the group’s shareholders’ funds and profit and loss account at 31 december would have been as follows
2002 2001
profit profit 
shareholders’ and loss shareholders’ and loss
funds account funds account 
£ million £ million £ million £ million
as reported 5173 2597 4046 1554
provided under ssap 24 78 78 81 81
less related deferred tax 30 30 32 32
5221 2645 4095 1603
frs 17 net retirement liability above 802 802 245 245
as adjusted for frs 17 4419 1843 3850 1358
the following amounts would have been charged to operating profit in 2002
uk plan us plan total
£ million £ million £ million
current service cost – employers portion 59 52 111
past service cost 01 – 01
total operating charge 60 52 112
the following amounts would have been chargedcredited to other finance costs in 2002
uk plan us plan total
£ million £ million £ million
interest cost 114 71 185
expected return on assets in the plan 162 53 215
net creditcost 48 18 30
the net amounts that would have been charged under frs 17 of £82m compares with the cost under ssap 24 of £78m
the following amounts would have been included in the statement of total recognised gains and losses in 2002
uk plan us plan
difference between expected and actual return on assets
amount £m 479 139
percentage of plan assets 290 275
experience gains and losses arising on the plan liabilities
amount £m 25 11
percentage of plan liabilities 11 10
effects of changes in demographic and financial assumptions 
underlying the present value of the plan liabilities
amount £m 186 19
actuarial loss recognised in the statement of total recognised gains and losses 
amount £m 690 169
percentage of plan liabilities 312 161 smith  nephew 2002 49
note 31 postretirement benefits frs 17 continued
the following table reconciles the movement in the plan surplusdeficit during 2002
uk plan us plan
£ million £ million
surplusdeficit in the plan at 1 january 2002 109 410
movement in the year
current service cost – total 86 52
past service cost 01 –
other finance incomecost 48 18
actuarial loss 690 169
contributions paid including by employees 55 52
currency adjustment – 50
deficit in the plan at 31 december 2002 565 547
the cost of providing healthcare benefits after retirement of £08m is determined by independent actuaries and would be
charged to operating profit in 2002 the principal actuarial assumptions in determining the cost of providing healthcare
benefits are those in the uk and the us
2002 2001
uk us uk us
 per  per  per  per 
annum annum annum annum
interest rate 56 70 60 71
medical cost inflation 66 80 70 90
note 32 smith  nephew employees’ share trust
2002 2001 
£ million £ million
at 1 january 2002 25 29
shares acquired 24 12
shares vested 17 16
at 31 december 2002 32 25
the smith  nephew employees’ share trust the “trust” was established to hold shares relating to the longterm incentive
plan referenced in the remuneration report the trust is administered by an independent professional trust company
resident in jersey and is funded by a loan from the parent company the costs of the trust are charged to the profit and
loss account as they accrue a dividend waiver is in place in respect of those shares held under the longterm incentive 
plan that are yet to vest the waiver represents less than 1 of the total dividends paid
at 31 december 2002 the trust held 15m 2001 – 11m ordinary shares of the company at an aggregate cost of £52m
2001 – £35m 09m shares at an aggregate cost of £32m are included within fixed asset investments on the group 
and parent balance sheets the market value of these shares at 31 december 2002 was £34m 2001 – £33m 06m
2001 – 03m shares with an original cost of £20m 2001 – £10m have vested and are held under option for the benefit
of directors and employees
note 33 related party transactions with joint venture and associated undertaking
in the course of normal operations the group traded on an arm’slength basis with its joint venture bsn medical and
associated undertaking abilityone the aggregated transactions which have not been disclosed elsewhere in the accounts
are summarised below
with with with with 
bsn medical bsn medical abilityone abilityone
2002 2001 2002 2001
£ million £ million £ million £ million
sales to the joint ventureassociate 69 65 04 –
lossprofit made on sales 03 04 01 –
agency fees received 190 192 – –
management charges received 16 08 – –
purchases from the joint ventureassociate 132 112 53 –
profit made by the joint venture on purchases 01 05 – –
interest payable to the joint venture – 07 – –
interest receivable from the joint venture 04 17 – – 50 smith  nephew 2002
group five year 
summary
2002 2001 2000 1999 1998
profit and loss account £ million £ million £ million £ million £ million
turnover
continuing operations 10837 9783 9115 7999 7136
discontinued operations 262 1034 2232 3200 3398
group turnover 11099 10817 11347 11199 10534
share of joint venture 1550 1236–––
12649 12053 11347 11199 10534
operating profit
continuing operations
before goodwill amortisation and exceptional items 1960 1744 1569 1227 1065
goodwill amortisation 175 104 69 18 03
exceptional items 299 211 124 401 159
discontinued operations
before exceptional items 21 111 290 466 479
exceptional items – – 39 116 20
1507 1540 1627 1158 1362
share of operating profit of the joint venture
before exceptional items 196 128–––
exceptional items 26 50 – – –
1677 1618 1627 1158 1362
share of operating profit of the associated undertaking 49––––
1726 1618 1627 1158 1362
profit on disposals 180 492 1095 629 –
profit before interest 1906 2110 2722 1787 1362
interest payablereceivable 127 174 70 34 17
profit before taxation 1779 1936 2652 1821 1345
taxation 658 640 577 773 408
profit after taxation 1121 1296 2075 1048 937
ordinary dividends 446 429 413 725 692
special dividend – – 4156 – –
retained profitdeficit 675 867 2494 323 245
basic earnings per ordinary share 1211p 1407p 2007p 939p 842p
diluted earnings per ordinary share 1202p 1395p 1995p 937p 840p
dividends per ordinary share 480p 465p 450p 650p 620p
results before goodwill amortisation and exceptional items
profit before taxation 2099 1809 1789 1727 1527
adjusted earnings per ordinary share 1602p 1396p 1219p 1088p 961p
adjusted diluted earnings per ordinary share 1589p 1384p 1212p 1085p 960p
operating profit before goodwill amortisation and 178 171 164 151 147
exceptional items to group sales
research and development costs to group sales 55 47 40 40 41
capital investment including intangibles to group sales 77 69 56 58 66
1999 and 1998 have not been restated for frs 19 smith  nephew 2002 51
2002 2001 2000 1999 1998
balance sheet £ million £ million £ million £ million £ million
fixed assets 7047 5725 4289 3611 3344
net current assets 712 969 1298 2488 1953
creditors falling due after more than one year 1705 1695 1872 202 128
provisions 881 953 1035 380 314
capital employed 5173 4046 2680 5517 4855
called up share capital 1138 1134 1127 1121 1117
reserves 4035 2912 1553 4396 3738
capital and reserves 5173 4046 2680 5517 4855
operating profit before goodwill amortisation and
exceptional items to average capital employed 29 34 36 32 30
cash flow 
cash inflow from operating activities 2093 1919 2040 1981 1619
capital expenditure and financial investment 861 726 667 651 619
1232 1193 1373 1330 1000
interest taxation and dividends 1021 1347 5294 1270 913
acquisitions and disposals 1288 50 1587 709 164
issues of share capital 61 90 77 44 30
net cash flow 1016 14 2257 813 47
exchange adjustments 682 58 329 95 18
opening net debt 2435 2363 223 495 466
closing net debt 2769 2435 2363 223 495
gearing 54 60 88 nil 10
1999 and 1998 have not been restated for frs 19 52 smith  nephew 2002
principal subsidiary undertakings
the information provided below is given for principal subsidiary undertakings in accordance with section 2315a of the
companies act 1985 a full list will be appended to the company’s next annual return
country of operation
activity and incorporation  owned
united kingdom
smith  nephew healthcare limited medical devices united kingdom 100
smith  nephew medical limited medical devices united kingdom 100
tj smith  nephew limited medical devices united kingdom 100
continental europe
smith  nephew gmbh medical devices austria 100 
smith  nephew sanv medical devices belgium 100
smith  nephew as medical devices denmark 100
smith  nephew oy medical devices finland 100
smith  nephew sa medical devices france 100
smith  nephew gmbh medical devices germany 100
smith  nephew limited medical devices ireland 100
smith  nephew srl medical devices italy 100
smith  nephew bv medical devices netherlands 100
smith  nephew as medical devices norway 100
smith  nephew lda medical devices portugal 100
smith  nephew sa medical devices spain 100
smith  nephew ab medical devices sweden 100
smith  nephew ag medical devices switzerland 100
america
smith  nephew inc medical devices canada 100
smith  nephew sa de cv medical devices mexico 100
smith  nephew inc medical devices puerto rico 100
smith  nephew inc medical devices united states 100
africa asia and australasia
smith  nephew pty limited medical devices australia 100
smith  nephew limited medical devices hong kong 100
smith  nephew healthcare limited medical devices india 100
smith  nephew kk medical devices japan 100
smith  nephew limited medical devices korea 100
smith  nephew healthcare sdn berhad medical devices malaysia 100
smith  nephew limited medical devices new zealand 100
smith  nephew pte limited medical devices singapore 100
smith  nephew limited medical devices south africa 100
smith  nephew limited medical devices thailand 100
smith  nephew fze medical devices united arab emirates 100
owned indirectly by the parent company
principal associated undertakings joint ventures and other arrangements
the group owns 50 of bsn medical gmbh  co kg a medical devices company incorporated in germany which 
has been included in the consolidated accounts as a joint venture
the group owns 215 of abilityone corporation a supplier of rehabilitation products to hospitals nursing homes 
and clinics incorporated in the united states which has been included in the consolidated accounts as an associated
undertaking
in 2001 the group had interests in two joint arrangements with advanced tissue sciences inc one relating to products 
