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Half year 2009: Strong profitability; new products, technologies with continued success
- Growth in line with market despite deferred scanner revenues and unfavorable country mix
- Reported revenue growth minus 7.2% at EUR 300.4 million (CER minus 11.3%)
- Gross profit margin at 80.2%; benefits from cost measures, productivity gains despite lower volumes
- EBIT margin at 24.7% (excluding restructuring charges)
- Net profit (excluding restructuring charges) at EUR 52.9 million; unchanged margin from prior-year
- Operating cash flow: + 22% vs. prior year
- NobelActive(TM) : most successful product launch ever with >210,000 implants sold since launch
- NobelProcera(TM) : successful launch of new scanner, software; product, material rollout on track
Domenico Scala, CEO: "Our first half results demonstrate that Nobel Biocare has taken the right measures to strengthen its profitability and cash flow during this challenging market environment. Efficiency gains and continued cost-reduction measures aimed at protecting our margins are delivering good results. We also continue to grow our new NobelActive implant system at a rapid pace. This new generation bone-level implant system is the company's most successful product introduction ever. We have now also successfully introduced NobelProcera scanners and software. These new technologies, products and materials offer our customers the most complete solution for all clinical indications and the evolving needs of their patients: from single-tooth to fully edentulous procedures. Nobel Biocare remains a highly profitable company even in times such as these, with a focused strategy and well poised for any future market recovery."
Building a sustainable business by meeting tomorrow's dental needs
The first half 2009 results demonstrate Nobel Biocare's successful effort to protect the company's profitability despite challenging global market conditions, and this without compromising its product launches.
For the first half of 2009, revenues (CER) declined by 11.3% while reported revenues decreased by 7.2% versus the prior year to EUR 300.4 million. Revenue (CER) declined 13.1% in the second quarter (-8.8% as reported). Profit from operations (EBIT) at the half-year point stood at EUR 64.7 million. Lower reported revenues and a decline in our gross profit margin compared with 2008, mainly as a result of reduced volumes, had a negative impact on EBIT and the EBIT margin compared with the prior year. However, efficiency gains and accelerated cost reduction measures helped to sustain the gross profit margin at 80.4% and the EBIT margin at 24.7% (before restructuring costs). The reported EBIT margin stood at 21.5%, including a restructuring charge of EUR 9.5 million. As reported, net profit for the first half amounted to EUR 46.2 million. The net profit margin before restructuring was 17.6%, unchanged from the prior year's level.
In the first six months of 2009, Nobel Biocare continued to focus on enhancing its leadership in implants and building a leading position in CAD/CAM and digital dentistry with the objective to become the full solution provider to dental professionals. Today, Nobel Biocare not only provides the most comprehensive range of implants, prosthetic products and technologies; it also offers complete treatment solutions for all indications as well as tailored treatment/product packages for use by all groups of dental professionals - a partner of choice in dentistry.
The success of the innovative NobelActive(TM) implant, launched in Q2 2008, continued also during the first half of 2009. The interest in and demand for NobelActive was indeed strong; it continues to attract both existing and new customers. NobelActive expands the company's bone-level implant portfolio by being the first product on the market to address standard and also more compromised bone situations. During the first half of 2009, NobelActive was enhanced to include new lengths and a complete range of innovative prosthetic components. NobelActive has been voted the "Best Product 2009" by the clinicians subscribing to Dental Product Shopper (DPS), a US dental professional magazine. Thus far, more than 210,000 NobelActive implants have been sold since its introduction in late 2007. The outstanding performance of NobelActive has been underpinned scientifically. Following the presentation of preliminary two-year data on NobelActive in February, the complete one-year results from this first clinical study have been published1 This on-going prospective, randomized, controlled, multicenter (12) study evaluates changes in bone level and soft tissue behavior. The complete results of the study show stable bone and soft tissue levels after the first year of implantation. Furthermore it is concluded that NobelActive is well adapted for placement in demanding situations, using immediate temporization protocols.
