Straumann Holding AG

Ladies and gentlemen, welcome to the Schrauman Group Full Year 2020 Results Conference Call and Live Webcast. I am Sansa, the Chorus Call Operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Guillaume Daniello, CEO. Please go ahead, sir.

Good morning, everyone, and thank you all very much for joining today's conference call. I'm looking forward to sharing insights into the Stroman Group's four-year results for 2020 with you. Let me begin by saying that we hope you and your families are safe and healthy despite the ongoing pandemic around us. We are continuing to take action to keep our people safe and support the fight against COVID-19 in the different communities we serve. And we are grateful to report that we had very few cases within our global organization in the recent weeks. This is also why our headquarters in Basel is still closed to visitors at the moment. As a result, we are not able to welcome you here in person today, but we hope to see you all again soon, as soon as it will be possible. On slide two, you can see our disclaimer. As usual, this morning's presentation and discussion will include some forward-looking statements. Today's conference will follow the usual format. I'll give you an overview of where we stand. Then our CFO, Peter Harton, will share details about our business performance across our regions. After that, I'll provide you with up-to-date information about recent events and our strategic initiatives, as well as our outlook for the future. Of course, we'll both be available to answer your questions after the presentation. Moving on to slide five, you can see our 2020 highlights. Taking a few months back, we know today that we focused on the right priorities, helping to mitigate the impact of the pandemic during this challenging year. I am pleased to report that we kept our bounce-back momentum starting in Q3 with an organic growth in the four quarters of 8%. Overall, our group's organic revenue for the full year 2020 dipped by 6% compared to 2019 to 1.4 billion Swiss francs. Strong currency headwinds widened the gap in Swiss francs to 11%. Looking at profitability for the full year, we have successfully managed to soften the impact of the pandemic and are reporting a core EBIT margin of 23.4%. We remained very close to our customers during this difficult period, which allowed us to stay ahead of the curve. Pursuing our goal of leading the specific immediacy segment, we successfully continued the global rollout of Stroman BLX. Customer reorder Stroman BLX on a regular basis, reflecting the increased benefits provided by this unique implant. Despite the pandemic, we have continued to demonstrate our innovation capabilities, by pre-launching new products such as TLX and Zygoma implants still within this important immediacy segment. In addition, sales of intramural scanners also rose, reflecting the increasing trend in digital dentistry. We also took some important entrepreneurial steps into new areas, exploring attractive growth opportunities across our business segments. Therefore, In July 2020, the Stroman Group acquired Dr. Smile, a leading provider of direct-to-consumer, doctor-led clear liner treatment solution in Europe, investing further into the growth of our clear liner franchise. In 2020, we have also seen important new developments to further improve our clear liner value proposition, such as the launch of the new clear quartz material as well as the nuclear pilot software, which we'll talk about later. 2020 was a challenging year, but we finished it with solid results, and we are cautiously optimistic about the future. Bearing and forcing circumstances, the group aims to achieve organic revenue growth in the high single-digit percentage range. Profitability is expected to improve versus 2020. If we look at the performance by region on slide six, organic growth has returned everywhere during Q4. Asia-Pacific rebounded to 17.9% growth in Q4 and almost reached full-year performance in line with 2019 levels by the end of 2020, led by a strong double-digit growth in China, very close to pre-COVID level. The EMEA region posted organic growth of 6% in Q4, after having rebounded due to a significant pent-up demand in Q3. Our business in North America performed according to expectation, with organic revenue growth up by 5% compared to Q4, 2019. Latin America was the last region to be reached by the pandemic, which has impacted the business through for the second half of the year. Nevertheless, Our performance in this region bounced back in September 2020, continuously improving during the third and the fourth quarter. Looking at slide seven, the world today looks different compared to when the pandemic started. Although it's still influencing our environment, the patient flow came back and dental practices resuming their activity allowed us to grow again in the second half of 2020. You can see the OECD expects a brighter outlook compared to their last report from June 2020, but recovery will be gradual according to the report from December. Progress with