Smith & Nephew Trading Update Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Max Herrmann - ING - Analyst : Good afternoon. Just a couple of quick questions. Firstly, just on the Wound Management, how confident can you be that this is just a distributor issue and it's not a factor to do with the actual consumption of your Advanced Wound Management products at a hospital level?

Question: Max Herrmann - ING - Analyst : And just secondly, with regards to Katrina, will that potentially have impacts on the Wound Management business as well, in terms of maybe increased requirements there? Thank you. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. SEPTEMBER 13, 2005 / 11:00AM, SN.L - Smith & Nephew Trading Update

Question: Max Herrmann - ING - Analyst : Okay. Just a quick follow up. Can you give us some guidance on the third quarter? Obviously, this is going to have a significant impact on actually what will be reported and the timing of third and fourth quarter there.

Question: Max Herrmann - ING - Analyst : Okay, thank you.

Question: Yi-Dan Wang - Deutsche Bank - Analyst : Hello. Can you hear me?

Question: Yi-Dan Wang - Deutsche Bank - Analyst : Right. A few questions. First of all, can you comment on Endoscopy and why that wasn't affected? The second question is with regard to the amount -- the contribution that can be -- well, the amount of change in guidance that can be attributed to Katrina versus the increasing competition for your Knee business. If you could comment on that, it would be useful. And also, in terms of the -- your presence in the southern part of the U.S., can you -- do you have a sense of how many hospitals are closed, in terms of the percentage for the U.S. market and your relative exposure there?

Question: Yi-Dan Wang - Deutsche Bank - Analyst : Okay, thank you.

Question: Ed Ridley-Day - Lehman Brothers - Analyst : Hi. Yes, thanks. First of all on Wound, could you give us a little bit of an update on Dermagraft? It's a follow up on Max's question. Given -- clearly, obviously some of the Wound growth of the second half is so dependent on Dermagraft accelerating. And if you could give an update, say, on how confident you are on Dermagraft particular growth in the second half. And also, just in terms of the Orthopedic numbers, if you could just say -- just give us a slightly better idea how many hospitals you do actually have in Louisiana and Mississippi, or how many you actually supply?

Question: Ed Ridley-Day - Lehman Brothers - Analyst : Okay. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. SEPTEMBER 13, 2005 / 11:00AM, SN.L - Smith & Nephew Trading Update

Question: Ed Ridley-Day - Lehman Brothers - Analyst : Okay. Thanks very much.

Question: Martin Wales - UBS - Analyst : Yes. Good afternoon, good morning. You talked about this being a relatively short-term impact. I know you haven't given any formal guidance for '06, but can you give us some comment on what we should be anticipating for '06, in as far as you can at the moment?

Question: Martin Wales - UBS - Analyst : Okay, and --

Question: Martin Wales - UBS - Analyst : Thanks. And just one follow up. In terms of price, obviously some of your competitors have been talking at conferences, suggesting that they're finding pricing very difficult at the moment. Can you give us any update from what you said at the Q3s on what you're seeing in terms of pricing in October?

Question: Martin Wales - UBS - Analyst : So, the 4% that was referred to at the Q2, no change from that?

Question: Martin Wales - UBS - Analyst : Yes.

Question: Martin Wales - UBS - Analyst : Okay. And sorry, just -- you may have said this already and I apologize if I missed it, but exactly what proportion of Orthopedic sales are in Louisiana and Mississippi?

Question: Martin Wales - UBS - Analyst : Okay, thanks very much.

Question: Martin Wales - UBS - Analyst : And are you expecting that to return to normal next year, because one rather thought --

Question: Martin Wales - UBS - Analyst : Yes.

Question: Martin Wales - UBS - Analyst : Okay. Thank you very much.

Question: Charles Weston - Morgan Stanley - Analyst : Hello.

Question: Charles Weston - Morgan Stanley - Analyst : My first couple of questions is just based on Knees. The -- does the competition in knees mean that you are losing market share in Knees, or would you say that you are back down to market growth, having been at higher growth in the last few quarters?

Question: Charles Weston - Morgan Stanley - Analyst : Okay, thank you. And you talked about a new product in 2006, a new knee system. Can you elaborate on that a bit?

Question: Charles Weston - Morgan Stanley - Analyst : Okay. And my last question is on the margin. I wonder if you could give us a sense of the sensitivity of your margins to a movement in the -- or a future movement in the U.S. dollar. For example, if it moves by 5% for the remainder of the year, what that -- might that do to margins?

Question: Charles Weston - Morgan Stanley - Analyst : Okay, thank you.

Question: Michael Jungling - Merrill Lynch - Analyst : Yes, thank you. I have three questions. Firstly, how much visibility do you have in Orthopedics and Wound Care over the coming four quarters? I'm just wondering whether there is a realistic chance that you may need to lower guidance towards the end of this year, because Wound Care has not recovered as you expected, and perhaps a further deterioration in Orthopedics, either because of Katrina or because of the competitive impact. Secondly, on the margins, I was just curious as to whether the reduction in the margin guidance is purely driven by a lower sales expectation, or whether it's driven perhaps by competitive pressures. And also, which division is responsible for the margin downgrade? Is it Ortho, Wound Care or Endo? And finally, how has this affected -- how has Katrina affected your Trauma business as we speak?

Question: Michael Jungling - Merrill Lynch - Analyst : One just last follow-up question. When you mention the competitive pressures, is it purely competition on better product features by your competition right now, or is that competition word in your press release also dedicated towards price, i.e. are you losing business because other companies are more aggressive on price or is it just product differentiation right now?

Question: Michael Jungling - Merrill Lynch - Analyst : Okay. Thank you very much.