SNN Q1 2026 Earnings Call

Operator (AI Assigned): Good morning. Thank you for attending today's Smith & Nephew Q1 trading report. My name is Sarah. I'll be your moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you'd like to ask a question, press star one on your telephone keypad. I'd like to pass the conference over to our host, Deepak Nath, Chief Executive Officer. Please go ahead.

Deepak Nath (CEO): Thank you. Good morning and welcome to our Smith & Nephew Q1 2026 trading update. As just mentioned, I'm Deepak Nath, I'm the Chief Executive Officer. I'm joined today by John Rogers, who's our Chief Financial Officer. We've made a good start to the year. In Q1, we delivered 3.1% underlying growth or 4.7% on an adjusted daily basis, which was in line with our expectations. Performance across the group was positive overall, with growth across all business units and regions. We saw strong growth in sports medicine and resilient results in advanced wound management, despite the headwind from CMS changes to skin substitute reimbursement. As expected, US knees were softer in Q1, reflecting deliberate trade-offs and continued focus on disciplined execution.

Deepak Nath (CEO): The rest of Orthopaedics delivered solid performance, this underscores the strength of having a well-balanced, diversified portfolio. Innovation continues to be a key driver of our performance, accounting for more than half of our growth. We saw strong momentum across a broad range of products spanning all business units, including CATALYSTEM, AETOS, Q-FIX, REGENETEN, CARTIHEAL AGILI-C, FASTSEAL, OASIS, and LEAF. Overall, our Q1 performance supports our confidence in the full-year outlook, which remains unchanged. We expect growth to strengthen over the remainder of the year, driven by the ramp-up of new product launches, stabilization in US skin substitutes, an improving trajectory in US knees, as well as an additional trading day in Q4.

Deepak Nath (CEO): Today, we are also announcing that after 7 years with the group, including the last 2 as the President of Orthopaedics, Craig Gaffin will be leaving Smith & Nephew to pursue a new opportunity. We've appointed a highly qualified successor, Nathan Folkert, who will join us later in the month, and I'll return to this later in the call. Finally, I'm pleased to announce a $500 million share buyback. This reflects our strong balance sheet and confidence in our 2026 performance and demonstrates our continued commitment to a balanced approach to capital deployment, supporting future growth while returning incremental value to shareholders. With that, I'll now hand over to John to take you through the financial performance in more detail.

John Rogers (CFO): Thank you, Deepak. Revenue for the quarter was $1.5 billion, representing +3.1% underlying growth and +6.6% reported, including a 350 basis points tailwind for foreign exchange. Those growth rates include the effect of 1 fewer trading day compared to Q1 2025. On an adjusted daily sales basis, underlying growth was 4.7%. Geographically, the US grew 2.1%, and other established markets grew 1%. Emerging markets grew 10.5%, and excluding China, growth was 2.9% on an underlying basis. We expect China to be broadly neutral to growth for the full year, making it the first time since 2021 that it will not be a major headwind to revenue growth.

John Rogers (CFO): Let me now take you through the business units in more detail. I'll start with Sports Medicine and ENT, which grew 6.7%. Within Sports Medicine, all regions contributed to growth. We saw double-digit growth in joint repair, driven by Q-FIX KNOTLESS, REGENETEN. CARTIHEAL AGILI-C also grew very strongly, albeit off a small base. We continue to roll out these products in more geographies outside of the US, primarily across Europe. It's still very early for Tendon Seam, which we acquired with Integrity Orthopaedics earlier this year, but integration is progressing well. ENT growth was led by ARIS and services. In China, we had intentionally restricted inventory in the channel at the end of last year, and with the implementation of VBP delayed by a few months, we saw strong demand for our products there during the quarter.

John Rogers (CFO): We now expect VBP to be implemented beginning of H2. As a result of this strong performance, our sports medicine revenue exceeded our Recon and Robotics revenue for the first time ever. We expect that to continue to be the case going forward. Turning to ENT, we saw particular strength in other established markets in Latin America, as well as in our ARIS ablation wands for turbinate reduction. In China, we continue to reduce inventory in the channel ahead of VBP implementation, which had a negative impact on our growth. We still expect a profit headwind from China VBP in 2026 to be around $15 to 20 million. Let's now look at Advanced Wound Management, which grew +2.2% in the Q.

John Rogers (CFO): Within that, advanced wound care grew 4.9% with good growth overall led by ALLEVYN Life and strength in emerging markets. Our ALLEVYN COMPLETE CARE launch in the US is off to a strong start. It takes time to win new contracts, but we're pleased with what we're seeing so far, and we'll be expanding the launch into Europe in Q2. Turning to bioactives, which were down 1.7% for the quarter. We saw strong growth in SANTYL offset by a decline in skin substitutes. As a reminder, our skin substitutes business is facing headwinds in the US as a result of CMS reimbursement changes that came into effect at the start of the year. This is driving a decline in both volumes and pricing in nonsurgical settings, particularly in mobile, where we have limited exposure.

John Rogers (CFO): We have also seen reduced billing efficiency and elevated inventory clearing in the system. The market is adapting slowly to these changes, the impact we are seeing on our business is in line with our expectations. We set out our full-year outlook. We contemplated a range of outcomes, we continue to expect the trading profit headwind for the full year to remain within the $20 to 40 million range we previously guided to. Looking ahead, we remain convinced of the long-term attractiveness of the skin substitutes segment beyond this transition year. Advanced wound devices grew 1.9%, partly reflecting a strong prior year comparative. LEAF and PICO both performed well, reflecting good demand. PICO growth reflects our focused efforts to improve penetration in the surgical setting.

