Good morning, and welcome to the Smith & Nephew Second Quarter and Half Year Results Presentation. I'm Deepak Nath, I'm the Chief Executive Officer; and joining me is Chief Financial Officer, John Rogers. I'm pleased to report a solid set of numbers that represents a good step towards our full year guidance and further progress on our strategy to transform Smith & Nephew. On revenue, we delivered the acceleration that we expected with 5.6% growth in the quarter. The Sports Medicine business continued its good momentum across categories and regions. Advanced Wound Management will return to growth with a better quarter in both bioactives and in AWC. In Orthopedics, all of Trauma & Extremities, Robotics and ex-U.S. Recon have kept performing well. And we've made good progress with addressing our performance in U.S. Recon. On profitability, 140 basis points of expansion is around the upper end of the guidance range we gave back in May. Operating leverage and our productivity measures in the 12-Point Plan more than offset external pressures and have positioned us well to deliver a full year target. It's very encouraging to see double-digit profit growth, and also importantly, translating into cash with 60% trading cash conversion, which is well ahead of where we were last year. My assessment when we began this turnaround was that Smith & Nephew was a portfolio of fundamentally good businesses with excellent technology and the right to win in every part of the Company. The diagnosis of why we want that full potential was that we had challenges around execution and culture, and we developed the 12-Point Plan to address those remaining issues. The progress we've made since 2022 is evidence that we had the right diagnosis, and we are now firmly on the path to the better financial outcomes that…

Thank you, Deepak. It's a pleasure to be presenting to you all in person this morning. Today's announcement actually marks four months into my time as CFO. And as you'd expect, I spent a lot of my time digging into the detail of the Company, the 12-Point Plan and the financials. That's very much an ongoing exercise, but it has already identified opportunities to go further with some of the initiatives. So as I take you through the first half financials, I'd like to share some of my thinking on our opportunities and financial priorities in the coming years. I'll start with the P&L. Revenue for the half was $2.8 billion, up 4.3% on an underlying basis compared to half one 2023. Reported revenue was up 3.4%, including a foreign exchange headwind of 90 basis points. As you can see, growth was higher in our Surgical businesses, with AWM growth reflecting the slow first quarter. Looking at the trading P&L. Gross profit was $1.98 billion with a gross margin of 70.1%, which is 30 basis points of expansion over prior year. We also delivered positive leverage across our operating expenses with good control of our cost base. That resulted in 140 basis points of trading margin expansion to 16.7%, around the upper end of our guidance range and trading profit growth of 12.8% to $471 million. Slide 12 shows a more detailed trading margin bridge. Going through the moving parts, we absorbed headwinds of 120 basis points from input cost inflation and merit increases and 50 basis points from transactional FX, but more than offset them with 120 basis points of revenue leverage from price and volume, and 190 basis points from productivity improvements, mainly for manufacturing but also across all other areas of operating expenses. If I look back…

Thank you, John. So as I said in my introduction, we recognize at the start of this turnaround that while Smith & Nephew is a portfolio of fundamentally good businesses, we had a series of challenges around execution and culture that were holding us back. We said about addressing those challenges with a comprehensive 12-Point Plan, which is summarized on this slide. It should be familiar to you. It's nearly two years now since we first announced the program. So I'd like to take a moment to reflect on how far we've come. Slide 27 has some of our achievements. There's a lot on here, and that reflects the scale of the transformation that we've delivered both by activity and also importantly, culture. There are three key things I'd like to particularly call out. First is the successful rewiring of Orthopedics, where we've addressed the long-standing challenges around getting products to customers. At the start of the plan, we had both implant shortages and rising inventory. And on the capital side, both instruments shortages and poor utilization. We've now turned all of that around. Implant availability has risen to our target levels across the key brands, and we've stopped the rise in inventory days at the same time. This is a similar picture with capital, where set availability is now at goal and set turns have risen 25% since the start of 2022. For the majority of Orthopedics, this operational improvement has already produced better sales growth. The second point to highlight is the breadth of our productivity improvements. We've worked out all levers at the same time, including product pricing, procurement and manufacturing. Clearly, the full benefit isn't yet in our reported margins. But you should see it more clearly, as we move through '24 and into '25, and…

I have three please. First, on margin. So how much conservatism is baked into the guidance for full year? And actually, could there be a meaningful upside to that 18%? Then on CORI, so you talked about the record quarter of placements -- sorry, revenues in Q2. How does that translate into placements and utilization? And do you have any targets you can share for placements for the full year? And then lastly, on the cost savings. So on the additional $125 million, $175 million of cost savings you identified, you said that there was no additional investment needed, but then you talked about restructuring charges in 2025. So can you just tell us what your expectations are for those charges?

