Ladies and gentlemen, good morning or good afternoon. Welcome to the Institute of Straumann First Quarter 20 13 Results Analyst and Migdia Conference Call. I am Ellis, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session.
The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Marco Gadola, CEO. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen, and thank you for joining this conference call on Straumann's 2013 Q1 results. Before we start, I would like to say that I am pleased to be back at Straumann, and I'm looking forward to interacting with you going forward. I'm also looking forward to catching up with those of you who were covering the company when I was Chief Financial Officer 5 years ago. We published our press release yesterday evening after the Swiss Stock Exchange closed, because we wanted to inform our staff about the measures we are taking before they heard it through the media.
I am sorry if this has caused any inconvenience, but I am sure you will understand. In this call, I will be referring to the presentation slides that were published on our website earlier this morning, and I would like to draw your attention to the disclaimer regarding forward looking statements on Slide 2. I will begin by giving you our view of the market and how we are addressing it. Our CFO, Thomas Kressendorf will then take us through the numbers and the business performance before I conclude with a summary of the initiatives we are taking to deliver the improvements we have promised. After that, the lines will be open and we will be glad to take your questions.
Now let's start with Slide 4 and our view of the market. Based on the reports and comments of other companies and our own results, the dental markets are continuing to suffer in Europe and Japan, their consumer sentiment remains weak, mainly because of the unfavorable economy. In contrast, the emerging markets like China and Brazil continue to perform well. An increasing challenge for premium companies like Straumann is the growing competition from the value and low cost segment, which has on a global basis outpaced the premium segment in this difficult environment. Of course, these segments benefited from a more favorable country mix and we lost ground against local champions in Western European markets as well as in Korea.
Another important trend is the growing substitution of standard implant prosthetics as customers see and appreciate the advantages of individualized CATKAM solutions. In general, our markets have changed faster than expected, making it necessary to respond and adapt faster. Slide 5 highlights some key initiatives that we are taking in this respect. We want to take full advantage of the opportunities offered by emerging and underpenetrated markets. So we are continuing to focus our investments on high growth markets like China rather than on traditional strongholds like Europe, which we will nevertheless maintain and defend.
Global presence, infrastructures and partners like the ITI give us a valuable advantage in this respect. As you know, we operate in a non reimbursed field and price is an increasingly important issue. To compete effectively, we are exploring more commercial approaches, which respond to consumer needs. We also want to penetrate the value segment by leveraging Neodent. As a first step in this direction, we have signed an exclusive distribution agreement with Neodent and are working towards our first launch later this year.
We are continuing to address the issue of treatment cost by developing solutions as well as products that reduce the overall treatment costs, for example, by eliminating process steps and shortening dentists' workflows. In the Q1, we began the rollout of our Cares Cannon Shape service. This is a full CAT scan solution for dental labs that do not have scanning capability. So this service means that they do not have to invest capital in equipment. Scan and shape is one of several initiatives to broaden the reach and accessibility of our CATcam franchise.
Cares 8.0, which we launched at the Chicago Midwinter Meeting is another. And finally, a key response to our changing environment has been to step up our cost reduction initiatives significantly, including resizing and adapting organizationally to the new market realities. Our Q1 results underline the need for all of these measures. As you can see on Slide 6, group revenue contracted 6% both in local currencies and Swiss francs to €175,000,000 Excluding the effects of currencies and our exit from distributing intraoral scanners, the decline was 5%. This is clearly not the performance we are satisfied with and below our expectations.
Our best regional performance was in North America, where sales matched the prior year's record level and grew organically by 2%. To deliver the margin improvements we promised, we will be reducing our global workforce to around 2,230 this year. To increase our financial flexibility for future acquisitions and growth initiatives, we recently placed our first bond with a base amount of CHF 200,000,000. And now, I will hand over to Thomas to tell you about that and the financial details of our performance.
Thank you, Marco, and good morning, everybody. As you just heard, 1st quarter group revenues reached EUR 175,000,000 corresponding to a decline of 5.6 percent in Swiss francs. In organic terms, which excludes currency effects and portfolio differences, the decline was 4.7%. On the left side of the chart in Slide 8, you can see that currencies had virtually no impact in the Q1 of 2013. You can also see that group revenues in 2012 would have been $1,700,000 or 80 basis points lower without the intraoral scanner business.
On the right, you can see that our disappointing performance in Europe was the main cause of the overall decline. Or put it differently, our largest region delivered the poorest performance. With the exception of North America, sales slowed down in all other regions. Looking briefly at our performance by segment on Slide 9. Our core implant business benefited from the recently introduced small diameter NNC implant and the bone level range.
However, the implant business as a whole was softer than the comparative period of last year, mainly due to lower volumes in Europe and Japan. The restorative business, which comprises digital products, catchem elements and standard prosthetics was also slower. This reflects the competitive landscape in general, discontinued sales of intraoral scanners and the transfer of STAHLMAN software guided surgery business to Dental Wings. In contrast, our smallest franchise, Regeneratus, achieved moderate growth driven by Stallman Allograft and Emdogain. As you can see on Slide 10, Europe contributes 56% of our total sales.
