Straumann Group further accelerates growth in the second quarter to deliver record first half-year result

Straumann Holding AG / Key word(s): Half Year Results/Interim Report

12-Aug-2021 / 07:00 CET/CEST
Release of an ad hoc announcement pursuant to Art. 53 LR
The issuer is solely responsible for the content of this announcement.

• Half-year revenue reached CHF 986 million or 63% organic growth
• Revenue increased by 103% to reach CHF 516 million in the second quarter, with all regions reporting impressive sales growth
• Strong volume growth brought core EBIT to CHF 284 million, with a margin of 29%
• Reported net profit rose to CHF 175 million or 18%, including DrSmile earn-out adjustment
• Acquisition of Smilink, a doctor-led direct-to-consumer business, further strengthens the orthodontics business in Brazil
• Full-year 2021 outlook raised to organic revenue growth of above thirty percent, with profitability (core EBIT margin) nearly reaching the 2019 level, assuming the pandemic does not negatively impact the patient flow

Basel, August 12, 2021: Straumann Group revenue reached CHF 986 million in the first six months of 2021, which is a record result. This is in contrast to the first half of 2020, when revenue declined by 22% to CHF 605 million because of pandemic-related lockdowns. The Group's strong sales growth in the first quarter, which was supported by a tailwind generated by consumers spending disposable income on specialty dental treatments, continued in the second quarter. The second quarter revenue reached CHF 516 million compared to CHF 248 million in 2020, when revenue dropped almost 40% in Swiss francs due to the pandemic.

Guillaume Daniellot, Chief Executive Officer, commented: 'Our strong product and solutions pipeline is performing very well and helped us to continue the accelerated growth seen in the first quarter. Our team has done a tremendous job of focusing on customer needs and delivering on the high level of demand. The strong performance was supported by the tailwind, combined with continued market share gains. Assuming the pandemic does not negatively impact the patient flow, we have raised our guidance to full-year organic revenue growth of above thirty percent and expect that profitability will nearly reach the 2019 level.'

All regions continued to report high sales growth in the first half of 2021. EMEA and North America contributed CHF 444 million and CHF 290 million to Group revenue, with organic growth increases of 57% and 67% respectively. LATAM (75%) and Asia Pacific (68%) grew strongly, contributing CHF 252 million to overall Group revenue.

STRATEGIC PROGRESS second quarter

Premium immediacy thriving and supporting sales growth for the entire portfolio

The Group's efforts related to immediacy in implant dentistry helped to promote Straumann's innovative fully tapered BLX implant system. These efforts also supported the limited market release of the newly introduced TLX implant, which is the first broad global launch of a tissue level immediacy solution implant worldwide. This continued success confirmed that these solutions also serve as a starting point for converting new customers and leveraging the entire product portfolio, including BLT. Immediacy protocols involve fewer surgical interventions and clinic visits, offering shorter time-to-teeth treatment options for health consumers and enabling clinicians to reduce chair time per health consumer.

Challenger brands continue to successfully expand into additional markets

The challenger brands are growing strongly. Neodent is now a global brand that is represented in more than 80 countries. Medentika and Anthogyr are each available in more than 60 countries. Anthogyr is celebrating its 20-year anniversary in China this year.

Digital solutions with very strong performance

Intraoral scanners, CADCAM customized prosthetics as well as our 3D printing portfolio are key drivers of sales growth in digital solutions. Intraoral scanners such as TRIOS, Medit and Virtuo Vivo are the starting point for the business in many respects, offering significant advantages such as reducing clinic visits and physical contact. With the recent addition of the Medit intraoral scanner, the Group now has an intraoral scanner portfolio that covers all segments, price ranges and regions.

Orthodontics building on strong growth

The new material ClearQuartz has been launched globally, except in China, and the response has been very positive. Furthermore, the launch of Collaborator, a new feature within the ClearCorrect digital customer portal, was a great success during the first quarter. This software enhances collaboration on clear aligner patient cases by enabling clinicians to share individual cases with staff, other clinicians, and treatment planning services. This makes it possible to exchange expertise and advice, with the aim of improving treatment outcomes and practice efficiency. The global launch of the ClearPilot 2.0 software update, which offers additional features that improve visualization for treatment planning and enhance communication with patients, has received excellent feedback.

Strengthening the doctor-led direct-to-consumer business by acquiring Smilink

The global market for clear aligners continues to offer strong growth opportunities, and is increasingly driven by direct-to-consumer marketing and online service providers who offer treatment packages. The Group recently signed an agreement to fully acquire Smilink, one of the fastest-growing providers of orthodontic solutions in Brazil. Similar to DrSmile, Smilink combines direct-to-consumer marketing expertise with doctor-led treatment, and complements Straumann's existing clear-aligner business. This acquisition will offer further growth opportunities with dentist partners, and strengthens the Group's portfolio of convenient doctor-led aligner treatment solutions for patients.

