Straumann Holding AG

So good morning, everyone, and thank you very much for joining us today for this conference on Straumann’s 2019 first-half results. As usual, the conference will include forward-looking statements, so please take note of the disclaimer on Slide 2 and in our press release.

As customary, I will give you a brief overview and Peter Hackel, our CFO, will share the business performance and financial details with you. After that, I will bring you up to date on recent key events, strategic initiatives and our full-year guidance.

Then we will look forward to answering your questions. Before I begin, I should point out that we have adopted the new IFRS 16 lease standard and we have also accommodated the new SIX regulation regarding the consistent transparent disclosure of Alternative Performance Measures, APM.

As a result, we have started to use the term core, which excludes acquisition related asset amortizations as well as exceptionals as indicated in the footnote in Slide 5 and elsewhere in the presentation and media release. As you know, our practice has been to present our results according to IFRS, and in addition to provide you with the numbers, excluding exceptionals in order to show the underlying performance.

Peter will say more about this at the APMs later. 2018 was an outstanding year.

It was our best since 2005. And we knew that it would be a challenge to maintain the high pace.

We therefore guided for total revenue growth to the low teens, which is still 3 times higher than the global implant market. I am pleased to report this morning that we have exceeded that forecast and despite considerable currency headwinds, we have delivered first-half revenue of CHF 780 million, driven by organic growth of 16%.

The strong top-line performance contributed to a 15% increase in our core gross and operating profit with the respective margins reaching 27.5% and 26.3%. In Q2, we began to rollout the many new products that we presented at the International Dental Show in March.

The most important of these is our next generation implant BLX, which entered full market release in EMEA and is now launching in North America. Once again, we demonstrated our passion for creating opportunities with a string of new partnerships and investments, including distributor buyouts, investments in digital technology and services as well as further investment in the lower value implant segment.

These and other gross initiatives, together with geographic rollouts and the continuing expansion of our existing business, give us the confidence to raise our guidance for full-year organic revenue growth to the low- to mid-teen percentage range. Looking at Slide 6 and our sequential performance, with the exception of North America, organic growth was very slightly softer in Q2 than in Q1.

This partly reflects the early Easter and major rollouts in China and Brazil last year. In general, however, we are pleased with the performance, especially in our two largest and most competitive regions, which continue to deliver strong double-digit growth.

The strong revenue growth is reflected through the P&L as you can see on Slide 7. Our core EBIT margin expanded 10 basis point or 80 points excluding the currency impact.

20 basis points of the improvement were due to IFRS 16, which transferred some lease expenses from the OpEx line to the financial result. This explains why core earnings per share grew just 13%, but EBIT rose 15%.

Looking at the historic context on Slide 8, we have succeeded in increasing organic revenue in a highly competitive market at an average of 15% over the past five years in comparison with mid-single-digit growth in the market. Over the same period, our EBITDA margin, excluding exceptionals climbed 390 basis points.

Now, for the business performance and financial details, I will hand over to Peter.

Thank you, Marco, and good morning, everyone. As usual, I would like to begin with our revenue development and the growth trends in our four regions.

On Slide 10, you can see that at 2019 exchange rates, our first-half revenue in 2018 would have been CHF 16 million lower, mainly because the euro, the Brazilian real and the Turkish lira have weakened against the Swiss franc. The M&A effect this year added CHF 5 million to our adjusted revenue of CHF 780 million and was mainly related to 1 month of consolidated Anthogyr sales.

In the middle of the chart, you can see that all our regions posted double-digit increases, bringing organic growth to 16%. This was driven by North America and EMEA, which collectively contributed almost 70% of overall growth, as you can see on the right.

North America, Asia Pacific and Latin America, all grew at a similar pace in H1, and we anticipate that these regions will continue to outpace our stronghold in EMEA. Based on external market data, we believe that our market share expanded in all regions.

As you can see on Slide 11, our largest region, EMEA, maintained its momentum. Also growth shifted between the quarters due to the timing of the Easter break.

The Q2 performance was driven by the continuing success of BLT implants with additional lift from BLX, which was launched in most of the regions’ markets starting in April. The rollouts of Neodent and Zinedent implants, Medentika’s multiplatform prosthetics and botiss biomaterials also contributed to growth.

By geography, France, Russia and the Middle East were the main drivers, complemented by strong increases in Austria, Belgium, South Africa and distributor markets. Because of the pronounced Easter effect, Germany was only able to match its prior year Q2 revenue.

In North America, organic growth edged up to 19%, driven by the U.S. implant business and ClearCorrect which continues to grow dynamically in its home market.

Further customer gains contributed to the strong growth in implants, which was driven by Straumann BLT and Neodent GM. BLX entered a limited release to a selected group of key opinion leaders.

The pre-launch sales were encouraging, but not significant. Emdogain and the introduction of botiss’ Jason Membrane fueled strong growth in biomaterials.

There was also a notable contribution from the clear aligner business, which grew 70%. And finally, the region made further gains in the DSO segment, which accounts now for 10% of its sales.

Moving to Slide 12 and Asia Pacific, Organic growth reached 16% in Q2, slightly less than in Q1, reflecting the very dynamic expansion last year, which was boosted by major rollouts in China and exceptionally strong digital equipment sales in Japan. We continue to benefit from the size and dynamics of the Chinese market and our strong position there.

It remains our growth powerhouse in the region and posted strong Q2 results in line with the first quarter. Together with solid contributions from Australia and Thailand, it more than offset the sequentially slower growth in Japan and soft performances in India and distributor markets.

In general, the region’s performance was driven by premium and non-premium implants and digital equipment. And finally, in Latin America, organic growth remained in the high teens in Q2.

