管理層發言
Good morning, everyone. Welcome to the Smith & Nephew Q2 and half 1 results presentation. I'm Deepak Nath, I'm the Chief Executive Officer; and joined by John Rogers, who's our CFO. So this quarter, we delivered underlying revenue growth of 1.6%, which was lower than expected. Sports Medicine & ENT performed strongly once again, with consistent delivery across regions and categories, and we saw double-digit growth from many of our key products. However, this was offset by softness in U.S. Orthopaedics and in Advanced Wound Bioactives. In U.S. Orthopaedics, knees remain weak, reflecting similar dynamics to Q1, although we saw a sequential improvement as expected. And we do anticipate further improvement through the remainder of the year. U.S. hips were affected by a delay in CATALYSTEM deployment at a tough comparator, with growth expected to resume as deployment increases during the balance of the year. Within Bioactives, SANTYL growth was primarily impacted by strong distributor demand in the prior quarter, which did not repeat. This should normalize over the balance of the year. Despite the slower start on revenue, trading profit was strong at $566 million. Excluding M&A, trading profit grew by 9%, supported by stronger-than-expected efficiency savings and tariff refunds that fully offset the forecast tariff headwinds. Now taking into account revenue performance, we now expect underlying revenue growth of around 4% for 2026. We recognize that Orthopaedics is not where we would want it to be, but we remain focused on delivering better performance as we strengthen the portfolio and build on the margin progress that we have made. We have clear growth drivers across all three business units that support our outlook for the remainder of the year. And importantly, despite the revised revenue outlook, we still expect to deliver our original guidance for profit, trading profit, free cash flow and ROIC. This includes an additional $50 million in efficiency savings that we identified for 2026, taking our total expected savings from $150 million to $200 million, and a broadly neutral impact from tariffs, net of refunds. The changes that we implemented in our 12-point plan have made the group more resilient and better able to respond to these challenges. So with that, I'll hand over to John to take you through the financial performance, and I'll come back pretty soon. John?
Thank you, Deepak. Revenue for the quarter was $1.6 billion, representing plus 1.6% underlying growth and 2.8% reported, including 120 basis points tailwind from foreign exchange. Geographically, the U.S. declined by 1.3%, reflecting softer performance in Orthopaedics and Advanced Wound Bioactives. Other Established Markets grew by 1.7%, with performance led by Canada, Australia and New Zealand, continuing the good momentum seen in the first quarter. Emerging markets grew 10.6%. Excluding China, group growth was 1.4% on an underlying basis, and we continue to expect China to be broadly neutral to growth for the full year. Let me now take you through the business units in more detail. I'll start with Sports Medicine & ENT, which had another excellent quarter and grew 8.6%. Within Sports Medicine, the underlying growth drivers remain unchanged, reflecting the continued momentum of our key growth platforms and consistency of performance across the portfolio. Growth was broad-based across regions and joint repair, again, delivered double-digit growth supported by strong demand for Q-FIX KNOTLESS and REGENETEN. In ENT, FASTSEAL and services continue to be the main contributors to growth. In China, after intentionally restricting inventory in the channel at the end of last year and ahead of the implementation of VBP, we saw strong demand for our products during the quarter. We continue to expect VBP to be implemented in the second half. Sports Medicine revenue again exceeded our Recon and Robotics revenue. Turning now to ENT. Outside of China, we saw strong growth globally, including double-digit growth in other established markets and emerging markets as well as in our ARIS COBLATION wand for turbinate reduction and our HALO wand for tonsil 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 million to $20 million for the full year. Let's now look at Advanced Wound Management, which declined by 2.1% in the quarter. Within that, Advanced Wound Care grew 3.7%, with good growth overall, led by U.S. ALLEVYN and strength in our emerging markets. Our ALLEVYN COMPLETE CARE launch is off to a strong start in the U.S. with good early momentum, and we were pleased to launch in Europe in this quarter. In Bioactives, revenue declined 12.7% for the quarter, driven by the reimbursement change in skin substitutes and the soft quarter for SANTYL. SANTYL benefited from strong distributor demand in Q1, which resulted in a softer Q2. We've also seen some impact from one of the payers introducing prior authorization for certain doses of SANTYL. Underlying demand remains healthy, but the change is creating friction in the prescription process, and we're taking action to address this and expect SANTYL to return to growth in the second half. In our skin substitutes business, we continue to face headwinds in the U.S. as a result of CMS reimbursement changes that came into effect at the start of the year. We saw a sequential improvement from the first quarter, driven by hospitals. However, volumes and pricing in nonsurgical settings remained under pressure, particularly in mobile, where we have limited exposure. The market is adapting more slowly than expected, which continues to affect billing efficiency and inventory levels across the channel. We now expect the trading profit headwind from skin substitutes to be towards the upper end of the previously guided $20 million to $40 million range. We remain confident in the long-term fundamentals of the segment and see opportunities to benefit as the market normalizes. Advanced Wound Devices grew 3.8%. LEAF delivered double-digit growth, reflecting strong demand; both PICO and RENASYS performed very strongly in emerging markets as we continue to expand geographically. PICO sales in other established markets were