Straumann Holding AG

Good morning or good afternoon to you all. Thank you for joining this conference call about Stroman Group's two-year results for 2021. I very much hope that you, your families and your colleagues are well. We are meeting online today, but we hope to be able to hold this event in person again soon. We are continuing to take action to keep our people safe and are grateful to report that we had very few cases within our global organization in the recent weeks. Please take a note of the disclaimer in our media release and on slide 2. During this conference, we are going to refer to the presentation slides that were published on our website this morning. As usual, the presentation and discussion will include some forward-looking statements. The conference will follow the usual format. As shown on the agenda on slide 3, I will first give you an overview of our group performance. Then our CFO, Gitter Hakon, will share details about the business performance across our regions. After that, I'll have an update on strategic initiatives and on our outlook for the future. Finally, we will both be available to answer your questions at the end of the presentation. Let's start with our highlights and move directly to slide five. In 2021, while the pandemic was, of course, still present, Dental practices were largely able to keep operating with strong patient flow, which was naturally positive for our businesses. Schroemann Group's revenue reached just over 2 billion Swiss francs in 2021. This is an outstanding result, which was only possible because of our entire team, who did a tremendous job of focusing on customer needs and delivering on the high level of demand. Revenue increased organically by 21.7% in 2021 compared to the previous year. Q4 2021 was our strongest quarter in revenue ever. The group sold sales of 520 million Swiss francs, and this was up 21.1%. Premium and value in plantology performed very strongly in 2021, being the core of our business, while orthodontics is making great progress in building its value proposition. In 2021, we achieved a core EBIT margin of 27.4%, an operating margin which was inflated by fewer than usual travel and marketing expenses during the first half of the year. Investing in sustainable growth was our focus, and it will remain so going forward. Tromantou impacted 3.7 million smiles in 2021, on our road to achieving 10 million smiles by 2030, fulfilling our purpose to unlock the potential of people's lives. This is one of our most important goals that we laid out in our evolved business strategy and new sustainability framework at our latest Capital Market Day in December. One of the main contributors to our 2021 commercial success was the strong performance of our leading region, EMEA, which grew 41.3% organically. The region accounted for 892 million francs in revenue thanks to healthy patient flows and a strong performance in Germany, the UK, France, and Spain. Highlights were also the strong growth in Russia, Turkey, as well as the significant growth contribution from our Dr. Smile business. In general, we gained market share by improving our volume proposition in the different business areas, growing the existing customer base, and winning new customers across all regions. In addition, we expanded our education efforts and geographical reach. We are very pleased that our employee engagement score was 80 in 2021. People and culture are key factors for success, which is reflected in our results. In order to strengthen this further, we have developed a new cultural architecture, which we will talk about later. Looking at our guidance for 2022, we see the future positively. We aim to achieve a low WG revenue growth against a strong comparative error, and including investment to support growth, we expect profitability to be around 26%. This is in line with our long-term ambition to achieve revenue of 5 billion Swiss francs by 2030. Let's move on to slide 6. The strong performance in 2021 was driven by all regions, each growing at least 40%. When looking at the growth rate, please note that the base year 2020 was, of course, heavily impacted by the pandemic. Overall, patient growth remained healthy around the world in 2021, with a tailwind for specialty dental treatments that supported growth. our customers kept reporting that they saw patients prioritizing healthy and specialty treatments over other expenses. As already mentioned, our EMEA region, which is the largest revenue contributor, was leading very strongly with organic growth of 41.3%. North America reported fuller organic growth of 40%, and Asia Pacific and Latin America saw organic growth of 40.6% and 56.8% respectively. Overall, the strongest global performance in 2021 leads to a very solid two-year acreage of 16.3% for the group. Moving on to slide 7, we now have purchased over 9,000 people through to the world, adding more than 1,600 people compared to 2020. Most of those new positions were in production and sales-related functions. The group invested in large expansion programs at its Inflate and Clearliner manufacturing sites to meet the growing demand. And with this, I will hand over to Peter to provide more detail about our business performance.

