Straumann lifts operating income in first half as net revenue rises 4% in local currencies to CHF 392 million 

 

  • Top-line growth increases to 5% (l.c.) in second quarter and is fuelled by implant volumes, with increased contribution from new generation implant systems (Bone Level and Roxolid®)
  • Growth reported by all regions with strong performances in North America and the Rest of the World
  • Operating margin leveraged by consistent pricing and effective cost management, despite currency headwind and increased investments in sales and innovation
  • Solid free cash flow (CHF 80 million), despite rise in net working capital due to sales increase
  • Full-year guidance maintained (barring additional currency headwind and unforeseen circumstances)

 

 

KEY FIGURES

 

 

 

 

 

 (in CHF million)

H1, 2010

H1, 2009

Net revenue

392.4

384.1

   Change in %

2.2

(6.9)

   Change in local currencies in %

4.2

(3.3)

 

 

 

Gross profit

314.6

306.5

   Margin in %

80.2

79.8

   Change in %

2.6

(9.7)

 

 

 

Operating profit (EBIT)

98.8

93.8

   Margin in %

25.2

24.4

   Change in %

5.3

(21.7)

 

 

 

Profit for the period

82.0

84.6

   Margin in %

20.9

22.0

   Change in %

(3.1)

(15.8)

 

 

 

Free cash flow [1]

80.3

91.8

    Margin in %

20.5

23.9

 

 

 

Basic earnings per share (in CHF)

5.24

5.43

   Change in %

(3.5)

(15.8)

 

 

 

Number of employees (30 June)

2 268

2 161


 

Basel, 19 August 2010: Amid continued sluggish market conditions, the Straumann Group today reported top-line growth of 4% (l.c.) over the first six months of 2010, bringing net revenues to CHF 392 million. Growth momentum increased to 5% (l.c.) in the second quarter, when the number of trading days was identical to the comparative prior-year period.  There were no material acquisition effects in 2010. The strength of the Swiss franc against the Euro and other currencies resulted in a negative currency effect of 2% points. As a result, net revenue growth amounted to 2% in Swiss francs.

 

Sustained cost efficiency measures together with improved production output lifted the EBITDA margin above 31%. With operating profit (EBIT) reaching CHF 99 million, the EBIT margin expanded to more than 25% despite adverse currency effects. A negative financial result squeezed basic earnings per share to CHF 5.24. Notwithstanding, net profit amounted to CHF 82 million, yielding a margin of 21%.

 

Beat Spalinger, President & CEO commented: “This performance is well in line with our forecast in spite of the very demanding environment. The results have been driven by implant volume growth. We have underpinned our established products with new long-term data and we have brought innovations to customers around the world. These achievements together with our service model have enabled us to maintain consistent and transparent pricing. At the same time we have been able to improve margins and, providing that there is no unexpected additional currency headwind, we are on track to meet the full-year guidance we gave in February.”

 

 

REVENUE DEVELOPMENT

 

Throughout the downturn, high unemployment, limited access to credit and low consumer confidence have resulted in reduced patient traffic at dental practices and increased postponements of complex treatments. However, latest figures suggest that the tooth replacement market is gradually improving from last year’s unprecedented decline.

 

Straumann’s implant business delivered a solid performance driven by volume growth and new generation products (Bone Level and Roxolid implant systems). Increased demand for regeneratives also contributed to net revenue growth. On the other hand, the CADCAM business posted lower sales than in the comparative period of last year, mainly due to slowing demand for in-lab scanners. This stems from a reluctance among laboratories to invest in the present economy and from the fact that customers are waiting for the launch of Straumann’s new scanner and CADCAM system later this year. In contrast, sales of CADCAM elements continued to expand.

 

Innovation and clinical excellence support growth

At the end of the first quarter, impressive long-term data were presented on Straumann SLA implants. The results come from the first randomized controlled clinical trial to report 10-year data[2] on a currently available screw-type dental implant with roughened surface technology.

 

Further 10-year data from other studies will be presented in the near future, adding to the body of long-term clinical evidence supporting Straumann’s implant system and surface technology. This is particularly significant as implant surface and design performance in general are coming under increasing scrutiny.