impacted by doctor strikes in Spain in the surgical sector and the timing of tender offers. In the U.S., sales of RENASYS remained soft in the acute care channel, while performance in the post-acute channel was good. Turning now to Orthopaedics. This declined 1% on an underlying basis, primarily reflecting the ongoing issues in U.S. Knees, ahead of new product launches and temporary headwinds in U.S. Hips. Following four consecutive quarters of above-market growth in U.S. Hips, we saw softer performance this quarter against a tough comparator. CATALYSTEM continues to grow strongly, but Q2 was impacted by a delay in set deployments and an increasing proportion of existing customer retentions versus competitive conversions. We see a clear path to reacceleration over the remainder of the year as CATALYSTEM set deployment increases. As the product moves into its third year post-launch, growth should remain strong, albeit at a lower rate than during the initial launch phase. U.S. Knees remain weak, but we are seeing gradual improvement as expected. The underlying dynamics are unchanged. Deliberate portfolio and capital discipline, combined with an ongoing market shift towards Cementless, continue to influence performance in the near term. Sequential improvement was driven by strong uptake of LEGION MS and double-digit growth in LEGION CONCELOC, our Cementless offering. LEGION MS now represents almost 20% of our LEGION mix, up from 15% in Q1, and is enhancing the competitiveness of our installed base. We continue to expect improvement through the year, driven by increased LEGION MS set deployments. This will remain the main driver and the LANDMARK launches. Outside of the U.S., Knees were impacted by a large tender order in the Middle East in the prior year quarter that did not repeat. Hips benefited from the launch of CATALYSTEM in Japan, although we saw some isolated weakness in Australia, where we await regulatory approval of CATALYSTEM. Trauma & Extremities performed well overall. We continue to see good growth in EVOS, IM Nails and Shoulder, driven by our AETOS implant. We are seeing the impact of competitor launches in the U.S., but we expect growth to strengthen in the second half as we launch EVOS Pelvic and ramp up TRIGEN MAX. Finally, Other Recon grew 0.8%. This business can show some quarter-to-quarter volatility as revenue is influenced by contract timing and mix. This was more pronounced in the period given another strong prior year comparator. That said, we saw double-digit growth in CORI deployments globally, alongside continued growth in utilization and penetration. And we expect growth to accelerate in the second half supported by an easy comparator in Q3, continued strong demand for our robotic platform and good uptake across ASCs and teaching institutions. Now I'll move on to the half year financials. For the half year, revenue was $3.1 billion, up 2.3% on an underlying basis and up 4.6% on a reported basis. There was one fewer trading day versus the prior year, with underlying revenue growth of 3.1% on an average daily sales basis. Consistent with the performance in Q2, we saw strength in Sports Medicine, offset by softness in U.S. Orthopaedics and Advanced Wound Bioactives. Moving on to the summary P&L. Underlying gross profit was $2.2 billion, representing a gross margin of 71.1%, up 60 bps year-on-year. This was driven by greater-than-expected efficiency savings across manufacturing and procurement, which more than offset cost inflation and the headwind from inventory revaluation. Tariff refunds fully offset the forecast tariff headwind to gross margin. Trading profit increased $43 million, to $566 million, with trading margin expanding 60 bps to 18.3%, reflecting the benefits of higher gross margin and ongoing cost savings. Moving further down the P&L. IFRS operating profit grew 4.3%, reflecting temporary higher restructuring charges, driven by further optimization of our manufacturing network and higher acquisition costs driven by, of course, our acquisition of Integrity. Basic earnings per share grew ahead of this at 6.2%, reflecting the buyback we announced at Q1, and adjusted earnings per share grew by 11% to $0.477. The interim dividend of $0.156 per share is up 4% on half 1 2025. I'll now take you through a more detailed bridge of our trading profit growth. We absorbed $119 million of headwinds from cost inflation, inventory revaluation, changes to AWM reimbursement and China VBP, while continuing to invest $33 million in our growth. This was more than offset by $59 million of operating leverage and $128 million of efficiency savings, which I'll discuss in more detail shortly. While we had previously guided to an incremental tariff headwind in 2026, refunds received in the first half meant net tariffs were broadly neutral to profit growth. Foreign exchange also had a broadly neutral impact. As a result, this trading profit growth was 9%, excluding $4 million dilution from the acquisition of Integrity Orthopaedics. As I said, turning now to efficiency savings, we've delivered around $133 million in the first half, well ahead of expectations. Of this, approximately $50 million came from the 12-point plan and zero-based budgeting initiatives. And as a result, we have now achieved $330 million of cumulative savings since launching these programs, reaching the lower end of the $325 million to $375 million target that we set ourselves at our 2024 interim results, more than a year ahead of schedule. We expect further benefits to be realized through the remainder of '26 and into 2027. The remaining $80 million in the first half came from additional opportunities across procurement, manufacturing, sales and marketing and business support functions. We expect a further $70 million of savings in the second half from both the 12-point plan and ZBB and other opportunities. This takes forecast efficiency savings for the year up from around $150 million previously to around $200 million. The additional $50 million is expected to come primarily from manufacturing, including from ongoing footprint optimization as well as procurement and sales and marketing. Our 2026 guidance for trading