Thank you, Guillaume, and good morning or afternoon, everyone. Looking at slide nine, you can see the revenue development. At 2021 exchange rates, our full-year 2020 revenue would have been 20 million Swiss francs lower, mainly because of unfavorable currency effects that were mostly related to the depreciation of the US dollar, the Turkish lira, and the Brazilian real. The favorable development of the Chinese renminbi only partly offset the negative currency effects. However, as you might remember, in previous years, currency headwinds were considerably higher. The acquisition effect in 21 added 21 million to our adjusted revenue base of 1.4 billion francs. This was largely related to Dr. Smile. In the middle of the chart, you can see that all our regions reported more than 40% organic growth for the full year. The absolute organic growth of 595 million Swiss francs was mainly driven by EMEA and North America, which remain our biggest regions. On slide 10, you will see that EMEA accounts for 44% of the group's full-year revenue and North America, 29%. In absolute terms, EMEA contributed 892 million and North America... 591 million revenue in Swiss francs. The variation in the growth per quarter and the huge spike in Q2 in both territories can be ascribed to the pandemic. Starting with EMEA, in the fourth quarter, the region delivered revenue of 244 million Swiss francs with organic growth of 25.8%. Germany, UK, France and Spain were the leading markets. Russia showed strong growth, with BLX performing well and the immediate and free-shape intra-hour scanners being launched. In addition, the registration of our digital solution Vietro Vivo was submitted in the fourth quarter. Orthodontics grew rapidly across the entire region in 2021, supported by the strong growth of Dr. Smile. Both quarter revenue in North America amounted to 151 million Swiss francs, with organic growth of 15.1%. Both the US and Canada posted solid double-digit growth, with the latter growing at a higher rate. The performance was driven by our premium implants, such as BLX, as well as the Challenger implant brands, with Neodent growing strongly, supported by the dental service organization business and the group's full portfolio of intraoral scanners driving uptake in digital solutions. On slide 11, you see the quarterly growth for Asia-Pacific and Latin America. Asia-Pacific accounted for 20% of group revenues and contributed 409 million risk ranks over the full year. Market share gains were led by China, Japan, and Australia. The Romans' premium BLX solution was rolled out in Australia, Japan, and South Asia. In the fourth quarter, total revenue in Asia Pacific contributed with 109 million Swiss francs, which is an organic growth of 17%. One of the fourth quarter highlights was the BLX regulatory approval in China. The Latin America region contributed 130 million Swiss francs in 2021, which was up almost 57% compared to the previous year. Latam is the smallest but fastest growing region with revenue of 36 million in the fourth quarter. The high rate of growth in Q4 can partially be explained by the fact that COVID-19 hit the region later in 2020. All countries in the region enjoyed at least double-digit growth in 2021. Brazil remains the biggest market and enjoyed strong growth, so other territories in the region grew even faster. Neodent's strong presence in its home region is proving to be an asset not only in implantology, but also in orthodontics, where high levels of brand recognition are driving customer acquisition. The strong virtual vivo growth in Brazil and other lifetime countries demonstrates the ongoing digitalization in the region. Turning to slide 12, we can take a look at our performance by business. In-plant sales showed solid growth and once again contributed the largest share of our revenue. The group's premium immediacy solutions continue to be an important growth driver. You will hear more about this exciting development from Guillaume later. Our Challenger implant franchise growth outpaced the premium business. Neodent continues to show strong growth in North America, while Ontagir shows fast growth in EMEA. Our digital and restorative business saw high double-digit growth, with a particularly impressive contribution from North America. The trend for digital is continuing and supports our intraoral scanner sales. Our biomaterials business saw particularly high demand in Asia, so all regions grew by double digits. Sales in orthodontics grew strongest of all our business segments in the fourth quarter. ClearQuartz and the updated software ClearPilot 2.0 drove the growth. Growth for Dr. Leth direct-to-consumer clear aligner solutions was higher than the business-to-business channel. On slide 13, you will see the non-core items from 21 and for comparative reasons also from 2020. As usual, this includes the amortization of acquisition-related intangible assets, which amounted to 8 million Swiss francs. In the first half year, the estimate of contingent consideration payable to the sellers of Dr. Smile was increased by 49 million, which is posted below the operating result. Turning to slide 14, we can take a look at our core financials. Core gross profit rose to 1.54 billion and core EBIT rose to 553 million Swiss francs. with the respective margins reaching 76.2% and 27.4% over 21. The gross margin improved by 360 basis points, while the EBIT margin gained 450 basis points. The respective FX headwinds took 20 basis points off the gross and 50 basis points off the EBIT margin. Core net profit increased by more than 74% to reach 456 million francs and the margin improved by 420 basis points to 22.6%. As a result, basic earnings per share increased from 16.2 to 28.45 Swiss francs. For full clarity, You will find the year-on-year comparison on a reported IFRS basis on slide 15, followed by the core reconciliation table on slide 16. More details can be found in the annual report. Looking at gross profit development on slide 17, our gross margin for both core and reported amounted to 76% in 21. This improvement was due to the fact that we reached full capacity and gained efficiencies in our operations, which had a 360 base points and brought our margins close to the level achieved in 2019. As a consequence of a change in our portfolio mix, we saw a decrease in our margin of 40 basis points, which was largely overcompensated by productivity improvements. Without the FX headwind, our margin would have been 20 basis points higher. As shown on slide 18, our ethics-adjusted core EBIT margin expanded by 450 base points to 27.4%. This was mainly due to operational gearing and lower expenses in distribution and administration because of fewer on-site activities such as customer and education events as well as reduced business travel activities, especially for the first half year. No government subsidies were requested in 2021, which explains the impact on other income. Unfavorable currency movements cut the improvement of our margin by 50 basis points. Moving on to slide 19. Core net profit improved to almost 23%. Net financial expenses amounted to 22 million Swiss francs, reflecting interest on lease liabilities, interest payments and currency hedging losses. Results of associates increased by 8 million Swiss francs, which was mainly driven by a higher valuation of our stake in an associate following a capital increase. After income taxes of 81 million Swiss francs, Net profit increased 75% to 456 million Swiss francs, resulting in a margin of just under 23%. Basic core earnings per share increased 76% to 28.45 Swiss francs. Slide 20 provides a breakdown of our cash flow statement. Operating cash flow increased almost 50% to 560 million Swiss francs, while the free cash flow increased from 295 million to 441 million francs. The group's production expansion, acquisitions and strategic digital transformation initiatives required investments of 175 million Swiss francs, 21% higher than in 2020, mainly driven by CapEx. With a cash position of 880 million Swiss francs at the end of 21, the group is 376 million Swiss francs cash positive, considering all debts, which is more than triple the equivalent figure in 2020. The group's balance sheet amounted to 3 billion Swiss francs versus 2.5 billion Swiss francs at the end of 2020. Moving on to slide 21. You can see some of the locations of future investments to expand our business and manufacturing capacity. The Arlesheim site near Badel will be a new group technology and innovation center and the China campus in Shanghai will help us ramp up our capacity in this fast-growing market in the coming years. To ensure future demand for our solutions can be accommodated, we will construct a new CAD-CAM milling facility in Mansfield in the US and increase capacity in other manufacturing sites. Overall, the group made investment decisions of over 300 million Swiss francs in 2021 for the coming years. Moving on to slide 22. The board is proposing a dividend of 6 Swiss francs and 75 cents which represents an increase of one franc or 17% on the dividend paid out in 2021. This is in line with our aim to keep increasing the absolute dividend amount steadily if business performance allows. The board is also proposing a fair split of 1 into 10 shares. As a company with a strong focus on corporate culture and social responsibility, The group would like to give the opportunity to all private investors and employees to buy shares at a more affordable price. Both proposals will be voted on at our AGM on the 5th of April, which will once more take place online. And with that, I'll hand back to Guillaume.

