Smith & Nephew plc

Good morning. Thank you for attending today's Mids and Nephews quarter one trading report. My name is Sarah and 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.

Thank you. Good morning and welcome to our Smith & Nephew first quarter 2026 trading update. As just mentioned, I'm Deepak Nath. I'm the chief executive officer. I'm joined today by John Rogers, who is our chief financial officer. We made a good start to the year. In the first quarter, 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, U.S. needs were softer in the quarter, reflecting deliberate tradeoffs and continued focus on discipline execution. The rest of orthopedics delivered solid performance, and 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, Atos, QFix, Regeniton, Carnihil Agility, 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 U.S. skin substitutes, and improving trajectory in USDs, as well as an additional trading day in the fourth quarter. Today, we're also announcing that after seven years with the group, including the last two as the president for FedEx, Craig Gaffin will be leaving Smith & Nephew to pursue a new opportunity. We've appointed a highly qualified successor, Nathan Volker, 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.

Thank you, Deepak. Revenue for the quarter was $1.5 billion, representing plus 3.1% underlying growth and plus 6.6% reporting, including a 350 basis points tailwind on exchange. Those growth rates include the effect of one fewer trading day compared to the first quarter of 2025. And 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. And 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. Let me now take you through the business units in more detail. So, I'll start with sports medicine and ENT, which grew 6.7%. Within sports med, all regions contributed to growth. We saw double-digit growth in joint repair, driven by Cufix, Knopflus, Regeniton. Carter Hill Agility also grew very strongly, albeit of a small base. We continue to roll out these products in more geographies outside of the U.S., primarily across Europe. It's still very early for Tendency, which we acquired with Integrity Orthopaedics earlier this year, but integration is progressing well. AET growth was led by Farseal and services. In China, we had intentionally restricted inventory in the channel at the end of last year, and with the implementation of BDP delayed by a few months, we saw strong demand for our products there during the quarter. We now expect BDP to be implemented beginning January, As a result of this strong performance, our sports medicine revenue exceeded our recon and robotics revenue for the first time ever, and 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 completion bonds for turbulent reduction. In China, we continued to reduce inventory in the channel ahead of VVP implementation, which had a negative impact on our growth. And we still expect a profit headwind from China BDP in 2026 to be around $15 to $20 million. Let's now look at advanced wound management, which grew plus 2.2% in the quarter. Within that, advanced wound care grew 4.9%, with good growth overall led by an even life and strength in emerging markets. Our even complete care launch in the U.S. 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 the second quarter. Turning to bioactives, which were down 1.7% for the quarter, we saw strong growth in Santal offset by a decline in skin substitutes. And as a reminder, our skin substitutes business is facing headwinds in the U.S. 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 non-certical settings, particularly in mobile, where we have limited exposure. We have also seen reduced billing efficiency and elevated inventory clearing in the system. The market is adapting slowly to these changes, but 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, and 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 substitute 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. Sales of Renesys in the U.S. continue to be soft in the acute care channel, while performance in the post-acute channel remains strong, and we're continuing to expand into emerging markets. Orthopaedics grew 0.8% on an underlying basis. In the U.S., hits grew above market for the fourth consecutive quarter, driven again by the strong uptake of catalyst spend, particularly in competitive accounts. Trauma and extremities also grew strongly, driven by EVOS, shoulder, and iron nails. These results reflect sustained momentum in segments where we have benefited from the combination of the strength in commercial organization and the differentiated portfolio. Where our portfolio aligns with underlying market trends, we are able to perform well. U.S. needs were weak in the quarter, consistent with the softness we previously guided to for Q1. This reflects our continuing and deliberate trade-offs to balance growth, profit, and asset efficiency ahead of the launch of our new kinematic needs 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 needs, 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 2017. Additionally, as mentioned earlier, we had a headwind for one fewer trading day in the quarter. Looking ahead, we continue to expect softness in the USD performance relative to the market this year as a result of these actions. but we anticipate an improving trajectory from here. 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 six months into the launch, 15% of procedures with Legion implants now utilize MS inserts. This will, in turn, support incremental growth in Legion Consulat, our cementless version of Legion, which is currently growing double digits. Outside of the U.S., both hits and needs grew above market. Needs were particularly strong in emerging markets, and hits and trauma in experimentaries 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. During the quarter, we signed our largest ever multi-system Corrie deal with the USPTC. 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 per 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 second half to the year compared to the first half for both revenue and profit growth, with phasing now expected to be further weighted to the second half, driven by some commercial deals moving to the second half from the first. Acceleration will be driven by the ramp-up of product launches, stabilisation in scheme substitutes, and an improving trajectory in the U.S. median class, as well as an extra trading day in the fourth quarter. And 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 through free cash flow and existing cash balances and builds on the completion of our $500 billion buyback in 2025.