vaccines and treatment have lifted expectations and uncertainty has receded. The global economy will gain momentum over the coming two years, with global GDP expected at pre-pandemic levels by the end of 2021. The projection is that recovery will be uneven across countries, with China growing strongly as it was the first country which started to recover and is now controlling the pandemic efficiently. In addition, restoring consumer confidence and the availability of disposable income will continue to be critical. The assessments provided by our country organizations show that currently dental practices are open and patient flow is fairly good in most of our countries, despite the early 2021 semi-lockdown measures taken in Europe. The situation in Latin America is still challenging due to significant restrictions in some of the countries. Let's move on to slide eight. In implant dentistry, the Stroman Group's core market we further strengthened our position in 2020 and outperformed the market. We have extended our leadership and estimate our share of the global influence market to be approximately 27%. The total global dentistry market is estimated to be worth more than 23 billion Swiss francs, and we have built a competitive portfolio that enables us to address half of it. The market has obviously declined in 2020 because of the pandemic, forcing dental practices to close during the second quarter. However, the growth drivers for the mid- and long-term are still valid, including the aging and growing population, increasing prosperity, higher awareness of oral health anesthetics, and innovation for more patient-friendly solutions. The global market for clear aligners is one of the most attractive areas in dentistry because of its dynamic growth and the significant advantages of clear aligners over conventional wires and brackets treatments. We expect growth in orthodontics and implant dentistry to outpace the general dental market. And besides implants and aligner business segments, biomaterials, digital equipment, Custom-made prosthetics also present significant growth opportunity in the midterm, even our market share is still low in those segments. Moving on to slide nine, our global workforce doubled between 2017 and 2020 as we geared up for strong business expansion. Unfortunately, the impact of COVID-19 required us to take difficult decisions about resizing our team. We reduced our global workforce by approximately 660 jobs across all countries and functions. We made every effort to conduct this process in a responsible, timely, and fair manner. I would like to emphasize our deep gratitude for the understanding, professionalism, and solidarity that our team showed during this process. At year-end, our global team totaled 7,340 headcounts, which includes 260 positions added due to the strategic acquisition of DrSmile in Germany. With this highly engaged and talented team, we are ready to keep increasing our customer base and moving ahead with our plans for future growth. And now I will hand over to Peter.

Thank you, Guillaume, and good morning, everyone. I'm going to begin by talking about our revenue development at the group level. I then take a close look at each of our four regions before focusing on our businesses. Looking at the revenue on slide 11, we had two consecutive quarters of growth rebounding in the second half of 2020. While this rebound only partially offset the 19% decline in the first half of the year, it's a solid achievement. Both quarters in the second half of the year showed similar growth rates, around 8%. As Guillaume mentioned, our full-year organic revenue decreased by 5.6% and strong currency headwinds, mainly by the Brazilian real, the US dollar and the Euro widened the gap in Swiss francs to 11%. Our full year revenue for 2020 was 1.4 billion Swiss francs. As usual, you see on the right side of the chart the contribution of the regions to the organic revenue decline of 84 million Swiss francs. On slide 12, you can see that we had a second that we had a second consecutive quarter of growth in Europe, Middle East and Africa regions known as EMEA. We also returned to growth in North America in the second half, but in both regions the growth rates in the last quarter were slightly lower than in the third quarter and once again lifted by strong digital equipment business at year end. The third quarter was characterized by pent-up demand And it's important to note that the comparative force, Fortune 19, was strong in both regions. I'll start with EMEA, which contributed 44% to total revenue in Q4 and is our largest region in terms of sales. We achieved full year revenue of 650 million Swiss francs, which is 90% of the prior year level. The EMEA region posted organic growth of 6% in Q4. This was driven by solid performance in Germany, Russia, and Turkey. We also saw an additional lift from the newly acquired business in Romania. Distributed markets in Eastern Europe and Middle East returned to growth, while several large markets were held back by the pandemic, notably France, Spain, the