Straumann Group: Further acceleration as first-half organic revenue climbs 18% and underlying EBITDA margin reaches 30%

  • First-half revenue surges 25% in Swiss francs (18% organic) to CHF 682 million, driven by double-digit increases in all regions
  • Strong performances in EMEA and APAC propel organic growth in Q2 to 20%
  • (Q1: 15%)
  • Strong volume growth lifts underlying1 EBITDA & EBIT margins to 30% and 26%, respectively; underlying net profit reaches CHF 140 million (margin: 21%)
  • First-half free cashflow2 rises CHF 17 million to CHF 62 million, despite significant investments in production expansion
  • Group raises guidance for full-year organic revenue growth to mid-teens

 

KEY FIGURES

 

 

 

 

 

 

 

 

 

 (in CHF million)

H1 2018

H1 2018

H1 2017

H1 2017

 

reported

excl. exceptionals1

reported

excl. exceptionals1

Revenue

681.5

 

543.4

 

  Change in CHF %

25.4

 

17.8

 

  Change in l.c.%

23.1

 

17.1

 

  Change in organic growth %

17.9

 

14.3

 

 

 

 

 

 

Gross profit

512.9

521.7

418.0

420.0

  Margin in %

75.3

76.6

76.9

77.2

  Change in %

22.7

24.2

15.7

16.3

 

 

 

 

 

EBITDA

194.3

203.1

156.1

158.0

  Margin in %

28.5

29.8

28.7

29.0

  Change in %

24.5

28.5

20.9

22.4

 

 

 

 

 

Operating profit (EBIT)

169.8

178.6

137.8

139.8

  Margin in %

24.9

26.2

25.4

25.7

  Change in %

23.2

27.8

20.5

22.2

 

 

 

 

 

Net profit

132.9

139.8

140.8

117.2

  Margin in %

19.5

20.5

25.9

21.6

  Change in %

(5.6)

19.2

4.4

24.0

 

 

 

 

 

Basic EPS (in CHF)

8.20

8.63

9.11

7.57

 

 

 

 

 

Free cash flow 2

62.3

 

45.2

 

  Margin in %

9.1

 

8.3

 

 

 

 

 

 

Number of employees (end of June)

5474

 

4227

 

 

 

Basel, 14 August 2018: The Straumann Group today reported a continued strong performance in the first six months of 2018 as organic revenue grew 18%. The acquired ClearCorrect, Dental Wings and Batigroup businesses contributed a further 5%-points (CHF 24 million) to growth, as revenue in Swiss francs rose 25% to CHF 682 million. All regions posted double-digit increases throughout the first half, with APAC (Asia Pacific) growing the fastest and EMEA (Europe, Middle East & Africa) contributing the largest portion (35%) to overall growth. In Q2, organic revenue growth accelerated to 20%.

 

The Group achieved further improvements in profitability, despite significant investments in geographic expansion, innovative technologies, and production capacity. Underlying EBITDA rose 29%, with the respective margin reaching 30%. Reported net profit amounted to CHF 133 million – 8 million lower than in the prior year, when the Group benefitted from a CHF 25 million revaluation gain related to the Medentika business combination. On an underyling basis, net profit increased 20% to CHF 140 million, bringing the corresponding margin to 21% and earnings per share to CHF 8.63.

 

Marco Gadola, Chief Executive Officer, commented: “Throughout the year, we have continued to win customers and to outperform the global tooth-replacement market significantly. Our underlying growth has been driven by continued strong demand for Straumann premium implant solutions and the spreading success of our non-premium brands. We have gained additional traction from recently acquired businesses, especially ClearCorrect and Batigroup, and from our strategic investments in emerging markets. Q2 was unexpectedly strong, helped by very good performances in APAC and EMEA. With organic growth exceeding 20% for the first time in 10 years, we have raised our guidance for full-year revenue growth to the mid-teen percentage range. Strong volume increases fueled our profitability – which increased, despite further investments in the sales organization, R&D and marketing. EBITDA, EBIT and net profit all increased, as did free cash flow – in spite of significant investments in production to support growth in the coming years.”

