Good morning, and welcome to Smith & Nephew 's First Half 2019 Results Presentation. I'm joined by Graham Baker, Chief Financial Officer; Simon Fraser, President of Advanced Wound Management; and Phil Cowdy. I'll start by sharing the highlights of our half year numbers, with 3.9% underlying growth and improved trading profit margin of 21.4%. Then Simon will give you an update on our Wound business globally, and in particular, on our acquisition of Osiris. Third, Graham will provide details of our updated guidance for the full year. So firstly, our results for the first half of 2019. We finished the half with revenue of $2.5 billion. That's 3.9% underlying growth and 1.8% reported. Growth at constant exchange rates and including the benefit of acquisitions was 6%. Our trading profit margin of 21.4% was 60 basis points higher than in the first half of last year, and adjusted earnings per share of $0.46 grew faster than revenue at plus 5%. Smith & Nephew is delivering on its commitment to accelerate our revenue growth and improve profitability, while at the same time, making important investments in our business. You've seen that in particular with our R&D spend increasing $15 million in the first half versus the first half of 2018. Based on our performance in the first half and our internal forecast for the remainder of the year, we've upgraded our full year revenue guidance to be in the range of 3% to 4% growth. We expect the strengths seen principally in our Sports Medicine franchise, Emerging Markets, and particularly China to continue into the second half of the year and beyond. Moving on to the revenue detail of the second quarter. Globally, we grew 3.5% underlying and 3.1% reported. The business continued to grow above the rates we saw in 2018,…

Thank you, Namal, and good morning, everyone. I joined the company six months ago. It has been fantastic and we've achieved a lot already. From the start, my goal was to build a stronger foundation, and equally important was to return the business to growth, focusing on a few key priorities: First, we implemented the franchise model, which enabled a new culture and mindset. Second, we made changes to the U.S. commercial organization by focusing on a portfolio solution. From the beginning of the year, we not only organized our sales force differently, we're now compensating them against our three priorities: Bioactives, negative pressure wound therapy and pressure injury prevention. Third, we also invested in the franchise with two acquisitions. And let me now talk about the first one, which is Osiris. As a reminder, Osiris is a company that, in 2018, delivered $143 million in revenue and grew more than 20%. They have a portfolio of regenerative medicine products, and two of these are skin substitutes specific to wound management, Grafix and Stravix. The integration process is going great and our new colleagues are fully engaged. Osiris brought a team of more than 300, and we're thrilled with the quality of the staff. And in fact, their Chief Scientific Officer is now the Vice President of Biologic R&D for the entire Smith & Nephew organization. Also, we are already realizing commercial synergies with their sales team starting to carry another skin substitute, OASIS, which was part of our existing portfolio. Osiris has allowed us to really rethink our growth strategy and raise the expectations from our Bioactives portfolio. Within this portfolio, SANTYL is a significant part, and market demand is stabilizing, supported by commercial partnerships and the expansion of our sales coverage to additional channels. REGRANEX was relaunched and…

Thanks, Simon. Morning, everyone. Starting with the income statement. Half year revenue grew 1.8% on a reported basis and 3.9% on an underlying basis, excluding the impact of foreign exchange and acquisitions. Trading profit grew by 5% to $532 million, and the trading profit margin rose to 21.4%. That's an increase of 60 basis points over the first half of 2018, reflecting savings in our APEX program, a small gain on our venture fund and an FX tailwind, partially offset by reinvestments in the business, including for growth in China and into R&D. Within the $15 million increase to R&D spend, I'd note that we also stopped a number of programs. So the growth in investment on our focused, high-impact projects was, in fact, larger still. Moving further down the P&L. Adjusted earnings per share growth of 5% in the first half was faster than revenue and in line with growth in trading profit. Basic earnings per share grew by 13%, primarily due to a $45 million credit, reflecting a recovery from our insurers in relation to metal-on-metal claims. The interim dividend of $0.144, in accordance with our customary formula, is 40% of the 2018 total dividend. Now turning to cash. We generated trading cash flow of $405 million in the first half, a 5% increase over the same period in 2018. It's also in line with the growth in trading profit. It means our cash conversion was stable at 76%. As you'll recall, lower cash conversion in the first half is normal, reflecting payments of year-end incentives in the first half, among other things. And as usual, we therefore expect a higher cash conversion in the second half than the first. Free cash flow of $275 million was $156 million above the prior year, principally reflecting lower restructuring, legal,…