John Rogers (CFO): Sales of RENASYS in the US continue to be soft in the acute care channel, while performance in the post-acute channel remains strong. We're continuing to expand into emerging markets. Orthopedics grew 0.8% on an underlying basis. In the US, hips grew above market for the 4th consecutive quarter, driven again by the strong uptake of CATALYSTEM, particularly in competitive accounts. Trauma and extremities also grew strongly, driven by EVOS, shoulder, and INTERTAN nails. These results reflect sustained momentum in segments where we have benefited from the combination of a strengthened commercial organization and a differentiated portfolio. Where our portfolio aligns with underlying market trends, we are able to perform well. US knees were weak in the quarter, consistent with the softness we had previously guided to for Q1.

John Rogers (CFO): This reflects our continuing and deliberate trade-offs to balance growth, profit, and asset efficiency ahead of the launch of our new kinematic knee system, Landmark. We are being disciplined about set placement and in managing our customer tail to improve the quality of our base. At the same time, the market continues to shift from cemented towards cementless knees, and our ability to compete effectively will increase when we launch the cementless version of Landmark expected in Q3 of this year, which will be followed by the launch of the cemented version in Q2 of 2027. Additionally, as mentioned earlier, we had a headwind from one fewer trading day in the quarter. Looking ahead, we continue to expect softness in the US knee performance relative to the market this year as a result of these actions. We anticipate an improving trajectory from here.

John Rogers (CFO): We are stepping up set deployment for LEGION MS, enhancing the competitiveness of LEGION, which accounts for around half of our installed base. MS is performing strongly in the market, and only 6 months into the launch, 15% of procedures with LEGION implants now utilize MS inserts. This will in turn support incremental growth in LEGION CONCELOC, our cementless version of LEGION, which is currently growing double digits. Outside of the US, both hips and knees grew above market. Knees were particularly strong in emerging markets, and hips and trauma and extremities performed well overall, with some isolated weakness in specific markets that we are addressing. Finally, other recon grew 6%, reflecting a strong prior year comparator and contract mix.

John Rogers (CFO): During the quarter, we signed our largest ever multi-system CORI deal with a US teaching institute, and we continue to see encouraging trends in utilization and penetration. I'll finish now with the outlook. We continue to expect around 6% organic revenue growth and around 8% organic trading profit growth for the year, translating into approximately $1.3 billion of trading profit, including marginal dilution from the Integrity acquisition. We remain on track to deliver around $800 million of free cash flow and a return on invested capital above 10%. We continue to expect a stronger H2 to the year compared to the H1 for both revenue and profit growth, with phasing now expected to be further weighted to the H2, driven by some commercial deals moving into the H2 from the H1.

John Rogers (CFO): Acceleration will be driven by the ramp-up of product launches, stabilization in skin substitutes, and an improving trajectory in US knee implants, as well as an extra trading day in Q4. As Deepak mentioned earlier, today we announced a $500 million share buyback to be completed over the next 12 months. This underscores the strength of our balance sheet and cash generation, as well as our confidence in the business while remaining fully consistent with our capital allocation framework. The program will be funded from free cash flow and existing cash balances and builds on the completion of a $500 million buyback in 2025. With that, I'll hand back to Deepak.

Deepak Nath (CEO): Thank you, John. We're now just Q1 into our new RISE strategy, which will accelerate growth and improve returns over the next 3 years. We're making good progress under each of the elements that will shape our performance in 2026 and beyond. To reach more patients, we continue to drive adoption of our differentiated portfolio by accessing more indications and geographies. This quarter, we launched shoulder execution on our latest generation of CORI and are receiving positive feedback on that. We also launched CATALYSTEM in Japan and the next generation LEAF 3.0, a cloud-based solution for our patient monitoring system. To innovate to enhance the standard of care, I'm pleased to share recently published compelling clinical evidence that supports our patient-first approach to innovation, focused on areas with the greatest opportunity to improve outcomes.

Deepak Nath (CEO): First, the Orthopaedic Journal of Sports Medicine published data that compared REGENETEN implant patients who had partial thickness rotator cuff tears with those who received traditional suture anchor repair. It showed early recovery time was cut in half. This is the third randomized clinical trial to demonstrate the REGENETEN bioinductive implant improves outcome versus traditional rotator cuff repair techniques. Second, The American Journal of Sports Medicine published evidence showing that patients treated with CARTIHEAL AGILI-C reported significantly better knee pain relief and quality of life improvements over a five-year period. To scale through strategic investment, we're deploying capital into high return, high growth categories and channels. This includes the acquisition of Integrity Orthopaedics, which we announced in January. With Tendon Seam's fundamentally novel biomechanical approach to rotator cuff repair, we're able to create one of the broadest, most advanced portfolios in shoulder pathology.

Deepak Nath (CEO): We also continue to invest in growing PICO across wound segments, including to help prevent surgical site complications. To execute efficiently, we're driving group-wide productivity by being disciplined around cost control, as well as executing an Ortho 360 program within Orthopaedics. We're deploying AI and data analytics to drive improvements across the business. This quarter, we created a digital twin within our supply chain, which we're integrating into our end-to-end workflows to drive process optimization and enhance decision-making. As I mentioned, we're pleased to announce that Nathan Folkert, who goes by Nate, will be joining us later this month to lead our Orthopaedics business. Nate brings with him more than two decades of global Orthopaedics leadership experience, spanning commercial and operational roles across large medical technology organizations.

