Synthes-Stratec 2003 results: Sales and profit growth continues
Oberdorf/Switzerland, March 17, 2004
Synthes-Stratec 2003 sales from continuing operations grew by 21.8% to $1,227.9 million (+18.5% in local currencies). Net profit from continuing operations grew by 14.6% to $295.3 million (+11.9% in local currencies), before a non-recurring charge of $215.0 million for the write-off of in-process research and development (R&D) related to the acquisition of Spine Solutions, Inc. Profit growth in 2003 was negatively impacted by serveral factors: heavy development expenses associated with the company’s new lumbar and cervical spine prosthesis acquired with Spine Solutions; heavier than normal manufacturing and selling expenses associated with the market development of the locking compression plate (LCP) and trochanteric fixation nail (TFN ) products, the continued expansion of a dedicated sales force in Europe and Latin America and an inventory obsolescence charge as a result of the successful roll out of several new replacement products including the LCP and TFN.
Audited key figures
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| 1 | Local currency – 2003 results translated at 2002 foreign exchange rates. |
| 2 | Excludes $215.0 million of in-process R&D write-off due to acquisition of Spine Solutions, Inc. Assets acquired were valued at approximately $300.0 million, net present value, of which approximately 72% (the amount written off) was associated with products not released to market and subsequently expensed as in-process R&D. |
Business performance
Synthes is the worldwide market share leader in the trauma segment of the orthopaedic market. In 2003, the company continued to increase market share, growing the business at a significantly higher rate than the rate of growth of the overall orthopaedic trauma market. This growth was generated in large part by sales of our unique LCP system, and our recently introduced TFN for the treatment of proximal femur fractures.
Additionally, Norian SRS was successfully introduced and, with its unique compressive strength characteristic, makes it the preferred choice for surgeons as a bone void filler.
The Spine division generated excellent growth during the 4th quarter and for the full year. Several successful product launches, including the interbody fusion and thoracic lumbar devices, contributed to this growth. The Spine division continues to grow at market rates.
The Cranio-maxillofacial division also generated excellent sales growth in 2003. The division’s growth was enhanced by the recently introduced Low Profile Neuro Fixation System, as well as the continued success of Norian CRS Fast Set Putty. The cranio-maxillofacial business grew faster than overall demand growth for cranio-maxillofacial products and gained market share.
Capital investment
Synthes-Stratec, Inc. continues to invest heavily in the future as evidenced by 2003 capital expenditures of $122 million, up 50% compared to the prior year. We expect 2004 capital spending to roughly approximate 2003 spending levels as a result of expected continued strong volume growth.
New jobs created
At December 31, 2003, Synthes-Stratec, Inc. employed 4,290 people worldwide, an increase of 487 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-Stratec, Inc. has approved a dividend of CHF 7.00 per share for the year 2003 payable on April 26, 2004.
Mathys Medical combination
On February 6, 2004, the Company acquired Mathys Medical consummating a worldwide merger of the two companies’ osteosynthesis organizations, with the exception of their operations in Germany. The merger in Germany is subject to merger control proceedings which are still ongoing. In the meantime, the Synthes company continues to operate in Germany as prior to the merger.
Synthes-Stratec fully respects the time needed by the German Bundeskartellamt to complete their review procedure with respect to the German market. However, it was vital for the future growth and success of the combined Synthes Company to move ahead with the worldwide (except in Germany) integration of its operations. The decision was important in order to maintain momentum, provide security to employees, and to generate economic value to the shareholders of Synthes-Stratec.
Outlook
The company has a healthy new product development pipeline including the ProDisc® lumbar and ProDisc®–C cervical products, and a unique opportunity to begin to leverage its product development and manufacturing expertise on a global basis.
The company expects to complete the roll out of the LCP and TFN products in 2004 and to continue to spend heavily on the ProDisc® lumbar and cervical product lines. Nevertheless, the company expects an improvement in gross and operating margins in 2004 and an acceleration thereafter, exclusive of the impact on margins of the consolidation of the Mathys financial results.
Synthes-Stratec, Inc.
Synthes-Stratec, Inc. is a leading global medical device company specializing in the development, manufacturing and marketing of orthopedic instruments and implants. Applications include surgical treatment of bone and maxillofacial trauma or deformities and a full range of products for spine surgery.
For further information please contact
Peter Fehlmann, Investor Relations, Synthes-Stratec, Inc.
Phone: +41 61 965 63 39, Fax: +41 61 965 66 06
e-mail: ir.info@synthes.com