Straumann Holding AG

Ladies and gentlemen, welcome to the Sharman Group Full Year 2022 Results Conference Call and Live Webcast. I'm Alice, the Coruscant operator. I would like to remind today all participants for the listen-only mode any conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one 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 Danilo, Please go ahead, Sir.

Thank you, Operator, and good morning to you all. Thanks for joining this conference call about Schuman Group's four-year reasons for 2022. I very much hope that you, your families, and your colleagues are doing well. Please take note of the disclaimer in our media release and on slide two. 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 three, we will first give you an overview of our group performance, and then Marcel Kellerhans, our head of investor relations, will share details about the financial. After that, I'll provide you with an update on strategic initiatives and on our outlook for the future. As always, we will answer your questions at the end of the presentation. Let's start with our highlights and move directly to slide five. While the year was characterized by challenging microeconomic developments, thanks to our strong teams and innovative solutions, the group was able to deliver another strong performance. Patient demand remained good through the year, while softening in the second half. Stroman Group's revenue reached 2.3 billion Swiss francs in 2022, with organic growth of 15.7%. In the fourth quarter, the Group generated revenue of 592 million Swiss francs, which is an organic growth of 9.6%. In 2022, we achieved a core margin of 26%, which was an increase of 49 million Swiss francs driven by the top line and influenced by further investments in sustainable growth. We are very proud of what we have achieved and with all the efforts we have made as a team, we held more than 4.4 million smiles in 2022. A special highlight was the performance of our largest region, EMEA, which crossed the 1 billion Swiss francs mark for the first time. Another important milestone was the results of our annual employee survey, which reached an employee engagement score of 81 in 2022, with a response rate of 91%. I will be happy to share more details with you later. We remain confident for 2023 and we continue to invest in our growth and digital transformation despite the uncertainties and the volatile microeconomic environment. We expect organic revenue growth to be in the high single-digit percentage range and profitability at around 25%, including growth investments. With this, we are still on track to achieve our long-term ambition of 5 billion Swiss francs revenue by 2030. Let's move on to slide six. The group advanced significantly in all strategic areas and made great progress in expanding geographically. Let's start with our highlight, our EMEA region, which contributes 44% to the group's performance. EMEA achieved more than 1 billion Swiss francs in revenue with organic growth of 20.5% in 2022 and 13.7% in the fourth quarter. This last quarter of the year, Germany, France, and Spain were the leading countries, while emerging markets strongly contributed to growth. All business areas showed a good performance with many highlights, such as the re-launch of Virtuo Vivo, our strong intraloral scanner. In addition, the group's DSO business in this region picked up momentum in 2020. North America, being the second-biggest region, reported full-year organic growth of 11.6%. In the fourth quarter, the region grew 9.4% organically, with more than 170 million Swiss francs in revenue. The performance was driven mainly by premium implantology. The new then-challenger brands, which grew very strongly as well, and was also supported by the Clearliner business. Digital solutions delivered the highest revenue growth in the fourth quarter. There are now two ways to look at the performance of the APAC region. The first one, outside China, all the APAC countries grew significantly and have reached 23% organically. Australia and New Zealand were the region's biggest growth drivers. On the other hand, China is the largest country in the region, has been strongly impacted by COVID-19 and by delayed treatments due to the announcement of the volume-based procurement process. At the beginning of 2023, the VVP process, as we are calling it, was finalized and the group solutions were selected, which allows us to plan the way forward. Despite the China impact, the AIPAC region is posting an organic growth of 7.2% for the full year and a decline of 2.9% in the fourth quarter. Our fastest growing region, LATAM, showed organic growth of 30.4% in 2022 and 18.9% in the fourth quarter, reaching more than 45 million Swiss francs in revenue. The biggest market in LATAM remains Brazil, which posted strong growth, but other territories in the regions grew faster. Neodem, together with ClearCorrect, are continuing to gain brand recognition, which drives customer acquisition. On top of this, the Virtuo Vivo success story continues in Latin America. With this, I hand over to Marcel Quellerance, who will provide more details about our financial performance.