for the treatment of diabetic foot ulcers and other wound indications and the other for cartilage replacement during the
year the group acquired the interests it did not already own in the joint arrangements from advanced tissue sciences inc
subsidiary and associated
undertakings financial calendar
annual general meeting 29 april 2003
payment of 2002 final dividend 16 may 2003
interim results announced 31 july 2003
payment of 2003 interim dividend 14 november 2003
full year results announced early february 2004
annual report posted early march 2004
annual general meeting 5 may 2004
final dividend
the ordinary shares will trade exdividend on both the
london and new york stock exchanges from 16 april 2003
and the record date will be 22 april 2003 in respect of this
year’s proposed final dividend to be paid on 16 may 2003
ordinary shares
payment of cash dividends shareholders who wish their
dividends to be paid directly to a bank or building society
and who have not already completed a bacs mandate
should contact the company’s registrars
dividend reinvestment plan the company has a dividend
reinvestment plan that offers shareholders the opportunity
to invest their cash dividends in smith  nephew shares
which are purchased in the market at competitive dealing
costs application forms for reinvesting the 2002 final
dividend are available from lloyds tsb registrars who
administer the plan on behalf of the company applications
for reinvestment should be returned to the company’s
registrars by 29 april 2003
uk capital gains tax for the purposes of capital gains tax
the price of ordinary shares on 31 march 1982 was 3504p
smith  nephew share price the company’s share price is
quoted daily in national newspapers as well as on ceefax
and teletext and at wwwlondonstockexchangecom where
it is updated at intervals throughout the day the financial
times cityline service telephone 0906 0034043 provides
an up to the minute share price a fee is charged for this
service
lowcost dealing service a postal and telephone facility 
that provides a simple lowcost method of buying and
selling smith  nephew shares is available through hoare
govett limited for information contact hoare govett 
ltd 250 bishopsgate london ec2m 4aa telephone 
020 7678 8300
smith  nephew corporate isa the company has a
corporate individual savings account isa administered by
lloyds tsb registrars for information about this service
please contact their helpline on telephone 0870 2424 244
shareview to view information about your shareholdings 
on the internet register at wwwshareviewcom the lloyds
tsb enquiry and portfolio management service for
shareholders when you have registered for shareview you
will also be able to register your proxy instructions online
and elect to receive future shareholder communications 
via our website wwwsmithnephewcom
shareholder enquiries for information about the agm
shareholdings dividends and changes to personal details 
all shareholders should contact lloyds tsb registrars 
the causeway worthing west sussex bn99 6ds
telephone 0870 600 3996
american depositary receipts adrs
in the us the company’s ordinary shares are traded in the
form of american depositary shares evidenced by adrs
and trade under the symbol snn each american depositary
share represents ten ordinary shares bank of new york 
is the authorised depositary bank for the company’s adr
programme a global buydirect plan is available for 
us residents enabling investment directly in adrs with
reduced brokerage commissions and service costs for
further information on global buydirect contact bank 
of new york on 1888bnyads tollfree or visit
wwwadrbnycom
smith  nephew adr price the company’s adr price is
quoted daily in the wall street journal and can be obtained
from the official new york stock exchange website
wwwnysecom
adr enquiries all enquiries regarding adr holder accounts
and payment of dividends should be addressed to bank 
of new york 620 avenue of the americas new york 
new york 10011
annual general meeting
the company’s 66th annual general meeting is to be held
on 29 april 2003 at 1030 am at the institute of mechanical
engineers one birdcage walk london sw1h 9jj notice
of the meeting is enclosed with an accompanying letter
from the chairman
registered office
smith  nephew plc 15 adam street 
london wc2n 6la
registered in england no 324357
advisers
solicitors ashurst morris crisp
pinsent curtis biddle
auditors ernst  young llp
stockbrokers cazenove  co
dresdner kleinwort wasserstein
trademarks
the product names referred to in this document are
trademarks owned by or licensed to members of the 
smith  nephew group
information for
shareholders
designed and produced by fitchlondon 
printed by ctd capita board photography by sven seiffert you are here 
annual report and accounts
contents
financial highlights
chairman’s statement
chief executive’s statement
board  group executive committee 
financial review
corporate social responsibility
corporate governance
remuneration report
directors’ responsibilities
auditors’ report
group proﬁt and loss account
group balance sheet
group cash ﬂow statement
statement of total recognised 
gains and losses
movement in shareholders’ funds
parent company balance sheet
accounting policies
notes to the accounts
group ﬁve year summary
subsidiary and associated 
undertakings
information for shareholders
you have access to more information 
from the following sources
smith  nephew plc
15 adam street
london wc2n 6la
wwwsmithnephewcom
boardgroup executive committee biographies
for further biographies visit 
wwwsmithnephewcomaboutpersonnelhtml
presentations
for presentations to analysts 
and shareholders visit 
wwwsmithnephewcominvestors
archivehtml
available as a printed document or online at
wwwsmithnephewcominvestors
annualreport2002
shareholder information
for further uptodate shareholder
information visit wwwsmithnephewcom
investorsshareinfohtml
for uptominute share price information
visit wwwsmithnephewcom
investorsfinancialdatahtml
for press releases and latest business
information visit
wwwsmithnephewcomnews
sustainability report
for further information on sustainability 
and to access our report visit 
wwwsmithnephewcomsustainability2002
pp 2002
report to shareholders and 
summary financial statement
delivering
sustainable
growth performance
our performance culture is
driving global sales growth 
and margin improvement 
2002 2001
£ million £ million
turnover 11099 10817
profit before taxation
before goodwill amortisation and exceptional items 2099 1809
after goodwill amortisation and exceptional items 1779 1936
earnings per share before goodwill amortisation and exceptional items 1602p 1396p
earnings per share after goodwill amortisation and exceptional items 1211p 1407p
dividends per share 480p 465p
we are committed to setting new standards 
in patient treatment and recovery
contents
directors’ report
01 financial highlights
02 chairman’s statement
04 chief executive’s statement
10 board  group executive committee
12 corporate social responsibility
14 corporate governance
15 summary remuneration report
accounts
16 auditors’ statement
17 summary financial statement
19 information for shareholders
20 group five year summary
financial
highlights innovation
our commerciall y orientated
research and development is
contributing to a strong
new product pipeline
trust
our sustainability progress
has been recognised by our
entry into the dow jones
sustainability index for 2003
as well as delivering on our promise of healthy
returns to our shareholders
1602
961
1088
1219
1396
2002 1998 1999 2000 2001
151
164
178
147
171
2002 1998 1999 2000 2001
1110
1053
1120
1135
1082
2002 1998 1999 2000 2001
1084
714
800
912
978
group turnover
continuing sales
£ million
group margins  
before goodwill 
amortisation and
exceptional items
earnings per share
before goodwill 
amortisation and
exceptional items 
pence
where this icon appears more information can be found at
an alternative source for more detailed financial information
visit wwwsmithnephewcominvestorsprofilehtml 02 smith  nephew 2002
trigen
a summer time car crash
landed this university
bound student on a
surgeon’s operating table
with a femoral fracture
the lessinvasive trigen
femoral nailing system
helped to mend her
broken bone and
restored her to walking
so she could start the
autumn term in time
financial performance and dividend 
group sales grew strongly led by the
orthopaedics business underlying growth of
14 was augmented by acquisitions which
added a further 4 our drive to deliver innovative
products across all our businesses is paying off
and we are also benefiting from the past two
years’ sales force expansions 
we achieved an ongoing operating margin 
before exceptional items of 165 despite the
dissynergies of the restructuring divestments 
of this and last year the underlying margin
increased by 07 before goodwill amortisation
the margin was 181 
investors continue to recognise the company’s
strength and share price growth potential smith
 nephew was one of the uk’s bestperforming
stocks in 2002 outperforming the ftse 100 by
more than 20the recommended final dividend
is increased to 300p making a total dividend 
for the year of 480p 465p in 2001
people
our people take pride in our products which
enable patients to regain their lives they are an
extremely talented group of individuals and we
thank them for their commitment creativity and
energy in serving the company and the medical
community
in 2002 we achieved our targets within the
orthopaedics endoscopy and advanced 
wound management markets each of smith 
 nephew’s businesses strengthened its
positions in the markets in which it operates
through a combination of sales growth new
products and technology acquisition 
in march 2002 we acquired and have since
successfully integrated oratec interventions
inc establishing our endoscopy business as 
a leader in radiofrequency technology and
minimally invasive spinal surgery we also
acquired the remaining half of the dermagraft
and transcyte joint arrangements from
advanced tissue sciences inc gaining full
strategic control of those products 
we disposed of our rehabilitation business 
to abilityone corporation also in march 2002
retaining a 215 interest in the expanded
business this focused the group on our three
chosen areas of expertise
chairman’s
statement