Sure. Thanks, Jack. So let me take the CORI question, your second question first, and I'll hand it over to John, so you can take the first and third. So on CORI, we haven't issued quarterly targets, right? We're tracking -- we report revenue from Robotics and Other Recon. But what I would say is in terms of placements, we're into double-digit range in terms of growth period-over-period. What I'm particularly encouraged by is actually the resonance that it's having across a range of care settings, not only in the ASCs, in regular sized hospitals but it's also an academic medical centers. And in the past, I've said we haven't necessarily been particularly strong in that part of our business in AMCs. And what I'm particularly pleased about is that we're getting traction in that segment as well. So it's serving -- or it's progressing as I had hoped it would. The important thing also is we're not just placing these out there. We're placing it where there's a demand for it, where there's a need for it and where your surgeons are using them. So utilization is actually improving as well. So we'll come back at year-end and tell you how we did in the year. I don't want to get into this quarterly kind of what it is. But what I'll leave you with is I'm pleased with not only placements, but also the fact that they're being used to healthy levels, right? So I'll leave that. And John, do you want to take the other two?

Sure. Your first question regarding margin guidance and conservatism. I mean, the guidance is the guidance. There is no conservatism built in. Obviously, for the first half, as we said, 16.7% around the upper end of the range that we gave. It's important to remember, though, that we've got the full impact of VBP -- China VBP coming in the second half, and we signaled that in the margin slide. So with that uncertainty, we're comfortable in reiterating our 18% plus guidance for the full year, but I wouldn't assume just because there's been a strong first half that there's any beat to that. In terms of the cost -- the restructuring cost question, I think we signaled at the very start of the 12-Point Plan, that will be sort of circa $270 million, $275 million or so of restructuring costs associated with the 12-Point Plan. That guidance remains the same today. Now we will see probably circa, I'd say, $80 million or so in this year's number on restructuring. And if you do your math, that means there's a small rump likely to fall into 2025, probably around $10 million, $15 million or so, but we're not anticipating any further step-up in restructuring. Then there may be some small cost -- nominal costs associated with the additional savings that we've identified, but we'll take those above the line and -- where we're comfortable with the guidance on restructuring costs.

David Adlington of JD Morgan. Firstly, just on your additional focus on returns that was quite interesting. Could that lead you to reassess whether some of the low-return businesses still remain part of the portfolio? And then secondly, also on margins. But maybe as you think about the additional cost savings you've found now, obviously supporting next year's margins, but beyond next year, obviously begins to look into 2026, how you think about the margin trajectory beyond '25?

Do you want to take that, John?

Yes. So I'll take the last question on margin trajectory. I think we're very comfortable in reiterating this year's guidance so we're confident in the target set for next year. I'm not going to get drawn into a conversation on what's going to happen in 2026 and beyond. Obviously, you'll see from the trajectory on the chart, the cost savings we assume we've got a little bit more coming through in '26, a little bit more coming through in '27 on phasing. But as you can see from our various margin bridges that we provide you, there's lots of moving parts in the margin, inflation, costs, leverage, et cetera, et cetera. So at this stage, I think it's too premature to assume to what extent those additional cost savings, and they're relatively nominal, frankly. Are they going to fall through into margin in '26 and '27? Obviously, we'll provide you with that guidance closer to the time.

And in terms of returns, do you want to take that or...

Well, look, I think that we -- as a management team, we're focused on returns at the business unit level. We're focused on returns at the group level. I think we see the opportunity to improve across the board, particularly in the ortho business, if you look at our ortho business but we're on a journey there. And so we'll talk through the return numbers at the year-end, and you'll see we expect to see significant improvement in capital returns. But we're very focused on how we think about the portfolio, where we allocate capital. And as I said in my presentation, the intention will be very much to really only allocate capital where we consider we can get our highest incremental returns going forward.

