34NOBEL BIOCARE ANNUAL REPORT <strong>2003</strong>Risks related to regulatory affairsand patient safetyApproval of the authorities and productliability are regarded as significant risksin any medical technology businesssuch as <strong>Nobel</strong> <strong>Biocare</strong>’s. However,during the previous ten years, thecompany has not been involved inany problems regarding such issues.To reduce its exposure to the risks,<strong>Nobel</strong> <strong>Biocare</strong> is working in compliancewith GMP (Food and DrugAdministration), Medical DeviceDirective and ISO 13485.Risks related to employeesThe main risk related to employeesincludes the risk of losing key personnel,resulting in losses of competenceand momentum. Historically,this has not been a major problem for<strong>Nobel</strong> <strong>Biocare</strong>.To reduce this risk, <strong>Nobel</strong> <strong>Biocare</strong>operates leadership development programsas well as a system for creatingalternative pathways for employeeswithin the R&D operations. For severalyears now, the company has alsooffered various incentive programsfor a number of key individuals.Salaries, other remuneration andpayroll overheads constitute <strong>Nobel</strong><strong>Biocare</strong>’s largest item of expenditureand correspond to around 25 percentof revenue. All things being equal, aone percent increase in average payrollexpenses per employee affects<strong>Nobel</strong> <strong>Biocare</strong>’s operating income,EBIT, by 1.0 percent and the EBITmargin by 0.25 percentage unit,based on payroll expenses for <strong>2003</strong>.Risks related to supply chainIn general, the main risks in thiscategory are production disturbances,dependency on specific suppliers andprice fluctuations for purchasedproducts. For a fast-growing companylike <strong>Nobel</strong> <strong>Biocare</strong>, there is also arisk related to production capacity.Production disturbances can occurfor any number of reasons, such astechnological problems, strikes andfire. Therefore, all factories havedeveloped contingency plans and thegroup is fully insured for any lossesresulting from damage. Furthermore,the company minimizes this risk byhaving multiple production facilitiesfor the complete assortment.Regarding <strong>Nobel</strong> <strong>Biocare</strong>’s implantproducts, the two facilities inKarlskoga and Yorba Linda aremanaged using global standardizedprocesses with generic technologysolutions. The factories mainly workwith specialized assortments, butwith full compatibility between thetwo and with the possibility of transferringproduction on short notice.The Procera factories in Stockholmand Fair Lawn utilize a commonsystem sharing technologies, whichnot only ensures there are no differencesbetween the factories, but alsothat orders can immediately be transferredfrom one of the two productionfacilities to the other.The capacity for implant productionis secured through long-termleased or owned facilities with infrastructuressupporting strong volumeincreases. Space in these facilitiesalso allows for further expansion forthe coming years.The capacity for Procera productionis supported by on-going expansionsin both the Fair Lawn andStockholm facilities.Purchased products are procuredfrom suppliers with generic technology,thus providing possibilities of movingpurchases from one supplier to another.This means that <strong>Nobel</strong> <strong>Biocare</strong> is notdependent on any specific supplier.An additional benefit is a minimizedrisk of increased prices of purchasedproducts (Cost of Sales), representinga significant expense item on <strong>Nobel</strong><strong>Biocare</strong>’s income statement. Thisitem is largely made up of the cost ofproducing and purchasing finishedand semi-finished products, plus thepurchase of input goods such astitanium, ceramic powder and packagingmaterial. However, none ofthese individual items is so large as torepresent a significant risk in termsof changes in price and cost.Legal risks and risks related tointellectual property (IP) rights<strong>Nobel</strong> <strong>Biocare</strong>’s success is partlydependent on patent and other IPprotection for its products. The IPprotection is most important when itcomes to Procera, which is surroundedby comprehensive system patents aswell as other IP protective andcontractual rights. Within DentalImplants, the company’s success, thehigh rate of development and introductionis of similar importance as IPprotection.As of 31 December <strong>2003</strong>, there wasa limited number of lawsuits and claimsarising from the ordinary business ofthe Group pending against companiesof the <strong>Nobel</strong> <strong>Biocare</strong> HoldingGroup. In the opinion of management,and based on currently availableinformation, the handling and settlementof these lawsuits and claims willhave no adverse material effect uponthe consolidated financial position oroperation of the Group.
NOBEL BIOCARE ANNUAL REPORT <strong>2003</strong>35Consolidated income statementIN EUR'000 NOTE <strong>2003</strong> 2002Revenue 1 333 978 311 190Cost of sales 4 -78 835 -76 006Gross profit 255 143 235 184Selling expenses 4 -119 163 -122 175Administrative expenses 4 -35 190 -29 697Research and development expenses 4 -13 563 -13 083Restructuring expenses 3 - -7 198Profit from operations 87 227 63 031Financial income 5 7 727 1 826Financial expenses 6 -3 613 -3 733Profit before tax 91 341 61 124Income tax expense 7 -18 666 -22 879Profit after tax 72 675 38 245Minority interest 16 -688 -442NET PROFIT 71 987 37 803Basic earnings per share (EUR) 17 2.85 1.50Diluted earnings per share (EUR) 17 2.73 1.43