Synthes First Half 2010: Solid Growth and Improved Profitability
West Chester (PA), USA, July 29, 2010
Synthes (SIX: SYST.VX) today announced its First Half Year 2010 financial results with sales and earnings growth of 10% and 11%, respectively (8% and 9% in local currency).
First Half 2010
· Consolidated sales of US$ 1,803.9 million increased 10.3% (7.9% in local currency [LC]) vs. prior year (PY).
· Net earnings of US$ 424.6 million; with growth of 9.3% in LC that exceeded sales growth.
· Operating expenses as a percentage of sales (in LC) decreased by 110 bps (to 48.7%) vs. PY mainly due to ongoing productivity gain initiatives and lower legal expenses.
· Income tax rate decreased by 0.9 pps to 28.6% due to continued tax planning efforts.
· Free cash flow generation was US$ 344.2 million.
· North America growth was fueled by good performances in Trauma and CMF, somewhat offset by the weaker performance of Spine.
· Europe, Asia Pacific and Rest of World performance was strong with double-digit LC sales growth.
Second Quarter 2010
· Consolidated sales of US$ 892.2 million increased 7.4% (6.9% in LC) vs. PY.
· Ongoing economic conditions, coupled with pricing dynamics, continued to challenge growth in North America and Europe.
· Asia Pacific's growth continued to be solid with double-digit sales growth despite government-mandated price reductions in Japan.
· Rest of World gained momentum due to the first delivery of Middle Eastern tender order and improving distributor business in Latin America.
· Synthes formally opened a new manufacturing facility in China which supports the Company's global mission of providing high-quality, innovative solutions to more surgeons and patients worldwide.
Michel Orsinger, President and CEO of Synthes, commented on the performance:
"Synthes' first half 2010 delivered solid top-line growth performance with growth in profits exceeding sales growth. While challenging economic and industry conditions continue to impact growth in our markets, the cost control measures that we have implemented have allowed us to improve our profitability."
FINANCIAL SUMMARY
Sales Results (unaudited)
| First Half Year 2010 (January - June) | ||||
| Consolidated Net Sales (in US$ millions) | 2010 | 2009 | % Change (in US$) | % Change (in local currency)* |
| North America | 1,064.5 | 1,011.4 | 5.3% | 4.8% |
| Europe | 421.4 | 376.1 | 12.1% | 10.7% |
| Asia Pacific | 201.8 | 161.4 | 25.0% | 15.0% |
| Rest of World | 116.2 | 87.1 | 33.4% | 17.9% |
| Total | 1,803.9 | 1,636.0 | 10.3% | 7.9% |
| Second Quarter 2010 (April - June) | ||||
| Consolidated Net Sales (in US$ millions) | 2010 | 2009 | % Change (in US$) | % Change (in local currency)* |
| North America | 531.4 | 511.2 | 4.0% | 3.6% |
| Europe | 195.3 | 190.3 | 2.6% | 8.2% |
| Asia Pacific | 101.6 | 83.6 | 21.6% | 13.3% |
| Rest of World | 63.9 | 45.9 | 39.1% | 27.2% |
| Total | 892.2 | 831.0 | 7.4% | 6.9% |
Key Financial Results (unaudited)
| Consolidated Operations in US$ millions (except no. of employees and per share data) | Jan-Jun 2010 | As a % of Sales | Jan-Jun 2009 | As a % of Sales | % Change (in US$) | % Change (in local currency)* |
| Net Sales | 1,803.9 | 100.0% | 1,636.0 | 100.0% | 10.3% | 7.9% |
| Gross Profit | 1,485.6 | 82.4% | 1,359.5 | 83.1% | 9.3% | 7.0% |
| Operating Income | 602.9 | 33.4% | 544.8 | 33.3% | 10.7% | 9.1% |
| Net Earnings | 424.6 | 23.5% | 381.7 | 23.3% | 11.2% | 9.3% |
| Earnings per share | 3.58 | n/a | 3.22 | n/a | 11.2% | 9.0% |
| No. of Employees on June 30th | 11,014 | n/a | 10,443 | n/a | 5.5% | n/a |
| Capital Expenditures | 136.1 | n/a | 122.1 | n/a | 11.4% | 7.6% |
| Free Cash Flow | 344.2 | n/a | 364.9 | n/a | -5.7% | -7.6% |
*Local currency: 2010 results translated at 2009 foreign exchange rates.