Thank you, Peter. Let's move on to slide 24 straight away. Our purpose and vision that you see here guides us every day. As explained at the Capital Market Day in December, our purpose is to unlock the potential of people's lives, and we envision a world where oral health is a source of comfort. To achieve this, we consider our company culture our number one priority, and in 2021, we took further steps to sharpen our culture architecture. Moving on to slide 25, you see our core beliefs. We know that our culture has defined us over the years and brought us to where we are today. In 2021, we evolved our core beliefs to take us to the next level. Our beliefs drive behaviors, Behaviour drives culture, and we strongly believe culture drives results. These beliefs are what allow every employee to feel empowered to tackle any challenge and opportunity they may face. We are convinced that keeping our culture sharp will be the key to ensure we achieve our 5 billion Swiss francs in revenue ambition by 2030. On slide 26, you see the results of our employee surveys. With our high employee engagement score of 80, we belong to the top 25% of companies globally. This score is one of the few metrics consistently associated with business success, and I'm convinced this high result is reflected in our strong financial performance. 74% of our employees told us they have good opportunities to learn and grow. which was up from 69% the previous year, despite COVID-19 challenges and a whole lot of work. Another important metric is that today, 40% of leadership positions are held by female. It is up from 35% in 2020, and we committed to a 50% of leadership positions held by females by 2026. Slide 27 shows our mission and evolved strategy compass, which has customer centricity at its heart, meaning we are always thinking about how to make clinicians and patients' lives easier. Executing on this strategy will make sure we fulfill our mission to be the most customer-focused and innovative oral care company in the world. We estimate that in 2021, our market share in implantology rose from 27% to 29% globally, and we aim to further expand our leadership in our core business. Orthodontics showed high double-digit growth in 2021, remaining an exciting growth story for us. While we will keep growing our core businesses, we invest in short trends which you can see on the right side of the compass. Answering trends of consolidation, we focus on winning strategy target groups, which mainly include dental service organizations, CSOs, and group purchasing organizations. We will achieve this by being a strong and reliable business partner, offering customized services and solutions beyond product to help them achieve their own objectives. Very important and support our future products. Let's turn to slide 28. Looking at our core business in plantology, we moved strongly in 2021, making progress, especially in the emergency segment. Innovation in our premium range was driving market share gains. With T-ELIX and T-ELIX, we further penetrated the emergency segment. T-ELIX was globally launched at the ITI symposium in September and is already available in many countries, while the Bialik implant, which has been launched more than two years ago, is still in its extension phase. Key highlights were the launch of Bialik in Russia in the fourth quarter and the regulatory approval we received in China in December. There is still a significant opportunity to grow in the premium implant market. The darker blue on the right-hand side shows Stroman's share. The brand has a big share in the traditional parallel world segments, but the fully and adequately tailored implant market, which represents 80% of all implants, still presents a huge potential for us and for our business, and therefore, we have plenty of space to grow. Slide 29 shows our multiple challenger brands, which we offer in the value segment. They all grew strongly in 2021, as our unique multi-brand strategy allowed us to cover all price points, and expand geographically. On the right side of this slide, you see that we estimate 24 million value implants are placed annually. So even after our good growth path in the past few years, the group still has a big potential to grow. Moving on to slide 30, our strategy in digital solutions is to offer clinicians frictionless workflows that integrate with the group's products and solutions. In 2021, we continued to focus on intramural scanners because they represent the entry point and generate additional clinical efficiency. We relaunched the virtual vivo and introduced Medit further, focusing on the connectivity of all our scanners. With our range of offerings, we now have a portfolio that covers all price points, which was a key driver for revenue in digital solutions. Once a clinician invests in this equipment, it makes their workflow more efficient and offers patients a much more convenient experience. On slide 31, you can see how we improved our orthodontics value proposition. We significantly invested in new software development during 2020, where new features are now available in order to increase treatment capabilities. On top of that, our scanners now integrate with our orthodontic software, driving convenience and efficiency at the clinician side. The adoption was fast and led to close to 90% of case tests now submitted digitally by clinicians. Other important innovations were the launch of the new Cleolider material, ClearQuartz, in most geographies, allowing to move teeth more predictively thanks to the attentive three-layer technology. In order to further advance our support for clinicians and strengthen our educational offer, we also rolled out the Orto Campus in October 2021. This is a comprehensive collection of tools and curricula for professionals to ensure treatment success. With our geographic expansion continuing, our orthodontic solutions are available now in 46 countries, and we have three manufacturing sites across three continents. Slide 32 shows how we are accelerating on our strategic courage to build our consumer presence due to the trend I described before. Consumers take ownership of treatment decisions. That's why we want to make sure that we are present at the moment when customers are taking their decisions within their oral treatment. We aim to do so by raising awareness of our brands and their related solutions with healthcare consumer with the ultimate goal to drive customers to clinicians. We first adopted this model in our Clearliner business via Dr. Smile and then by acquiring Smile Link in Latam in August 2021. Dr. Smile is now present in 10 countries, having entered six further ones during this year. Moving on to slide 33, We are also developing the consumer presence in implantology to further expand the market. In January, we finalized the acquisition of Neon Implants in Japan, a conserved service that connects patients with clinicians and refers patients for implant treatment to specialty clinics. The clinicians benefit from a customer acquisition path which reduces practices marketing activities. This business model helps raise awareness of implant treatment and drive customers to clinicians. On slide 34, you see our sustainability commitments related to our sustainability strategy. Sustainability is a business priority and will ensure our future growth as we are convinced financial success can only be achieved in a sustainable way. we have extended the scope and coverage of our reporting of the ESG metrics that we have in the annual report, and I would encourage you to go to page 39 to read more. And with this, let's move to our outlook directly to slide 36. We think 2021 was an exceptional year in many ways, and we are very pleased with the results. In general, we can say that for the moment, fortunately, COVID-19 is not affecting our operation significantly. We did hear reports from some customers in Q4 that they had to deal with employee shortages, which translated into shortened working time. However, in 2022, patient flow is now expected to be not significantly impacted by the pandemic should the situation remain stable. The group will seek to anticipate and mitigate supply chain disruption inflationary and geopolitical developments and their potential impact on consumer behaviors as well as implications for treatment prices. With our able strategy and high-performing team in place, organic revenue growth is expected in the low WG percentage range versus the strong competitive year. Profitability is expected to be around 26%, including major growth investments. And with this, 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. First of all, can we have the first question, please?

