- Full-year revenue climbs 19 per cent in local currencies and 12 per cent in Swiss francs to CHF 799m, (including CHF 63m from Neodent), despite significant currency impact
- Q4 revenue climbs 10 per cent (organic) – strongest quarterly growth since 2008
- Operational leverage and cost-containment measures drive underlying operating profit
- (EBIT) up 25 per cent to CHF 186m, lifting the pre-exceptional EBIT margin to 23 per cent
- Net profit reaches CHF 145m before exceptional charges related to the Neodent business combination
- Free cash flow increases 18 per cent
- Board proposes dividend increase to CHF 4.00 per share (2014: CHF 3.75)
In 2015, the Straumann Group achieved strong organic growth of 9 per cent, driven by all business segments and regions. Revenue climbed to CHF 799 million, of which CHF 63 million was contributed by Neodent. Lifted by the acquisition, growth in local currencies amounted to 19 per cent, but was constrained to 12 per cent in Swiss francs, reflecting the appreciation of the Swiss franc – mainly against the Euro and the Brazilian real.
The full-year performance was driven by sustained recovery in Europe, strong growth in Asia/Pacific and Latin America, and a continued robust performance in North America. Momentum accelerated in Q4, enabling the Group to post its strongest quarter in seven years. This was driven by all businesses and regions with the largest increases in China, France, Italy, Brazil and Japan.
Thanks to strong operational gearing, cost discipline, and accretive income from Neodent, the Group’s underlying EBIT margin expanded from 21 to 23 per cent. The Neodent combination resulted in exceptional non-cash-relevant charges of CHF 73 million after tax, which reduced reported net profit. With their exclusion, net profit reached CHF 145 million, bringing the respective margin to 18 per cent and basic earnings per share to CHF 9.19.
Marco Gadola, Chief Executive Officer, commented: “Thanks to strong growth in our premium business and the expansion of our value-segment franchise, we have increased our market share, and strengthened our global leadership in the tooth replacement market. Despite the set-backs caused by the sudden appreciation of the Swiss franc in January, we exceeded our profitability targets without cutting jobs or compromising growth initiatives. We launched a number of innovations, opened new subsidiaries and invested in other companies to gain access to new markets and technologies. Our achievements in 2015 bring us closer to being the global partner of choice in tooth replacement. None of them would have been possible without the ingenuity, commitment and hard work of our staff, who have also contributed to our cultural transformation, which is a key to sustained high performance in the future.”
A leading position in the fast-growing value segment
The Group made good progress towards its strategic goal of targeting unexploited growth markets by expanding its presence and reach in Asia, Latin America, and Eastern Europe through new subsidiaries and distribution models.
While the premium segment remains its key focus, Straumann is also building a portfolio of value companies with the goal of global leadership in the fast-growing value segment. In addition to the full acquisition of Neodent in Brazil, Straumann invested further in MegaGen (S. Korea) and acquired a stake in T-Plus in Taiwan. The Group also established Instradent subsidiaries in the Czech Republic and the UK in preparation for launch in 2016.
In a separate release, the Group announced a partnership with the French dental implant manufacturer Anthogyr, which enables Straumann to enter the fast-growing value segment in China and to acquire a 30 per cent stake in Anthogyr.
A total solution provider
Executing its strategy to provide total solutions, Straumann launched a stream of new products, solutions and services, and replenished its pipeline. It also added to the common technology platform that serves both its premium and Instradent businesses, increasing its stake in Dental Wings (CADCAM technologies) to 55 per cent, acquiring a 44 per cent stake in Valoc (prosthetic attachment systems), and collaborating with Amann Girrbach to offer in-lab milling options.
Revenue growth was led by the implant business, driven by strong volume expansion across all regions. Straumann’s high-performance implant material Roxolid® was the key driver, with additional impetus from the Bone Level Tapered (BLT) implant in North America, EMEA and parts of Asia. BLT enables Straumann to address the conical implant segment, which accounts for more than 60 per cent of all implants sold. Available in titanium and Roxolid with two different surfaces, BLT differentiates Straumann from the competition. At year-end, one in five Straumann implants sold was a tapered design.
The Restorative business, including CADCAM prosthetics and digital equipment, posted solid full-year and fourth-quarter growth. Demand was especially strong for simple cost-effective Variobase® abutment solutions. The new CARES in-lab scanners were well received and sales of prosthetic elements rose as the base of installed scanners expanded. The CADCAM business also benefitted from increased connectivity, drawing in users of third-party scanners.
Revenue from Biomaterialsgrew vigorously throughout the year as Straumann continued to roll out the botiss range in Europe and its bone graft and membrane products in North America. Demand for bone regeneration solutions was particularly strong in Q4.
Recovery sustained in large EMEA region
Building on the recovery achieved in 2014, the main markets in Europe lifted growth in the region to 6 per cent. All businesses contributed to this positive trend, fuelled by BLT, Variobase abutments, and biomaterials for guided bone regeneration.
Stiff currency headwind due to the marked depreciation of the Euro squeezed regional revenue in Swiss francs by 10 per cent to CHF 375 million or 47 per cent of the Group total. In addition to an increase in dental procedures – reflecting the general pick-up in the economy – the region benefitted from a stream of product launches, most of which were presented at the International Dental Show in March in Cologne.
