Straumann Group posts H1 revenue growth of 14% (organic) with further margin improvement

  • First-half revenue climbs 18% in Swiss francs (14% organic1) to CHF 543m
  • Q2 revenue rises 14% (organic) driven by double-digit increases in all businesses
  • Strong volume growth lifts underlying EBITDA & EBIT margins1 to 29% & 26%, respectively
  • Net profit reaches CHF 141m, or CHF 117m excluding exceptionals (margin: 22%)
  • Solid cashflow despite accelerated investments in manufacturing and portfolio expansion
  • Straumann enters orthodontics and strengthens digital capabilities (see separate release)
  • Group organization adapted to address changes in customer structure
  • Guidance unchanged: on track to deliver underlying revenue and profitability growth

 

KEY FIGURES

 

 

 

 

 

 

 

 

 

 (in CHF million)

H1 2017

H1 2017

H1 2016

H1 2016

 

reported

excl. exceptionals2

reported

excl. exceptionals2

Revenue

543.4

 

461.2

 

  Change in CHF %

17.8

 

15.7

 

  Change in l.c.%

17.1

 

15.1

 

  Change in organic growth %1

14.3

 

13.5

 

 

 

 

 

 

Gross profit

418.0

420.0

361.2

 

  Margin in %

76.9

77.2

78.3

 

  Change in %3

15.7

16.3

19.6

 

 

 

 

 

 

EBITDA

156.1

158.0

129.2

 

  Margin in %

28.7

29.0

28.0

 

  Change in %3

20.9

22.4

31.0

 

 

 

 

 

 

Operating profit (EBIT)

137.8

139.8

114.4

 

  Margin in %

25.4

25.7

24.8

 

  Change in %3

20.5

22.2

38.3

 

 

 

 

 

 

Net profit

140.8

117.2

134.9

94.5

  Margin in %

25.9

21.6

29.3

20.5

  Change in %

4.4

24.0

>100.0

30.1

 

 

 

 

 

Basic EPS (in CHF)

9.11

7.57

8.55

5.99

 

 

 

 

 

Free cash flow 4

45.2

 

55.0

 

  Margin in %

8.3

 

11.9

 

 

 

 

 

 

Number of employees (end of June)

4227

 

3599

 

 

 

Basel, 17 August 2017: The Straumann Group today reported a continued strong performance in the first six months of 2017 as organic revenue grew 14%, fueled by double-digit increases across all businesses. Revenue rose 18% in Swiss francs to CHF 543 million, of whichCHF 11 million were contributed by consolidated/acquired businesses (Medentika in Germany and Equinox in India). From a regional perspective, North America and EMEA (Europe, Middle East & Africa) each added a third of the Group’s growth. In the second quarter, organic revenue rose 14%, making this the ninth consecutive quarter of double-digit growth.

 

Despite significant further investments in new markets and segments, geographic expansion, R&D and production capacity, the Group achieved further improvements in underlying profitability. EBITDA and EBIT both rose 22%, with the respective margins reaching 29% and 26%. At CHF 141 million, reported net profit exceeded operating profit by CHF 3 million due to one-time effects resulting from the business combination of Medentika. On an underlying basis, net profit increased 24%, bringing the corresponding margin to 22% and earnings per share to CHF 7.57.

 

Based on these strong results, Straumann confirmed its expectation for full-year revenue to grow organically in the low-double-digit range with further underlying EBIT margin improvements, barring unforeseen circumstances.

 

Marco Gadola, Chief Executive Officer , commented: “With strong growth continuing across all our businesses, we have gained market share thanks to our BLT implant, our comprehensive range of biomaterials and lab solutions, and our attractively-priced alternatives offered through Neodent, Medentika and our other non-premium brands.

 

Having come closer to our goal of becoming a total solution provider in tooth replacement, we have accelerated our strategy to enter the attractive field of esthetic dentistry. At the same time, we are responding to market and technology trends by building digital capabilities and partnerships and devoting resources to the fast-growing DSO segment.