1st quarter sales contracted 8% year on year as subdued consumer confidence continued to constrain the dental markets. The Q1 this year had more than 2 fewer working days than in 20 12. But even if we exclude those effects, our revenues still did not reach the corresponding level of last year. In view of the results reported by competitors, we had a January slower start to the year. Spain and Italy, which have been hit badly by the economy and which have many discount competitors, suffered the biggest declines.
Germany and Switzerland also struggled and were unable to reach prior year levels. North America, which accounts for a quarter of our total revenues, succeeded in matching the record high quarter of the previous year. Excluding the Ipira effect, sales were up 2% in the quarter and benefited from volume and price increases in our implant business. Moving on to Asia Pacific and Rest of the World on the next slide. Our revenue in Asia Pacific region contracted 4%.
In Japan, which represents roughly half the APAC market, the picture was unchanged. Public perception of implant dentistry has been tarnished by the media and will take time to restore sentiment. China and Australia both reported solid performances, but not enough to compensate for the shortfalls elsewhere. In the rest of the world regions, 3% decline was mainly due to difficult conditions in the Middle East and a soft performance in Mexico, which posted dynamic growth in the previous year. By contrast, Brazil grew strongly.
Turning to Slide 12. On April 5, we successfully issued a Swiss franc denominated bond for CHF 200,000,000 with a coupon of 1.625 percent and the duration of 7 years. This bond will be listed and traded on the Swiss exchange. The rationale for this initiative is as follows. In the coming years, we want to increase our participation in Neodent without compromising our independence and our ability to take advantage attractive investment opportunities to expand our business.
The bond increases our financial flexibility to do this. Furthermore, it enables us to benefit from historically low interest yields and a favorable corporate spread. And with that, I would like to hand back to Marco.
Thank you, Thomas. As I mentioned earlier, Strong continues to work on solutions and improvements that streamline workflows, save time and costs as well as adding convenience and broadening options. Slide 14 shows several examples of such solutions that we launched in the Q1. I have already mentioned Scan and Shape and Care System 8.0. Care's Extreme enables customers to design the complete prosthetic solution from one scan instead of 2.
The abutments and crowns are produced in a controlled milling environment for excellent fit and consistent quality. They are then delivered together, significantly reducing turnaround time and shipment costs. Terion HT is a new high performance ceramic that requires minimal processing. It saves lab time and reduces the risk of chipping. Our indication based product selection guide makes it easier and quicker for professionals to select the products they need.
The locks in transfer piece makes implant handling easier. And with our new sterile healing packages, customers no longer have to sterilize certain products. Turning on to Slide 15, I would like to give you some more insight into our initiatives to reduce our cost base. If you have been following the company in recent years, you will know that we have continued to invest countercyclically in preparation for our markets to return to strong growth in the near term. Unfortunately, the optimistic expectations have not materialized and the market has changed.
In view of these developments and the midterm economic outlook, especially in Europe, our current staffing level and cost base are no longer sustainable. We are therefore reducing about 200 jobs this year with the aim of getting back to a headcount of approximately 2,230, which is the level we had prior to the economic crisis. As you can see on Slide 16, we intend to focus on reducing non sales functions and non essential activities so that we don't compromise quality, innovation and service to our customers. This is why the majority of the reductions will be in back office and support functions and most will be at our headquarters in Basel. It goes without saying that we will take due regard to our social responsibilities as an employer.
The cost reduction program and redundancies will result in one time charges of CHF 18,000,000 to CHF 20,000,000, which will be accrued in the first half of twenty thirteen. I do want to emphasize that despite resizing, we will still have a very strong highly competitive team of professionals to drive our business in the future. Please turn to Slide 17. Obviously, a reduction of this scale requires organizational changes. So we are adapting our structure and leadership accordingly.
The main structural changes are designed to simplify the functional setup and accelerate decision times. Most importantly, we want to strengthen our focus on customer needs and corresponding solutions. The new structure is reflected in the following changes within the Executive Management Board. Thomas Dresendurfer, our CFO Andy Molnar, who had sales in North America and Alexander Ochsner, who had sales in Asia Pacific, all remain in their current positions. Fran Kem takes on the newly created role of Head Customer Solutions and Marketing.
Sandra Motto also takes on a newly created role as Head of Strategic Projects and Alliances. Wolfgang Pekko joins the executive team as Head of Sales Central Europe. Guillaume Daniello also joins as Head of Sales Western Europe and Latin America. And finally, Gerhard Baio, who is also new to the EMB, takes over responsibility for research and development in addition to his current job as Head of Operations. After 8 years with the company, Rene Willi, who headed our Surgical Business Unit, is leaving to pursue his career outside Straumann.
