Synthes, Inc. Announces Strong Full Year 2006 Financial Results: 2006 Local Currency Sales and Net Earnings up 14.9% and 16.8%, respectively, versus the prior year
Solothurn/Switzerland, March 1, 2007
Synthes 2006 consolidated sales for the fourth quarter grew by 17.0% (14.8% in local currency) to $628.9 million. 2006 full year sales of $2,391.6 million represent an increase of 15.1% (14.9% in local currency).
2006 consolidated net earnings of $508.8 million grew by 16.7% (16.8% in local currency) versus prior year.
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Continued growth in all product lines driven by successful product introductions and continued global expansion of a dedicated sales force
All three product lines (Trauma, Spine & CMF) experienced double-digit sales growth for 2006 versus prior year. Trauma growth was primarily due to the continued expansion of Locking Compression Plate (LCP) products. Since 2002, Synthes has introduced 32 different LCP product lines and during the fourth quarter 2006 continued to expand existing systems. Some fourth quarter product introductions in Trauma include the LCP Anterolateral Distal Tibia Plate and the 3.0mm Headless Compression Screw. In September 2006, Synthes also launched the fourth product within the Expert Nailing System, the Lateral Entry Femoral Nail (LFN). The Trochanteric Fixation Nail (TFN) will continue to be sold and promoted for all indications with the exception of the treatment of intertrochanteric fractures. The TFN and the previously introduced Expert Intramedullary Nail systems are other growth contributors to our Trauma business.
Spine’s growth was realized over a broad range of products including the Interbody Fusion, Anterior Thoracolumbar, Cervical and Biomaterials product portfolios. An important event was the FDA approval of the PMA for ProDisc-L in August 2006. Synthes has subsequently initiated a controlled roll-out. The distribution of the product is intrinsically tied to a three-tier education program compulsory for every future user of ProDisc and addresses not only all didactics and surgical techniques, but also focuses on proper patient selection. The FDA IDE-study results have shown a reduction in patients’ pain and disability as well as the maintenance of normal segmental motion.
CMF’s continued strong sales growth in all regions was fuelled by solid core fixation growth, especially for mandible and neuro indications.
Fourth quarter 2006 regional sales performance
Also, in the 2006 fourth quarter all regions generated double digit sales growth. North America’s and Europe’s fourth quarter 2006 sales continued at a pace well above market growth. Asia Pacific’s fourth quarter sales performance improved significantly versus the third quarter 2006’s growth rate despite the mandated price decreases by the Japanese Government.
Operational results
2006 full year gross profit margins of 81.9% (as a percentage of sales) declined slightly versus full year 2005 of 82.5% primarily as a result of escalating raw material cost, increased inventory obsolescence as a result of new product introductions, and increased subcontracting costs to support new product launches. 2006 gross profit margins represent an improvement versus second half 2005 of 81.2% primarily due to manufacturing efficiencies.
2006 full year operating expense improved (as a percent of sales) as a result of efforts focused on productivity improvements. Also 2006 profits (as a percent of sales) improved versus prior year.
AO asset acquisition
On August 28, 2006 Synthes, Inc. and the AO-ASIF Foundation ("AO") closed the asset purchase agreement transaction which was previously announced on March 15, 2006. Under the agreement, the Group acquired the Synthes trade names and marks and substantially all of the intellectual property, including patents and know-how from the AO. The acquisition cost was CHF 999.9 million (US$ 809.3 million) including a combination of shares of CHF 503.4 million (US$ 407.5 million), cash of CHF 100.0 million (US$ 80.9 million) at closing, CHF 75.0 million (US$ 60.7 million) due six-months after closing, installment payments of CHF 300 million (US$ 242.8 million) over five years, and CHF 21.5 million (US$ 17.4 million) including the assumption of certain liabilities and transaction costs net of imputed interest. The AO will continue the mission of educating surgeons, conducting basic and clinical research and providing technical services to assure the safety and efficacy of osteosynthesis products. The transaction is projected to be slightly accretive to earnings per share.
A fairness opinion has been provided by Credit Suisse to Synthes, Inc.
Capital investment
Synthes continues to invest heavily in its future growth as evidenced by full year 2006 capital expenditures of $190.3 million. 2006 capital expenditures consist primarily of continued investments in sales support equipment.
Job creation
On December 31, 2006, Synthes, Inc. employed 8,451 people worldwide, an increase of 824 employees compared to the prior year. The majority of the staffing increases were in the areas of manufacturing and sales.
Dividend Approval
The Board of Directors of Synthes, Inc. has approved a dividend of CHF 0.7500 per share for the year 2006 payable on April 30, 2007. The stock will trade ex-dividend on March 29, 2007. Stock positions held on the record date, also March 29, 2007, are entitled to dividend payments.
Synthes: A leading medical device company
Synthes is a leading global medical device company. We develop, produce and market instruments, implants and biomaterials for the surgical fixation, correction and regeneration of the human skeleton and its soft tissues.
For further information please contact
Peter Fehlmann, Investor Relations, Synthes, Inc.
Phone: +41 32 720 48 10 , Fax: +41 32 720 48 11
e-mail: ir.info@synthes.com