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21 Feb 2013 | Press Release

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Straumann reports full-year revenues of CHF 686m

  • Solid growth in North America offsets sluggish Europe, while Asia/Pacific remains stable
  • Gross profit margin improves 130 base points to 78%; EBIT margin at 15%, excluding exceptionals
  • Reported profits reduced by impairment and other exceptional charges
  • Vision 2020 and market fundamentals intact
  • Neodent performs in line with expectations
  • Unchanged dividend of CHF 3.75 per share proposed
  • New CEO to drive performance


In 2012, the Straumann Group achieved revenue of CHF 686 million, which was almost 2% below the prior year in local currencies (l.c.) or just 1% below in Swiss francs, reflecting the first overall positive currency effect since 2007. North America was the key revenue driver, complemented by double-digit growth in China and Latin America. Unfortunately, these solid performances were not enough to compensate for sluggish sales in Europe, Japan and the Middle East.

Despite an improvement of 130 base points in the gross margin (78%), reported operating income (EBIT) dipped to CHF 61 million corresponding to a reported margin of 9%. Excluding exceptionals (i.e. an impairment charge of CHF 21 million related to the regenerative business, and one-time charges of CHF 18 million due to cost optimization initiatives and severances) operating income would have reached CHF 100 million (versus CHF 120 million in 2011), with a corresponding margin of almost 15%.

Reported net profit reached CHF 36 million and basic earnings per share amounted to CHF 2.36 (CHF 4.54 in 2011).

Gilbert Achermann, Chairman & Acting CEO, commented: "We continued to grow our business in North America, and other key growth markets like China and Brazil, but their strong performances were not enough to offset shortfalls in our main region, Europe. With softer sales and our cost base geared for growth, our margins dropped to a level that requires rigorous cost management at all levels and a new style of resolute leadership to implement change expediently and consistently. We have taken measures to address this and are determined to improve our operating margin to a significantly higher level in the mid term. The Board is confident that, with the addition of Marco Gadola as new CEO, the organization will deliver this."

BUSINESS PERFORMANCE

Amid tough conditions in Europe and parts of Asia, Straumann's implant business succeeded in stabilizing sales at the prior year's level. The restorative business (CADCAM/digital) was slower in 2012 compared to the strong previous year. By contrast, Straumann's smallest business, Regeneratives, posted good growth.

European recovery not yet in sight
Economic deterioration, austerity and high unemployment, especially in southern Europe, dampened consumer confidence, reducing traffic at dental practices and leading patients to delay treatment or take cheaper, inferior options. Large markets like Spain and Italy, which are fragmented and highly permeated by cut-price competitors, suffered the biggest declines as the gap widened between markets in depressed economies and those in more prosperous areas.

European revenues dipped 5% (l.c.) to CHF 378 million, corresponding to 55% of the Group total. The currency effect was negative but amounted to just 1 percentage point, helped by the minimum Euro exchange rate set by the Swiss National Bank.

Growth continues in North America
Straumann's second largest region, North America, achieved solid full-year growth of 6% (l.c.). After years of decline, the US dollar picked up against the Swiss franc, lifting growth by 6 percentage points to 12% in Swiss francs. As a result, revenue in North America reached a record CHF 174 million, corresponding to 25% of Group revenue. This performance was driven by solid demand for implants and regeneratives.

Mixed picture in Asia/Pacific
15% or CHF 104 million of Group revenue was generated in Asia/Pacific. This was stable year on year in local currencies but up 3% in Swiss francs thanks to currency tailwind. The largest regional market, Japan, was dragged down by a weakening economy and damaging media reports about implant dentistry, from which it will take time to recover. The Korean market, which is highly penetrated and saturated by cut price local manufacturers continued to be very challenging. As noted previously, China was the region's key performer - with strong growth throughout.

Rest of the World (RoW) overshadowed by turmoil in Middle East The region referred to as the 'Rest of the World' contributes approximately 4% of Group revenue, most of which is generated in Brazil, Mexico, and the Middle East. In 2012, revenue declined 3% in l.c. or 7% in Swiss francs, to CHF 31 million.

The contraction was due largely to the Middle East, where dentistry like many other sectors, has suffered the effect of socio/political upheaval, embargoes, and cuts in private and government spending.

