Straumann Group (SIX: STMN), a global leader in tooth replacement and orthodontic solutions, has reported a robust financial performance in the first half of 2024, with revenue reaching CHF1.3 billion and a core EBIT margin of 27.8%. The company's earnings call highlighted significant growth across all regions, the divestiture of their DrSmile business, and a confident outlook for the remainder of the year. Despite uncertainties in the global economy and competitive dynamics, Straumann Group is optimistic about its market share gains and its ability to sustain profitability.
Key Takeaways
- Straumann Group reported a 16.1% revenue growth in the first half of 2024, with a revenue of CHF1.3 billion.
- EMEA region saw 12.4% organic revenue growth, while North America and Latin America also reported positive growth.
- The company divested its DrSmile business to Impress Group, maintaining a supply relationship for clear aligners.
- New product launches, such as the Sirius intraoral scanner and UN!Q cloud service, were highlighted.
- Straumann Group is confident in achieving low-double digit organic revenue growth for 2024.
Company Outlook
- Straumann Group expects a 15% to 20% growth rate in the second half of the year.
- They project organic revenue growth in the low-double digit percentage range for 2024.
- Profitability is anticipated to be in the 27% to 28% range at constant 2023 currency rates.
- The company plans to continue investing in innovation, digital workflow, and market expansion, especially in China.
Bearish Highlights
- The company acknowledges uncertainties in the global economy and a potential deceleration in growth due to a higher comparative basis in China.
- The impact of the strengthening Swiss franc may slightly affect gross margins.
- Margins are expected to be flat or lower due to reinvestments in the business and currency effects.
Bullish Highlights
- Straumann Group has seen stable ClearCorrect performance in North America and does not plan to introduce value offerings.
- The company is confident in outperforming the market in China, which is expected to grow over 20% in the next 18 to 24 months.
- A focus on orthodontics and digital solutions is expected to drive further growth.
Misses
- No significant misses were reported in the earnings call. However, the company did not disclose the terms of the DrSmile divestiture.
Q&A Highlights
- The company clarified that the ITI Symposium in Singapore was more of a scientific congress and had limited sales impact in Q2.
- Straumann Group emphasized that the DrSmile divestiture was a one-off move and not indicative of a strategy towards vertical integration.
- They expect the divestiture to have minimal impact on the growth of clear aligners in Europe.
- The company has no plans for value offerings in North America and is satisfied with the current performance of ClearCorrect.
Straumann Group's half-year results reveal a company that is navigating the challenges of the global market with a clear strategy focused on innovation, digital expansion, and market penetration. With the successful launch of new products and services, and strategic moves such as the divestiture of DrSmile, the company is poised to maintain its leadership position in the dental industry. Despite some macroeconomic headwinds, the outlook for Straumann Group remains positive as they continue to invest in growth opportunities and drive towards their ambitious targets for the year.
Full transcript - None (SAUHF) Q2 2024:
Guillaume Daniellot: And good morning or afternoon to all of you. Thank you for attending this conference call on the Straumann Group’s Half Year Results. Please take note of the disclaimer in our media release and on Slide 2. As usual, the presentation and discussion will include some forward-looking statements. During this conference, we are going to refer to the presentation slides that were published on our website this morning. As shown on the agenda on Slide 3, I will go through the highlights first. Yang Xu, our CFO, will share the financial details, and then I will provide an update on our strategic progress and outlook. At the end of the presentation, we will both be more than happy to answer your questions. Let’s start with our highlights and move directly to Slide 5. As you have seen this morning in the media release, we signed a definitive agreement to sell our DrSmile business to the Impress Group. Subsequently, we have restated the numbers to refer to continuing operations if not mentioned otherwise. With a revenue of CHF1.3 billion in the first six months of 2024, of which CHF655 million in the second quarter, we are very pleased with the performance we can report today. Our double-digit revenue growth, namely 16.1% in the first half reflects the team’s continued strong execution, which led to winning new customers, and gaining market share in all regions. Due to the specific patient flow dynamic per region, which remained the same as in the first quarter, we grew 14.8% organically in the second quarter on top of last year’s strong comparison period. While the group continued to invest significantly in capacity expansion, education and digital transformation, the core EBIT margin reached 27.8%, including currency headwinds. As mentioned before, we signed a definitive agreement to sell our doctor-led direct-to-consumer clear aligner DrSmile business to Impress Group. With the acquisition of DrSmile, the Impress Group is well positioned to compete in this market by combining the quality clinical treatment with consumer marketing expertise at scale. I will be happy to give you more details on this later in the presentation. One of our major highlights in the second quarter was the international team for Implantology World Symposium taking place in Singapore in May. This event was the largest IPI congress ever, bringing together more than 5,700 participants during four days. We presented many innovations and had numerous education sessions, which I will talk about in the strategic update of the presentation. Last but not least, due to excluding DrSmile from the numbers, we update our 2024 outlook to low double-digit organic revenue growth and expect profitability to be in the 27% to 28% range at constant 2023 currency rate. Looking at Slide 6. Overall, the specific patient flow dynamic per region remained the same as in the first quarter. I am very pleased that the EMEA region performed strongly with 12.4% organic revenue growth in the second quarter, with Italy, Iberia, Germany and Eastern European countries as the main growth drivers. The implant business continued to grow considerably, also new innovation, such as iEXCEL in France were prelaunch. In addition, the ClearCorrect orthodontics business continued to perform strongly. North America, the second largest region of the group showed a positive 5.3% organic revenue growth showing a sequentially improved performance. The implantology business remained the main growth driver and the launch of the iEXCEL implant system showed positive momentum. In parallel, the demand for the digital business and in particular, intraoral scanner was good. The launch of the custom implant prosthetic service UN!Q, which I will talk about later, started also well. Latin America continued to deliver double-digit growth despite the heavy float in the state of Rio Grande do Sul in Brazil, which affected more than 2.3 million people and less thousands homeless. In light of this strategic event, the team focused on supporting the region and among other measures sent the new smile expectation, our mobile unit with 2 dental offices to serve the people by offering dental care to impacted communities. Despite this, we continue to gain market share in Brazil, the largest and most mature market in Latin America. On top of this, we size opportunities in Central America, we also established a new subsidiary in Costa Rica. The performance in the region was driven by Neodent and very good double-digit growth of the orthodontic business. Finally, Asia Pacific was the fastest-growing region despite a gradually normalizing baseline in China. As you might remember, in the second quarter last year, the VBP and COVID-19 pent-up demand significantly accelerated patient flow in China and heavily influenced the performance of the region. In the second quarter this year, Anthogyr and Straumann as brands contributed the most to our implant growth franchise in this country. Now the region, excluding China, is also developing very well with double-digit organic revenue growth in the second quarter. Growth was significantly driven by Neodent and Anthogyr in countries such as Australia, India, Thailand and Vietnam. In most business areas, we have made great progress and intensified our education efforts in this region, supporting the strong performance. Notably, Neodent did focus on the educational activities in Kuala Lumpur, Malaysia and Chennai, India, through partnerships with renowned universities. Anthogyr is heavily investing in education in China and is also building its presence in markets, such as Vietnam. All these activities will grow and are laying a solid foundation for the future. AlliedStar intraoral scanner [ph] sales were encouraging in the countries where it has been launched and the orthodontics business kept on gaining momentum and contributed positively to the regional performance. And with this, I hand over to Yang to provide additional details on the financials.
