Medical devices maker Smith & Nephew slashed its growth forecasts today after warning that constraints on NHS spending were hitting its business.

Shares in the company, which specialises in areas such as hip and knee replacements and wound management, fell 10 per cent after it posted lower-than-expected sales and earnings for the first quarter of the year, and downgraded forecasts for the rest of 2006.

Among factors behind the disappointment, it blamed "healthcare budget constraints" in the UK, just a day after health secretary Patricia Hewitt was jeered by nurses over job cuts in the NHS.

Profits

Revenues grew by 6 person in the first quarter to $643m (é360.4m) while pre-tax profits were up from $124m (é69.5m) to $126m (é70.6m).

S&N chief executive Sir Christopher O'Donnell said: "First quarter sales and earnings are slightly lower than expected and the second quarter is anticipated to show only a modest improvement."

The company said conditions were also tough in the United States and Germany as it downgraded its earnings growth forecast from between 7 per cent and 8 per cent to between 4 per cent and 6 per cent.

S&N said a move to split its orthopaedics division into separate reconstruction and trauma businesses had added to the slower-than-expected revenue growth.

'Challenging'

Sir Christopher said: "This has resulted in a challenging first quarter, which has made us more cautious over our growth prospects for the year."

But he added that the second half would be better thanks to new product launches.

At the wound management division, which is based in Hull and develops treatments for difficult-to-heal wounds such as ulcers and burns, first quarter revenues were up just 1 per cent compared with the same period last year to $157m (é88 million).

'Constraints'

S&N highlighted a 5 per cent fall in the UK and 8 per cent fall in Germany because of "significant healthcare spending constraints in these countries".

In the final quarter of 2005, wound management revenues exceeded é100m for the first time.

Sales in endoscopy - the use of tubes to look inside the body - were up 7 per cent, while orthopaedic construction was up 7 per cent and orthopaedic trauma was up 8 per cent.

Charles Stanley analyst Jeremy Batstone said: "The very negative share price reaction to these results reflects disappointment not just with the reported numbers, but also the downbeat outlook statement."

Controls

S&N said the wound care division was the area hardest hit by tighter controls on spending in the NHS.

A company spokesman said: "The NHS is S&N's biggest customer in wound care and we provide a third of the UK's wound care products.

"There are very careful cost controls at primary care trusts up and down the land and we are seeing that. PCTs are buying fewer products.

"There is a shortage of funding at the NHS."