Thanks, Graham. We're pleased with the progress we're making at Smith & Nephew and after the changes we made in our operating model in 2018. Solid revenue growth was accompanied by leveraging our P&L, and as Graham indicated, also making important investments to build a strong company going forward. We're pleased to raise our revenue guidance to the 3% to 4% growth range for the full year. Our strategy is progressing well, and our franchise organizations are working hard to further improve the performance of our existing portfolio. We're optimistic about our prospects going forward. And with that, let me now take your questions.

Perfect. It's Patrick, Bank of America. Just a couple for me. I'm curious on Brainlab, how the integration is going. Equally, some of those accounts that you thought you might be able to convert over time, if you still feel that there's a possibility to move them over to your side, I'd be interested to get an update there. Also looking -- you're already tracking towards the top end of your growth targets for the year on the top line. And I think the second half, you got a little bit of a trading day benefit. I know the comps get tougher, but is this a case of you don't want to get ahead of yourselves and you don't want to overpromise? Are there some moving parts we're not thinking about? Some commentary around that will be good. And then maybe just one final one. Obviously, you called out the increased M&A spend. Namal, I know when you joined the business, you commented that the products were already in a very good space. So is this a question of looking at new innovative areas or just trying to increase the gap to your competition further? How would you think about that from our perspective?

Thanks, Patrick. Great questions. First of all, Brainlab. It's early days since we actually closed the deal. The things that I would comment on, we did benefit from gaining some new R&D employees and software engineers, and the R&D teams have really communicated their excitement of working together. Very high-quality software organization, so that is exciting. From a commercial standpoint, the teams have already mapped out our opportunities with respect to that technology. And that, I'd principally say is, putting hip software from Brainlab onto an overall system from Smith & Nephew, which joins with our NAVIO knee, I think we're very excited about that for 2020 in particular. It takes a little while to put them on the same system. But overall, just really pleased. And I'd say the same thing about Atracsys. Again, particularly the technical staff have had very good first interactions, and commercially, we're talking about longer-term things on the camera systems. In terms of guidance. Look, we're a steady-as-we-go kind of story. We've -- we said we'd do certain things. We've done them. We've had very steady and improving growth. I don't get too wrapped up in individual quarters, but we do like to give you a progress report. We're probably a little bit ahead of our plans overall for Smith & Nephew. And I think that what you see from us now, we don't want to get off this track, I'll say that much, because we have very good trends. I really like what's happening on our Sports Medicine franchise. We've doubled our growth rates in our global Sports Medicine franchise, and we're accelerating. And I think that that's a very, very good business for us. Some great technologies and more launches to come. China. I mean, I think that the broad sector, there's been good reports of other companies also doing well in China. But there's good growth, and then there's over 30% growth. And so we're really pleased with over 30% growth in China. And again, we see that continuing. Great team there. Recently, I had a head of that region come in, and we had a great conversation with that overall executive. Great prospects going forward. And in terms of M&A, look, we've been very clear. We have strengths, and we're going to use our strengths, and that includes our balance sheet. Teams have been working very hard. Phil -- you may want to comment on this, Phil. But he's filled out his team. And I'm pleased with the quality of people we have in business development coming with industry experience. And equally, we evaluate a lot without acting on many things in reality. And that's our goal, is to really be thorough. And with that in mind, I hope we continue to find good things that complement Smith & Nephew's technology going forward. But we'll look at them from that dual lens, strategic and financial, with a lot of discipline.