Thank you, Guillaume, and good morning, everyone. Looking at slide eight, you can see the revenue development. At 2022 exchange rates, our full year 2021 revenue would have been 43 million Swiss francs lower, mainly because of the depreciation of the euro. The favorable development of the US dollar could only partly offset this negative currency effect. In 2022, the currency headwinds were twice as high as the year before. The M&A effect added 27 million to our adjusted revenue base of 2 billion Swiss francs. It was largely related to the acquisition of Nihon and Plus Dental. In the middle of the chart, you can see that except for APAC, all our regions reported strong double-digit organic growth for the full year. The absolute organic growth of 315 million Swiss francs was mainly driven by EMEA and North America, which remain our biggest region. Looking at the gross profit development on slide nine, our gross margin for core and reported amounted to 75.7 and 75.6%, respectively, in 2022. Currency adjusted, this represents a margin increase of 10 basis points. High utilization rates in our production facilities, combined with continued efficient improvements to minimize cost increases, offset the higher exposure towards digital equipment and dental service organizations. As shown on slide 10, investments in expansion as well as the return to normal level of promotion and travel activities, especially in the second half of 2022, led to a currency-adjusted contraction of the core EBIT margin of 60 basis points to 26%. In absolute terms, core EBIT increased by 49 million and reached 603 million Swiss francs, which was driven by top-line growth. Slide 11 provides an overview of the free cash flow development. Operating cash flow amounts to 450 million Swiss francs in 2022, which is 145 million lower than in the previous year. This was mainly driven by a negative change in the networking capital of 191 million. The expansion into emerging market and higher exposure to dental service organizations increased the days of sales outstanding to 63. Days of supply increased to 191 as a result of further expanding the product portfolio globally. The networking capital intensity increased versus last year, however, is below the previous year's average. Capital expenditures reached 195 million sweet drinks, which represents an increase of 75 million compared to 2021. Turning to slide 12, we can take a look at our core financials. For full clarity, you will find the year-on-year comparison on our reported IFRS basis, as well as the core reconciliation table in the appendix of this presentation, and more details can be found in the annual report. The main difference between the core and reported numbers is the amortization of acquisition-related intangible assets amounting to 38 million. This is mainly due to the accelerated amortization of the Plus Dental brand. The accelerated amortization, as well as the restructuring cost of 9 million Swiss francs, were triggered by the group's brand conclusion to run its direct-to-consumer clear-liner marketing business in Europe exclusively under the Dr. Smile brand. Net financial expenses amounted to 30 million Swiss francs, reflecting interest on lease liabilities and payments, as well as currency-related losses. After income taxes of 84 million, net profit increased by 6% to 482 million, resulting in a margin of 21%. Basic core earnings per share increased by 6% to 3 francs and 3 cents. Let's move to slide 13. Based on a 2022 result, our Board of Directors proposes a dividend of 80 cents per share, which is subject to shareholders' approval and payable on April 13, 2023. This represents an increase of almost 20%, which is in line with the company's policy to steadily increase the absolute dividend amount if profitability allows. In 2022, the group undertook a share split, which resulted in an increase of the shareholder base of 40%. With this, I would like to hand back to Guillaume.