Brazil, which generates more than 80% of the region’s sales, grew in the low teens, driven by Neodent and Straumann implants and boosted by biomaterials, with some additional lift from initial sales of clear aligners. Outside Brazil, our subsidiaries in Argentina, Colombia, Mexico, Peru and Chile all reported organic growth of more than 20%.

The production facility that is under construction in Curitiba is on track to open in Q4 and will meet growing demand for clear aligners and value implants. Turning to the next slide and looking at our performance by business.

Implants and restoratives continued to grow at a solid double-digit rate and contributed the largest portion of growth. Straumann’s Bone Level Tapered implant again posted strong growth and we are on course to sell more than 1 million implants this year.

Initial sales of our new BLX implant also contributed to growth. Once again, our non-premium implant franchise outpaced the premium business driven in particular by the international rollout of Neodent, Anthogyr and Medentika, which helped to win customers and market shares in Brazil, China, Mexico, Turkey, the U.S.

and distributor markets. Anthogyr was consolidated on June 1 and contributed more than CHF 4 million to the group’s first-half revenues.

Our digital business also reported strong sales expansion fueled by clear aligners, also scanners sales were soft in Q2, as customers waited for new models that were presented at the IDS and have only just become available. In addition, supplies of Dental Wings scanners were temporarily interrupted by a fire, which we would tell you about in a minute.

Finally, biomaterials was our strongest growing business, driven by robust sales of bone-graft and membrane products, and the rollout of botiss and Nibec products in certain markets. Before commenting on our key financial statements, let me give you an overview of the special effects in 2019 and the financial implications of changing from excluding exceptionals to core result.

As Marco mentioned, we have accommodated the new alternative performance regulation of the Swiss Stock Exchange, which is designed to provide more transparent and consistent non-IFRS reporting and will facilitate a like-for-like comparison between companies and over time. The new regulation will be mandatory for the full year, but we have chosen to implement it already in our first-half report to ensure consistency in our publications throughout the year.

Slide 14 lists all non-core items that occurred in the first six months of 2019. The only difference between core and excluding exceptionals which was used in the past is the exclusion of amortization of acquired intangibles, which amounted to CHF 9 million and were more or less in line with the prior year.

For your convenience, we have also provided the core figures for the first half and full year 2018 in the backup of the presentation. As announced in June, we paid US$35 million to settle a long-standing patent dispute between ClearCorrect and Align Technology.

A further US$60 million will be paid to complete the settlement, because the potential scanner collaboration mentioned in the agreement did not materialize. Of the total US$51 million, a onetime administrative expense of CHF 26 million, including legal costs of CHF 2 million affected our H1 income statement.

The remainder was already considered as part of the acquisition accounting for ClearCorrect. One other prominent exceptional is related to fire damage at Dental Wings, which was covered by insurance.

The damage expenses are recognized in cost of goods sold and administrative expenses, while the received insurance claim is shown on the other income. Marco will tell you more about this in a minute.

If you require further information about any of the exceptionals, I will gladly provide it when we get to the Q&A. The next slide shows the core financials in a nutshell.

Core gross profit and EBIT both rose 15% with the respective margins reaching 77% and 28%. We achieved further gross profit improvements despite significant investments in innovative technologies and production capacity expansion.

The gross margin improved 60 basis points, while the EBIT margin gained just 10 basis points mainly because of adverse FX effects. In the first half 2018, we benefited from a currency tailwind of 120 basis points in strong contrast to this year, when headwind reduced operating profit by 70 basis points.

Core net profit rose 11% to CHF 170 million. The respective margin just fell short of 22%, 80 basis points lower than last year.

20 of these were due to the adoption of IFRS 16 and 40 basis points due to the revaluation of deferred tax liabilities related to the U.S. Tax Cuts and Jobs Act prior year.

For completeness, you will find the year-on-year comparison on a reported IFRS basis on Slide 16 followed by the APM reconciliation table on Slide 17. Looking at the gross profit development on Slide 18, our gross margin in the first half 2018 amounted to 75.3% on a reported basis or 76.2% adjusted for currency and non-core items.

The improvement this year was mainly due to top-line leverage and efficiency gains, which added 90 basis points. A further 20 basis points were due to a more favorable product mix resulting from softer sales of low margin digital equipment.

As a result, this year core gross profit margin increased 60 basis points to 77.2%. Without the FX headwind the margin would have increased 100 basis points.

As shown in Slide 19, the core EBIT margin expanded 80 basis points to 27.5% due mainly to the aforementioned operational gearing. Higher OpEx expenses reflect our investments in R&D, new markets and new segments.

Unfavorable currency movements cut the margin improvement by 70 basis points, while the adoption of IFRS 16 improved it by 20 points. Increasing demand for our products, geographic expansion and acquisitions all reflected in the continuing growth of our global team, which increased by more than 900.

Almost half joined us through acquisitions including Anthogyr’s staff of almost 400, many of whom are pictured on Slide 20. Most of the new jobs were created in sales and related functions in high growth markets and in production.

Here in Switzerland, we added more than 80 new jobs. As you can see in Slide 21, the combination of the aforementioned operational factors contributed CHF 17 million to core net profit, which increased 11% to CHF 170 million.

Without the one-time IFRS 16 effect, net profit margin would have been 20 basis points higher. Slide 22 provides a breakdown of our cash flow statement.

Operating cash flow increased 23% to CHF 131 million, while free cash flow decreased 7% to CHF 58 million, because of higher CapEx investments. To cater for future growth, we continue to invest heavily in capacity expansion at our existing and new facilities in Villeret, Round Rock and Curitiba.

As a result, CapEx used for our existing business increased by CHF 14 million, and an additional CHF 15 were related to the acquisition of Anthogyr. The change in net working capital added CHF 7 million to the year-on-year changing cash flow.

Days of sales outstanding increased by 3 to 62, while Days of supplies decreased by 6 to 185. Interest and tax payments increased by CHF 11 million.