David Adlington, JP Morgan. First question is just on Ortho, about Hips and Knees. We've got very different dynamics in the U.S. versus ex U.S. Maybe some color on the U.S. weakness and the strength ex U.S. And then secondly, just on that 3% to 4% growth profile. Do you think with the current portfolio you've got, is Ortho growing within that sort of 3% to 4%; Sports Medicine is ahead but we're diluting that -- with the current portfolio, can you get to north of the 4%?

First of all, our first goal is always to get the whole business growing faster. And so we look at every component. Quarter by quarter, again, I don't worry as much. In terms of our annual forecast for Orthopaedics, we believe we'll be ahead of market globally. I like the sequential improvement globally. The softness in the U.S., I think there's a couple of reasons that we see. We don't see that repeating. We see -- we've already looked at our current month. It's back to where we expect it to be. So overall, I'd say Ortho is going to be in good shape. We have growth product launches coming. I talked about the R&D investment. Actually, we started that last year, accelerating very specific projects, including dual mobility hip for Orthopaedics. That's going to be the big launch heading into the back end of this year and into next year. A big proportion of some of our competitors' hip products rely on that technology, which we haven't had available. And so being able to now have that will be great. So I see a good opportunity for us, one, for our Orthopaedics business, specifically as you talked about. But overall, again, first goal, get to market growth; second goal, get ahead of market. And we're on track and maybe slightly ahead of the track we had put ourselves on with those goals.

Kyle Rose from Canaccord. One question for Simon and then just another broader question on M&A. So Simon, you talked about the negative pressure opportunity in the U.S. I wondered if you could kind of frame out, what gives you confidence that you think the business is better suited to the first half of '19 and on a go-forward basis? And you talked about converting specifically some of the large hospital systems. I guess maybe talk about the sales cycle there and then what that opportunity can represent if you do term a contract in one of those hospitals. And then just from an M&A perspective, obviously you've got a full Ortho franchise. The Sports Medicine business particularly in the shoulder continues to do well. Just maybe if you could touch on your thoughts on the shoulder replacement market broadly and then if you view that as a portfolio gap and how attractive of a product that would be to fill.

So why don't you start with negative pressure?

Yes. Sure. So as a reminder, negative pressure in the U.S., which was the scope of the question, is $1 billion opportunity. We have a great portfolio and we have a service model that is essential in converting large delivery networks. And we've got a good value proposition and that's why we've already won a large IDN. And we're getting requests from other IDN. And the process, to answer your question, it's not a simple process because these IDNs want to conduct evaluation, and that in itself is a big undertaking. And we are equipped to do that. We are able to do that. To conduct this evaluation, you need to train a lot of clinician. So we are doing that, make sure that our products are appropriately used and make sure that the clinician love of our technology. And this is what's happening.

Something like 8,000 nurses trained just for that one...

Just for one conversion.

One IDN conversion, which is...

I believe that's both in the contracting and after, in the care, to make sure that it goes well in terms of the conversion of that account.

Yes.

But from my standpoint, I'm just thrilled to see that the team was able to nick that opportunity and get that engagement, and now we're starting to see the benefit in our numbers. And that will continue over time. So you asked about shoulders. Yes, it's a clear gap for us in our portfolio, but we're not really looking at individual opportunities in any kind of time horizon. But the shoulder, obviously, we do great in shoulder repair -- shoulder joint repair with both that -- our REGENETEN product, which is incredible and our anchors and now we're both also having a COBLATION Technology going into the shoulder. So on the sports and soft tissue side over there, on the arthroplasty side, this is one of the reasons we talk about the overall markets. We're not exposed to this -- a couple of fast-growing markets in extremities, and there are things that we'll look at over time. And again, with the right assets, we'd certainly be interested, yes.

Kit Lee from Jefferies. I just have two questions. I guess, firstly, just on your robotics sales. I think first half this has been fairly soft. Maybe can you just comment on the reasons behind this, whether customers are waiting for the new version or have you seen maybe some competitive pressure either from MAKO or the recently launched ROSA? And then the second question is to Simon. I think, just based on your time here so far, what's your view on the current landscape in Advanced Wound Care? I think Devices has done well; Bioactives seems to be getting in shape, especially with the Osiris acquisition; and just, what's your thought on the Wound Care franchise now? What do you think you can do to sort of get that back into a positive growth trajectory?