we have had another excellent year of growth
within each of our three businesses smith  nephew 2002 03
trivex procedure
she faces the same
problems every mother
does dressing the kids
making lunches finding
time for herself faced
with an uphill battle of
another type – one
against unsightly painful
varicose veins she
received treatment with
the trivex procedure
she can now handle 
the challenges of
motherhood without the
added difficulty of leg
pain which allows her
more time to concentrate
on what matters most –
her family
we pay particular tribute to larry papasan 
for his valued contribution as president of the
orthopaedics business he retired at the end 
of 2002 and we welcome david illingworth 
who has joined us to lead the division to 
further success
board
tim lankester has chosen not to stand again 
for reelection to the board and will be standing
down at the agm in april we thank him for 
his contribution over the last seven years 
corporate governance has been a priority 
over the past year – particularly as we are listed
on both the london and new york stock
exchanges smith  nephew is committed to 
an open and constructive relationship with our
shareholders and the overall investment
community we are working to comply with the
new us sarbanesoxley act and the ongoing
detailed guidelines being supplied by the 
securities and exchange commission
outlook
the markets on which we focus continue to
demonstrate robust growth smith  nephew 
is achieving sales growth that outpaces the
industry and is demonstrating its ability to grow
share and position within the orthopaedics
endoscopy and advanced wound management
markets in 2003 we will see the impact of 
our strong ongoing sales and profit growth
on our reported results without the impact 
of divestments 
we have a leading range of technology and
products that repair and heal the human body
we will maintain our progress by investing in 
new and differentiated technologies which bring
benefits to patients and in the specialist sales
forces to bring these products to the medical
community we will continue to invest in our
businesses by increasing sales force strength
adding manufacturing capacity and enhancing
new product development to generate vigorous
growth we will also acquire businesses or
technologies that strengthen our long term
prospects 
we remain confident of delivering sustainable
growth and believe we are well placed to 
achieve our midteens underlying pregoodwill
amortisation eps growth target going forward
dudley eustace
chairman
we remain confident in our ability to deliver
sustainable growth for the future
dermagraft
a keen golfer he has
suffered from diabetes 
all his life he ignored 
a wound on his foot
thinking it would clear 
up but when he lost
sensation in his lower 
leg he finally went to see
his doctor the foot ulcer
was so serious he was 
in real danger of having
the limb amputated 
after 12 weeks of being
treated with dermagraft
a bioengineered human
dermal replacement 
he was out of the danger
zone and looking forward
to resuming his golf 04 smith  nephew 2002
advanced wound 
management 30
orthopaedics 43
endoscopy 27
africa asia  
australasia 14
america 56
uk 8
continental 
europe 22
our new products are driving our growth and 
setting new standards of care
chief executive’s
statement
market growth remains buoyant and
demographics and lifestyle trends remain positive
healthcare expenditure continues to grow in all 
our major markets technology is expanding the
marketplace through the growth of less invasive
and longer lasting surgical techniques and
implants with the introduction of new orthopaedic
bearing materials led by oxinium from smith 
nephew surgeons are increasingly treating
younger patient groups new techniques
continue to simplify and make procedures faster
and less invasive techniques in orthopaedics and
endoscopy are taking hold as patients increasingly
drive demand technology advancements in
treating hardtoheal wounds are driving strong
growth in the active healing sector of the
advanced wound management market
we aim to raise operating margins before
goodwill amortisation from 18 in 2002 to 21
in 2005 moving half a percentage point closer 
to that goal in 2003 through improvements in
operational performance and product mix at the
same time we will continue to invest in product
innovation and in growing our sales teams by 
at least 10 a year for the foreseeable future
orthopaedics
orthopaedics sales rose by an underlying 20
and its performance continued to outpace the
market reconstructive implant sales grew 
by an impressive 20 boosted by continued
delivering sustainable growth
in 2002 our markets grew strongly – and once
again smith  nephew outpaced the industry 
i am pleased to report excellent growth in our
orthopaedics endoscopy and advanced wound
management businesses
we now have formidable teams in place and 
we are focused on three highgrowth markets
we bring truly innovative and differentiating
technologies that meet the needs of physicians
patients and healthcare systems we are
marketing our products ever more effectively
through expanded and specialised global 
sales forces
our underlying group sales increase was 14 in
2002 sales in north america grew 15 and the
region now represents some 56 of the group’s
business sales growth in europe was 12
reflecting increased healthcare spending and
ageing populations sales in the rest of the world 
grew 16
product markets 
sales from ongoing operations
geographic markets 
sales from ongoing operations smith  nephew 2002 05
oxinium knee implants
his dream of early
retirement and new life 
of golf and sailing went
on hold as osteoarthritis
crippled his plans
frustrated by increasing
pain and lack of mobility
he consulted his surgeon
for a solution thanks 
to bilateral oxinium 
knee implants this 
retired banker is back 
on course
our operational performance and product mix 
is constantly being refined to improve margins
surgeon response to the additional oxinium 
knee products launched in 2002 we once again
recorded industryleading growth in this sector
led by knee growth of 33 10 of which was
contributed by the introduction of our joint fluid
therapy product supartz hip sales grew by
17 led by continued growth in revision
procedures increased penetration of our highly
cross linked polyethylene liners and continued
strength in our platform hip systems including
synergy and echelon trauma grew at 10
sales pricing in orthopaedics remained positive
by 2 
the oxinium knee has been an outstanding
success since its launch in 2001 we have
continued to invest in the oxinium programme
and computer assisted surgery throughout the
year where we have received us regulatory
approval for hip knee and trauma applications
we have developed an oxinium femoral head 
for hips and have already launched the product 
in 2003
we are creating two divisions within our
orthopaedic business reconstruction and
trauma this initiative is aimed at sustaining 
our industry leading performance by improving
the focus on these separate market sectors 
this structure will enable us to bring technology
to market faster and increase our customer
responsiveness and satisfaction each division
will have responsibility for developing global
strategy and its own product development
marketing and sales functions they will share
common manufacturing and support
organisations the sales forces in major 
us cities will be specialised into separate
reconstructive and trauma units on a phased
basis beginning in the first quarter of 2003 
endoscopy
endoscopy sales grew at an underlying 10 
with strong growth coming from outside the us
the company acquired the oratec minimally
invasive joint and spine business in the year
which added 9 to sales growth and has given
us a leading position in radio frequency
technology in arthroscopy 
knee and shoulder ligament repair products
grew particularly strongly at 21 making the
group the market leader in arthroscopic repair
new repair products were launched during the
year to strengthen our position in the arthroscopy
market including twinfix a specialised shoulder
repair device new bioresorbable screws for
ligament fixation performed well electroblade
has brought us a unique product that combines
simultaneous resection with coagulation of soft
tissue we also introduced a bipolar cutting 
and ablation system for the vulcan generator 
electroblade resector
from twenty years
experience as an
aerobics instructor 
she understands the
importance of fitness in 
a wellbalanced lifestyle
that’s why when she
suffered a torn ligament
in her right knee a year
ago she wasted no time
agreeing to her doctor’s
recommendation for
minimally invasive
surgery due to reduced
pain and recovery time
she was back at the gym
soon after the procedure
and enjoying the benefits
of a healthy lifestyle  orthopaedics
a comprehensive highly advanced range of orthopaedic
implant and trauma products sales £470m
 implants for hips knees and shoulders
 trauma products for severely broken bones utilising
internal and external fixation methods
 clinical therapies including ultrasound bone healing
devices and joint fluid therapy
business overview served markets and
growth in 2002
06 smith  nephew 2002
we have a unique range of technology and
products which repair the human body we are
business
overview
endoscopy
industry leader in the development and commercialisation 
of endoscopic minimally invasive surgery products and
techniques sales £292m
 access – fluid management and insufflation instruments
for better surgical access
 visualisation – digital cameras digital image capture
central control multimedia broadcasting scopes 
light sources and monitors to assist with visualisation
 resection – stateoftheart radiofrequency wands
electromechanical and mechanical blades and hand
instruments for resecting tissue
 repair – specialised devices fixation systems and
bioabsorbable materials to repair damaged tissue
advanced wound management
advanced treatment for hardtoheal wounds offering 
a complete range of products from initial wound bed
preparation through to successful wound closure 
these products are targeted particularly at wounds
connected with the elderly sales £322m
 pressure ulcers
 venous leg ulcers
 diabetic foot ulcers
 serious burns
world market value
growth 13
£52bn
market position
