Good day, and welcome to the Q3 results 2014 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Olivier Bohuon. Please go ahead.

Hello, everyone. This is Olivier Bohuon, and I'm here with Julie Brown, and welcome to our third quarter results presentation. I will cover the highlights and then hand over to Julie to take you through the numbers. I will then come back to discuss a few business updates. As usual, we'll take questions at the end. So we delivered underlying revenue growth of 3% this quarter. After adjusting for currency and impact of ArthroCare, this represents a reported growth of 12%. The quarter positively reflects our strategy to rebalance towards higher gross franchises and geographies. Within our higher-growth franchises, we grew 11% in Sports Medicine Joint Repair, 8% in Trauma & Extremities and 14% in Advanced Wound Bioactives. In our higher-growth geographies, our emerging market business, we grew at 20%. The integration of our recent acquisition, ArthroCare, is progressing well. In our lower-growth franchises, U.S. Recon has grown at or above the market rate for second consecutive quarter, driven this quarter by standout growth in US Hips. We have more work to do in Europe in Wound, which partially offset this performance, but we have measures in place. Trading profit was $246 million, giving a trading profit margin of 21.4%, a decrease of only 20 basis points over last year despite the headwind from U.S [indiscernible] -- We achieved EPSA growth of 14%, mainly reflecting the addition of ArthroCare, the positive operational performance and the result of a lower tax rate. I will spend time later in the presentation updating you on our progress on developing a mid-tier offering for the emerging markets and some exciting developments at Bioventus, our associate in the biologics area. This slide captures our underlying growth in the quarter. On the left-hand side, geographically; and on the right, by product franchise. The full quarter of…

Thank you, Olivier. Good morning, good afternoon, ladies and gentlemen. So turning to the Q3 results. I will focus on 4 items: Revenue and profitability analysis by business segment, the income statement, cash flow and an outlook for the final quarter of 2014. My first agenda item is an analysis of revenue growth by business segment. And as a reminder, the numbers I'll run through include the results from our acquisition of ArthroCare. Overall, group revenue in the quarter grew 3% on an underlying basis. By division, Advanced Surgical Devices grew by 4% and Wound Management declined by 1% compared to the same quarter last year. Acquisitions added 9% to our growth rate, driven by ArthroCare and ASD and our acquisitions in Brazil. Currency was neutral for the group in the quarter. And finally, in reported terms, group revenue growth was 12%. This slide shows revenue by geography and business segment. Growth rates are shown in the lower section. Turning to ASD. Revenues were $816 million in the quarter, representing a worldwide growth of 4%, the same growth rate that we saw in Q2. In the U.S., all franchises contributed towards our growth. The Enabling Technology segment within ASD was enhanced by our radio frequency Coblation portfolio acquired with ArthroCare. And in emerging markets, our ASD products grew by 21% driven by China, the Middle East, India and Turkey. Looking at the right-hand side of the chart, our Wound sales declined by 1%. In the U.S., where we declined 8%, we saw a significant impact from the distribution hold on RENASYS, our negative pressure wound product. Excluding this, U.S. AWM was up 4%. Bioactives was strong worldwide with 14% growth in the quarter, albeit this included some stocking from a leading wholesaler. And in emerging markets, we grew strongly at…

Thank you. So 2 of the macro trends we see in our industry are the growth potential for the emerging market and the desire for models which offer access to health care at a lower cost. In the established market, we are addressing this in reconstructions through our Syncera offering, which I talked about last quarter. This quarter, I'd like to expand on how we are accelerating our development in the emerging market. So today, we already have a potential business in emerging markets and, I think, clear strategies to drive this further: one, focus on those countries which offer the greatest opportunity; two, in the countries we choose, ensure we have a more direct relationship with our customers, surgeon, nurses and other health care professional; and three, and finally, offer these customers the right products. So over the last 5 years, we have created a business with revenues well over $600 million, growing in the high-teens percentage. The proportion of our group revenue from the emerging market, as you know, has doubled to 15% today, and we aspire to 25%. The important message for you is that virtually all of this growth has come from bringing premium product to high-tier customers. Essentially, to the very wealthy. However, we believe that there is a mid-tier, made up of the wealthier middle class, which will grow faster and, ultimately, will become much larger than the high-tier market. Addressing this mid-tier markets requires a different commercial model and often different products than the high tier. Why? Because customers are demanding good quality product at a significant -- significantly lower prices. This is achieved through a combination of manufacturing and design efficiency, a different service model to customer and a more streamlined sales and marketing organization. Taking this into account, we quickly concluded…

[Operator Instructions] And our first question comes from Ed Ridley-Day from Bank of America.

