Q2 2025 Smith & Nephew PLC Earnings Call

So 2025 is a key year of delivery for Smith & Nephew. I'm pleased to announce the results that put us firmly on track for both our full-year growth target and the guided step-up in profitability.

On revenue, 6.7% underlying growth in the quarter reflects sequential acceleration across all regions and business units.

And sports medicine. We've maintained the strong momentum.

Across joint repair and AET outside of China.

Deepak Nath: In Orthopaedics, we delivered yet another quarter of growth, and in line with our previous commitment, our recon and robotics business sustained its recent improvement both internationally and importantly in the U.S. This is now the fourth quarter of sequential improvement in U.S. recon and robotics. On profitability, 100 bps of first half trading margin expansion is slightly ahead of what we indicated as we brought some efficiency savings forward. We remain on track for our full-year margin guidance of 19% to 20%, which includes the impact of tariffs. There is still a lot of uncertainty about where tariffs will settle, but we continue to expect a net headwind of about $15 million to $20 million in 2025. As previously indicated, we expect that margin expansion will pick up further in the second half.

and wound the continued performance of AWD, and the rebound in bioactives produced double-digit growth for the business unit as a whole.

In Orthopedics, we delivered yet another quarter of growth and, in line with our previous commitment, a Recon and Robotics business sustained its recent improvement, both internationally and, importantly, in the U.S.

This is now the fourth quarter of sequential improvement in U.S. Recon antibiotics.

And profitability, 100 basis points of first-half trading margin expansion, is slightly ahead of what we indicated as we brought some efficiency savings forward.

We remain on track for our full-year margin guidance of 19% to 20%, which includes the impact of tariffs.

There's still a lot of uncertainty about where tariffs were settled, but we continue to expect the net headwind of about $15 to $20 million in 2025.

Deepak Nath: This should come from cost savings increasingly dropping through to our P&L, particularly from our manufacturing network optimization of the last two years, together with the reduced year-on-year headwind from value-based procurement in China. I have talked already about the improvements in growth and profitability. At the same time, better alignment of the commercial organization and operations has enabled us to bring down days of inventory. The delivery of our ambitious cost savings and a move to ongoing efficiencies has also brought down restructuring charges. The result is a 70% increase in trading cash flow and almost $250 million of free cash flow in the first half. Finally, I am also pleased to announce an additional element of value creation for shareholders with a $500 million share buyback in the second half of 2025.

As previously indicated, we expect that margin expansion will pick up further in the second half.

This should come from cost savings increasingly dropping through to our P&L, particularly from our manufacturing network and Optum optimization over the last two years.

Together with the reduced year-on-year headwind from value-based procurement in China.

I've talked already about the improvements in growth and profitability at the same time. Better alignment of the commercial organization and operations has enabled us to bring down days of inventory.

The delivery of our ambitious cost savings and a move to ongoing efficiencies has also brought down restructuring charges.

The result is a 70% increase in trading cash flow and nearly $250 million of free cash flow in the first half.

Deepak Nath: This is made possible by the operational efficiencies delivered under the 12-point plan and will be fully funded by the 2025 cash flow and existing balances. So it can be delivered while maintaining our leverage and without compromising any of our growth plans. I will return to some of these themes later, and John Rogers will talk more about profitability, cash, and returns in his presentation. For now, I will take you through the detail of the quarter. Revenue in the quarter was $1.6 billion with 6.7% underlying growth and 7.8% reported, following a 110 basis point tailwind from foreign exchange. Growth also included a headwind from one fewer trading day than in the prior year. All business units accelerated sequentially, and I will come to the detail in a moment. Geographically, the U.S. grew 8.7%, and other established markets grew 7.4%.

Finally, I'm also pleased to announce an additional element to value creation for shareholders with the million-dollar share buyback in the second half of 2025.

This is made possible by the operational efficiencies delivered under the 12-point plan and will be fully funded by the 2025 cash flow and existing balances.

so it can be delivered while maintaining our leverage and without compromising any of our growth plans,

I'll return to some of these themes later, and John will talk more about profitability, cash, and returns in his presentation. For now, I'll take you through the detail of the quarter.

Revenue in the quarter was $1.6 billion, with 6.7% underlying growth and 7.8% reported, following a 110 basis point tailwind from foreign exchange.

Growth also included a headwind from one fewer trading day than in the prior year.

All business units accelerated sequentially, and I'll come to the detail in a moment.

Deepak Nath: Emerging markets declined 0.2%, reflecting strong double-digit growth across the Middle East and India and the impacts of volume-based procurement in China beginning to ease. Excluding China, emerging markets grew by 12.2%. As we indicated in our Q1 announcement, we have passed the peak of the China impacts, and we expect these to continue to ease through the second half as distributor destocking in Orthopaedics reduces and as we lap the effects of joint repair VBP. For business unit performance, I will start with Orthopaedics, which grew 5.5% underlying, and this is an overall solid performance. Total reconstruction robotics grew 5.2% with the U.S. growth of 4%. This is the fourth quarter of sequential growth improvement in the U.S. on an ADS-adjusted basis. Global knees and hips grew by 2.9% and 3.4% respectively.

Geographically, the U.S. grew 8.7%, and other established markets grew 7.4%.

Emerging markets declined 2%, reflecting strong double-digit growth across the Middle East and India, and the impacts of volume-based procurement in China. This is beginning to ease.

Excluding China, emerging markets grew by 12.2%.

As we indicated on Q1 announcement, we have passed the peak of the China impacts, and we expect these to continue to ease through the second half as distributed. The stocking in Orthopedics reduces and as we lacked the effects of joint repair VBP.

For business unit performance, I'll start with Orthopedics, which grew 5.5% underlying, and this is an overall solid performance.

Total reconstruction and robotics grew 5.2%, while the U.S. growth was 4%.

This is the fourth quarter of sequential growth improvement in the U.S. on an ads adjusted basis.

Deepak Nath: Growth remains higher outside the U.S., with knees benefiting this quarter from the timing of a tender order in the Middle East. Almost half of our recon business is outside the U.S., where we are demonstrating that our portfolio can deliver with good execution. As you know, China has been a headwind in recent quarters due to destocking and distributors. The inventory levels have continued to come down and have approached more normal levels at the end of June. In addition, we expect the destocking to ease during the third quarter, so we should see the China headwind on our OUS sales start to fall away in the second half. U.S. hips and knees together showed acceleration over Q1 with 2% underlying growth and 3.6% adjusted for the one fewer day, a measure we refer to as average daily sales, our ADS.

Global needs and hips grew by 2.9% and 3.4%, respectively.

Benefiting this quarter from the timing of a tender order in the Middle East.

Almost half of our Recon business is outside the U.S., where we're demonstrating that our portfolio can deliver with good execution.

As you know, China has been a headwind in recent quarters due to destocking and distributors.

The inventory levels have continued to come down and have approached more normal levels at the end of June.

In addition, the expected decking is set to ease during the third quarter, so we should see the China headwind on our U.S. sales start to fall away in the second half.

Deepak Nath: This is the fourth quarter of sustained improvement for U.S. hips and knees combined. Hip performance was strong as we continued to roll out the Catalyst STEM hip system, which makes us more competitive in the high-growth direct anterior segment of the market. We will accelerate set deployment in Q3 and are also preparing to bring the platform to other markets starting in Japan. The softer U.S. knee growth was due in part to some slowing in procedures toward the end of the quarter among our active surgeon base, as well as positive actions that we are taking to increase profitability through streamlining the portfolio and focusing on higher volume accounts. Reassuringly, the balance of competitive wins versus losses has continued to remain favorable. On an ADS basis, U.S. knees grew 0.1% and hips at 9.1%.

Us hips and knees together showed acceleration over Q1, with 2% underlying growth and 3.6% adjusted for the 1. The measure we refer to as average daily sales is our ADS.

This is the fourth quarter of sustained improvement for our hips and knees combined.

Hit performance was strong as we continue to roll out the Catalyst Stem Hip System, which makes us more competitive in the high-growth direct anterior segment of the market.

We will accelerate set deployment in Q3 and are also preparing to bring the platform to other markets, starting in Japan.

The software us need growth was due in part to some slowing in procedures toward the end of the quarter among our active surgeon base, as well as positive actions that we are taking to increase profitability through streamlining the portfolio and focusing on higher volume accounts.

Reassuringly, the balance of competitive wins versus losses has continued to remain favorable.

On an ads basis, U.S. needs group 0.1%, and hips at 9.1%.

Deepak Nath: Other recon grew 39.8% and reflects another good quarter of robotics placements, particularly in the U.S., where we are seeing strong growth in ASCs and in teaching institutes. This should mean we are well positioned as the market continues to pivot away from the inpatient procedures and ideally placed to capture future leading surgeons. We will also continue to develop our offering with the launch in June of the Choreograph preoperative planning and modeling for shoulder replacements.

Other Recon grew 39.8% and reflects another good quarter of robotics placements, particularly in the U.S., where we're seeing strong growth in ASCs and in teaching institutes.

This should mean we're well positioned as the market continues to pivot away from inpatient procedures and is ideally placed to capture future leading surgeons.

Also, we will continue to develop our offering with the launch in June of the Choreograph pre-operative planning and modeling for shoulder replacements.

Deepak Nath: Trauma and extremities grew 4.4%. The AETOS shoulder implants growth contribution is steadily increasing as we deploy more capital and convert new surgeons, while the EVOS plating system continues to be a key driver, partially offset by a slower quarter for some of our legacy systems. We are continuing to refresh the portfolio with the launch this quarter of the TRIGEN MAX tibia nailing system, which expands our indication range and features modernized instrumentation. Further nail launches are expected in the coming quarters, and we expect trauma and extremities to return to stronger growth in the second half. Sports Medicine and ENT grew 5.7% in the quarter. Within that, joint repair growth was 8.4%, including the expected headwind from VBP in China. This is expected to be the last quarter before we lap the effect of the implementation in Q3 of 2024.

Trauma and extremities grew 4.4%. The ATOS growth contribution is steadily increasing as we deploy more capital and convert new surgeons, while the EVOS plating system continues to be a key driver, partially offset by a slower quarter for some of our legacy systems.

We'll continue to refresh the portfolio with the launch this quarter of the Tri-Gen Max Tibia Nailing System, which could expand our indication range and features modernized instrumentation.

Further nail launches are expected in the coming quarters, and we expect trauma and extremities to return to stronger growth in the second half.

Sports medicine and ENT grew. 5.7% of the quarter, within that joint repair growth, was 8.4%, including the expected headwind from VBP in China. This is expected to be the last quarter before we lap the effect of the implementation in Q3 of 2024.

Deepak Nath: Excluding China, joint repair growth would have been 13.7%, representing an acceleration on Q1 2025 with a very strong quarter across our other markets. Growth was double-digit across all of knee, shoulder, and hip repair, with the REGENETEN and Q-FIX knotless suture anchors remaining the key contributors. We expect this good momentum to continue as we extend REGENETEN into hip and Achilles, and as we further roll out Q-FIX. We are developing CARDIHEAL Agility C as a longer-term growth platform, including a new disposable instrument set, which we expect to launch in the near future. Arthroscopic enabling technologies grew 2.3%, again improving sequentially. We saw continued growth from Werewolf Fascial, which is supporting strong coblation revenues. ENT grew 3.6% with good growth driven by our ARIS for turbinate reduction, offsetting a softer quarter for tonsils and adenoid procedures in the U.S.

Excluding China, joint repair growth would have been 13.7%, representing an acceleration on Q1 2025 with a very strong quarter across our other markets.

Growth was double-digit across all of knee, shoulder, and hip repair, with the regenerative and QFix knotless suture anchors remaining the key contributors.

We expect this good momentum to continue as we extend Regeneron into the hip and Achilles.

And as we further roll out, Qfix.

We are developing cardio agility as a longer-term growth platform, including a new disposable instrument set, which we expect to launch in the near future.

Arthop, enabling technologies, grew 2.3% again, improving sequentially. We saw continued growth from werewolves facial, which is supporting strong completion revenues.

Deepak Nath: Looking forward, we expect ENT to follow Sports Medicine with the VBP process in China that is expected to take effect in 2026. To give a sense of the size of our business, total ENT sales were around $35 million in 2024. So while VBP would be a noticeable drag on ENT growth, it should be a significantly more modest headwind at a group level than previous VBP processes. Looking now at Advanced Wound Management, where growth increased to 10.2% following the strong rebound in bioactives. In advanced wound care, 2.6% growth reflected continued strong performance in foams, films, and skin care, offset by a decline in infection management. In bioactives, growth came from the expected sequential recovery in Santyl, alongside double-digit growth in skin substitutes.

ENT grew 3.6%, with good growth driven by our arrows for turbulent reduction, offsetting a softer quarter for tonsil and adenoid procedures in the U.S.

Looking forward, we expect ENT to follow Sports Medicine.

With the VBP in process in China, that's expected to take effect in 2026.

So, while VBP would be a noticeable drag on ENT growth, it should be a significantly more modest headwind at a group level than our previous VBP processes.

Looking now at Advanced Wound Management, where growth increased to 10.2% following the strong rebound in bioactives and advanced wound care at 2.6%. Growth reflected continued strong performance in foams and films.

and Skin Care.