The first question comes from the line of Patrick Wood. Please go ahead.

Thank you for taking my questions. I have two, please. The first on the margins and the investment side, you touched on this a little bit, but I'm just curious, could you give a little bit more color in terms of the key investment areas that you're looking to spend money on the OPEX side on in 2022? Appreciate large CapEx outlays on the China campus and things like that, but just curious, you know, Is it sales and marketing? Is it more digital spend on Dr. Smile? Just any little extra color you could give around there would be very helpful. And then second question, you know, I think a lot of people are wondering the health, how you see it of, you know, the U.S. consumer and what you guys are seeing in, let's say, January, February trading so far. You know, there was a lot of stimulus money that was given out last year. Do you think – the lack of that and the squeeze on some consumers is going to have any kind of effect on the business? Or do you feel that you can keep growing nicely in that environment? And are you seeing any sort of, let's say, initial data out of January or February that would give you some insight into how you think the U.S. consumer is looking at the moment? Thank you.

Thank you, Patrick. Yes, I think from an investment standpoint, as you have seen on our strategy compass, We have the perform on the left side, which is really focusing on our key core part of our business, influence and auto. And the right side is a lot about transforming our organization and obviously driving capability to perform in a new environment. Then we have four major areas where we are going to invest in 2022. The first one is to keep the lead in our core business. It's about innovation and marketing spending. We have superior solutions. We strongly believe both on premium and on Challenger together with Orto, and we want to make sure that now practitioners and clinicians are going to be exposed to it much more than it has been the case in the past 18 months. that were constrained by the COVID-19 crisis. The second one is about driving digital transformation. We know that AI, VR, and all those first words are still quite out there, but we see a lot of direct applications. And we are also going to push significantly digital investments in the years to come, and 2020 will be one of the first ones. The third area is developing our health consumer presence. We are doing that with Dr. Smile. You have seen our move in Japan to try to support the increased market penetration of implants, and we believe this is also an area where we need to do more, and this is where we are going to do some significant investment. And last but not least, operations in CapEx. As you said, we have the Stroman Campus in China, but also some further development in Arlesheim here in Switzerland with 18 million. And we have some investment that we want to do in this area. And that's the four major dimensions of investment that we are planning for 2022, preparing our growth for the future. When it comes to U.S. consumer trends, I think what we have seen so far for the starting weeks in 2022 is, I can say, positive. We have not seen a major inflection point on patient traffic or patient demand, which has been really positive so far.

Very clear. Thank you for the answers.

The next question comes from the line of Christoph Gretler from Credit Suisse. Please go ahead.

Thank you, operator. Good morning, Guillaume, Peter. Thanks for the presentation. I also have two questions. The first, you know, coming back to North America. I mean, you know, in Q4, there was, you know, just, you know, if you look at, you know, comp adjusted, you know, quite a bit of a slowdown, you know, versus on a sequential basis took you through. Could you maybe discuss a bit more, you know, kind of what led to that, you know? Was it basically equipment sales at the end of the quarter? And maybe also just, you know, kind of whether you had seen any, you know, impact, you know, from Omicron or so, you know, that would explain it. You know, it's just, you know, something that, you know, kind of, you know, we observed, you know, that would be on a North American. And the second question is just on... the facing of the growth in 2022 and also on the margin profile. Is there anything in particular that you want to convey to us or should we just assume a fairly linear level of growth rate or is there anything in particular that we should be aware of? Thanks.

Thanks, Christophe. Then, Pierre, to answer your question on North America, I think we have seen some kind of one-shot events in North America, I guess, between 2004. We had, yes, in the last two weeks of December, some Omicron impact that have then close some of the practices. We have also initiated some major contracts that had an impact on the end of the year that we will not see moving forward. It's a combination of some one-off events that have impacted with a couple of points the North American growth, but we are very confident that North American growth will remain very dynamic in the quarters to come. On the phasing side, there is no specific, so far, phasing expected from our side. going back to a more normal mode, or at least we hope so, with then the spending that would be in line with pre-COVID time from marketing travels and all kinds of sales and marketing activities that we had in 2019 as an example. And so far, we expect a more regular growth than what we have seen in the past two years.