Nordics and the UK. In North America, we achieved full-year revenue of 432 million Swiss francs, which is 90% of the prior year level. In Q4, organic revenue decreased by just 5%, but currency headwinds turned this into a 10% decline in Swiss francs. Both the US and Canada posted solid growth in the last quarter, And growth was fueled by our challenger implant brand Neodent and our digital business, most notably intraoral scanners and 3D printing equipment, while the Stromer brand held its strong position and performed solidly. Let's move on to discuss our Asia-Pacific and Latin America regions. In Asia-Pacific, organic revenue increased from 11% in June 3 to 18% June 4, on top of the very strong growth in the comparative forecast 2019. This impressive performance helped to compensate for the decline in the first half of 2020. For the full year, organic revenue was just half a percentage point below the prior year level. In Swiss francs, revenue contracted 5% to 289 million. China led with dynamic growth in Q4 while we also saw strong increases in Australia, Japan, New Zealand, and Taiwan. South Korea and India continued to battle against the pandemic. In Latin America, COVID had the heaviest and longest impact on our sales and, in addition, faced major currency headwinds driven by the Brazilian real that devaluated 25% during 2020. Full-year revenue was 90 million Swiss francs, which is a decrease of 35%. The organic shortfall was 15%, and the difference in growth rates shows the magnitude of the currency impact. However, our local team successfully achieved growth in the last quarter when organic revenue rose by 3%. We bounced back to strong growth in Brazil, driven by Neodent and digital equipment sales. Argentina and Chile also posted strong increases. ILE, our 3D printing resin business, continued its excellent growth. On slide 14, you can see that all of our businesses closed the difficult year with growth in Q4. Our implant system business grew high single-digit in Q4. Premium implant solutions the largest revenue driver were constrained by the pandemic's impact on affluent markets. Notwithstanding, sales of new products like eStrom's innovative BLX implants were strong and led to share gains in the immediacy segment. Among the group's challenger brands, Neodent and Medentica posted full-year growth and performed well in emerging markets. Our digital and restorative business grew despite the high baseline in Q4-19, especially in digital equipment. Sales of intra-hour scanners were fueled by the increasing trend in digitalization. Biomaterials posted double-digit growth in all regions, except in North America, where sales were softer. Our orthodontics business reported the highest growth which was supported by our doctor-led direct-to-consumer marketing of Dr. Smile in Europe, as well as the launch of our new aligner material, ClearQuartz, and the new software, ClearPilot. Slide 15 lists the non-core items from 2020 and for comparative reasons also from 2019. As usual, This includes the amortization of acquisition-related intangible assets, which amounted to 9 million Swiss francs. It also includes a one-time pension plan amendment gain of 5 million. As a result of the COVID-19 pandemic, we faced net charges totaling 150 million francs, resulting from impairments of financial and non-financial assets, including career tests, dental wings and echinocs. The net cost of restructuring measures that were implemented a few months ago amounted to 15 million francs. If you need further information about any of these items, please feel free to ask a question during the Q&A session. The next slide presents the core financials in a nutshell. After the gross profit margin dropped to 71% after the first six months, E-bounce facts helped to achieve a solid 73% for the full year. This represents a margin contraction of 280 base points. 130 base points are attributed to the strengthening of the Swiss franc. Operating expenses were reduced by 58 million, or 9%, to 705 million francs. Distribution expenses contributed 38 million and administrative expenses 20 million to this decline. The combination of these efforts helped to underpin our core operating result at 333 million Swiss francs. The core EBIT margin contracted 370 base points to 23.4%. 160 base points of the contraction were due to currency headings. Core net profit dropped 23% to 261 million francs, with the respective margin contracting 290 base points to 18.3%. Basic earnings per share stand at 16 Swiss francs and 20 cents, 5 francs lower than in the previous year. For completeness, you will find a year-on-year comparison on a reported IFRS basis in slide 17. followed by the core reconciliation tables in slide 18. You can also find them on page 126 of our annual report. Slide 19 focuses on our core gross profit margin, which remains strong, about 70% despite the pandemic. The group took decisive action to respond to the changing business situation, including adjusting capacity reducing operating costs and postponing investments. These actions helped to