Thank you, Marcel. And let's move to slide 15. We have a clear ambition to become a digitally powered oral care company. We have defined an investment roadmap for digital transformation and made significant progress in 2022. One of the key pillars of the group's digital transformation strategy is to connect customers and patients to services and software solutions via a new cloud-based platform. In parallel, we are further developing our e-shop and next-generation services to deliver exceptional and consistent customer experience across all digital touchpoints. Another key pillar of our digital transformation is also to increase our internal capabilities and drive efficiency in both the commercial and operation sites. To achieve this, We need to invest in advanced data and analytics capabilities and further enhance our cybersecurity across the organization. Finally, the most critical enablers to execute successfully on our digital transformation are our global Scrum and Group team members, driving the digital mindset and upskilling a large part of our team, and also adding new expertise. As an example, we hired a chief technology officer as well as a chief information and security officer in 2022 and established software development centers in different parts of the world. Moving on to slide 16, you can see the concept of our comprehensive cloud-based platform approach for clinicians. At the center of it, our new Stroman Access Customer Portal, launched in North America in 2022, is providing access to the key digital services of the Stroman Group, such as Smile in a Box and Scan and Shape for prosthetic customized solutions. It supports a direct connectivity to key clinical data imported from CBCT and intraoral scanners, and provides a seamless integration between the different software solutions, eliminating the need for entering patient data manually in different systems along the treatment journey. In the meantime, our digital business performance was very successful during 2022, especially driven by intraoral scanners such as FreeShape and VirtuoVivo. This is essential because it is the foundation for driving more users towards online access platform in the future. Let's move to slide 17. To further transform our offering, the group entered into a partnership with SmileCloud in September. This is a digital smile design and collaboration platform developed by dentists for dental professionals. which will also be integrated into Stroman Access in the future. SmileCloud allows clinicians to design virtual mock-up smiles for patients with the help of a 3D biometric library using AI technology to support the best possible treatment outcome for patients. We will present further details at the IDS Congress in March in Germany. On slide 18, coming back on our core business, you can see our strategic imperatives for implantology on the right side as we presented them at our last Capital Markets Day. Innovation remains a key driver to gain share in a market which grew from 5.2 billion to 5.4 billion Swiss Francs in 2022. Thanks to our latest solutions and educational efforts, we were able to gain market share again in the premium and value segment, which leads to a 30% market share for the group. On slide 19, I would like to highlight once again the massive market opportunities represented by both the fully and epically tapered implant segment. To strengthen our offering in the premium fully tapered implant segment, we further expanded with Stroman BLX and launched Stroman TLX implant line in the premium segment in new countries. In the fully tapered value challenger segment, we launched Ontogea Axiom X-Free. Finally, the Neodent Z apically tapered solution has been launched in 2022. It is a ceramic implant which strengthens our positions in the growing value aesthetics segments by being more affordable thanks to a new injection molding manufacturing process and presents a viable alternative to titanium. Let's move on to slide 20. In 2022, more activities and customer interactions were possible again, especially in the second half which is a great opportunity to demonstrate our latest innovations and technology. We have therefore organized several events, such as the International Aesthetic Days Congress, which included presentations from 80 key opinion leaders and was attended by more than 1,000 professionals and 5,000 online participants. We also shared our latest product and scientific achievements at the European Association for Osteointegration, the EAO Congress, which was one of the leading associations within the field of implant dentistry in the world. In Curitiba, Brazil, a global launch of NeoDenZ was celebrated at a virtual event that attracted more than 1,600 viewers from 92 different countries. Let's move to slide 21. In line with our strategic imperatives for ClearCorrect, we are sharpening our value proposition through new integrations with intramural scanners and software upgrades to support more advanced dentist clinical needs. We are relentlessly working on our innovation roadmap and plan to launch our last ClearPilot 6.0 version in March at the IDS Congress. Another important step to increase aligner usage for clinicians was to further build medical expertise in orthodontics and work on our education offering. We established a global clinical advisory board and started to collect study results to strengthen our value proposition. All these efforts have been very much welcomed by our customers and helped us to further penetrate the market in 2022. Also, strengthening our offering is the basis for further market share gains in the future, which leads us to slide number 20. Last year, Clearcrack significantly invested in geographical expansion. We ramped up our manufacturing capacity in the U.S., Brazil, and Germany, and continue to introduce Clearcrack in new countries, which bring us to 56 countries where our clear aligners are available today. We have also received regulatory approval for ClearCorrect in China, which is an important next step in the geographical expansion of our orthodontic business, and will allow us to leverage our new manufacturing site, which we have built in Beijing. Slide 23 takes us to our brand positioning strategy. Brands are A key asset of our company as powerful brands are supporting faster penetration of new solutions, premium pricing, and also increased customer loyalty. To keep our key brand attractiveness, we conducted a brand project with three major objectives. The first one was to further energize our iconic Stroman implant brand, embracing the digital side of dentistry. The second objective was to reposition our ClearCorrect brand as a professional clear liner brand, demonstrating its new clinical expertise and capabilities, highlighting its constant innovation efforts. Finally, the third objective was to establish a strong Stroman Group corporate brand, positioning it as a leading and attractive oral care company for its critical stakeholders. our employees and future talents, our shareholders, and also the global public community. Another key critical asset of our success is obviously our people, which is why we ask our employees every year for feedback. On slide 24, you can see that we have achieved a high employee engagement score of 81. With this reason, we are proud to 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. Additionally, we are focusing also on two very important reasons that are in line with our sustainability goals. The first one is our ability to support our colleagues' development, and we are pleased to report that 76% of our employees Told us they have good opportunities to learn CO2 emissions for 2021, which helped us to set our goal to achieve net zero emissions by 2040. In addition, we are especially proud that we are using 80% of electricity from renewable sources today, coming closer to our 100% goal, which we set for 2024. I would like to encourage you to read more about our sustainability progress on page 39 of our annual report. Let's now move on to slide 26. While we are well underway with our growth strategy, and in parallel our addressable market is also constantly growing, in 2022 the overall addressable market went from 18 to 19 billion Swiss francs, leaving us with huge growth opportunities in all business areas. To ensure we keep capturing a significant share of this market potential, we have to invest for future growth. As slide 27 is showing, this is what we have done in 2022 and what we will build on going forward. The group further trained employees and hired new people who also bring skills that are important for supporting growth, mainly in production and sales-related functions, but also contributing to our digital transformation. The group's global workforce increased to more than 10,400 employees, adding around 1,300 new positions. In addition, we have invested more than 100 million Swiss francs in R&D and in building capacity for the core business. In 2022, the site in Villarey, Switzerland, expanded by doubling the floor space, increasing capacity. In Curitiba, Brazil, additional CNC machine lines were added for implant production, clear liner production was expanded, and a new resin production line was established. Ongoing expansion projects such as the China Campus and a group technology and innovation center in Gnarlesa in Switzerland are progressing well. And with this, let's move to our outlook directly to slide 29. From a global market perspective, we expect microeconomic uncertainties and market volatility to remain in 2023. But as long as the unemployment rate remains low, we believe the global patient flow will remain stable. On a more specific implant market dimension, the Chinese market will go through a strong year of transition due to the execution of the volume-based procurement process. Finally, we will continue to invest in growth and our digital transformation journey to prepare our organization for the future. Taking all of this into account, we expect organic revenue growth to be in the high single-digit percentage range and profitability at around 25%, including growth investments. And with this, I would like to open the question and answer session. If you have a question, please press star and 1 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. Corrie Scholl, can we have the first question, please?

