Media & news

Profitability much improved, growth trajectory maintained

  • Operating profit (EBIT) margin in Q2 rose to 17.0% at constant exchange rates (CER), increasing the EBIT margin for H1 to 15.8% (CER) from 12.9% in H1 2013 (excl. non-recurring realignment costs).
  • Net profit was up 34% to EUR 28.5 million in H1, up 25% at CER and excl. realignment costs, reflecting a profit margin of 10.1%.
  • Revenue for Q2 increased 2.2% (CER) lifting H1 revenue to EUR 283.1 million (up 2.5% at CER and down 2.2% in EUR versus prior year).
  • Fifth consecutive quarter with revenue growth (CER), performance in Implant Systems and in many major markets such as the US, France, Italy and Russia improved in Q2, all regions achieved revenue growth (CER) in H1.
  • Adverse currency impact affected revenue (-4.7pp), gross margin (-0.2pp) and EBIT margin (-0.8pp) in H1.
  • NobelProcera: Comprehensive realignment initiative involving production, products and processes. As one part of this initiative, the facility in Quebec, Canada, will be closed. This will deliver cost savings of EUR 4.4 million per year, starting in 2015, with non-recurring restructuring costs of EUR 6.6 million to be booked in Q3 2014.
  • Underlying operating profit (EBIT) margin outlook raised for the full year 2014 and the 3-5 year term.

Table 1: Selected key figures in EUR million

 

Q2 2014

Q2 2013

1

Variance 2013-2014

 

Q2 2014 YTD

Q2 2013 YTD

1

Variance 2013-2014

Revenue

144.3

147.8

 

-2.4%

 

283.1

289.4

 

-2.2%

Variance at constant exchange rates (CER)

2.2%

2.3%

   

2.5%

0.2%

  

Gross profit

110.4

112.3

 

-1.7%

 

214.7

220.8

 

-2.7%

Gross margin

76.5%

76.0%

   

75.8%

76.3%

  

Operating expenses

-87.0

-100.2

   

-172.3

-189.8

  

Operating profit (EBIT)

23.4

12.1

 

92.8%

 

42.4

31.0

 

36.4%

Variance at constant exchange rates (CER)

111.1%

-32.4%

   

51.1%

-16.0%

  

Operating profit (EBIT) margin

16.2%

8.2%

   

15.0%

10.7%

  

At constant exchange rates (CER)

17.0%

8.2%

   

15.8%

10.7%

  

Net financial result

-2.9

-1.5

   

-5.3

-2.2

  

Profit before tax

20.5

10.6

   

37.1

28.8

 

28.8%

Tax

-4.6

-2.6

   

-8.6

-7.5

  

Net profit

15.9

8.0

   

28.5

21.3

 

33.5%

Profit margin

11.0%

5.4%

   

10.1%

7.4%

  

Basic earnings per share, EUR

0.13

0.06

   

0.23

0.17

 

33.6%

Net cash from operating activities

6.3

14.4

   

21.5

28.4

  

1 Figures for  2013 include EUR 6.2 million non-recurring costs for headquarter realignment.

Richard Laube, CEO: “We are very pleased with our operating profit progress highlighted by a second quarter EBIT margin of 17% at constant exchange rates, up more than 4 percentage points from the comparable base of last year. This again underpins our turnaround strategy after delivering five consecutive quarters of revenue growth. With sustainable and predictable revenue growth of both our premium and value brands, we can increasingly deliver organizational efficiency and significant operating profit progress. Our strategy of turning Nobel Biocare around through leading innovation, value-added customer support, training and education, and increasing operational efficiency is unquestionably working and we believe more progress is yet to come.”

Business performance update

Table 2: Revenue by region

in EUR millions

 

Q2 2014

 

Q2 2013

 

Variance

 

Variance (CER)

 

Q2 2014 YTD

 

Q2 2013YTD

 

Variance

 

Variance (CER)

Europe, Middle East and Africa (EMEA)

 

61.0

 

62.3

 

-2.1%

 

-0.3%

 

121.9

 

122.9

 

-0.8%

 

0.8%

Share of total revenue

 

42%

 

42%

     

43%

 

42%

    

Americas

 

58.2

 

59.5

 

-2.2%

 

3.9%

 

111.7

 

114.5

 

-2.4%

 

3.2%

Share of total revenue

 

40%

 

40%

     

40%

 

40%

    

Asia/Pacific

 

25.0

 

26.0

 

-3.6%

 

4.2%

 

49.5

 

52.0

 

-4.8%

 

4.9%

Share of total revenue

 

17%

 

18%

     

17%

 

18%

    

Total

 

144.3

 

147.8

 

-2.4%

 

2.2%

 

283.1

 

289.4

 

-2.2%

 

2.5%

Revenue of EUR 144.3 million in the second quarter was up 2.2% at CER (-2.4% in euro due to adverse currency impacts). This marks the fifth consecutive quarter with revenue growth at CER, confirming the turnaround of the company. Performance of Implant Systems and in many major markets improved in the second quarter. This lifted revenue for the first six months to EUR 283.1 million, up 2.5% at CER (down 2.2% in euro).

