Basel, 13 August 2020: In the first six months of 2020, Straumann Group revenue reached CHF 605 million, corresponding to approximately 80% of the comparative level in the first-half of 2019. With dental practices closed in many parts of the world, business declined dramatically in mid-March reaching a trough in April. As lock-down measures began to ease, practices re-opened and Group sales began to pick up in May, with the trend continuing through June. From a regional perspective, APAC has been the least affected region and led the turnaround, followed gradually by most European countries and parts of North America. The business in Latin America has suffered the heaviest impact from COVID-19 and continues to struggle. Currency headwind accounted for more than 5 percentage points of the revenue decline, as the Swiss franc strengthened against all the Group’s major currencies.

The Group reacted quickly to the pandemic crisis to ensure safety and business continuity. It also took rapid steps to mitigate the financial impact in the near to mid-term, including immediate reductions in operating costs, subsidized short-time working, global restructuring and postponed investments. These efforts helped to alleviate the heavy pressure on profitability: while core gross profit was squeezed by CHF 173 million to CHF 430 million, core net profit declined CHF 96 million to CHF 74 million. The respective margins contracted to 71% and 12%. Including PPA amortization of CHF 5 million, impairments of CHF 150 million and restructuring costs of CHF 13 million, the reported net result amounted to CHF –94 million and earnings per share were CHF –5.89 (core: CHF 4.49).

Guillaume Daniellot, Chief Executive Officer, commented: “During lock-down we saw revenues drop almost 70% before beginning to recover in May as dental practices resumed business. Our efforts to support customers with online education and to help them get back to business quickly have been successful. The immediate measures we took to cut costs have helped to cushion the impact of the revenue shortfall and we have restructured to prepare for economic recession. While impairments of certain acquisitions have resulted in a reported net loss, we continue to generate cash from our operating activities and our core business remains profitable. Furthermore, we have been able to grasp important strategic growth opportunities like our acquisition of DrSmile. None of this would have been possible without the understanding, flexibility, engagement, and support of our employees through the very difficult period of lock-down and restructuring. I am personally deeply grateful to them. General uncertainty due to the COVID-19 crisis, together with the potential of further outbreaks and economic recession prevent us from offering guidance on full-year revenue and profitability.”

STRATEGIC PROGRESS / NEWS HIGHLIGHTS IN Q2

Leading continuity in innovation

Despite the turbulent times, Straumann has maintained the pace of innovation. In recent months, the Group orchestrated numerous online education events devoted to immediacy in implant dentistry, including a corporate forum and two symposia. These have served to promote Straumann’s innovative fully tapered BLX implant system, which has continued to show great progress this year, despite the global shut-down and postponement of launches in APAC and LATAM. Immediacy protocols involve fewer surgical interventions and clinic visits, which is an additional advantage when precautions against infection are a priority.

Remote monitoring systems and intraoral scanners also offer significant advantages in this respect – the former by reducing clinic visits and the latter by reducing physical contact when impressions are taken. These and the benefits of efficiency, convenience and patient comfort fuelled the increase in digital equipment sales through the first half.

In orthodontics, ClearCorrect accelerated the development of clear aligners made from a new high performance material supplied by the Group’s Bay Materials subsidiary. The new triple-layer material exerts constant forces even after seven days. It shortens treatment, enhances comfort, is more resistant to stains, and will launch this month – ahead of schedule. In addition, the Group’s first European production unit for clear aligners will go into operation this quarter. Located at the company’s Markkleeberg site in Germany, the facility is highly automated and has a current capacity of 10 000 aligners per day.  

Timely investment in direct-to-consumer marketing expertise

The global market for clear aligners continues to offer strong growth opportunities and is driven increasingly by direct-to-consumer marketing and online service providers who offer treatment packages. In July, the Group signed an agreement to acquire a majority stake in DrSmile, one of the fastest-growing providers of orthodontic solutions in Europe. DrSmile combines direct-to-consumer (DTC) marketing expertise with doctor-led treatment and complements Straumann’s existing clear-aligner business. The combined companies will offer growth opportunities to dentist partners and convenient, clinician-based aligner treatment solutions to patients.

Further investment in software development

The Group also recently invested in Promaton a start-up software company working on artificial intelligence applications to support diagnosis and treatment planning.

