Knee joints help Smith & Nephew stay ahead: Profits up 27% to pounds 82m as sales growth is maintained

A BOOMING market for replacement knee joints has helped Smith & Nephew maintain sales growth despite the global economic slowdown.

John Robinson, chief executive of the healthcare group, said yesterday that the company's sales growth had been led by demand for its Genesis knee implant, which had more than compensated for a static market for replacement hip joints. The implant was typical of the innovative products now driving the company's fortunes, he said.

Sales of the Genesis, worth about pounds 40m last year, are growing at about 15 per cent per annum, and the company expects the market to double by the end of the century.

'There are more knee problems than hips, yet only half as many knees have been implanted,' Mr Robinson said. That was because the techniques of hip implantation were much older and less sophisticated and so the market was much nearer saturation.

S&N has doubled its knee joint market share to 10 per cent in five years, and is now the third-biggest producer of knee joints in the world.

Overall the company's results were strong, with pre-tax profits, including a pounds 6m exceptional gain on the sale of its Australian plastics business, up 27 per cent at pounds 82.6m on turnover 17 per cent higher at pounds 483m.

Favourable currency effects were strong contributors to the rise, however, and in constant money sales and profits were up only 8 per cent, roughly the same growth as last year.

But Eric Kinder, S&N's chairman, said it was to the company's credit that it had achieved an underlying sales increase comparable with last year's, despite weaker markets in the US and Continental Europe.

A margin of about 15.8 per cent was fractionally higher than last year, but the company has seen its tax charge jump from 29 per cent to 33 per cent as reliefs have expired and tax rates in many of its markets have risen. Earnings per share were up 12 per cent at 4.7p before exceptionals.

Healthcare sales accounted for pounds 400m of turnover, with consumer products contributing only pounds 71m. The fastest-growing healthcare sectors were wound management, casting, bandaging and support, orthopaedic implants and trauma and arthrospcopy. Together these areas accounted for three-quarters of total healthcare sales, and growth was particularly strong in the sophisticated dressings used for serious wounds.

Smith said it was on the acquisition trail but had yet to identify a suitable target. 'We need to add businesses which will benefit from our international sales and marketing,' Mr Robinson said.

The shares closed down 2.75p at 145.25p. The interim dividend is 1.89p, up 5 per cent.

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