Uh, offset by a decline in infection management.

Deepak Nath: Although we will face tougher competitors in H2, as we lap the launch of Graphics Plus, we now anticipate mid-single-digit growth for bioactives in the year. You will have seen the proposed updates to Medicare reimbursement of skin subs in the outpatient and physician office setting, including moving to a single payment. Since no products were excluded from participating in the market, it is unclear how clinical practice will be impacted. While the details of the proposal are yet to be finalized, we anticipate that this will be a headwind to both Advanced Wound Management sales and profitability in 2026. That would be before any mitigating actions. Finally, advanced wound devices revenue grew by 12.7%, led by our single-use negative pressure platform PICO, and with strong growth from LEAF, our patient monitoring system.

And bioactives growth came from the expected sequential recovery in santal, alongside double-digit growth in Skin Subs skin substitutes.

Although we'll face tougher competitors in H2 as we lap the launch of Graphics. Plus, we now anticipate mid-single-digit growth for bioactives in the year.

You'd have seen the proposed updates to Medicare reimbursement of skin substitutes in the outpatient and physician office setting, including moving to a single payment.

Since no products were excluded from participating in the market, it is unclear how clinical practice will be impacted.

So, while the details of the proposal are yet to be finalized, we anticipate that this will be a headwind to both advanced wound management sales and profitability in 2026.

And that would be before any mitigating actions.

Finally, Advanced Wound Devices revenue grew by 12.7%, led by our single-use negative pressure platform, Pico, and with strong growth from Leaf, our patient monitoring system.

Deepak Nath: In traditional negative pressure, competitive wins are an important part of our growth opportunity. I am delighted that we were recently awarded a U.S. Department of Defense contract for REGENETEN, succeeding in a competitive tender process, having demonstrated clinical efficacy and operational fitness. With an initial term of 5 years, which can be extended to 10 years, this contract is worth up to $75 million. Coupled with an ongoing broader refresh of Advanced Wound Management, we are confident about the long-term outlook for wound. With that, I will hand over to John.

In traditional negative pressure, competitive wins are an important part of our growth opportunity. I'm delighted that we have recently awarded a U.S. Department of Defense contract for Renaissance Touch, succeeding in a competitive tender process by demonstrating clinical efficacy and operational fitness.

With an initial term of 5 years, which can be extended to 10 years, this contract is worth up to $75 million.

Coupled with an ongoing, broader refresh of AWM, we are confident about the long-term outlook for Wound.

Now, with that, I’ll hand over to John.

John Rogers: Thank you, Deepak. Revenue was $3 billion in the first half, up 5% on an underlying basis compared to half 1, 2024. Reported revenue was up 4.7%, including a foreign exchange headwind of 30 bps from the relative strength of the dollar against most major currencies versus the same period last year. As the dollar weakened in Q2, the Forex headwind on revenue became a tailwind, and we now expect a circa 50 bps Forex tailwind on revenue for the full year. Performance in China was in line with expectations, and excluding these headwinds, growth would have been 7.2% on an underlying basis. This represents a 220 bp headwind in half 1, in line with our guided full-year impact of circa 150 bps as the impacts of Sports VBP unwind in the second half. Performance was broad-based, with all three business units contributing significantly to the overall group.

Thank you, thank you, Deepak. Um, revenue was $3 billion in the first half.

up 5% on an underlying basis, compared to H1 2024.

Reported revenue was up 4.7%, including a foreign exchange headwind of 30 basis points from the relative strength of the dollar against most major currencies versus the same period last year.

As the dollar weakened in the second quarter, the Forex headwind on revenue became a tailwind. We now expect a Cirque of 50 basis points, Forex tailwind on revenue, for the full year.

Performance in China was in line with expectations.

And excluding these headwinds, growth would have been 7.2% on an underlying basis. This represents a 220 basis point headwind in H1.

In line with our guided four-year impact of circa 150 basis points as the impacts of sports VBP unwind in the second half.

John Rogers: Orthopaedics grew 4.1%, Sports Medicine and ENT grew 4.1%, although again, excluding China, growth would have been 9%. Advanced Wound Management grew 7.1%. Overall, a good set of growth figures, and particularly good to see that three quarters of our growth is drawn from products launched in the last five years. Moving now to the summary P&L, gross profit was $2.1 billion, resulting in a gross margin of 70.5%, which is a 40 basis point increase on the prior year, driven by positive variances on price and volume. We saw a further 60 basis points of positive leverage across our operating expenses as we benefited from operational savings in SG&A, and only a small uptick in R&D spend driven by half 1, half 2 phasing. Operational savings were slightly ahead of expectations as we accelerated some of our operational savings into the first half.

Performance was broad-based with all 3 business units contributing significantly to the overall group.

Orthopedics grew 4.1%.

Sports medicine and ENT grew 4.1%. Although again, excluding China growth would have been 9%

Advanced Winn management degree 7.1%.

Overall, a good set of growth figures, and particularly good to see that three-quarters of our growth is drawn from products launched in the last five years.

Moving now to the summary P&L.

Gross profit was $2.1 billion, resulting in a gross margin of 70.5%, which is a 40 basis point increase on the prior year driven by positive variances in price and volume.

We saw a further 60 basis points of positive leverage across our operating expenses as we benefited from operational savings in SG&A and only a small uptick in R&D spend driven by H1 2022 phasing.

Operational savings were slightly ahead of expectations as we accelerated some of our operational savings into the first half.

John Rogers: We also expect to catch up some of the shortfall in R&D spend in the second half, as well as absorb the bulk of the $15 million to $20 million tariff impact Deepak outlined earlier. Overall, trading profit grew 11.2% to $523 million, with a margin of 17.7% up 100 bps. I will explain the various drivers of the margin expansion on the following slide. Slide 12 shows the detailed trading margin bridge. Going through the moving parts, we absorbed headwinds of 130 basis points from input cost inflation and 140 basis points from the instruction of VBP in China. These costs were more than offset with 190 basis points of revenue leverage from price and volume, 170 basis points from productivity improvements, not only in manufacturing but also across all other areas of operating expense. FX movements contributed 10 basis points.

We also expect to catch up some of the shortfall in R&D spend in the second half, as well as absorb the bulk of the $15 to $20 million tariff impact, DAC, outlined earlier.

The margin of 17.7% is up 100 basis points.

And I'll explain the various drivers of the margin expansion on the following slide.

Slide 12 shows the detailed trading margin bridge going through the moving parts. We absorbed headwinds of 130 basis points from input cost inflation and 140 basis points from the instruction of BBP in China.

These costs were more than offset by 190 basis points of revenue, leverage from price and volume, and 10070 basis points from productivity improvements—not only in manufacturing but also across all other areas of operating expense.

FX movements contributed 10 basis points.

John Rogers: We have now sustained a trend of revenue leverage offsetting input cost inflation, which means VBP aside, cost savings have been able to drop through to trading profit. As previously guided, we expect the impact of VBP China to unwind in the second half, such that the full-year impact is around 110 basis points. We expect operational savings to step up slightly in the second half versus the first, albeit not as much as previously cited, given the acceleration of savings I mentioned earlier. Furthermore, we expect the bulk of the $15 million to $20 million tariff impact to take place in the second half as well, with some catch-up on R&D spend.

We have now sustained a trend of revenue leverage, offsetting input cost inflation, which means VBP aside.

Cost savings have been able to drop through to trading profit.

As previously guided, we expect the impact of VBP in China to unwind in the second half.

Such that the full-year impact is around 110 basis points.

We expect operational savings to step up slightly in the second half versus the first, albeit not as much as previously cited. Regarding the acceleration of savings, I mentioned earlier that we expect the bulk of the $15 to $20 million tariff impact to take place in the second half, as well as some catch-up on R&D spend.

John Rogers: The net effect is that we expect a step up in margin in the second half, such that the half 1 to half 2 margin uplift remains comparable to previous years to deliver margin in line with our guidance of 19% to 20% for the full year. I will now come on to trading margin by business unit. As you can see from this slide, the majority of the margin expansion came through Orthopaedics, where our transformation initiatives to reduce inventory, streamline instrument set allocation, portfolio simplification, and focus on higher volume accounts resulted in 230 basis points margin expansion in half 1, 2025. We expect these dynamics to continue into the second half. Sports Medicine and ENT margin declined 130 basis points, reflecting the VBP impact in China. If we stripped out China from these numbers, we would have seen margin accretion in the first half.

The net effect is that we expect to step up in margin in the second half.

So, it's at the half 1 to half 2 margin uplift, which remains comparable to previous years, to deliver a margin in line with our guidance of 19% to 20% for the full year.

I now come on to trading margin by business unit.

As you can see from this slide, the majority of the margin expansion came through Orthopedics, where our transformation initiatives to reduce inventory, streamline instrument set allocation, simplify the portfolio, and focus on higher volume accounts resulted in 230 basis points of margin expansion in H1 2025.

We expect these dynamics to continue into the second half.

Sports medicine and ENT margins declined by 130 basis points, reflecting the value-based pricing (VBP) impact in China.

John Rogers: As we annualize the impact of VBP on joint recovery, we expect to deliver margin accretion in the second half. Advanced Wound Management margin increased 160 basis points due to mix of ongoing efficiency gains and the timing of Santyl revenues in the prior year. For 2025, we reiterate that the bulk of our margin expansion will come from Orthopaedics at over 200 basis points, with accretion of around 50 basis points coming from Sports Medicine and Advanced Wound Management combined. As we have already mentioned at previous results, we have changed our central cost allocation process to better align costs to the appropriate business unit. With this fuller allocation in place, only $28 million has remained as truly central costs, in line with the prior year and our previous guidance that these will be broadly flat year on year in 2025.

If we stripped out China from these numbers, we would have seen margin accretion in the first half.

As we annualize the impact of VBP on joint recovery, we expect to deliver margin accretion in the second half.

Advanced wound management margin increased 160 basis points due to mix, ongoing efficiency gains, and the timing of SAN revenues in the prior year.

And for 2025, we reiterate that the bulk of our margin expansion will come from Orthopedics at over 200 basis points.

With an accretion of around 50 basis points, coming from sports medicine and advanced wound management combined.

As we've already mentioned in previous results, we've changed our Central cost allocation process to better align costs to the appropriate business units.

With this Fuller allocation in place, only $28 million has remained as truly central costs, in line with the prior year. Our previous guidance indicates that these will be broadly flat year on year in 2025.

John Rogers: The purpose of the change was to create transparency and accountability, and there are already positive behavioral changes as a result. We have seen greater scrutiny of spending plans, lower demand for new projects, and greater discipline in constructing robust business plans for new IT investment spend, as an example. We showed you this slide at our interims last year. As a reminder, it details the gross run rate savings of $325 million to $375 million we are targeting for 2023 through 2027. As we set out at our prelims in February, including 2023 and 2024, we have delivered a cumulative savings of $210 million. This comprised $155 million relating to the 12-point plan and zero-based budgeting, and $55 million relating to earlier programs. That is actually the faint dotted line you see there on the 2023 column.

The purpose of the change was to create transparency and accountability. And there are already positive behavioral changes. As a result, we've seen greater scrutiny of spending plans, lower demand for new projects, and greater discipline in constructing robust business plans for new IT investment spend, as an example.

We showed you this slide at our interim last year.

As a reminder, it details the Grouse run rate savings of $325 million to $375 million. We are targeting this for 2023 through 2027.

As we set out at our prelims in February, including Q2 2023 and Q1 2024, we have delivered cumulative savings of $210 million.

This comprised 150 million, 155 million relating to the 12-point plan and zero based budgeting and 55 million relating to earlier programs. That's actually the faint dotted line. You see there on the 2023 column.

John Rogers: Our zero-based budget implementation is on track across all business units and central functions. Across our five work streams, 51 initiatives have been mobilized, of which over half are now complete. We anticipate $120 million to $130 million of savings coming through in 2025. As you saw from the margin chart earlier, we delivered circa $50 million of these in the first half, slightly ahead of our plan as we were able to bring some efficiency savings forward from half 2 into half 1.

On a zero-based budget, implementation is on track across all business units and central functions. Across our five work streams, 51 initiatives have been mobilized, of which over half are now complete.

Slightly ahead of our plan, as we were able to bring some efficiency savings forward from half to into half 1.

John Rogers: In total, therefore, that delivers run rate savings from the 12-point plan and ZBB of circa $275 million to $285 million at the end of 2025, with a further $50 million to $100 million of savings to come through in 2026 and 2027, very much in line with what we set out on this chart this time last year. We have now embedded our ZBB approach into our standard processes in line with our culture of continuous improvement. Looking further down the P&L, earnings per share grew strongly, up 37% to $0.335, and adjusted earnings per share grew strongly, up 14% to $0.429, reflecting both revenue leverage, operational savings, and significantly lower restructuring costs, which were $8 million in the first half compared to $62 million in the first half last year. We remain on track to incur an estimated $45 million of restructuring charge for the full year.

In total, therefore that delivers run rate savings from the 12-point plan and zbb of Circa 275 to 285 million at the end of 2025 with a further 50 to 100 million of savings to come through in 2026 and 2027 very much in line with what we set out on this chart this time last year.

We've now embedded our ZBB approach into our standard processes in line with our culture of continuous improvement.

