Ladies and gentlemen, good morning or good afternoon. Welcome to the Straumann Group first quarter 2013 results analyst and media conference call. I am Alice, 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. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. 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, thank you for joining this conference call on Straumann's 2013 first quarter results. Before we start, I would like to say that I am pleased to be back at Straumann, I am looking forward to interacting with you going forward. I am also looking forward to catching up with those of you who were covering the company when I was Chief Financial Officer five years ago. We published our press release yesterday evening after the SIX Swiss 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, 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, I would like to draw your attention to the disclaimer regarding forward-looking statements on slide two. I will begin by giving you our view of the market and how we are addressing it. Our CFO, Thomas Dressendörfer, 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, we will be glad to take your questions. Let's start with slide four and our view of the market.
Based on the reports and comments of other companies our own results, the dental markets are continuing to suffer in Europe and Japan, where 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, 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 appreciate the advantages of individualized CAD/CAM solutions. In general, our markets have changed faster than expected, making it necessary to respond and adapt faster.
Slide five highlights some key initiatives that we are taking in this respect. We want to take full advantage of the opportunities offered by emerging and under-penetrated markets. 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 customer 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 first quarter, we began the rollout of our CARES Scan & Shape service. This is a full CAD/CAM solution for dental labs that do not have scanning capability. This service means that they do not have to invest capital in equipment. CARES Scan & Shape is one of several initiatives to broaden the reach and accessibility of our CAD/CAM franchise. CARES 8.0, which we launched at the Chicago Midwinter Meeting, is another one. 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 first quarter results underline the need for all of these measures.
As you can see on slide six, group revenue contracted 6%, both in local currencies and Swiss francs, to CHF 175 million. 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 face amount of CHF 200 million. Now I will hand over to Thomas to tell you about that and the financial details of our performance.
Thank you, Marco. Good morning, everybody. As you just heard, first quarter group revenues reached CHF 175 million, corresponding to a decline of 5.6% in CHF. In organic terms, which excludes currency effects and portfolio differences, the decline was 4.7%. On the left side of the chart in slide eight, you can see that currencies had virtually no impact in the first quarter of 2013. You can also see that group revenues in 2012 would have been CHF 1.7 million 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. 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 nine.
Our core implant business benefited from the recently introduced small diameter NNC implant and the bone level range. 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, CAD/CAM elements, and standard prosthetics, was also slower. This reflects the competitive landscape in general, discontinued sales of intraoral scanners, and the transfer of Straumann's software-guided surgery business to Dental Wings. Our smallest franchise, Regeneratives, achieved moderate growth driven by Straumann AlloGraft and Emdogain. You can see on slide 10, Europe contributes 56% of our total sales. First quarter sales contracted 8% year-on-year as subdued consumer confidence continued to constrain the dental markets. The first quarter this year had more than two fewer working days than in 2012.
Even if we exclude that effect, our revenue still did not reach the corresponding level of last year. In view of the results reported by competitors, we had a generally 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 levels. North America, which accounts for a quarter of our total revenues, succeeded in matching the record high quarter of the previous year. Excluding that year 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 the 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 industry 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 Middle East and a soft performance in Mexico, which posted dynamic growth in the previous year. Brazil grew strongly. Turning to slide 12. On April 5th, we successfully issued a Swiss franc-denominated bond for CHF 200 million, with a coupon of 1.625% and a duration of seven 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 of attractive investment opportunities to expand our business.
The bond increases our financial flexibility to do this. It enables us to benefit from historically low interest yields and a favorable corporate spread. With that, I would like to hand back to Marco.
Thank you, Thomas. As I mentioned earlier, Straumann 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 first quarter. I have already mentioned Scan and Shape and CARES System 8.0. CARES Xtreme enables customers to design the complete prosthetic solution from one scan instead of two. 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 shipping costs. Zerion 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 dental professionals to select the products they need. The Loxim transfer piece makes implant handling easier.