And with that, I will hand back to Marco.

Thank you very much, Peter. As mentioned earlier, BLX is currently our most important launch and the full-market release got underway in most EMEA countries in quarter two.

This is a large and exciting undertaking with a completely new surgical and prosthetic approach that involves training as well as a wide range of options and components. BLX is highly innovative and is priced at a small premium to our popular BLT range.

The reception has been very positive and we have already sold more than 30,000 despite heavy competitor discounting tactics. The launch program is now also underway in North America and Australia, and we will start soon in Brazil with other key markets to follow pending regulatory approvals.

In addition to developing BLX and the other key products presented early in the year, we have continued to replenish our pipeline with other meaningful innovations. The two new ceramic products featured in Slide 25 are good examples.

The zirconia healing abutments deserves special mention, because they are truly differentiating innovation. They are designed to prepare and shape the gum around the implant during the healing period before prosthetic restoration.

By comparison with titanium, zirconia is more favorable to soft-tissue attachment and less prone to plaque. The new healing abutments support soft-tissue healing and are available for all Straumann bone level and BLT implants.

I’m convinced that ceramic technology offers huge potential in implant dentistry and together with our partners, Maxon Dental and Z-Systems, we have the products, technology, expertise and resources to lead this field. We also have the advantage of a global footprint and a direct-to-dentist network, focusing on value added dental treatments.

This is a key to unlocking the potential of businesses like ClearCorrect, which is a pillar in our strategy to become a leading provider in aesthetic dentistry. Having brought the brands to international markets earlier this year to full market releases in Europe, LATAM and APAC have been constrained by our production capacity, which is fully absorbed by the strong increase in demand in ClearCorrect’s home market, the U.S., where our customer base has grown 15% and the number of new case starts has risen by almost 60%.

As Peter mentioned, our new production unit in Brazil will soon become operational and capacity is also being increased to support our clear-aligner business in China. This business offers us significant growth opportunity, not least because we have succeeded in bringing ClearCorrect’s long-standing patent dispute with Align Technology to a friendly conclusion.

Moving on to Slide 27. On May 9, the headquarters and production center of our Dental Wings subsidiary in Montreal was severely damaged by a fire that was started by construction work in the neighboring unit.

Fortunately, no one was hurt but the facility and much of our inventory were no longer usable. We quickly relocated to contingency locations and were also able to shift some activities to our center in Berlin.

Thanks to the speed, resourcefulness and determination of the team in Montreal, we were able to resume all critical hard and software activities within two weeks, including assembly by our new Virtuo Vivo intra-oral scanner. To concentrate on reducing the backlog of orders for Virtuo Vivo, we will postpone the launch of our new Virtuo Harmony lab scanner until next year.

The material damage of the fire is covered by insurance, and I’m pleased to report that we have already found a new permanent location, which would be fully operational in October. I would like to take this opportunity to commend and thank our staff and the emergency services publicly for their part in getting Dental Wings back on track so quickly.

Virtuo Vivo is one of several intra-oral scanner options that we offer. 2.5 years ago, we began a collaboration 3Shape, which has enabled us to sell Straumann-branded versions of the high-end TRIOS 3 and TRIOS 4 scanners.

Recently, we entered a new agreement to deepen the collaboration by directly linking TRIOS scanners to our software platforms. This will offer fully integrated seamless workflows for our CADCAM prosthetics and computer-guided implant surgery.

In addition, we have agreed to develop a seamless workflow for TRIOS users to plan and order ClearCorrect, clear aligners through an exclusive app that will be included in future software updates. The digital workflows will be available on all TRIOS scanners that we sell and on other TRIOS scanners, depending on the respective distributor.

The collaboration gives us at options and convenience for customers as well as growth opportunities for our clear-aligner implant and prosthetics businesses. As you can see in Slide 29, less than 4% of dental clinics in China are equipped with intra-oral scanners, but the market is emerging rapidly.

With regulatory approval still pending for our Dental Wings scanner and TRIOS 4, our options are limited. We have, therefore, entered a distribution agreement with Carestream to sell a co-branded version of their CS3600, which has regulatory approval in China and is certified for our DWOS software.

It is also compatible with our new Chinese clear-aligner solution from Smyletec. Another advantage is that the scanners are produced in Shanghai, but Carestream also operates R&D and customer support centers.

With state-of-the-art equipment and software, our intra-oral scanner portfolio is highly competitive. It ensures availability across regions and markets, and meets all custom requirements as you can see on Slide 30.

In addition to these collaborations, we are announcing two full acquisitions today that also support our digital business. We entered the 3D printer market three years ago by investing in Rapid Shape.

To complement the business and to generate recurring revenues with consumables, we are now acquiring Yller Biomateriais, a Brazilian company that specializes in the development and manufacture of high-tech materials for 3D printing. The other acquisition is Digital Planning Service Private Limited in Pakistan, a treatment planning and diagnostic company for clear aligners, which handles case planning for ClearCorrect.

In summary, our digital business has entered three collaborations agreements and made two acquisitions in order to gain fast market entry and to gain full control over an important service provider. Apart from these agreements, we have made several transactions to advance our strategy of penetrating unexploited markets and segments.

To strengthen our foothold in the fast growing lower-value implant segment and to compete more effectively in markets where Korean brands are successful, we have invested in the South Korean implant company, Warantec. We estimate that this segment in Asia alone represents a 1.5 million implant market opportunity.

In return for a capital increase, we have obtained a 34% stake in the company, and exclusive distribution rights to its products in China and other countries outside Korea. Slide 33 shows you how Warantec complements our implant portfolio, which now covers all implant price levels in the Asia Pacific region.

Until now the Straumann Group has been represented in Taiwan through domestic distributors in T-Plus, the implant company in which we hold a controlling stake. To gain direct access to customers, we have established and opened our own subsidiary.

