KEY FIGURES
(in CHF million)	FY, 2010	FY, 2009
Net revenue	737.6	736.4
Change in %	0.2	(5.4)
Change in local currencies in %	4.6	(2.1)
Gross profit	587.0	586.8
Margin in %	79.6	79.7
Change in %	0.0	(7.1)
Operating profit (EBIT)	164.3	165.3
Margin in %	22.3	22.5
Change in %	(0.6)	(22.4)2
Profit for the period	131.1	146.4
Margin in %	17.8	19.9
Change in %	(10.4)	(18.7)2
Free cash flow3	154.2	214.7
Margin in %	20.9	29.2
Basic earnings per share(in CHF)	8.37	9.38
Change in %	(10.8)	(18.9)
Number of employees (year-end)	2 361	2 170

 

 

Basel, 15 February 2011: Straumann today reported full-year net revenue growth of 5% in local currencies (l.c.) as the market for tooth restoration and replacement continues to show signs of gradual improvement in a difficult economic environment. The performance benefitted from a solid fourth quarter, in which growth momentum increased to 7% (l.c.) lifted by a double-digit rise in North America. Growth was entirely organic bringing Group net revenues to CHF 738 million, in line with the guidance issued a year ago. With the US dollar and the euro plummeting to all time lows against the Swiss franc, Straumann had to contend with an unprecedented negative currency effect that reduced net revenue growth in Swiss francs by 4 percentage points (or CHF 31 million).

 

In constant currency terms, the operating (EBIT) margin expanded by 170 basis points from 20.6% (in 2009) to 22.3%, supported by increased production output together with better absorption of operational fixed costs. In spite of the strong currency headwind, which took CHF 20 million off operating income, the Group successfully sustained operating profit (EBIT) at CHF 164 million – also in line with its forecast. After a negative financial result and increased taxes, net profit reached CHF 131 million, resulting in a reduction of basic earnings per share by one Swiss franc to CHF 8.37.

 

Beat Spalinger, President & CEO commented: “2010 has shown that Straumann can adapt to a changing environment and still add value. The strength of our underlying business has enabled us to deliver above-market performance in demanding conditions. We sold a broader range and a higher volume of products to a larger customer base than ever before. We launched four new product solutions, conducted more research studies, and made our solutions and services available to more people around the world. At the same time we delivered sustained margins, in spite of unprecedented currency headwind. Because we have not compromised investments in future growth initiatives we are well positioned for full market recovery.”

 

 

REVENUE DEVELOPMENT

Despite recovery from global economic recession, 2010 brought little improvement to unemployment, household income and access to credit. With consumer sentiment still fragile, people postponed complex and elective dental procedures and dental practices reported no substantial pick-up in patient flow. Latest figures do however suggest that the tooth replacement market is gradually improving from the previous year’s decline.

 

In this difficult environment, Straumann succeeded in selling higher volumes and defending prices. Growth was driven by the tooth replacement business, fuelled by the Bone Level implant range and the success of the new high-performance implant material, Roxolid. Furthermore, the popularity of Straumann’s well-established, proven SLA surface has enabled the Group to compete successfully in the value segment.

 

The restorative business, which focuses on CADCAM, posted year-on-year growth lifted by equipment sales in the latter part of the year, when Straumann launched a completely new CADCAM system including a new in-lab scanner and software.

 

The regenerative franchise, benefitted from recent initiatives to strengthen the sales team and to capture synergies with implants. Revenues were lifted by Straumann Allograft, which was launched in the US towards the end of 2009 and in Canada in mid 2010. This product aims to meet the needs of oral surgeons who prefer human bone augmentation materials.

 

Innovation to support growth

With Roxolid and Straumann Allograft still in the early roll-out stage, 2010 proved to be Straumann’s most prolific year to date in terms of new product introductions. In the first quarter, the Group introduced its proprietary guided surgery system, which is designed to give a clear view of the bone, nerves and vascular structures. This facilitates treatment planning and can reduce the risk of complications.

 

The iTero⁴ intra-oral scanner was introduced in the second half of the year in Europe, where Straumann has exclusive distribution rights. Intra-oral scanning enables dentists to create a 3-dimensional image of the patient’s teeth immediately, avoiding the slower, unpleasant conventional process of impression-taking followed by model casting.

 

The aforementioned new CADCAM system was launched at the end of the third quarter under the CARES brand. It includes a new in-lab scanner, software and a number of prosthetic features, for example inlays, onlays, veneers, screw-retained bars and bridges.

