Straumann Holding AG

Thank you very much for joining us today for this conference call on Stroman's 2020 first half results. It's good to see that almost all our regular followers have registered, which we very much hope that is a confirmation that you are all safe and well. I'm sorry that we can't welcome you physically here in Basel today, but we decided to hold this conference online as a protective precaution and hope very much to see you in person as soon as the situation allows. As usual, this morning's presentation and discussion will include some forward-looking statements, so please take note of the disclaimer in our press release and on slideshow. As a summary, I will give you a brief overview and Peter Hackle, our CFO, will share the business performance and financial details with you. After that, I'll bring you up to speed on recent key events and strategic initiatives. And of course, we will look forward to answering your questions afterwards. When we held our last media conference three months ago, our industry was in lockdown. COVID-19 had cut our monthly revenue by 70%, and we were initiating measures to reduce our headcount and cost base in preparation for the economic recession that the pandemic is expected to trigger. As you can see on slide five, the message today is more positive. With the exception of Latin America, which is still in the eye of the storm, All of our regions report that more than 85% of dental practices are open. Correspondingly, between 85% and 100% of our facilities are open, and our sales teams are operating at similar levels. In short, both we and our customers are back to business. On the right of slide six, you see that we responded quickly to the crisis, ensuring safety and continuity, adapting capacity, securing supply, and maintaining service and support functions. We moved quickly to mitigate the financial impact and to secure liquidity. We adjusted the size and priorities of our organization, and we worked hard remotely to get ready for a strong bounce back. In Q2, we began to see an improvement as restrictions started to ease. Obviously, the big question is how sustainable is the improvement? Will the pandemic hit once or will new outbreaks force us to close down again in a double-hit scenario? In both cases, we have to be ready for the impact of economic recession on discretionary spending, which will determine the intensity and the sustainability of recovery. Looking at the highlights on slide 7, our first half revenue came to 605 million francs, or nearly 80% of the corresponding level last year. With dental clinics around the world closed or limited to emergency cases, ourselves plummeted in mid-March to a trough in April, dragging our Q2 revenue down 39%. Fortunately, business improved in May and even further in June as practices in most regions reopened and began to catch up with the backlog of patients who were unable to get treatment during lockdown. Obviously, the top-line contractions weighed heavily on profitability, although immediate cost reduction measures helped to soften the blow, underpinning the core EBITDA, EBIT and net profit margins are 23%, 17%, and 12% respectively. However, due to the crisis, we have had to write down the value of certain recent acquisitions. The impairment, together with amortization and restructuring charges, resulted in a reported net loss of 43 million pounds. I'm glad to say that neither the disappointment nor the constraints of lockdown have diminished our passion for creating opportunities. We more than compensated for the physical restrictions by going online. To keep close contact with customers and to attract new accounts, we ran large online campaigns and symposia, offering free education and editing practices to reopen quickly. Having secured additional liquidity, we were able to take advantage of a unique opportunity to acquire one of Europe's fastest-growing providers of clear-liner solutions, which will support our growth strategy going forward. One example of our efforts to prepare for new realities ahead is the restructuring initiatives that we announced in May and have now completed without compromising the pace of innovation or our ability to produce, market and sell winning products and solutions. Of course, none of this would be possible without the flexibility, engagement and strong support of our employees through these very difficult periods of lockdown and restructuring. I am deeply grateful to them. Because of the uncertainty fueled by COVID-19 and its impact on the economy, we are not offering guidance on our full-year revenue and profitability, and we thank you for your understanding in this respect. Looking at slide eight, as the sequential figures show, APAC was the first region to suffer and is now leading the recovery, followed gradually by most of Europe and parts of North America. Latin America is still at an earlier stage. Thanks to the good performance up to mid-March, our revenue in Q1 was just 1% down from the prior year, as growth in the Americas almost made up for flat revenues in EMEA and a sharp decline in APAC. All regions declined significantly in Q2, but APAC much less than in Q1. Europe and North America also began to improve around the middle of Q2. But overall, revenue did 36%. For more details on the performance, I will now hand over to Peter.