Thank you. Appreciate your comments. The next question comes from the line of David Edlington from JP Morgan. Please go ahead.

Thanks, guys. So a couple of questions. Firstly, on clear aligners, I just wondered where you finished the year at in terms of revenues and what the growth was for the year, and it would be great to get your thoughts into 2022. And then secondly, you pulled out some supply chain potential headwinds. I'm assuming that's more on the chip side and your scanners, but I just wanted to get your latest thoughts on that supply chain headwinds, please.

I think when it comes to the auto business, I think the auto business grew very significantly in 2021. We have been very pleased by reaching a very significant also 3,000 numbers. We are not disclosing exactly what we are doing, but when we said we can say that you know, we can help you to evaluate this by saying that it has reached already a double-digit percentage of our total top line. And that would give you already a very good idea of where we stand. And really pleased with the strong growth on both B2B and B2C, which is also very exciting on our side because we are benefiting from the two business segments. And we expect the same in 2022, a very, very dynamic growth because we are really putting together a lot of investment for getting our value proposition at the right level. And we hope by the end of 2022 being able also to target the very interesting orthodontist specialty segment where we are still not active in. When it comes to supply chain on infrared scanner, yes, I think especially for Vivo, there have been some, I would say, some heated courier on some specific components, chips, but also a lot of different components that you could not imagine entering into an infrared scanner manufacturing. So far, so good. The team has been very, very agile. Our procurement team has done an incredible job to be able to find alternatives. And we did not have any disruption of our supply chain. And we expect now that the most difficult period is behind us. And we are pretty confident also. for the year to come, and especially now, having also much more Vivo being sold than 2021, where it has been, it's relaunched during the second half.

Great, thank you. The next question comes from the line of Julien Dormois from BMP Paris Bike Sun. Please go ahead.

Yeah, hi, good morning, Guillaume. Good morning, Peter. Thanks for taking my questions. The first one would relate to what you have seen on the gross margin front, because I spotted in your annual report at the very end that you gave the details of gross margin by business. And what was interesting in 2021 versus 2020 is that apparently the gross margin went up pretty significantly for both premium implants and clear aligners, while actually it was flat to declining, to slightly declining in value implants. So could you maybe just help us understand what's driving this and whether you have led an unusual investment way for growing your share in value implants. So that would be of interest to understand what is the trajectory for margin for all those businesses. And then the second question relates to sales development by region. You have indicated that for the group you expect low WG growth. Should we expect some sort of diverging trends by region? Is there one region where you expect particularly strong growth because of a specific product launch or particular strengths across your businesses? Or should it be, again, a relatively homogeneous growth across every region?

Okay. Thank you, Julien, for the question. When it comes to gross margin on the different businesses, what we have to say on premiums, The premium growth has been incredible, and our growth is coming not only for some COGS improvement measures that our operations team are putting together, but also by the maximization of our capacity. And I think we have been really maximizing our different sites, and then obviously then our growth margin has been, by consequence, improving significantly. When it comes to clear liner, it's a lot of work done on the COPS improvement. You know that it is still, I would say, a new business for us in many ways. We have a lot of new sites. Then with volume coming up, we are having less and less either capacity, but especially also being able to improve a lot of processes. And that's one of the reasons that it improves significantly as well. And on the Challenger, it has been flat because 2020 has been already very strong when it comes to our Challenger side. And we are just being at the same level of maximization of our manufacturing capabilities. And that's why We have seen not so much improvement here, but we are also doing and we have done significant capex on this site to increase our volume. And that would explain a little bit the difference in between the free growth margin that you have seen in our annual report. And for the second question, yeah, that's the good side of our strategy right now. We expect some strong growth coming from all regions. We think that all regions have some very significant opportunities in front of them. And we believe, obviously, that potentially Asia-Pacific and North America should come more dynamically. than Europe, and it was the pre-COVID phase, but we still see the advantages that we can achieve in all the different regions in 2022.

The next question comes from the line of Daniel Yelovkan from Mirabeau. Please go ahead.

Yeah, hello. The first question is on Germany and France, things are that much affected in 2020. So I'm astonished by that. Can you explain what were the key drivers in Germany, especially, I guess, across the board or any particular strengths in Germany? And the second one is for the aligner business. I'm sure you have heard Envista speaking about their Spark clear aligner last week. They do follow this followership model, including DSOs. So the USP of Envista is clearly that they have the Ormco business with conventional brackets plus align, so they can cover the whole need of an orthodontist or GP. Isn't that kind of a disadvantage right now for you, or how do you see that? Thanks.

Yes, thank you, Danielle. When it comes to Germany, and two very good reasons for... significant growth. The first one, the team has really put focus on the new customer position when it comes to our B2B business. And we have seen some significant market share gain on the core infant business, especially in 2021. And the second one also, which is explaining this very large absolute value number increase is the Dr. Smile effect. which is also included within Germany. When it comes to the ortho side and SPAR, I don't think or we don't see not having the traditional way of clicking ortho braces and brackets as a disadvantage for us to be successful on Clio Liner, but obviously making sure that we can address The orthodontist segment, the specialist segment is very important for us, which we are not doing yet, not because of not having braces and brackets, but just because our indication coverage is still short of the complex treatment that should come in the second half of the year. I think one of the best examples is Align, which is not having any breaks in brackets and which is having a huge leadership, be it the GP or the specialist treatment segment. And all in all, it's more about investing significantly in our capacity on the software capabilities for clinicians and making sure that we can address this target group to also benefit from our capability to grow there.

