Straumann reports organic 1 growth of 9% in first half of 2015 with further profitability improvements

  • First-half revenue climbs 17% in local currencies and 11% in Swiss francs to CHF 399m (including CHF 28m from Neodent1), despite significant Euro impact
  • Q2 is strongest quarter since economic recession shook the dental markets in 2008; organic growth reaches 10% driven by the US, Germany, Japan and emerging markets
  • Operational leverage and cost-reduction measures underpin EBIT margin at 21%
  • Net profit reaches CHF 73m before exceptional charges related to the Neodent business-combination2
  • Further investments in fast-growing markets, value segment and technology platform
  • Group raises its expectation for full-year performance

 

KEY FIGURES

 

 

 

 

 

 

 

 (in CHF million)

H1 2015

H1 2015

H1 2014

 

reported

excl. business combination exceptionals2

reported

Revenue

398.5

 

359.1

   Change in CHF %

11.0

 

1.2

   Change in l.c. %

17.1

 

4.6

   Change organic %

9.2

 

4.6

 

 

 

 

Gross profit

301.9

315.0

283.4

   Margin in %

75.8

79.1

78.9

   Change in %

6.5

11.2

2.6

 

 

 

 

EBITDA

98.6

111.7

88.8

   Margin in %

24.8

28.0

24.7

   Change in %

11.1

25.9

19.1

 

 

 

 

Operating profit (EBIT)

82.7

95.8

75.0

   Margin in %

20.7

24.0

20.9

   Change in %

10.2

27.7

32.0

 

 

 

 

Net profit

(0.7)

72.6

68.7

   Margin in %

(0.2)

18.2

19.1

   Change in %

(101.0)

5.6

28.0

 

 

 

 

Basic EPS (in CHF)

(0.10)

4.59

4.42

 

 

 

 

Free cash flow 3

44.9

 

37.6

    Margin in %

11.3

 

10.5

 

 

 

 

Number of employees

   (at end of period)

3363

 

2278

 

 

Basel, 20 August 2015: In the first six months of 2015, the Straumann Group posted strong organic growth of 9% driven by all business segments and regions. With the recently acquired Neodent business contributing CHF 28 million in four months, Group revenue reached CHF 399 million, representing an increase of 11% in Swiss francs – despite the significant negative currency impact due mainly to the Euro. In local currencies, first-half growth reached 17%.

 

Building on the good start to the year and thanks to a strong performance in the EMEA region, the Group increased organic growth to 10% in Q2. Including CHF 21 million from Neodent, reported Q2 revenue rose 15% in Swiss francs to CHF 205 million. Throughout the quarter, all businesses and regions contributed to growth, with the strongest organic growth coming from Latin America.

 

The robust operational performance, accretive income from Neodent and benefits from cost-saving measures to mitigate the currency impact combined to improve the Group’s underlying profitability, as gross, operating and net profit rose 11%, 28% and 6%, respectively, with the corresponding margins reaching 79%, 24% and 18%.

 

However, the effects of combining the Neodent business with Straumann resulted in exceptional, non-cash relevant charges of CHF 73m after tax, which in turn led to an overall reported net loss of CHF 1 million.

 

Marco Gadola, Chief Executive Officer, commented: “We have sustained and built on the recovery in Europe and, with strong organic growth in Latin America as well as good performances elsewhere, we have posted our strongest quarter since economic recession shook the dental markets in 2008. Top-line growth was fuelled by new products, including our new Bone Level Tapered implant and our comprehensive range of regenerative solutions, which have helped to win business from competitors. Our initiatives to mitigate the strong negative currency impact are paying off and, with the good top-line performance, we are well on the way to delivering our full-year profitability targets. In pursuit of our strategy to become a total solution provider in tooth replacement, we have expanded our technology platform. We have also continued to target unexploited growth markets and segments, investing further in value players and emerging markets in Asia and Latin America, which are a key source of future growth.

 

 

BUSINESS PERFORMANCE

 

Straumann’s implant business was the main source of first-half growth across all regions. The high-performance implant material Roxolid® was the key driver, with additional impetus provided by the full market release of Straumann’s Bone Level Tapered (BLT) implant in initial markets. This new implant line, which offers higher primary stability, already accounts for 9% of Straumann’s implant volumes, despite the fact that it has not yet been launched in Asia Pacific and Latin America.

