Smith & Nephew (SNN) Q2 2026 Earnings Call Transcript

DATE

Tuesday, Aug. 4, 2026 at 6:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer – Deepak Nath
• Chief Financial Officer – John Rogers

TAKEAWAYS

• Underlying Revenue Growth — 1.6% in the second quarter, reflecting softness in U.S. Orthopaedics and Advanced Wound Bioactives.
• Trading Profit — $566 million in the first half, supported by $128 million in efficiency savings and tariff refunds.
• Revised Revenue Outlook — around 4% for the full year 2026, lowered from previous expectations due to performance in U.S. Knees and SANTYL.
• Sports Medicine & ENT Revenue — grew 8.6% on an underlying basis, driven by double-digit growth in joint repair products such as REGENETEN and Q-FIX KNOTLESS.
• Advanced Wound Bioactives Revenue — declined 12.7% for the quarter, impacted by CMS reimbursement changes in skin substitutes and distributor demand timing for SANTYL.
• Trading Margin — 18.3% in the first half, representing a 60-basis-point expansion compared to the prior year.
• Efficiency Savings Target — $200 million for the full year, increased from an initial $150 million forecast due to identification of additional manufacturing and procurement gains.
• Free Cash Flow Guidance — approximately $800 million for the full year, contingent on profit growth and working capital discipline.
• Net Debt — $3 billion as of Aug. 3, 2026, including the impact of the Integrity Orthopaedics acquisition and the $500 million share buyback program.
• China VBP Impact — $15 million to $20 million headwind to profit for the full year, related to inventory restriction ahead of government procurement implementation.
• Skin Substitute Headwind — $20 million to $40 million, with management expecting the final impact to be at the upper end of that range due to market adaptation delays.
• Inventory (DSI) — decreased by 40 days excluding reclassifications, reflecting improved capital efficiency in Orthopaedics.
• Adjusted EPS — $0.48 in the first half, a 11% increase compared to the prior year period.
• Gross Margin — 71.1% for the half year, up 60 basis points as efficiency savings offset cost inflation and inventory revaluation.
• U.S. Orthopaedics Revenue — declined 1% underlying, due to a portfolio gap in Cementless knees and instrument deployment delays in the hip segment.
• REGENETEN Growth — approximately 20% in the first half, reflecting expansion in rotator cuff repair and adoption across other tendons.
• CapEx — increased by $51 million year over year in the first half, driven by investments in a new wound manufacturing facility in Melton and IT systems.
• Interim Dividend — $0.156 per share, representing a 4% increase from the first half of 2025.
• H2 Revenue Guidance — 5% to 5.5%, supported by the launch of the LANDMARK system and stabilization in skin substitutes.
• Tariff Impact — broadly neutral to trading profit for the full year, as refunds received in the first half fully offset forecast headwinds.

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RISKS

• CFO Rogers stated, “volumes and pricing in nonsurgical settings remained under pressure, particularly in mobile, where we have limited exposure,” regarding the impact of reimbursement changes in the U.S. skin substitute market.
• CEO Nath stated that “prior authorizations that one of our — one of the larger insurers rolled out this year” have created “more friction in the system” for SANTYL prescriptions, impacting the rate at which orders are filled.

SUMMARY

Management reported a shift in the full-year revenue outlook while maintaining profit and cash flow guidance. The company indicated that strategic execution focuses on the RISE framework to address portfolio gaps in Orthopaedics through the introduction of Cementless knee systems. Efforts to scale high-growth platforms in Sports Medicine and Advanced Wound Management are intended to offset near-term reimbursement and structural headwinds in the U.S. market. The company stated that ongoing manufacturing network optimization and procurement efficiency remain central to margin resilience across its three business segments.

• CEO Nath noted that U.S. Orthopaedics performance reflects “a portfolio gap” in the Cementless segment, which the company aims to address with the LANDMARK launch in the fourth quarter.
• Management highlighted that the acquisition of Integrity Orthopaedics is “performing ahead of our expectations,” with integration efforts focused on increasing manufacturing capacity for shoulder repair.
• The company received FDA approval for TESSA, described by CEO Nath as the “first in industry spatial surgery platform” for arthroscopic procedures.
• CFO Rogers noted that fourth-quarter 2026 growth will be aided by “one extra trading day,” contributing to the projected 5% to 5.5% second-half growth range.
• Adoption of the CORI robotic platform saw “double-digit growth in CORI deployments globally” during the second quarter, according to management.
• CEO Nath attributed sales momentum in REGENETEN to its approximately 20% growth, noting significant runway to expand penetration across tendons and extra-articular ligaments.

INDUSTRY GLOSSARY

• SANTYL: A collagenase ointment used for debriding chronic dermal ulcers and severely burned areas.
• VBP: Volume-Based Procurement, a centralized drug and device purchasing system used in China to lower healthcare costs through large-scale tendering.
• DSI: Days Sales of Inventory, a financial ratio indicating the average time in days that a company takes to turn its inventory into sales.
• ASC: Ambulatory Surgery Center, a modern healthcare facility focused on providing same-day surgical care outside of a hospital setting.
• CORI: The company’s handheld robotic-assisted platform for orthopedic surgery, designed for both knee and shoulder procedures.
• CMS: Centers for Medicare & Medicaid Services, a federal agency within the U.S. Department of Health and Human Services that administers the nation’s major healthcare programs.
• CATALYSTEM: A primary hip system designed to address the evolving needs of hip surgery, including the shift toward outpatient settings.
• REGENETEN: A bioinductive implant that supports the body’s natural healing response to facilitate new tendon-like tissue growth.

Full Conference Call Transcript

Deepak Nath: Good morning, everyone. Welcome to the Smith & Nephew Q2 and half 1 results presentation. I’m Deepak Nath, I’m the Chief Executive Officer; and joined by John Rogers, who’s our CFO. So this quarter, we delivered underlying revenue growth of 1.6%, which was lower than expected. Sports Medicine & ENT performed strongly once again, with consistent delivery across regions and categories, and we saw double-digit growth from many of our key products. However, this was offset by softness in U.S. Orthopaedics and in Advanced Wound Bioactives. In U.S. Orthopaedics, knees remain weak, reflecting similar dynamics to Q1, although we saw a sequential improvement as expected. And we do anticipate further improvement through the remainder of the year.

U.S. hips were affected by a delay in CATALYSTEM deployment at a tough comparator, with growth expected to resume as deployment increases during the balance of the year. Within Bioactives, SANTYL growth was primarily impacted by strong distributor demand in the prior quarter, which did not repeat. This should normalize over the balance of the year. Despite the slower start on revenue, trading profit was strong at $566 million. Excluding M&A, trading profit grew by 9%, supported by stronger-than-expected efficiency savings and tariff refunds that fully offset the forecast tariff headwinds. Now taking into account revenue performance, we now expect underlying revenue growth of around 4% for 2026.

We recognize that Orthopaedics is not where we would want it to be, but we remain focused on delivering better performance as we strengthen the portfolio and build on the margin progress that we have made. We have clear growth drivers across all three business units that support our outlook for the remainder of the year. And importantly, despite the revised revenue outlook, we still expect to deliver our original guidance for profit, trading profit, free cash flow and ROIC. This includes an additional $50 million in efficiency savings that we identified for 2026, taking our total expected savings from $150 million to $200 million, and a broadly neutral impact from tariffs, net of refunds.

The changes that we implemented in our 12-point plan have made the group more resilient and better able to respond to these challenges. So with that, I’ll hand over to John to take you through the financial performance, and I’ll come back pretty soon. John?

John Rogers: Thank you, Deepak. Revenue for the quarter was $1.6 billion, representing plus 1.6% underlying growth and 2.8% reported, including 120 basis points tailwind from foreign exchange. Geographically, the U.S. declined by 1.3%, reflecting softer performance in Orthopaedics and Advanced Wound Bioactives. Other Established Markets grew by 1.7%, with performance led by Canada, on Australia and New Zealand, continuing the good momentum seen in the first quarter. Emerging markets grew 10.6%. Excluding China, group growth was 1.4% on an underlying basis, and we continue to expect China to be broadly neutral to growth for the full year. Let me now take you through the business units in more detail.

