Straumann Holding AG

Good morning or good afternoon to you all. Thank you for joining this conference call on Stroman Group's full year results for 2023. After almost four years, it's great to hold this full year presentation in hybrid format. Again, with some of you joining us in person here in Basel at our headquarters. Please take note of the disclaimer in our media resumes 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 discussion will include some forward-looking statements. The conference will follow the usual format. As shown on the agenda on slide three, I will share with you some highlights of our strong results. Then our CFO, Yang Xu, will dive deeper into the financial details. After that, I'll update you on our key strategic initiatives and the outlook. Your presentation will follow by a Q&A session where Yang and myself will be happy to answer your questions. Let's start with our highlights and move directly to slide five. In 2023, we kept our focus on our perform and transform strategic agenda. We continued innovating, adapting, and further expanding, which led to another very strong year. Despite the macroeconomic challenges and geopolitical tensions, the team achieved organic revenue growth of 9.8% or 2.5 billion Swiss francs in revenue for the full year. Taking the strong currency headwinds into account, revenue growth in Swiss francs was 3.9%. The fourth quarter was strong with 624 million Swiss francs in revenue, corresponding to an organic growth of 13.2%. It was also a strong achievement to deliver a high profitability of 25.1% for the year, despite the significant currency impact on our business and considerable investment in our future growth. In partnership with dental professionals, our dedicated and customer-focused teams help 5.6 million smiles globally, compared to 4.4 million in 2022. With this remarkable growth, we are on track to achieving our goal of 10 million smiles annually by 2030. One critical point of 2023 is our performance in China. The implant volumes in both the premium and challenger segments significantly grew after the Chinese authorities introduced a volume-based procurement process early in the year. I will come back to that later in more detail in the presentation. Another major highlight is the 81 engagement score that we achieved with our employment survey, which is three points above the global Glint benchmark, placing the Stroman Group in the top 25% of companies worldwide. We are strongly convinced that culture is and will continue to be instrumental in the success of our company, short, mid, and long term. While we expect geopolitical and microeconomic uncertainties to continue having an impact on the business in most geographies, the overall patient flow is expected to keep a positive dynamic. In addition, our continued investments in innovation, education, digital transformation, and the skill set of our team members worldwide are laying a solid foundation for the future. As a result, in 2024, the group aims to achieve organic revenue growth in the high single-digit percentage range and profitability at around 26% at constant 2023 currency rates or between 24% and 25%, including expected FX headwind. With this, let's move on to slide six. In 2023, we gained market share in all businesses and across all regions. The patient flow was dynamic with distinct regional differences. The two largest regions, EMEA and North America, reported high single-digit organic revenue growth, Latin America showed a remarkable consistent growth rate of around 20%. And as previously mentioned, Asia Pacific stood out with its performance driven by the implant volume growth in China. EMEA, as the largest revenue contributor, showed good patient flow, resulting in organic revenue growth of 7.6% for the year or 5.8% for the fourth quarter. Both premium and challenger implant business segments showed strong growth, and the digital business remained at very good level. For the orthodontics side, on the one hand, the doctor-led direct-to-consumer business, Dr. Smile Performance, has been impacted by a softer consumer demand, which affected, as a consequence, the EMEA overall regional results. On the other hand, The group significantly gained traction with its orthodontics B2B offering in MEA through its clear correct brand activities. North America showed a solid 6.7% organic revenue growth for the year and had a strong fourth quarter with 7.2% growth. This despite some more challenging market conditions that slowed demand progressively over the year, especially on the large implant-based reconstructions and orthodontic treatments. The digital business is growing fast, and our Stroman Access platform is now driving our small-in-a-box service solution through an improved customer ordering process. The implant business remains the primary growth driver, with both the Stroman Premium and the Neodem Challenger brands growing. LATAM consistently delivered around 20% organic growth, with Brazil as the region's largest revenue generator, thanks to the implant brand Neodent, and Peru being the fastest growing country in the region. Nationwide, educational events helped attract new customers and expand market share in the region. Highlights were the 30-year Neodent celebration and the ITI Congress held in Chile in the fourth quarter. Looking now at Asia-Pacific outside China, the region showed good performance with Australia, Japan, and India driving growth. While the performance in China was impacted by COVID-19 at the beginning of the year, the significant volume increase starting from Q2 onwards supported APAC to reach an organic revenue growth of 15.8% for the full year. And let's have a closer look at the development in China on slide seven. Early 2023 was marked by the consequences of COVID-19 and the introduction of a volume-based procurement process by the Chinese authorities. This was followed by a strong pent-up demand in the second quarter and increased patient flow. a result of both the postponed treatments due to COVID-19 and the implementation of the VBP, which is significantly reducing prices. The team on the ground quickly adjusted the setup and the sales strategy and was able to more than offset the considerable price reduction As a result, 2023 was marked by remarkable volume growth in implant volumes in both the premium and challenger segments, notably the Stroman and Antogir brands. And with this, I hand over to Yang for a deep dive into the financial details.