And with that, I'll hand back to Steve. Thank you, John. We're now just one quarter. into our new RISE strategy, which will accelerate growth and improve returns over the next three 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. 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. First, the Orthopedic Journal of Sports Medicine published data that compared Regenitin implant patients who had partial thickness rotator cuff tears than 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 Regenitin bioinductive implant improves outcome versus traditional rotator cuff repair techniques. Second, the American Journal of Sports Medicine published evidence showing that patients treated with cardiac heel agility 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 Orthopedics, which we announced in January. With Tendency's fundamentally novel biomechanical approach to rotator cuff repair, we're able to create one of the broadest, most advanced portfolios in shoulder pathology. We also continue to invest in growing PICO across wound segments, including to help prevent surgical site complications. And to execute efficiently, we're driving group-wide productivity by being disciplined around cost control, as well as executing an ortho 360 program within orthopedics. 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 Fulker, proposed by Nate, will be joining us later this month to lead our orthopedics business. Nate brings with him more than two decades of global orthopedics leadership experience, spanning commercial and operational roles across large medical technology organizations. He's held senior leadership roles at Stryker, ConMed, and Zimmer, including as the president of Zimmer's trauma division, where he had end-to-end responsibility for large orthopedics 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 product and profit growth and sustainable improvements. With this depth of experience, he is well-positioned to continue to execute on our strategic priorities, and we remain laser-focused on maintaining the good momentum we have across the majority of orthopedics and building on the progress we're making to improve our US and East business. I want to take a moment here now to thank Craig for his contributions to Smith & Nephew over seven years. He has made a real difference here, and I wish him nothing but the best in his next venture. I look forward to welcoming Nate to Smith & Nephew as we work together to deliver a wise strategy. In summary, we've delivered a good first quarter 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 U.S. needs, reflecting the resilience and balance of our portfolio. We're just one quarter into RISE. and we are already seeing progress across all four pillars, from innovation and clinical evidence to discipline, 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. I look forward to seeing many of you at our Expert Surgeon Insights event on the 9th of June. This will feature leading surgeons from major U.S. healthcare institutions discussing the innovation platforms expected to drive our next phase of growth, including Regeniton, Cardiheal Agility, Tessa, Pico, Cori, Atos, and Landmark. With that, we're now ready for your questions.

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 Veronica Dovachova with CT. Please go ahead.

Hi, guys. Good morning, and thank you for taking my questions. Hi, good morning. I was too slow to hit the unmute button. Thank you so much for taking my questions. I'm going to keep it to two, please. One, I just want to understand a little bit your thoughts on the U.S. ortho franchise. Look, I think you have been very honest in flagging a softer Q1 in these in particular. I don't think any of us expected minus 10. And so I kind of love to understand to what extent things maybe haven't fully gone to plan there. And, you know, it sounds like from the prepared remarks from John and UG PAC as well, that maybe you're having a slightly softer expectation now for U.S. news for the full year, and maybe you sound a bit better on HIP. So I'd love to kind of get some color there. and thoughts from you on that. And then my second question is, look, I appreciate this is obviously a trading update, but, you know, inflation is becoming a big topic of conversation. It was a big headwind for Smith & Matthew 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.