I’ll start with Sports Medicine & ENT, which had another excellent quarter and grew 8.6%. Within Sports Medicine, the underlying growth drivers remain unchanged, reflecting the continued momentum of our key growth platforms and consistency of performance across the portfolio. Growth was broad-based across regions and joint repair, again, delivered double-digit growth supported by strong demand for Q-FIX KNOTLESS and REGENETEN. In ENT, FASTSEAL and services continue to be the main contributors to growth. In China, after intentionally restricting inventory in the channel at the end of last year and ahead of the implementation of VBP, we saw strong demand for our products during the quarter. We continue to expect VBP to be implemented in the second half.

Sports Medicine revenue again exceeded our Recon and Robotics revenue. Turning now to ENT. Outside of China, we saw strong growth globally, including double-digit growth in other established markets and emerging markets as well as in our ARIS COBLATION wand for turbinate reduction and our HALO wand for tonsil, adenoid surgeries. In China, we continue to reduce inventory in the channel ahead of VBP implementation, which had a negative impact on our growth. We still expect the profit headwind for China VBP to be around $15 million to $20 million for the full year. Let’s now look at Advanced Wound Management, which declined by 2.1% in the quarter.

Within that, Advanced Wound Care grew 3.7%, with good growth overall, led by U.S. ALLEVYN and strength in our emerging markets. Our ALLEVYN COMPLETE CARE launch is off to a strong start in the U.S. with good early momentum, and we were pleased to launch in Europe in this quarter. In Bioactives, revenue declined 12.7% for the quarter, driven by the reimbursement change in skin substitutes and the soft quarter for SANTYL. SANTYL benefited from strong distributor demand in Q1, which resulted in a softer Q2. We’ve also seen some impact from one of the payers introducing prior authorization for certain doses of SANTYL.

Underlying demand remains healthy, but the change is creating friction in the prescription process, and we’re taking action to address this and expect SANTYL to return to growth in the second half. In our skin substitutes business, we continue to face headwinds in the U.S. as a result of CMS reimbursement changes that came into effect at the start of the year. We saw a sequential improvement from the first quarter, driven by hospitals. However, volumes and pricing in nonsurgical settings remained under pressure, particularly in mobile, where we have limited exposure. The market is adapting more slowly than expected, which continues to affect billing efficiency and inventory levels across the channel.

We now expect the trading profit headwind from skin substitutes to be towards the upper end of the previously guided $20 million to $40 million range. We remain confident in the long-term fundamentals of the segment and see opportunities to benefit as the market normalizes. Advanced Wound Devices grew 3.8%. LEAF delivered double-digit growth, reflecting strong demand, both PICO and RENASYS performed very strongly in emerging markets as we continue to expand geographically. PICO sales in other established markets were impacted by doctor strikes in Spain in the surgical sector and the timing of tender offers. In the U.S., sales of RENASYS remained soft in the acute care channel, while performance in the post-acute channel was good.

Turning now to Orthopaedics. This declined 1% on an underlying basis, primarily reflecting the ongoing issues in U.S. Knees, ahead of new product launches and temporary headwinds in U.S. Hips. Following four consecutive quarters of above market growth in U.S. Hips, we saw softer performance this quarter against a tough comparator. CATALYSTEM continues to grow strongly, but Q2 was impacted by a delay in set deployments and an increasing proportion of existing customer retentions versus competitive conversions. We see a clear path to reacceleration over the remainder of the year as CATALYSTEM set deployment increases. As the product moves into its third year post launch, growth should remain strong, albeit at a lower rate than during the initial launch phase.

U.S. Knees remain weak, but we are seeing gradual improvement as expected. The underlying dynamics are unchanged. Deliberate portfolio and capital discipline, combined with an ongoing market shift towards Cementless, continue to influence performance in the near term. Sequential improvement was driven by strong uptake of LEGION MS and double-digit growth in LEGION CONCELOC, our Cementless offering. LEGION MS now represents almost 20% of our LEGION mix, up from 15% in Q1, and is enhancing the competitiveness of our installed base. We continue to expect improvement through the year, driven by increased LEGION MS set deployments. This will remain the main driver and to LANDMARK launches.

Outside of the U.S., Knees were impacted by a large tender order in the Middle East in the prior year quarter that did not repeat. Hips benefited from the launch of CATALYSTEM in Japan, although we saw some isolated weakness in Australia, where we await regulatory approval of CATALYSTEM. Trauma & Extremities performed well overall. We continue to see good growth in EVOS, IM Nails and Shoulder, driven by our AETOS implant. We are seeing the impact of competitor launches in the U.S., but we expect growth to strengthen in the second half as we launch EVOS, Pelvic and ramp up TRIGEN MAX. Finally, Other Recon grew 0.8%.

This business can show some quarter-to-quarter volatility as revenue is influenced by contract timing and mix. This was more pronounced in the period given another strong prior year comparator. That said, we saw double-digit growth in CORI deployments globally, alongside continued growth in utilization and penetration. And we expect growth to accelerate in the second half supported by an easy comparator in Q3, continued strong demand for our robotic platform and good uptake across ASCs and teaching institutions. Now I’ll move on to the half year financials. For the half year, revenue was $3.1 billion, up 2.3% on an underlying basis and up 4.6% on a reported basis.

There was one fewer trading day versus the prior year, with underlying revenue growth of 3.1% on an average daily sales basis. Consistent with the performance in Q2, we saw strength in Sports Medicine, offset by softness in U.S. Orthopaedics and Advanced Wound Bioactives. Moving on to the summary P&L. Underlying gross profit was $2.2 billion, representing a gross margin of 71.1%, up 60 bps year-on-year. This was driven by greater-than-expected efficiency savings across manufacturing and procurement, which more than offset cost inflation and the headwind from inventory revaluation. Tariff refunds fully offset the forecast tariff headwind to gross margin.

Trading profit increased $43 million, to $566 million, with trading margin expanding 60 bps to 18.3%, reflecting the benefits of higher gross margin and ongoing cost savings. Moving further down the P&L. IFRS operating profit grew 4.3%, reflecting temporary higher restructuring charges, driven by further optimization of our manufacturing network and higher acquisition costs driven by, of course, our acquisition of Integrity. Basic earnings per share grew ahead of this at 6.2%, reflecting the buyback we announced at Q1, and adjusted earnings per share grew by 11% to $0.477. The interim dividend of $0.156 per share is up 4% on half 1 2025. I’ll now take you through a more detailed bridge of our trading profit growth.

We absorbed $119 million of headwinds from cost inflation, inventory revaluation, changes to AWM reimbursement and China VBP, while continuing to invest $33 million in our growth. This was more than offset by $59 million of operating leverage and $128 million of efficiency savings, which I’ll discuss in more detail shortly. While we had previously guided to an incremental tariff headwind in 2026, refunds received in the first half meant net tariffs were broadly neutral to profit growth. Foreign exchange also had a broadly neutral impact. As a result, this trading profit growth was 9%, excluding $4 million dilution from the acquisition of Integrity Orthopaedics.

As I said, turning now to efficiency savings, we’ve delivered around $133 million in the first half, well ahead of expectations. Of this, approximately $50 million came from the 12-point plan and zero-based budgeting initiatives. And as a result, we have now achieved $330 million of cumulative savings since launching these programs, reaching the lower end of the $325 million to $375 million target that we set ourselves at our 2024 interim results, more than a year ahead of schedule. We expect further benefits to be realized through the remainder of ’26 and into 2027. The remaining $80 million in the first half came from additional opportunities across procurement, manufacturing, sales and marketing and business support functions.

We expect a further $70 million of savings in the second half from both the 12-point plan and ZBB and other opportunities. This takes forecast efficiency savings for the year up from around $150 million previously to around $200 million. The additional $50 million is expected to come primarily from manufacturing, including from ongoing footprint optimization as well as procurement and sales and marketing. Our 2026 guidance for trading profit is unchanged. We expect to deliver around 8% reported trading profit growth excluding M&A and around $1.3 billion of trading profit, including the impact of Integrity. We now anticipate that the year-on-year impact of tariffs will be broadly neutral to trading profit net of refunds.

The headwind from skin substitutes is expected to be towards the upper end of the previously guided $20 million to $40 million range, and there are no changes to our assumptions regarding inventory revaluation or China VBP. As previously disclosed, the acquisition of Integrity Orthopaedics is expected to be marginally dilutive to trading profit in 2026, broadly neutral in 2027 and accretive from 2028. Coming now to trading margin by business units. We saw a 160 bp increase in Sports Medicine & ENT margin to 24.7%, a 10 bp decrease for Wound to 22% and a 30 bp increase in Orthopaedics margin to 13%. In Sports Medicine & ENT, margin expansion was driven by operating leverage and efficiency savings.