Deepak Nath (CEO): He's held senior leadership roles at Stryker, ConMed, and Zimmer, including as a president of Zimmer's trauma division, where he had end-to-end responsibility for large Orthopaedics businesses across multiple product lines and markets. More recently, Nate has served as CEO of Orchid Orthopedic Solutions, where he led a significant business turnaround, delivering both profit growth and sustainable improvements. With this depth of experience, he is well-positioned to continue to execute on our strategic priorities. We remain laser-focused on maintaining the good momentum we have across the majority of Orthopaedics and building on the progress we're making to improve our US knees business. I want to take a moment here now to thank Craig for his contributions to Smith+Nephew over 7 years. He has made a real difference here. I wish him nothing but the best in his next venture.

Deepak Nath (CEO): I look forward to welcoming Nate to Smith+Nephew as we work together to deliver a RISE strategy. In summary, we have delivered a good Q1 with performance in line with our expectations and keeping us on track to meet our full year guidance across all metrics. Strong execution in sports medicine and solid performance in advanced wound management and the rest of orthopedics have offset the anticipated softness in US knees, reflecting the resilience and balance of our portfolio. We're just 1 quarter into RISE, and we are already seeing progress across all 4 pillars, from innovation and clinical evidence to disciplined capital deployment and operational execution. The announcement of a $500 million share buyback further reflects our confidence in the outlook, supported by strong cash generation and a balanced approach to capital allocation.

Deepak Nath (CEO): I look forward to seeing many of you at our Expert Surgeon Insights event on 9 June. This will feature leading surgeons from major US healthcare institutions discussing the innovation platforms expected to drive our next phase of growth, including REGENETEN, CARTIHEAL AGILI-C, TESSA, PICO, CORI, AETOS, and Landmark. With that, we're now ready for your questions.

Operator (AI Assigned): Thank you. If you would like to ask a question, please press Star followed by One on your telephone keypad. To remove your question, press Star followed by Two. Again, to ask a question, press Star One. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question is from Veronika Dubajova with Citi. Please go ahead.

Veronika Dubajova (Managing Director, Head of Medical Technology, Healthcare Services Research, and EMEA): Hi, guys.

Deepak Nath (CEO): Hi, Veronika.

Veronika Dubajova (Managing Director, Head of Medical Technology, Healthcare Services Research, and EMEA): Good morning, thank you for taking.

Deepak Nath (CEO): Hi, Veronika.

Veronika Dubajova (Managing Director, Head of Medical Technology, Healthcare Services Research, and EMEA): Hi, good morning, Sakti. I was too slow to hit the unmute button. Thank you so much for taking my questions. I'm gonna keep it to 2, please. One, just want to understand a little bit your thoughts on the US Ortho franchise. Look, I think you have been very honest in flagging, you know, a softer Q1 in knees in particular. I don't think any of us expected -10%. I'd kind of love to understand to what extent things might maybe haven't fully gone to plan there. You know, it sounds like from the prepared remarks from John and you Deepak as well, that maybe you're having a slightly softer expectation now for US knees for the full year, and maybe you sound a bit better on hips.

Veronika Dubajova (Managing Director, Head of Medical Technology, Healthcare Services Research, and EMEA): I'd love to get some color and thoughts from you on that. My second question is, I appreciate this is obviously a trading update, you know, inflation is becoming a big topic of conversation. It was a big headwind for Smith & Nephew back in 2022. Would love to get your thoughts, John, on how you're thinking about the pressure on margin from the higher oil price and some of the raw materials, and to what extent you see your ability to mitigate it in the current backdrop as protecting that $1.3 billion of trading profit for the year. Thank you guys so much.

Deepak Nath (CEO): Thanks for the questions, Veronika. On US Ortho, just taking a step back, just wanted to acknowledge the tremendous progress we've made in this franchise over the last 4 years. Compared to where we were in 2022 or, and each year beyond that, we're in a place where we are operating OUS at a remote market. US hips, as you indicated in your question, we now know is leading the market, which, you know, 3 years ago, we could never imagine that we would be doing that in US hips. What that reflects is fundamental improvements in how we operate the business, commercial execution, supply, a product portfolio that's lined up with kind of where the market is today.

Deepak Nath (CEO): In US knees, as we've acknowledged, we've got some ways to go to get our product portfolio to where the market is, particularly when it comes to cementless. And on this, ahead of the launch of Landmark, which we expect to not only address the gap that we've got on the journey platform with respect to cementless knees. Actually, Landmark represents the first new knee platform on the market in the new robotics era. It's the first implant that's designed with robotics kind of integral to its design, in our case, CORI, and also a tray efficient design that's really well suited for a range of settings, especially to the ASC. So we've got high hopes for what Landmark will do for us.

Deepak Nath (CEO): Ahead of that launch, we're making deliberate trade-off decisions on how much capital we want to deploy in which account and how we manage the tail of accounts. That's the impact that you see in Q1. Is it a bit softer than we had thought originally? Yes. We had flagged, as you acknowledged, that Q1 was going to be soft. The reason we think it's gonna get better from here on out is on the LEGION platform, we are launching LEGION MS, and we indicated that we're already seeing traction in the market. It enhances the competitiveness of LEGION. Not only are we seeing about 15% of our LEGION used with the MS inserts, actually, LEGION is a way to convert competitive accounts. We now have a stronger value proposition.

