Ladies and gentlemen, welcome to the half-year 2024 Results Conference Call and live webcast. I am George, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions or comments in writing via the relevant field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dominik Arnold, CEO. Please go ahead.
Thank you, George. Dear investors and analysts, we welcome you to the COLTENE Media and Financial Analyst Conference for the first half year, 2024. My name is Dominik Arnold, the CEO of COLTENE. With me is Markus Abderhalden, the CFO of COLTENE. We'll conduct the conference in English language, considering the investors on the call today. As always, we start with a safe harbor statement for you to note. The agenda for this call today, I will start with the key highlights for this first half year, then I will hand over to Markus for a deeper view on the financials. I will then conclude the presentation with some key learnings and outlook before opening for Q&A. We at COLTENE see the first half year as a solid performance.
Our aim was to match the strong first half last year on the top line, which we basically did in a local currency. We achieved that, this in a challenging environment, proven by our peers' performance. Profitability, while not yet at the expected level, clearly improved versus the second half of last year. We moved into the second half with more tailwind and the confidence as last year out of the following reasons. First, our gross margin has improved and is on the right trajectory. We could improve our EBIT as well in quarter one versus the quarter one of the first half year. Then third, we kept our cost and our net working capital in an inflationary environment under good control. And then fourth, we had some important product launches, such as our whitening product in Q1.
It will take time to see the progress in significant revenue gain, which is all year-end loaded. Organizationally, we are in the middle of some key changes, mainly in the marketing and sales organization, that really drives customer and market orientation. With this, I'm handing over to Markus for more details to the financials.
Thank you very much, Dominik. Dear investors, dear ladies and gentlemen, I also welcome you to today's media conference. I'm pleased to present you the financial performance of the first semester, 2024, of the COLTENE Group. Since the key points have already been mentioned by Dominik, I will skip this page and go straight into the details of the financial performance. Let me start with an overview of the income statement. Net sales reached CHF 125.5 million in the first semester. This is 3% below prior year and is still substantially affected by the strong Swiss franc. The EBIT margin reached 10.2% and is, with 0.8 percentage points, slightly lower compared to last year.
The gross margin contributed positively to the operating results, while investments in future growth at an operational level led to slightly higher operating expenses. Net income of CHF 10.4 million slightly increased, mainly thanks to both a positive financial result and a lower tax rate. But now let's go further, into further analysis on the next pages. Starting point is our top line with net sales. In local currencies, net sales only slightly decreased by 0.7%, and herewith continues its strong performance from the last year's first half. On the left side, you see the share of the three product groups that are almost unchanged compared to the previous period, and in consequence, that they are still of a similar size. On the right side, you see the development of the three different businesses.
In local currencies, sales of Infection Control were exactly at the previous year's level. This is a remarkable performance since this business benefited in the last half year from the reduction in delivery backlogs and was faced with some headwinds from the market due to lower demand of devices. The surface disinfection products were the driving force for the good performance here. In Efficient Treatment, the reduction in stock levels among dealers have normalized. However, supply bottlenecks, especially for one product, had a negative impact here. Adjusted for currency effects, sales fell by 2.7% as a consequence. In contrast, the decrease of 1.3% local currencies, in particular, thanks to the endodontic areas. Also here, the order situation have normalized following a previous reduction in stock levels at dealers.
With sales of CHF 61.8 million, our largest region, North America, further increased its share of revenue, thanks to the growth in local currency of 2.4%. Mainly, endodontics contributed to this achievement in this region. In EMEA, Europe, Middle East, and Africa, the second-largest region, was still slightly affected by a destocking of individual dealers, and as a consequence, sales declined by 4.0% in local currencies. Asia achieved currency-adjusted sales at the previous year's level, whereas the net sales in Latin America fell by 6.7%, mainly due to some delivery delays. However, this should have a positive effect in the second half of the year. With this page here, I would like to show you the development of our operating result from the first half of 2023 to 2024.
Hence, the starting point is the first half of 2023, where we achieved an EBIT of CHF 14.4 million, or an EBIT margin of 11.0%. The volume effect is mainly driven by a negative impact of foreign currencies on net sales, as we have seen before. The gross margin increased from 65.4% to 66.6% in the reporting period, with the following main two reasons: First, a change in our product mix to a more normalized level. And secondly, better purchasing price conditions with mainly less expensive electronic components, but also due to a strong focus on our procurement strategy. The personnel expenses slightly increased by CHF 0.3 million compared to previous year.
The positive impact of foreign currencies and the overall net reduction of 15 full-time employees was offset by the higher salaries and the reallocation of resources into marketing and sales, as well as in R&D. Finally, despite the strong cost discipline, the other operating expenses also increased slightly, driven by investments into the future growth, namely into the launch of the BRILLIANT Lumina, increasing marketing campaigns, increasing presence on trade shows, and also the digitalization of internal processes. The financial result in the reporting period amounted to a plus of CHF 0.5 million and were significantly better than the previous year. While the interest expenses were stable, the gain from foreign exchanges significantly increased by 1.8 million Swiss francs compared to the prior period.
