Half year 2010:
- Reported revenue down 2.9% to EUR 291.6 million (CER -6.3%)
- North America, APAC leading momentum improvement in Q2
- Net profit up 26% at EUR 58.3 million; net margin of 20.0%
- Gross profit margin at 78.8%: NobelProcera ramp-up costs
- Operating profit (EBIT) at EUR 56.7 million; EBIT margin of 19.4%
- NobelProcera initial product launch completed; consumables on new scanners up
- NobelActive growth momentum maintained; acceptance increasing
- Increased growth investments: Series of symposia, marketing and T&E activities
Table 1: Selected key figures in EUR million
| Q2 2010 as reported | H1 2010 as reported | H1 2009 as reported | H1 2009 excl. restruct. | Growth 2009-2010 |
|---|
| Revenue | 155.0 | 291.6 | 300.4 | 300.4 | -6.3%* |
| Gross profit | 121.5 | 229.7 | 240.9 | 241.6 | -8.0%* |
| Gross margin | 78.4% | 78.8% | 80.2% | 80.4% | |
| Profit from operations | 30.2 | 56.7 | 64.7 | 74.2 | -10.9%* |
Operating (EBIT) margin | 19.5% | 19.4% | 21.5% | 24.7% | |
Net financial result | -4.1 | 21.2 | -6.3 | -6.3 | |
| Profit before tax | 26.1 | 77.9 | 58.4 | 67.9 | +33.4% |
| Tax | -6.5 | -19.6 | -12.2 | -15.0 | |
| Net profit | 19.6 | 58.3 | 46.2 | 52.9 | +26.2% |
| Profit margin | 12.6% | 20.0% | 15.4% | 17.6% | |
| Basic earnings per share, EUR | 0.16 | 0.47 | 0.38 | 0.43 | +24.5% |
| Net cash from operating activities | 19.6 | 34.0 | 71.9 | 71.9 | |
| Employees at the end of the period (number) | | 2,397 | 2,360 | | |
* At constant exchange rates (CER)
Domenico Scala, CEO: “After a slow first quarter, sales momentum has improved gradually in the second quarter led by North America and APAC. However, mainly as a result of our geographic mix in Europe and a higher exposure to larger case treatments, we continue to underperform in the market. Despite the persistently challenging market environment and a slow start to the year, we were able to deliver successes for our business. Our new implant system, NobelActive, continued to show double-digit growth, as have our new NobelProcera consumables. We are on track to build up capacity for our broadened prosthetics range and are seeing an increasing demand. We received excellent customer response to the new conference format offered at our Global Symposium in New York, which marks the start of a series of symposia in the second half of 2010. We are confident that our strategy of broadening Nobel Biocare’s product and solution portfolio, as well as the measures that have already been taken, will allow us to return to growth.”
Focus on sustainable long-term business performance
For the first half of 2010, revenue at constant exchange rates (CER) declined by 6.3%. Reported revenue decreased by 2.9% to EUR 291.6 million. In the second quarter, reported revenue increased by 1.0%, while at CER it declined by 5.6%. Profit from operations (EBIT) in H1 was EUR 56.7 million (2009: EUR 64.7 million). The lower EBIT and EBIT margin (19.4%) compared with the first half of 2009 (21.5%, or 24.7% excluding restructuring charges) were a result of the decline in reported revenue, ongoing investments for the rollout of NobelProcera, increased selling and marketing activities and adverse currency developments. Net profit as reported was EUR 58.3 million (2009: EUR 46.2 million), an increase that was mainly attributable to non-recurring foreign currency gains.
In the first half of 2010, Nobel Biocare made further progress in the implementation of its strategy to broaden its range of products and solutions:
NobelProcera™ is a key priority in 2010. In the first half, market introduction of the initial product additions was completed. Among those new products are titanium crowns, bridges, 5-axis milled titanium abutments for Nobel Biocare and third-party platforms, zirconia abutments for third-party platforms, as well as cobalt chromium crowns and bridges. In the second quarter, the initial product from the recently inaugurated preferred partner program – the Telio CAD Temporary Crown and Bridge – was introduced to the market. This launch is being reinforced through joint educational and commercial activities. All NobelProcera manufacturing facilities are continuously upgraded with the latest technology.
