Certain statements in this presentation are forward-looking statements. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors. More information of about these factors is contained in the Company’s filings with the Securities and Exchange Commission. Good day and welcome to the Smith & Nephew Q3 Announcement Conference Call. For your information, today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Olivier Bohuon. Please go ahead.

Hi. Good morning everyone. This is Olivier Bohuon and here is Julie Brown, our Chief Financial. And welcome you to our third quarter trading call. As a reminder, in February, we announce a simplification to our reporting calendar. At Q1 and Q3, we know issue quarterly trading reports focused on revenue trends. I hope you have also remembered to see our press release announcing the acquisition of the Blue Belt Technologies, a fast-growing company in the robotic assisted surgery arena. And I will cover that in more details after talking about the Q3. To summarize that we have another good quarter, the highlights include the following strong revenue trends. Advanced Would Care again grew above the market at 6%. Advanced Would Devices revenue was up 17%, reflecting the strong PICO sales. Our JOURNEY II Knee continued to perform very well, contributing to 6% revenue growth in our Knee Implant franchise and in the Emerging Markets, despite the economic condition in China, we had a growth of 8%. We also reiterate our 2015 guidance. We are on track to deliver improved revenue growth and to improve our trading profit margin compared to 2014. So turning to quarter in details, as usual, you know this slid. It captures our underlying growth in the quarter, on the left hand side geographically and on the right by product franchise. We delivered 4% underlying revenue growth. In the U.S., our largest market, revenue growth was up 4%, continuing the good momentum from last quarter. Other Established Markets was up 1%. And we delivered the second quarter of growth in Europe. The actions we’re taking are starting to stabilize this region, despite the challenging environment. Emerging Markets, as I said before, grew by 8%, below the growth seen in H1 due to a solid growth in…

Thank you, Olivier. We’re pleased to acquire Blue Belt Technologies at $275 million, subject to any closing adjustment and the acquisition will be financed from within our existing debt facilities. We expect the transaction to close around the year end. Blue Belt Technologies have a December year end; they’re forecasting revenues approximately $19 million in 2016. And based on the performance of Blue Belt Technologies this year and our knowledge and expertise in the reconstruction market, we expect annual revenue growth of more than 50% over the medium term. To drive this growth, we will accelerate the R&D programs and deliver supportive clinical evidence. This investment will dilute Group profit trading margin by about 60 basis points in 2016 and thereafter we expect the business to become profitable in 2018. Return on capital employed is expected to exceed our weighted average cost of capital in year four. This is a year more than our usual investment criteria but we’re comfortable with it, given the exciting prospects Olivier outlined. The integration will be straightforward, keeping the team to focus on serving customers and delivering the R&D program. And I’ll now turn back to the Group and our guidance. This is maintained for the full year. We continue to expect to deliver improved revenue growth and an improved trading profit margin compared with 2014. We’ve had a number of questions from investors and analysts about the impact of the sustained strength of the U.S. dollar, particularly against emerging market currencies. And as we’ve previously guided, we expect a significant currency headwind in 2015 on our reported numbers. And based on current rate, we expect the full year translational impact of minus 8% on our reported revenue. In addition to this, there is a transactional impact, and I’d like to highlight this to help you with your models. At the half year, we saw additional gross margin pressures in emerging markets due to currency movements. And since then, currencies have deteriorated further against the U.S. dollar. And the geographic location of our manufacturing facilities compared with sales is creating an unusually strong transactional currency impact. For example, the U.S. dollar comprises 50% of our revenue with around three quarters of our cost of goods. And in 2015, this headwind will be largely mitigated by our currency hedging strategy. Looking forward to 2016, this is a more material headwind amounting to upto 100 basis points on the gross margin if current exchange rates prevail. From an operational perspective, we will look to mitigate this in part through very close management of the P&L. In addition, group optimization and the ArthroCare synergies continue to deliver year-on-year benefit in line with our plan and full explanation, components of our 2015 margin and guidance for 2016 will be given with our full year results, as usual. I will now hand back to Olivier to conclude.