profit is unchanged. We expect to deliver around 8% reported trading profit growth excluding M&A and around $1.3 billion of trading profit, including the impact of Integrity. We now anticipate that the year-on-year impact of tariffs will be broadly neutral to trading profit net of refunds. The headwind from skin substitutes is expected to be towards the upper end of the previously guided $20 million to $40 million range, and there are no changes to our assumptions regarding inventory revaluation or China VBP. As previously disclosed, the acquisition of Integrity Orthopaedics is expected to be marginally dilutive to trading profit in 2026, broadly neutral in 2027 and accretive from 2028. Coming now to trading margin by business units. We saw a 160 bp increase in Sports Medicine & ENT margin to 24.7%, a 10 bp decrease for Wound to 22% and a 30 bp increase in Orthopaedics margin to 13%. In Sports Medicine & ENT, margin expansion was driven by operating leverage and efficiency savings. In Wound, the small margin decline reflected the impact of U.S. skin substitute reimbursement changes, largely offset by savings initiatives. And in Orthopaedics, manufacturing savings from network optimization, ongoing product initiatives and disciplined cost control more than offset the headwind from inventory revaluation and softer revenue growth. We expect further margin expansion over time as we work through the inventory revaluation headwind and benefit from improving revenue growth. The impact of actions already taken to rightsize our manufacturing capacity and our Ortho360 operating model. These results demonstrate the operational excellence we are driving across the business. As you know, inventory remains a key focus for us, even now that we've completed the 12-point plan. Group DSI, day sales inventory, fell by 72 days, including the reclassification of instrument sets from inventory to PPE and by 40, if you exclude that. The bigger reduction came from Orthopaedics, down 62 days, excluding reclassification, reflecting continued work to reduce the number of units in inventory and a focus on capital efficiency. We also saw a reduction in Sports Med DSI, albeit to a lesser extent than in Orthopaedics, and no change in Wound DSI, excluding the reclassification. Both Sports and Wound are already much closer to industry benchmark DSIs. We expect to make further progress on inventory in 2026. Right now moving on to cash flow. Trading cash flow was $437 million in the first half, down $50 million or so year-on-year. But this reflects a $51 million step-up in CapEx year-on-year, driven by investments in our new wound manufacturing facility in Melton and in some IT investments. We do not expect this increase to repeat in the second half, and cash generation should improve versus half 2, 2025. Other working capital was higher, largely due to timing of bonus accruals and related cash payments. Cash conversion was 77%, and we anticipate this will improve over the course of the year. Free cash flow was $231 million, down $13 million year-on-year, again reflecting these factors I've just mentioned, and partially offset by reduced restructuring cash costs. We continue to expect free cash flow in 2026 of around $800 million, driven by profit growth and continued focus on working capital, offset by a modest temporary increase in restructuring costs. Net debt increased over the first half of $3 billion, an increase of $260 million, resulting in a leverage ratio of 1.8x adjusted EBITDA, within our target of around 2x. And the increase was driven by our investment in our business, the acquisition of Integrity Orthopaedics, growth in our dividend, and of course, the $500 million buyback we announced in Q1, of which we've actually now completed $260 million as of the 3rd of August. This is in line with our capital allocation priorities. Before I turn to guidance, I want to highlight the progress we continue to make across margins, working capital, cash flow and returns. This broad-based improvement reflects stronger operational controls and helps make Smith & Nephew a more resilient business, better positioned to manage through periods of revenue softness or external challenges while maintaining progress against our long-term objectives. Coming now to our updated outlook. Reflecting softer performance in U.S. Orthopaedics and SANTYL, we now expect second half growth to be in the range of 5% to 5.5% and full year growth to be around 4%. Notwithstanding the lower revenue outlook, we are maintaining all other metrics of our guidance. We continue to expect around 8% trading profit growth, excluding M&A for the year. And this translates into approximately $1.3 billion of trading profit, including marginal dilution from the Integrity acquisition. This reflects the step-up in efficiency savings that we are delivering across the business, together with the removal of the forecast tariff headwind. The progress we demonstrated in the first half gives us confidence we can remain disciplined on costs while supporting improved revenue growth in the second half. We also remain on track to deliver around $800 million of free cash flow and a return on invested capital above 10%. Let me finish by outlining why we are confident in a step-up in revenue growth. We expect second half growth of 5% to 5.5%, driven by factors across all three business units. In Sports Medicine, we expect continued momentum across segments, including strong growth in REGENETEN and FASTSEAL. In Advanced Wound Management, we expect to see stabilization in U.S. skin substitutes, building on the sequential improvement we saw in Q2 versus Q1. We also expect to return to growth in SANTYL, further rollout of ALLEVYN COMPLETE CARE in Europe. The ongoing launch of next-generation LEAF and the benefits of greater investment behind PICO. In Orthopaedics, we expect an improving trajectory in U.S. Knee implants, driven by LEGION MS and the launch of the Cementless version of LANDMARK. We also expect U.S. Hip implants to return to growth as we deploy more CATALYSTEM sets. Of course, we'll also have one extra trading day in fourth quarter. So with that, I'll hand you back over to Deepak.
