I am pleased to report that fiscal 2005
was another very good year for BD.
The Company achieved its financial and
operating goals and showed solid
improvement over 2004. Our strategy is
working, and we will continue to implement
it. The key elements of the strategy are to drive revenue growth through innovation, and to expand our margins by improving operating effectiveness.
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Edward J. Ludwig, Chairman, President and Chief
Executive Officer |
The growth in revenues and profits that we achieve from this strategy will enable us to make continued progress toward our vision of becoming a “great company” – one that achieves great performance for its customers and shareholders, makes great contributions to society, and is a great place to work. We’ll look at these “Three Greats” as we review this year’s accomplishments:
Great performance
Company revenues grew nearly 10 percent overall (including about a 3 percent benefit from foreign currency translation) to $5.4 billion, with contributions from all three segments and every region. Our adjusted gross profit margin increased 80 basis points to 51.0 percent, continuing a trend of gross profit improvement over the last several years.*
Overall productivity was powered by continuous improvement activities including Six Sigma, Lean and Process Validation across the Company. Significant productivity improvements and successful category management more than overcame substantial raw material price increases, primarily affecting petroleum-based resins,
during the year. Greater forecast accuracy and continued efforts from operations resulted in a 40 percent decrease in backorders, leading to improved customer service. These and other activities are detailed in the Operational Effectiveness sidebar accompanying this letter.
Adjusted operating income increased over 18 percent from adjusted 2004. Adjusted operating margin as a percentage of sales improved from 19 percent to over 20 percent, reflecting gross profit improvement, productivity gains and SSG&A leverage.*
This year, we generated over $1.2 billion in operating cash flow and our inventory turns improved. We repurchased 9.7 million common shares for $550 million and paid dividends of $182 million. We returned 60 percent of our operating cash flow to shareholders. Our balance sheet remains strong and liquid, placing us in a good position for future strategic investments.
BD Medical revenues rose by 10 percent over 2004 (including about a 3 percent benefit from foreign currency translation) to $3.0 billion. Sales of safety-engineered products grew 28 percent internationally and 7 percent in the U.S. We achieved strong sales growth in blood glucose monitoring products, which totaled $76 million for the year. Other key growth drivers included prefilled IV flush syringes, pen needles for insulin injection, and prefillable syringes sold to pharmaceutical companies. The new BD Nexiva
Closed IV Catheter System was launched in the U.S. and Europe. BD Nexiva has the potential to improve the way infusion therapy is delivered and to enhance safety for both patients and health-care workers.
BD Diagnostics revenues rose by 8 percent over 2004 (including about a 2 percent benefit from foreign currency translation) to $1.7 billion. Sales of safety-engineered products rose by 37 percent internationally and 11 percent in the U.S. Safety sales were highlighted by the successful scale-up and launch of the BD Vacutainer Push Button Blood Collection Set. The BD ProbeTec ET instrument platform was another key growth driver, and the next-generation, highly automated BD Viper ER System should roll out in early 2006. The BD Phoenix instrument for bacterial identification and anti-susceptibility testing was launched in the U.S. and Japan this year, and it continues to show solid sales growth. BD Diagnostics’ acquisition of FFE Weber established our entry into the field of proteomics as an enabling first mover in the research market for biomarker discovery, and eventually clinical applications.
BD Biosciences revenues from continuing operations rose by 11 percent over 2004 (including about a 3 percent benefit from foreign currency translation) to $800 million. This growth was driven by the continued success of instrument platforms including the BD FACSCanto flow cytometer and special order versions of
the BD LSRII bench top research analyzer. We also realized strong developing world sales of instruments and reagents used to monitor CD4 levels, an important indicator of the effectiveness of HIV/AIDS therapy. Discovery Labware sales growth was boosted significantly by increased branded and private label business, facilitated by improved operating effectiveness of its production facilities. We were also pleased by the first full-year performance of our cell imaging business, a new market that we entered in 2004 with our acquisition of Atto Bioscience.
Of course, sustaining accelerated revenue growth entails ongoing innovation. We increased our R&D spending (on an adjusted basis) by a rate of about 13 percent this year and we intend to sustain low double-digit growth going forward. We’re confident that this step-up in our spending will lead to exciting new innovations in advanced drug delivery, superior diagnostic systems and new bioscience platforms in several years. We are also taking disciplined steps to implement improved world-class product and technology development processes.
