Smith & Nephew may close more plants

Smith & Nephew, the medical devices group elevated to the FTSE 100 last month, is considering shutting two of its 10 remaining factories as it focuses on hi-tech, high-margin medical businesses.

Chris O'Donnell, the chief executive, said yesterday that he was expanding S&N's manufacturing capability and may "merge" some of its US factories. "The message today is that we are expanding more than rationalising," he said.

The company has been boosting production of a new artificial knee and is building a new factory in Memphis. Mr O'Donnell said the number of plants could be reduced to eight as the last act in a three-year programme that has reshaped Smith & Nephew and almost tripled its share price. At the start of the process, the company had 30 factories.

S&N has sold off 40 per cent of its old business, including consumer healthcare products, to focus on artificial joints and limbs, keyhole surgery and wound management.

The costs of the divestment programme and a capital restructuring cut pre-tax profits by 35 per cent to £113m for the six months to June. On the continuing businesses, turnover was up 21 per cent to £489m while operating profits before exceptionals rose from £66.3m to £82.8m.

S&N has boosted its salesforce to 2,500 people and is concentrating on developed countries, where health spending is growing. Sales grew in all S&N's markets except Japan, where the government is cutting back on public expenditure.

Analysts were told that group margins, currently running at 17 per cent, will be expanded by at least a half-point each year until they hit 20 per cent. Mr O'Donnell also promised new acquisitions to strengthen its endoscopy division, which is launching a digital camera for use in keyhole surgery, and to bolster its orthopaedics business.

"We are scanning the market place, the departments of universities, and the technological conferences," he said. "We make a decision on whether to enter negotiations about once a week and have 20 on the go at any one time. That usually turns out at two or three acquisitions a year."

The company could spend up to £500m before it needed recourse to shareholders.

Smith & Nephew shares rose 4p to 361.5p.