 

We are investing more than ever in capacity expansion, new segments and markets, as well as in innovation, future growth projects and people to drive them. In spite of this, we are still managing to expand our profitability, which speaks for the hard work and commitment of our staff.”

 

 

STRATEGIC PROGRESS / NEWS HIGHLIGHTS

 

Business expansion

The Group announced in a separate release that it is entering the attractive field of digital orthodontic dentistry by acquiring ClearCorrect for a total consideration of approx. USD 150m. ClearCorrect is a fast-growing company that generated sales of USD 32m in 2016, making it a well-established provider of clear-aligner tooth-correction solutions.

 

Straumann has also obtained a 38% stake in Geniova Technologies of Spain, a pioneer of innovative hybrid aligners, in return for a capital injection. The deal also includes the right to become the exclusive distributor of Geniova products. 

 

To accelerate the development of digital platforms and equipment to support and link esthetic, restorative and replacement dentistry, the Group is increasing its stake in Dental Wings Inc. from 55% to full ownership for a consideration of approx. CAD 50m. This transaction and the ClearCorrect acquisition are expected to be completed by year end and will be financed using the Group’s cash and treasury shares.

 

Organizing to capture growth opportunities in digital and corporate dentistry 

To bring these businesses and the Group’s digital activities closer together and to drive their global expansion, Straumann is creating a global Digital Business Unit under the leadership of Mike Rynerson, former CEO of Dental Wings, who has rejoined the Group as a member of the Executive Management Board.

 

The Group also announced that it is allocating additional resources to the rapidly-expanding corporate dentistry segment, which represents 10% of the dental implant market and is projected to double by 2020. The Group is well positioned to lead this segment and is creating a unit dedicated to Dental Service Organizations under the leadership of Petra Rumpf as Executive Vice President DSOs.

 

To leverage synergies between its premium and non-premium activities and to create further growth opportunities, the Straumann and Instradent brands are being brought closer together under the Straumann Group umbrella. This includes the simplification of internal processes and entities, enabling the premium and non-premium sales teams to offer a broader range of solutions and making the ordering, delivery and invoicing processes more efficient. The Instradent activities will be coordinated at a regional level rather than centrally.

 

 

BUSINESS PERFORMANCE

 

The implant business was the main growth contributor throughout the first half. The key drivers of this success were the high-performance implant material Roxolid® and the continuing success of Straumann’s Bone Level Tapered implants, which accounted for more than a quarter of all Straumann premium implants sold in H1 2017. The significance of BLT is emphasized by the fact that approximately 70% of all implants placed are tapered. Particularly noteworthy was the contribution from Straumann’s innovative 2.9mm small-diameter tapered implant, which was fully launched in Europe and the US after the IDS trade fair in March.

 

The Group’s efforts to become a total solution provider, for example by offering cost-effective, versatile abutment solutions (Variobase, pre-milled blanks), prosthetics for third-party implant systems, as well as in-lab and chairside milling solutions, have led to sustained double-digit growth in the restorative business.

 

Following launches at the IDS, Straumann booked initial sales from its new intraoral scanner and milling solutions. These are expected to increase as the dedicated support and service organization is built up worldwide.

 

Biomaterials continued to be the fastest-growing business, fueled by the international rollout of the botiss range and guided-bone-regeneration solutions with in-licensed products. The Group gained further share of the bone augmentation and membrane market and is working to make a comprehensive biomaterials portfolio available in Brazil, China, Japan and the US.

 

 

REGIONAL PERFORMANCE

 

REVENUE BY REGION

 

 

 

 

 

 

 

 

 

(in CHF million)

Q2 2017

Q2 2016

H1 2017

H1 2016

Europe, Middle East & Africa (EMEA)

123.1

108.2

244.3

216.1

   Change in CHF in %

13.8

14.6

13.0

12.0

   Change in local currencies in %

15.0

11.1

15.0

10.2

   Change organic in %

9.9

11.1

10.0

10.2

   % of Group total

 

 

45.0

46.9

 

 

 

 

 

North America

75.5

64.5

149.2

126.5

   Change in CHF in %

16.9

21.0

17.9

18.2

   Change organic in %

17.2

16.9

17.2

14.7

   % of Group total

 