Sure. The first question comes from the line of Daniel Buchta with ZKB. Please go ahead.

Yes, thank you very much. My first question would be on China and VBP. I mean, there was no real comment on how you see things there. I mean, everything regulatory-wise should be through. Is your guidance of an expected ASP cut for you still 30%, 35% with the rest being swallowed by distributors? And how do you see potential spillover effects to the private market there? And then maybe on the patient flow, I mean, you just commented on the outlook, but if I see your 23 guidance, if I extract price increases, which you aim to implement, you basically guide for lower volume growth, but patient flow still seems to be pretty strong. Maybe a bit of wording there, what you have seen in the first few weeks of the new year. Thank you very much.

Yes, Daniel, I think China VBP is, if we look overall, The price, the ASP, more importantly, the average selling price will decrease between 35% to 45% depending on the segment, the product line, and the company. In the meantime, we expect the volume to significantly pick up step by step along the year as the procedure will now be more affordable. then we expect that we can plan potentially for 25-30% volume growth on the implant Chinese market. Which means that if you combine those two effects, the overall total value market will go down by 20-30%, which is pretty significant and which is an impact that we are going to have also on our side. then we believe that moving forward, the growth will come back very strongly because the base would have been adjusted. But 2023 is obviously a significant construction site to make sure that we can adapt to this new reality. Looking at the private market side, as the public pricing, the way it has been expressed for VBP, has been fully transparently published, I think the private market jumped on this and we believe that the private market will follow. I don't believe there will be a big part of the private market that will be able to stay out of the VBP and they will request the same pricing. This is also why we kept a product line out of the VBP, which is our highest technology with a rogue solid, which is not driven by the VBP regulation and where we can support clinicians to upsell patients with higher technology in order that we can cover some of those impacts. When it comes to patient flow price increase, I think, yes, we are planning for an overall price increase of around 4% that we were planning. However, this will be washed away by the China pricing, which is then divided almost by two, in between two to three. Then the overall pricing effect will be much less than what we were anticipating because of the significant decrease of the Chinese price, which means that all in all, we do believe we will have to grow significantly in volume, and that's why we believe that our high single-digit guidance is quite ambitious for the different headwinds we're having in front of us.

Okay, that's very helpful. Thank you very much, Guillaume.

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

Thank you, Freiko. Good morning. I also have two questions, maybe one to follow up on China and VBP and also your margin guidance, which is down the other year. Could you elaborate to what extent this eruption is driven by VBP, this price effect, you know, and to what extent by the growth investments? That would be my first question. And the second question with respect to phasing as we progress throughout the year. I noticed you have a relatively high comp phase in Q1. especially from last year, I guess, to COVID, you know, maybe could you comment on, you know, the current, you know, growth you see right now and basically how you see, you know, the year progressing so that, you know, we basically can have, you know, a bit of another view about, you know, how facing, you know, should happen this year. That would be great. Thank you.

Thanks, Christophe. Yeah, good question, Dan. I would say when it comes to the VTP effect, yes, it will have an impact on the bottom line and our EBIT margin. That we are going to cover for a significant part of it. We have some work actually ongoing for adapting to the new situation in China and adapting, of course, our structure over there in order to be able to capture this additional volume, but also being able to do that in a more lean approach, I would say. The second side is, of course, driving some operational leverage and even more efficiency in order that some of the impact will be then significantly removed on the EBIT side. For the rest of our EBIT guidance, as you know, we are a growth organization, and we need to make sure that our infrastructure is going to support the vision that we're having of becoming a 5 billion company by 2030. And for this, there are two major areas where we are going to continue to invest. The one is making sure that we can face and support the demand, which has still been quite dynamic, you have seen in 2022. Then we have expanded all our manufacturing places for implants and for ortho in 2022. And we are going to continue in 2023 because we have a brand new manufacturing place now in Mansfield, Texas, which is still receiving machines and tooling to be up to speed with the magnitude that we are looking for. We are an R&D center in Switzerland that we are building up. We have, obviously, our China campus where we are investing significantly because we believe that manufacturing in China will be a significant advantage moving forward. That's without mentioning the R&D that we do, which is the name of the game for gaining share. That's, I would say, what we are usually doing with adding, of course, feet on the ground to continue gaining traction on the marketplace. One additional area in this year, and I would say in the next couple of years, is making sure that we can drive and accelerate our digital transformation. This is in line with what we expressed during our Capital Market Day end of 2021, where we explained that being a digitally powered company for being successful in the future is critical. Then we are investing significantly also in digital transformation, which is in two dimensions. The first one is the people side and the expertise side. We need to have in-house now some expertise that we were not having before. Everything is becoming software. We need to support and empower clinicians with software solutions that we need to further develop. And we can do that by M&A, but also by organic growth. And the second one, as soon as you have the people being able to drive this, is obviously driving the tech stack, which we need to have the technology supporting the vision of our digital transformation. The last point, Christophe, that you asked is about the phasing, and that's a very good point. Obviously, if you look at our very high Q1 on the one side and the drastic COVID-19 we had in China in January, as an example, and the the slow ramp-up after VVT, obviously Q1 is going to be rather slow on our side, and we are looking and expecting a ramp-up of our growth capabilities within the year. And we should see some improvement step-by-step on a quarter-by-quarter basis. Then, yeah, I think Q1 is still expected to be rather soft and growing moving forward.

