Smith & Nephew plc

Good morning, everyone. Welcome to the Smith and Nephew Q2 and half one results presentation on Deepak Nath. I'm the chief executive officer and joined by John Rogers, who is our CFO. So this quarter, we delivered underlying revenue growth of 1.6%, which was lower than expected. Sports Medicine and ENT performed strongly once again with consistent delivery across regions and categories and we saw double digit growth from many of our key products. However, this was offset by softness in US orthopedics and in advanced wound bioactives. In US orthopedics, knees remain weak, reflecting similar dynamics to Q1, although we saw a sequential improvement as expected. And we do anticipate further improvement through the remainder of the year. U.S. HIPS were affected by a delay in catalyst stem deployment at a tough comparator, with growth expected to resume as deployment increases during the balance of the year. Within bioactives, santal growth was primarily impacted by strong distributor demand in the prior quarter, which did not repeat. This should normalize over the balance of the year. Despite the slower start on revenue, trading profit was strong at $566 million. Excluding M&A, trading profit grew by 9%, supported by stronger-than-expected efficiency savings and tariff refunds that fully offset the forecast tariff headwinds. Taking into account revenue performance, we now expect underlying revenue growth of around 4% for 2026. We recognize that orthopedics is not where we would want it to be, but we remain focused on delivering better performance as we strengthen the portfolio and build on the margin progress that we have made. We have clear growth drivers across all three business units that support our outlook for the remainder of the year. And importantly, despite the revised revenue outlook, we still expect to deliver original guidance for profit, trading profit, free cash flow, and ROIC. This includes an additional 50 million in efficiency savings that we identified for 2026 taking our total expected savings from 150 million dollars to 200 million dollars and a broadly neutral impact from tariffs net of refunds. The changes that we implemented in our 12-point plan have made the group more resilient and better able to respond to these challenges. So with that, I'll hand over to John to take you through the financial performance and I'll come back after you start. John.