I have 2 questions. Firstly for Julie, you highlighted, obviously, the strong progress on your margin efficiency program, your cost efficiency program. Could you perhaps give us a little bit more color on how we should expect or how you are thinking about the -- what you are willing to allow to drop through and to what extent additional investments are exceptions? And related to that, in view of the recent HP802 data that was slightly disappointing, could you update us on how much you're spending on that program? And potentially, your views on the investment in that project. That will be my first question.

Okay. We can take that now, Ed. I'll take the first part about the margin progression and the drop-through, and I think Olivier wants to pick up on HP802. So in terms of the margin progression. As you know, the group optimization program that was recently announced will deliver over $120 million of benefit. This program is absolutely on track. It's doing incredibly well. We're expecting approximately 50% of those benefits to come through on an annualized basis in 2015. What we decided to do with the business is -- I mean, this will drop through to the bottom of the -- to the bottom line. It's a question of the timing. It will drop through over time. The only thing that Olivier and I want to do is, where we've got clear opportunities and we've called out in the presentation 2 examples of that: Syncera and the mid-tier. Where we've got clear selective opportunities we may reinvest some of those funds. But essentially, we are very committed to improving the margin of Smith & Nephew. The company is capable of delivering more than it currently is in terms of the margins, and we will deliver it. And Olivier will move on, I think, with HP802.

Yes, Ed. Thank you. First of all, let me -- HP802 is not dead. We are reviewing the full program. We're reviewing the reasons of why the U.S. clinical has not shown the expected results. So for the moment, it's not a question of saving money of the R&D program but more of investigating of the reasons of the failure of the U.S. clinical. As you maybe know, we still have the clinical ongoing in Europe. So at this stage, what -- that's what I can tell you, Ed.

No, that's fair. And my second question regards more your investment. Olivier, you've said on recent calls, you're obviously aware -- after ArthroCare, you are looking for new investment opportunities externally, and areas that you've highlighted historically are wound care and extremities. In light of the recently announced merger of the 2 leading extremity companies, can you give us your view on that market? And whether -- or if you're comfortable saying whether or not you were interested in those assets?

Well, I think it's a great question. But as I said before regarding the merger of Tornier and Wright Medical, we do not see that as a threat, as we didn't see the acquisition of Synthes 3 years ago as a threat for our business. Actually, the point -- we believe -- and I think that's always the same problem here. We believe we have a right portfolio. We believe we have the right coverage, and we believe that we have the right execution. So now, is big beautiful? It's a big question. I mean, and I cannot give you more than what I said. So the answer is, no, we don't fear that. And as usual, in this type of merger, we believe we can get some opportunities because of business disruption at the start, and then we see it as neutral.

That's absolutely fair. But I mean, can you say whether you were interested, potentially, given that one or other of those assets would have significantly enhanced your position?

Well, we are always interested in good opportunities. I don't think that this one was an opportunity for us. So we are still interested in extremities, in high-growth businesses, in trauma, in wound care also, Share of Voice in the U.S., as I've said many times. But this was not something which was on our agenda.

Our next question comes from Michael Jungling of Morgan Stanley.

I have 3 questions, please. Firstly, on the Hip and Knees, you mentioned some sort of growth initiatives in Europe after the growth rates are not so inspiring. Could you perhaps provide some more details on what initiatives you're looking at and how much impact the packaging issue was for you in the quarter? Question #2 is on RENASYS. Can you sort of update us on the dialogue with the FDA on how the 510 ( k ) submission is going and whether you've had any issues with the FDA on the filing? And then thirdly, on -- also on Negative Pressure Wound Therapy, in the last quarterly guidance, you said $30 million of lost sales in the second half, I think in the third quarter we lost $9 million. Is it realistic to assume that we'll lose another $20 million of sales in the fourth quarter, given that Q3 should've been a full quarter with your announcement of a, well, not recall, but a [indiscernible] on 23rd of June, meaning, it should have been a full quarter?