REGIONAL PERFORMANCES

EMEA benefits from stability in Germany

The extent and timing of the pandemic impact varied from country to country. However, as the second quarter drew to a close, all subsidiaries in the region were returning to growth, with the exception of Hungary, Iberia, Russia, Sweden and the UK. The new subsidiary in Romania made a good start, while the Balkan hub, South Africa and Turkey rebounded strongly. The region’s largest country, Germany, also benefitted from a strong pick-up in June. In general, the improvements were driven by pent-up demand and many practices remained open throughout the holiday period in order to reduce backlogs. There were also positive signs from distributors, who began to re-order after reducing stocksduring two months of partial/full lock down.

The region remained the Group’s largest revenue contributor with first-half revenues amounting to CHF 268 million or 80% of the corresponding level in the prior year. Following a good start to the year, revenue declined rapidly towards the end of Q1 and only returned to growth towards the end of Q2, in which organic revenue contracted 38%.

Parts of North America open; digital trend increases

First-half revenue in North America amounted to CHF 183 million or 81% of the prior year level. Following a good start to the year, organic revenue declined rapidly in March, as COVID-19 spread through the region. In addition to the complete interruption, customers reduced inventories in order to maintain liquidity. The extent of disease and restrictions varied widely across the region with some areas entering a second phase as others experienced the initial peak. In some areas business began to recover in June as lock-downs eased, stemming the organic decline in Q2 at −42%.

As Canada and parts of the US began to re-open revenues picked up, led by restorative sales and non-premium implants. Digital sales were encouraging throughout, as dentists increasingly adopt new technologies, especially intraoral scanning. Two further regional highlights were the regulatory clearance of Straumann’s Zygomatic implant system and a new indication for Emdogain.

APAC beginning to rebound led by China

Asia-Pacific saw organic revenue improve from the 22% decline in Q1 to a decrease of 12% in Q2, bringing first-half revenue to CHF 117 million or 79% of the comparative period in the prior year. From the first to the second quarter, business decreased throughout the region – except in Korea, Taiwan and China, where sequential sales almost doubled. Most other countries in the region began to rebound in June, lifted by pent-up demand. Premium and non-premium implant sales picked up as Neodent continued to perform well in Japan and Australia, contributing to market-share gains.

The Group launched Warantec implants in China to strengthen its foothold in the lower value segment alongside T Plus. On the other hand, it has discontinued the Equinox brand in order to focus on cost-effective brands that offer simplicity, broader prosthetic options and digital workflows. As a consequence, the Equinox production unit in India is closing.

The Group intensified its online activities to attract, inform, train and educate customers, including virtual symposia, one of which was to launch the high strength implant material Roxolid in China. The success of the online outreach was also reflected in growing digital equipment sales, especially in China, where demand for intraoral scanners and CADCAM solutions grew substantially.

Prevailing in Latin America

After organic growth in Q1, the combined impact of COVID-19 and a further weakening of the Brazilian Real reduced quarterly revenue by 70% in Swiss Francs in Q2, bringing first-half revenue to CHF 37 million, or 55% of the prior year period. The Brazilian market for esthetic dentistry contracted as the major cities shut down but, thanks to the Group’s 17 stores and distribution centers, customers were able to purchase and obtain products for treatments on the same day – an advantage that drew new customers. Against the trend elsewhere, Argentina posted a first-half improvement on the prior year as did Yller Biomateriais, reflecting the demand for 3D printing resins. In the meantime, Brazil has been re-opening region by region. Other countries remained closed until late July as the region struggles with the pandemic and faces the significant economic impact.

OPERATIONS AND FINANCES

In addition to the significant impacts of the global pandemic and the economic recession it has triggered, the Group’s results were influenced by a number of factors. To facilitate a like-for-like comparison, the Group presents ‘core’ results in addition to the results reported under IFRS.

In the first six months of 2020, the following effects (after tax) were defined as non-core items:

• The amortization of acquisition-related intangible assets amounting to CHF 5 million
• Charges totaling CHF 150 million resulting from impairments, triggered by COVID-19, of financial and non-financial assets, including Createch, Dental Wings and Equinox.
• The total non-recurring restructuring costs related to resizing the global workforce, which amounted to CHF 13 million
   

A reconciliation table and detailed information are provided on pages 10ff of this media release.