Rene has made many contributions to product development and the surgical business and we would like to thank him in addition to wishing him all the best for the future. And that brings me to the outlook on Slide 18, which has not changed and is, of course, bearing unforeseen circumstances. We expect the effects of the weak economy and consumer sentiments to continue in Europe, while markets like North America, China and Brazil should continue to perform well. Based on solid fundamentals and our cost reduction initiatives, we assume that we will be able to deliver improved profit levels in 2013 even if the market remains sluggish. In the midterm, we aim to return to solid growth and a significantly higher operating margin.
Well, that concludes our presentation and brings me to the Q and A. And I will ask you kindly to limit the number of your questions and sub questions to 2 and then to rejoin the queue. So operator, can we have the first question, please?
We will now begin the question and answer session. The first question comes from Ed Ridley Day from Bank of America. Please go ahead sir.
Good morning and thank you. I'd like to ask a couple of questions on the additional restructuring please. First of all, in the Q3 you gave good indications of the potential savings that you expected from the restructuring. First of all, is this new restructuring program in any way related to the progress or perhaps slightly slower progress than expected on the initial restructuring program? That would be my first question.
And the second question is in terms of the new cuts that you have announced, could you give us perhaps more color about the level of savings that you expect from these new cuts? Thank you.
Thank you, Ed, for this question. Obviously, the initial cost reduction program, we came to the conclusion is obviously not wide enough to actually give us enough room to still achieve our target, which we've set ourselves for 2013. To be a little bit more concrete on numbers, the initial program, a cost reduction program, which we launched in October of last year, will yield approximately CHF 11,000,000 to CHF 12,000,000 of annualized personal expense savings. This new program is obviously much wider and will deliver roughly CHF 25,000,000 of annualized personal expense savings. So altogether, the 2 programs, the one launched and implemented last year and the new program altogether will yield in approximately CHF 35,000,000 CHF 36,000,000 of annualized personnel expense savings.
Okay. Thank you. And in terms of the additional savings announced on top of the personnel savings announced at the time of the Q3 results, could you give us any indication of how you've progressed on those?
These are all fully implemented or have been implemented your latest by the end of last year. So we will actually see the roughly EUR 11,000,000 savings reflected in our 2013 financial statements. The second cost reduction program, we will have finalized by mid of this year, latest. So we will have roughly 50% of the mentioned savings reflected in our 2013 financial statements.
Thank you very much. I'll get back in the queue.
The next question comes from Chris Krattler from Credit Suisse. Please go ahead, sir.
Yes. Hi, good morning and welcome back Marco.
Hi, Chris.
Hi. And just wanted to basically follow-up and maybe actually because now we spoke about this €35,000,000 to €40,000,000 in cost savings from the October program. Could you relate this number now to this €11,000,000 €12,000,000 in personnel expense savings now you talked about now so that we see where the remainder is and when it should hit the cost line. So that would, I think, be helpful. And then just on this no cost reduction program, I understand the back office now part.
Is there also any impact on manufacturing you see? And whether you could give whether you could give us an update about how that business has been performing?
I will answer question 23 and will hand over to Thomas on question 1 on the €35,000,000 to €40,000,000 because I've obviously not been around then actually that cost reduction initiative than the corresponding savings have been communicated. On your second question in terms of where will actually these cost cuts come from, primarily, it will actually come from our headquarter functions in Boston. And there, clearly, on it has to come out of back office classic back office functions. We will also have certain adjustments when it comes to our production sites. You're talking roughly 20 FTEs or 20 head positions spread over all our sites.
As you are aware, we have sites production sites in Villeret, in Andover, in Malmo, in Leipzig, in Arlington and in Grevenshanks. So altogether, we will reduce in these sites our headcount by roughly 20 employees. Your question related to Neo then. We only publish full financial results, including the development of our minority positions at half year, as you know. So I would actually like to wait till August when we will come out with our half year results and we will then give you a clear picture in terms of how Neodent has performed.
Thomas, over to you on question 1. I'll address
the first question, €35,000,000 to €40,000,000 I've always communicated that these savings are gross savings. They are before reinvestments into the business, be it sales force expansion, be it expansion in China, the expansion in other growth markets are there. Secondly, I've also communicated that €35,000,000 to €40,000,000 is not personal expense only. It includes top line initiatives, it includes production initiatives and of course, it includes cost cutting measures like we announced back in October. So part of that has materialized, not everything has materialized.
So we've added 2nd program to get the right numbers at the end of the year.
But basically, if I look at just purely your headcount, you mentioned 100 and 12 to your target end 2013 basically now ties in. So I was just wondering, so it looks like the headcount side at least now being executed as expected. So I was just wondering whether there was any other things that did not yet develop according to expectation. Because I assume iTero that is also pretty much done. So I was just hoping you get us a bit more insight into what has not yet gone according to expectation then?