Looking further down the P&L, earnings per share grew strongly, up 37% to 33.5 cents, and adjusted earnings per share grew strongly, up 14% to 42.9 cents. This reflects both revenue leverage, operational savings, and significantly lower restructuring costs, which were $8 million in the first half compared to $62 million in the first half last year.

We remain on track to incur an estimated $45 million in restructuring charges for the full year.

John Rogers: The interim dividend of 15 cents per share is up 4.2% on half 1, 2024, in line with our policy set out this time last year of paying 40% of prior year full-year dividend as the interim dividend. As you know, inventory management has been a key priority of our 12-point plan, and I am pleased to report a further 46-day reduction in DSI across the group to 506 inventory days, in line with our full-year 2024 year-end position. The reduction in DSI delivered a $69 million reduction in inventory value at constant currency. All business units contributed to this performance, with the biggest reduction in Sports Medicine and ENT.

The interim dividend of 15 cents per share is up 4.2% on H1 2024, in line with our policy set out this time last year of paying 40% of the prior year, four-year dividend as the interim dividend.

As you know, inventory management has been a key priority of our 12-point plan. And I'm pleased to report a further 46-day reduction in DSi across the group, to 5,006 infantry days, in line with our full year 2024 year-end position.

the reduction in DSI delivered, a $69 million reduction in inventory value at

competency.

All business units contributed to this performance, with the biggest reduction in Sports Medicine and ENT.

John Rogers: There was still an overall increase in inventory for launch products in the first half versus the same period last year, and this means that our inventory mix has also improved, with the units of the slowest turning quartile of SKUs down by 14% in half 1, 2025 versus half 1, 2024, and down 22% since the start of 2023. Longer-term improvement will be down to improved forecasting and better alignment of production plans with the commercial needs at the SKU level, enabled by the improved SIOP process. There is still more work to do here, including aligning our SIOP process with our financial forecasting in a truly integrated business plan. Inventory reduction remains a focus, and we expect further progress in half 2, 2025. Trading cash flow in the period was $487 million, with trading cash conversion of 93%, well ahead of the 60% in half 1, 2024.

There was still an overall increase in inventory for launch products in the first half versus the same period last year, and this means our inventory mix has also improved. The units of the slowest turning quartile of SKUs are down by 14% in H1 2025 versus H1 2024 and down 22% since the start of 2023.

Longer-term improvement will be down to improved forecasting and better alignment of production plans with the commercial needs of the SKU level, enabled by the improved site process.

There is still more work to do here including aligning our Scout process with our financial forecasting in a truly integrated business plan.

Inventory reduction remains a focus, and we expect further progress in H2.

2025.

Trading cash flow in the period was $487 million, with trading cash conversion of 93%, well ahead of the 60% in H1 2024.

John Rogers: The improvement came from lower working capital outflows, particularly from the inventory day reductions I detailed on the previous slide. Capital expenditure is slightly lower year on year, but we expect to catch up some of this in the second half of the year as we continue to progress the development of our new manufacturing facility in Melton. We expect to exit the year at a similar level of spend to last year. For the full year, we continue to target trading cash conversion of over 90%. With lower restructuring costs offset by slightly higher tax, free cash flow increased over 500% to $244 million. We expect to deliver free cash flow of well over $600 million for the full year.

The improvement came from lower working capital outflows, particularly from the inventory data. Reductions are detailed on the previous slide.

Capital expenditure is slightly lower year-on-year, but we expect to catch up some of this in the second half of the year as we continue to progress the development of our new manufacturing facility in Milton.

We expect to exit the year at a similar level of spend to last year.

For the full year, we continue to target trading cash conversion of over 90%.

With lower restructuring costs offset by slightly higher tax, free cash flow increased over 500% to $244 million.

We expect to deliver free cash flow of well over $600 million for the full year.

John Rogers: This strong cash generation broadly covered the cost of CapEx, dividend, and other costs in the period, meaning net debt at the 28th of June, 2025, was only $38 million higher than at year-end 2024. The leverage ratio has also decreased slightly to 1.8 times. As we maintain and build on this improved cash generation, capital allocation continues to be a focus. This is our capital allocation framework that you should now all be familiar with. As Deepak Nath mentioned in his introduction, the good start of the year in terms of profitability and cash conversion has enabled us to increase our cash returns to shareholders in line with our capital allocation policy. We intend to complete a $500 million share buyback during the second half of 2025.

This strong cash generation broadly covered the cost of capex, dividends, and other costs in the period. This means net debt at the 28th of June 2025 was only $38 million higher than year-end 2024.

The leverage ratio is also decreased slightly to 1.8 times.

As we maintain and build on this improved cash generation.

Capital allocation continues to be a focus.

This is our capital allocation framework that you should now all be familiar with. As Deepak mentioned in his introduction, the good start of the year in terms of profitability and cash conversion has enabled us to increase our cash returns to shareholders in line with our capital allocation policy.

We intend to complete a $500 billion share buyback during the second half of 2025.

John Rogers: This will be fully financed from free cash flow and existing cash balances, so it can be delivered while keeping our leverage ratio broadly stable for the full year and without compromising any of our growth ambitions. I will finish with our outlook for 2025, which, as you can see, is unchanged. We expect to see a step up in margin in half 2, in line with what we experienced in both 2023 and 2024, reflecting the timing of cost savings and reduced China headwinds. The tariffs announced by the U.S. government early in the year have continued to evolve, and it remains to be seen what the final outcome will be, but we continue to expect a net headwind of around $15 to $20 million, mainly to impact in the second half of the year.

I'll finish with our outlook for 2025, which, as you can see, is unchanged.

We expect to see a step up in margin in H2, in line with what we experienced in both 2023 and 2024, reflecting the timing of cost savings and reduced China headwinds.

The tariff announced by the U.S. government early in the year has continued to evolve, and it remains to be seen what the final outcome will be. However, we continue to expect a net headwind of around $15 to $20 million, mainly to impact the second half of the year.

John Rogers: We expect to deliver well over $600 million free cash flow for the full year, and a strong start to the year in terms of profitability and cash conversion has enabled us to increase our cash returns to shareholders with a $500 million share buyback during the second half, as I have just mentioned. You should see this as further demonstrating our commitment to value creation for shareholders, in addition to our extensive operational improvements. With that, I will hand back to Deepak Nath.

We expected to deliver well over $600 million in free cash flow for the full year, and the strong start to the year in terms of profitability and cash conversion has enabled us to increase our cash returns to shareholders with a $500 million share buyback during the second half, as I've just mentioned.

You should see this as further demonstrating our commitment to value creation for shareholders, in addition to our extensive operational improvements.

And with that,

I'll hand back to DPAC.

Deepak Nath: Great. Thank you, John. When we launched the 12-point plan, one of our core ambitions was to reposition Smith & Nephew PLC as a consistently higher growth business. We are very much on track. In the first two years of the plan, we delivered growth of over 7% and 5%, respectively. In the first half of the year, we have delivered yet another 5%, despite some significant headwinds. That includes two fewer trading days for the half. While China headwind has passed its peak, it still had an impact on H1. If you look through the detail of the quarter, you will see we are doing what we said we would do. Sports Medicine and Advanced Wound Management continue to grow well. In the U.S., in the U.S. recon specifically, we are showing progressive improvement quarter by quarter. Our investment in innovation is supporting the acceleration in revenue grade.

Thank you, John.

So when we launched the 12-point plan, one of our core ambitions was to reposition Smith & Nephew as a consistently higher growth business.

We're very much on track.

The first two years of the plan, we delivered growth of over 7% and 5%.

Effectively. And in the first half of the year, we've delivered yet another 5%, despite some significant headwinds that includes 2, fewer trading days,

For the half. And while the China headwind has passed this peak, it still had an impact on H1.

So, if you look through the detail of the quarter, you'll see we're doing what we said we would do.

Sports medicine and wound continue to grow. Well,

In the US and the US Recon, specifically, we're showing progressive improvement quarter by quarter.

Our investment in innovation is supporting the acceleration in revenue growth.

Deepak Nath: Let me take a moment to go into more detail on these two last points. A year ago, we highlighted the strong performance in trauma and extremities based on new product introductions, implant supply, capital deployment, and improved commercial execution. We also detailed that all the same elements were in place to improve performance in our U.S. recon and robotics business as well. As with T&E, these actions have driven four consecutive quarters of sequential improvements in U.S. recon and robotics revenue growth. On implant supply, key product line item fill rate reached its target in Q4 2023, and capital availability followed soon after. Hip set shipment also was at goal in Q4 2023, and knee sets started reaching their goal in Q2 2024. This is also being supported by a steady stream of product launches over time, such as the newly launched short stem hip.

Let me take a moment to go into more detail on these last two points. A year ago, we highlighted the strong performance in trauma and extremities based on new product introductions, implant supply, capital deployment, and improved commercial execution.

We also detailed that all the same elements were in place to improve performance in our UK, US Recon, and Robotics business as well.

As with Tene, these actions have driven four consecutive quarters of sequential improvements in U.S. Recon and Robotics revenue growth.

On implant supply, key product line item fill rate reached its target in the fourth quarter of 2023, and capital availability followed soon after.

With hip set shipment also was at goal in the fourth quarter of 2023.

And these sets started reaching their goal in the second quarter of 2024.

This is also being supported by a steady stream of product launches over time, such as the newly launched short stem hip.

Deepak Nath: We also launched 10 new features on CORI robotics between 2022 and 2024, further contributing to the recent recovery in our hip and knee implant sales growth. We have further new product launches planned to continue this positive momentum. Innovation has been a key significant driver in our transformation to a higher growth business. Across 2023 and 2024, more than half of our underlying revenue growth came from products launched in the previous five years. In H1, this proportion was three quarters or 75%. We continue to invest in our innovation pipeline and introduce new products across all of our business units in the first half of the year, which we are confident will help us sustain our improved revenue growth profile. In Orthopaedics, we expanded our nailing range with a new system for stable and unstable tibial fractures.

We also launched 10 new features on Corey between 2022 and 2024.

Further contributing to the recent recovery in our hip and knee implant sales growth.

We have further new product launches planned to continue this positive momentum.

Innovation has been a key significant driver in our transformation to a higher growth business across 2023 and 2024. More than half of our underlying revenue growth came from products launched in the previous five years; in H1, this proportion was three-quarters, or 75%.

We continue to invest in our innovation pipeline and introduced new products across all of our business units in the first half of the year.

Which we're confident will help us sustain our improved Revenue, growth profile.

Deepak Nath: TRIGEN MAX builds on more than two decades of proven performance and industry-leading design from our TRIGEN nails portfolio. In robotics, we received FDA clearance for CORI robotics pre-op planning and modeling services in total shoulder replacement during Q2 2025, which expands our offering to cover all joint replacement procedures: knees, hips, and shoulders. In Sports Medicine, for the first time, Smith & Nephew PLC is able to market REGENETEN for extra-articular ligament injuries in the U.S., creating opportunities to reach more patients with soft tissue injuries around the body. With an initial focus in hips capsule repair, we have a future expansion plan in other extra-articular ligament repairs. In addition to new products, we also announced a number of significant evidence milestones during the first half of 2025, supporting the adoption of key product families.

in Orthopedics, we expanded our nailing range with a new system for stable and unstable tibial fractures

Trigen Max builds on more than two decades of proven performance and industry-leading design from our Tri-Gen nails portfolio.

In robotics, we received FDA clearance for Choreograph, pre-operative planning and modeling services in total shoulder replacement. During the second quarter of 2025, this expands our offering to cover all joint replacement procedures: knees, hips, and shoulders.

Opportunities to reach more patients with soft tissue injuries or on the body.

But then, initial focus on the hip capsule, with plans for future expansion into other extra-articular ligament repairs.

Deepak Nath: For instance, a recently published randomized control trial of Smith & Nephew PLC's handheld robotic system demonstrated the value for patients and surgeons of robotically assisted total knee replacement with Journey 2 BCS. Patients experienced significantly better outcomes, including reduced pain, improved function, and higher satisfaction compared to conventional surgery at the one-year time point. In conclusion, I've talked a lot about our 12-point plan. We're now in the final year of our three-year transformation that I first set out for you in July 2022. Q2 performance is yet another proof point that we are on track to deliver our ambitions. Each of the three parts of the 12-point plan is delivering great progress. The rewiring of our Orthopaedics business is well underway, with sequential growth acceleration over the last four quarters at the global ortho, U.S. ortho, and U.S. recon and robotics levels.

In addition to new products, we also announced a number of significant evidence milestones during the first half of 2025, supporting the adoption of key product families. For instance, a recently published randomized controlled trial of Smith & Nephew's handheld robotic system demonstrated the value for patients and surgeons of robotically assisted total knee replacement with Journey to BCS.

Patients experience significantly better outcomes, including reduced pain, improved function, and higher satisfaction compared to conventional surgery at the one-year time point.

In conclusion.

I've talked a lot about our 12-point plan. We're now in the final year of our 3-year transformation that I first set out for you in July 2022.

And Q2 performance is yet another proof point that we are on track to deliver our ambitions.

Each of the 3 parts of the 12-point plan is delivering great progress.

The rewiring of our Orthopaedic businesses is well underway, with sequential growth acceleration over the last four quarters and the global Ortho, U.S. Ortho, and U.S. Recon and Robotics levels.

