Turnaround continues with 3% revenue growth at constant exchange rates and EBIT margin improvement
- Revenue for the first quarter of EUR 138.8 million was up 2.8% at constant exchange rates (CER) and down 1.9% in EUR versus prior year
- Q1 2014 marks the fourth consecutive quarter of revenue growth (CER); growth was achieved in both implant systems and individualized as well as in all regions despite the bad weather conditions in parts of North America and the situation in parts of Eastern Europe
- Continued adverse currency impact on revenue growth (-4.7pp), gross margin (-0.3pp) and EBIT margin (-0.9pp)
- Operating profit (EBIT) of EUR 19.0 million (2013: 18.9 million); increasing impact of efficiency and cost saving measures lifts EBIT margin to 13.7% (2013: 13.4%) or 14.6% excluding currency impacts
- Net profit of EUR 12.5 million (2013: EUR 13.3 million); decline due to less favorable net foreign exchange result, partially compensated by lower tax rate
Richard Laube, CEO: "We remain well on track with our business turnaround, delivering our fourth consecutive quarter of revenue growth at constant exchange rates, in what is still a difficult market environment. Our efficiency programs are also beginning to show results as we continue to reshape Nobel Biocare into a more competitive and profitable company. The EBIT margin at CER has improved significantly versus prior year as we become more efficient in many administrative areas of the business and at the same time invest in future growth opportunities such as research and development as well as sales force capabilities."
In the first quarter 2014, revenue at constant exchange rates (CER) increased by 2.8% to EUR 138.8 million. Revenue was negatively affected by weather conditions in parts North America as well as the situation in Ukraine and Russia (one of the top contributors to the EMEA region). Japan (about 9% of Group revenue), continued to recover with a second quarter of growth and achieved double-digit revenue growth in Q1. Primarily, the weakening US, Canadian and Australian dollars, the Japanese yen and Russian ruble resulted in an adverse currency impact driving the Group revenue in euro down by 1.9%.
In Europe, Middle East and Africa (EMEA), revenue (CER) for the first quarter was up by 1.9% at EUR 60.9 million. Strong growth in Spain, Belgium, the UK and Sweden was offset by decline in main markets of the region such as France, Italy and Germany. The business in Russia was negatively affected by the situation in that region.
In the Americas, revenue (CER) for the first quarter rose by 2.5% to EUR 53.5 million. In the US both, Implant systems and Individualized grew over prior year, despite customers being affected by the bad weather conditions in the Midwest and Northeast through early March. Mexico and Brazil grew compared with the same quarter a year ago while Canada declined.
In the Asia/Pacific region, revenue (CER) for Q1 was up 5.7% to EUR 24.4 million. The recovery observed in Japan in the last quarter of 2013 was confirmed and resulted in 10.3% (CER) revenue growth in the first quarter 2014. While Australia was down compared to a year ago, China and India continued to grow.
Alpha-Bio Tec (ABT) continued to grow at a double-digit percentage rate in the first quarter.
Implant Systems (85% of Group revenue) grew 2.9% (CER) compared to the first quarter last year. The innovations to implant systems with the advanced conical connections (NobelActive, NobelReplace CC and NobelReplace PMC) were the drivers of this performance. Revenue from Individualized solutions (15% of Group revenue) increased by 2.3% (CER) in the first quarter 2014 as the continued growth of high precision implant-based components and the roll-out of the NobelProcera 2G Scanner was partially offset by the decline in tooth-based restorative components.
Financial performance update
Gross profit for the reporting period was EUR 104.3 million (Q1 2013: EUR 108.4 million), reflecting an gross margin of 75.1% compared with 76.6% in the previous year. The gross margin decline is primarily due to the negative impact from currency, a devaluation of inventories as a result of lower manufacturing cost as well as sales mix shift within individualized towards products with lower margins. Overall average selling price (ASP) for implants was in fact slightly higher than a year ago.