Deepak Nath (CEO): We've got a good line of sight to the sets we're deploying, where we're deploying them in the balance of the year. This is the confidence that we have between now and ahead of the cementless launch of Landmark in Q3, that we'll have an improvement trajectory. Hopefully that gives you a bit of a color around not only US knees, but also the context. As you indicated, US hips is actually ahead of the market. The offset of, you know, slightly softer US knees with slightly stronger US hips, I think puts us in a good position in terms of US recon overall. Hopefully you see that being on balance the improvement that we're seeing in the Ortho franchise.

Deepak Nath (CEO): John, I'll let you take the-.

John Rogers (CFO): Yeah. Just to build a little bit on the Ortho question as well. The reason why we've got quite good visibility, Veronika, is we're seeing in the LEGION sets that we're deploying is that they mature over time. We're actually seeing the turn rates on the sets we've already deployed increasing over time, which is what you'd naturally expect. We're also deploying additional sets. We can take that data, extrapolate that data through the remainder of the year. That's what gives us the visibility on seeing an improving performance on these as we progress quarter by quarter through this year. In relation to your question on inflation, look, obviously, we've got quite a lot of our costs hedged, so particularly our fuel and our energy costs are very much hedged forward 12 months or so.

John Rogers (CFO): We've obviously got supplier contracts in place on a fixed price basis. We've got a very extensive savings program that we talked about at the prelim, $150 million within this year, that enables us to offset inflation, and we can turn the dial up a little bit on that as well. We're very comfortable in confirming or reconfirming our guidance for the full year on both top line and the profit line for 2026. Obviously, if the situation in the Middle East were to significantly worsen or indeed becomes more protracted, that could change. As we sit here today, we're comfortable. We've got good visibility of managing our cost base and comfortable with our guidance for the full year.

Deepak Nath (CEO): Just to build, real quick, Veronika, going back to kind of progress on the twelve-point plan. As you also indicated, we faced significant inflation. Actually, as we recapped at the capital market day, the headline is that we were actually able to offset the very significant headwinds from inflation and all the other macro factors to still deliver about 230 BPS of trading margin expansion during the twelve-point plan. We feel very good about our ability to be agile, to be able to look for offsets to headwinds as they come. Just want to put that into perspective as well.

Veronika Dubajova (Managing Director, Head of Medical Technology, Healthcare Services Research, and EMEA): Very clear. Thank you, guys.

Deepak Nath (CEO): Yep.

John Rogers (CFO): No problem.

Operator (AI Assigned): Thank you. Our next question is from John Unwin with Barclays. You may ask your question.

Deepak Nath (CEO): Hey, John.

John Unwin (VP and European Medical Technologies and Services Analyst): Morning. Thanks for taking my questions.

Deepak Nath (CEO): Morning

John Unwin (VP and European Medical Technologies and Services Analyst): are on competition, actually. We're at AAOS, we saw two launches or two showcases of products, one a handheld robot from one of your competitors, then also some autonomous and semi-autonomous robots from another competitor. How are you thinking about increased competition, maybe in the ASC space from another handheld robot in the market? On the autonomous sort side, do you see this is where the market is going anytime soon? That's my first question. The second question is on nickel-free implants. We also saw a launch of a nickel-free implant from one of your competitors at AAOS, and obviously, OXINIUM is already naturally nickel-free. Do you see any risk to US growth this year from customer attrition, from OXINIUM to the new competitor's launch, and how are you thinking about that? Thank you.

Deepak Nath (CEO): Great. Thanks for the great questions, John. Just on the handheld robot, obviously, you know, we are aware of the competitor launches there. What I'll say is this: We see that as validation of an approach that we took early on. We could have followed in others' footsteps when we launched our robotic platform with a fixed arm. We didn't do that. We took stock of market needs and unmet needs at the time, and we went down the paradigm of a handheld format. Which, by the way, is not a solution just for the ASCs, it's for a range of settings.

Deepak Nath (CEO): We are now quite a ways into our journey of fully featuring CORI across one platform for shoulder, for hips, for knees, and through multiple iterations, have really fleshed out kind of its capabilities across each of those joints. We feel good about where we're positioned, the choice we made quite a ways back in time around a handheld format, and the progress we've made. We welcome the competition, but we also are quite a ways down the journey here. In terms of autonomous, you know, over time, perhaps there's a role for that. I don't think it's a near-term thing. Certainly, the way we are thinking about robotics is as a augment to what surgeons do.

Deepak Nath (CEO): It's an enabler for surgeons to perform their procedures and achieve better outcomes through robotic enablement. Surgeons are at the center of the procedure still, and that's how we think the field is actually going to develop. Of course, we look forward to monitoring progress there. In terms of nickel-free, of course, there's developments in the field, but there is quite a few nickel-free offerings already on the market. You know, this is one more. Just to double-click on Oxinium, in terms of utilization of Oxinium, the vast majority of Oxinium usage is actually for primary needs. It's how surgeons use it for their daily practice. A relatively small proportion of our Oxinium knee usage is as secondary needs, whether it's for nickel-free or for some other applications.

Deepak Nath (CEO): Given that composition of Oxinium today, and given the clear differentiation of Oxinium versus other alternatives for nickel-free, they're largely coating based, we feel very good about kind of how we're positioned. We've got lots of data in everyday use of Oxinium that really supports the appropriate use of Oxinium in patients. Rich data sets supporting the benefits of Oxinium long-term use and the clear technical differentiation that Oxinium has relative to other coating, we feel very good about how we're positioned there.

