1 If you didn't know this was an implant New Perspectives. Annual Report 2010.
2 Synthes. LCP Annual Compact Report Hand 2010 you d think it was jewelry. Business Report BR15
3 Spinal Cages To us, no opportunity to contribute to the quality of life is too small. Our products are true gems donned for health.
4 MatrixMIDFACE Although it may sound a bit old fashioned: we like to crown our customers king and queen to be treated with royal dignity.
5 X-Plate and Navicular Plate To innovate high-quality products, we listen carefully to surgeons and OR personnel alike. Our business fundamentals produce elegant simplicity.
6 StenoFix Real innovation often sets off an entire chain: An idea Development Improvement Striving for true excellence.
7 MatrixORBITAL Day in and day out, we search for true clinical benefits and added medical value for surgeons and patients alike. Sometimes the end result is curvaceous beauty.
8 LCP Compact Hand The LCP Compact Hand system consists of different sized stainless steel or titanium plates and screws that are used for the fixation of fractures in the fingers and the mid-hand. The stable fixation achieved with these implants allows early mobilization, which is necessary for the fracture and soft tissue structures to heal. X-Plate and Navicular Plate Foot surgery is complex and often requires metal implants. X-plates and navicular plates are two examples of plates used for the surgical fixation of fractures, but also for connecting bones that have been detached by the surgeon in order to improve the functionality or appearance of the foot. Spinal Cages Cages are used as a placeholder for discs that have been surgically removed because they protrude and impinge upon nerve roots (disc herniation). This causes significant pain and therefore justifies a surgical removal. The type of cage chosen depends on the surgical entry point and the approach the surgeon chooses for a specific intervention. StenoFix StenoFix is an interspinous spacer to be used after surgical decompression of the spine. The device is indicated for moderate to severe spinal lumbar stenosis and is used as a spaceholder between the spinous processes to help treat pain that arises when standing upright or extending. StenoFix controls the segmental extension and distracts the interspinous space. It can be implanted at one or two lumbar levels from L1 to S1. MatrixMIDFACE The MatrixMIDFACE system is part of a whole new plating platform for internal fixation of the craniomaxillofacial skeleton. It is used for trauma and reconstructive surgery of the midface. The titanium plates are available in four thicknesses and color-coded according to their strength. A single screw diameter works for the entire system and all plates so the system is easy to use, but still flexible. MatrixORBITAL These thin preformed plates are used for the surgical fixation of fractures of the orbital base (the bony area underneath the eyeball). The titanium plates are preformed in a threedimensional shape to avoid any bending or cutting by the surgeon during surgery.
9 Significant Facts Sales per region 2010 (US$ millions) North America 2,154.2 Europe Asia Pacific Rest of World ,687.0 Asia Pacific 11.5% Rest of World 7.0% Europe 23.1% North America 58.4% Operating Expenses (US$ millions) Selling and Promotion ,080.1 % of Net Sales 29.5% 29.1% 29.3% 28.8% 29.3% General and Administrative % of Net Sales 11.1% 10.7% 10.9% 11.3% 10.7% Research and Development % of Net Sales 5.3% 5.4% 5.3% 5.0% 4.7% US$ millions 1,100 1, Selling and Promotion General and Administrative Research and Development Profitability (US$ millions) Net Sales 2, , , , ,687.0 Gross Profit Margin 81.9% 81.0% 82.7% 82.6% 82.6% Operating Income Margin 31.9% 32.8% 33.8% 34.3% 34.8% Net Earnings Margin 21.3% 22.2% 23.0% 24.3% 24.6% US$ millions 4,000 3,500 3,000 2,500 2,000 1,500 1, Net Sales Gross Profit Operating Income Net Earnings
10 FCF and Capital Expenditure (US$ millions) Free Cashflow CapEx US$ millions Free Cashflow CapEx Assets 2010 (US$ millions) Current Assets 3,414.9 Property, Plant & Equipment Intangible Assets 2,119.3 Goodwill 1,293.1 Other Assets Other Assets 2.6% Goodwill 16.3% Current Assets 43.1% Intangible Assets 26.7% Property, Plant & Equipment 11.3% Liabilities and Equity 2010 (US$ millions) Current Liabilities Long-term Liabilities Retained Earnings 3,925.2 Other Equity 2,813.5 Other Equity 35.5% Current Liabilities 7.0% Long-term Liabilities 8.0% Retained Earnings 49.5% Employees Total Employees (at year-end) 8,451 9,070 9,947 10,705 11,426 Change in Employees (%) 11% 7% 10% 8% 7% Sales Force (at year-end) 2,134 2,446 2,940 3,319 3,636 Sales Force as % of Total Employees 25% 27% 30% 31% 32% 16,000 16% 14,000 14% 12,000 12% 10,000 8,000 10% 8% 6,000 6% 4,000 4% 2,000 2% 0 0% Total Employees Sales Force Change in Employees (%)