The growing acceptance of the NobelActive™ implant system is evidenced by the steadily increasing number of users and double-digit growth in revenues. Its innovative features set new standards in terms of primary stability as well as early bone and soft tissue preservation. This performance is documented in a growing number of scientific and clinical publications and presentations. Interest in NobelActive courses for experienced clinicians remains high in all markets. The excellent performance of this innovative implant was further underpinned by two retrospective studies presented at the IADR 2010 with up to 1001 implants (Babbush C, Kutsko G, Brokloff J (2010). The All-on-Four Immediate function treatment concept with the NobelActive implants. J Dent Res 89 (Spec Issue B): 4219; Kutsko G, Babbush C, Brokloff J (2010). A single center retrospective analysis of 1001 consecutive NobelActive implants J Dent Res 89 (Spec Issue B): 4705.
The introduction of the company’s edentulous solutions was successfully completed in the first half of 2010. Nobel Biocare is now – together with its preferred partners – offering the most comprehensive portfolio of fixed and removable overdenture solutions for premium (fixed solutions with the NobelProcera implant bridge), value (a fixed solution with the All-on-4 treatment concept or a removable solution with multiple implants and overdenture bars) and economy segments (a fixed solution with an overdenture implant and a removable solution with two implant and overdenture bars).
The abutment product range was broadened through the expansion of the popular Snappy abutment portfolio, which now includes taller abutment options (4.0 and 5.5mm). Thanks to its profile and design, the Snappy abutment is an easy-to-use prosthetic solution that is highly suitable for posterior restorations, especially in partially edentulous jaws, and for single-crown restorations with an implant. As a result, Nobel Biocare now offers abutments for every indication and esthetic need: from temporary, to healing, to standardized and to individualized CAD/CAM abutments in various materials.
Scientific excellence and innovation continues to be the foundation of the company’s research and development (R&D) effort. In the first half of 2010, Nobel Biocare has consequently invested into new developments. Aside from new implants and prosthetics Nobel Biocare is investing in next generation digital dentistry solutions and improved treatment concepts. The pipeline of upcoming innovations includes a new generation NobelReplace implant, an expansion of the NobelActive implant family, and overdenture implant supporting cost-effective overdenture solutions. The next generation NobelGuide will feature improved diagnostics, treatment planning tools and will be further facilitated with a new cross-functional platform. For NobelProcera the second wave of new products and materials will be starting with the expansion of the individualized abutments for third party platforms and IPS e.max® crowns.
In addition to the introduction and rollout of innovative products and solutions, Nobel Biocare continued with its initiatives and investments in scientific leadership and clinical evidence, training and education, partnerships, customer services and marketing. In the first half of 2010, Nobel Biocare further intensified its commitment to scientific leadership. Among others a 3-year data report on the use of a dedicated implant for overdenture solutions was completed (follow-up of up to 3 years, 2 clinics, 132 overdenture implants, 48 patients) and showed a cumulative survival rate of 99.2%. Only one of the 132 implants failed at prosthetic delivery. No other failures occurred [internal data on file].
Acknowledging the importance of training and education, Nobel Biocare initiated already in 2005 its Global University Partnership Program. Trainees in the first classes, which covered implant dentistry, CAD/CAM prosthetics and 3D diagnostics, graduated this year. Moreover, in June 2010, the Dental Faculty (Universitätsklinik für Mund-, Zahn- und Kieferkrankheiten) at Ruprecht-Karls-University in Heidelberg, Germany, joined the Nobel Biocare Global University Partner Program, which now comprises 25 leading dental schools worldwide. In addition, the program was enhanced through the introduction of a global student contest.