Yang Xu: Thank you, Guillaume, and hello, everyone. I would like to start by speaking about our revenue on Slide 8. Straumann Group’s second quarter revenue reached CHF655 million with an organic growth of 14.8% against a strong comparison quarter while revenue growth of 12.4% in Swiss francs. At 2024 – exchange rate, our 2023 second quarter revenue would have been CHF20 million lower. The currency effect was due to the depreciation of the euro, Chinese renminbi and various emerging market currencies. The M&A effect in the second quarter, which is mainly attributed to AlliedStar, the distributors in Poland and the Baltics added CHF7 million to our adjusted revenue of CHF570 million. As Guillaume already mentioned, the specific patient flow dynamic per region remained the same as in the first quarter, which supported the strong regional performances. The Asia Pacific region was growing the fastest despite a gradually normalizing comparison in China and contributed the largest share to the group’s revenue growth in absolute terms followed by EMEA, North America and a strong contribution from Latin America was CHF8 million. Looking at gross profit development in Slide 9. The first six months of this fiscal year, the Group’s strong top line growth led to a core gross profit of CHF923 million, which is a currency adjusted increase of CHF119 million. The corresponding margin remained solid at 72.5% despite an unfavorable mix and the VBP dynamics in China. Let’s now move to Slide 10. The core EBIT margin reached 27.8%, which is a currency adjusted margin increase of 70 basis points above the prior year period. Currency movements had a negative impact of 190 basis points on the core EBIT, mainly due to the weakened euro, U.S. dollar, Chinese renminbi and the emerging market currencies. While distribution expenses had a negative 30 basis point impact due to our ongoing investment in go-to-market and logistics, we reduced the administrative costs, thanks to our continuous operating leverage which led to a positive impact of 260 basis points on the core EBIT margin. On Slide 11, you can see our free cash flow, which remained stable in the first half of the year and stood at CHF145 million, CHF3 million higher than in the prior year. The free cash flow reached 11.4% of the revenue. As the Group continued to invest in production expansion and digital transformation, capital expenditure in the first six months remained at a high level with CHF84 million. The dividend payments were the main driver of the cash flow from financing. The cash position at the end of June 2024 remained strong at CHF334 million. Let’s continue with Slide 12. You will see a table with the core financials. Core gross profit rose to CHF923 million and core EBIT was CHF354 million with the respective margins reaching 72.5% and 27.8% in the first half of 2024. The gross margin declined by 180 basis points while the EBIT margin increased 70 basis points despite the currency headwinds, which took 100 basis points of the gross margin and 190 basis points of the EBIT margin. Core net financial expenses were reduced by CHF19 million to CHF6 million. This improvement primarily reflects a stabilizing currency environment compared to last year, notably in emerging markets. Income taxes amounted to CHF60 million, resulting in an income tax rate of 17.5%. Core net profit reached CHF282 million, resulting in a margin of 22.2%. Core basic earnings per share increased from CHF1.59 and to CHF1.76 compared to prior year. For full clarity, you will also find the comparison on a reported IFRS basis as well as the core reconciliation table in the appendix of this presentation. And more details can be found in the first half year financial report. For full transparency, you can see on Slide 13, the numbers without and including the discontinued DrSmile business. Following the restatement, the Group revenue grew 16.1% organically and core EBIT margin reached 28.9% at 2023 currency rates. Including discontinued operations, organic revenue growth would have been 12.9% and core EBIT margin, 26% at average 2023 currency rates. Slide 14 leads us to performance by business overview. Straumann’s premium and challenger implantology business volumes both performed very strongly with double-digit growth. Premium implantology was primarily driven by the BOT and Straumann’s immediacy portfolio. The challenger brands continue to expand their global footprint with strong double-digit growth in all regions. Neodent stood out as a leading challenger brand, sustaining strong growth momentum across the regions. In orthodontics, our ClearCorrect B2B business showed good traction and grew significantly above the market with double-digit growth. We remain dedicated to strengthening its go-to-market activities introducing new solutions and further increasing our planning and education efforts. Our digital solutions business continued with its strong contribution to the Group’s overall performance and posted double-digit growth, primarily led by the regions, North America and Latin America. And with this, I’ll give back to Guillaume.
Guillaume Daniellot: Thank you very much, Yang. Let’s talk about our achievements and the strategy update starting directly with Slide 16. You might remember our three key dealers to success, which are innovation, education and clinical evidence. In May, the scientific association, International Team for Implantology or ITI, which counts more than 25,000 members worldwide held its world symposium in Singapore. It was the largest NTCP Congress ever with more than 5,700 dental professionals attending more than 100 countries. I am delighted that we were able to support the event as a leading partner organizing many scientific and educational activities and presenting our latest innovation. Among many innovations such as iEXCEL and Falcon, the team presented our new Sirius intraoral scanner for the first time. The new scanner provides high accuracy, high scan speed, it’s easy to handle and it’s integrated into our common access platform, which helps to process the digital information in an efficient way, improving the overall clinical workflow. From SIRIOS with its compelling value proposition, complements our global iOS offering in the mid- to entry-level segment. Over the past 24 months, we have more than doubled our intraoral scanner base and with coming of SIRIOS, we aim to further grow significantly. The importance of ITI for growth is not related to the congresses that take place every few years. ITI is a true strategic partner driving clinical education and research. In the U.S., now more than 2,000 dental professionals have an ITI membership. And in China, ITI has recently been recognized as an accredited dental training institution, which will be crucial to accelerate access and implant adoption to meet the significant demand in this specific country. Moving to Slide 17, I would like to emphasis that we continue to build the infrastructure of our global platforms, Straumann AXS, which supports dental professionals gaining efficiency across the treatment journey through a full end-to-end workflow. Thanks to an open architecture with high data security standards, new Straumann Group services, such as Smile in a Box and unique can be integrated and added on a step-by-step basis. For now, North America is the first region to offer those solutions directly on Straumann AXS. When the platform is launched in the other regions in early 2025, it will help improve efficiency and quality of patient care broadly. Now let’s move to Slide 18. I would like to give you more color on our recent unique launch in North America. Our cloud-based on-demand service, which lows dental laboratories to our tours, planning, design and manufacturing of patient-specific implant prosthetics. Our enhanced offering includes custom abutments not only for all Straumann Group implants, but also for third-party brands, and in the second quarter, we added screw retained bar and bridges to our portfolio. What I like most about UN!Q is that we design it as a truly customer-centric solution. It provides great flexibility, predictable results and a state-of-the-art customer experience thanks to an end-to-end digital workflow with an intuitive interface based on our Straumann AXS platform. It is challenging for dental laboratories to cope with fluctuation in demand and depending on the location to find well-trained technician. With UN!Q, customers can grow their business significantly without investing in additional resources or equipment as they can outsource the work to us. The launch in North America already showed good momentum in the second quarter, which is promising as UN!Q addresses an infant part of the CAD/CAM prosthetic market. On Slide 19, we move to iEXCEL, which we launched in the first quarter of this year in North America. iEXCEL is our new innovative premium implant system, which offers the unique benefit of four distinct implant designs with the simplicity of one single implant system for both bone and tissue level treatments. The feedback from clinicians who have tried it already is very positive. They highly appreciate the flexibility delivered