So Kit, great questions. Let me start with robotics. First of all, I don't think it's particularly slow. The way the numbers show up in -- we don't talk about numbers of units and these sort of things. We're pretty much right on track with what we expected for the asset that we currently have, and I think that the marketplace is going pretty much in a fairly steady way this year. Our investments are what we're excited about. We bought the Brainlab assets with purpose. We wanted to get hip onto our digital surgery and robotics platform with NAVIO. We made investments in robotic arms that aren't -- we're not going to have those available until next year. So we've just launched this month, NAVIO 7, which helps our system go a little faster. But we're most excited about our next-generation robot, which is about that big and fits on our sports tower and goes a lot faster because of those Atracsys' cameras that we bought. So our goals are being met at the moment in terms of our engagement in building our organization. We're a smaller robotic organization that we're building up, training our people and then building that pipeline of opportunities. And then as time passes, our assets get better. And our multi-asset strategy, I think, will really help us with our customers, engaging people in how we can improve surgery, clinical outcomes, and also from our standpoint, really support what are already fantastic implants. So that's what I'd say on robotics. And maybe, Simon, you want to comment on AWC?

Sure. Absolutely. So thanks for the question. So first, let me frame it as you did. So I've been six months within the company. Key priority was to return the overall franchise to growth, which we have done. AWC, we see an opportunity to do much better. It's a large market. We have a great portfolio. And I think we had a good value proposition combined with our entire portfolio. It's also a segment of the market that is largely driven by tenders, especially in the European market, and so I think we're -- what we're seeing is the time it takes to convert business through these tenders. And I'm optimistic about the future prospect.

You should mention, Simon, these European markets you talked about are actually we have our own Wound businesses in some of these markets a long time ago. But it's still, we have confidence that over time, we'll address those things. And in the quarter, I'd say, general destocking in Europe for consumables was a factor. But overall, again, longer-term, great markets to be. I like these markets. We have a couple of questions, I believe, on the phone. So I don't know how we take those, but we'll certainly move to the phone questions.

Your first question is coming from Michael Jungling from Morgan Stanley.

I was going to ask three questions, please. Firstly, on the corporate costs of $178 million, seems like a high number when you benchmark it against sales. What is within these costs? And is this where the corporate margin inefficiencies lie relative to some of your peers? Question number two, Hips and Knees. The exposure in the U.S., please, to the outpatient facility market and how you're thinking about the CMS proposed rule pushing more towards the outpatient market? And thirdly, on execution. And some of the challenges, I think, that your predecessor had experienced seem to continue. Developed markets, especially outside the U.S., remains poor; the Advanced Wound Management division, not particularly inspiring. And it's really the EM business which is providing the uplift. Are you feeling that it's more difficult to turn around Smith & Nephew when you first sort of came in as new CEO?

Michael, nice to hear your voice. I will start and then I'll let go Graham take the cost question. But let me start by Smith & Nephew. Smith & Nephew is an extraordinary company with incredible technologies, and we are in the process of changing the way we work. Our operating model is just one year in. And the progress we've made in, first, engaging new leadership right at the top of house, 2/3 of my executive leaders are new. I would go on to say that 50% of the people reporting to my executive leadership team are new in role in the last year. And Michael, what I'd suggest to you is that those kinds of changes are really important when you have long-term goals. And we're really pleased that we've been able to deliver good results while making important changes in our leadership and our operating model going forward. I think there's really good prospects for us to grow at and faster than markets over time and we're working towards that. So as I mentioned earlier in the call, I'm pleased with progress, probably ahead of where we thought we'd be at this stage in making these lifts and changes. But they're not small changes. In terms of Hips and Knees, people have described these markets in different ways. In an objective way, Smith & Nephew is growing faster than market in both Hips and Knees. Our overall growth improved sequentially this quarter versus last quarter. So Rome wasn't built in a day, but we're making progress. The gap to the fastest-growing orthopaedic company is slimming, and we're pleased with that. We have more assets coming. We have more launches coming and our team is getting better. So in terms of the specific question on ambulatory surgery centers,…