The inauguration event was combined with a scientific forum attended by 500 KOLs and dental professionals. Taiwan is an attractive market where more than 400,000 implants are sold per year.

To create further growth opportunities in the Balkans, we have acquired the business and sales team of our former distributor in Croatia and are establishing a hub there to serve the local market as well as the distribution network in Albania, Bosnia, Kosovo and Montenegro. More than 130,000 dental implants are placed annually in this Adriatic sub-region.

Having our own local subsidiary provides the basis to invest in building the market and increasing our share. Our last piece of news concerns the DSO business.

In quarter two, ClearChoice renewed its long-standing agreement with us as the preferred dental implant supplier for further five years. ClearChoice Dental Implant Centers are North America’s leading network for full-arch tooth replacement treatment.

In addition to premium and non-premium implant systems, we will provide digital solutions, biomaterials and tailored services to their growing network of 56 centers, enabling doctors to continue offering innovative and high-level dental implant care to their patients. And that brings me to our outlook for 2019, which is summarized in Slide 38.

In brief, we expect to continue outperforming the global dental implant market, which we see growing at around 4% to 5% in 2019, which includes our own significant growth contribution. Based on our first half performance, we expect to achieve full year organic revenue growth in the low- to mid-teen percentage range.

We also expect core EBITDA and EBIT margin improvements in spite of further investments and excluding effects related to foreign exchange rates, acquisitions and the adoption of IFRS 16. As you know, our guidance is always barring unforeseen circumstances.

The recent upset in trade relations between the U.S. and China is an example of an unforeseen circumstance that has affected currency exchange rates, as you can see in Slide 39.

In the present environment, it is very difficult to make forecasts that account for currency movements, which is why we have excluded the effects of foreign exchange rates in our guidance. And now, I would like to open the question-and-answer session.

As usual, we will begin with our guests here in Basel before opening the lines to webcast participants. [Operator Instructions] Kindly limit yourself to two questions.

This will give all participants a chance to ask a question within the available time. So please, [Sohel] [ph], can we have the first question from the room.

Yeah. Hi, it’s Oliver Metzger from Commerzbank.

My first question is on your guidance. So given the strong organic growth 16% in first half, and only comparatively moderate increase of the guidance, so you still have the low in your wording, could you describe the scenario as to why you’ve still have kept the low end of the guidance, because you have already some good momentum from the first half?

My second question is on BLX. You named a more aggressive pricing of competitors.

Are you surprised by the magnitude of the price decreases of them? And have you seen any changes for your loss strategy given this apparently more challenging environment?

Concerning the guidance – so I’ll take the first question, concerning the guidance. It’s the increase of the guidance which reflects all to the good results and the good performance of the first half this year.

In 2018, you are probably aware we had a second strong – second half with a record growth of almost 19%. And Marco has also mentioned there some macroeconomic environment which we cannot influence right now.

So I think the guidance reflects – is a fair reflection for our full year expectation based on the good first 2019, and a fair balance between upsides and opportunities that we’ve seen, but also with certain risks that we see in the market environment.

And to your second question, we’re obviously talking about one very specific competitor. And yes, we were actually surprised by the amount of the discount increases.

You – I guess, you’re aware of the impact this have on the overall performance of that franchise, more than 300 basis points reduction in EBIT margin and without actually significant positive impact on the top-line, and this ahead of the IPO. So obviously, we were surprised by this move.

We also don’t believe that this is actually sustainable.

Thank you. It’s Chris Gretler at Credit Suisse.

I have two questions. The first with respect to – could you actually quantify the impacts now from the fire at the Dental Wings operation plus the capacity constraints at the clear-aligner business?

And then I think you also mentioned that you ran some constraints on instrumentation set for BLX. So maybe – I mean, I don’t expect individually, but at least an overall kind of an impact quantification maybe.

That will be my first question. And the second question, maybe I think you did mention the mini implant as s a growth driver, maybe could you quickly discuss how that’s going, and then also how you’re getting on with new material for the clear-aligner business.

Obviously, we have some internal numbers in terms of what the impact was of the three topics you mentioned. Obviously, we have quite an important backlog when it comes to delivering – to invoicing not to delivering and invoicing digital equipment, among others, due to the fire in Montreal, which actually slowed down the production of the Virtuo Vivo.

So we are expecting for the second half of this year, stronger development when it comes to digital equipment compared to the first half. I think that’s a statement we can make today.

This might potentially also have an impact on the gross margins, because we all know, digital equipment’s gross margins are lower than, for example, premium implants. When it comes to clear aligners, we have to delay the launch the full market release in Europe to Q4, because of the production constraints, which we have in Round Rock.

Our plan is still is to deliver to customers in Western Europe out of our Round Rock facility at least for the foreseeable future. And also when it comes to launching our clear aligner business in China, we are not yet where we should be in terms of production capacity.

So I think these are statements we can make today. Please, Chris, understand that we are not actually putting a hard number behind this, these are obviously upside potentials for the second half of the year.

When it comes to mini implants, mini implants had a much stronger second quarter compared to the first quarter in terms of selling mini implants. Honestly, there is still quite some convincing to be done internally, not actually to our customers.

This is actually something new for our sales force. So we have to do some internal convincing that this is actually a valid and good option, especially for elderly patients and for patients who don’t need a fixed restoration for the next 40 years.

We are getting this message through slowly but surely, and I’m actually sure that from 2020 onwards, we will actually see much higher volumes coming through when it comes to mini implants. The last question was on clear-aligner materials.

We are actually cooperating with the company, which has also delivered in the past, the largest player in this market. We have two projects ongoing to develop clear aligners with, I would say, a more user friendly, a more comfortable material.

We will, however, not launch this material this year. So this is something to be expected for 2020.