Thanks for the question, Veronica. So on U.S. Ortho, just taking a step back, just wanted to acknowledge the tremendous progress we've made in this franchise over the last four years compared to where we were in 22 and each year beyond that. We're in a place where we are operating OUS at a remote market. U.S. HIFS, as you indicated in your question, we now know is leading the market. which three years ago, we could never imagine that we would be doing that in U.S. HIPs. So 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. And U.S. needs, 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 some efforts. 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 stainless steel, actually, Landmark represents the first new platform on the market in the new robotics era. It features the first implant that's designed with robotics kind of integral to its design, in our case, Cori, and also a tray-efficient platform 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. And ahead of that launch, we're making the number of trade-off decisions on how much capital we want to deploy and how we manage the tail of accounts. And that's the impact that you see in Q1. Is it a bit softer than we had thought originally? Yes, but we had flagged, as you acknowledged, that Q1 was going to be soft. The reason we think it's going to get better from here on out is on the Legion platform, we are launching Legion MS and we've indicated that they're already seeing traction in the market. It enhances the competitiveness of Legion. So not only are we seeing about 15% of our Legion used with the MS inserts, actually Leisure is a way to convert competitive accounts. Now we have a stronger value proposition. So we've got a good line of sight, the sets we're deploying, where we're deploying them, and the balance of the year. And so this is the confidence that we have between now and ahead of the cementless launch of Landmark and Q3 that we'll have an improvement trajectory. So I think that gives you a bit of a color around not only U.S. needs, but also the context. And as you indicated, U.S. hips is actually ahead of the market. So the offset of slightly softer U.S. knees with slightly stronger U.S. hips, I think this is a good position in terms of U.S. recon overall. And hopefully you see that being on balance, the improvement that we're seeing in the ortho franchise. Thank you.

Just to build a little bit on the author question as well, and the reason why we've got quite good visibility, Ron, because we're seeing the regional sets that we're deploying, is that they mature over time, so we're actually seeing the turn rates on the sets that we've already deployed increasing over time, which is what you'd naturally expect, and we're also employing additional sets, and so we can take that data and extrapolate that data through the remainder of the year, and that's what gives us the visibility course by quarter through this year. In relation to your question on inflation, 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. 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 to offset inflation, and we can turn the dial up a little bit on that as well. So we're very comfortable in confirming or reconfirming our guidance for the full year on both the top line and the property line for 2026. Obviously, if the situation in the Middle East were to significantly worsen or indeed becomes more protracted, then that could change. But as we sit here today, we're comfortable. We've got good visibility of managing our cost base and comfortable with our guidance.

And just to build real quick, Veronica, going back to kind of progress in the 12-point plan, as you also indicated, we faced significant inflation. But 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 bits of trading margin expansion during the 12-point plan. So we feel very good about our ability to to be agile, to be able to look for offsets to . I just want to put that into perspective as well.

Very clear. Thank you, guys. Yep. Rob.

Thank you. Our next question is from John Unwin with Barclays. You may ask your question.

Hi, John. Thanks for taking my questions. My question is on competition, actually. So we're at iOS and we saw two launches or two showcases of products, one a handheld robot from one of your competitors and then also some autonomous and semi-autonomous robots from another competitor. How are you thinking about increased competition maybe in the ASE space from another handheld robot in the market? And on the autonomous 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, AOS, and obviously Oxinium is already naturally nickel-free. So do you see any risk to U.S. growth this year from customer attrition from Oxinium to the new competitor launch, and how are you thinking about that?