Kick-off to Nobel Biocare Symposia 2010 – In the second quarter, the company started its Nobel Biocare Symposia 2010, a series of global and local scientific conferences. More than 1,500 participants from around the world attended the first global symposium in New York City. The scientific program covered a broad spectrum of topics including diagnostics, treatment planning and modern surgery, and featured presentations by 74 world-class speakers. Topics were addressed primarily on the basis of patient case studies via on-stage panel discussions, presentations, master classes and hands-on sessions. The final day was devoted to a post-symposium with 250 registered participants. It focused exclusively on how to treat edentulous patients using zygoma as one of many treatment options. The next symposium is scheduled for the 20th to the 22nd August in Tokyo, Japan, and will be followed by series of events in Europe.
In the second quarter, Nobel Biocare and the Seattle Study Club (SSC) commenced activities under the recently signed long-term partnership. The Seattle Study Club is recognized as the leading federation of its kind for advanced, locally based therapeutic coordination and continuing dental education. The SSC consists of over 240 local study clubs and more than 6,700 clinical members in the US, Canada, Australia, Germany, Taiwan and the UK. In conjunction with this partnership, Nobel Biocare has launched a new online study club tool called StudyClubConnect.com to all Seattle Study Clubs in North America. StudyClubConnect.com simplifies study club communication and facilitates event management, case presentations, continuing education, patient referrals and case discussions.
North America, APAC leading momentum improvement in Q2
In Europe, Middle East and Africa (EMEA), first half revenue (CER) declined by 7.6% to EUR 129.5 million (Q2: -8.1%). Overall performance in this region continued to be negatively affected by an unfavorable country mix. In the second quarter, Spain reported deteriorating performance after a first quarter that was positively impacted by the biennial Expodental exhibition. Due to the persistently challenging economic environment, a further decline in patient flow is being observed. In Germany, performance continued to be negative but has now stabilized. Owing to the measures that have been taken, a gradual improvement can be expected. The market in Sweden remained under pressure during the second quarter due to the more restrictive reimbursement approach that has been in force since the beginning of the year. France, Italy and Belgium continued to perform favorably.
In North America, revenue (CER) for the first six months decreased by 5.1% to EUR 97.1 million (Q2: -3.6%). The organizational changes, initiated in the first quarter to strengthen the company’s go-to-market approach, have been completed. This can be seen from the improved sales momentum in the second quarter. NobelActive’s growth continued to underpin the accelerated momentum in this region. However, patients’ access to financing remains difficult in the US and thus defers a pick-up especially of larger-case treatments, which play a significant role in the company’s North American business.
In the Asia/Pacific region, revenue (CER) for the first half was down 1.3% to EUR 60.1 million (Q2: -0.3%). In Japan, Nobel Biocare continues to gain market share in an otherwise declining market. Owing to the availability of the NobelProcera offering in Japan, as well as the anticipated NobelActive launch in the second half of the year, we expect to return to growth in this important market. While growth was recorded in Australia, performance remained sluggish in some distributor markets in Southeast Asia. Strong growth persisted in China and the momentum in India picked up considerably in the second quarter, albeit on a small absolute base.
In Latin America/Rest of the world, revenue (CER) for first half declined by 37.9% to EUR 4.9 million. The overall negative performance is attributable to the transfer of responsibility for certain countries to distributors late last year. The development in Nobel Biocare’s defined core countries (Brazil, Mexico) showed an improving performance versus 2009.
Outlook – 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 exerting an adverse effect on customers’ ordering patterns, a tendency that clearly also impacted our sales in the first half. We believe it is possible that the dental implant market may return to growth in 2010. Nobel Biocare continues to focus on strategy execution and making the necessary investments that will allow the company to return to at least market growth within the next 9-12 months, inasmuch as we can increasingly build on a strengthened organization and a broadened product portfolio.
