H1 2026
Filed Aug 14, 2026Strong H1 profit growth, on-track to meet trading profit, free cash flow and ROIC guidance despite softer revenue growth
H1 revenue growth was 4.6%, while underlying revenue growth was 2.3%, below the company’s expectations. Trading profit rose 8.1%, trading profit margin improved 60bps to 18.3%, and full-year trading profit, free cash flow and adjusted ROIC guidance were maintained, but full-year underlying revenue growth guidance was reduced to around 4% from around 6%.
Key metrics
as reported| Metric | Value | q/q | y/y |
|---|---|---|---|
| RevenueGAAP | $3,097 million | – | 4.6% |
| Underlying revenue growthnon-GAAP | 2.3% | – | – |
| Underlying revenue growth on an average daily sales basisnon-GAAP | 3.1% | – | – |
| Gross profitGAAP | $2,196 million | – | 5.0% |
| Gross profit marginGAAP | 70.9% | – | 30bps |
| Cost of goods soldGAAP | $(901) million | – | – |
| Selling, general and administrative expensesGAAP | $(1,598) million | – | – |
| Research and development expensesGAAP | $(150) million | – | – |
| Operating profitGAAP | $448 million | – | 4.3% |
| Operating profit marginGAAP | 14.5% | – | – |
| Trading profitnon-GAAP | $566 million | – | 8.1% |
| Trading profit marginnon-GAAP | 18.3% | – | 60bps |
| Profit before taxationGAAP | $380 million | – | 5.0% |
| TaxationGAAP | $(77) million | – | – |
| Effective tax rateGAAP | 20.3% | – | – |
| Tax rate on trading resultsnon-GAAP | 20.3% | – | – |
| Attributable profit for the periodGAAP | $303 million | – | – |
| Basic earnings per ordinary shareGAAP | 35.6¢ | – | 6.2% |
| Diluted earnings per ordinary shareGAAP | 35.2¢ | – | – |
| Adjusted earnings per sharenon-GAAP | 47.7¢ | – | 11.0% |
| Cash generated from operationsGAAP | $605 million | – | 6.9% |
| Net cash inflow from operating activitiesGAAP | $450 million | – | – |
| Capital expenditureGAAP | $(190) million | – | – |
| Free cash flownon-GAAP | $231 million | – | (5.2)% |
| Net debtother | $3,019 million | – | – |
| Adjusted leverage rationon-GAAP | 1.8 | – | – |
| Leverage ratio using closest equivalent IFRS measuresGAAP | 6.0 | – | – |
| Q2 revenueGAAP | $1,597 million | – | 2.8% |
| Q2 underlying revenue growthnon-GAAP | 1.6% | – | – |
Segments
| Segment | Revenue | q/q | y/y |
|---|---|---|---|
| H1 Sports Medicine & ENTGrowth reflected momentum in Sports Medicine Joint Repair and Arthroscopic Enabling Technologies, while ENT declined. | $1,017 million | – | 10.2% |
| H1 Sports Medicine Joint RepairGrowth was supported by REGENETEN, Q-FIX KNOTLESS All-Suture Anchor and CARTIHEAL AGILI-C. | $574 million | – | 12.8% |
| H1 Arthroscopic Enabling TechnologiesQ2 performance was driven by WEREWOLF FASTSEAL 6.0 and the service business. | $340 million | – | 10.7% |
| H1 ENT (Ear, Nose and Throat)Q2 decline reflected actions in China to reduce channel inventory ahead of the expected VBP process. | $103 million | – | (3.6)% |
| H1 Advanced Wound ManagementGrowth in Advanced Wound Care and Devices was offset by declines in Advanced Wound Bioactives. | $867 million | – | 2.6% |
| H1 Advanced Wound CareGrowth was driven by the foam portfolio led by ALLEVYN COMPLETE CARE. | $398 million | – | 8.8% |
| H1 Advanced Wound BioactivesRevenue was affected by reimbursement-rule changes for skin substitutes and a soft quarter for SANTYL following a strong Q1. | $263 million | – | (7.7)% |
| H1 Advanced Wound DevicesQ2 performance included double-digit growth from LEAF and strong Emerging Markets performance from PICO and RENASYS. | $206 million | – | 6.2% |
| H1 OrthopaedicsUnderlying revenue declined 0.1%, with weakness in Knee Implants offset by growth in Hip Implants, Other Reconstruction and Trauma & Extremities. | $1,213 million | – | 1.7% |
