Group key figures
|( in CHF million )||2020||2019||Change (%)|
|Operating profit (EBIT)||157||387||-59|
|Cash generated from operating activities||377||378||0|
|Free cash flow||295||230||28|
|Basic EPS (in CHF)||5.75||19.33||-70|
|Employees (at year end)||7340||7590||-3|
Notes to core figures
1 To facilitate a like-for-like comparison of the underlying business performance the Group presents ‘core’ results in addition to the results reported under IFRS. A detailed explanation and reconciliation is provided in the Financial report.
Performance by region
By year-end, organic growth had returned to all regions. Being the least heavily affected, APAC rebounded to high-teen growth in Q4 to complete the year almost in line with 2019. EMEA and North America reported mid-single digit declines, while Latin America had to overcome the biggest challenge and achieved 85% of its prior year organic revenue.
Letter to shareholders
As a company we have learned, innovated, adapted, relinquished, matured and persevered in 2020. Above all, we have understood the value of bringing and keeping people, ideas and things together when traditional approaches are no longer possible. This is why #TogetherStrong aptly describes how we progressed through and emerged from this extraordinary year.
In 2020, building on five years of double-digit growth, we made a promising start until March, when dental practices closed temporarily or were limited to essential treatment. During the crisis months our focus was on safety, business continuity, mitigating financial impacts and helping dentists get back to treating patients. When lockdowns eased, revenue picked up, lifted by pent-up demand. Considering the disruptions and taking the record-level results from 2019 as a comparison, we achieved solid results in 2020. Organic revenue was down 6%, while strong currency headwind widened the gap in Swiss francs to 11% as revenue reached CHF 1.4 billion.
The pandemic put our original objectives for improved profitability in 2020 beyond reach. However, thanks to rapid mitigation of near-to-mid-term financial impact, including operating cost reductions, subsidized working-hour reductions, global restructuring and postponed investments, we alleviated the heavy pressure on profitability. Our core EBITDA, EBIT and net profit margins reached 29.5%, 23.4% and 18.3% respectively, which is very presentable in the circumstances. We commend our Finance team for their work and for securing liquidity to ensure continuity, including CHF 480 million raised through two straight bonds to refinance a maturing bond and for general corporate purposes.
Thanks to the remarkable efforts of our colleagues in Operations, we maintained services and product availability throughout the year. Our core gross profit reached CHF 1.0 billion with a margin of almost 73%. Combined with cost reductions and reduced activities (e.g. travel and promotional events) we were able to continue investing in innovation to provide faster, better treatments with additional predictability, comfort and convenience. We also continued to invest in developing our people and production.
REBOUNDING ACROSS REGIONS AND BUSINESSES
By year-end, organic growth had returned to all regions. APAC rebounded to high-teen growth in Q4 to complete the year almost in line with 2019. EMEA and North America reported mid-single digit declines, while Latin America, facing the biggest challenge, achieved 85% of its 2019 revenue.
The value implant, digital and orthodontics businesses all achieved full-year organic growth, the latter reporting the highest increase. Premium implants, our largest revenue driver, were constrained by the pandemic’s impact on predominantly premium affluent markets. Notwithstanding, strong sales of innovative products like Straumann’s BLX implant led to share gains in the immediacy and other segments. Sales of intraoral scanners also rose, reflecting the increasing trend in digital dentistry.
Our passion to create value through strategic partnerships and acquisitions was undiminished. To complement our orthodontics business, we acquired a 75% stake in DrSmile, one of Europe’s fastest-growing specialists in direct-to-consumer marketing of clear aligner solutions fully backed by experienced clinicians. We also invested in Promaton, a software company developing artificial intelligence applications to support diagnosis and treatment planning. To expand in the emerging Romanian market, we acquired the established distributor Artis Bio Tech. Collectively, these investments amounted to approximately CHF 46 million with further payments expected in the coming years. We continued to expand manufacturing capacity (CHF >50 million) which, together with investments in information technology and other fixed assets, resulted in capital expenditures of CHF 82 million (CHF 150 million in 2019). Cash from operating activities amounted to CHF 377 million (CHF 378 million in 2019) and free cash flow reached CHF 295 million (CHF 230 million in 2019).