John Unwin (VP and European Medical Technologies and Services Analyst): Thank you very much.

Deepak Nath (CEO): Sure thing.

Operator (AI Assigned): Thank you. Our next question is from Jack Reynolds-Clark with RBC Capital Markets. Please go ahead.

Jack Reynolds-Clark (European Healthcare Analyst): Hi there. Good morning. Thank you for taking the question.

Deepak Nath (CEO): Hi there.

Jack Reynolds-Clark (European Healthcare Analyst): I had two as well, please. Hi. First on ortho and kind of knees. I appreciate there's kind of some deliberate kind of management going on there. Could you talk directionally as to the impact of that decline on margins? Have your efforts been successful in supporting orthopedic margins? Actually, is there a risk that decline of double digits poses a risk to margin from, kind of, negative operating leverage? If you just talk, John, directionally as to how that's progressing. On the CORI Shoulder, has this started to come through in the numbers yet? Kind of, if not, when would you expect it to, and what's been the feedback from the launch? Thank you.

Deepak Nath (CEO): Let me tee this up real quick on both these points. I'll turn it over to John to take a deeper dive on margins. Just the headline level, first of all, we feel very good about margin coming through. The fundamental reason for that is the softness of knees are offset by the strength in hips. Fundamentally, as I said in the capital market day, you know, we're fundamentally agnostic to whether the volumes come from hips or knees in terms of our margin progression.

Deepak Nath (CEO): Even with the level of knees being where it was in Q1, in terms of how we set up for margin through the rest of the year, we feel very good about our ability to kind of drive the margin through this. We've also, at the capital market day, given you a multi-year outlook as to how margin progression is gonna actually happen. You know, there's 2026 and then, of course, the heading into 2027 with the inventory rebound, you know, turning into a tailwind for us in H2 2027. All of that remains intact, and we feel really good about how we're positioned. I'll let John kind of double-click that. In terms of CORI Shoulder, we're in the very, very early innings today.

Deepak Nath (CEO): It's still a limited release, in terms of launch. Look for that to become more material, you know, I would say in the back half of the year and starting into 2027. There we see clear synergies between not just our base ortho business, the recon side, but actually into our sports medicine as well. 'Cause as you know, Jack, there are surgeons, particularly in the United States, who do both shoulder arthroplasty and arthroscopy. We see real benefits there with bringing multiple elements of our portfolio together to have a real solid, value proposition for shoulder surgeons. With that, John, you wanna pick up further on this?

John Rogers (CFO): I'm not sure there's a great deal much to add further. I mean, as Deepak says, like within any portfolio and even looking just at the context of the ortho portfolio, there's swings and roundabouts, positives and negatives. In the round, you know, even context of our business, we're very comfortable with the margin trajectory for the full year, notwithstanding the softness in knees that we've called out. You know, Deepak calls out the slight overperformance in hips that compensates for the margin performance. Of course, when you look at the group more broadly, you've seen outperformance in our sports business, which we also know is a very strong margin-driven business. All of this gives us, you know, confidence in our ability to hit the guidance that we set out.

John Rogers (CFO): Overall, both the margin at the business unit level for ortho and the margin at the overall group level, we're comfortable with the guidance that we set out.

Jack Reynolds-Clark (European Healthcare Analyst): That's it, clear. Thank you.

John Rogers (CFO): Thanks, Jack.

Operator (AI Assigned): Thank you. Our next question is from Aisyah Noor with Morgan Stanley. You may ask your question.

Aisyah Noor (European Medtech Analyst): Hi, good morning. Thanks for taking my question. My first one was on the share buyback. Just quickly, what drove the decision to deploy this soon in the year, given you just concluded the last program, and would this preclude any other buybacks for the remainder of the year? Second question was on advanced wound care. One of your peers had called out softer market dynamics in Europe, specifically pricing reform in Germany and Spain. France, sorry. Just wondering if this development resonates with your business, and if so, how exposed your wound business is to these countries currently. Thank you.

John Rogers (CFO): Yeah, maybe I'll take the question on the share buyback. Look, I mean, as I said, a few times, you know, we've got a very clear capital allocation policy, and that policy is to first and foremost ensure that we're driving our top line growth through the right investment internally and of course, through M&A, and then we've got to pay a dividend. Then if we've got line of sight then of our, you know, our leverage with respect to our target, which is 2x net debt to EBITDA, and we've got capacity, then we'll take that cash and use that for share buybacks. The reality was we exited 2025 below our target. We've continued to generate cash through Q1 at our Q1 cash position this year.

John Rogers (CFO): Actually, all else being equal, would end the year at a, you know, significantly below our target leverage ratio. Hence why we've been very comfortable in announcing a share buyback. That doesn't in any way, shape, or form exclude the opportunity for bolt-on M&A. We've still got capacity on the balance sheet and in line with our capital allocation policy to do bolt-on M&A. It just felt comfortable given the trajectory of flow through the year to announce the buyback at the moment. It doesn't necessarily exclude doing further buybacks. You know, we'll always revert back to our capital allocation policy. We'll look at our future cash flows, and then we'll take a view depending on what opportunities we have available in front of us.

John Rogers (CFO): Very comfortable to announce the buyback today on the back of, the $500 million that we also did last year, of course.

Deepak Nath (CEO): Great. Just to pick up your second question in terms of the AWC. Of course, the pricing kind of dynamic within Germany especially, but also France, as you called out, it's not necessarily a new phenomenon. You know, we had taken that into account in the guidance that we issued. Based on what we are seeing, we don't see a reason to update our guidance base. Yes, we do have exposure to it, but it's contemplated within our guidance.