6th
world market value
growth 6
£30bn
market position arthroscopy
1st
world market value
growth 12
£15bn
market position
1st
idet procedure
after years of struggling
with lower back pain
resulting from a herniated
disc he was able to use
his landscaping skills
once again after being
treated with intradiscal
electrothermal therapy
also known as the idet
procedure 
for more detailed business
and product information visit
wwwsmithnephewcom
businesses  expanding patient pool
 increasing numbers of
elderly people living longer
 expectation of better
quality of life
 new longerlasting
materials technology
 demand for less invasive
procedures
 patient knowledge due 
to the internet and media
 grew sales 20
 expanded global sales
team by 12
 over 10000 oxinium
knee implants
 over 250 computer
assisted total knee
procedures newly
branded as achieve
 supartz joint fluid
treatment exceeding
expectations
 completed new
manufacturing facility
 continued rollout 
of oxinium knee
applications
 accuris minimally invasive
unicompartmental knee
instrumentation 
 exogen 3000
 orthoguard ab
antimicrobial sleeve 
the orthopaedic
industry’s first antibiotic
coated medical device 
to be cleared by the us
regulatory agency
what is driving 
market growth
our achievements 
in 2002
our key new products
and developments in
2002
smith  nephew 2002 07
focusing on three research areas – noninvasive
stimulation tissue engineering bioabsorbables
 more elderly people 
living longer
 more clinically advanced
methods of healing wounds
 therapies that reduce
nursing time and speed
recovery for cost efficiency
 twothirds of global market
still to be converted to
advanced wound healing
 new advanced
technologies expanding
breadth of market
 grew sales 11
 world leadership in
advanced wound care
strengthened
 allevyn our largest
product grew 21
 acticoat burns dressing
increased sales by 65
 successful launch of
wound bed preparation
concept
 100 ownership of
dermagraft and transcyte
 88 coverage of us
outpatient population for
dermagraft
 improved and extended
allevyn range launched
 continued global rollout
of acticoat silver burns
dressing
 global launch of cutinova
hydro and range
extension
 dermagraft full us launch
proguide
having developed 
a venous leg ulcer
nurses at his local
hospital agreed to take
part in the clinical trial 
of proguide a twolayer
elastic compression
system designed for
venous leg ulcers this
allowed the correct
pressure to be applied
and reduced the number
of dressing changes
ilizarov technique
both legs had been
deformed since birth but
on september 11 2001
she walked down nearly
50 flights of world trade
center stairs to safety 
a surgeon had corrected
her limbs using the ilizarov
technique 
 increase in sports injuries 
 more active lifestyles
 increased surgeon use 
of endoscopic techniques
 innovative technological
developments 
 need for costeffective
procedures in hospitals
 growing demand for
digitallyintegrated 
or equipment
 growth in ambulatory
surgery centres
 payer support driven 
by supporting clinical
evidence
 twinfix bioabsorbable
suture anchor for 
shoulder repair
 electroblade resector
 vulcan system rf
generator 
 vision 337 autoclavable
camera system
 decompression catheter
for herniated discs 
 saphyre bipolar ablation
probe
 grew sales 10
 entry into the minimally
invasive spinal market
through oratec
acquisition
 launch of the digital
operating room concept
 major growth in implants
for soft tissue repair
 launched industry’s first
electromechanical
resection device
 reached 30000
procedures for trivex
 launched worldwide
network of surgeon
training sites
on an underlying basis 08 smith  nephew 2002
our commercially orientated innovation is
contributing a strong new product pipeline
oxinium hip implant
although he could have
delayed his total hip
replacement surgery 
until after his daughter’s
wedding smith 
nephew’s miniincision
technique in concert 
with an oxinium implant
restored his painfree
mobility in time to give
away the bride and take
a full part in this important
day in his daughter’s life
chief executive’s
statement continued
sustaining our growth rate
over the past few years we have maintained
consistently strong investment in expanding the
sales force and expanding our product pipeline 
in 2002 we expanded the orthopaedics sales
team by 12 the endoscopy team by 30
including the sales force acquired with oratec
and the advanced wound management team 
by 4 
we invested 5
1
⁄ 2 of sales revenue in research 
and development across our businesses in
2002 products introduced in the last three years
rose to 18 of sales our group focus on unique
methods to repair and heal the human body 
has led to group wide research in three fields
bioresorbable materials to facilitate healing and
surgical reconstruction tissue engineering to 
help replace repair and regenerate damaged
tissue and noninvasive devices to stimulate
tissue repair
enhancing manufacturing capacity and quality
to meet future sales growth we expanded our
orthopaedics and endoscopy manufacturing
capacity orthopaedics enlarged its production
space in memphis tennessee by about a third
endoscopy expanded two factories and moved
its headquarters to new premises near its
production facility in andover massachusetts
advanced wound management has begun
and a thermal decompression catheter for
herniated spinal discs the digital operating
room concept gained ground with installations 
in leading hospitals 
advanced wound management 
in its first full year as an advanced wound
management business we strengthened our
worldleading position in advanced treatments
for hardtoheal wounds underlying sales
growth was 11 with the allevyn product range
achieving 21 we have successfully integrated
into the business the advanced wound products
of beiersdorf and the acticoat silver product for
burns acquired in 2001 and these products are
growing strongly
towards the end of the year we secured 100
ownership of the dermagraft and transcyte
arrangement by acquiring ats’s 50 share
reimbursement for dermagraft continues to
progress well with 88 of the outpatient
population now covered in the us sales of
dermagraft in its us launch year achieved £3m
acticoat
she tried to help her
mother with the cooking
but she pulled a pan of
boiling water off the
stove causing mixed
partial thickness burns 
to her arms and upper
torso in the burns unit 
at the hospital acticoat 
a unique antimicrobial
barrier dressing was
applied to the affected
areas helping to minimise
the risk of infection and
scarring the burns
healed quickly allowing
her to rejoin her
playmates at nursery
school smith  nephew 2002 09
allevyn
following a long illness
she suffered from a
severe pressure ulcer
around the sacral area
causing much pain and
discomfort and limiting
her mobility despite the
efforts of a district nurse
it wasn’t until allevyn
sacral was used a
shaped highly absorbent
hydrocellular dressing
that the ulcer showed 
any signs of improvement
after a few weeks the
pain was alleviated the
pressure ulcer healed and
mobility was restored
twinfix bioabsorbable 
suture anchor
he was a talented tennis 
player in college and he 
never lost his love for the 
sport after suffering a 
serious rotator cuff injury 
his days of swinging a 
racket seemed to have 
vanished forever but 
thanks to the use of 
a twinfix bioabsorbable 
suture anchor by his 
surgeon he is back on 
the court twice a week 
and easing the stress of 
work with some friendly 
competition from the 
other side of the net
and surgeon medical education programmes
are continuing to speed product adoption
building a new manufacturing plant in largo
florida near its existing facilities 
we continue to maintain rigorous quality
assurance and control systems that are subject
to regular internal and external review we take
product quality very seriously and are committed
to the highest standards of manufacturing quality
business development
in march we completed our restructuring with 
the disposal of our rehabilitation business to
abilityone in the us we received £71m in cash
and retained a 215 interest in the enlarged
company to benefit from the substantial value
that we believe will be created by combining 
the two businesses
our joint venture with beiersdorf bsn medical
had a successful trading year bsn and
abilityone made a combined operating profit
contribution of £25m in 2002 
corporate social responsibility
we are committed to sustainable development
reducing our impact on the environment while
contributing to the quality of life enjoyed by
society at large we support local communities
around our manufacturing operations and play 
a substantial role in professional education in 
our clinical fields 
our complete sustainability report is published 
on our website at wwwsmithnephewcom
outlook
we are in the next phase of our company’s
development we have focused our businesses
on three highgrowth medical device sectors 
we are delivering sustained growth in sales and
underlying operating margins 
we have excellent management teams in place
intent on building sales and market share as well
as improving the financial performance of their
businesses our new products are advancing
clinical performance by benefiting both patients
and healthcare systems our sales people
continue to be excited by our product ranges
and we have every reason to expect that our
markets will themselves continue to grow we
remain confident that we can deliver sustainable
growth over the next three years
christopher o’donnell
chief executive  dr alan suggett 59
group director of
technology he joined the
group in 1982 and was
appointed to the group
executive committee in
1986 
 david illingworth 49
president – orthopaedics
he joined the group and 
was appointed to the group
executive committee in
2002 
christopher o’donnell 
chief executive 
see above
peter hooley 
finance director
see above
 jim taylor 46 
group director indirect
markets he joined the
group and was appointed
to the group executive
committee in 2000
10 smith  nephew 2002
we feel that our innovative and responsive company
is in a good position for future growth
group
executive
committee
the 
board
••
dudley eustace 66
chairman
appointed deputy
chairman in 1999 and
chairman in january
2000 he is chairman
of the nominations
committee non
executive chairman 
