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NobelActive enjoys continued launch success; US/Western Europe sales and margins affected by economic environment; emerging countries continue strong growth
- Revenue growth at constant exchange rates (CER) minus 1% at EUR 456.6 million
- Economic environment affected US and Western Europe sales and margin
- Revenue in the emerging markets up 40% (CER)
- Gross profit EUR 374.0 million; margin at 81.9%
- Profit from operations (EBIT) EUR 115.3 million; reported margin 25.3%
- Financial result at EUR -20.9 million - almost unchanged vs. Q2
- Basic earnings per share of EUR 0.58
- Operating cash flow up to EUR 103.8 million - improved working capital
- Strengthening of organization further progressed
- Excellent uptake of NobelActive continues; >100,000 implants sold since pre-launch
- Strengthened position in digital dentistry: acquisition of Medicim; partnership with Imaging Sciences Int'l.
- Market clearance for key products received in Japan in October: NobelSpeedy/Groovy
Domenico Scala, CEO: "As already indicated on 10 October, our improving revenue momentum in the third quarter was adversely affected by the rapidly deteriorating economic environment in the second half of September, in particular in North America and some larger European markets. This offset the improved results from our organizational transition, which aims to achieve heightened customer focus. Due to the company's high operating leverage, the revenue slowdown has adversely affected our margins and led to a disappointing quarterly result. Revenue development in Asia continued at a double-digit pace and will be further supported by the regulatory approval of NobelSpeedy and Groovy in Japan. In all recently entered and emerging markets, we continued to show strong double-digit growth. NobelActive customer response continues to be extremely favorable and has already led to more than 100,000 implants being sold. Despite the more challenging environment, we continue to pursue initiatives to reinforce our sales organization, improve our operational effectiveness and rebuild trust among our customers, and by so doing creating the base for an improved and sustainable performance once these economically uncertain times will be over."
For the first nine months of 2008, revenues (CER) were down 1.0%. Reported revenue decreased by 5.9% versus the prior-year period to EUR 456.6 million. Revenue growth (CER) declined 2.8% in the third quarter. Reported revenue for the quarter decreased by 7.3%.
In Europe, Middle East and Africa (EMEA), revenue (CER) for the first nine months declined by 5.0% to 215.4 million. Revenue (CER) in the third quarter declined by 5.2%. Customers increasingly displayed a more cautious ordering pattern, particularly in large markets such as Spain, Italy and the UK. Russia continued to grow strongly. The recent management changes in Germany and Switzerland have started to stabilize the previously unsatisfactory business performance. In Sweden, a higher activity level was observed in September following the change of reimbursement at the beginning of the quarter. NobelActive continues to attract existing as well as new customers. This product was the main feature at the World Tour events in Maastricht, Madrid and Lisbon, which with its new focus on customer needs and science were very well attended.
In North America, revenue (CER) for the first nine months decreased by 0.9% to EUR 147.0 million. Revenue (CER) in the third quarter declined by 6.5%. A substantial market slowdown was observed during the last two weeks of September. This slowdown has continued in October. The current economic uncertainty thus further increased the cautionary ordering pattern observed at the beginning of the year. Most dentists operate as sole proprietors, so their practice capital, used for funding their purchases, is closely tied to their personal wealth. Many clinicians also report lower visibility of prospective patient flow. As a consequence, most customers continue to de-stock and currently carry low inventory levels. NobelActive continues to perform well, especially in terms of competitive accounts. Nobel Biocare is still adapting its go-to-market approach by means of heightened customer orientation and is receiving increasingly positive feedback.