Just one small build on that, David. Where we've historically struggled part of the culture change in our company is that often capital is treated as free. And the biggest impact was in the Orthopedics business. So when John, on his slide, puts up the focus on margins, which, of course, is important, right, because that's particularly on the orthopedic side, equally as important is the focus on asset efficiency. So in terms of what we're changing and how we are operating and how we're behaving as a company, those are the key areas that we look to, to get the improvements in return on capital and orthopedics that ultimately feeds into the better returns to the better road than we're targeting.

And just to bring that to life and give you a little bit of color. I've actually got a meeting at the end of this week with the team to talk about how do we extend, for example, inventory performance metrics across a broader part of the business, has mainly been focused on operations historically, how do we get our commercial teams really talking and thinking about inventory in the way that we would like them to. To Deepak's point historically, they've seen it as being free, and therefore, it's often on the business on a just-in-case basis rather than a just-in-time basis. So this additional focus on inventory and capital more broadly, I think, will be supportive of the improved trajectories that we're expecting to see.

Just to be clear, there's no signal here that you're looking at divesting any particular part of the business that doesn't meet any returns goals?

No, I think we're very comfortable with the portfolio overall. This exercise is being done to ensure that we focus on returns across the group and the individual BUs and to make -- and part of the exercise of allocating out the corporate costs is an extension of that, so that we can appropriately measure the capital returns at the BU level and therefore, from that, make sure that we're driving the right actions, the right behaviors across the business to improve those returns, but we're obviously always conscious of individual business units performance and returns. And we're conscious of it in the context of where do we want to allocate our capital. We have choices about where we invest, where we place our R&D funds, where we invest in driving growth in our business and providing visibility of these returns will give us a better means to make sure that we're allocating our cash in our capital where we expect to see the best returns.

I'm Sebastien Jantet with Panmure Liberum. I'm just going back to returns again then. So David, I welcome the focus on ROIC. Can I ask if you can give us a little bit of the difference of returns between the divisions, ROIC at the moment so we can kind of get a sense of where that lies. And also, I just want to check, are you going to give us the assets by division so we can calculate this ourselves going forward? So that's the first question. Second question is on the bridge that you put for the 18% to 20% margin. I couldn't see anything in the FX. Presumably, there will be some annualization of FX in that. Just want to check that 20% isn't a constant currency guidance? And also within that, what are your assumptions for pricing? Because obviously, as we kind of come out of a high inflationary environment, where we've been in a slightly unusual pricing environment for med-techs. What are you assuming in terms of pricing in 2025? And then the last question is coming back to these additional restructuring kind of savings. So great that I think you -- I think it's between $50 million and $100 million of additional savings. Perhaps you could give us a little bit more detail on what those are, and why they don't have any costs with them?

Sure. Maybe I'll take the pricing point, and then you can get the rest John. So on pricing, as I've commented previously, when the questions come up, our ability to pass through inflation-related pricing in the med-tech sector is quite limited. Against that backdrop, we've been able to pass through some of that pricing. We've also indicated that our plans or guidance that we gave didn't necessarily factor in exceptional pricing. And I did indicate that over this period that we get back to more normalized kind of a pricing environment. That is the basis of our planning, and we do expect some of those tailwind on pricing or ability to pass through inflation-related costs to kind of peter out here as we get into '24 and '25. So maybe you can take the rest John.

So I think your first question was, can I give you some indications to the current returns by business unit? First and foremost, we will split all of that out and give you that detail at the year-end. And we're not going to disaggregate the balance sheet for you, but we will give you the ROIC number by business units. So you'll see that -- you can sort of infer the assets if you want to. But to give you a little bit of color on it, it won't be of any surprise to you that if you look at our Sports business, as an example, that's broadly speaking, the group average. Our Wound business is better than the group average. And our Ortho business is worse than the group average, albeit on an improving trajectory. So our sort of Ortho business probably at the end of this year will be circa half of what we would expect the group average to be, but we're driving that half to improve that return over time. But I would say, we'll give you a lot more detail at the year-end when we give you those figures. I think your second question was on the '25 profit bridge and whether or not the -- why no FX? Well, I mean, FX is notoriously difficult to forecast at the best of times. We do hedge going forward, roughly 75% of our cover. As we sit here today, based on our best guess estimations, we think that the FX impact on '25 will be relatively neutral. Maybe, I don't know, 10, 15 bps headwind. So we haven't included it on the chart, but we don't think it's going to be at this stage material. And then your last question, I think, was on restructuring. What gives us confidence that there aren't sort of a huge additional restructuring costs coming through. And it is to your -- the depth of your question, which is the initiatives that are going to be driving that. So there's a lot of opportunities in our manufacturing business that we've talked about in the past. We're doing a lot of work on our lean manufacturing, how do we become more efficient. We're looking at our sales structures, where we're looking at our indirect procurement. Indirect procurement is a big opportunity for us, for example. And these things, generally speaking, given the locations, given the task at hand, they're not going to require huge restructuring charges -- additional restructuring charges. Now there may be some costs associated with that, but we'll just take those into our underlying numbers.