Thank you, Guillaume. Good morning and good afternoon, everyone. So let's move directly to slide nine, where you can see the revenue development. At 2023 exchange rates, our full year 2022 revenue would have been 145 million Swiss francs lower. There was significant year-over-year currency impact, mostly driven by U.S. dollar, euro, and Chinese renminbi. To put the currency impact into perspective, it is more than three times higher than the previous year's currency impact, which amounted to 43 million. The M&A effect in 2023 added 20 million Swiss francs to our adjusted revenue base. This was largely related to the acquisition of Placidento and our distributor in the Baltics. As previously mentioned by Guillaume, our two largest regions grew high single-digit, while APAC and LATAM reported strong double-digit organic growth for the full year. On the right-hand side, you will see the contribution of the regions to the organic revenue growth of 216 million Swiss francs. Almost two-thirds of our growth was generated by EMEA and APAC. Based on our estimates, we gained market share in all regions. Slide 10 leads us to our performance by business segments. Stroman's premium and our challenger implantology business both performed very strongly with double-digit growth in volume. Premium implantology was primarily driven by BLT and Stroman's immediacy portfolio. The challenger brands continued to expand their global footprint with strong double-digit growth in all regions. Neoderm stood out as the leading challenger brand, celebrating its 30-year world tour and sustaining very strong growth momentum across the regions. In orthodontics, our clear, correct B2B business reported double-digit growth. We remain dedicated to strengthening its geographical presence in existing markets and introducing new solutions and further increasing our educational effort. In our direct-to-consumer orthodontics business, namely Dr. Smile, slower consumer demand significantly impacted the growth of the business, which also led us to book an impairment charge. Our digital solution business continued with its growth contribution to the group's overall performance. In particular, the virtual vivo scanner performed very well. The division posted almost double-digit growth, primarily led by the North American region. With the recent acquisition of a light star, we expect to further expand our installed intraoral scanner customer basis, which will help us to increase market penetration through our multi-brand and multi-price approach, which is the backbone of our strategy. Looking at gross profit development on slide 11. Our gross margin for core and reported amounted to 74.3% and 74.1% respectively in 2023. Currency adjusted, this represent a margin contraction of 30 basis points. The portfolio mix represented a headwind of 40 basis points. High utilization in our production facilities combined with continued efficiency improvements to minimize cost increase partially offset negative portfolio mix and China VVV pricing impact. The strong street franc impacted the growth margin by 110 basis points. Now, let's move to slide 12. Driven by top-line growth and efficiency gains, the core EBIT margin reached 25.1%, which is 90 basis points lower than the reporting number in the prior year. Considering the substantial currency headwinds of 200 basis points, our 2023 core EBIT performance represented a significant improvement in terms of operational profitability. In fact, looking at our core EBIT at 2022 currency rate, it would have been at 27.6%. As previously mentioned, our doctor-led direct-to-consumer DrSmile business was impacted by the challenging macro environment and the reduced willingness of health consumers to seek aesthetics treatments. In addition to that, DrSmile is switching its marketing strategy from paid to organic demand generation to prioritize profitability over revenue growth. As a result, we have incurred one-time non-cash impairment charges for the DrSmile business, Such goodwill impairments combined with amortization of acquisition relating intangible assets and one of restructuring costs results in a reported EBIT margin of 17%. Now let's have a closer look at the cash development on slide 13. Our free cash flow was 316 million Swiss francs, 95 million higher compared to a year ago. Overall, the free cash flow as a percentage of net revenue increased from 9.5% to 13.1%. Cash flow from operating amounted to 504 million Swiss francs, 89 million higher than 2022, primarily driven by slower increase in net working capital versus a year ago. Capital expenditures reached 189 million Swiss francs, which continues to be at a high level to support our future growth. During the year, we had a cash outflow of 117 million Swiss francs for our M&A investments, such as for Gobble Search, Alightstar, and our distributor in the Baltics. Cash from financing activities was primarily driven by the repayment of our bond of 280 million Swiss francs and the dividend of 127 million Swiss francs, which brings us to our ending cash on hand of 410 million at the end of 2023 and the net cash position of 172 million Swiss francs. Turning to slide 14, let's take a look at our core financials. For full clarity, you will find the year-on-year comparison on the reported IFRS basis as well as the core reconciliation table in the appendix of this presentation. More details can be found in the annual report. As mentioned before, the main difference between the core and reporting numbers are one-time non-cash impairment charges, mainly related to goodwill recognized for the Dr. Smart business, amortization of acquisition-related intangible assets, and some