 

 

STRATEGIC PROGRESS / NEWS HIGHLIGHTS

 

Business expansion

In the past six months, the Group completed several strategic transactions in pursuit of its strategy to provide complete solutions to more customers. In Q1, it acquired Same Day Solutions, a dental distributor in Portugal, and purchased a 9% stake in Dental Monitoring, a French developer of smart-phone applications for monitoring oral health and treatment progression. In July, the Group acquired its partner Createch in Spain, an innovative leader in high-end specialized prosthetic bars, bridges and frameworks. At same time, it acquired a 30% stake in its biomaterials partner botiss in Germany, securing access to their innovative and comprehensive range of bone and tissue regeneration systems. The Group also entered a distribution partnership with Zirkonzahn in North America to offer a broader range of milling options and to complement its range of in-practice and in-lab milling solutions.

 

 

BUSINESS PERFORMANCE

 

The first-half performance was led by Implants, which continued to grow at a double-digit rate, and generated more than half of the Group’s growth. Demand for Straumann’s Bone Level Tapered range continued to exceed expectations and this has already become Straumann’s top-selling implant line in the Americas. The company is on track to sell more than a million premium tapered implants this year and has also made further progress in driving the penetration of its premium-priced, fast-healing surface SLActive.

 

Demand for non-premium tooth replacement solutions was strong in the US, Germany, Turkey, Iberia, China and Latin America. With Neodent, Medentika, Anthogyr, and Zinedent all delivering strong growth, the non-premium brands outpaced the premium business. In addition, Neodent made progress in upselling its Grand Morse and Acqua technologies to existing customers.

 

The Restorative business achieved similar growth to Implants, driven mainly by demand for standard implant-borne abutments and copings. Straumann’s range of versatile Variobase abutments was the principal growth contributor.

 

In Digital, revenues from intraoral scanners and 3D printers progressed well, endorsing the Group’s strategy to offer a complete digital workflow for dentists and laboratories. The ClearCorrect clear-aligner business grew impressively in its established markets (Australia, the UK and the US), while the success of pilot trials in new European markets prompted their extension to other countries as well as the initiation of a second phase, which includes recruiting sales personnel.

 

In spite of robust sales of bone-graft and membrane products, revenues from Biomaterials only matched their prior-year level, reflecting the temporary halt in Emdogain supplies to the US (see below).

 

 

REGIONAL PERFORMANCE

 

REVENUE BY REGION

 

 

 

 

 

 

 

 

 

(in CHF million)

Q2 2018

Q2 2017

H1 2018

H1 2017

Europe, Middle East & Africa (EMEA)

156.9

123.1

303.9

244.3

  Change in CHF in %

27.5

13.8

24.4

13.0

  Change in local currencies in %

20.7

15.0

16.7

15.0

  Change organic in %

17.0

9.9

13.4

10.0

  % of Group total

 

 

44.6

45.0

 

 

 

 

 

North America

99.8

75.5

190.1

149.2

  Change in CHF in %

32.3

16.9

27.4

17.9

  Change in local currencies in %

31.1

17.2

30.2

17.2

  Change organic in %

19.0

17.2

18.1

17.2

  % of Group total

 

 

27.9

27.5

 

 

 

 

 

Asia / Pacific

66.1

47.0

124.9

93.0

  Change in CHF in %

40.6

18.5

34.3

23.7

  Change in local currencies in %

34.9

21.5

30.9

25.1

  Change organic in %

32.5

19.4

28.8

22.5

  % of Group total

 

 

18.3

17.1

 

 

 

 

 

Latin America

34.5

31.6

62.5

57.0

  Change in CHF in %

9.2

21.9

9.8

31.2

  Change in local currencies in %

20.2

12.8

21.0

13.9

  Change organic in %

20.0

12.8

20.7

13.9

  % of Group total

 

 

9.2

10.5

 

 

 

 

 

GROUP

357.3

277.1

681.5

543.4

  Change in CHF in %

29.0

16.3

25.4

17.8

  Change in local currencies in %

25.9

16.5

23.1

17.1

  Change organic in %

20.4

13.8

17.9

14.3

 

 

EMEA lifted by expansion in emerging markets

First-half organic growth in EMEA rose to 13%, with a further 3%-points added through the consolidation of Dental Wings and Batigroup. These factors and a stronger Euro contributed to an overall increase of 24% in Swiss francs, bringing regional revenue to CHF 304 million.