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 counter-cyclically 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 for our social responsibilities as an employer. The cost reduction program and redundancies will result in one-time charges of CHF 18 million to CHF 20 million, which will be accrued in the first half of 2013. 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. 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 Dressendörfer, our CFO, Andy Molnar, who heads Sales North America, and Alexander Ochsner, who heads Sales Asia Pacific, all remain in their current positions. Frank Hemm takes on the newly created role of Head of Customer Solutions and Marketing. Sandro Matter also takes on a newly created role as Head of Strategic Projects and Alliances. Wolfgang Becker joins the executive team as Head of Sales, Central Europe. Guillaume Daniellot also joins as Head of Sales, Western Europe and Latin America.
Finally, Gerhard Bauer, 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 eight years with the company, René Willi, who headed our surgical business unit, is leaving to pursue his career outside Straumann. René 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. That brings me to the outlook on slide 18, which has not changed and is, of course, barring 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. That concludes our presentation and brings me to the Q&A. I will ask you kindly to limit the number of your questions and sub-questions to two, to rejoin the queue. Operator, can we have the first question, please?
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Ed Ridley-Day from Bank of America. Please go ahead, sir.
Good morning, thank you. I'd like to ask a couple of questions on the additional restructuring, please. First of all, in the third quarter, 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'd be my first question. The second question is, in terms of these 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 targets, which we've set ourselves for 2013. To be a little bit more concrete on numbers, the initial program, the cost reduction program, which we launched in October of last year, will yield approximately CHF 11 million-CHF 12 million of annualized personal expense savings. This new program is obviously much wider and will deliver roughly CHF 25 million of annualized personal expense savings. Altogether, the two programs, the one launched and implemented last year, and this new program altogether will yield in approximately CHF 35 million-CHF 36 million of annualized personal expense savings.
Okay. Thank you. In terms of the additional savings announced on top of the personnel savings announced at the time of the third quarter results, could you give us any indication of how you've progressed on those?
These are all fully implemented or have been implemented latest by the end of last year. We will actually see the roughly CHF 11 million savings reflected in our 2013 financial statements. The second cost reduction program we will have finalized by mid of this year latest. 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 Christoph Gretler from Credit Suisse. Please go ahead, sir.
Yes. Hi, good morning. Welcome back, Marco.
Hi, Chris.
Just wanted to basically follow up, maybe actually, because now we spoke about these CHF 35 million-CHF 40 million in cost savings from the October program. Could you relate this number to this CHF 11 million-CHF 12 million in personal expense savings you talked about now, so that we see where the reminder is and when it should hit the cost line. That would, I think, be helpful. Just on this cost reduction program, I understand the back office part. Is there also any impact on manufacturing you see? Particularly whether you intend to make any structural changes there. The second question I have now relates to Neodent in Q1, whether you could give us an update about how that business has been performing.
I will answer question two and three and will hand over to Thomas on question one on the CHF 35 million to CHF 40 million, because I've obviously not been around when actually that cost reduction initiative and 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 Basel, and there clearly, 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. We are talking roughly 20 FTEs or 20 head positions spread over all our sites. As you are aware, we have production sites in Villeret, in Andover, in Malmo, in Leipzig, in Arlington, and in Gräfelfing. All together, we will reduce in these sites our headcount by roughly 20 employees.
Your question related to Neodent. We only publish full financial results, including the development of our minority positions at half year, as you know. 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.
Okay.
Thomas, I'll hand over to you on question one.
I'll address the first question, CHF 35 million to CHF 40 million. 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, or expansion in other growth markets over there. Secondly, I've also communicated that CHF 35 million to CHF 40 million 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. Part of that has materialized. Not everything has materialized, we've added a second program to get the right numbers at the end of the year.
Basically, if I look at just purely your headcount. You mentioned 150 in your October program, and now another 200. If you're looking at your peak headcount levels in Q3 2012 to your target end 2013, basically now it ties in. I was just wondering, it looks like the headcount side at least now is being executed as expected. 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. I was just hoping you could get us a bit more insight into what has not yet gone according to expectation then.