Table 2: Revenue by region in EUR million
| As reported Q2 2010 | As reported H1 2010 | As reported H1 2009 | CER Growth 2009-2010 |
|---|
| | | | |
| | | | |
| Europe, Middle East and Africa (EMEA) | 66.6 | 129.5 | 136.9 | -7.6% |
| Proportion of total revenue | 43% | 44% | 46% | |
| North America | 52.6 | 97.1 | 99.6 | -5.1% |
| Proportion of total revenue | 34% | 33% | 33% | |
| Asia/Pacific | 33.2 | 60.1 | 57.0 | -1.3% |
| Proportion of total revenue | 21% | 21% | 19% | |
| Latin America/Rest of the world | 2.6 | 4.9 | 6.9 | -37.9% |
| Proportion of total revenue | 2% | 2% | 2% | |
| Total | 155.0 | 291.6 | 300.4 | -6.3% |
2009 figures are restated to reflect changes in the management structure
Financials: Gross margin lower due to NobelProcera ramp-up; EBIT margin affected by higher marketing and R&D costs, net profit up
Gross profit for the first half was EUR 229.7 million (2008: EUR 240.9 million), reflecting a gross margin of 78.8% (2009: 80.2%). While pricing discipline was stringent and the margin for standardized products increased due to heightened production efficiency, the overall margin decline is mainly a result of high ramp-up costs and an increasing share of NobelProcera.
Operating expenses amounted to EUR 173.0 million (2009: EUR 176.2 million) and were primarily impacted by higher costs for training and education, event-driven higher selling and marketing expenditures and adverse currency developments. Research and development expenses were EUR 4.3 million higher than in the previous year, which reflects the company’s continued commitment to future product development, both in the standardized and NobelProcera areas. For the second half of 2010, the company again expects higher marketing costs as a consequence of several customer events as well as further development costs for NobelProcera.
Reported profit from operations (EBIT) for the first half was EUR 56.7 million (2009: EUR 64.7 million), reflecting an operating margin of 19.4% (2009: 21.5%). This lower margin is mainly the result of lower gross profit, higher R&D expenses (1.6% of revenues) and negative currency impacts (1.1% of revenues), while operating leverage was mostly offset through continued cost discipline throughout the entire Group.
Currencies – Mainly due to the weakness of the euro, currencies had a more significant impact in Q2 2010 than in the previous year. Reported revenue benefited from a positive currency impact of 3.4%. This effect was fully maintained at the gross profit level. However, at the EBIT margin level, the impact was negative and caused about 100bps of margin deterioration. Related hedging gains, which offset most of that impact, are either accounted for in the financial result or temporarily retained in the equity position as translation gains. Thus, economically, most of the currency effects have been neutralized despite the increasingly volatile currency markets.
Net financial result for the first half was EUR 21.2 million (2009: EUR -6.3 million). The first half year result was positively affected by non-recurring foreign currency gains, which resulted from changes to internal financing structures as well as hedging gains.
Taxes: Tax expenses were EUR 19.6 million versus EUR 12.2 million (Q2 2010: EUR 6.5 million; unchanged versus the prior year). This reflects an annualized tax rate of 25.2%. Following a restructuring of the Group’s internal profit streams, an exceptional tax charge of about EUR 30 million is expected for the second half of 2010. This will allow the Group to bring down its normalized tax rate from current level of approximately 25% to about 20% target from 2011.
Net profit for the first half was EUR 58.3 million, up 26% from last year. The net profit margin improved to 20.0% (2009: 15.4%), mainly due to the exceptional currency gains. For the full year, those non-recurring foreign currency gains and the anticipated one-off tax charge are expected to mostly net out and thus have an almost neutral impact on bottom-line EPS.
Cash flow from operating activities for the reporting period was EUR 34.0 million (2009: EUR 71.9 million). Higher tax payments during the period, the non-recurrence of the working capital reduction achieved in 2009, as well as changes in provisions and accrued expenses account for the difference. Cash & cash equivalents at the end of June 2010 stood at EUR 215.4 million (June 2009: EUR 148.5 million). Net financial debt amounted to EUR 48.3 million versus EUR 71.5 million in June 2009.
