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Performance on track having anticipated a difficult dental implant market
- Revenue for the first quarter of EUR 141.5 million was down 2.0% at constant exchange rates (CER) and down 4.1% in EUR versus prior year
- Dental implant markets remain difficult, in particular in many European markets and in Japan; regional trading patterns unchanged with growth in US and Asia/Pacific ex Japan
- Adverse currency impact on revenue growth (-2.1pp), gross margin (-0.5pp) and EBIT margin (-1.0pp)
- Operating profit (EBIT) of EUR 18.9 million reflecting a margin of 13.4%, benefiting from an improved gross margin to 76.6%
- Continued investments in R&D were offset by increasing cost savings and efficiency gains in other areas, primarily in administration
- Net profit of EUR 13.3 million was broadly in line with the year before (2012: EUR 13.5 million)
Richard Laube, CEO: "We have anticipated a difficult market environment for the start of the year. Within this our performance was on track and we continue to transform Nobel Biocare into a more competitive company. Revenue was in line with our expectations, tracing to our disciplined execution of our growth drivers. We increasingly hold or gain market share in our core business. In Japan, where the market has been impacted by last year's adverse media coverage on dental implant treatments, we have seen modest improvement of our daily revenue run rates. Our efficiency programs are accelerating demonstrated by further cost savings and headcount reduction, in particular in administration. This helps to fund our innovation programs to drive mid- and long-term growth. All in all, Q1 performance was in line with our expectations and gives us confidence we will deliver our full year outlook."
In the first quarter 2013, revenue at constant exchange rates (CER) declined by 2.0% to EUR 141.5 million. Due to an adverse currency impact the decline in euro was 4.1%. Revenue was again significantly affected by the continued difficult market conditions in Japan. The revenue contribution from this market contracted to about 10% of the group revenue in the first quarter (from 12% for the full year 2012). Excluding Japan, revenue for Q1 would have been flat (+0.5%).
Performance in implant systems (85% of Group revenue) continued to improve and revenue development was flat (+0.4% CER) compared with last year in the first quarter. Excluding Japan, implant systems grew 2.6% (CER) in the same period. With continued double-digit percentage growth, the NobelActive® implant family again was the primary driver for this improvement. Overall, the demand for implant systems with the advanced conical connection remains strong, while there is continued decline in the systems with the more traditional connections. The individualized business (15% of group revenue) declined 13.5% in the first quarter 2013, and was dilutive to the performance in all regions. In this area, tooth-based restorations continued to decline by more than 20%, while demand for scanners slowed after the announcement of the upcoming launch of the second generation scanner.
In Europe, Middle East and Africa (EMEA), revenue (CER) for the first quarter was flat (+0.0%) at EUR 60.5 million. In an increasing number of countries, performance is expected to be at least in line with peers. Markets in this region remained weak in the first quarter. Thanks to progress in Russia, initiatives in other Eastern European markets and the contribution of Alpha-Bio Tec the revenue for the entire region was flat compared with the previous year.
In the Americas, revenue (CER) for the first quarter was flat (+0.2%) at EUR 55.0 million. The business in the US continued to grow at a low single-digit percentage, with higher growth in implant systems and continued declines in individualized. While the company continued to grow in Mexico, Canada remained sluggish, and after a strong 2012, Brazil had a slow start to the new year.
In the Asia/Pacific region, revenue (CER) for Q1 was down 9.7% to EUR 26.0 million. The dental implant market in Japan remained heavily affected by last year's adverse media coverage on these treatments in general. As the coverage started to impact the market in the second quarter of last year, the double-digit percent decline in Japan was against a first quarter last year that was slightly positive. It is encouraging that compared with the preceding quarter (Q4 2012), daily revenue run rates have been modestly improving. The contribution of Japan to the region has dropped to slightly more than half from about two-thirds a year ago. Excluding Japan the regional revenue was up 4.4% (CER) in the first quarter, driven by continued double-digit growth in India and China.
Clinicians with simpler product and solutions needs are served by Alpha-Bio Tec (ABT), which continued to grow at a double-digit percentage rate in the first quarter. In countries where both brands are sold the company is pleased with the ability to make progress with a complimentary dual brand strategy.
