Synthes Reports Solid 2010 Results: Sales Growth above Market and Improved Profitability

West Chester (PA), USA, February 16, 2011

Synthes (SIX: SYST.VX) today announced its Fourth Quarter sales and Full Year 2010 financial results.

Full Year 2010

·   Global revenue increased 8.6% (7.5% in local currency [LC]) vs. prior year (PY) to US$ 3,687.0 million.
·   Trauma and CMF generated combined 10% sales growth globally (LC) primarily through new product launches and competitive conversions.
·   Pricing and reimbursement challenges impacted the US Spine business, while Synthes generated attractive single-digit growth in Spine outside the U.S.
·   In Europe, Synthes grew sales by 11% (LC) despite a challenging environment, outperforming market growth rates in important countries such as Germany, Italy, Spain and France.
·   In Asia Pacific, Synthes offset price cuts in Japan by launching new products and by expanding the sales force in the rest of the region, resulting in strong double-digit growth (LC) excluding Japan.
·   Synthes maintained high gross margin (82.6% of sales) and increased its operating margin to 34.8% of sales despite ongoing pricing pressure in all markets, particularly in the U.S.
·   Net earnings growth of 8.5% (LC) exceeded sales growth, reflecting Synthes' productivity gain initiatives.
·   Synthes' top-line growth and commitment to profitability generated over US$ 900 million in net earnings and over US$ 750 million in free cash flow.


Fourth Quarter 2010

·   Global revenue increased 9.6% (9.4% in LC) vs. PY to US$ 975.8 million, significantly exceeding third quarter 2010 growth of 4.9% (LC).
·   Trauma, CMF and Power Tools delivered strong combined global growth of 13% (LC) via new products for the distal radius, mandible and an innovative power tool for orthopedic surgery.
·   North America's growth gained momentum vs. previous two quarters, fueled by introductions of new products, the acquisition of Anspach and thanks to a lower comparison base (Q4 2009).
·   In Europe, Synthes grew 14% (LC) due to early onset of severe winter weather and market share gains in Trauma, CMF & Power Tools.
·   In Asia Pacific, Synthes generated double-digit growth in significant markets including China, Australia, Korea, and India, while government-mandated price cuts impacted sales in Japan.
·   «Rest of World» growth exceeded 30% (LC) due to Middle Eastern tender business and strong performance in Latin America.
·   Synthes established a dedicated Power Tools division with the November 2010 acquisition of Anspach, allowing the company to expand its product and service offering to hospitals and surgeons worldwide.


Michel Orsinger, President and CEO of Synthes, commented on the performance:
"We outperformed the overall market in 2010 in a challenging environment, thanks to the entire organization's efforts. We continued to generate strong financial results and gained market share in Trauma, CMF and Power Tools. We are committed to improving the performance in our Spine business through new product launches and targeted sales efforts in 2011."


FINANCIAL PERFORMANCE (Full Year 2010)

Full year 2010 gross profit margin of 82.6% (as a percentage of sales) remained high due to continued operational improvements, despite continuing pricing pressures.

Operating expenses (as a percentage of sales) declined by 50 bps vs. PY (80 bps in LC) mainly due to lower legal costs and ongoing productivity improvements. Other Income (Expense) was unfavorably impacted by higher FX losses vs. 2009 and intangible assets write-off in connection with the N Spine acquisition in 2007. An income tax rate improvement to 27.7% (vs. 28.6% in PY) was achieved through continued tax planning efforts.

Capital Expenditures of US$ 345.5 million reflect Synthes' commitment to business expansion. Sales force equipment investments (implant and instrument sets) represent approximately 55% of total capital expenditures. Synthes' net cash flow of US$ 572.0 million in 2010 resulted in a record cash balance of US$ 1,991.2 million, including investments in marketable securities.

Synthes headcount was increased by 721 employees or 6.7% vs. PY (including Anspach). Synthes employed 11,426 employees worldwide on December 31, 2010.


REGIONAL PERFORMANCE (Fourth Quarter 2010)

In North America, Synthes' growth gained momentum compared to the previous two quarters. Trauma, CMF and Power Tools' combined growth of 10% (LC) resulted from focused sales initiatives and targeted competitive conversions. Trauma expanded its value added services, including the Geriatric Fracture Program, which provides hospitals with a multi-disciplinary process to treating patients with fragility fractures. These programs have differentiated Synthes in the market by improving clinical outcomes and reducing hospital costs. Trauma also launched the Forefoot/Midfoot system, an important product line for foot and ankle surgeons. CMF's Matrix facial plating platform & thoracic products resulted in further market share gains. With the acquisition of Anspach, Synthes established a dedicated Power Tools division with headquarters in Florida, adding best-in-class high speed surgical power tools, an experienced management team, and modern manufacturing, education and service facilities to its offering. While pricing and reimbursement challenges in the Spine market continued to have an impact, Synthes Spine delivered solid performance in the cervical segment with an increased sales volume of Synapse and Zero-P and successfully launched Matrix Spine in the U.S.

In Europe, Trauma, CMF and Power Tools grew at a combined 15% (LC), boosted by new product launches, sales force expansion, and an early start of the winter, which increased the fracture volume. Synthes grew at a double-digit percent in most European markets, including Germany, Italy, Spain, Switzerland and France. In Spine, Synthes delivered solid growth and set the stage for improved performance thanks to product launches including Prodisc Nova (an MRI compatible cervical total disc replacement), T-Pal (a minimally invasive interbody fusion system) and Vertecem "V+" (a new bone cement delivery system).

In Asia Pacific, the sales force expansion and surgeon education initiatives continued to deliver solid growth and increased demand for new products. Synthes performed well in both established markets (like Australia and Korea) and emerging markets (like China, India and Malaysia). In Japan, price cuts and new product launch delays impacted growth.

«Rest of World's» accelerated sales growth momentum was primarily due to the strong performance in Latin America and additional shipments of a tender order to the Middle East. Synthes gained market share in Brazil and Mexico and established a direct presence in Chile, a market which has potential to be a source of growth over the next several years.

 
Dividend Information

The Board of Directors of Synthes, Inc. has approved a dividend of CHF 1.80 per share for the year 2010 (representing an increase of 33% vs. PY), payable on April 4, 2011. The stock will trade ex-dividend on March 1, 2011. Stock positions held on the record date, March 3, 2011, are entitled to dividend payments.

 
OUTLOOK

Synthes is committed to building on the strengths of Trauma, CMF and Power Tools globally, while continuing to address Spine's performance with new product launches. The company does not expect the challenging market environment to change in the short-term, but it will continue its productivity gain initiatives in order to maintain its strong profitability.

 
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.