MARKETS, ENVIRONMENT – TRENDS
We estimate that the global market for implant dentistry is worth approximately CHF 4 billion1, after contracting by 10–15% due mainly to the pandemic lockdown. Thanks to our agile response, we outperformed the market. The drivers of mid- and long-term market growth remain valid and include innovation, the growing and aging population, awareness of esthetics, increasing availability and affordability.
Our second largest market, clear aligners, is worth approximately CHF 3.5 billion2 and was growing at 20% prior to COVID-19. In 2020, it was almost flat due to the lockdown interruptions. Nevertheless, it represents one of the most attractive areas in dentistry due to the significant advantages of clear aligners over conventional wires and brackets, including appearance, patient compliance and convenience. Growing awareness and wider availability will drive penetration rates.
ESTHETIC DENTISTRY – BRINGING EVERYTHING TOGETHER
Esthetic dentistry thus offers significant opportunity for sustainable business growth in the future and continues to be our strategic focus. To incorporate emerging trends and new realities, we fine-tuned our three strategic priorities in 2020.
PRIORITY ONE: DRIVING OUR HIGH PERFORMANCE STRAUMANN GROUP CULTURE AND ORGANIZATION
Culture is at the heart of execution, driving results and creating value, which is why it remains our key priority. Our culture continues to foster agility, embrace change, encourage entrepreneurism, focus on execution and deliver high performance. These attributes enabled us to navigate the crisis as an opportunity rather than a threat.
Entering 2020, we were geared for strong growth, having doubled our workforce over the three prior years. With revenues tumbling 70% at the pandemic’s peak, we quickly had to align our costs – most of which are personnel. In addition to subsidised working-hour reductions and reduced compensation (including voluntary cuts by the Board and senior management), we regrettably had to lay off approximately 9% of our global workforce. Our key objective was to conduct this in a responsible, fair and timely manner, without compromising the company’s ability to rebound rapidly. We are deeply thankful for the professionalism and understanding of all our colleagues, especially those whose positions were discontinued. We are also grateful for the suggestions, solidarity and selflessness of our colleagues who helped to minimize the impact on jobs. At year end, our global team totaled 7340, including 360 who were added through strategic acquisitions and newly created positions.
Diversity, inclusion and belonging bring new perspectives, foster innovation, provide market insights and add value. The diversity, skills and experience of our leadership team have broadened, and our global staff includes more than sixty nationalities in more than a hundred countries. In spite of the challenging times, our annual staff survey showed a high level of engagement, pride in working for Straumann Group, excitement in the future and confidence in the meaning and purpose of our work.
The engagement of many dedicated, talented people who brought progress and solid results in tough conditions deserves recognition and reward. Due to the extraordinary circumstances in 2020, their exceptional efforts are not necessarily reflected in our ordinary financial performance indicators. For such cases, the Board of Directors decided to award a discretionary short-term incentive at 80% of target to all eligible employees3.
With regard to the 2017 long-term incentive which vested in April 2020, we met the 3-year objectives for total shareholder return (+14% CAGR) and EBIT growth (CHF +50 million), resulting in a capped maximum award for senior management.
PRIORITY TWO: ACCELERATING GROWTH IN CORE IMPLANT MARKETS AND STRATEGIC SEGMENTS
The market for tooth replacement offers significant opportunity. In premium implants, we have a strong innovation pipeline and global rollout pro-gram. In value implants, we have a broad range covering all price tiers and the capability to expand these brands internationally.
Pursuing our goal of leading the immediacy segment, which accounts for roughly a quarter of the 27 million dental implants placed annually, we continued the global rollout of Straumann BLX. Straumann’s new Zygoma implant system, which we launched virtually, will support BLX’s growth trajectory. Our innovative TLX implant, which entered its clinical program, and our Smile in a Box solution also contribute to this objective.
To increase affordability, especially in emerging markets, we continued the global rollout of our challenger brands Neodent, Anthogyr and Medentika. For the lower value segment, we launched our new NUVO brand in initial markets and our Korean partner brand, Warantec, in China.
PRIORITY THREE: CREATING A LEADING ECOSYSTEM FOR ESTHETIC DENTISTRY
Our third strategic priority combines the desire for dental esthetics with seamless digital experiences. Our goal is to connect all our digital solutions, services and equipment with partners and third parties, providing frictionless customer-centric solutions. To drive this strategy, we established dedicated Digital and Orthodontics business units and recruited high-caliber executives to lead them. Both businesses grew in 2020.