of sendo holdings plc
and a nonexecutive
director of klm royal
dutch airlines nv 
aegon nv  hagemeyer
nv  royal kpn nv and
sonaecom sgps
•
christopher
o’donnell 56 
chief executive 
he joined the group 
in 1988 and was
appointed a director 
in 1992 he was
appointed chief
executive in 1997 
he is a nonexecutive
director of boc group
• nonexecutive
directors
• members of the
remuneration
committee
• members of the
audit committee
• members of the
nominations
committee
kenneth kemp is
honorary life president
peter hooley 56
finance director
he joined the group
and was appointed 
a director in 1991 
he is a nonexecutive
director of cobham plc 
••
dr pamela kirby 49
appointed a director 
in march 2002 
she is chief executive
officer of quintiles
transnational
corporation
 peter huntley 42 
group director strategy
and business development
he joined the group and 
was appointed to the group
executive committee 
in 1998   paul williams 56 
group director human
resources he joined the
group and was appointed 
to the group executive
committee in 1998
 jim ralston 56 
chief legal officer 
he joined the group in 1999
and was appointed to the
group executive committee
in 2002
smith  nephew 2002 11
with 7500 employees who commit their energy
and expertise to its continual improvement
••
warren knowlton 56
appointed a director 
in november 2000 
he is chairman of the
audit committee and
group chief executive
of morgan crucible plc
••
brian larcombe 49
appointed a director 
in march 2002 he 
is chief executive of 
3i group plc 
•••
richard de schutter
62 appointed a
director in january
2001 he is a non
executive director 
of varian inc ing
americas incyte
genomics medpointe
pharmaceuticals and
general binding
corporation
••••
dr rolf stomberg 62
a director since 1998
senior independent
director and chairman
of the remuneration
committee he is
chairman of
management
consulting group plc
and a nonexecutive
director of scania ab
stinnes ag reed
elsevier plc cordiant
communications plc
deutsche bp ag tpg
group and hoyer
gmbh
•••
sir timothy lankester
60 a director since
june 1996 he is
president of corpus
christi college oxford
also an independent
director of the london
metal exchange and
deputy chairman of
the british council
 jim dick 50 
president – wound
management he joined 
the group in 1977 and was
appointed to the group
executive committee 
in 1999
 ron sparks 47 
president – endoscopy
he joined the group in
1983 and was appointed
to the group executive
committee in 1999 12 smith  nephew 2002
corporate social
responsibility
more information is available on our website at 
wwwsmithnephewcomsustainability2002
we aim to make our values of performance innovation 
and trust integral to the way we operate and are
committed to the principles of sustainable development
this was recognised by our admission in 2002 – on our 
first application – to the dow jones sustainability index
this is the most widely recognised arbiter of good practice
and we achieved the highest rating in our business sector 
we published our second sustainability report in april
2002 outlining our progress in corporate social responsibility
csr it was more detailed and wider in scope than the
first with increased measurement data and information 
on our activities 
the third sustainability report will be published on our
website in april and will include new measurement
initiatives especially in the social area at the same time 
we will be publishing a new code of business principles
which brings together policies that currently appear in
different sections of our website updated and broadened 
in scope we have included purchasing policies with
particular emphasis on human rights and suppliers’
practices on health safety and environmental standards
through this code we ensure that our planning and
business decisions take account of ethical social legal 
and financial considerations thereby minimising risks 
and balancing the interests of all our stakeholders 
our sustainability efforts focus on
environmental management
minimising the impact of our activities on the environment –
particularly regarding energy and water use waste
emissions and discharges
social responsibility 
employees maintaining high standards of health and safety
providing training and development giving people the
opportunity to let us know how they feel about working 
for smith  nephew – and acting on what they tell us
community investing in and working with the communities
in which we operate
customers educating healthcare professionals in the
techniques related to our product ranges and providing
opportunities for their continuing professional development
suppliers working in partnership with suppliers and
fostering open ethical relationships with them
economic impact
making a positive contribution to society through creating
shareholder value paying taxes investing capital and
creating employment maximising the economic benefits 
of our products for healthcare providers patients and 
those who pay the costs 
more detail on our policies and the work which we 
do in these areas is provided in the following text
environmental management
we are committed to continuing reduction in our
environmental impact we use renewable resources
wherever possible and reduce any adverse effect from
products and processes to a practical minimum our
business units must take effective action to control risks 
and minimise environmental impacts through systems 
and procedures based on a thorough understanding 
of the risks and provision of appropriate training and
support progress is reviewed annually by the board
over the past 10 years our environmental management
systems have delivered cost savings as well as
environmental benefits our manufacturing processes 
are relatively low in environmental impact with locations in
the us uk and germany our main environmental impact
comes from waste generated at manufacturing sites 
we operate waste prevention and minimisation programmes
throughout the group and are examining ways of assessing
sustainable development aspects of our products in the
past year we have focused on reducing waste the
improvement in recycling made in 2001 has been sustained
and emissions are down 12 this is a significant
achievement considering the manufacturing expansion
which took place during the year
social responsibility
employees our business units are required to provide safe
working conditions plant and equipment at all their facilities
we maintain high standards and are determined to raise
them even higher through sharing best practice business
unit plans include measures to improve performance
monitoring enhance hazard analysis and risk assessment
refine emergency plans and business continuity plans and
deliver better targeted training
our employment policies emphasise equality of opportunity
continuous training and development open communications
and rewards appropriate to local markets vacancies are
filled within the company wherever possible we treat
employees with dignity and fairness and have policies and
procedures to encourage this culture we welcome disabled
people and make every effort to retain any employee who
becomes disabled our new code of business principles
underpins the high standards we expect from our people 
we recognise the importance of good employee
communications this year we have greatly improved
groupwide measurement and data collection systems to
monitor such areas as employee satisfaction performance
appraisal development and career progression we have
also set up a reporting system to collect data on training
throughout the group these measures will monitor progress
in the coming years and help ensure that we target our
efforts in the most effective manner  smith  nephew 2002 13
in 2002 we conducted our second global opinion survey
and communicated the results to staff worldwide once
again we had over 80 of employees participating in the
survey with positive scores in all areas covered in addition
91 of respondents indicated that they were proud to work
for the smith  nephew group significant improvements
over 10 increase in scores in many areas were seen
compared with the year 2000 results particularly in
management style communication with employees
anticipating change and the way people feel about their job
confirming that we have made good progress in all areas
over the past two years but we still have work to do
scores for questions about promotion and reward were 
still lower than we would like and this will stimulate action 
to address these issues
the communications functions at our group head office
group research centre and global business units work
closely with the human resources departments at each 
site on all forms of internal communication our linked
business unit and corporate intranets are increasingly well
used allowing easy twoway communication worldwide and
increasing people’s awareness of financial economic and
market factors affecting company performance electronic
communication in general continues to reduce internal
paperwork throughout the company 
community we recognise a strong obligation to contribute
to the communities in which we operate we encourage
and support employees at all levels who undertake
community work providing resources and paid time off 
to participate in projects we support a range of charitable
causes mainly at local level by donations of money gifts 
in kind and employee time the company is a member 
of uk business in the community and we are committed 
to corporate community involvement across the whole
group wherever practical of course we are also committed
to meeting our community obligations under the law 
examples of the programmes we support around our
manufacturing sites can be found in the performance
section of the sustainability report on our website
in 2002 our direct donations to charitable and community
activities totalled £804000 of which £400000 went to 
the smith  nephew foundation to fund individual research 
for doctors and nurses during the year we restructured 
the foundation to focus solely on nursing research where 
it makes a major contribution in the uk we again made 
no political contributions in 2002
customers educational support to the medical community
which we serve is an integral part of the way we do business