Deepak Nath: Orthopedic inventory levels have improved, and we've seen the associated expected step up in ortho margin. Both Sports Medicine and Advanced Wound Management have shown consistent momentum since the start of the program, and productivity improvements are clearly visible in the P&L. In other words, our operational improvements are increasingly translating into financial gains. In Q2, once again, we delivered revenue growth ahead of historical levels, even with headwinds from trading days and China. This higher organic growth is underpinned by fundamental competitive strengths, better commercial execution, and a high cadence of innovation across our portfolio.

Orthopedic inventory levels have improved and we've seen the associated expected Step Up.

In Ortho margin.

Both sports medicine and moon management have shown consistent momentum since the start of the program and productivity improvements are clearly visible in the piano.

In other words, our operational improvements are increasingly translating into financial gains.

In Q2, once again, we delivered revenue growth ahead of historical levels, even with headwinds from trading days and China.

This higher organic growth is underpinned by our fundamental competitive strengths, better commercial execution, and a high cadence of innovation across our portfolio.

Deepak Nath: Cash flow has also stepped up significantly in the last 12 months, with better control of inventory to the point where we can start returning excess cash to shareholders through our $500 million share buyback. There is still more to do around profitability, but the 100 basis points of expansion put us on track to deliver the guided step up and full-year margin. As a reminder, we have delivered 240 basis points group margin expansion from H1 2023 to H1 2025, despite greater headwinds than expected when we first laid out the plan in 2022. As I told you in the fiscal year of full year 2024 results, since the start of 2023, we have successfully offset over 700 basis points of headwinds from inflation, foreign exchange, and VBP. Finally, these improvements are sustainable.

Cash flow has also stepped up significantly in the last 12 months, with better control of inventory, to the point where we can start returning excess cash to shareholders through our $100 million share buyback.

There's still more to do around profitability but the 100 basis points of expansion.

Puts us on track to deliver the guided step-up and fully a margin.

As a reminder, we've delivered 200. B 240 basis points group margin expansion from H1 2023 to H1 2025, despite greater headwinds than the expected. When we first laid out the plan in 2022,

as I told you in the fiscal year, a full year, uh, 2024 results since the start of 23, we've successfully offset over 700 basis points of headwinds from inflation, foreign exchange and bbp.

Finally, these improvements are sustainable.

Deepak Nath: A key objective of the 12-point plan has been to drive increased accountability and greater discipline in execution, both of which are now embedded in our culture and our ways of working. As I have said before, the 12-point plan is a necessary step, but it is not the limit of our long-term ambitions. We will set out the next stage of our strategy at a Capital Markets Day in early December. I am looking forward to seeing you all there, and formal invitations will follow shortly. With that, we will now take your questions. Jack?

A key objective of the 12-point plan has been to drive increased accountability and greater discipline and execution.

Both of which are now embedded in our culture and our ways of working.

As I've said before, the 12-point plan is a necessary step, but it is not the limit of our long-term ambitions.

We'll set out the next stage of our strategy at a Capital Markets Day in early December. I'm looking forward to seeing you all there, and formal invitations will follow shortly. So, with that,

We'll now take your questions.

Jack.

Jack Reynolds-Clark: Thanks very much, Jack Reynolds-Clark from RBC Capital Markets. Three, please. The first is on revenue guidance. With Q2 having been, I guess, stronger than I think people were expecting, does that imply that there is upside to the 5% target for the full year, or are you expecting things to slow down elsewhere in the business? Then on margin guidance, I appreciate you mentioned some kind of moving around of R&D and possibly some other expenses as well. But could you walk us through, John, the bridge in H2 margin and whether the kind of upper end of the 19% to 20% margin range is possibly more achievable? The last question was on U.S. knees.

Thank you very much Jack Quinn was Clark from RBC at 3, please the first is on Revenue guidance. So with Q2 having been I guess stronger than I think people were expecting uh does that imply that there's upside to the 5% um target for the full year or expecting things to slow down elsewhere in the business.

Jack Reynolds-Clark: Could you just run us through some more detail of the work you are doing there and kind of how much the weakness was driven by the market versus your own activities and how you are thinking about kind of growth versus margin in that segment going forward?

Then on margin guidance. Um, so I appreciate you mentioned some kind of moving around of of R&D and possibly some other expenses as well. But could you walk us through John the the bridge, uh, in H2 margin and whether the kind of upper end of the 19th to 20% margin range is possibly more achievable. Um, and then the last question was on the US needs. Uh, so

Deepak Nath: Sure. I will frame this up and I will leave it to John Rogers to kind of give you the margin guidance. Overall, as we mentioned, given all the puts and takes that we see, we feel good about the guidance for the full year. There are positives and negatives as we go through. We will continue to improve commercially in the back half of the year, but we do have a step up that we expect, both from a revenue standpoint and from a profit standpoint. We are in a more uncertain environment. We have characterized for you what we expect the impact of tariffs to be, but fundamentally, there is a much more uncertain period.

Deepak Nath: That coupled with the step up that we need to see in the back half of the year, particularly around margin and all the various effects around competitors, China VBP falling off and other things, we feel at this point it is prudent to maintain the guidance that we have given, both in terms of revenue and margin. In terms of U.S. knees, as we unpack that a little bit, the headline is that at a U.S. Orthopaedics level, including trauma and recon, U.S. recon and robotics level, and at a global Orthopaedics level, we are seeing sequential improvement. Those are very, very strong proof points that the improvements in supply and product availability, commercial execution, or ability to connect all the different pieces together are delivering the desired effects. That is the headline in terms of where we are and I am pleased with the progress we are making.

And how you're thinking about kind of growth versus margin in that segment going forward? Sure, I'll bring this up and I'll, uh, leave it to John to kind of give you the margin, um, guidance. So overall, um, as we mentioned, given all the puts and takes, um, that we see, um, we feel good about um, the the the um, the guidance for the full year. So there are positives and negatives as we go through, we will continue to improve um commercially in the back half of the year. But we do have a step up um that we expect um, right. Both from a from a revenue standpoint and from a profit standpoint, we're in a more uncertain environment we've characterized for you. What we expect the, um, the impact of terrorists to be. But fundamentally there is much more uncertain, um, period, that comp work with the step up, that we need to see in the back half of the particularly around margin, um, and all the various, um, effects around, um,

around comparators, uh, China vbp falling off, and other things. Um, we feel at this point is prudent to, um, uh, to maintain the guidance, that that we've, they've given both in terms of Revenue and, and, and more.

In terms of us needs. Um, as we unpack that a little bit, the headline is that at a US Orthopedics level including trauma and Recon

Us Recon and Robotics level.

Deepak Nath: The softness in knees, which were offset by the great unexpected strength in hips, it is a couple of factors. First, we are going through a step to refocus a commercial organization to the higher volume accounts. I have said in previous settings that we have got a relatively long tail of accounts where we have surgeons use our products on an occasional basis with particular patient populations or what have you. While that is an important part of our business, we do want our commercial activities focused on driving kind of key primary use of our knees or hip platforms. That is some concerted effort there going on. There is also some level of portfolio rationalization work that we are doing, and I have highlighted that in the past. We have got three knee families that are relevant in the U.S.

And at a global Orthopedics level, we're seeing sequential improvement, and those are very, very strong proof points that the improvements in supply and product availability, commercial execution, and our ability to connect all the different pieces together are delivering the desired effects. So that's the headline. In terms of where we are, I'm pleased with the progress we're making. The softness in these areas was offset by the great unexpected strength in hips. It's a couple of factors.

Deepak Nath: We are trying to get that down to two knee platforms, LEGION and JOURNEY, and there is work involved in having a transition surgeons in doing that. By and large, we are successful in retaining most of our customers when we go through that process, but not all, and that does have an impact on top line. But these actions actually get us to a better position as far as our U.S. business is concerned from a margin standpoint, and these steps do contribute on the back of all the other improvements we are making in the factory and in terms of inventory control for the margin step up that John talked about.

We are going through a step to refocus a commercial organization to the higher volume accounts. I've said in previous settings that we've got a relatively long tail of accounts, where we have surgeons use our products on a, on an occasional basis with, you know, particular patient, populations or or or what have you? Well, that's an important part of our business. We do want our commercial activities focused on driving kind of key primary use of our our knees or hip hip platforms. So that's some concerted effort there. Um, going on. There's also some level of portfolio, rationalization work, um, that we're doing and I've highlighted that in the past. So we've got 3, knee families that are relevant in the US. Um, we are trying to get all that down to, um, to uh, to need platforms Legion, and and journey. And there's work involved in having the transition surgeons, uh, in doing that bias.

Deepak Nath: But what we also saw related to this was particularly in the end of the quarter that we saw some slowdown in terms of the number of procedures in our active base of surgeons, and that did contribute to the numbers that we see. So with that, John, do you want to take the margin?

And large were successful in retaining most of our customers when we go through that process. But not all. And that does have an impact on Topline. But the ACT, these actions actually get us to a better position. As far as our us, business is concerned from a margin standpoint and these steps do contribute, uh, on the back of all the other improvements we're making and the factory and in terms of inventory control, um, for the the margin step of the John, um, talked about

But what we also saw related to this was particularly in the end of the quarter, that we saw some slowdown, uh, in terms of the number of procedures in our active base of Surgeons, um, and that this did contribute to the, um, uh, to the, to the numbers that we see.

John Rogers: Yeah, I'll just, just to sort of build on a little bit of what you said, we saw the 230 bps of margin accretion in Orthopaedics in the first half, which was a reflection of those changes that Deepak Nath just talked about, and that very much puts us on track to deliver the margin expansion that we set out last year for Orthopaedics. We ended last year just below 12%, and if we look forward to this year, we should end north of 14%, so a big step up, big improvement in margin for Orthopaedics. In terms of setting a little bit of color on the revenue guidance, you are right to highlight that we did say that we would expect to see a step up in Q3, given China annualizing, given the reversal of the impact of trading days.

So with that John you want to take the yeah I got and just just to sort of build on a little bit what you said into. You know, we saw the 230 Pips of marginal accretion in Orthopedics in the first half which was a reflection of those changes that deep packs just talked about and that very much puts us on track to deliver the margin expansion that we set out last year, for Orthopedics. So, we ended last year, but just be like 12%. And if we, we look forward to this year, we should end north of 14. So, big step up. Big Improvement in Marching for Orthopedics,

In terms of setting, a little bit of color on the revenue guidance. I mean, you're right to highlight that we did say we would expect to see a step up in Q3, given China.

John Rogers: So in Q3, we have got level trading days year on year as opposed to two less in the first half. So we will expect to see a step up in Q3. That said, it is important to remind you that Q4 for us last year was a very strong quarter, particularly in the U.S., so we have got quite a tough comparator. So I would say that we are only six months of the way through the year. There continues to be significant sort of uncertainty over macro and external conditions like tariffs, for example, so now is not the time to be changing our guidance. In terms of the margin phasing, again, we talked about bringing savings forward from half 2 into half 1, and of course, those savings will repeat in half 2, so that is an upside.

Annualizing given, uh, the reversal of the impact of trading days. So in, in Q3, we've got level trading this year, on the year, as opposed to, to Less in the first half.

So we will expect to see a step up in Q3. That said, it's important to remind you that Q4 for us last year was a very strong quarter, but...

Particularly in the US. So we got quite a tough comparator.

Changing our guidance.

John Rogers: At the same time, we have got the impact of tariffs, the 15 to 20 million that we made reference to, and that will, of course, primarily hit us in the second half, so that broadly offsets that. And then also, we have got the U.S. mix in Q4 as well. Again, we had a very strong U.S. in Q4 of last year. So again, at this stage, I would say now is not the time to be changing our guidance on margin in the 19% to 20% holes, and we have said in the past that we expect it to be broadly center of that range. And actually, if you look at the bridge from half 2, 24 to half 2, 25, so I will give you a little bit of color here, we would expect sort of cost inflation of around 1.9% or so.

In terms of the the margin phasing, uh, again, we talked about bringing savings forward from half to into half 1, and of course, those savings will repeat in half 2. So, that's, that's an upside.

At the same time, we've got the impact of tariffs, the 15 to 20 million that we made reference to, and that will, of course, primarily hit us in the second half. So that broadly offsets that uh, and and then also, we've got the USA us mix in Q4 as well again. We had a very strong us and Q4 of last year. So again, at this stage, I would say now is not the time to be uh changing our guidance on margin in the 19-20 holes and we've said in the past that we expected to be broadly Center of that range.

John Rogers: VBP on China will be about a drag of 80 bps or so. If you remember, we said it was going to be 110 bps for the year, so that is averaging out half 1, half 2. We would expect to see revenue leverage of around 200 bps or so, and then operating savings of a similar amount to get us up to the circa 19% to 20% margin for the full year. So that gives you a little bit of color on the half 2 bridge.

And actually, if you look at the bridge from half to 24 to half to 25. So I'd give you a little bit of color here. We'd expect sort of cost inflation of around 1.9% or so vbp on China will be about a drag of 80 bps or so. If you remember, we said it was going to be 110 bps for the year, so that's averaging out half 1/22. We'd expect to see revenue leverage of around 200 bps or so, and then operating savings of a similar amount to get us up to the...

19.