 

The highlight of the fourth quarter was the education-based introduction of Straumann’s new-generation membrane for use in guided bone regeneration. StraumannMembraGel is applied conveniently as a liquid that sets to provide an effective barrier membrane. It then biodegrades and does not require removal by surgery. This addition completes Straumann’s regenerative portfolio and supports its tooth replacement business.

 

Advancing in digital dentistry

In 2010, the Group accelerated its push into digitalized workflows, which it believes will impact all aspects of dentistry in the future. Straumann now offers a complete package including: guided surgery, intra-oral scanning, and CADCAM. Digital workflows are beginning to supersede labor-intensive manual processes, eliminating interfaces, shortening treatment times, reducing risk of error and improving quality assurance. These benefits are expected to translate into lower treatment costs, added convenience and improved comfort for patients. The differentiating key, however, is not in the individual products themselves, but the seamless connectivity of integrated technologies offered through a single provider renowned for treatment quality and service support.

 

Ongoing commitment to R&D

Investments in R&D rose to a record level in 2010 as the Group continues to drive evidence-based treatment and innovation. No fewer than 39 preclinical and clinical studies were in progress at year-end, with a further 11 due to start in 2011. Some 130 preclinical and clinical papers on Straumann products or technologies were published in peer-reviewed journals in 2010, adding to the strong body of evidence supporting its products. The company has a stocked pipeline, which is presented in its Annual Report, published today.

 

REGIONAL PERFORMANCE

Revenue growth was achieved across all regions in 2010, driven by solid growth in North America, modest increases in Europe and Asia/Pacific, and strong expansion in the ‘Rest of the World’. Over the full year all countries posted sales increases, with few exceptions.

 

Stable progress in Europe

Europe continues to be Straumann’s largest market, although its contribution to Group net revenue dipped slightly to 60%, or CHF 445 million. This is because growth was a modest 3% (l.c.), reflecting subdued consumer confidence as countries recovered slowly from recession and struggled with the sovereign debt crisis. The weakness of the euro and the British pound resulted in a negative currency effect of 7 percentage points. Sales growth began to pick up over the year, indicating market stabilization.

 

In the fourth quarter, growth accelerated to 6% (l.c.), supported by the launch of CARES Digital Solutions. Germany, the region’s largest market, posted a moderate improvement, while France, Spain, and the UK all posted solid growth. Italy began to improve following organizational measures, whereas the Swedish market continued to suffer from restrictions in the reimbursement system.

 

North America returns to double-digit growth

In North America full-year net revenues rose 9% (l.c.) to CHF 165 million (22% of Group total). The negative currency effect was less pronounced than in Europe but still reduced regional growth in Swiss francs by more than 2% points. Throughout the year, growth was driven by implants, most notably by the Bone Level range and Roxolid. Straumann Allograft added further impetus. Portfolio and sales team expansions in Regeneratives helped to win new accounts and strengthen Straumann’s position in the region.

 

In the fourth quarter, net revenue climbed 12% (l.c.), despite the fact that the comparative quarter of 2009 was particularly strong due to new product launches.

 

Stabilization in Asia/Pacific

The Asia/Pacific region contributed 14%, or CHF 101 million, to Group net revenue. This represents a 2%-increase over the previous year. Dynamic growth in China and positive developments in Korea more than offset the soft performance in Japan, where the market in general continued to decline in the absence of clear signals of sustainable economic recovery. The full-year performance was also characterized by volatile, but improved orders from distributors in the region following inventory reductions through the recession.

 

In the fourth quarter, net revenue in the region improved by 3% (l.c.). China continued to grow strongly although the tooth replacement market there is still comparatively small. The Korean business enjoyed an exceptional sales increase at year-end as customers purchased ahead of anticipated business regulations in the healthcare sector.

 

Good growth elsewhere

In the ‘Rest of the World’, net revenue climbed 12% in l.c. and 17% in Swiss francs, driven by good performances in Brazil, Mexico and countries in the Middle East. With net revenue reaching CHF 28 million, the region contributed 4% to the Group total. In the last quarter of the year, net revenue advanced by 11% in local currencies.

 

 

OPERATIONS AND FINANCES

 

Global team strengthened to drive future growth

The Group successfully adapted production output to the slow market, without compromising its supply capabilities. This was achieved through careful planning and focused reduced working in certain areas of production. To drive future growth, Straumann created around 190 new jobs in 2010 mostly in Marketing & Sales, bringing the global workforce to 2361 at year-end.

 

Operational improvements compensate for adverse currencies

Volume increases and cost containment initiatives implemented during the recession enabled Straumann to achieve gross profit of CHF 587 million, sustaining the margin at 80%. Underlying profitability actually improved because the exceptional negative currency effect translated into a gross margin reduction of 70 basis points or CHF 30 million.

