SNN

The company’s 3-year RISE strategy is progressing across all four core pillars, with key operational highlights:

• Expand Access to Technologies
  • Completed the first knee and shoulder procedures using the new CORI XT handheld robotics platform
  • Launched ALLEVYN COMPLETE CARE and RENASYS EDGE in Europe
  • Received FDA approval for TESSA, the first industry spatial surgery platform for arthroscopic procedures
• Drive Pipeline Innovation
  • Launched 9 new products through H1 2026, putting the company on track to hit its full-year target of 16 new launches
  • Key new launches include FLOW FLEXTEND (Sports Medicine & ENT), EVOS Pelvic (Orthopaedics), and LEAF 3.0 (Advanced Wound Management)
  • Four high-growth "Big Four" platforms anchor Sports Medicine: REGENETEN (20% H1 growth), the Integrity Orthopaedics shoulder acquisition (performing ahead of expectations), CARTIHEAL AGILI-C (first international cases completed, adoption building ahead of 2027 reimbursement), and newly approved TESSA
  • Robotics development: CORI XT on track for Hip execution launch in H1 2027; LANDMARK, the company’s most robotically-enabled knee implant system, is on track for Q3 2026 launch
• Scale High-Priority Growth Opportunities
  • The acquisition of Integrity Orthopaedics closed and integration is progressing ahead of plan, strengthening the company’s leading shoulder repair portfolio
  • Sales force expansion is underway for PICO single-use negative pressure wound therapy
  • The new advanced wound manufacturing facility in Melton, UK remains on track to open in 2027
• Drive Operational Excellence & Productivity
  • Cumulative efficiency savings from the 12-point plan and zero-based budgeting reached $330 million by H1 2026, hitting the lower end of the 3-year target 1+ year ahead of schedule
  • Total 2026 efficiency savings are now guided at $200 million (up from $150 million prior), driven by manufacturing network optimization, procurement, sales and marketing, and corporate support functions; no unplanned new facility closures are included, with savings coming from improved utilization of existing footprint
  • Group day sales inventory (DSI) fell 40 days excluding instrument set reclassification, led by a 62-day DSI reduction in Orthopaedics, improving capital efficiency
  • The Suzhou, China advanced wound manufacturing facility won the Shingo Prize for operational excellence

• Full-year 2026 underlying revenue growth guidance is revised down to ~4% (from prior higher guidance), with second half growth expected in the 5% to 5.5% range. Growth will step up sequentially from Q3 to Q4: Q3 growth is expected to be similar to Q1's ~3.1%, while Q4 growth is expected to hit 6% to 7% (just north of 5% on an average daily sales basis), driven by easier comparables for skin substitutes, the LANDMARK launch, and one extra trading day.
• All non-revenue 2026 guidance is maintained: ~8% reported trading profit growth excluding M&A, ~$1.3 billion total trading profit including marginal dilution from the Integrity acquisition, ~$800 million free cash flow, and return on invested capital (ROIC) above 10%. The increased efficiency savings and broadly neutral net tariff impact (from refunds) fully offset the impact of lower expected revenue.
• The full-year trading profit headwind from U.S. skin substitute reimbursement changes is now expected to land at the upper end of the prior guided $20 million to $40 million range, which was already incorporated into original guidance.
• The 2026 net year-on-year tariff impact is now expected to be broadly neutral, compared to prior guidance for a $60 million headwind. Around $50 million in refunds have offset the forecast tariff drag, with the remaining $15 million headwind shifted to 2027.
• The company reaffirmed its mid-term target of 6% to 7% annual underlying revenue growth, expecting 2026's softer performance to be temporary as headwinds resolve and new product launches drive acceleration in 2027 and 2028.

For Q2 2026, total reported revenue was $1.6 billion, with 1.6% underlying growth and 2.8% reported growth. Half-year total revenue was $3.1 billion, with 2.3% underlying growth and 4.6% reported growth.

1. Sports Medicine & ENT: Grew 8.6% underlying in Q2, contributed a trading margin of 24.7% (up 160 bps year-on-year). Growth was broad-based across regions, with double-digit growth in core products including Q-FIX KNOTLESS, REGENETEN, FASTSEAL, and ARIS COBLATION/HALO wands. China inventory reduction ahead of VBP implementation created a minor headwind, but full-year profit headwind from VBP is guided at $15 million to $20 million.
2. Advanced Wound Management: Declined 2.1% underlying in Q2, with a trading margin of 22% (down 10 bps year-on-year). Breakdown:

• Advanced Wound Care: Grew 3.7% underlying, led by U.S. ALLEVYN and emerging market growth; ALLEVYN COMPLETE CARE launched successfully in the U.S. and Europe during the quarter.
• Advanced Wound Bioactives: Declined 12.7% underlying, driven by strong prior-year Q1 distributor pull-forward for SANTYL, new payer prior authorization requirements for some SANTYL doses, and 2026 CMS reimbursement changes for skin substitutes. The full-year trading profit headwind from skin substitutes is now expected to land at the upper end of the prior $20 million to $40 million guided range.
• Advanced Wound Devices: Grew 3.8% underlying, with double-digit LEAF growth and strong PICO/RENASYS performance in emerging markets. U.S. acute care RENASYS sales remained soft.