Thank you. Great. Thanks for the great questions, John. So just on the handheld robot, obviously, you know, we are aware of the competitive 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 other footsteps when we launched our robotic platform with a fixed arm. We didn't do that. We took stock of market needs and 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 ASC. It's for a range of settings. And 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. So we feel good about where we're positioned. The choice we made quite a ways back in time around handheld format and the progress we've made. So 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. And certainly the way we are thinking about robotics is as an augment to what surgeons do. It's an enabler for surgeons to perform things their procedures, and achieve better outcomes through robotic enablement. So surgeons are at the center of the procedure still, and that's how we think the field is actually going to develop. And, of course, we look forward to monitoring progress there. In terms of nickel-free, of course, there's developments in the field, but there's quite a few nickel-free offerings already on the market. And so, you know, this is one more. But just to double-click on Xenium, in terms of utilization of Xenium, the vast majority, vast, vast majority of Xenium usage is actually for primary needs. It's how surgeons use it for their daily practice. a relatively small proportion of oxynium need for usage is as secondary needs, whether it's for nickel-free or for some other application. So given that composition of oxynium today and given the clear differentiation of oxynium versus other alternatives for nickel-free. They're largely coding-based. We feel very good about kind of hybrid position. We've got lots of data in everyday use of Xenium that really supports the appropriate use of Xenium in patients. So rich data sets supporting the benefits of Xenium, long-term use, and the clear technical differentiation that Xenium has relative to other coding. We feel very good about hybrid positions. Thank you very much. Sure thing.

Thank you. Our next question is from Chuck Reynolds-Clark with RBC Capital Market. Please go ahead.

Hi there. Good morning. Thank you for taking the question. Hi there. I had two as well, please. Hi there. First on ortho and kind of knees, so I appreciate there's kind of some deliberate and kind of management going on there. But could you talk directionally as to the impact of that decline on margin? Has your effort been successful in supporting multiple digits margins or actually is there a risk that decline of double digits poses a risk to margin from negative operating leverage? So could you just talk directionally as to how that's progressing? And then on Corey's shoulder, has this started to come through in the numbers yet? And if not, when would you expect it to and what's been the feedback from the launch?

Thank you. 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. But just the headline level. First of all, we feel very good about margin coming through, and the fundamental reason for that is the softness of knees are offset by the strength in hips. So fundamentally, as I said in the Capital Market Day, we're fundamentally agnostic to whether the volumes come from hips or knees in terms of our margin progression. So even with the level of needs being where it was in Q1, in terms of how we set up for margin for the rest of the year, we feel very good about our ability to kind of drive margin. We've also, in the capital market, given you a multi-year outlook as to how margin progression is going to actually happen. You know, there's 26, and of course, heading into 27 with the inventory rebound, you know, turning into a tailwind towards the back half of 27. All of that remains intact, and we feel really good about how we're positioned. And I'll let John kind of double-click that. In terms of Corey's shoulder, we're in the very, very early innings today. Still in limited release in terms of launch. So look for that to become more material. Yeah, I would say in the back half of the year and starting into 2027. And there we see clear synergies between not just our base ortho business, the recon side, but actually into our sports medicine as well. Because as you know, Jack, there are surgeons, particularly in the United States, who do both shoulder arthroplasty and gynecology. an arthroscopy. So we see real benefits there with bringing multiple elements of our portfolio together to have a real solid value proposition for shoulder surgery.

So with that, John, do you want to pick up further on that? Yeah, I'm not sure there's a great deal much to add further. I mean, as Deepak says, within any portfolio, even looking just at the context of the ortho portfolio, there's swings and downs, positives and negatives. And in the round, even in the context of our business, we're very comfortable gear, notwithstanding the softness in these that we've called out. So Deepak calls out the slight overperformance in hips, that compensates for the marginal performance. And of course, when you look at the group more broadly, you see an outperformance in our sports business, which we also know is a very strong margin-driven business. And all of this gives us confidence in our ability to hear the guidance that we set out. There's always going to be some gives and takes, but overall, both the margin at the business unit level and the margin at the overall group level, we're comfortable with the guidance, et cetera.

Thank you. Thanks, Jack.

Thank you. Our next question is from Aisha Nor with Morgan Stanley. Let me ask a question.

Hi, good morning. Thanks for taking my question. My first one was on the share buyback. So 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? And then the second question was on advanced wound care. So one of your peers had called out softer market dynamics in Europe, specifically pricing reform in Germany and Spain. So just wondering if this development resonates with your business, and if so, how exposed your wound business is to these countries currently? Thank you.

