¹The term ‘organic’ used throughout this release means ‘excluding the effects of currency fluctuations and the discontinuation of intra-oral scanner distribution business (N. America and Europe only) in October 2012’

² The term ‘exceptionals’ refers to: 2013 restructuring charges of CHF17m and a pension curtailment gain of CHF9m, both related to cost-reduction initiatives; 2012 charges of CHF 18m related to cost reduction and severances, and a goodwill impairment of CHF 21m relating to the global regenerative business.

³In 2013, Straumann adopted the revised IAS19 regarding employee benefits. 2012 figures have been restated accordingly.

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

Basel, 25 February 2014: After a disappointing start to 2013, the Straumann Group achieved three consecutive quarters of solid organic growth to post full year net revenue of CHF 680 million, 1% above the prior year. The performance was driven by strong growth in North America, complemented by double-digit growth in China and a recovery in Japan in the second half. These collectively compensated for a continuing contraction in Europe.

In the course of the year, Straumann reorganized to address the changed market environment and its cost base. Volume increases, further efficiency gains in production and resolute cost-reduction measures, including a 12% reduction in global headcount, enabled the Group to deliver its promise of a significant improvement in profitability. EBIT margin rose 330 base points to more than 18% excluding exceptionals, and net profit almost tripled to CHF 101 million. Free cash flow amounted to CHF 139 million, demonstrating Straumann’s high rate of cash conversion. Cash and cash equivalents at year-end amounted to CHF 384 million, and the equity ratio stood at 62%.

The overall turn-around in performance was honored by a marked improvement in the stock price, contributing to a total shareholder return of 52% in 2013.

CEO Marco Gadola commented: “In 2013, we had to adapt further to a market environment that is changing faster than anticipated. We had to follow through with radical measures to reduce costs, resize and reorganize. By focusing on savings that would not compromise quality, innovation, service and selling power, we still have one of the strongest teams of professionals in our industry and have succeeded in getting back to sustainable growth with significantly improved profitability – despite the persisting sluggishness in the dental markets. Cost-reductions have not weakened our drive to innovate – on the contrary, we have launched solutions that add efficiency and convenience. We have also developed products that reduce barriers to treatment and have the potential to change treatment paradigms. We have taken bold steps to compete on price and to penetrate the value segment through strategic entrepreneurial investments in a portfolio of separate brands. As a result, we have made a promising start to our 60th anniversary year.”

BUSINESS PERFORMANCE

Amid challenging market conditions, Straumann’s implant business expanded consistently as the year progressed to post solid overall growth driven by the Bone-Level range and an increased share of the high-performance material Roxolid^®.

The restorative business was mixed. Sales of implant prosthetics including CADCAM customized abutments grew solidly, but not enough to compensate for the shortfall in simple tooth-borne restoration elements, due to competition from in-lab and chairside milling. The contribution from digital equipment and software was expectedly smaller than in 2012, owing to the transfer of certain activities to Dental Wings and the discontinued distribution of intra-oral scanners in October 2012.

The Regeneratives business achieved modest growth, led by the periodontal tissue regeneration product Emdogain^®.

REGIONS

Pockets of improvement in Europe

The European market for high-end tooth replacement continued to suffer from the combined effects of poor consumer sentiment and higher healthcare costs and taxes, which reduced disposable income for dental treatments. Traffic at dental practices was slow, and patients delayed treatment or took cheaper conventional options. With the downward cycle persisting, the market has become increasingly competitive, especially in prosthetics.

These developments squeezed Straumann’s revenue in the region by 3% in organic terms over the full-year and by 1% in Q4. In both cases, currencies contributed slightly more than 1percentage point, bringing net revenue in the respective periods to CHF 368 million and CHF 93 million, corresponding to 54% of the Group.

The strongest performances throughout the year were delivered by France and the UK. Demand was soft elsewhere. In Q4, Italy, Germany and the Benelux countries contracted. On the other hand, Spain and Sweden, which both suffered badly from the economic environment and structural changes in the market, reported considerable improvements, suggesting a return to growth.

Later in the year, Straumann prepared a new strategic approach to Europe. It extended Roxolid with the new LOXIM™ transfer piece throughout its implant range, the main advantage being that Roxolid reduces invasiveness by making it possible to use narrow and short implants that avoid bone augmentation. On 1 January 2014, the Group adjusted its implant pricing in initial European markets, offering Roxolid SLActive^®/SLA^®implants with LOXIM at the same price as the older titanium equivalents. At the same time, the price of the basic titanium SLA implant was reduced in parts of Europe to address the value segment more effectively. These initiatives are designed to increase market share and the first results are promising.