Chris, and let me add one comment on the fire at Dental Wings. What we have reported in the first half year is the property damage, including all the assets that we have into respective insurance claim that we will get back from the insurance.

If in the second half, we are facing temporary higher costs because of extraordinary business circumstances, such as moving costs to the new location, obviously that is covered by respective insurance claims as well.

Jelovcan, Mirabaud. The first question is on DSO, you mentioned in the press release, it’s now 10% of North American sales.

I would be curious to know a bit more about the margin. Is the EBIT margin already quite robust or even better than the group EBIT margin?

That’s – this kind of stuff I would like to know. And the second one is the BLX launch now in the U.S.

compared to BLT, I guess due to the market structure, the U.S. launch, maybe you can also talk about the experience in the prelaunch must be quicker than here in Europe.

Is that – and cannibalization must be less. Is that a fair assumption?

Thanks.

First question on the DSO margins. If you look at the DSO business, just the gross margin levels, obviously it’s slightly dilutive.

Clearly, because the prices we get from DSOs, the discounts we have to grant are higher compared to an average dental practice. However, if you look at the EBIT margin, it’s not dilutive because we obviously need less infrastructure and less support structure to serve DSOs as compared to many, many dental practices who would make up the volume of sales we generate with one single DSO.

BLX, the U.S. market is obviously the key market when it comes to BLX, our key competitor.

When it comes to fully tapered premium implants, has a very strong franchise, a very strong business, still in the U.S. We have actually attacked part of that business, when we launched Neodent back in 2014.

However, also still today, when we look at the market for fully tapered premium implants, the U.S. is actually the most attractive markets for us, and obviously, the keyed target market for BLX.

Excellent.

Daniel [Gruenstein] [ph] from Vontobel. So a question on the BLX rollout in the U.S.

Can we expect the full rollout, as you have achieved now in Q2 in Europe? Or are you ramping up capacity and this will be more gradual?

Yeah. So we’re going to rollout BLX in all parts of the U.S.

So it’s not that we just start with East Coast or West Coast or anything, it’s actually a full market release throughout the whole territory of the U.S. and by the way, also Canada.

We have managed over the last couple of weeks to actually take tension out of our supply chain. So we are – we had any – we had supply problems with the traders, that was actually the issue.

We’re about to have these issues resolved, so I do not anticipate that actually the launch will be hampered by supply problems.

Daniel Buchta from Vontobel. Two questions, if I may.

The first one on the N1, I mean the first indications on what it can do are out now. The implant itself was launched at the IDS already.

But what Nobel highlights in particular is this new process of implantation. Can you say a little bit more of what we know at the moment, how this could affect BLX, whether you still see BLX far ahead of Nobel’s offering and how you see that?

And then the second one on the profit warning from Align we have seen. I mean Align mentions two reasons.

The one is increased competition, obviously we all know that. But Align also mentions that an aggressive marketing of DTCs could affect the traditional way of how selling aligners, so basically, they’re orthodontist business.

Do you see that as well in your aligner business? I mean, case growth has slowed a little bit compared to Q1 where it was 70%.

Now it’s just 55%. Thank you very much.

Obviously, we take the launch of the H1 seriously. I think you are aware that the launch is not happening, as we speak.

It will be actually a launch over the next quarters. And as I understood out of the information provided by the respective company in the U.S., it will happen in Q2 of next year.

So it’s in the future. Clinical evidence is not available yet.

But honestly, we have to take this seriously. It’s – I think, it’s a move which was necessary to protect the franchise.

It will make – let’s put it that way, our lives a little bit more difficult. So it will maybe take a little bit longer to convince today’s competitive customers to switch to BLX.

But I think in the long-term, the potential for us a market of more than CHF 200 million with 0% market share today, this is an incredible potential for us. Your second question on direct-to-consumer, underlines profit warning.

Yeah, obviously this is a trend. And I think you’re all aware of the upcoming IPO for SmileDirectClub.

These direct-to-consumer franchises are popping up like mushrooms, left, right and center. So obviously, this is also a topic we have to consider.

But also keep in mind, we have today mainly a U.S. business, so the potential for us to take this business global, first, into Europe, we’re already in Brazil a little bit and then actually into Asia Pacific is still inherent.

And we also will actually have to think about different go-to-market channels. I think this is a statement we can also make today.

So we have to take this seriously and come up with a corresponding reaction.

Vontobel Asset Management. My question is going back a bit to Oli’s question about the market in the second half.

So do you see any trends in July, where you see any markets to slow down a bit? Or have you seen any clouds on – there?

Can you give a bit more feeling to us what we should expect?

Yeah. Obviously, we don’t comment individual months, but because you asked the question, I – you get an answer.

July has been a very strong month, so to the contrary. We haven’t seen a slowdown.

Now it’s just the first month in the third quarter, so how should we take this. But to give you a clear answer to your question, no to the contrary.

And now we would like to move to the webcast participants and the guests on the phone. Chorus Call, can we have the first question please from your line, please?

Perfect. Thanks very much.

I have one left. On the market shift away from parallel-walled into tapered solutions, just in general, do you think we’re done with that shift now?

Do you think the current split between those modalities that that’s how it will be for the future? Or do you think there’s still more to go in terms of those unit shifts across?

Thank you.

I can only give you an answer when looking at our own internal numbers. Obviously, our parallel-walled tissue-level franchise and parallel-walled bone-level franchise are not the most prominent growth drivers of our business.

I think you fully understand that. BLT and now BLX, these are actually the two franchises when it comes to premium dental implants, which are driving growth.