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 ALLEVYN COMPLETE CARE and RENASYS 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 FLEXTEND and Lens in Sports Medicine & ENT, EVOS pelvic in Orthopaedics and LEAF 3.0 in Advanced Wound Management. And that brings the total number of new products launched so far this year to 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 has strengthened our leading shoulder repair portfolio, sales force expansion for PICO and continued progress in our new advanced wound management manufacturing facility in Melton, which remains on track to open in 2027. To execute, we remain focused on driving productivity across the group, portfolio simplification and operational excellence, and we're making good progress on streamlining our portfolio, which will allow us to manage significantly fewer SKUs across our value chain and improve our capital efficiency. Earlier this quarter, our Advanced Wound Management manufacturing facility in Suzhou, China was recognized with the prestigious Shingo prize, which reflects more than a decade of sustained operational excellence and continuous improvement. Importantly, these aren't just strategic priorities, they are translating into tangible growth platforms that we believe can create value for shareholders for many years to come. The clearest example of that is innovation, where we're building a portfolio of technologies designed to both take share in existing markets and create entirely new growth opportunities. In Sports Medicine, we now have four differentiated growth platforms that we refer to as our big four. REGENETEN continues to perform strongly, delivering around 20% growth in the first half, with significant runway remaining to expand penetration in rotator cuff repair and across other tendons and extra-articular ligaments. Our Integrity acquisition is performing ahead of our expectations, and integration is progressing well as we increase manufacturing capacity and expand our commercial capabilities. With CARTIHEAL AGILI-C, we're continuing to build awareness and adoption in the U.S. ahead of the new reimbursement beginning in January of 2027, while also expanding internationally with our first cases completed in Australia, Italy and Belgium. And this quarter, we achieved an important milestone with the FDA approval of TESSA, the first-in-industry spatial surgery platform. TESSA combines advanced imaging, navigation and AI-enabled assistance to help surgeons perform arthroscopic procedures with greater precision. The initial application is femoral tunnel drilling, but we see a significant long-term opportunity to extend the platform across multiple joints and procedures. In Advanced Wound Management, ALLEVYN COMPLETE CARE strengthens our position in one of the largest and fastest-growing segments of the wound care market. Initial customer feedback has been encouraging, highlighting meaningful differentiation versus current products that are on the market today. We're also expanding our advanced wound management market through the recent launch of LEAF 3.0, and by bringing PICO into new care settings and patient populations. In Orthopaedics, we continue to build a connected ecosystem around CORI, linking planning, execution and outcomes to support more personalized care and better-optimized 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. CATALYSTEM is growing and becoming an important contributor within Hips, while in Knees, increasing set deployments and supporting broader LEGION MS adoption. We're also looking forward to the launch of LANDMARK in the third quarter, our most robotically enabled implant system that we've developed to date. Overall, the breadth and strength of these innovation platforms give us confidence in our ability to deliver sustainable growth over time through a combination of market expansion, share gains and new category creation. In summary, our second quarter performance was below our expectation, with the strong momentum in Sports Medicine offset by softness in U.S. Orthopaedics and Advanced Wound Bioactives. That's leading us to reduce our revenue outlook for the year. That said, we remain confident that the growth will step up in the second half, and John has taken you through the drivers of all of that across our business units. But importantly, while we are lowering our revenue outlook, we remain on track to deliver our original trading profit guidance, free cash flow and ROIC. And this is supported by a step-up forecast of efficiency savings, including a further $50 million of savings that we've identified, which helps offset the impact of lower revenue growth. We also continue to build a more resilient and agile business. We're investing behind our growth platforms while driving improvements in margin, cash flow and returns, strengthening our ability to respond effectively to challenges. While Orthopaedics is not where we want it to be, we remain focused on improving execution and delivering better performance. At the same time, we are positioning the business to capitalize on the significant opportunities that we see ahead. These include the LANDMARK launch in Knees, robotic execution on CORI in Hips, the big 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.
