Implant sales boost Smith & Nephew

THE SPINE is going to take over from the knee as the favourite area for joint replacement, according to Smith & Nephew, the healthcare company.

And its strong position in that market has helped it to a 6 per cent increase in interim profits to pounds 66m. Sales of orthopaedic implants rose 24 per cent to pounds 50.1m in the six months to 27 June, with its Genesis knee replacement up 30 per cent.

John Robinson, chief executive, said that although hip replacement remained the largest area artificial knees were the fastest- growing. And he expected the spine, where the group has developed implants for the lower back, to be the next big growth area.

Smith & Nephew has also benefited from the growth in keyhole surgery, where it is one of the leading suppliers of cameras, lights and other equipment. Sales in this area rose more than 30 per cent, helping its trauma and arthroscopy business to increase its turnover by more than a quarter to pounds 73.4m.

Overall sales rose 7 per cent to pounds 411m, but the healthcare division - which also makes bandages, surgeons' gloves and wound healing products - increased turnover by 10.5 per cent to pounds 333.5m.

Mr Robinson said the group's strategy was to pursue sales-led growth in health care. It had been investing heavily in sales and distribution to support this.

That has hit margins, which fell from 16.9 to 16.5 per cent, meaning profits in the division rose by 7.9 per cent to pounds 54.9m.

One of the aims of the increased investment is to improve the penetration of the group's products in all markets. Mr Robinson admits it is 'patchy' at the moment - for example, it sells pounds 200 worth of orthopaedic implants per 1,000 people in the US compared with only pounds 14 in the UK.

The consumer division - which includes Nivea and Simple skin care products, Lil-lets and Elastoplast - continues to suffer from the recession and profits fell 12.6 per cent to pounds 11.8m on sales 6.3 per cent lower at pounds 77.2m.

Mr Robinson said the business was likely to grow less strongly than the healthcare division, but he added: 'They are good businesses. They generate strong cash flow, while some of the other busineses require cash to fund their growth.'

Earnings per share rose 2 per cent to 4.3p, depressed by a rise in the tax charge from 27 to 29 per cent.

The interim dividend is 1.8p, up 3 per cent, and the shares rose 1.25p to 137.75p.

James Dodwell, health care analyst with County NatWest, has downgraded his full-year forecast from pounds 145m to about pounds 141m, partly because of adverse currency movements.