| H1 Knee ImplantsUS Knee Implants remained affected by portfolio and capital discipline and a market shift toward cementless offerings. | $492 million | – | (1.8)% |
| H1 Hip ImplantsGrowth outside the US was led by POLAR3 and performance in Japan following the CATALYSTEM launch. | $326 million | – | 4.3% |
| H1 Other ReconstructionQ2 growth reflected the comparator period and contract mix, alongside double-digit growth in CORI Surgical System installations globally. | $68 million | – | 5.3% |
| H1 Trauma & ExtremitiesQ2 performance was driven by EVOS Plating System, IM Nails and double-digit growth from AETOS Shoulder System. | $327 million | – | 4.0% |
| H1 USGrowth was constrained by Orthopaedics and Advanced Wound Bioactives. | $1,591 million | – | 0.4% |
| H1 Other Established MarketsPerformance was led in Q2 by Canada and Australia & New Zealand. | $958 million | – | 6.7% |
| H1 Emerging MarketsPerformance included double-digit growth from China. | $548 million | – | 14.8% |
| Q2 Sports Medicine & ENTRobust growth was driven by the differentiated portfolio, new product launches and recent acquisitions. | $527 million | – | 10.0% |
| Q2 Advanced Wound ManagementPerformance reflected Bioactives headwinds and strong comparative periods in Bioactives and Devices. | $456 million | – | (0.7)% |
| Q2 OrthopaedicsThe decline reflected US Knee Implant issues ahead of launches, temporary US Hip Implant headwinds and strong comparisons. | $614 million | – | (0.2)% |
| Q2 USThe decline reflected Orthopaedics and Advanced Wound Bioactives. | $816 million | – | (1.2)% |
| Q2 Other Established MarketsGrowth was led by Canada and Australia & New Zealand. | $489 million | – | 4.0% |
| Q2 Emerging MarketsPerformance included double-digit growth from China. | $292 million | – | 13.7% |
FY 2026 and H2 2026 outlook
- RevenueFull year underlying revenue growth of around 4%; second half underlying revenue growth in the range of 5.0% to 5.5%; second half revenue growth in the range of 5.1% to 5.6%; full year revenue growth of around 5.2% based on exchange rates prevailing on 31 July 2026
- NoteAround 8% trading profit growth excluding acquisitions
- NoteAround $1.3 billion trading profit post-acquisition of Integrity Orthopaedics
- NoteAround $800 million free cash flow
- NoteMore than 10% adjusted ROIC excluding impact of Integrity Orthopaedics
- NoteThe net year-on-year impact of tariffs is anticipated to be broadly neutral to trading profit
- NoteThe skin substitutes headwind is expected to be towards the upper end of the previously guided $20 to $40 million range
- NoteAround $200 million total efficiency savings for the year
- NoteIntegrity Orthopaedics is expected to be marginally dilutive to trading profit in 2026, broadly neutral in 2027 and accretive from 2028
Capital returns
- A $500 million share buyback was announced on 6 May 2026 and is to be completed within twelve months.
- $216 million of the share buyback had settled as at 3 August 2026.
- The Group purchased 9,076,588 shares under the programme for a total cost of $137 million and had an obligation to purchase additional shares amounting to $113 million at 27 June 2026.
- The 2026 interim dividend was increased by 4.0% to 15.6¢ per share, or 31.2¢ per ADS.
- The 2025 final dividend totaling $205 million was paid on 27 May 2026.
- The 2026 interim dividend is payable on 6 November 2026 to shareholders on the register at the close of business on 2 October 2026.
What drove it
- H1 revenue growth included a 230bps foreign exchange tailwind, while Q2 revenue growth included a 120bps foreign exchange tailwind.