A key pillar in the company's strategy to provide solutions for all indications is the NobelProcera(TM) CAD/CAM prosthetic platform. NobelProcera offers the most comprehensive prosthetic solution on the market today. With NobelProcera, the company offers dental laboratories and clinicians affordable as well as highly esthetic solutions that range from single-tooth restorations to fully edentulous treatments. NobelProcera will be the most broadly based technological, product and material offensive in the company's history. The launch includes the most advanced optical scanner based on Nobel Biocare's exclusive conoscopic holography technology, which offers the highest precision, speed, accuracy, ease of use and impression-scanning capabilities. In addition, it includes a new generation of design software, new materials such as cobalt-chrome and innovative products including over-denture bars.
1 Kielbassa; The Journal of Prosthetic Dentistry 2009; 101:293-305
With this new NobelProcera(TM) system, laboratories and clinicians can expect to achieve a vast improvement in their design and production efficiency, as well as precision, thanks to the full range of Nobel Biocare treatment options and significant economic advantages, such as limited up-front investment, elimination of time- consuming production processes and maintenance/running costs. Order flow continues to be very positive for the new scanner/software. The rollout of NobelProcera will continue through the introduction of new materials and products within the next twelve months. These include cobalt-chrome for crowns and bridges, acrylics for different indications, over-denture and screw-retained bar solutions, completely individualized bar solutions, as well as highly cost-effective and customized bar solutions using conventional retention elements.
Leading implant material for all implant sizes and diameters - in 2009, Nobel Biocare celebrates ten years of proven material strength and enhanced osseointegration with its proprietary, specially developed variant of titanium for implants and TiUnite surfaces. To overcome the functional material limitations of standard titanium - especially in small implant diameter use - Nobel Biocare worked closely with titanium manufacturers to create high-performance, commercially pure (CP) titanium with enhanced material properties. In ongoing, extensive material testing, proprietary Nobel Biocare cold-worked CP4 titanium continues to demonstrate substantially greater yields as well as heightened tensile and fatigue strengths compared to standard titanium. With this material, Nobel Biocare has resolved the limitations of standard titanium for smaller diameters implant use2. In fact, 2009 marks the ninth successful year for Nobel Biocare in delivering highly esthetic and less invasive dental implant solutions for patients with narrow bone ridges and limited space between teeth through the application of its proprietary cold-worked CP4 titanium for small-diameter implants. Cold-working is a special process for shaping commercially pure titanium. It results in an increase of up to 50% in the material's strength and hardness without the need to alloy the titanium with potentially toxic materials. The tensile strength of cold-worked CP Grade 4 titanium, which Nobel Biocare uses for its implants, is 860MPa, while the tensile strength of annealed Grade 4 titanium is 550MPa. Although new claims that a titanium-zirconium alloy provides superior strength to CP4 titanium are accurate, this alloy's documented tensile strength is still below that of the cold-worked variant used by Nobel Biocare.
Entering a new field in R&D - In early July, Nobel Biocare entered into an exclusive evaluation agreement with Ceragenix relating to the dental field. Under this agreement, Nobel Biocare is evaluating the antimicrobial technology for infection prevention in certain oral and cranio-maxillofacial applications. A steady flow of new products and treatment solutions emerging from the R&D pipeline is expected to further support the expansion underway in all treatment areas in the coming years.
Driving innovative training and education (T&E) - Nobel Biocare continues to maintain a high level of T&E activities and remains the recognized leader in dental T&E. The company offers a complete program - from the undergraduate (University Partner Program) to postgraduate levels, from beginners to experienced users, from hands-on training to the rapid development of e-learning. As the first and only medtech company to do so, Nobel Biocare has its own presence on iTunes and provides free training and educational material to dentists, dental specialists, students and patients via its new site on iTunes U within the iTunes Store. Nobel Biocare is also present at all major international and at many regional conferences and provides training and education for its major products. In addition, and in support of its product launches, the company has stepped up the training of internal staff and sales force.