all three of our business units run extensive educational
programmes ranging from seminars and dedicated training
facilities to webbased information sites during 2002 our
endoscopy business alone hosted 144 courses training over
1700 surgeons 
suppliers we treat suppliers with dignity and fairness 
and expect them to do the same with their own employees
and suppliers our code of business principles makes clear
that we support the un’s universal declaration of human
rights and states that we will only work with suppliers 
who adhere to business principles and health safety social 
and environmental standards consistent with our own
specifically these prohibit the use of forced compulsory 
or child labour
economic impact
our business policies aim to achieve longterm growth and
profits – which in turn bring continued economic benefits to
shareholders employees suppliers and local communities
our sustainable development depends ultimately on our
ability to provide a satisfactory return in 2002 we generated
an operating return on capital employed of 29 
we continue to invest in comprehensive rd programmes
focused on delivering better outcomes for patients and
improvements in application and use for practitioners
importantly we also aim to deliver overall cost savings 
to healthcare systems through such benefits as reduced
dressing changes and shorter operating theatre times 
our products seek to reduce patients’ time in hospital 
and return them to health faster potentially improving 
their productivity and bringing broader social and 
economic benefits 14 smith  nephew 2002
corporate governance
the board is committed to the highest standards of
corporate governance and considers that the company 
has complied throughout the year with the combined 
code of best practice on corporate governance
the board
the board meets regularly during the year and is
responsible for the strategic direction policies and overall
management of the group there is a clear division of
responsibilities between the chairman and chief executive
the board consists of an independent nonexecutive
chairman two executive directors and six independent
nonexecutive directors all directors have full and timely
access to all relevant information and independent
professional advice nonexecutive directors meet regularly
without management in attendance and appropriate
induction programmes are offered to new directors 
the board is assisted by the following committees
the audit committee the audit committee monitors 
the operation and effectiveness of internal financial controls
and ensures that the accounts meet statutory and other
requirements it selects determines the fees and reviews
the performance independence and objectivity of 
the auditors all nonaudit work is preapproved by
the committee 
the remuneration committee the remuneration
committee sets the pay and benefits of the executive
directors and members of the group executive committee
approves their main terms of employment and determines
share options and longterm incentive arrangements 
it also reviews management succession planning
the nominations committee the nominations committee
oversees plans for board succession and recommends
appointments to the board
the group executive committee the group executive
committee assists the chief executive in the management
of the group
the terms of reference of the audit remuneration and
nominations committees may be found at wwwsmith
nephewcom
membership of board committees and of the group
executive committee is shown with the biographical 
details of directors on pages 10 and 11
directors
all directors are subject to reelection every three years 
and in accordance with the articles of association dudley
eustace and peter hooley retire by rotation and being
eligible offer themselves for reelection at the forthcoming
agm sir timothy lankester will be retiring at the agm 
but will not be offering himself for reelection 
no director had a material beneficial interest in any contract
involving the company or its subsidiaries in 2002
shareholders
the group issues summary financial statements in place of
full annual accounts unless shareholders request the latter
the summary financial statement is received by over 90 
of shareholders at the half year an interim report is sent 
to all shareholders a copy of the full annual accounts is
available on the smith  nephew website along with press
releases institutional presentations and audio webcasts
there are regular dialogues with individual institutional
shareholders together with results presentations twice a
year there is an opportunity for individual shareholders to
question directors at the agm and the company regularly
responds to letters from shareholders on a range of issues
risk management  internal control 
the board is responsible for the maintenance of the group’s
systems of risk management and internal control and for
reviewing their effectiveness an ongoing process has been
in place for the full year identifying evaluating and managing
key risks through a risk committee which reports to the
board annually and by a system of functional reports to 
the board and the review of internal financial controls by 
the audit committee
these procedures are designed to identify and manage
those risks that could adversely impact the achievement 
of the group’s objectives whilst they do not provide
absolute assurance against material misstatements or loss
the directors following a review of the systems described
are of the opinion that proper systems of risk management
and internal control are in place within the group 
share capital
the company has been informed of the following interests 
in its ordinary share capital as at 7 february 2003
 axa investment management 90
 fidelity 71
 legal  general investment management 34
at the agm the company will be seeking a renewal of its
current permission from shareholders to purchase its own
shares no shares have been purchased or contracted for
or are the subject of an option under the expiring authority
auditors
ernst  young llp have expressed their willingness 
to continue as auditors and a resolution proposing their
reappointment will be put to the agm smith  nephew 2002 15
summary remuneration report 
remuneration policy
the remuneration committee policy for this and future years is to ensure that remuneration is sufficiently competitive 
to attract retain and motivate executive directors and group executive committee members of a calibre that meets the
group’s needs to achieve its performance against financial objectives and relevant competitors’ practice remuneration
throughout the group is designed to be competitive in the country of employment the committee gives full consideration 
to the requirements in schedule a of the combined code
directors’ incentive plans
executive directors participate in an annual bonus scheme based on annual growth in adjusted earnings per share after
deducting goodwill amortisation and return on capital employed and in a longterm incentive plan ltip based on the
company’s total shareholder return tsr in relation to 41 uk listed manufacturing companies with substantial international
activities and growth in earnings per share over a three year period the performance conditions were identified as those
which represented a fair measure of the company’s performance and would reflect increase in shareholder value the
company’s tsr performance and its performance relative to the comparator group is monitored by independent consultants
total outstanding conditional awards of shares under the ltip are christopher o’donnell 386488 2001 – 448649 and
peter hooley 236824 2001 – 282965 for the three year plan period commencing 2000 the company’s tsr of 14736
was ranked first in the comparator group and the earnings per share performance criterion was met enabling the plan
participants to be eligible for 100 of the shares conditionally awarded in 2000 as a result on 7 february 2003
christopher o’donnell became entitled to 155065 shares and peter hooley entitled to 96916 shares which are included 
in the outstanding conditional awards of shares above
executive directors were last granted options under executive share option schemes in 1996 which were not subject to
performance conditions but under the ltip  shares that have vested may be taken in the form of nilcost options and
exercised at a later date uk directors are eligible to participate in the savings related share option scheme
as a component company of the ftse 100 index a graph of the company’s tsr performance compared to that of the
tsr of the index can be found on page 2
service contracts
executive directors in line with group policy have notice periods of 12 months all new appointments are intended to have
12 months notice periods but it is recognised that for some appointments a longer period may initially be necessary for
competitive reasons reducing to 12 months thereafter christopher o’donnell and peter hooley have contracts terminable
by the company on not more than 12 months notice and by the director on 6 months notice termination of the contract 
by the company would entitle the executive directors to 12 months basic salary bonus at target of 30 a contribution of
30 of salary to reflect the loss of pension benefits an amount to cover other benefits and a time apportionment of the
ltip entitlement
nonexecutive directors do not have service contracts and are normally appointed for terms of three years terminable at will
without notice by either the company or the director and without compensation their remuneration is determined by the
nominations committee 
directors’ emoluments and share interests
total emoluments share interests
2002 2001 31 december 2002 1 january 2002
£’000 £’000 shares options shares options
chairman dg eustace 170 170 49679 – 40909 –
executive cj o’donnell 890 790 122136 517495 120703 331263
p hooley 583 545 111571 450682 58789 423723
non sir timothy lankester 30 30 6096 – 6035 –
executive dr rwh stomberg 30 30 6945 – 6864 –
wdknowlton 30 30 12501 – 7501 –
r de schutter 30 30 200000 – 100000 –
dr p  kirby from 1 march 2002 25–––––
b larcombe from 1 march 2002 25–––––
sir anthony cleaver to 28 feb 2002 5 30––––
sir brian pearse to 28 feb 2002 5 30––––
1823 1685
inclusive of salaries and fees benefits annual bonus and pension entitlements profits on exercise of share options were