Through efficiency gains operating expenses in the first quarter declined to EUR 85.3 million compared with the previous year (Q1 2013: EUR 89.5 million). Nobel Biocare continued to invest into the development of new products and solutions, increasing research and development (R&D) costs to EUR 15.2 million, up 7.6% at CER from the year before. The various cost savings and efficiency measures show an increasing impact in selling and marketing (S&M) and general and administration (G&A) costs. S&M costs were kept broadly at last year's level at CER (-0.2%) highlighting increased productivity with revenue growth. G&A expenses were lowered by 10% at CER compared to the previous year. The total operating expenses were lowered to 61.5% of revenue. Excluding currency impact this ratio is 60.7% compared to 63.5% a year ago.
Profit from operations (EBIT) for the reporting period was EUR 19.0 million (Q1 2013: EUR 18.9 million), reflecting an EBIT margin of 13.7% (versus 13.4% in Q1 2013). The EBIT margin at CER was 14.6%.
Currencies - The currency translation impact in the first quarter 2014 continued to be heavily negative:
-4.7pp on revenue, -0.3pp on the gross margin, and -0.9pp on the EBIT margin. Major negative impact came from the weakening US, Canadian and Australian dollars, the Japanese yen and Russian ruble while the UK pound strengthened against the euro.
The net financial result in the first quarter was EUR -2.4 million (Q1 2013: EUR -0.7 million). While the interest expense remained broadly unchanged, this 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. Some currencies were not hedged due to high economic cost of hedging.
Taxes - Tax expenses for the first quarter were EUR 4.1 million versus EUR 4.9 million in Q1 2013. This reflects an estimated tax rate of 24.5%.
Net profit for the reporting period was EUR 12.5 million compared to EUR 13.3 million achieved a year ago. The decline is fully attributable to the adverse currency impact and a lower net financial result compared to prior year. The respective net profit margin was 9.0% compared with 9.4% in Q1 2013. Earnings per share (EPS) were EUR 0.10, (Q1 2013: EUR 0.11).
Net cash from operating activities for the first quarter was EUR 15.2 million, slightly up from last year's EUR 14.0 million. At the end of March 2014, the cash position further improved to EUR 193.2 million from EUR 180.8 million at the end of 2013. Net cash further improved to EUR 76.6 million from EUR 66.5 million at the end of 2013.
Shareholders at the annual general meeting (AGM) on March 26, 2014 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 April 2, 2014.
Strategy progress update
Nobel Biocare's strategy "Designing for Life" is centered on customers and patients and aims 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.
The roll-out of new products and solutions of the recently established pipeline is on track:
Implant systems with the advanced conical connection such as NobelActive, NobelReplace CC and NobelReplace PMC continued to grow at double-digit rates and contribute over 30% of total implant systems revenue.
The portfolio was successfully expanded with biomaterials. The creos™ allograft bone regenerative is now available in the United States. The previously launched creos xenograft portfolio is primarily available in Europe in addition to South Africa and Hong Kong.
On the individualized business, strong demand for the new NobelProcera 2G Scanner resulted in back orders. Revenue of overdenture bars and titanium abutments available through the open access to 3Shape® scanner grew rapidly. Soon zirconia copings will be added to the open access offering.
Nobel Biocare's new integrated treatment workflow more efficiently connects clinicians with dental labs for predictable treatment in less time. In the new workflow NobelClinician users, on either Windows® or Mac®, have the option of linking with dental labs over the NobelConnect network to receive precise intraoral model surface and tooth setup information scanned with the NobelProcera 2G Scanner.
The innovative combination of the NobelProcera Angulated Screw Channel (ASC) abutment and Nobel Biocare's unique new Omnigrip tooling 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. This currently beta-tested innovation is scheduled to be fully launched in Q4 2014.
Nobel Biocare expects continued slow recovery of the global economy and growth in the global dental implant market at a low single-digit rate in 2014.
Based on this market assumption and the ongoing cost saving initiatives, for the full year 2014 Nobel Biocare expects revenue to grow around 3% to 4% (CER) and to improve the EBIT margin excluding realignment costs by about 100bps (CER) from 12.1% in 2013.
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.
NOBEL BIOCARE MANAGEMENT AG
Nobel Biocare (NOBN, SIX Swiss Exchange) 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 NobelGuide®) 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, currently employs approximately 2,500 employees worldwide and recorded revenue of EUR 566.8 million in 2013. Production takes place at seven sites located in Canada, Israel, Japan, Sweden, and the United States. Products and services are available in over 80 countries through subsidiaries and distributors.