I think the sales, obviously. The sales don't come the way they should be, and you've seen the decline in the first quarter. It is not good. You have to act on these numbers and get the margins right. This is the second approach we're taking.
Okay, good. Yeah. I step back in the queue. Thanks.
Yeah.
Just to add on one point there, Chris, on obviously the CHF 35 million-CHF 40 million 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.
Mm-hmm. Okay.
Okay.
The next question comes from Lisa Clive from Sanford C. 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 has 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. You've talked about Neodent and perhaps how that can be used as a second brand. 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? My second question is, anecdotally, in talking to dentists, oral surgeons, et cetera, the reliability of discount products seems to be a lot lower.
I think we struggle with the fact that there doesn't seem to be much published information on that. Do you spend any R&D dollars looking at head-to-head comparisons of reliability, one-year survival, three-year survival, et cetera? Or is that something that you think would be valuable to have as a marketing tool?
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. If you look, for example, into Germany, where obviously our largest competitor is Camlog. Camlog implants are priced at around EUR 150. Our SLA implants are priced slightly above EUR 200. There, we are actually not too far away from the core competitor in the value segment. 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. Also 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 [people] in Spain, is just too far away. There we would have to lower our product portfolio massively to even get into the upper range of the value segment. There, obviously, in these markets, we are looking at bringing to the market a second offering. Could be through an [AO then], but we're also thinking about potential other measures. Your second question on the head-to-head clinical studies.
Yes, obviously, we have these, 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. Our salespeople, they have this material at hand, and they are also using it during your daily work in the field and the 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 SLActive implant compared to everything else in the market is much lower. 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 Yidan 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. Thomas, can you give us a split of the CHF 35 million-CHF 40 million, which is gross savings that we understand, and how that's being split versus the cost that has been reinvested versus the savings that have not come through. Then on the second question, it seems that looking at the various companies, the market itself has not changed quarter-on-quarter. 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 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 [CARES], we said CHF 35 million to CHF 40 million gross. That is, I think I've always communicated that one. Approximately CHF 15 million to CHF 20 million was on people expenses, we always said we're going to reinvest into U.S., for instance, sales force expansion. We've done that. We've invested into people in China and other countries. The number, the net savings on the people cost obviously goes down on that. We have initiatives on the production side where we increase our gross margin. We've done that successfully in the smaller business. However, revenue did not come up the way it has materialized. Thirdly, we had sales initiatives in our Regenerative business, on the [CARES] business, which again, you see on the numbers we just presented, the results have not materialized.
The gross savings, first of all, what I said, you have annualization impact, you have reinvestments into the business, and then some of the sales initiatives just did not materialize the way we were anticipating. That's in a nutshell the split of these numbers. As the sales at the top line does not materialize, we just have to add further, let's say, rightsizing of the company.
I think from originally when you discussed the CHF 35 million to CHF 40 million, those were cost savings, and they were not related to revenue.
No. We never said cost. We always said it's focusing on the EBIT to get the EBIT up to inspirational levels of 18% and above. It's a combination of three factors. It's top line, we're addressing the top line, we're addressing the production, and we're addressing the OpEx. If you have a cost base of CHF 450 million, we're taking out 10%, CHF 45 million. Let's say CHF 40 million. That's a big chunk. You can't do that in a quick thing. It was really focusing on these three aspects, top line, operational improvements on the production side, and of course on the head count. As we said in the presentation before, in the last years, we have been expecting a change of the market and more growth in the premium side. This has not materialized, so we are rightsizing now.
Okay. Just let me clarify so that I understand it clearly. On the personnel savings, you've achieved CHF 12 million-CHF 15 million on a gross basis. Sorry, CHF 11 million-CHF 12 million on a gross basis. All of that has been reinvested?
No. What I said, we said personnel expenses, the savings were between CHF 15 million and CHF 20 million. We reinvested into the business. Take as an example, you can take the U.S., where we have sales force extension. We're adding people there, we're adding cost there on this thing. Also take the OpEx. Another impact is the medical tax, which is CHF 3.5 million hit on the OpEx. These are things which you have to deduct from the CHF 35 million-CHF 40 million.