one-off restructuring costs. The strong Swiss franc was a very strong headwind for our revenue and profitability in 2023. Net financial expenses amounted to 54 million Swiss francs, reflecting increased currency hedging costs, as well as currency loss in the group's main exposure in U.S. dollar, euro, and Chinese renminbi, as well as emerging currencies. For 2024, we anticipate the currency volatility to persist, impacting both EBIT and financial expenses. Core net profit decreased by 8.5% to 441 million Swiss francs, resulting in a margin of 18.3%. FX adjusted basic core earnings per share increased by 9% to 2.76 francs. Now, on slide 15, We wanted to outline our longstanding and successful capital allocation priorities. As a growth company, our first capital allocation priority is to reinvest in organic, sustainable future growth, keep maintaining a strong balance sheet through cycles, and to deploy capital on mergers and acquisitions to accelerate strategy. And lastly, we also intend to maintain and continuously increase the absolute dividend amount with earnings growth. This leads me to slide 16. Based on the 2023 results, our board of directors proposed a dividend of 85 cents per share, which is subject to shareholder approval and payable on April 18th, 2024. 40 of the 85 cents are proposed to be paid from capital contribution reserve. This year's dividend represents an increase of about 6% and a core EPS payout ratio of about 30%, which is fully in line in the capital allocation priorities I just presented. And with this, I hand back to Guillaume.

Thank you, Yang. Let's move on to slide 18 straight away. As we grow, so did our overall addressable market, which we estimate to have grown to above 19 billion Swiss francs in 2023. Starting with implantology, which is our core business, the market grew from 5.4 to 5.6 billion Swiss francs, which is about 4% growth. We were able to win many new customers and hence increase our market share from about 30 to 32% during the course of the year. At the same time, as you can see on the slide, there is still a lot of room for us to grow. To ensure we keep capturing a significant share of this market potential, we must continue to invest in our future growth. Let's move on to slide 19. With the clear objective to become more resilient to potential macroeconomic downturns, we have transformed our organization over the past years and diversified strongly in terms of geography, business segments, and solution offerings. As we significantly increase the revenue share of North America, Latin America, and especially Asia Pacific, our global footprint is much more balanced today. We also estimate that the number of general practitioners who can place implants has doubled since the financial crisis in 2007, which is also improving our resilience in case of challenging microeconomic conditions. Our business mix is also more resilient today. We invested in the digital business segment, entered orthodontics with the acquisition of ClearCorrect in 2017, and have expanded into the non-premium segment of implantology where there is still a lot of growth potential. Finally, we have also significantly diversified our implant brand offering in order to cover the different price points and ensure our competitiveness in those different segments. Next to our iconic Stroman brand in the premium segments, we have our Neodent, OntoCheer, Medentica, and Nuvo challenger brands. Now let's move on to slide 20 and have a closer look at our global company strategy. As mentioned before, people are the key to success and the ultimate lever to deliver performance through flawless strategy execution. Culture is the main driver for any transformation and business growth, and this is why we ask our employees every year for feedback. I am pleased that in 2023, we again achieved a high employee engagement score of 81, three points above the global GLEAM benchmark, which is a sine qua non condition for strong execution. This puts the group in the top 25% of companies worldwide. Now let's move to slide 21 and dive into our strategy, which will support our future growth. Our group strategy is illustrated with the strategy compass. It shows our business priorities with customer centricity at the heart and defines the everyday priorities of all teams. Our key pillars to success across all our business areas are innovation, education, and clinical evidence. As an example, in 2023, we demonstrated our focus there by increasing educational activities by another 15% globally across all brands. Now, let's have a closer look at how this is applied to premium implantology on slide 22. Innovation is the critical pillar of our double-digit volume growth in the premium implant segment, which was mainly driven by our immediacy portfolio, such as BLX, followed by the BLT line. Apically tapered and fully tapered implants that are designed for immediacy approaches are growing faster as they offer shorter time-to-teeth treatment options, which are preferred by many health consumers. This is why we are also excited about the prelaunch of our new premium implant system IXL for both bone and tissue level treatments. It offers the unique benefit of four distinct implant design with the simplicity of one single implant system, empowering surgeons to select the ideal implant during surgery. The first full market release was in January 2024 in the US. and we will share the learnings with you when we present the first quarter results. We innovated again in the implant preventive segment through the acquisition of Galvo Surge in 2023. We can now offer a unique medical device that helps to treat peri-implantitis and protect against