¹ The adoption of the new leasing standard IFRS16 led to a change of the H1 2019 EBITDA, EBIT and net profit margin of +160bps (CHF +12.8m), +20bps (CHF +1.9m), and -20bps (-1.3m), respectively. The prior-year basis was not restated.

² The Group has started to implement the reporting of alternative performance measures (APM) in accordance with the new directive of the Swiss Stock Exchange,  which facilitates the assessment of the underlying business performance but may differ from IFRS reported figures. The ‘core’ figures used in this document exclude one-time M&A effects, exceptional pension-plan items, restructuring expenses, amortization and impairment of goodwill and acquisition related intangible assets. ‘Before-exceptional results’, which were used historically, excluded the same non-recurring items but not acquisition-related asset amortizations. A reconciliation table of the reported and core income statement with additional descriptions is provided in the appendix on page 12 of this document.

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

Basel, 14 August 2019: In its first-half results published today, the Straumann Group reported continued double-digit growth as revenue climbed 15% in Swiss francs to CHF 780 million. Currency movements squeezed the increase by 3%-points while newly acquired businesses (mainly Anthogyr) added 1%-point. Organic growth was distributed fairly evenly between the two quarters, with a slightly lower increase in Q2 reflecting the late Easter this year. All regions posted double-digit organic increases throughout, with Asia Pacific, North America and LATAM reporting first-half organic growth of more than 18%.

The topline growth spurred further improvements in underlying profitability, despite unfavorable currency effects and sustained investments in geographic expansion, innovative technologies, and production capacity. Core Gross Profit and EBIT both rose 15% from the prior year, with the respective margins reaching 77% and 28%. Like-for-like core net profit reached CHF 170 million, up CHF 17 million or 11%. Core basic earnings per share amounted to CHF 10.64 (reported CHF 9.21) compared with CHF 9.45 in the same period of last year.

Marco Gadola, Chief Executive Officer, commented: “We have delivered strong organic growth throughout the first half, driven by our premium and non-premium implant solutions as well as the exciting development of our clear-aligner business. The launch of innovative products, like our next-generation implant system BLX, as well as portfolio and geographic expansions provided additional lift and helped us to achieve more customer gains. With revenue rising above our expectations, we are raising our outlook for full-year organic growth. With regard to profitability, we have benefitted from strong volume increases, a higher-margin product mix, and a one-time benefit related to the adoption of IFRS 16. As a result, our EBITDA, EBIT and net profit all increased, despite currency headwind and further investments in new products, technologies, partnerships, people, production and other initiatives to support growth in the coming years.”

STRATEGIC PROGRESS / NEWS HIGHLIGHTS IN Q2

Business expansion

Korean partnership to penetrate lower value implant segment

In support of its strategy to penetrate the non-premium implant segment and to compete more effectively in markets where Korean brands are successful, the Group is investing in Warantec, an established implant company in Korea. In return for a capital increase, the Group will obtain a 34% stake in Warantec, in addition to exclusive distribution rights to its products in China and other countries outside Korea. The agreement was signed in July and the transaction is expected to close before year-end.

New subsidiaries in Croatia and Taiwan

To create further growth opportunities in the Balkan region, the Group has acquired the business and sales team of its former distributor in Croatia and is establishing a hub there to serve the local market as well as the distribution network in Albania, Bosnia, Kosovo and Montenegro. More than 130 000 dental implants are placed annually in this Adriatic sub-region. The business will be consolidated as of 1 July 2019.

The Group also opened a new subsidiary in Taiwan and combined the inauguration event with a scientific forum attended by 500 key opinion leaders and dental professionals. Previously, the company was represented locally through domestic distributors and T-Plus, in which it holds a controlling stake.

Long-term partnership agreement with leading dental implant network renewed

The Group has renewed its long-standing agreement with ClearChoice Dental Implant Centers, North America’s leading network of full-arch tooth replacement treatment centers. As the ClearChoice network’s preferred dental implant supplier for a further five years, the Group will supply implant systems, digital solutions, biomaterials and tailored services to the growing network of 56 centers, enabling doctors to continue offering innovative and high-level dental implant care to their patients.