19% to 20% margin for the 4-year, so that gives you a little bit of color on the H2 bridge.

Jack Reynolds-Clark: Great. Thanks very much.

Great. Thanks so much.

Deepak Nath: Sure. Richard.

John Rogers: Thank you, Richard Felton from Goldman Sachs. First one, just to follow up on margin, John, can you remind us the drivers of the operating savings in H2? How well advanced are those programs? How much visibility do you have that that is going to be achieved and fully de-risked? Also, what elements of those operating savings are so structural, and how should we think about that dynamic into FY26? That is the first one. The second one, just to follow up on U.S. knees, Deepak, you mentioned at the end of the quarter a slightly softer procedure environment. Why do you think that happened? Why was that the case? Have you seen that continuing into Q3? Thank you.

Thank you, Richard Felton from Goldman Sachs. Um, first 1 just to follow up on margin. Um, John, can you remind us the drivers of the operating Savings in H2? How well Advanced are those programs? How much visibility do you have that? That is going to be achieved and and fully de risked and then also what elements of those operating savings are just structural. And how should we think about that Dynamic into FY 26? That's the first 1, the second 1 um just to follow up on on us needs Deepak. You mentioned at the end of the quarter a slightly softer procedure environment

Why do you think that that happened? Why was that the case? And have you seen that continuing to to Q3? Thank you.

Deepak Nath: Sure. I will take the U.S. knees part. This is in our base of customers. It is hard to speculate. We do not know the reasons, really. We can talk about vacation schedules because there are vacations every year on that time frame, so it is hard to really divine that. It is hard to tell what drove it. What we can tell is there was a slowdown in our base. I have, in the past, been somewhat loath to comment on the market. We are in a period of performance recovery in the Orthopaedics business where it is sometimes difficult to parse how much of something is you, us, versus the market. We can do that in wound. We can do that in sports. I have been loath to comment on that. We are in a better place, actually, much better place, even in Orthopaedics in the U.S.

Sure, I'll take the U.S. News part. Um, so this is in our base of customers, right? And, um, yeah, it's hard to speculate. We don't know the reasons, really. I mean, we can talk about vacation schedules because those vacations happen every year, you know, on that time frame. So it's hard to.

Really divide that. So it's it's hard to tell what what drug and what we can tell is there was a Slowdown in our in our base. But I've in the past been somewhat loads to comment on Market. We're in a period of, you know, re performance recovery in the Orthopedics business where it's sometimes difficult to parse, how much of something is you. Um, ask versus

Deepak Nath: than we were a year ago or two years ago. Having said that, what I do feel comfortable is talking about what is happening with our account base. There seems to be, at least from what we can tell in our numbers, some slowdown related to vacations. Surgeon transitions was another factor as surgeons were moving practices in some cases from hospitals to ASC settings or across networks that did have an impact unless something within our base. What is encouraging for me is when I look at churn, you have heard me comment about that in the past, where through much of 2023 and early 2024, we are net unfavorable. In other words, we have lost more surgeons than we gained for a variety of factors. Retirements and those types of things were the large factor, and we had some competitive losses too.

Deepak Nath: We also commented in the previous period that those have turned favorable, starting in really Q3, Q4 of 2024. I am pleased to report that that trend has continued even into Q2, building off of Q1. I feel good about the operational progress that we are making, and I do feel confident that as we go through the second half of the year, we will be in a good place. I come back to, in the end, there are different ways to slice and dice this, but what I am looking at in addition to knees and feet, and we are looking at knees and hips separately as well. In the aggregate, when you look at U.S.

Uh, the market, right? We can do that, and we can do that in sports. I've been loaded to comment on that. Now, we're in a better place, actually much better place. Even in Orthopedics in the US than, before a year ago, or 2 years ago. But having said that, what I do feel comfortable is talking about what's happening with our account base, right? And so. But there seems to be, at least from what we can tell in our numbers, um, uh, some slow, down related to vacations. Um, surgeon transitions was another Factor, uh, as surgeons were moving practices in some cases from hospitals to ASC, um, settings or across across networks that did have an impact on us. Something within within our base with encouraging for me, is when I look at churn, you've heard me comment about that in the past where, you know, months through much of 23 and early, 24 were net unfavorable. In other words, we lost more surgeons than than we gained for a variety of factors retirements and those types of things were the large factor and we had some competitive losses too.

but we also commented in the previous period that those have turned favorable starting in, um uh really the Q3 Q4 of 2024 and I'm pleased to report that that trend has continued even into into Q2 building off of q1, so I feel good about the operational progress that we're making

And, um, and I, uh, do feel confident that as we go through the second half of the year. We'll, uh,

we'll be in a good place.

And again I come back to in the end. Um, there's different ways to slice and dice this, um, but what I'm looking at, in addition, these piece and we're looking at knees and head separately as well, but in the aggregate,

Deepak Nath: recon, we are seeing nice sequential improvement, and we are closing the gap to market. We will see, of course, not all of our competitors are reported in the quarter, but when we look at the trend, Q3 2024, Q4 2024, Q1 of 2025, we are closing the gap at the U.S. recon level. Outside the U.S., we have seen some strength now over the last couple of years. We have continued to maintain that. Overall, I feel good about where we are positioned. So I will hand it to you, John, for.

so, I handed it to you John for, uh,

John Rogers: Thank you. In terms of the savings and where they are coming from, again, I am pointing you to the slide that we have got in the deck, which sets out our head quite clearly. They come from across the board. There is a big chunk clearly that come from manufacturing procurement, but there is also warehousing and distribution, business support, sales, and marketing. We are seeing savings across the entirety of our business. We had 51 different programs, most of which are, all of which are already in train and many of which are already complete. In terms of visibility of those savings, I feel pretty confident that we will see that margin accretion come through in the second half, as we said consistently before. In terms of 2026 and 2027, again, I will point you to the chart.

Martin, thank you.

Um, so in terms of the savings and where they're coming from, again, I point you to the slide that we've got in the deck, which sets out, I hope quite clearly, you know, they come from across the board. There's a big chunk, clearly they come from manufacturing procurement, but there's also warehousing distribution, business support, sales, and marketing. We're seeing savings across the entirety of our business. We had 51 different programs.

Most of which are all well; all of which are already in train.

And many of which are already complete.

And so in terms of visibility of those savings, I feel pretty confident.

John Rogers: We should expect to see another $50 million to $100 million of savings flow through in 2026 and 2027 as a consequence of some of the changes we are making now as we see those flow through into future years. Again, we should see a little bit of support for margin improvement as we go into 2026 and 2027.

Margin increasing come through in the second half as we said consistently before in terms of 26 and 27. Again point you to the Chart. We, we should expect to see another 50 to 100 million of savings flow through in 26 and 27 as a consequence of some of the changes we're making now as we see those flow through into future years. So again, we should see uh, a little bit of a support for margin Improvement as we go into 26 and 27.

Deepak Nath: Thank you very much.

Thank you very much.

Jack Reynolds-Clark: Thanks. It is Graham from UBS. Just two from me, please. On the Orthopaedics inventory, in terms of the lower cost inventory started to flow through post the site closures over the last 12, 18 months. Have we seen much of that yet? I think we always thought that would be like a H2 sort of weighted story. So interesting to get some cover on that. Then just on tariffs, one of your peers appears to be able to not pay tariffs on hips and knees. Just to get your sense as to have you explored the Nairobi Treaty for that and protocol, and is there anything to do there?

Thanks. It's, um, Grant from UBS. Just two for me, please. Um, on the ortho inventory, in terms of the lower cost inventory starting to flow through post the site closures over the last 12 to 18 months, have we seen much of that yet? I think we always thought that would be like a H2 sort of weighted story. So, interesting to get some color on that. Um, and then just on tariffs, um, one of your peers.

Deepak Nath: Thank you for that. Thanks, John. In terms of inventory, you are right. We have previously called out that the accumulated benefits of all of the network optimization efforts we have done will fully manifest in the second half of the year, and we remain on track to that. That will be one of the key drivers of the continued margin step up from where we are today into the back half of the year. It is not like we have not seen the impacts of that already. Those have come over the period of time, one at a time. Mechanically, what happens is you close a site. Obviously, there are upfront costs associated with the site closure. We will typically build up some level of inventory as a safety stock in terms of what we manufacture there, and then we transition that production to elsewhere within our network.

Deepak Nath: The impact of all of that will flow through, and there is a timescale associated with it. What we are actually doing also in addition to that is as part of improving our product availability, which has twin objectives. One is to improve availability and actually reduce our inventory. There, it is about how we connect supply and demand down to SKU levels. We have been at this now since the start of the program. There, we have made really, really good progress in terms of being able to connect that at a much better level. There is still more work to be done, but when I compare it to where we were in 2022 versus this, it is a night and day thing. That is part of what John talked about in terms of our inventory health being better.

Appears to be able to, to not pay tariffs on hips and knees. So just to get your senses to have you explore the Nairobi treaty for that and I'm a protocol. And is there, is there anything to do there? Thank you for that. Thanks Graeme. Um, so in terms of uh, inventory, you're right, we've previously called out that the big, the accumulated benefits of all of the network optimization efforts. We've done, um, will will fully manifest in the second half of the year and we remain kind of on, on, on track to that. Um, so that will be 1 of the key drivers of of the continued margins step up from where we are today into the back half of the year. But it's not like we haven't seen the impact of that already. So those have come over the over the period of Time, 1 at a time and so mechanically, what happens is you you close a site? Obviously there's upfront costs associated with the site closure will typically build up some level of inventory. So as a safety stock in terms of what we manufacture there and then we transition uh that production to elsewhere within our Network. So the the impact of all of the

Deepak Nath: He provided some stats around what our slow turning inventory has been doing. In fact, when we started out, our mix was not great. We had too much of the stuff we do not need and not enough of the stuff we did need. Part of that is because in our business, trauma is a relatively higher proportion compared to recon. Trauma has particularly high inventory requirements, and they are particularly slow turning in that. Some of that is related to it. We have actually brought down the slow turning inventory levels significantly. That is another contributor in terms of both inventory levels and days of inventory coming down. Of course, the impact of that as it flows through the balance sheet and P&L is a bit more complex. There are inflation impacts for which there are timescales associated with it. The second thing is our capacity, manufacturing capacity.

That will throw through and there's a time scale associated with it. What we're actually doing. Also, in addition to that, is as part of, um, improving our product availability, which has twin objectives, 1 is to improve availability and actually reduce our our inventory, right? And and there, it's about how we connect supply and demand down to a skew levels. And we've been at this now since the start of the program and there we've made really, really good progress in terms of being able to to connect that as much level better level. Now, there's still more work to be done but, but I compared to where we were in 22 versus this, it's kind of a night and day, um, thing. And that's part of what John talked about in terms of our inventory, Health being better. So he provided some stats around, what our slow turning inventory has been doing. And in fact, when we started out, our mix wasn't great, right? We had too much of the stuff we don't need and not enough of the stuff we did. Um, need right. And part of that is because, you know, our business

Trauma is relatively higher proportion, compared to, to Recon trauma, has you know, particularly high inventory requirements and they're particularly slow turning and that. So some of that is related to it, right? But we have actually brought down the the slow turning inventory level significantly. So, that is another contributor in terms of uh both inventory levels down and days of inventory coming down, and of course the impact of that as a flows to the balance sheet and p&l is a bit

Deepak Nath: We have taken down capacity, right? But we have navigated through much of this period with excess capacity. That has obviously complicated impacts on both balance sheet and P&L. All of these put together, we are on track to delivering the margin expansion associated with this, just as we said, and as you rightly call out, that was the second half of the year. In terms of tariffs, obviously, we are looking at all different ways, including the one you mentioned as ways to mitigate. As far as we can tell, based on our situation, we are calling for a $15 million to $20 million impact. To remind you of our network, I think your question was more within Orthopaedics, referencing one of our competitors. For us, we have got two primary sites, well, three total, but it is Memphis, it is Malaysia, and we have got Switzerland.

Um, provide this inflation impacts that, that that for which there are time scales associated with it. The second thing is our, uh, our our capacity manufacturing capacity. So we've taken down, uh, capacity, right? But we've navigated through much of this period with excess capacity and that has obviously complicated impacts on both balance sheet and p&l. But all these put together we are on track to delivering the margin expansion associated with this as just as we said and as you rightly call out that was the the the second half of the year.

in terms of tariffs,

Deepak Nath: On the one hand, because a significant part of our Orthopaedics production comes from Memphis, we are naturally hedged in that regard. But it is not zero. It is very much down to SKU level in terms of what comes from there. So there is actually impact, not to mention the impact of raw materials, the feedstock that comes in from other places. Look, it is a very dynamic situation. It is hard to call out where things actually settle out. We have got a Tiger team that is looking at this at the pace that you would expect companies like ours to look at. We are keeping that situation under review.

