Smith & Nephew (LSE:SN.) Q3 2026 Earnings Call

0:00 Welcome everyone and thank you for joining the Smith and Nephew Q3 2026 Trading Report. My name is Gabrielle and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. It is now my pleasure to hand over to your host, Deepak Nath, Chief Executive Officer. Please go ahead.

0:30 Thank you, Gabrielle. Good morning and welcome to the Smith and Nephew Q3 2026 results presentation. As introduced on Deepak Nath, I'm the Chief Executive Officer and joining me is Pierre Palacian, who's the Interim Chief Financial Officer. Welcome, Pierre. Today, we reported underlying revenue growth of 3.4% for the quarter, which is an acceleration from Q2. As expected, sports medicine and ENT performed strongly again, including double-digit growth in joint repair for the fourth consecutive quarter. We also saw improved performance in wound, led by acceleration in advanced wound devices. Orthopedics returned to growth with strength across international and emerging markets.

1:15 In the U.S., we saw continued weak performance in knees and hips, partly reflecting market softness. We're also navigating a tricky period in knees as we remain impacted by the market shift towards cementless, where we have not had a full offering. We were therefore pleased to receive FDA approval for the cementless version of Landmark, our next generation knee, in the quarter. More than 100 Landmark cases have now been completed with positive early surgeon feedback. This begins to address an important portfolio gap and should support acceleration in knees as the launch scales during 2027. US hip growth has also been slower than expected. Catalyst stem continues to have good momentum, but the pace of set deployment has limited our ability to fully capture that opportunity.

2:09 Looking further ahead, we expect to strengthen our competitive position in both knees and hips as our new product cycle builds. This includes the continuous scale-up of Landmark with the cemented version expected in Q2 2027, further Catalyst-STEM set deployment, and Cori execution on HIP starting in Q1 of 2027. Innovation remains central to our business. More than 50% of our growth comes from products launched within the last five years, and many key products are delivering double-digit growth, including Catalyst-STEM, Consulock, ATOS, Cori, Regenitin, Qfix, Fasceal, Leaf and Pico. We're also making good progress with Tessa, a first-in-industry spatial surgery platform designed to bring greater precision to arthroscopic procedures.

3:03 Following FDA approval in Q2, we completed the first femoral cases during Q3, marking an important step in the early introduction to the platform. Q3 overall was broadly in line with our expectations. However, given our outlook for U.S. knees and hips in Q4 and current market conditions, we're no longer expecting a material improvement. As a result, we're updating our guidance for the year and now expect approximately 3% revenue growth for the full year. Trading profit is still expected to exceed revenue growth, but as a result of the lower revenue outlook, we now expect to deliver on 1.25 billion in trading profit. Free cash flow is expected to be around $750 million, representing continued strong cash conversion.

3:55 While there remains work to do in orthopedics, we have strengthened the business and built a better foundation for future growth. Sports and Moon remain on track to deliver on the attractive long-term opportunities identified through RISE. You will have seen the recent press commentary around a potential transaction involving Smith and Nephew and J&J's Debut Synthies business. Those discussions followed an approach we made earlier in the year as part of the work already underway to consider strategic options for Orthopedics. While those discussions have now ended, we remain actively engaged in that broader work and will continue to explore the full range of strategic options for this business as we seek the best outcome for our shareholders, patients, customers, and our colleagues.

4:46 At the same time, our operational focus remains on execution and the successful delivery of our key product launches, as well as continuing to invest behind our higher growth, higher margin sports and moon businesses, where we see significant opportunities to strengthen our market positions and drive long-term value. For now, I'll hand over to Pierre to take you through the quarter in more detail. Pierre. Thank you, Deepak. Revenue for the quarter was $1.55 billion, representing 3.4% underlying growth and 3.4% reported, with no impact from effects. Trading days were unchanged year on year. Geographically, the U.S. grew 3%, other established markets grew 3.2%, and emerging markets grew 4.8%.

5:36 Excluding China, group growth was 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. Starting off with sports medicine and ENT, it grew 7.9% on an underlying basis, including double-digit growth in the US across all three segments. Joint repair grew 11.2% with broad-based trends across both regions and the portfolio, including shoulder, hip and small joint repair. Regeniton maintained its strong growth trajectory with further penetration in rotator cuff repair and expansion beyond the shoulder. Cartil is also building momentum in the U.S.

6:21 ahead of the Category 1 code in 27, alongside further international expansion. Tendencim remains on track with more surgeons coming on board. Together these differentiated platforms give us confidence in the sustainability of growth and position the business well for 2027. In AET, Fast Hill and Services were again the main contributors to growth. China BBP has not yet been implemented in either our AET or ENT businesses. Although we continue to see an impact from inventory management in the channel ahead of implementation, we still expect the profit headwinds from China BBP to be around 15-20 million for the full year. In ENT, outside of China, the business delivers double-digit growth.

7:09 led by strong demand from our Aris Wand and Halo Wand for tonsil and adenoid surgeries. Turning now to advanced wound management, which declined 0.2% in the quarter. Advanced wound care grew 1.2%. We saw strong growth in the U.S., driven by 11 complete care, which has now launched in most major markets internationally. We expect this product to drive continued above-market growth in phone dressings. In bioactives, revenue declined 8.8% for the quarter. Central returned to modest growth following a weak Q2, which reflected the product's normal quarterly volatility. In skin substitutes, performance was stable sequentially. We continue to face headwinds in the US following the CMS reimbursement changes introduced at the start of the year, with the market adapting more slowly than expected.

8:02 Despite these near-term dynamics, we remain confident in the long-term fundamentals of the segment, beyond this transition year, and are well positioned as market conditions normalize. We continue to expect the trading profit headwind from skin substitutes to be towards the upper end of the previously guided 20 to 40 million range. Advancement devices grew 10.7%, a strong acceleration from the first half. reflecting the investments we are making behind Pico and Thief. Pico delivered strong growth in the US and performed well internationally, while Leaf had its strongest quarter ever. Let's now turn to orthopedics. This grew to 0.5% on an underlying basis, an acceleration from last quarter. In the US, we saw soft market conditions and continued weak performance in knees and hips.