Thank you, Julie. So, to summarize, we have delivered a good performance in Q3 and year-to-date, as we continue to shift the weight of our business towards higher growth areas. The acquisition of Blue Belt Technologies will position Smith & Nephew as a leader in the robotic-assisted orthopedic reconstruction. This is in line with our strategy to invest in pioneering technologies that address the unmet needs of healthcare professionals. It also reinforces our distinctive orthopedic reconstruction strategy, one that is successfully combining cutting-edge innovation, disruptive business models and a strong emerging market platform. So thank you and that ends the formal presentation. Just before Julie and I take questions, we would like to remind you that we’re holding a Capital Markets event on the 10th of November in London. We will be discussing our Advanced Wound Management franchise. And I am sure you’ll have many questions about this, so you’re absolutely welcome to join us out there. Thank you. So operator, can we have the first question please?

Certainly sir. [Operator Instructions] We will now take our first question from Veronika Dubajova from Goldman Sachs. Please go ahead, ma’am.

Good morning. And thank you for taking my questions, I’ll limit it to two. The first one is just looking at the quarter and the underlying momentum. I think Julie, when we met in September, you seemed pretty confident in the momentum from the second quarter sustaining. And I appreciate China has been a headwind, but it does seem that some of the other franchise lines have also seen a bit of a slowdown in the third quarter versus the second quarter. I’m just wondering if you can comment. Is there anything else that you’re seeing aside from China that might explain why the business softened a bit sequentially versus the second quarter, and how maybe we should be thinking about the momentum into 4Q and ‘16; what are sort of your preliminary thoughts on that? And my second question is on Blue Belt and just your expectation for the medium-term growth in excess of 50%. I guess maybe if you can help us think about what is the growth that you have or Blue Belt have seen over the past couple of years and what do you think you will need to do to get that growth rate to over 50%? Is the total knee application going to be the trigger point or do you think you can grow the business at a rate around 50, even before you get the total knee on the market?

It’s a good question that you asked me about the market and our business dynamic versus the first -- I’ll tell you something. And when I say I’m very happy with the quarter, I am very happy with the quarter because I think that if you exclude China and if you exclude basically a phasing of the biologics, the growth of this company would have been more than 5% this quarter. So, there is for me nothing here which is changing what we have said in the previous quarters in 2015. Think about it, we are growing in established market outside of the U.S. which is good trend. We are despite China been able to grow 8% in the emerging markets, which means that if you exclude China, we have a double-digit growth in the emerging markets that I haven’t seen any competitor able to demonstrate this. We are again beating the market in the construction which I think is a great news, with a very strong knee development, not only in the U.S. but across the world. I think that the Advanced Would Care dynamic with 6% shows that we are back on track which is exactly what we’re saying. 17% growth in Advanced Wound Devices shows you again what we’ve said for a while that PICO was doing particularly well. So, I’d tell you Veronika, for me there’s absolutely nothing here which could be a problem, except China. And China -- well, it’s not us, it’s a macro trend here. It’s an issue that everybody is facing. How long will that last, I don’t know. But there is no doubt, a downside in China. There’s no issue with that. And that’s pretty clear. So, I hope I answered your question, regarding the first part of the question, which I really believe that we are exactly tracking where we were expecting and actually sometime even slightly better. Regarding the Blue Belt, I think the 2015, the growth will be around 100% but the base is pretty low. I really believe that with our ZUK and JOURNEY Knee, we can benefit from having this acquisition, not only for the Blue Belt itself but also for our knee business. I really believe also that the international footprint of Smith & Nephew will help also to develop a good business internationally. Again, I think the very attractive price range that we have with Blue Belt is very mobile; as I said, it’s very easy to use. And in some countries where the technology or even the surgery is not as -- we say good practice than in the U.S. or the established markets, I think will help some surgeons to do a better outcome with his surgery. In 2017, when it will be the full knee, that will be a new operation. But I think that I’m very, very confident that the growth of Blue Belt will be strong with this combination with Smith & Nephew.

And can I just follow up on the first question? Is it fair to assume then if nothing goes wrong with China from here, you should be much closer to the 5% growth rate again in the fourth quarter? Is that a fair way to interpret your answer there?

That’s a problem that we don’t know. And I don’t foresee, to be honest, any improvement in China. We have seen at the start of the issues of China, a capital issue; I mean we’re not saving any more capital. And now we realize that the in-market demand is slower than what we were normally looking at. So that creates a destocking at the wholesaler level and at the distributor level. So I cannot tell you if this will last for a month, for three months, or six months, I don’t know. But there is a trend here. So, I think it’s extremely important. I think that if you see that with our peers, you will realize that it’s not just a Smith & Nephew issue. At the contrary, I would say that we are doing okay in a market which is very complex at the moment.

