Key figures

 

	FY, 2008	FY, 2008	FY, 2007
(in CHF million)		pre-exceptionals
Net revenue	778.7	778.7	713.7
Growth in %	9.1	9.1	19.1
Growth in local currencies in %	14.6	14.6	17.1
EBITDA	274.1	274.1	244.1
Margin in %	35.2	35.2	34.2
Growth in %	12.3	12.3	12.0
Operating profit (EBIT)	40.4	213.0	201.5
Margin in %	5.2	27.4	28.2
Growth in %	(80.0)	5.7	14.9
Net profit	8.2	180.1	177.3
Margin in %	1.0	23.1	24.8
Growth in %	(95.4)	1.6	24.9
Free cash flow	144.4	144.4	186.3
In % of net revenue	18.5	18.5	26.1
Basic earnings per share (in CHF)	0.52	11.56	11.29
Growth in %	(95.4)	2.4	34.4
Dividend2	3.75	3.75	3.75
Growth in %	0.0	0.0	25.0

 

(Click on 'Media release' for full tables)

 

Basel, 12 February 2009: The Straumann Group today published its fully audited financial statements for 2008. As reported in January, the Group achieved growth across all its businesses throughout 2008, despite the difficult global economy.

 

Full-year net revenue reached CHF 779 million, corresponding to a rise of 15% in local currencies (l.c.), of which just 3% points were acquisition related. The strengthening of the Swiss franc against major currencies resulted in a negative foreign exchange rate effect of 6% points, which squeezed net revenue growth to 9% in Swiss francs.

 

Thanks to efficiency improvements, Straumann lifted its EBITDA (earnings before depreciation, amortization, interest and taxes) margin to 35.2%. As previously reported, the economic downturn led to a revaluation of intangible assets and exceptional non-cash write-downs totalling CHF 173 million. Excluding these and currency effects, operating profit would have grown 16% to CHF 213 million, corresponding to an EBIT margin of 27.4%. Net profit would have increased to CHF 180 million, corresponding to a net profit margin of 23.1%.

 

New-generation products fuel business expansion

In general, growth was driven by the established implant business, lifted by the highly successful roll-out of Straumann’s new-generation Bone Level Implant and prosthetic range, which was expanded considerably in the spring. The new implant, which has doubled the Group’s addressable market, is now widely available except in Asia, where regulatory clearances are still pending.

 

Additional growth came from the progressive conversion to SLActive, Straumann’s third generation implant surface, which is now sold on more than 30% of the company’s implants and commands a premium of approximately 30%. Further scientific evidence supporting SLActive was presented in 2008, including a one-year multicenter clinical study and impressive preclinical results from a head-to-head comparison with a leading competitor.

 

The CAD/CAM prosthetics business continued to grow as the Group continued its roll- out in key markets. As the credit crunch spread, dental labs became increasingly hesitant to invest in capital goods, making it challenging to maintain scanner sales growth towards the end of the year.   

 

Straumann’s regenerative business flourished, gaining further support from new clinical data. Sales were lifted by the successful relaunch of Biora products in the US in August, when the FDA import detention was lifted.

 

Market share gains in Europe and North America

Based on comparative growth figures published by competitors, Straumann captured market share in Europe and North America.

 

Europe posted solid growth, with full-year revenues rising 13% (9% in CHF) to CHF 500 million, or 64% of the Group. Despite the challenging environment, a number of countries maintained double-digit growth, even in the fourth quarter, when several reported rises of more than 20%. Sales increases were driven by new products and technologies.

 

In North America, where the effects of the economic crisis have been most prominent and prolonged, the Group succeeded in sustaining the turnaround achieved in 2007 and posted full-year net revenue growth of 14% (3% in CHF) – a substantial portion of which was generated over the first nine months. Significant contributions came from new-generation products, with additional lift from the relaunch of regeneratives in the US. With revenue reaching CHF 159 million, North America contributed 21% of Group net revenue.

 

Asia Pacific reported revenue growth of 22% (20% in CHF) to CHF 97 million, or 12% of the Group. A sizeable portion of this was related to the acquisition of the distributors in Japan and Korea. Although Straumann has made progress in integrating these businesses, the discontinuation of the acquisition effect, the absence of key innovations in Asia, and the economic slump collectively constrained revenues in the second half. Significant improvement is expected in 2010, with the planned launches of Straumann’s new-generation products and technologies. One step towards this was the recent regulatory clearance for SLActive in Korea. 

 

In the Rest of the World (RoW), Straumann’s distributor business continued to grow in important emerging markets such as Russia, Lithuania and Turkey. The Middle East also posted solid growth. Net revenue in the RoW countries collectively rose 18% (16% in CHF) to CHF 23 million or 3% of the Group total.

 

150 new jobs sustained

The Group continued to expand its global workforce in the first 8 months based on an anticipated continuation of dynamic growth (+22% in the first half). The unprecedented market slow-down in the fourth quarter prompted a recruiting freeze as well as reduced working hours in implant production in December. At the same time, the Group carefully sharpened its focus and identified cost savings that would not compromise its innovation, selling and service power. In January 2009, organizational and efficiency improvements were initiated including a 3% reduction of the global workforce. Taking this alignment into consideration almost 150 of the new positions created in 2008 have been sustained.

