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Innovation investments visibly accelerating revenue growth with underlying net profit also improving in first half year

  • Revenue for the second quarter was up 2.3% at constant exchange rates (CER) driving revenue for the first half to EUR 289.4 million (0.2% at CER and down 2.4% in EUR versus prior year)
  • Continued adverse currency impact on revenue (-2.6pp), gross margin (-0.4pp) and EBIT margin (-1.2pp) for the first six months
  • Realignment of headquarter functions to improve efficiency initiated in June – non-recurring cost of EUR 6.2 million recognized in Q2 2013
  • Continued significant investments in innovation deliver several relevant product launches and improved digital treatment workflow
  • First half-year EBIT margin excluding realignment costs and currency impact on prior year level (14.0% versus 14.2%) – in line with the full-year outlook
  • Net profit was EUR 21.3 million for the first six months, underlying net profit excluding realignment cost and currency impact was EUR 29.6 million versus EUR 27.2 million in the prior year

Table 1: Selected key figures in EUR million

  Q2 20131 Q2 20122 Variance2012-2013 Q2 20131YTD 

Q2 20122

YTDrestated

 Variance2012-2013
Revenue 147.8 149.0 -0.8% 289.4 296.5 -2.4%
Variance at constant exchange rates (CER) 2.3% -2.2%   0.2% -1.2%  
Gross profit 112.3 113.4 -0.9% 220.8 224.4 -1.6%
Gross margin 76.0% 76.1%   76.3% 75.7%  
Operating expenses -100.2 -92.0   -189.8 -182.4  
Operating profit (EBIT) 12.1 21.4 -43.3% 31.0 42.0 -26.1%
EBIT margin 8.2% 14.4%   10.7% 14.2%  
Net financial result -1.5 -3.3   -2.2 -5.4  
Profit before tax 10.6 18.1   28.8 36.6 -21.4%
Tax -2.6 -4.4   -7.5 -9.4  
Net profit 8.0 13.7   21.3 27.2 -21.6%
Profit margin 5.4% 9.2%   7.4% 9.2%  
Basic earnings per share, EUR 0.06 0.11   0.17 0.22 -21.5%
Net cash from operating activities 14.4 18.0   28.4 34.6  

1 Including EUR 6.2 million non-recurring costs for headquarter realignment

2 Figures for 2012 have been restated due to changes in the presentation of the income statement and the adoption of IAS 19R. For more information, refer to note 3 of the condensed consolidated financial statements 2013.

Richard Laube, CEO: “We see clear signs that our investments in innovation are accelerating revenue growth. Our implant systems grew mid-single digits in Q2 driven by NobelActive, NobelActive 3.0 and the new NobelReplace line. We also observe our customer partnering and education activities increasingly contribute to growth. At the same time our ongoing efficiency programs in the areas of operations and administration are providing the funds to continue investments to extend our innovation leadership and our customer partnering and education activities. We are on the right track and foresee sustainable growth even in a difficult market.”

Business performance update

Table 2: Revenue by region

in EUR million  Q2 2013  Q2 2012 Variance Variance(CER) Q2 2013YTD Q2 2012YTD Variance Variance(CER)
Europe, Middle East and Africa (EMEA) 62.3 60.6 2.8% 3.0% 122.9 121.2 1.3% 1.5%
Share of total revenue 42% 41%     42% 41%    
Americas 59.5 57.9 2.8% 4.4% 114.5 113.3 1.0% 2.4%
Share of total revenue 40% 39%     40% 38%    
Asia/Pacific 26.0 30.5 -14.6% -3.1% 52.0 62.0 -16.1% -6.5%
Share of total revenue 18% 20%     18% 21%    
Total 147.8 149.0 -0.8% 2.3% 289.4 296.5 -2.4% 0.2%

Revenue of EUR 147.8 million in the second quarter was up 2.3% at CER (-0.8% in euro due to an adverse currency impact). This represents the first quarter with growth in two years and is expected to be ahead of peers. All regions achieved improved revenue development in the second quarter. This performance drove the revenue for the first six months of 2013 to EUR 289.4 million, flat at CER (+0.2%) and down 2.4% in euro. The difficult market conditions in Japan have stabilized but still significantly affected the comparison with prior year. Revenue contribution from this market fell to 9% from 13% a year ago. Excluding Japan, revenue for the second quarter was up 3.6% and for the first six months up 2.0%, both at CER.