John Rogers (CFO): Maybe it would be worth sort of taking the opportunity to reemphasize the fact that we're also launching a leading ALLEVYN COMPLETE CARE into the European market in Q2 of this year. That would also support our performance.

Deepak Nath (CEO): Yeah. Yeah. Thanks, John.

Aisyah Noor (European Medtech Analyst): Thank you very much.

John Rogers (CFO): Thanks, Ayesha.

Operator (AI Assigned): Thank you. Our next question is from Graham Doyle with UBS. You may ask your question.

John Rogers (CFO): Hey, Graham.

Graham Doyle (Head of European MedTech and Equity Research): Morning, guys. Thanks. Just two hopefully quick questions. Just on the margins, John, could you give us some color just as we model the phasing for H1 this year versus last year? I mean, it kind of feels like it should be down a little bit margin year-over-year, but just good to clarify that. Then maybe one for Deepak. When we're modeling Landmark, how do we model the sort of ramp? Is it literally as that launches, we should expect knees to start doing better, or is it like a one, two quarter lag? Just to understand that as well, it would be super helpful. Thank you.

John Rogers (CFO): Graham, yes. Just your comment, just on the margins. I mean, just to be clear, you know, we're reiterating our guidance for the full year, which is pre Integrity. We're expecting our top line to grow 6% and our profit, trading profit organically to grow around 8%. Obviously there's some margin expansion implicit within those numbers. If you then fully factor in the dilutive impact of Integrity, then we, I would say broadly get to flat margin for the year. That gives you a guidance for the full year. In terms of the half, on H2, you know, as we called out on the call, we expect the phasing on the top line to be a little bit more weighted in H2.

John Rogers (CFO): There's a couple of commercial contracts that we had forecast to land in our Q2 will now actually be just bumped into our Q3. We've got full visibility of those coming through. There'll be a little bit shifted, you know, in weighting towards the H2. We expect the profit to follow that. Overall, we are comfortable with the guidance that we've given. It'll be margin expansion on a pre-acquisition basis and broadly flat if you take account the dilutive impact of Integrity.

Deepak Nath (CEO): Right. Graham, on your Landmark question, just to anchor you on the timeline, just to recap from our CMD. Q3 of this year is when we launch our cementless, end of Q2 of 2027 is when the cemented version gets launched. That's when we have a full offering. As with any orthopedics launch, it is never a switch, right? If you do it right, which, you know, all the operational discipline we're driving within the organization, the discipline around capital, you've got to be thoughtful about how you deploy sets, you'll bring that discipline into the Landmark launch, as we've demonstrated with CATALYSTEM. If you look to what happened with CATALYSTEM, where it was a build over a few quarters, that's what you should expect in effect with Landmark.

Deepak Nath (CEO): The competitive dynamic is a little bit different in knees or hips, but you should look to that as a directionally, the shape of how we would launch Landmark. A couple of quarters after each of those kind of timelines that I gave you would be the way to think about it.

Graham Doyle (Head of European MedTech and Equity Research): Okay. Okay, thanks a lot, guys. That's really helpful for modeling. Thank you.

Deepak Nath (CEO): Absolutely, Graham.

Operator (AI Assigned): Thank you. Our next question is from Sam Janzip from Panmure Liberum. Please go ahead.

Sam Janzip (Analyst): Morning, guys. Thank you for taking my question.

John Rogers (CFO): Morning.

Sam Janzip (Analyst): Questions. So just two, if I may. One, I just wanna dig a little bit deeper on the input costs. So obviously you've talked about 2026. I'm kind of thinking, you know, if this goes on for a bit longer and we see elevated oil prices into 2027, I was wondering if you could help maybe give us a sense of what percentage of your COGS are exposed to kind of petrochemicals and how that might flow into 2027. The other one is just to delve a little bit more to Graham's question on the phasing. You've talked about perhaps a little bit more revenue phasing in the H2 than the H1. Can you help us quantify that?

Sam Janzip (Analyst): Is that a kind of, you know, a couple of percentage point movements or something lower than that, just to get a sense of what we're talking about? Thanks.

John Rogers (CFO): I'll take both of those. Look, on the input cost side, as I said earlier on, just to reiterate, you know, we've got pretty good visibility for the 2026 year. You know, if things got a lot worse, more protracted, then it could have an impact. We're pretty well hedged going as in 2026. Obviously, 2027, you know, things go on for longer, that could impact 2027. We're not overly exposed as the petrochemical side of our business. It's obviously, it's embedded within our products to a degree, but it's not a huge exposure. It's relatively small in that regard. The point I would say about 2027

John Rogers (CFO): You know, like in any year, there's always puts and takes on the margin. We're not gonna go about forecasting 2027 margins, but we've always said that 2026 was a tough year because there was a few headwinds. 2027 ought to be a little bit easier because things like the revaluation reserve and tariff and so on reverse out. You know, there may be some pressures coming through on the cost side, but again, there's some positive tailwinds to offset that. We'll obviously set our guidance out for 2027 more clearly at the time. In terms of the phasing, H1, H2, I don't want to call it out too specifically.

John Rogers (CFO): I think, you know, I would say for H1, we're probably looking at somewhere around 3.5% growth, then probably in the H2, 8 or so plus, and that gets us to around 6% for the full year. That might be broadly the way we would see it shaping up. So it's a little bit more weighted in the H2, as we said, but we've got very good visibility on that. You know, there's a couple of contracts that we know will shift from Q2 into Q3. So we're comfortable with the overall guidance we set out for the full year.