11 Synthes. Annual Report 2010 Letter to Shareholders BR2 Company Profile BR4 Financial Highlights BR4 Global Presence BR5 Business Report Regional Highlights BR7 Corporate Citizenship Educational Initiatives BR12 Employees BR13 Cultivating Synthes Culture of Integrity BR14 Product Highlights Overview Product Groups BR16 Trauma. Variable Angle LCP Forefoot/Midfoot System BR17 Spine. MATRIX BR18 Cranio-Maxillofacial. MatrixORTHOGNATHIC Plating System BR19 Corporate Governance Group Structure and Shareholders CG2 Capital Structure CG3 Board of Directors CG4 Group Management Committee CG9 Compensation, Shareholdings and Loans CG10 Shareholders Participation CG12 Changes of Control and Defense Measures CG14 Auditors CG15 Information Policy CG16 Report of Independent Auditors FR2 Report of Independent Accountants FR3 Consolidated Balance Sheets FR4 Consolidated Statements of Operations FR6 Consolidated Statements of Changes in Stockholders Equity FR7 Consolidated Statements of Cash Flows FR8 Notes to the Consolidated Financial Statements FR10 Note to Directors and Shareholders FR47 Investor Key Data FR48 Business Report BR1
12 Business Report Letter to Shareholders Dear Co-Shareholders and Friends of Synthes In 2010, Synthes sales grew by 7.5% and net earnings by 8.5% (both in constant currency). We launched over fifty new products, created close to 500 new jobs and strengthened our organization in order to master the challenges that lie ahead. As every year, this report provides an overview of the results of the remarkable work undertaken by the more than 11,000 employees of Synthes as well as that of our distributors and partners around the world during a dynamic Strong financial performance despite a challenging year in global orthopaedics 2010 was a year full of challenges and change for both our industry and our company. In that context, Synthes performance and the progress made in most key financial metrics as well as in all major operational activities and all parts of the world are evidence of the strength and resilience of our company. Fortunately, we have the privilege of being deeply integrated into major trauma centers and university hospitals around the globe, with many surgeons using our products on a daily basis. This gave us a wonderful opportunity once again to make a meaningful contribution to improving surgical patient care. We have gained market share in the global Trauma, Cranio-Maxillofacial (CMF) and Power Tools markets, but we also had to cope with changing market conditions in our Spine division with pressure on prices and volume. However, we have finally been able to launch MATRIX Spine, a much-needed new fixation system for the lumbar spine, used in the surgical treatment of back pain and deformity. Synthes sales growth of 7.5% (in constant currency) in markets that are growing more slowly than in the past is testament to the strength of the Synthes brand name, as well as the agility with which we work in sales and in product development. The strength of the Swiss franc and our relatively high share of Swissbased manufacturing operations did not materially impact our financials. Because of cost containment and lower legal expenses, the operating income margin increased by 50 basis points to 34.8%. The tax rate was reduced to 27.7%. All of this resulted in an increase in earnings per share to US$ 7.65 (an increase of 8.5% in constant currency). Synthes is known for being conservative and for acting with a longterm perspective. This was proven again in 2010 by prudently adding to our employee base, which grew by 6.7% (including the acquisition of Anspach in November). In addition, we ended the year with a strong cash balance and the Board of Directors decided to increase the dividend from CHF 1.35 to CHF 1.80 and the payout ratio from 18% to 25%. Highlights from 2010 In May, we formally inaugurated our new manufacturing facility in Suzhou, China, in the presence of local and national representatives from the Chinese government. Production by this small factory will primarily be for the Chinese market and the surrounding area. The facility also comprises a training and product development center. Approval to sell products in China is expected in 2012 following completion of ongoing clinical studies. BR2 Business Report