In the Asia/Pacific region, revenue (CER) for the first nine months was up 12.8% to EUR 78.6 million. Revenue (CER) growth accelerated modestly to 13.3% in the third quarter. Growth in the region was supported by a strong Q3 in Japan (+18.5%), where growth continued to outperform the market. This was achieved even without NobelSpeedy/Groovy, for which regulatory approval has now been granted and initial product shipments commenced in late October. The Procera production facility in Tokyo, opened one year ago, continues to expand and now also provides the full line of bridge solutions to the Asian markets. Strong growth continues in India and China. More than 1,000 participants attended the very successful World Tour in Taiwan, where Nobel Biocare established a direct presence during Q3.
In Latin America / Rest of the world, revenue growth (CER) for the first nine months was negative 4.5%. Revenue growth (CER) in the third quarter was negative 12.3%. While revenue growth in Mexico and Colombia accelerated in the quarter, performance in Brazil continued to be sluggish. The World Tour events in Mexico and Brazil have contributed to a good acceptance of NobelActive.
Gross profit for the first nine months of 2008 amounted to EUR 374.0 million (2007: EUR 408.9 million), which corresponds to a reported margin of 81.9%. On a CER basis, this equates to a decline of 3.8% versus the prior-year period. Gross profit for the third quarter was EUR 105.3 million, thereby representing a gross margin of 79.3%. In addition to lower volumes, the gross profit margin declined mainly due to a less favorable business/product mix and the consolidation of AlphaBioTec. Pricing discipline in the US remained better than in Europe.
Profit from operations (EBIT) for the first nine months of 2008 was lower at EUR 115.3 million (2007: EUR 156.1 million) due to lower reported sales, a decline in the gross profit margin and costs related to the expansion of the workforce, investments for strengthening the organization and acquisitions such as AlphaBioTec and Medicim. Q3 operating profit amounted to EUR 22.5 million. Measures to improve efficiency were initiated earlier this year and have shown some initial benefits in Q3. At CER, the operating margin for the first nine months would have been approx. 100bp higher.
Currencies - Reported revenues decreased 5.9% compared to 2007 on a full year basis. This is mainly attributable to the weaker US dollar. At the operating profit level, the stronger Swiss franc has exerted a negative impact on the margin, while the weakening of the Swedish krona has only recently started to have a favorable affect on the Group's margin. During Q3, the Group began implementing a more systematic approach to hedging operating revenue streams and initial currency gains have accrued to the benefit of the bottom line.
Net financial expense and Group tax rate - Net financial expense was EUR 20.9 million for the first nine months of 2008 (2007: EUR 1.5 million) and EUR 1.3 million for the third quarter. This stabilization of the financial result was achieved through more systematic currency hedging and related unrealized foreign exchange gains, which partially offset the negative currency impact in the operating margin. On the investment side, a further impairment of EUR 5.2 million had to be recognized as a result of the latest market turmoil associated with the global financial crisis. Consequently, the estimated year-end 2008 tax rate has increased to 25%.
Net profit for the first nine months of 2008 amounted to EUR 70.8 million (2007: EUR 121.1 million) and to EUR 13.5 million for the third quarter. The decline was attributable to lower operating profit and higher financial expense in H1 2008.
Cash flow from operating activities in the first nine months increased to EUR 103.8 million versus EUR 81.8 million recorded in 2007 (+27%).
Cash and cash equivalents including bank overdraft amounted to EUR 147.9 million at the end of September 2008 versus EUR 186.2 million at year-end 2007 and EUR 79.2 million at the end of September 2007. While large payments were made for the return of capital to shareholders and the related taxes, as well as for the acquisitions of AlphaBioTec and Medicim, the de-risking and subsequent monetization of the Group's financial portfolio, together with an improvement in trade receivables since H1, have further increased the Group's financial flexibility.
Share repurchase program - Since the approval of its new share repurchase program in May 2008, the Group has bought back 532,000 shares for a total consideration of EUR 12.3 million.