implant loss without arming healthy, soft, and hard tissue. As this dental implant cleaning system can be used regardless of the implant brand, It also offers a great opportunity to keep supporting our strategy to partner with new customers. Next to innovation, education is another key pillar of growth. Combined with our scientific approach, which sets us apart from the competition. A good example of demonstrating our dedication to offering evidence-based quality solution is the recent 10 years' data showing that the rock-solid unique material performs better than titanium. In addition, during 2023, we renewed our partnership with the international team for implantology called ITI, which is the world's largest education community in implant dentistry with more than 22,000 members worldwide. Let's move to our challenger brands on slide 23. In the value segment, geographical expansion combined with innovation and education are our strategic imperatives. We launched an expanded in-pro innovations such as the Neodent Z ceramic implant and Ontogea X3 solution for immediacy in the challenger segment. In addition, education is very important to ensure market access and market share gain. In 2023, the 30 years Neodent World Tour was a huge success, combined with a global congress in Brazil with more than 3,000 international attendees. As you can see on the slide, there is still plenty of growth potential for Challenger brands across all regions. Let's move on to slide 24 to review our orthodontics progress. As for the implant business, innovation and education are also key success factors for orthodontics. Our Claire Craig brand introduced many new features through our several software releases in 2023. which helped to treat a larger number of indications. Due to the increased number of cases, we opened a new treatment planning site in Costa Rica that will support our growth. Moreover, significant investment in education is of utmost importance to continue to build on the brand's recognition, awareness, and reputation globally. We train thousands of clinicians on orthodontics, which is an important part of the geographical expansions of ClearCorrect. Let's move to slide 25. Digitalization transforms all aspects of the dental industry, from patient communication and practice management to diagnostics and treatment. The entry point to any digital workflow are intramural scanners. They are the foundation for driving more users to our Stroman Access platform. And therefore, I'm pleased that we could further increase the installed iOS customer base in 2023 through our successful partnership with FreeShape and our own device, Stroman Virtuo Vivo. To continue building our installed base of intraoral scanners, we acquired Ally Star, which will allow us to continue offering attractive solutions at different price points. As a highlight, Ally Star is being launched in China as our only group intraoral scanner in the country. As digitalization is evolving, we are investing in applications supported by artificial intelligence to provide increased efficiency to clinicians, SmileCloud being a good example of such a solution. But we are also investing in our own AI development, like our CoDiagnostics AI Assistant. Launched in the fourth quarter of 2023, CoDiagnostics is a software clinicians and dental technicians use to plan implant surgery. The AI Assistant helps with the digital planning of implant positions, providing various measuring and planning functions, such as automatic nerve canal detection, distant measuring, and monitoring features. This leads to more predictable results in both simple and more complex implant surgical cases. The AI Assistant has been developed together with implant specialists and addresses important pain points of surgical planning, which are mainly anatomy visualization and available time to plan. This leads me to slide number 26, where you can see how everything will be connected. Building our digital platform Stroman Access, we aim to create a unique customer experience through integrated cloud-based clinical workflows for implantology and orthodontics, driving efficiency in dental practices. The platform plans to integrate all our software applications, services, and solutions, encompassing the spectrum from initial patient engagement to pretreatment diagnostics, followed by comprehensive planning, treatment, and monitoring through the post-treatment phase. In 2023, we further build the infrastructure of our digital platform Stroman Access, and made major progress in adding new solutions, such as Smile in a Box and the Implant Registry on the platform. Following the successful introduction in North America, we plan to launch TromaNaccess in more regions this year. Let's move to slide 27. Culture is key when it comes to our digital transformation, as it is not only about technology. Key to success is, as always, through the people dimension. We believe that fostering a digital mindset in our organization will help us become the digitally powered oral care company we aspire to be. Not every employee needs to learn how to code, obviously, but every employee needs to be literate in digital skills. This is why we launched the initiative Age Up worldwide. AgeUp provides a platform for employees to explore, engage, and improve their digital skill set. We designed a specific cultural AgeUp workshop to develop further agile working methods inside of our organization. We also encourage on-the-job and peer-to-peer learning. Talking about our people, this is a good transition to slide 28. Wolfgang Becker, the head of EMEA, will retire this June after 40 years of service with the group. It is hard to overstate