within the clinical procedure and the simplicity through the reduction of the stock giving units needed for all indications. iEXCEL also got a lot of attention at the ITI World Symposium, which was an implant introduction milestone of future launches to come, like the prelaunch in France as the first European country in May this year. Moving on to the business-to-business field of orthodontics on Slide 20. The clear aligner market is estimated to be CHF5.3 billion, providing ample opportunity for us to grow. To seize these opportunities, we will first strengthen our presence in existing markets by continuing to drive education. In the second quarter, ClearCorrect participated in international congresses and other education activities across all regions and more and more in Asia-Pacific. Secondly, we expand our customer segment and begin to also focus on orthodontic specialists, which is started through some initial traction. Also in the second quarter, ClearCorrect further improved its services and technology. We strengthened our doctor-facing platform for a more efficient practice management and launched a new version of the ClearCorrect app. It offers clinicians an expanded range of features to easily start review and manage cases and allows them to access ClearPilot software directly via the app. Going forward and with selling DrSmile, we will focus even more on our B2B orthodontics business by increasing our investment in this area to keep strengthening our go-to-market approach. On Slide 21, I would like to dive deeper into the sale of DrSmile. We signed a definitive agreement to sell the DrSmile business to Impress Group and will receive a minority shareholding of 20% on a fully diluted basis in the company. Founded in 2019 and headquartered in Barcelona, Spain, Impress Group is a leading provider of clear aligners in Europe and operates a network of clinics in countries such as Spain, the UK, Italy and Portugal. With the acquisition of DrSmile, Impress Group is well positioned to compete in this market by combining quality clinical treatment with consumer marketing expertise at scale. Impress Group covers the end-to-end patient journey from the initial consultation to the clinical results, which will greatly enhance the patient experience. Through the combination with DrSmile, Impress Group will benefit from a larger geographical footprint by adding Germany, France, the Netherlands and Sweden. They commit to ensure the continuing support of all DrSmile patients currently and the ongoing treatment, while we will continue to be a major supplier of clear aligners for Impress Group moving forward. The transaction is expected to close in due course. Moving on to Slide 22. Let me introduce you to recent transitions in the Executive Management Board. First, I’m delighted to announce that Sara Dalmasso, will join Straumann Group on August 19 as Head of the Dental Service Organization, which is a critical area for our organization. She has held several leadership positions at Omnicell (NASDAQ:OMCL) and General Electric (NYSE:GE) Healthcare and has a proven track record of growing franchises. She led diverse teams toward sustainable growth and brings a strong expertise in digital transformation. Secondly, our Chief People Officer, Alastair Robertson has decided to retire by the end of 2024 after an impressive career across different industries and five years at Straumann Group, where he made is more as an exceptional culture leader. I’m pleased to have Arnoud Middel succeeding Alastair Robertson in early August as Chief People Officer, with Alastair supporting the transition until the end of the year. Arnoud joined us from the Siegfried Group, where he was Chief Human Resources Officer. Over the past 12 years, we supported the company growth from a nature perspective. Before this, he was instrumental in building strong global HR functions at Syngenta, XL Insurance and Baloise Insurance. Also in July, we merged our data and tech team and the digital platform and technology departments, a key function for digital transformation success. Thomas Friese, with Straumann Group for the past two years, was appointed to lead the combined team as Chief Technology and Information Officer. Thomas looks back to more than 17 years of leadership experience in building high-performance teams and digital platforms. Together with this team, he brings, among other achievements, the seamless, high-quality customer experience platform Straumann AXS through integrated and automated digital dental workflows. Christian Ullrich, who was Chief Information Officer at Straumann Group since 2021 left the group in July to pursue opportunities outside the company. I would like to thank him for the significant contributions he has made over this period. Finally, as announced in July, Matthias Schupp, our Head of Latin America, will leave Straumann Group by the end of October to become CEO of Medartis, in the last 17 years with the group, Matthias has significantly developed the LatAm region, supporting the Neodent expansion to become a global challenger brand. I want to thank Matthias for all his accomplishments over the many years. The recruitment process for a successor is ongoing. Let’s now have a closer look at our updated outlook. On Slide 24, you can see our updated outlook reflecting the new situation, while we remain cautious looking at the challenging geopolitical and macroeconomic uncertainties, we are confident that we will continue to gain market share within our addressable market of more than CHF19 billion. We believe in Straumann’s strong execution ability, the innovation solutions that capture to different price points and our geographic diversification. On our [indiscernible] the 2030 ambition, we will focus even more on B2B orthodontics go-to-market activities, continue to invest in growth and drive digital transformation. With this, we are confident to update our outlook for 2024 for continuing operations to achieving an organic revenue growth in the low-double digit percentage range and profitability in the 27% to 28% range at constant 2023 currency rates. With this, I would like to open the question-and-answer session. [Operator Instructions] Chorus Call, can we have the first question, please?
Operator: The first question comes from Richard Felton from Goldman Sachs. Please go ahead.
Richard Felton: Thank you. Good morning. Two questions from me, please, starting on China. So firstly, how are you seeing the strong momentum in volume growth in China evolve now that you are facing tougher comps if there’s anything you could share around exit rate for the quarter, that would be very helpful. And then following-up on China, have you seen any shifts in the competitive responses from other players in that market? That’s the first question. Then my second question is on your guidance. Maybe just to clarify, is the upgraded guidance entirely driven by moving DrSmile to discontinued operations? Or is the core business also performing slightly better than you had expected at the beginning of the year? Thank you.
Guillaume Daniellot: Yes. Thanks for the question. Actually, in China, you’re right. I think we will see – and we are starting to see more than strong comparative basis. But we still see very positive momentum on the patient flow and the volume growth. Then that’s why we are still positive for the second half to be able to achieve what we were anticipating already quite some time ago to keep this 15% to 20% growth rate for that second half. When it comes to competition, yes, we see a lot of our competition being very active in China as well. But this has not changed so far any of our dynamic as we have done very early some great investments on the education side, on the instrument side in order to help new customers being able to place Straumann implants. Then through that education side, we believe that we will still be able to keep gaining market share also in the period to come. With regard to guidance, the updated guidance is coming significantly from the DrSmile, of course, divestiture, but also from a core business, which is performing even before than planned. But obviously, the major part is coming from that DrSmile divestiture.
Richard Felton: Great. Thank you very much.
Operator: The next question comes from Hassan Al-Wakeel from Barclays. Please go ahead.
Hassan Al-Wakeel: Hi, good morning, and thank you for taking my questions. I have two, please. Firstly, you talked about strong growth in EMEA led by challenger solutions, could you quantify the growth in challenger versus premium in EMEA and whether you’ve seen any similar trends globally and whether you’re seeing any meaningful down trading across implants? And finally, would love to hear your feedback on iEXCEL and the launch in France and the contribution and expectations going forward here? And then secondly, on guidance, can you talk about how you view the second half and why you’re expecting a deceleration in growth from the 16% organic achieved in H1 to the low-double digits for the full year? Is there anything incrementally that you’re baking in or is this just some of the uncertainty that you talk about? Thank you.