- H1 included 124 trading days, one fewer day than the equivalent period in 2025.
- Gross profit margin increased as price increases and manufacturing and procurement efficiency measures more than offset raw materials inflation.
- Trading profit growth was driven by a step-up in forecast efficiency savings, while tariff refunds fully offset the forecast tariff headwind in H1.
- The Group realised $130 million in efficiency savings in H1, including $50 million from 12-Point Plan and zero-based budgeting activities and $80 million from additional opportunities.
- Sports Medicine & ENT trading profit margin increased 160bps to 24.7%, supported by operating leverage from strong revenue growth.
- Orthopaedics trading profit margin increased 30bps to 13.0% as manufacturing savings, productivity initiatives and cost control offset inventory revaluation and softer revenue growth.
- The Integrity Orthopaedics acquisition was completed on 21 January 2026 for fair value consideration of $390 million.
Concerns
- Q2 underlying revenue growth of 1.6% was lower than the company anticipated.
- Advanced Wound Bioactives was affected by reimbursement-rule changes for skin substitutes, which drove declines in volumes and pricing in non-surgical settings.
- SANTYL delivered a soft Q2 following a strong Q1.
- US Knee Implants revenue declined 7.2% in Q2, despite a modest improvement from Q1.
- US Hip Implants revenue declined 1.5% in Q2 after four consecutive quarters of above-market growth, affected by delayed set deployments and a greater proportion of retentions versus competitive conversions.
- ENT revenue was reduced by China channel-inventory actions ahead of the expected VBP process.
- H1 free cash flow declined to $231 million because of higher capital expenditure, primarily for the new UK Wound factory and IT upgrades.
- Net debt increased to $3,019 million from $2,759 million at 31 December 2025.
What to watch
- Second-half underlying revenue growth guidance of 5.0% to 5.5% and the expected step-up from the 2.3% H1 underlying growth rate.
- Stabilisation in US skin substitutes and the expected return of SANTYL to growth in the third quarter.
- US Knee Implant momentum from LEGION MS set deployments and the expected third-quarter 2026 launch of the cementless LANDMARK Knee System.
- The expected return to growth in US Hip Implants through increased CATALYSTEM set deployment.
- Continued Sports Medicine growth, including REGENETEN and FASTSEAL.
- Delivery of a further $70 million of savings in H2, including the additional $50 million step-up in forecast efficiency savings.
- Free cash flow performance in H2, which the company expects to be stronger versus H2 2025.
- The Q3 Trading Report scheduled for 6 November 2026.
Balance sheet and cash flow
- Cash and cash equivalents were $754 million at 27 June 2026, compared with $557 million at 31 December 2025.
- Net debt was $3,019 million at 27 June 2026, compared with $2,759 million at 31 December 2025.
- The Group had access to committed facilities of $4.7 billion.
- Borrowings were $3,588 million and net debt excluding lease liabilities was $2,822 million at 27 June 2026.
- No debt is due for repayment in the second half of 2026. A $350 million US Corporate Bond and $140 million of private placement debt are due for repayment in the first half of 2027.
- Net cash inflow from operating activities was $450 million, compared with $396 million in H1 2025.
- Net cash used in investing activities was $(411) million, including $(221) million of acquisitions, net of cash acquired, and $(190) million of capital expenditure.
- Net cash inflow from financing activities was $157 million, compared with net cash used in financing activities of $(217) million in H1 2025.
- The Group issued a corporate bond of €500 million in June 2026, bearing an interest rate of 4.25% and repayable in 2038.
Analysis
Smith+Nephew delivered H1 revenue of $3,097 million, up 4.6%, but underlying revenue growth was 2.3% after a 230bps foreign exchange tailwind. The period had one fewer trading day than H1 2025, and average daily sales underlying growth was 3.1%. The H1 result was led by Sports Medicine & ENT, where revenue increased 10.2%, while Advanced Wound Management grew 2.6% and Orthopaedics grew 1.7%. Q2 underlying revenue growth slowed to 1.6%, which the company said was lower than anticipated.