In Wound, the small margin decline reflected the impact of U.S. skin substitute reimbursement changes, largely offset by savings initiatives. And in Orthopaedics, manufacturing savings from network optimization, ongoing product initiatives and disciplined cost control more than offset the headwind from inventory revaluation and softer revenue growth. We expect further margin expansion over time as we work through the inventory revaluation headwind and benefit from improving revenue growth. The impact of actions already taken to rightsize our manufacturing capacity and our Ortho360 operating model. These results demonstrate the operational excellence we are driving across the business. As you know, inventory remains a key focus for us, even now that we’ve completed the 12-point plan.

Group DSI, day sales inventory, fell by 72 days, including the reclassification of instrument sets from inventory to PPE and by 40, if you exclude that. The bigger reduction came from Orthopaedics, down 62 days, excluding reclassification, reflecting continued work to reduce the number of units in inventory and a focus on capital efficiency. We also saw a reduction in Sports Med DSI, albeit to a lesser extent than in Orthopaedics, and no change in Wound DSI, excluding the reclassification. Both Sports and Wound are already much closer to industry benchmark DSIs. We expect to make further progress on inventory in 2026. Right now moving on to cash flow.

Trading cash flow was $437 million in the first half, down $50 million or so year-on-year. But this reflects a $51 million step-up in CapEx year-on-year, driven by investments in our new wound manufacturing facility in Melton and in some IT investments. We do not expect this increase to repeat in the second half, and cash generation should improve versus half 2, 2025. Other working capital was higher, largely due to timing of bonus accruals and related cash payments. Cash conversion was 77%, and we anticipate this will improve over the course of the year. Free cash flow was $231 million, down $13 million year-on-year, again reflecting these factors I’ve just mentioned, and partially offset by reduced restructuring cash costs.

We continue to expect free cash flow in 2026 of around $800 million, driven by profit growth and continued focus on working capital, offset by a modest temporary increase in restructuring costs. Net debt increased over the first half of $3 billion, an increase of $260 million, resulting in a leverage ratio of 1.8x adjusted EBITDA, within our target of around 2x. And the increase was driven by our investment in our business, the acquisition of Integrity Orthopaedics, growth in our dividend, and of course, the $500 million buyback we announced in Q1, of which we’ve actually now completed $260 million as of the 3rd of August. This is in line with our capital allocation priorities.

Before I turn to guidance, I want to highlight the progress we continue to make across margins, working capital, cash flow and returns. This broad-based improvement reflects stronger operational controls and helps make Smith & Nephew a more resilient business, better positioned to manage through periods of revenue softness or external challenges while maintaining progress against our long-term objectives. Coming now to our updated outlook. Reflecting softer performance in U.S. Orthopaedics and SANTYL, we now expect second half growth to be in the range of 5% to 5.5% and full year growth to be around 4%. Notwithstanding the lower revenue outlook, we are maintaining all other metrics of our guidance.

We continue to expect around 8% trading profit growth, excluding M&A for the year. And this translates into approximately $1.3 billion of trading profit, including marginal dilution from the Integrity acquisition. This reflects the step-up in efficiency savings that we are delivering across the business, together with the removal of the forecast tariff headwind. The progress we demonstrated in the first half gives us confidence we can remain disciplined on costs while supporting improved revenue growth in the second half. We also remain on track to deliver around $800 million of free cash flow and a return on invested capital above 10%. Let me finish by outlining why we are confident in a step-up in revenue growth.

We expect second half growth of 5% to 5.5%, driven by factors across all three business units. In Sports Medicine, we expect continued momentum across segments, including strong growth in REGENETEN and FASTSEAL. In Advanced Wound Management, we expect to see stabilization in U.S. skin substitutes, building on the sequential improvement we saw in Q2 versus Q1. We also expect to return to growth in SANTYL, further rollout of ALLEVYN COMPLETE CARE in Europe. The ongoing launch of next-generation LEAF and the benefits of greater investment behind PICO. In Orthopaedics, we expect an improving trajectory in U.S. Knee implants, driven by LEGION MS and the launch of the Cementless version of LANDMARK. We also expect U.S.

Hip implants to return to growth as we deploy more CATALYSTEM sets. Of course, we’ll also have one extra trading day in fourth quarter. So with that, I’ll hand you back over to Deepak.

Deepak Nath: Before we conclude, I wanted to spend a few minutes talking about the progress we’ve made in the first half against each pillar of RISE, which is our strategy for the next 3 years. These are the actions we are taking to strengthen the business today and position ourselves for sustainable growth over the long term. In order to reach more patients, we continue to expand access to our technologies through geographic expansion, new product introductions and important clinical milestones across our portfolio, including completing the first knee and shoulder procedures using our CORI XT handheld robotics platform and the European launches of ALLEVYN COMPLETE CARE and RENASYS EDGE.

To innovate, we advanced our pipeline, strengthen our clinical evidence base and launched a number of new products across all of our business units, including FLOW FLEXTEND and Lens in Sports Medicine & ENT, EVOS pelvic in Orthopaedics and LEAF 3.0 in Advanced Wound Management. And that brings the total number of new products launched so far this year to 9, putting us well on track to launch 16 for the full year. And a key highlight was receiving the FDA approval for TESSA, our spatial surgery system, which I’ll come on to shortly.

To scale, we continue to invest behind our higher priority — highest priority growth opportunities, including the acquisition of Integrity Orthopaedics has strengthened our leading shoulder repair portfolio, sales force expansion for PICO and continued progress in our new advanced management manufacturing facility in Melton, which remains on track to open actually in 2027. To execute, we remain focused on driving productivity across the group, portfolio simplification and operational excellence, and we’re making good progress on streamlining our portfolio, which will allow us to manage significantly fewer SKUs across our value chain and improve our capital efficiency.

Earlier this quarter, our Advanced Wound Management manufacturing facility in Suzhou, China was recognized with the prestigious Shingo prize, which reflects more than a decade of sustained operational excellence and continuous improvement. Importantly, these aren’t just strategic priorities, they are translating into tangible growth platforms that we believe can create value for shareholders for many years to come. The clearest example of that is an innovation, where we’re building a portfolio of technologies designed to both take share in existing markets and create entirely new growth opportunities. In Sports Medicine, we now have four differentiated growth platforms that we refer to as our big four.

REGENETEN continues to perform strongly, delivering around 20% growth in the first half, with significant runway expanding — remaining to expand penetration in rotator cuff repair and across other tendons and extra-articular ligaments. Our Integrity acquisition is performing ahead of our expectations, and integration is progressing well as we increase manufacturing capacity and expand our commercial capabilities. With CARTIHEAL AGILI-C, we’re continuing to build awareness and adoption in the U.S. ahead of the new reimbursement beginning in January of 2027, while also expanding internationally with our first cases completed in Australia, Italy and in Belgium. And this quarter, we achieved an important milestone with the FDA approval of TESSA, the first in industry spatial surgery platform.

TESSA combines advanced imaging, navigation and AI-enabled assistance to help surgeons perform arthroscopic procedures with greater precision. The initial application is femoral tunnel drilling, but we see a significant long-term opportunity to extend the platform across multiple joints and procedures. In Advanced Wound Management, ALLEVYN COMPLETE CARE strengthens our position in one of the largest and fastest-growing segments of the wound care market. Initial customer feedback has been encouraging, highlighting meaningful differentiation versus current products that are actually on market today. We’re also expanding our advanced wound management — wound market through the recent launch of our recent — of LEAF 3.0, and by bringing PICO into new care settings and patient populations.

In Orthopaedics, we continue to build a connected ecosystem around CORI, linking planning, execution and outcomes to support more personalized care and better optimized workflows — clinical workflows. CORI XT provides the foundation for existing robotics platform. We performed our first robotic shoulder procedures on XT in February, the first Knee procedures on it in May, and we remain on track to launch our Hip execution in the first half of 2027. Alongside robotics, our implant innovation continues to gain traction. CATALYSTEM is growing and becoming an important contributor within Hips, while in Knees, increasing set deployments and supporting broader LEGION MS adoption.