分析師問答
Jack Reynolds Clark from Morgan Stanley. I had three, please. First, on U.S. Orthopaedics. Could you run through specifically what went wrong here? How much of it was the market? How much of it was other issues? And what you're seeing so far in Q3? And if it has any impact on your assumptions around midterm margin expansion? Then on 2026. So the H2 guide obviously implies a pretty substantial step-up versus H1. Given the comments around VBP delay, where do you see the biggest half-on-half step-up on a segmental basis and what really gives you the confidence in that new guide? And then lastly, on the midterm guidance, the 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 is really company-specific factors. Fundamentally, it's Knees. We had flagged that we are behind the market largely because of the portfolio gap we have. So we're not able to participate in the fastest-growing part of Knees, which is Cementless. We only have that on one half of our installed base. And in Q3 when we launched LANDMARK, we'll be better able to retain the market in the other half where we don't have a Cementless offering. By far, that's the biggest factor. It's a challenging thing that we're navigating through. We called 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 what we see for half-on-half, but that's the fundamental factor that's driving softness in U.S. Ortho. There's a temporary blip in U.S. Hips. CATALYSTEM continues to grow very nicely. But we're in a third full year of launch. We do expect as we go forward at some point, we're going to need to pivot from competitive takeouts to more holding on to our business retention that will happen as we progress through the launch. But there was a slower-than-expected deployment of sets. These sets are instrument sets optimized for one or the other products. So for example, if we're trying to take business away from one competitor versus the other competitor, we need to have slightly different instrument sets. So getting that right is a bit challenging. That's what paced our set deployment in the quarter. It's a blip. We expect to regain that in the back half of the year. So those are the two fundamental factors, not so much slowdown in procedures, of which there was some. Half-on-half, fundamentally, what we expect is in Orthopaedics, it's LEGION MS, which strengthens our LEGION offering; that's going to be the most material driver. And then as we bring LANDMARK Porous onto market, which is largely a Q4 effect, we'll be able to better retain the business that we have. And then once we go into 2027 when we have the complete offering with LEGION Cemented as well by the end of Q2, we'll be able to go from defense into more of an offensive stance. So in Orthopaedics, it's LEGION MS and launch of porous. In Sports, we'll continue the trend that you have seen quarter-on-quarter. There hasn't really been a H1, H2 effect in Sports when you take away the China effect, and we expect the same to continue this year. And in Wound, it's PICO. We're investing behind geographic expansion of PICO. We're starting to see some proof of that in Q2, but we expect to see that build in the back half of the year. And then Skin Subs, where there was sequential improvement Q1 to Q2, as we've said, we're in the upper end of the guidance range that we've given in terms of the impact on reimbursement. But H1 to H2, we expect to see an improvement. So those are the components of H1 to H2 in terms of what accounts for the step-up in growth that we see. Turning to finally, the third question, which is around midterm guidance. Look, we always knew '26 was going to be a challenging year. Obviously, it's proved to be a bit more challenging than we thought. And that's largely on the back of U.S. Knees that we talked about and the prior authorizations that one of the larger insurers rolled out this year that's impacting the rate at which prescriptions get filled. So that's the reason for why we called down 2026. But the fundamental growth drivers, which are new products, either in existing categories or in creation of new categories, those drivers remain intact, whether it's in Orthopaedics — we talked about LANDMARK launch, Hip execution on CORI, AETOS in shoulder and in Trauma, rounding out our EVOS portfolio with the pelvic offering that's new. And then on the Nail part of the portfolio, IM nails continuing to improve. So multiple growth drivers in Orthopaedics we've got to look forward to in 2027. And then in Sports, big four continued execution. And finally, in Wound, it's PICO, building out RENASYS and normalization of Skin Subs. So these are the growth drivers — multiple across all of our business units. It gives us confidence that we are fundamentally a 6% to 7% growth company.
And maybe just a little bit of color on the phasing in terms of the second half. Sort of Q3, Q4, we do expect to see a step-up in Q4 performance versus Q3 performance. So Q3 will improve on Q2, clearly. And then Q4 will be stronger. And that's not just future expectation; 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 the market took in anticipation of the changes to reimbursement. So we've got a much softer comp in Q4 on Skin Subs and therefore, we'd expect that to be particularly positive on Skin Subs. And then, of course, Deepak said, we should also mention that we have got one extra trading day in Q4, which when you add all that up, you'll see a big step up in growth in Q4 versus Q3, just to make that absolutely clear. And then to your point around the headwind on Sports, 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. Could I sneak in a cheeky follow-up? If you were to quantify Q3 versus Q4 growth, the phasing there, would you be able to offer any color there?