The nice thing about tissue level and bone level, we have a very loyal customer base, so there are hard-core bone-level parallel-walled and tissue parallel-walled fans and users, and that actually – is actually the positive news. Clearly, if you look at also the latest clinical data and if you look at what immediate placement can do to the patients in terms of reducing treatment times, time-to-tooth, these are obviously very appealing indications to patients, and that’s what more and more patients expect today, and that’s also why if you look at the different segments, that’s why fully tapered and apically tapered implants in general have higher growth rates compared to parallel-walled ones.

But from a clinical point of view, I think, we all know long-term clinical outcome parallel-walled implants are still an excellent solution, and there are many hard-core fans of parallel-walled solutions and indications.

Got you. That’s helpful.

Thank you.

Hi. Thanks for taking my questions.

I’ve got two, if I could. So just on the first one, I wanted to follow-up on the end-market question we had earlier.

So some of your peers in North America are talking about market weakness in implants. Is that them just justifying the share losses to you or are you seeing anything changing in that end market?

And then the second question was on EBIT margin, so you had 80 bps of core EBIT margin expansion in the first half of this year? And your guidance is for continuous improvement, which I understand is around 30 basis points.

So how should we think about the H2 development? Is it just mix from more digital sales or is there something else we should be thinking about?

Thank you.

I’m sorry. Could – we couldn’t actually understand you very well.

Could you repeat your first question again? Sorry.

Yeah. Absolutely.

Can you hear me, okay, now?

Yes.

Okay. Good.

So the first question was just on the North American end market. Some of your competitors are talking about some market weakness in implants.

So is that them just justifying share losses to you? Or are you seeing anything change there?

Market weakness in implants. We get quarterly data for the development of the total premium part of the market.

And when looking at Q1 of 2019 based on the data we get and we get the same date as our key competitors, the North American market and specifically the U.S. market has been developing at a higher rate compared to Western Europe.

I can make this statement here. So it always depends how you look at this.

And also if you look at Q1 2019 compared, for example, to Q4, Q3 2018, there was no sign of weakness or no sign of actually slower growth. And again, this is data we share with all the relevant players in the North American market or in the dental implant market in general.

To the second question, I would like to hand that over to Peter.

Yeah. If we are talking about the operating margin in the second half and from the full year.

Generally, the second half is from a margin point of view, obviously a bit weaker than the first half mainly because we have the full people that joined us in the first half of this year already onboard. For the second half and at the year-end, we usually also start to hire the people, especially on the sales side so they are – that they are up and running for the beginning of 2020 already in the market.

However, if I exclude the FX impact in the second half then I think that the margin expansion of the first half year is a good proxy for the second half and for the full year as well, and taking into account that the second half is usually slightly less strong than the first half year.

Great. Thank you, both.

Thanks and good morning. So my question, the first one is on the BLX rollout.

Initially you expected some 300,000 incremental implants in year one. The current run rate of some 30,000 units is noticeably behind the target.

But obviously, you have been impacted by these very strong competitor actions. So do you think your ambitious target is still achievable?

Or what would be a more realistic number for BLX implants in year on? And my second question is on the Asia Pacific region.

Have you noted any increased price competition on the implant side in any of the Asian countries in the course of 2019? Thank you.

Yeah. Maybe there was a misunderstanding when it comes to the number you just mentioned.

I don’t recall that we mentioned that we’re going to sell in the first year 300,000 BLX implants. We’re going to sell that over a period of hopefully the next three to four years.

Yes. If we’re going to sell this year more than 100,000, I think, we will – we would be happy.

With 30,000 in the first six months, I think, we are on a good way, keeping in mind that we have just launched in IDS BLX in Europe that we are now also active in the U.S. But we will have full six months in all European markets.

So I think a target of 100,000 for the full year, I think that’s already an ambitious one. So 300,000 – I’m sorry, if at any occasions we might have mentioned this number, I don’t recall it to be honest, but this is obviously something which is not possible.

Sorry to state that.

Okay. And on Asia Pacific?

Can I just interrupt for a second? Just to specify, Marco mentioned before the CHF 200 million market opportunity.

This obviously – how do we estimate, or how do we come around with this calculation? So we estimate that the market for fully tapered premium implants is roughly 1.8 million units times the ASP for the implant and abutment, that brings us to a market opportunity of roughly CHF 600 million.

And we estimate or we aim to shoot for about one-third market share gain over the next few years. And therefore, that’s a CHF 200 million market opportunity for Straumann in the premium segment.

And on Asia Pacific, your second question, price pressure. No, we have not seen ASPs coming down in the Asia Pacific region during the first six months.

Okay. Thank you, both.

Thank you and good morning. I have two questions and hopefully, maybe a follow-up.

First question is on BLX, can you comment on what the actual growth contribution was to organic growth EMEA region in the second quarter? Question number two is on ClearCorrect, and I would like to sort of follow-up.

Can you explain why both the case growth and your customer base growth in the second quarter slowed materially compared to where we were in Q1 of this year and the previous one or two quarters ending 2018? I still don’t understand why the slowdown occurred in the second quarter?

Thank you.

Yeah. I’m just thinking how to answer your first question without giving too much information.

We mentioned we sold roughly 30,000 implants in the first six months, I guess, you can all calculate or you all know more or less the ASP per stack of BLT. So if you take that number times 30,000 and you add a price premium of BLX compared to BLT of roughly 5% to 6%, that gives you a number that you can assume that, that number is incremental growth half year one 2019 compared to half one 2018.

And then I think you can do the math. On your second question, yes, you are right.

We saw a slowdown in Q2 compared to Q1. However, still growing more than 50%, I think that’s still a very strong development.

So I guess, your question is [we see] [ph] only 30% growth, I don’t think so, no. All – maybe if you help me a little bit with the second question.

All right. So if I look at your customer base growth, it seems it’s slowed down 12% or so, or let’s call it 10%, 11%, 12% in the second quarter.