I think the sales obviously. And then the sales don't come the way they should be. And you've seen the decline in the Q1. It is not good. And you have to react on these numbers and get the margins right.
So this
is the
second approach we're taking.
Okay, good. Yes, so I'll step back in the queue. Thanks.
Just to add on one point, Chris, on the obviously the €35,000,000 to €40,000,000 question. As I understood it, this number also included the one off effects in relation to the restructuring program and other cost reduction measures, which obviously had an impact in 2012, but will not be there in 2013.
Okay.
The next question comes from Liza Klaive from Sanford Bernstein.
Please go ahead madam. Hi, good morning. You mentioned discount competition particularly in Southern Europe seems to have gotten rather more intense. Historically Straumann had said or management had said that within your own product portfolio, there's a wide range of price points and actually the older legacy products like SLA were actually pretty price competitive with some of the discount offerings. Is there a way, I mean, you've talked about Neoden and perhaps how that can be used as a second brand.
But is there a way that you could really just address some of the more price sensitive segments of the market within your existing portfolio? Or is that just a bit too hard to stratify the market that way? And then my second question is anecdotally in talking to dentists, oral surgeons, etcetera, the reliability of discount products seems to be a lot lower. But I think we struggle with the fact that there doesn't seem to be much published information on that. Do you spend any R and D dollars looking at sort of head to head comparisons of reliability, 1 year survival, 3 year survival, etcetera?
Or is that something that you think would be valuable to have as a marketing tool?
Okay. Thank you for your questions. The first question in terms of is there any opportunity with the current product portfolio to tap into the value segment? In certain markets, this is definitively possible because also the value segment is not just one price point. It's obviously a band of pricing.
So if you look for example into Germany, where obviously our largest competitor is Camlok, Camlok implants are priced at around €150 Our SLA implants are priced slightly above €200. So there, we are actually not too far away from the core competitor in the value segment. And by bringing down the SLA pricing to below CHF 200 EUR 200, sorry, we may be able to actually tap into the upper range of the value segment. The same applies, for example, to the U. S.
With BioHorizons. Although there, our SLA offering is not too far away from BioHorizons pricing. So there may be opportunities to grab certain parts of the value segment with the existing product portfolio. However, there are also other markets and you mentioned some of the Western European markets, Italy or Spain, where actually our pricing, for example, compared to a PO in Spain, it's just too far away. So there, we would have to lower our product portfolio massively to even get into the upper range of the value segment.
And there, obviously, in these markets, we are looking at bringing to the market a second offering. Could be through an EODEN, but we're also thinking about potential other measures. Your second question on the head to head clinical studies, yes, obviously, we have these. And obviously, we are trying to use these when it comes to give arguments to our sales force to argue our products against our competitors' products. So our salespeople, they have this material at hand, and they are also using it during your daily work in the field and their sales calls.
Out of curiosity, how does that data look? What is the difference in the failure rates? I think this is something that we would love to see too.
I can just tell you that obviously the failure rate of the ESL Active implant compared to everything else in the market is much lower. And this is actually also what we use in our daily work in the field and in our communication to our customers.
Okay,
thanks. The next question comes from Yi Dan Wang from Deutsche Bank. Please go ahead madam.
Okay. Thank you very much. Just want to have a question on the restructuring cost. Just want to be very clear on what has come through, what you have reinvested and what has not come through. So Thomas, can you give us a split of the €35,000,000 to €40,000,000 which is growth savings that we understand?
And how that's being split versus the cost that has been reinvested versus the cost that has not savings that have not come through? And then on the second question, it seems that looking at the various companies, the market itself has not changed quarter on quarter. So somewhat curious about your comment that the revenue side has not come through as expected. Is that just due to Straumann specific issues? Or do you think actually the market is has changed?
If that has changed, what sort of growth rate or decline do you expect the market to achieve this year versus last year? Thank you.
Okay. If you take the split on the cash, you said EUR 35,000,000 to EUR 40,000,000 drop, and that's I think I've always communicated that one. Approximately, dollars 15,000,000 to $20,000,000 was on the people expenses, but we always said we're going to reinvest into U. S, for instance, for the expansion. We've done that.
We've invested into people in China and other countries. So the number the net savings on the people cost obviously goes down on that. We have initiatives on the production side where we increased our gross margin. We've done that successfully in the smaller business. However, revenue did not come up the way it has materialized.
And then thirdly, we had sales initiatives in our regenerative business, on the care business, which again, on the numbers we just presented, if you want to not materialize. So the gross savings, 1st of all, what I said, some you have amortization impact, you have reinvestments in the business and then some of the sales initiatives just did not materialize the business we're anticipating. That's in a nutshell the split of these numbers. And as the numbers of sales, the top line does not materialize, we just have to add a further, let's say, rightsizing of the company.
So I think from originally, when you discussed the $35,000,000 to $40,000,000 those were cost savings and they were not related to revenues?
