Email this page

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. It contains the resolutions to be voted on at the Company's annual general meeting to be held on Thursday 1 May 2008 at 2.00 pm. If you are in any doubt as to the action to be taken, you should consult your stockbroker, bank manager, solicitor, accountant or other independent financial advisor duly authorised under the Financial Services and Markets Act 2000 (or, if you are resident outside the United Kingdom, an appropriately qualified independent financial adviser). If you have sold or transferred all of your shares in Smith & Nephew plc please forward this document, together with the accompanying documents, to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Dear Shareholder,

The annual general meeting of the Company is to be held on Thursday 1 May 2008, at The Royal Society, 6 – 9 Carlton House Terrace, London SW1Y 5AG. The meeting will commence at 2.00 pm. Notice of the annual general meeting which includes a detailed explanation of the business to be conducted at the meeting is available by clicking on the following link www.smith-nephew.com/notice.

In January 2008 we wrote to all shareholders asking if you wished to continue to receive shareholder documentation by post. If you have not responded to that letter a printed copy of the Annual Report is not enclosed but is available on our website at www.smith-nephew.com/annualreport. For ADR holders a printed copy was not sent to you last year and will not be sent this year. At the AGM last year, in line with recent legislation, shareholders approved a move to make our website the primary method of communication with regard to the Annual Report and related documents. This was considered a positive direction to go, being in the interests of the environment and the earnings improvement programme. As a result, we are making available the Summary Financial Statement on our website and not printing and distributing this document. Shareholders can request a copy if they wish.

Ordinary shareholders who wish to continue to receive a printed copy of the Annual Report should contact the Company’s registrars, Equiniti at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, UK. ADR holders who wish to receive a printed copy of the Annual Report should contact The Bank of New York Mellon at +1-800-555-2470.

During 2007, the Remuneration Committee conducted a review of Smith & Nephew’s executive remuneration policy. As a result of this review, a number of changes have been identified which are required both to ensure alignment with our strategy, and to maintain competitiveness, particularly in the context of the US where the majority of Smith & Nephew’s senior executives are based.

While there have been some structural improvements to the total package, our objective has been to ensure that these changes are broadly cost-neutral.

Details of the review are provided in the Remuneration Report, which can be found on pages 61 to 72 of the Company’s 2007 Annual Report, available for download here. In summary, the following changes have been made:

• The level of shareholding that executive directors are required to maintain has been doubled in order to encourage further alignment of shareholder and executive interests.
• The Company will cease the operation of the Co-investment Plan, with the last awards being made in March 2008.
• A new Deferred Bonus Plan will be introduced during 2008. Under this arrangement, participants will compulsorily defer a portion of any annual bonus earned at target level or above into shares, which will vest, subject to continued employment, in equal annual tranches over three years. Participants’ annual bonus opportunities have been adjusted to recognise both the cessation of the Co-investment Plan and the compulsory deferral requirement.
• The performance measures under the Performance Share Plan (“PSP”) have been amended in line with Smith & Nephew’s growth strategy. Awards will now be subject to a combination of total shareholder return and earnings per share targets. This provides a balance between the alignment of executive and shareholder interests through rewarding strong total shareholder return; and the need to build future shareholder value through an enhanced focus on sustainable growth and strong financial performance.
• In addition to these changes, we are seeking shareholder approval to increase the initial market value of the award at the time of grant, under the PSP to 150% of a participant’s basic salary (Resolution 14).
  

As part of the ordinary business of the meeting, resolutions 4 to 7 are to reappoint directors. Biographical details of the directors standing for re-election are included in the notes to the Notice of Meeting which are available here. I confirm that each of the independent non-executive directors, Dr Pamela J. Kirby, Brian Larcombe and Dr Rolf W.H. Stomberg that are standing for re-election, continue to demonstrate commitment to their role bringing their varied commercial experience to Board and Committee meetings and recommend their re-elections. Although Dr Rolf W.H. Stomberg has been on the Board 10 years as a non-executive director, he brings considerable experience and stability to the Board and acts in an independent and questioning manner at Board and Committee meetings. In the opinions of his colleagues he is a highly valued contributor. The Board therefore continues to consider him as independent. In addition, the Board has recommended my seeking re-election as a director.

Resolution 13 proposes the adoption of new articles of association of the Company which incorporate a number of changes required due to the implementation of the Companies Act 2006. An explanation of the proposed changes is provided in explanatory note 13.

The Board recommends voting in favour of all the resolutions proposed as, in the Board’s opinion, all resolutions are in the best interests of shareholders.

I look forward to meeting you at the annual general meeting. If you are not able to come to the meeting in person, your vote is still important to us and I would urge you to register your proxy appointment electronically via our registrar’s website at www.sharevote.co.uk by 2.00 pm on Tuesday, 29 April 2008.

Yours sincerely,

John Buchanan
Chairman