Smith & Nephew back on track

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Smith & Nephew, Europe’s biggest artificial knee and hip maker, trimmed costs to boost profits in the final three months of 2011, putting it back on track for what it expects to be a tough 2012 after a disappointing third quarter.

The group’s trading margin bounced back to 25.2 per cent, from 19.8 per cent in the third quarter, resulting in trading profit of £176m, down one per cent on a year ago but ahead of analysts’ expectations.

The Advanced Wound Management business, which is based in Hull, generated strong sales growth and delivered “excellent” trading profit margins, the group said.

Smith & Nephew has struggled with high costs, and chief executive Olivier Bohuon is cutting £95m from the business, including losing seven per cent of its workforce.

Demand for replacement knees and hips, made by Johnson & Johnson, Stryker and Zimmer as well as Smith & Nephew, stalled when global economies weakened.

Stryker said last month it expected the market to rebound, but not until the jobless rate improved, a view echoed by Smith & Nephew.

“We expect that the macro-economic climate will continue to influence both patient and payer behaviour and, as a result, it seems likely that tough market conditions will persist throughout the year ahead,” the company said.

The company has seen growth in its knees franchise, but its hips business has been hit by controversy over metal-on-metal joints.

Smith & Nephew said last month it would spin off its biologics business into a new US-based joint venture majority owned by healthcare private equity firm Essex Woodlands, providing a cash injection and longer term funding for research.

The group posted a three per cent rise in revenue for the quarter to £698m, slightly below expectations.