So maybe I'll take the question on the share buyback. 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 if we've got a line of sight then of, you know, our leverage with respect to our target, which is 2.3 BPA, and we've got capacity, then we'll take that cash and use that for share buybacks. And the reality was we exited 2025 below our targets. We've continued to generate cash through Q1 at our Q1 cash positions this year. And actually, all else being equal, we've penned a year at a significant below our target leverage ratio, hence why we've been very confident in announcing a share buyback. That doesn't, in any way, shape or form, exclude the opportunity for a vols on M&A. We've still got capacity on the balance sheet and in line with our capital allocation policy to do vols on M&A. It just felt comfortable given the trajectory of the cash flow through the year to announce the buyback at the moment. And it doesn't necessarily exclude doing further buybacks. You know, we'll always... And then we'll take a view depending on what opportunities we have available in front of us. But very comfortable to buy back today on the back of the fund that we also did last year, of course.

Great. And 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. We have taken that into account in the guidance that we issued. And so based on what we are seeing, we don't see a reason to update our guidance base. So, yes, we do have exposure to it, but it's contemplated within our guidance.

And maybe it would be worth taking the opportunity to reemphasize the fact that we're also launching a lead in complete care program. into the European market in the second quarter of this year. So that would . Thank you very much. Thanks, Isha.

Thank you. Our next question is from Graham Doyle with QBS. You may ask your question.

Hey, Graham. Morning, guys. Thanks. Just two hopefully quick questions. Just on the, John, on the margins, could you give us some color I just remodeled the phasing for first half this year versus last year. It kind of feels like it should be down a little bit margin year over year, but just good to clarify that. And then maybe one for Deepak. When we're modeling landmark, how do we model the sort of ramp? So is it literally as that launches, we should expect needs to start doing better, or is it like a one, two quarter lag? Just understand that as well. It'd be super helpful. Thank you.

Graham, just your comment on the margins. Just to be clear, we're reiterating our guidance all year, which is pre-integrity. We're expecting our top line to grow 6% and our trading profit organically to grow around 8%. So obviously there's some margin expansion implicitly within those numbers. If you then fully factor in the dilutive impacts to flat margin for the year. So that gives you a guidance for the full year. In terms of the half, one half, as we called out on the call, we expect the phasing on the top line to be a little bit more weighted in the second half. It's a government commercial contract that we had forecast to land in our second quarter. We're now actually bumped into our third quarter, but we've got full visibility of those coming through. And so there'll be a little bit of a shift in weighting towards the second half. And we expect the profit to follow that. But overall, we are comfortable with the guidance that we get. So it'll be margin expansion on a pre-acquisition basis and broadly flat if you take account of the guidance impact that we take.

Right. And 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, and end of Q2 of 27 is when the cemented version gets launched. That's when we have a full offering. As in any orthopedics launch, it's never a switch, right? If you do it right, which, you know, all the operational discipline we're driving with the organization, the discipline on capital, you've got to be thoughtful about how you deploy steps and you'll bring that discipline into the landmark launch as we demonstrated with Catalyst 10. So if you look to what happened with Catalyst 10, where it was a build over a few quarters, that's what you should expect in effect with the landmark. It took kind of dynamics a little bit different in knees or hips, but you should look to that as a directionally, the shape of how we would launch landmarks. So a couple of quarters after each of those kind of timelines that I would be the way to think about it.

Okay. Okay. Thanks a lot, guys. That's really helpful. Thank you.

Absolutely.

Thank you. Our next question is from . Please go ahead.

Good morning, guys. Thank you for taking my questions. So just two, if I may. One, I just want to 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 27, I thought 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 27. And then the other one is just to delve a little bit more to Graham's question on the phasing. So you've talked about perhaps a little bit more revenue phasing in the second half of the first half. Can you help us quantify that? Is that a couple of percentage point movements or something lower than that, just to get a sense of what we're talking about? Thanks.