Thank you, Guillaume, and good morning, everyone. As usual, I would like to begin with our revenue development at the group level and then look at our core regions. on slide 10, you can see that at 2020 exchange rates, our first half revenue in 2019 would have been 51 million francs lower, mainly because the Euro, the US dollar, the Brazilian real, and the Chinese won all weakened against the Swiss franc. The M&A effect this year added 20 million to our adjusted revenue of 749 million francs, and was mainly related to the consolidation of entre-years. In the middle of the chart, you can see that all our regions reported double-digit contractions, taking group revenue down 19%. This was mainly driven by EMEA and North America, which collectively contributed almost 75% of the reduction, as you can see to the right of the main chart. As you mentioned, revenue declined 1% in Q1 and 36% in Q2, with the steepest fall in April. In June, we regained the prior year level, but this was mainly thanks to pent-up demand and should not be seen as the new normal. As you can see in slide 11, our largest region EMEA was hit hard in the second quarter. The extent and timing of the pandemic and lockdown varied from country to country. However, as Q2 drew to a close, all subsidiaries in the region were starting to recover, with the exception of Hungary, Iberia, Russia, Sweden and the UK. Our new subsidiary in Romania made a good start, while the Balkan hub, South Africa and and Turkey rebounded strongly. The region's largest country, Germany, also benefited from a strong pickup in June. In general, we believe the improvements were mainly driven by pent-up demand, and many practices have remained open through the holiday period in order to reduce backlogs. There were also positive signs from our original distributors, who began to reorder after reducing stops during two months of lockdown. In North America, organic revenue contracted more than 40%. After a good start to the year, sales declined rapidly in March as COVID-19 spread through the region. In addition to the complete business interruption, customers reduced inventories in order to maintain their liquidity. The extent of disease and restrictions also varied widely, but business began to recover in some areas in June as restrictions eased. As parts of the US and Canada began to reopen, revenues picked up less by restorative sales and non-premium implants. Digital sales were encouraging throughout, reflecting increased adoption of new technology especially intraoral scanning. Moving on to slide 12 and Asia Pacific, where we saw organic revenue improve from minus 22% in Q1 to minus 12% in Q2. First half revenue reached 117 million or 78% of the comparative period last year. Going into Q2, Business decreased throughout the region, except in Korea, Taiwan and China, where sequential monthly sales almost doubled. Most other countries in the region began to rebound in June. Premium and non-premium implant sales picked up as Neonet continued to perform well in Japan and Australia, contributing to market share gains. Our team in China launched Warrant Tech implants to strengthen our foothold in the lower value segment alongside T+. After the successful launch of Neodent in India, which offers cost-effectiveness, simplicity, broad prosthetic options and stickable workflows, the region decided to discontinue the Equinox implant brand and to close its production unit near Mumbai. And finally, in Latin America, the pandemic reduced organic revenues in the second quarter by 60%. The Brazilian market for aesthetic dentistry contracted as major cities shut down. However, thanks to our network of stores and distribution centers around the country, customers were able to purchase and obtain products for treatment on the same day, an advantage that drew new customers. Against the trend elsewhere, Argentina posted a first-half improvement on the prior year. In the biomaterials, the company specializing in 3D printing resins that joined the group in 2019 also posted significant growth and international expansion. In the meantime, Brazil has been gradually reopening region by region while other countries remained closed until late July. Turning to the next slide and our performance by business. Hardly surprisingly, all our business were negative, with the exception of digital equipment, which grew throughout the first half. This is not evident in the