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 108.4 million (Q1 2012: EUR 111.0 million), reflecting an improved gross margin of 76.6% compared with the previous year (Q1 2012: 75.2%). The negative impact from the decline in Japan and currency impact (-0.5pp) was more than offset by the effect from the business mix shift towards implant systems and lower production costs.
Operating expenses in the first quarter developed in line with expectations and were broadly unchanged at EUR 89.5 million compared with the previous year (Q1 2012: EUR 90.4 million). Nobel Biocare continued the various investments into the strategic growth drivers in innovation, customer value and T&E. These investments were fully funded by the accelerated initiatives to improve organizational efficiency, which resulted in further cost savings and a reduction in headcount in the first quarter of the year. The related non-recurring cost was EUR 0.9 million.
Profit from operations (EBIT) for the reporting period was EUR 18.9 million (Q1 2012: EUR 20.6 million), reflecting an EBIT margin of 13.4% (Q1 2012: 14.0%). The EBIT margin at CER would have been 14.4%.
Currencies - In the first quarter 2013, the currency translation impact became negative and was -2.1pp on revenue, -0.5pp on the gross margin, and -1.0pp on the EBIT margin.
The net financial result in the first quarter was EUR -0.7 million (Q1 2012: EUR -2.1 million). While the interest expense remained broadly unchanged, this improved result was driven by a more favorable hedging result in response to adverse currency effects on EBIT.
Taxes -Tax expenses for the first quarter were EUR 4.9 million versus EUR 5.0 million in Q1 2012. This reflects an estimated tax rate of 26.9%.
Net profit for the year was EUR 13.3 million, broadly unchanged from the EUR 13.5 million achieved a year ago. Earnings per share (EPS) were EUR 0.11, the same as a year ago. The respective net profit margin was 9.4% compared with 9.1% in Q1 2012.
Net cash from operating activities for first quarter was EUR 14.0 million, slightly lower than the 16.6 million in Q1 2012, mainly due to the increase of safety levels in inventories. At the end of March 2012, the cash position further improved to EUR 157.6 million from EUR 146.6 million at the end of 2012. Net cash further improved to EUR 45.9 million from EUR 36.5 million at the end of 2012.
Shareholders at the annual general meeting (AGM) on 28 March 2013 approved all proposals of the Board of Directors, including a dividend of CHF 0.20 per registered share, a total of EUR 20.2 million, which was paid out of free reserves on 8 April 2013.
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 quarter, progress was achieved in all strategic pillars:
Innovative products and solutions - "Designing for Life": A new implant version expanding the NobelReplace® portfolio, a significant upgrade of NobelClinicianTM, the new NobelProcera® 2G Scanner, new individualized prosthetic options for competitive implant platforms and a new partnership with 3ShapeTM offering the first open access to all NobelProcera® abutments via a third-party scanner have all been announced for launch in 2013.
Customer value add - "Partnering for Life": Significant interest in the Nobel Biocare offering and events was seen with strong booth and corporate forum attendances at all major dental professional meetings in the first quarter such as Chicago Dental Society (CDS), Academy for Osseointegration (AO) and in particular the International Dental Show (IDS). Sales representative turnover remains low and continuity in the sales force is increasing.
Training and education - "Learning for Life": New training and education course program for dental professionals introduced, Nobel Biocare Global Symposium in New York sold out shortly after the first announcement; endowment of FOR, the new Foundation for Oral Rehabilitation (FOR) as a scholar-led, international initiative to promote oral healthcare and humanitarian leadership.
Operating efficiency and effectiveness: Continued shift of resources towards growth drivers; cost savings including headcount reductions and efficiency gains in all other areas, in particular administration, demonstrated by contained operating expenses and an improved gross margin.
Based on the broadly unchanged, difficult market conditions in the first quarter 2013 Nobel Biocare continues to believe that market conditions for 2013 will be similar to 2012.
In this environment, the Company targets to modestly build market share and deliver modest revenue growth. 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).
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 improving the EBIT margin also continually between 50 to 100 bps per annum at constant exchange rates.
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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