 

In Q2, organic growth accelerated 7%-points to 17%, benefitting from the early Easter and fueled by the premium implant and digital businesses. More than half of the Group’s 20 subsidiaries in the region, posted double-digit growth. The fastest-growing countries were Russia and Turkey, reflecting investments in local sales organizations and increased demand for premium and non-premium implants. Italy, Denmark, the Netherlands, Portugal, and the UK all reported excellent performances, while momentum picked up in Germany. Strong growth continued throughout Eastern Europe and the Middle East. The Group took advantage of the large biennial Europerio event in June to present new technologies, clinical results and new products, including Neodent’s Grand Morse and Medentika’s full implant range.

 

Further customer gains in North America

North America, reported a strong first half with organic revenue climbing 18%. The acquisition effect (mainly related to ClearCorrect) contributed a further 12%-points, while currency headwind squeezed growth in Swiss francs to 27%, bringing revenue to CHF 190 million.

 

In Q2 both Canada and the US continued to deliver double-digit organic growth (+19%), driven by further customer gains and strong demand for premium and non-premium implant systems. The digital business expanded further, lifted by scanner sales and orders for Zirkonzahn milling equipment. Bone-graft and membrane products posted double-digit growth, partially offsetting the interruption in Emdogain sales in the US, which was reported in April. Regular supply is expected to resume in the near future.

 

China continues to lead dynamic performance in Asia Pacific

APAC posted a dynamic first-half performance with organic revenue growth of 29%. Currency tailwind of 3% points, together with a small acquisition effect, lifted growth in Swiss francs to 34% as revenue climbed to CHF 125 million.

 

In Q2, growth was driven by continuing dynamic expansion in China, helped by a strong performance in Japan and double-digit growth in several other markets. As a result, organic revenue growth accelerated to 33%. The Group opened its own subsidiary in Thailand and continued to gain share in the premium segment in many markets. It also strengthened its foothold in the highly competitive non-premium arena, with Anthogyr in China and Neodent in Australia, Indonesia and Thailand.

 

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

Despite the challenging socio-political situation in several countries in the region, the Group succeeded in achieving first-half organic growth of 21% in Latin America. However, currency weaknesses – most notably the Brazilian Real – cut the increase in Swiss francs to 10%, bringing regional revenue to CHF 63 million.

 

Organic growth in Q2 remained fairly stable at 20%. The Group achieved solid growth in the region’s largest market, Brazil, despite general strikes, while all other countries in the region continued to expand dynamically. Apart from this, the production expansion project in Curitiba is on track.

 

 

OPERATIONS AND FINANCES

 

Double-digit volume expansion lifts gross profit

Strong volume growth in implant solutions lifted reported gross profit by 23% to CHF 513 million. The acquisition of Batigroup led to an exceptional inventory-revaluation expense of CHF 9 million, which is reported under ‘costs of goods sold’. Excluding this, underlying gross profit stood at CHF 522 million and the respective margin reached almost 77%. This was higher than H2 2017 but 60 base points lower than in H1 2017, reflecting the strong demand for digital equipment and a higher share of trading goods.

 

EBITDA margin close to 30%

Distribution expenses, which comprise sales-force salaries, commissions, and logistics costs, rose CHF 23 million to CHF 142 million as the company incorporated the aforementioned acquired businesses and invested further in its premium and non-premium distribution network. Despite these important investments, distribution costs decreased by 100 base points  relative to sales, reflecting the sound operational leverage of the business. This was the key improvement driver of operating-profit-margin.

 

Including R&D, marketing and general overhead costs, administrative expenses increased in absolute terms by CHF 40 million to CHF 202 million, mainly due to the incorporation of the acquired businesses. As a percentage of sales, they decreased 20 base points.

 

Earnings before interest, tax, depreciation, amortization (EBITDA) and exceptionals increased 29% to CHF 203 million, lifting the underlying margin by 80 base points to 30%.

 

Depreciation expenses increased by CHF 2 million as the Group has invested significantly more in property, plant and equipment since 2016 to cater for growth. Amortization expenses rose CHF 4 million, mainly for customer and technology-related intangible assets connected to recently acquired businesses. After depreciation and amortization charges of CHF 24 million, underlying operating profit amounted to CHF 179 million (CHF 170 million reported) compared with CHF 140 million in the same period of 2017. The underlying EBIT margin increased 50 base points and exceeded 26%.

 

Net profit increases 20%

Net financial expenses increased from CHF 2 million to CHF 6 million, mainly reflecting higher hedging costs due to increased volatility and foreign-exchange losses in some emerging markets, where there were significant currency devaluations.

