Smith & Nephew earnings beat the forecasts

The group said its Advanced Wound Management division, based in Hull, was the strongest of its businesses, delivering eight per cent growth in the three months to the end of 2009.

One of Europe's leading makers of replacement knees and hips, it has been affected by falling spending, but despite this has avoided the worst of the recession.

"Our largest business, orthopaedics, saw a good finish to a tough year," said chief executive David Illingworth.

"Market conditions were a little less difficult than in the first half."

S&N has seen sales of equipment to hospitals fall as capital spend comes under pressure.

Its Endoscopy division, which specialises in minimally invasive joint surgery equipment typically for problems such as sports and soft tissue injuries, has also come under pressure as people hold off elective surgery.

The group's knee and hip ranges performed well in the quarter, particularly in the US, he said.

But products aimed at younger, more active patients were weak.

He said this sector will improve as consumer confidence returns and unemployment stabilises.

S&N's fourth quarter revenues grew four per cent to $1.06bn (683m) while annual revenues lifted two per cent to $3.7bn (2.4bn).

S&N, which traces its roots back to 1856 when Thomas James Smith opened a dispensing chemist shop in Hull, now employs about 1,000 in the city and more than 90 in Gilberdyke, making high-tech treatments for hard-to-heal wounds.

Its products are used in a diverse range of situations, from treating injured soldiers on the battlefields of Afghanistan to burns victims.

Advanced Wound Management outperformed market growth of four per cent over the quarter, hitting $243m (156m), which the group said

was "robust".

The division's largest markets of the UK, Germany and France helped Europe deliver growth of nine per cent.

In the US, revenues grew five per cent, helped mainly by its novel Negative Pressure Wound Therapy (NPWT) products.

The rest of the world grew nine per cent thanks to strong performance in emerging mar- kets.

However, the division's trading margin shrunk to 19.2 per cent from 20.6 per cent a year earlier, due to phasing of costs and investment in NPWT.

Developments included opening a new manufacturing plant in China, which features two production lines, while consolidating distribution arrangements in the UK.

The advanced wound market is predicted to grow from $5.1bn to $7.1bn over the next five years, and S&N expects its own growth to be driven by NPWT.

The group's overall trading margin improved by 60 points to 23.8 per cent, helped by cost savings and a favourable product mix in endoscopy.

"We are still targeting 24.5 per cent margin by the end of 2010," said Mr Illingworth.

S&N is cautious about the pace of recovery and believes prices will continue to face pressure. But it believes long-term demand

fundamentals point to strong growth in time.

"We had a strong finish to the year and are pleased with our achievements in these challenging conditions," said Mr Illingworth.

Analyst Jeremy Batstone Carr at Charles Stanley upgraded the stock to buy and said: "Considerable emphasis has been placed on Negative Pressure Wound Therapy (NPWT) within Advance Wound Management and we expect to see this business build on the foundations laid over 2009, although the outcome of (a) patent trial could be critical."

At forefront of healing process

Smith & Nephew's Advanced Wound Management division is pioneering an innovative treatment to help heal chronic wounds faster.

Negative Pressure Wound Therapy (NPWT) was brought into the company in 2007 and launched in February 2008.

The group expects NPWT to be the leading driver of the division's growth going forward.

It works by applying suction to a wound to encourage tissue repair.

A suction pump, attached to the wound, creates a moist wound-healing environment, free from outside contamination.

The device can be used to treat open wounds such as diabetic ulcers, pressure sores, and post-operative wounds by subjecting them to sub-atmospheric pressure.

One of the most high-profile uses of the new therapy has been in Iran and Afghanistan where it is used to help soldiers with serious traumatic combat wounds.