I could. Look, I think 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 math, but it would be at a growth level of sort of 6% to 7%. But actually on an ADS basis, it will be just north of 5% because of the extra trading day. That is a step-up on Q3 in absolute terms, not stripping out the trading day impact. But that is because of the Skin Subs, because of the investments being made in PICO and the timing of those investments and because, of course, of the launch of LANDMARK, which takes place towards the end of Q3. So those are the reasons why we've got confidence in our ability to deliver that 4% for the full year.
Hassan Al-Wakeel from Barclays. A couple from me on Ortho. So firstly, maybe to ask Jack's question a little differently. We've seen the softness this year. Now we're seeing Hips, which has been really strong before today. You said this isn't market driven. What are you doing differently when it comes to execution? Why shouldn't some of these set delays in Hips weigh on the second half? And then specifically on U.S. Hips, how are you thinking about growth here beyond the next quarter or two as CATALYSTEM matures as a product? And then secondly, on Robotics, and if you can try and unpack the growth in the quarter and the development in CORI, is it entirely a function of comps? And how should we think about growth in the second half and beyond given the launch of MAKO RPS last month?
Okay. So with Hips, just to emphasize again what I said around set deployment. First, there was a comparator. 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 consistent. With set deployments, when you're trying to take a customer from their existing approach, whether it's one of our legacy products or one of our competitor products, the instrument you have to deploy to cater to the surgical approach of that particular surgeon has some variability. It's not just a standard instrument that you deploy regardless of which legacy platform they're using. Getting demand for that instrument is a bit tricky because of that variability. We didn't quite get that right, so we were somewhat paced by that in Q2. The combination of a numerically stronger comp plus that led to what you saw. We've also said, as we progress through the launch, typically what happens in Orthopaedics launches, certainly the way we approached CATALYSTEM is we targeted competitive surgeons initially, and you expect to do that for a period of time. Eventually, you are going to have to address your base of customers. So that mix of competitive conversions versus retention will start to flip, and that will normalize, and we'll get back to market levels of growth in Hips. That's what you should expect as we proceed to the back half of this year and beyond. For CORI this quarter and beyond, we had double-digit growth in CORI placements in Q2 and a similar number in the first half. We continue to be pleased with the pace at which we're placing CORI, and we are replacing them across hospitals, ASCs and teaching institutions. Generally speaking, we are at least at our market share, which is encouraging. In the ASC, it's slightly ahead of our market share in terms of CORI replacements. 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 demand and where a surgeon wants to integrate it into their practice, and we're equally monitoring utilization as we are placement. We could have followed a different approach, but ours is placement plus utilization. I'm pleased with the headline and the texture of the progress. Regarding Stryker's handheld announcement, competitors following with handheld platforms is validation of our approach. It also speaks to the innovation that sets Smith & Nephew at scale. We've taken the bet on a handheld platform rather than a fixed-arm robot, and it's positive that competitors are following. At the end of the day, deploying them with the playbook we've developed is what matters, and I feel confident about how we're doing that.
Just to build a little bit on Deepak's comments. Notwithstanding that double-digit growth in placements, 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 and the buildup curve those necessitate, we're still continuing to see improving trends in penetration and utilization, which I think is very encouraging.
Seb Jantet with Panmure Liberum. Just a couple of questions then. So just on tariffs. Obviously, your guidance has changed, but I remember you were talking about a $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 2027, rather than 2026. And then the second question is just around the cost savings. You've managed to get decent 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 reduction. I'm just wondering how you managed to find new ones so quickly there?
So you're right to focus 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 compared to last year. We now expect refunds for this year to be around $50 million. When you net that out, tariffs in total compared to last year are broadly neutral on the P&L. So the refunds effectively offset what would have been the P&L charge. In terms of next year, we would expect the P&L impact to be of the order of $15 million, and there's also likely to be a little bit of further refunds that will come through, so next year's net impact will be in that quantum but with some offset from refunds. There's a lot of moving parts on tariffs, including the Section 232 review, so we'll provide more guidance as we get further clarity. On the cost savings, we've delivered efficiency savings in the way we run our facilities and benefited from changes made historically that have flowed through better than expected. There's also been changes we've implemented recently, such as consolidations from Austin and Warwick into our Memphis facility, which delivered greater-than-expected efficiency savings. The savings are not just in manufacturing; there's also procurement, sales and marketing and business services. The additional $50 million is a mix across manufacturing, procurement and sales and marketing. We've been deliberate with continuous improvement, our ERP program and AI overlays, which are delivering further opportunities. We're not going to rob Peter to pay Paul; this is part of an ongoing continuous improvement program and we see more to come in future years.