 

Restorative sales, including CADCAM prosthetics and digital equipment, posted solid first-half growth. Demand was especially strong for Straumann Variobase® abutments, which have doubled in volumes over the past 12 months.

 

The Regeneratives business posted double-digit growth, driven by the botiss range, which Straumann launched in Europe in October 2014. Emdogain®, which celebrated its 20th anniversary, continues to be a focal point for scientific research and a good source of revenue. Together with the new Straumann Osteogain™ formulation, which was presented at the Europerio congress in London, it complements Straumann’s comprehensive portfolio of guided bone and tissue regeneration solutions.

 

 

REVENUE BY REGION

 

 

 

 

 

 

 

 

 

(in CHF million)

Q2 2015

Q2 2014

H1 2015

H1 2014

Europe, Middle East & Africa (EMEA) 4

94.4

98.2

193.0

205.8

   Change in CHF in %

(3.9)

(2.9)

(6.2)

1.2

   Change organic in %

8.3

(2.0)

4.1

1.8

 

 

 

 

 

North America

53.4

46.8

107.1

92.2

   Change in CHF in %

14.1

(1.2)

16.1

(0.4)

   Change organic in %

9.3

5.4

10.5

5.3

 

 

 

 

 

Asia / Pacific

31.5

28.8

60.3

51.0

   Change in CHF in %

9.2

7.4

18.4

3.0

   Change organic in %

12.8

15.3

22.2

12.2

 

 

 

 

 

Latin America 4

26.1

5.6

38.1

10.1

   Change in CHF in %

368.3

17.8

275.9

7.6

   Change in local currencies in %

469.4

30.6

339.5

23.1

   Change organic in %

15.6

30.6

14.3

23.1

 

 

 

 

 

GROUP

205.3

179.3

398.5

359.1

   Change in CHF in %

14.5

(0.4)

11.0

1.2

   Change in local currencies in %

21.9

3.2

17.1

4.6

   Change organic in %

10.1

3.2

9.2

4.6

               

 

EMEA continues to pick up

The recovery in main European markets was sustained, contributing to first-half organic revenue growth of 4% in the EMEA (Europe, the Middle East and Africa) region. The strong negative currency effect due to the sharp depreciation of the Euro squeezed revenue in Swiss francs by6% to CHF 193 million or 48% of the Group total. In Q2, organic growth accelerated to 8%, reflecting a pick-up in the economy and in dental procedures in most European markets. Straumann has also benefitted from a rich launch pipeline, which was presented at the International Dental Show in March.

 

Germany was the main contributor to organic growth in Q2, with Spain, France, the UK, and Sweden all performing well, while the more mature markets in the Netherlands and Switzerland were unable to keep pace with the comparative period of the prior year. Q2 sales in distributor markets were lifted by successful public healthcare tenders, partly offsetting the impact of price reductions forced by the sharp appreciation of the Swiss franc earlier in the year.

 

Strong growth continues in North America

North America, which accounts for 27% of Group sales, posted another strong first half with organic growth of nearly 11%. Benefitting from an appreciation of the dollar, regional revenue climbed 16% in Swiss francs to CHF 107 million. Growth was driven by strong demand for implant solutions, complemented by new regenerative products.

 

Growth eased slightly to 9% in Q2 after a very strong first quarter, which was boosted by the full market release of BLT. The Group launched its Pro Arch edentulous solution in conjunction with a training program for experienced dentists. At the same time, Straumann expanded capacity at its US CADCAM production facility to cater for future demand for screw-retained bars and bridges.

 

APAC lifted by double-digit growth in Asia

With strong growth in China and continued good results in Japan, first-half revenues in Asia/Pacific (APAC) climbed 22% organically. The negative currency effect reduced growth in Swiss francs to 18%, bringing regional revenue to CHF 60 million (15% of the Group).

 

Straumann has almost completed its new distribution model in China, establishing its own consultative sales force, training-and-education organization and network of 20 regional sales distributors. Following a sales boost in the first quarter related to stocking orders from new dealers, Q2 sales were expectedly softer but remained robust.