We’re also looking forward to the launch of LANDMARK in the third quarter, our most robotically enabled implant system that we’ve developed to date. Overall, the breadth and strength of these innovation platforms give us confidence in our ability to deliver sustainable growth over time through a combination of market expansion, share gains and new category creation. In summary, our second quarter performance was below our expectation, with the strong momentum in Sports Medicine offset by softness in U.S. Orthopaedics and Advanced Wound Bioactives. That’s leading us to reduce our revenue outlook for the year.

That said, we remain confident that the growth will step up in the second half, and John has given — taken you through the drivers of all of that across our business units. But importantly, while we are lowering our revenue outlook, we remain on track to deliver our original trading profit guidance, free cash flow and ROIC. And this is supported by a step-up forecast of efficiency savings, including a further $50 million of savings that we’ve identified, which helps offset the impact of lower revenue growth. We also continue to build a more resilient and agile business.

We’re investing behind our growth platforms while driving improvements in margin, cash flow and returns, strengthening our ability to respond effectively to challenges. While Orthopaedics is not where we want it to be, we remain focused on improving execution and delivering better performance. At the same time, we are positioning the business to capitalize on the significant opportunities that we see ahead. These include the landmark launch in Knees, robotic execution on CORI in Hips, the big 4 in Sports Medicine, launching new products and entering new settings in Wound and our broader pipeline of innovation. Taken together, these factors reinforce our confidence in the underlying strength of the business and our ability to create long-term value.

So with that, we are ready for your questions.

Jack Reynolds Clark: Jack Reynolds Clark from Morgan Stanley. I had three, please. First, on U.S. Orthopaedics. Could you run through specifically what went wrong here? How much of it was the market? How much of it was kind of other issues? And what you’re seeing so far in Q3? And if it has any impact on your assumptions around midterm margin expansion? Then on 2026. So the H2 guide obviously implies a pretty substantial step-up versus H1. Given kind of the comments around VBP delay, where do you see the biggest half-on-half step-up on a segmental basis and kind of really what gives you the confidence in that new guide?

And then lastly, on the midterm guidance, the 4% growth in 2026 is kind of very much below the guidance — the midterm guidance range. What do you see as stepping up in future years to offset that?

Deepak Nath: Yes, sure. So let me talk about that in turn. So U.S. Ortho, there’s some market slowdown, but that’s not the biggest factor. The biggest factor is really company-specific factors. Fundamentally, it’s a Knees. We had flagged that we are behind the market largely because of the portfolio gap we have. So we’re not able to participate in the fastest-growing part of Knees, which is Cementless. We only have that on one half of our installed base. And in Q3 when we launched LANDMARK, we’ll be better able to retain the market in the other half where we don’t have a Cementless offering. By far, that’s the biggest factor. It’s a challenging thing that we’re navigating through.

We call that out as a factor in Q1. We continue to see it in Q2, although there was some sequential improvement. And I’ll come on to kind of what we see for half-on-half, but that’s the fundamental factor that’s driving softness in U.S. Ortho. There’s a temporary blip in U.S. Hips. CATALYSTEM continue to grow very nicely. But we’re in a third full year of launch. We do expect as we go step forward from here at some point, we’re going to need to pivot from competitive kind of takeouts to more holding on to our business retention that will happen as we progress through the launch. But there was a slower-than-expected deployment of sets.

These sets are — instrument sets are optimized for one or the other products. So for example, if we’re trying to take business away from one competitor versus the other competitor, we need to have slightly different instrument sets. So getting that right is a bit challenging. That’s what paced our set deployment from the quarter. It’s a blip. We expect to regain that in the back half of the year. So those are the two really the fundamental factors, not so much slowdown in procedures, of which there was some. Half-on-half, fundamentally, what we expect is in Orthopaedics, it’s LEGION MS, which strengthens our LEGION offering, right? That’s going to be the most material driver.

And then as we bring LANDMARK Porous onto market, which we — largely a Q4 effect, like I said, we’ll be able to better retain the business that we have. And then once we go into 2027 when we have the complete offering with LEGION Cemented as well the end of Q2, we’ll be able to go from defense into more of an offensive crouch. So in Orthopaedics, it’s LEGION MS and launch of porous. In Sports, we’ll continue the trend that you have seen quarter-on-quarter. There hasn’t really been a H1, H2 effect in Sports when you take away kind of the China effect, and we expect the same to continue, right, in this year.

And in Wound, it’s PICO. We’re investing behind geographic expansion of PICO. We’re starting to see some proof of that in Q2, but we expect to see that build in the back half of the year. And then Skin Subs, which there was sequential improvement Q1 to Q2, as we’ve said, we’re in the upper end of the guidance range that we’ve given in terms of the impact on reimbursement. But H1 to H2, we expect to see an improvement. So those are the components of H1 to H2 in terms of what accounts for the step-up in growth that we see. Turning to — finally, the third question, which is around midterm guidance.

Look, we always knew ’26 was going to be a challenging year. Obviously, it’s proved to be a bit more challenging than we thought. And that’s largely on the back of U.S. Knees that we talked about and the prior authorizations that one of our — one of the larger insurers rolled out this year that’s impacting — there’s more friction in the system, but prescription is not end user demand, but it’s really the rate which prescriptions get filled. So that’s the reason for why we called down 2026.

But the fundamental growth drivers, which are new products, either in existing categories or in creation of new products or creative new categories, those drivers remain well intact, whether it’s in Orthopaedics. We talked about LANDMARK launch. We talked about Hip execution on CORI, AETOS, which is on shoulder. And in Trauma, rounding out our EVOS portfolio with the pelvic offering that’s new. And then on the Nail part of the portfolio, IM nails continuing to improve. So multiple growth drivers in Orthopaedics we’ve got to look forward to in 2027. And then in Sports, big four, continued execution on those. And then finally, in Wound. It’s PICO. It’s building out of RENASYS and normalization of Skin Subs.

So these are the growth drivers, as you can see, is multiple of them across all of our business units. It gives us confidence that we are fundamentally a 6% to 7% growth company, yes.

John Rogers: And maybe just a — perfect answer. But maybe just a little bit of color on the phasing in terms of the second half. Sort of Q3, Q4, we do expect to see a step-up in Q4 performance versus Q3 performance. So Q3 will improve on Q2, clearly. And then Q4 will be stronger. And that’s not just — that’s not jam tomorrow. That is very clearly because of the timing of investments that we’re making, specifically in relation to the launch of LANDMARK. And then in the context of skin substitutes, we’re actually starting to lap the impact of last year.

Maybe — like Q4 last year was tough in Skin Substitutes because of the actions that we’ve been taken by the market in anticipation of the changes to reimbursement. So we’ve got a much softer comp in Q4 on Skin Subs and therefore, we’d expect that to — there’s not only the continued recovery that we’ve already seen in Q2 and Q1, we’ll see come through in Q3, but we also start to lap in Q4, the impact from last year. So that will be particularly positive on Skin Subs.

And then, of course, [ Deepak ] said, we should also mention that we have got one extra trading day in Q4, which when you add all that up, you’ll see a big step up in growth in Q4 versus Q3, just to make that absolutely clear. And then to your point around the headwind on Sports. I mean you’re right. I mean Deepak’s actually spot on, of course, that we’re continuing to see the momentum. But we would expect Sports and ENT to be a little bit softer in Q3 than we saw in Q1 and Q2 because of the impact of VBP coming in both of those areas in the second half.

So we factored that into our forecast, and that’s fully baked into the expectation of the top line guidance of the 4% and also the profit guidance as well, which remains unchanged.

Jack Reynolds Clark: That’s great. Could I sneak in a cheeky follow-up? If you were to quantify Q3 versus Q4 growth, the phasing there, would you be able to offer any color there?

John Rogers: I could. Look, I think in Q3, we will see growth in the order of — sort of Q1-type dimensions. So if you remember, in Q1, we were 3.1% growth, 4.7% on an ADS basis. In Q3, we will see growth of a similar level. In Q4, we will see a step-up in that growth. You can work out the math, but it would be — at a growth level, it will be sort of 6% to 7%. But actually on ADS basis, it will be just north of 5% because of the extra trading day. That is a step-up on Q3 in absolute terms, not stripping out the trading day impact.

But that is because of the Skin Subs, because of the investments being made in PICO and the timing of those investments and because, of course, of the launch of LANDMARK, which takes place towards the end of Q3. So those are the reasons why we’ve got confidence in our ability to deliver that 4% for the full year.