Guillaume Daniellot: Yes. Thanks. A lot of good question as well. The EMEA challenger, yes, double-digit growth we are not giving the precise number, but what I can share, as we are usually doing is that in EMEA, challenger growth has been double-digit, while premium has been single-digit, but still a healthy single-digit from our perspective. And actually, I look also at first half 2023. And actually, we don’t see any change in that approach. We were double-digit growth in calendar single-digit in premium still very healthy then meaning that we have been able to grow both franchise at the same time. And we honestly don’t see any down trading as we speak, in between one versus the other. Once again is mainly the geographical mix, which is pushing more significantly than the challenger brands because mature markets such as France, Spain, Italy, Germany, the UK, the overall market is not growing as fast as country that you would have in Eastern Europe, Turkey, EMEA, Middle East – sorry, then that’s more that geographical mix, which is delivering also a significant boost to the challenger side. When it comes to iEXCEL, I think we have – we are really, really excited by iEXCEL feedback from clinicians that are starting to use that in North America. We have seen that a lot of the clinicians have expressed the fact that it’s very intuitive to use. They don’t need or expect a lot of training after having used some of the first the implants, especially on the BLC side because, of course, BLX was known, then I think very positive about the future of this product line and how it will contribute in the future. In France, it has just been pre-launched and it’s going to then get started more as a limited market release when that we’re not having any manufacturing disruption. Then we have also the clinicians that have used it very positive than feedback. When it comes to the impact on growth, it will be a step-by-step impact because we are focusing first and mainly at new customer acquisition, we always said that growth and market share gain are mainly coming from innovation, and that innovation is the name of the game in this market. And this is what we are spending our time to when it comes to our go-to-market strategy. First segment is new customer acquisition. Second segment priority is share of wallet gain then meaning that the regular growth of our customers are mainly done with BLT and BLX still and that the new iEXCEL BLC line will contribute step by step. Finally, on guidance, well, when you look at the overall market dynamics in our double side, already coming with a significant high-single digit growth for the second half is pretty strong from our view. And it’s lower than the first half for two reasons. The first one is the higher comparative basis in China. In Q1 2023, we were almost doing zero business in China, then the comparison period in the first half was much easier than the second half. And the second reason is, of course, those uncertainties. We see still some of the back and forth when it comes to economy like in North America or the overall discussion again about soft landing or hard landing, then that’s why we want to also plan some of the risk aspects here into the guidance until the end of the year. But we are still confident about significant market share gain over the period.
Hassan Al-Wakeel: Perfect. Thank you.
Operator: The next question comes from Maja Stephanie Pataki from Kepler Cheuvreux. Please go ahead.
Maja Stephanie Pataki: Yes. Good morning. Thanks for taking my question. I was wondering if – maybe I’ve missed that, but whether you could talk a bit about the ClearCorrect performance in North America? You’ve stated that it’s been strong double-digit growth globally. But how was the U.S. and second tied into that you referred to a value offering on ClearCorrect in the North American market. I was just wondering whether you could refer to whether that’s a more lower price product or whether that’s just enlarging the overall offering? That’s number two – and number one. And number two, would it be possible for you to give us comparable numbers for 2023, please? Just maybe on what was top line growth H2 and full year? And also, what was the absolute EBIT and EBIT margin in 2023. So we do have a bit of a comparison for 2024. Thank you.
Guillaume Daniellot: Yes. I think when it comes to ClearCorrect, what we see as we expressed, double-digit growth overall, double-digit growth in all regions except North America. We have seen that our business of ClearCorrect very flattish to very, very slightly down. Then we have seen also that demand has been slower in line with the overall economic situation that we have seen. And we are, on the other side, not planning any value introduction, of clear aligner brand or activities in North America. I don’t know from where you have been…
Maja Stephanie Pataki: That might have just been wording in the press release then.
Guillaume Daniellot: Okay, yes. So at least for clarification, we are not paying this. 2023, Yang?
Yang Xu: I will take this. Hey, Maja, this is Yang. So in our financial statements for the first half year, actually, we have a full transparency. We also provided our DrSmile numbers for the first half year revenue and EBIT. So if you were to more or less double that number, you will get the full year. But let me just give you directional numbers for the full year revenue-wise, would have been – excluding DrSmile for the full year would have been around CHF2.3 billion of revenue and the EBIT margin percentage-wise would be around 28%.
Maja Stephanie Pataki: And the growth last year with ex-DrSmile would have been were?
Yang Xu: The growth would be around double digits similar.
Maja Stephanie Pataki: Thank you.
Operator: The next question comes from David Adlington from J.P. Morgan. Please go ahead.
David Adlington: Firstly, just on the U.S., I just wanted to get your thoughts in terms of business is looking through July and your thoughts on the second half as the trends? And then secondly, just a basic question, just on DrSmile. Are you expecting any cash proceeds? Or are you just basically giving the business away to 3? And how does selling DrSmile impact your expectations for clear aligner growth in Europe?
Guillaume Daniellot: I think on the first one, well, we have seen Q2 being pretty stable with Q1, and we are expecting the second half to keep that same stability. This is what we are seeing for the time being, then we expect adding the same kind of patient through patient dynamic, nor improving that much or nor deteriorating because we believe that while some – well, we expect some interest rate cut, obviously, like everyone, it will have a certain lag in order that is going to be seen in the consumption on the implant side. When it comes to the DrSmile – Yang, go ahead.
Yang Xu: Yes, we don’t disclose the terms of the conditions, but what we can say is, as you know, DrSmile is a dilutive business. And this diversity of the sales of the business actually provide us with opportunity and to play our position of strength so that we can continue to reinvest in our B2B business. And you can see we have very good strong B2B business growth momentum.
Guillaume Daniellot: And coming to the growth rate of weighted impact the growth of clear aligner for EMEA. The answer is no from a growth rate standpoint because I think we have been always looking at B2B completely differently, and it will still have the same dynamics on the B2B side, and we would potentially add and we will add the supply agreement that we have with Impress for that new entity. And we are somewhat transforming our direct-to-consumer into a B2B business as we are going to provide those clinics also with the ClearCorrect, clear aligner.
David Adlington: Thank you.
Operator: The next question comes from Oliver Metzger from ODDO BHF. Please go ahead.
Oliver Metzger: Good morning. Thanks for taking my questions. First one is, can you make a quick comment on the underlying implant dynamic in Europe Q2 versus Q1? And second, you mentioned double-digit growth for the challengers in all region. Basically, it’s that includes the U.S. So does this mean as a reverse calculation that the premium implants, do you still recognize the decline in the second quarter? Thank you.
Guillaume Daniellot: I’m sure. I’m not sure I understood well the second question. First question was, sorry, again. I was…
Oliver Metzger: The underlying implant dynamic in Europe Q2 versus Q1.
Guillaume Daniellot: Yes. I think the – we have one of the difference that we have seen has been also the fact that you had, if I remember well, you have Easter that is different also in 2023 versus 2024. And that has been one of the major difference that pushed some of the sales in the second quarter versus the first quarter if you compare 2024 versus 2023. And that’s one of the reasons that you have this difference. Because otherwise, if you look at our average daily sales and so on, it’s really pretty close. Then we have that effect, which we have seen in that second versus the first quarter. But other than this, we have a really stable, strong trend of new customer acquisition of go-to-market investments on both premium and challenger that are than the, I would say, constant. Second one is how do you do reverse calculation to…
Oliver Metzger: Let me rephrase my question. So you mentioned a double-digit growth of challengers in the U.S. And this means indirectly that – or does this mean indirectly that the premium implants recognized a decline in North America in Q2?