The improving revenue performance in the second quarter was also reflected in both implant systems and individualized solutions. Revenue in implant systems (85% of Group revenue) grew 3.2% CER in the quarter and 1.8% CER for the first half year. As in previous quarters, NobelActive remains the key driver for this development with continued high-teens percentage growth. The largest implant brand, NobelReplace, was supported by the recent launches of new variations with a conical connection (CC), platform shift (PS) and partially machined collar (PMC), while other lines with traditional connections continued to decline. The individualized business (15% of Group revenue) improved to -1.9% CER in the second quarter (-7.7% CER for the first half year) as the revenue with implant-based restorations such as individualized abutments and overdenture bars picked up significantly, particularly in North America. Overall revenue was held back due to the continued decline by more than 20% of tooth-based restorative components and scanner equipment.

In Europe, Middle East and Africa (EMEA), revenue for the first half year rose to EUR 122.9 million, up 1.5% CER (Q2: +3.0% CER), despite continued weak market conditions in most countries. Nobel Biocare achieved an improved performance and returned to growth after nearly six years of continued decline in this region. Most major markets achieved improved revenue development in the second quarter compared to the first one. Growth was driven by Russia, other Eastern European markets and Alpha-Bio Tec, while the contribution from larger countries such as France, Italy and Germany remained weak. It is worthwhile to mention that Spain returned to growth in the second quarter after many years of decline.

In the Americas, revenue for the first six months grew 2.4% CER to EUR 114.5 million (Q2: +4.4% CER). The overall performance in the US improved in the second quarter to mid-single digit percentage growth thanks to continued solid demand for implant systems and overdenture bars. Canada stabilized to prior-year levels. Performance in Brazil remained weak following a strong last year, while Mexico grew at double-digit rates for the quarter.

In the Asia/Pacific region, revenue for the first half year was down 6.5% CER to EUR 52.0 million(Q2: -3.1% CER). The decline over the prior year in Japan was lower thanks to stable revenue run-rates and the reduced impact of the negative media coverage that started a year ago. In the first six months of the year, Japan contributed about half to the regional revenue compared with 60% a year ago. Excluding Japan, regional revenue was up 3.2% CER in the first half year (Q2: 2.1%), driven by continued double-digit growth in India and China offsetting declines in Australia and Southeast Asia.

Clinicians with simpler product and solutions needs are served by Alpha-Bio Tec (ABT), which continued to grow in the high teen percentage range for the first six months. The company is pleased with the ability to make progress with a complementary dual brand strategy in countries where both brands are sold.

Financial performance update

The 2012 financials have been restated due to the adoption of IAS19R. Additionally, following a review of the income statement, the company decided to change its accounting policy with respect to the presentation of the income statement resulting in reclassification of some expenses. For more information, refer to note 3 of the condensed consolidated financial statements 2013.

Gross profit for the reporting period was EUR 220.8 million (H1 2012: EUR 224.4 million), reflecting an improved gross margin of 76.3% compared with the previous year (75.7%). The dilutive impact from the decline in Japan, currency effects (-0.4pp) and non-recurring costs for the realignment of headquarter functions (-0.3pp) was offset by the improving business mix with a shift toward implant systems and efficiencies in production.

Operating expenses in the first six months were fully on track and in line with expectations (EUR 189.8 million versus EUR 182.4 million a year ago). The increase is primarily due to non-recurring costs related to the organizational realignment of headquarter functions (EUR 5.1 million). Cost savings from the various programs to improve the organization’s efficiency were used to fund the increasing investments in innovation, customer value add activities and training and education.

Profit from operations (EBIT), excluding non-recurring costs of EUR 6.2 million and an adverse currency impact was EUR 41.5 million for the first six months (H1 2012: EUR 42.0 million), reflecting an EBIT margin of 14.0% (H1 2012: 14.2%). EBIT as reported was EUR 31.0 million with a margin at 10.7%.

Currencies – During the first six months of 2013, the currency translation impact became increasingly negative and was -2.6pp on revenue, -0.4pp on the gross margin, and -1.2pp on the EBIT margin.

The net financial result in the first half year was EUR -2.2 million (H1 2012: EUR -5.4 million). This improvement resulted primarily from a favorable foreign currency hedging result.

