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29 Apr 2013 | Press Release

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Straumann steps up cost reduction program and sharpens focus on customer needs

Company Reporting and Announcements

In the first three months of 2013, the Straumann Group generated revenue of CHF 175 million, 6% less both in local currencies (l.c.) and Swiss francs than in the comparative period of last year, which benefitted from two additional selling days.


Taking the discontinued activities into account, the decline was slightly less than 5%.

While revenue developments were stable in North America and positive in China and Latin America, the large European and Japanese markets suffered further from the weak economy and competition from lower cost players.

In response to the longer-than-anticipated delay in market recovery, Straumann today announced further restructuring and cost-saving initiatives, including the reduction of approximately 200 jobs, bringing the global workforce to about 2230 by year end.. Most of the reductions (approximately 110) are planned at the Group's headquarters in Basel. These initiatives are expected to result in one-time charges of CHF 18-20 million in the first-half of 2013.

Chief Executive Officer Marco Gadola commented: "The first quarter provided further evidence that consumer sentiment is not recovering at the expected pace and our environment is changing faster than anticipated. We are therefore stepping up our efforts to adapt organizationally and strategically. Our present organization was built based on rather bullish market growth expectations but, in view of current developments and the mid-term economic outlook, today's level of staffing is no longer sustainable. We are addressing this with due regard for our social responsibilities as an employer. We are also adapting our structure and leadership in order to increase agility and to strengthen our focus on customer needs and solutions. Despite resizing, we will continue to have a strong, competitive team of professionals to drive our business in the future."

ORGANIZATIONAL AND LEADERSHIP CHANGES
The main structural changes are designed to simplify the functional set up and accelerate decision times. At the same time they will further strengthen Straumann's focus on customer needs and solutions. The new structure is reflected in following changes within the Executive Management Board (EMB).

While Thomas Dressendörfer (CFO), Andy Molnar (Head Sales North America) and Dr Alexander Ochsner (Head Sales APAC) all remain in their current positions, Frank Hemm (previously Head EMEA, LATAM and Distributors) takes on the newly created role as Head Customer Solutions & Marketing. Dr Sandro Matter (previously Head Business Unit Prosthetics) also assumes a newly created role as Head Strategic Projects & Alliances. Wolfgang Becker (Head Sales Central Europe), Guillaume Daniellot (Head Sales Western Europe/LATAM) and Dr Gerhard Bauer (Head Research, Development and Operations) all join the EMB from within the organization.

After eight years with the company, Dr Rene Willi, who headed the Surgical Business Unit, is leaving to pursue his career outside Straumann. Rene Willi has made many contributions to product development and the surgical business and Straumann would like to thank him in addition to wishing him all the best for the future.

BUSINESS AND REGIONAL PERFORMANCES
Implant sales in Q1 benefitted from the recently-introduced NNC implant and the Bone Level range, but were generally softer than in the comparative period of last year.

The restorative business, which comprises digital products, CADCAM milled elements and standard prosthetics, was also slower. This reflects the competitive landscape in general, the discontinuation of the intra-oral scanner distribution business in October, and transfer of Straumann's software and guided surgery business to Dental Wings.

In contrast, the smallest franchise, regeneratives, achieved moderate growth, driven by Straumann Allograft and Emdogain.

In the first quarter, Straumann introduced several new solutions to rekindle and support future growth. These were presented at the IDS tradeshow in Cologne and include the 'Scan & Shape' prosthetics service and CARES Visual 8.0. The former offers access to CARES CADCAM prosthetics to customers who do not have the requisite scanning capabilities; the latter opens Straumann's CADCAM system to a broader range of customers.

Further challenges in Europe
Subdued consumer confidence continued to constrain the European dental markets, which contribute 56% of Straumann's Group revenues. In the first quarter of 2013, sales were generally lower (-8% in l.c.) than in the prior year. One percentage point of the decrease was due to the discontinued distribution of intra-oral scanners. Spain and Italy, which are fragmented markets and highly permeated by cut-price competitors, suffered the biggest declines. Germany and Switzerland also struggled and were unable to reach prior-year levels.

Modest growth in North America
North America succeeded in matching the previous first-quarter level of revenue in local currencies, when regional sales reached a record high. In Swiss francs, revenue rose 1% to CHF 45 million or 26% of the Group. Excluding the discontinued intra-oral scanner distribution business, revenue increased 2% in l. c., or 3% in Swiss francs.

China and Australia: beacons in Asia/Pacific
In Japan, which represents roughly half the APAC market, public perception of implant dentistry has been tarnished by the media and will take time to restore. China and Australia both reported solid performances but only partly compensated for the shortfalls elsewhere. As a result, regional revenue declined 4% in local currencies and 9% in Swiss francs to CHF 23 million, corresponding to approximately 13% of Group sales.

Strong Brazil offsets irregular distributor markets in the Rest of the World
The 'Rest of the World' region contributes approximately 5% of Group revenue, most of which is generated in Latin America. First-quarter revenue declined 3% in l.c., or 7% in Swiss francs, to CHF 8 million. The decline was mainly due to difficult market conditions in the Middle East and a soft performance in Mexico – in contrast to Brazil, which posted strong growth.

OUTLOOK (barring unforeseen circumstances)
Straumann expects the effects of the weak economy and consumer sentiment to continue in Europe, while attractive markets like North America, China and Brazil should perform well.

Based on the overall business fundamentals, strategic plan and its cost optimization program, the Group assumes that it will be able to deliver improved profit levels (Excluding exceptionals in 2012 and charges for the cost optimization program) 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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