2 The effective combination of TiUnite and Nobel Biocare's proprietary CP4 titanium has been documented in hundreds of clinical studies and case reports. A complete list of manuscripts is available upon request
Regional performance: Growth in line with market despite deferred scanner revenues and unfavorable country mix
In Europe, Middle East and Africa (EMEA), first-half revenue (CER) declined by 11.8% to EUR 137.4 million (Q2: -12.6%). In addition to the overall challenging market conditions, an unfavorable country mix also adversely affected the EMEA performance. Spain, where Nobel Biocare generates a sizeable share of its EMEA business, continued to experience negative growth. Markets with a (partial) reimbursement system (Germany, the Netherlands and Sweden) continue to be relatively more resilient. Moreover, Sweden showed good growth following last year's change to its reimbursement system. Growth in Russia continued to be very strong. Following the introduction of the new NobelProcera scanners at the IDS in late Q1, initial scanner shipments started in late Q2, as scheduled. At the Europerio conference in Stockholm, the advantages of NobelActive again attracted strong interest.
In North America, revenue (CER) for the first half year decreased by 10.0% to EUR 101.0 million (Q2:
-13.4%). Sales were negatively impacted by lower patient flow and delayed case acceptance at the dental office, but also due to the base effect of the highly successful launch of NobelActive in May 2008. A large increase in competitive NobelActive starts was realized towards the end of the quarter and resulted in the strongest month in the product's one-year history. NobelProcera continues to attract great interest and the already strong order flow witnessed following the introduction at the CDS in Chicago in March has recently accelerated.
In the Asia/Pacific region, revenue (CER) for the first half was down 7.3% (Q2: -8.0%) to EUR 56.8 million. This decline was also due to the base effect resulting from the two World Tour events held in 2008 in China and India. While still growing, Japan experienced a slowdown in the second quarter. The launch of NobelProcera in the third quarter should support growth and gains in market share. In Australia, we managed to grow despite an increasingly challenging economic environment. In our distributor markets, we continue to observe lower order volumes compared with the prior year. As a result of tighter credit management and improved pricing, the quality of our business in this region is on the rise.
In Latin America/Rest of the world, revenues (CER) for the first half declined by 46.3% to EUR 5.2 million. As mentioned earlier this year, the company has decided to significantly streamline its operations, implement tighter credit management and follow a stricter pricing policy in this region. These measures allow the company to improve its business quality and profitability rather than focusing solely on top-line growth.
At the end of June 2009, Nobel Biocare had a worldwide workforce of 2,360 employees. In Q2 2009, the workforce was reduced by a further 44 individuals following the reduction of 137 functions in Q1 and 51 FTEs in Q4 2008. These cutbacks have been driven by the company's focus on improving cost efficiency and accelerating cost-savings measures. These steps continue to streamline our workforce, mainly in production, IT/Logistics and decentralized marketing functions.
Outlook - Due to the elective nature of certain of its products and services, the company's revenues are affected by treatment postponements and lower patient flows. Based on our estimates, the dental implant market declined approximately 10-12% in the first half 2009. Visibility remains low during these challenging times and does not allow management to provide reliable quantitative guidance for the time being. However, Nobel Biocare continues to improve its business quality, implement its cost saving measures and focus on operating cash flow. It is therefore well poised to benefit from any future market recovery. The successful launch of NobelProcera and a more favorable comparison base should help the company's performance in the second half of 2009.
Financials: Profitability strengthened despite lower volumes; strong cash flow
Gross profit for the first half was EUR 240.9 million (2008: EUR 268.7 million), reflecting a gross margin of 80.2% (2008: 83.0%). The decline versus the previous year is mainly due to significantly lower production volumes and increased royalties as well adverse currency effects. Cost-reduction measures, efficiency gains and pricing discipline had a positive impact and held the gross margin during H1 2009 on H2 2008 levels.