DrSmile, a leading provider of doctor-led direct-to-consumer clear aligner treatment solutions in Europe, is growing very quickly which led to an adjustment of the earn-out.

Further investment in capacity expansion in the US

In Mansfield, Texas, USA the Group plans to invest around CHF 46 million to construct a new manufacturing facility. It will begin operating in the second half of 2022 to produce custom dental protheses and tooth replacement components for the North American market. The center will replace the current site in Arlington, Texas. The 10,000-square-meter facility will more than double the capacity of the current site, and will house a learning center for employees and customers. It is projected to create about 150 new jobs.

REGIONAL PERFORMANCE Second quarter

EMEA shows strong growth in immediacy and Neodent is now established as a brand

The EMEA region remained the Group's largest revenue contributor and reported strong revenue of CHF 230 million or 102% growth in the second quarter compared to 2020, which was heavily impacted by the pandemic. Premium implants are picking up fast, with strong sales across the entire premium immediacy portfolio. The challenger implant brands are also performing well, with Neodent now established as a brand in the region. The orthodontics business is strongly supporting growth in EMEA with DrSmile and ClearCorrect, which recently launched its ClearQuartz material. Overall growth in the region was driven by Germany, Iberia, France, the UK and Turkey. 

North America returns to strong growth compared to last year

In 2020, the business in North America only began to recover in June, when lockdowns were eased. In the second quarter of 2020, organic sales growth decreased by 42%. In this year's second quarter, the North America region showed strong growth at 135%, reaching revenue of CHF 152 million. This was due to the implant business, which is being driven by the Straumann and Neodent brands. Some large wins with Dental Service Organizations (DSO) in the first half of the year propelled the business to higher growth rates. Digital solutions are growing very quickly. The orthodontics business focused on attracting general practitioners, and growth in this area was supported by the software improvements for ClearPilot and the launch of Collaborator.

Although significantly smaller, the Canadian business is growing almost twice as quickly as the US business, as the Group continues to increase penetration with its challenger brands and digital solutions in Canada.

Asia Pacific region growing quickly and further establishing its presence

In the second quarter of 2021, the Asia Pacific region achieved revenue of CHF 103 million or 63% organic sales growth compared to the same period in 2020, when most countries in the region started to rebound in June. From the first to the second quarter of 2021, the business accelerated throughout the region by growing the existing business and increasing market share mainly in China, Japan and Taiwan. Premium and challenger implant brands are driving growth, while challenger brands are growing faster than premium brands.

Latin America growth led by Brazil and investment in the orthodontics business

In the second quarter of 2021, the business in Latin America grew to CHF 31 million, significantly outperforming the second quarter of 2020, which was impacted by the pandemic. Brazil is by far the biggest revenue contributor in Latin America, and managed to continue the strong growth performance seen in the first quarter of 2021. Neodent remains the strongest brand in the region, while the premium implant brand is further establishing its position. Digital solutions are performing very well, with the Virtuo Vivo intraoral scanner gaining momentum. The orthodontics business is contributing well to the regional performance, and the acquisition of Smilink will help to further establish the Group's doctor-led direct-to-consumer portfolio.

OPERATIONS AND FINANCES

To facilitate a like-for-like comparison, the Group presents 'core' results in addition to the results reported under IFRS. In the first six months of 2021, the following effects (after tax) were defined as non-core items: 

• The increased estimate of contingent consideration payable to the sellers of DrSmile by CHF 49 million.
• The amortization of acquisition-related intangible assets amounting to CHF 4 million. 

A reconciliation table and detailed information are provided on pages 10ff of this media release.

Gross profit margin almost back to the same level as in 2019

In the first six months of 2021, the Group's strong topline growth led to a core gross profit of CHF 752 million. This was CHF 322 million higher in absolute terms, with no significant currency impact. The corresponding margin of 76% improved by 530bps compared to 2020 and reached almost the same level as in 2019 despite the changing portfolio mix. 

Core EBITDA margin increased to 34%

The operating leverage resulted in a core EBITDA of CHF 333 million, which represents a significant increase in the core EBITDA margin compared with the prior-year period.

After various cost saving initiatives in the first half of 2020, core distribution expenses rose by CHF 46 million to CHF 186 million in 2021. This includes sales-force salaries, commissions, and logistics costs. Core administrative expenses increased by CHF 81 million to CHF 284 million. This includes research, development, marketing and general overhead costs.

The core operating result (EBIT) amounted to CHF 284 million, which is an increase of CHF 184 million. The core EBIT margins rose by 1220bps to 28.8%. Compared to pre-pandemic margins in the first half of 2019, this represents a low single-digit percentage point increase. Currency fluctuations had a negative impact of 30bps on the core EBIT margin.