We will now take our next question, and that comes from Michael Jungling from Morgan Stanley. Please go ahead.

I have two questions on Blue Belt. Firstly, can you comment on the next product milestone for Blue Belt that involves a Smith & Nephew knee or hip product? And I’m talking about the validation process. Normally that is required under the FDA rules and also under Blue Belt. If I recall endoscopy used to sell capital equipment or did operating theatre capital equipment and you stepped back because I think it was quite a challenge for you. And now you’re reentering into the capital equipment space. Why do you think it’s a good time now to sell capital equipment when before perhaps your experience with that was, let’s call it, below average?

First, again, I think it’s -- let me come back on Blue Belt for a quick second. I think that you know it’s one of the few acquisitions that I’ve done in my life where I’ve been talking with our people in the U.S., our reps, our sales management. And they all said to me, look, this is a must have. So, it shows you that it’s not just a vision from the top saying, it’s great to have and so -- no, it’s really something that our reps are absolutely convinced about and that will help them to do their job better. So that’s number one. Number two, I think that it’s very aligned to our strategic intent. When I’m talking for now years about the fact that I didn’t want to be huge in return. And for me it’s much better to have this technology rather than the new hip or a new knee, I really believe in that. I really believe that if you are able to bring in the market some very disruptive innovations like a JOURNEY II for example, if you are able to bring new models, like Syncera, if you are able to bring new technology because here I’m thinking about 2020 Michael, I am not thinking about today, even if that will grow that’s great. But I think that not being one foot in the robotic-assisted technology would be instinct. And I didn’t want to be the last one jumping in this. I think that it was a perfect match with Smith & Nephew, our portfolio, our strategy was absolutely there. So we’ve been very successful in supporting Blue Belt in placing systems in the U.S. and elsewhere actually. I think we have done that in Turkey for example, we placed the system. We have a number of new opportunities coming. So, this is exactly why we’re doing it. So, regarding the first part of the question on the products, all our Uni implants are on it, so whether it’s a JOURNEY or the new acquired ZUK from Zimmer which was I think an acquisition that we were thinking about this and thinking also about Blue Belt. And I think it’s a great addition. The next will be with the total new launch in 2017, so that will be the next development I would say of this market which is today as I said before the market was $350 million in the U.S. we expect to have a big bump and jump in this market when the total knee will start to happen.

And may I ask a follow-up question on Blue Belt? Will you keep this an open system, or will you be more like a Stryker with MAKO where you will use it solely for your own purpose to drive a long-term competitive advantage?

It’s an open question for the moment.

Did you say it will be open platform or it’s an open question?

No, it’s open for potential other infrastructure.

We will now take the next question from William Plovanic from Canaccord Genuity. Please go ahead.

I think, just to circle back on some Michael’s questions, you mentioned the 2017 approval for the next milestone, next product. When do you expect to have the JOURNEY II? And I think the ZUK is already approved on that platform but when do you think the JOURNEY II total knee would be approved on the Blue Belt platform? And then just some questions on emerging markets. What is your mix in emerging for the different areas of Sports Medicine, Recon, Advanced Wound Care? And then what’s your working currency in those emerging markets? Do you sell in pounds, local currency or U.S. dollars? I know it’s a big bucket, but I’m just trying to get a handle on the continuing impact here of the currencies.