8:58 Within U.S. needs, the decline primarily reflects the ongoing impact of business loss in previous periods, rather than significant new losses in the quarter. The continued shift towards cementless remains a need to handling for us. Cementless penetration is now approaching 40% of the U.S. market, compared to around 10% of our new portfolio. With the launch of the cementless version of Landmark, our new kinematic knee system We can more effectively compete in the growth of this part of the market. Importantly, we are better positioned to execute this launch than we have ever been in the past. Through Ortho360, we have introduced a more disciplined and targeted approach to product launches. And the success of Catalystem launch is just one example of the progress we have made. With Landmark, we now have a disinitiated product addressing a clear market opportunity, which we believe can strengthen our competitive position in needs over time.

9:56 Within U.S. HIPS, we remain encouraged by the uptake and utilization of CatalyStem, which now represents 38% of our HIPS. However, alongside some market softness, we were held back by the pace of CatalyStem's sad deployment, which limited our ability to convert and retain our legacy HIPS customers. We expect U.S. HIP performance to improve as additional sets are deployed and customer access extends. The planned launch of CoriHIP in Q127 and the CoriHIP Impactor in Q327 will further strengthen our ability to convert and win new business as robotic HIP workflows become increasingly important for our customers. Outside of the U.S., performance was strong in both HIPs and NEEs.

10:41 Both delivered double-digit growth in emerging markets, and Hibbs continued to benefit from the launch of Catalystem in Japan. Troma and Extremities delivered solid growth with good performance in IMNates and double-digit growth from our ATOS shoulder system. We had a very strong quarter for other recon with growth of 44.7%. It was our best Q3 ever for Cori placements globally and we are pleased with the continued traction we are seeing in enterprise level multi-site deals in the US. Corey Scholder is also performing well. Coming now to our updated outlook. Reflecting our outlook for US hips and knees in Q4 and market conditions, we now expect fully underlying revenue growth to be around 3%.

11:30 Trading profit is still expected to exceed revenue growth, but reflecting the lower revenue outlook, we now expect to deliver around 1.25 billion of trading profits, including marginal dilution from the integrity acquisition. We also expect to deliver around 750 million of free cash flow and the return on invested capital of around 9%. This represents strong cash conversion and demonstrates significant and sustained improvement in cash generation. At the start of the 12-point plan in 2022, free cash flow was 56 million and trading cash conversion was 49%. In contrast, We now expect to finish 26 with free cash flow of around 750 million and trading cash conversion of around 95%.

12:21 Our 500 million share buyback also remains on track, with 250 million completed by the end of Q3, demonstrating our disciplined approach to capital allocation and returning capital to shareholders. As previously disclosed, we expect the net year-on-year impact of tariffs to be broadly neutral to trading profits, and the headwind from skin substitutes to be towards the upper end of the previously guided 20 to 40 million range. The acquisition of Integrity Orthopedics is expected to be marginally dilutive to trading profit in 26, broadly neutral in 27 and accretive from 2028. With that, I will now hand you back to Deepak to look at each of our business units through a longer term lens and how we are positioning them to deliver sustainable growth and create value.

13:08 Thank you, Pierre. Our RISE strategy remains focused on improving performance, enhancing operational efficiency, and allocating capital to the highest value opportunities across the group. RISE also requires us to make disciplined choices about where we deploy capital and resources. As a result, we're investing behind sports medicine and advanced food management, where we see a clear path to market leadership and significant longer-term value creation. In orthopedics, we remain focused on improving performance as we execute the next product cycle while continuing the work already underway to consider the full range of strategic options for the business. So let's now go through each business unit in more detail. Starting with sports medicine, we have a leading position in a highly attractive market worth about $7 billion that's growing at about 6%.

13:59 We hold the number one and number two position in every major segment in which we compete and are gaining share across the portfolio. Alongside a strong core of established products, we are creating new categories through our big four, Regenitin, Cardiheal Agilisi, Tendenseam, and Tessa. Together, these expand our addressable market and provide additional opportunities to deepen penetration and broaden our reach over time. We're also making good progress across our pipeline. We continue to strengthen the clinical evidence supporting Regenitin, such as its inclusion in the AAOS guidelines and new evidence demonstrating superior outcomes versus standard of care. During the quarter, we completed the first femoral cases using TESA and submitted a 510K application for tibial tunnel placement.

14:51 We also launched Q-Fix Nautilus for shoulder repair and expanded the international rollout of Cartagena Gillessee. We're executing well commercially through our dedicated sports medicine sales channel. Growth is well balanced geographically with our principal regions consistently delivering high single digit to low double digit growth. We believe sports medicine remains one of the most compelling opportunities within Smith and Nephew to deliver sustainable above market growth over the long term. With category leading positions in differentiated portfolio, strong commercial execution and expanding addressable markets, we see significant scope to extend our leadership across the broader market. Turning down to advanced wound management, we operate in a large and attractive global market worth about $13 billion. We're the joint largest player globally with around 14% share and hold a number one or number two position across each of the three principal segments of the wound market.

15:55 But the only major player competing across advanced wound care, devices and bioactives with leading products including Alevin, Pico, Urenasys and Santal. This gives us one of the broadest and most differentiated portfolios This breadth gives us exposure to some of the fastest-growing areas of wound care, including surgical site complication prevention, pressure injury prevention, and chronic, hard-to-heal wounds. To capture this opportunity, we're investing behind innovation and commercial execution. This year, we have further strengthened the clinical evidence for alleviate complete care, with initial results showing improvements across a number of important clinical measures, including exudate control, and Moon Status.

16:45 For PICO, we're building on an already extensive clinical and economic evidence base to drive further penetration and establish it as a standard of care for select procedures. During Q3, alongside investments in the PICO sales force to drive further penetration, we launched Redis' Dynaflow and introduced a leave-in complete care in Europe and the UK. We see significant scope to deepen market penetration expand our participation in these attractive segments and deliver sustainable long-term growth. Turning now to orthopedics, we operate in a large and attractive global market worth about $33 billion. Fixing orthopedics was a central pillar of the 12-point plan, and today orthopedics is a materially stronger business.