Yes. I think if I may, just one of the things on the CMS reimbursement levels as well. Now that you've talked about a little bit in the past, Namal, is that whilst that may represent a differential price versus a hospital in-patient facility -- that reimbursement rate, as a 10% market share player, we're really focused on the volume opportunity that comes out of that and the growth opportunity that comes out of that conversion [indiscernible]. So if you're in a different place or a different market share setting, you may focus more on any price issues around that. But we really are focused on that as a growth driver for our business. If I come specifically to the corporate costs question, Michael. There are a range of different numbers in there. And about 7% of our first half sales, what we have in there is basically the vast majority of all our G&A costs, all our finance, all our IT, all our HR costs, all our central costs. So it's not a large corporate head office. In fact, as Namal recently highlighted, we did actually shut our head office building in London down. It's the large majority of our support organization around the world sits in that. It sits -- different companies take different approaches to what they put into that. I think if you look at some of the wound competitors, you actually see 20% of sales sitting in that space. If you see some of the U.S. companies, they could only have a very thin wedge into that, that's more around the 1% to 3% level. But by and large, I don't think it reflects inefficiency. Of course, it's always an area that we're looking to improve, including through our APEX program. But overall, 7% of sales is a sort of median kind of place to be for G&A costs.

Great. And Namal, may I please follow up on the sort of execution side? If I look at outside of the United States, growth rates have been flat. When do you expect OUS to start to return to a more sort of positive, reliable organic growth rate?

So then, I think, first of all, we're seeing growth in some of our specific target markets as well ahead of our peers. And most people are -- have challenges in the European market in terms of absolute growth, but I think that we've got good opportunities overall in our mature markets. So the way we look at things in our Top 9 markets make up more than 80% of our revenue. In the last year, we've reoriented our organization to make sure that we're supporting those specific markets really well. And it's clear what is required to succeed. I'm not saying that we didn't have things that we needed to change or fix. We did, and we're doing that. So I think we see into next year, good opportunities to get growth in all of these markets because of the strength of our portfolio. And we just can't make everything happen immediately, but that's okay. We've been around 160 years, and we're going to keep going for the next few, right? Like incrementally improving our business as well in some places like digital surgery, really transforming how health care is performed. Take the next question?

So Namal, so 2020, we can expect a return in the category, Other Established Markets. Is that fair?

We haven't made a forecast for that, Michael. And I think I'll let someone else have a question now. So let's move to our next question, please.

Your next question comes from Veronika Dubajova from Goldman Sachs.

I will keep it to two, please. My first question is actually on the growth in Wound Care, in particular in Bioactives. I'm a little surprised to see the decline there this quarter given that you've added Osiris into the base. So Simon, I don't know if you can give us a little bit of color as to how Osiris is performing since you've acquired it and what drove the weakness in the quarter, especially since you are seeing some acceleration in recovery in REGRANEX. That would be very helpful. And my second question is more of a financial big picture nature, probably better for Graham or Namal. Just curious where you are with the APEX program. I had half-expected you to come and give us an update today. Maybe that was my fault. But it would be great to hear how much progress you have made. And Graham, especially if you see opportunities to exceed the savings target that you had previously communicated.

Go ahead, Simon.

Sure. So the Osiris integration is going really well, both from a revenue perspective, the company is continuing to track on double-digit growth, but also on the implementation and the engagement with our new colleagues. And those are really strong fundamentals that give me optimism for the future. So that's going well. REGRANEX, as we mentioned, as the demand is growing, the business is growing strong single-digit. So that's going well. SANTYL is essentially -- the end user is -- demand is essentially flat and the overall business is going well. And from a quarter-to-quarter, we're seeing the impact of some channel movement.