Double-digit growth in North America in Q4

North America, Straumann’s second largest region, achieved good organic growth of 8% over the full-year. The weakening of the US dollar against the Swiss franc reduced growth in Swiss francs by one-and-a-half percentage points. Nevertheless, North American revenue reached a record level of CHF 182 million, corresponding to 27% of Group revenue – five percentage points higher than two years previously, endorsing Straumann’s strategy of continued investment in marketing and sales in the US. Here too, Roxolid and the bone-level implant range were the main drivers, in addition to Emdogain, while the restorative business posted solid growth.

In Q4, organic growth reached 11% and revenue amounted to CHF 46 million. Growth was generated by all businesses but was most pronounced in implants and regeneratives.

Asia/Pacific gains additional lift from pick-up in Japan

On the back of successive quarterly increases, the Asia/Pacific region achieved full-year growth of 5% (l.c.), with revenues reaching CHF 98 million (15% of the Group). This was driven by the underpenetrated Chinese market and lifted by a recovery in the largest regional market, Japan, where Straumann regained market share. The considerable depreciation of the Japanese Yen stole 10 percentage points from growth resulting in a 5% contraction in Swiss francs.

The region made further progress in the fourth quarter, achieving growth of 16% (l.c.), its highest quarterly increase in five years. All subsidiaries posted growth. The key growth drivers were Japan and China, which like distributor markets in South-East Asia posted exceptionally strong orders. Straumann is evaluating possibilities to adapt its business model in China to capture the full potential that this dynamic market offers.

Having worked for several years to make its benefits of the SLActive surface available to customers and their patients in Japan, Straumann has received marketing approval from the Japanese health authority PMDA and has launched the product.  Straumann is the first company to bring this implant surface technology to market in Japan, which will be a competitive advantage going forward.

Strong growth in Latin America

The region referred to as the ‘Rest of the World’ contributes approximately 5% of Group revenue, most of which is generated in Latin America and the Middle East. Full-year revenue increased 8% in local currencies but only 3% in Swiss francs to reach CHF 31 million. The currency impact was due to the strong depreciation of the Brazilian real. Brazil, which is now the world’s largest implant market in volume terms, was the source of good growth both for Straumann and for Neodent.

The region reported continued growth in Q4, but slower than in the preceding quarter, reflecting erratic distributor ordering patterns in the Middle East.

OPERATIONAL AND STRATEGIC PROGRESS

In the course of the year Straumann complemented its portfolio with a number of products, solutions and brands, most of which were added/launched in the fourth quarter.

Reducing invasiveness with Roxolid

The Group extended the option of Roxolid to its entire range of implants and launched a new 4mm short implant. Designed to reduce invasiveness and to make treatment possible for patients with insufficient bone by helping avoid bone augmentation procedures, Roxolid implants have the potential to save time, money and trauma, thus increasing patient acceptance. All Straumann’s Roxolid implants are supplied with the new LOXIM™ transfer piece for convenient handling.  

New ceramic implant – an innovative alternative

Straumann’s ceramic monotype implant entered a controlled market release prior to a broader scale launch later in 2014. Featuring the new ZLA™ surface for enhanced osseointegration, it provides an excellent reliable alternative for patients who ask for metal-free implants.

Broader prosthetic possibilities with guaranteed precision and reliability

A significant addition to Straumann’s prosthetic range in 2013 was the CARES^® Variobase™ abutment, which offers labs a precise, reliable solution for producing their own abutments with an original Straumann connection. This is the key to a collaboration initiated in Q4 that enables 3Shape users to produce customized restorations with an original Straumann connection.

Joint efforts to drive CADCAM solutions

The Group continued to develop its CARES Visual software, adding innovative features and functionalities to streamline workflows. The integration of its CADCAM system with the Dental Wings Open Software platform was completed, offering customers an open system with a range of possibilities for data input and milling. As a result of these developments, the Group agreed with its partner Dental Wings to combine, and thus strengthen, their respective rival scanner businesses creating critical mass and synergies. Straumann’s scanner production unit is therefore transferring to Dental Wings.

Penetrating the ‘value’ segment

The Group took further steps to penetrate the value segment in Q4. It launched Neodent in Spain and took steps towards establishing the brand in the US. Straumann also acquired 51% of Medentika in Germany, a rapidly-expanding provider of cost-effective implants and prosthetics for multiple implant systems, and 30% of Createch Medical in Spain, a specialist in high-end CADCAM prosthetics for multiple implant systems.