In Q4, growth increased to 8 per cent, with the main contribution coming from Germany, complemented by good performances in France, the UK, and the Nordics. Despite tough competition from value and discount players, Italy achieved an encouraging turnaround from the negative trend in past years and achieved strong growth. Distributor markets in Eastern Europe and the Middle East also posted strong volume growth, driven by patient demand and public healthcare tenders, but this was offset by price reductions for distributors to compensate for the sharp appreciation of the Swiss franc.
In Russia, the Group took over its former distributor’s business in October. With greater control and the ability to invest, Straumann is set to boost its current modest share in this attractive market.
Robust growth in North America
The world’s largest market for tooth replacement, North America, is still underpenetrated, which is why Straumann has continuously invested there in recent years. As a result, it has gained share and has come closer to market leadership. In 2015, revenue grew 8 per cent organically, or 12 per cent in Swiss francs to CHF 217 million, reflecting the appreciation of the dollar against the franc. All business franchises contributed to the increase, but the star performers were BLT and Roxolid complemented by the new biomaterial solutions. BLT is particularly important as 70 per cent of implants sold in the region are tapered. In Q4, organic growth was just less than 7 per cent, with revenue reaching CHF 58 million.
Asia/Pacific (APAC): strong growth driven by China and Japan
The majority of the Group’s revenues in APAC are generated in China and Japan, which both posted double-digit increases throughout the year, driving organic growth in the region to 19 per cent. The depreciation of the yen and other currencies cut growth to 15 per cent in Swiss francs, as revenue reached CHF 123 million. Although APAC contributed only 15 per cent of Group revenue, it was the fastest-growing region and contributed 30 per cent of overall revenue growth.
Straumann continued to benefit from the dynamic market in China and the successful transition to its new hybrid distribution model, which enables the company to address the fast-growing private-practice sector more effectively and to broaden its direct access to customers.
The Group has edged closer to market leadership in Japan and will benefit from the rollout of SLActive, BLT, Roxolid – which gained regulatory approval at the end of the year – and its new CADCAM milling centre near Tokyo.
In Q4, Japan kept momentum and launched BLT. China posted very strong results and benefitted from new distributor stocking. Australia recorded very satisfying sales, while distributor markets in ASEAN reported mixed results.
Latin America regains double-digit growth
The dental markets in Latin America were constrained by the difficult economic environment. In spite of this and market stagnation in Brazil, both Neodent and Straumann achieved strong results, which – together with a dynamic performance in Mexico – lifted organic growth in the region to 11 per cent. Full-year revenue amounted to CHF 84 million (11 per cent of the Group) and was constrained by the pronounced depreciation of the Brazilian real.
In Q4, organic growth reached 17 per cent and was strong in all markets especially Mexico. Both Neodent and Straumann Brazil expanded at a double-digit pace. BLT obtained regulatory clearance in Brazil and was very well received. At the beginning of December, Straumann Brazil relocated to Neodent’s facilities in Curitiba allowing the Group to capture synergies by combining supply chain and administrative operations. Straumann will also benefit from Neodent’s unique distribution model in Brazil as its premium products become available in Neodent retail stores.
OPERATIONS AND FINANCES
Straumann responded quickly to the abrupt strengthening of the Swiss franc in January with strict cost discipline measures. To protect the business and jobs, the staff in Switzerland agreed in February 2015 to new employment contracts with significant bonus-relevant compensation reductions. Thanks to stronger-than-expected revenue growth, efficiency gains and the level of profitability achieved, it has been possible to maintain the staff and to pay a 2015 discretionary bonus, which fully compensates for the voluntary forfeits in the great majority of cases. Although the exchange rates subsequently improved, the currency headwind still reduced full-year revenue by CHF 37 million and operating profit by CHF 22 million.
The Group was able to offset this, thanks to increased sales momentum and accretive income from Neodent. As a result, the underlying EBIT margin improved from 21 to 23 per cent.
Straumann’s initial 49 per cent stake in Neodent was reported as ‘Share of results of associates’ up to the end of February 2015. After consolidation, it contributed to the Group’s financial statements at all levels.
The business combination resulted in several non-cash-relevant effects and acquisition-related bookings to various positions in the Group’s income statement. These collectively amounted to CHF 89 million (pre-tax) and comprised the following exceptional items:
- ‘Cost of goods sold’: One-time adjustments for Neodent’s inventory totalling CHF 13 million
- ‘Loss on consolidation of Neodent’: a one-time accumulated foreign-exchange loss of CHF 85 million due to the depreciation of the Brazilian real against the Swiss franc in the period between the acquisition of the initial 49 per cent stake in 2012 and the business combination in March 2015. This loss was reclassified from ‘Equity’ to the ‘Income Statement’ in accordance with IFRS. In addition, a evaluation gain of CHF 21 million was booked due to the de-recognition of the investment in the initial 49 per cent stake.