13 Synthes. Annual Report 2010 In the fourth quarter of 2010, we acquired Anspach, a privately-held company specializing in the development, manufacturing, sale and servicing of high-precision power tools. This was a highly complementary addition to our existing portfolio and organization in power tools and will therefore allow us to rapidly gain market share. We expect double-digit growth in this market that has a value of approximately US$ 1.2 billion. The Board of Directors of Synthes is actively involved in the strategic direction of our company. Dr. Roland Brönnimann retired at the AGM in April 2010 after ten years at Synthes, seven of which serving on the Board. We would once again like to thank him for his valuable service. Daniel Eicher was elected to the Board at the 2010 AGM. He brings us wide-ranging experience on various boards of large Swiss organizations. In 2011, we will consolidate our leadership position in the markets we serve by improving customer experience of our products for the longterm. We will build on the strengths of Trauma, CMF and Power Tools globally, while continuing to address Spine s performance with new product launches. Overall, we expect the market environment to remain fairly challenging and we will continue to counteract with further advances in our productivity gain initiatives to maintain our strong profitability. Cordially, Surgeon education and outlook Much of the success of our company would not be possible without the relationship we have with the AO Foundation, our partner in education for surgeon and operating room personnel. The AO made significant advances in the way that it provided education in 2010, and we expect to continue to benefit from this fruitful collaboration which is now in its 53rd year. Nowadays, if a surgeon wants to attend a course, he or she would probably opt to prepare using elearning or online resources, including videos. The AO (and also Synthes) is therefore adopting a blended learning approach, to address the learner s needs with state-of-the-art technology. Hansjörg Wyss Chairman of the Board Michel Orsinger President and CEO Business Report BR3
14 Business Report Company Profile. Synthes, headquartered in West Chester, PA (USA), is a leading global medical device company, employing over 11,400 people whose mission is to improve patient care around the world. Bone work from head to toe Through its five product groups (Trauma, Spine, Cranio-Maxillofacial, Biomaterials and Power Tools), Synthes develops, produces and markets instruments, implants and biomaterials for the surgical fixation, correction and regeneration of the human skeleton and its soft tissues. We operate in product markets with high growth, driven by the aging population and improvements in technology that enable treatment of more patients with better implants. Present on every continent Our staff works every day toward meeting the needs of surgeons, operating room personnel and patients. We stand for high quality, constant innovation and consistent customer orientation. Over 40 subsidiaries and around 50 distributors are managed by four area head offices: West Chester (USA) for North America; Solothurn (Switzerland) for Europe, Middle East & Africa; Sydney (Australia) for Asia/ Pacific and Miami (USA) for Latin America. We run 13 manufacturing facilities, mainly located in the United States and Switzerland. Reaching for the sky Synthes has set the standard for treating fractures. We are the world leader in traumatology; we rank among the top companies for spinal devices and we are in the leading position in the cranio-maxillofacial business. Synthes is an innovative pioneer in the field of biomaterials such as resorbable implants, bone graft substitutes and coated materials. Synthes also offers a wide range of power tools for surgical use, a business unit that was recently enhanced by a selection of high- speed devices with the acquisition of Anspach in All in all, we offer a comprehensive product portfolio coupled with excellent service through our technical sales force and state-of-the-art educational programs to secure us a leading position for the future. Striving for innovation Synthes establishes the foundations for its excellent market position by continuously developing better solutions. Our goal is to provide the safest and most advanced implants, instruments and technologies that ensure reliable operating procedures, rapid recovery and a pain-free life after surgery. We guarantee high quality, constant innovation and total concentration on the needs of our customers. Guided by our Values & Principles Synthes position as a leading global medical device company is based on our mission of improving patient care and our long-standing threepillar strategy, comprising innovation, sales force expansion and education. Our seven Values & Principles Patient Driven, Surgeon Focus, Innovation, Quality, Education, Partnership and Integrity continuously guide our strategies and actions. Financial facts at a glance In 2010, Synthes generated revenues of US$ 3.7 billion and net earnings of US$ 908 million. Over the last 10 years ( ), Synthes has increased its revenues from US$ 0.9 billion to US$ 3.7 billion, representing a CAGR of 15%, including the acquisition of Mathys in Financial Comparison 2010 vs Net sales in US$ 3,687.0 million 3,394.7 million Sales increase in US$ / local currency 8.6% / 7.5% 6.3 % / 8.9% Gross profit margin 82.6% 82.6% Operating income margin 34.8% 34.3% Net earnings margin 24.6% 24.3% Earnings per share in US$ Free cash flow in US$ million million Approved dividend in CHF Employees at year-end 11,426 10,705 SIX Swiss Exchange Symbol: SYST.VX ISIN: US87162M4096 Market capitalization at year-end 2010: CHF 14,995,969,691 BR4 Business Report