And just to clarify, our guidance is not on a constant currency. So we will need to work -- part of some of the initiatives to go work harder to identify those additional savings is to offset those headwinds this year and last year's FX, but there were other things -- China VBP and other things, right? So it's not on a constant currency basis.

You take these things in our stride.

Richard Felton from Goldman Sachs. Two questions from me, please. First of all, on robotics. How far is Smith & Nephew away from having its fair share of robotics procedures in the U.S.? And then given some of the innovation and upgrades on CORI, do you see a plausible part of getting your fair share? That's question one. Question two is on China VBP. In your second half margin bridge, you've got 130 basis points of margin headwinds, which, John, you explicitly said was before any offsets. I was wondering if you could give us any sense of what those offsets are? And how much benefit might come with those?

Sure. I'll take that. So with CORI -- we are already placing above our share position, with CORI today. And we're still in the early stages of our journey. As I said, I'll come back a year end and give you a utilization number. I gave you that. I can't remember now whether it was at year-end last year -- we've given you the last number. It's fair to say we're substantially above that. Now even as placements have grown, which is very encouraging, right? So we're replacing them for -- they're getting utilized. It's an explicit part of our strategy. And that adoption has been driven by competitive activity, right, going out and representing. It's not just about CORI, right? It's about the whole portfolio. It's important to kind of put that perspective out there, which is we've got a very competitive implant portfolio now with CORI's enabling technology that value proposition in combination is great. But just double clicking on CORI, the ASC is a big growth driver in the United States. It's not so in other markets, at least not yet. And the form factor for CORI has always had resonance, and we've talked about that in the past, right? It's lighter form factors, flexibility, lower cost. All of those things lend themselves to the economics and the practices within an ASC. And of course, we're seeing that and we're placing above our share position within the ASC. But for us, equally as important is that this is flexible enough across a range of settings. And as I said earlier, in the AMCs, the advantage of having a form fashion like CORI is you can have one across multiple OR suites, right? So -- and that's an important piece of it. And it can coexist with other…

And just on China VBP as you rightly call out, the second half '24 impact is 130 bps. So that annualizes effectively for 2024, 70 bps of headwind as we've said and guided to previously. That is both actually a gross and a net number, so pre and post any mitigations in the second half. In the first half of '25, you've all else being equal, if you say [indiscernible] 60 bps of headwind at the gross level. But we believe in 2025, various actions can be taken to mitigate and offset that. There's a little bit around volume that comes through that we think can offset some of that headwind, is a little bit about cost actions that we'll take that would also help us. And they will take a little bit of time to come through, hence, why you see them in the first half of 2025. And there's also -- we didn't -- haven't really called it out detail in the bridge, but there's a little bit of the fact that we're going to be lapping some of the pre-implementation effects that you've seen in the China number for the first half of this year. So when you look at it on a net-net basis, we think it's going to be -- we say broadly flat. They're calling out -- I mean, they may be 10, 15 bps or something of headwind, but we're comfortable with the numbers and the guidance, obviously, at 20% plus for the full year.

Operationally, just one quick build on it. Obviously, we've got experience about mitigating actions, having gone to the Ortho VBP recently that one contrast I'll draw for you in Sports versus Orthopedics is, in Orthopedics, it's pretty much the whole category that were impacted. In Sports, it's a subset, right? It's a joint repair. The capital piece of it is not. So there's still commercial activity that's going to be needed to represent the portfolio and actually drive Sports across the board, right? So that is an important difference there between how orthopedics went. So the mitigation -- mitigating actions we need to take here have to take that into account. So I just want to operationally draw attention to the fact that it's not exactly the way Orthopedics went. But obviously, our decisions will be informed by kind of our experience in Orthopedics.