Guillaume Daniellot: No, no. No, no. They are – on the other side, I think it has sequentially improved on the premium side, and we don’t have any decline on the implant side, premium.
Oliver Metzger: Okay. Thank you very much.
Operator: The next question comes from Graham Doyle from UBS. Please go ahead.
Graham Doyle: Good morning, guys. Thanks for taking the questions. Just one on the sort of implied second half guidance and just one on the DrSmile follow up from David’s question. And in terms of the HD growth, you kind of fleshed out a bit there into your expectations around tougher comps in China, for example, and still some disruption in the market in the U.S. What are you seeing in July actually just in terms of demand there? And the U.S. market, presumably also benefit from that Easter trading effect. So what would you expect in Q3? And then just on the DrSmile disposal. I appreciate you don’t talk about consideration, but are you putting money into the new venture? So is there a situation where you’re investing behind the new venture, so it’s not just a hand over of the assets. So will there be a transfer of cash into that? Thank youi very much.
Guillaume Daniellot: First, when it comes to U.S., then the – we don’t disclose month-by-month reasons, obviously. But that’s why I said, we are seeing stability already in the activity in Q3 versus Q2. That’s why we are planning kind of a constant approach here that we would be confident if the situation is staying the same, obviously, on the unemployment side. Here, I have to say, Easter effect is not very significant, you don’t have Easter holiday so much as you’re having in Europe massively like it would be especially in Germany also in the South European countries. Then we don’t see that kind of disruption from Easter being on Q1 and Q2 in North America. When it comes to DrSmile, I think we are getting, as we said, 20% minority versus then our – the sale of these assets. And what we are supporting, we are supporting the restructuring of DrSmile that was planned sooner with some cash approach, which is just making sure that we are supporting the entity for the restructuring as we were planning to have done ourselves.
Graham Doyle: Okay. That’s helpful. Could you just maybe say, why is there a lack of transparency around DrSmile, I mean I appreciate we’ve got some numbers for this year. We obviously didn’t get them necessarily for last year and we don’t know the exact nature of the transaction. Is that just the nature of the buyers on the other side? Or why is there a lack of transparency?
Guillaume Daniellot: No, I think we are never disclosing, clearly speaking, our different M&A activities, then we have a lot of disclosure in our numbers at the second half. I think there is a number of – well, Yang, maybe you want to add on the total asset, that’s not transferring than which is approximately CHF95 million. And I think you can find those details into the pages of our press release.
Graham Doyle: Okay. Yes. I appreciate it. I couldn’t find the second half sales, but I appreciate the rest. Thank you very much guys.
Yang Xu: Yes. If I were to hold, half – we can use the first year half and triangle, it is more or less similar.
Graham Doyle: Thank you.
Operator: The next question comes from Veronika Dubajova from Citi. Please go ahead.
Veronika Dubajova: Hi, guys. Good morning and thank you for taking my questions. Two kind of bigger picture ones, if I can. The first one is just the decision to take a stake in Impress Group. And obviously, it moves you more towards a vertically integrated business model. I mean I appreciate there’s a supply arrangement here, but you are taking a 20% stake in a dentistry chain. Just curious if this is a signal of something that you think is attractive and you’re looking to do more? Or is this sort of a one-off unique situation that is specific to DrSmile and the exit and just kind of how you think about that vertical integration downstream into dentistry directly? Is there something we should be reading into that choice here today? And then my second question is just, again, big picture. Obviously, we’re scaling down the clear aligner business in terms of revenues this year. Just curious if that has any implications for how you think about the midterm growth rate and your ambition to hit that CHF5 billion that you’ve put out for 2030. Obviously, clear aligners were a big driver of that CHF5 billion number. So just curious if we need to be rethinking that or if the path towards growth rate looks different – towards that revenue look different. Looks differently, apologies, now that DrSmile out of the picture. Thank you so much.
Guillaume Daniellot: Yes. Thank you, Veronika. Two good big picture questions as well. And I think it’s important to clarify this one. The fact that we have 20% in this fully integrated dental company is really a one-off it happens that this is how we have been able to find a better home for DrSmile and giving it the possibility to go to success, thanks to a fully integrated approach from a patient journey. Then there is no strategic approach for us and willingness to go further in vertically integrated business model and we are not planning to invest in dental chain or at least creating any competition to our existing customer group. Then we want to make it very clear, and I appreciate the questions for clarifying this. When it comes to midterm ambition, we are reaffirming our 2020 ambition, which has been again defined in 2021. 2021 FX rate, obviously, because that has been all the growth rate that we have defined based on that 2021 baseline. Then we are having and we will have obviously a different split in between the different business franchises. And this is, I guess, most of the case happening when you are doing a long-term ambition where things are going to evolve obviously differently than planned. But we see then our growth rate still being double digits and having the capability to size many opportunities in front of us, ortho is going to be still a major growth driver as it is the case now. Digital is a major growth driver with digital with our digital IOS, but also the future of our platform and keeping strengthening our core implant business and keeping market share in both major and emerging markets thanks to our different price points positioning. Then that’s why we are confident to hit these ambitions, and we are obviously focusing on this and on innovation and education which are the pillars of success for reaching that goal.
Veronika Dubajova: Thanks, Guillaume. Can I just ask a very quick follow-up on China? And I guess maybe try to ask the question differently. The 15% to 20% that you’re still expecting in the back half of the year, is that – is the revenue growth that you’ve seen in July consistent with that?
Guillaume Daniellot: For which sorry – I’m sorry?
Veronika Dubajova: For China.
Guillaume Daniellot: China, again, we will not disclose this moving forward, but we are confident that we will go to that 15% to 20% in the second half.
Veronika Dubajova: Okay. Thanks so much.
Operator: The next question comes from Robert Davies from Morgan Stanley. Please go ahead.
Robert Davies: Thanks for taking my questions. My first one was just around Europe. I realize you obviously stripped out the DrSmile business, but would just be kind of curious on a headline basis seen, I think it’s eight or nine quarters of sequentially slower growth. But that obviously you had the DrSmile business included. So if you can just kind of give us an overview of the overall dynamic you’ve seen maybe over the last couple of years for the European business, if you were to take the DrSmile business out of those numbers, just what the growth pattern would be? That would be my first question. And the second one was just, I guess, following up on some of the comments you made on the prior quarter on the impact of consumer confidence across your business. Perhaps you could just give us an update across different regions if you’re seeing anything different in terms of areas of strengthen or weaken in terms of consumer confidence trends versus the last quarter? Thank you.
Guillaume Daniellot: When it comes to EMEA, the past couple of years, I can – I have to share, of course, the big – the volatility of some of the variances of the EMEA performance has mainly come from the DrSmile impact being on the high side on the low side. And we had a pretty consistent strong than growth in EMEA. And this is what we have seen over the past two years, we really very limited variances, then the high single digit to low double digit has been really where our EMEA performance navigated with, yes, very, very strong consistency. When it comes to – sorry, second one was?
Robert Davies: Sorry, it was just on the consumer confidence by region.