Thank you, Michael. Well, I will answer 2 first questions and then Julie will answer the third question on the impact of the RENASYS. On RENASYS, actually, talking about this, you ask if we have any issue with the FDA with the 510 ( k ). Actually, we don't. And we expect the approval to happen, as we said, in Q2 -- during Q1, Q2 of 2015. Regarding the Hip and Knee, well, I'm not going to disclose the value of the RNT -- RT-PLUS knee quality issue that we have had. What I can tell you is what's significant, and it has been a problem in a few countries, mainly in Germany where the product is very important. Regarding what we do there, well, in Europe, I said that in my presentation. I'm not extremely happy with the dynamic that we have in Europe. And again, you certainly know that 2 countries in Europe, mainly U.K. and Germany, are representing more than 40% of the business of the company. And so we have to re-dynamise the business here, it's not a question of portfolio; it's a question of execution and drive of the management. So what we have done, we have, as you know, reorganized. This is done. It has been finalized in the last quarter. And we have now a single managing director in place. And I tell you, I think they have a pretty clear view of what has to be done. If you take Wound Management, we know that we have to refocus on the growth brand like ALLEVYN Life, like PICO, which has an amazing dynamic and I think that there is huge potential. Regarding the Hip and Knee, it's -- mainly, the issue is in Germany. I've been there, actually, 2 weeks ago and I've met the team. I've discussed with our leaders. I don't think we have a portfolio issue, again, here at all. So it's just a question of execution. And I'm very confident that you will see in the next quarters a new dynamic in Europe. The new head of Europe is extremely dedicated and extremely seasoned. And I'm confident that we are putting in place the right measure to change the trend in Europe. Julie, on the...

Yes, so thanks for the question, Michael, relating to RENASYS. So we're exactly -- in the third quarter, we're exactly on the estimate that we made in terms of the loss of RENASYS sales. So we said $30 million for the second half, and it's approximately half of that has come through in the third quarter. So in terms of device, the device growth rate or the device decline in the quarter was minus 17%. If we adjust for the U.S. RENASYS, then we would have grown 10%. The reason for that is we're still -- as you know, the RENASYS issue was only in the U.S. They were still getting strong growth in Europe. We're still getting growth in emerging markets, and we've also got PICO and VERSAJET in that category that are driving strong growth. So that may explain the figures that you're looking at.

Great. And maybe a follow-up -- a question to the U.S. Hips and Knees. Very strong, and I suspect they were influenced by your DTC campaigns. Are they continuing in the fourth quarter? Or will they expire and, therefore, we should expect a slowdown in your U.S. Hip and Knee business?

Okay, Michael. We are very happy with the dynamic of Hip and Knee, as you rightly said. I think that it shows, first of all, that the -- again, we have innovative products. We have the right portfolio and the campaign that we have done this year are working extremely well. Now as you know, it's not the campaign we have to stop and go. So the program of the future campaign is not yet defined. But we believe there is still very good tailwind in the -- in both, actually, in both implants, Hips and Knees. So I'm very confident to see significant results in the next quarter, despite the fact that last quarter, as you know and as a Julie has said, a year ago was extremely high -- artificially high due to the Obamacare, in anticipation of surgery. So it was -- as you remember, we grew 11% on Knee in Q4 2013. So it would be a very difficult comparator.

Our next question comes from Veronika Dubajova of Goldman Sachs.

I will keep it to 2. My first one is just, Julie, on your commentary around 4Q. And I appreciate that you have tough comparisons, but I think the general industry consensus has been that you should still see some pretty good bolus of growth in 4Q from the deductibles issue in the U.S. And so I'm just wondering if you were seeing something else, because I think all of your competitors, as they reported, have been pretty consistent in sort of highlighting 4Q acceleration and utilization. So if you can share anything on that, that would be really helpful. And my second question is, you've been doing a terrific job with the gross margin, and I'm just wondering if you have any guidance for the rest of the year and if we should still be thinking about gross margins being broadly flat in the medium term, or do you think you might be able to do a bit better than that?