 

Roxolid establishes benchmark

The success story of Roxolid small diameter implants continues to unfold, not just in market uptake but also through clinical results and independent recognition. Further regulatory approvals were obtained and research findings were presented at major congresses around the world. To complement the ongoing clinical program, new studies involving centers around the world were started in the second quarter. In May, Roxolid was honored with the 2009 ‘Medical Device Technology of the Year Award’ bestowed by Frost & Sullivan for best practice in innovation.

 

Advancing in digital dentistry

In the first quarter, Straumann presented an array of digital solutions comprising integrated technologies and services. These include intra-oral scanning, computer-guided surgery, and a new CADCAM system.

 

The second quarter saw the roll-out of the iTero intra-oral scanner in Europe, where Straumann has exclusive distribution rights. Intra-oral scanning obviates the less precise and unpleasant process of conventional impression-taking by enabling the dentist to create a chair-side 3D image of the patient’s teeth using an optical scanner inside the mouth. To coincide with the launch, Straumann released new software that connects iTero users with the Straumann CADCAM system. As this is a new business area, the Group has had to build up the necessary systems/organization and the contribution to net revenue will increase gradually.

 

Another highlight was the introduction of the Group’s guided surgery system, which was acquired in 2009, and launched under the Straumann brand with multiple new features in initial European markets and the US.

 

The third component of Straumann Digital Solutions is a new CADCAM system, which was presented at several major dental meetings. It includes a new in-lab scanner and software that are scheduled to come to market later in the year. The new CADCAM range will incorporate tooth-borne (inlays, onlays, etc.) and implant-borne restoration options (screw-retained bridges etc).

 

Complement to regenerative range

At major meetings great interest was shown in Straumann’s innovative PEG membrane for guided bone regeneration, which complements the company’s regenerative range. Further data to support the product were collected in ongoing multicenter clinical studies. With clinical and regulatory goals achieved in Europe and the US, the product is on track for controlled market release later in the year.

 

Ongoing commitment to R&D

Straumann’s investment in R&D rose to a record level in the first half of 2010 as the company continues to drive evidence-based treatment and innovation. At the same time, the Group maintained its commitment to fostering independent research, which was manifest in the André Schroeder Research Prize – one of the most prestigious awards in dentistry – and the newly created IADR/Straumann Award for Periodontal Regenerative Medicine. The awards were presented in April and July respectively and were collectively worth a total of CHF 35 000.

 

 

REGIONAL PERFORMANCE

 

Stable progress in Europe

Revenue growth was achieved across all regions in the first half of 2010, although the improvement in Europe was modest. Net revenue in the region grew by 3% (l.c.) to CHF 242 million (62% of Group total). The weakness of the Euro and the British pound against the Swiss franc resulted in a negative currency effect of almost 4% points. During the second quarter, growth accelerated slightly to 4% (l.c.).

 

In the large German market, sales surpassed the comparative level achieved in the first half of last year. France, the UK and Iberia all achieved strong top-line growth, while Italy contracted slightly.

 

Strong performance in North America

After another encouraging quarter, the Group was able to report an 8% (l.c.) rise in first-half net revenue in North America. Currency headwind cut growth in Swiss francs to 6%. Straumann’s net revenues in the United States and Canada amounted to CHF 85 million or 22% of the Group total. New implant products (Bone Level and Roxolid) together with portfolio and sales team expansions in regeneratives enabled Straumann to win new accounts and strengthen its position in the region.

 

Positive trend in Asia/Pacific

The Asia/Pacific region contributed 13%, or CHF 52 million, to Group net revenue. This represents a 3% increase over the first half of 2009. The positive currency effect – due mainly to the strength of the Japanese yen – lifted growth to 7% in Swiss francs. Dynamic growth in China and positive developments in Korea more than offset the soft performance in Japan, where the market in general continued to decline. The performance was also characterized by strong orders from distributors in the region following inventory reductions through the recession.  A further recent highlight in the region was the regulatory approval of SLActive Bone Level implants in Taiwan.