Sam Janzip (Analyst): Very good. Thank you very much.

John Rogers (CFO): Sure, Serge.

Operator (AI Assigned): Thank you. Our next question is from David Adlington from JP Morgan. Please go ahead.

David Adlington (Managing Director): Hey, guys. Thanks for the question. Firstly, I'm afraid, back to US knees. I just wondered how Q1 were stacked up versus your internal expectations and what particular elements surprised you. Just to confirm that you do expect Q1 to be the trough for US knee growth. Secondly, just on skin substitutes, just wondered how the performance there was relative to your expectations with respect to both price and also volume. Thanks.

Deepak Nath (CEO): Thanks, David, for the question. US knees, as we acknowledged, a little bit softer than we had thought. The primary driver for that is the timing of where we chose to deploy Legion sets, Legion MS sets. That had an impact of kind of the shape of it. The broader kind of context for that is, as we've said, historically, we've not been very disciplined about how we've deployed capital into the business.

Deepak Nath (CEO): We've acknowledged that, and we've said, you know, during the whole 12-point plan journey, one of the things we've really worked on is being very, very intentional about how we do that going forward and the steps we would take to try and address some of the places where we had way too much capital deployed relative to the business opportunity. We had said there's a point in time when we start to kind of address that, and we've been at this now for a little while. The timing of that just depends on when the opportunity is to do this. Sometimes, and it's hard to forecast that within a quarter. It's the right thing to do to get the business reset and to be on more solid ground.

Deepak Nath (CEO): This is part of our efforts to do that, and there'll be some, you know, quarterly shifts around when that actually occurs. The broader thing in terms of software is just the timing of when we chose to deploy sets. Also, as John indicated earlier in this call, because we've got line of sight to A, the sets that we do have and where we plan to deploy them in the context of when Landmark is launching and the discipline with which we're doing it and the discipline with which we are ensuring that those sets turn, gives us some good confidence in terms of how the rest of the year are gonna play out. That's kind of the US knees part of it.

Deepak Nath (CEO): In terms of skin subs, we had contemplated a range of outcomes knowing that we were going into a very uncertain kind of environment. The guidance of $20 to 40 million trading profit impact on skin subs, you know, had a range of possible scenarios that were taken into account. What we're seeing play out is there's inventory in the channel. We expected some level of that was going into it. It's maybe on the higher end of what we had expected. The system has taken some time to adapt in terms of how things get billed and how reimbursement actually occurs.

Deepak Nath (CEO): You know, the wiser model that the CMS has deployed and how that gets implemented within physician offices and healthcare settings, and also how physician offices, for example, bill for these services. Very different type of model in the current era compared to what they're used to. That adaptation is taking a bit of time, right? When you add these things together and we look at what's actually happening, you know, in not only kind of how the quarter turned out, but also intra-quarter moves, what we see is contemplated within that range of $20 to 40 million that we've set out.

Deepak Nath (CEO): Bottom line, there are puts and takes within that, but we feel good about kind of falling within the expected outcomes for your models. Anything you want to add to that, John?

John Rogers (CFO): Yeah. No, I think you covered it. I think basically, David, you know, bang in line with our expectations for the quarter. The market's pretty much performing as we expected. If you remember at the premiums, we gave the overarching yearly guidance of prices for us at least being down 20% to 25% and volumes being flat to positive. Obviously, we wouldn't expect to see that in Q1 because there's a degree of, you know, the market's got to mature over time. Actually prices were actually down a little bit less than that 20 to 25. The volumes were down a little bit. We weren't seeing positive return to volume.

John Rogers (CFO): The quarterly performance was actually bang in line with what we would expect to see as we see the market mature and transition through this state as we progress through the year. Very comfortable with where we are. The $20 to 40 million guidance that we gave is reaffirmed.

David Adlington (Managing Director): Perfect. Thanks. Just to fully quantify, the Q1 does represent the trough for US knee growth?

John Rogers (CFO): Oh, yes.

Deepak Nath (CEO): Yes, yeah.

John Rogers (CFO): Yes, it does. Sorry, I didn't address that part of the question. Yes.

Deepak Nath (CEO): Yeah.

John Rogers (CFO): Yeah, we expect to see steady progression on US knees as we progress through each quarter of this year.

David Adlington (Managing Director): Got it. Great. Thank you.

John Rogers (CFO): Yeah.

Operator (AI Assigned): Thank you. Our next question is from Susannah Ludwig with Bernstein. Please go ahead.

Susannah Ludwig (European Research Analyst and Director): Great. Good morning, and thanks for taking my questions. I guess first you guys had called out strong Santyl growth on the back of distributor patterns and just wondering how long that impact is expected to last. Second, you noted in ENT that the China VVP has been delayed until the H2 of the year. Just any commentary on sort of how you expect that to impact phasing of ENT throughout the year.

Deepak Nath (CEO): Santyl, as you know, just the way the business works, it goes through distribution. There's, you know, it kinda quarterly gyrations. Overall through the year on a year-on-year basis, pretty consistent level of growth in Santyl. That's the way to anchor, kinda how you think about Santyl. There's no fundamental change to underlying demand and the kind of growth that you see. In Q1, the impact of distributor stocking patterns, you know, the Q1 to Q1 comparator drove the numbers that you see. In terms of underlying demand, you know, that seems steady. There's some perturbation, you know, with the whole skin sub thing and how the channel's adapting to things.