17:32 We've improved product supply, simplified the portfolio, strengthened commercial execution, and improved margins and returns on capital. We've also brought much greater discipline to innovation and product launches. These improvements ahead of our next product cycle will make our portfolio more competitive and position us to recapture the ground that we have lost. This quarter, we received FDA approval for Landmark, which can begin to address an important gap in our cementless knee offering. and we recently published evidence demonstrating that Cori assisted total knee arthroplasty improves operating room efficiency and reduces workload demands compared with conventional methods. Alongside Landmark, the launch of Cori Hip and our Cori Hip Impactor will further strengthen the portfolio and contribute to orthopedics performance over time.

18:27 Cori Hip will be the first robotic solution to provide execution on both sides of the hip. Importantly, that includes the femoral side, which is particularly relevant to the fast-growing direct anterior approach and can help surgeons achieve accurate leg length. Our Cori hip impactor will add guided cup impaction while reducing the physical demands on the surgeon. It will also be the only tracked automated impactor on the market. We expect 2027 to be an important year of product launches and the start of a new chapter It is from this strengthened position that we have for some months been considering our strategic options for orthopedics. We'll continue to actively explore the full range of options to deliver value for this business.

19:19 In parallel, our operational focus remains firmly on improving performance by successfully delivering the product launches I've highlighted over the next 12 months. Coming on to our key messages, underlying growth accelerated to 3.4% this quarter with continued strength in sports medicine, improved performance in wound, and a return to growth in orthopedics. Across the group, recent product launches are showing good momentum with more than 50% of our growth coming from products launched in the last five years. Our updated guidance reflects our outlook for USDs and HIPs in Q4 and current market conditions. We continue to expect trading profit to grow ahead of revenue supported by the operational improvements we've made across the business alongside strong working capital discipline and strong cash conversion.

20:12 We'll give 2027 guidance alongside our Q4 results and we will provide an update on our median outlook at that time. Before we close, I'd like to step back for a moment. We remain firmly focused on creating long-term shareholder value through improved performance, greater operational efficiency, and disciplined capital allocation. The work already underway to explore the full range of strategic options for orthopedics reflects that same focus on shareholder value. At the same time, we remain disciplined about where we allocate capital and resources, including investing behind the attractive opportunities we see in higher growth Thank you very much. To ask a question please press star followed by one on your telephone keypad now. If you change your mind please press star followed by two.

21:13 When preparing to ask your question please ensure your device is unmuted locally. Our first question today is from David Adlington from JP Morgan. Your line is now open. Please go ahead. Thanks for taking the question. Maybe firstly, on the strategic review, if you could just give us a bit more colour, give us some guides around what you think the most likely options are and any particular timing. More specifically, If you go down the spin route, what would be the likely stranded costs in the core business and what additional costs would this fund or their business require?

21:52 Sure, David, thanks for the question. So in terms of the strategic options that we're considering, we've been looking at the portfolio strategy question has been front and center for the board for quite some time now. and in that context, as I mentioned, we had reached out to J&J to explore a combination between their Depew business and Smith and Nephew. And as we acknowledged, those talks took place. They were quite intensive, but they are no longer active. Now, that was not the only option. We have other options that we're looking at or actively are going to be pursuing this point forward. It won't be helpful for us to give a timeframe other than to say that it is a very active process.

22:40 And in terms of what the range of options are, it is the full raise that we're considering. It wouldn't be helpful for me to speculate on what the likely outcome for that would be. But as you can imagine, with any effort like this, there are lots of considerations to take into account, among which are stranded costs. and of course if we were to pursue the spin route, then all the costs involved in standing up a separate business. So those are all important things to consider, but at this point it would be helpful for me to telegraph what the specific option might be or indeed what the timeframe, other than to say it's a very active process. Thank you. Thank you, David.

23:26 Our next question is from Hassan Al-Waqil from Barclays. Your line is now open. Please go ahead.

23:34 Good afternoon. Thank you for taking my questions. A couple from me, please. Firstly, on the decline in U.S. needs, with Cementless Landmark now launched, when should we expect the business to return to growth and will it need to wait until you have cemented in the second half of next year? How has the early feedback on Landmark been and what are you seeing in terms of new customer wins versus retention? And then secondly, Deepak, you previously described Smith & Nephew as a 6% to 7% growth company. Following another guidance cut this year, landing at around 3%, do you still believe that that is the right range for your company? And how should we think about the margin trajectory if revenue growth remains below 3%?

24:21 for six to seven and ask specifically about 27 and whether you think you can expand margins, particularly if VBP in sports med is shifted to next year. Thank you.

24:33 Great. Thank you for the question, Sasan. So first, regarding these. So as you know, the launch of Cementless is an important part of the offering. We are now early in our experience. In our experience, we've completed 100 cases. Those have been done by surgeons who are closely involved in the development of the product and who are high volume surgeons. But the feedback has been very, very good in terms of what they expect to see in real world practice. We're very encouraged by what they're seeing. As you all know, launches in orthopedics are not...

25:19 It takes time to build. We saw that with Catalyst stem and we expect to see the same with cementless as well. It will take 18 plus months for this to build over time. The other confounding factor with NEES is that a platform is complete when you've got cemented and cementless versions. So for now, what we have is a cementless landmark paired with our journey cemented. But as the cemented version of Landmark comes to market in Q3 of 2027, then we have a full portfolio and that, in effect, begins the start of the Landmark journey. So that's the answer on how we expect to bring Landmark to market.

26:10 being the most relevant timeframe for when you start to see traction with Landmark. In terms of retention and conversions, as I mentioned with Cementless today, it's mostly retention and even that it's with surgeons who have been involved in the development of the product. Look for this to be more commercially relevant as we go from this point forward, but really it's in the back half of 27 where you'll start to see this be commercially relevant. In terms of our midterm guidance, as I indicated, we will come back to you when we announce our Q4 results and give you the shape of or give you an update on midterm.