Okay. So first of all, the question on the U.S. market. We certainly saw that -- we certainly saw this bolus, as you quite rightly mentioned, in Q4 last year, where the U.S. growth rate in recon peaked over the 8% level. The previous year, it went up to 4%. So I think what we're saying is we don't know. We think last year may have been an exceptional year. Certainly it seemed high at 8%. We expect some sort of seasonality to occur. I think that's the consensus in the market. But will it be at the same level as 2013? We're not sure at this stage, I think, Veronika, is the best answer to that. And certainly, as Olivier mentioned, we had an extremely strong Knee performance with 11%, as Olivier mentioned. So what we're saying, really, is just watch for the strong comparator that we've got there in ASD. Relating to your second question about the growth margin, there is price pressure, clearly, in our industry. We see around 3% to 4% price pressure in the recon business. And overall in our business, it's about 1% to 1.5%. So clearly, there is pressure on our gross margin in the business. Offsetting that, we have got a very, very compelling cost of goods improvement program that's led by our operations team. As you know, we are moving manufacture from the U.K. to China. This is the Wound portfolio. This is giving us significant cost benefit. And together with that, we're using procurement much more actively in direct spend, looking at the supplier channel to try and improve the cost of goods. So we are delivering in the order of -- on average, been delivering 3% cost of good improvements. This year, we're in the range of 3% to 4% cost of goods improvement. So I think overall, with say gross margins, we are being able -- we're able to offset the price falls with cost of goods improvement, and we expect that to continue for some time.

And Julie, if I just may follow-up on that. That was extremely helpful. Do you feel that the efficiencies that you're finding are consistent with your expectations? Or are you maybe tracking ahead of that so far? Are you finding new places to save, I mean, I guess, is my question.

Yes. I think we estimated around 3% cost of goods improvement. This year, it will be closer to 4%. So this year, certainly, we're very pleased with the performance. And -- but I think, expecting it to be around the 3% range is the right thing going forward on the gross margin.

Our next question comes from Matt Miksic of Piper Jaffray.

One follow-up on the Hip and Knee business in the U.S. The Hip performance was obviously very strong, and Knees were -- it maybe looked a little closer to market. But overlaying the Syncera initiative that you'd put into play, if you could comment maybe on whether we're seeing in these numbers any effect of that program? Whether you're -- you've seen an uptake on one side of the business versus the other, hips versus knees. Just any additional color as to what you've seen so far. And then I have one follow-up.

Okay. Thank you, Matt. I'm not sure I understood fully the question. So could you repeat what you want exactly? Because I'm not sure I have the answer for you.

Sure. Just wondering if you could comment on whether the numbers in Q3 reflect any notable contribution from Syncera at this point? Or on an anecdotal basis whether you've seen an uptick on one side versus the other.

Okay. Well, thank you. I'm sorry, I missed the Syncera point on this one. So on Syncera, no. The answer is absolutely 0. As you know, we are not in -- we are in pilot for Syncera at this stage. So it's marginal and do not have a significant impact on this. But I can tell you for the moment that we are growing exactly aligned to our plan on Syncera. Extremely happy with the pilot so far. So we'll come back to you, I mean, next year to give you more flavor of what is happening on Syncera. I want to -- the Hip and Knee dynamic as you've said, I think, is extremely good. The Hip, 6% growth, reflects also a BHR impact, which was significant this quarter. You remember that last quarter, we were saying that it was plateauing. And actually, we have seen a new drop in BHR. So excluding BHR, I think the Hip dynamic is even better.

That's great. And then one follow-up, maybe a more strategic question. You commented earlier on how you see or saw the extremities businesses that come -- are coming together, Wright and Tornier, and how they maybe were not the right opportunity for you in extremities, although you find that business interesting and attractive. If you could maybe just step back and give us a sense of how you see the Smith & Nephew Orthopedics and Sports Medicine, maybe Extremities over time business kind of fitting into the landscape. Because I think, the conventional wisdom is converging around this idea that big is better, scale matters, bundling is important in the future and I often -- it seems that you maybe see the world through a different lens. I'd love to get a sense of how you see yourself fitting in.