Intel based on our read the situation, we've we're calling for a 15 to 20 million, um, impact to remind you of our Network. I think your question was more within within Orthopedics referencing 1 of our competitors. For us our we've got 2 primary sites um right about 3 total. But uh uh it's Memphis, it's Malaysia. And we've got um Switzerland and um so on the on the 1 hand because a significant part of our Orthopaedic production comes from Memphis, there is you know, we're naturally hedged in in that regard but it's not, it's not zero, it's very much down to skew level in terms of what comes from there. So there is actually impact not to mention the impact of raw materials, the input, you know, feed stock that that that comes in from other places. So, um,

John Rogers: Yeah, thank you. Just to build on Deepak Nath's point there, if you look at our manufacturing network, as it happens, more of the tariff impact comes through for us on Wound and Sports Medicine and less on Orthopaedics because most of our manufacturing is U.S.-based for Orthopaedics. So there is a little bit more of an impact in Wound and Sports Medicine than there is in Orthopaedics.

Look. It's it's a very Dynamic situation. Um, it's it's hard to call how where things actually settle out. So we've got a tiger team that's looking at this. Um, at the pace that you'd expect companies like ours to, to, to look at. And, uh, and we're not, you know, keeping that situation under review. Yeah, thank you. Let me just just, just, just to build on deepak's point there. You know, if you look at our manufacturing Network as it happens, the more of the Tariff impact comes through for us, on wind and sports and less on. Also, because most of our, um, manufacturing is a US base for also. So they're a little bit more of an impact in what it can Sports. And there is, there is in also,

Jack Reynolds-Clark: I think David, you had a question there.

I think David, you had a question.

Deepak Nath: Coming from David Adlington at JPMorgan. Just on the buyback, John, given the strong cash flow in the first half, just wondered how you are thinking about ending the year in terms of net debt EBITDA. Secondly, also good to see progress on the inventories. As you look into the medium term, where do you think you get down to and how much cash could that free up?

Oh yeah, a couple from David Addington at James Morgan. Just on the buyback, John, given the strong cash flow in the first half, I just wondered how you're thinking about ending the year in terms of net debt to EBITDA.

And then secondly uh also good to see progress on the inventories as you look into the medium term. Where do you think you can get down to and how much cash could that free up?

John Rogers: Go take that, John.

Deepak Nath: On the buyback, notwithstanding the $500 million buyback in the second half, I am still expecting us to exit the year below our 2x net debt to EBITDA target level. This is giving us plenty of capacity for all of our growth ambitions, et cetera. So, very strong cash flow, which is very positive. On the inventory side, obviously, we do not want to overly guide to what we are going to deliver in the future. You have seen the direction of travel over 2024 and 2025, and we would expect that improvement to continue. I think when it comes to Sports Medicine and Advanced Wound Management, we are now getting down to what would be pretty good industry levels. I think the opportunity continues to exist in Orthopaedics.

Going to take that, John. Yeah. So on the buyback, um, notwithstanding.

500 million buyback in the second half. I'm still expecting us to exit the year below our 2 times. Net debt to we de

The target level gives us plenty of capacity for all of our growth ambitions, etc. So, we have a very strong cash flow, which is very positive on the inventory side. Obviously, we don't want to overly guide to what we're going to deliver in the future, but you've seen the direction of travel over 2024 and...

Deepak Nath: We have seen good improvement in the first half. We would expect that to continue into the second half of this year, and then further improvement in Orthopaedics next year as well.

In 2025, we would expect that improvement to continue. I think when it comes to sports and wound care, we're now getting down to what would be pretty good in industry levels. I think the opportunity continues to exist in the north, and we've seen good improvement in the first half. We'd expect that to continue into the second half of this year and then further improvement also next year as well.

John Rogers: Morning. It's Sam Engdon from Berenberg. So the first one, just in hips, you called out the benefit from Catelli stem in Q2. How should we think about the market share gains you think this can drive, especially in the ASC channel, given the focus on anterior surgery and how crowded is that space becoming now for anterior products? Then just looking at the other recon business and the growth there that you called out was driven by robotics. Can you just talk a bit about demand and placements for CORI in Q2? I suppose is more of the demand being driven by the hospital or ASC channel or just some sense for the sort of split of demand between channels?

Morning. It's Sam England from Baron. So the first question, just in hips, you called out the benefit from the Catalyst stem in Q2. How should we think about the market share gains you think this can drive, especially in the ASC channel, given the focus on anterior surgery? And how crowded is that space becoming now for anterior products?

Deepak Nath: We are pleased with the uptake of Catelli stem. Not every one of our competitors has reported, but you have seen two report. We feel good about where we are positioned. The surgeon feedback on Catelli stem has been very, very good. We feel good about how we are positioned there and continuing to have traction across a range of settings, not only in ASCs, but also in hospitals, academic centers, and community hospitals as well. We feel good about its value proposition. As you know, the market over the last three or four years has gone through a fairly profound shift from a traditional approach into a direct anterior approach. We were among the later players, not the first players to come into that space, but we have a very compelling product offering in a segment that is rapidly growing.

Um, and then just looking at the other Recon business and the growth there that you called out was driven by robotics. Can you just talk a bit about demand and placements for Corey in Q2? Um, and I suppose is more of the demand being driven by the hospital or ASC channel, or just some sense for the sort of split of demand between channels. Yeah.

Um, so

Uh, we're pleased with the um, with the uptake of catalyst. Um, obviously not everyone of our competitors have reported, but you've seen 2 report. Um, we feel good about where we're positioned, the, the surgeon feedback on Catalyst, Tim has been very, very good. Um, and so we feel good about how we're positioned there and continuing to, um, uh, to to, to, to have traction across a range of settings that not not not only in, uh, asc's, but also in hospitals, academics academic centers, and Community Hospitals, as well. So, we feel good about its value proposition as, you know, the market over the last 3 or 4 years has, um, on has gone through a fairly profound shift from a traditional approach into

Deepak Nath: We feel good about the surgeon feedback and the resonance that we are getting across a range of settings. In terms of robotics, what I am looking at, what we are looking at is not just placements. We could be executing a place-first kind of strategy. What we are looking at is both placements and utilization. We are seeing very nice uptake. In other words, where we place, we have got surgeon champions that are using that integrated into their routine practice, which is really the true measure of what we are trying to do. We are also looking at whether it is driving competitive conversions, or we are using that primarily to retain our existing customer base, both of which are important. There are multiple things we are looking at around CORI placements just being one of many factors.

Contacting to your approach. Um, so we were among the the later players not not, not the first players to come into that into that space. But we have a very compelling product offering, uh, in in a segment. That's rapidly growing. Um, so feel good about the, the, the surgeon feedback, and the residents who are getting across the range of settings,

Uh, in terms of robotics.

Deepak Nath: We continue to be pleased with the progress there. We are looking at how we do in the ASC channel as well as in teaching institutions where historically we have skipped a beat or two. The progress we are making on both of those is very, very encouraging for me. Overall, very pleased with how CORI is doing across channels, across the type of utilization that is getting in everywhere where we place them.

Placements and utilization, um, and and we're seeing very nice. Uptake. In other words where we place, we've got surgeon Champions that are using that integrated into their kind of routine practice, which is really kind of the, the true measure of what we're trying to do. We're also looking at, whether it's driving competitive conversions. So we're using that primary to retain our existing customer base, both of which are important. So there's multiple things we're looking at around, Corey placements, just being 1 of many, uh, many factors, um, and continue to be pleased with, with the progress there. Um, uh, we're looking at, uh, how we do in ASC, um, Channel at, as well, as in teaching institutions, where historically, we've kind of skipped a beat or 2. Um, and so, the progress we're making on both of those is very, very encouraging for me. So overall, um, very pleased with, uh, how Corey, uh, is doing across, uh, across channels, um, across, uh, uh, and, and the type of utilization that's getting, um,

John Rogers: To build on Deepak Nath's comments there, we are not going to split out numbers that go into the channel, but it is fair to say that in Q2, we certainly over-indexed in ASCs in terms of the proportion of our CORI robotics placements that went into ASCs in Q2, which I think is really encouraging. We said before, we think that CORI robotics in terms of its form factor, in terms of its size and its footprint, and also its capital costs being significantly lower than the competition actually puts it in a very strong position, particularly in the ASC channel. We are starting to see that come through in terms of the number of placements we are putting into that channel.

And and everybody will replace them and and and just to again just to build on deepak's comments there um we're not going to split out obviously numbers that go into the channel but it's fair to say that in the second quarter, we we certainly over indexed in asc's in terms of proportion of our current placements that went into asc's and the second quarter, which I I I think is really encouraging. We said before we think that Corey in terms of its form factor

In terms of its size and its footprint, as well as its capital costs being significantly lower than the competition, it actually puts it in a very strong position, particularly in the ASC channel. We're starting to see that come through in terms of the number of placements we're putting into that channel.

Deepak Nath: Should we turn to the phone?

Should we turn to the phone?

Jack Reynolds-Clark: For those on the phone lines, to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. The first question comes from Veronika Dubajova of Citi. Your line is now open. Please go ahead.

For those on the phone lines to ask a question please press star, followed by 1 on your telephone keypad. Now, if you change your mind, please press star, followed by 2. When preparing to ask your question, please, ensure your device is unmuted locally.

The first question comes from Veronica Dooba, Jova of City. Your line is now open. Please go ahead.

Veronika Dubajova: Good morning, Deepak and John. Thank you, guys, for taking my questions. Hope you can hear me OK. I have three, please. The first one is just Joint Repair. Again, another impressive quarter for you guys with double-digit growth excluding China. I am just curious, Deepak, if you could touch upon the drivers that are enabling you to deliver that growth and how sustainable you think that is, not just into the back half of this year, but also as we think about 2026. My second question is just maybe if you can elaborate a little bit on the skin substitutes exposure that you have and the risks that you might see there from the new proposal. Maybe just give us a flavor for where your current pricing stands relative to the $125 that has been proposed by CMS.

Um, good morning, Deepak and John. Thank you guys for taking my questions. Hope you can hear me okay. I have three, please. Um, the first one is just joint repair, and again, another impressive quarter for you guys to double-digit growth excluding...

China, just curious the pack. If you could touch upon the drivers that are enabling you to deliver that growth and how sustainable you think that is, not just into the back half of the...

6.

Veronika Dubajova: My final question is around the buyback and just to what extent you feel this year is giving us a good indication for your ongoing recurring future capacity to return cash to shareholders. Thank you, guys.

Um, my second question is just maybe if you can elaborate a little bit on the skin substitute exposure that you have and the risks that you might see there from the new proposal. And maybe just give us a flavor for where your current pricing stands relative to the $125 that’s been promoted by CMS. Um, and then my final question is around the buyback, and just to what extent do you feel this year is giving us a good indication for your ongoing recurring future capacity to return cash to shareholders?

Thank you guys.

Deepak Nath: Sure. In terms of joint repair growth, we take China out of it, as we have indicated multiple times. We will annualize the impact of joint repair VBP as we head into Q3. When you look at our performance across all other regions, very, very nice double-digit growth. The key drivers are QFIX and what we have done with that and REGENETEN. REGENETEN is increasing adoption within rotator cuff, which was kind of our lead indication. As we expand indications into the Achilles in particular, we are seeing a bigger proportion of REGENETEN use, not bigger proportion, but increasing proportion within the Achilles as well. Of course, we are not stopping there. Hips is another area that we are going after. So very nice uptake of REGENETEN. We expect it to be a platform technology, so we are starting to see its utilization across different joints.

Sure. Um, so in terms of joint repair growth, we take China out of it, as we've indicated multiple times. Uh,

We will, um, annualize the impact of June repair vbp as we head into Q3, but when you look at our performance across all other regions, um, very very nice, double digit growth. The key drivers are qfix and what we've done with that and reach out to them. Um, and regenerative it's increased increasing adoption within rotator cuff, which is, was kind of our lead, um, indication. But as we expand indications into the Achilles in particular, we're seeing a bigger proportion of, uh, regenerative use, um, not bigger, proportion, but increasing proportion, uh, within the Achilles as well. And of course, we're not stopping there. Um, you know, hips is another, um, uh, area that we're going after. So very nice uptake of regenerative, and we expect it to be a platform, um, technology.

Deepak Nath: QFIX, REGENETEN, key drivers of joint repair growth everywhere outside of China. In terms of skin subs, look, it will be a net headwind both from a revenue and profit standpoint for our wound business. Fundamentally, obviously, there is the pricing that you mentioned. In addition to that, there is no products got taken off the market as a result of this. How physicians, how practice patterns change as a result of that does remain to be seen. But relative to a previous version of this, where on the back of expected clinical evidence, there would be fewer players on the market at a lower price point with some limits on adoption, was for us, we had characterized it as a net neutral thing for us. As we pivot into this regime, which of course has not been finalized, it will be a net headwind.

Used to, we're starting to see its utilization across different joints. So, Qfix regenerative key drivers of joint repair growth are evident everywhere outside of China.

in terms of skin Subs,

You know, look, it'll be a net headwind, both from a revenue and profit standpoint for our own business. Um, you know, fundamentally, uh, obviously there's the, the, the pricing that you, that you mentioned, uh, but in in addition to that, there was no no products got, um, taken off the market as a result of this. So, how Physicians, uh, how practice patterns change? As a result of that does.

Deepak Nath: Obviously, for the year, we have taken this into account, and our guide had made some remarks, and John did as well. So we feel good about our ability to kind of navigate through this headwind for 2025. Of course, as to 2026, as we look in the year, we are not going to guide to that quite yet. Now is not the moment to do so. But let us just say that we are active participants in it. We remain committed to bringing forward products that have strong clinical evidence backing them. So in terms of what we are going to do, we are going to stick to what we think would be the right way to develop products that are substantiated with clinical evidence. We will see how things evolve from there. In terms of buyback, do you want to take that, John?

