Synthes Reports 2009 Results with 9% Sales Growth and 13% Net Earnings Growth in local currency (6% and 12% in US$)

West Chester (PA), USA, February 17, 2010

Synthes (SIX: SYST.VX) announced today its Fourth Quarter and Full Year 2009 financial results.

Full Year 2009
Consolidated sales of US$ 3,394.7 million increased 6.3% (8.9% in local currency [LC]) vs. prior year (PY)
Net earnings of US$ 824.0 million (+12.6% in LC) exceeded sales growth
Operating expenses as a percentage of sales (in LC) decreased by 80 bps mainly due to ongoing productivity gains
Income tax rate decreased by 1.7 pps to 28.6% due to continued tax planning efforts
Free cash flow generation of US$ 737.6 million, was 48.8% higher (in LC) vs. PY, resulting in a record cash balance of US$ 1,419.2 million (63% growth vs. PY)
Fourth Quarter 2009

Consolidated sales of US$ 890.3 million increased 9.7% (4.7% in LC) vs. PY
A continued challenging economic environment coupled with pricing pressure and a strong comparative base (Q4 2008) slowed growth in North America and Europe
Asia Pacific’s growth continued to be solid with double-digit sales growth
«Rest of World» slowed because of the absence of Middle Eastern tender business and weaker distributor business in Latin America
Michel Orsinger, President and CEO of Synthes, commented on the performance:

“2009 was a solid year for Synthes with respect to revenue and profit growth, despite the challenging and changing market environment. We are not satisfied with the fourth quarter top line growth; however, we are encouraged by the higher growth rate in early 2010. My personal focus this year is on keeping the innovation cycle high and on increasing the effectiveness of our sales force.”

FINANCIAL PERFORMANCE (Fully Year 2009)
Full year 2009 gross profit margin of 82.6% (as a percentage of sales) remained flat vs. a strong 82.7% in the previous year, although positively impacted by foreign exchange rate changes.
Operating expenses (as a percentage of sales) improved by 50 bps vs. PY (80 bps in LC) mainly because of ongoing productivity improvements. Other Income (Expense) was favorably impacted by lower FX losses vs. 2008 as a result of more comprehensive hedging. An income tax rate improvement to 28.6% (vs. 30.3% in PY) was achieved through continued tax planning efforts.
Capital Expenditures of US$ 299.6 million reflect Synthes’ commitment to business expansion. Sales force equipment investments (implant and instrument sets) represent approximately 50% of total capital expenditures. Synthes’ net cash flow of US$ 547.7 million increased 67.7% vs. PY, resulting in a record cash balance of US$ 1,419.2 million.
Inventory turns improved to 1.2 vs. PY 1.1, whereas inventory levels increased by US$ 54.2 million. This increase was primarily due to new product build-up and for the equipment of the worldwide sales force expansion.
Synthes increased its staffing by 758 employees in 2009. Approximately 80% of the increase consisted of sales force and manufacturing personnel. Synthes employed 10,705 employees worldwide on December 31, 2009.

REGIONAL PERFORMANCE (Fourth Quarter 2009
North America experienced slower sales growth in the fourth quarter (despite an encouraging momentum experienced in the third quarter 2009) because of a more challenging pricing environment and continued pressure on inventory reductions from hospitals. All divisions continued to contribute positive growth despite the challenging market. Spine’s growth was impacted by the Synex-II recall. CMF continued to gain momentum thanks to the early successes of the Matrix product lines (Neuro, Midface and Mandible). Certain recent product launches are expected to positively influence future performance. Sales force expansion at 7% (for the full year) consisted of additions in all divisions.
Europe experienced growth across all product groups. Focus on sales force expansion, the introduction of innovative new products, superior educational initiatives and the expansion of direct market presence were the main reasons for this growth. The performance was somewhat offset by the more difficult comparison base as a result of the anniversary of the changeover from a distributorship to a direct sales organization in Northern Germany. The Variable Angle Distal Radius plate (Trauma), the Vertebral Body Stenting system (Spine) and the Matrix product portfolio (CMF) were main sales growth contributors.
Asia Pacific continued to perform well with double-digit sales growth despite the impact from government mandated price cuts in Japan. Sales were driven by the LCP Plating system and the PFNA product lines, as well as the performance of China. The Asia Pacific growth was slower than in the previous quarters due to a short-term regulatory issue in Japan in connection with a product registration. The issue has been resolved and the product is back on the market since January 2010. The company remains committed to investing in emerging markets.
Rest of World performance was impacted by the absence of Middle Eastern tender business. In Latin America sales were positively impacted by solid growth contributions from Colombia and Brazil, somewhat offset by weak sales in countries with distributorship agreements.

Dividend Approval
The Board of Directors of Synthes, Inc. has approved a dividend of CHF 1.35 per share for the year 2009 (representing an increase of 23% vs. PY), payable on May 5, 2010. The stock will trade ex-dividend on March 29, 2010. Stock positions held on the record date, March 31, 2010, are entitled to dividend payments.

OUTLOOK
While the company does not expect the challenging market environment to change significantly in the short term, Synthes is encouraged by the start into 2010, with revenue growth above those of the fourth quarter 2009. The company will continue to focus on enhancing the pace and execution of new product launches, as well as on converting competitive business through an effective sales force.

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.