15 Synthes. Annual Report 2010 Global Presence SD Elmira, Horseheads NY VT MA FR DE Umkirch Tuttlingen UT WY Denver Monument CO NE KS PA Brandywine, West Chester West Chester WV MD DE New York NJ CT Balsthal Bettlach/ Grenchen Raron Hägendorf Solothurn Bern CH LI Mezzovico AT Salzburg AZ NM OK VA IT TX Locations U.S.A. Locations Europe NC AL GA SC Suzhou Shanghai CN FL Palm Beach Gardens Hong Kong TW Miami VN LA Locations China Legend Affiliates Distributors Global Corporate Headquarters European Headquarters Manufacturing Sites Business Report BR5
16 Business Report Business Report Regional Highlights BR7 BR6 Business Report
17 Synthes. Annual Report 2010 Business Report. Regional Highlights. Synthes has four reporting regions. North America accounted for almost 60% of global sales, while Europe and the emerging markets of Asia Pacific and Latin America are slowly catching up thanks to our daily contribution to better patient care. Sales per region 2010 (US$ millions) North America 2,154.2 Europe Asia Pacific Rest of World Asia Pacific 11.5% Rest of World 7.0% Europe 23.1% North America 58.4% North America North America attained local currency sales growth of 4.3% for the full year 2010, a result of mixed performances in the various divisons. On the one hand, in Trauma and CMF, Synthes grew at a high singledigit and low double-digit percent rate, respectively, and was able to use its outstanding market position to its benefit in terms of comprehensive product offering and the best-educated and technically proficient sales force. This led to market share gains in these two divisions. On the other hand, the company had to cope with negative growth in Spine, due to market-specific reasons but also to internal reasons related to product-lifecycle management. Strong Trauma position enhanced in 2010 In Trauma, we continued to successfully fight pricing pressures seen in an increasing demand for discounts and an increased rate of discounts offered by the competition. We have a premium offering that justifies a premium price. This is evident from our over 50% market share, which has helped us significantly in our positioning and in our collaboration with our hospital customers. We have a broad product portfolio with unique features and the biggest and best-educated sales force, coupled with a leading educational offering that plays an important role in the decision-making process. We again launched over thirty new Trauma products, mostly expansions of our successful LCP product lines that are now available with variable screw angulations to make the placement of these plate-andscrew constructs even more intuitive and much simpler. In addition, we have launched a large set of implants and instruments for orthopaedic foot interventions, called the Forefoot/Midfoot system, a product line that is important to us and provides an even greater offering to surgeons who operate on feet on an outpatient basis and therefore have historically not been served as much by our sales force as hospital-based surgeons. To address this need, we will start to build a dedicated team of sales force members in 2011 to exclusively take care of these surgeons mainly in outpatient surgery centers. A challenging year for Spine In Spine, Synthes was not immune to the mounting pressures from the U.S. market. Payors and regulators are paying more attention to the volume of spine surgeries being performed and reimbursement has become harder. Insurance companies are tightening the criteria that have to be met for certain types of spinal conditions before agreeing to reimburse for a procedure, particularly spinal fusion with implants. Furthermore, in view of the recent financial crisis and associated job losses, patients are less willing to take time off work for elective surgery or are unable to come up with shared payment or deductible amounts. They tolerate the pain and delay or cancel surgery. In addition, prices have come under downward pressure. Hospitals are starting to dictate prices (at reduced levels) and competitive forces are leading to a single-digit percent decline in the overall price level. Nevertheless, we are seeing some signs of recovery. Our long-awaited launch of MATRIX, a comprehensive pedicle screw