£211950 peter hooley £211950 2001 – £197542 christopher o’donnell £22171 peter hooley £175371 16 smith  nephew 2002
auditors’ statement
independent auditors’ statement to the members of smith  nephew plc 
we have examined the group’s summary financial statement for the year ended 31 december 2002 which comprises
summary group profit and loss account summary group balance sheet and summary group cash flow statement
respective responsibilities of directors and auditors
the directors are responsible for preparing the report to shareholders and summary financial statement in accordance with
applicable law
this report has been prepared for the members of the company pursuant to section 251 of the companies act 1985 
the “act” and for no other purpose
no person is entitled to rely on this report unless such person
i is a person who is entitled to rely on this report by virtue of and for the purpose of the act or
ii has been expressly authorised to do so by our prior written consent
save as above we do not accept responsibility for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability
our responsibility is to report to you our opinion on the consistency of the summary financial statement within the report 
to shareholders and summary financial statement with the full annual accounts directors’ report and remuneration report
and its compliance with the relevant requirements of section 251 of the companies act 1985 and the regulations made
thereunder we also read the other information contained in the report to the shareholders and summary financial statement
and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies
with the summary financial statement 
basis of opinion
we conducted our examination in accordance with bulletin 19996 ‘the auditors’ statement on the summary financial
statement’ issued by the auditing practices board for use in the united kingdom
opinion
in our opinion the summary financial statement is consistent with the full annual accounts directors’ report and
remuneration report of smith  nephew plc for the year ended 31 december 2002 and complies with the applicable
requirements of section 251 of the companies act 1985 and regulations made thereunder
ernst  young llp
registered auditor
london 7 february 2003 
this summary financial statement is a summary of information in the group’s full annual accounts and was approved by 
the board on 7 february 2003 and signed on its behalf by dudley eustace christopher o’donnell and peter hooley it does
not contain sufficient information to allow a full understanding of the results of the group and state of affairs of the company
or of the group a review of the business is included in the directors’ report the report of the auditors on the full accounts
for the year ended 31 december 2002 was unqualified and did not contain a statement made under either section 2372 
of the companies act 1985 accounting records or returns inadequate or accounts not agreeing with records or returns 
or section 2373 failure to obtain necessary information and explanations
for further information the full annual accounts and the auditors’ report on those accounts should be consulted shareholders
have the right to demand free of charge a copy of the group’s full annual report and accounts which may be obtained from
the company’s registrars smith  nephew 2002 17
group profit and loss account
2002 2001
for the year ended 31 december 2002 £ million £ million
turnover
ongoing operations 10837 9430
operations contributed to the joint venture – 353
continuing operations 10837 9783
discontinued operations 262 1034
group turnover 11099 10817
share of joint venture 1550 1236
12649 12053
operating profit
ongoing operations
before goodwill amortisation and exceptional items 1960 1708
goodwill amortisation 175 104
exceptional items 299 193
1486 1411
operations contributed to the joint venture
before exceptional items – 36
exceptional items – 18
continuing operations 1486 1429
discontinued operations 21 111
1507 1540
share of operating profit of the joint venture
before exceptional items 196 128
exceptional items 26 50
1677 1618
share of operating profit of the associated undertaking 49 –
1726 1618
discontinued operations – net profit on disposals 180 492
profit on ordinary activities before interest 1906 2110
interest payable 127 174
profit on ordinary activities before taxation 1779 1936
taxation 658 640
attributable profit for the year 1121 1296
ordinary dividends 446 429
retained profit for the year 675 867
basic earnings per ordinary share 1211p 1407p
diluted earnings per ordinary share 1202p 1395p
results before goodwill amortisation and exceptional items 
profit before taxation 2099 1809
adjusted basic earnings per ordinary share 1602p 1396p
adjusted diluted earnings per ordinary share 1589p 1384p
summary financial
statement summary financial
statement
18 smith  nephew 2002
group balance sheet
2002 2001
at 31 december 2002 £ million £ million
intangible fixed assets 3172 1878
tangible fixed assets 2558 2450
investment in joint venture 1150 1140
investment in associated undertaking 85 –
investments 82 257
7047 5725
stocks 2295 2322
debtors 2807 2668
cash 225 264
creditors 3159 3428
2168 1826
borrowings 3161 2552
provisions 881 953
5173 4046
called up share capital 1138 1134
reserves 4035 2912
5173 4046
group cash flow
2002 2001
for the year ended 31 december 2002 £ million £ million
operating profit 1507 1540
depreciation amortisation and exceptional writeoff 944 603
working capital and provisions 358 224
net cash inflow from operating activities 2093 1919
capital expenditure and financial investment 861 726
operating cash flow 1232 1193
joint venture dividend 39 –
interest 102 165
tax paid 523 762
dividends paid 435 420
acquisitions 2063 693
disposals 718 617
joint venture formation 57 126
issues of ordinary share capital 61 90
net cash flow 1016 14
exchange adjustments 682 58
opening net debt 2435 2363
closing net debt 2769 2435
includes goodwill amortisaton of £175m 2001 – £104m and £175m writeoff of the group’s equity investment in
advanced tissue sciences inc
after £193m 2001 – £235m of outgoings on rationalisation acquisition integration and divestment costs
net debt includes £167m of net currency swap assets 2001 – net currency swap liabilities of £147m smith  nephew 2002 19
financial calendar
annual general meeting 29 april 2003
payment of 2002 final dividend 16 may 2003
interim results announced 31 july 2003
payment of 2003 interim dividend 14 november 2003
full year results announced early february 2004
annual report posted early march 2004
annual general meeting 5 may 2004
final dividend
the ordinary shares will trade exdividend on both the
london and new york stock exchanges from 16 april 2003
and the record date will be 22 april 2003 in respect of this
year’s proposed final dividend to be paid on 16 may 2003
ordinary shares
payment of cash dividends shareholders who wish their
dividends to be paid directly to a bank or building society
and who have not already completed a bacs mandate
should contact the company’s registrars
dividend reinvestment plan the company has a dividend
reinvestment plan that offers shareholders the opportunity
to invest their cash dividends in smith  nephew shares
which are purchased in the market at competitive dealing
costs application forms for reinvesting the 2002 final
dividend are available from lloyds tsb registrars who
administer the plan on behalf of the company applications
for reinvestment should be returned to the company’s
registrars by 29 april 2003
uk capital gains tax for the purposes of capital gains tax
the price of ordinary shares on 31 march 1982 was 3504p
smith  nephew share price the company’s share price is
quoted daily in national newspapers as well as on ceefax
and teletext and at wwwlondonstockexchangecom where
it is updated at intervals throughout the day the financial
times cityline service telephone 0906 0034043 provides
an up to the minute share price a fee is charged for this
service
lowcost dealing service a postal and telephone facility 
that provides a simple lowcost method of buying and
selling smith  nephew shares is available through hoare
govett limited for information contact hoare govett 
ltd 250 bishopsgate london ec2m 4aa telephone 
020 7678 8300
smith  nephew corporate isa the company has a
corporate individual savings account isa administered by
lloyds tsb registrars for information about this service
please contact their helpline on telephone 0870 2424 244
shareview to view information about your shareholdings 
on the internet register at wwwshareviewcom the lloyds
tsb enquiry and portfolio management service for
shareholders when you have registered for shareview you
will also be able to register your proxy instructions online
and elect to receive future shareholder communications 
via our website wwwsmithnephewcom
shareholder enquiries for information about the agm
shareholdings dividends and changes to personal details 
all shareholders should contact lloyds tsb registrars 
the causeway worthing west sussex bn99 6ds
telephone 0870 600 3996
american depositary receipts adrs
in the us the company’s ordinary shares are traded in the
form of american depositary shares evidenced by adrs
and trade under the symbol snn each american depositary
share represents ten ordinary shares bank of new york 
is the authorised depositary bank for the company’s adr
programme a global buydirect plan is available for 
us residents enabling investment directly in adrs with
reduced brokerage commissions and service costs for
further information on global buydirect contact bank 
of new york on 1888bnyads tollfree or visit
wwwadrbnycom
smith  nephew adr price the company’s adr price is
quoted daily in the wall street journal and can be obtained
from the official new york stock exchange website
wwwnysecom
adr enquiries all enquiries regarding adr holder accounts
and payment of dividends should be addressed to bank 
of new york 620 avenue of the americas new york 
new york 10011
annual general meeting
the company’s 66th annual general meeting is to be held
on 29 april 2003 at 1030 am at the institute of mechanical
engineers one birdcage walk london sw1h 9jj notice
of the meeting is enclosed with an accompanying letter