In Europe, Middle East and Africa (EMEA), revenue for the first half was up by 0.8% (CER) at EUR 121.9 million (Q2: -0.3% CER). Growth was achieved in the first half year in, among others, Sweden, Belgium, Spain, UK and Russia. Performance improved in major markets such as France and Italy in Q2. Russia and Germany showed improving trends in the second quarter as well, which was underpinned by sold-out Nobel Biocare Symposia in both countries.

In the Americas, revenue for the first six months rose by 3.2% (CER) to EUR 111.7 million (Q2: +3.9% CER). In the US, revenue growth accelerated in the second quarter after a slow in Q1, resulting in a mid-single-digit increase for the first half. Mexico and Brazil are up at double-digit rates in the first six months compared with the same period a year ago, while Canada declined.

In the Asia/Pacific region, revenue for the first half was up 4.9% (CER) to EUR 49.5 million (Q2: 4.2% CER). Japan recorded growth in the lower mid single-digit range for the first six months. Revenue in the region, excluding Japan, was up 11.6% in the second quarter (H1 2014: 6.2%) driven by accelerating growth in China and India and improving performance in Australia.

Alpha-Bio Tec(ABT) achieved solid growth of mid-single-digit percentage for the first half year. There were significant shifts in the order pattern from Russia/Ukraine from one quarter to the other given the ongoing situation in these for ABT very important markets.

Implant Systems (85% of Group revenue) revenue growth accelerated to 3.3% (CER) in the second quarter, lifting growth to 3.1% (CER) in the first six months. The innovations to implant systems such as the advanced conical connections that enable superior treatment solutions (NobelActive, NobelReplace CC and NobelReplace PMC) and the recently introduced regenerative solutions continued to drive this performance. Revenue from Individualized solutions (15% of Group revenue) was down 3.7% (CER) in the second quarter and down 0.9% (CER) in the first half year. Quarterly growth was uneven due to scanner and equipment revenue. Growth in high-precision implant-based components was stable but could not offset the decline in tooth-based restorative components.

Financial performance update

In order to facilitate a comparable performance assessment, in the figures below the prior year is shown excluding EUR 6.2 million non-recurring headquarter realignment costs unless stated otherwise.

Gross profit for the reporting period was EUR 214.7 million (H1 2013: EUR 221.8 million), reflecting a gross margin of 75.8% compared with 76.6% in the previous year. While the average selling price (ASP) for dental implants was higher than a year ago, the gross margin declined due to the negative impact from currency and a sales mix shift towards products with lower margins such as scanners.

In the first six months operating expenses declined to EUR 172.3 million compared with EUR 184.6 million in the previous year thanks to the cost savings and efficiency improvement initiatives. This reduction of 3.3% versus last year at CER was achieved despite continued investments in innovation, customer value-add activities and training and education. Research and development (R&D) expenses were EUR 31.4 million, up 3.9% at CER versus last year  and represent 11.1% of revenue. Selling and marketing (S&M) and general and administrative (G&A) were reduced by 2.7% and 10.4% respectively. Total operating expenses were further lowered to 60.9% of revenue. Excluding currency impact this ratio is 60.2% compared to 63.8% a year ago.

Profit from operations (EBIT) for the first half was EUR 42.4 million compared to EUR 37.2 million a year ago, reflecting an EBIT margin of 15.0%. The EBIT margin at CER was 15.8% versus 12.9% a year ago.

Currencies – The currency translation impact in the first half of 2014 continued to be heavily negative: -4.7pp on revenue, -0.2pp on the gross margin, and -0.8pp on the EBIT margin. Major negative impacts came from the weak US, Canadian and Australian dollars, Japanese yen and Russian ruble.

The net financial result in the first six months was EUR -5.3 million (H1 2013: EUR -2.2 million as reported). The lower result was driven by a less favorable net foreign exchange result in response to adverse currency effects on EBIT compared to the prior year and some currencies that were not hedged due to the high economic cost of hedging. Interest expense remained broadly unchanged compared with last year.

Tax expenses for the first half year were EUR 8.6 million reflecting an improved estimated tax rate of 23.2% versus 25.4% reported for the full year 2013.