chart, because it is combined the cut-term restorative sales, which were negative. In addition to the trend towards digitalization, there was a base effect due to soft sales in the run-up to last year's international dental show IDS in Cologne. Before commenting on our financial statements, let me give you a brief overview of the major effects in our first half-year figures. Subsidies to compensate for reduced working hours in the second quarter totaled 12 million francs, which is recorded under other income. The restructuring costs for the reduction of our global workforce amounted to 30 million francs. Only some minor costs related to this are expected in the second half. COVID-19 triggered impairment tests of financial and non-financial assets, including career tests dental things, Equinox and others, resulting in a total charge of 150 million after tax. You can find further details of this on pages 19 to 21 of the press release. The difference in impairment at the EBDA level is related to adjustments in the inventories and account receivables related to the Equinox discontinuation. To refinance the maturing bond and to secure liquidity throughout the period of uncertainty that is unfolding, we successfully placed two straight bonds, the first in April amounting to 280 million francs and the second in June amounting to 200 million, which was paid in July. In addition to this, we secured permitted credit lines. Our cash position at the end of June was 381 million francs. The next slide presents the core financials in a nutshell. We quickly implemented measures to adapt capacity, reducing operating expenses and postponed investments, which helped to soften the top-line impact on profitability. In spite of this, First half, core gross profit dropped 173 million, squeezing the margin by 628 points to 71%. Cost reductions also helped to push an impact on earnings. Core distribution expenses, which comprised sales force salaries, commissions and logistics costs, were reduced by 19 million to 141 million francs. while core administrative expenses, which include research, development, marketing and general overhead costs, were reduced by 28 million to 203 million. The combination of these efforts helps to underpin our core operating results at 100 million. The core EBIT margin contracted 1,090 base points to 16.6%. 150 base points of the contraction were due to currency hatred. Core net profit dropped 44% to 74 million francs, with the respective margin contracting 950 base points to 12.2%. For completeness, you will find the year-on-year comparison on a reported IFRS basis on slide 16, followed by the IFRS through core reconciliation tables on slide 17. Looking at the gross profit development on slide 18, our gross margin in the first half of 2020 amounted to 69.6% on a reported basis, or 71% adjusted for currencies and non-core items. Excluding the current impact of 90 base points, the contraction of the core gross margin amounted to 530 base points. Sales of lower margin digital equipment and adjustments in inventories contributed 140 base points to the aforementioned decline in margin. As shown in slide 19, the core EBIT margin contracted 940 base points to 60.6%. Cost reductions in administration and distribution helped to soften the impact, but combined made up for 670 base points of the aforementioned margin contraption. Government grants, which are recognized under other income, could only partly offset the impact of the margin erosion. The impairment triggered by COVID-19 pushed the reported EBIT margin to minus 12.2%. As you can see in slide 20, the combination of all these factors led to a decline in core net profit of 57% to 74 million francs and a corresponding margin of 12.2%. Including all non-core items and tax income of 4 million, the reported net result for the first six months of 2020 was a negative 94 million francs. Slide 21 provides a breakdown of our first half cash flow statement. Free cash flow plunked 80% from 58 million to 12 million francs. Approximately half of the 99 million shortfall in EBITDA was offset by postponement of some capital purchases, improved net working capital and the tax benefits of the impenders. Our cash position at the end of June was 380 million francs, 93 million less than our financial liabilities, in contrast to the net cash position of 20 million at the beginning of the year. And with that, I will hand back to Georg.