Graham Doyle from UBS. Three questions, they should be quick. On the first half R&D spend, that was down quite a bit. Is that a factor of last year being overly high or is the phasing? Or just to get a sense of what's going on, what's not? On the plant closures, are they done now? Have you got through most of that -- should we see a big step up then through second half and first half next year in terms of the margin there? And then one last one on ASCs, which is if you look back at your Ortho performance pre-COVID, it was there or thereabouts with market. And then it obviously starts diverging versus peers. And there's lots of reasons that could be, but we did see ASC step up massively in terms of share. Do you think that was a factor in that? And are there things that you can do post this transformation, which get you back on a kind of front foot there?

Yes, sure. So first on the R&D spend, that's a phasing thing. So we expect when you step up into Q2 -- into H2 and year-on-year should be broadly comparable, and that has to do with the nature of when the spend occurs in any given program. Second, in terms of ASCs. What I'd like to remind you here is a good chunk. I think we've previously given a number of 40% of our Sports business actually goes through ASCs. So we're actually quite well present in that channel. We know how to commercialize that channel -- in that channel. We're in the earlier stages on the orthopedic side, particularly on the Recon side, the industry is as well, but we ourselves relative to the industry in the earlier stage of that. But with CORI, we've got a great offering, a great part of the value proposition to be relevant in that ASC setting. And it's not just CORI as one thing, but as we add more features and optionality into it, our value proposition of CORI just increases. We just announced HOPCO -- arrangement with HOPCO. HOPCO -- as ASCs further evolve and adapt to the requirements around reporting patient reported outcomes and other things that becomes an important part of how you increase and enhance your value proposition into the ASC. So our agreement with HOPCO now is further evidence of us focusing on that channel, improving our offering into that channel and ultimately translate that into outsized performance there. But we're also very clear eyed about where we can compete, where we're advantaged in ASCs and where we're not. So we have a pretty good understanding of how we segment the market and very focused -- pretty focused on where we want to win and where we have a pretty compelling value proposition. So all of that should translate into continued better performance there or above-market performance. As I called out, there's many layers to this whole cross-business unit kind of deals and how we continue to do well with the portfolio we've got. One of those is further drive into that channel. Plant closures. I mentioned four, we've just announced the closure of Warwick, which is a small site, focused on one particular product portfolio. As we look to drive further productivity and efficiency, we're taking volumes from some of the smaller sites and transferring that over to our larger sites within the Orthopedics network. So that's an additional closure into it.

The Memphis site produces for ex-U.S. as well?

Yes, it does.

Sam from Berenberg. Just two questions for me. So first one on the 12-Point Plan, are any of the initiatives behind where you wanted them to be at this stage after sort of a couple of years? And specifically in U.S. Recon, are any of the operating metrics have improved as a result of the 12-Point Plan, giving you particular confidence in the second half recovery? And then on GRAFIX, just a quick one, are you seeing any changes around customer stocking dynamics due to the draft LCDs in skin substitutes?

Yes. So the 12-Point Plan, some of the lead indicators, we look at deal activity, particularly around CORI. So that's progressing well. Set turns, I indicated that a reference point was the start of 2022. And we've seen a nice healthy improvement. In other words, our capital efficiency is improving. And that's a result of a lot of actions commercially how we do business, right, commercial processes that contribute to that. And as we look at our wins, right, they bode well, right, in terms of how the second half is going to develop. So there are some lead indicators within the 12-Point Plan that gives us confidence that the second half, we'll start, to see the U.S. Recon turn as well. GRAFIX. So with GRAFIX, we haven't seen particular changes in stocking behavior as a result of the LCD termination. Obviously, this draft, and it's hard to forecast when that would go into effect, but we're expecting at some point this year, and that will, of course, usher in a different dynamic. But we haven't seen necessarily different kind of stocking behavior with GRAFIX related to that.

Caitlin Cronin from Canaccord Genuity. Two for me. First, in Trauma. You continue to note the importance of the EVOS plating launch. Stryker is launching its Pangea Plating System this year. Do you expect to see some competitive headwinds as their product goes out? And then on AGILI-C, how are you thinking about the commercialization strategy here as you read your sales team? And for reimbursement, has that been established, what are the codes, et cetera?