Hassan Al-Wakeel: Hassan Al-Wakeel from Barclays. A couple from me on Ortho. So firstly, maybe to ask Jack’s question a little differently. We’ve seen the softness this year. Now we’re seeing Hips, which has been really strong before today. You said this isn’t market driven. What are you doing differently when it comes to execution? Why shouldn’t some of these set delays in Hips weigh on the second half? And then specifically on U.S. Hips, how are you thinking about growth here beyond the next quarter or two as CATALYSTEM matures as a product?

And then secondly, on Robotics, and if you can try and unpack the growth in the quarter and the development in CORI, is it entirely a function of comps? And how should we think about growth in the second half and beyond given the launch of MAKO RPS last month?

Deepak Nath: Okay. So with Hips, just to emphasize again kind of what I’ve said around set deployment. So first, there was a comparator, right? So had a strong comparator in Q2, and so that numerically had an impact. When you look at a 2-year stack, it’s actually not that much of a deceleration in Hips. So it’s largely kind of consistent. So — with set deployments, just to double-click kind of what I said, largely, it has to do with instrument sets. So when you’re trying to take a customer from their existing kind of approach, whether it’s one of our legacy products or one of our competitor products.

The instrument that you have to deploy to cater to the surgical approach of that particular surgeon has some variability. It’s not just some standard instrument that you deploy that works regardless of which legacy platform that they’re using. And getting the demand ripe for that instrument, that is a bit tricky because of that variability, right? And so we didn’t quite get that right. And so we were somewhat paced by that in Q2, right? So the combination of numerically stronger comp plus that — kind of led to what you saw.

We’ve also said, as we progress through the launch, typically what happens in Orthopaedics launches, certainly the way we approach CATALYSTEM is we targeted competitive surgeons initially, right? And you expect to do that for a period of time. But eventually, you are going to have to address your base of customers. So that mix of competitive versus retention will start to flip from competitor heavy against retention to more retention heavy, smaller competitors. So at some point, that will normalize, so we’ll get back to, in effect, market levels of growth in Hips. So that’s what you should expect as we proceed to the back half of this year and beyond.

So hopefully, that explains kind of the blip in kind of instrument deployment that paced Q2, but what you should expect as we go through the launches. So the second question that you had was in CORI for this quarter and beyond. I think John, you said we had double-digit growth in CORI placements in quarter 2 and also that got a similar number in first half. So continue to be pleased with the pace at which we’re placing CORI, and also we are replacing them, right, hospitals versus ASCs, teaching institutions versus across the mix. So we’re having actually nice impact across a range of care settings.

And generally speaking, when I look across the board, we are at least at our market share. That’s encouraging. But look in the ASC, it’s slightly ahead of our market share in terms of CORI replacements within the ASC, not by leaps and balance, but certainly. So what it shows is that we are tracking relative to our share. The strategy we’re following is that we’re not just placing first and then allowing utilization to catch up. We’re placing where we see a demand, where we see a surgeon who wants to integrate it into their practice. And we’re equally monitoring utilization as we are placement, right?

We could have followed a different approach, but ours is actually placement and utilization. So I’m actually pleased with not only the headline, but also the texture of the thing. You referenced Stryker coming up with their handheld. Look, for me as a headline, there are always questions around, well, is CORI a science experiment? Is this really in a mainstream platform or not? The last reported number was 1,100 that we talked about. We’ve talked about double-digit growth off of that, you can do the rough math. It’s — and the fact we’re placing in proportion to our shares as CORI is a mainstream product, which it’s being accepted by the market.

And the fact that there’s competitors who are now thinking that they need to have their own handheld platform is validation of our approach. It also speaks to the innovation that sets Smith & Nephew at our scale, where we have taken both bets, we could have come up with our handheld rather a fixed arm robot too, but we didn’t, right? We have the strength of our conviction to go with a handheld platform, and great that our competitors are following suit. But at the end of the day, it’s deploying them in the playbook that we’ve developed, and I feel very confident about how we’re doing that. I think those are the questions that you had?

John Rogers: Yes. Just to build a little bit on — just on Deepak’s comments. And not withstanding that double-digit growth in placements. Of course, when you place CORI’s initially, they start off with low utilization and then slowly ramp up over time. So not withstanding that double-digit growth in placements, we continue to see progression on both utilization, which has gone up 4 or 5 percentage points from the end of 2025 and also in penetration, which has gone up about 2 percentage points from the end of 2025.

So it’s — even not withstanding the dilutive impact of putting out more CORIs there and the buildup curve that those necessitate, we’re still continuing to see improving trends in penetration and utilization, which I think is very encouraging.

Deepak Nath: So I don’t betray a leftward bias in my — who I call on, I’ll go to the right part of the room and I’ll call on colleagues there, and then I’ll hop around.

Sebastien Jantet: Seb Jantet with Panmure Liberum. Just a couple of questions then. So just on tariffs. Obviously, you’ve had — the guidance has changed, but I remember you were talking about $60 million hit prior to that. I just want to check that the gross and the net numbers haven’t changed, so — that the refund is still $60 million. And just check the logic that, that just shifts as a headwind into ’27, rather than ’26.

John Rogers: Yes. So — so you’re right. So just to say, it was really, really clear on tariffs. The P&L impact for last year was $15 million. The anticipated P&L impact for this year was $60 million. So it was a $45 million drag. We now expect refunds for this year to be around $50 million. So that’s a — so net-net, when you net all that out, it broadly means that tariffs in total compared to last year is neutral on the P&L. So the refunds effectively offset what would have been the P&L charge.

Sebastien Jantet: And then we’ll get the headwind next year effectively?

John Rogers: And then you will get the headwind next year. So the cash tariffs is of the order of $15 million. So that’s the P&L impact in next year will be circa that quantum. But there’s also a little bit of further refunds that will come through likely next year. I mean, look, there’s a lot of moving parts on tariffs and we still got to see the outcome of the Section 232 review that we probably won’t find out about until the back end of this year. So lots of moving parts on tariffs as you always expect, but we would expect a little bit of an offset of the P&L charge next year with some further refunds.

And we’ll — obviously, we’ll provide more guidance on that when we come to our premiums in 20…

Sebastien Jantet: Okay. And then the second question then is just around the kind of the cost savings. And obviously, you’ve managed to kind of to get some decent kind of momentum in the cost savings. If I heard you correctly, you were saying the extra $50 million is largely coming from manufacturing and things like footprint kind of reduction in that type of area. I’m just wondering how — I mean, those in my experience, take quite a lot of time to achieve. So how have you managed to kind of find new ones so quickly there?

John Rogers: There’s a lot of efficiency savings in the way that we run our facilities. There’s some benefit coming through from the changes that were made historically that was better than expected. So it’s an element of historical change that has come through — better than we thought will come through in terms of the way it’s flowing through the P&L. But there’s also been changes that we’ve made in how we operate things with — we’ve also streamlined our operations, for example, from Austin and also Warwick, which we closed. We put — we consolidated that into our Memphis facility. And we’ve delivered greater-than-expected efficiency savings. But they’re not just — the efficiency savings are not just in manufacturing.

The bulk of them, you’re right to say, are in manufacturing, but there’s also savings we’re seeing in sales and marketing. There’s also savings that we’re seeing in our business services as well. So…

Deepak Nath: And procurement.

John Rogers: Yes. Thank you, Deepak, yes. So it’s — I think it’s very exciting. I always — I think I alluded to, I read back the script to the Q1 or the premium number. And I think I sort of said at the time, $150 million or possibly better. I mean we always had a little bit of line of sight of being able to beat that $150 million. I think it’s very pleasing to be able to talk about the $200 million target today. But I think it really reflects an ongoing discipline around our cost savings that we built initially through the 12-point plan and then added to with the ZBB program.

And today, we’re now looking at our next wave, and we’re not going to talk too much detail about this, but a lot of the stuff that we’re doing, for example, and putting in new systems and also the overlay of AI. And we’re doing a lot of work in the business now to look at how do we fundamentally simplify and streamline our end-to-end processes, which remain quite complex. So we’ve gone through sort of three phases of cost reduction in our business, the first of which was just to get the P&L in a decent shape to deliver the numbers.