By contrast, the largest market in the RoW region, Brazil, generated strong growth - both for Straumann and for Neodent.

OPERATIONS AND FINANCES

Gross margin improves to 78%
Excluding exceptionals of CHF 3 million, gross profit stood at CHF 534 million, CHF 6 million higher than in 2011, thanks to price increases, manufacturing efficiency gains, and a favorable business mix (lower scanner sales). Collectively these compensated for the reduction in volumes. The corresponding gross margin thus expanded 170 base points to 78%.

Operating profit excluding exceptionals reaches almost 15%
Reported Selling, General & Administrative (SG&A) costs rose to CHF 424 million mainly due to a goodwill impairment of CHF 21 million - related to an up-scaling of the Regenerative business - and a charge of CHF 15 million - related to the cost optimization program and severances. Excluding these exceptionals, SG&A increased CHF 16 million to CHF 387 million; CHF 5 million of the increase were related to the reorganization project and the Neodent transaction in the first half of the year.

Research & Development investments increased to CHF 49 million or 7% of revenue, reflecting the Group's commitment to innovation. It also reflects the fact that Straumann has expanded its development activities in digital solutions, in addition to maintaining a stocked pipeline.

Due to the abovementioned items, earnings before interest, tax, depreciation, amortization (EBITDA) and before exceptionals slid CHF 27 million to CHF 130 million, or 19% of sales.

After ordinary amortization and depreciation charges of approximately CHF 35 million, operating profit (EBIT) excluding exceptionals amounted to CHF 100 million in comparison with CHF 120 million in 2011. Currency movements had no significant impact. The corresponding EBIT margin was 15%, slightly less than 3 percentage points lower than in the prior year.

Net profit constrained by impact of exceptionals
The net financial result was slightly positive compared with a negative CHF 2 million in 2011. The contributions from Neodent and Dental Wings (of which Straumann holds 49% and 44% respectively) are disclosed in the income statement under 'share of result from associates'. Together they contributed a positive CHF 7 million. However, considering amortization charges resulting from the purchase-price allocation, the share of profit from the two entities was a negative CHF 6 million5. Going forward, these investments are expected to be accretive to IFRS earnings in 2013.

Income taxes came to CHF 19 million, CHF 12 million higher than in 2011, when the tax rate of 9% was considerably reduced as a result of the impairment in Japan.

Taking the aforementioned factors and exceptionals into account, reported net profit amounted to CHF 36 million, with the corresponding margin reaching 5%. Basic earnings per share amounted to CHF 2.36.

Improved working capital
Net cash from operating activities decreased 18% to CHF 115 million, owing to: higher tax payments in the period, severance contributions, and increased operating expenses. Year on year the 'change in net working capital' improved by CHF 7 million due to a reduction in trade receivables and an increase in payables. With capital expenditure remaining more or less constant at CHF 19 million, free cash flow amounted to CHF 95 million and the respective margin was 14%.

The purchase consideration for the 49% stake in Neodent amounted to CHF 261 million. Straumann also paid CHF 5 million for the 14% increase in its stake in Dental Wings. These were paid in cash. The equity ratio amounted to 82% at the end of 2012.

Net cash used for financing activities totaled CHF 63 million after the payment of CHF 58 million for the ordinary dividend. Consequently, cash and cash equivalents at the end of 2012 amounted to CHF 141 million.

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 5 April 2013.

Cost reductions from headcount reduction to appear in 2013
In the fourth quarter, the Group announced a reduction of 150 positions worldwide - through transfers, natural fluctuation, early retirement and redundancies. The latter have been approached with due regard to the company's social responsibilities. Initial reductions were made in 2012 with the remainder to follow in 2013.

OUTLOOK 2013 (barring unforeseen circumstances)
Straumann's performance is expected to face continuing constraints due to the economy and consumer sentiment in Europe, while growth markets like North America, China and Brazil should continue to perform well. Straumann will continue to invest selectively in such growth markets.

Based on the overall business fundamentals, strategic plan and the outcome of its cost optimization program, the Group assumes that it will be able to deliver improved profit levels in 2013, even if the market remains sluggish. In the mid term, it aims to return to solid growth and a significantly higher operating margin.

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