On the currency, I will leave the CFO to give you explanation. On your first question Bill and thank you for asking, JOURNEY II total knee as I said is 2017 but for the moment it works for our JOURNEY II Knee Uni with no problem. So that’s exactly what I was saying. So it works for the ZUK and it works for the JOURNEY Uni. Regarding the emerging Markets, I am not sure I understand exactly your question about the mix, about Sports Medicines, Recon and so on. The biggest part of our business is reconstruction in the emerging markets. There is a huge demand. And I certainly remember that I was saying that a significant part of growth of Smith & Nephew in orthopedic was coming from the emerging markets and is still coming from the emerging market. So I think there is a high demand here which will remain high for the years to come. Advanced Wound Care, we have a great portfolio; it works extremely well. And Advanced Wound Devices, we also have launched in different geographies, the PICO obviously; I can give you the example of the Brazil, for example where PICO and many, many other geographies. We don’t have biologics obviously in the emerging markets but Sports Medicines is boosting. The biggest market is China, as you can imagine and that’s why I was mentioning. And you see that on the result of the Company that despite the double digit growth in the U.S. in joint repair, the reported growth has been 4% on a worldwide basis because of China softness in the quarter. So, I think this is -- we have a very, very stable mix. I think it’s great to have different businesses in the emerging markets. And as I said before, I think that we are very proud of our emerging market dynamic in the quarter. We have a fantastic dynamic in some big countries and South Africa for example is showing the double digit growth. The Middle East, it is doing also extremely well. The acquisition we have done in Turkey, in Colombia are working super well. So we have also recently done this acquisition in Russia as you know is a DeOst acquisition that I guess -- this works also strongly. I am very, very enthusiast about the emerging market growth and also profit improvement.

And on that topic, if I may follow up, just with some of the other multinational companies, we’ve seen some challenges in South America just due to the currencies and due to collecting down there. And I’m just wondering, have you seen any issues or challenges in any specific countries down there and are you contemplating that in your guidance?

So, I finish once this question, then I go to Julie to answer your currency question. But yes, the answer is yes, I mean but mainly in Brazil. But you know, we are not very big in Brazil. I mean we have acquired two small distributors two years ago. I was in Brazil months ago and it’s true that I came back with some thoughts about the economic and the political situation of the country and the implication of all this on the business. And there is no doubt that we are also down. Having said that, we are growing double-digit in Brazil. It’s not we have no growth or whatever but there is definitely some issues in Brazil. In the rest of the countries, Colombia is doing very well; Mexico is doing also okay. And that’s basically where we are in terms of business. Central America is not suffering either. So we are not in the other Latin American countries a big player. So Julie, do you want to take the currency and hedging?

Yes, I will take that. So first of all, just in terms of the split of the business in emerging markets, building Olivier’s point that there we’ve got about three quarters of our emerging markets in the surgical devices franchise including reconstruction and about quarter of business is wound. So that’s the split of it. Just in terms of currency, we sell in local currency in the vast majority of emerging markets. And so that’s where we have got this exposure in 2016 as the hedging rolls off. And as you know the currency in some emerging markets is being seriously devaluate including Brazil which is one of the headwinds we saw where the devaluation has been around 60% over 60%. So, yes, there is some difficult currency exposure coming from the energy markets. I would just like to reiterate with regard to 2016 that we’ve guided on this gross margin headwind primarily because we’ve got 50% of our sales in dollars, but we’ve got three quarters of our cost of goods in dollars which is creating the headwind. The 100 basis points we’ve guided is at the high end and we will look to mitigate that. It’s an unusual currency event because of essentially exchange rate being unprecedentedly weak against the U.S. dollar.

We will now take the next question from Martin Brunninger from Jefferies. Please go ahead.

I have actually just two more broader questions on Blue Belt, number one. I would almost take it the opposite side and wonder why it took you so long to go into a systems approach, while when we talk to orthopedic surgeons we see that the world doesn’t really need 25 different hips and knees in a hospital. So that’s obviously a commoditizing market and it’s an uphill battle going forwards and a systems approach is something that hospitals are needing. So why so late? Number one. And number two, how are you going to cross-sell it or offering it to your existing customers and how do you intend to win new customers with it? That’s very much a trend in the industry. And second question is more broadly on China. You have invested very strongly and pushed very strongly the emerging markets. Now, we see obviously Russia that was not unforeseen but it was not really foreseeable that’s not going very well at the moment; where we’ve bought in also China is not going very well for everybody because, primarily it’s the Chinese incumbent companies now that are taking advantage and advancing, and taking more market share. So, the question is do you expect that trend to reverse and why would you expect that China is recovering under these circumstances?