The tax rate was 23.0%, down from 24.4% in the first half of 2023, which was affected by non-reclaimable withholding tax on dividend payments by subsidiaries. We expect the tax rate to be stable at that level for the second half of the year. As a result, the net profit amounted to CHF 10.4 million, compared to CHF 10.0 million in the previous period, and represents a profit margin of 8.2%. This is an increase of 3.9%, despite a slightly lower operating result. The cash balance significantly increased by 51.6% and will be used to reduce the financial debts in the second half of the year.
The inventory slightly increased to CHF 59.0 million, while in local currencies, we could further optimize our level of inventories by a reduction of 4%. Net debt further decreased, thanks to the strong free cash flow, despite the higher payout ratio of the dividend paid in April. The shareholders' equity of the COLTENE Group as of June 30, 2024, amounted to CHF 100 million. Due to the weaker financial performance in the second half of 2023 combined with the higher payout ratio of the dividend for the fiscal year 2023, in April 2024, the equity ratio slightly decreased to 52.7%. The total assets of the group are stable at the level of CHF 190 million.
As a result, the balance sheet of the COLTENE Group continues to be extremely sound and provides room for inorganic growth. The operating cash flow for the reporting period reached CHF 16.5 million, and benefited again from the strong management of the net working capital. However, compared to the previous period, it is down by 20%, despite a 3.9% higher net profit base. The main reason is because the positive impact from the net working capital in the first half of 2023 was even higher. The cash flow from investing activities is 30% below prior year, driven by both the investments in property, plant, and equipment, as well as in intangible assets. As a result, the COLTENE Group achieved again, a strong free cash flow of CHF 13.8 million.
Cash flow from financing activities was CHF 5.1 million, CHF 11.8 million lower than last year, driven by the lower dividend and less repayments of financial debts. With that, I'm at the end of my comments to the financial performance, and hand over again to our CEO, Dominik Arnold.
Thank you, Markus. This slide with my initial assessment I presented to you at the end of March. I must say, the assessment is still very valid. I'm planning not to repeat myself, but rather focus on what action we have taken since then, or planning as part of the strategic plan, which we are going to share in the upcoming Capital Markets Day , end of October this year. The key focus will be: how will our product portfolio look like and how we create value to the dentist? Secondly, on how we bring this value to the dentist with our go-to-market strategy. And then third, what culture, what process, and people we need to achieve that strategy and be the partner of choice for the dentist in the future.
So I'm starting here on the innovation, on the top left corner, on the weaknesses that we're working on. So we are incorporating our innovation process, a customer-centric front-end loaded, which includes co-creation partners, to ensure we truly innovate what matters to the dentist tomorrow. Secondly, we reduce also the amount of R&D projects to speed up the time to market, which also speeds up the return of investment. Then I'm coming to MarCom. We hired a new MarCom leader with a strong background in digital marketing to really drive the digital marketing forward. Then we strengthen and orchestrate our new product launches through the customer journey to be more effective and successful with our new products, and track the performance, learn, and adopt fast, if needed, on certain changes.
Then I want to come to the second part, which is build on strengths. So how do we leverage our strengths? So we are looking at the new packaging and branding layout, which we are implementing and starting beginning of 2025. Secondly, we keep and build our strong presence and work to focus our sales force more on where we have a strong value proposition. The portfolio we analyzed in depth, which is the basis for our new strategic plan, and we're going to present all this as well as a part of the Capital Markets Day on the thirtieth of October. Now I come to the third pillar, which is more about the the solid fundamentals. They are confirmed.
The regulatory landscape, we are well on track to remain regulatory compliant, but it remains a challenge for us, due to political uncertainties. The IoT platform, I will say no more, but I go into the next page, which we're already on right now. So on this slide... Daniela, can you go back, please, to the previous slide? Thank you. On this slide, a short update on where we stand on our focus area. We had a first successful launch with our new whitening product. We got a very positive review from the dentist on the treatment outcome. We work already on further improvements, such as the ease of use and the time for the treatment.
Secondly, we had the is the drive of a Jeni endomotor key part for our growing endo business, which Markus was alluding to, and it's developing very well. For our Infection Control, we see the first fruits and benefits from our cloud-based data offering I mentioned, and the value it truly brings to the dentist... Then we go to operational. The operational excellence initiative starting to move into our DNA, with continuous improvement tracked and sustained. The HR strategy is well advanced. We will be starting in this year with a new corporate-wide employment survey, as well as a leadership training. On the digital data, we started and see the first benefits. However, the large-scale rollout is still an open task for the future.
