2009 Sustainability Report

Our Group business strategy has three strategic pillars for success:

• Market led: driving sustainable long term growth through innovation and customer-focused sales and marketing.
• Efficient: delivering operating margin improvement through process and systems re-engineering.
• Aligned: aligning and developing our talent and organisation for consistent execution on the Group plan.

Within the detailed execution of this strategy are the elements of our business which we discuss within this Report. In many ways, as an organisation, we find it unusual to report on ‘Sustainability’, ‘Corporate Social Responsibility’ or ‘Corporate Responsibility’ as separate topics given the inherent responsibility of what we do and how ingrained the relevant issues are within our planning processes.

Looking back over the year I am proud of what we have achieved.

Under our Health, Safety and Environmental Responsibility the vast majority of our key indicators have improved: we recycle more of our waste than ever before, with the percentage recycled increasing from 26% to 30%; normalising for increased production from increased sales, our energy consumption fell by 14% and water usage fell 26%; and across the Group, I’m glad to say, we had fewer accidents. Looking ahead, we are putting more effort into measuring the carbon footprint of all our businesses, not just our manufacturing sites, but also the transport that we use, so we can assess ways of reducing it further.

In the area of Social Responsibility, we recently completed our biennial employee survey and I was pleased to hear that 95% of employees said they were proud to work for Smith & Nephew and most (70%) would recommend it as a great place to work. There were also high marks (86%) for the honesty and ethical behaviour of employees. The feedback identified several areas where the Group needs to improve, including the alignment and overhauling of systems and processes to enable better execution of our plans and greater visibility of the results.

Increasingly, incremental product development whose clinical and economic benefit cannot be measured, for whatever reason, will no longer be rewarded in the market place. In Economic Responsibility, this topic of healthcare comparative effectiveness – comparing the effectiveness of competing treatments both on a clinical and cost basis – has been given additional prominence in the US by the new Administration. This is an area of particular expertise within our European Advanced Wound Management business as governments in that region are further advanced in healthcare economics. We continue to make considerable progress in introducing a similar focus across our other businesses. For example, we have shown that our BIRMINGHAM HIP^◊ Resurfacing System has significant cost advantages over the alternative treatment which consists of many years of traditional pain management followed by a total hip replacement, as well as giving a significant improvement in patient quality of life.

We are proud that every day our products help to improve people’s lives and we also recognise that we have a wider responsibility to the community, the environment and society at large. As a leader in our markets, we believe we should also be a leader in setting and meeting standards of sustainable development.

I hope you find our Sustainability Report useful. It reflects our commitment to running a sustainable business. If you have comments, please share them with us, as your feedback is integral to the further development of our strategy.

David Illingworth
Chief Executive
June 2009

During 2009 we intend to evaluate ways of improving our sustainability reporting in a number of specific ways. In health, safety and the environment we are examining ways of extending our reporting of carbon footprint measurement, particularly around our travel and logistics functions, as well as greater monitoring of the commitment of our third party distributors and suppliers to our sustainability standards. In the area of social responsibility we have begun implementing a new human resources system which should enable us to capture more reliably training and diversity data. In economic healthcare, we will continue to monitor the development of comparative effectiveness in the US and other healthcare systems, as they react to the additional financial burdens due to the global credit crunch.

In reporting on corporate responsibility and sustainability, Smith & Nephew is committed to improving the monitoring of its performance in its development as a sustainable business.