Thank you Deepak. Revenue for the quarter was $1.6 billion, representing plus 1.6% underlying growth and 2.8% reported, including 120 basis points tailwind from foreign exchange. Geographically, the US declined by 1.3%, reflecting softer performance in orthopaedics and advanced wound bioactives. Other established markets grew by 1.7%, with performance led by Canada on Australia and New Zealand, continuing the good momentum seen in the first quarter. Emerging markets grew 10.6%. Excluding China, group growth was 1.4% on an underlying basis and we continue to expect China to be broadly neutral to growth for the full year. Let me now take you through the business units in more detail. I'll start with Sports Medicine and ENT which had another excellent quarter and grew 8.6%. Within sports medicine, the underlying growth drivers remain unchanged, reflecting the continued momentum of our key growth platforms and consistency of performance across the portfolio. Growth was broad-based across regions and joint repair, again delivered double-digit growth, supported by strong demand for QFIX Knotless and Regeniton. In AET, FastSeal and services continue to be the main contributors to growth. In China, after intentionally restricting inventory in the channel at the end of last year and ahead of the implementation of VBP, we saw strong demand for our products during the quarter. We continue to expect VBP to be implemented in the second half. Sports medicine revenue again exceeded our recon and robotics revenue. Turning now to ENT, outside of China, we saw strong growth globally, including double-digit growth in other established markets and emerging markets, as well as in our ARISC ablation wands for turbinate reduction and our HALO wand for tonsil and adenoid surgeries. In China, we continue to reduce inventory in the channel ahead of VBP implementation, which had a negative impact on our growth. We still expect the profit headwind for China VBP to be around 15 to 20 million for the full year. Let's now look at advanced wound management, which declined by 2.1% in the quarter. Within that, advanced wound care grew 3.7% with good growth overall, led by US Alevin and strength in our emerging markets. Our Relieve and Complete Care launch is off to a strong start in the US with good early momentum and we were pleased to launch in Europe in this quarter. In bioactives, revenue declined 12.7% for the quarter, driven by the reimbursement change in skin substitutes and a soft quarter for Soundtel. Soundtel benefited from strong distributed demand in Q1, which resulted in a softer Q2. We've also seen some impact from one of the payers introducing prior authorisation for certain doses of Santil. Underlying demand remains healthy, but the change is creating friction in the prescription process. And we're taking action to address this and expect Santil to return to growth in the second half. In our skin substitutes business we continue to face headwinds in the US as a result of CMS reimbursement changes that came into effect at the start of the year. We saw a sequential improvement from the first quarter driven by hospitals however volumes and pricing in non-surgical settings remained under pressure particularly in mobile where we have limited exposure. The market is adapting more slowly than expected, which continues to affect billing efficiency and inventory levels across the channel. We now expect the trading profit headwind from skin substitutes to be towards the upper end of the previously guided 20 to 40 million range. We remain confident in the long-term fundamentals of the segment and see opportunities to benefit as the market normalises. Advanced wound devices grew 3.8%. Leaf delivered double digit growth reflecting strong demand. Both Pico and Renesys performed very strongly in emerging markets as we continue to expand geographically. Pico sales in other established markets were impacted by doctor strikes in Spain in the surgical sector and the timing of tender offers. In the US, sales of Renesys remained soft in the acute care channel while performance in the post acute channel was good. Turning now to Orthopaedics. This declined 1% on an underlying basis, primarily reflecting the ongoing issues in US needs ahead of new product launches and temporary headwinds in US hips. Following four consecutive quarters of above market growth in US hips, we saw softer performance this quarter against a tough comparator. Catalyst STEM continues to grow strongly, but Q2 was impacted by delay in set deployments and an increasing proportion of existing customer retentions versus competitive conversions. We see a clear path to re-acceleration over the remainder of the year as Catalyst STEM set deployment increases. As the product moves into its third year post-launch, growth should remain strong, albeit at a lower rate than during the initial launch phase. US needs remain weak, but we are seeing gradual improvement as expected. The underlying dynamics are unchanged. Deliberate portfolio and capital discipline, combined with an ongoing market shift towards cementless, continue to influence performance in the near term. Sequential improvement was driven by strong uptake of Legion MS and double digit growth in Legion Conslock, our cementless offering. Legion MS now represents almost 20% of our Legion mix, up from 15% in Q1, and is enhancing the competitiveness of our in-store base. We continue to expect improvement through the year, driven by increased Legion MS set deployments. This will remain the main driver until landmark launches. Outside of the US, knees were impacted by a large tender order in the Middle East in the prior year quarter that did not repeat. Hips benefited from the launch of catalyst stem in Japan, although we saw some isolated weakness in Australia where we await regulatory approval of catalyst stem. Trauma and extremities performed well overall. We continue to see good growth in EVOS, IM nails, and shoulder driven by our ATOS implant. We are seeing the impact of competitor launches in the US, but we expect growth to strengthen in the second half as we launch EVOS, Pelvic, and ramp up TrigenMax. Finally, other recon grew 0.8%. This business can show some quarter to quarter volatility as revenue is influenced by contract timing and mix. This was more pronounced in the period given another strong prior year comparator. That said, we saw double digit growth in Coro deployments globally alongside continued growth in utilization and penetration. and we expect growth to accelerate in the second half supported by an easy comparator in Q3, continued strong demand for our robotic platform and good uptake across ASCs and teaching institutions. Now I'll move on to the half-year financials. For the half year, revenue was 3.1 billion, up 2.3% on an underlying basis, and up 4.6% on a reported basis. There was one fewer trading day versus the prior year, with underlying revenue growth of 3.1% on an average daily sales basis. Consistent with the performance in Q2, we saw strength in sports medicine, offset by softness in US orthopaedics and advanced wound bioactives. Moving on to the summary P&L. Underlying gross profit was 2.2 billion, representing a gross margin of 71.1%, up 60 bps year on year. This was driven by greater than expected efficiency savings across manufacturing and procurement, which more than offset cost inflation and the headwind from inventory revaluation. Tariff refunds fully offset the forecast tariff headwind to gross margin. Trading profit increased 43 million to 566 million, with trading margin expanding 60 bps to 18.3%, reflecting the benefits of higher gross margin and ongoing cost savings. Moving further down the P&L, IFRS operating profit grew 4.3% reflecting temporary higher restructuring charges driven by further optimisation of our manufacturing network and higher acquisition costs driven by, of course, our acquisition of integrity. Basic earnings per share grew ahead of this at 6.2% reflecting the buyback we announced at Q1 and adjusted earnings per share grew by 11% to 47.7 cents. The interim dividend of 15.6 cents per share is up 4% on half one, 2025. I'll now take you through a more detailed bridge of our trading profit growth. We absorbed 119 million of headwinds from cost inflation, inventory revaluation, changes to wound reimbursement, and China VBP, while continuing to invest 33 million in our growth. This was more than offset by 59 million of operating leverage and 128 million of efficiency savings, which I'll discuss in more detail shortly. While we had previously guided to an incremental tariff headwind in 2026, refunds received in the first half meant net tariffs were broadly neutral to profit growth. Foreign exchange also had a broadly neutral impact. As a result of all this trading, profit growth was 9%, excluding 4 million dilution from the acquisition of Integrity Orthopaedics. As I said, turning now to efficiency savings, we've delivered around 133 million in the first half, well ahead of expectations. Of this, approximately 50 million came from the 12-point plan and zero-based budgeting initiatives. and as a result we have now achieved 330 million of cumulative savings since launching these programmes reaching the lower end of the 325 to 375 million target that we set ourselves at our 2024 interim results, more than a year ahead of schedule. We expect further benefits to be realised through the remainder of 26 and into 2027. The remaining £80 million in the first half came from additional opportunities across procurement, manufacturing, sales and marketing and business support functions. We expect a further £70 million of savings in the second half from both the 12 point plan and ZBB and other opportunities. This takes forecast efficiency savings for the year up from around £150 million previously to around £200 million. The additional 50 million is expected to come primarily from manufacturing, including from ongoing footprint optimisation, as well as procurement and sales and marketing. Our 2026 guidance for trading profit is unchanged. We expect to deliver around 8% reported trading profit growth excluding M&A and around 1.3 billion of trading profit including the impact of integrity. We now anticipate that the year-on-year impact of tariffs will be broadly neutral to trading profit net of refunds. The headwind from skin substitutes is expected to be towards the upper end of the previously guided 20 to 40 million range and there are no changes to our assumptions regarding inventory revaluation or China VBP. As previously disclosed, the acquisition of Integrity Orthopaedics is expected to be marginally dilutive to trading profit in 2026, broadly neutral in 2027 and accretive from 2028. Coming now to trading margin by business unit. We saw a 160-bit increase for sports medicine and ENT margin to 24.7%, a 10-bit decrease for wound to 22%, and a 30-bit increase in orthopaedics margin to 13%. In sports medicine and ENT, margin expansion was driven by operating leverage and efficiency savings. In wound, the small margin decline reflected the impact of US skin substitute reimbursement changes, largely offset by savings initiatives. And in orthopaedics, manufacturing savings from network optimisation, ongoing product initiatives and disciplined cost control more than offset the headwind from inventory revaluation and softer revenue growth. We expect further margin expansion over time as we work through the inventory revaluation headwind and benefit from improving revenue growth. The impact of actions already taken to right-size our manufacturing capacity and our Ortho360 operating model. These results demonstrate the operational excellence we are driving across the business. As you know, inventory remains a key focus for us, even now that we've completed the 12-point plan. Group DSI, day sales inventory, fell by 72 days, including the reclassification of instrument sets from inventory to PPE, and by 40 if you exclude that. The bigger reduction came from orthopaedics, down 62 days, excluding reclassification, reflecting continued work to reduce the number of units in inventory and a focus on capital efficiency. We also saw a reduction in sports med DSI albeit to a lesser extent than in orthopaedics and no change in wound DSI excluding the reclassification. Both sports and wound are already much closer to industry benchmark DSIs. We expect to make further progress on inventory in 2026. Right now moving on to cash flow. Trading cash flow was 437 million in the first half, down 50 million or so year on year. But this reflects a 51 million step up in capex year on year driven by investments in our new wound manufacturing facility in Melton and in some IT investments. We do not expect this increase to repeat in the second half and cash generation should improve versus half to 2025. Other working capital was higher, largely due to the timing of bonus accruals and related cash payments. Cash conversion was 77% and we anticipate this will improve over the course of the year. Free cash flow was £231 million, down £13 million year on year, again reflecting these factors I've just mentioned and partially offset by reduced restructuring cash costs. We continue to expect free cash flow in 2026 of around £800 million driven by profit growth and continued focus on working capital offset by a modest temporary increase in restructuring costs. Net debt increased over the first half of three billion an increase of 260 million resulting in a leverage ratio of 1.8 times adjusted EBITDA within our target of around two times and the increase was driven by our investment in our business, the acquisition of Integrity Orthopaedics, growth in our dividend and of course the 500 million buyback we announced in Q1 of which we've actually now completed 260 million as of the 3rd of August. This is in line with our capital allocation priorities. Before I turn to guidance, I want to highlight the progress we continue to make across margins, working capital, cash flow and returns. This broad-based improvement reflects stronger operational controls and helps make Smith and Nephew a more resilient business, better positioned to manage through periods of revenue softness or external challenges while maintaining progress against our long-term objectives. Coming now to our updated outlook. Reflecting softer performance in US Orthopaedics and Santil, we now expect second half growth to be in the range of 5% to 5.5% and full year growth to be around 4%. Notwithstanding the lower revenue outlook, we are maintaining all other metrics of our guidance. We continue to expect around 8% trading profit growth excluding M&A for the year and this translates into approximately 1.3 billion of trading profit including marginal dilution from the integrity acquisition. This reflects the step up in efficiency savings that we are delivering across the business together with the removal of the forecast tariff headwind. The progress we demonstrated in the first half gives us confidence we can remain disciplined on costs while supporting improved revenue growth in the second half. We also remain on track to deliver around £800 million of free cash flow and a return on invested capital above 10%. Let me finish by outlining why we are confident in a step up in revenue growth. We expect second half growth of 5% to 5.5%, driven by factors across all three business units. In sports medicine, we expect continued momentum across segments, including strong growth in Regenitin and Fast Seal. In advanced wound management, we expect to see stabilisation in US skin substitutes, building on the sequential improvement we saw in Q2 versus Q1. We also expect a return to growth in Santor, further rollout of a Leave In Complete Care in Europe, the ongoing launch of Next Generation Leaf and the benefits of greater investment behind Pico. In orthopaedics we expect an improving trajectory in US knee implants driven by Legion MS and the launch of the cementless version of LAMBAR. We also expect US hip implants to return to growth as we deploy more catalyst stem sets. Of course, we'll also have one extra trading day in the fourth quarter. So with that, I'll hand you back over to Deepak.