Great. Thanks very much.

The next question comes from the line of Oliver Metzger from OdoBHF. Please go ahead.

Good morning from our side. First question is on your guidance of low double-digit organic growth. So could you share with us some of your underlying assumptions, particularly for the premium dental implant market? Also, your view how Challenger will outperform compared to premium As well as you commented on the clear line market with this 20% growth you see for market. So which kind of outperforms you have factored in for your respective segments? That's number one. Number two is on the orthodontics business in the U.S. So could you give us a comment how the dynamic in the U.S. compares to the overall U.S. orthodontics markets? whether you see on the back of lack of B2B offering some competitive disadvantages when it comes to growth versus the market, please.

Yeah, when it comes to guidance, we are seeing that the the future very positively. I think we see also supported by interesting first weeks of 2022. We are thinking that our low double-digit growth is a realistic scenario for the time being based on what we know. There are two uncertainties, one that would bring some upside and one that would bring some downside. We don't know how much in this inflammatory environment, how much the patient is tailwind or propulsion to visit more than other practices and pre-COVID will continue. Very strong patient flow continues, and we will have obviously an upside. This is what we are doing. At the same time, we know that COVID-19 is not completely gone. We know that the crisis is coming back always by the end of summer and early fall. We have seen that already two years in a row. We were thinking that it was gone by summer 2021, and we have seen that coming back. in the fourth quarter of this year. And depending what kind of virus, it could impact also significantly the activity. Then facing those two uncertainties, that's why we are planning for low double-digit growth, but we see potential also upside based on a strong patient flow. When it comes to premium, Challenger, and GeoCorrect, All franchises are going to drive a very significant increase. Premium, thanks again to its innovation and its immediate segment, we have seen that we have still major share gains to achieve. We are almost at halfway versus our initial objective to gain a 35% market share of those apically tapers after two years, because we believe we are now around 15% to 17% based on the market estimation of this fully tapered premium market. Challenger is very well supported in all regions. Now, North America is the number one market for Neodense, supported by very strong DSO growth, but also regular practitioner growth, and we are seeing that in Europe as well. And Clearcrack will continue its strong growth path. When it comes to our competitive situation in North America, both in North America and in other regions, we are at a disadvantage by not being able to address complex cases when you look at our competitors. That's why we are focusing very significantly today on general practitioners that are doing simple to moderate cases and also on the B2C segment. But we believe that very soon during the second half our technology will be able to address those more complex cases and we will start to be able to enter this orthodontic treatment.

Okay, thank you. One follow-up. Do you see it more as a competitive disadvantage not being in B2C in the U.S. or as that you don't have this more complex offerings right now?

Oh no, we think, well we have seen and we said that a couple of times. The B2C in the US, the competition intensity was way too high to deliver any promise of regional investment and decent profitability. We have seen that with all the major players on this field that are realigning their strategy, actually much more in line with what we are doing with Dr. Smile. First, because we believe that we need to have a clinician overseeing treatment on one hand, and also because this is supporting a more blended customer position cost, which is supporting better profitability on the second hand. And we don't think that having yet no purely direct-to-consumer activity in the U.S. is a handicap. Now, again, not treating more complex treatments is definitely one, and this is why a lot of our investments are going into our software development on the orthodontics side.

Okay, great. That was helpful. Thank you very much.

The next question comes from the line of Lisa Cleave from Bernstein. Please go ahead.

Hello. Just a question on competition, whether you're seeing any signs of increased focus from your competitors, particularly in the U.S. You know, I think it's been pretty remarkable over the last few years how Invista and Dent Supply have just seemingly mismanaged their implant businesses and just whether you're seeing any signs of that turning around. And then any commentary on Turkey and the hyperinflation there? I'm just curious roughly what percent of your business is in Turkey and how does that factor into your guidance? Thanks.

Well, when it comes to competition, you know, we are usually not commenting competitive moves. We are not seeing a lot of significant activity, at least when it comes to the core business, on the implant side, more specifically in North America than in other regions. We are really focusing on our... differentiation and our unique value proposition, especially on immediacy, which is very critical in North America. I think this is the market where immediacy treatments are the most performed. This is the market where this area of implantology is growing the fastest. And for us, it's really full speed in North America on the immediacy segment. Yeah, we see a lot of significant successes on the marketplace. Then we leave our competitors commenting also on what they see from their own perspective. The second question is about Turkey and inflation. Yeah, I think this is obviously one of the challenges that we have to face in this part of the world, then we are a very flexible team here. We are revisiting our lease price on a daily basis, obviously, and we are also then invoicing potentially more and more in U.S. dollars when it comes to the one that could afford this. Then for the time being, we see still a healthy situation in Turkey, thanks to our value proposition, because we are able to address different price points. And as you may recall, we have launched Nouveau, which is developing well in some geographies, and we are very selectively launching it for the time being. Turkey is one of the highest sellers of Nouveau, which is our lower price imprint. but still very, very, really good quality. And having that different brands and having that different price points are really supporting us to be able to face any kind of tricky or challenging situations that could present to us so far.

Great. Thank you. And just in terms of the size of Turkey,

Because for us, Turkey is a significant market in Europe, but if you look at our total top line, it's a low single-digit share. And it's not so much significant if we look at impact.

Okay, thank you.

The next question comes from the line of Falko Friedrichs from Deutsche Bank. Please go ahead.