That's very helpful. Thank you.

The next question comes from the line of Maya Pataki with Kepler. Please go ahead.

Yes, thank you very much. Also, two questions from my side. First, on the investment in the digitalization, you have shortly elaborated on the idea that it is a multi-year process, obviously. Can you maybe give us a bit of a feeling whether it's going to be one or two years heavy investments, and then that's going to ease off just to understand a bit what the margin progression could look like during the strategic period that you've given. And then my second question goes a bit into the direction that Christopher has already elaborated. Given the strong base effect that we have in Q1 and what we've seen from the COVID perspective, Shall we still expect to see positive growth in Q1, or could Q1 be a quarter where we see a short dip into negative territory? Thank you very much.

Yes, thanks. Good question as well. When we look at digital transformation, it's, I would say, a couple of years investment. But we also want to see some of the outcome in our top line, not in the too long term. While I think we can see those kind of EBIT level in 2024 as an example, we are convinced that we will continue raising our EBIT percentage afterwards as we have done in the past by continuing driving top line supported by those technologies. that I don't expect to be several years like a major investment without seeing some of the fruits of those investments. The second question, no, we don't plan a decree in Q1, at least, and link a little bit as to what we are seeing since January, February. Yes, it's very difficult in China, but I think we are still having quite dynamic in the other regions. cover potentially on all the China downside. And we hope for a small growth. But no, no, I don't think we will be decreasing Maya on this one. I don't think so.

Okay. So, Vic, thanks. That's very helpful.

The next question comes from the line of Daniel Yeltsin with Stifo. Please go ahead.

Yeah, hi, good morning. The first is two concrete questions. I mean, Germany, when you look at the annual report, I guess, adjusted for currency was with slight organic growth. So, is it fair to assume that Germany probably lost momentum in the fourth quarter? Not surprisingly, when you look at the depressed German consumer mood and how you see the future there for 2023. Or is there down trading from premium to challenger and so on? And France, according to my calculation, had mid-teens gross organically. And why is that? Do you have more upsides, less penetration in this country? I would be curious. And the second question is the general digital CAD-CAM and so on was strong in the fourth quarter. Was that because of the new scanner, or is it just the usual budget spending towards the year-end?

Yes, Germany. Germany is a mix of, I would say, three effects. You have the classic B2B, you have the direct-to-consumer with Dr. Smile, which is having an important effect, an important growth, actually, and you have a very, very strong ethics effect. then that's what explaining a little bit of what could be perceived as rather a soft year. But actually, if you remove the FX effect, the performance from our German subsidiary was really satisfactory. a slower moment in the third quarter. But other than this, if we look at our market share developments, we have been gaining market share in the German organization. That's also an important point because Germany is obviously a very important market for us. Why France has been dynamic? For two reasons. First, because we have digital, which has performed very well, and we have also had our Ontogea brand with the new product that I mentioned before, Axiom, Axiom X3, which is a really fantastic innovation from Ontogea. And France is the home market and they have a really, really strongly being able to penetrate that market. And this product is more expensive than the former line that they are having. Then that's why we have a positive effect on new product introduction also on the French market. When it comes to ideas on iOS and digital, yes, I think one we can say, what we can say for iOS and digital this year, we had a very strong contribution on our both product lines, which is the technology that FreeShape is developing that we are happy to be a partner with. And we do believe that they are still continuing market share to gain with that technology. But also, we know that we are in the S-curve, in a very strong moment of technology acquisition, and being able to answer different price points of clinicians is also very important. And as for the proof of this, we see on Virtuo Vivo, which is an entry-level scanner, very popular among general practitioners that just want to put their toes in the water. Then we benefit from this double effect that we believe will be able to continue in 2023 thanks to the platform that we are putting in place as well.