Thank you, John.

Before we conclude, I wanted to spend a few minutes talking about the progress we've made in the first half against each pillar of RISE, which is our strategy for the next three years. These are the actions we are taking to strengthen the business today and position ourselves for sustainable growth over the long term. In order to reach more patients, we continue to expand access to our technologies through geographic expansion, new product introductions and important clinical milestones across our portfolio, including completing the first knee and shoulder procedures using our Cori XT handheld robotics platform and the European launches of Aleven Complete Care and Renesas Edge. To innovate, we advanced our pipeline, strengthened our clinical evidence base, and launched a number of new products across all of our business units, including Flow Xtend and Lynx in sports medicine and ENT, Evos Pelvic in orthopedics, and Leaf 3.0 in advanced wound management. And that brings the total number of new products launched so far this year to nine, putting us well on track to launch 16 for the full year. and a key highlight was receiving the FDA approval for Tessa, our spatial surgery system which I'll come on to shortly. To scale, we continue to invest behind our highest priority growth opportunities including the acquisition of Integrity Orthopaedics to strengthen our leading shoulder repair portfolio, Salesforce expansion for Pico and continued progress in our new advanced management manufacturing facility in Melton. which remains on track to open actually in 2027. To execute, we remain focused on driving productivity across the group, portfolio simplification and operational excellence and we're making good progress on streamlining our portfolio which will allow us to manage significantly fewer SKUs across our value chain and improve our capital efficiency. Earlier this quarter, our Advanced Wound Management manufacturing facility in Suzhou, China, was recognized with the prestigious Shingo Prize, which reflects more than a decade of sustained operational excellence and continuous improvement. Importantly, these aren't just strategic priorities, they're translating into tangible growth platforms that we believe can create value for shareholders for many years to come. The clearest example of that is in innovation, where we're building a portfolio of technologies designed to both take share in existing markets and create entirely new growth opportunities. In sports medicine we now have four differentiated growth platforms that we refer to as our big four. Regenitin continues to perform strongly delivering around 20% growth in the first half with significant runway expanding remaining to expand penetration and rotator cuff repair and across other tendons and extra-articular ligaments. Our integrity acquisition is performing ahead of our expectations and integration is progressing well, as we increase manufacturing capacity and expand our commercial capabilities. With Cartagheal's agility C, we're continuing to build awareness and adoption in the US ahead of the new reimbursement beginning in January of 2027, while also expanding internationally with our first cases completed in Australia, Italy and in Belgium. And in this quarter, we achieved an important milestone with the FDA approval of Tessa, the first in industry spatial surgery platform. Tessa combines advanced imaging, navigation, and AI enabled assistance to help surgeons perform orthoscopic procedures with greater precision. The initial application is femoral tunnel drilling, but we see a significant long-term opportunity to extend the platform across multiple joints and procedures. In Advanced Wound Management, Aleve and Complete Care strengthens our position in one of the largest and fastest growing segments of the wound care market. Initial customer feedback has been encouraging, highlighting meaningful differentiation versus current products that are actually on market today. We're also expanding our Advanced Wound Management wound market through the recent launch of Aleve 3.0 and by bringing Pico into new care settings and patient populations. In orthopedics, we continue to build a connected ecosystem around Cori, linking planning, execution and outcomes to support more personalized care and better optimized clinical workflows. Cori XT provides the foundation for our existing robotics platform. We performed our first robotic shoulder procedures on XT in February, the first knee procedures on it in May, and we remain on track to launch our hip execution in the first half. of 2027. Alongside robotics, our implant innovation continues to gain traction. Catalyst stem is growing and becoming an important contributor within TIPS, while in NIS increasing set deployments in supporting broader Legion MS adoption. We're also looking forward to the launch of Landmark in the third quarter, our most robotically enabled implant system that we've developed to date. Overall, the breadth and strength of these innovation platforms give us confidence in our ability to deliver sustainable growth over time through a combination of market expansion, share gains, and new category creation. In summary, our second quarter performance was below our expectation with the strong momentum in sports medicine offset by softness in U.S. orthopedics and advanced wound bioactives. That's leading us to reduce our revenue outlook for the year. That said, We remain confident that the growth will step up in the second half and John has taken you through the drivers of all of that across our business units. But importantly, while we are lowering our revenue outlook, we remain on track to deliver our original trading profit guidance, free cash flow and ROIC. and this is supported by a step-up forecast of efficiency saving including a further 50 million of savings that we've identified which helps offset the impact of lower revenue growth we also continue to build a more resilient and agile business we're investing behind our growth platforms while driving improvements in margin cash flow and return strengthening our ability to respond effectively to challenges While orthopedics is not where we want it to be, we remain focused on improving execution and delivering better performance. At the same time, we are positioning the business to capitalize on the significant opportunities that we see ahead. These include the landmark launch in knees, robotic execution on corey in hips, the big four in sports medicine, launching new products and entering new settings in wound, and our broader pipeline of innovation. Taken together, these factors reinforce our confidence in the underlying strength of the business and our ability to create long term value. So with that, we are ready for your questions.

Hi there, Jack Reynolds-Clark from Morgan Stanley. Thank you very much for taking the questions. I had three, please. First, on US orthopaedics, could you run through specifically what went wrong here? How much of it was the market? How much of it was other issues? And what you're seeing so far in Q3? and if it has any impact on your assumptions around mid-term margin expansion. Then on 2026, so the H2 guide obviously implies a pretty substantial step up versus H1. Given kind of the comments around the VBP delay, where do you see the biggest half on half step up on a segmental basis and really what gives you the confidence in that new guide? And then lastly, on the midterm guidance, 4% growth in 2026 is very much below the midterm guidance range. What do you see as stepping up in future years to offset that?