fixation system for the lumbar spine (for deformity and for the treatment of lower back pain due to spinal degeneration), began in November in the U.S. and will start in the first quarter of 2011 in Europe and other regions of the world. We feel strongly about MATRIX and will be able to gain back market share that we may have lost over the past few quarters in this important segment in Spine. Together with MATRIX we have also launched T-Pal, a new cage (i.e. placeholder for the disc space after removal of the diseased disc) which allows minimally invasive treatments, a clear trend in the future. In 2011, we will enter the vertebroplasty market with a new cement and delivery system called Vertecem. Vertebroplasties are reconstructions of the vertebral bodies after fractures due to osteoporosis, a growing problem within conditions, sometimes referred to as the aging spine. Business Report BR7
18 Business Report Extraordinary growth in CMF In CMF, growth in 2010 was primarily achieved through the continued expansion of the Matrix Plating Systems, the targeted launch of the MatrixRIB System (for the fixation of rib fractures) and a fixation device to be used in primary sternal closures, i.e. for patients who have a high risk of complications. Our recent creation of the Thorax segment has proven to be successful as evidenced by the fact that this is now our fourth-largest product group within CMF (behind Neuro, Midface and Mandible). The Thorax portfolio includes sternal closure devices (used to fix the sternum after open heart surgeries) and a plating system to fix fractures of the ribs. decades. The settlement with the U.S. government related to the Norian case reinforces our compliance work and we are already vigorously enforcing these rules and regulations, which every member of our team has to abide by. It will make us an even better organization and be valuable beyond the requirements that are part of the settlement. The acquisition of the power tools company Anspach is an excellent addition to our product offering as it brings a complementary product line to the Synthes power tools portfolio. Anspach has a state-ofthe-art service facility and training center and provides us with highspeed power tools used in neurosurgery, ear, nose and throat (ENT) and spinal surgery. In addition, our partnership with Kensey Nash has yielded success. Under the partnership, which was initiated in 2009, Kensey Nash are processing Synthes porcine dermis product, XCM. This acellular dermis is used for soft tissue repair, e.g. as a suture-patch for hernia repair, and we are well positioned to gain market share in this relatively young market. In 2011, we will continue to launch new products within CMF, with a focus on the neuro and midface market. Key initiatives undertaken in 2010 For the U.S. market, the establishment of our Metro Centers has proven to be successful as it reduces required investment into field equipment. Metro Centers are logistics offices that store and manage Synthes surgical instrument and implant sets and dispatch and allocate them as efficiently as possible. The number of sites was expanded within Trauma but also established within the Spine sales organization: there are now almost 40 centers scattered around the U.S. and we will add another 15 by the end of Metro Centers empower our field team to deliver better service and response times. Synthes is always on top of new technologies. The first Synthes iphone and ipad application was launched in 2010 and features a whole array of tools suited to best fit the need of surgeons and supports our sales force in doing their everyday jobs. The Synthes app features product technique guides, surgical approach videos, presentations, and much more. Content update is easily managed within the application. Sales force additions over the last few years have provided us with a unique position with a dense network of technical sales specialists. We will focus on refining territory coverage in 2011 (and beyond) to provide excellent support for the use of our products and to maintain the high level of service that we have achieved over the last several Europe, Middle East and Africa The EMEA region s sales growth of almost 13% (in local currency, excluding acquisitions) is an excellent achievement in the current environment. A strong 10.5% growth in Europe, coupled with over 50% growth in the Middle East and Africa, contributed to this result. Synthes has once again expanded its leadership position and gained market share. Winter weather contributes to growth Europe s strong performance was influenced by severe winter weather, both at the beginning and especially at the end of the year. The early winter in November and December led to icy roads, sidewalks with black ice, and increased