Weak China sales drag down Smith & Nephew profits

(Adds CFO interview, further details, latest shares)

By Ben Hirschler

LONDON, July 28 (Reuters) - Smith & Nephew (LSE: SN.L - news) , Europe's biggest maker of artificial knees and hips, said on Thursday it continued to struggle with weak demand for its products in China, disappointing investors who sent the shares down 4 percent.

A poor second-quarter performance in China and the Gulf states offset good growth in its global sports medicine joint repair business.

The company said it expected China "to begin to improve" in the second half of the year but warned recent difficult trading conditions in the Gulf were likely to continue in the near term.

"It's been a little bit worse than we anticipated and in addition we've had some challenges in Europe. But the strategy of the company is intact and we've had very good growth in some key franchises, such as sports medicine," Chief Financial Officer Julie Brown told Reuters.

Overall quarterly revenue of $1.19 billion, which was broadly in line with analyst expectations, generated trading profit down 3 percent at $483 million, while profit margins slipped 170 basis points to 20.8 percent from a year ago.

The British group competes with larger rivals such as Stryker (Swiss: SYK.SW - news) , Zimmer Biomet (NYSE: ZBH - news) and Johnson & Johnson (NYSE: JNJ - news) in the orthopaedics market and has often been viewed as a potential takeover target.

Brown, who will be leaving the company in January to join Burberry, said she believed there was still a role for smaller companies, adding S&N itself was an acquirer and would continue to look for opportunities in high-growth sectors. (Editing by Susan Thomas)