26:56 Obviously, we'll take into account where we outturn in the year. But the fundamental growth drivers that underpin RISE remained intact. In orthopedics, it was the completion of the portfolio, which landmark, which is on time. And the addition within HIP of not only HIP execution, but Cori-enabled impaction. That is on time. And we've got the big four in sports and the growth drivers, particularly in devices and in alleviating complete care in booms. So when you stack up the growth drivers that underpin the six to seven percent growth, those are very much intact. Obviously, we're going to be working off of a lower base, given where we expect to outturn the year. And we'll take that into account.

27:49 But we remain on track, actually, with sports. and Ed Moon, largely. And even in orthopedics, outside the US, we remain on track to what was assumed under Rice. This should give you a sense for the moving pieces. Peter, do you want to comment on the color for margin? Yeah, Deepak. That's an important question. I think as Deepak said, we're not going to update the guidance. We'll do that at year end. But to give you, Hassan, some colors, like on the underlying themes for 27, from margin perspective. So first of all, we have to deal with a few macro headwinds. As we said in H1, the tariff will be one that in the absence of refunds, we see that as headwind for next year.

28:38 I think above average inflation, we see next year there will be some headwinds from that. But on the positive side, as we see the skin subs normalize next year, that will give us the tailwind. And the China, like, although the GDP is delayed, but most of the impact we're seeing this year with the China elections, like we saw in the past. So next year's impact will be tempered. And obviously we have to be very realistic about the auto exit. One thing to mention there with the portfolio, completion with Landmark and Corey in hip and hip impactor in Q3 next year, that will improve the performance of orthopedics next year, US Recon in particular, that will have an impact on the margin. And at the same time, we'll keep investing behind our growth drivers in sports and wound. So those are the underlying themes we have to work through it. And when we come to the year end, will give a better view on 27 and our midterm guidance on our margin.

29:41 Just one more thing. Thank you, Pierre. Just one more thing. I think I said Q3 of 22 for a cemented launch. As we've said before, it's Q2 of 27. It was just misspoke. Just to also confirm on the U.S. side, a little bit of a comment on losses in relation to your question, Hassan. Most of what we're experiencing today, even in Q3, are As I said, there were not significant new losses. There were some, but the majority of what Q3 is about previous period losses. And of course, market softness as we indicated. So as we look into next year, we do expect to perform better as we annualize those losses. As it turned out, we had a higher than usual amount of impact from a few of our high volume surgeons retiring. at the beginning of the year, and some exits associated with that.

30:39 We have not been able to fully offset that as we've gone through the year. But we do expect that there will be an improved trajectory as we go into 27.

30:50 Really helpful. Thank you both.

30:53 Sure thing, Hassan. Sure. Thank you, Hassan. Our next question is from Veronika Dubayova from Citi. Your line is now open. Please go ahead.

31:08 Good afternoon, Pierre. Good afternoon, Deepak. Thanks for taking my questions. I'm going to keep it to two, please. I want to challenge you, Deepak, a little bit on the ortho performance. And actually, I'm going to talk about HIPS. I kind of said in your prepared remarks on multiple occasions, you feel that Smith & Nephew Ortho is now a better and different run company. But if I look at the HIPS performance, it seems to be you continue to be foiled by internal execution issues about set deployments. So just want to understand kind of what is going on there precisely. What's the route to addressing this? And I guess as I think about the landmark rollout, what are the risks that we see a repeat of that? And what are you doing to ensure that that's not the case?

31:53 Apologies for the bluntness of the question, but I think it sort of needs to be addressed. and then my second question is around awc and the meaningful slowdown in the growth rate that we saw there this quarter especially given the comp was very easy you didn't touch upon it in your remarks but just curious if you can elaborate on what exactly is going on is this in the market or smith and nephew execution issue and sort of your degree of confidence in your ability to outgird the market in the traditional wound care space thanks so much

32:21 Thanks, Veronica. Always appreciate your questions, provocative or not. So in terms of ortho performance in HIPS, fundamentally, things have slowed a little bit. There's a little bit of market, although there's more market impact in these than there is on HIPS. With Catalyst STEM, we've got a couple of players on and another player launching a new platform. So when you have that, you've got dynamics where from quarter to quarter you've got some variability as we win some, they win some and so on. So there's a little bit of that quarterly gyration when you've got two major players launching new hips. So that's one factor to take into account.

33:08 Second, part of the discipline of capital deployment is previously in Smith and Nephew's history, when we've launched products, we've taken this as broadly as possible, as quickly as possible. While this had some impact on top line, actually over the longer term, it's come back to haunt us, that level of poor discipline on capital deployment. We brought to bear much more focus, much more discipline on where we deploy catalyst stem, where we deploy those sets, and where we put them in order to drive the right level of uptake. And that discipline has impacted in the sense that we weren't able to allocate as many sets to retaining our business as we might have in retrospect.

34:00 and that's the consequence of the discipline that we've run. So again, there's not a structural thing. In fact, there's a positive here, which is that we are very mindful about where we place sets and the kind of performance we expect and where we allocate capital. So coming back to now what the lessons are from this as we take into landmark. First, we do expect to bring the same level of discipline. are on capital deployment with Landmark. It's always a bit more complicated with these because you've got cemented and the cementless versions. But the way we've designed Landmark is we've got one instrument trade that caters to both cemented and cementless variants, highly efficient trade design. So we've built in a level of capital efficiency in the way we've designed the system.

34:48 But that level of, you know, rigor in account targeting, rigor in where we want to place sets and Thank you very much. and we expect it to improve as we go into next year. And importantly, as we highlighted in our remarks, in addition to Catalystem, which is, by the way, doing well, the sets that we've placed are turning and are performing well, we've got an important year in terms of robotics. Just to ground everyone, hip robotics today in the market is about 15%.

35:52 and that is growing and we expect with the launch of Cori Hip Solutions in Q1 and then as we said Cori-enabled Impactor, we expect to actually be in a position to take share in HIPS and both of those are highly differentiated offerings in the market. There are things and features that we have that no one else has got. So we've got a lot lined up for HIPS going into next year. In terms of AWC, just a little bit of double click on that, we're actually seeing really strong growth in the US, driven by the launch of Leave In Complete Care. Great traction we're getting, customers who try it, like it, and that is translating into commercial business.