winter sport activity: a collection of activities that often leads to increased accidents and falls that involve a higher fracture volume and therefore provided us with record sales months. These record months, however, are not expected to be repeated in Our European Trauma, CMF and Power Tools business has shown strong growth in Synthes has significantly increased its share in these markets. Our Spine business on the other hand as in the U.S. has faced challenges in terms of lower procedure volumes, continued pricing pressure and the entry of new competitors for market share in this challenging market. Additionally, the lack of competitive products in certain segments of our portfolio has undermined our performance. In the Middle East, we benefitted from a large tender order (bulk order from the government of Saudi Arabia), which is made bi-annually on behalf of government-owned hospitals. The economic environment in Europe will continue to soften due to budget cuts and cost constraints in the healthcare sector across most BR8 Business Report
19 Synthes. Annual Report 2010 countries. Capital purchase of equipment has been significantly reduced and Synthes has started an initiative to better manage the effectiveness of the loan service in order to support the increased demand of loan requests. Outlook for 2011 In the middle of 2011, our European headquarters building in Solothurn will be finished and accommodate several hundred employees in the very heart of Switzerland. It is ideally located, close to Zurich and its international airport, the city of Berne, and our Swiss manufacturing sites. In 2011 overall, we expect a continuation of our market share expansion in EMEA. Growth will be lower than in 2010, mainly due to the absence of the Saudi Arabia tender order and due to an expected milder winter. Asia Pacific Asia Pacific attained sales growth of 10.3% (in local currencies) in 2010, a result of mixed performances in the various areas within that region. This growth is above the company s average and a reflection of the potential of emerging markets that Synthes brings to life. Our Asia Pacific business is made up of four distinctive regions. The main share of the business comes from Japan (approximately 40% of sales) and Australia/New Zealand (approximately 20% of sales). These two regions are comparable to Western Europe or the U.S. in terms of the penetration and use of our products. Despite bi-annual price cuts in Japan, the price level in both Japan and Australia is high, allowing for profitable business operations. The third region consists of the larger emerging markets of China, India and Korea. There is a huge demand for our products in these countries. The challenge for us is to keep up with the development of infrastructure (hospital and equipment) as well as trainings of potential new surgeon customers in order to secure the supply to the emerging hospitals that will provide care to the growing population in these countries. The last segment within Asia Pacific consists of a small number of distributor-operated countries in East and Southeast Asia (mainly Taiwan and Thailand), which will eventually also become more meaningful. In 2010, the business continued to expand profitably, securing future growth in all areas. There is an exceptional growth potential in both our Spine and CMF divisions (current market share of 11% and 15%, respectively), primarily because of our relatively recent entry into these businesses in most emerging markets. Manufacturing site in China formally inaugurated A highlight of the year was the formal opening of our new manufacturing site in Suzhou, close to Shanghai, in May. This facility, which is subject to the same rigorous quality standards as our U.S. and European factories, will be coupled with a small product development center and a distribution center that will provide local markets with products appropriate for the Asian population. The factory employs approximately 50 people and manufactures just under 100 line items for India, Taiwan and Malaysia. In order to break into China, we need to undertake clinical trials. These are currently in progress and all approvals are expected in Being a local manufacturer in China enables us to provide Synthes quality implants to a large number of patients who were previously unable to have access to this technology. In addition, we are able to tailor down-sampling product assortments and thereby remain an attractive supplier who understands the specific economic challenges and limitations, and addresses the unique medical needs of patients, in this region. Sales force continues to grow The Asia Pacific sales force grew by 17% in 2010, a result of the commitment to expansion of our service and technical expertise that we want to bring to