Well, let me start by the second question and I would answer on the Blue Belt timing. First of all, we do well in Russia, so we are not like many of our competitors. We do well. It’s not a huge operation but we have a good dynamic there. China is more important from me here. And the question of the long-term is the right question to us. And my answer is very simple. Healthcare is not very well funded for the moment. GDP growth will remain despite everything you can say -- we can see or read or whatever, around 5%, which is nothing wrong there. And when you think about the healthcare on GDP, which is a bit less than 3% now, you can ask yourself well, is that enough? Is this emerging middle class demand? And I tell you, why this will not grow for China at the level of the UK which is 9%; why this will not grow to the U.S. which is 17%, I don’t think so but that’s the severe; or France which is 11%. So there is with no doubt very strong good fundamentals for the future. So, I’m not anxious at all about China. Now having said, who says higher healthcare spending on GDP sales lower pricing. So, for sure you will have more volumes that means less prices that’s what we see now. But you know what, that’s why Smith & Nephew is prepared because don’t forget one thing, we have developed for a while now and very successfully, I have to say, the mid tier franchise within the emerging markets, which is entering exactly this type of things. And that I consider as a second lever for the growth of the emerging market in the years to come. So…

Just on China, maybe it’s naïve to assume that but obviously, the Chinese government put an awful lot of money to modernize the healthcare systems a few years ago and everybody in the western world benefited from that by selling products into the country. Now, the second phase the way I see it is that now the Chinese government is probably trying to promote their own companies to benefit from the modernization. So, I’m not sure if I can see the growth coming back in China to the extent as we have seen it, even if the Chinese government in the future spends more on healthcare, I see more of the Chinese companies, incumbents, advancing and progressing and taking more market share. What you think of that?

I’m sorry to disagree with you because what you call the Chinese companies is actually not true. What the Chinese have said is that they want to get advantage -- to give advantages to the local companies. We are a local company because we manufacture in China and we are exactly at the same level than the Chinese company for tenders and all this. So, it’s not the point of being Chinese, the point of being able to manufacture in China, which really makes you different. And this is especially true for the mid tier and the middle class.

[Operator Instructions] We will now take the next question from Alex Kleban from Barclays. Please go ahead.

Just three on Blue Belt and then just one quick one on 2016. So for Blue Belt, can you clarify what the capital outlay is for a hospital on a Blue Belt system versus something like MAKO? What kind of training time do surgeons need on that versus a comparable system, so in terms of just getting ramped up and getting implemented? And then just last, can you confirm that you had the CE approval on this? And then just what’s the outlook or what’s the process to get this ramped up in Europe and get them installed? Then the last question is just on 2016; I’m going to try for a guidance question. But would you be able to give the absolute EBITDA dilution number from the deal for next year because you’re talking about the 60 bps on the margins but we’re going to have some revenue uplift and then potentially some savings or I guess maybe some full forward from ArthroCare synergies offsetting that. So just to get a sense of what that picture looks like in real terms.

Julie, do you want to get that?

With regard to the selling prices, the MAKO system compared with the Blue Belt one. Blue Belt system is continuously low at price, it’s approximately less than half the price of the MAKO system. So, there’s considerable advantage in relation to that. And this coupled with other advantages that the system has got and in the sense that it’s a very portable system so it can be used from one operating theatre to another which gives the hospital greater efficiencies; it’s a very portable system. Just in terms of the point about the guidance for 2016, clearly, we will give full guidance at the end of the year as we usually do. In terms of the major components of the margin just through run them, first thing is we will deliver the Group optimization and ArthroCare synergies that we’ve mentioned earlier in earlier call. So no doubt about that. Both of those programs are running exactly to plan. We’re very pleased with them and they delivering margin accretion, they will continue to do so in 2016. So, on a like to like basis, you can be absolutely sure that our gross margins and our trading margins are improving on a like to like basis. The issue we’ve got in 2016 is because the hedging rolls off, we’ve got this transactional currency exposure which is up to a 100 basis points. But we will mitigate that as much as we possibly can through looking at various contracts with customers and looking at regional profitability. And so, those are the two major components. And separate from that of course, we’ve decided to take -- we’ve decided to take on the Blue Belt Technologies deal which is obviously a 60 basis-point dilution. So overall, those are the major components to margin. Clearly we’ve got another quarter to go. And we want to see how exchange rates move in the final quarter. And then what we’ll do is give full guidance. Together with the margin range, we’ll give full guidance into 2016 margins.

I think you’re right, it’s not the right time to talk about 2016. I assume that what matters today for me is to see the good things would do in top line and I assume this will continue certainly 2016 at a very good rate. Going back to your question on the price, the list price of the Navio system is $445,000. So as Julie said, about half of the price -- less than half of the price of MAKO system which is very, very strong possibility which is I believe a very big plus. So we have actually CE mark also for the Navio system.