Yes. That's a good question, actually. And I think it's -- the way we -- at least, the way I look at the world, and I think that is something we share in the company is, again, big is not the answer. And especially in a business like reconstruction, where we think that the 2 levers of the growth will be in the future, not -- certainly, it's not the size. But as I said, we have to have one thing, which is we have the right portfolio. And then we have to have the right coverage of customers. On top of this, for me, the 2 big important thing that we have to keep in mind is, a, you have to have a disruptive research and development, bringing innovations on the market. Market innovation. Innovation is a product for which a payer will pay a premium. And second, to bring to the customers disruptive model. And I really believe that what we have done with Syncera is a good example of addressing a need, which is an unmet need. And I think Smith & Nephew is extremely agile and able to bring great innovations and great new models to the field and that's the way I look at the success tomorrow in the reconstruction. But certainly not because you are big, because that doesn't mean that you will bring more price [ph] in the market.

Our next question comes from Lisa Clive of Stanford Bernstein ( sic ) [Sanford Bernstein]. Lisa Bedell Clive - Sanford C. Bernstein & Co., LLC., Research Division: I have 3 questions. First, on price pressure. Julie just commented that it's about 3% to 4% for the Ortho business. It's definitely a notable step down from the 2-ish percent that perhaps the industry was talking about maybe 2 years ago. Do you think 3% to 4% is a sustainable level? Do you think it could get better? Could it potentially get worse from here? And also, just any commentary on pricing pressure differences between the major regions. Second question, on AWM in Europe, that being down, which was a bit surprising, as it sounded like Negative Pressure had a good quarter. So apologies if I missed it, but could you just give us a -- the specific growth rates for Negative Pressure in Europe versus traditional AWC in Europe? And on the back of that, could you explain what's going on with AWC? Whether this is transitory? Is it due to market share losses? I know you've talked about refocusing the organization. But I -- just getting a sense of whether it's market share or pricing pressure at the heart of it. And then -- and third, Olivier, as was discussed around Q2, around the AWC underperformance in the U.S., you mentioned this is a problem within your control and certainly a near-term focus. Is that business turning around? And perhaps, if you could comment on how quickly the AWC market is growing in the U.S. this year and when your division will reach growth -- market growth rates.

Okay, well, I think I will have -- I will need a full day to address your -- these questions, Lisa. But I will try to make it simple and short. Price pressure first. We always said 3% to 4%, so I was surprised to hear your 2%. That has never been mentioned in the past, at least from us. We have always said that the 3% to 4% price erosion in the established market was the trend. And it is a trend, and we believe it will remain as it is, at least for a while. Regarding the Advanced Wound Management in Europe, well, you have again here, a diversity of situations according to the country in Europe. But I can tell you that the Advanced Wound Care in Europe is going to recover. As you remember, we have had some issues at the start of the year. Most of the issues were linked to, despite a great portfolio, a lack of real focused sales force on the product which matters. And there was a lot of things. We also have the impact on the Advanced Wound Management of the RENASYS price, which is -- I'm sorry, the Negative Pressure, which is at a price which is very aggressively going down in some geographies. In Advanced Wound Care in the U.S., which is the third part of your question, yes, we have had different issues. Again here, we have had the problem of management. This has been solved. We are extremely confident that a turnaround of Advanced Wound Care will happen very quickly. We see the first results now start to move and move well. So again, I think you can expect to see a very strong recovery in 2015 in this business. As Julie said, we have, following the stop of RENASYS, reallocated our sales reps, but you don't reallocate a traditional Negative Pressure rep on a Wound Care without proper training. So we have been able to do this with the staff. So that's why it takes some time, but we see the movement and things are going on the right way. So in short, I'm confident that the European Advanced Wound Care business, U.S. Advanced Wound Care business will turn around very quickly.

Our next question comes from Alex Kleban of Barclays.

For the tax rate, could you just give more color on exactly where the improvements are coming from? And how much scope you might have to reduce the tax rate further once you get the additional 200-basis-point improvement. And then I have 2 more after that.