I didn't acoustically hear the second -- what product were you talking on the second question?

On AGILI-C, commercialization strategy there and reimbursement, if that's been established.

Yes, sure. On the first part with EVOS, we're well aware of competitive activity in that area. We feel very good about our offering. You are -- obviously the results of Trauma over the last couple of quarters give you a proof point of well do it commercially. So we don't underestimate our competition by any stretch, but equally, we're confident of our -- not only our product portfolio, but actually, the commercial team's ability to compete effectively. So we feel good about it. With AGILI-C, as I mentioned, the initial cohort of our reps have been trained, our early experience with it has been very good, as we go beyond kind of the initial cohort of surgeons. The reimbursement will take time to establish. We're still in the early stages of activity around that, right? But we have good experience establishing this for other therapies, whether it's for REGENETEN's the one that I would call out, right, is the most proximate experience. So we've got a good team working on it, and we feel good about our ability to kind of get the appropriate reimbursement for innovative technology like that, but we're still in the early stages. Questions on the phone?

[Operator Instructions] Our first question comes from Julien Dormois from Jefferies.

I have three, if I may. So the first one is kind of from the previous one on Trauma. I mean, having covered the stock for quite a few years now. We've seen that business is kind of being very much like one step forward, two steps back. So just what is the [indiscernible] and how comfortable are you about the business now being really back on a nice growth trajectory? Second question relates to probably more for John, and I mean you already disclosed a lot around this. But in terms of the restructuring adjustments, historically, we had a difference of about probably 6 to 7 percentage points between trading profit and reported margin. This has been something like 10 or 11 percentage points in the past few years. So is a return to normalize or, let's say, to historical range credible in your view? And what would be the time horizon for this? And the last question also comes back on wound biologics and reflecting around the draft LCD. Have you had more discussions on the ground and so on as to how it could impact your share of business in that segment, if you are one of the few lucky companies on the final list?

Okay. Well, thank you. So let me take the first and the third one, I'll then pass it to John. So on Trauma, acknowledged, you point about us taking a step forward and two steps back. But I do believe we're well positioned, and why do I believe this? We now have the full complement of products that we need. So with EVOS, we've got EVOS Small, Large, the full plating system and full screws to be competitive. Trauma, in terms of the contracting occurs, typically, it's not contracts for large-sized plates or small-sized plates or screws that tend to contract for the whole kit. And we haven't necessarily approached that launch as well as we could have, right? It took us a long time to get the full product portfolio together. But we now have the full product portfolio. We can be competitive in RFPs. And it's a very competitive product. So the strength of the product, the completeness of the offering and of course, all the improvements we've made around availability and commercial execution is a difference to how we were positioned in the past. So those are the ingredients that I feel good about in terms of our ability to execute, right? So hopefully, it will be now two steps forward without the step back that you've seen in the past. On the third around LCD. So first off, we're one of the 15 products that are covered. We feel really good about the quality of our offering, the innovation that's inherent in the products we offer and really good about the clinical evidence that supports -- or the evidence that supports not on the clinical differentiation, but also the economic benefit of our products. So first principles, we are well positioned there. But I'll remind you again that it is draft coverage here. Now in contrast to times in the past, it's all seven MAX now have come out with this. So there's a high likelihood that it's going to go through. But until it's fully implemented, it's hard to say whether in the final form, it will be the same as what we've seen in draft, right? So this, as you know, is a pretty -- is a fairly complex reimbursement mechanism in this category. It is inherently difficult to predict how things are going to go, but you got to go back to first principles, and the first principle is the strength of our product portfolio and the evidence base that supports it. That's the hard stuff, and we're well positioned to navigate whatever reimbursement landscape kind of looks like on that. But it's hard to kind of forecast how this will really play out when the draft turns into final legislation. John, do you want to take the restructuring?

Yes. So on your question on restructuring charges, I think you were alluding to a history of there being a big delta between our unadjusted profits and our reported profits as a consequence of putting large amounts of restructuring charges through the P&L. I think just to be clear, we've clearly signaled restructuring charges associated with the 12-Point Plan. They will come through. The bulk of the remain they come through this year, a little bit next year, as I said. Going forward, we're not saying there will never be any more restructuring charges. We're just saying we don't -- we expect our restructuring charges to be significantly lower going forward. So there won't be this material gap -- this historical gap that existed between underlying and reported. And I think that's been very clearly signaled.