 

Solid growth elsewhere

In the Rest of the World, net revenue rose 16% to CHF 14 million or 3% of the Group total, reflecting the positive underlying demand for Straumann solutions, particularly in Brazil and Mexico. Regional currency exchange rates were favorable and lifted growth in Swiss francs to 23%. 

 

 

OPERATIONS AND FINANCES

 

Effective cost management

Due to the combination of top-line improvement, increased volumes and cost management, the gross margin surpassed the 80% threshold, despite the overall negative currency effect of 40 basis points. Excluding this, the underlying margin expansion amounted to 80 basis points.

 

Focused cost management and currency exchange effects had a favorable effect on Selling & Administrative (SG&A) costs. These remained more or less stable at CHF 195 million, despite investments in Marketing & Sales – mainly in CADCAM and regenerative personnel. This was a main contributor to the increase in overall headcount, which rose 5% year on year to 2268 at the end of the reporting period. As a proportion of net revenue, SG&A expenses were reduced by 90 basis points to 50%.

 

R&D costs rose to CHF 23 million, reflecting the Group’s strategy to invest in innovation despite the unfavorable market conditions. This corresponds to 6% of net revenue and positions Straumann at the front of the industry.

 

Earnings before interest, tax, depreciation and amortization rose by CHF 4 million to CHF 123 million, driven mainly by the improvement in gross margin. The EBITDA margin amounted to 31%.

 

Operating margin improves by 170 basis points (currency adjusted)

After amortization and depreciation charges of CHF 24 million, operating profit (EBIT) amounted to CHF 99 million. The EBIT margin increased to 25%, 80 basis points up from the previous first-half level. Excluding a negative currency effect, the margin expansion amounted to 170 basis points.

 

The net financial result was a negative CHF 4 million due mainly to foreign exchange and hedging losses, most of which are still unrealized. Tax expenses came to CHF 13 million (CHF 2 million less than in the first six months of 2009) resulting in a tax rate of 14%. Going forward, the underlying rate is expected to be around 16-17%.

 

As a result of all these effects, first-half net profit amounted to CHF 82 million, yielding a margin of 21% and basic earnings per share of CHF 5.24.

 

Operating cash flow squeezed by higher net working capital

Net cash from operating activities decreased by 16% to CHF 90 million. This was due mainly to an absolute increase in trade receivables driven by increased sales. The mid-year number of days of sales outstanding decreased by 2 to 53 days.

 

At CHF 10 million, capital expenditure was significantly lower than in the first half of 2009. Thanks to production expansion in recent years, lower capital investments in property, plant, equipment and software were required.

 

Free cash flow amounted to CHF 80 million, with the respective margin at 21%. There were no investments in acquisition-related transactions in the period under review.

 

Net cash used for financing activities totaled CHF 56 million after the payment of CHF 59 million for the ordinary dividend, slightly offset by the sale of treasury shares for CHF 3 million.

 

Consequently, cash and cash equivalents on 30 June 2010 amounted to CHF 279 million, which, together with a high level of profitability (ROE=28%) gives the Group a high degree of flexibility.

 

 

Outlook (barring unforeseen circumstances)

 

With continuing uncertainty in the global economy, Straumann continues to assume that its market will grow in the low-single-digit range in 2010.

 

Based on its clinically-proven innovative products, organizational strength, market presence, and differentiated services, the Group is convinced that it can deliver above-market performance. With the goal of simply doing more for customers and patients in 2010, it will continue to invest in all its business franchises, its innovation pipeline, and its marketing and sales organizations to create superior treatment solutions and services.

 

Taking this into account and assuming that there will be no unexpected additional currency headwind, the Group expects to achieve levels of full-year net revenue (in Swiss francs) and operating margin at least in line with the prior year – in spite of additional second-half operating expenses related to the introduction of new products/technologies in digitalization and regeneratives.

 

 

[1] Defined as net cash from operating activities less capital expenditures plus net proceeds from property, plant and equipment.

[2] K. Fischer: ‘10-year outcome of SLA implants in the edentulous maxilla'; presented at the ITI World Symposium in Geneva, Switzerland, April 2010