OPERATIONS AND FINANCES

Gross margin edges up to 79%

The cost of goods sold increased slower than revenue thanks to efficiency gains, higher volumes, insourcing and a more favorable business mix (fewer lower-margin scanner sales). With gross profit amounting to CHF 536 million, the respective margin rose 130base points to almost 79%. Excluding exceptionals, the expansion was 90 base points.

Cost-reduction and reorganization measures, together with general fluctuation, reduced the Group’s global workforce by 300 to 2217 at year-end. These measures resulted in full-year restructuring charges of CHF 17 million, the majority of which were related to severance compensation. At the same time, the workforce reduction resulted in a pension curtailment gain of CHF 9 million, bringing the net effect to CHF 8 million.

Operating profit margin expands more than 300 base points

Thanks to the cost-reduction measures and tighter cost control, total operating expenses were successfully reduced by CHF 19 million in 2013 (excluding exceptionals).

In line with the accounting standard IAS 1, the Group is now disclosing its operating expenses as ’distribution costs’ and ‘administrative expenses’ in the Income Statement. The former comprises salesforce and other directly related sales activities, while the latter comprises marketing activities, research & development, and general administration.

On a reported basis, distribution costs increased to CHF 169 million or 25% of sales. Administrative expenses decreased to CHF 254 million or 37% of sales. Despite cost reductions, Straumann’s drive to innovate remains undiminished, and the Group aims to maintain its historic level of R&D investment at around 6-7% of sales.

Due to the abovementioned items, earnings before interest, tax, depreciation, amortization (EBITDA) and exceptionals rose by CHF 24 million to CHF 156 million. The corresponding margin thus expanded 370 base points to 23%.

After ordinary amortization and depreciation charges of approximately CHF 33 million, operating profit (EBIT) excluding exceptionals amounted to CHF 124 million, compared with CHF 102 million in the prior year. With the respective margin reaching 18%, profitability improved 333 base points – or 380 base points at constant exchange rates.

Net profit benefits from Neodent contribution

The full-year net financial result was a negative CHF 2 million, compared with the flat result in 2012. This was due mainly to interest expenses related to the CHF-200-million bond launched at the end of April with a seven-year duration and a coupon of 1.625%.

The contributions from Neodent, Dental Wings, Medentika and Createch (disclosed under ‘share of result of associates’) amounted to CHF 6 million, including the combined effects of purchase price allocation.

Income taxes came to CHF 19 million or 16% of pre-tax profit.

Taking the abovementioned factors into account, reported net profit amounted to CHF 101 million, with the corresponding margin reaching 15%. Basic earnings per share amounted to CHF 6.55.

Strong operating cash flow

Net cash from operating activities increased 22% to CHF 152 million, mainly owing to improved profitability and lower tax payments in the period, while the ‘change in net working capital’ was only slightly negative. With capital expenditure (CAPEX) down CHF 7 million at CHF 13 million, free cash flow amounted to CHF 139 million and the respective margin was 21% (free-cash-flow yield of 6.2%).

The purchase consideration for the 51% stake in Medentika and 30% stake in Createch amounted to CHF 38 million, adding to the cash used in investing activities of CHF 63 million.

Net cash from financing activities totaled CHF 156 million, after considering the bond proceeds of CHF 199 million and the payment of CHF 58 million for the 2012 dividend. Consequently, cash and cash equivalents at the end of 2013 amounted to CHF 384 million, up from CHF 141 million in 2012.

The equity ratio amounted to 62% at the end of 2013.

Unchanged dividend

The Board of Directors will propose an ordinary dividend of CHF 3.75 per share to the Shareholders at the Annual General Meeting on 11 April 2014 (ex-dividend date 15 April). Furthermore, Straumann disclosed today that Mr Dominik Ellenrieder will step down from the Board at the Annual General Meeting having served Straumann as a Director since 2001.   

OUTLOOK 2014 (barring unforeseen circumstances)

Straumann expects the global implant market to develop positively in 2014 and its revenue to grow in the low-single-digit range (l.c.). The Group will continue to invest in dental growth markets and will extend the reach of its non-premium offering. Despite this, and thanks to the full-impact of the cost-reduction measures, Straumann aims to expand operating income margin in 2014 and to achieve solid growth with further operating margin improvement in the mid-term.

Annual Report 2013

The pre-print version of Straumann’s 2013 Annual Report is now available – in English only – at annualreport.straumann.com as well as through the Media and Investors pages at www.straumann.com.

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. Straumann currently employs approximately 2200 people worldwide and its products and services are available in more than 70 countries through its broad network of distribution subsidiaries and partners.