Taxes – Tax expenses for the reporting period were EUR 7.5 million versus EUR 9.4 million a year ago. The estimated tax rate was 25.9%.

Net profit for the first six months was EUR 21.3 million, with the decline due to the non-recurring costs previously mentioned and adverse currency impact. Excluding these effects, net profit stood at EUR 29.6 million compared with EUR 27.2 million a year ago. Earnings per share (EPS) were EUR 0.17 compared with EUR 0.22 a year ago.

Net cash from operating activities for the first six months was EUR 28.4 million, compared with EUR 34.6 million in the same period a year ago, and resulted from increases in receivables and safety levels of inventories. A dividend totaling EUR 20.2 million was paid on April 8, 2013. At the end of June 2013, the cash position was EUR 150.8 million, compared with EUR 146.6 million at the end of 2012. Net cash was EUR 34.2 million from EUR 36.5 million at the end of 2012.

Strategy progress update

Nobel Biocare’s strategy “Designing for Life” is to help customers treat more patients better for improved quality of life with superior products and solutions designed to last the life of the patient. In the first half year important steps were executed in all strategic pillars:

Innovative products and solutions – “Designing for Life”: The increased focus and investments into innovation has delivered several new solutions. The Q1 announcements included a new implant version expanding the Nobel­Replace portfolio, a significant upgrade of the NobelClinician Software, the new NobelProcera 2G Scanner, new individualized prosthetic options for competitive implant platforms and a new partnership with 3Shape™ offering the first open access to all NobelProcera Abutments via a third-party scanner. These announcements were followed in Q2 by a new NobelProcera Angulated Screw Channel (ASC) Abutment, which improves anterior esthetics and enables easier access to in the posterior region providing restorative flexibility. Nobel Biocare also re-entered the field of regenerative solutions with the launch of a new membrane, creos™ xeno.protect, to selected European markets. Furthermore, the symposium in New York was the optimal platform for the premiere of a seamless and efficient workflow digitally connected via NobelConnect.

Customer value add – “Partnering for Life”: Nobel Biocare’s product and solution portfolio, including tools that help customers attract more patients, has drawn high interest at all relevant major dental shows.

Training and education – “Learning for Life”: The newly introduced training and education course program for dental professionals was followed by the rapidly sold-out Nobel Biocare Global Symposium in New York. Over 100 world-renowned speakers and the endowment of a new Foundation for Oral Rehabilitation (FOR) were among the many highlights for the over 2,000 participants, making it a memorable milestone event.

Operating efficiency and effectiveness: Nobel Biocare continued its efficiency and effectiveness program from which benefits are largely being reinvested to build market share through the above-stated growth drivers. Since the beginning of this rebuilding, over 300 positions have been successfully re-aligned globally. In the second quarter the company announced the realignment of its headquarter functions in Gothenburg. This process which will last until about the end of 2014, reduce the complexity of the organization, streamline processes and improve communication within the Group. While it will result in some redundant headcount during the early phases of this transition, it will lead to further reduction in the Group over this period.

Outlook

Based on the first half-year results and the near-term expectation for the implant-based tooth restoration market, the company targets modestly building market share and delivering modest revenue growth in 2013. Based on this and the initiated measures, and barring any unforeseen events, Nobel Biocare expects to deliver an EBIT margin improvement of 50 to100 bps at constant exchange rates (CER) excluding EUR 6.2 million non-recurring costs related to the realignment of its headquarter functions as announced in June 2013.

Within the next 3 to 5 years, assuming markets improve beyond 2013 to modest mid single-digit growth, Nobel Biocare targets growing at least in line with the market and also improving the EBIT margin continually between 50 to 100 bps per annum at CER.

Nobel Biocare is a world leader in the field of innovative implant-based dental restorations. The company’s portfolio offers solutions from single tooth to fully edentulous indications with dental implant systems (including key brands NobelActive®, Brånemark System® and NobelReplace®), a comprehensive range of high-precision individualized prosthetics and CAD/CAM systems (NobelProcera®), diagnostics, treatment planning and guided surgery solutions (NobelClinician® and DTX Studio™) and biomaterials (creos). Nobel Biocare supports its customers through all phases of professional development, offering world-class training and education along with practice support and patient information materials. The company is headquartered in Zurich, Switzerland. Production takes place at six sites located in the United States, Sweden, Japan and Israel. Products and services are available in over 80 countries through subsidiaries and distributors.