Further collaboration with leading scanner manufacturers

Throughout the first half, the Group worked diligently to enhance its digital portfolio. In addition to introducing the highly competitive Virtuo Vivo™ intra-oral scanner, it collaborated with leading scanner manufacturers to promote its software, prosthetics, guided surgery and clear aligner businesses and to accelerate its entry into emerging markets.

In Q1, the Group signed an agreement with Medit, the Korean scanner manufacturer, to integrate Straumann’s DWOS^® platform as a Medit’s preferred CAD software. The agreement also provides Straumann with distribution and cobranding rights for Medit’s lab scanners, which it expects to start selling in Q3/4.

Expanding collaboration with 3Shape

In Q2, the Group signed an agreement with 3Shape to strengthen their existing collaboration by directly linking 3Shape’s TRIOS intra-oral scanners to Straumann’s software platforms. This will offer a best-in-class intra-oral scanning solution, seamlessly integrated into Straumann’s powerful digital workflow for orthodontic, prosthetic and guided surgery applications. The partnership supports Straumann’s goal of unleashing the full potential of its fast-growing clear-aligner business The two companies are developing a seamless workflow for TRIOS users to plan and order ClearCorrect clear aligners (in markets where they are available) through a convenient application that will be included in future software updates. The digital workflows will be available on all TRIOS scanners sold by Straumann and on other TRIOS scanners, depending on the respective distributor.

Fast access to rapidly-growing Chinese digital dentistry market

To seize opportunities in the Chinese digital market, the Group has entered a distribution agreement with Carestream, another renowned provider of imaging equipment and intra-oral scanners. The Chinese intra-oral scanner market is underpenetrated but is emerging rapidly, driven by accessibility, ease of use and increased functionality. With regulatory approvals for its own Dental Wings scanner still pending, the Group has entered an agreement with Carestream to sell a co-branded version of their CS3600, which has already been approved by the Chinese regulators. The CS3600 is certified for the Group’s DWOS^®, DWOS^® Chairside Design and coDiagnostiX^® software, in addition to being compatible with the Group’s Smyletec clear-aligner solution, which is due to launch in Q4. The scanners are produced in Shanghai, where Carestream also operates R&D and service centers.

All of the above solutions complement the Group’s Dental Wings range and enable Straumann to address the full spectrum of customer requirements expediently in all relevant dental markets.

Further acquisitions to support digital business

To complement the Group’s business with increasingly popular 3D printers and to generate recurring revenues with consumables, Neodent signed an agreement in July to acquire Yller Biomateriais S.A., a Brazilian company specialized in developing and manufacturing high-tech materials for 3D-printing. The transaction is expected to close by the end of August. Also in July, the Group took over the aligner treatment planning and diagnostic company Digital Planning Service Private Limited in Pakistan, which handles case-planning for ClearCorrect.

BUSINESS PERFORMANCE

By business, implants and restoratives continued to grow at a solid double-digit rate and contributed the largest portion of growth. Straumann’s Bone Level Tapered (BLT) implant again posted strong growth, complemented by initial sales of BLX, which entered a full market release in Europe in April. BLX is an innovative, next-generation implant, which is priced at a premium to the popular BLT. Despite competitor discounting, the uptake of BLX has been good, with more than 30 000 sold since launch. Sales would have been even higher had there not been an unexpected shortage of surgical kits.

The Group’s non-premium implant franchise continued to outpace the premium business, driven in particular by the international roll-out of the Neodent, Anthogyr and Medentika brands, which helped to gain share in Brazil, China, Mexico, Turkey, the US, and distributor markets. Subsequent to its consolidation on 1 June, Anthogyr added CHF 4 million to the Group’s first-half sales.