Great contributions: a passion for caring
BD products are key ingredients in the mix of business and philanthropic efforts that help us live our corporate purpose of “Helping all people live healthy lives.” We make great contributions to society– and to healthcare–by designing and marketing new products that deliver demonstrably higher benefits to patients, healthcare workers and researchers, improving health outcomes. These products are making great contributions in the area of HIV/AIDS, diabetes, measles and other diseases. Beyond our products and services, we are further pursuing our purpose through our many philanthropic efforts and our strong relationships with key nonprofit organizations.
The theme of this report, “A Passion for Caring,” truly captures the essence –the DNA–of BD. Our associates are passionate about making better medical solutions available to people all over the world. They’re passionate about living our corporate purpose.
Looking back on this year, a year impacted by unprecedented natural disasters around the world, we were able to respond by promptly providing medical products and other needed resources. We do this through collaboration with our “Trusted Partners”–including the American Red Cross, AmeriCares, Direct Relief International, the U.S. Fund for UNICEF and others–which have the people and infrastructure on the ground to ensure that our products quickly reach those in need. Thousands of BD associates also made cash donations and contributed in other ways to help ease the suffering of those impacted by the disasters.
BD announced new relationships with several organizations this year. We joined the March of Dimes to sponsor the 50th Anniversary
celebration of the Salk polio vaccine; BD supplied the syringes and needles in 1954 for Dr. Salk’s clinical field trials that inoculated nearly one million children. We expanded our agreement with The William J. Clinton Presidential Foundation to increase access to CD4 testing in 50 countries highly burdened with HIV/AIDS, and we announced our support for the efforts of the Global Business Coalition on HIV/AIDS.
BD associates continue to make an impact through volunteer activities in communities around the globe. In May, we launched a BD-supported volunteer program in which ten BD associates traveled to Zambia to work in rural healthcare clinics to assist in the fight against HIV/AIDS. We anticipate that it is just the first of similar programs to come in the future. I invite you to read more about this program, and BD’s commitment to global volunteerism, in the special insert following this letter.
Great place to work
BD’s strategy to drive innovation and operating effectiveness is driven by the competency and capabilities of our people; therefore, our ability to develop our associates to their full potential, to engage them, and to let them express their passion for the things they’re doing, is essential to our success.
Our development program for leaders and associates, BD University (BDU), is making significant contributions to our success. We’re adding new product development and business processes programs to the curriculum. Our new Advanced Leadership Development Program has reached 600 key BD leaders, and approximately 550 leaders, including the entire Leadership Team, serve as teachers in BDU. Our unique “leaders as teachers” approach is often cited as a best practice among corporate learning programs.
We continue to strengthen our commitment to providing an inclusive and engaging work environment. Our global Diversity Inclusion Guiding Coalition is leading the creation of a cultural climate that embraces diversity inclusion as an enabler to innovation and achieving business objectives.
Key management and governance developments
It is my pleasure this year to welcome two new members to the BD Leadership Team, both of whom are veteran BD associates. Donna Boles was promoted to Vice President, Human Resources, and Johnathan Macy was promoted to Vice President, Global Manufacturing Operations.
We established a new function of Enterprise Compliance to coordinate effective compliance activities and promote consistency in compliance practices across the Company. Overseen by a new Compliance Committee composed of senior leadership and led by our new Chief Compliance Officer, Susan Murr, this function will help to ensure the continued effectiveness of our overall compliance efforts through program design, prevention against non-compliance, and promotion of an organizational culture of compliance.
In summary
In summary, we’ve come a long way over the past five years. Our 2005 achievements were the latest affirmation that our strategy to drive innovation and operating effectiveness is working. By continuing on this course, we are confident that 2006 will be another year of progress.
Even now, we are increasing our investments in innovation to address even bigger healthcare challenges in the future. For example, we are working toward:
- Employing microneedles and needle-free technologies to provide safer, more effective and painless drug delivery systems.
- Addressing the problem of healthcare-associated infections with superior devices, diagnostics and know-how.
- Developing rapid and more accurate diagnostic systems that will improve therapy and patient health.
- Helping people with diabetes live healthier lives by developing advanced drug delivery, glucose sensing and information management systems, and making significant contributions to finding a cure for diabetes with our investments in cellular therapeutics.
- Continuing our fight against the spread of infectious diseases, particularly HIV/AIDS, with safer drug delivery systems, advanced immunization practices and real-time, accurate diagnostics.
- Further improving the effectiveness of life science researchers by providing advanced discovery systems, bionutrients and reagents.
We believe we can achieve these exciting breakthroughs by building on our core strengths and investing in new capabilities.
The future holds many opportunities indeed for BD associates around the world to continue our quest for greatness, and to pursue with passion our purpose of “Helping all people live healthy lives!”
Edward J. Ludwig
Chairman, President and
Chief Executive Officer
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