Synthes' First Half 2009 Results

 

 

 

Synthes (SWX: SYST.VX) today announced its First Half Year 2009 financial results, with sales and earnings growth of 4.0% and 9.4%, respectively (10.4% and 12.7%, respectively, in local currencies).

 

 

 

   Sales gained momentum vs. Q1 2009 with 11.2% growth in local currencies (LC) vs. prior year (PY)

   Consolidated sales of US$ 831.0 million increased by US$ 38.5 million vs. PY

   North America sales growth accelerated in spite of continued economic challenges

   Asia Pacific also gained momentum and generated strong growth due to the performance in developing markets

   Global product development processes and organizations continue to be strengthened

 

 

 

   Net earnings of US$ 381.7 million, compared to US$ 348.8 million in 2008, grew in excess of double-digit sales growth in LC

   Consolidated sales of US$ 1,636.0 million increased by US$ 62.5 million (US$ 164.0 million in LC)

   Double-digit sales growth was achieved in all regions and product groups outside of North America

   North America's growth was driven by new Spine and Trauma products, despite a recessionary U.S. economy

   Gross margin remained solid at  83.1%

   Income tax rate decreased by 2.8 pps vs. PY to 29.5%

   Free cash flow generation of US$ 364.9 million, was significantly higher vs. H1 2008, resulting in a record cash balance of US$ 1,133.1 million (30% growth vs. year end 2008)

   Increased penetration of new products, sales force expansion, and ongoing educational efforts continue to positively influence future growth

 

 

Michel Orsinger, President and CEO of Synthes, comments on the performance:

 

 

 

 

 

 

 

 

* Local currency: 2009 results translated at 2008 foreign exchange rates

 

 

 

North America gained momentum vs. the first quarter and achieved high single-digit growth despite a challenging economic environment. In Trauma, Synthes leveraged its product development strength, product quality and the skills of its highly trained sales force to launch a number of new products and maintain its leadership position. Spine's good performance continued as a result of new product introductions and sales force expansion. These achievements were realized despite reduced procedure volumes, a more challenging pricing environment and pressure on inventory reduction from our hospital customers.

 

In Europe, Synthes continued to generate double-digit local currency growth across all product groups. This was the result of the organization's ongoing focus on sales force expansion, introduction of new products, educational initiatives to improve patient outcomes, and the establishment of a direct sales force in Northern Germany. Our new minimal invasive Spine products, such as In-Space and VBS (Vertebral Body Stent), combined with the introduction of our new locking screw concept for Trauma nails (ASLS) have gained widespread market acceptance.

 

Asia Pacific's sales growth accelerated due to double-digit sales growth in China and India. In Japan, Synthes posted low double-digit sales growth (in LC) despite government mandated price decreases. The expansion of the sales force in underpenetrated markets and the launch of a significant number of products continued to positively influence growth across the entire region. Additionally, the LCP platform and PFNA product lines were again well received by customers.

 

Rest of World (Latin America and Middle East) continued to experience strong growth across all product groups, primarily as a result of the major Latin American countries growing at a double-digit local currency rate. This growth was achieved in spite of the absence of Middle Eastern tenders, which favorably impacted the second quarter of 2008. New product launches across all product groups and sales force expansion contributed to the solid performance.

 

 

 

 

First half year 2009 gross profit margin of 83.1% (as a percentage of sales) remained strong.

 

Operating expenses (as a percentage of sales) were slightly up vs. PY due to a negative FX impact. Productivity improvements remained a priority and helped to partially offset increased legal expenses.

 

Other Income (Expense) in relation to PY was favorably impacted by an absence of FX losses which were experienced in 2008. Interest income declined despite increasing cash balances, due to the reduction in interest rates.

 

Improvement in the income tax rate to 29.5% (vs. 32.3% in H1 2008) was achieved due to a continuation of tax planning efforts and favorable settlement of tax contingencies.

 

Capital Expenditures of US$ 122.1 million reflect Synthes' commitment to business expansion. Sales force equipment investments (implant and instrument sets) represent approximately 60% of total capital expenditures. Sales force investments demonstrate Synthes' continued support of its sales force and new product launches.

 

Synthes' net cash flow of US$ 261.5 million vs. year end 2008 resulted in a record cash balance of US$ 1,133.1 million.

 

Inventory turns (LC) improved to 1.1 vs. PY 1.0, whereas inventory levels increased by US$ 50.5 million. This increase was primarily due to seasonal holiday build-up and an increase to support growth in Asia Pacific.

 

During the first half year 2009, Synthes increased its staffing by almost 500 employees. Over 80% of the increase consisted of sales force and manufacturing personnel. On June 30, 2009, Synthes employed 10,443 employees worldwide.

 

 

 

 

Synthes continues to remain focused and committed to its core strategies of innovative new product launches, sales force expansion and education. Synthes expects to maintain its current performance for the balance of the year, despite a challenging global economic environment.

 

 

 

 

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.

 

 

The First Half 2009 Financial Statements incl. Notes can be downloaded on

http://www.synthes.com/html/Financial-Reports.4355.0.html.

 

 

For details about today's Financial Analyst Phone Conference at 2.30 PM CEST please refer to the Investor Relations Calendar on http://www.synthes.com/html/index.php?id=7326&L=0.

 

 

A selection of product and company images can be found on

 

 

 

Gilgian Eisner, Investor Relations, Synthes, Inc.

Phone +41 32 720 4745, Fax +41 32 720 4811

Email: investor.relations@synthes.com

 

 

 

 

Synthes, Inc. management believes certain statements in this media release may constitute "Forward-Looking Statements" within the meaning of the "Private Securities Litigation Reform Act of 1995". These statements include but are not limited to those with respect to the potential for Synthes to offer new products and market existing ones, as well as the expected sales and sales growth of Synthes. These statements are made on the basis of management's views and assumptions regarding future events and business performance as of the time the statements are made. Actual results may differ materially from those expressed or implied. Such differences may result from the ability of Synthes to successfully develop and introduce new products and services and market existing products and services in a competitive marketplace and changes in the economic conditions that may affect the performance of the operations of Synthes. In addition, changes in competitive conditions and regulatory developments may affect future business performance, and changing market conditions may affect the valuation of Synthes securities.

In addition, it should be noted that past financial and operational performance of the company is not necessarily indicative of future financial and operational performance. Synthes undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The securities of Synthes have been offered and sold outside the United States and have not been and will not be registered under the U.S. Securities Act of 1933, as amended ("Securities Act"). Such securities may not be offered, sold or transferred in the U.S. or to U.S. Persons (as defined in the regulations of the Securities Act), except pursuant to a registration statement filed under the Securities Act or under an applicable exemption under the Securities Act. Hedging transactions involving such securities may not be conducted unless in compliance with the Securities Act. The Synthes securities are deemed "Restricted Securities" as that term is defined in Rule 144 under the Securities Act.