I'll take both of those. So, look, on the input cost side, as I said earlier on, just to reiterate, we've got pretty good visibility. you know, things got a lot worse, more protracted, then it could have an impact. But we're pretty well hedged. We're going into 86. Obviously, 27, you know, things gone for longer, that could impact 27. But we're not overly exposed to the petrochemical side of our business. It's obviously embedded within our products to a degree, but it's not a huge exposure. So it's relatively small in that regard. And the point I would say about 27, You know, there's like in any year, there's always puts and takes on the margin and if we're looking to go about forecasting 27 margins, but we've always said that 26 was a tough year because there was a few headwinds. 27 ought to be a little bit easier because you've got the revaluation reserve and tariffs and so on reverse out. So, you know, there may be some pressures coming from the cost side, but again, there's positive tailwinds to offset that. But we'll obviously set our guidance out for 27 more clearly at the time. In terms of the phasing, half one, half two, I don't want to call it half two. I think, you know, I would say for half one, we're probably looking at somewhere around three and a half percentage growth and then probably the second half. 8.8 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 second half, as we said, but we've got very good visibility of that. We have a couple of contracts that we know will shift from Q2 to Q3, so we're comfortable with the overall guidance we've set out for the full year.

Thank you very much. Cheers, Serge.

Thank you. Our next question is from David Adlington from JP Morgan. Please go ahead.

Hey, guys. Thank you for the question. So, firstly, I'm back to U.S. knees. I just wondered how Q1s were stacked up versus your internal expectations and what particular elements surprised you. And then just to confirm that you do expect Q1 to be the trough for U.S. knee growth. And the second response can substitute I just wondered how the performance there was relative to expectations with respect to both price and also volume. Thanks.

Thanks, David, for the question. So, U.S. needs, as we acknowledged, a little bit softer than we had thought, and the primary driver for that is the timing of where we chose to deploy Legion sets, Legion MS sets, and that had an impact of kind of the shape of it. context for that is, as we've said, historically we've not been very disciplined about how we've deployed capital into the business. We've acknowledged that and we've said 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 have way too much capital in Florida relative to the business opportunity. And so 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. And the timing of that just depends on when the opportunity is to do this. and sometimes it is hard to forecast that within a quarter. But it's the right thing to do to get the business reset and to be on more solid ground. So this is part of our efforts to do that, and there will be some quarterly shifts around when that actually occurs. But the broader thing, in terms of software, is the timing of when we choose to deploy sets. And also, as John indicated earlier in this call, because we've got line of sight to aid 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 going to play out. So that's kind of the U.S. needs part of it. And in terms of skin subs, we had contemplated a range of outcomes knowing that we were going into a very uncertain kind of environment. So the guidance of 20 to 40 million trading profit impact from skin subs, you know, had a range of possible scenarios that we had 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. And then the system has taken some time to adapt in terms of how things get billed and how reimbursement actually occurs. 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. So that adaptation is taking a bit of time, right? And so 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 inter-quarter moves, right? what we see is contemplated within that range of 20 to 40 million that we've set out. So, bottom line, there are puts and takes within that, but we feel good about kind of following within the expected cost of your model.

Anything you want to add to that, John? Yeah, I mean, basically, David, you know, bang in line with our expectations of the quarter as the market's pretty much performing as expected. If you remember at the previous, we gave the overarching yearly guidance of prices for us have been down 20% to 25% and volumes have been flat to positive. Obviously, we wouldn't expect to see that in the first quarter because there's a degree of markets going to mature over time, especially prices. We're actually down even less than that 20% to 25% of volumes, but we're down a little bit. We would have seen positive returns of volumes, but the quarterly performance is actually bang in line with what we would expect to see as we see the market mature and transition. through the state as we progress through the year. Stay very comfortable with where we are. The CPAC's point, the 20 to 40 million guidance that we gave is clear for them.

Perfect. Thanks. And so just to fully quantify, the Q1 does represent the trough for U.S. new growth.

Oh, yes. Sorry, yes, it does. Sorry, I didn't address that part of the question. Yes, yes.

Yeah, we expect to see steady progress through each quarter of this year. Great. Thank you. Yeah.

Thank you. Our next question is from Susanna Ludwig with Bernstein. Please go ahead.