Right. You achieve CHF 15 million-CHF 20 million personnel cost, and the net-
The gross savings.
Those are gross, yes.
The net savings are CHF 11 million-CHF 12 million, is what Marco said before.
Okay. That leaves us with another CHF 20 million or so from other activities. 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 depending on the volumes 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.
What did you achieve there? How much savings did you realize there?
I would say, this is.
Sorry, [dog]. I think we have to cut you short here.
Let's take it offline.
The only hard number is CHF 11 million to CHF 12 million. If you look at that slide 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. On average, the savings per job were around CHF 80,000-CHF 85,000. Okay?
Okay.
This gives you the roughly CHF 11 million to CHF 12 million. The new cost reduction program, obviously, the majority of the savings will come out of headquarter functions. The new program, on average, the savings per job will be around CHF 150,000, blended rate. Yeah?
But that-
CHF 140,000, CHF 150,000.
That I can understand, you've been very clear there. What is not clear is the CHF 20 million shortfall. How much of that is cost related, and how much of that is related to revenues? As we see it, the market has not changed much Q1 versus Q4. 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?
Yes.
We're trying to explain this CHF 20 million.
This 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 2008, we had roughly 2,130, 2,140 heads on board. If you compare that to our 2012 development financials, we had 300 roughly jobs more on board, and we've generated roughly CHF 100 million less revenue compared to 2008. 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, then I think nobody would have anything against that, then obviously we can start to add staff again and to invest again into the market.
I'm happy to take this offline. The CHF 20 million shortfall, I think we need to get into that.
Yeah, let's take that offline.
Thank you.
Yeah.
The next question comes from Mr. Tom Jones from Berenberg Bank. Please go ahead, sir.
Good morning, and welcome back, Marco. 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 of the value and discount end of the spectrum. If your charts are to be believed, 60% of the market is still premium. I'd be interested to hear your thoughts about how you see Straumann positioned 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 its act together in Europe. The integration of Dentsply Astra seems to have gone reasonably well.
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. The second question, forgive me if this is perhaps just a touch personal, 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, because then it feeds 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 dentist to labs. We have actually everything to make our customers happy. We have also different price points with the SLActive, Roxolid, even in addition to the SLActive, we have the SLA offering. We have the tissue level implant, we have the bone level implant, we have a Regeneratives franchise, we have everything. We have a digitalized workflow which is proven and which works. 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, the roughly 3,000 selling SKUs, bundling them into solutions to take out complexity of our customers' workflows and the daily work in the practice, to go to these customers with simple packages for the key indications and having them, a Straumann easy package available to actually solve their daily problems in their practice. This is actually what we've missed. If you look at the other companies like Nobel, you look at an All-on-4, for example, this is exactly what I'm talking about. This is a solution to the dentist when it comes to fully edentulous patients. This is actually our key challenge. That's what we have to work on over the next couple of quarters.
Sure. Some comments about the competitive landscape at the premium end of the spectrum?
Yeah. The competitors are still the same like four years ago. It's Nobel, it's 3i, it's Astra, it's Zimmer. These are still the companies making up the premium part of our industry. That hasn't changed. Obviously, these companies have worked very successfully in exactly doing what I tried to describe before. Taking again, the Nobel 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 BoneCeramic. They started probably earlier and more successfully in actually bundling these products together and to go out into the marketplace and sell solutions. That's what we have to do, too.
Great. That makes a lot of sense. Thanks.
The next question comes from Mrs. Carla Bänziger from Bank Vontobel. Please go ahead, madam.
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, et cetera?
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. What we want to avoid under all circumstances is actually to confuse our customers. To avoid confusion, it's clear that you have to act with Neodent through a known, clearly dedicated, separated sales force. We will launch Neodent in the markets we've identified where we believe we can be successfully tapping into the value segment. We will work in these markets through a dedicated Neodent sales force.
Many thanks.