No, no, no.
We never said cost. We said always said it's focusing on the EBIT to get the EBIT up to expiration levels of 18% and above. It's a combination of 3 factors. It's the top line, we're addressing the top line, we're addressing the production and we're addressing the OpEx. Now if you have a cost base of €450,000,000 we're taking out 10%, euros 45,000,000 let's say €40,000,000 that's a big junk, you can't do that in a quick thing.
It was really focusing on these 3 aspects: top line, operational improvements on the production side and, of course, on the headcount. And as we said in the presentation before, in the last years, we have been expecting change of the market, more growth in the premium side. This has not materialized, so we are rightsizing now.
Okay. So on the just let me clarify and so that I understand it clearly. So on the personnel savings, you've achieved €12,000,000 to €15,000,000 on a gross basis so €11,000,000 to €12,000,000 on a gross basis. And all of that has been reinvested?
No. What I said, we said personal expenses, the savings were between €15,000,000 and €20,000,000 And we reinvested this business, taking take as an example, you can take the U. S. Where we have sales force essentially, we're adding people there, we're adding costs there on this thing. Also, take the OpEx, another impact is the medical tax, which is €3,500,000 hits on the OpEx.
So these are things which you have to deduct €35,000,000 to €40,000,000
Right. So you achieved €15,000,000 to €20,000,000 personnel cost. And the net after we those are growth, yes. The net
savings are EUR 11,000,000 to EUR 12,000,000 is what Markus said before.
Okay. So and then that leaves us with another $20,000,000 or so from other activities. So the production how much were you expecting from production related savings? And what did you achieve? And what did you not achieve?
We have, let's say, production dependent on the volumes you have. You have we've done a couple of insourcing projects. We've done a couple of other efficiency programs, but with lower volumes, you don't get the savings.
Okay. So what did you achieve on a what did you achieve there? How much savings did you realize there?
I would say, Jan, this is
Sorry, Doug. I think we have to cut you short here. The only hard number is SEK 11,000,000 to SEK 12,000,000. If you look at that Slide number 15, you see that actually since Q3 2012, we've reduced roughly 140 jobs. Most of these jobs were actually reduced in our sales subsidiaries.
So on average, the savings per job were around CHF 80,000, CHF 85,000, okay? So this gives you the roughly CHF 11,000,000 to CHF 12,000,000 Now the new cost reduction program, obviously, the majority of the savings will come out of headquarter functions. So the new program on average, the savings per job will be around CHF 150,000 blended rate, CHF450,000.
That I can understand and you've been very clear there. What is not clear is what the EUR 20,000,000 shortfall. How much of that is cost related? And how much of that is related to revenues? So as we see it, the market has not changed much Q1 versus Q4.
So we need an explanation on why the revenues have not come through. Is it because you have disruptions in the business as a result of the organization? Or it's just because you overestimated how much revenues you would expect from the activities that you have? Or do you know what I mean? We're trying to explain this 20,000,000.
Yes, it
is a different question. Obviously, we have built up our structures in anticipation of markets and ourselves within the market performing better than what actually is the case. Just to give you two numbers, if you look at our headcount at the end of 2,008, we had roughly 2,130,2,140 heads on board. And if you compare that to our 2012 Development Financials, we had CHF 300 roughly small board and we've generated roughly CHF 100,000,000 less revenue compared to 2,008. So clearly, we had to react because we do not anticipate that the markets will explode over the next couple of quarters.
Should this be the case, I think nobody would have anything against them, then obviously we can start to add stuff again and to invest again into the market.
I'm happy to take this offline, but the EUR 20,000,000 shortfall, I think we'll get into that. Thank you.
The next question comes from Mr. Tom Jones from Burberry Bank. Please go ahead, sir.
Good morning and welcome back, Marcos. It's good to have you back. I had two questions really. The first was just on the competitive landscape in the premium space. Investors and analysts make a great deal about the competitive dynamics at the value and discount end of the spectrum.
But if you're charged to be believed, 60% of the market is still premium. So I'd be interested to hear your thoughts about how you see Scrum and position competitively in the premium space and perhaps how that position has changed since you departed 5 years ago? It seems Nobel seems to be getting it out together in Europe. The integration of Dentsply Astra seems to have gone reasonably well. So it'd be interesting to hear your thoughts just on how you see the competition in the premium space and what you might be doing to maintain or improve Straumann's competitive position at that end of the market.
And then the second question and forgive me if it's perhaps just a touch personal, but I'm sure we're all wondering. I wonder if you could just give us a bit more color on why from a more personal perspective you decided to come back to Straumann?
Let's start with the second question. Jose, let me add this into the first one. I truly believe that Straumann is the best company within our industry when it comes to the product portfolio, when it comes to the possibility to cover all the needs our customers have out there from dentists to labs. We have actually everything to make our customers happy. We have also different price points with the SL Active, RockSolid even.