Um, you know, on the back of expected clinical evidence, there'll be fewer players on the market at lower price point, with some limits on adoption was for us. We had characterized it as a net neutral, uh, thing for us as we pivot into this regime, which of course hasn't been finalized. It would be a net headwind. Um, you know, obviously for the year, um, we've taken this into account, um, in our guide have made some remarks and John did as well. So we feel good about our ability to kind of navigate through this um, uh, to this headwind for 2025. And of course, this is the 2026. As we, um, look in the year we made. We're not going to guide to that quite yet. Um, now it's not the moment, um, to do so. But let let's just say that, um, um, your, um, your active participants in it, we, um, uh, remain committed to bringing for products, uh, that have strong clinical evidence backing them. And in terms of what we're going to do, uh, we're going to stick to what what we think would be the right, right? Way to develop.

John Rogers: I will cover that. Again, just to make very clear, I will sort of draw your attention to the capital allocation policy, which is very clearly set out. First and foremost, we want to be able to invest in our organic growth. That is absolutely clear. That is one of our key objectives, to drive the growth of our business forward. Secondly, we want to be able to acquire businesses that are complementary to our portfolio that will assist in driving growth. Thirdly, we have to pay a dividend. Then if there is anything left over from that, then of course we have the option of paying a share buyback or doing another share buyback.

Products, uh, that that are substantiated with clinical evidence and we'll see how the, how things evolved from there in terms of, um, buyback. Do you want to take that genre? Yeah, I'll uh, I'll cover that um, again just to to make very clear, you know, our sort of draw your attention to the capital allocation policy, which is very clearly set out. So

First and foremost, we want to be able to invest in our organic growth. That's absolutely clear. That's one of our key objectives: to drive the growth of our business forward.

John Rogers: I want to make it very clear that that is the last option and that the primary focus is driving our top line growth, investing in our business through organic growth and acquisitions, and obviously paying a dividend. Then as the last element of the capital allocation, share buyback. We were able to make the share buyback in the second half of this year of $500 million. As I said earlier on, we will expect to still end the year below our target leverage ratio and with all the capacity that we need to drive our top line growth.

Secondly, we want to be able to acquire businesses that are complementary to our portfolio. That will assist in driving growth. Thirdly, we've got to pay a dividend, and then if there's anything left over from that, then of course we can. We have the option of paying a share buyback or doing another share buyback. But I want to make it very clear that that is the last option and that the primary focus is driving our topline growth, investing in our business through organic growth and acquisitions, and obviously paying a dividend. Then, as the last element of the capital allocation, we will consider share buyback.

So we were able to make the share buyback in the second half of this year of $500 billion.

As I said earlier on, we'll expect to still end the year below our Target leverage ratio. And with all the capacity that we need to drive our Topline growth,

Veronika Dubajova: Got it. Thank you, that's very clear.

got it. Thank you. That's very clear.

Deepak Nath: Sure thing, Veronika Dubajova.

Sure thing, Veronica.

Jack Reynolds-Clark: The next question comes from Hassan Al-Wakeel of Barclays. Your line is now open. Please go ahead.

The next question comes from Hassan Alaw of Barclays. Your line is now open. Please go ahead.

Deepak Nath: Good morning, and thank you for taking my questions. I have three, please. Firstly, Deepak Nath, if I can follow up on your comment on slowing procedures amongst more active surgeons in knees, I wonder if you are seeing this beyond knees and separately any color on the weaker OUS hip performance and any key challenges faced here. I guess combined, what are your expectations here and in U.S. knees in the second half? Secondly, if I can follow up on skin subs, was the stronger growth in the quarter supported by any physician behavior changes due to the LCD? On the proposed reimbursement, I appreciate behavior can change as can volumes, but what is the impact from the lower price in isolation and what is your exposure to the hospital inpatient channel? What are the mitigating actions that you could take?

Good morning, and thank you for taking my questions. I have, uh, three, uh, please, um, firstly, Deepak, if I can follow up on your comment on slowing procedures, amongst more active surgeons in knees. Um, I wonder if you're seeing this beyond, uh, knees and separately any color on the weaker OUS hip performance and any key challenges faced here. Um, and I guess combined, what are your expectations, uh, here and in U.S. knees in the second half.

Deepak Nath: Finally, how are you thinking about the pipeline of potential bolt-on deals, particularly as we look into next year, given the buyback announced for this year? Thank you. What we have seen in terms of procedure slowdown was really in knees and hips and medically a different level of, I would say, urgency around knee replacements versus hip replacements, as you know. What we have seen in our active base was really more around knees compared to hips. That is that. In terms of hips, OUS, there is a China factor, an ex-China factor OUS, there is a little bit in Japan, for example, that we are looking at. Overall, OUS Orthopaedics performance remains an area of strength. We continue to perform well commercially. Although there is quarterly volatility primarily around timing of distributor orders and things, we feel good about how we are positioned OUS writ large.

Um, and then secondly, if I can follow up on skin, Subs was the stronger growth, in the quarter supported by any, uh, physician behavior changes due to the LCD. Um, and then, on the proposed reimbursement, appreciate Behavior, can change as you can volumes. But what is the impact from the lower price in isolation and what is your exposure to the hospital? Inpatient chat Channel, and what are the mitigating actions that you could take? And then finally, how are you thinking about the pipeline of potential? Bolt-on deals particularly as we look into next year, given the buyback and

For this year. Thank you.

Okay. Um, so what we've seen in terms of procedure slowed down was really in niece and hips and medically. Uh a different level of um, I would say uh, urgency around knee Replacements versus hip replacements as you know. Um, so what we've seen in our active base was really more around niece compared to hips and

Um, so that's, uh, that's that in terms of hips. Um, u.s. there's a China factor and an exchange of u.s. There's a little bit, uh, in Japan. Um, for example, uh, that we're, uh, that we're looking at. But overall, uh, O.U.

Deepak Nath: There are individual markets where there may be something from one quarter to the next. In terms of skin subs, in terms of physician behavior changes in response to pricing we saw. We did see some of that. It was not to the extent that that was the dominant factor driving the performance there. We have not previously split out how much of our business is skin subs. I will just say it is material, but in the realm of, from a group impact standpoint, I expect that with pricing changes here, we will be able to navigate through this. I guess rather than get into the breaking out the impact of skin subs, I will just leave it at that. In terms of proportion of utilization in hospital versus physician office, it is about 25%, sorry, 40% of use is in the physician office compared to the hospital.

Sub.

Um, in terms of physician behavior, uh, changes in response to pricing, we saw, we did see some of that. Um, uh, but uh, but it, it's, it was not to the, to the extent that that was the dominant. Um, kind of factor driving driving a performance there. Now, we have not previously split out, uh, how much, uh, of our businesses can Subs. Um, but, but I'll just say it's, um, it's it's, it's material. But in the, in the realm of, um, you know, from a group impact standpoint, I expect that with, with, with pricing, uh, changes here, we'll be able to, to, to navigate through this. So I guess, rather than get into to breaking out the impact of skin Subs. Uh, I'll just leave it at that, um, in terms of proportion of utilization in hospital versus Physician Office, uh, it's about 25% of

Um, uh, sorry 40%.

Deepak Nath: In terms of our own activities, we have always had a strong presence on the hospital side, which we continue to maintain. In terms of development of products, we continue to be focused on not just coming up with the next version of skin subs, but also investing behind the development of clinical evidence. That will remain the case as we go into next year and beyond. So skin subs. In terms of acquisitions, as John Rogers mentioned, a key priority is to drive top line growth. At the level of payback buyback that we have announced, we are not going to be limited in terms of the type of bolt-on acquisitions that we are going to be able to do as a result of it. We feel good about the opportunity set in front of us and the ability to execute on that.

Of use is in The Physician Office compared to uh, uh compared to uh, uh, the hospital, and in terms of our own activities. Uh, we we've always had strong presence on the, on the hospital side, which we continue to, uh, to to maintain and in terms of development, uh, of of of products we continue to be focused on, not just coming up with the next, uh, version of, of skin cells. But also

Investing behind development of clinical evidence and that will remain um the case as we go into uh uh to next year and Beyond. Um so skin subs and um in terms of

Deepak Nath: Bolt-on M&A, or M&A in general, is a key part of value creation in med tech. We have an active corporate development team that is well plugged into the ecosystem, and we have got a pipeline that we feel good about. We do not feel constrained in our ability to do those bolt-on M&A, even with the announced buyback.

John Rogers: Yeah. Just to add some color to your question on HIPPS, Hassan, looking at the numbers for the second quarter, we were actually up on an average daily sales basis. Globally, we were up around 5% for Q2. Actually, if you look at ex-China, we were up 7.5%. So you are right to highlight the U.S. growth was pretty flat in the second quarter. But to Deepak Nath's point, we expect that to significantly step up in that the U.S. numbers significantly step up in the second half as some of the impacts on China start to reverse. We should see a pretty strong half two on our HIPPS ADS growth on a U.S. basis.

Uh, Acquisitions. Uh, as John mentioned, um, a key priority is, um, to drive, uh, growth Topline and at the level of payback, uh, buyback that we've, uh, announced. Uh, we are not going to, uh, be limited in terms of the type of bought on Acquisitions, uh, that we're going to be, um, uh, able to do as a result of it. Um, so we feel good about the opportunity set in front of us and the ability to execute on that. Um, bolt on m&a or m&a in general, um, is a key part of value Creation in matec. Um, we have an active, um, uh, corporate development team. Um, that's well plugged in to, uh, to the ecosystem. And they've got a pipeline uh, that we that we feel good about. And we don't feel constrained in our ability, uh, to, to do those bolts on uh, m&a, even with the announced buyback.

and, and just to

Add some color to your question on hips. Hassan just looking at the numbers for.

The second quarter, we were actually up on an average daily sales basis globally. We were up around 5% for Q2.

And actually, if you look at X China, we were up 7 and a half percent. So your your right uh, to highlight the US, growth was pretty flat in the second quarter, but to deepak's point um, we expect that to significantly step up in that the US number to significant step up in the second half of some of the impacts on China. Start to reverse uh and we should see a, you know, pretty strong half 2 on our hits ads growth on our US base.

Jack Reynolds-Clark: Perfect. Thank you.

Perfect, thank you.

Veronika Dubajova: The next question comes from Robert Davies of Morgan Stanley. Your line is now open. Please go ahead.

The next question comes from Robert Davis of Morgan Stanley. Your line is now open. Please go ahead.

Kane Slutzkin: Yes. Morning. Thanks for taking my questions. I have three. The first one was just how you are thinking about the strategic position within Orthopaedics, I guess, within the context of both the 12-point plan and within the context of this. You mentioned the constructive discussions with the activists. Maybe you just provide us a little more color around that. The second question was around the trajectory for margins beyond 2025 and whether the savings plans that you have laid out has changed your views over the mid-term profitability targets of the company. The final one was just around the sustainability of growth, I guess, and just getting a little more color on the future pipeline. You have obviously made a lot of comments over the last couple of years around the products you brought to market.

Uh, yes morning, thanks for taking my questions. I have just 3. Um, the first question was just how you're thinking about the strategic position within Smith & Nephew, I guess within the context of both the 12-point plan and within the context of, you mentioned, the constructive discussions with the activists. Maybe you could provide us a little more color around that. The second question was around the trajectory for margins beyond 2025, and whether the sort of savings plans that you've laid out have changed your views over the midterm profitability targets for the company. And then the final one was just around the sustainability of growth.

Kane Slutzkin: I just wondered if you could provide us any color around the pipeline looking forward over the next couple of years. Anything meaningful to look out for? Thank you.

Deepak Nath: Yeah, sure. So with Orthopaedics, look, we are a portfolio company, as many other med tech companies are. In terms of Orthopaedics, what we have said a number of times is, as we look dispassionately at all different ways in which we can drive shareholder value, far and away, the best opportunity is to get Orthopaedics functioning as it has the potential to do, and as it once did, within our portfolio. As I have detailed in this quarter and its previous presentations, we are making really good progress in our ability to do that. There are a number of elements associated with it in terms of product availability, the way we connect supply and demand, our commercial execution, which itself has multiple pieces around people, process, how we manage the business. On every one of those fronts, we have made tremendous progress.

I guess and just getting a little more color on the future pipeline, you've obviously made a lot of comments, uh, over the last couple of years around the product you brought to market. And just be wondering, I just wondered. If you could provide some color uh, around the pipeline looking forward over the next couple of years. Anything meaningful to look out for, thank you. Yeah, sure. So with with Orthopedics,

Uh, you know, look, we're a portfolio company. Um, as many, uh, other meaty tech companies are, and, uh, in terms of orthopedics, what we've said a number of times is as we look dispassionately at all the different ways in which we can drive shareholder value.

Is to get Orthopedics.

Functioning as it has the potential to do and as it once did.