Okay. Thanks, Alex. In terms of the tax rate. First of all, I don't want to guide on the tax rate further out than I already have. I think the current year plus 2 years forward is enough to guide on the tax rate, largely because the tax environment is changing, and I don't want to predict further out than I have already. There's a major -- the major changes, clearly, some of this is confidential information. But what I can say is that we've embedded tax in Smith & Nephew much more now in -- when we're taking business decisions. So our tax always follows the business where we've got economic activities taking place in the business. But we're far more embedded now, I think, as a function in terms of where we place our intellectual property, where we place our manufacturing and our commercial strategy and execution. Clearly, there have been changes to the U.K. tax rate, and that benefited us. There's the U.K. patent [ph], which has benefited us. And also, we've got the ArthroCare acquisition, which has allowed us to look at overall -- the overall structure of the group. Net-net, as you know, I'm very pleased to say that from a history of a 30% tax rate for many years, we've delivered a 200-basis-point decline in 2 years, and we're on track to deliver another 150, 200 basis points in the next 2 years. So we're really pleased with the performance of this. Thanks, Alex.

Okay. Second question, then, on Bioventus. And just given the developments there, would you be maybe looking to divest the remainder that business at some point? Potentially, you could achieve a better valuation than when you first created it. Or should we just be thinking more about a much greater contribution from associates going forward?

Okay. Well, that -- at this stage, what we can say is we're very happy with what is happening with Bioventus. Happy that they have been able to pay back our debt. I think that the -- it's a better company now than what it was before. I think that what they have done, the focus on orthobiologics, the solid commercial performance that they have, the increased investments in R&D and now, the acquisitions of the BMP portfolio of Pfizer and the OsteoAMP makes this company extremely attractive. And so we are partners with [indiscernible]. And very happy to be partners. We're expecting benefit from the right growth products in the future.

Okay, fair enough. And then just last, but -- just in terms of acquisitions. And you mentioned that Wright Tornier was maybe not the right fit for you. But maybe stepping back on, just thinking about your deal pipeline and things you have been looking at, would your next move be something along the lines of the Healthpoint ArthroCare in terms of size? Or would it be just a combination of smaller bolt-on deals that would be maybe 1/3 or 1/5 or something like that of the size of Healthpoint or in ArthroCare?

I can't comment on that because, again, we don't have anything today in our hands that I can talk to you about. Again, size is not the part -- the problem here. I think what the problem is, that does not fit strategically and financially to our company. And that's what we are looking at. And again, we are looking at growth and market or growth at franchises. And we are looking actively on this. So now, will that be big? Will that be small? I cannot answer.

But would you be opposed -- let's say, you had 3 deals that were $300 million each. Financially, it wasn't an issue, all very good strategic fits. Would you go for all 3 at one time? Or would you be more thinking about not taking too many deals on at one time just given the integration challenges and things like that?

Alex, it depends. If it's 3 different deals in 3 different division, why not? But if it is 3 different deals in one single division, as you know, one of success of an acquisition is integration and the ability to integrate the company in our company. So as you can imagine, it's not possible to acquire 3 different companies with 3 different cultures at the same time. Do you have anything in mind? Or...

I'll send you an email, I guess.

Our next question comes from William Plovanic of Canaccord Genuity.

Great. Just -- I don't know if this is a new nuance or something that I've just picked up on, but you talked about your distribution strategy into the mid-tier segment of the market internationally, and needing to build a distribution channel to address that market. Does that change our thinking or your thinking on the amount of leverage that you're going to be able to bring down to the bottom line, of improving operating margins 100, 150 basis points per year going forward?

Yes, I think it's a nuance. My English is improving quarter-after-quarter, so that's maybe why I'm now able to explain that precisely. No, I'm kidding. It's just -- what I want to tell you, Bill, here, is that when you are in the mid-tier, you need to offer products at the right price to the middle class who cannot afford a high-priced product. Obviously, what we try to do is to optimize the middle part of the P&L and have a bottom line, which I -- as I said, is aligned to the mid -- to the emerging markets, which, by the way, is aligned more and more to the company margin. So we take all the levers possible. And one of them is distribution. We try to grow on web-based products, we try to simplify the short -- have short cut in the distribution circuit and so on and so forth. So we try to find everything. And by the way, this is different in every country. So that's why the mid-tier model is complex is because you cannot apply what you do in China, in South Africa or in South Korea. They are all different, so we optimize it. But net-net, we really minimize the SG&As in -- and that's why we can bring a very good bottom line in the mid-tier segment.