REGIONAL PERFORMANCE (Second Quarter 2010)
North America experienced strong performances in Trauma and CMF, which was partially offset by Spine's performance. Solid growth in Trauma was achieved through two major factors. First, Trauma executed customer targeting and competitive conversion initiatives. Second, Trauma launched several new products that were quickly adopted by Surgeons, such as the TFN Lag Screw and the LCP Periarticular Proximal Humerus Plate. CMF delivered strong sales growth, due to increased adoption of the Matrix facial plating line and the growing popularity of thoracic products such as Titanium Sternal Fixation System that allow Synthes to serve new Surgeon customers. Spine's performance reflected market dynamics of a less favorable pricing environment coupled with a delayed product launch in the posterior lumbar fixation segment.
In Europe, Trauma and CMF continued to perform well, whereas Spine encountered some of the same challenges as in North America. Synthes continued to introduce new products and to expand its direct sales force into new markets.
Asia Pacific's sales performance was strong in spite of additional government-mandated price reductions in Japan as well as the strong base from PY. Growth was fueled by continued new product introductions and further expansion of a dedicated sales force across the region. Sales grew once again at a high double-digit rate in China and India.
Rest of World gained sales growth momentum with strong results positively impacted by the first shipments of a tender order to the Middle East and by slowly improving performance in countries with distributorships in Latin America.
FINANCIAL PERFORMANCE (First Half Year 2010)
First half year 2010 gross profit margin of 82.4% (as a percentage of sales) was lower vs. PY of 83.1% due to reduced overall average selling prices. However, the first half 2010 gross profit margin represents an improvement vs. second half 2009 of 82.0%.
Operating expenses (as a percentage of sales) improved by 90 bps vs. PY (110 bps in LC) mainly due to ongoing productivity improvements and lower legal expenses. Other Income (Expense) was unfavorably impacted by higher foreign exchange (FX) losses vs. 2009 primarily due to the strengthening of the Swiss Franc vs. several other currencies, most notably the Euro. An income tax rate improvement to 28.6% (vs. 29.5% in PY) was once again achieved through continued tax planning efforts.
Capital Expenditures of US$ 136.1 million reflected Synthes' continuous commitment to business expansion and growth. Sales force equipment investments (implant and instrument sets) represent approximately 60% of total capital expenditures.
During the first half 2010, Synthes increased its staffing by 309 employees. Approximately 80% of this increase consisted of sales force and manufacturing personnel. Synthes employed 11,014 employees worldwide on June 30, 2010.
OUTLOOK
Synthes is committed to maintaining momentum in Trauma and CMF as well as implementing corrective measures to improve performance in Spine. The Company does not expect the challenging and dynamic market environment to change in the short-term.
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.
First Half 2010 Interim Report
The First Half 2010 Financial Statements incl. Notes can be downloaded on
http://www.synthes.com/html/Financial-Reports.4355.0.html?&L=0.
Media / Financial Analyst Phone Conference
For details about today's Media / Financial Analyst Phone Conference at 2.30 PM CEST please refer to the Investor Relations Calendar.
Image Bank
A selection of product and company images can be found here.
For further information please contact
Gilgian Eisner, Investor Relations, Synthes, Inc.
Phone +41 32 720 4745, Fax +41 32 720 4811
Email: investor.relations@synthes.com
http://www.synthes.com
Restrictions Subject to US Securities Law
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.