Straumann Holding AG

Good morning, everyone. Thank you for joining this conference call about Stroman Group's first half-year report for 2023. We are happy to present our results and are looking forward to the questions and answers session at the end of the presentation. Please take note of the disclaimer in our press 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. As shown on the agenda on slide three, I will give you an overview of where we stand, and then our head of investor relations, Marcel Kellerhans, will share details about the financials. After that, I will provide you with an update on key strategic initiatives and our outlook. Let's start with our highlights and move directly to slide five. A very solid half year is behind us. Tromain Group revenue reached 1.2 billion Swiss francs in the first six months and 621 million in the second quarter. Overall, organic sales increased by 7.5% in the first half and 11.7% in the second quarter. One of the highlights of the second quarter is the large volume growth from China. It was heavily influenced by dynamic patient flow compared to last year's second quarter, which, as you remember, was affected by local lockdown due to COVID-19. EBIT margin amounted to a solid 26% thanks to healthy business growth combined with efficiency gains, and this despite significant currency headwinds. For this strong, healthier performance, I would like to congratulate the entire team around the globe for their dedication and focus on delivering our solutions to customers. Another highlight of our second quarter was our recent acquisition of GalvoSearch, a technology enabling us to meet the increasing demand for peri-implantitis treatment, which can now protect patients from implant loss. I will provide you with more details later in the presentation. Given the solid first half of 2023, and despite some localized consumer weaknesses, we are confirming our full year guidance of high single-digit growth, together with profitability at around 25%. Moving to slide six, the patient flow, which remained favorable in most countries, led to a dynamic good growth rate in all regions. The largest region, EMEA, organically grew at a strong rate of 8.8% compared to the great second quarter in 2022. Growth was primarily fueled by markets such as Germany, Turkey, and the U.K. Revenue from the North American region led to a 7% organic growth in the second quarter to which both the U.S. and Canada contributed. This is a great result in the current market environment where we have seen some localized weakness in the large reconstruction procedures. Latin America achieved once again a remarkable 20% organic revenue growth. Brazil maintained its role as the primary contributor to revenue, showing robust demand for neoderm solutions. The region's market presence expanded thanks to the attraction of new clinicians via nationwide educational events. Chile and Argentina also showed strong growth, contributing to the overall success of the region. The Asia-Pacific region achieved an excellent 23% organic revenue growth compared to the same period in 2022, which, as already mentioned, was impacted by COVID-19 lockdowns in China. Countries such as Japan, Australia, and India also performed strongly, but the major driver was the accelerated patient flow, and this volume growth in China usually influenced the return response. On slide seven, I would like to dive a bit deeper into the three positive effects that influenced patient flow and accelerated the business dynamic in China. The first effect was COVID-19, which was still present in January and February. The second factor was the implementation of the volume-based procurement process during the first half of the year. Those combined two factors resulted in the release of the pent-up demand and increased patient flow seen during the second quarter. The first factor was how quickly the team in China responded to the new opportunities offered by this new market dynamic, resulting in a strong performance during Q2. Slide 8 leads us to our performance overview by businesses. Implantology kept its strong growth pace in the second quarter, with double-digit growth in the premium as well as challenger segment boosted by customer acquisition. premium implantology was predominantly driven by our emergency portfolio. From a challenger brand perspective, Entogyre, which is more than 20 years established in China, benefited from the volume increase, while Neodent keeps a strong growth momentum in all other regions. Looking at orthodontics, where we continuously work on enhancing our value proposition by elevating the offering and service quality, We saw double-digit growth on our ClearCorrect clinician brand. This B2B business keeps on establishing its presence in the existing market and launching new solutions. On the direct-to-consumer marketing business side, Dr. Smile has seen slower growth, mainly because its core target group prioritized spending on vacations during the pre-summonment. Adding to last year's strong comparison quarter, our digital solutions business continues to show strong growth, driven by intraoral scanners. In particular, the dynamic development of our virtual vivo scanner was a highlight. iOS are the entry point of the digital workflow for clinicians and critical for generating clinical quality and efficiency. As a consequence, iOS market penetration is continuing to gain substantial traction in many markets, which eventually leads to a broad installed global customer base, which is an important element of our digital strategy. And with this, I will hand over to Marcel to provide additional details on the financials.