Thank you very much. I also have two questions, please. The first one is on China and the VBP tendering program. There's been news that this could be further expanded into dental implants later this year. I'm just wondering what your view is on the situation and whether that could pose a bit of a risk to your business later on and how you plan to position yourself for that. And then the second one is on your acquisition in Japan. And my question is whether you could potentially expand this service to clear aligners, not just dental implants, and then also whether this model could be rolled out in other Asian markets as well, or if that's just a very Japan-specific business model. Thank you.

Yes, thank you, Franco. Indeed, the GDP is potentially planned in China, and the GDP for everyone is that volume-based procurement approach that the Chinese government put in place in some drugs from some years ago and in medical devices as well, Stent as an example. Then we have been informed that this should happen during 2022. It's not clear yet when, and it's not clear yet how it's going to be implemented. You have the possibility to have different categories for the GDP. or everything into the same bag, then it's still not yet precise enough for us to have a clear view on how we are going to play it. But one important advantage that we have is that we are playing, once again, here with four different brands and four different price points. We have Stroman, we have Antogear, but we have also locally manufactured T-plus in Taiwan, and we have a distribution agreement with a Korean company called Warentec that we have started to distribute some months ago. On this one, we are able to adapt to any situation we are going to see, which we feel is a major advantage. Now, when you look at our total sales on the Chinese hospital, because that's what the VVT is about, it's a low double-digit number versus the total Chinese sales. And when it will be coming, it will have some impact, like slowing down some growth percentage. but I don't think that it would have a major, major impact that we would see on a global perspective. Now this is just assumptions because we need to see what is exactly going to be the rules of the VBP which is going to be presented in the months to come. When it comes to the Nihon concierge service, First, we want to drive the success of Neon in Japan because they have been rather successful. It's a new approach to make sure that we can continue to expand implant treatment in Japan, supporting customers or patients to find the right clinicians. And if this proves to be... develop in other geographies, yes, we would consider this opportunity in the other Asian market as an example, but also potentially in other geographies. We see that the opportunity is very significant. And this is still our continued learning about building our presence directly to help consumer. And as soon as we believe some of the business models are expandable, then we would be taking this decision.

Okay, thank you. And can you just briefly remind us on the share of China as percent of your group sales at the moment?

No, China reached 243 million Swiss francs this year. And it's a little bit above 11%.

Perfect. Thank you very much. Thank you.

The next question comes from Maya Pataki from Kepler. Please go ahead.

Good day. Thank you for taking my questions. I have two as well. Guillaume, you have been talking about patient traffic, which was extraordinarily strong in 2021, and I understand it's very difficult to have a visibility of what was extraordinary due to the stimulus packages and everything. But do you have any anecdotal feedback from dentists that come back to you and say like, you know, X percent has come in because, you know, they had this excess cash or anything, you know, to get a bit of a feeling of how big that could be. And the second question, Peter, I understand we're not going to guide for 2023. We're far from it. But your guidance for 2022 on the EBIT side is taking into account quite a step up in investments, and that's what you have to add to the market. But shall we see this as a new level? And therefore, then we're going to see steady improvements from 26 onwards, or is it more like it's a one-time investment? We should be well above 27% again in 2023. So, No numbers attached to it. I just want to understand a bit how shall we think about margins in the long run? Up, down, down, moderately up, or if there's anything you could share with us, that would be very helpful.

Yes, thank you, Maya. I think coming back to your question on the dynamic patient flow and how we are seeing that for 2022, Yeah, what I think we can say is that the 2021 second half has not been supported by the stimulus package, especially as we have seen in the U.S. as an example, because most steel and the absolute value of our growth came from the implant side. And if you look at the stimulus package that has been given, it does not give you the affordability for implant treatment in the U.S. The price of dentistry in the U.S. when it comes to implant treatment is very high for a patient. An implant plus crown would be above $4,000. And it's way beyond what the stimulus package has been able to deliver. to individuals. And it's much more the fact that consumer has been, I would say, less considering alternative spending like restaurants, holidays, traveling, and so on and so forth that we have seen in different geographies that will come back in 2022. And we have seen that a little bit in direct-to-consumer activities in May-June in 2021, when especially the younger generation just decided to invest much more on holidays than on clear-liners from direct-to-consumer treatments. And we believe that this should remain strong. But once again, that's what we cannot plan. How much of those extra priorities that were given to healthcare and especially dental care will still be given in 2022, this remains to be seen, although the first feedback from dentists are rather optimistic and positive for 2022, at least in the coming months.

And on your second question, Maya, thank you for that. Let me first share some thoughts around the ethics impact on the margin. If we compare the margin 21 with 2019, we are slightly above 2019 30 base points. But already during last year, we said that we don't consider that as a sustainable level because especially in the first half, 21, we had rather low business activities. low cost in education events, only few travels. And in the second half, the margin in 21 is more in line with the guidance that we have provided for 22, if you compare these two half years. Second, if you compare that with 2019, if I would recalculate the 2019 margin with two days exchange rates, then it would be 25%. So you see with our guidance 22, we have a significant margin expansion ethics exerted despite the investments that we have foreseen versus 2019. And also in 22, I expect a slight ethics headwind of around given the current ethics rates level of around 40 to 50 base points, just to put that in perspective. Now, focusing on 23, then I would say our guidance, 22, is fully in line with our ambition 30 to reach 5 billion. And we indicated a margin range between 25 and 30%. So you see 22 is at the lower end of that range, And that is absolutely not excluding that we see further margin increases in later years again.

The next question comes from the line of Daniel Buchta from CKB. Please go ahead.