Progress in enhancing the platform for sustainable growth:
Reinforced market leadership in standardized products - NobelActive continued to show strong market acceptance and performance in Q3. Over 100,000 NobelActive implants have been sold since its introduction to the market, and more than 90,000 implants in 2008, alone. NobelActive expands treatment options for experienced users and achieves high initial stability - even in limited or compromised bone situations - as well as a better esthetic result. NobelActive is a unique implant with clear benefits and in Q3 continued to serve as an effective motivator for customer conversions. Based on this success, Nobel Biocare in early 2009 will launch the NobelActive line extensions with additional diameters and lengths as well as new innovative prosthetic components. The NobelReplace product family, with high ease-of-use and predictability, is the preferred implant solution for single-tooth restorations and has become the most widely sold implant system in the world. The innovative All-on-4 clinical procedure, based on NobelSpeedy not only offers a cost-effective solution for fully edentulous patients, but also substantial functional benefits in terms of improved quality of life. With 40 years of experience and clinical documentation, the Brånemark implant system continues to be a strong foundation of Nobel Biocare's business.
Strengthened position in digital dentistry - With the acquisition of Medicim in Q3, Nobel Biocare demonstrated its continued commitment to becoming the leader in digital dentistry. In addition, in order to grow the installed base of NobelGuide treatment planning software, Nobel Biocare entered into a partnership with ISI (Imaging Sciences International), the global leader in cone beam 3-D imaging solutions, which foresees the pre-installation of the planning software on all their i-cat cone beam 3-D scanners. The objective is to create a leading platform for complete oral rehabilitation: from digitally supported diagnosis, CAD-based treatment planning, through to individualized prosthetic manufacturing, a complete process that will significantly increase treatment predictability, efficiency and esthetic results.
Improved go-to-market - In Q3, progress has been made in the organizational initiatives aimed at re-establishing Nobel Biocare's reputation as a leading partner in science-based innovation, achieving sharper customer focus, improving field-force effectiveness and enhancing operational efficiency. Corporate advisory boards, composed of leading clinicians and researchers in the field of restorative and esthetic dentistry, have been established in all major markets. The sales force has been substantially strengthened in all regions since the beginning of the year, and personnel turnover has substantially decreased. Group-wide, the workforce has increased by 350 individuals (including bolt-on acquisitions and going direct in emerging markets) since the beginning of the year and now amounts to a total of 2,592 employees worldwide.
Outlook: In view of the increased economic uncertainty and discretionary nature of some of the company's products, Nobel Biocare expects a further slowdown in growth for the remainder of 2008. Nobel Biocare anticipates that its growth will underperform the market average this year due to its geographic and business mix, which is weighted toward large-case treatments, as well as several country-specific issues. The company is confident in the long-term fundamentals of the business. However, given the current economic environment, it is not possible at this time to provide any reliable quantitative guidance. These issues notwithstanding, Nobel Biocare will make the necessary investments to grow its business sustainably, while continuing its measures to contain costs. Nobel Biocare will continuously review the situation and respond to future changing market conditions.
Telephone conferences for investors and analysts will be held today 3 November 2008 at 08:30 am CET and 2:30 pm CET, respectively.
To ensure timely participation, please call approximately 5-10 minutes prior to the times indicated above.
Dial-in numbers for the conference calls:
+41 91 610 5600 Continental Europe
+44 20 7107 0611 UK
+1 866 291 4166 USA
For additional local dial-in numbers, please check the separate list on our website.
A digital playback service will be available approximately 90 minutes after each conference until Thursday, 6 November at 5:00 pm CET.
+41 91 612 4330 Continental Europe
+44 20 7108 6233 UK
+1 866 416 2558 USA
ID code for 8:30 am call 10831#
ID code for 2:30 pm call 12022#
Financial reporting calendar 2008/2009:
Full Year Report 2008 11 February 2009
Annual General Meeting 6 April 2009
Interim Report 1, 2009 29 April 2009
Interim Report 2, 2009 12 August 2009
Interim Report 3, 2009 4 November 2009
The full Interim Report 3 for 2008 is available in English, while an abridged version of the report is available in German.
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