 

27.5

27.4

 

 

 

 

 

Asia / Pacific

47.0

39.7

93.0

75.2

   Change in CHF in %

18.5

26.1

23.7

24.6

   Change in local currencies in %

21.5

20.2

25.1

20.6

   Change organic in %

19.4

20.2

22.5

20.6

   % of Group total

 

 

17.1

16.3

 

 

 

 

 

Latin America

31.6

25.9

57.0

43.4

   Change in CHF in %

21.9

(0.6)

31.2

14.0

   Change in local currencies in %

12.8

17.2

13.9

36.3

   Change organic in %

12.8

17.2

13.9

15.6

   % of Group total

 

 

10.5

9.4

 

 

 

 

 

GROUP

277.1

238.3

543.4

461.2

   Change in CHF in %

16.3

16.1

17.8

15.7

   Change in local currencies in %

16.5

14.7

17.1

15.1

   Change organic in %

13.8

14.7

14.3

13.5

 

 

EMEA: Main contributor to growth

The Group’s largest region, EMEA, performed well in the first six months of 2017, in spite of the market’s relative maturity. The Group gained market share by delivering organic growth of 10% on top of a high baseline. The consolidation of Medentika added 5 percentage points to regional growth. These factors, together with the effect of a weaker Euro, meant that regional revenue increased 13% in Swiss francs to CHF 244 million.

 

All businesses contributed to this positive trend, fueled by the rollout of BLT and the increased popularity of Variobase abutments. Biomaterials also contributed, benefiting from the botiss distribution business in Germany, which Straumann took over in Q3 2016. The Group has also expanded its non-premium business geographically, in addition to using it to win new accounts in existing markets.

 

The region maintained its pace in Q2, delivering organic growth of 10%, despite two fewer selling days, reflecting the early Easter last year. Belgium, the UK, and most of the Eastern European countries posted the strongest increases. The Group is making good progress in emerging markets in the region, and its young subsidiary in Russia posted dynamic growth. The CADCAM equipment business also added to the growth following the presentation of new digital solutions at the IDS.

 

Still on the fast track in North America

North America posted strong first-half organic revenue growth of 17% and contributed a third of the Group’s overall growth. Regional revenue amounted to CHF 149 million or 28% of the Group total.

 

The performance was driven by strong demand across all businesses and in both the premium and non-premium implant segments. Many new customers were attracted by Roxolid, Straumann’s new 2.9mm BLT implant and Variobase abutments as well as Neodent’s range of tapered implants featuring the Aqua hydrophilic surface.

 

The region maintained its momentum in Q2, lifting revenue to CHF 76 million. Instradent made further gains in the value segment and launched the Medentika range of cost-effective prosthetic solutions in the US.

 

Strong performance in APAC driven by China

Asia/Pacific posted another dynamic performance, with half-year revenue climbing 23% in organic terms and 24% in Swiss francs to CHF 93 million (17% of Group). Most of the growth was generated in China, driven by the dynamic premium market and benefitting from the roll-out of the Anthogyr value brand. Straumann has gained further market share in Japan, where demand for its products was robust.

 

Growth eased slightly from 26% in Q1 to 19% in Q2, reflecting the very strong prior-year period in Japan, which benefited from various product launches and a large scientific forum in Tokyo. The newly-acquired Equinox business in India added 3%-points to reported growth. Other subsidiaries in the region all performed well.

 

Double-digit growth in Latin America

In Latin America, organic revenue growth reached 14%, which is particularly impressive in view of the economic situation and general weakness in the region’s largest market, Brazil.Growth in Swiss francs benefitted from the appreciation of the Brazilian Real, as regional revenue rose 31% to CHF 57 million (11% of Group). Despite the challenging economic environment, Straumann and Neodent in Brazil posted robust performances and gained new customers. This was complemented by the Group’s expansion into new markets and segments.

 

In Q2, organic growth reached 13%, driven mainly by Straumann BLT and Neodent Aqua implants. Particularly strong demand in Mexico, together with growth in Colombia, Argentina and Chile, helped to sustain double-digit growth in the Region..