operating theatres across the region. A specific emphasis was placed on product-specific staff training and education, to strengthen product and technical expertise as well as improve business efficiency and streamline productivity levels. In 2011, the sales force will continue to be expanded as our presence in emerging market grows and the breadth of our product line expands. Education in conjunction with the AO Foundation Together with the AO Foundation (our partner in education and product development), over 130 basic, intermediate and advanced level educational courses were conducted across Asia Pacific in The AO continues to set the standard for surgeon education in trauma, spine and CMF and our continued collaboration with this world-leading organization ensures that we provide surgeons in the region with the best education available. Synthes training and exhibitions A highlight in the training calendar was the first four-day advanced Hand & Wrist cadaveric course, co-presented by the Asia Pacific training team and seven highly respected surgical faculty members. This will become a regular event in the training calendar. Exhibition highlights of the year included high-level sponsorships at a number of Business Report BR9
20 Business Report conferences including the Asian Congress on Oral & Maxillofacial Surgery in Kuala Lumpur, Malaysia, and the triennial International Federation of Societies for Surgery of the Hand (IFSSH in Seoul, South Korea. Outlook for 2011 and beyond In the mid-term future, our goal is to broaden our Asian specific implant portfolio, to provide a dedicated wet lab training site for both surgeons and employees for the region. In addition, we will continue to push for penetration into young markets, the next step being Vietnam. Latin America Over the last few years, Latin America has become more developed and in most countries in the region it is now standard to use internal fixation products for the treatment of orthopaedic trauma, spine and CMF. From this viewpoint, Synthes sales growth of 14.6% (on a constant currency basis) is especially remarkable. Brazil and Mexico large markets in Latin America performed especially well. However, as in other regions of the world, the Spine business had a weaker performance in This can be attributed to a combination of a slowdown in the activity from private hospitals, price pressures in the public hospital segment and the use of more conservative treatment schemes. In addition, the business in countries where distributors are engaged, rather than our own sales force, performed significantly weaker than in other years. Fortunately, our distributorship business represents less than 9% of total Latin American sales. and faster market introductions of the latest technologies that this structure typically entails. In view of the success of logistics points that were set up previously in Brazil and Colombia, this concept was also introduced in Peru and Mexico. These points allow implant and instrument sets to reach the end users in only a few hours, rather than as long as a full day transit time. The AO Foundation remains an important partner in education and continues to be recognized as a valuable training organization to surgeons and operating room personnel in this region. In 2010, 122 AO courses and events in the region were conducted and over 60 are already scheduled for Additional courses will be added as required throughout the year. Allocation of personnel in product development 2010 Asia Pacific 1% Europe 42% North America 57% Allocation of sales personnel 2010 (3,636 people in total) Latin America 13% Various countries with varying performances We were especially encouraged by the positive turn we saw in the middle of 2010 and the upswing that followed in the third and fourth quarter. Asia Pacific 21% North America 45% In Brazil and Mexico, which together represent 50% of our Latin American business, we further progressed with penetration of the markets Europe 21% and posted sales growth of over 20%, on a constant currency basis. In Colombia however, where we generate almost a third of our sales for the region, we had to face various challenges in 2010: on the one hand, the national elections did not allow for growth in public budgets, and on the other, reforms in the national health system caused further uncertainty. Nevertheless, we are confident that 2011 will provide us with better performance in this important market. Sales force growth 2010 North America 3% Europe Asia Pacific 12% 17% For 2011, we are planning to initiate a direct market presence in Chile (where we engaged a distributor until 2010) and we expect to see above average sales growth caused by the increased service efforts Latin America 22% 0% 5% 10% 15% 20% 25% BR10 Business Report