In addition to the SL Active, we have the SLA offering. We have the tissue level implant, we have the bone level implant, we have the regenerative franchise, we have everything. We have a digitalized workflow, which is proven and which works. So when it comes to the product offering or the solutions offering we could offer to our customers, this company has everything. Now what did we not focus enough on, in my opinion, is to take everything we have to roughly 3,000 selling SKUs and bundling them into solution, take out complexity of our customer workflows and the daily work in the practice and to go to these customers with simple packages for the key indications and having them a strong and easy package available to actually solve the daily problems in their practice.
This is actually what we've missed. And if you look at the other companies like Nobel, you look at the All On-four for example, this is exactly what I'm talking about. This is a solution to the dentist when it comes to fully edentulous patients. And this is actually our key challenge. What we have to work on over the next couple of quarters.
Sure. And some comments about the competitive landscape at the premium end of the spectrum?
Yes. The competitors are still the same like 4 years ago. It's Noble, it's Reye, it's Astra, it's similar. These are still the companies making up the premium part of our industry, so that hasn't changed. Now obviously these companies have worked very successfully in exactly doing what I tried to describe before, taking again the Noble example, but also 3i is moving more and more into this direction, actually not selling a single product anymore to our customer base, not an implant or an abutment or a case of bone ceramic, they started probably earlier and more successful in actually funding these products together and to go out into the marketplace and sell solutions.
And that's what we have to do too.
Great. That makes a lot of sense. Thanks.
The next question comes from Mrs. Carla Benziger from Bank of Tobel. Please go ahead
madam. Yes, good morning. I have a question related to your indication that you want to launch Neodent in the first market this year. Can you maybe elaborate a bit on what your strategy is there and whether you will have a separate sales force for it or whether you do it with your own one, etcetera?
Clearly, the Neodent brand is a different brand from the Straumann brand. Straumann is and will stay a premium brand. Neodent is clearly a value brand. And with this brand, we will have the opportunity to tap into the value segment. And what we want to avoid under all circumstances is actually to confuse our customers.
And to avoid confusion, it's clear that you have to act with Neodent through a known clearly dedicated separated sales force. So we will launch Neodent in the markets we've identified where we believe we have to be successfully tapping into the value segment. We will work in these markets through a dedicated Neodent sales force.
Okay, many thanks.
The next question comes from Mr. Jonathan Biag from Citi. Please go ahead sir.
Hi there. Thanks very much for taking my questions. Just 2. The first one probably comes back to similar to Yi Dan's, but I'm going to ask it from a different perspective. Essentially there are CHF 20,000,000 of CHF 20,000,000 of EBIT improvement that you are talking about going missing from lost sales.
Now we have seen no major deterioration in the market and actually improved momentum elsewhere. So I was wondering what specifically Straumann has caused you to lose those sales and whether you could comment it from that point and tell us about whether there's any company specific issues going on? And then the second question I was interested in was you mentioned some acquisitions in China. And I understand that in China it's actually quite difficult to find a local player who's very successful and actually is a majority of sort of regional players such as people like Ofstem that are doing well in the area. I was wondering whether your sort of acquisition there would be of an actual Chinese manufacturer or maybe a sort of regional multinational?
Let me start again with the second question and the first question can then will then be answered by Thomas. So your question related to China. We did not actually explicitly say that we will do an acquisition to China. So I'm not sure where you got this information from. Obviously, China is the fastest growing and most important growth market for the future.
And obviously, we will try everything to actually enlarge our footprint in this market. And we want to enlarge our footprint when it comes to the premium segment where we have a very good, I would say, a leading position when it comes to sales to institutions. However, also the private sector is becoming more and more important in China and we want to make sure that with our carbon brand, we can also tap in this part of the market. On the other hand, also in China, there will be a value segment, which is slowly but surely developing and we at Straumann, we want to make sure that we are actually 1st movers when it comes to be able to offer value products in this segment. Now you are absolutely right.
To acquire a valued Chinese player is extremely important because it's extremely not important, sorry, is extremely difficult because there are not many there out there. So the way to tap into the value segment will most probably lead through alliances, joint ventures, corporations with Chinese companies, not even necessarily companies who are already present in the dental implant industry?
Okay. I'll pick up the first question. Are there any company specific, let's say, mistakes in the past on these things? I think we've clearly stated in this call that the company has been set up in the past for growth in the premium segment. We've added people.
We've added structures in the year in the headquarter. Look at the results, we've tried to emphasize that now on this call a couple of times, the market has changed. We just have to adjust our organization to the new market environment, which is a premium segment and a non credit segment, and this is what we're doing. So I will not say there was a specific execution problem. It is more about a fundamental change in the market, which we're addressing and we have with Neosens an excellent answer to all the challenges in the market.