 

Apart from this, Roxolid and BLT both received regulatory clearances in Japan in July, which will offer customers the latest differentiated premium implant technology. Elsewhere in the region Straumann Australia celebrated its tenth anniversary and the Group gained further control over its business in Thailand through a new agreement with its agent.

 

Resilience in Latin America

Despite the economic recession in Latin America’s biggest economy, Brazil, both Straumann and Neodent reported regional organic growth in the mid-teens. The pronounced decline of the Brazilian Real reduced reported growth in Swiss francs, which was otherwise boosted by the consolidation of Neodent in March. In Q2, organic growth accelerated to 16%, driven by Brazil, which benefitted from an increase in trading days, and Mexico. BLT recently received regulatory approval in Brazil and is due to launch there in the coming months.

 

 

OPERATIONS AND FINANCES

 

Straumann’s 49% share in Neodent was reported as ‘Share of results of associates’ up to the end of February 2015. Following the consolidation on 1 March, it contributed to all levels of the Group’s financial statements.  

 

The business combination resulted in several non-cash-relevant effects and exceptional bookings to various positions in the Group’s income statement. These collectively amounted to CHF 86 million (pre-tax) and comprised the following:

 

  • ‘Cost of goods sold’: One-time adjustments for Neodent’s inventory totaling CHF 13 million.
     
  • ‘Loss on consolidation of Neodent’: a one-time accumulated foreign-exchange loss of CHF 85 million due to the depreciation of the Brazilian Real against the Swiss franc in the period between the acquisition of the initial 49% stake in 2012 and the business combination in March 2015. This loss was reclassified from ‘Equity’ to the ‘Income Statement’ in accordance with IFRS. In addition, a revaluation gain of CHF 21 million was booked due to the de-recognition of the investment in the initial 49% stake.

 

The following effects, which are not defined as exceptionals, also affected the Group’s net profit in the first half:

 

  • ‘Distribution costs’: an amortization expense of CHF 2 million for customer-related intangible assets from March to June.
     
  • Share of result of associates’: provisions related to a local distributor agreement and an ongoing litigation case prior to the business combination, which reduced the Neodent result by CHF 7 million.

 

The acquisition of Neodent also added 930 employees, bringing the Group’s global team to 3363 on 30 June.

 

Gross margin maintained at 79% despite adverse currency effects

Excluding the aforementioned exceptional inventory adjustment charge of CHF 13 million, underlying gross profit increased 11% to CHF 315 million driven by the top-line improvement and increased utilization of manufacturing capacity. The respective margin reached the prior year’s high level of 79%, which is remarkable in view of the fact that Straumann had to compensate for a negative currency impact of CHF 19 million (or 1 margin-point). After exceptionals the reported margin was 76%.

 

EBIT margin sustained above 20%

Distribution costs, which comprise salesforce and directly-related sales activities, increased by CHF 1 million to CHF 90 million. This includes the aforementioned expense of CHF 2 million for customer-related intangible assets from Neodent. Relative to revenue, distribution costs decreased by two percentage points to 23%.

Administrative expenses, which include Marketing, Research & Development, General Management and Support functions, increased by CHF 9 million to CHF 130 million. As a percentage of revenue, administrative expenses decreased by one percentage point to 33%.

 

Thanks to the improvements in gross-profit and the abovementioned items, earnings before interest, tax, depreciation, amortization (EBITDA) and exceptionals increased to CHF 112 million, lifting the underlying margin by 330 base points to 28%.

 

After total amortization and depreciation charges of CHF 16 million, reported operating profit amounted to CHF 83 million, compared with CHF 75 million in the same period of 2014. The reported EBIT margin came to 21% in both cases. 

 

Excluding business-combination exceptionals, operating profit amounted to CHF 96 million and the EBIT margin expanded to 24%.

 

Bottom line negatively affected by Neodent consolidation effects

The net financial result was a negative CHF 7 million – in contrast to a more-or-less neutral result in the prior year – and is predominantly related to foreign-exchange losses subsequent to the sudden appreciation of the Swiss franc in January.  