 

Well stocked innovation pipeline

Straumann has one of the largest research and development programs in its industry, with the goal of documenting, supporting and positioning its products. In 2008, the Group had a larger number of ongoing clinical studies in more centres worldwide than ever before. Despite a number of recent launches, its innovation pipeline has been replenished with new materials and technologies for implants, prosthetics and regeneratives. Highlights of these are presented in the Annual Report, published today (details attached).

 

Assets impaired to reflect fair value of future cash flows

As a consequence of the economic downturn and subdued growth projections, Straumann’s intangible assets related to previous acquisitions were re-valued, resulting in impairments totalling CHF 173 million, divided among the operating expenses. The extreme volatility of the financial markets in 2008 led to a fall in the value of equity securities in foreign currencies held by Straumann. In view of the persisting weakness of the financial markets, the Group has written down the value of its financial assets by CHF 12 million.

 

Operational efficiencies expand EBITDA

Process improvements and economies of scale more than offset the margin dilutive effect of the increasing proportion of CAD/CAM prosthetics in the business mix. Gross profit thus increased 8% to CHF 632 million. However, the gross margin eased down to 81.1%, constrained by the unfavorable currency developments, without which the margin would have expanded by 30 basis points.

 

Selling & Administrative (SG&A) and Research & Development expenses increased to CHF 557 million and CHF 37 million respectively. Excluding impairments, SG&A amounted to CHF 391 million, remaining stable at 50% of net revenue, despite activities to strengthen Marketing, Sales, Quality Management and other global functions. R&D expenses remained at approximately 5% of net revenue as Straumann continues to drive pipeline innovations to market.

 

Operating profit before depreciation and amortization (EBITDA) rose 12% to CHF 274 million, with the EBITDA margin increasing 100 basis points to 35.2%. The increase would have been twice as much, without the currency effect, which underscores the company’s success in improving underlying efficiency.

 

EBIT and net profit margins constrained by impairments

Before impairments, EBIT rose 6% to CHF 213 million, corresponding to a currency-adjusted margin expansion of 40 basis points to 27.4%. Net financial costs, including the aforementioned CHF 12 million write-down, amounted to CHF 14 million compared with CHF 7 million in the previous year. The net interest result improved by CHF 4 million, thanks to a significant reduction in gross financial debt and lower interest rates.

 

The volatility in the financial markets also resulted in considerably higher transactional foreign exchange gains and losses. However, these netted to a CHF 1 million improvement over the previous year.

 

Efficient tax structuring enabled the Group to maintain an underlying tax rate of 17%. The effective tax rate rose from an exceptionally low 9% in 2007 to 69%, due to significant non-tax-deductable expenses, most of which were goodwill impairments.

 

As a result of the above, full-year net profit amounted to CHF 8 million. Excluding impairments, it would have reached CHF 180 million (23.1% margin), CHF 3 million above the prior year’s level. Correspondingly, basic earnings per share would have risen 2% to CHF 11.56, in contrast to the reported CHF 0.52.

 

Strong cash flow generation, solid equity ratio

Net cash from operating activities declined 13% to CHF 199 million, despite the EBITDA improvement. This was due mainly to the settlement of outstanding income taxes from 2006 and 2007, and an increase in working capital. Preparations for product launches led to an increase in inventories in the first half to CHF 91 million, which were subsequently reduced to CHF 84 million at year-end.

 

Full-year free cash flow reached CHF 144 million, translating into a free cash flow margin of 18.5% or 20.1% accounting for tax differences. Net cash used for financing activities was a negative CHF 136 million reflecting a CHF 69 million reduction in gross financial debt and an ordinary dividend payment of CHF 58 million. As a result of all these factors, cash and cash equivalents on 31 December 2008 amounted to CHF 148 million. As a consequence of the debt reduction, the equity ratio improved further to 74%.

 

33% dividend on net profit

On the basis of the full-year performance, the Board of Directors will propose an ordinary dividend of CHF 3.75 per share to the General Meeting of the Shareholders. This corresponds to a total dividend of CHF 58 million and a payout ratio of approximately 33%, which is in line with the previous year.

 

Outlook (barring further unforeseen circumstances)

Uncertainty in the global economy and historically weak consumer sentiment make it difficult to guide for the year ahead. From Straumann’s perspective, the market for implant, restorative and regenerative dentistry is not expected to grow in 2009.

 

The strength of its global franchises, product range and innovation capability affirm Straumann’s confidence in achieving above-market growth. The aforementioned  cost- containment measures and focus approach, will not compromise the Group’s innovation, selling and service power but will lead to efficiency improvements that should enable the Group to deliver an operating margin of more than 20% in 2009, depending on currency developments.

 

Global demographic trends, low penetration rates and high substitution potential continue to make Straumann’s markets highly attractive in the mid and long term. The Group believes that it has the right strategy in place and is well prepared for a market turnaround in the future.