In orthodontics, ClearCorrect launched new software and an innovative high-performance material to enhance convenience, increase comfort and shorten treatment. We also entered the exciting arena of online consumer marketing with DrSmile. Intraoral scanners are a key to our digital ecosystem and the gateway to digital dentistry. In October, we completed the integration of 3Shape TRIOS intraoral scanners with the Straumann Group’s software solutions and services. Now these highly popular scanners can connect seamlessly with Straumann’s orthodontic, restorative, implant, chairside, and digital dentistry solutions. We also gained global distribution rights for the attractively priced Medit intraoral scanners, which complement our range and strengthen our position as a global partner of choice for integrated intraoral scanning solutions.
CONTINUED COMMITMENT TO LONG-TERM VALUE CREATION
We remain committed to sustainable development and value creation. This means running our operations efficiently using natural resources effectively and minimizing our environmental impact. Our commitment also encompassed 20 charitable projects in 2020, offering dental care and humanitarian relief in 13 countries.
Our strong business fundamentals and growth opportunities are reflected in our share price, which continued to outperform the Swiss equity market and rose 8.5% to CHF 1031 at year-end, while the SMI and SMIM indices closed up 3.3% and 0.8%, respectively. Ours is the second-best performing share in the SMIM universe over the past five years. With our market capitalization exceeding CHF 15 billion, we joined the Swiss Leader Index, which comprises the largest 30 securities in the Swiss equity market.
Based on the 2020 results, the Board of Directors proposes a stable dividend of CHF 5.75 per share, payable on 15 April 2021, and intends to continue increasing the dividend in the future, subject to further good performance.
(BARRING UNFORESEEN CIRCUMSTANCES)
By year-end, dental practices around the world had resumed normal work, albeit with efficiency reduced by additional protective measures. Patient confidence had also strengthened. The sharp rise in infections around New Year led to new lockdown measures in key markets. However, visits to dentists for all treatments remain possible in most places, and with mass vaccination underway we do not expect a deterioration in the dental markets, although economic recession may reduce disposable income and deter patients from seeking elective non-reimbursed treatments. The breadth of our portfolio, our global reach, the quality and engagement of our people, and our progress in 2020 make us confident that we will emerge as an even stronger brand and partner of choice when the general economy and consumer confidence return to normal. We aim to achieve organic revenue growth in the high-single-digit percentage range. Profitability (core EBIT) is expected to improve versus 2020.
On behalf of the Board and our colleagues, we would like to thank you, our shareholders, for your ongoing support and confidence in our company.
Chairman of the Board of Directors
Chief Executive Officer
12 February 2021
Notes and references
1 iData, Decision Resources Group and Straumann bottom-up estimates in 70 countries.
2 Industry reports, Strauman bottom-up estimates in >40 countries.
3 EMB compensation subject to approval at the AGM in April 2021.
Although Straumann’s roots go back much further, 2020 marked the 30th anniversary of our company in its present form and with its current focus on dentistry. What began as a family firm with 25 employees supplying titanium dental implants has become a world leader in tooth replacement and orthodontic solutions, uniting global brands that stand for excellence, innovation and quality in replacement, corrective, regenerative and digital dentistry.
The Straumann Group today provides employment to more than 7300 people from 60 nations. Its products have been used to treat millions of people all over the world, creating smiles, restoring confidence and bringing lasting improvements to the quality of life. These are just a few examples from the company’s long scorecard of sustainable growth and development. For us, corporate responsibility has always meant simply doing more to create value for our customers and their patients, our staff and the communities in which we operate, in a sustainable manner and with minimal impact on the environment. Sustainability means creating lasting smiles and confidence today, tomorrow and beyond.
The principles, structures, mechanisms and controls by which the Straumann Group is directed and the people who are responsible for their execution.
This report provides a comprehensive overview of the Straumann Group’s compensation principles, practices and delivery framework. It also provides information on the compensation of the general staff, management, Executive Management Board (EMB) and Board of Directors (BoD). It conforms to Swiss law, the Swiss Code of Best Practice for Corporate Governance as well as the SIX Directive on Information relating to Corporate Governance.
The consolidated financial statements of the Straumann Group for the year ended 31 December 2020 were authorized for issue in accordance with a resolution of the Board of Directors on 12 February 2021 and are subject to approval by the Annual General Meeting on 9 April 2021.