Mix remained a major differentiator. Sports Medicine Joint Repair rose 12.8% in H1 and Arthroscopic Enabling Technologies rose 10.7%, with REGENETEN, Q-FIX, CARTIHEAL AGILI-C, WEREWOLF FASTSEAL 6.0 and service activity cited as contributors. Advanced Wound Bioactives declined 7.7% in H1 and 12.5% in Q2 because of the skin-substitute reimbursement reset and softer SANTYL sales. Orthopaedics underlying revenue declined 0.1% in H1, with Q2 pressure in US Knee Implants and US Hip Implants.
Profit growth exceeded revenue growth. Gross profit increased 5.0% and gross profit margin improved 30bps to 70.9%, as pricing and manufacturing and procurement efficiencies more than offset raw-material inflation. Operating profit increased 4.3% to $448 million, while trading profit increased 8.1% to $566 million and trading profit margin rose 60bps to 18.3%. The company attributed the trading-profit outperformance primarily to a step-up in efficiency savings and said tariff refunds made the H1 net tariff impact broadly neutral to profit growth.
Cash generation remained positive but investment weighed on free cash flow. Cash generated from operations increased 6.9% to $605 million, while free cash flow declined to $231 million from $244 million because capital expenditure increased to $190 million, largely for the new UK Wound factory and IT upgrades. Net debt was $3,019 million at 27 June 2026, compared with $2,759 million at 31 December 2025. The company also executed its capital-allocation framework through a $500 million share buyback and a 4.0% increase in the interim dividend to 15.6¢ per share.
Management reduced full-year underlying revenue growth guidance to around 4% from around 6%, reflecting the soft first half, while forecasting 5.0% to 5.5% underlying growth in H2. It maintained guidance for around 8% trading profit growth excluding acquisitions, around $1.3 billion trading profit post-Integrity Orthopaedics acquisition, around $800 million free cash flow and more than 10% adjusted ROIC excluding Integrity Orthopaedics. The operational test for H2 is whether Sports Medicine momentum, skin-substitute stabilisation, SANTYL recovery, US Knee product launches and higher CATALYSTEM deployment can deliver the expected revenue acceleration while additional efficiency savings preserve profit guidance.
Management, verbatim
The Group navigated some challenges in the second-quarter. Sports Medicine continued to perform strongly, but Orthopaedics was impacted by temporary headwinds in US Hip Implants and ongoing challenges in US Knee Implants ahead of new product introductions. We also saw softer-than-expected performance from SANTYL within Bioactives, although we expect the product to return to growth in the third quarter.
Deepak Nath, Chief Executive Officer
The changes implemented through our 12-Point Plan have made the Group more resilient and better able to respond to such challenges. As a result, despite slower-than-expected revenue growth, we delivered a strong first-half profit performance primarily driven by a step-up in forecast efficiency savings.
Deepak Nath, Chief Executive Officer
Importantly, that improved resilience gives us confidence in our ability to deliver our full-year guidance for trading profit, free cash flow and return on invested capital. The updated revenue guidance reflects both the soft first half and our expectation for a step-up in the second half.
Deepak Nath, Chief Executive Officer
Not in the filing
stated, not guessed- Prior-quarter comparisons for H1 revenue, profit, margin, EPS, cash flow and segment revenue were not reported.
- GAAP net income attributable to equity holders was reported as attributable profit for the period; a separately labelled net income line item was not reported.
- Forward guidance for gross margin, operating expenses and tax rate was not reported.
- A prior outlook section was not provided, so no actual-versus-prior-guidance comparison is included.
- Q2 operating profit, net income, EPS, cash flow and free cash flow were not reported.
- Q2 product-category revenue for all H1 product categories was not reported for the full half-year comparison beyond the disclosed Q2 tables.
AlphAI analysis generated from the company’s SEC earnings filing (Form 8-K Item 2.02, or Form 6-K for a foreign private issuer). Every figure was cross-checked against the filing text; consensus estimates, price targets and share-price reactions are not shown because they are not in the filing. AI-generated research, not investment advice.