Net profit for the first six months was EUR 28.5 million compared to EUR 21.3 million as reported a year ago (EUR 25.9 million excluding the non-recurring realignment costs). The net profit margin went up to 10.1% compared with 7.4% as reported in H1 2013 (9.0% excluding non-recurring realignment costs). Reported earnings per share (EPS) were EUR 0.23 (H1 2013: EUR 0.17 as reported).

Net cash from operating activities for the first half year was EUR 21.5 million compared with EUR 28.4 million last year. The lower cash flow was mainly due to higher bonus and tax payments compared to the prior year. At the end of June 2014, the cash position was EUR 172.7 million compared to EUR 180.8 million at the end of 2013. As in the year before, the company paid a dividend in total of EUR 20.2 million in April. Net cash stood at EUR 53.9 million compared to EUR 66.5 million at the end of 2013.

Strategy progress update

Nobel Biocare introduced a turnaround strategy entitled, “Designing for Life”, in 2012 with the main focus of addressing loss of market share and revenue declines. This strategy centered on customers and patients to fulfill one clear value proposition: to help customers treat more patients better with Nobel Biocare’s superior products and solutions. The company provides customers with the tools, components and solutions they need to perform superior implant-based treatments to the highest standards for patient satisfaction. At the same time, Nobel Biocare has been working on improving organizational efficiency and effectiveness to increase its profitability by constantly reviewing and adapting its processes. The strategy is based on four pillars:

Designing for Life – Innovation beyond products - The pipeline aims to provide superior products and solutions that will enable workflow efficiencies, provide better, faster and longer-lasting functionality, further improved esthetic outcomes and increase treatment efficiency. The development and roll-out of the new products is on track. Recently introduced innovations such as implants with conical connection, biomaterials, the new NobelProcera 2G Scanner as well as NobelProcera open access to third-party scanners provide rapid growth. The next scheduled full-market launch later in the year is the innovative combination of the NobelProcera Angulated Screw Channel (ASC) abutment and Nobel Biocare’s unique new Omnigrip tooling. This new product combination, available exclusively from Nobel Biocare, helps to solve two typical challenges clinicians often face: buccal screw access holes that limit restorative options in the anterior and difficult access in the posterior region from lack of vertical space.

Partnering for Life – customer development activities - The activities here provide a toolbox for increasing patient flow, treatment acceptance and patient satisfaction. The programs range from customer-tailored business-building activities including study clubs to patient awareness and education tools and laboratory resource centers. Further, the productivity of the sales forces has been strengthened with new training tools. The online store is now available in all major markets and provides already a double-digit percentage of the company revenue.

Learning for Life – customer training and education activities - The aim here is to become the partner of choice for professional customer development. This is achieved through an offer of both local and global activities - increasingly offering hands-on, peer-to-peer sessions. Last year’s sold-out Nobel Biocare Global Symposia is being followed in 2014 by local symposia in Portugal, Germany/Austria/Switzerland (DACH), Russia, USA, Mexico, Japan, Belgium, Spain and Italy. The Foundation for Oral Rehabilitation (FOR) continued its geographic expansion with chapters in China, USA, Germany/Austria/Switzerland (DACH) and Japan.

Operating efficiency and effectiveness With sustainable revenue growth re-established, increased efforts are going into margin and quality improvement programs such as NobelQuality3, the realignment of the headquarter functions, order-to-cash and the optimization of indirect purchases. These are delivering increasing sustainable benefits and improvements. Today, the company is announcing the next major initiative. Over the next two years the NobelProcera product portfolio will be further streamlined, increasing the integration of the workflow and the number of sources feeding the production facilities. The manufacturing operations and locations will be synchronized with the portfolio and the demand. This initiative also includes the closing of the facility in Quebec, Canada, which will deliver cost savings of EUR 4.4 million per year, starting in 2015, with non-recurring restructuring costs of EUR 6.6 million to be booked in Q3 2014.

Outlook

Nobel Biocare expects the global dental implant market to grow at a low single-digit rate in 2014. While it is quite stable in most countries and regions, there is volatility from time to time in certain areas such as economic challenges and political developments.

Based on this market assumption and the first half year 2014 results, Nobel Biocare expects revenue to grow around 3% to 4% (CER) and to improve the EBIT margin excluding any non-recurring realignment costs by about 150-200 bps (CER) from 12.1% in 2013 (previous outlook was 100 bps CER).

Assuming modest low to mid single-digit growth for the market over the next 3-5 years, and given the progress of the company, the EBIT margin improvement outlook is raised to 100-150 bps at CER per year (from 50-100 bps as communicated earlier).

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.