Guillaume Daniellot: Yes. On the last quarter, honestly, we have not seen really significant difference versus the first quarter. I think we expressed in the first quarter that we have seen some again, of effect of the high interest rate turning really to impact consumption in North America and actually this is what alluded all the [indiscernible] have expressed, but only by now. And we are still seeing the same, but no deterioration or no improvement yet. And I think it will take a little bit of time for this. Europe is still pretty stable, but still pretty positive in all the different countries, actually. We were adding UK not being always super optimistic. But as the UK implant market penetration is limited, it has very limited impact for EMEA, and we have seen anywhere significant growth from the UK as well. Then that’s why the consumer confidence has not been impacted on the UK demand. And in Asia Pacific, then we know that China has a low consumer confidence, and we know some of the challenges from a local economical situation, but what we have here on the implant dental side is that VBP has been really completely shifting this kind of situation. And we still see because of the need of tooth replacement in China in segments that can afford this now that it has yet no significant impact on the trend we have seen since the VBP has been implemented.
Robert Davies: Thank you. Could I just squeeze in one follow-up around the FX impact on margins. On your previous guidance, you provided, I think, some commentary on the constant currency number and then a reported basis. Has there been any change in terms of the expectations on a margin basis for FX headwind for the year? Thank you.
Yang Xu: We still see within the range, of course, at the first half year, I think when we closed the book, that was closer to the lower end of the range. But right now, you may have observed in the past several weeks and Swiss franc continued to strengthen.
Robert Davies: Okay, thank you.
Operator: The next question comes from Daniel Jelovcan from ZKB. Please go ahead.
Daniel Jelovcan: Yes, good morning. Just one question left from my side. The ITI Symposium in Singapore, you mentioned in May, did that also had a positive impact in the second quarter in the APAC region, like in the past where often you had some discounts or so? Or is the effect more feasible in the third quarter? That’s the question. Thanks.
Guillaume Daniellot: Yes. Actually, the ITI impact as the ITI Congress had some limited impact, I would say, in second quarter because this is not really a place where we sell. This is a scientific congress, where people are coming to see the latest clinical evidence that we are able to achieve with our portfolio. It’s also about to see the innovation that we are bringing and how to implement that in a number practice but this is more on presenting the latest techniques and the latest evidence for the scientific community. And it’s not related to one-off sales that you are going to do, but it’s going to be diluted all over the following months and weeks for all the new products that we have been presenting like our new platform or new iOS iEXCEL has been presented and so on. Something I think, which is important to highlight here is the fact that we have been, of course, mainly pushing also our the challenger brands in a lot of the Southeast Asia country because Neodent was having the price point, which has really adapted to those markets. And we have left the scientific space sometimes to Korean customers, then being able to invest significantly in major even in Asia Pacific, has really helped us also to position the Straumann brand as the right leader in reference for the implant business also in Asia Pacific with a lot of clinicians that were not used to see what Straumann green premium brand is doing in clinicians coming from India, from Thailand, from Vietnam, from infant countries such as Taiwan as well, and of course, to name the most important one market besides China that are Australia and Japan then we are thinking about raising those kind of events with the Straumann and also premium brand in Asia Pacific because we have a lot to gain also there and not only on the challenger side.
Daniel Jelovcan: Okay, great. Thank you.
Operator: The next question comes from Julien Dormois from Jefferies. Please go ahead.
Julien Dormois: Yes, Hi, Guillaume, hi, Yang, thanks for squeezing me. Two questions on my side. And the first one would relate to the gross margin trajectory. We have seen over the past few years, the gross margin retrenching quite a bit from roughly 76% gross margin to now 72%. Obviously, FX is playing a role. And you highlighted that the mix is also playing a role. But would it be possible for you to give you a very rough overview of what is the respective gross margin level be premium and challenger implants and maybe also orthodontics and digital? It just basically to get a sense of whether that 72% should now be seen as a floor for future gross margin development or if it will be safer to assume further deterioration in the context of faster growth from lower margin products? That would be the first question. My second question is on orthodontics, I think now with ClearCorrect, you probably are still generating around CHF200 million in revenues in clear aligners. So just checking that this is a fair number? And what would you expect in terms of growth from here, especially in the context of now being lower – having a lower critical mass versus your direct competitors like Envista or Dentsply. Is there a way for you to complete efficiency even from a lower scale?
Guillaume Daniellot: Yes. Thank you, Julien. When it comes – I think it’s interesting on the gross margin side because you mentioned only one of the three factors, which are having an effect, at least from a mix standpoint. You’re right that we have an FX rate impact. And we are, on the one side, portfolio mix effect, which is obviously then the challenger or the auto versus premium, we have a customer group effect, mix effect, which is DSO versus conventional practices. And we have a geographical effect, which is, for example, China versus Vietnam [ph] or emerging markets versus mature market. And in all that mix, you have, of course, the FX impact, which is there. And that’s where I think the truth is not looking at specifically the franchise gross margin, but at the overall effect that is provided by those three, I would say, potentially favorable mix, then that’s the approach. And when we look at the current gross margin and where we are versus, for example, last year, same period, you have – Yang correct me if I’m wrong, but it’s 1% around effects down and you have afterwards the remaining effect, which is 50% geographical mix, especially China VBP and the remaining 50%, which is going to be product mix, okay? And from where the trajectory is going from there, I think the China VBP then has been absorbed because we will see that some remaining effects from some of the emerging geographies playing faster, but the biggest impact was China. The geographical mix will continue to play a small role on the portfolio side and the customer side as well that we will see potentially having step-by-step, very small than evolution of our gross margin, but not with a major drop. That’s why we are having very significant program on efficiency gain and leveraging our size, and this is why you see that our overall EBIT actually has been really growing if you remove the DrSmile side and comparing just continuing operations. We have a significant efficiency gain that has been achieved on the – below the gross margin line. Yang, do you want to add anything on this?
Yang Xu: Nothing to add.
Guillaume Daniellot: Okay. Thank you. On the ortho side, we are – yes, I think we are a bit lower than the numbers you gave because you can remove something like 50% of our overall top line that we had on the ClearCorrect side now. But yes, we do believe that growth is more than possible is expected because this is what we are able to see now. And we have the critical mass from a company standpoint being able to invest in technology, go-to-market and then clinical capabilities. And that’s what we are continuing doing. And we believe that we will be able to continue gaining market share in this segment on a pure B2B basis where we are going to focus very significantly.
Julien Dormois: Okay. That’s very helpful. One quick follow-up if I may. Would it be possible just for you to give us a sense or maybe just rank the businesses between challenger brands, digital and orthodontics by gross margin, just giving a sense of which one has the highest and which has the lowest maybe if that’s possible.
Guillaume Daniellot: Implants are closed. We always said this. Gross margin percentage on the core implant side is closed. Then we are afterwards and I would say afterwards when you go at ortho will be then coming afterwards, and you would have digital, we have a lot of third-party products for the time being. Then as your gross margin on third-party product is by design, lower because you are just a distributor. That’s also one of the reasons why we have been then acquiring our IOS, intraoral [ph] scanner company technology in China end of last year, because we want to be able to enter into the ECO [ph] segment, and we can enter into the ECO segment only if we can achieve a decent gross margin side, which was very difficult from a third-party product.
Julien Dormois: Okay. Very helpful. Thank you so much.
Operator: The next question comes from Hugo Solvet from BNP Exane. Please go ahead.
