Summary of Smith & Nephew Capital Markets Day 2025 Company Overview - **Company**: Smith & Nephew (NYSE: SNN) - **Industry**: Medical Technology - **Event**: Capital Markets Day 2025 - **Date**: December 08, 2025 Key Points and Arguments New Strategy: RISE - Smith & Nephew introduced a new strategy called RISE aimed at achieving 6%-7% organic growth and 9%-10% trading profit growth over the next three years [3][4][21] - The strategy focuses on reaching more patients, innovating to enhance care standards, scaling through strategic investments, and executing efficiently [22] Financial Targets - Expected free cash flow to reach $1 billion by 2028 [4][35] - Return on Invested Capital (ROIC) projected to improve to 12%-13% by 2028 [4][35] - Trading margin expanded from 17.3% in 2022 to at least 19.5% in 2025 [19] Market Position and Growth Potential - Addressable market exceeds $50 billion, growing at approximately 6% [7] - Smith & Nephew is the second-largest player in the global Sports Medicine market valued at $7 billion and the second-largest in the global wound market worth $13 billion [7][9] - The company has a diversified portfolio with over 50% of revenues from the U.S. and nearly a third from developed international markets [9] Product Innovations - Key products include REGENETEN for tendon repair, AGILI-C for cartilage repair, PICO for negative pressure wound therapy, and CORI for robot-assisted orthopedic surgery [25][26] - More than 75 product launches in the last five years, contributing significantly to revenue growth [39] Operational Improvements - Implementation of a 12-Point Plan to address operational inefficiencies, including closing five manufacturing facilities and improving inventory alignment [12][14] - Transition to a simpler business unit structure to enhance accountability and decision-making [15][16] Focus on Cash and Cost Management - Achieved an 8% reduction in central costs and initiated a $200 million savings program [17] - Aiming for gross cost benefits of $325-$375 million, with significant savings expected from manufacturing and procurement [18] Innovation and R&D - Continued investment in R&D, maintaining around 5% of revenue, with plans to increase investment in 2026 [38] - Focus on two key innovation platforms: MTEC (musculoskeletal technologies) and biologics, aimed at enhancing surgical outcomes and patient care [40][42] M&A Strategy - Strategic focus on high-returning, high-growth opportunities, with recent successful acquisitions like CartiHeal [29] - New leadership in corporate strategy to drive M&A efforts aligned with the company's strengths [29] Patient-Centric Approach - Emphasis on improving patient outcomes and experiences through innovative products and technologies [55] - Commitment to addressing unmet needs in healthcare, enhancing the quality of life for patients [56] Additional Important Insights - The company aims to increase patient reach from 15 million to 20 million by 2028 [23] - The sports medicine market is valued at $6.6 billion, with a focus on minimally invasive procedures and rapid recovery [57] - Smith & Nephew has a strong track record of innovation, with many products becoming industry standards [58] This summary encapsulates the key points discussed during the Smith & Nephew Capital Markets Day 2025, highlighting the company's strategic direction, financial targets, market position, product innovations, operational improvements, and commitment to patient care.

Financial Performance & Targets - The company aims for a 12-13% Return on Invested Capital (ROIC) and over $1 billion Free Cash Flow (FCF) by 2028[11] - The company anticipates a 9-10% Trading Profit Compound Annual Growth Rate (CAGR) and 6-7% Organic Revenue CAGR[11] - The company's 12-Point Plan has led to approximately a 300 basis point increase in ROIC, roughly a 14x increase in FCF, and about a 220 basis point increase in Group trading margin[53] Market Position & Strategy (RISE) - The company is well-positioned in attractive markets valued at approximately $50 billion, with a growth rate of 6%[13] - The company's strategy, RISE (Reach more patients, Innovate to enhance the standard of care, Scale through strategic investment, Execute efficiently), aims to elevate the company[57] - The company aims to reach 20 million patients by 2028, an increase of 5 million from the current 15 million[63] Segment Performance & Innovation - In Sports Medicine, the company holds a 25% global market share with a business valued at $1.6 billion in 2024[152] - In Advanced Wound Management, the company holds a 13% global market share in a $13 billion market[14, 255] - The company has launched 78 new products between 2021 and 2025, with over 50% of revenue growth coming from products launched in the last five years[98] Orthopaedics Turnaround - The company is implementing Ortho360 to drive efficiency and profitability in Orthopaedics[83, 383] - The company plans to reduce the number of product families in Orthopaedics to drive greater efficiency[386] - The company is addressing historical overproduction in Orthopaedics, aiming to align supply and demand and improve inventory health[393]

Financial Performance - The company reported underlying revenue growth of 50% in Q3 2025, consistent with H1[8] - Total revenue for Q3 2025 reached $1501 million[13] - The company is raising free cash flow guidance from over $600 million to around $750 million[10, 33] - The company maintains its 2025 trading margin guidance of 190-200%[33] Business Segment Performance - Orthopaedics revenue reached $577 million, with underlying growth of 41%[14, 17] - Sports Medicine & ENT revenue was $469 million, reflecting underlying growth of 51%[14, 21] - Advanced Wound Management (AWM) achieved revenue of $455 million, with underlying growth of 60%[14, 27] Regional Performance - The US market grew by 55% with revenue of $789 million[14] - Emerging Markets grew by 54% with revenue of $265 million[14] - Other Established Markets increased by 39% with revenue of $447 million[14] Key Growth Drivers and Outlook - The company expects ongoing improvement in US Recon through the 12-Point Plan, along with continued strong performance in Sports & ENT (excluding China) and AWM[34] - The company anticipates approximately 150 bps growth headwind from China[34] - Innovation, including products like REGENETEN, CARTIHEAL, and ALLEVYN CC, is expected to drive future growth[35, 39]