Yes, sure. So let me talk about that in turn. So U.S. ortho, there's some market slowdown, but that's not the biggest factor, the biggest factor, really, company-specific factors. Fundamentally, it's a knees. We are behind the market largely because of the portfolio gap we have so we're not able to participate in the fastest growing part of NEES which is cementless. We only have that on one half of our installed base and in Q3 when we launch Landmark we'll be better able to retain the market in the other half where we don't have a cementless offering. By far, that's the biggest factor. It's a challenging thing that we're navigating through. We call that out as a factor in Q1. We continue to see it in Q2, although there was some sequential improvement. And I'll come on to kind of what we see for half on half, but that's the fundamental factor that's driving softness in US ortho. There's a temporary blip in US hips. Catalyst stem continued to grow very nicely. but you know we're in the third full year of launch we do expect as we go step forward from here at some point we're going to need to pivot from you know competitive kind of takeouts to more holding on to our business retention that'll happen as we progress through the launch but there was a slower than expected deployment of sets these sets are optimized for one or the other product. So for example, if we're trying to take business away from one competitor versus the other competitor, we need to have slightly different instrument sets. So getting that right is a bit challenging. That's what pays to our set deployment from the quarter. It's a blip. We expect to regain that in the back half of the year. So those are the two really the fundamental factors, not so much slowdown in procedures, of which there was some. Half on half. Fundamentally, what we expect is in orthopedics, it's Legion MS, which strengthens our Legion offering. That's going to be the most material driver. And then as we bring landmark porous onto market, which we have largely a Q4 effect, like I said, we'll be able to better retain the business that we have. And then once we go into 2027, when we have the complete offering with Legion MS, will be able to go from defense into more of an offensive crouch. So in orthopedics, it's legion MS and launch of porous. In sports, we'll continue the trend that you have seen quarter on quarter. really been a h1 h2 effect in sports when you you know take away kind of the china effect and we expect the same to continue right um in in this year and in wound um it's pico we're investing behind geographic expansion of pico we're starting to see some uh proof of that in q2 but we expect to see that build in the back half of the year and then skin subs which there was sequential sequential improvement q1 to q2 as we've said you know we're in the upper end of the guidance range that we've given in terms of the impact and reimbursement but h1 to h2 we expect to see an improvement so those are the components of h1 to h2 in terms of what accounts for the step up and growth that we see turning to finally the third question which is around midterm guidance Look, we always knew 26 was going to be a challenging year. Obviously, it's proved to be a bit more challenging than we thought. And that's largely on the back of U.S. needs that we talked about and the prior authorizations that one of the larger insurers ruled out. The fundamental growth drivers which are new products either in existing categories or in creative new categories. Those drivers remain well intact whether it's in orthopedics, we talked about landmark launch, we talked about hip execution on corey, ATOS which is on shoulder, and in trauma rounding out our EVOS portfolio with the pelvic. and then on the nail part of the portfolio, IM Nails continuing to improve. So multiple growth drivers in orthopedics we've got to look forward to in 2027 and then in sports, Big Four continued execution on those and then finally in wound it's Pico, It's building out of renesses and normalization of skin subs. So these are the growth drivers, as you can see. There's multiple of them across all of our business units. It gives us confidence that we are fundamentally a 6% to 7% growth company.

And maybe just to... Perfect answer. But maybe just a little bit of colour on the phasing in terms of the second half. So Q3, Q4, we do expect to see a step up in Q4 performance versus Q3 performance. So Q3 will improve on Q2, clearly, and then Q4 will be stronger. And that's not jammed tomorrow. That is very clearly because of the timing of investments that we're making, specifically in relation to the launch of Landmark. and then in the context of skin substitutes, we're actually starting to lap the impact of last year. Q4 last year was tough in skin substitutes because of the actions that were being taken by the market in anticipation of the changes to reimbursement. So we've got a much softer comp in Q4 on skin subs and therefore we'd expect that too. There's not only the continued recovery that we've already seen Q2 on Q1, we'll see come through in Q3, but we also start to lap Thank you for the impact from last year so that would be particularly positive on on skin subs and then of course you know dare I say it we should also mention that we have got one extra training day in q4 which when you add all that up you'll see a big step up in growth in q4 versus versus q3 just to make that absolutely clear and then to your point around The headwinds on sports, I mean you're right I mean Deepak's absolutely spot on of course that we're continuing to see the momentum but we would expect sports and ENT to be a little bit softer in Q3 than we saw in Q1 and Q2 because of the impact of VBP coming in both of those areas in the second half so we factored that into our forecast and that's fully baked into the expectation of the Top line guidance of the 4% and also the profit guidance as well, which remains unchanged.

That's great, thank you. Could I just, seeking a cheeky follow-up, if you were to quantify Q3 versus Q4 growth, the phasing there, would you be able to offer any colour there?

I could. Look, I think, you know, in Q3 we will see Growth in the order of Q1 type dimensions. So if you remember in Q1 we were 3.1% growth, 4.7% on an ADS basis. In Q3 we will see growth of a similar level. In Q4, we will see a step up in that growth. You can work out the mass, but at the growth level, it will be 6% to 7%. But actually, on an ADS basis, it would be just north of 5% because of the extra trading day. That is a step up on Q3 in absolute terms, not stripping out the trading day impact, but that is because of the skin subs, because of the investments being made in PICO and the timing of those investments, and because, of course, of the launch of Landmark, which takes place towards the end of Q3. So those are the reasons why we've got confidence in our ability to deliver that 4% for the full year.

That's great. Thank you.

Hi, good afternoon. Hassan Alwakil from Barclays. A couple from me on ortho. So firstly, maybe to ask Jack's question a little differently. We've seen knee softness this year. Now we're seeing hips, which has been really strong before today. You've said this isn't market driven. What are you doing differently when it comes to execution? Why shouldn't some of these set delays in hips weigh on the second half? and then specifically on US HIPS, how are you thinking about growth here beyond the next quarter or two as catalyst stem matures as a product? And then secondly, on robotics, if you can try and unpack the growth in the quarter and the development inquiry, is it entirely a function of comps and how should we think about growth in the second half and beyond given the launch of Mako RPS last month?