Thank you, Guillaume, and good morning, everyone. I would like to start by speaking about our revenue on slide 10. As Guillaume also mentioned, Strommen Group's second quarter results reached 621 million Swiss francs with an organic growth of 11.7%. At 2022 exchange rate, our 2023 second quarter would have been 42 million Swiss francs higher. The unfavorable currency effects were mostly related to the depreciation of the euro, the US dollar, the Chinese renminbi, the Turkish lira, and the Japanese yen. The M&A effect in the second quarter, which is mainly attributed to plus dental, added $8 million to our adjusted revenue of $556 million. This strong regional performance was supported by our existing portfolio and by the favorable patient flow in most of the countries, as well as the Chinese market dynamics despite global inflation. Asia-Pacific contributed the largest share of the group's revenue growth in absolute numbers, followed by EMEA, North America, and a strong contribution by Latin America with 9 million Swiss francs. Looking at gross profit development on slide 11, our gross margin for both core and reported amounted to 75.2% in the first half of 2023. Currency adjusted represents a margin increase of 20 basis points. High utilization rates in our production facilities, combined with continued efficiency improvements to contain increases, offset the higher exposure to additional equipment. Let's move to slide 12. Historically, the core EBIT margin has been stronger in the first half of the year. Following this pattern, the core EBIT margin reached 26%, which is a currency-adjusted margin reduction of 10 basis points below the same period in the prior year, despite currency headwinds that had a strong negative impact of 180 basis points. On slide 13, you can see that free cash flow generation is at 112 million Swiss francs, which is 34 million higher compared to the same period in 2022. Overall, the free cash flow margin increased from 6.6% to 9.2%. Capital expenditure in the first six months remained at a high level with 86 million Swiss francs spent, demonstrating the group's commitment to production expansion and digital-related initiatives. The cash position at the end of the first half of the year remained strong at 603 million Swiss francs. Let's continue with slide 14, where I would like to show you an overview of our core financials. Core gross profit rose to 915 million, and core EBIT rose to 317 million Swiss francs, with respective margins reaching 75.2 and 26% in the first half of 2023. The gross margin improved by 20 basis points, while the EBIT margin contracted 10 basis points despite the currency headwinds, which took 100 basis points of the gross margin and 180 basis points of the EBIT margin. Core net profit increased by 18.8% to reach 229 million Swiss francs, and the margin increased by 220 basis points. This primarily reflects unrealized negative currency valuation impact, mainly in emerging markets. Higher interest rates led to extended currency hedging costs and adjustment in their amounts, while interest income on cash balances slightly increased. As a result, core basic earnings per share decreased from one Swiss franc and 69 cents to one Swiss franc and 43 cents. For full clarity, you will find the comparison on a reported IFRS basis as well as the core reconciliation table in the appendix of this presentation, and even more details can be found in the appendix of the press release. The main difference between the current reported numbers is the restructuring costs in the APEC and LATAM regions of 19 million Swiss francs.