The second of which is to basically take our existing processes and take away some of the — what we call the facts and the cost in those. And the third wave is to fundamentally simplify and automate and streamline our processes. And we’re now in that third wave. So we’ll — no doubt, we’ll talk more in the future about what the opportunity to come is.

Deepak Nath: Just two things, one kind of clarification and just more a broader point. Just when we talk about footprint, it’s — it’s not that we’re closing any more factories that we hadn’t contemplated. And you’re right, like those things take time. It’s actually how we’re utilizing our current footprint. That’s the key driver. Apart from all of the things that John said, how we use Malaysia versus Memphis in terms of optimizing across our network, for example, in Orthopaedics is one of the contributors to that. We’ve called out the spirit of continuous improvement as kind of the key, kind of underlying things that enables the strategy to happen.

I’m pleased to report that some of those things, the organizations have embraced very, very nicely. So the spirit of continuous improvements that lead to these additional savings, it’s not a point-in-time activity. It’s actually how we are ordering the business this way. And that’s what enabled us to hold to a profit target despite the revenue miss. Yes, there’s not the headwind that we had from tariffs that we expected, but it’s more than that, right? It’s all of these additional savings that allow us to make — it’s actually that simple statement come true.

Charles Weston: Charles Weston from RBC. Just to quickly clarify that. How much of that $50 million is sort of brought forward from 2027? And how much of it is incremental, and we should be modeling off that for 2027?

Deepak Nath: Do you want to take that or I can?

John Rogers: I mean I think — the way I think about it is a little bit of the $50 million that’s — I mean, in terms of first half performance, there’s — like there’s an element of bringing forward some of the half 2 into half 1. And in terms of the back half of the year, there’s an element of bringing in some of the half 1 ’27 into the half 2 of ’26. So there’s always shifting everything forward. The point I would — we’re not going to sit here and guide now to ’27 numbers. But the point I would make is that this is not a one-off exercise, to Deepak’s language just now.

I mean, deliberately used the word continuous improvement. And I also talked a little bit about some of the savings that we’re now driving through things like our ERP program and also AI as well. So I would say we’ve got good visibility. And we’re not going to set out the guidance now, but we’ve got good visibility of future opportunities to drive further efficiency savings in this business, and we’ll set out that much more clearly, of course, when we give the guidance for ’27. But I wouldn’t — I would not classify it as robbing Peter to pay Paul in terms of bringing it forward from ’27 into ’26. There will be plenty more to come in ’27.

Charles Weston: Okay. Sorry, that was a long clarification, but I had two actual questions. One of them on ACA. Have you noticed any changes in terms of either procedure volumes or CapEx sale or CapEx demand from U.S. hospitals? And secondly, just in terms of LANDMARK launch timing, can you just confirm that everything is on track for both Cemented and Cementless. And sort of the typical, I think you said it’s a 2-quarter ramp to really start meaningfully getting sales from those things.

Deepak Nath: Sure. On ACA, we did see some impact of that in terms of procedures. So it’s both — across elective procedures, you have some hospital systems comment on that. And we did see that, but it was not the most pronounced effect, so we didn’t overly measure on that. But there is an impact of ACA-related procedures laydown that we are — that we have seen both across Knees and Hips. But like I said, it’s not the dominant factor that explains our performance. In terms of LANDMARK timing, Porous is the very end of Q3, so largely a Q4 effect. And then the Cemented version of LANDMARK is the end of Q2 of 2027.

And as you know, Charles, there’s a ramp associated with that. You’ve talked about 2 quarters. It isn’t quite as straightforward is that it depends on competitive dynamics, right? But there’s a good way and not so good way of introducing these launches, right? When you can throw a lot of capital at it and encourage a lot of trial at a great deal of capital expense, right? But a more methodical and a proper way to do an Orthopaedics launch is to be much more mindful in terms of how you deploy capital in order to encourage trial and then ultimately, adoption.

So one of the things that we’ve gotten much, much better as an organization is around capital discipline and capital efficiency in Orthopaedics business that we did not consistently have. So that does impact top line, right? And we’ve called that out in previous quarters. But we expect to bring that level of capital discipline and efficiency mindset to the LANDMARK launch. The consequence of that is a is a more kind of slower ramp, but it’d be, I think, a more durable one and also the more disciplined way to tackle these. Okay. One question here, and then we’ll go online.

Richard Felton: Richard Felton from Goldman Sachs. The first one, I want to ask about something that’s been coming up a little bit more in our investor conversations, and that is on potential competitive risk for SANTYL. Could you remind us the size of that product today? How revenue split between different care settings? And what you perceive as the key competitive strength of SANTYL? And then the second one is on Advanced Wound devices. So I suppose, over the last 4 quarters, so we’ve seen a bit of a deceleration from kind of double-digit growth to mid-single-digit growth for that part of the business. What has been driving that?

And what is the right way to think about the trajectory for Advance Wound devices going forward?

Deepak Nath: Sure. SANTYL, we don’t typically give product level detail. It is a multiple hundred million dollar product, right? And to your point, there are kind of — it’s a category where effectively, a large proportion of that market, and there is some competitive activity in that. I just want to emphasize that’s not what’s driving our numbers today. I just want to clearly emphasize that. What — where we stand out in SANTYL is we don’t require refrigeration. So supply chain is simpler. There isn’t pain associated with the use of our product, which some of our competitors feature, right?

And it’s — one of the disadvantages is that it is a slower process — I mean it takes time for the product to take effect, right? That’s one of the downsides of SANTYL. But having said that, it’s got a proven kind of track record and utilization across a range of use cases and across settings, whether it’s in an acute setting or when patients get discharged home with a prescription for SANTYL, right? So it is across all of those areas. We feel very good about how we’re positioned within that category. We have line of sight obviously to what competitive products are what they offer and how SANTYL continues to be differentiated relative to it.

Of course, we’re not resting on our laurels there. There is a next-gen product. So we aim to improve upon SANTYL, building upon its advantages around supply chain, its advantages around the level of pain of which there isn’t in using the product, but actually have it be faster in terms of how it works. So that’s our next gen SANTYL. In terms of AWD, there’s two broad categories, so single-use and traditional negative pressure. We also classify LEAF within that. And LEAF has both the device component and the dressing component, just to kind of disaggregate what’s in our AWD right? Largely, the deceleration that you see is in our traditional negative pressure category, which is our RENASYS platform.

There, as we’ve highlighted, we’re doing well in the post-acute segment. We are not taking share in the acute kind of channel. And the answer to that is actually have a better rounded offering with RENASYS, right, both in terms of the next-gen canister, but actually having a whole assortment of dressings that’s fit for purpose for the application, whether it’s OB-GYN, whether it’s GI procedures, Orthopaedic procedures and the like, and that each one’s got a specialized kind of dressing and we’ve — we have a narrower range there than the large competitor within that. So we obviously have product development to address that, and we’ll start to build that out in 2027.

So the deceleration is largely within the acute care segment of traditional negative pressure. On the single-use with PICO, that’s been a product that’s been a growth engine for us for quite some time. And in addition to its use across care settings, we’re actually invested to drive it into the geographies where we’re not present in the same way today. That’s part of the investment that we’ve talked about, and we expect to see the benefits of that come through in Q3 and especially in Q4, right? So we continue to do well there. There’s competitor activity within the single-use segment. We feel well positioned within that.

But we also have our pipeline there that we expect to, I think we called that out in our Capital Market Day presentation somewhere in the ’28, time frame, we expect to come up with our extension PICO. So hopefully, it gives you a feel for kind of how that segment is categorized and the dynamics within that. So we’ll now go online first, and then I’ll come back into the room.

Operator: [Operator Instructions] Our first question is from Veronika Dubajova from Citi.

Veronika Dubajova: I have two please. One sort of slightly diving into the nitty gritty, but just curious to get your thoughts on what’s happening in Trauma & Extremities. Obviously, we had a number of years post the [ ATLAsplan launch ] really accelerated dramatically year-to-date. Just curious if you can touch upon the dynamics you’re seeing in Trauma versus Extremities, and if there are things you can do to get that growth back into the mid-to-high single digits. And then my second question is a big picture one. I apologize, but I have to come back to the midterm guide. I think even just to hit the low end of the 6% to 7% that you guided for previously.