36:37 and we expect that to continue in Q4. We did see a slight slowdown in some specific international markets and that was largely related to some distributor softness, but we expect to see that return to growth in Q4 as well, specifically in the UK The phones market has shifted from prescription to NHS supply chain direct. So we're seeing re-contracting of NHS tenders and complete care will allow us to compete with our competitors due to superior performance. And we also expect to see strong growth in 2027 as the market shift normalizes. In Germany, the health economic environment has changed. The normal pricing trends in Germany are not what they used to be.

37:24 And wholesale order patterns have changed in response to general market conditions. So that's reduced the volumes and our orders by about 10% over the quarter. But leaving AWC orders remain strong and leaving complete care launch in Germany is exceeding on AWC.

37:50 Thanks so much, Deepak.

37:52 Sure thing. Thank you, Veronica. Our next question is from Julien Wadour from Bank of America. Your line is now open. Please go ahead.

38:06 Thank you very much, and good morning, everyone. So I have two. The first one, let me try pushing you a little bit more on on next year, Deepak. I mean, I know you won't give us guidance right now, but I'm just wondering if we can assess a sort of floor. If U.S. orthopedics remains weak, landmark contributes only modestly in 2027 and all other things being equal, what is the reasonable floor for the group growth? And would 4% be achievable in a prudent outlook? And also in this scenario, I mean, do you think trading margin can remain stable So that's the first question. The second one is just on the strategic review, when you refer to exploring the full range of options, does it apply equally to orthopaedics, wound and sports, or is the review primarily focused on orthopaedics and just what would determine which part of the portfolio you act on? Thank you very much.

39:02 Thank you, Julien, for the questions. So in terms of 27, thank you for trying again. So the headline answer, I'm afraid I'll have to disappoint you and say that we will come back and give you the proper guidance in 27. But having said that, let me just give you a couple more little morsels. On Landmark, You call out Landmark as one of the growth drivers. It's not just Landmark. We have high expectations for Corey Hipp as well for next year. One of the points that I tried to allude to which I'll make more explicit is that we don't expect 27 to look like 26 in U.S. ortho.

39:47 And part of it was what I tried to address is There were some losses in 27, a higher than normal kind of level of high volume surgeons in both knees and hips. that retired or exited their practice earlier in the year and that did impact. Normally you offset these things through competitive activity and the wins offsetting the losses and we had our share of wins as well but clearly those wins have not offset the level of those losses. In other words we had a bunch of high volume surgeons exit, we've added new surgeons that weren't of similar high volume. So that's basically what's going on in terms of the The double click of that. And then encouragingly in Q3, the majority of the losses were previous period rather than new surgeons are losing.

40:36 We have lost some, but mainly it was those previous period losses. So we are really getting into more steady state with that. So what I'm trying to get to is, you know, In terms of a floor, 27 isn't going to look like 26. Now, that's not saying much, but it is something. The second thing I would say is I wouldn't just take Q4 exit and say that's what the shape of 27 is going to look like, because there are important growth drivers. So just to make it more explicit with landmark, we'll have some traction with landmark cementless. Back to Hassan's question earlier. But really, with the portfolio beginning complete with the launch of Cemented in Q2, you know, that will build over time. But by Q4 of next year, you should see Landmark be more relevant. A, we'll have a full year of Landmark Cementless, but then we'll have a quarter plus, almost two quarters of Landmark Cemented.

41:36 So we should be exiting Q4 in a much better place with knees and with hips. you know we talked about back to Veronica's questions in terms of where we are but catalyst stem continues to perform well the combination of that and corey hip very differentiated corey hip execution highly differentiated corey hip impactor and q3 that because those two hip corey launches happen Thank you for joining us. and we expect that to continue into 27. In terms of trading margin, So there's two things, right? One is the consequence of where we're going to be exiting in terms of sheer volume of business in the US in orthopedics. There's a pretty high level of sensitivity to ortho margin and therefore group margin to US recon business.

42:53 So there is that sensitivity, right? But having said that, as we've said a number of times, the operations of orthopedics, the top line in the U.S. notwithstanding, is in a much better place. Our approach to capital deployment and capital cycling, our approach to how we connect supply and demand, how the factory is running, and how we manage our inventory, all of those things are in a better place. So the foundation on which we'll be launching these products will lead to greater leverage, operating leverage as we go into 2017. However, there are choices that we need to make. What we've called out in RISE is that the reason we've moved away from margin and gone into profit is that we want to be able to invest in sports and in wound where we have good really good positions and high growth, high margin kind of business opportunities that we want to invest behind.

43:52 And we would like to be able to invest behind those. So that also, those are conscious choices, obviously, that will determine kind of the shape of our margin trajectory. So hopefully that gives you a little bit of color against the headline that says we'll update you on midterm with Q4 results. In terms of orthostrategic review or strategic options, look, I mean, we've said orthopedics for a reason. That's where we're looking. Having said that, are across the entire group. And I've said now for some time, this has been a front and center topic for the board and it continues to be thus and we're looking at the totality.

44:42 But the evaluation, active evaluation of strategic options is focused on ortho, keeping in mind the broader picture.

44:54 Thank you, Raj.

44:57 Sure thing. Thank you, Julien. Our next question is from Julien Dormois from Jefferies. Your line is now open. Please go ahead.

45:09 Hi, good morning, Deepak. Good morning, Tia. Thanks for taking my two questions. The first one is on sports medicine and more particularly joint repair. You have now posted WG growth in this space for the last four quarters, if I'm right. And you are making I guess lots of investments behind what you call the big four, but I think in joint repair it's essentially a big three with Regenetan, Cartyheal and Tendency. So just wondering whether you think you can sustain or maybe accelerate that trend in joint repair in the next couple of years. And the second question is on trauma. and here it's pretty much the opposite because I think here today you have delivered around two person growth where the markets, judging by your peers, is still growing at a healthy six or seven person clip.

45:59 So just curious how you see this franchise evolving going forward and whether 27, just like in the broader auto market, could be a better year for your trauma franchise or we should expect this to trend in a soft level. Thank you.