I understand there are more questions on the phone. Take the next one.

Our next question comes from Veronika Dubajova from Citi.

I have three, please. First one is, maybe you have -- just get a commitment from you on what you could consider a success as far as the U.S. Hip and U.S. Knee performances concerning in the second half of the year? I appreciate your commitment to improving performance. Maybe you can tell us what you consider a success versus a disappointment as you think about the second half of the year in the U.S. Hip and Knee growth rates? My second question is for John, and John thank you for all the margin bridges. They're incredibly helpful. Just maybe can you a little bit, if I look at the second half versus the first half, you're expecting the same contribution -- a positive contribution from revenue leverage and on manufacturing efficiencies, but you do expect higher growth in the back half of the year and also more progress on restructuring. So just trying to reconcile those two statements in the bridges and whether there is something that...

I'm struggling to hear what you're saying. Maybe if you can just -- we're in a massive hall and it's sort of echoing around. So could you just repeat your question and perhaps a little bit slower. And if you can just pronunciate so that we can -- it's terrible acoustics in this hall. At least for me, I don't know about the rest of them.

Of course. No problem. I was just asking about the second half margin rate. And if I look at the second half bridge versus what you delivered in the first half, your expectation in second half is the positive contribution from revenue leverage, and from manufacturing efficiencies is the same, as it was in the first half, but could be you are guiding for better growth in the back half of the year. And you should also be making more progress from some of the savings initiatives that you have in place. So just trying to reconcile those two data points? Why should there not be more sales growth leverage and efficiency leverage in the back half of the year? I hope that was clear. And then my third question is a bigger picture question -- and then my third question is the bigger question on the portfolio. And obviously, Deepak this is a question that comes up often in investor conversations, and I know you get it a lot. But just your commitment to the shape of the group as it stands, and any desire to rebalance the contribution from the three divisions, given their respective growth and return profiles.

Thank you, Veronika. So I'll take the first and the second. I guess, well, there's a pattern here, and I'll pass it you, John, for the second. So in terms of growth -- it's a great question in terms of what does success look like in the U.S. We're clearly below market, and we have been over the last couple of quarters. So first step is really get to near-market levels. And that's what we're getting to or expect to get to in the back half of the year. As we go into 2025, you should expect as the quarters progress for us to get to at least market levels and a little bit beyond. Certainly, in Trauma, we're above market. OUS, we're above market. In the U.S. getting to slightly above market as we exit 2025 is what we're targeting. Now it doesn't sound hugely aspirational, but relative to where we've been, it represents a significant set of efforts for us on the journey that we've been on to get to that point. And if we do that, we are well able to deliver the set of targets that we've committed to you. Second, on the portfolio question, as you rightly point out, that does come up. And this is not an idle question -- it's certainly not an idle question for us as a management team or the Board. But what I can tell you is the single biggest thing I can do for you all as shareholders is focus on driving operational improvement in Orthopedics. As I look at all the different alternatives, the single biggest value driver is Orthopedics humming along. As I said, there was 60% of our business, we are more or less either at or actually above market. We are focused on getting…

And on your question vis-a-vis the margin bridges for half one and half two, and you made the observation that why we asked the question, why are we not seeing more operational leverage in half two, if we've got higher growth and why we're not seeing more efficiency savings come through, as we obviously extend and deliver against our plan? The answer to that question, I think, is reasonably simple. Of course, when you look at the operational leverage, there's two components, of course, to that. There's the price component and there's a volume component. What we're seeing in the second half is a slightly lower price component as a consequence of the timing of how increases are coming through. So roughly for the year, it's about sort of -- a little bit less than 1% overall on price. But the timing of that is weighted more towards the first half than the second. And on the volume component, clearly, there's a volume step-up in the second half, as there always would be. Net-net, it so happens that's the same number, the 1.2% leverage kind of dropping through. So that's the first answer. The second question was about efficiency savings. The reality here is that there's lots of moving parts. As I said to you, there's about 40-plus initiatives underway across seven different work streams. And they're each at different levels of maturity and cost base. And so some that are already well advanced and have been, frankly, well advanced for 18 months, so things are being -- these are things that have been in train for some time now are now starting to pay dividends. Others that we're starting and started later, like in many of these initiatives, result in a cost increase sometimes before you have to sort of go through the wave of then delivering the efficiency. And so this is just merely an offsetting of multiple different initiatives over time. And again, it so happens broadly speaking, the net benefit of that is the same in the first half and the second. There's a lot of stuff going on at the moment, that probably in this year is a little bit of a drag in the second half, but actually starts to really pay back in the first half of 2025. So that's the reason why you don't see that both the operational leverage flow through in the second half and also the efficiency savings. There's lots of different moving parts to delivering those efficiency savings.

