Reported revenue down 7.0% to EUR 136.7 million (CER -7.1%)
Net profit up 114% at EUR 38.7 million; net margin of 28.3%
Cautious ordering pattern continues
Gross profit margin at 79.2%: NobelProcera ramp-up costs
Operating profit (EBIT) at EUR 26.5 million; EBIT margin of 19.4%
Net financial result significantly higher at EUR 25.3 million due to non-recurring foreign currency gains
Solid cash flow further enhances cash position
NobelProcera: continued rollout on track, consumables up on new scanners, manufacturing upgrade
NobelActive: continued growth in Q1 and increasing acceptance by leading clinicians
Table 1: Selected key figures in EUR million
| Q1 2010 as reported | Q1 2009 as reported | Q1 2009 excl. restruct. | CER growth 2009-2010 |
|---|
| Revenue | 136.7 | 147.0 | 147.0 | -7.1%* |
| Gross profit | 108.2 | 118.3 | 118.4 | -8.6%* |
| Gross margin | 79.2% | 80.5% | 80.5% | |
| Profit from operations | 26.5 | 31.1 | 32.3 | -10.6%* |
Operating (EBIT) margin | 19.4% | 21.2% | 22.0% | |
Net financial result | 25.3 | -7.4 | -7.4 | |
| Profit before tax | 51.8 | 23.7 | 24.9 | +118.3% |
| Tax | -13.1 | -5.7 | -6.0 | |
| Net profit | 38.7 | 18.0 | 18.9 | +114.3% |
| Profit margin | 28.3% | 12.2% | 12.9% | |
| Basic earnings per share, EUR | 0.31 | 0.15 | | +106.7% |
| Net cash from operating activities | 14.4 | 37.1 | | |
| Employees at the end of the period (number) | 2,348 | 2,404 | | | |
* At constant exchange rates (CER)
Domenico Scala, CEO: “In the initial months of 2010, we continued to expand our prosthetic offering, to strengthen our organization and to enhance the company's reputation. However, the dental implant market continued to be challenging in most regions. Our first quarter result was disappointing. We remain focused on the rollout of our renewed prosthetics offering and maintaining high business quality through pricing and cost discipline, while investing in the upgrade of our prosthetics-manufacturing infrastructure. Our strategy of broadening Nobel Biocare’s product and solution portfolio to meet changing customer needs and the demand for more treatment options, while simultaneously maintaining a high level of business quality, will ensure a sustainable mid and long-term business well beyond these short-term challenges.”
Focus on sustainable long-term business performance
In the first quarter 2010, revenue at constant exchange rates declined by 7.1%. Reported revenue decreased by 7.0% to EUR 136.7 million. The decline in revenue continues to be the result of the prevailing market uncertainties, which have led to a very cautious ordering pattern in particular with larger order sizes. Profit from operations (EBIT) stood at EUR 26.5 million (2009: EUR 31.1 million). Lower reported revenue, combined with ongoing investments such as those for the rollout of NobelProcera as well as for increased selling and marketing activities, led to a lower EBIT and EBIT margin (19.4%) compared with the first quarter 2009 (21.2% and 22.0% excluding restructuring charges). Driven by non-recurring foreign currency gains, net profit as reported was EUR 38.7 million versus EUR 18.0 million last year.
In the first quarter 2010, Nobel Biocare continued to focus on expanding its prosthetic portfolio and on strengthening the organization:
The rollout of NobelProcera™ is the key priority in 2010. In the first quarter, our comprehensive product range was further expanded through the addition of titanium crowns, bridges and 5-axis milled titanium abutments for Nobel Biocare platforms as well as for those of third parties. The state-of-the art 5-axis milling process produces improved surface finish and an emergence angle of up to 90 degrees for better soft tissue support and esthetic outcome. Moreover, the manufacturing facilities were upgraded with new equipment that significantly enhances the product quality.
In the first quarter, the company also initiated its Preferred Partner Program with the leading dental material providers Ivoclar Vivadent, VITA Zahnfabrik and Noritake. These partnerships enable access to a wider range of state-of-the-art, high-performance dental materials. As a result, Nobel Biocare’s product range will include improved veneering solutions, IPS e.max ceramics, high-performance acrylics, a choice of different tooth libraries as well as an expanded array of training and educational programs. The partnerships also cover joint commercial activities and research collaborations.
The innovative NobelActive™ implant system continues to grow substantially and gain worldwide acceptance: its main features allow clinicians to broaden treatments to include more clinical indications. Preliminary two-year results from ongoing studies (18 centers, 119 patients, 177 implants) demonstrate very favorable trends during the second year; for example, no soft tissue recession, stable papilla, as well as stable bone level with more than 60% of the recorded NobelActive implants actually showing bone gain one to two years after the procedure [Submitted to International Association for Dental Research Annual Meeting, Barcelona, 2010].