Hugo Solvet: Hi. Hello. Thanks for taking my questions. I have a few – couple left. Just on growth please. Can you give us the contribution of price to organic growth and also the impact from [indiscernible] inflation in Latin America to the 15% growth that you have had in the region. Second relates to the exit rate in China, which you mentioned above 15%, 20% in July, if I’m not mistaken. Does this mean that you’re still very comfortable with outperforming the market expected to grow over 20% over the next 18 to 24 months, which was, I think comments that you made in the previous calls and if you have any insight on the next rounds for the VBPs. Thank you.
Guillaume Daniellot: Could you ask again the first question on LatAm because it was not very clear. Thank you.
Hugo Solvet: Sure. I guess it’s just from a group growth perspective, the contribution from price and also per inflation, which is particularly strong in LatAm.
Guillaume Daniellot: Well, I think contribution for growth is mainly volume gain. I think it’s – we have done a price increase that, of course, are because of the VBP, you have still, we were adding into the first four months of the year already the pre-VBP pricing in China that has been up to implemented only standing by May. Then I would say that China is offsetting the price increase that we have done in other regions, then it’s mainly coming from volume and very limited inflation. When it comes to your second question on China, yes, I think we said 18 to 24 months, but it was already like almost 12 months ago, then we are planning that this kind of market dynamic to still remain. But the more it goes, the less kind of visibility over the long term we have, we believe that the market will be able to grow something like, yes, 15% to 20% again in the next six to nine months and after we will see because that will be then quite 18 months after post VBP, and we’ll see what it’s going to be. Then we still believe and we did not say that we grew 15% to 20% in July. This is not what we said. We said that we are confident to grow at least 15% to 20% for the second line. That’s what we expressed. And I think I want to confirm this.
Operator: The next question comes from Falko Friedrichs from Deutsche Bank. Please go ahead.
Falko Friedrichs: Thank you. My first question is on guidance for this year. Guillaume, you mentioned that most of the increase is related to the DrSmile disposal, but you also said that the underlying business is performing slightly better than you had anticipated. Can you give us a bit more color on which pockets are performing slightly better than you initially thought? And then my second question on LatAm. Is there anything noteworthy to point out in terms of the dynamics you’ve seen in the quarter? Thank you.
Guillaume Daniellot: Yes. What will be even better than planned 16% is obviously a very strong outcome, looking at the current market dynamic, honestly. When we look at the rest of the industry, then what works better, it has been, of course, then on the one side, our EMEA numbers that are very strong, and that has been continuing already on a pretty strong base in the first half last year, then I think double digits was we were planning more high single than low double. We have also Asia Pacific and again, China that has been delivering more than our expecting – expected 20% and especially in the second quarter, then I think China has been stronger than planned. And I think our ortho B2B has also been very dynamic in all the other regions, except North America. And it’s a lot about the overall investment that we have done so far in most of our franchises that deliver above than plan. And on the LatAm side, yes, I think no, the thing that we would highlight is the fact that on the one side, we have this really critical event in the floor in the part of Brazil that has been impacted the business, impacting our teams and where the reactivity. And on the one side, the professionalism to really support customers that have been impacted, but also our team made that have been impacted by this really tragic event has been really impressive, and we have been very pleased by how the company has reacted to also compensate for some of the shortfalls coming from these regions. That this region Porto Alegre is one of mostly developed economically speaking. That’s one of the big parts of our business and being able to deliver still that strong double-digit growth is really demonstrating the commitment of our teams to be able to support the customers and support our activity.
Falko Friedrichs: Thank you.
Operator: The next question comes from Julien Ouaddour from Bank of America. Please go ahead.
Julien Ouaddour: Hey. Hi. Good morning. Thanks for squeezing me in. So the first question, it could be a bit premature to already look at next year, but I’m just wondering how lower interest rate and by consequence, easier financing for the patients could positively impact your business. I think that Straumann offshore group sales is related to the full arch cases, which have been, let’s say, heavy impacted over the past 18 months. So would you call for kind of potential pent-up demand? And if yes, any quantitative details that you could give us today? And the second question is on competition. So some of your closest peers undergo, let’s say, important restructuring programs at the moment, including like additional investments in product innovation, sales force, how do you monitor this situation? Is there anything which were you at this point of time? And is there also the reason why you’re increasing the investment for owing the DrSmile disposal? Thank you.
Guillaume Daniellot: Yes. I think it’s interesting. Well that would be an interesting perspective as well about having quickly some lower interest rate especially in North America, which is where once again, it had the major impact. And we know that North America can bounce back also quite quickly when macroeconomic conditions are right. I believe there will be some pent-up demand when it comes to the full arch. I don’t think that it’s possible to really measure that or put the numbers behind that for the time being, because we will see those interest rates cut that will have a step-by-step effect, and I don’t think that it’s going to be a huge change on one quarter to the other. But I do believe that the full arch cases will be better off as soon as interest rate after period of four to six months or so, will have been done. And it has to be significant interest rate, obviously, in order for households to see the difference on what they are keeping at the end of the month. What is also an interest point to consider, it’s in North America, the DSO market is now pretty penetrated, and it’s pretty developed. And a lot of the DSO segment is practicing or those full arch procedure, and they are a huge market driver because they do a lot of investment from a communication and advertising standpoint. In kind of a negative macroeconomic environment than they are reducing significantly also spend, and they are advertising much less than what they used to, and that’s also one of the reason why this is slowing up demand because not all the players can invest as they were doing in the past. Then lower interest rates and seeing demand coming back and conversion rate being higher we see also higher advertisement for full arch cases especially and we see also demand then being more dynamic. And this is what we are expecting to see as soon as the macroeconomic environment will be better than what they are currently. When it comes to competition, we really don’t focus on competition. We focus on customers. And we are investing for customers for making sure that we’re able to answer better their needs. And this is only the thing where we are spending time and money. that we respect our competitors. We think that some are a restructuring mode, some are also very dynamic. Then it’s all about making sure that we are taking our decisions for staying ahead and meaning that focusing on the future and the future demand of customers much more than what competitors are doing. And that’s a little bit the philosophy we had for quite some time, and we are continuing to keep and keeping that customer sessions at the center of our culture, which has been playing really well on our side.
Julien Ouaddour: If I can squeeze in a very quick follow-up on let’s say clear aligners. So you said that with ClearCorrect, I mean you still expect to like gain market share in the future. One of the big questions you see a lot from investors, what’s the kind of market growth rate in the midterm for clear aligner, I mean, what’s your view on the market growth like on a global basis?
Guillaume Daniellot: Yes. I think the market growth has been impacted, and we have been discussing a lot those questions. I think it was here a year or 18 months ago when we were talking about inflation is one. I think the clear aligner market has been indeed not resilient or not very resilient, looking at those kind of macroeconomic downturn versus the intent where it was a lot seen now much more as a really medical procedure, which is important that people who are still wanting to undergo and invest versus some of the clear aligner side, where the market has been developed further and a lot of those clear aligner cases have been also adult comfort or let’s say, aesthetic treatment where people have been postponing. I still believe that the clear aligner market will benefit from better macroeconomic conditions with higher consumer confidence. And I still believe that this clear aligner market will grow double-digit in the years to come.
Julien Ouaddour: Perfect. Thank you very much Guillaume.
Guillaume Daniellot: Sure.
Operator: The next question comes from Shubhangi Gupta from HSBC. Please go ahead.
