Smith & Nephew warns profits will slow in 2006

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The medical devices specialist Smith & Nephew posted a 14 per cent rise in profits last year but warned growth would slow this year due to one-off factors and a tougher joint implants market.

Even so, the chief executive Chris O'Donnell was confident the group would continue to outperform the orthopaedics market, helped by new products such as a less invasive hip implant.

He predicted profits growth would slow to 7 to 8 per cent this year because of the combined impact from a slowing joint implants market, the sale of a joint venture with Germany's Beiersdorf and a switch to reporting in US dollars. S&N sold BSN Medical for almost £700m to focus on its high-growth businesses of joint replacements, keyhole surgery and wound management. Mr O'Donnell was confident the group would get back to its usual 14 to 15 per cent profits growth next year.

He blamed government pressure to keep healthcare prices down for the slowdown in the market, but stressed that underlying demand remained good. "The first of the baby boomers have hit 60 this year. They are the big driver of our business because they need implant hips and knees and tend to have more difficult wounds," he said.

The firm announced it would split its orthopaedics division into two separate units, a reconstructive implants business and a trauma division. David Illingworth, the former head of the orthopaedics business, has been promoted to chief operating officer, while the deputy chairman, John Buchanan, will take over as chairman in April, as previously announced. He will succeed Dudley Eustace, who will be 70 this year and is one of the oldest chairmen in the FTSE 100.

The group, which has nearly 10 per cent of the $8bn joints market and is growing its market share, plans to launch 16 products in total this year. As a highly cash-generative business, it has the ability to make further small acquisitions this year as planned.