Letter to Shareholders SEMI-ANNUAL REPORT 2008
Dear Shareholder You have in your hand the first shareholder letter issued by Nobel Biocare. Thanks to the conversion of Nobel Biocare s bearer shares into registered shares, we can maintain a more direct dialogue with you from now on. Going forward, we will use this medium to inform you about our financial results as well as other important events that have an impact on our business. Your company, Nobel Biocare, is reporting a first-half 2008 financial performance that is in line with the guidance indicated previously. The performance reflects the current economic environment, with all its uncertainties, but is also an expression of the transitional phase in which the company still finds itself. Revenues for the first half of 2008 totaled EUR 323.8 million and net profit amounted to EUR 57.2 million in local currencies. Revenues thereby reached the level recorded in the first half of 2007. We were able to compensate the significant sales impact from last year s World Conference in Las Vegas. Net profit was lower than in the comparable prior-year period. This was mainly due to investments in realigning the organization, but it was also the result of one-time special charges as well as a lack of scaling effects that should return in step with increasing sales. The realignment started to show positive effects already in the first half. Nobel Biocare managed to expand its customer base in all regions. Thanks to the successful market introduction of our new product, NobelActive, new customers are being acquired continuously. In North America, the reinforcement of the management and sales teams has shown initial positive signs and led to increasing sales. In Europe, revenues came in below expectations. However, in the coming quarters, the initiatives that have been introduced will contribute to putting Europe back on the growth path as well. Asia continued to record significant increases in sales. The actual growth markets e.g. Russia, India and also China achieved high double-digit growth rates. Against the backdrop of the company s re-alignment, the results for the first six months of 2008 are satisfactory. We are not satisfied, however, with the development of Nobel Biocare s stock. The share price has suffered not only from the general equity market correction but was also a result of the necessary process of coming to terms with the company s lapses of the past. We are convinced that the current price level does not reflect the potential of Nobel Biocare. We are the global No. 1 in restorative and esthetic tooth replacement market. Nobel Biocare is involved in a future-oriented market and one of the most attractive segments of the healthcare sector. The markets for dental implants as well as full ceramic prosthetic solutions e.g. crowns, bridges and laminates are young markets with considerable growth potential. No other company in the industry has more customers, a larger geographical reach or a more comprehensive range of products. Our products enjoy a high level of acceptance in the market, and they stand for innovation and high quality. Our innovative power is evidenced by the fact that more than 60 percent of Nobel Biocare s revenues comes from products that were introduced after 2005. Nobel Biocare is a leader in its commitment to research and development, and we protect our innovations by having the most extensive patent portfolio in the industry.
The successful market launch of NobelActive underpins that innovative power. Our balance sheet is sound, and we generate above-average cash flow. The company is tackling the realignment in a comprehensive and energetic way. In the first half of 2008, the organization was strengthened, various initiatives were pursued forcefully, and the corresponding financial means were invested. Of central importance was improving the dialogue with customers, authorities and partners. To that purpose, Advisory Boards are being created on a global scale in order to create a platform for discussion with key customers on important topics in the industry as well as our product range. Strengthening the relationship with our customers is a core task of the highest management level. The response from customers and dental societies has been very favorable and encourages us in our efforts to intensify this dialogue even further. In view of developing existing markets and tapping new ones, Nobel Biocare in the first half of 2008 reinforced and further trained its sales teams throughout the world. The company s marketing activities were focused in a manner that lends more emphasis to the values customer benefits, scientific reliability and quality. Nobel Biocare s global presence was expanded through the addition of two new subsidiaries in Taiwan and Hungary. The revamped and equally focused concept of the World Tour conferences has proven its worth. The events in Shanghai, Mumbai and Singapore during the first half of the year met with avid interest and, with around 60 percent of the attendees being potential new customers, the conferences were a clear success. Nobel Biocare has laid out its scientific and clinical standards more precisely and firmly in order to meet the most demanding requirements. No new product may be launched without exhaustive tests and clinical studies having been conducted beforehand. For existing products, the related long-term studies are now carried out systematically. The successful launch of NobelActive in the first half of 2008, with 60,000 implants sold to date, exceeded our expectations and was conducted according to the new standards. The introduction was preceded by a one-year clinical trial as well as a multi-month, global test phase in which specially trained dentists took part. The innovative technology of NobelActive originates from the Israeli company AlphaBioTec, which we acquired in April. With this acquisition, we have also ensured our medium-term access to some of the fastest growing segments of the implant market, such as maxillo-orthopedic miniscrews and small-diameter implants. Simultaneously, the takeover has enabled us to expand and strengthen significantly our market presence in Israel as well as several Eastern European and Latin American countries. Great attention is dedicated to strengthening the organization. As was the case already in previous quarters, the Executive Committee was reinforced even further: Dr Dirk W. Kirsten as Chief Financial Officer, Dr Hans Schmotzer as Head of Research and Development, and Dr Alexander Ochsner, as Vice President Sales Europe, Middle East and Africa (EMEA) have joined the company recently. As a result, the top management team was expanded by three very experienced managers who bring with them in-depth professional expertise and solid market know-how.