The electric consumption, or the electric consumption reduction, is really well in place, thanks to our solar investment in Switzerland and Germany, and is also planned for the U.S. to come. And we are on good track for the focus area to incremental pro-improvements, step by step, starting already in this year. Now, with this, I'm coming to the final slide. So for transparent continuation, we build our outlook on the communication from March 2024. We confirm our positive growth for, in 2024, and we plan a growth of 3%-5% in this year, based on local currency, and this in a stable to flattish kind of market. A sustainable EBIT of 15% remains our midterm target. We achieve this step by step.
Our aim is to create investor confidence by a stepwise improvement over time, and we see this the only sustainable way, and we are on track to that. The balance sheet of COLTENE , as you have seen from Markus, is financially sound. This allows us to continue with our attractive payout ratio to our investors. With this, I'm concluding, and we are now opening up for Q&A. I'm handing over back to you, George.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only headsets while asking a question, and eventually turn off the volume from the webcast. Webcast viewers may submit their questions in writing via the relevant field. Anyone who has a question may press star and one at this time. Our first question comes from Daniel Jelovcan and SGKB. Please go ahead.
Yes, good morning. I have three questions, and I ask one after the other. So the first question is, in North America, which was strong in local currency, you mentioned the key driver is endodontics. I guess one reason for the strength is that, an endodontic treatment you cannot really postpone, so it's a kind of a non-elective treatment, in contrast to some other businesses you have. Or was it also a company-specific strength, like better focus or new product? Yeah, that's the first question.
I think I'm taking that question. Thank you, Daniel. So it's probably a mix of various different things, to speak of. So the endodontics, you're absolutely right, and there I can just confirm what you said. So this is something, if on the sellout point, is something you cannot really postpone easily and, is from this perspective, a strong and a solid contributor for our business. And our product portfolio is improving, that helps us. But it's not only that. I think another reason is, we have a strong sales team. We had very little fluctuation also in the sales organization, and the sales organization had strong focus on various different products that we aligned our dealers together with our sales organization to execute in a very efficient way.
That helped us probably to gain some market share in a flattish market, so to speak. Also, what Markus alluded to is, actually, we saw in the U.S. from peers that the investments, so not the consumable side, which is mainly for our Infection Control products, was not very strong, while we were able to actually maintain our business there. But actually we also have Infection Control, some consumables, like wipes, and they were very, very strong. So it's a kind of a mix, but endo is one part of it. We did better than expected on investment products, and we substituted certain things with some consumables in Infection Control.
Okay, that's good to hear. And the second question is on the sales outlook, the 3%-5%. I mean, obviously, it implies 10% or up to 10% if you take the high-end growth in the second half. And, of course, the second half last year was pretty low, so I guess that's one reason, is the base. I mean, actually, it's also in line with our own expectation, but it's still a bit surprising, in a positive sense. When you look at, for instance, Henry Schein, when they lowered their outlook two days ago for the full year, and they had two main reasons. Their cybersecurity business is not recovering as quick as they thought. That has nothing-...
No read across to you, but the other one, of course, weaker economy than they originally thought. It was the previous guidance, and I'm sure you also have some opinion about the consumer sentiment. I know it's not easy, but yeah, that's the main, the key question here.
Yeah, that's a very key question, Daniel. I don't have the crystal ball on how the macroeconomic will change. However, I think we have built a solid base in this first half year. We believe also the inventory level is at normal level now with our dealers. And from this perspective, with the momentum we have, combined with a weak last second half year, we believe we can achieve that 3%-5% growth on local currency. We need to obviously take into consideration the recent strengthening of the Swiss franc, but and how this will evolve, we cannot really tell. But on local currency, we still believe we can achieve that.
We have obviously other dealers, not just Henry Schein, and we see different performances of various different dealers in various different regions, and that allows us to go to that commitment.
Yeah, and to follow up, thanks. Is so you have signs from your distributors that the consumer is still in a good shape, or, you also hear comments that it's slightly deteriorating? Then would be very curious on, on that. That's the last question. Thanks.
Yep. That... I assume this is your third question, right, Daniel?
Yes.
Yeah. So the sentiment from the market, we believe that, or let's say the peers mentioned a flattish kind of market, and we confirm that we believe that the market is not deteriorating in a significant way, but is flat. Right? And our goal is to grow above the market, and we believe we can achieve that goal this year, to grow above the market and to gain some share, and that allows us then to grow 3%-5%.
Okay. Yeah, thanks very much.
As a reminder, for questions over the phone, you may press star and one, and webcast viewers may submit their questions in writing via the relevant field. Mr. Arnold, I don't see any registrations for further questions.
Well, thank you so much, everybody, to attend this investor and analyst call this morning, and thank you all for, or thank you for the question, Daniel. I'm hoping to see you, all of you or most of you, on our Capital Markets Day , end of October, to share with you more details about our strategy moving forward. And with this, I conclude our half year call. Thank you so much.
Ladies and gentlemen, the conference is now over. Thank you for choosing Conference Call, and thank you for participating in the conference. You may leave now, disconnect your lines. Goodbye.