And with this, I will give back to Guillaume. Thank you very much, Marcel. And let's move on to slide 16, to talk about recent achievements and strategic updates. To keep the strong growth pace of our implantology business, we are building up on our strong innovations that are fulfilling the high expectations of clinicians about immediate treatments, such as BLX, TLX, and our Zygoma implant lines, while investing further in manufacturing to cater to the global demand. As an example, Our China campus manufacturing site project is developing well, and we should be able to start producing commercial products by the very end of 2024. And a second critical pillar of our implantology strategy is the education side, which is bringing me to slide 17. I'm very proud to announce that we have renewed our partnership with the ITI and therefore reinforced our link between industry, science, and practice. With more than 22,000 members, the ITI is the world's largest education community in implant dentistry. The ITI has always been a very strong partner and key player in shaping industry guidelines for global treatment protocols. With the aim of providing solutions that are clinician and patient-centric, we are committed to evidence-based dentistry. For more than 40 years, we have enjoyed a close and fruitful partnership with the ITI as our independent scientific partner, and we look forward to the continuing collaboration in the years to come. Moving to slide 18, on the challenger side, Education is also crucial for market access and clinical excellence. As an example, Neodent recently held a global congress in Brazil with more than 3,000 international attendees, which was a huge success. Our global education efforts also supported recent launches, such as our Neodent Z ceramic implants and Ontogea X3 solution for immediacy, to keep expanding our challenger brand presence on a global scale. Moving to slide 19, as part of our relentless effort to add strategic innovations to our product portfolio, I would like to highlight our recent acquisition of GalvoSearch. With this acquisition, we are offering a unique medical device that helps to treat peri-implantitis and thus protects patients from implant loss. The Galvo Surge Standard Implant Cleaning System can effectively treat cases from different implant systems. By removing biofilm, the device is designed to support clinicians in eliminating bacteria from the surface of the implants without harming healthy soft and hard tissue. This new addition to our portfolio is offering a great opportunity to partner with new customers in the months to come. Let's move to our recent orthodontics advancement on slide 20. On our road to offer a very competitive orthodontic software, we have done further progress in the second quarter. The ClearPilot update includes features to improve the user experience and streamline dental treatment. ClearPilot now offers enhanced visualization of posterior bite ramps, a new clinical feature allowing doctors to treat patients with cross bites. It improves aesthetics, optimizes patient comfort, and increases the effectiveness of the ramps for successful treatment outcomes. The bite ramps feature is currently in the limited market release phase, and a full release is planned for the first quarter of 2023. This ClearPilot enhancement brings us to slide 21. The software updates can be seen in the planning phase. In addition, all our recent launches enhance our value proposition and form a seamless integrated digital workflow for the treatment of orthodontic cases. Our offering supports customers during their treatment journey to facilitate fast and accurate diagnosis and accelerate treatment planning for simple to advanced cases. Looking at our efforts to implement a full digital workflow in implantology as shown on slide 22, our investments are starting to take ground. We are very pleased with the continued progress of our iOS sales. Those intramural scans are seamlessly integrated into our new Stroman Access digital platform, which is delivering an improved customer experience in North America. which is the only region where it has been launched so far. Currently, Stroman Access is powering the mine-in-a-box workflow and will soon be able to simplify also the prosthetic workflow. With this, I would like to move on to slide 23. As published in our press release, we announced that Young, too, will join the group as Chief Financial Officer and member of the Executive Management Board at the end of August. Young joins from the Kraft Heinz Company, a publicly listed U.S.-American food company, where she was a member of the Executive Committee. Young brings a wealth of experience in corporate finance, strategy, commercial, and business development. She's a very successful leader with a passion for developing talents and building high-performance organizations. We are looking forward to having her on board by the end of August. I would like to take the opportunity also to thank Marc-Alain for leading our finance organization since early January. His strong expertise has been very valuable for the Stroman Group during the past month. He will ensure a smooth and efficient transition with Young and complete his mission by September this year. In addition, another organizational development has been announced during the second quarter. Rama Samo, head of our dental service organization, has decided to lead the group, joining one of our main business partners. The hiring process for a new DSO head is ongoing. Moving on to slide 24, I would like to announce that the science-based targets initiative has approved our group's net zero target. We have committed to care for the planet and society and set ourselves ambitious emissions reduction targets in line with climate science and a trajectory that limits global warming to 1.5 degrees Celsius. By the year 2030, we plan to decrease on scope 1 and 2 emissions, meaning the emissions caused by our own operations, and the ones caused by purchase electricity and heating by 42%. For scope 3 emissions, which are the indirect emissions that occur in the value chain, we are aiming for a 25% reduction. By 2014, the goal is to achieve net zero carbon emissions across all scores. These targets have been evaluated and approved by the SBTI. And that brings us to slide 25, where I will share our thoughts about the outcome. Despite some isolated consumer weaknesses, we believe that the patient flow seen in the first half of the year is expected to remain at a dynamic level in most geographies. Thanks to the differentiated value proposition within our strategic segments, combined with a strong quality of execution from all our team members worldwide, the group remains confident that it will continue to gain market share within its estimated globally addressable market of 19 billion Swiss francs. In the meantime, we will continue to invest in growth and transformation to keep our competitive edge in the coming future. As a result, The group confirms its full-year outlook and expects organic revenue growth to be in the high single-digit percentage range and profitability at around 25%, including growth investments. Now, I would like to open the question-and-answer session.