Thank you. Just on Germany, was there down trading? And you haven't really said something about 23. I guess the visibility is as always quite low, right?

Yeah, okay. No down trading in Germany. We have not seen this. And we believe Germany will be growing next year. Yes. Then we have the visibility. We have a good start in Germany, actually. Then we are positive about the German market. Okay. Thanks very much.

The next question comes from the line of James Van Tempers with Jefferies. Please go ahead.

Yes, I think take my question, please. And firstly, just on margins and perhaps if you could just clarify the margin guidance is reported rather than constant currency. And so what the effects impact you're assuming is. And just on growth investments, is that directionally more or less than last year? And my second question on the midterm guidance. 50% market share in the premium segments, and clearly the marginal gains to outperform here become harder. So do you see a natural ceiling in time where we have to invest more to capture an equivalent market share from here? And DSA is going up as well on receivables. Do you see that kind of peaking as well? Thank you. Cool.

And a lot of questions here. The first one was about, again, what was the first one again?

Just margins, can you confirm that's reported rather than constant currency and growth in investments directionally higher this year? Thank you.

Okay, got it. Marcel, do you want to comment? The margin are reported. I mean, as we show them core EBIT, what you see on slide number 10, that's what we guide for. So that's all reported.

Then on the mid-term guidance, yeah, I think mid-term guidance for us, as I said, we are confident about the investment that we are doing, and we believe that our capex will improve. stay at the level that we are planning in 2023 which are which is higher than 2022 actually we spend a bit less because of what we have seen with the china situation uh during 2022 we were planning something like 220 and finally uh we ended up a little bit lower the 200 uh million mark uh but uh we believe that this year we are going to be above around the yeah 200 220 240 and this is the kind of a very healthy investment uh capabilities that we see together with additional opex from a people standpoint When it comes to the DSO receivables, yes, I think we are working on it. They are when you are gaining new customers and significant customers, then there is a kind of alignment to find, and this is what we're doing at the moment to come back also to what we were having from an historical level coming to the receivable side. Thank you.

The next question comes from the line of Falco Friedrich with Deutsche Bank. Please go ahead.

Thank you very much. Good morning, everyone. My first question is a clarification question on the China VBP figures you mentioned. So thanks for providing that detail. For instance, that the total value market should go down by 20 to 30 percent. My question is whether those numbers refer to the public market only or whether those already include a potential spillover to the private market. And then my second question is whether you can share a bit more color on the clear line of performance in the fourth quarter and your outlook for that business in 2023. Thank you.

When it comes to China VVP, the process per se has been involving the entire public side. but also already the Chinese authorities have asked some major large private player on the DSO side to join the VBP process, meaning that by its rules and definition the VBP was already included some private players. Secondly, as the VBP outcome has been now published with all the pricing for all the competitors, you are in a very transparent market and all the private players are looking that some of their competitors will get access to very low price and it will be very difficult to sell at a price significantly higher than the VBP, the new pricing reference, to anyone in the Chinese market. And that's why our assumptions going forward is that the entire market will have that ASP downward consequence that will be applied to most of the market volume. Once again, I think it's important also to note that their strategy to sell higher than the current VBP pricing, it is by being able to keep some product line, which is the latest technology, that are not going to be selected in VBP, which is the case for us with a rock-solid technology. And we can, of course, help clinics to be able to upsell latest technology to patients that are ready to pay more than the public price. Then that will be, I would say, a small lever in 2023, but I think it will increase moving forward with potential new innovation that we will be able to bring on the Chinese market. When it comes to ClearLiner, on the fourth quarter, I think our ClearLiner fourth quarter has been positive. We have seen already some effects on our latest ClearPilot 5.0 that has been launched in October. Then we have been able to see on the ClearLiner business growth in the B2B side and growth on the B2C side, which is really obviously helping us to increase our market penetration. We are very confident in 2023 that our clear aligners business will continue to grow because our latest upgrade in terms of software will allow dentists to treat more cases. Then this is the 6.0 that will be launched in a couple of weeks from now. And the direct-to-consumer has proven to be resilient so far from a demand standpoint in the European geography. Then, yeah, we believe OFTO will be a contributor to the high single-digit growth that we are planning for 2023.

Okay, thank you. And just making sure I understood your first comment correctly. So when you flagged to us that the total value market in China should go down by 20 to 30%, my understanding is now that this applies to the entire market, so both public and private.

That's correct. Okay, thank you very much. And with that transparency and the discussion we are having with all the key players and stakeholders in the Chinese market, this is the direction the market will take, definitely.

Okay, thanks a lot.

The next question comes from the line of Veronica Dubajova with Citi. Please go ahead.