Um, it within our portfolio.

and as of detailed,

Deepak Nath: When I take a step back and look at all the things we could be doing, driving performance improvement along the dimensions that I have outlined is by far the best thing we can do for shareholders at this point. We are well on a path to doing that. I do believe if we get it to where this business can perform in its ability to drive, to deliver great returns, whether it is in terms of revenue contribution, growth contributor, contributor in terms of margin expansion, which, as John mentioned earlier, we are on track to go to about 14% margin this year, which is more than 200 bps. As we look ahead, that journey will continue. 14 is not the end point, but it is a waypoint along the journey.

You know, in this quarter and as in previous presentations, we're making really good progress in our ability to do that and those key elements associated with it, in terms of product availability, the way we connect supply and demand, and our commercial execution, which itself has multiple pieces around people and process, you know, how we manage the business on every one of those fronts. We've made tremendous progress. So when I take a step back and look at all the things that could be driving performance improvement, along the dimensions that I've outlined, this is by far the best.

Deepak Nath: As we look ahead, we expect it to do its part in driving growth, importantly, driving margin expansion as we get it back to levels at which we were a number of years ago. Importantly, as we move into a position where it starts to deliver excess return ahead of its cost of capital. So we have all of those opportunities in front of us in Orthopaedics. I think with Q2, we have delivered yet another proof point on our journey there, but we have got more to do in the balance of 2026. Then, of course, as we look into the future. That brings me to the second question that you have around continued margin expansion. We have said that the target for 2025, which is 19% to 20%, that is not an end point. It is a punctuation, but we expect to continue to improve beyond that.

Thing we can do for shareholders at this point and and B are well on a path um, to doing that. And I do believe we get it to where this business can perform in its ability to drive to to to deliver great returns. Whether it's in terms of Revenue growth contributor uh contributor in terms of margin expansion, which is, John mentioned earlier. We're on track to to, to go to about 14% margin, uh, this year, which is a bit more than 200 bits, you know, as we look ahead, that Journey will will continue. 14 is not the end point, but it's a way point along the journey. So, as we look ahead,

Be expected to do its part in driving growth.

Importantly, driving margin expansion as we get it back to levels at which we were um, you know, a number of years ago and importantly as we move into a position where it starts to deliver uh excess return and uh ahead of its cost of our cost of capital. So we have all of those opportunities in front of us. In Orthopedics. I think we've with Q2 delivered yet another proof point on our journey there but we've got more to do and the balance of 2026 and then of course as we look into the future and that brings me to the second question that you have around continued uh margin expansion. We have said that the target for 25

Deepak Nath: In particular, Orthopaedics margins, we expect to continue to expand as we go into 2026. The right time for us to be talking about what we expect to do would be on the back of full-year 2026 results so that you can judge how we did on the three-year transformation program, where we are positioned, and what makes sense in terms of reasonable mid-term targets. We will come out and do that. As a prequel to it, in our capital market day, we will detail out what we see as the key growth drivers. I will take the mystery out of it. We are an innovation-driven company. We have said three-quarters of our growth in H1 was from products launched in the past five years. We have commented on that periodically. Full-year 2024, that number was about 50%. In 2023, that number was a little over 50%.

Which is 19 to 20. Um, that's not an endpoint. Um, it is a punctuation, but we expect to continue to improve beyond that. In particular, orthopedics margins, we expect to continue to expand as we go into 2026.

Now, the right time for us to be talking about what we expect to do would be on the back of full year 2026 results. So you can judge how we did on the 3-year transformation program, where we're positioned, and what makes sense in terms of reasonable midterm targets. Um, so we'll come out and do that as a prequel to it in our Capital Markets Day. We'll detail out what we see as the key.

Deepak Nath: I think Madhav said 60%. So we have had a good track record of bringing forward innovations. We are not always first to market, but what we bring forward, and if you look at our greatest hits reel, if you will, we are actually punching above our weight class in terms of the type of innovations we bring forward. As an organization, we are very, very committed to maintaining our levels of investment within R&D. That will be one of the key drivers of growth. Going forward, we expect to build off of where we hope to exit in 2025, in terms of further margin progression, but we will detail that out at the right time. In terms of sustainability of growth, we have gone from being a low single-digit growth company into a mid-single-digit growth company during this transformation period.

Growth drivers. Um, I'll take the mystery out of it. Um, we are an innovation-driven company. We've said three quarters of growth in H1 was from products launched in the past five years. And we've commented that on that periodically. You know, for the full year 2024, that number was about 50%; in 2023, that number was a little over 50%, at about 60%. So we've had a good track record of bringing forward innovations. We're not always first to market, um, but what we bring forward, and if you look at our greatest hits reel, if you will.

We're actually punching above our weight class, in terms of the type of Innovations, we bring forward. And as an organization, we're very, very committed to maintaining our levels of uh investment within uh within R&D that will be 1 of the key drivers of growth. So um, going forward um be expect to uh, to build off of where, um, we hope to exit in 2025, uh, in terms of further margin progression. But we'll, we'll detail that out at the at the right time.

Deepak Nath: I think at this point, we have given you enough proof points in terms of our ability to do that. The next chapter will be to build off of where we have come. Here, I will leave this a little bit of a mystery so you can come to the capital market day and see what those drivers are. Then, of course, with full year, we will give you that in more detail.

In terms of sustainability of growth, we've gone from kind of being a low single digit growth. Kind of company into kind of a mid single digit Growth Company during this transformation period. I think at this point we've given you enough proof points in terms of their ability to do that. So the next chapter will be to build off of where we've come, right. So here I'll leave this, a little bit of a mystery so you can come to the Capital Market day and see what those drivers are. And then, and

Multiple year um, they will give you that in more detail.

John Rogers: Just to comment on the margin trajectory, as always, there are a lot of moving parts on margin. As Deepak Nath highlighted, we have the positives in terms of the additional savings coming through. I talked about $50 million to $100 million at least coming through in 2026 and 2027. We have the positives in terms of the continued progression on the Orthopaedics margin. As Deepak Nath says, 14% is not our end game. We expect to continue to improve that over time. At the same time, of course, we have to offset the challenges of tariffs coming in in 2026, and also, of course, the impact of skin subs. So there are always lots of moving parts, but we hope to set out at the capital markets a clear direction of travel as to where we expect things to go forward.

And, and, and just to sort of comment on the margin trajectory at, you know, as always there's a lot of moving parts.

On margin. You know it's Deepak. Highlighted, we've got the positives in terms of this additional savings coming through, and I talked about $50 million to $100 million at least coming through in 2026 and 2027.

in terms of the

John Rogers: Also, obviously, the prelims in February of next year provide very clear guidance as to what we expect to happen in 2026.

Progression on the Orthopedics margin as deep as 14% is not our end game. We expect to continue to improve that over time. At the same time, of course, we've got to offset the challenges of tariffs coming in in 2026, and also, of course, the impact of skin subs. So there's always lots of moving parts. Um, but we hope to set out at the Capital Markets Day a clear direction of travel as to where we expect things to go forward and also obviously.

Deepak Nath: Just a quick build on what you said, John, in terms of sustainability of both growth and margin. Part of being a portfolio company is being able to go through all these different factors and offset these things to deliver more consistent top-line growth and margin expansion. That is part of being a portfolio company. One another thing that I will accentuate here is in terms of sustainability, when you look at how Q2 turned out, the growth came from all regions and all of our businesses. That has been a theme that if you go back and look at our messaging over previous quarters, that is something that has been true actually for a number of quarters now. So it is not just coming from one particular part of our business, but the growth has been relatively broad-based.

Uh at the prelims in February of next year, provide very clear guidance as to what we expect to happen in 2026. Yeah, just uh, just a quick build on what you said, John in terms of sustainability of both, got the margin part of being a portfolio company, is being able to go through all these different factors and and offset, um, these things to deliver more consistent, um, kind of Topline growth and, and Market expansion, that's part of being, um, a portfolio company. But 1 the, another thing that I'll accentuate here is in terms of sustainability, when you look at

How Q2 turned out?

Deepak Nath: You should take that as another encouraging sign in terms of the sustainability of growth as we move out of this period of transformation or turnaround into more new and improved Smith & Nephew.

The growth came from all regions and all of our businesses, and that's been a theme that if you'll go back and kind of look at our messaging over previous quarters, that is something that's been true actually for a number of quarters now. So it's not just coming from one particular part of our business, but the growth has been relatively broad-based, and that you should take as.

Another encouraging sign in terms of the sustainability of growth as we move out of this period of transformation, of turnaround into more, um, kind of new, new and improved. Um, uh, some of the Nephew.

Kane Slutzkin: Very helpful. Thank you both.

Very helpful. Thank you both.

Deepak Nath: Thanks, Robert.

Veronika Dubajova: The next question comes from Kane Slutzkin of Deutsche Bank. Your line is now open. Please go ahead.

Thanks, Robert. The next question comes from Kane Slutkin of Deutsche Bank. Your line is now open. Please go ahead.

Kane Slutzkin: Morning, James. Can you hear me?

John Rogers: Very clear.

Can you hear me?

Very clear.

Kane Slutzkin: Thanks, Ken. Just quickly on Smith & Nephew, you are obviously still targeting the market growth rates by end of year, I would assume. I am just wondering if anything has changed in your thinking there in terms of how you get there, given the softer U.S. need but stronger, stronger hips? Then just secondly, you obviously mentioned you are in the final year of the transformation. You are making good progress against this plan. Without being too sensationalist, I am just wondering with the Bernstein stake sort of slowly building, could you sort of just provide us with any confirmation or details of any, of the nature of any discussions you have had with them, what their influence has been to date, if at all? I guess, just how active have they been? Thank you.

Deepak Nath: Sure. In terms of what we are targeting, as we have said before, getting to market growth and U.S. recon remains a goal. Ideally, we would like to do that with all parts of our business kind of working, right? So in other words, we want to continue to show progress in knees and progress in hips, right? But obviously, there are multiple ways we could get there. In Q2, we had great performance in hips that offset somewhat softer performance in knees, right? So we expect to build on both of those things as we go into Q3, Q4. But the objective is at a U.S. recon level to exit at market. So it could be a different shape, but that remains the goal. In terms of Bernstein, as you know, our position has always been we maintain open dialogue with all of our shareholders.

Great. Um, just quickly on U.S. Recon, you’re obviously still targeting the market growth rates by the end of the year, I would assume. Um, I’m just wondering if anything has changed in your thinking there in terms of how you get there, given that the software in the U.S. needs a bit stronger, um, stronger hips. Um, and then just secondly, you obviously mentioned you’re in the final year of the transformation. Um, you’ve made some good progress against this plan. Um, you know, without being too sensationalist, I’m just wondering with the Serbian mistake sort of slowly building, could you sort of just provide any confirmation or details of the nature of any discussions you’ve had with them? What their incidents have been to date, if at all? Um, and I guess, you know, just how active have they been? Thank you. Sure. Um, in terms of what we’re targeting, as we've said before, um, getting to market growth.

And and use Recon uh, remains remains uh, uh, a goal. Uh, ideally, we would like to do that um, with all parts of our business um kind of kind of working. Um, right, so in other words, we want to

To continue to show progress in these areas and progress on hips. Um, right. But obviously, there are multiple ways we could get there. In Q2, we had great performance in hips.

Offsets on somewhat softer performance, and in these, um, right. Um, so we expect to build on both of those things as we go into Q3 and Q4. But the objective is at a US Recon level to exit at market. So it could be a different shape, but that remains the goal.

Deepak Nath: We spend a considerable amount of time, John Rogers and I do, engaging with our shareholders in an open and constructive way. We have done that with Bernstein as well. The conversations so far have been quite deep, quite meaningful, and constructive. We expect to maintain that as we move forward as well.

Um, in terms of Cevian, as you know, our position has always been to maintain open dialogue with all of our shareholders. Um, we spend a considerable amount of time, John and I do, engaging with our shareholders, um, in an open and constructive way. And so we have done that, uh, with Savion as well. Um, the conversations so far have been, um, quite deep, um, quite meaningful and constructive, and we expect to maintain that, um, as we move forward as well.

Kane Slutzkin: Great. Thanks, Kane.

Alright, thanks guys.

Deepak Nath: Yeah.

Yeah.

Kane Slutzkin: One more.

Veronika Dubajova: The next question comes from Dylan van Haaften of Stifel. Your line is now open. Please go ahead.

1 more. The next question comes from Dillon, Vanha of Stifel. Your line is now open. Please go ahead.

Dylan van Haaften: Hi, guys. Just one clarification at the end for me. Baked into your tariff guide, are you using the Nairobi Protocol for any of the, let's say, non-U.S. for U.S. business? I will stop there.

Hi guys, just 1 clarification at the end for me. Um, based into your uh tariff guide is is are you using the Nairobi protocol for any of the let's say non us for us business.

And I'll stop there.

Deepak Nath: The short answer is no, not at this time.

Uh, the short answer is no, not at this time.

Kane Slutzkin: Perfect. Thanks.

Veronika Dubajova: We currently have no further questions, so I would like to hand back to the management team for any final remarks.

Deepak Nath: Great. Thank you very much for your questions. As we said, we are very encouraged by where we are in Q2, and remain confident of our ability to deliver within the guidance that we have set out. So thank you for your attention today.

For any final remarks. Great. Uh thank you very much for your questions. Or as as we said we're very encouraged by where we are in QT Q2 and uh remain confident in our ability uh, to deliver within the guidance that we've set out. So thank you for uh, your your attention today.