If you are doing 4% this year and you have to do 7% in the other 2 years, and that would be a pretty dramatic acceleration versus the trend that you’d seen in the last couple of years. I appreciate there are to headwinds this year, but they were also headwinds to last year and the year before. So I’m just trying to understand the logic for why you are sitting to that 6% to 7%? Is there any way at all in your mind to get anywhere above the low end of that range? And I guess what gives you the confidence at this point in time to maintain that?

Deepak Nath: Sure. Thanks, Veronika. So I’ll take them in order. So Trauma & Extremities, I’ll talk about Trauma and I’ll talk about Extremities. The Trauma, we’re positioned kind of nicely with our EVOS platform. I’ve talked about pelvic, which is something like 1.5% of the overall pie, but it’s an important piece that we’re going to launch and do, right? They’ll be even fuller now. Now we’ve been expecting competitors to launch within that category, and two of our competitors are, in fact, at various stages of launch in the CORI plating category. So there will be some level of trial, some level of adoption as those competitors launch within that category. So — and we’re seeing some impact of that.

And that’s not a new factor, it’s just that’s been out there in the market. I think our — the EVOS compares very, very favorably to competitors’ offerings. But over time, as surgeons try those, you’ll see some quarterly variations depending on who’s trying, who’s adopted and so forth, right? But I feel very good about how we’re positioned within that category. We do have drivers of our own beyond EVOS, IM nails. We launched that, I guess in Q1, you’ll have to remind me, John. But in the recent quarter or two, we launched our own IM nail offering. We hadn’t had a new product there in — my sales force likes to remind me in far too long.

But we’ve got a nice offering there that should expect to kind of drive growth and we called that out in the last quarter. So core trauma category, nicely positioned in terms of our products, but there is competitor launches, particularly in plating. On Extremities, our presence now — we’re a relatively small player in Extremities, as you know. And for us, the real call out here is Shoulder with AETOS, right? And there, again, we are a relatively small player, but we now have more or less the offering we need on the implant side, but actually, importantly, we’ve got CORI enabled for planning and execution.

And there’s some real differentiation there within that anatomic, reverse anatomic, glenoid and humeral planning and execution, which is quite a differentiating feature. And they’re a handheld robot actually is differentiated relative to a fixed arm robot for shoulder surgery. But we are working off of a small base. And we are in the early stages of launch. It will be more group relevant, I would say, ’27, ’28. We’re in that early stages, and they were getting nice traction, not only with surgeons who are trying it, but surgeons who have actually integrated that as part of the routine practice. So it’s — there is just not as material to the group given the small base.

So hopefully, it gives you a bit of texture and color around Trauma & Extremities. On the midterm guide, look, as I said, ’26 was softer, Veronika, you’ve done a bit of the numerics around 4% and then 6% to 7%. The reality is we’re 2 quarters into a 3-year kind of plan, right? And obviously, we have thought through the numerics ourselves, and we’ve gone through the fundamentals of what actually drives the 6% to 7%. And as I said earlier, once we get through the period today, I mean, what’s holding us back this year, why did we actually reduce the guide? One is our position in U.S.

Knees and how that’s impacting us today with the gap in the portfolio. And the second is SANTYL, right, with the prior authorization that we are having to contend with. And on the Skin Subside, we’re on the upper end of the range, but still within the corridor that we guided to. That is in combination, not a great thing to have to navigate in this year because you have a bunch of headwinds and not a whole lot of tailwinds. But as we move into 2027, we expect to normalize the Skin Subs, right? We expect to kind of normalize on the SANTYL, and then we’ll have the portfolio complete in the way that allows us to be competitive.

Now there will be a ramp starting in Q4 this year. Cementless was first and then starting in the back half of next year with Cemented LANDMARK. So there will be a phasing or a pacing in terms of how we become more competitive in Knees. But you put all of that together, we feel good about the growth drivers we’ve got stacked up in Orthopaedics. And I’ve talked about Knees and Hips. It’s about getting execution capability in CORI. We’re seeing contracting activity that ties together both Knees and Hips. And I think we’ll be able to better compete within that as we have execution ability on CORI as well on the CORI XT platform.

And then as I’ve talked about AETOS becoming more relevant in the ’27, ’28 period. And then in Sports, we’ve talked about Big four, and they’re very nice growth drivers that are kind of lined up within that business unit. And then in Wound, beyond the normalization of Skin Subs, you’ve got new product launches coming in the traditional negative pressure category where we have given up ground, and I’ve previously commented on the fact that, that’s one part of the 12-point plan that didn’t work as well, right? The growth rates were great, but when you looked at the placements of RENASYS, we were behind on that. But we have addressed that. We understand the reasons why.

But as we turn into 2027, that will become a growth driver together with the investments we’ve made in LEAF and NextGen PICO. So you stack all of that up, that gives us the confidence that at the end of the day, we are 6% to 7% growth company, despite the challenges we’re navigating through in ’26. Yes. We’ll come back into the room and then back online.

Kane Slutzkin: It’s Kane Slutzkin, Deutsche. John, just a quick one for you on the savings. Can you give us some comfort that — I guess none of what’s been done over the last few years or still to be done sort of is at the detriment of growth down the line. Often, we do see these sort of situations where you could cut too close to the bone? And then just for Deepak, just quickly coming back to the U.S. environment. You mentioned sort of some of it is a slower growth. Your bigger peers have kind of pushed back — seemed to push back at a sort of view that the market is weakening.

There was one smaller peer suggesting that we go back to pre-COVID sort of growth rates. Just wondering if you have any thoughts on that with a view to obviously try to launch?

Deepak Nath: You want to take the first one?

John Rogers: Yes. Yes, just to be — I think we can be categorically clear that we’re not sort of strengthening the business vis-a-vis growth. In fact, we’re very, very deliberately investing in growth in the business. So we’ve been very conscious about how do we deliver cost and efficiency savings and how do we actually invest in our growth, so much so that we actually split it out in the bridge that we give you. So we really see the transparency. So you see the savings in that bridge and you see the sort of $33 million investment that we’re making in growth. What does that look like in practice?

Very simply, I mean, if you look at it just purely in head count terms, and I’m massively in favor of cutting head count where we can. But actually, over the last 12 months or so, we’ve actually increased our headcount. But the areas where we — we’ve actually reduced our headcount, permanent head count in those areas where we can drive efficiency savings. So for example, manufacturing and operations, we’ve actually reduced our overall permanent headcount. And we’ve actually increased our head count almost singularly in Sports and Wound, where we see very specific opportunities to grow our business.

And so obviously, the Sports story is very clear and Deepak’s talked about the four opportunities we have across CARTIHEAL and TESSA and REGENETEN and et cetera, et cetera. So that’s very clear. And in Wound, we have the opportunities in PICO and ACC and Skin Subs. And if you actually look at the increase in our headcount, all of it comes into Wound and Sport, and at least 75% of that increase comes in the front line, in other words, into sales, into medical education, into customer service. So we’re not adding to the back office. So I can be absolutely clear that we are recycling resource.

We are taking resources away from things like the back office functions where we’re streamlining and taking cost out, and we’re reinvesting into the front line to drive that top line growth. Now we won’t see a return on that investment within ’26. The $33 million I say that we’re investing in that growth. But to Deepak’s earlier comments about what gives us confidence in our ability to deliver, why do we think we’re a 6% to 7% growth company, because we’re investing in that growth. So we’re being very deliberate. And we’re spelling that out for you as well. It’s not sort of assumed in one lump in the bridge.

We’re very clearly separating out the cost savings from the investment piece.

Deepak Nath: Just a couple of builds on it. As we navigated the 12-point plan journey, I’ll tell you, with all the margin pressures we faced, it would have been easy for us to kind of meet the targets, particularly within the years, the interim years by cutting R&D. I mean I can tell you that, that was a place we could have gone, although we more or less got there at the end of the 3-year period. You’ll remember the periods in ’23, ’24, where there’s tremendous margin pressure and there’s all the questions whether we’re going to get to kind of what we set out. But we resisted the urge to do that, right?

We maintain the level of investment in R&D in order to fuel the growth, and we’re starting to see the benefits of that, and it will come even as we go through the next three years. So — it’s a very conscious — life’s a balancing act. But what we have actually held on to is to not cut the things that position this business for sustainable kind of growth over the longer term. John’s talked about the trade-offs there in manufacturing and commercial investments, but particularly in R&D as well. We’ve made sure that we have ring-fenced or protected the things that really drive long-term business — long term growth in this business.