But I guess, as you go after these different distribution strategies, does this add cost to the P&L? I mean, because before if you would've sold that -- those products through your current distribution, it would have levered -- provided more leverage, I would have assumed.

Well, yes and no. Because again, the distributors are not distributing in the same type of centers and same type of customers. So you cannot ask a distributor of high tier to suddenly go in the mid-tier hospitals or third-tier hospital. That doesn't work this way. So you have to have a different distribution system, as what we have done in India, for example. That is what is happening in China. So this doesn't work the same way. So it's not at all the same type of distribution.

Okay. And then as we look at REGRANEX and we're kind of in our annualizing price increases. We annualized the deal. How should we think about this business as we move into 2015?

Well, REGRANEX business in 2015 should be a good business, a growing business. As I said, we are extremely happy with the relaunch of this product. So we are extremely encouraged for 2015 when we look at the REGRANEX development.

We will take our last question from Yi-Dan Wang of Deutsche Bank.

My question is related to the mid-tier segment that you discussed. So the first question is, in terms of pricing, can you give us some sense of how those products are priced relative to the high-tier products that you currently sell in those countries? The second question relates to infrastructure. If you could give us some idea of how much infrastructure that you've actually already built for the mid-tier and how much more there is to go. And then the third question is, can you comment on how you are positioned in the mid-tier segment versus all of your key competitors in the various product areas that you are addressing?

Okay. Well, good to hear from you. It's -- the price varies according to the ranges of product. But I can give you an idea, it's roughly 30%, 40% cheaper than what you can find in the rest of the high tier. Again, you cannot compare because the products are not the same. So you see, if you take the Hip in the mid-tier, it will be 30% to 40% cheaper than a high-tier Hip, but it's not the same product. So that's the first thing to understand. It's -- the idea is to be affordable for the mid-tier customer. Regarding infrastructure, we have built infrastructure in most of the big countries in the emerging market. The usual examples, we have built an infrastructure in China. We have built an infrastructure in South Africa, for example. We have built infrastructure -- we are building in South Korea, also. So we are developing all these important countries and with a pretty good pace, actually, now. And we use -- as I said, the -- it's really a different structure reporting to the head of the mid-tier, which is based in Dubai, the headquarter of our international operations. It's a light structure, it's a commercial structure, but they also work with the R&D. They work with the licensing department and so on and so forth. And they do not support the cost of the infrastructure because that is shared by -- sorry, shared -- financings shared, so it's really a commercial organization that we have, which is independent. Your third question was the mid-tier versus our competitors. I -- again, we don't have a lot of data on this, but what I can tell you is I do believe that we are certainly very advanced versus our competitors. I don't know any of our competitors having been in a position to develop its own R&D dedicated to the mid-tier. I don't know anybody having really worked on acquiring small hubs and small companies. I know that Stryker has acquired China -- in China, and so on. But in fact, it doesn't mean that they are mid-tier. They can be mid-tier in China, but they are not mid-tier globally. I think that this is where we are. And I tell you, it took us a while to build that and I really think it's a very big competitive advantage, understanding and looking at the growth and the dynamic of this mid-tier market in this geography. So I think this would be the last person, and you want to add anything?

I wanted a follow-up. So pricing, 30%, 40% cheaper. What about manufacturing, given that these are designed and presumably manufactured differently?

Well, again, as you know, the manufacturing costs are franchise-dependent. Some are headcount-dependent, some are more goods-dependent. I should think, Hips and Knees manufacturing is more due to the product and if you take Wound it's more of the people. So it varies a lot. So in any case, we try to optimize, and that's what I said before, so we optimize gross margin in minimizing the cost of manufacturing. Either because we're manufacture in lower-cost country when we can or because we optimize the cost of good of the product.

Okay. So effectively, the [indiscernible]

Emerging market [indiscernible] good model. It's a mix of good portfolio and good gross margin, which is a combination of many things, and a proper energy in management, which is extremely important to deliver what we can. Okay?

Okay. So the gross margin's a bit higher, but your SG&A is a bit lower. And overall, the EBIT margin is similar?

Exactly, exactly. Okay. That's the last question. Thank you very much for your questions, and I look forward to seeing most of you, I hope, at the Capital Markets event in a couple of weeks. So thanks a lot, and this concludes our session. Thank you.

That would conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.