So with HIPS, just to emphasize again kind of what I'd said around set deployments. So first, there was a comparator, right? So we had a strong comparator in Q2, and so that numerically had an impact. When you look at a two-year stack, it's actually not that much of a deceleration in HIPS, so it's largely kind of consistent. So with set deployments, Just to double click kind of what I said, largely it has to do with instrument sets. So when you're trying to take a customer from their existing kind of approach, whether it's one of our legacy products or one of our competitor products, the instrument that you have to deploy to cater to the surgical approach of that particular surgeon has some variability. It's not just some standard instrument that you deploy that works regardless of which legacy platform that they're using. And getting the demand right for that instrument is a bit tricky because of that variability. And so we didn't quite get that right, and so we were somewhat paced by that in Q2. So the combination of numerically stronger comp plus this has kind of led to what you saw. We've also said as we progress through the launch typically what happens in orthopedics launches certainly in the way we approach catalyst stem is we targeted competitive surgeons initially right and you expect to do that for a period of time but eventually you are going to have to address your your base of of customers so that mix of competitive versus retention will start to flip from competitive heavy against retention to more retention heavy and a smaller competitor. So at some point, that will normalize. So we'll get back to, in effect, market levels of growth and hips. So that's what you should expect as we proceed to the back half of this year and beyond. So hopefully that explains kind of the blip in kind of instrument deployment that pays Q2, but what you should expect as we go through the launches. So the second question that you had was in Corey. for this quarter and beyond. I think, John, you said we had double-digit growth in Corey placements in quarter two and also got a similar number in first half. So continue to be pleased with The pace at which we're placing, Corey, and also where we're placing them, right, hospitals versus ASCs, teaching institutions versus across the mix. So we're having actually nice impact across a range of care settings. And generally speaking, when I look across the board, we are at least at our market share. That's encouraging. When I look in the ASC, it's slightly ahead of our market share in terms of quarry placements within the ASC. Not by leaps and bounds, but certainly. So what it shows is that we are tracking relative to our share. The strategy we're following is that we're not just placing first and then allowing utilization to catch up. We're placing where we see a demand, where we see a surgeon who wants to integrate it into their practice. and we're equally monitoring utilization as we are placement, right? We could have followed a different approach but ours is actually placement and utilization. So I'm actually pleased with not only the headline but also the texture of the thing. You referenced Stryker coming up with their handheld. You know, look, for me as a headline, there are always questions around, well, is Cori a science experiment? Is this really a mainstream platform or not? The last reported number was 1,100 that we talked about. We've talked about double-digit growth off of that. You can do the rough math. and the fact that we're placing in proportion to our shares as Corey is a mainstream product where it's being accepted by the market and the fact that there's competitors who are now thinking that they need to have their own handheld platform is validation of our approach and also speaks to the innovation that's in Smith and Nephew at our scale where we have taken bold bets. We could have come up with our handheld rather a fixed arm robot too but we didn't. We had the strength of our conviction to go with a handheld platform and you know great that our competitors are following suit but at the end of the day it's deploying them in the playbook that we've developed and I feel very confident about how we're doing that. I think those are the questions that you had.

Just to build a little bit on Deepak's comments and notwithstanding That double digit growth in placements and of course when you place Coris initially they start off with low utilization and then slowly ramp up over time. So notwithstanding that double digit growth in placements, we continue to see progression on both utilization, which has gone up four or five percentage points from the end of 2025, and also in penetration which has gone up about two percentage points from the end of 2025. So even notwithstanding the dilutive impact of putting out more Coris there and the build-up curve that those necessitate, we're still continuing to see improving trends in penetration and utilization, which I think is very encouraging.

So I'll move, so I don't betray a leftward bias in my, who I call on. I'll go to the right part of the room and I'll call on colleagues there and then I'll hop around the room.

Just a couple of questions then. So just on tariffs, obviously you've had the guidance has changed. I remember you were talking about $60 million hit prior to that. I just want to check that the gross and the net numbers haven't changed so that the refund is still $60 million and just check the logic that that just shifts as a headwind into $27 rather than $26 then.

Yeah so so you're right so just it was really really clear on tariffs the P&L impact for last year was 15 million the anticipated P&L impact for this year was 60 million so it was a 45 million drag we now expect refunds for this year to be around 50 million So when you net all that out, it broadly means that tariffs in total compared to last year is neutral on the P&L. So the refunds effectively offset what would have been the P&L charge.

And then we'll get the headwind next year effectively.

and then you will get the headwind next year so the cash tariffs is of the order of 15 million so that's there the P&L impact in next year will be circa that quantum but there's also a little bit of Thank you very much. Thank you very much.

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

There's a lot of efficiency savings in the way that we run our facilities. There's some benefit coming through from the changes that were made historically that was better than expected. So there's an element of historical change that has come through better than we thought will come through in terms of the way it's flowing through the P&L. But there's also been changes that we've made in how we operate things. We've also streamlined our operations, for example, from Austin. and also Warwick which we closed we put we consolidated that into our Memphis facility and we've delivered greater than expected efficiency savings but they're not just the efficiency savings are not just in manufacturing the bulk of them you're right to say are in manufacturing but there's also savings we're seeing in sales and marketing there's also savings that we're seeing in our business services as well so and procurement yeah thank you Deepak yeah so it's you know I think it's very exciting I always I think I alluded to I read back the script to the Q1 or the prelim number and I think I sort of said at the time 150 million or possibly better and we always had a little bit of line of sight of being able to beat that 150 million I think it's very pleasing to be able to talk about the 200 million target today but I think it really reflects An ongoing discipline around our cost savings you know that we we built initially through the 12 point plan and then added to with the ZBB program and today we're now looking at our next wave and we're not going to talk too much detail about this but a lot of the stuff that we're doing for example I'm putting in new systems and also the overlay of AI and we're doing a lot of work in the business now to to look at how do we fundamentally simplify and streamline our end-to-end processes which remain quite complex so we've we've gone through sort of three phases of cost reduction our business the first of which was just to get the P&L Thank you very much. No doubt we'll talk more in the future about what the opportunity to come is.

Just two things, one kind of clarification, just more a broader point. Just when we talk about footprint, it's not that we're closing any more factories that we hadn't contemplated, and you're right, like those things take time. It's actually how we're utilizing our current footprint that's the key driver, apart from all of the things that John said. how we use Malaysia versus Memphis in terms of optimizing across our network for example in orthopedics is one of the contributors to that we've called out the spirit of continuous improvement as kind of the key kind of underlying things that that enables the strategies to happen I am pleased to report that some of those things that organizations have embraced very very nicely so the spirit of continuous improvements that that lead to these additional savings. It's not a point in time activity. It's actually how we're operating a business this way. And that's what enabled us to hold to a profit target despite the revenue miss. Yes, there's not the headwind that we had from tariffs that we expected, but it's more than that, right? It's all of these additional savings that allows us to make essentially that simple statement come true.

Thank you. Charles Weston from RBC. Just to quickly clarify that, how much of that 50 is sort of brought forward from 2027 and how much of it is, you know, incremental and we should be modelling off that for 2027? Sure.

I mean, do you want to take that or?