46:17 Look, with joint repair, as you rightly know, Julian, the three of the four are in that area, so we have a great position. we have opportunities to not only execute on our core portfolio we call out the big four right or the big three within joint repair but the substrate on which all of those rest is the core portfolio and what we do a nice job commercially is Thank you for joining us. Thank you very much.

47:41 You know, it's 10% penetrated its shoulder. And then we've got about 10%, a different 10% of our business that's outside of the shoulder, right? So we've got opportunities not only to drive further penetration within rotator cuff, but also be funded clinical trials and investigators are pursuing their own independent trials looking at the applicability of Regenitin in other joints you know foot and ankle being one hip is another area now those studies will take time to deliver results but the important thing is reinvesting behind those right so it's not just about you know resting on our laurels but continue to build a clinical evidence and by the way working on our next generation Regenitin as well right so those are now more longer term but back to your question that's about expanding the market rather than just taking share so we've got you know two out of the three there that's about expanding the market and the third of the three is in tendency with the acquisition of integrity There we are a very very strong player within within shoulder but we've got market share capture opportunity by having a full offering there not just Tendon Seam together with our legacy portfolio, but the combination of Tendon Seam and Regenitin.

49:03 So you put those things together, Gillian, it's fair to say that we've got opportunities to accelerate. Those are baked into the guidance that we provided. And as I said in response to, I think it was Hassan's question, as we think about midterm, the growth drivers and the trajectory in movement sports remain largely intact. Coming now to trauma, we've done pretty nicely with trauma over almost three years now, right? And early in our 12-point plan journey where we were suffering mightily for lack of supply and trauma, Once we addressed our supply challenges there, we've been able to drive nice performance within trauma. So we've got effectively the product portfolio, particularly now with the launch of pelvic plates, we've got a full offering within plates and we've got the commercial execution to go with it.

50:05 What we are doing, though, is you've got two peers, two of our peers, larger peers that comprise roughly 80% of the market who have product launches on their own, right? And so we've got a very good offering. I think we are very competitive from a product standpoint and commercial standpoint. But you expect to have some level of trialing activity as those players launch into the market. So you're seeing some impact within that. But as we call that IM nails, we've got a new offering there that's doing quite nicely for us. So it's a competitive space. There's more than any time you have as I responded in connection with Veronica's questions, you've got multiple players launching products. You're going to have share trades and you're going to have quarters up and down.

50:51 But fundamentally, though, we've got the product portfolio, we've got a team that's executing against that portfolio, and we feel good about where we're positioned there.

51:02 Thanks a lot.

51:04 Sure. Thank you, Julien. Our next question is from Jack Reynolds-Clark from Morgan Stanley. Your line is now open. Please go ahead.

51:16 Hi there, thanks for taking the questions. Two for me also, please. First is on the orthopedics market. So could you quantify, Deepak, the contribution from the software market in Q4 across hips and knees? And based on what you're hearing from your customers, what do you think is the driver of the software market? Is it demand issue? Is it supply issue? What's the driver there? And when would be your estimate of a return? And then on Landmark, how, if you appreciate it's very early days, but how is the launch tracking versus your expectations? And following up on Veronica's question earlier, how are you specifically managing the trade-off between set availability and supporting growth? Obviously, I appreciate the one set kind of solution, but kind of the planning piece, how are you managing that?

52:08 Kind of taking lessons from Catalystem. Thank you.

52:12 Great. Thanks for the questions, Jack. So in terms of ortho market, this group will note that historically have been loath to comment on the market in the U.S. because we've had performance issues and our wiring of orthopedics was not kind of where it was such that we had great data independently from which to make comments. That has changed, I would say, starting and beginning in the earlier part of this year. I was more open to making comments about the market from our own data sets. Obviously, we look at third party data, we look at what our customers say are big hospital chains and everything else. So we track all of those things. But in terms of what we can see from our own account base, from our own teams, I've been much more able to comment on the market based on the quality of kind of the data, the insights we're able to generate.

53:06 and in fact last quarter I had called a softer market because we had seen it in our own set of numbers so and we're seeing that today when we look at kind of our stable base of surge in customers what they're doing and we know that they're not they're either not trying competitive products or you know they've had vacations or absences or other type of temporary factors when we look at that stable account base we absolutely see the impact of Thank you for joining us. and many other players within the system observe on what they experience.

53:59 And there again, I'm speaking now based on what others have commented rather than what we see from our own account base. But there certainly seems to be an impact of insurance, insurance premiums going up, the impact of ACA, disenrollment, those things having an impact on patients wanting to get We've seen or heard reports of inflation weighing on patients and their willingness to undergo procedures. Again, those are from third-party sources, not necessarily from our data. But the impact is real, and we've called that out in Q3, and I signaled that actually last quarter as well.

54:52 In terms of Landmark, it's early, very early days, right? There are 100 cases in. So it's hard to say that we're on track. We're on track to the early phases of launch, but that's not saying a great deal. But I am very, very pleased with the experience of Landmark in real world. And we're now at 100 cases in. If there were issues, you would start to see them, right? And we're not. In fact, surgeons... are very, very pleased with what they're seeing. And that does augur well for the uptake of landmark kind of down the road. The way we're approaching this is In contrast to Catalyst STEM, where we deployed those in competitive situations, with Landmark, we're going to have to do a mix, right?

55:39 There are clearly surgeons that we talked to today who are not Smith and Nephew surgeons, who are looking forward to Landmark. They've heard it, they've experienced it in various contexts in a lab or what have you. and so there's a high level of interest among competitive surgeons so we know that there is there's pent-up demand for this and there's some unique uh features that landmark has that none of the other uh platforms in the market do particularly the combination of landmark and corey right so we know that this competitive interest we also know that in our current uh situation uh particularly for journey users that who want to adopt cementless we don't have a good solution for them so we are going to have to prioritize are our current customers who do want to adopt a cement list. So we are going to need to have a mixed strategy there.

56:32 And we've got it thought through in terms of how we recycle, and all the rest of it. Thank you, Jack. Our next question is from Ryan Zimmerman from U.S.