Sales in the digital business also expanded strongly, fueled by clear aligners. There was a 60% rise in the global number of cases started, despite the fact that the international expansion is still in its infancy. Scanner sales were comparatively soft in Q2, as customers waited for various new models that were presented at the IDS and have only just become available. In addition, Dental Wings’ headquarters and main scanner production center in Montreal, Canada, were damaged by a fire in May. This interrupted supplies but the local team reacted swiftly and, thanks to their initiative and determination, supply delays have been minimized. Dental Wings has found, and is relocating to, a new permanent facility, which will be operational in October.

Biomaterials reported the strongest growth of all segments, reflecting the rebound of Emdogain in the US, continuing robust sales of bone-graft and membrane products, and the roll-out of botiss and Nibec products in certain markets.

REGIONAL PERFORMANCES

EMEA boosted by product launches and emerging markets

Despite the very strong comparative period of last year, EMEA achieved double-digit growth throughout the first half of 2019, as organic growth reached 14%. Acquisition and currency effects cut the increase in Swiss francs to 10%, bringing regional revenue to CHF 335 million. Notwithstanding, EMEA remained the Group’s largest organic growth contributor (37%).

In Q2, organic growth eased to 13%, reflecting the early Easter in the prior year. The performance was driven by the continuing success of BLT implants with additional lift from BLX. The rollout of Neodent and Zinedent implants, Medentika’s multiplatform prosthetics and botiss biomaterials also contributed to growth. By market, France, Russia and the Middle East were the main drivers, complemented by strong performances in Austria, Belgium, Hungary, Norway, South Africa and distributor markets.

Further customer gains in North America

North America, reported another strong first half with organic revenue again climbing 18%. Revenue amounted to CHF 230 million or 30% of the Group total.

In Q2, organic growth edged up to 19%, driven by the US implant business and ClearCorrect, which continues to grow dynamically in its home market. Further customer gains contributed to the strong growth in implants, which was driven by Straumann BLT and Neodent GM, with an additional contribution from pre-launch sales of Straumann BLX ahead of the full market release. Emdogain and the introduction of botiss’ Jason Membrane fueled strong growth in biomaterials. The Group made further gains in the DSO segment, which already accounts for 10% of the region’s sales.

Continued outperformance as APAC tops exceptional Q2 in prior year

With an organic increase of 19%, APAC continued to be the fastest-growing region in the first half. Including acquisition and FX effects, growth amounted to 18% in Swiss-francs, as revenue reached CHF 147 million.

All major countries continued to perform well in Q2, although growth eased to 16%, reflecting the exceptionally strong comparative period of last year, which was boosted by key product rollouts in China and digital equipment sales in Japan. China continued to be the growth powerhouse, supported by contributions from Australia and Thailand, driven by increasing sales of premium and non-premium implants as well as digital equipment .

Latin America posts double-digit growth in a challenging economic environment

In a more stable socio-political environment, the Group achieved first-half organic growth of 19% in Latin America. However, currency weaknesses – most notably the Brazilian Real – cut the increase in Swiss francs to just 8%, bringing regional revenue to CHF 68 million.

The currency impact eased slightly in Q2, when growth in organic and Swiss-franc terms reached 18% and 10% respectively. The performance was good throughout the region, especially in Argentina, Columbia, Mexico, Peru and Chile. Brazil, which still generates roughly 80% of the region’s sales, achieved solid double-digit growth, driven by Neodent and Straumann implants and boosted by biomaterials, with additional lift from the successful launch of ClearCorrect. To meet demand for the latter and for its value implants, the Group expects to open a new production facility in Curitiba in Q4.

Patent settlement with Align

In Q1, the Group settled a longstanding patent dispute between ClearCorrect and Align Technology. As the potential scanner collaboration mentioned in the agreement did not materialize, Straumann has paid an additional CHF16 million to Align in order to complete the settlement. Including considerations that were made in the ClearCorrect acquisition agreement, the Group booked a total one-time expense of CHF 26 million for the settlement in its H1 results. 

OPERATIONS AND FINANCES

The Group has started to implement alternative performance measure (APM) reporting in accordance with a new directive from the Swiss Stock Exchange and international practice in the sector,. For clarity and to facilitate a year-on-year comparison in this transition year, the Group is continuing to present its key figures:

• as reported according to ‘IFRS’ as well as ‘before exceptionals’
• In addition, the income statement is now also shown on a ‘core’ basis. Core figures exclude the same exceptional items as well as acquisition-related asset amortizations.