Hi, good morning, and thank you for taking my questions. I have three, please. The first one is just a follow-up on the clear aligner question that was just asked earlier. If you could maybe just update us on what the revenues were in 2022 and what the regional breakdown is. And really helpful to get your color and maybe just also comment on your U.S. performance when it comes to clear aligners and how you're feeling about, one, your positioning and that market heading into 2023, since that seems to have had more of a macro impact in the short term. So that would be my first question. My second question is obviously listening, just going back to the margin for 23 and listening to the commentary that you've made on China. There is clearly some margin impact from China, yet in spite of that, you are maintaining profitability and continuing to invest. Just curious what your ambitions are in terms of reducing the cost base in China and how significant that is in your ability to maintain margins on an FX-neutral basis. And then I have a third follow-up, but maybe I'll ask that after those two.

Yeah, when it comes to our clear liner business, I think this has continued to grow, and we are pleased to look at not only when I was talking Q4 that we had good results on both of our businesses, B2C and D2C. We have also a double-digit growth for 2022. Then we are... several hundred millions on this business, which is really, of course, developing in line with our plan. More on the D2C than the B2B, actually, because of a little bit what we have seen on the lack of resiliency of this clear liner business versus the implant one, and as you were, Veronika, asking for the U.S. side, then the U.S. side for the fourth quarter has been pretty flattish on our side, but we see some improvement already in the first month of the year in 2023. When it comes to the margin in China, that's a significant hit to the China P&L. Then the way, of course, to be able to cover part of it is to become leaner. That's currently what we are undertaking. I will not be able to give you any numbers for the time being. But we believe that we will be profitable in China because of the volume that will be coming significantly. And if you can serve the same customer with a much higher volume, you have some of your synergy effect that can still apply. here, then that's why we are still very bullish about the Chinese market. We believe this is an area where the volume is going to be very, very significant. And with our positioning, our brand recognition, and our expertise of the team on the ground, we can significantly get some growth moving forward in the future at a lower profitability, but still at a profitability that will be interesting for the group.

That's great. And then my final question, Guillaume, just in terms of the full year margin of around 25%, given the various impacts in China, is there any phasing there we should be bearing in mind? And I'll jump back into the queue. Thank you.

Yes, I think this is still something that as we work, I think that's a good question, as our top line will increase sequentially, I think quarter by quarter, then I believe that our EBIT will also see a little bit the same approach, which is quite different than what we had in the past because in the past our EBIT was always stronger on the first half versus the second half. I think this year it's going to be a different picture.

Very clear. Thanks, guys.

The next question comes from the line of Grant Doyle with UBS. Please go ahead.

Morning, guys. Thanks a lot for taking my questions. Just two on regional growth. And you cited some of the emerging markets in EMEA as being particularly strong. Could you maybe talk a little bit more about which particular markets and maybe just give us an update on how you're performing in Russia? I know that was a bit more of a challenge for one of your peers. And then it'd be great to get a bit of a sort of a mix split in terms of price and volume in terms of how your Latam business is performing. It's clearly been the rock star of the last year. So just to get a sense as to how much more that has to go from a volume side as well. Thank you.

When it comes to EMEA, the very significant part is obviously coming still from the countries that are representing the largest volume. And then for this, we have France, we have Spain, we have Germany. But a lot of the new markets, as we are calling it, have been very strong. Like all Eastern Europe has been progressing significantly well with our challenger brands. And yes, our new subsidiary that we have developed in Iran, but also in Jordan, and are delivering volume on their side. Iran is a very strong volume market, as an example, where we are capturing significant market share. This is a really healthy mix and a possibility for us to gain growth from really multiple markets and multiple geographies. Russia is obviously a special case, unfortunately. Then we have decided to continue to pursue the patient treatment that were ongoing. That's the continuous care that we have to give to all the patients that received implants. There are some activities going on, but this is not an investment place, obviously, looking at what is happening. We are just helping our current subsidiary to be self-sustaining for our team to be able to deliver the existing customers with the product they were used to use. Now Russia, we see unfortunately for our side, it's a bit different than the Koreans. The Koreans are really very aggressive, I would say, in the Russian market. Then at least what we are doing significantly is defending our position. On the mixed volume price in the past, you know, on the mixed volume price in the past, we were doing a limited price effect. I think our price effect was always something like 1.5 to 2%, never more than this. And this is where we were always struggling. speaking about market share gain because this is mainly our reason why we are growing. And while I said that we will have a higher price increase leveraging than the inflation environment in all geographies, the China impact will decrease this price effect to almost zero.

Great, thanks. Maybe just a quick follow-up on Russia. Are you guys still assuming sort of stable performance through 2023, sort of what you saw last year as well? Is that reasonable to assume?