Just two clarifications. When we talk about footprint, it's not that we're closing factories that we hadn't contemplated. Those things take time; it's actually how we're utilizing our current footprint. That's a key driver — for example, optimizing operations across Malaysia versus Memphis for Orthopaedics. The spirit of continuous improvement has been embraced across the organization and that has enabled us to hold to a profit target despite the revenue miss. Beyond tariffs, it's the additional savings that allow us to maintain profit performance.
Charles Weston from RBC. Just to quickly clarify: how much of that $50 million is brought forward from 2027, and how much of it is incremental, and should we be modeling that for 2027? Also, have you noticed any changes in terms of either procedure volumes or CapEx demand from U.S. hospitals? And secondly, just in terms of LANDMARK launch timing, can you confirm that everything is on track for both Cemented and Cementless, and the typical two-quarter ramp to start meaningfully getting sales from those things?
In terms of phasing, some of the first half performance does reflect bringing forward initiatives that would have otherwise been later. There's an element of timing — some half 2 into half 1 and some of half 1 2027 into half 2 2026. We're not providing 2027 guidance today, but this is not a one-off; it's part of a continuous improvement program with visibility into further opportunities, including ERP and AI-driven savings. I wouldn't classify it as robbing Peter to pay Paul; there's more to come in 2027.
On ACA, we did see some impact on procedure volumes across elective procedures, including Knees and Hips, but it was not the dominant factor explaining our performance. On LANDMARK timing, Porous is at the very end of Q3, so largely a Q4 effect. The Cemented version of LANDMARK is targeted for the end of Q2 2027. Ramps are not perfectly linear; competitive dynamics matter. We've become more methodical and disciplined in capital deployment for launches. That can mean a slower ramp but a more durable and capital-efficient one, which is the approach we're taking for LANDMARK.
Richard Felton from Goldman Sachs. First, could you remind us the size of SANTYL today and the revenue split between different care settings? What are the key competitive strengths of SANTYL? Second, on Advanced Wound Devices, over the last four quarters we've seen deceleration from double-digit to mid-single-digit growth. What has been driving that and what is the trajectory going forward?
SANTYL is a multiple-hundred-million-dollar product, and we don't typically give product-level detail beyond that. It is used across care settings: acute, post-acute and in outpatient prescriptions. One of SANTYL's advantages is that it does not require refrigeration, which simplifies supply chain. It also has a long clinical track record and is easy to use in terms of patient experience. A disadvantage is that it can be a slower process in some cases. There is competitive activity, but that is not the primary reason for our current numbers. We are developing a next-generation SANTYL aimed at improving speed while retaining those distribution and pain advantages. On Advanced Wound Devices, the deceleration is largely in traditional negative pressure, our RENASYS platform, where we've done well in post-acute but not in acute care. We need a better-rounded RENASYS offering with more dressing options fit for specific applications, and we'll start building that out in 2027. Single-use with PICO has been a growth engine; we're investing behind geographic expansion of PICO and expect benefits to come through in Q3 and especially Q4. There's competitor activity, but we feel well positioned and have pipeline extensions in the medium term.
Just to add a little color: over the last year we said revenues in skin substitutes would be down 15% to 20%, driven by a 20% to 25% reduction in price offset by slightly positive volumes, which produced the $20 million to $40 million P&L impact we guided. In practice, first-half revenues were off about 20%, towards the upper end of the range. We now expect that to be broadly the full-year outcome. The price impact will be a little less severe than originally estimated, but volumes a bit worse, hence the net outcome. The important point is that sequentially, the market is improving; Q2 is better than Q1.
Our first question is from Veronika Dubajova from Citi.
I have two please. One slightly diving into the nitty-gritty: can you touch upon the dynamics you're seeing in Trauma versus Extremities, and are there things you can do to get growth back into mid-to-high single digits? Second, on the midterm guide: to hit the low end of the 6% to 7% previously guided, if you're doing 4% this year, you'd need a pretty dramatic acceleration in the next two years. I'm trying to understand the logic for maintaining that midterm target. Is there any way to get above the low end of that range, and what gives you confidence at this point to maintain that?
Thanks, Veronika. On Trauma & Extremities: for Trauma, we're positioned well with our EVOS platform. Pelvic is a smaller but important subsegment that we're launching. Competitors are launching in plating, so you'll see some trial and variation, but EVOS compares favorably. We also have IM nails, which we launched recently and should drive growth. In Extremities, our presence is relatively small; Shoulder with AETOS is the focus. We now have the implant offering and CORI-enabled planning and execution, and handheld robotics is differentiated for shoulder surgery. It's early-stage but gaining traction and will be more group-relevant in 2027 and 2028. Regarding the midterm guide: '26 has proved softer than we expected largely due to our position in U.S. Knees with the portfolio gap and the prior authorization friction affecting SANTYL prescriptions. Those are the principal reasons for the downgrade this year. As we move into 2027, we expect Skin Subs to normalize, SANTYL friction to ease, and our portfolio to be more competitive. The ramp from LANDMARK and increased LEGION MS adoption will improve competitiveness in Knees. CORI execution across Knees and Hips and gains in Shoulder and Trauma add to the drivers. When you add those up across Orthopaedics, Sports and Wound, we remain confident in the medium-term ability to deliver 6% to 7%. The ramp will be phased, with benefits increasingly visible in 2027.