And just one last quick follow-up on the Blue Belt R&D. Can you capitalize on maybe R&D around this, or is it all going to go straight to the P&L?

Yes, go to the P&L.

We don’t plan actually and if you think about the R&D next year, we will remain about 5% R&D sales next year. So we’ll have some investment to do, but I think that will not be capitalized.

We will now take our next question from Tom Jones from Berenberg. Please go ahead.

I had a couple on Blue Belt and then one on the wound business. Just a clarification, on Blue Belt, when you talk about the return on capital employed exceeding the cost of capital, just to be clear that’s group cost of capital or marginal cost of capital? The reason I ask is on 275 million plus a bit of incremental spend between now and the fourth year, to get to something exceeding the group cost of capital, one needs to expect either substantially in excess of 50% revenue growth or very, very high margins in that business. So, maybe you could just clarify around that. That would be helpful. And then the second question on Blue Belt. I just wondered how you’re thinking about this and how you think it fits into the changing reimbursement landscape for U.S. hospitals and I’m thinking with respect to the Bundled Payments for Care Improvement Initiative or the CCJR, if it ever comes to pass. Was that something that really triggered you to do this or do you think you would have done this irrespective of whether those payment models were evolving in North America?

Let me answer this one. I think we’d have done it irrespectively, so that’s not any issue for us. Maybe on the return on capital employed, Julie, do you want to take that?

So, the metrics we gave you there Tom is absolutely the Group works. So, the return on capital employed actually is the group work by year four. And as you know normally our metric is year three, so just one year later. And in terms of the revenue, yes, we guided that the revenues would grow at a rate higher than 50%. And based on the performance we’ve had Blue Belt so far, our relationship with them, based on the roll out that total knee as Olivier mentioned in 2017, we would expect the revenues to grow above 50%. So, your math is absolutely spot on.

And then the follow-up question I had was on the wound business and particularly the care part of it. You’ve been growing well above market in that business for most of this year. I’m still not entirely clear as to how or why that’s come to pass. I mean you’re clearly taking share from somebody because the market is certainly not growing that quickly. So, I’d be grateful for a little bit more color on the wound care business. Really what I’m trying to get at is how long this above market growth should be expected to continue before you return to a more normal market growth rate in the wound care business.

This is our normal growth rate and what do you mean -- no, it’s -- I think again, the perspectives of the advanced wound care are very good. Not only in the U.S., but also in the rest of the world, I think that the growth again this quarter has been 6%. The growth worldwide -- sorry in the U.S. has been better than that actually. The market is growing maybe at 4%, 5%. So yes, we gain market-share; this is true. I am expecting to beat the market again in 2016 and I gave a guidance there on this. We have also last year, as you know some issues linked to the lack of focus of our sales force on the products to promote, linked to the bad incentive of the reps also pushing them not to promote the products wanted. This is growth is driven by ALLEVYN mainly, which is doing extremely well, I really believe when talking to our staff there that this will remain very, very strong business in the years to come. So, there is for me no anxiety at all about our ability to grow better than the market in advance wound care. We should expect very good dynamic or so in Q4. Talking biologics also, I want to say something. I think it’s important sometimes when you have the figures in front of you, sometimes they are misleading. So, you have seen 2% growth in the biologics dynamic. Well, this is driven by two things: Basically a very strong comparator with SANTYL that we have had for last year and also an adverse wind from OASIS reimbursement. Now, if you normalize all this, the sales would have been 12%. So, if you think about the comparator of last year and so. So 12%, you know what, I am happy it was 12%. And you will see that Q4, also the expectation we have in Q4 are very strong, very strong, double-digit growth in this business. So, I think my message here is we do super well in Advanced Wound Management. Advanced Wound Devices shows the dynamic of PICO and all the generations of products that we do moving from a traditional to negative pressure to a possible negative pressure. We show also the value of focusing our sales force on the right products in Advanced Would Care because we did the market aim biologics, I think that we have double digit growth which is very healthy. So that’s what I wanted to tell you on the would care.

Okay, that’s very clear. Thanks for that.

It’s more than your question but it gives you from flavor.

We will now take the next question from Yi-Dan Wang from Deutsche Bank. Please go ahead.