Shubhangi Gupta: Hi. Thanks for taking my question. So my first question is, you have reaffirmed your 2030 guidance. So what is the assumption you’re making about growth in APAC region considering that there might be another round of VBP in 2026, 2027? And second, on your digital business, could you give some color on growth of that business versus the broader group as well as margins? And also what geographies are seeing more demand in digital? Thank you.
Guillaume Daniellot: Well, I think let’s start by the first one. Yes, 2030 ambition, we will have different growth rates, obviously, by region. We are not disclosing exactly the growth rate that we are planning on each of the regions. It’s still a long-term perspective, but we can obviously say that we expect Asia Pacific than to be double-digit and to help us from a CAGR standpoint being potentially the more dynamic region from a growth rate standpoint. This being said, looking at the potential in all the different regions and the fact that implant and clear aligner are still very underpenetrated market even in North America and Europe, we believe that those major markets and major regions, we still deliver significantly lower growth rate but potentially even higher absolute value. Could you add me again understand your second question?
Shubhangi Gupta: Second question is on the digital business of what is the growth and margins compared to the group sales and margins? And also what geographies are seeing more demand in digital?
Guillaume Daniellot: Okay. Thank you. Sorry for that. On the digital side, then – the growth is also dynamic. We’re also double-digit growth. And I think this is also related to all the investment in digital transformation that we are doing and we are continuing doing. We are focusing very significantly to the customer needs in this environment because one of the risks in digital is to focus on technology, and whereas we are focused really on the customer needs and trying to simplify their experience. So far, I think this is paying off, and we are also increasing our capability to sell those solutions with, yes, I would say specific teams that are able to deliver in the right manner on our value position and growth is double digit. We expect it still to be quite significant in the years to come with the innovation that we are planning to deliver to the market on our own but also with our partners like pre-shape being still very solid quarter of ours in the digital field. On the gross margin side, this is what we expressed is lower than the rest of our own product lines and the other franchises because we still have a lot of third-party products and on a third-party product, having much lower gross margin and this is, of course, positioning this digital business as the last gross margin provider from a percentage standpoint, but we are growing in the meantime, our consumables like unique as a service, where customized prosthetics are also then improving very significantly the gross margin of the overall franchise. And what is strategically important for us is that while we are implementing this digital workflow at a lower gross margin, we are looking at driving a lot of consumable out of it from a prosthetic customer, prosthetic standpoint were then very significant gross margin. And from a geographical standpoint, I think the digital franchise is developing at full speed in all regions. And the major reason for this is because of our different price points. Once again, I think they are high-end segments with the very advanced technology provided by free shape, which is very strong in mature markets, like North America, like Europe, but you have all emerging markets like in Latin America and Asia Pacific that are looking for more affordable solutions, and this is where we have our – liked our solutions, which is allowing them to provide the right answer. And – it’s the same than what we are doing on the implant side, being able to approach all the different price segments is allowing us to keep the same dynamic in the different regions.
Shubhangi Gupta: Thank you.
Operator: The next question comes from Sibylle Bischofberger from Vontobel. Please go ahead.
Sibylle Bischofberger: Thank you very much. Good morning. And as also a question about the outlook. First, you say the restated EBIT margin was 28% in 2023. And the outlook is for 27% to 28%, what are the main drivers for a flat to lower margin expectations? And the second question is about currency effect on the outlook. Earlier, you said on sales would be 5% to 6% minus currency headwinds. And on the margins, 100 to 200 basis points. Could you confirm that? Thank you.
Yang Xu: I take that. Yes, currency effect, we confirm that. We earlier talked about it. And secondarily, on the outlook, as we said, we’re very pleased with our strong B2B growth momentum. You have observed post VBP, we have a gross margin that’s lower, but we’re very pleased actually with our operating leverage that we were more than overcompensating that in the first half year. And critically speaking, that what we want to do is to start with the a position of strength and reinvest into our business so we can really sustain our market above market growth. So what we’re doing is essentially take out what we originally guided 26% of constant currency margins of prior guidance and reinvest some of them not entirely, reinvest some of the DrSmile and back into the business so that we can continue to grow rapidly.
Sibylle Bischofberger: Thank you.
Operator: We have a follow-up question from Maja Stephanie Pataki from Kepler Cheuvreux. Please go ahead.
Maja Stephanie Pataki: Well, actually, thank you much. That was just my question with regards to what is the reason why you’re guiding for flat 200 basis points down on margin were in local currency, whereas you’ve been previously guiding for 100 basis points up. But then it’s related to China and investments into Chinese growth. Did I get that now correctly from your answer to, Sibylle.
Guillaume Daniellot: It’s not only reinvesting in China. We’re reinventing first reinvesting first a lot on B2B also, which is really critical because, obviously, that’s where we want to have the highest potential growth and, of course, taking significant ground on this market segment. And while our technology now is offering us the opportunity as expressed in the first part of the presentation to start tackling the orthodontics especially standard group, and we know we need more feet on the ground and we need to make sure that we do more investment towards this target group. We, of course, need to further develop our digital portfolio, which is at the moment than pushing a lot of our digital workflow as one of the major differentiation that would allow us not only to sell some of digital equipment, but especially sell a lot of consumables such as implants and prosthetics because of the convenience that we are going to deliver. Then while we are going to invest much more on the auto B2B side, we will keep investing on all parts of our business, including China, of course.
Maja Stephanie Pataki: Got it. Thank you very much.
Operator: The last question for today’s call comes from Veronika Dubajova of Citi. Please go ahead.
Veronika Dubajova: Hi, apologies and thanks for squeezing me in for a follow up. I think it’s same question that Maja has tried asking as well as the bill, but I just wanted to confirm. So previously, you had expected in CR terms, about 100 basis point improvement in the core EBIT margin going from 25% to 26%. Right now, what you’re saying is you’re going to go from 28% to 28%, so basically flat margins. So the incremental 100 basis points headwind is that entirely the ClearCorrect investment and B2B. And have I understood that correctly? Or have I missed some other moving parts in there? Thank you.
Yang Xu: Veronika, I think the right way to think about it is put in the original context of how we guided. We guided 26% of constant currency of last year – and versus last year. And then this time, we say we’re actually going to grow our margin to 27% to 28% on a low double-digit growth. So when you do the calculation, you will see, actually, we will deliver more EBIT in absolute amount. I think this is important. And secondarily, what we said is yes, we are in the position of strength. We do want to invest so that we can drive above-market growth. I think Guillaume said enough, and this is a position we take. We want to have the flexibility to invest, and we are investing so that we can grow significantly.
Veronika Dubajova: Okay. But I mean just to be clear, the margin last year, excluding DrSmile was 28%, correct?
Yang Xu: Correct.
Veronika Dubajova: So the guidance you’ve given is the 28% last year becomes 27% to 28% this year. So you’re seeing at best margins are flat year-on-year whereas before, you were talking about margins going up 100 basis points. So I’m just trying to understand the delta there is the investments. Nothing else has changed, correct?
Yang Xu: The delta’s investment, nothing else has changed. And also, as you know, the second half year, normally that the DrSmile profitability’s are much higher.
Veronika Dubajova: Okay. Understood. Thank you so much.
Yang Xu: Thank you.
Guillaume Daniellot: Thank you. Then I would like to thank you for joining us today and your interest in us. Obviously, we are looking forward to seeing you again soon and wish you a good rest of the summer. Have a nice day and goodbye from warm Basel.
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