Profit from operations (EBIT) for the first half declined to EUR 64.7 million (2008: EUR 92.7 million). This drop was largely attributable to lower revenues, and hence lower gross profit, and reflects a restructuring charge of EUR 9.5 million. The reported EBIT margin is 21.5%. Excluding the restructuring charge, EBIT amounted to EUR 74.2 million, representing an EBIT margin of 24.7% (2008: 28.6% with 2.6% higher gross margin). The EBIT margin before restructuring charges benefited from cost-reduction measures and thus lower total operating expenses. This was achieved despite high product development costs and launch and T&E activities associated with NobelProcera.
Restructuring - In the first half of 2009, the Group took EUR 9.5 million of restructuring charges. These charges are related to the various cost-reduction measures taken in various functions and also for the streamlining of regional organizations, especially in Latin America. The savings related to these charges are supporting our gross profit and EBIT margins and have largely been realized during the last three quarters.
Currencies - Mainly as a result of the stronger US dollar and Japanese yen, a positive currency impact of 4.1% can be reported on top-line level. However, in the first half-year 2009 the USD and JPY are also among the company's main production-cost currencies and therefore had a negative effect on the gross profit margin. On an EBIT level, which is the main focus of the Company's hedging program, the positive currency impact was 6% and thus higher than on top-line level. In addition, a positive currency effect from hedging activities was recorded in the net financial result.
Net financial result - The net financial result for the first half was EUR -6.3 million (2008: EUR -19.7 million); however, the net financial result turned slightly positive in Q2 2009. This also compares favorably with the prior year due to the absence of the investment losses recorded in 2008. Higher interest expenses incurred through the signing of the syndicated credit facility were offset by a positive currency hedging result.
Tax - Reported tax expense for the first half 2009 amounted to EUR 12.2 million (2008: EUR 15.8 million). The lower amount of taxes is due to both a reduction in pre-tax profit and a lower tax rate of 20.9% (2008: 21.6%), in line with the anticipated rate for the full year 2009.
Net profit for the first half was EUR 46.2 million (2008: EUR 57.2 million) or 15.4% of net sales. Excluding restructuring charges, the net profit for the first half was EUR 52.9 million, which reflects a margin of 17.6% (2008: 17.7%).
Cash flow from operating activities for the first half improved to EUR 72.0 million (2008: EUR 59.1 million) despite the lower revenues and operating profit. This improvement is mainly attributable to tighter working capital management as well as lower taxes paid in the reporting period.
Cash and cash equivalents (net of bank overdrafts) amounted to EUR 148.5 million at the end of June 2009 versus EUR 107.5 million at the end of June 2008. Cash and cash equivalents are approximately EUR 15 million lower compared with year-end 2008, however reflect approximately EUR 77 million cash outflow for the acquisition of BioCad, continued capital expenditures and the dividend payment for 2008. In addition to its strong operating cash flow generation during the period, the company's financial flexibility was further strengthened by the closing of a syndicated bank credit facility of EUR 330 million in Q1 2009 and the approval by the AGM in April 2009 of conditional and authorized capital.
This media release contains forward-looking statements based on beliefs of Nobel Biocare's management. When used in this media release, words such as "anticipate", "believe", "estimate", "expect", "intend", "plan" and "project" are intended to identify forward-looking statements. They may involve risks and uncertainties, including technological advances in the medical field, product demand and market acceptance, the effect of economic conditions, the impact of competitive products and pricing, foreign currency exchange rates and other risks. These forward-looking statements reflect the views of Nobel Biocare as of the date made with respect to future events and are subject to risks and uncertainties. All of these forward-looking statements are based on estimates and assumptions made by management of the company and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results or experience could differ materially from the forward-looking statements. Nobel Biocare disclaims any intention or obligation to update these forward-looking statements.
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