from the chairman
registered office
smith  nephew plc 15 adam street 
london wc2n 6la
registered in england no 324357
advisers
solicitors ashurst morris crisp
pinsent curtis biddle
auditors ernst  young llp
stockbrokers cazenove  co
dresdner kleinwort wasserstein
trademarks
the product names referred to in this document are
trademarks owned by or licensed to members of the 
smith  nephew group
information for
shareholders 20 smith  nephew 2002
group five year 
summary
2002 2001 2000 1999 1998
profit and loss account £ million £ million £ million £ million £ million
turnover
continuing operations 10837 9783 9115 7999 7136
discontinued operations 262 1034 2232 3200 3398
group turnover 11099 10817 11347 11199 10534
share of joint venture 1550 1236–––
12649 12053 11347 11199 10534
operating profit
continuing operations
before goodwill amortisation and exceptional items 1960 1744 1569 1227 1065
goodwill amortisation 175 104 69 18 03
exceptional items 299 211 124 401 159
discontinued operations
before exceptional items 21 111 290 466 479
exceptional items – – 39 116 20
1507 1540 1627 1158 1362
share of operating profit of the joint venture
before exceptional items 196 128–––
exceptional items 26 50 – – –
1677 1618 1627 1158 1362
share of operating profit of the associated undertaking 49––––
1726 1618 1627 1158 1362
profit on disposals 180 492 1095 629 –
profit before interest 1906 2110 2722 1787 1362
interest payablereceivable 127 174 70 34 17
profit before taxation 1779 1936 2652 1821 1345
taxation 658 640 577 773 408
profit after taxation 1121 1296 2075 1048 937
ordinary dividends 446 429 413 725 692
special dividend – – 4156 – –
retained profitdeficit 675 867 2494 323 245
basic earnings per ordinary share 1211p 1407p 2007p 939p 842p
diluted earnings per ordinary share 1202p 1395p 1995p 937p 840p
dividends per ordinary share 480p 465p 450p 650p 620p
results before goodwill amortisation and exceptional items
profit before taxation 2099 1809 1789 1727 1527
adjusted earnings per ordinary share 1602p 1396p 1219p 1088p 961p
adjusted diluted earnings per ordinary share 1589p 1384p 1212p 1085p 960p
operating profit before goodwill amortisation and 178 171 164 151 147
exceptional items to group sales
research and development costs to group sales 55 47 40 40 41
capital investment including intangibles to group sales 77 69 56 58 66
1999 and 1998 have not been restated for frs 19 designed and produced by fitchlondon 
printed by ctd capita board photography by sven seiffert
2002 2001 2000 1999 1998
balance sheet £ million £ million £ million £ million £ million
fixed assets 7047 5725 4289 3611 3344
net current assets 712 969 1298 2488 1953
creditors falling due after more than one year 1705 1695 1872 202 128
provisions 881 953 1035 380 314
capital employed 5173 4046 2680 5517 4855
called up share capital 1138 1134 1127 1121 1117
reserves 4035 2912 1553 4396 3738
capital and reserves 5173 4046 2680 5517 4855
operating profit before goodwill amortisation and
exceptional items to average capital employed 29 34 36 32 30
cash flow 
cash inflow from operating activities 2093 1919 2040 1981 1619
capital expenditure and financial investment 861 726 667 651 619
1232 1193 1373 1330 1000
interest taxation and dividends 1021 1347 5294 1270 913
acquisitions and disposals 1288 50 1587 709 164
issues of share capital 61 90 77 44 30
net cash flow 1016 14 2257 813 47
exchange adjustments 682 58 329 95 18
opening net debt 2435 2363 223 495 466
closing net debt 2769 2435 2363 223 495
gearing 54 60 88 nil 10
1999 and 1998 have not been restated for frs 19 you are here 
report to shareholders and 
summary financial statement
contents
financial highlights
chairman’s statement
chief executive’s statement
board  group executive committee 
corporate social responsibility
corporate governance
summary remuneration report
auditors’ statement
summary ﬁnancial statement
information for shareholders
group ﬁve year summary
you have access to more information 
from the following sources
smith  nephew plc
15 adam street
london wc2n 6la
wwwsmithnephewcom
boardgroup executive committee biographies
for further biographies visit 
wwwsmithnephewcomaboutpersonnelhtml
presentations
for presentations to analysts 
and shareholders visit 
wwwsmithnephewcominvestors
archivehtml
available as a printed document or online at
wwwsmithnephewcominvestors
annualreport2002
shareholder information
for further uptodate shareholder
information visit wwwsmithnephewcom
investorsshareinfohtml
for uptominute share price information
visit wwwsmithnephewcom
investorsfinancialdatahtml
for press releases and latest business
information visit
wwwsmithnephewcomnews
sustainability report
for further information on sustainability 
and to access our report visit 
wwwsmithnephewcomsustainability2002
annual report and accounts
for detailed financial information 
you can request a full printed 
annual report and accounts or visit 
wwwsmithnephewcominvestors
annualreport2002


Summary:
 02 smith  nephew 2002
trigen
a summer time car crash
landed this university
bound student on a
surgeon’s operating table
with a femoral fracture
the lessinvasive trigen
femoral nailing system
helped to mend her
broken bone and
restored her to walking
so she could start the
autumn term in time
financial performance and dividend 
group sales grew strongly led by the
orthopaedics business underlying growth of
14 was augmented by acquisitions which
added a further 4 our drive to deliver innovative
products across all our businesses is paying off
and we are also benefiting from the past two
years’ sales force expansions 
we achieved an ongoing operating margin 
before exceptional items of 165 despite the
dissynergies of the restructuring divestments 
of this and last year the underlying margin
increased by 07 before goodwill amortisation
the margin was 181 
investors continue to recognise the company’s
strength and share price growth potential smith
 nephew was one of the uk’s bestperforming
stocks in 2002 outperforming the ftse 100 by
more than 20the recommended final dividend
is increased to 300p making a total dividend 
for the year of 480p 465p in 2001
people
our people take pride in our products which
enable patients to regain their lives they are an
extremely talented group of individuals and we
thank them for their commitment creativity and
energy in serving the company and the medical
community
in 2002 we achieved our targets within the
orthopaedics endoscopy and advanced 
wound management markets each of smith 
 nephew’s businesses strengthened its
positions in the markets in which it operates
through a combination of sales growth new
products and technology acquisition 
in march 2002 we acquired and have since
successfully integrated oratec interventions
inc establishing our endoscopy business as 
a leader in radiofrequency technology and
minimally invasive spinal surgery we also
acquired the remaining half of the dermagraft
and transcyte joint arrangements from
advanced tissue sciences inc gaining full
strategic control of those products 
we disposed of our rehabilitation business 
to abilityone corporation also in march 2002
retaining a 215 interest in the expanded
business this focused the group on our three
chosen areas of expertise
chairman’s
statement
we have had another excellent year of growth
within each of our three businesses smith  nephew 2002 03
trivex procedure
she faces the same
problems every mother
does dressing the kids
making lunches finding
time for herself faced
with an uphill battle of
another type – one
against unsightly painful
varicose veins she
received treatment with
the trivex procedure
she can now handle 
the challenges of
motherhood without the
added difficulty of leg
pain which allows her
more time to concentrate
on what matters most –
her family
we pay particular tribute to larry papasan 
for his valued contribution as president of the
orthopaedics business he retired at the end 
of 2002 and we welcome david illingworth 
who has joined us to lead the division to 
further success
board
tim lankester has chosen not to stand again 
for reelection to the board and will be standing
down at the agm in april we thank him for 
his contribution over the last seven years 
corporate governance has been a priority 
over the past year – particularly as we are listed
on both the london and new york stock
exchanges smith  nephew is committed to 
an open and constructive relationship with our
shareholders and the overall investment
community we are working to comply with the
new us sarbanesoxley act and the ongoing
detailed guidelines being supplied by the 
securities and exchange commission
outlook
the markets on which we focus continue to
demonstrate robust growth smith  nephew 
is achieving sales growth that outpaces the
industry and is demonstrating its ability to grow
share and position within the orthopaedics
endoscopy and advanced wound management
markets in 2003 we will see the impact of 
our strong ongoing sales and profit growth
on our reported results without the impact 
of divestments 
we have a leading range of technology and
products that repair and heal the human body
we will maintain our progress by investing in 
new and differentiated technologies which bring
benefits to patients and in the specialist sales
forces to bring these products to the medical
community we will continue to invest in our
businesses by increasing sales force strength
adding manufacturing capacity and enhancing
new product development to generate vigorous
growth we will also acquire businesses or
technologies that strengthen our long term
prospects 
we remain confident of delivering sustainable
growth and believe we are well placed to 
achieve our midteens underlying pregoodwill
amortisation eps growth target going forward
dudley eustace
chairman
we remain confident in our ability to deliver
sustainable growth for the future
dermagraft
a keen golfer he has
suffered from diabetes 
all his life he ignored 
a wound on his foot
thinking it would clear 
up but when he lost
sensation in his lower 
leg he finally went to see
his doctor the foot ulcer
was so serious he was 
in real danger of having
the limb amputated 
after 12 weeks of being
treated with dermagraft
a bioengineered human
dermal replacement 
he was out of the danger
zone and looking forward
to resuming his golf