 

Straumann’s share of results from its associate partners (Dental Wings, Medentika, Createch, T-Plus, Valoc, and Neodent until 28 February), which are accounted for under the equity method, came to a negative CHF 7 million in contrast to a positive CHF 5 million in the comparative period of last year. This was mainly due to the aforementioned Neodent provisions and the fact that the company, which is highly profitable, contributed over the full first-half period in 2014 but for only the first two months of 2015.

 

Income taxes amounted to CHF 6 million compared with CHF 12 million in the first half of 2014. The decrease was primarily due to the way in which the aforementioned exceptionals are taxed and does not reflect the normal underlying tax rate of approximately 16%.

 

Taking all the aforementioned factors into account, the Group generated first-half net profit of CHF 73 million, which was reduced by the abovementioned exceptionals to a net loss of CHF 1 million. Basic earnings per share adjusted for exceptionals increased to CHF 4.59 from CHF 4.42 a year previously.

 

Free cash flow increases by 19%

Net cash from operating activities increased 16% year-on-year and amounted to CHF 62 million thanks to improvements in profitability and working capital.

 

During the first six months of the year, Straumann expanded its North American CADCAM production and invested in a new CADCAM production center in Narita near Tokyo. These investments were the main cause of a CHF-10-million increase in capital expenditure.

 

The combination of these effects meant that free cash flow increased by 19% to CHF 45 million and the respective margin reached 11%.

 

Further investments in value segment and technology platform

Cash used for investing activities amounted to CHF 25 million. Straumann invested further in the value segment and in companies that advance its technology platform and strategy to be a total solution provider. These investments came to CHF 22 million of which CHF 9 million were to purchase an additional convertible bond issued by the Korean value implant company MegaGen. The remaining CHF 13 million were used to acquire: a 49% stake in T-Plus – the Taiwan-based implant supplier, an additional 11% stake in Straumann’s digital technology partner Dental Wings, and a 44% stake in Valoc – a Swiss supplier of denture attachment systems.

 

Including the purchase consideration of CHF 225 million for the remaining 51% stake in Neodent as well as the payment of the regular annual dividend in the amount of CHF 59 million (CHF 3.75 per share), net cash used in financing activities totaled CHF 287 million.

 

Consequently, cash and cash equivalents at the end of June 2015 amounted to CHF 205 million, down from CHF 459 million at the end of 2014. With an equity ratio of 55%, the company remains solidly financed.

 

 

Outlook 2015 (barring unforeseen circumstances)

 

Straumann expects the global implant market to continue growing in 2015 and, based on the good first-half performance, expects full-year revenue to grow organically in the mid- to higher-single-digit range. The Group will balance investments between growth markets and strategic projects. Taking this and the anticipated revenue growth into account and assuming that the currency exchange rates remain more or less at their H1 levels, the Group aims to achieve an EBIT margin in the low twenties, before business combination exceptionals.5

 

 

About Straumann

Headquartered in Basel, Switzerland, Straumann (SIX: STMN) is a global leader in implant, restorative and regenerative dentistry. In collaboration with leading clinics, research institutes and universities, Straumann researches, develops and manufactures dental implants, instruments, prosthetics and tissue regeneration products for use in tooth replacement and restoration solutions or to prevent tooth loss.The Straumann Group currently employs approximately 3400 people worldwide and its products and services are available in more than 70 countries through its broad network of distribution subsidiaries and partners.

 

 


1 The term ‘organic’ in this release means ‘excluding the effects of currency fluctuations and acquired business activities’. As of 1 March 2015, the Neodent business was fully consolidated and led to an acquisition effect in the Latin American region.

2 Charges in 2015 related to the Neodent business combination amounted to CHF 77m (CHF 73m after tax), which includes inventory revaluation expenses of CHF 13m and a CHF 64m net loss below the EBIT line (see p. 5). All the exceptionals are non-cash-relevant and apply to the first half only.

3 i.e. net cash from operating activities, less capital expenditures, plus net proceeds from property, plant and equipment.

4 Owing to the Neodent business combination, Straumann has re-allocated markets from the ‘Rest of the World’ region to EMEA and Latin America with effect of 1 January 2015. The respective regional figures for 2014 have been restated accordingly. Neodent was fully consolidated as of 1 March 2015 and led to an acquisition effect in the LATAM region.

5 Inventory adjustments related to the business combination of Neodent of CHF 13 million in COGS.