A pretty weak number compared to what we saw in the previous three quarters. And therefore, I would have thought that customer base acquisition is probably the lead indicator for the growth potential over the coming quarters.

Why was the customer base growth so weak in comparison to what we’ve seen in Q1 where it was 20%; Q4, where it was 30%? Help me understand why it slowed.

Okay. So – no, it didn’t slow, because we were also growing customer base in Q2 of this year.

So it didn’t slow. The growth rate is not the same anymore, but it’s not like you’re not gaining new customers anymore.

What we have today compared to 12 months ago, we have larger customers. So we are actually gaining larger customers, converting larger customers.

And we also see more and more of our customers doing more and more cases, okay. So the average number of cases per customer has increased quite significantly.

Great. That’s very helpful.

And then, a final question on BLX, please. And that is, when you first launched BLX, there was a certain opportunity that you had expected, and you mentioned now that you didn’t expect such a strong price discounting by Nobel Biocare.

How do you feel about the opportunity now given that we’ve got strong discounting, because before you sort of reiterated the midterm outlook in terms of units? But what is the midterm outlook in terms of revenue if your major customers discounting implants by 30% or 40%?

Thank you.

The CHF 200 million opportunity stays in place. So this is actually independent of what the company you just mentioned is going to do going forward.

We all know they will be public company starting rather soon. So they have to deliver also on expectations of their shareholders.

So I don’t think that they will actually, right now, start a silly price war, which will actually not help anybody. On the other hand, what we also see is that we sell BLX not on price, okay?

Obviously, we can actually not ask double the price compared to the incumbents’ star product. However, this – the features and benefits which we have with BLX compared to the incumbent, customers are actually ready to pay a quite significant price premium for BLX compared to the other product.

First of all, because they need less prosthetics components in their practice, because it’s faster to place the implants due to the simple drilling protocol. And certainly, they can actually do more immediate cases with our implant compared to the incumbents’ implant.

And this is actually tangible value which we can provide to our BLX customers. So obviously, we don’t like the reaction of the other company when it comes to pricing.

Clearly, we don’t like that. But we see this more than kind of it will take us longer to get to our ambitions, to fulfill our ambitions than actually making them getting out of reach.

Great. Thank you.

Good morning, gentlemen, and thank you for taking my questions. I have two, please, actually sort of follow-ups to some of the questions that have been asked earlier.

One, Peter, I was hoping you can help us think through the gross margin development, both sort of year-on-year in the first half and then how we should be thinking about it in the second half in the context of expectation of faster growth for the digital business, that would giving us a little bit of a bridge in terms of the impact would be very helpful. Then my second question is actually a follow-up on to Michael’s question.

Can I just confirm, you have not changed your pricing strategy for BLX since launch and since you’ve seen the discounting or have you changed the prices that you are launching the product at? Thank you.

So shall I start with the first question on the gross margin development? Gross margin for the first half of this year was very strong, coming from three effects, I would say.

First of all, the pricing discipline that we’ve seen in the market. Second, a favorable product mix.

You have seen that we have a tailwind of 20 basis points due to lower softer digital hardware sales. I would expect that the digital equipment sales in the second half are considerably stronger.

So we would not only see a reverse left that effect in the second half. And in the second half, I would expect a slightly lower gross margin and declining gross margin.

And the third impact was also, despite the capacity constraints that we have in all the implant manufacturing sites, we were able to further harvest efficiency gains, which is outstanding achievement of our operations colleagues in these manufacturing sites. And in the second half and for the full year I would expect slightly declining gross margin mainly coming from a more unfavorable product mix in terms of gross margin perspective in the second half 2019.

And on the pricing, again, if you look at the gross margin, there is no indication that we actually lowered ASPs or prices. To the contrary, as Peter just pointed out, we are very disciplined, especially on BLX.

Our target is to clearly position BLX above BLT. This is actually due to the fact that our cost of goods sold, our manufacturing costs for BLX are still considerably higher compared to BLT.

So we have actually to sell BLX with a premium compared to BLT to make the same absolute gross margin when selling BLX compared to BLT. And we are actually diligently following up on price developments by country, even going down to the sales rep level to make sure that we don’t do silly things on pricing when it comes to BLX.

That doesn’t mean that we are not opportunistic. So if we can actually switch a large competitive account obviously then we are actually more flexible.

But in general, we are very disciplined, as Peter pointed out, when it comes to pricing, specifically on the BLX side.

That’s great. Thank you.

Good morning. I’ve got two questions and one sort of statement, if that’s right.

The two questions, so wondering if you could give us some sense with respect to BLX launch of how much of that is coming from existing Straumann customers kicking out somebody else to use your fully tapered and how much is coming from competitor conversions? I guess, it goes to the question of how easy it is to continue that growth trajectory from here.

The second question was just on the ClearChoice contract. I wondered if you could give us some color on what you mean by preferred?

I assume, as you use that term, that the relationship business exclusive, but just some color around maybe where there’s some volume commitments or percentage of their business is committed by the nature of that preferred contract. And then lastly, I’m not sure if had anyone do it, so I’ll do it now.

But I just wanted to thank Fabian maybe on behalf of all of us for his help and assistance over the last 10 years. I think, I speak for all of us when I say Fabian is probably one of the most thorough and diligent IRs in our sector.

So thanks for all the help over the last 10 years, Fabian.

First question, share of wallet versus completely new accounts. It’s roughly 50-50 right now.

In terms of ClearChoice, ClearChoice is our single largest customer worldwide with a very nice development. When we actually acquired the business back in 2014, they were running 32 clinics.

They are now running more than 50 clinics. So we are actually growing with this customer.

There are no volume commitments on their side, so there are no minimum order quantity you contractually defined, but the businesses actually has been growing very, very nicely.

Great. Thanks very much.

Thank you. I have two please.