 

 

OPERATIONS AND FINANCES

 

Straumann has fully consolidated Medentika in its financial statements, having obtained control since January 2017. The business combination led to several one-time effects, which include inventory revaluation expenses of CHF 2 million in the ‘costs of goods sold’ and a one-time gain of 25 million below the EBIT line (see Note 4). These effects are defined as ‘exceptionals’. To facilitate the performance comparison, the key financial figures are shown both on a ‘reported’ and an ‘underlying’ (i.e. excluding exceptionals) basis.

 

Double-digit volume expansion lifts gross profit

Strong volume growth in premium and value implant solutions lifted gross profit in H1 2017 by 16% to CHF 418 million. Excluding the aforementioned exceptional inventory-adjustment charge, underlying gross profit stood at CHF 420 million and the respective margin amounted to 77%. This was 110 base points lower than in the prior year period, reflecting the higher current share of value and third-party products, which have lower gross margins, in addition to adverse currency effects.

 

To cater for strong volume growth, the company stepped up its investments in production capacity and increased its manufacturing teams in Curitiba (BR), Andover (US) and Villeret (CH), leading to higher production costs.

 

Global team expands as Group increases production and invests in future growth

Over the first six months of the year, the Group’s global team increased by 430 to 4227 employees, reflecting investments in growth markets/projects and production capacity. The incorporation of Equinox in India and Medentika in Germany added 160 employees. Approximately 50 new jobs were created in Switzerland, mainly in production and R&D, to drive the Group’s strong development pipeline.

 

EBIT margin clears 25% for the first time since 2010

Distribution costs, which comprise sales-force salaries and commissions as well as logistics expenses, increased by CHF 17 million to CHF 119 million as the company continued to invest in high-growth markets and in building its global non-premium franchise. This includes amortization expenses of CHF 4 million for customer-related intangible assets of recently acquired companies (Neodent, Medentika, and Equinox).

 

Administrative expenses rose in absolute terms from CHF 146 million in H1 2016 to CHF 162 million in H1 2017. This includes overhead and marketing costs for the newly-added Medentika and Equinox businesses. Relative to sales, administrative expenses decreased 170 basis points to 30%, which contributed to the improvement in profit margins.

 

Earnings before interest, tax, depreciation, amortization (EBITDA) and exceptionals increased 22% to CHF 158 million, lifting the respective margin 100 basis points to 29%.

 

After amortization and depreciation charges of CHF 18 million, operating profit amounted to CHF 138 million (CHF 140 million underlying) compared with CHF 114 million a year ago. The underlying EBIT margin cleared 25% for the first time since 2010 and increased 90 base points to almost 26%.

 

One-time revaluation gain lifts net profit

The financial result declined from a negative CHF 1 million in the prior year period to a negative  CHF 2 million in the first half of this year. The main reason for this was the reduction in interest income following the repayment of the MegaGen convertible bond. Apart from foreign exchange hedging costs, the main component of the financial result was interest payments of CHF 2 million – related to the 200-million corporate bond..

 

The Group recognized an overall valuation gain of CHF 25 million as the fair value of the investment in Medentika on 1 January 2017 exceeded the respective carrying amount. This exceptional effect is both cash and tax-neutral and is shown in a separate line in the income statement under ‘Gain on consolidation of Medentika’.

 

Straumann’s Group share of results from its associate partners5 was a negative CHF 3 million compared to a negative CHF 1 million a year earlier. The decline reflects this year’s business combination of Medentika, which is highly profitable, and was reported as ‘Share of results of associates’ up to the end of December 2016.

 

Income-tax expenses in the first-half of 2017 amounted to CHF 17 million in contrast to a tax income in the prior year period, when the Group benefitted from a one-time tax gain in Brazil. This year, the aforementioned revaluation gain on Medentika lowered the effective tax rate to 11%. The normalized tax rate going forward is expected to be approximately 15%.

 

Taking all these factors into account, the Group generated net profit of CHF 141 million or
CHF 117 million (margin: 22%) excluding exceptionals. Underlying (basic) earnings per share grew 26% to CHF 7.57 (2016: CHF 5.99).