I mean, I think the way I think about it is a little bit of the 50 that's I mean, in terms of first half performance, there's an element of bringing forward some of the half two into half one. And in terms of the back half of the year, there's an element of bringing in some of the half one 27 into the half two of 26. So it's always shifting everything forward. The point I would make, you know, we're not going to sit here and guide now to 27 numbers, but the point I would make is that This is not a one-off exercise, you know to Deepak's language just now, I mean deliberately use the words continuous improvement and I also talked a little bit about some of the savings that we're now driving through things like our ERP program and also AI as well. So I would say we've got good visibility and we're not going to set out the guidance but we've got good visibility of future opportunities to drive further efficiency savings in this business and we'll set out that much more clearly of course when we give the guidance for 27 but I wouldn't I would not classify it as robbing Peter to pay Paul in terms of bringing it forward from 27 into 26 there'll be plenty more to come in 27.

Okay, thank you. Sorry, that was a long clarification, but I had two actual questions. One of them on ACA, have you noticed any changes in terms of either procedure volumes or capex sale or capex demand from US hospitals? And secondly, just in terms of landmark launch timing, can you just confirm that everything's on track for both? I think you said it's two-quarter ramp to really start meaningfully getting sales from those. Thanks.

Sure. On ACA, we did see some impact of that in terms of In terms of landmark timing, Porus is the very end of Q3, so largely a Q4 effect. And then the cemented version of Landmark is the end of Q2 of 2027. And as you know, Charles, there's a ramp associated with that. You've talked about two quarters. It isn't quite as straightforward as that. It depends on competitive dynamics, right? there's a there's a good way and not so good way of introducing these launches right one you can throw a lot of capital at it and encourage a lot of trial at a great deal of capital expense right but a more methodical and a proper way to do an orthopedics launch is to be much more mindful in terms of how you deploy capital in order to encourage trial and then ultimately adoption so one of the things that we've gotten much much better as an organization is around capital discipline and capitalist efficiency and orthopaedics business that we did not consistently have. So that does impact top line, right? And we've called that out in previous quarters. But we expect to bring that level of capital discipline and efficiency mindset to the landmark launch. The consequence of that is a slower ramp, but it'd be, I think, a more durable one and also a more disciplined way to tackle these.

Thank you. Sure thing.

Okay, one question here and then we'll go online.

Thank you very much. Richard Felton from Goldman Sachs. The first one, I want to ask about something that's been coming up a little bit more in our investor conversations, and that is on potential competitive risk for Santil. Could you remind us the size of that product today, how revenue splits between different care settings, and what you perceive as the key competitive strengths of Santil? And the second one is on advanced green devices. So I suppose over the last four quarters or so we've seen a bit of a deceleration from kind of double digit growth to mid-single digit growth for that part of the business. What has been driving that and what is the right way to think about the trajectory for advanced green devices going forward?

Sure. Santal, we don't typically give product level detail. It is a multiple hundred million dollar product, right? And to your point, there are, you know, kind of, there's a category where effectively, you know, a large proportion of that market and there is some competitive activity in that. I just want to emphasize that that's not what's driving our numbers today. I just want to clearly emphasize that. where we stand out in Santil is we don't require refrigeration so supply chain is simpler there isn't pain associated with the use of our product which some of our competitors feature right and it's One of the disadvantages is that it is a slower process. I mean, it takes time for the product to take effect, right? That's one of the downsides of Santil. But having said that, it's got a proven kind of track record in utilization across a range of use cases and across settings, whether it's an acute setting or when patients get discharged home with the prescription for Santal right so it is across across all of those areas we feel very good about how we're positioned within that category we have line of sight obviously to what competitor products are what they offer and how Santal continues to be differentiated relative to it Of course we're not resting on our laurels there, there is a next-gen product so we aim to improve upon Santil, building upon its advantages around supply chain, its advantages around the level of pain of which there isn't when they use the product, but actually have it be faster in terms of how it works. So that's our next-gen Santil. In terms of AWD, there's two broad categories, the single use and traditional negative pressure. We also classify leaf within that, and leaf has both the device component and the dressing component, just to kind of disaggregate what's in our AWD. Largely, the deceleration that you see is in our traditional negative pressure category, which is our venesis platform. There, as we've highlighted, we're doing well in the post-acute segment. you know taking share in the acute kind of kind of channel and the answer to that is actually have a better rounded offering with rhenesis right both in terms of the next gen canister but actually having a whole assortment of dressings that's fit for purpose for the application whether it's OB-GYN, whether it's GI procedures, orthopedic procedures and the like and that each one's got a specialized kind of dressing and we have a narrower range there than the large competitor within that. So we obviously have product development to address that and we'll start to build that out in 2027. So the deceleration is largely within the acute Care segment of traditional negative pressure. On the single use with Pico that's been a product that's been a growth engine for us for quite some time and in addition to its use across care settings we're actually invested to drive it in into geographies where we're not present in the same way today that's part of the investment that we've talked about and we expect to see the benefits of that come through in Q3 and especially in Q4 right. so we continue to do well there there's competitor activity within the single use segment we feel well positioned within that but we also have our pipeline there that we expect to I think we call that out in our capital market day presentation somewhere in the 28 time frame we expect to come up with our next generation pico so hopefully it gives you a feel for kind of how that segment is categorized and the dynamics within that So we'll now go online first, and then I'll come back into the room.

Thank you. As a reminder, to ask a question on the telephone lines, please press star followed by 1 on the telephone keypad. If you change your voice, please press star followed by 2. When preparing to ask your question, please ensure your device is in easy low sleep. Our first question is from LaRosha Umbayola from Sydney. Your line is now open.

Please go ahead. Hi guys, good afternoon and thank you for taking my questions. I have two, please. One that is slightly diving into the nitty-gritty, but just curious to get your thoughts on what's happening in trauma extremities. Obviously, we had a number of good years post-MHL launch. Of course, it has really accelerated pretty dramatically here today. Just curious, Deepak, if you can touch upon the dynamics you're seeing in trauma versus extremities, and is there anything you can do to get that working back into the midterm by single digit? And then my second question is a big picture one. I apologize, but I have to come back to the midterm guide. I think even just to hit the low end of the six to seven, And that would be a pretty dramatic celebration versus the trend we've seen in the last couple of years. I appreciate their headwinds to this year, but their also headwinds to last year and the year before. So I'm just trying to understand the logic for why you are sticking to that 6-7. Is there any way at all in your mind to get anywhere but the low end of that range? And I guess what gives you the confidence at this point in time to maintain that? Thanks guys.