I guess, firstly, just on clear-aligner sales in Q2, and just to clarify that, was the contribution from outside U.S. pretty minimal, because now you have basically delayed the full launch in the 4Q this year.

And then secondly on DSO, I know you mentioned ClearChoice, but I’m just wondering, on your overall DSO customer base, maybe can you comment on the growth rate there. How much have you expanded your DSO customer base in the first half of this year?

Thank you.

The clear-aligner business outside of the U.S., specifically when looking at Europe and Brazil, has been less than CHF 1 million for the first half year, I think, we can state that number. Our DSO customer base, yes, we are constantly expanding our customer base.

We would obviously like to mention the wins, the customers specifically. However, very often they are – they don’t like that.

So that’s why we are not publicly announcing some of the larger wins, which we were actually enjoying in – also in Q2. What I can tell you is that our DSO business is over proportionately growing compared to the rest of the business.

I think this statement we can make, and that we are actually constantly gaining new accounts.

Okay. Great.

Thank you.

Yes, hi. Thanks for taking my questions.

Actually most are – have been answered. Just could you remind me of the exposure that you have to Argentina?

Do you remember that you’ve entered the market a couple of years back and now in light of the recent developments in that country, could you just give us an update of the relevance for your revenues, and how you see the market developing for you? Thank you.

Argentina. Overall, if you look at Argentina compared to Brazil, it’s roughly 3% of the Brazilian market.

I don’t know if that helps. But actually it puts the Argentinian business into perspective.

So it’s 1 to 30. So we make more than 30 times more – generate more than 30 times more revenue in Brazil compared to Argentina.

So it’s a nice business in terms of growth. And looking obviously at local currencies, not converted into Swiss francs.

But it’s actually at the still relatively low level.

Thank you.

Hey, guys, thanks for taking my question. Most have been answered, but maybe just on clear aligners, just following up on Michael’s point.

I think he was getting to the fact that case starts, obviously, had a big step-up in Q1 and Q2 year-on-year. But Q2 versus Q1 looked a bit flatter.

I just wanted to sort of get a feel for, it sounds like you’ve had some capacity constraints, and you’ve got some more capacity coming online. Should we expect another step-up with that capacity coming online or should we expect that capacity to come on more gradually?

Thanks.

Yeah. So again, I don’t think that flat is the right, is the right, is the right word to use.

We had 55% more case starts compared to Q2 of 2018.

I think the point comes from – on Slide 26, when we look at case starts Q2 versus Q1, actually it doesn’t show much growth.

Yeah. Okay.

Maybe we have to choose another way of presenting the numbers, you don’t see here the growth, I agree. But there is growth.

So we sold more cases in Q2 compared to Q1. So next time we should change the grid or however we present that.

Just a housekeeping, considering the fact that you have now some smaller acquisitions done, the impact in the second half of acquisitions, can you give us the guidance of how much it will be?

Obviously, if you look at the first half, I said, out of the CHF 5 million about CHF 4 million are coming from the Anthogyr. So you can extrapolate that.

If you take that CHF 4 million per month, I mean we consolidated Anthogyr one month only in the first six months. So if you take the July figure and extrapolate that for the full year, then I think you come to a reasonable assumption for the Anthogyr impact.

And then I would expect – I would extrapolate the other remaining million also for the full year. And then, I think you have a right reasonable assumption for the full year.

So that the new ones you announced today are small? Very small?

Yes.

And the very last question. A small Swiss implant company presented a worldwide innovation at IDS.

I read it just now. A digital implant, meaning that they can do it 3D without an abutment, just everything tailor-made on the implant, I mean, have you heard about that?

And what do you think about that? And do you have maybe even any plans in the future?

Thanks.

Yeah. You talk about the company with three letters.

Yes.

Yeah, we are fully aware of their system. We had a deep look into this.

It’s kind of interesting. It’s actually something we had developed many years ago, and we didn’t think it makes commercially sense.

And we were even approached by this company if we might be interested in actually distributing the corresponding solution. That’s all I can say right now.

Maybe to conclude, we have one final question from the webcast participant. This person would like to know our situation in China.

The growth of some of the Korean companies have been quite strong over the past couple of years. If we are able to compete head-to-head with those guys in Korea, so, i.e., are we showing also growth rate in China of 30%, 40% on the implant business obviously?

If we also show the growth? Yes.

Yes. We do.

So we can confirm that? So I think those are all the questions we had from both in the room, from the Chorus Call line as well as from the webcast.

Marco, if you want to finish with the closing remarks, please.

Yes. Before closing, I would like to introduce you to Marcel Kellerhals, who is taking over responsibility for Investor Relations at the beginning of next month.

Marcel is our Head of Corporate Finance, and prior to joining Straumann in 2018, he spent 16 years in finance in the global logistics industry. Before that, he worked in client relationship management for three Swiss banks.

His knowledge of the capital markets and our reporting systems will make him a valuable Investor Relations partner for you. Marcel is taking over from Fabian Hildbrand, who is leaving us to pursue a career opportunity in another industry, so not in implants or medtech, another industry.

I guess, you will communicate to the relevant people what you’re going to do. As Head of Investor Relations and market intelligence, Fabian has done a truly exceptional job in serving Straumann shareholders and investors community over the past 12 years.

He has earned great respect and friendship throughout our stakeholder community, and I have no doubt that you will want to join me in thanking him and wishing him all the very best for his future. So thanks again, Fabian, and again, a warm round of applause.

As I understand, you will actually introduce Marcel to the key stakeholders. There will be, as I understand, a lunch next week in Zurich, so you will have ample opportunity to get to know Marcel better.

So I would like to thank you all again for joining us today. We look forward to seeing you at one of the upcoming [EO] [ph] event, which are listed on Slide 24 – 42.

But for now, we wish you all a wonderful rest of the day. Thank you.