57:26 Bancorp BGI. Your line is now open. Please go ahead.

57:32 Thank you, and thank you for squeezing me in. It's good to be on the call now that we've covered you guys. So maybe I just want to start with maybe talk about skin subs for a minute. I mean, the market is taking longer to adjust to the changes from Medicare. We can all see that. How are you thinking about repositioning your skin substitute business for the changes in Medicare reimbursement here in the U.S.? How long do you think that'll take as you sit here today to maybe focus primarily on inpatient only? And then just as a follow up to that, you know, can you talk to us about kind of where you're at in terms of stand till recovery? I know you saw some recovery, but you did have some distributor dynamics and inventory dynamics that had impacted you in the first half.

58:19 Thank you.

58:21 Hi, Ryan. Thanks for the question. With Skinsubs, we had guided the market for an impact of $20 to $40 million in terms of trading profit impact for the year. We're navigating within that quarter toward the upper end of that range, but we had contemplated a range of scenarios, and it's fair to say we're tracking within the scenarios that we had modeled. So that's the good news of it. We're tracking well within that. Having said that, as you rightly observe, the adjustment of the market to new reimbursement or the new reimbursement scheme has taken longer than expected. There's friction in the system, particularly around billing, so how the market is adapted to new ways of billing.

59:09 That noise seems to have I don't want to say subsided. I don't hear quite as much as before, but it's not exactly steady state there either. So there's absolutely the impact of administrative burden that's weighing on this. There's also inventory in the channel just because of the level of utilization in the in the chronic segment. But we continue to see players getting squeezed out of the market. And related to that, we've always maintained the clinical unmet need is there. I believe CMS recognizes that. and I think we're well positioned over the long term to cater to that need. Just to ground everyone though, in terms of our mix of business, we never had much exposure to the mobile segment.

1:00:00 That, as you know, is the most impacted out of this, right? And so we didn't have great exposure there and we continued to kind of do okay as some of that volume migrates into the outpatient setting. We've got good presence in that segment. Our current portfolio, where the market we had called for roughly 90% kind of ASP hit, we were more like around 10% or so with our mix of products, and that's in line with what we're seeing today. um in terms of volume we had expected to see some level of volume impact as well and we're seeing is roughly 10 in terms of volume impact that over time i think that'll adjust um but it's fair to say given where we're positioned today i think it'll be softer as we go into 20 20 27.

1:00:51 obviously with the start of a new uh calendar year uh there's a bit of a reset right whereas in this year The calendar reset, new reimbursement went into effect, and so too did a new mechanism, new administration for how the procedures get billed for and paid. By a year into this now, start of 27, there should be players that are more adapted to this. But having said that, I think it will be slower into 2027. But longer term... We do think that the market is there. We're well positioned within it. You talked about the surgical channel. That's been growing nicely at near double digits, and we've experienced that within our book of business as well.

1:01:39 And so we're positioned there. In terms of Santal, there are a couple moving pieces here. One is inventory, as this group knows. Because that runs through distributors, that business is lumpy, quarter to quarter, and that remains so as well. But we also had called out the impact of prior authorizations on this. and we continue to navigate that impact. We didn't call out anything in particular. I think Q4 is set up for a positive quarter for us relative to our Q3 was for Santal. So all indications are that we will deliver to that. So year on year, while there'll be some impact of prior odds, we are navigating through that picture is the headline for Santal.

1:02:36 Thank you, Deepak. I'll leave it there in the interest of time. Thank you. Thank you, Ryan. Thank you, Ryan. Our next question is from Kane Slutskin from Deutsche Bank. Your line is now open. Please go ahead.

1:02:55 Morning, guys. Just a quick follow-up just on the strategic review. Sorry to come back to it. But just during that process with J&J, Just wondering how much did you think about sort of past precedents in the sector? You know, Zimmer Biometh is obviously a good example when considering a sort of strategic type. You know, arguably, it wasn't a great precedent, I guess, for large scale Thank you for the question.

1:03:48 What you should expect from us is rigor in our thinking, rigor in our analysis, and deep thought across all aspects of a combination like this. And I cannot emphasize enough the level of rigor, the level of thought that's gone into it. Obviously, we're informed by experience. Everyone in the industry knows about the precedence within orthopedics. We are eyes wide open on it, but also not limited by one data point or two data points. So it's important to keep that in mind. That said, the potential combination was not just about bringing two ortho businesses together.

1:04:34 It's an important piece of it, of course, and it would have been transformative for the industry. That said, The merit of the case was actually combining the ortho businesses and having a high growth sports business and a growth platform, a scaled growth platform in Boone. So it's actually a med tech company that has important characteristics of leading businesses with category leadership potentially across all sub-segments in which the combined company would have been. So the merit of the case was actually across all of the businesses in which we were present, not just in orthopedics. That said, as we indicated, There were serious discussions.

1:05:26 Those discussions have terminated. But in all the calculus before we reached out to J&J, there's quite a bit of work that we did on not only the strategic merit, but where we were going to deliver and create value from this combination, where the synergies were, and exactly how we were planning to deliver those synergies. Those were all important considerations. that went into our outreach.

1:05:57 Okay thanks and it would be fair to say that perhaps in an enlarged group you might sort of run the risk that your sort of let's call it your jewel in sports medicine gets somewhat lost in a much sort of larger author business.

1:06:14 I think I'll rather than get into a specific there Kane I'll just When I say there was rigor and there was comprehensive thought that went into this, you can imagine that we didn't just forget about the other businesses. There were important considerations that went into how we analyzed the situation, how we assessed the strategic fit, and where the synergies were going to be. So I'll leave it at that, but you can imagine there was a lot of thought and rigor. All

1:06:43 right. Thanks, Eric.

1:06:45 Sure thing. Thank you, Kane. Our next question is from Katelyn Roberts from Canaccord Genuity. Your line is now open. Please go ahead.

1:06:59 Hi, thanks for taking the questions. You know, just to start, you noted, you know, quarry was strong, maybe speak to where the growth was concentrated globally. And then how are you thinking about quarry demand with lower market growth in Hipsanese in the U.S.? And then just for PartyFuel, launching in Europe, speak to the competitive and the regulatory reimbursement environment there and how the launch is going and how you're preparing the team and the market for the CPT code to go into effect here in the US in a couple of months.