Deepak Nath (CEO): There's some perturbation related to that, but there's actually underlying, you know, strength in the demand. That's SANTYL. In terms of ENT, just to reinforce what we said earlier, which is that, we're seeing a shift in when ENT is gonna be implemented within the year. Because, you know, we've been through this now a number of times. We had basically worked on channel inventory ahead of the expected implementation at the end of last year, as John said. With the delay that's come, there was a greater level of demand in Q1, which we catered to.

Deepak Nath (CEO): Overall for the year, you know, at the beginning of the H2, we expect ENT to be implemented as follow signs. You know, there's no change to the fundamental assumption other than the timing shift to that. Also wanna re-anchor you to China now, which is, it's now a significantly smaller portion of our overall group. Round about 2% or so of overall group sales is now China, so it is less material to the group. As John said, while China was not a headwind for us for the first time in quite some time, overall for the year, we expect China to be neutral in terms of growth. Listen, do you have anything you wanna color there, John?

John Rogers (CFO): Yeah. Well, just a little bit of detail on ENT. The upside that we saw in Q1 and Q2, we expect to reverse in Q3 and Q4. Actually for the full year in China on ENT, we expect to be roughly flat. That will largely play a draw. Actually, as Deepak's just said, for the business overall in China for the year, we expect to be roughly flat again. It's really neither dilutive nor accretive to our overall top line performance.

Susannah Ludwig (European Research Analyst and Director): Thank you.

John Rogers (CFO): Just on the Santyl piece, I mean, to Deepak's point, you know, that because of the distributor stocking patterns, we've had a strong Q1. I think, you know, the corollary of that is we might see a slightly weaker Q2. To Deepak's overarching point, when you look at the year overall, in line with expectation.

Susannah Ludwig (European Research Analyst and Director): Great.

Deepak Nath (CEO): Thanks, Susannah.

Operator (AI Assigned): Thank you. Our next question is from Oliver Metzger with Oddo BHF. Please go ahead.

Oliver Metzger (Analyst): Yeah, good morning. Thanks for taking my questions. First one is also about skin substitutes in the US. Do you have any view that apart from the CMS price cuts, that also some market share shifts might occur on the back of the reform? Second question about advanced wound care. Some stronger growth for now the fourth consecutive quarter, which is, let's say, above historic levels. Often, pretty often, slower growth was initiated by some higher price pressure. Now we see the reforms in Germany and France. In Europe, these countries have often been the first mover with some more reforms to come. Do you expect that the overall environment shifts now again more towards higher price pressure? Thank you.

Deepak Nath (CEO): Thanks, Oliver. In terms of CMS skin subs, You know, post the 2026 when clearly a year of transition, we believe this is fundamentally a great market, and we're very well-positioned within that market. There's a significant medical unmet need for this in a variety of applications, whether it's diabetic foot ulcers, venous leg ulcers. The clinical need for these products remains robust, and we've got a great portfolio backed up by strong clinical evidence, directing the appropriate use for these products. What we expect to have happen is over time, we believe utilization will shift to those products that are backed up by clinical evidence and have the quality profile that customers and patients expect.

Deepak Nath (CEO): There will be shifts that occur, and that will get played out during the course of 2026 as we get into 2027. As with the Nephew, we feel very well-positioned within the sector over the longer term. That's kind of the skin subs answer. In terms of AWC, as you know, we've had a higher level of growth based on historical levels. There's some comps within that. Fundamentally, we've got new products that we're launching into this category. ALLEVYN Ag has been a material driver for growth. We've got A-ACC or ALLEVYN COMPLETE CARE launching. It's launched in the US. It's coming, as John said, kind of middle part of the year within Europe. We're expecting to take share within that category because it's got, from a product standpoint, unique features and benefits.

Deepak Nath (CEO): It's a 5-layer product that offers great opportunities for exit management, which ALLEVYN has always been known for. Together with the new silicone that ALLEVYN COMPLETE CARE features and the fact that you've got 5 layers that are not bonded together, that is great and sheer, which means it can be used in a variety of applications, makes for a very compelling value proposition for that category. We believe that product is differentiated, and we are poised to take share within that. In terms of pricing, as you rightly note, Germany often is at the vanguard for something like this. As you also know, Oliver, what happens in Germany doesn't necessarily translate in a like-for-like fashion in other markets, 'cause each market is different. The reimbursement patterns are different. The clinical practice is different.

Deepak Nath (CEO): Look, we're not, we're quite attuned to the dynamics of the market. We've been in the space for a long time. Our long-term plans take into account a dynamic market, but we also have a great product we believe that will carry the day in a market that's dynamic. You put these pieces together, I think we're set up very nicely in an AWC category to actually be a challenger, which we haven't been in quite some time.

Oliver Metzger (Analyst): Okay, great. Thank you.

Deepak Nath (CEO): Thank you, Oliver.

Operator (AI Assigned): Thank you. There are no questions waiting at this time. I'll turn the conference back over to Deepak Nath for any closing remarks.

Deepak Nath (CEO): Great. Thank you for the great questions. I just wanna end with saying that we've delivered a great Q1. This performance that was in line with our expectations, and we feel very good about our ability to meet our full year guidance across all metrics. We look forward to coming back to you and updating you on progress at H1. Thank you again for your attention and engagement today.

Operator (AI Assigned): Thank you. That concludes Smith+Nephew's Q1 trading report. Thank you for your participation.