Corresponding efforts are also underway at lower management levels. In North America, our most important market, we concluded the re-alignment of our organization in the first half of the year. Both the management and sales teams were strengthened. In Europe, new Country Heads were appointed for Germany, Switzerland and Great Britain. This clearly demonstrates that Nobel Biocare is in the position to attract renowned figureheads in the industry. Overall, this reinforcement of Nobel Biocare has led to a 12 percent increase in headcount, i.e. 299 employees, since the beginning of the year, which brings the total workforce to 2,541, whereby the lion s share of the increase in headcount relates to our global sales team. These measures are bearing fruit: Nobel Biocare is regaining trust. Accordingly, we maintain our revenue and growth guidance for the entire year. On behalf of the entire Board of Directors and Executive Committee, we would like to thank all of our employees. In the face of our re-alignment, which occasionally requires considerable extra effort, they have demonstrated loyalty and commitment. In particular, our thanks go to Nobel Biocare s customers for their collaboration as partners, as well as to the patients for their trust in our products. And to you, our valued shareholders, we would like to express our thanks for your loyalty, which cannot be taken for granted in such volatile times. We are doing all we can to earn that trust by achieving continued progress. With regard to the company s strategic orientation, we firstly want to strengthen our leading position in the area of implants. Secondly, our goal is to expand Procera s market leadership in full ceramic, individualized prosthetic solutions. Thirdly, we want to play a leading role in shaping the trend toward digital dentistry. And lastly, we aim to continuously enhance the company s efficiency and thereby enhance our competitiveness. These goals require endurance and patience and will have to be tackled in stages, as the past months have taught us. However, we are confident that in the second half of 2008, step-by-step, Nobel Biocare can return to a sustainable path of growth. Rolf Soiron Chairman of the Board Domenico Scala Chief Executive Officer
Selected financials in EUR million Half year 2008 Half year 2007 Growth in % Revenue 323.8 341.7 5.2% Revenue growth in local currencies at CER 2008 (%) 0.2 20.0 Gross margin (%) 83.0 84.6 Operating expenses in % of revenue 54.4 52.6 Return on equity (%) 22.9 24.1 Gross profit 268.7 289.0 7.0 Profit from operations (EBIT) 92.7 109.4 15.3 Operating (EBIT) margin (%) 28.6 32.0 Profit for the period 57.2 85.6 33.2 Profit margin (%) 17.7 25.1 Basic earnings per share, EUR 0.47 0.69 31.9 Non-current assets 265.3 203.7 30.2 Current assets 387.8 296.2 30.9 Total equity 260.9 295.6 11.7 Total assets 653.1 499.9 30.6 Cash and cash equivalents incl. bank overdraft 107.5 68.0 58.1 Net cash from operating activities 59.1 48.1 22.9 Investments in property, plant and equipment and intangible assets 21.8 17.7 23.2 Employees at end of period 2 541 2 176 16.8 Regional revenue split in EUR million Half year 2008 Half year 2007 CER Growth 2007 2008 Europe, Middle East and Africa (EMEA)* 160.3 170.8 5.0% Proportion of total revenue 50% 50% North America 100.4 110.9 1.9% Proportion of total revenue 31% 32% Asia/Pacific 52.4 48.4 12.6% Proportion of total revenue 16% 14% Latin America/Rest of the world* 10.7 11.5 0.2% Proportion of total revenue 3% 3% Total 323.8 341.7 0.2% *2007 restated to reflect management structure The complete half-year 2008 financial report can be downloaded at the Nobel Biocare website: http://investor.nobelbiocare.com/
Corporate Nobel Biocare Holding AG P.O. Box, 8058 Zurich-Flughafen Switzerland Phone +41 43 211 42 00 Fax +41 43 211 42 42 Investor Relations Süha Demokan Head of Investor Relations Phone +41 43 211 42 30 suha.demokan@nobelbiocare.com Media Relations Nicolas Weidmann VP Global Communications Phone +41 43 211 42 80 nicolas.weidmann@nobelbiocare.com This letter to shareholders contains forward-looking statements based on beliefs of Nobel Biocare s management. When used in this document, words such as anticipate, believe, estimate, expect, intend, plan and project are intended to identify forward-looking statements. They may involve risks and uncertainties, including technological advances in the medical field, product demand and market acceptance, the effect of economic conditions, the impact of competitive products and pricing, foreign currency exchange rates and other risks. These forwardlooking statements reflect the views of Nobel Biocare as of the date made with respect to future events and are subject to risks and uncertainties. All of these forward-looking statements are based on estimates and assumptions made by management of the company and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results or experience could differ materially from the forward-looking statements. Nobel Biocare disclaims any intention or obligation to update these forwardlooking statements. www.nobelbiocare.com