Smith & Nephew, the hip replacement and bandaging group, has blamed a better organised but cash-strapped NHS, working to aggressive spending limits, for a 5% drop in sales at its British wound-dressing division.

The chief executive, Sir Chris O'Donnell, said primary care trusts (PCTs) had redoubled efforts to find "ways of trying to use the most effective treatments for patients for the least money ... Basically, they are better organised."

S&N is the NHS's largest supplier of bandages for hard-to-heal wounds such as leg ulcers, pressure sores and burns, with a market share of 35%. Sir Christopher said the division had been reorganised to address the NHS's tighter buying approach. "We will be focusing much more on cost effective ways of serving the PCTs, the GPs, the community nurses etc. And we expect, as a result of that, to gain market share." The 5% fall in revenues for the first three months of 2006 was in line with declines across the woundcare market as the NHS cut spending and reduced bandaging stock.

Similar health service spending constraints in Germany led to a 9% decline in specialist bandage revenues. Sir Christopher said challenges facing S&N's woundcare business in Britain and Germany meant the division was only expected to grow internationally by "low single digits" this year. He said the group's hip and knee replacement business in Britain failed to meet growth expectations for the first quarter after NHS over-spending led to widespread postponement of elective surgery.

S&N is also facing what it believes is a short-term sales slowdown at its joint replacement, endoscopy and complex bone fracture divisions overseas. Sir Christopher said trading conditions were difficult and any improvement in the second quarter of 2006 was likely to be only modest. S&N posted sales for the first three months of 2006 up 6% at $643m (£357m).