Thank you very much, Peter. As I mentioned earlier, we lost no time in reaching out to customers online. both existing and prospects. We shared some of these initiatives with you in April, and some more recent examples are listed in slide 23. Importantly, these activities generate follow-up leads for our sales teams, and I'm convinced that together with our partners and the ITI, we have set a benchmark in terms of online content and education which we believe will translate into a strong rebound and market share gains. Turning now to our strategic initiatives. The key building blocks on which we are focusing are shown in slide 25, and I would like to highlight some of the main initiatives, beginning with our effort to push implant solutions and to lead the field of immediacy, which are illustrated on slide 26. Following initial launches just over a year ago, Stroman BLX continues to be our most important rollout initiative in England and is now available in more than 30 countries. As you know, one of the key advantages of BLX is high primary stability, making it very suitable for immediacy protocols. We orchestrated two symposia and a number of other virtual events devoted to immediacy, where we aim to build a leading position, not just with Bialyst, but also with fully tapered options from Neodense and Anthrogeer, supported by seamless digital workflows. InEDIUS limits increasing patient expectations by shortening time to teeth and saving costs. In addition, it reduces surgical interventions and clinic visits, which is an advantage when precautions against infection are correct. Thanks to its unique selling points, Bielix has continued to show great progress this year and will further benefit from forthcoming launches in APAC and LATAM, which were postponed by lockdown. Our new Stroman zygomatic imprint system, which has just received FDA clearance in the USA, is a great complement to BLX and our immediate e-portfolio. Not least because it is a strategic door-opener to specialists who use large volumes of implant in addition to zygomatics, usually all from the same provider. In orthodontics, ClearPREC has accelerated the development of clear liners made with our new high-performance in-field from Bay Materials. As you can see on slide 27, the new material comprises three layers and exerts constant forces even after seven days. It shortens treatment, enhances comfort, and is more resistant to stains. We are very excited about it because it will strengthen our value proposition and will launch this month ahead of schedule. We are also excited about the performance of the materials in general as its international business continues to expand. In addition, we are introducing ClearCorrect One, which is designed to make life easy for GPs and patients by offering a single price level for one-year post-treatment, including one revision and one free retainer set. I would also like to highlight that our first clear aligner production unit in Europe will go into operation this quarter. Located at our Markleber site in Germany, it is highly automated, has an initial capacity of 10,000 aligners per day, and can be replicated in other locations. The global market for clear aligners continues to offer strong growth opportunities and is driven increasingly by direct-to-consumer marketing and online service providers who offer treatment packages. Last month, we signed an agreement to acquire a majority stake in Dr. Smile, one of the fastest-growing providers of orthodontic solutions in Europe. Dr. Smile combines doctor-led treatments with direct-to-consumer marketing expertise and complements our existing CleoLiner business. Although it's still young, the company has already built up a broad network of partner practices across Germany and is expanding in Austria and Spain. The network is open to qualified dentists and offers them opportunity to grow their business by channeling patients to their practices. In addition, it offers convenient, clinician-based aligner treatment solutions to patients. Slide 29 illustrates the patient acquisition and treatment workflow. Dr. Smile attracts people who are seeking aesthetic dental treatment to its website through targeting advertising on conventional, social, and other media channels. Based on the patient's situation, expectations, and location, the company arranges treatments in collaboration with a local partner dentist. It provides the digital workflow, aligners, and materials needed for the treatment, in addition to education for the dentist. Moving ahead to slide 30, we have already mentioned that first-hand sales of digital equipment developed positively, mainly driven by our high-end Roman Brandi Trios infraloral scanners, which are becoming increasingly attractive as we work together with our partner FreeShape to offer fully integrated, seamless workflows for CAD-CAM prosthetics, computer-guided implant surgery, and ClearCorrect ClearLight. We have also made progress with our attractively-priced VirtuoVivo intramural scanner, resolving initial issues and assuring the assembly life. And finally, to slide 31, where you can see a further example of our continued investment in highly innovative businesses. The growing importance of digital technology has prompted us to invest in Chromaton, a startup software company based in the Netherlands that is working on artificial intelligence applications to support diagnosis and treatment planning. The investment includes the option to increase up to full ownership in 2023. And that brings me to slide 33 and some thoughts about the outlook. It is difficult to determine the extent to which the present improvement in our market is driven by pent-up demand or whether it will continue, bearing in mind the possibility of further waves of COVID-19. In view of the current uncertainties caused by the pandemic and its economic consequences, we are not providing guidance for full-year revenue and earnings. Our underlying business fundamentals are intact, and we are confident that when the general economy and consumer confidence returns to normal levels, we will emerge as an even stronger brand and partner of choice for our customers. And now, I would like to open the question and answer session. If you have a question, please press star and one on your phone to join the queue. As usual, we kindly ask you to limit the number of your questions to two in order to give other participants a chance to ask their questions within the available time.