all that Wolfgang has done for the company and all his colleagues over so many years. He has played a key role in the company's success in all the positions he has held, and he's a truly outstanding and highly respected leader, a role modeling the Stroman Group culture like no one. He has been instrumental in building a loyal, expanding and trusting customer base and delivered outstanding performances together with his teams. On behalf of all colleagues, I want to thank him for his dedication, infectious optimism, energy and leadership. We wish him a happy and fulfilling retirement from June onwards. With Wolfgang leaving, Holger Haderer, the current head of implantology business unit, will take the lead of the EMEA region. Holger joined the group in 2006. He is an experienced leader and has excellent track record in marketing, sales, and innovation. Coming from the various roles he has held in the group, whether it was as managing director of the German subsidiary or as a regional head of marketing in Western Europe. Most recently, he has led and transformed the core business unit of the company, Implantology, over the last past four years. He strengthened a newly established strong partnership with key opinion leaders in dental implantology across all our regions. As a strong culture ambassador, Olga is the perfect fit to lead our largest revenue contributor, the EMEA region. With this, I'm also very pleased to announce that Andreas Utz, an internal talent who is currently managing director of Stroman Group Germany, the third largest subsidiary in terms of revenue contribution, will lead the implantology business unit and also join the executive management board. André has joined the group in 2004 and has an outstanding track record in leading global innovation programs, marketing initiatives, commercialization and sales organization to success. We are convinced he's an excellent successor with the right experience and passion for leading our implantology business, as well as being a role model for our company's culture. We wish both Olga and Andreas all the best and a lot of success in their new roles. And with this, let's move to the next slide. Slide 29 shows our progress on our sustainability goals. As mentioned before, I am proud that we, together with dental professionals, helped to create 5.6 million smiles in 2023. And I am pleased that we reached a score of 77 with regards to employees saying that they have good opportunities to grow and learn in our organization. It is also great progress that we're using 93% of electricity from renewable sources today, compared to 80% in the prior year. And on top of that, the Science-Based Targets Initiative, SBTI, validated our ambitious commitment to achieve net zero emissions by 2040. The bold sustainability ambition we set in 2021 is definitely a journey. We achieved 40% for women in leadership positions. The global education activities increased by 15% worldwide, but decreased to 28% in the low and middle income countries due to the VVP process in China, which temporarily reduced our education activities in the countries. You will find more details on our sustainability progress on page 44 of our annual report published today. Let's move now on to slide 30. As mentioned earlier, to ensure we keep capturing a significant share of our market potential, we must continue to significantly invest in our future growth. In 2023, we invested 189 million Swiss francs mainly focusing on the expansion of production capacities in Switzerland, Brazil, the U.S. and China, and the financing of the initial digital transformation phase. As already mentioned by Yang, we also acquired our distributor in the Baltics region, as well as innovative companies such as Galvo Surge and the intraoral scanner brand Allied Star. Furthermore, we continuously invested in the capabilities of our team members worldwide and hired new team members who drive core activities or contribute to the group's digital transformation. As a result, our global workforce grew to more than 11,000 employees. And with this, let's go directly to slide 32 to speak about the outlook. While geopolitical and microeconomic uncertainties continue impacting consumer confidence in different geographies, we expect the overall patient flow to keep a positive dynamic overall. Thanks to our differentiated value proposition in all key business segments, combined with strong execution from all our team members worldwide, we remain confident that we will continue to gain market share within the estimated global addressable market of above 19 billion Swiss francs. Our geographical diversification capturing to different price points and our extensive training efforts results in more clinicians being able to perform implant and orthodontic procedures. In the meantime, we continue to invest in growth and transformation to maintain the competitive edge of Stroman Group going forward. Taking all of this into account, in 2024, the Group aims to achieve organic revenue growth in the high single-digit percentage range and profitability at around 26% at constant 2023 currency rates, or between 24% and 25%, including the expected FX headwind. With this, we also confirm our 2030 long-term ambition. And now I would like to open the question and answer session. As usual, we will first take the question from our guest here in Basel before opening the lines on the phone. If you have a question, please press star and one on your phone to join the queue. kindly limit yourself to two questions. This will give all participants a chance to ask a question within the available time. So please, can we have the first question from the room? Please.