Sure, thanks Veronica. So I'll take them in order. So trauma and extremities, I'll talk about trauma and I'll talk about extremities. With trauma, We're positioned kind of nicely with Evo's platform. I've talked about Pelvic, which is something like 1.5% of the overall pie, but it's an important piece that we're going to launch into. It'll be even fuller now. we've been expecting competitors to launch within that category and two of our competitors are in fact at various stages of launch in the core plating category so there will be some level of trial some level of adoption as those competitors launch within that category so and we're seeing some impact of that and that's not a new factor it's just that's been out there in the market. I think the evos compares very very favorably to competitors offerings but over time as you know as surgeons try those you'll see some quarterly variations depending on who's trying who's adopted and so forth right but I feel very good about how we're positioned within that category. We do have Drivers of our own, Beyond Evos, IM Nails, we launched that, I guess in Q1, you'll have to remind me, John, but in the recent quarter or two, we launched our own IM Nail offering. We hadn't had a new product there, and my sales force likes to remind me, in far too long, but we've got a nice offering there that should expect to drive growth, and we called that out in the last quarter. so core trauma category nicely positioned in terms of our products but there is competitor launches particularly in plating on extremities our presence now we're a relatively small player in extremities as you know um and for us the the real call out here is shoulder uh with atos right and and there again we are a relatively small player but we now have more or less the offering we need on the implant side but actually importantly we've got Cori enabled for planning and execution and there's some real differentiation there within within that anatomic reverse anatomic glenoid and humoral uh planning and execution um which which is a you know quite a differentiating feature and they're a handheld Thank you very much. It's there, it's just not as material to the group given the small base. So hopefully it gives you a bit of texture and color around trauma and extremities. On the midterm guide, look, as I said, 26 was softer. Veronica, you've done a bit of the numerics around four and then six to seven. The reality is we're two quarters into a three-year kind of plan, right? And obviously we've thought through the numerics ourselves and we've gone through the fundamentals of what actually drives the six to seven. And as I said earlier, Once we get through the period today, I mean, what's holding us back this year? Why did we actually reduce the guide? One, it's our position in U.S. NEIS and how that's impacting us today with the gap in the portfolio. And the second is Santal. Right with the prior authorization that that we are having to contend with and on the skin sub side we're on the upper end of the range but still within the corridor that we guide it to. That is you know in combination not a great thing to have it to navigate in this year because you have a bunch of headwinds and not a whole lot of tailwinds. but as we move into 2027 we expect to normalize the skin subs right we expect to kind of normalize on the santal and then we'll have the the portfolio complete in the way that allows us to be competitive now there will be a ramp starting in q4 this year cement was first and then and then starting in the back half of next year with cemented landmark so there will be a A phasing or pacing in terms of how we become more competitive in knees. But you put all of that together, we feel good about the growth drivers we've got stacked up in orthopedics. I've talked about knees and hips. It's about getting execution capability in corey. We're seeing contracting activity that ties together both knees and hips. and I think we'll be able to better compete within that as we have execution ability on Cori as well on the Cori XD platform and then I've talked about ATOS becoming more relevant in the 27-28 period and then in sports we've talked about big four and they're very nice growth drivers that are kind of lined up within that business unit and then in wound Beyond the normalization of skin subs, you've got new product launches coming in the traditional negative pressure category where we have given up ground and I've previously commented on the fact that that's one part of the 12 point plan that didn't work as well, right? The growth rates were great, but when you looked at the placements of Renesas, we were behind on that. But we have addressed that. We understand the reasons why. But as we turn into 2027, that will become a growth driver together with the investments we've made in Leaf and NextGen Pico. So you stack all of that up, that gives us the confidence that at the end of the day, we are a six to seven company. present growth company despite the challenges we're navigating through in 26. Yep, we'll come back into the room and then back online.

Hi, can you hear me? John, just a quick one for you on the savings. Can you give us some comfort that I guess none of what's been done over the last few years or still to be done sort of is at the detriment of growth down the line? Often we do see these sort of situations where you could cut too close to the bone. And then just for Deepak, just quickly coming back to the US environment, you mentioned sort of some of it is a slower growth. Your bigger peers have kind of pushed back, seem to push back at a sort of view that the market is weakening. There was one smaller peer suggesting that we go back to pre-COVID sort of growth rates. Just wondering if you have any thoughts on that with a view to obviously trying to launch.

I think we can be categorically clear that we are we're not sort of strangling the business vis-a-vis growth in fact we're very very deliberately investing in growth in the business so we've been very conscious about how do we deliver cost and efficiency savings and how do we actually invest in our growth so much so that we actually split it out in the bridge that we give you so we're really super transparent so you see the savings in that bridge and you see the sort of 33 million investment that we're making in growth What does that look like in practice? Very simply, if you look at it just purely in headcount terms, and I'm massively in favour of cutting headcount where we can, but actually over the last 12 months or so, we've actually increased our headcount. But we've actually reduced our permanent headcount in those areas where we can drive efficiency savings. So for example, manufacturing and operations, we've actually reduced our overall permanent headcount. And we've actually increased our headcount almost singularly in sports and wound, where we see very specific opportunities to grow our business. and so obviously you know the sport story is very clear and Deepak's talked about the the four opportunities we have you know across Carter Hill and Tessa and Regeniton and etc etc so that's very clear and in in wound we have the opportunities in PICO and ACC and skin subs and if you actually look at the increase in our head count all of it comes into wound and sport and at least 75 percent of that increase comes in the front line In other words, into sales, into medical education, into customer service. So we're not adding to the back office. So I can be absolutely clear that we are Recycling resource. We are taking resource away from things like the back office functions where we're streamlining and taking cost out and we're reinvesting into the front line to drive that top line growth. Now we won't see a return on that investment within 26. There are 33 million I'd say that we're investing in that growth. but to Deepak's earlier comments about what gives us confidence in our ability to deliver you know why do we think we're a six to seven percent growth company well because we're investing in that growth so we're being very deliberate and we're spelling that out for you as well it's not sort of you know assumed in one lump in the in the bridge we're very clearly separating out the cost savings from the investment piece.