Yes, thank you very much for taking my two questions. The first one would be on Invista and their N1. I mean, they received a few weeks ago, now finally in the S also. the 510K clearance, while in the last one to two years, it was pretty quiet on that product. Do you have any more insights now on how this whole new system, how they call it, compares to your BLX and TLX? Does that in any way affect your market share gain story there? I would assume not, but maybe you can share a little bit more light on that. And then the second question on your CMD, you said, that you started with some quite meaningful price increases this year in January 2022. How is that accepted by the market? Is there even more to come or would you expect that higher input costs are a factor that is also a drag for 2022 margins? Thank you very much.

Yes, well, Daniel, when it comes to N1, again, we will leave and he starts commenting on how they see What we believe is that N1 is clearly not the case. It's not in line with what Bialyx would be doing because it's not as versatile as what Bialyx can do. It's more an implant for the Ontario region where Bialyx is really a global, fully tapered solution that could be used in most of the cases in the clinic. We don't believe that N1 will decrease our capability to continue gaining market share on the e-mediacy segment, even though we respect very much Envista, their capability to develop good solutions for clinicians. Now we are also very much confident on our technology. its superior capabilities in terms of clinical results, thanks to the material which is unique, which is rock solid, nobody's having on the market and our implant design which is really developing new capabilities and pushing boundaries on the clinical side our connection which is also very unique and providing ease of use from a prosthetic standpoint and also obviously the surface of SL-ACTIV which is also unique and facilitating also integration and You see, without wanting to enter in much detail, the clinical characteristic of Bialyx is really on another level from what is available today on the marketplace from our perspective and with the clinical evidence also demonstrating this. When it comes to price increase, yes, we have actually never stopped to do price increase. We have done this also in the previous year, and we are planning one price increase in all geographies. Therefore, we don't think that the inflation so far will impact gross margin. but obviously it remains to be seen what will be the inflation in 2022 and if additional price increases would be needed during the year. So far, we have not planned any additional one, but from an agility standpoint, I think we have proven that we can react as soon as we see that there is a need also to make sure we can compensate some of the inflation-riding cost now by also passing part of it to the customers and the consumers.

Thank you very much. Very helpful and very clear messages. Have a lovely day.

The next question comes from the line of Veronica Dubajova from Golden Saks. Please go ahead.

Hi, good morning, and thank you for squeezing me in at the end. I know a lot of people have asked about the consumer in North America, but if I look at your business, obviously one of the other sort of big drivers of growth has been really strong performance in some emerging markets, including China, which is quite significant. So I'm just curious if you can comment on what you are seeing in China in terms of consumer demand, and then maybe also just give us an update on where you are with the clear line of approval there. and how you're thinking about the BLX opportunity. So, you know, just some of the moving parts for China as we transition to 2022 would be quite helpful. And then I have a follow-up after that, if that's all right.

Yes, thank you, Veronica. Thanks. While the consumer demand in China is, So far, we have not seen major changes. I know that when you look at the overall industry, it's not the case. There have been some slowdown in some areas. As you know, I think this is linked to the fact that implantology is still at the very early stage in China. And there are still an amazing need for treating patients. And obviously it will potentially support more challenger solutions and premium solutions such as premium like the Stroman brand. But as we are very much present with four different brands covering all price points, we believe that we can still answer the consumer demand in China in a very healthy way. Then when the market will be more penetrated, I think we might see some of it, but I would say so far so good on the implant side. BLX is going to be a very strong differentiator. There is also a premium segment in China which is expecting the same quality of treatment, the same emergency treatment, and this is why BLX is an excellent news for us to keep building the brand reputation of Stroman in China, our innovation capability, and demonstrate that we are the most innovative company in our field, which is very important to build, again, the brand in China, as brands are hugely important in this market. Therefore, yeah, it's going to be a very interesting move for us and help us to keep our leadership on the premium side. When it comes to clear-liner, then we just missed one green light that we are seeking and we hope to have that by Q1. We were expecting that in December, but there have been some clinical activities that needed to be finalized, or at least some couple of them that we need to refocus on, and some additional activities that we needed in order to get that completion that we hope to do a clear break launch with treatment planning and manufacturing all done in China directly.

That's very helpful. Guillaume, I guess, so would you expect China growth faster in 22 than it did in 21 or slower, I guess? What's your best guess at this point in time around the growth outlook there?

That's... I would say it's a challenging guess here because it will depend upon the VVP that we discussed before. If you have the VVP which is going to be in place, then China will grow in a slower manner than in 2021. If the VVP is going to be implemented only by the end of the year or we're having almost a very limited impact in 2022, then we can grow faster than what we have done in 2021. Then I would say the VVP will be the one that will make the balance on the left or the right side.

I got it. Thank you. And then very quickly on clear aligners, I appreciate you don't want to tell us what the revenues are, but I'm going to push you a little bit on what your expectations are for growth. I think Align has stood up and, as you know, their guidance is for 20% to 30% growth. They can still do that in 2022. I'm just curious what your ambition is, and as we think about that low double-digit growth for the group as a whole, kind of how much of that is being driven by the clear aligner business, if you can give us a bit of a bridge to that. Thank you.

I think what we can say is that coming from a much lower base, then our growth on the clear liner side will be much stronger than the 20%, 30% area.

Got it. Thank you so much.

The last question comes from the line of Christoph Gretler from Credit Suisse. Please go ahead.

Thank you. All my questions have been answered.

Thank you. Okay, then. Thanks to all of you for your questions and for joining us today. If you need further information, you will probably find it in our annual report, which is published online today. And of course, You are welcome to contact our colleagues in investor relations and corporate communication. That concludes our conference and we are looking forward to meeting you at one of our upcoming