This comes from Robert Davies of Morgan Stanley.

I have three. The first one was just on the comment you made on previous quarter around the turnover in sales reps in the U.S. business and the compensation structure you got there. I'd just be curious to get an update on where we are on that. The second one was just on your indicative phasing of savings on Slide 20. There's quite a big step-up between 2024 and 2025. Just looking at the kind of key risks for what's actually coming through there? And if there's any chance there could be a slippage beyond '25? And then just the final one was really around where your view was on elective procedure volumes by different regions? You had sort of different messages from various companies of tailwinds versus were already normalized. Just be curious to get your views on where we are in that?

I missed your third question. I'm sorry.

I got it.

Yes. So -- in terms of sales rep turnover, what I'd indicated in 2023 is through a significant part of the year in the U.S. had gaps in territories. We had a leadership gap, in fact, in a significant part of the U.S., and that was one of the contributors to actually some of the performance challenges in the back half of the year, especially. As we now are in 2024, we filled all of the territories. So we're operating essentially at full strength in the U.S. All of the leadership team is in place. So we are at full strength. And in terms of turnover in our reps, that's actually come down to normalized levels, right? So all of those point to a level of stability in the organization. What's also important is product availability. That's been a very significant challenge for our commercial team, and with knee sets finally falling into place in Q2 on the back of hips really getting there in Q4 of last year and replenishment kind of improving right along the year, product availability, I can tell you, is no longer a topic for reps. And that's been one of the factors driving rep churn. So we're in a good place on product availability. We're in a good place in terms of leadership there. We've been able to attract actually good talent across the industry into an organization because people are attracted by our product portfolio. We've got great products in Recon. Yes, our share position is reflected, but if you are a patient, if you're a surgeon, you know how good our products are and our reps see that. So we've been able to recruit good reps. And finally, on the compensation scheme, we've rolled that out, right? As I've indicated, in 2022,…

And just on your question around the phasing of savings, the chart shows, as you know, accumulated savings over time on a '23 base. And as you rightly highlight, there's a big assumed step-up in 2025 versus 2024. That shouldn't obviously be a surprise to you because our margin guidance, the '25 is north of 20%, and our margin guidance of '24 is north of 18%. So that's what it takes to get to our 20%. The reason for that phasing is a lot of the savings that we're forecasting to come through from manufacturing, we see a big step up. But actually, if you look at the chart and you unpick the detail, it's really across all the areas, as we start to implement these initiatives, start to deliver. We get sort of some within year effects in the first year and then we got a full annualization in the second year and then they build. So that's really explaining the nature of these savings coming through and the timing. I think you also asked a question about beyond '25. And again, you can see there's a little bit of further coming through in '25 and '26, which all else being equal, obviously helps margin in those years. But as I said, what I don't want to happen is for this to translate into any form of indications, as to where margins will be in '26 and '27. There's a lot of time between now and then, a lot of moving parts and we'll come back to that, obviously, in due course. The one thing I would want to make clear, we said all along that the '25 margin target is challenging. And it is challenging because of all the reasons we've talked about. We've got the inflationary headwinds, and they've been perhaps a little bit stickier than we first envisaged. We've got the China VBP which was -- came out post us providing this target range. And so we've to necessarily get into the business, get into the detail, look at the 12-Point Plan and we've been able to identify these additional savings, which help us offset some of those headwinds and challenges. But the target of '25 remains challenging, but we're confident in reiterating the guidance today of north of 20%.

I think with that, I understand, we're at time. So wanted on behalf of John, myself and the management team, thank you very much for your attention and engagement and look forward to coming back to you next quarter reporting on progress.