 

Solid free cash flow of CHF 45 million

Thanks to the aforementioned profitability improvements, net cash from operating activities increased 14% to CHF 78 million. The result was constrained by higher inventory levels due mainly to the opening of new subsidiaries and the extension of the Group’s product range (including digital equipment). The dynamic topline growth in emerging and distributor markets led to an increase in accounts receivable, although the days of sales outstanding reached 60 days – one day less than a year ago.

 

The Group invested heavily in the expansion of manufacturing capacity at various sites, increasing CAPEX by CHF 19 million to a total CHF 33 million. The combination of these effects meant that free cash flow reached CHF 45 million, bringing the respective margin to 8%.

 

Raised dividend and further investments in technology platform

A portion of the free cash flow was used to obtain a 49% stake in a ceramic implant joint venture with maxon motor, a 38% stake in the Spanish orthodontics company Geniova, and to increase the Group’s stake in Rodo Medical to 30%. Collectively, these investments amounted to CHF 21 million. At the end of February, MegaGen Implant Co., Ltd. repaid the outstanding convertible bond with a face value of USD 30 million. Taking everything into account, cash used for investing activities in the first six months of 2017 reached CHF 36 million.

 

At this year’s AGM, the shareholders approved a dividend increase to CHF 4.25 per share and the corresponding CHF 65 million were paid out in April. This was the main financing activity in the period under review, which totaled CHF 64 million.

 

As a result, cash and cash equivalents at the end of June amounted to CHF 140 million,
CHF 24 million lower than at the beginning of the year.

 

 

OUTLOOK 2017 UNCHANGED

(barring unforeseen circumstances)

 

The Straumann Group expects the global dental implant market to grow at approximately
3-4% in 2017 and is confident that it can continue to outperform by achieving organic growth in the low double-digit percentage range. Despite further investments in strategic growth initiatives and assuming that currency exchange rates remain fairly stable, the expected organic revenue growth and operational leverage should lead to further improvements in the underlying6 operating profit margin.

 

 

About Straumann

The Straumann Group (SIX: STMN) is a global leader in tooth replacement and orthodontic solutions that restore smiles and confidence. It unites global and international brands that stand for excellence, innovation and quality in replacement, corrective and digital dentistry, including Straumann, Instradent, Neodent, Medentika, etkon, ClearCorrect, Dental Wings, and other fully/partly owned companies and partners.

 

In collaboration with leading clinics, institutes and universities, the Group researches, develops, manufactures and supplies dental implants, instruments, CADCAM prosthetics, biomaterials and digital solutions for use in tooth replacement and restoration or to prevent tooth loss.

 

Headquartered in Basel, Switzerland, the Group currently employs approx. 4200 people (excl. Dental Wings and ClearCorrect) worldwide and its products, solutions and services are available in more than 100 countries through a broad network of distribution subsidiaries and partners.

 

 

1 Excluding the effects of currencies and acquisitions (i.e. Medentika and Equinox). With effect of 1 January 2017, Straumann has fully consolidated Medentika in its Group financial statements. The ownership structure of Medentika and Straumann’s stake remain unchanged.

2 Exceptional CHF 23m gain in H1 2017 related to the Medentika business combination (CHF 24m after tax), which includes inventory revaluation expenses of CHF 2m (COGS) and a CHF 25m fair value gain (financial result). In H1 2016, net profit was lifted by a one-time effect of CHF 41 million related to the capitalization of deferred tax assets in Brazil.

3 Change versus ‘reported’ values in prior year.

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

5 Associate companies in the first-half 2017 comprise: Dental Wings, maxon dental, Rodo Medical, Createch, Anthogyr, T-Plus, Valoc, V2R, Abutment Direct, and Zinedent. The equity method of accounting is applied for these companies, in which Straumann holds a non-controlling stake. The associate result is shown net-of-tax and after amortization of intangibles.

6 Excluding acquisition (Equinox, Medentika, ClearCorrect, and Dental Wings) and currency effects.