This is where, you know, it's so uncertain that I would say if things are staying the way they are, I would say yes, potentially. But looking at, again, this area of the world and the disruption that came from this side, I think it's difficult to plan any circumstances that would be coming. But if things are staying the same, yes, I think it's going to be rather flat versus what we have been planning for 2023.

Okay, great. Thank you very much. I'll jump back in the queue.

The next question comes from Oliver Metzger with Oddo. Please go ahead.

Good morning. Thanks for taking my question. The first one is on your orthodontics growth aspirations in North America with your current clear correct approach. In this context, can you also make some comments about going forward you see also more direct consumer opportunities Are there indications that the lead generation costs might have come down, which would allow also the entry of Dr. Smile in North America? Second question is about your market penetration, market share charts you provided in value terms. In particular, in the Challenger brand, you are priced at a premium to many other players. And can you give us any

indication where you stand in volume terms please okay when when it comes to the ortho growth in our clear liner in north america then we are planning to grow we we have obviously then the the opportunity to leverage what is going to be our, again, new software and new technology. And we are also looking forward to invest in the team. Then if the market is more dynamic, we expect to be in the potentially high single-digit growth for North America, for Orto, that would be really important for us. And I think we can do that. On the direct-to-consumer, we are focusing in Europe. I think this is really a direct-to-consumer. It's about reaching the critical mass. You know that in Europe, I think we are leading the way significantly. And this is one of the reasons why we are able to keep growing this business significantly. going in North America with a D2C would still be very challenging from a cost standpoint because you still have companies that are doing direct-to-consumer, like Smile Direct Club, but not only. And the acquisition costs, in our view, are still pretty high and too high for having the profitability that we would be expecting from this type of business. When it comes to the market share on the challenger side, I think we are thinking that we are between 15% to 16% when it comes in value. I think volume-wise, we are not looking at this the same. It's more difficult to evaluate. because there are so many different brands and so many different pricing in the different geographies. But I would say, you know, it would be just a guess and you take it with a grain of salt. But I think we might be around the 10% volume market share that we can look at while we can achieve a 16% in value because we are, generally speaking, selling at a higher price than competition.

Okay, that's very helpful. Thank you very much.

The next question comes from the line of Shubhangi Gupta with HSBC. Please go ahead.

Hello. My question is, you have carried for a high single digit revenue growth for 23. So can you give a breakdown of where do you see that growth coming from? And my second question is, can you give a performance as well as outlook for the biomaterial segment? Thank you.

Yeah, I think our high single digit would come from the growth on all our different franchises. I think without growing on our core business implant, then it would be impossible to reach a nice single digit. We think that we can do high single digit with our premium and even more on the challenger side. Orto should be growing double digit and digital, I would say, the same if we are able to deliver the technology that we are looking for. But as a major part of our business is our premium side, and this is the one which is going to be the most impacted by China, I think the franchise that will be less dynamic than all our other franchise will be premium core from the China effect. When it comes to biomaterial, biomaterial is developing actually at the same speed than our implant franchise because this is a very connected segment. interesting developments in terms of technology that will also be potentially coming from a biomaterial and from a prevention side, then we are looking at this, but we hope by the next 12 to 18 months we have also some interesting products to launch that will support keeping a very dynamic biomaterial range.

Thank you.

The last question is a follow-up from Mr. Buchta with FedKB. Please go ahead. Mr. Buchta, your line is open. You may ask a question.

Maybe one question quickly on the ClearPilot 6.0 launch. I remember you said in the past that you expect one additional launch to come now this year, which would make you basically competitive also in the comprehensive and potentially also patriotic market. Is 6.0 now this launch you were indicating in the past or is there another update to come to really make you fully competitive to Align? Thank you.

Well, first, what we are looking is, yes, instead of looking at competitors, it's a lot about looking at target groups. And what we want to be able to do is to enter into the orthodontist specialist segment. And for this, yes, indeed, we need to increase our ClearPilot software significantly. The 6.0 is bringing us very close, and what I was mentioning was then the next version that is expected for the second half of the year, where we should have then all the different indications covered that would allow us to start reaching the specialist segment. then that's going to be a combination of the 6.0 and 7.0 because they are bringing both different technical capabilities that managing, for example, the more teenage cases with just the eruptive piece that needs to be taken into consideration, then this is what we are doing at the moment. And the launch at IDS will give us already some really good insights about this. But we are expecting another version also during the second half of the year that will bring us where we would like to be.

Okay, very clear. Thank you.

Gentlemen, back to you for closing remarks.

Thank you. Thanks to all of you for your questions and for joining us today for our full year 2022 conference. If you need further information, you will 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 communications. That concludes our conference today, and we look forward to meeting you at one of the upcoming roadshows or at the IES. Our schedule is outlined on slide 33. We wish you, your colleagues, and everyone around you the best, and have a nice day, and goodbye from Sunny Basel.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscall, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.