Great. Good morning, and thanks for taking my questions. I guess first you guys had called out strong sample growth on the back of distributor patterns and just wondering how long that impact is expected to last. And then second, you noted in AET that the China VBP has been delayed until the second half of the year. So just any commentary on sort of how you expect that to impact saving of AET throughout the year? Yeah.

So Santal, as you know, just the way the business works, closer distribution, there's, you know, kind of quarterly gyrations. Overall through the year, on a year-on-year basis, pretty consistent level of growth in Santal. So that's the way to anchor kind of how you think about Santal. There's no fundamental change to underlying demand and the kind of growth that you see. So, in Q1, the impact of distributive stocking patterns, you know, the Q1 to Q1 competitor drove the numbers that we see. But 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 is adapting to things. There's some perturbation related to that, but there's actually underlying, you know, strength in demand. In terms of AET, just to reinforce what we said earlier, which is that we're seeing a shift in when AET is going to be implemented within the year because 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, and with the delay that's come, there was a greater level of demand of Q1, which we catered to. Overall, for the year, you know, at the beginning of the first half, second half, we expect the AET to be implemented as follow signs. You know, there's no change to the fundamental assumption other than the timing shift to that. But I also want to re-anchor you to China now, which is, it's now a significantly smaller portion of our overall group, around about 2% or so of overall group sales, China. So it is less material to the group. And 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. Lisa, do you have anything you want to comment on that?

We'll just make it a little bit deeper. On AET, so the upside that we saw in Q1 and Q2, we expect to reverse in Q3 and Q4. So, actually, for the full year in China on AET, we expect to be roughly flat, but that will largely play a draw. And actually, as Deepak's just said, for the business overall in China, for the year, we expect to be roughly flat again. So, it's really the value to our overall top line performance. And just on the sand-silt piece, because of the distributed stocking patterns, we've had a strong Q1. I think the corollary of that is, well, you know, we might see a slightly weaker Q2, but to be back to overarching point when you look at the year overall, it's not an expectation.

Thanks.

Thanks for that.

Thank you. Again, if you would like to ask a question, please press star followed by 1 on your telephone keypad. Our next question is from Oliver Metzger with AutoBHF. Please go ahead.

Good morning. Thanks for taking my questions. The first one is also about skin substitutes in the U.S. So 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? A second question about advanced wound care. So 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. And in Europe, these countries have often been the first mover with some more reforms to come. So do you expect that the overall environment shifts now again more towards higher price pressure? Thank you.

Yeah, thanks, Oliver. So in terms of CMS, so first off, Post the 26th, 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. There's diabetic foot ulcers, penis leg ulcers. The critical 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 a quality profile. that customers and patients expect. So there will be shifts that occur, and that will get played out during the course of 26 as we get into 27. So as with the nephew, we feel very well positioned within the sector over the longer term. So 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. But fundamentally, we've got new products that we're launching into this category. So Alevin AG has been a material driver for growth. We've got ACC, Alevin Complete Care, launching. It's launched in the U.S. It's coming, as John said, kind of middle part of the year within Europe. That we're expecting growth. to take share within that category because it's got, from a product standpoint, unique features and benefits. It's a five-layer product that offers great opportunities for exit management, which Alevin has always been known for, but together with the new silicone that Alevin complete care features and the fact that you've got five layers that are now 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 in that category. So 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. But as you also know, Oliver, that what happens in Germany doesn't necessarily translate in like-for-like fashion in other markets because each market is different. The reimbursement patterns are different. The clinical practice is different. So, look, 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. So you put these pieces together, I think they're set up very nicely in an AWC category to actually be a challenger, which we haven't been in quite some time. Okay, great. Thank you. Thank you, Oliver.

Thank you. There are no questions waiting at this time, so I'll turn the conference back over to Deepak Nath for any closing remarks.

Great. Thank you for the great questions. I just want to end with saying that we've delivered a great first quarter. This performance was in line with our expectations, and we feel very good about our ability to meet our full year of guidance across all metrics. We look forward to coming back to you and updating you on progress at the half. So thank you again for your attention and engagement today.

Thank you. That concludes Ms. and Nephew's Part 1 Trading Report. Thank you for your participation. You may now disconnect your line.