1. Orthopaedics: Declined 1% underlying in Q2, with a trading margin of 13% (up 30 bps year-on-year). U.S. Knees remained weak due to a partial portfolio gap in cementless offerings, though sequential improvement was seen with growing adoption of LEGION MS (now 20% of total LEGION mix, up from 15% in Q1). U.S. Hips were impacted by a tough year-ago comparator and delayed CATALYSTEM instrument set deployment, though CATALYSTEM underlying growth remains strong. Ex-U.S., Hips saw growth from the Japan CATALYSTEM launch; Trauma & Extremities delivered overall solid growth with strong demand for EVOS IM Nails and AETOS shoulder implants; Other Recon grew 0.8%, with double-digit global CORI robotic system deployments. Trading profit for H1 2026 was $566 million, up 9% excluding M&A, with a trading margin of 18.3% (up 60 bps year-on-year).

• U.S. Orthopaedics has a near-term portfolio gap in cementless knee implants, limiting share participation in the fastest-growing segment of the market until the full LANDMARK portfolio launch in 2027.
• CMS 2026 reimbursement changes for skin substitutes have created greater-than-expected administrative friction in non-hospital care settings, leading to slower market adaptation, continued volume pressure, and a full-year headwind at the upper end of the guided range.
• New prior authorization requirements for some SANTYL doses have created prescription friction in H1 2026, impacting near-term growth even as underlying end-user demand remains healthy.
• CATALYSTEM Hip launch faced slower-than-expected instrument set deployment in Q2 due to variability in required instruments for different surgical approaches and legacy customer platforms, creating a temporary growth headwind.
• Voluntary inventory reduction in China ahead of VBP implementation creates a near-term growth headwind for Sports Medicine & ENT in the region, with expected full-year profit pressure of $15 million to $20 million.
• Recent competitor product launches in the Trauma plating segment have created near-term quarterly growth volatility as surgeons trial new offerings.
• U.S. acute care RENASYS negative pressure wound therapy has underperformed due to a narrower portfolio of specialized dressings compared to competitors, leading to segment deceleration.
• U.S. elective procedure volumes face minor headwinds from increasing patient out-of-pocket costs and ACA subsidy changes, contributing to a modest overall market slowdown.

Q: What are the core drivers of softer than expected U.S. Orthopaedics performance, and what gives the company confidence in the H2 2026 growth step-up? What supports the 6% to 7% mid-term growth target after 4% growth in 2026? / A: The main driver of softness is company-specific, not broad market weakness: the company has a partial portfolio gap in cementless knee implants, limiting participation in the fastest-growing knee segment until the full LANDMARK launch in 2027. U.S. Hip softness was a temporary blip from delayed CATALYSTEM instrument set deployment (due to variable instrument needs for different customer platforms) and a tough year-ago comparator. The H2 growth step-up will come from expanding LEGION MS adoption in knees, the LANDMARK launch, SANTYL normalization, continued steady Sports Medicine growth, and sequential improvement in skin substitutes. The mid-term 6% to 7% target remains intact because 2026's headwinds are temporary: the full knee portfolio will be in place by 2027, multiple new growth products (CORI robotics, AETOS shoulder, TESSA, Big Four Sports platforms, new wound care offerings) will ramp, and current headwinds from reimbursement and regulation will normalize.

Q: Why have you been able to identify an extra $50 million in 2026 efficiency savings so quickly, and are these cuts at the expense of long-term growth? How much of this is pulled forward from 2027? / A: Most savings come from improved utilization of the existing manufacturing footprint, not unplanned factory closures, plus additional gains from procurement, sales and marketing, and business support streamlining. The company is deliberately cutting back-office and back-office overhead to reinvest savings into front-line growth: net headcount has increased over the past year, with all growth focused on sales, medical affairs, and customer support in high-priority Sports Medicine and Wound Care, and R&D investment has been fully protected to support the pipeline. Only a small portion of the extra savings is pulled forward from 2027; continuous improvement and new process simplification/automation (enabled by ERP and AI tools) are creating sustained new savings opportunities, so further 2027 savings are expected.

Q: What is the outlook for U.S. skin substitutes after slower-than-expected market adaptation to new CMS reimbursement rules, and could weakness bleed into 2027? / A: The largest impact is concentrated in the mobile care setting, where the company has limited exposure; the biggest friction has come from slow adoption of new billing processes and AI-based claims systems in physician offices and hospital outpatient departments. The company is now tracking towards the upper end of the original $20 million to $40 million headwind range, which was already incorporated into guidance, and sequential improvement from Q1 to Q2 has been seen. All administrative friction is expected to settle out by the 2027 calendar year, and the company is well-positioned with clinically proven products priced to fit the new reimbursement threshold, with its OASIS product line already growing strongly. Only 2026 performance is impacted, with no expected material weakness bleeding into 2027.