I have about two questions. Olivier just to follow-up on the Bioactives answers you’ve given. The last, couple of quarters when we talked about Bioactives, you’d indicated that you do expect stronger growth in the later quarters. What gives you the confidence that we would see that in the fourth quarter? And the second question is on China. Just curious why you’re seeing the pressure on the sports medicine business but not seeing it on the orthopedic recon business. As far as I can understand the products you sell are mainly procedure driven products, albeit some of the equipment may be capital but you need to have the capital in place to deliver the procedures. So, if you could comment on those that would be great.

So on the Bioactives first, I think that Bioactives have been growing double-digit since we have acquired the company, some quarters were lower some quarters were better. We know that there’s something dynamic which is the main product of the biologics that is excellent. Again, I’m saying that if we have this growth because of comparator of last year which was due to a distributor stock in one big distributor. Now what I see is a trend, I mean, I look at the weekly sales of SANTYL and they’re very, very strong. So, if you ask me what you think about Q4, I tell you well we’ll have a very, very strong Q4 in SANTYL. So no worries about that. Trust me then, there’s no issue at all in this business. At the contrary, I think that development we have done recently like the long term care are doing very good, are showing very good results. So, we are extremely confident in delivering good results in this biologic area. Now in China, why sports medicines more than recon. I think it’s also due to the fact that there is a development of this. The capital equipment in recon was basically we feel instrument, so we pay for the most of the capital of the hospital when we consign stuff. When we have the towers which are in sports medicine, they take the towers. And I think we have seen, there’s no doubt in a more strongly growing market which is the sports medicine, it’s a big market in China, softness that we have not seen in the recon business. Maybe also because the recon business in China for us it’s more, it’s very local business also. We have the plus range that we manufacture locally. And we’ve not seen any type of issue in this recon business. I think that where you see issues potentially is sports medicine, its trauma which is more difficult. I think those are the big one where we see, we’ve seen some issues. Now Julie, do you want to add something on this?

No, I think that’s right. And we also see some issues. I think wherever you’ve got the use of distributors and obviously regional distributors, tier 1 and tier 2, you have this effect going through the channel which are the companies that reported on. So I think we would see it in sports, we saw it in Q2, we’ve seen it also -- elements of it coming through in wound but not recon. Just on the point about the bioactive growth, the question that you raised with Olivier, I mean just to give you the numbers. In 2013, our bioactive growth rate was 47%; in 2014, it was 15%; for 2015 we’re saying high single digits and excluding OASIS which has got particular reimbursement challenges, it’s a double digit growth rate. So that’s a strong track record for the three years since we acquired Healthpoint.

I was just going to clarify on the sports medicine business. So, are you seeing more local competition there as well as…?

Not at all, Yi-Dan, there’s no local competition there.

So, why are the procedures not being done if -- my original question is to do the procedures, you need to have the capital equipment in place and the market is very underpenetrated. So one would not have expected to see the extent of the slowdown that you’re seeing now. Are you able to reconcile that?

In Sports Medicine you mean?

Yes.

Yes it’s very under penetrated but there is a situation where the hospitals are not buying the capital equipment and there is also a diminution of the procedures done in the market resulting in a slower in-market demand, reflecting a drop in the inventory at the distributor level. So that’s why, it’s just mechanical stuff; there’s nothing here. But again, there’s less procedures, less willingness to buy equipment and so this is exactly what is happening to us now.

Why is there less procedures?

It’s a self pay market; you know how it works. And so people are spending less to do that. We have seen that in the U.S. during the crisis when people could not buy their drugs because the co-payment was too high. So that’s exactly the same. It’s a self play market; people have less money to spend and they delay procedures or they don’t go for it. So that’s all.

We will now take the next question from Lisa Clive from Bernstein. Please go ahead.

Just a quick question on China and the destocking. Now, Olivier, you mentioned it’s hard to tell whether this is a phenomenon that will last for one or two months or potentially six months, but could you just give us an idea of when you have seen rather sharp slowdowns like this in other markets in the past generally, are these inventory de-stockings usually worked through within two quarters or so?

