In 2011, Abbott sales increased more than 10 percent over 2010.
Abbott delivered another year of record cash flow in 2011 and returned approximately $3 billion to shareholders in the form of dividends.
Abbott’s total return outperformed the Dow Jones Industrial Average, as well as the S&P 500 and S&P 500 Healthcare indices over the last year.
Abbott has paid 352 consecutive quarterly dividends since 1924 and 39 consecutive years of increasing dividends.
In 2011, despite a very challenging business environment, Abbott grew its global sales by 10.5 percent and increased ongoing earnings per share by 11.8 percent. We delivered record operating cash flow of $9 billion. Dividends rose for the 39th consecutive year, returning approximately $3 billion to shareholders. Combined with our share-price growth of 17.4 percent, this produced a total return on Abbott stock of nearly 22 percent, outperforming the S&P 500 and S&P Healthcare indices. This was our best performance in five years, and the best in our medical technology peer group.
It is, therefore, from a position of great strength that we move toward our future as two new healthcare leaders: a diversified medical products company and a research-based pharmaceutical company.
Two Leading Healthcare Companies
The diversified medical products company will retain the Abbott name, and I will lead it as Chairman and Chief Executive Officer. The new, research-based pharmaceutical company will be named later and will be led by Richard Gonzalez as Chairman and Chief Executive Officer. Rick is a 30-year Abbott veteran who has led our global pharmaceuticals business for the past two years and previously served as Abbott’s President and Chief Operating Officer. He is also one of the most seasoned and strategic leaders in the healthcare industry. The new company will be in very good hands.
The new, research-based pharmaceutical company will consist of our current proprietary pharmaceuticals business, equal to $17.4 billion in 2011 sales. The diversified medical products company will include all of Abbott’s other businesses: Nutritional Products, Diagnostics, Established Pharmaceuticals and Medical Devices, including Vascular Care, Diabetes Care, Medical Optics and Animal Health, equal to $21.5 billion in sales last year.
Upon the completion of our separation, Abbott shareholders will own stock in two companies that will be leaders in their fields. On Day One of independent operation, both companies will be:
- Fortune 200 businesses;
- Market leaders with broad product portfolios and strong new-product pipelines;
- Global in reach, infrastructure and competitive critical mass; and,
- Organizations with strong balance sheets and significant, durable cash flow.
We expect the two companies to each pay a dividend that, when combined, will equal the current Abbott dividend at the time of separation. These are the fundamental facts of our separation strategy—the “What.” Now I’ll explain the “Why.”
Evolving in a Changing Environment
Our strategic actions of the past decade-plus have dramatically reshaped and strengthened Abbott. Most recently, we have expanded our presence in emerging markets and aggressively rebuilt our pharmaceutical pipeline. At the same time, the investment identities and operating models of our current medical products businesses and pharmaceuticals business evolved independently. They now represent two distinct and compelling investment opportunities for shareholders.
This period also saw significant change in our operating environment, including the rise of emerging markets and their growing impact on global business. Abbott’s sales outside the United States now exceed those within. At the same time, rising global regulatory standards have changed the landscape for new healthcare products.
These changes in the environment essentially led each business to pursue distinctly different business models. Today, research-based pharmaceutical products have different approval and life cycles, research and development profiles, regulatory environments and geographical market focuses than our other businesses.
As a result, these two halves of today’s Abbott have moved in very different directions with equally different demands and priorities and are already functioning as separate, highly successful businesses. Acknowledging this, with the creation of two independent companies, helps clarify for investors each business’ value, which we believe will be beneficial for both companies and both stocks.
In making this decision, we challenged ourselves to think beyond our established and successful model to create the optimal pharmaceutical and medical products companies for the conditions of the 21st century. Because of the ways in which investors value these two different models, and because of their varying capital and investment needs, we concluded that we would be even more successful in the years ahead as two companies rather than one.
Business diversity will remain the core principle underlying the new Abbott medical products company. On Day One, it will be one of the most diversified companies in healthcare. But, our strategy is to comprise a diversity of businesses, not business models. And, diversity certainly is not the only successful model in healthcare. In fact, many of the leading peers of our future research-based pharmaceutical company have narrowed themselves to this core business in recent years, as the model best suited to that particular market.
Sales in our global, research-based pharmaceuticals business grew 10 percent in 2011, while sales in the diversified medical products businesses rose 11 percent. This strong performance in both halves of today’s Abbott—our two future companies—underscores the soundness of each model and the strength of each business.
Moving Toward Our Future
As always, the key to this success is our people. Abbott has a deep bench of executive talent, a strong culture of achievement and a superior global team. Our people are focused on running our business with minimal disruption throughout this year of transition. Managing the separation process is a dedicated group, which we created years ago specifically to handle significant organizational change of this kind.
An important step for the new company will be the organization of its board of directors, which will take place in the months ahead. This is a constant process in the life of a company, as demonstrated by changes to Abbott’s board in 2011. The year saw the retirement of three long-time directors: Lord David Owen, Roy Roberts, and Bill Smithburg. Their combined six decades of distinguished leadership and counsel helped Abbott thrive through the years, and we thank them sincerely for their service. Last year, we brought new talent and perspective to our board with the appointment of Sally Blount, Dean of the Kellogg School of Management at Northwestern University; and Nancy McKinstry, Chief Executive Officer and Chairman of the Executive Board of Netherlands-based Wolters Kluwer.
In 2012, we expect to deliver another year of strong earnings growth while investing appropriately to ensure successful futures for our two leading healthcare companies post separation.
This next large step in Abbott’s evolution fits squarely in our company’s long history of growth and success through continual strategic adaptation. We expect Abbott to be one of the fastest-growing large-cap diversified medical products companies, with a durable mix of products and a strong emerging-markets presence. The new, research-based pharmaceutical company will be a leader in its industry with a strong and sustainable portfolio of specialty medicines, as well as a promising pipeline.
It’s by making the right changes at the right times that Abbott has thrived for almost a century and a quarter. Soon, two companies will carry forward this same great legacy, for the growing benefit of all the people we serve.