Gross profit squeezed by significant reduction in volumes sold

In response to the global pandemic and to prepare for the new economic reality, the Group quickly implemented measures to adapt capacity, reduce operating expenses and postpone investments, which helped to soften the impact of the significant decline in revenue on profitability. Notwithstanding, first-half core gross profit was CHF 173 million less than in the prior year and the corresponding margin dropped 620bps to 71%. Excluding the currency impact the margin decline was 530bps.

Core EBITDA margin dropped to slightly above 23%

Cost reductions in other areas also helped to cushion impact on earnings. Core distribution expenses, which comprise sales-force salaries, commissions, and logistics costs, were reduced by CHF 19 million to CHF 141 million, while core administrative expenses, which include research, development, marketing and general overhead costs, were reduced by CHF 28 million to CHF 203 million. The combination of these efforts helped to underpin the core operating result at CHF 100 million (CHF 141 million before interest, tax, depreciation and amortization). The cost savings have not compromised the Group’s ability to innovate, manufacture, supply and sell winning solutions. Government grants to mitigate job losses amounted to CHF 12 million. The core EBITDA and EBIT margins contracted 830bps and 1090bps to 23.3% and 16.6% respectively. Approximately 150bps of the contraction were due to currency headwind.

Core net profit drops 57%

Core net financial expenses amounted to CHF 12 million, mainly reflecting currency hedging losses and interest payments. With the share of result of associates almost in line with the prior year, and after income taxes of CHF 13 million, core net profit decreased 57% to CHF 74 million, resulting in a margin of 12%. Core basic earnings per share dropped by more than half to CHF 4.49.

Including purchase price allocation amortization, impairments, restructuring charges, and their collective impact on taxes, the reported net result was CHF –94 million.

Free cash flow reaches CHF 12 million

Cash flow from operations amounted to CHF 61 million. The combination of reduced receivables and payables, together with increased inventories, led to a net working capital adjustment of CHF –43 million. In the first six months of 2020, days of sales outstanding increased by 35 to 92, and days of supplies increased by 27 to 202. Interest payments including those on lease liabilities amounted to CHF 7 million.

In the second quarter, several projects were interrupted/postponed, reducing first-half capital expenditure by CHF 24 million. The Group’s production expansion initiatives continued as total investments amounted to CHF 61 million, almost half of the comparative level in the first half of 2019, when the Group made a number of strategic acquisitions.

To refinance a maturing bond and to secure liquidity for general corporate purposes through the period of uncertainty that is unfolding, the Group issued two straight bonds – the first in April, amounting to CHF 280 million and the second in June (paid in July) amounting to CHF 200 million – in addition to obtaining committed credit lines.

The cash position on 30 June 2020 was CHF 381 million, CHF 93 million less than the financial liabilities, in contrast to a net cash position of CHF 20 million at the beginning of the year. The Group’s balance sheet amounted CHF 2.2 billion, down from CHF 2.4 billion at the end of 2019.

OUTLOOK 2020 (barring unforeseen circumstances)

A number of countries and regions have re-opened and the dental markets are showing signs of recovery. Practices have adapted well to new safety standards, albeit with reduced efficiency. It is difficult to determine the extent to which the present improvement is driven by pent-up demand and whether it will continue, bearing in mind the possibility of further waves of COVID-19. In view of the current uncertainties caused by the pandemic, the Group is not providing guidance for full-year revenue and earnings.

The Group’s underlying business fundamentals are intact, and it is confident that, when the general economy and consumer confidence return to normal levels, it will emerge as an even stronger brand and partner of choice for its customers.

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, Medentika, Neodent, 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 more than 7200 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

Homepage: www.straumann-group.com

Contacts:

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. The Group 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.

Analysts’ and media conference call

Straumann will present its 2020 first-half results to representatives of the financial community and media in a webcast telephone conference call today at 10.30 a.m. Swiss time.

The webcast can be accessed via www.straumann-group.com/webcast. A replay of the webcast will be available after the conference.

If you  intend to ask a question during the Q&A we kindly ask you to pre-register for the conference call through this link Webcast and to download the presentation file in advance using the direct link in this media release before  joining the conference call.

Presentation

The conference presentation slides are attached to this release and available on the Media and Investors pages at www.straumann-group.com.

UPCOMING REPORTING DATES 2020