In terms of your question on U.S. procedure, I assume it’s primarily in Orthopaedics. Believe it or not, it’s actually harder to get at what the market is doing that you might think, right? Third-party data sources in this space are not as robust as it is in other areas. So we’re all trying to parse based on limited data points kind of what the market actually is doing, right? And I have been somewhat loath to comment on the market because we’ve had performance challenges in the U.S. So I’ve been less front fitted and commenting on the market historically. Now our performance still is challenged, but it’s not necessarily all because of commercial execution.

They’ve got a little bit more visibility into kind of what’s going on in the market. So when I tell you, there’s a little bit of a market effect, it’s based on what we can see. And I wouldn’t have been able to say that even last year — never mind, 2 years ago. So against that backdrop of market is not as robust third-party doses to call it. I do believe when you look — it’s an exercise of triangulation. So what are those things you look at? First is look at reimbursement, right? And those are public, and you can see what’s happening to how procedures, Knees and Hips get reimbursement — reimbursed in various care settings, right?

And you can see what that — what that’s done in the past was is projected to do in 2027. That’s one data point. The second data point you’ve got is the shift in site of care, right? As you go from a hospital setting into an ASC, the reimbursements are lower. There’s an impact on ASPs as you go through that, right? And that’s a very dynamic thing, but there’s impact around that. Against that, you’ve got other factors like mix, right, and the shift from Cemented to Cementless, you have a mixed benefit that runs counter to the things that I’ve talked about.

So you put all of these pieces together, working out what the market is doing in revenue terms and what it’s doing in volume terms can be trickier. And then you’ve got the ACA impact that you asked about earlier, which is not only patients who are coming off of the ACA roles as they lose subsidies. But also what’s really happening to those who are in commercial programs that are not necessarily recipients of those subsidies, but they’re out of pocket. Out-of-pocket proportion — fees have gone up. The premiums have gone up and how that impacts their desire or their willingness or ability to undertake elective procedures is also another factor into this.

So you put all of this in, what I see and what I’ve seen in Q2 is a slow down. But I’m not going there to explain our performance in the quarter. So hopefully, it gives you a bit of color around market, the position that I’ve taken, why I’ve taken it based on what I see. Back to the calls, yes.

Operator: Next question on the telephone line is from Caitlin Cronin from Canaccord.

Caitlin Cronin: Maybe just starting with skin subs. How are you thinking about recovery of this business that you noted it is taking longer for the market to adapt and could this weakness bleed into 2027? And are there any efforts that you’re making to really help the market adopt these changes?

Deepak Nath: Right. I didn’t get your name. I think it’s Caitlin. So on Skin Subs, so what’s happening there? So first, there’s the utilization of Skin Sub across settings. It’s in the hospital setting, it’s in physician offices. It’s in HOPD setting, so hospital outpatient settings as in mobile, right? So what we’re talking about here in terms of impact is greatest in the mobile setting, followed by physician office and hospital outpatient. By and large, in-hospital users have been impacted by the change in reimbursement. The second thing that we’re talking about is what products get used right?

And you’ve got new entrants that have products that don’t have a lot of clinical data supporting them, and then you’ve got players like us and a couple of others who’ve been in the market for a long period of time. We got products that’s withstood the test of time and we’ve got a great deal of clinical data supporting the appropriate use in the clinic for those products. So what is happening this year now is as the change in reimbursement has gotten implemented, folks in — the mobile is where we expected the greatest impact, and that’s what we’re seeing. We, Smith & Nephew, have had the least exposure in the mobile segment.

So we’ve had exposure in the physician office and HOPD and in the physician office. And we previously detailed that out. You can go back to our previous releases to see how we’ve parsed that, right? So generally speaking, that impact on mobile office is playing out as we thought. In the physician office, how they get reimbursed has changed. I mean does the mechanics of how you build for it, whether it’s per application or per episode of care. And that has changed, right? And so as physician offices have adopted to the new ways of billing, that’s introduced friction into the system, right? And that part has taken time.

The reimbursement part of it has also been slower and there are about four max within the U.S. that have gone through or currently covered under the [ Wiser ] model, which you’ve heard about either through — from us or from other disclosures, where there’s an AI-based algorithm for how claims are reimbursed. And there’s been friction associated with that, right? And so what are we doing about it? We had always expected that the parts of our portfolio that — we’ve always had uptake based on the clinical data and everything else will get robust utilization, and we’re seeing that. In fact, our OASIS product line is growing by leaps and bounds, right? And that’s been great.

And as we move into 2027, where all of this administrative friction that I’m talking about, whether in terms of how claims get submitted or how claims gest processed and how physicians then adapt their care to which products they use, all of that we expect to settle out in 2027 as the new calendar year, the new fiscal year in the United States kind of turns over. And that’s — and in that new world, we expect to be very well positioned because we’ve got a product portfolio that’s very, very relevant to that category. We’ve got a price point that works within the reimbursement level that the government has set at $127 per square centimeter.

And we’ve got the clinical evidence for the products that we aim to use. So it’s a great category growing at double digit when products are used appropriately, right, when it’s relevant for a clinical setting, and we’re very well positioned within that. So it’s really about navigating this year, that’s been a challenge. And we’ve — based on taking all of these factors into account, we provided a range of something like $20 million to $40 million, right? We’re navigating to the upper end of that range, but we’re still within that corridor that we had provided all of these dynamics. Within that, we had also called for sequential improvement or normalization from first half to the second half.

We have seen sequential improvement from Q1 to Q2, and we expect that trend from the first half to second half. So hopefully, that unpacks the Skin Subs topic. Anything you want to add?

John Rogers: I mean just a little bit of color just on the numbers because you remember at the beginning of the year, we said that revenues will be down 15% to 20%, and that was driven by a 20% to 25% reduction in price, offset by a slight positive on volumes. And that’s what got us to the $20 million $40 million range. And actually, we were flat bang in the middle of that range, hence why we said $20 million to $40 million. What we’ve actually seen in practice is that actually, revenues in the first half were off about 20% or so, so towards the upper end of that range.

And that’s, broadly speaking, what we’re now forecasting for the full year. But we’re not expecting the price impact, the 20% to 25% that we’ve previously called out to be quite harsh. So the price impact will be less than that. And equally, the converse, we’re not necessarily expecting the volume to be as flat to positive. We are expecting there to be a slight decline in the volume. So volumes are a little bit worse than we thought. Price, a little bit better than we thought. The net-net is that we’re up towards the upper end of that $20 million to $40 million range. But it’s not 1 million miles from where we thought we would be.

What’s really important is Deepak’s point that sequentially, we think Q2 is better than Q1. So we are seeing the market change just a little bit slower when we first forecast.

Deepak Nath: Right, should we come back to the room? David? You’ve had your hand up for a while.

David Adlington: David Adlington from JPMorgan. Sorry, John, just to come back on tariffs. The net amount, I think, was $5 million in the first half, but I just wonder what the gross was, was it all $50 million received in the first half and how you expect that to play out through the second half? And then just wondering how that was spread across the 3 businesses?

John Rogers: It’s slightly focused towards Orthopaedics. And then a little bit more so on Sports with Wound being the least impacted is roughly the way it trades at. But it’s not as massively differentiated across all businesses. And then the — basically, we saw a net benefit in the first half between tariffs and the refunds of $5 million or so. We’re expecting to see a net benefit in the second half between the tariffs and the refunds of about $1 million or so. And so for the overall year, it will be plus or minus $4 million, $5 million or something of that nature.

But effectively, in both halves, the refund is effectively offsetting the — from — on a year-on-year basis, the refund is effectively offsetting the tariff headwind. So just to be absolutely clear, we still expect to see a net tariff cost in the year. But we saw it — last year, we saw a net tariff cost of $15 million. This year, we expect to see a net tariff cost of $10 million. The delta is the $5 million positive. Makes sense?

Deepak Nath: Okay. I think we’ll draw this to a close. Just to summarize then, well, our revenue performance in the first half was, of course, below our expectations. We did deliver strong profit performance and in doing that, we demonstrate the inherent resilience in our business that we’ve built. We do remain confident of the actions we are taking to drive better performance more consistently over time. And I just want to take the moment to thank you for joining us today. I appreciate the engagement and the support and your questions, and we do look forward to coming back and updating you on progress as we move forward. So thank you very much.