In the first six months of 2019, the following effects were defined as non-core items:      

• The Align Technology patent dispute settlement charge of CHF 25.5 million or CHF 22.3 million after tax deduction (‘Administrative expense’)
• Fire damages at Dental Wings of CHF 6.8 million (‘COGS’) and CHF 2.3 million (‘Administrative expense’); the insurance coverage to date amounts to CHF 8.7 million (‘Other income’)
• Amortization of acquisition-related intangible assets of CHF 8.9 million (EBIT level)
• Consolidation gains of CHF 6.0 million related to the acquisition/consolidation of Zinedent, Anthogyr, Abutment Direct and Valoc (below EBIT)

A reconciliation table is shown on page 12 of this media release (PDF).

The adoption of the new lease standard IFRS 16 led to changes in first-half EBITDA, EBIT and net profit margins of 160bps (+CHF 13 million), 20bps (+CHF 2 million), and -20bps (- CHF 1 million), respectively.

Double-digit volume expansion lifts gross profit

In the first six months of 2019, double-digit topline growth and a more favorable mix of products sold fueled an increase in gross profit. Core gross profit amounted to CHF 603 million and the respective margin reached 77%. This was CHF 81 million higher in absolute terms and the respective margin was 60bps higher than in the prior year, despite the fact that the company had to absorb currency headwind of 40bps. Impairment charges related to plant equipment and inventories destroyed by fire at the Group’s subsidiary Dental Wings in Montreal amounted to CHF 8 million. This and an exceptional inventory-revaluation expense of CHF 9 million following the acquisition of Batigroup in the prior year, were excluded from the core results.

Core EBITDA margin close to 32%

Operational gearing and benefits of the new accounting standard resulted in an increase of 160bps in the core EBITDA margin compared with the prior-year period. Distribution expenses (core), which comprise sales-force salaries, commissions, and logistics costs, rose CHF 22 million to CHF 159 million as the company entered new businesses and invested further in its premium and non-premium distribution network. Administrative expenses, which include R&D, marketing and general overhead costs, increased CHF 59 million on a reported basis and include costs for the patent dispute settlement with Align Technology as well as building facility impairment charges related to  to the fire in Montreal. Excluding these non-core items, administrative expenses rose CHF 31 million to CHF 231 million. As a percentage of sales, administrative expenses increased 30bps.

Substantial investments in production and the adoption of IFRS 16 were the main drivers of increased depreciation & amortization expenses, which amounted to CHF 32 million, CHF 16 million higher than in the first half of 2018. Core operating profit (EBIT) rose 15% and the corresponding margin edged up to 28%. The operating margin rose 20bps due to the one-time IFRS 16 effect and would have been even higher, had it not been for unfavorable foreign exchange movements. In contrast to the first half of 2018, when the Group benefitted from a currency tailwind of 120bps, currency headwind this year reduced operating profit by 70bps.

Net profit increases 11%

(Net) financial expenses increased CHF 5 million to CHF 11 million, mainly reflecting additional interest expenses on lease liabilities of CHF 3 million, following the implementation of IFRS 16.

As a result of the consolidation of its former associates Abutment Direct, Anthogyr, Valoc and Zinedent, the Group registered a gain on consolidation of CHF 6 million, which is shown in a separate line under ‘Gain on consolidation of former associates’. The Group’s share of results from associate partners improved by CHF 8 million, primarily because of an impairment charge for RODO Medical in 2018.

The rise in profitability led to an income-tax increase of CHF 5 million, translating into a corporate tax rate of 15%. The core tax rate amounted to 16%, which is broadly in line with the Group’s long-term guidance.

Before the aforementioned effects, core net profit increased 11% to CHF 170 million, with the corresponding margin reaching 22%. Without the one-time IFRS 16 effect the net profit margin would have been 20bps higher. Core basic earnings per share increased by more than one Swiss franc to CHF 10.64.