Okay. It just seems a bit strange that I mean, if you look at the commentary that you've given on the market between sort of Q4 and Q1, actually, there's no major difference in terms of where the difficulties are. And so it just seems strange that all of a sudden none of that €20,000,000 is going to come through. So I think that's where I'm left sort of with a bit of a question mark.
I think on the personal savings, the savings are coming through. They're not coming in the net into of what we've been thinking. We said €15,000,000 to €20,000,000 on the personal side, and we've reinvested some into the of the business. So you can end up with the €11,000,000 to €12,000,000 what we just said before. But this is just not enough taking the shortfalls that we have in Q1.
I think an 8% decline in Europe is not something where we can wait and hope until the market is going to change. So we're adjusting further.
Okay. All right. Thank you.
The next question comes from Hendrik Lofruv from HSBC. Please go ahead sir.
Yes, good morning. A minor follow-up on the annual savings target for this year to avoid the misunderstanding between gross and late savings. So could you confirm that the €25,000,000 annual savings from the new program are net savings? That will be the first one. And the second one, well, with overall about 340 less people working for Straumann, How confident are you that you can retain your top line levels and that the restructuring measures will not hamper your growth prospects?
On your first question, yes, definitively the EUR 25,000,000 are net annualized again. So it will not be shown fully in 2013 financial statements. On your second question, as pointed out, the cuts are actually coming out of back office functions and not on customer facing functions and development functions. So we are convinced and I think this is also very important. This new cost reduction program has to be viewed very much in connection with the new organizational setup.
We are actually eliminating interfaces through this new organizational setup. We are actually taking complexity out of the organization. We are streamlining processes. We are getting rid of work, which we did probably in the past, which is not necessarily creating value for our customers going forward. So it's not only taking out personnel, it's also setting up the company in a leaner way, in a more efficient way going forward.
So the question, the simple answer to your question is no. Also with the second headcount reduction program, we are not jeopardizing our possibilities and our capabilities to innovate and to continue to deliver stellar first class service to our customers.
Okay. Thanks.
The next question comes from Veronika Dubajova from Goldman Sachs. Please go ahead madam.
Yes, good morning. It's Veronica Dubajova here from Goldman. Thank you so much for taking my questions. I have 2. 1, I'm just curious, when you look at your performance in Q1, and I appreciate there is always things like geographic mix and comps and phasing coming in.
But if I look at your performance of the 5 premium players that we get to hear from on a quarterly basis, your revenue growth was the worst of the 5 of them. And I'm just wondering what do you believe has driven that underperformance? And as you think about reversing that trend going forward, what are the crucial components?
Yes, we are very much aware, obviously, that we've underperformed in Q1 against our premium competitors. And as pointed out during the presentation, this result is obviously disappointing for the whole Straumann organization. Now one of the reasons why we've underperformed the market is in connection with our country mix. We have a relatively high share of our turnover in countries like Spain, Italy, France, UK, but also Germany. And these markets, especially the Southern European ones, they obviously were performing less bullish than, for example, North America or some of the Asian Pacific markets.
If you compare to Nobel, for example, obviously, their U. S. Business is much larger than ours, also as a percentage of the total revenue. And as you've seen out of our numbers, the U. S.
Or the North American business has actually continued to develop rather positively also in the Q1 of this year. So we take 2 more and then we will have to close.
The next question comes from Mr. Michael Jungling from Morgan Stanley. Please go ahead, sir.
Great. Thank you for allowing me on the call. Two questions. Firstly on the restructuring. When we listened to the call in Q3 of last year, it was quite clear I think I thought from the call and probably Thomas can also confirm this.
I thought it was said that any further cost reductions would go sort of past the bone of the organization and would have an impact on organic sales growth. Were those comments are those comments still relevant? Because it seems to me now that the method is different and that is we're cutting sort of back office staff rather than staff or so that could impact the frontline. Hence, I'm confused by the past statement. And the question I have is really a question for Marco.
If I you've got a good reputation. You come into this organization and I guess you've had a look at consensus for the outer years. And if I look at sort of previous CEOs, they've been struggling trying to achieve consensus. Is this not the right time to perhaps reset consensus for the next 2 to 3 years and say maybe life is a bit more difficult and therefore the expectations of a 20% margin or so is unrealistic? I'm just looking at sort of what it's consensus and there is a 20% margin sort of dialed in for the next or in 2.5, 3 years' time.
Seems a little bit tough perhaps to achieve, hence the question.
Thank you, Michael, for these two questions. On the first one, again, I can just give you a couple of numbers. Again, if you look at our headcount at the end of 2,008, we had roughly 2,130 or 40 heads on board. And if you compare that to the end of 2012, where we had 2,000 400 and something, 486 or roughly 300 more and generating in 2012. And I know the FX rates also played a role here.