1:07:34 Got it. Corey, it's a little bit hard to hear, particularly the second question, but I think I got the gist of it. In terms of Corey, as Pierre highlighted, This was our strongest Q3. But as we've noted in previous calls, the traction we're getting with Corey, we are pleased with. The uptake within the ASC is great. We're placing a little bit above It's been geographically very nice uptake in Europe and in parts of Asia in addition to the US. So Cori has been performing very, very well for us across geographies and in a range of settings, ASCs and in hospitals.

1:08:27 The strategy we're deploying there, we're not following a place first strategy. We're placing Cori where there's urgent interest in adopting it and integrate it into our workflow. So one of the measures we look at is how Coris are being utilized and where we place them, more than half of the knee cases end up getting done robotically, which is a nice number and tracks very nicely with what some of our other peers have reported. And when I look at the overall mix of our business across our installed base, we're now into the upper 30s, or in the 30s, I should say, in terms of robotically enabled procedures, which also tracks very nicely with where the market is. And when you parse that against our market share, The data at this level of resolution is kind of hard to come by, so you have to interpolate it. But bottom line, we are at least holding our share, if not placing a little bit above our share. So very nice things in terms of what we're seeing in Cori.

1:09:34 One of the things we've done right through this period is we've maintained our investments in orthopedics. We've been in a challenged position, but actually in terms of R&D, we have invested very significantly to build out Cori. We've now got the third generation of Cori, which is the Cori XT, which is a modular platform that allows us to bring Cori functionality to all joints, shoulder, hips. and these. And as you'll remember from a couple of quarters ago, we brought unique robotic planning and execution capability for shoulder. We're a small player within that, but when you look at our offerings with Corey, we're a handheld form factor. It's very, very well suited for shoulder. We've got some unique differentiation there.

1:10:20 And on the knee side, I've talked a lot about hips. I won't belabor the point, but on knees, actually, which is the only platform that can do image-based and image-free. Previously, on the image-based, we had MR-based planning. By the end of this year, we'll actually have CT-based planning on Cori as well. With NEIS, we've got image and image-free, MR and CT. We can do revisions and we can do primary NEIS. and we've got a digital tensioner that allows us to do soft tissue balancing before we cut bone. That's a phenomenal set of features on Cori which makes it actually, we'll confirm the numbers for you, but in terms of Cori placements, we are not number four, although we are a number four player within orthopedics and you can verify that through third party sources.

1:11:15 So I'm very pleased with where we are and actually with Landmark As important as Landmark is, the combination of Landmark and Cori is what we are most excited about. And so back to the commentary around it. Yeah, we've lost some ground here. We're backs against the wall a little bit in the U.S. But actually, as we look into 2027, particularly in the back half of 2027, it will be the start of a new chapter for us in recon in the U.S. And Cori is an important part of it. And then back to your CPT-1 discussion. I assume you meant for Agility C. That part of it acoustically didn't come through, but that's the only thing we've got CPT-1 code for us. There, again, it's already going now.

1:12:03 We'd say we're tracking maybe a little bit behind where the deal model had us when we originally acquired CardiHeal. But actually the pipeline we've got of surgeons who are interested based on the evidence, based on the reimbursement that's coming through, quite a nice pipeline. So we're looking forward to actually coming out the year pretty strong with the GLC. So we'll plan for us to report on progress. Thank you, Ketan. Our last question today is from Charles Weston from RBC.

1:13:07 Your line is now open. Please go ahead.

1:13:11 Hello. Thanks for taking my question. I'm just trying to think about the phasing for US orthopedics next year. You've got your landmark cementless launching Q2, and you said it's the same set as cemented, so you'll probably have had the opportunity to sort of seed the market already, right? that head start flow through to a proper inflection in sales in Q3 or are we more thinking Q4, Q1 because of the protection for existing customers and having to place them with journey customers and then the other aspect of phasing you've talked a lot about the loss of some high volume customers can you tell me when that headwind expires like which quarter has that will those headwinds expire please

1:14:00 Yeah, Charles, I mean, you've got the cemented and cementless backwards. It's cementless that we've launched now and cemented that happens in Q2. I assume that was a Freudian slip or a slip of some sort. So, look, I think conceptually what you say is true. You deploy an instrument set with cementless in an account and as Landmark launches cemented, then you bring that to bear in account. But where we're deploying and so on. So, when we replace Journey Cemented in that account with Landmark Cemented, you're replacing, in effect, one of our platforms with another.

1:14:53 There's some impact there revenue-wise, but that's not the big thing. What you want with cemented plus cementless, you're actually now able to go to one of our surgeons who don't want to go through this transition. That's Journey and Landmark and would rather wait until they've got the full solution with Landmark and then they would convert. So really, operationally, the way that you would see this happening is when you have the full platform and then you can go to one of our surgeons. And equally, when you go to a competitive surgeon, that's even more true, right? So you're going with a full solution to a competitive surgeon who believes in the merits of what Thank you so much.

1:16:01 So much as I would like the thing to be true where you're getting a running start, you'll have some. But the reality is in terms of phasing, this is the back half of 27. And by the way, that was contemplated within RISE. But within RISE, we had anticipated holding our ground in ortho through 26. And obviously we've given up ground through the first three quarters of the year.

1:16:31 Thank you. And just the annualization of the customer losses, the high volume.

1:16:35 Oh, yeah. Sorry. Sorry. I forgot about that part of your question. So most of it was in Q1, a little bit into Q2. So post-Q1 is when you should start to see the annualization. Thank you. Yeah. Thank you, Charles. We currently have no further questions so I will hand back to Deepak for some closing remarks.

1:17:06 Great, I think we can leave it here. Really appreciate everyone's questions and engagement and we look forward to coming back to you and updating you on how Q4 went and also importantly how we're set up for the mid-term. So thank you everyone. Thank you. This concludes today's Smith and Nephew's Q3 2026 trading report. Thank you for joining, you may now disconnect your lines