Free cash flow reaches CHF 58 million

The improved operating result lifted cash flow from operations by CHF 24 million to CHF 131 million. Strong volume growth, a higher share of sales in emerging markets and a significant increase in stock-keeping-units (SKUs) collectively increased cash outflow for net working capital by CHF 7 million to CHF 57 million. Days of sales outstanding (DSO) increased by three to 62, while ‘Days of supplies’ decreased by 6 to 185. Interest and tax payments increased by CHF 11 million.

To cater for future growth, the Group is investing heavily in capacity expansion at several production sites. This includes additional machinery and buildings in Villeret (CH), Round Rock (USA) and Curitiba (BR). As a result, CAPEX increased by CHF 29 million to CHF 73 million and includes CHF 15 million related to the acquisition of Anthogyr. The combination of these effects resulted in a free cash flow of CHF 58 million.

This year’s free cash flow and existing cash were used to acquire/increase stakes in: Anthogyr, etkon (Schweiz), Valoc, Zinedent and a new distributor in Chile. The cash considerations for these investments totaled CHF 45 million. Taking CAPEX, financial investments and other items into account, cash used for investing activities in the first six months of the year reached CHF 122 million.

Net debt increased sharply to CHF 345 million due the aforementioned CAPEX and financial investments as well as the annual dividend payment of CHF 83 million and the recognition of lease liabilities according to IFRS 16. The latter was also the main reason why the balance sheet total on 30 June 2019 increased from the end of 2018 by 19% to CHF 2.2 billion.

OUTLOOK RAISED (barring unforeseen circumstances)

As stated in February with the 2018 full-year results, the Group expects the global dental implant market to continue growing at about 4-5% in 2019. Based on the first-half results, it is raising its expectation for full-year organic revenue growth from the low-teens to the low-to-mid-teen percentage range. Excluding the impact of currency exchange rates, top-line growth and operational leverage should result in core EBITDA and EBIT margin improvements, in spite of further investments in Sales & Marketing and Research & Development. These profitability objectives exclude exceptional effects related to acquisitions as well as the impact of adopting IFRS 16 (lease accounting).

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 Anthogyr, ClearCorrect, Dental Wings, Neodent, Medentika, Straumann 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. 6900 people worldwide and its products, solutions and services are available in more than 100 countries through a broad network of distribution subsidiaries and partners.

Straumann Holding AG, Peter Merian-Weg 12, 4002 Basel, Switzerland.

Phone: +41 (0)61 965 11 11 / Fax: +41 (0)61 965 11 01

Homepage: www.straumann-group.com

Contacts :

Corporate Communications

Mark Hill: +41 (0)61 965 13 21

Thomas Konrad: +41 (0)61 965 15 46

e-mail: corporate.communication@straumann.com

Investor Relations

Fabian Hildbrand: +41 (0)61 965 13 27

Marcel Kellerhals: +41 (0)61 965 17 51 (as of 1 September 2019)

e-mail: investor.relations@straumann.com

Disclaimer

This release contains certain forward-looking statements that reflect the current views of management. Such statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Straumann Group to differ materially from those expressed or implied in this release. Straumann is providing the information in this release as of this date and does not undertake any obligation to update any statements contained in it as a result of new information, future events or otherwise.

Media and analysts’ conference

Straumann’s 2019 first-half results conference will take place at 10:30h Swiss time in Basel today. The event will be webcast live on the internet (www.straumann-group.com/webcast). The audio webcast of the conference call will be available for the next month.

The telephone conference can be accessed at:

Europe: +41 (0) 58 310 50 09

UK: +44 (0) 207 107 06 13

USA: +1 (1) 631 570 56 13

Presentation

The conference presentation slides are available at www.straumann-group.com/2019-hy-presentation and on the Media and Investors pages at www.straumann-group.com.

UPCOMING CORPORATE / INVESTOR EVENTS

Details of forthcoming investor relations activities are published on www.straumann-group.com (Investor information > Investor calendar).

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