Just a couple builds on it. As we navigated the 12-point plan journey, I'll tell you, with all the margin pressures we faced, it would have been easy for us to kind of meet the targets, particularly within the years, the interim years, by cutting R&D. I mean, I can tell you that that was a place we could have gone, although we more or less got there at the end of the three-year period. You know, you'll remember the periods in 23, 24, where there was tremendous margin pressure and there was all the questions of whether we were going to get to kind of what we set out. but we resisted the urge to do that right we maintain the level of investment in R&D in order to fuel the growth and we're starting to see the benefits of that and it will come even as we go through the next three years so it's a very conscious life's a balancing act but what we have actually held on to is to not cut the things that position this business for sustainable kind of growth over the longer term you know John's talked about the trade-offs there in manufacturing and commercial investment but particularly in R&D as well. We've made sure that we have ring fence or protected the things that really drive long-term growth of this business. In terms of your question on US procedure, I assume it's primarily in orthopedics. Believe it or not, it's actually harder to get at what the market is doing than you might think. Third party data sources in this space are not as robust as it is in other areas. So we're all trying to parse based on limited data points what the market actually is doing. And I have been somewhat loath to comment on the market because we've had performance challenges in the US. So I've been less front footed in commenting on the market historically. now i our performance still is challenged but it's not necessarily all because of commercial executions they've got a little bit more visibility into kind of what's going on in the market so when i tell you there's a little bit of a market effect you know it's based on what we can see and i wouldn't have been able to say that Even last year, never mind two years ago. So against that backdrop of market that's not as robust as third party endorsers call it, I do believe when you look, it's an exercise in triangulation. what are those things you look at first is look at reimbursement right and those are public and you can see what's happening to how procedures knees and hips get reimbursement uh reimbursed uh in various care settings right and you can see what that's what that's done in the past, which is projected to do in 2027. That's one data point. The second data point you've got is the shift in site of care, right? As you go from a hospital setting into an ASC, the reimbursements are lower. There's an impact on ASPs as you go through that, right? And that's a very dynamic thing, but there's impact around that. Against that, you've got other factors like mix, right? In the shift from cemented to cementless, you have a mixed benefit that runs counter to the things that I've talked about. So you put all of these pieces together, Working out what the market is doing in revenue terms and what it's doing in volume terms can be trickier. And then you've got the ACA impact that you asked about earlier, which is not only patients who are coming off of the ACA roles as they lose subsidies, but also what's really happening to those who are in commercial programs that are not necessarily recipients of those subsidies but they're out of pay, out of pocket fees have gone up, the premiums have gone up and how that impacts their desire or their willingness or ability to undertake elective procedures is also another factor into this. So you put all of this in, what I see and what I've seen in Q2 is but I'm not going there to explain our performance in the quarter. So hopefully it gives you a bit of color around market, the position that I've taken, why I've taken it based on what I see. Back to the calls, yes.

Thank you. Our next question on the second line is from Vincent Roberts from Canaccord. Your line is now open. Please go ahead.

Great, thank you for taking the question. Maybe just starting with Kinsub, how are you thinking about the recovery of this business as you know that it's taking longer for the market to adapt and could the season bleed into 2027 and are there any efforts that you're making to help the market adopt these changes?

Right, I didn't get your name, I think that's Caitlin. So on skin subs, so what's happening there? So first there's the utilization of skin sub across settings. It's in the hospital setting, it's in physician offices, it's in HOPD settings, so hospital outpatient settings, that's in mobile, right? So what we're talking about here in terms of impact is greatest in the mobile setting. followed by physician office and hospital outpatient. By and large, in-hospital uses have been impacted by the change in reimbursement. The second thing that we're talking about is what products get used. And you've got new entrants that have products that don't have a lot of clinical data supporting them. And then you've got players like us and a couple of others who've been in the market for a long period of time, who've got products that have stood the test of time, and who've got a great deal of clinical data supporting the appropriate use. in the clinic for those products. So what is happening this year now is as the change in reimbursement has gotten implemented, folks in the mobile is where we expected the greatest impact and that's what we're seeing. We at Smith and Nephew have had the least exposure in the mobile segment. So we've had exposure in the physician office and NHOPD and obviously in the physician office and we've previously detailed that out, you can go back through our previous So generally speaking, that impact in the global office is playing out as we thought. In the physician office, how they get reimbursed has changed. I mean there's the mechanics of how you bill for it, whether it's per application or per episode of care. has changed right and and so as physician offices have adapted to the new ways of billing that's introduced friction into the system right and that part has taken time the reimbursement part of it has also been slower and there are about four max within the us that have gone through or currently covered under the wiser model which you've heard about either through from us or from from other disclosures where there's an AI based algorithm for how claims are reimbursed and there's been friction associated with that right and so what are we doing about it we had always expected that the parts of our portfolio that you know we've always had uptake based on the clinical data and everything else we'll get robust utilization and we're seeing that in fact our Oasis product line is growing by leaps and bounds right and that's been great and as we move into 2027 where all of this This administrative friction that I'm talking about, whether in terms of how claims get submitted or how claims get processed and how physicians then adapt their care to which products they use, all of that we expect to settle out in 2027 as the new calendar year, the new fiscal year in the United States kind of turns over. And in that new world, We expect to be very well positioned because we've got a product portfolio that's very, very relevant to that category. We've got a price point that works within the reimbursement level that the government has set at $127 per square centimeter. And we've got the clinical evidence for the products that we aim to use. great category drawing a double digit when products are used appropriately right when it's relevant for a clinical setting and we're very well positioned within that so it's really about navigating this year that's been a challenge and we've based on taking all of these factors into account we provided a range of something like 20 to 40 million right we're navigating to the upper end of that range but we're still within that corridor that we had provided all of these dynamics within that we had also called for sequential We have seen sequential improvement from Q1 to Q2 and we expect that trend from first half to second half. So hopefully that unpacks the skin subtopic. Anything you want to add?

I mean just a little bit of color just on the the numbers because you remember the beginning of the year we said that revenues will be down 15 to 20 percent and that was driven by A 20-25% reduction in price, offset by a slight positive on volumes. And that's what got us to the 20-40 range, and actually we were slap bang in the middle of that range, hence why we said 20-40. What we've actually seen in practice is that Actually, revenues in the first half were off about 20% or so, so towards the upper end of that range. And that's, broadly speaking, what we're now forecasting for the full year. But we're not expecting the price impact, the 20-25% that we previously called out to be quite as harsh. so the price impact will be less than that and equally the converse we're not necessarily expecting the volume to be as flat to positive we are expecting now to be a slight decline in the volume so volume is a little bit worse than we thought price a little bit better than we thought the net net is that we're up the towards the upper end of that 20 to 40 million range but it's not It's not a million miles from where we thought we would be. What's really important is Deepak's point that sequentially we've seen Q2 is better than Q1. So we are seeing the market change just a little bit slower than we first forecast.

Right, should we come back to the room? David, you've had your hand up for a while.

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

It's slightly focused towards orthopaedics and then a little bit more so on sports with wound being the least impacted is roughly the way it trades out, but it's not massively differentiated across all businesses. and then basically we saw a net benefit in the first half between tariffs and the refunds of 5 million or so. We're expecting to see a net benefit in the second half between the tariffs and the refunds of about 1 million or so. And so for the overall year it will be plus or minus 4 million, 5 million or something of that nature. But effectively in both halves the refund is effectively offsetting on a year-on-year basis, the refund is effectively offsetting the tariff headwind. Thank you. So just to be absolutely clear, we still expect to see a net tariff cost in the year, but last year we saw a net tariff cost of £15 million. This year we expect to see a net tariff cost of £10 million. The delta is the £5 million positive tariff.

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