 

The Group’s share of results from associate partners3 was a negative CHF 9 million, compared with a negative CHF 3 million in H1 2017 primarly because of an impairment charge of CHF 8 million for RODO Medical due to the delay in the development and commercialization of the company’s prosthetic-retention system.

 

The rise in profitability led to an increase of CHF 7 million in underlying income-tax expenses. First-half tax expenditure amounted to CHF 22 million or CHF 24 million, excluding an exceptional tax-benefit4 of CHF 2 million. The underlying income-tax rate was 15%, broadly in line with the Group’s long-term guidance.

 

After the aforementioned effects, underlying net profit increased 19% to CHF 140 million, with the corresponding margin reaching 21%. Basic earnings per share increased by more than one Swiss franc to CHF 8.63.

 

Free cash flow climbs to CHF 62 million

The improved operating result lifted cash flow from operations by 38% to CHF 107 million, corresponding to a solid cash conversion rate of 76%5. Cash generation would have been even higher, had it not been for the increases in inventory levels and outstanding receivables. The former was primarily due to the newly created subsidiaries and portfolio expansion. The rise in accounts-receivable relates mainly to the disproportionate growth in emerging and distributor markets, which usually have longer payment terms. In relative terms, days of sales outstanding (DSO) decreased by one to 59.

 

To cater for future growth, the Group is investing heavily in capacity expansion at several production sites. This includes additional machinery, personnel and buildings in Villeret (CH) and Curitiba (BR). As a result, CAPEX increased by CHF 12 million to CHF 44 million. The combination of these effects resulted in free cash flow of CHF 62 million and a respective margin of 9%. A portion of this was used to acquire the stake in Dental Monitoring and to obtain global distribution rights to their remote monitoring technology. In addition, the Group invested in its former distributors in Turkey and South Africa and purchased Same Day Solutions in Portugal. The cash considerations for these investments totalled CHF 13 million. Taking CAPEX, financial investments and other items into account, cash used for investing activities in the first six months of 2018 reached CHF 65 million.

 

Net debt increased to CHF 29 million due the aforementioned CAPEX and financial investments as well as the annual dividend payment of CHF 75 million.

 

The balance sheet total on 30 June 2018 increased by 42% to CHF 1.7 billion, compared with with the same period of 2017, mainly due to acquisition activities and the sale of treasury shares.

 

 

OUTLOOK RAISED (barring unforeseen circumstances)

 

The Group expects the global dental implant market to grow at about 4-5% and is confident that it can continue to outperform and gain further market share. Based on the first-half results, it has raised its expectations for full-year organic revenue growth from the low-double-digit to the mid-teen percentage range. Assuming fairly stable currency exchange rates, the expected organic revenue growth and operational leverage should lead to further improvements in the EBITDA margin, in spite of further investments in Sales & Marketing, Research & Development and logistics. With the continued high level of investment in production capacity and the amortization of acquisition-related intangibles, the Group expects EBIT margin to remain stable.

 

 

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, Neodent, Medentika, 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. 5500 people worldwide and its products, solutions and services are available in more than 100 countries through a broad network of distribution subsidiaries and partners.

 

 


1 Exceptionals in H1 2018 relate to the acquisition of the Turkish distribution company Batigroup, including an inventory revaluation expense of CHF 9 million (COGS) and the related tax benefit of CHF 2 million. The term ‘underlying’ refers to accounting figures excluding these effects. Exceptionals in H1 2017 relate to the business combination of Medentika, which included an inventory revaluation expense of CHF 2 million (COGS) and a CHF 25 million fair value gain (financial result).

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

3 Associate companies in 2018 comprise: maxon dental, Geniova, Rodo Medical, Createch, Anthogyr, Rapid Shape, T-Plus, Valoc, V2R, Abutment Direct, and Dental Monitoring. The equity method of accounting is applied for these companies, in which Straumann holds non-controlling stakes. The associate result is shown net of tax and after amortization of intangibles.

4 Exceptionals in H1 2018 related to the acquisition of the Tukish distribution company Batigroup, including an inventory revaluation expense of CHF 9 million (COGS) and the related tax benefit of CHF 2 million.

5 Relationship between operating cash flow and net profit.

 

 

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 Communication

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

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 2018 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 & RoW: +41 (0)58 310 50 09

UK: +44 (0) 207 107 0613

USA: +1 (1) 631 570 56 13

 

 

Presentation

The conference presentation slides are available at www.straumann-group.com/2018-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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