Strengthening scientific leadership – Nobel Biocare remains committed to delivering the most scientifically proven and clinically documented products and solutions. In addition to the aforementioned NobelActive study, Nobel Biocare presented the latest clinical data documenting the efficacy of All-on-4™ and TiUnite®; excellent long-term results were achieved in demanding clinical situations. A recently published 5-year study now demonstrates that TiUnite performs very successfully also over the long term. Furthermore, a literature-based review of prevailing study protocols and a radiographic baseline setting of 10,560 peer-reviewed clinical articles (published 1995-2009) demonstrated that Nobel Biocare adheres to very demanding study protocols. The review showed that Nobel Biocare’s study groups applied the highest percentage of one-stage protocols (84%), the highest proportion (45%) of the immediate-loading approach, and that most frequently (79%) began measuring marginal bone remodeling already at the time of implant insertion.
Continued strong interest at industry conferences; and driving T&E – Nobel Biocare’s expanded product portfolio continued to attract keen interest at recent international and regional conferences such as the CDS (Chicago Dental Society, midwinter conference), the AO (Academy of Osseointegration) and Expodental in Spain. In addition, Nobel Biocare kept up its internal and external T&E activities. In conjunction with the AO, participants from the twenty-three universities involved in the Global University Partner Program met to discuss the latest developments in how students can be taught integrated treatment concepts, such as digital case planning and diagnosis, implant therapy and CAD/CAM dentistry for optimal patient care. Nobel Biocare has also signed a long-term partnership with Seattle Study Club (SSC) to collaborate in the area of T&E and at events and conferences. SSC is recognized as the leading federation of its kind for advanced, locally based therapeutic coordination and continuing dental education. SSC consists of over 240 local study clubs in the United States, Canada, Australia, Germany, Taiwan and the UK encompassing more than 6,500 clinical members. In the second quarter of 2010, Nobel Biocare will introduce the Nobel Biocare Symposia, a series of global and local scientific conferences at which modern treatment modalities and concepts will be discussed. The first conference is scheduled for 24-26 June in New York City, with an expected attendance of 1,500 clinicians from all parts of the world.
New dental professional website – As evidence of its focus on customers, Nobel Biocare introduced a completely new website for dental professionals that serves as a key online source of information and specialized know-how. The site will include the successful “shop online” tool, provide information on T&E and local events, as well as consolidate and align all online dental professional activities.
Regional performance negatively affected also by certain adverse developments in some markets
In Europe, Middle East and Africa (EMEA), revenue (CER) for the first quarter declined by 7.1% to EUR 63.0 million. France and Italy continued to show growth, while the development in Spain stabilized, also impacted by the bi-annual Expodental conference. Some other markets were affected by certain adverse developments: In Sweden, a restrictive reimbursement approach for implant based treatments led to a significant shortfall of treatments and revenue compared with the prior year. In Germany, the performance continues to be below market.
In North America, revenue (CER) for the first quarter decreased by 6.7% to EUR 44.5 million. However, the quarterly performance confirms that the market is stabilizing, albeit at low levels. The company’s forums held at the CDS as well as the AO were very well attended and received. The North American organization is currently undergoing several changes following last fall’s management succession to strengthen our go-to-market. NobelProcera and NobelActive remain the two key performance drivers.
In the Asia/Pacific region, revenue (CER) for the first quarter was down 2.5% to EUR 26.9 million. In Japan, growth was flat despite the continuing decline in the market. The decline in the region is mainly attributable to Taiwan and to distributor sales in Southeast Asia. Nobel Biocare further strengthened its leading position in Australia and demonstrated strong growth in China, albeit at low absolute levels. A new regional headquarter has been established in Hong Kong providing more focus to this important region and to ensure business quality and sustainable growth.
In Latin America/Rest of the world, revenue (CER) for first quarter declined by 44.1% to EUR 2.3 million. This expected decrease was mainly attributable to the transfer of responsibility for certain countries to distributors late last year. Nobel Biocare’s defined core countries in Latin America (Brazil, Mexico) showed a smaller decrease versus 2009.