If I may add: on phasing, expect Q3 growth similar to Q1 and a step-up in Q4. The step-up is driven by LANDMARK timing, the Skin Subs comps, PICO investments, and one extra trading day. That's why the full-year number is 4% but the back half is stronger. We have factored in VBP and other headwinds into that expectation.
It's Kane Slutzkin, Deutsche. John, on the savings, can you give comfort that none of what's been done over the last few years is detrimental to growth down the line? Often, when companies cut costs they can cut too far. And Deepak, on the U.S. environment: some larger peers have suggested market weakening, others suggested a return to pre-COVID growth rates. Any thoughts on that?
We are deliberately investing in growth while delivering efficiency savings. In headcount terms, over the last 12 months we've actually increased headcount overall, with the increases focused in Sports and Wound — front-line sales, medical education and customer service. We've reduced permanent headcount in manufacturing and operations where efficiencies were possible. We clearly separate cost savings from growth investment in our bridge; for example, the $33 million investment is shown separately. We're recycling resources from back-office and operations into the front line. So this is not a case of cutting growth capacity; we're reallocating to areas that drive top-line growth.
To add, during our 12-point plan we consciously resisted cutting R&D. That was a decision point where we could have preserved short-term margin by cutting R&D but that would have harmed future growth. We have protected R&D investment and other strategic areas to fuel long-term growth. On the U.S. procedure environment, it's harder to precisely measure the market due to limited third-party data. We triangulate using reimbursement changes, site-of-care shifts to ASCs, and other factors such as ACA-related impacts on elective procedure demand. What I saw in Q2 was a slowdown, but it is not the primary explanation for our specific performance issues. We remain focused on execution and interpretation of the market signals.
Next question on the telephone line is from Caitlin Cronin from Canaccord.
Maybe just starting with skin subs. How are you thinking about recovery of this business that you noted is taking longer for the market to adapt, and could this weakness bleed into 2027? Are there efforts you're making to help the market adopt these changes?
On Skin Subs: the impact has been greatest in the mobile setting, followed by physician offices and hospital outpatient settings. In-hospital users have been impacted but less so than mobile. New entrants without much clinical data have entered, while companies like us have established clinical evidence. The change in reimbursement mechanics — for example, per application versus per episode — has introduced friction in billing and claim processing. There is also a small number of payers moving to algorithmic reimbursement models, which has caused additional friction. Smith & Nephew has had relatively low exposure in mobile, and our products fit within the new reimbursement levels. Our OASIS product line is growing strongly. We expect the administrative friction to settle out in 2027 and believe we are well-positioned given our portfolio, pricing and clinical evidence. We are navigating this year and now expect the impact to be toward the upper end of the $20 million to $40 million range, but we still expect sequential improvement from H1 to H2.
To be precise on the prior guidance: we said revenues would be down 15% to 20%, driven by a 20% to 25% reduction in price offset by a slight positive on volumes, which got us to the $20 million to $40 million P&L impact. In the first half, revenues were off about 20%, towards the upper end of that range, which is broadly what we now forecast for the full year. Price impact will be a little less severe than initially estimated, volumes a little worse; the net is toward the upper end of our prior guidance. The key point is sequential improvement — Q2 better than Q1 — and we expect that to continue.
Next question is from David Adlington from JPMorgan.
David Adlington from JPMorgan. Sorry, John, just to come back on tariffs: the net amount I think was about $5 million in the first half, but what was the gross? Was it all $50 million received in the first half and how do you expect that to play out through the second half? And how was that spread across the three businesses?
It's slightly focused towards Orthopaedics and then a bit more on Sports, with Wound being the least impacted. We saw a net benefit in the first half of about $5 million between tariffs and refunds. We expect to see a net benefit in the second half of about $1 million between tariffs and refunds, so for the overall year it's approximately plus or minus $4 million to $5 million, meaning refunds effectively offset the tariff headwind year-on-year. Last year the net tariff cost was $15 million; this year we expect a net tariff cost of around $10 million, with additional refunds offsetting some of that. There are still moving parts, including the Section 232 review, so we'll update as more clarity emerges.
To summarize, our revenue performance in the first half was below our expectations, but we delivered strong profit performance, demonstrating the resilience we've built into the business. We remain confident in the actions we're taking to drive better performance more consistently over time. Thank you for joining us today. We appreciate the engagement and will update you on progress as we move forward.