That’s a good question actually. I don’t think that the inventory drop will remain an issue for long time because it’s stabilized. It can happen with different factors. For example in the U.S. last year, we have had the de-stocking of the inventory but the last year was because of the lack good execution of our sales force in the U.S. So, less in-market demand, less inventory and now you’ve seen that people are coming back to normal inventory because the dynamic in the market is very good. In China it’s different. It’s not a question of execution. It’s a question of people not going for surgery or hospital deciding up to buy any more equipment. So the extension in China is much slower than what we’re used of. And on top of this, the existing customers of the extension are doing less. So, it works this way. Now, I think that the inventory will not be an issue for long time, I think when they stabilize their inventory. And even it is very difficult to know exactly the inventory in China because you have tier 1 distributors and tier 2 distributors, sometimes tier 3 distributors. So, we don’t exactly know what is happening there. But I think this will be stabilized. And then the question is in-market demand; will that stay slow. In this case, there will not be more inventory asked by the distributors to Smith & Nephew or the market will start to gain and then they will refill their level of inventory at the rate which is normal. So that’s what I think. Now, it’s difficult to say because, we tried to look at the extension, extension obviously of the business and we realized more and more difficult to expand because of the economic condition in China. China is not bad again, that’s why I don’t believe it’s a long term issue for China. I think it’s a reaction of the market, but I don’t think it’s a fundamental issue in China especially for Smith & Nephew, we saw mid tier approach and the portfolio that we have and the ideas.

And lastly, on RENASYS, could you just give us an update on whether all the components of RENASYS II are reapproved and also, any update potentially on the time line for approval of RENASYS III?

We’ll know much more here at the Capital Markets Day on December 10th and you will have all the answers to your question on RENASYS now -- on RENASYS II, we have almost everything but not everything yet. Regarding the RENASYS Touch which is the new one. We are on track for a launch in Europe and in the U.S. in 2016.

Any further guidance in terms of whether that’s H1, H2?

No.

Okay. And actually, just given that, if it is more…

My colleague said, they will be maybe be softer than myself and they will maybe tell you, but it’s going well actually. We’re very happy with what is happening and absolutely on track. So that’s it.

Okay. So then the follow-up question is if it does take a while to get the full approval, clearly, you had a good quarter and negative pressure already but will you not actively promote RENASYS II and will you just wait for RENASYS III to come out?

Exactly that what we have said and we follow this stuff and we dedicate our efforts to PICO which does very well.

Okay, thanks.

Thank you. Well, we’ll take one more person, and then we’ll stop the call. So, one more question.

We will now take our final question from David Adlington from JP Morgan. Please go ahead.

Two please. First one, I’m just going to try and push a little bit on margins for next year. Obviously, you’ve got about 160 basis points of pressure coming from FX and the acquisition. That’s going to be offset by some synergies from ArthroCare and the ongoing cost savings program. How should we be thinking about the margin evolution? Do we think flat is possible into next year? And then the second one is, obviously it doesn’t look like so far we’ve seen any material disruption in the market from the Zimmer’s Biomet transaction. It doesn’t look like anyone’s gaining material share, which is slightly different to maybe what we were expecting. Just wondering if we can get your thoughts on that.

I think the margin of next year is not the purpose of today. So, we have given some ideas about Blue Belt, about the ForEx. Julie has said that everything would be done to mitigate as much as we can. The ForEx, we are not in front of a crystal ball saying what is going to happen. While that being said, if things remain as they are, this will be the mechanical impact of the ForEx. Now, I think that we have a number of jokers in our pocket. I mean we have the GO optimization plan of the company which is doing very well, we have the ArthroCare integration, which is doing very well, we have the top line revenue David which is doing extremely well on all the items that we have in front of us with the exception of China which is not a Smith & Nephew problem but which is a global market program problem. Despite this by the way, we’re still growing in China. So, we are not talking here about a huge problem. There is a good dynamic. Emerging markets are doing very well; everything is doing well. Everything is green. And that’s the message I’d like to leave behind is the things are happening. We are acquiring according to strategy of the Company, making acquisitions which for me are preparing as to be a very strong player in the future. So I think we are all fighting for margins here. And the balance we have given since the beginning of the margin improvement will happen. Now it’s a midterm game here. So if ForEx come, you know what, we are not going to jeopardize all the dynamic of the in putting all the SG&A to make the margin at the level you would…

Ladies and gentlemen, that will conclude today’s question and answer session. I would now like to pass the call back to our host for any additional remarks.