Financial Data and Key Metrics Changes - The company reported revenue of $3 billion in the first half, reflecting a 5% underlying growth compared to the same period in 2024, with reported revenue up 4.7% [22][24] - Gross profit was £2.1 billion, resulting in a gross margin of 70.5%, a 40 basis point increase from the prior year [24] - Profit grew 11.2% to £523 million, with a margin of 17.7%, up 100 basis points [25][32] - Free cash flow increased over 500% to £244 million, with expectations to exceed £600 million for the full year [36][38] Business Unit Performance Changes - Orthopedics grew 4.1%, while Sports Medicine and ENT also grew 4.1%, with underlying growth excluding China at 9% [23] - Advanced Wound Management grew 7.1%, with notable contributions from bioactives and single-use negative pressure platforms [19][20] - The robotics segment in orthopedics saw a growth of 39.8%, reflecting strong placements in the U.S. [13] Market Performance Changes - The U.S. market grew 8.7%, while other established markets grew 7.4%. Emerging markets saw a slight decline of 0.2%, but excluding China, they grew by 12.2% [7][8] - The company expects the headwinds from China to ease in the second half of the year as distributor destocking reduces [10][39] Company Strategy and Industry Competition - The company is focused on maintaining a higher growth trajectory, with 75% of growth in H1 coming from products launched in the last five years [44][46] - The 12 plan aims to enhance operational efficiencies and drive accountability, with a target of £325 to £375 million in savings from 2023 to 2027 [30][31] - The company plans to launch new products and expand its offerings in robotics and sports medicine, enhancing its competitive position [45][49] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year growth targets despite uncertainties, including tariff impacts and market conditions [4][53] - The company anticipates a step-up in margin in the second half, driven by operational savings and easing headwinds from China [27][38] - Management highlighted the importance of innovation and product launches in sustaining revenue growth [43][44] Other Important Information - The company announced a $500 million share buyback program for 2025, funded by operational efficiencies and cash flow [5][37] - Inventory management has improved, with a reduction in days of inventory to 506 days, aligning with the company's focus on operational efficiency [32][34] Q&A Session Summary Question: Is there upside to the 5% revenue target for the full year? - Management feels good about guidance for the full year, acknowledging both positives and negatives affecting revenue [51][52] Question: Can you provide details on margin guidance and the potential for achieving the upper end of the margin range? - Management expects a step-up in margin in the second half, with operational savings and tariff impacts balancing out [53][59] Question: What is being done to address the softness in U.S. knees? - Management noted a focus on higher volume accounts and portfolio rationalization, which may impact top-line growth but improve margins [54][56]

Financial Data and Key Metrics Changes - The company reported a revenue of $1.6 billion for the quarter, reflecting a 6.7% underlying growth and a 7.8% reported growth, aided by a 110 basis point tailwind from foreign exchange [5][21] - Gross profit was £2.1 billion, resulting in a gross margin of 70.5%, which is a 40 basis point increase from the prior year [23] - Profit grew 11.2% to £523 million with a margin of 17.7%, up 100 basis points [24] - Trading cash flow increased by 70% with almost $250 million of free cash flow in the first half [4][33] - Earnings per share grew 37% to 33.5¢, and adjusted earnings per share grew 14% to 42.9¢ [31] Business Unit Performance Changes - Orthopedics grew 5.5% underlying, with total reconstruction robotics growing 5.2% [7] - Sports Medicine and ENT grew 5.7% in the quarter, with joint repair growth at 8.4% [13] - Advanced Wound Management saw growth increase to 10.2%, driven by a rebound in bioactives [16] - Trauma and extremities grew 4.4%, with the ATOS growth contribution steadily increasing [12] Market Performance Changes - The US market grew 8.7%, while other established markets grew 7.4% [6] - Emerging markets declined by 0.2%, but excluding China, they grew by 12.2% [6] - The company expects the headwind from China to ease in the second half of the year [6][8] Company Strategy and Industry Competition - The company is focused on maintaining a higher growth trajectory, with a target of 5% growth for the full year [50] - A $500 million share buyback is planned for 2025, funded by operational efficiencies [4][35] - The company is undergoing a transformation plan aimed at improving operational efficiencies and margin expansion [49] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year margin guidance of 19% to 20%, despite uncertainties related to tariffs [3][36] - The company anticipates a step-up in margin in the second half, driven by cost savings and reduced headwinds from China [36] - Management noted that the impacts of volume-based procurement in China are expected to ease [6][36] Other Important Information - The company has implemented a zero-based budgeting approach, targeting gross run rate savings of £325 to £375 million from 2023 through 2027 [29] - Inventory management has improved, with a reduction in days of inventory to 506 days [32] Q&A Session Summary Question: Is there upside to the 5% revenue target for the full year? - Management feels good about guidance for the full year, noting both positives and negatives in the outlook [50][52] Question: Can you walk us through the bridge in H2 margin? - Management expects a step-up in margin in the second half, with various factors influencing the margin guidance [61] Question: What is being done regarding US knees? - Management highlighted sequential improvement in US orthopedics and discussed efforts to refocus on higher volume accounts [54][56] Question: What are the drivers of operating savings in H2? - Savings are coming from procurement, warehousing, distribution, and other areas, with visibility on achieving these savings [76] Question: What is the outlook for inventory levels? - Management expects continued improvement in inventory levels, particularly in orthopedics, with good progress noted [92]