Yes. There was a little bit of a channel reduction in the second quarter in AWB.

Yes.

Very normal, very small. But -- and that's basically what drove the number there, wasn't it?

And Graham, do you want to talk about APEX?

Oh, yes, APEX. APEX is going great. The program delivered $40 million of benefits in the first half year, of the year incremental over the prior year, so running well in relation to our original expectations. As we flagged a couple of times, Veronika, as Namal has come into the organization, we've had the opportunity, both through his own perspectives and the perspectives of the wider executive leadership team that he's brought in, to have a look at the wider opportunities. And we will come back with some thoughts on that during the second half of the year. We are still in a place where we see more opportunities, and that probably will bring additional costs but we're still working through the details there. So some time in the second half, we'll come through with that.

Big picture, I would add to that, is just to say how do we want to run our business. We want to accelerate our growth and we have improved our trading margin. That's showing up. But we've made investments. And so it's -- we're not trying to drive to an absolute profit number or jumping over a hurdle just to make a profit target. We're building our business for the long term. And so these important investments that we've made, not just in R&D but throughout our business, they are things we'll continue to do and continue to forecast what trading margin we'll deliver as we build our business over time. And so I think this is a multiyear plan to continue to enhance our business. And that provides us with the platform to grow continuously and not have missteps along the way.

The next one is coming from Tom Jones from Berenberg.

I have three hopefully not too long ones. The first one, and apologize if I missed this because I missed the first 10 minutes of the call, but the Wound Care business, if you could give us any color on when you might expect that business to return to a positive growth rate, that would be helpful. Again, apologies if you've already said it, but I missed it. Second question, Namal, I'm just wondering how you're thinking about the Bioventus JV at the moment. It sort of sits there. It's not an insignificant business in value terms, but it doesn't really do much for your P&L and it doesn't really get much of a look-in from an investor perspective either. So just wondering whether the -- what your thoughts are on that and whether the capital could be better put to use elsewhere in the business. And then the last question which is a bit of a bigger one, for those of us that have followed Smith & Nephew long enough, we've seen good periods of growth. But then the old adage, "Three steps forward, two steps back," kicks in and something goes wrong somewhere. It's pretty clear to us as observers that we can see all the things that are going well and all the positive changes you've made. But I think it would certainly help us and investors get a bit more comfort that this growth is sustainable if you could give us a little bit more color on what you've done around risk management about how you've maybe changed the business in ways that prevents some of the slip-ups that have always stymied Smith & Nephew's growth in the long term in the past from happening again. I know it's a bit of a -- sort of an intangible question, but it does weigh on investors' minds. We're seeing this good growth coming through and lots of people are starting to ask, "When is the next slip-up coming and what have they done to prevent that happening?"

All right. Well, let me try and get the three questions done for you. First of all, Wound Care, I think, Simon, you summed it up nicely. I tell Simon, "We have firstly the job of getting to overall growth." And first half, we delivered 2.4% growth, not stellar, but there is some excitement in that number. And that all happens around Advanced Wound Devices, 16% growth. And we've got strength with RENASYS being available in the U.S. That's -- that makes our task possible, and one that we are optimistic about. In terms of consumables and Bioactives, a little bit of channel movement in the quarter, but we feel that we can continue to stabilize that business, and Osiris will help us get Bioactives as a portfolio to grow. It's a case of time. And time to train people to cross-sell products. Simon mentioned our new sales force getting OASIS. That's a good thing. We haven't even got to the -- our existing Smith & Nephew sales force getting Grafix or Stravix. So there's a lot to do still before we can enact really further acceleration, including just scaling that business, being able to supply more of that type of product. So overall, Wound Care market, I think we'll do well. We'll rely on the growth in our Devices business until the other businesses really can get to good growth. And in our forecast, we feel good about the overall business. Now Bioventus, of course, we've looked at it. And I think that there's opportunities for us to think differently about that at a period in time. I have really no update for you at this moment in time, but of course, the management team has looked at that. And then risk management in terms of preventing slip-ups, okay,…

Your next question is coming from Julien Dormois from Exane.