Core net profit grew by more than CHF 150 million

Core net financial expenses decreased by CHF 2 million to CHF 10 million. This mainly reflects a favorable currency valuation result, which more than compensated for higher interest expenses. The share of result of associates was almost in line with the prior year. Due to the strong sales performance, income taxes amounted to CHF 46 million, which represents an increase of CHF 33 million. Core net profit more than tripled to reach CHF 227 million, resulting in a margin of 23%. This was achieved despite higher income taxes. As a consequence, core basic earnings per share increased from CHF 4.49 to CHF 14.19.

Including the increased estimate of contingent consideration payable to the sellers of DrSmile, the reported net result was CHF 175 million.

Free cash flow reaches CHF 210 million

Cash flow from operations amounted to CHF 257 million. Net working capital increased by CHF 35 million compared to year-end 2020 due to increased receivables and inventories. In the first six months of 2021, days of sales outstanding increased by 7 to 54, and days of supplies increased by 19 to 179, which is in line with previous first half-years. Interest payments, including those on lease liabilities, amounted to CHF 4 million due to the new bond funding and favorable development of foreign currency hedging.

With a decrease of CHF 1 million, first-half capital expenditure remained relatively stable compared to the first half of the previous year, when the pandemic had not yet impacted capital expenditure. The Group's production expansion initiatives continued, with total investments amounting to CHF 68 million, which is almost the same level as in the first half of 2020.

The cash position on 30 June 2021 remained strong, at CHF 725 million. This is an increase of CHF 93 million since the beginning of the year. The net cash position amounted to CHF 217 million. The Group's balance sheet amounted to CHF 2.8 billion, up from CHF 2.5 billion at the end of 2020. 

OUTLOOK 2021 RAISED (BARRING UNFORESEEN CIRCUMSTANCES)

Dental practices were operating with healthy patient flows throughout the first half of 2021. The ongoing growth in the second quarter was driven by the strong performance of the existing portfolio, and supported by the tailwind from consumers with disposable income focusing on specialty dental treatments. Based on the assumptions that this tailwind will gradually become softer on the one hand and that the pandemic will not negatively impact the patient flow during the second half of the year on the other hand, the Group has raised its guidance to full-year organic revenue growth of above thirty percent with profitability nearly reaching the 2019 level. This outlook also reflects the company's continuous investment in future growth opportunities, its strong innovation pipeline and the talented Straumann Group team that demonstrates its passion, resilience and ability to outperform the market every day. 

[1] The 'core' figures in this document exclude purchase-price allocation (PPA) amortization, impairments, restructuring expenses, legal cases, consolidation result of former associates, and other non-recurring incidents. Details and a reconciliation of the reported and core income statement are provided on pages 10ff of the attached media release.

About Straumann

The Straumann Group (SIX: STMN) is a global leader in tooth replacement and orthodontic solutions that restore smiles and confidence. It unites global and international brands that stand for excellence, innovation and quality in replacement, corrective and digital dentistry, including Anthogyr, ClearCorrect, Dental Wings, Medentika, Neodent, NUVO, Straumann and other fully/partly owned companies and partners. In collaboration with leading clinics, institutes and universities, the Group researches, develops, manufactures and supplies dental implants, instruments, CADCAM prosthetics, biomaterials and digital solutions for use in tooth replacement and restoration or to prevent tooth loss.

Headquartered in Basel, Switzerland, the Group currently employs more than 8000 people worldwide and its products, solutions and services are available in more than 100 countries through a broad network of distribution subsidiaries and partners.

Straumann Holding AG, Peter Merian-Weg 12, 4002 Basel, Switzerland Phone: +41 (0)61 965 11 11

Homepage: www.straumann-group.com

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ANALYSTS' AND MEDIA CONFERENCE CALL

Straumann will present its 2021 first-half results to representatives of the financial community and media in a webcast telephone conference call today at 10.30 a.m. Swiss time.

The webcast can be accessed via www.straumann-group.com/webcast. A replay of the webcast will be available after the conference.

If you intend to ask a question during the Q&A, we kindly ask you to pre-register for the conference call through this link 'Conference call' . We also recommend that you download the presentation file in advance using the direct link in this media release before joining the conference call.

Presentation

The conference presentation slides are attached to this release and available on the Media and Investors pages at www.straumann-group.com.

UPCOMING CORPORATE / INVESTOR EVENTS

Disclaimer

This release contains certain forward-looking statements that reflect the current views of management. Such statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Straumann Group to differ materially from those expressed or implied in this release. The Group is providing the information in this release as of this date and does not undertake any obligation to update any statements contained in it as a result of new information, future events or otherwise.