The following effects, which are not defined as exceptionals, also affected the Group’s net profit in 2015:
- ‘Distribution costs’: an amortization expense of CHF 5 million for customer-related intangible assets from March to December;
- ‘Share of results of associates’: provisions related to the cancellation of a local distributor agreement and an ongoing litigation case prior to the business combination, which reduced the Neodent result by CHF 7 million.
The acquisition of Neodent also added more than 900 employees, bringing the Group’s global team to 3471 at year-end.
Gross profit margin maintained at 79 per cent despite adverse currency impact
Excluding the aforementioned exceptional inventory-adjustment charge of CHF 13 million, pre-exceptional gross profit increased 12 per cent to CHF 628 million. Strong volume expansion, tight cost control and capacity optimization fully compensated for the negative currency impact of 110 base points and the underlying gross-profit margin remained stable at nearly 79 per cent.
Pre-exceptional operating margin climbs to 23 per cent
The Group succeeded in mitigating the currency impact through various initiatives including hiring and travel restrictions as well as renegotiated supply agreements.
Distribution costs, which comprise sales force and directly-related sales activities amounted to CHF 173 million. Relative to revenue, distribution costs decreased by two percentage points to 22 per cent. Administrative expenses, which include Marketing, Research & Development, General Management and Support functions, increased to CHF 271 million. As a percentage of revenue, they decreased 40 base points to 34 per cent.
Thanks to the improvements in gross-profit and the abovementioned items, earnings before interest, tax, depreciation, amortization (EBITDA) and exceptionals increased by 25 per cent to CHF 221 million, lifting the underlying margin by 280 base points to 28 per cent.
After total amortisation and depreciation charges of CHF 35 million, operating profit before exceptionals amounted to CHF 186 million and the underlying EBIT margin expanded 240 basis points to 23 per cent.
Bottom line negatively affected by Neodent business combination effects
The net financial result was a negative CHF 16 million compared with a negative CHF 7 million in 2014. This is primarily related to foreign-exchange losses subsequent to the sudden appreciation of the Swiss franc, and fair-value adjustments of various financial instruments.
Straumann’s share of results from its associate partners (Dental Wings, Medentika, Createch, T-Plus, Valoc, and Neodent up to 28 February), which are accounted for under the equity method, came to a negative CHF 12 million in contrast to a positive CHF 36 million in the comparative period of 2014. The difference is mainly due to the aforementioned Neodent provisions and the fact that the company, contributed over 12 months in 2014 but only two in 2015. Furthermore, the prior-year result benefitted from the capitalization of deferred tax assets amounting to CHF 27 million related to the acquisition of the initial 49 per cent of Neodent.
Income taxes amounted to CHF 9 million and were CHF 11 million lower than in the prior year. The effective income tax rate remained at 11 per cent as the Group benefitted from a tax refund in Germany and a tax credit related to carrying forward of tax losses (book value adjustments at the holding level); each effect amounted to CHF 3 million. The normalized tax rate going forward is expected to be approximately 15 per cent.
Excluding exceptionals, net profit reached CHF 145 million, bringing the respective margin to 18 per cent and basic earnings per share to CHF 9.19. This compares with an underlying CHF 8.42 in 2014.
Free cash flow increases 18 per cent
Net cash from operating activities increased 27 per cent to CHF 186 million, thanks to the inclusion of Neodent, improvements in profitability, and working capital management.
Capital expenditures (CAPEX) increased CHF 17 million reflecting the inclusion of Neodent and additional investments of CHF 8 million in Straumann’s CADCAM milling facilities in the US and Japan.
The Group continued to generate a good level of cash, and free cash flow rose CHF 23 million to CHF 151 million lifting the margin to 19 per cent.
Further investments in value segment and technology platform
Cash used for investing activities amounted to CHF 48 million. In addition to the aforementioned CAPEX investments, Straumann invested a total of CHF 24 million in Dental Wings, MegaGen, T-Plus, and Valoc to advance its value strategy and technology platform. In 2015, dividends from the Group’s strategic investments in associate companies amounted to CHF 3 million.
The purchase of the remaining 51 per cent stake in Neodent has been accounted for as an equity transaction. Including the respective purchase consideration of CHF 225 million as well as the payment of the regular annual dividend in the amount of CHF 59 million, net cash used in financing activities totalled CHF 275 million.
Consequently, cash and cash equivalents at year-end amounted to CHF 318 million, down from CHF 459 million at the end of 2014. With an equity ratio of 58 per cent and a net cash position of CHF 117 million, the Group is solidly financed and has the capability to pursue further strategic investments and acquisition opportunities if they should arise.
The Board of Directors will propose an increase in the ordinary dividend to the shareholders for approval at the Annual General Meeting on 8 April 2016. Despite challenging times, Straumann has maintained its dividend at CHF 3.75 per share since 2008. Based on the results and positive developments in 2015, the Board proposes a dividend of CHF 4.00 per share, payable on 14 April 2016.
OUTLOOK 2016 (barring unforeseen circumstances)
Straumann expects the global implant market to grow solidly in 2016 and is confident that it can continue to outperform by achieving organic growth in the mid-single-digit range. Despite further investments in strategic growth initiatives, the expected revenue growth and operational leverage should lead to further improvements in the underlying operating profit margin.