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Unrivaled Scientific Knowledge  |
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Unrivaled scientific knowledge in Life Science and High Technology backed by tremendous service and a focused commitment to process improvement drove the performance of your Company during 2001. Regarding our financial results, we set a new record for sales with 10.5% (currency adjusted) growth and we're very satisfied. Earnings, on the other hand, did not meet our expectations - mainly due to increasing costs and the effects of acquisitions. However, the diluted earnings per share from operations still increased 12.7%. Sales increased 7.6% to $1.18 billion. Net income from continuing operations was $141 million, with reported diluted net income from continuing operations per share up 12.7% to $1.87. Adverse currency exchange rates reduced the sales growth by 2.9% and the diluted net income per share by $.13. All our business divisions showed good sales growth. Looking at the growth rates, currency adjusted: Scientific Research, our largest unit, grew much faster than its market with a 10.0% gain, particularly benefitting from improved service levels. Our Biotechnology division also had a good year with 12.2% growth aided by increased demand for our Molecular Biology products. The Fine Chemicals unit grew 11.5% with very strong USA sales. Diagnostics achieved a sales increase of 7.4%, below expectations, as sales from our acquisitions developed more slowly than planned. Overall, sales growth in local currency was higher in the USA than Europe, while we saw much higher growth in the other international markets, particularly in Canada, Japan and Korea. Our stock price ended the year just above the previous year's level. This was certainly a disappointment but a much better performance than the overall stock market. These achievements were due to the successful, ongoing implementation of the numerous Strategic Plan initiatives launched in 2000 to improve our performance. Just to recap, our plan was:
Scientific Research - Improved basics: world-class mailing list,
new products, pricing and service
The long-term financial aims are: 
Achieving and sustaining such aims would, in fact, put us in the 150 top performing public companies with sales in excess of one billion dollars. Taking a look at the results over the last two years, it's clear that our Strategic Plan is very much on track. Certainly sales and ROE have both increased nicely. Sales, now growing at 10% (currency adjusted) benefited from rapid growth in our international business aided by greatly improved service. The increase in ROE (exceeding 17%) is mainly due to repurchasing nearly 30 million of the 101 million shares outstanding in 1999. And we have Board approval to purchase another 5 million. Two-thirds of the earnings per share growth in 2001 is due to the effect of the share repurchase and one-third due to real operating performance. This reflects the fact that costs have been rising faster than sales. Certainly we have been investing heavily both in people and plant assets. Just consider our new $55 million R&D building in St. Louis (the largest facility expenditure in our history), which also houses many new employees, was not even a hole in the ground two years ago. Our operating profit performance, of course, needs to improve! Towards the end of 2001, we reviewed our original Strategic Plan and, in particular, took a look at what could be done to improve our profitability. Not surprisingly, in view of our sales success, we found our customers were responding very positively to our various initiatives: improved service, new products, catalogs and literature and increased sales force. So, from a sales point of view, only slight adjustments are being made to our Strategic Plan. But there will be an increased emphasis on profit growth. Three initiatives are fundamental to the success of our Company. These encompass our sustainable core competencies.
Leadership in Life Science and High Technology. Sigma-Aldrich is a leading Life Science and High Technology company. We have the broadest biochemical and organic chemical scientific knowledge and expertise in the world. We list 85,000 products and produce 40,000, many more than any other company. And our leadership will continue as the "number" gap gets wider each year. Sigma-Aldrich is clearly the leader in supplying specialty research chemicals and biochemicals in the $7.5 billion worldwide research market. Our well-known brands are found in research laboratories worldwide. In fact, we dominate the traditional life science and organic chemical markets. We also have the strongest collection of varied Biotechnology capabilities. In Molecular Biology, the study of life at the DNA level, we are rapidly becoming an important player (now the 5th largest in the world) as we introduce many new, innovative products. We have sales of over $100 million both in the Genome sector, where we're a major producer of "synthetic" DNA, and in the fast-growing areas of Cell Signaling and Neuroscience (the study of the brain, e.g. research in Parkinson's and Alzheimer's diseases) where we are the world leader. We're also a major supplier of immunochemicals for studies of hormones, cells and proteins. And, we are a leader in supplying Cell Culture media used to grow animal, plant and insect cells both in the laboratory and in industry. Sigma-Aldrich's enormously varied production capabilities give our Fine Chemicals division a unique position in supplying larger quantities of our products to Pharmaceutical, Diagnostic, Biotechnology and Industrial Chemical companies. There are no dominant suppliers in the $50 billion Fine Chemical market. We're certainly in the top 25. In 2001 we were named as one of the "Top 20" Innovators by Chemical Specialties magazine, a great tribute to our scientists and technical expertise. In the Diagnostics market ($20 billion), we're a small player but aiming for a position in diagnosing specific diseases. Clearly, we hold a leadership position in many of our markets. The challenge in every sector is simply to expand our market share. And, to do this, we took many key steps in 2001. Here are just a few of the highlights. We completed our new $55 million R&D center in St. Louis at the end of 2001. It's now the home to over 100 R&D scientists, including many newly hired Life Science researchers. We already have lots of exciting, new Biotechnology products lined up for launch in 2002. Furthermore, we increased the size of our sales and marketing force. We were also again active in the licensing of products. And, there was an increased focus on new literature and catalogs - the gold standard in our industry - and the mailing list. Overall, there was an aggressive drive for new products, both produced and purchased, to fuel future growth. On the acquisitions front, in February 2001, we acquired Isotec, a leader in stable isotope production whose products find application in basic research and the diagnosis of disease. The company performed well and was immediately accretive to our earnings. Regarding acquisitions in general, while market values have declined, sellers' expectations certainly have not, making it difficult for us to make deals that provide the desired return. Thus, we're less optimistic about our ability to add 2% growth from acquisitions in 2002. So we'll be focusing even more on internal growth in Life Science and High Technology.