I have three. And again, sorry if I -- if they've already been answered. The first one relates to Sports Medicine, where the sales continue to impress. I was just curious if you would be kind enough to help us understand if there is a price component to the double-digit growth that you have been posting in H1. So we're really trying to understand whether this is really mainly boosted by volume or if there is -- or if price helped in any way. And the second question relates to Trauma. Here, in my view, the sales continue to be really lackluster. And with tougher comps coming in H2, I was wondering whether you are hoping for a positive number for the full year. So if you can deliver growth in that business for full year '19. And pretty much the same question for Arthroscopic Enabling Technologies. You have mentioned that the launch of WEREWOLF would help this business return to growth. Are you targeting kind of a very low single-digit target? Or could it be a bit more than this?

So great questions, Julien. And Sports Medicine, I would not call out a big price effect. I think that we've got a mix effect. We do have some -- and obviously, REGENETEN is a great product, really helping the overall joint repair number. But I'd also say we acquired Ceterix, tiny business really, but having that in our portfolio helps our overall meniscal repair business, being able to have doctors that you are engaging with, how do you go about your work. And we're a global leader in meniscal repair. I really feel that, that's helped and will help us going forward. And I think that the other part of Sports Medicine overall as a franchise doing well is AET not being such a drag. And strategically, the investment in the tower is really, really important. We haven't done that in those years where we didn't invest in the tower. So it takes time for us to change those assets. They will change heading into next year, including putting a robot on the tower. And that's a big move for us. I think our ability to grow in AET, we're confident that the second half of the year, we will return to growth. It's not going to be like overall fantastic growth, but just the fact that it's growth and not a drag is very helpful to us. And the launches are very helpful. Being a company that helped bring the tower to the market, not having 4K for so long has been a challenge. And being able to now deliver and help our customers with what they want, we're pleased with that. So I think that Sports Medicine is an area we're really pleased with the progress, the focus of the team and also our opportunities going forward and…

Maybe just on the margins. You've 60 basis points improvement in the first half. It sounds like you got a sort of FX tailwind and a small one-off gain. And I think some of those dynamics, particularly on FX change in the second half. Do you have any sort of color around sort of the impacts of those in the first half and potentially second half?

Sure. So the FX tailwind in the first half was a sort of handful of tens of basis points. The small gain was a small gain. And again, that adds a handful of tens of basis points. We had those and APEX benefits, but we also made investments, as I highlighted, in China, in R&D and in a number of other areas. Clearly, as Namal indicated, we're actually fractionally ahead of where we planned to be at this point of the year. And that means that sort of year-over-year, you need to put a little bit more into commissions and bonuses and things like that into the field force. So we landed where we wanted to be, balancing up those positives, and also where we wanted to invest for both the short term and long -- mid-term growth of the organization. As we go into the second half, the FX position reverses. We -- obviously, I can't predict exactly what's going to happen on the translational side. But on the transactional side, because of our hedging program, we know that we're going to probably have again a small handful of tens of basis points going against us at the margin level in the second half. So the swing between the first half and the second half is worth mentioning and the reason why we've asserted -- reasserted our unchanged margin guidance for the full year.

And including the...

Impacts of dilution on the M&A. There's very little of that in the first half. Clearly, as we've got them all in now for the second half, that weighs a little bit more onto the second half. I think the one other thing to mention is that as we look out into 2020 as well, because we're halfway through the year now, we've pretty much fixed where our transactional position will be for quite a bit of next year. And we will probably have 40 to 50 basis points of headwind against us on the transactional side, at the margin level in 2020. And clearly we'll update that as we go through rest of the year, and we'll find out what the translational position is as we go through next year. But that's all part of our planning. Just wanted to give you sort of early attention to that. It doesn't change in any way, our midterm guidance, but we're going to continue to see meaningful margin improvement year-over-year.

Any final questions? Let me just say thank you very much for your interest and pleased with the progress and see you next time. Take care.