But anyway, in absolute numbers in 2012 generating CHF 100,000,000 less revenue compared to 2,008. I think then you have to come to the conclusion that there is further opportunity to streamline the organization. So I cannot give you a full insight into what the former CEO's view in terms of what is fast and what is not fast, when do muscles start and where is still something in between, I cannot give you an answer on that. But just purely looking at the numbers, 2,008 compared to 2012, it's pretty obvious that there is still room to actually take out some nice to haves, some functions which are probably adding to the comfort level of the organization, etcetera, etcetera. But these are not the times that we can actually afford to have these structures in place.
And on your second question, on the 20% in 2 to 3 years, I don't want to actually revisit that. As I mentioned, I joined this company because I'm extremely bullish about what this organization can achieve in the years to come. And I think 20% is a realistic target.
Okay. And maybe a follow-up question on the restructuring program. If I look at what's been happening for program number 1 and program number 2, it seems to be primarily a cost cutting program. While I appreciate it helps sort of near to earnings, I wonder whether it sort of really addresses more of the symptoms and the cause. And I really don't see much change with respect to a strategic change to perhaps address some of those changes in the marketplace that you described as things are happening a lot faster.
And I suspect you are referring not just the economy, but perhaps also the competitive environment.
Again, if you look at Slide 5, where we are highlighting some of the points we are addressing as we speak. For example, the penetration of the value segment, we are really now taking actions and measures to actually leverage Neodent. And we will be able to tell you more about that when we actually talk about the half year results. So I think we are realizing that there are different market So to also participate in the continuously growing value segment. If you look at the new organizational setup, up to now, we had 3 different product divisions in place.
We had the surgical business unit, we had the prosthetics business unit, and we had a regenerated business franchise. All of them were kind of acting in silos and were trying to sell their products to the corresponding customer segment. Now with the new organization, we will take a completely different approach. Again, we will actually take the best what we have in the 3 product portfolios and we'll actually go with a bundled offering to the customers really focusing on what are the needs, what are the key indications of our dentists and of our labs and offering them comprehensive, easy to implement solutions at fair and market relevant pricing. So also there, I think we are already taking measures and moving into the right direction.
Obviously, things will not change overnight, But I'm very positive again that probably not this year, but in 2014, we will see hopefully positive growth coming out in this organization again.
And finally on the cost restructuring, is it a coincidence? I mean if you look at Q3 the cost savings in Q or beginning in Q3 or announcing Q3, is it a coincidence that in the subsequent two quarters, your sales growth has been decelerating even comp adjusted and now tracking fairly well below what I would regard as the premium market growth rate. Is it a coincidence? Or is there some relationship to those cost savings?
This is obviously a very good question. And you know one could jump to that conclusion without any doubt. However, if you look actually at the trend our net revenue over the last 8 quarters, you just see that actually the results we've seen in Q3, Q4 and Q1 are actually a continuation of this trend. So the trend already started long before the cost cutting measures were actually announced and implement.
Okay. Thank you.
The last question for today comes from Ingeborg Oje from Jefferies. Please go ahead madam.
Good morning and thank you very much for fitting me in at the end. Two questions please. The first one is on the U. S. And ahead of the medical device tax, I know you talked about increasing the prices on products there to absorb that effect.
Given that you flagged the medical device tax and the €3,500,000 effect on OpEx, I'm wondering if we should expect that effect to really hit the results in the first half of the year or for the year. And then the second question, could you comment on what your current midterm outlook for the European market is? Thank you.
Okay. I'll pick up the first question. The just for macro information, you have a medical tax, it's 2.3% on the majority of the products. We have nicely packaged this price increase of 2.3 percent tax of 2.3 percent and the price increase of 3% into our portfolio. Up to now, we have no problems in putting that price increase into the business, plus offsetting any kind of impact on the OpEx side due to the tax.
It's basically a zero sum game. You're increasing the sales slightly more than the tax, and you have a tax of approximately EUR 3,500,000, which is more than offset. So there's a small benefit on this medical tax. Very nicely executed and up to now very well received in the U. S.
No problems over there.
On your second question on how do we actually charge the development of the European markets, honestly, I cannot give you an answer on that. If you look at the different forecasts over the last couple of quarters, they are changing almost on a monthly or weekly basis. So obviously, the development of biomarkers also is very much related to the economic development in these countries. What I can actually tell you is that obviously, we will not accept and we cannot accept that we are actually continuing to lose market share in Europe, our stronghold. So we actually are initiating quite some measures as we speak to make sure that in the quarters to come, we can actually close the gap to our competitors in Europe and hopefully then over the next couple of quarters to start to see a change in this trend and to gain a share again.
But overall, how Europe will develop, how the Western European markets, especially the Southern European markets will develop, I'm afraid I cannot give you a good answer right now. Thank you. So thank you once again for your interest and participation in this call. You can find our reporting calendar at the end of the presentation, and we look forward to speaking with you again at the first half results on August 20. If you were not able to answer all your questions, please contact our Investor Relations department.
So until we meet again, I wish you a pleasant day and goodbye. Thank you.
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