Obsession with Service. This is what helped build our Company and ensures our competitive edge. We are all in the business of serving our customers. This applies to every one of our 6,500 employees in 33 countries. It's worth noting we are truly a global company with sales split 50% USA, 30% Europe and 20% International. Service is much more than shipping our products promptly from stock out of 15 worldwide distribution centers. It encompasses every relationship with our customers. When customers deal with Sigma-Aldrich, they expect and receive the best possible service.  To maintain and improve service, we continue to make major investments in production, R&D, warehousing and administrative support. In 2001, we invested nearly $109 million, including the completion of our $55 million R&D facility in St. Louis and a new $7 million warehouse in Korea. We're also expanding our Cell Culture and organic manufacturing capabilities. Recent major investments in our SAP computer software system ($55 million) and the Internet ($5 million/year) are certainly making us a much more unified company worldwide. During 2001, we smoothly implemented SAP at additional international locations. SAP is also fully integrated with our Web site - sigma-aldrich.com. The Sigma-Aldrich internet site has been extremely well received and we've seen sales double each year in the last three years. The $75 million sales in 2001 represented almost 10% of our worldwide research sales. We expect this growth to continue due to the ease of ordering and the wealth of informational content. In fact, Smart Business magazine rated us 20th out of all USA companies in 2001, ahead of some very illustrious names. Our Web site is certainly a competitive edge, and we intend to intensify our efforts to sustain and widen the gap from our competition. We will continue to invest nearly $5 million a year. Size certainly has its advantage here, for smaller companies simply cannot afford such a level of commitment.
Passion for Process Improvement. We've achieved great results during recent years. Process improvement has helped service, increased the demand for our Life Science and High Technology products, and taken out tremendous costs (at least $25 million over the last 5 years). We now have major worldwide projects underway in production, purchasing, packaging, distribution, labels and inventory, in addition to numerous local initiatives. These process improvement initiatives have already helped pay for the implementation of our Strategic Plan. We now intend to take process improvement to a new level in 2002. It's key to improving our operating performance.
Leadership, Obsession and Passion. These traits coupled with a real sense of urgency are what we expect in our employees. In 2001, we implemented a common worldwide appraisal of our managers for the first time, which will be extended to all employees in 2002. To succeed, our employees must live our values, work safely, become involved in process improvement and strive for role model behavior. 2001 was the best year in each of these endeavors. Unconditional teamwork is also expected as we share common knowledge and systems. Overall, we're aiming for a merit culture based on performance and behavior that encourages openness and learning. And, in 2001, the level of communication and training was at its highest in our history. To challenge and reward our employees we have implemented performance and results-driven compensation worldwide. Additionally, executive and senior management have purchased stock in the Company to meet their shareholding requirements, with an investment value of $16 million at year-end. Your Company also showed leadership in responding to the terrorist attack in New York on September 11 by donating $250,000 to be divided between the funds of the Firefighters and Police Officers. In addition, our employees worldwide voluntarily raised another $40,000. It's really a sad commentary on humankind in general that although we are all 99.9% genetically identical, we cannot live in peace with each other.
Looking Ahead. Governments and companies worldwide see Life Science and High Technology as important economic drivers and pivotal to their prosperity. So expenditures for chemical research, use of specialty fine chemicals and the diagnosis of disease will certainly continue to increase in the future. We're fortunate that all of our markets are growing! Life Science will be revolutionized by our better understanding of genetics. Certainly this will change the diagnosis and treatment of diseases and play a major role in feeding the world. We have only just started down this exciting path of discovery. But the implications for humankind and our Company are enormous. Demand for our High Technology chemical products will also increase as the pace of development continues unabated. Sigma-Aldrich is well equipped to supply these Life Science and High Technology needs. Our challenge is simply to take advantage of these tremendous opportunities. Overall, our goal remains to grow internal sales and profits at a 10% rate with another 2% sales and profit growth possibly coming from acquisitions and to further improve our ROE to 20% by 2004. Above all, this will be achieved by continuing to focus on our three key initiatives. 2002 is the year to use our present assets. We have the necessary employees and plants. In fact, overall production capacity utilization is now about 50%, so future capital expenditures will be at a much reduced level. Furthermore, we need to take advantage of our investment in SAP computer software to improve service and better utilize our inventory. Overall, we're optimistic because our markets are focused exclusively on the rapid growth areas of Life Science and High Technology. We intend to capitalize on our unrivaled scientific knowledge. Before closing, I wish to express the Company's and my personal gratitude to David Kipnis, Andrew Newman and Thomas Urban who retired as Directors in 2001 after many years of dedicated service. They served your Company well! It's also my great pleasure to welcome the new directors, Lee McCollum, Pedro Reinhard and Barrett Toan, who I'm sure will aid the further growth of Sigma-Aldrich. Finally, I wish to thank our customers, our employees and you, our shareholders, for your support and continued confidence in Sigma-Aldrich. 
David R. Harvey
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© 2002 Sigma-Aldrich Co. Sigma-Aldrich brand products are sold exclusively through Sigma-Aldrich, Inc. |
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