protect our profitability by softening the impact of the revenue decline. The gross profit for 2020 was $169 million less than in 2019, and the corresponding margin dropped by 280 base points to 73%. Excluding currency impacts, the contraction was 190 base points. If government subsidies for short-time work that are reported under sundry income below gross profit were allocated to COPs, the margin would be lifted by 50 base points and the organic decline reduced to 140 base points. Looking at core EBIT on slide 20. A combination of strict cost discipline, right-sizing of the organization, and lower business activities due to the pandemic helped to soften the impact on our earnings. Distribution expenses, which comprise salesforce salaries, commission payments, customer events and trainings, were reduced by 38 million or 12% to 283 million Swiss francs. Administrative expenses, which include research, development, marketing and general overhead costs were reduced by 20 million Swiss francs or 4% to 441 million Swiss francs. After an EBIT margin of 70% after the first six months, full year EBIT margin increased to 23.4%, but still 370 base points lower than 2019. Approximately 160 base points of this construction was due to currency headwinds. Slide 21 shows that our net profit margin before non-core items reached 18% for 2020. Net financial expenses amounted to 31 million Swiss francs, or 6 million francs higher than in 2019, mainly reflecting higher currency hedging losses, higher interest payments, and interest on lease liabilities. The share of result of associate is 1.4 million better than in prior year. After income taxes of 40 million Swiss francs, which were 26 million lower than previous year, net profit decreased 23% to 261 million Swiss francs, resulting in a margin of 18%, including the previously mentioned non-core items amortization of acquired intangibles, impairment, restructuring charges, pension plan amendment gains, and their collective impact on income taxes, the reported net result was 92 million Swiss francs with a margin of 6.5%. The normalized group tax rate is around historical levels of 15%. Moving ahead to slide 22. In a difficult year, as we had in 2020, we were able to maintain our strong balance sheet. The group's cash position amounts to very solid 633 million Swiss francs, while none of the available credit lines were drawn. During 2020, two domestic Swiss franc bonds amounting to a total of 480 million were issued, one of them to refinancing a maturing bond of 200 million francs. Overall, our free cash flow for the full year 20 reached 295 million francs, which is 44% higher than in 2019, and the free cash flow margin increased by more than 6 percentage points to almost 21%. The operating cash flow of 377 million Swiss francs was very strong and remained stable compared to 2019, despite the revenue and EBITDA decline. Capital expenditure decreased at 68 million to 82 million trillions. This decrease shows that some of the major expansion projects are close to finalization, but it was also due to some postponements of projects from the second quarter onwards. From a cash perspective, is this decrease almost made up for the pandemic-driven reduction in EBITDA. The net working capital improved by 88 million to 168 million Swiss francs, mainly driven by the reduction of account receivables. The days of sales outstanding reduced from 57 to 47, and by the reduction of the days of supply by 15 days to 160. Despite interruptions related to the pandemic, we were able to progress as planned with our strategic projects to expand our production capacity. At our largest production center in Villere, Switzerland, construction of our new building was only temporarily delayed. We will begin to operate the new building in the middle of this year. Construction of our new factory from Identica in Kalb, Germany, was completed in 2020 as planned. It offers additional capacity and allows us to install various processes which will increase our efficiency. All existing machinery, activities and staff were successfully transferred to this new site from our former location in Renningen. operations began already in the last quarter. CALV is now Medentica's main production center for implant and multi-platform prosthetic solutions, and it is also home to a new education facility. In addition, our new facility in Curitiba in Brazil began operating in 2020. It is now producing Nubu implants for the global rollout of this new brand, as well as clear product for the Brazilian and Latin American market. Based on the results in 2020, our board of directors proposes a stable dividend of five francs and 75 cents per share. This is subject to shareholder approval and will be payable on April 15th, 2021. The board aims to increase the dividend again in the future if solid business performance continues. And one final note. As in 2020, our 21st Annual General Meeting on April 9th will be held without the presence of shareholders because of the ongoing pandemic. And with this final note, I will hand back to Guillaume.