 

Significant investments were made, for instance in sales personnel, to support portfolio expansion and new product introductions. As a result, Selling, General & Administrative (SG&A) costs increased as planned to CHF 385 million, but remained stable at 52% of net revenue.

 

R&D costs rose slightly to CHF 40 million, reflecting the Group’s commitment to innovation leadership in spite of the economic pressures. This corresponds to 5% of net revenue and positions Straumann among the industry best.

 

Earnings before interest, tax, depreciation and amortization declined by CHF 6 million to CHF 212 million, mainly because of the strength of the Swiss franc. The EBITDA margin amounted to 29%.

 

Operating margin improves by 170 basis points at constant currencies

After amortization and depreciation charges of CHF 48 million, operating profit (EBIT) amounted to CHF 164 million. The EBIT margin remained at 22%. Excluding the negative currency effect, the margin would have expanded by 170 basis points.

 

The net financial result was a negative CHF 5 million, down from the positive CHF 8 million in the previous year, when the Group benefitted from favorable foreign exchange and hedging gains. Tax expenses amounted to CHF 29 million, CHF 2 million more than in 2009 due to changes in the recognition of deferred tax assets. The effective income tax rate in 2010 amounted to 18%. Going forward, the expected underlying rate should remain at around 16- 17%.

 

As a result of all these effects, full-year net profit reached CHF 131 million, yielding a margin of 18% and basic earnings per share of CHF 8.37.

 

Operating cash flow squeezed by higher tax payments and net working capital

Net cash from operating activities decreased by 28% to CHF 176 million, mainly due to higher tax payments, the aforementioned reduction in operating income, and an increase in trade receivables. The number of days of sales outstanding decreased by 2 to 45.

 

At CHF 22 million, capital expenditure was 9 million lower than in the previous year. Thanks to production expansion in recent years, lower capital investments in property, plant, equipment and software were required. Free cash flow amounted to CHF 154 million, corresponding to a margin of 21%.

 

Net cash used for financing activities totaled CHF 56 million after the payment of CHF 59 million for the ordinary dividend, slightly offset by the sale of treasury shares for CHF 3 million.

 

Consequently, cash and cash equivalents at year-end amounted to CHF 350 million, which, together with a high level of profitability (ROE=20%), gives the Group a high degree of flexibility.

 

Stable dividend

While the share performance in 2010 was disappointing, Straumann believes that the industry offers ample opportunity for long-term value creation. As a consequence, the Group does not consider a share buyback program or an increase in the long-term dividend policy to be appropriate at this time. The Board of Directors proposes dividend of CHF 3.75 per share to the General Meeting of the Shareholders, which is the same as the previous year’s level.

 

A recent change in the Swiss federal tax law offers tax relief on dividends paid from reserved capital contributions. To capture the benefit of this ruling, Straumann will pay CHF 1.85 of the total dividend per share out of ‘reserves for capital contributions’. This will bring a considerable reduction in dividend-related withholding tax and income tax for eligible shareholders.

 

 

OUTLOOK 2011(barring unforeseen circumstances)

Straumann expects the recovery in its main markets to continue slowly – provided, of course, that the general economy does not deteriorate. As consumer sentiment is still fragile, the Group remains cautious in predicting when the markets will recapture sustainable solid growth. It assumes that they will grow on a currency adjusted base in the mid-single-digit range in 2011.

 

Based on its clinically-proven products, organizational strength, differentiated services, and the stream of products launched in 2010, the Group is convinced that it can again deliver above-market performance. The prevailing instability and uncertainty in the financial markets, particularly with regard to currencies, add to its caution in offering guidance on margins, especially as more than 90% of the Group’s business is outside Switzerland, where it has its main cost base. With the euro and the US dollar at historic lows at the end of 2010, currency headwind has to be expected for some time in 2011. This will obviously continue to detract from net revenue in Swiss francs and profit margins.

 

Straumann will continue to invest in all its franchises, its innovation pipeline, and its Marketing & Sales organization to create and drive superior treatment solutions and services. The Group will also continue to optimize efficiency. However, as the Swiss franc is expected to retain its strength over the near term, profits will come under further pressure, although Straumann is confident that its operating margin will remain around 20% in 2011.

 

 

¹ The Board of Directors once again proposes a dividend of CHF 3.75 per share for 2010, payable in 2011 subject to shareholder approval at the AGM. The dividend ex-date is 22 March 2011.

 ² Comparison of 2009 with 2008 on a ‘pre-exceptional’ basis, i.e. excl. impairments of intangible assets and/or financial assets.

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

 ⁴ iTero is a registered trademark of Cadent Ltd.