Table 2: Revenue by region in EUR million
| | As reported Q1 2010 | Q1 2009 | CER
Growth 2009-2010 |
|---|
| | | | |
| | | | |
| Europe, Middle East and Africa (EMEA) | | 63.0 | 66.6 | -7.1% |
| Proportion of total revenue | | 46% | 45% | |
| North America | | 44.5 | 49.2 | -6.7% |
| Proportion of total revenue | | 32% | 34% | |
| Asia/Pacific | | 26.9 | 27.5 | -2.5% |
| Proportion of total revenue | | 20% | 19% | |
| Latin America/Rest of the world | | 2.3 | 3.7 | -44.1% |
| Proportion of total revenue | | 2% | 2% | |
| Total | | 136.7 | 147.0 | -7.1% |
2009 figures are restated to reflect changes in the management structure
Outlook – Due to the elective nature of certain of the company’s products and services, revenue can be affected by the economic developments in various countries. Most markets stabilized toward the end of 2009, with certain markets returning to growth at the beginning of 2010. However, the prevailing market challenges are still having an adverse affect on customers’ ordering patterns, a tendency that clearly also impacted our sales in the first quarter. We believe it is possible that the dental implant market may return to growth in 2010. The limited visibility thus makes a more reliable projection still difficult. Nobel Biocare continues to focus on strategy execution and making the investments necessary to achieve that goal. We believe the company is well prepared to benefit from a future market recovery.
Financials: Investments in product portfolio and organization; net profit up
Gross profit for the first quarter stood at EUR 108.2 million (2008: EUR 118.3 million), reflecting a gross margin of 79.2% (2009: 80.5%). The lower margin is – as expected – the result of a less favorable product mix with a higher share of individualized business (NobelProcera) and related ramp-up costs.
Operating expenses amounted to EUR 81.7 million (2009: EUR 87.2 million) and continued to be managed prudently in the first quarter 2010. Selling expenses decreased by EUR 6.3 million versus 2009, and administrative expenses by EUR 1.8 million. Restructuring expenses totaled EUR 0.7 million (0.5% of revenues) but have not been reported separately for the reporting period. The company continued to invest in its future business development: about EUR 4 million additional spending for the rollout of NobelProcera and product development were recorded in the first quarter 2010 (versus 2009). For the second half of 2010, the company expects increased marketing costs due to the two global scientific symposia in New York City and Tokyo as well as various regional symposia throughout Europe.
Reported profit from operations (EBIT) for the first quarter was EUR 26.5 million (2009: EUR 31.1 million). This reflects an operating margin of 19.4% (2009: 21.2%). While operating leverage was fully offset through tight cost management, this decrease is mainly attributable to the aforementioned lower gross margin (1.3% of revenues) and higher R&D expenses (2.2% of revenues).
Currencies – Currency effects were almost flat at the top line and gross margin level. At the operating margin level, the FX impact was about -1%, mainly due to a stronger Swiss franc and Swedish Krona against the euro, exposure that was only partially hedged and for which the related hedging gains are reported in the financial result (see “Net financial result”).
Net financial result for the reporting period was EUR 25.3 million (2009 EUR -7.4 million). The first quarter result was positively affected by non-recurring foreign currency gains, which resulted from changes to internal financing structures. In this context, Nobel Biocare foresees potential one-off taxes of about EUR 28 million for 2010. The net effect of the positive finance gains and the additional taxes are expected to have an almost neutral impact on EPS in 2010. These changes will allow Nobel Biocare to materially lower its tax rate from a normalized tax rate of about 25% in 2010 to a targeted rate of approx. 20% as from 2011.
Net profit for the first quarter was EUR 38.7 million, up 114% from last year. The net profit margin improved to 28.3% (2009: 12.2%), mainly due to the aforementioned currency gains.
Cash flow from operating activities for the first quarter was EUR 14.4 million (2009: EUR 37.1 million). The difference is mainly attributable to higher tax payments, the non-recurrence of working capital reduction achieved last year, as well as to changes in provisions and accrued expenses. Total cash flow increased from EUR –27.4 million in 2009 to EUR 10.5 million due to the non-recurrence of M&A-related cash outflows as well as higher financing cash flow. The company reported EUR 257.0 million cash & cash equivalents at the end of the first quarter (2009: EUR 134.1 million).
Shareholders at the annual general meeting (AGM) held on 25 March 2010 in Zurich, Switzerland, approved all proposals put to a vote by the Board of Directors. Among other agenda items, the AGM approved a dividend of CHF 0.55 (gross) per registered share, i.e. a total of EUR 46.3 million, which was paid on 1 April 2010.
The AGM also elected four new board members: Daniela Bosshardt-Hengartner, Dr. Raymund Breu, Heino von Prondzynski and Dr. Oern Stuge. Heino von Prondzynski was elected Chairman of the Board at the first Board meeting following the AGM.