The next question comes from Mr. Jonathan Beek from Citi. Please go ahead, sir.
Hi there. Thanks very much for taking my questions. Just two. The first one probably comes back similar to Yidan's, but I'm going to ask it from a different perspective. Essentially, there are CHF 20 million of EBIT improvement that you are talking about going missing from lost sales. We have seen no major deterioration in the market and actually improved momentum elsewhere. I was wondering what specifically to Straumann has caused you to lose those sales, and whether you could come at it from that point and tell us about whether there's any company-specific issues going on.
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 it's a majority of regional players such as people like Osstem that are doing well in the area. I was wondering whether your acquisition there would be of an actual Chinese manufacturer or maybe a regional multinational.
Let me start again with the second question. The first question will then be answered by Thomas. Your question related to China. We did not actually explicitly say that we will do an acquisition in 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. Obviously, we will try everything to actually enlarge our footprint in this market. 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 Straumann 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. We as Straumann, we want to make sure that we are actually first movers when it comes to be able to offer value products in this segment. You are absolutely right, to acquire a value Chinese player is extremely difficult because there are not many out there. The way to tap into the value segment will most probably lead through alliances, joint ventures, corporations. These 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 from 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 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 this is what we're doing. I would not say there was a specific execution problem. It is more about a fundamental, let's say, change in the market, which we're addressing, and we have with Neodent an excellent answer to all the challenges in the market.
Okay. It just seems a bit strange that if you look at the commentary that you've given on the market between Q4 and Q1, actually, there's no major difference in terms of where the difficulties are. It just seems strange that all of a sudden none of that CHF 20 million is going to come through. I think that's where I'm left with a bit of a question mark.
I think on the personal savings, the savings are coming through. They're not coming in the magnitude of what we've been thinking. We said CHF 15 million-CHF 20 million on the personal side, and we've reinvested some into the back office business. You end up with the CHF 11 million-CHF 12 million, what we just said before. 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 will change. We're adjusting further.
Okay. All right. Thank you.
The next question comes from Hendrik Lofrus from HSBC. Please go ahead, sir.
Yes, good morning. Minor follow-up on the annual savings target for this year to avoid the misunderstanding between gross and net savings. Could you confirm that the CHF 25 million annual savings from the new program are net savings? That will be the first one. The second one, 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, definitely the CHF 25 million 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. 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. 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.
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 Veronika Dubajova here from Goldman. Thank you so much for taking my questions. I have two. One, I'm just curious, when we look at your performance in Q1, I appreciate there is always things like geographic mix and comps and phasing coming in. If I look at your performance of the five premium players that we get to hear from on a quarterly basis, your revenue growth was the worst of the five of them. I'm just wondering, what do you believe has driven that underperformance? As you think about reversing that trend going forward, what are the crucial components?
Yeah, we are very much aware, obviously, that we've underperformed in Q1 against our premium competitors. 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, U.K., but also Germany. 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 the percentage of the total revenue. 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 first quarter of this year.
We take two more questions and then we will have to close.
The next question comes from Mr. Michael Jüngling 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 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. Are those comments still relevant? Because it seems to me now that the method is different, and that is we're cutting back office staff rather than staff also that could impact the frontline. Hence, I'm confused by the past statement. The question I have is really a question for Marco. 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.
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 two to three 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 where it is consensus, and there is a 20% margin sort of dialed in for the next, or in two and a half, three 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. If you look at our headcount at the end of 2008, we had roughly 2,130 or 40 heads on board. If you compare that to the end of 2012, where we had 2,486, so roughly 300 more and generating in 2012. I know the FX rates also played a role here. Anyway, in absolute numbers in 2012, generating CHF 100 million less revenue compared to 2008. I think then you have to come to the conclusion that there is further opportunity to streamline the organization. I cannot give you a full insight into what the former CEO's view in terms of what is fat and what is not fat, when do muscle start, and where is still something in between.
I cannot give you an answer on that. Just purely looking at the numbers, 2008 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, et cetera. These are not the times that we can actually afford to have these structures in place. On your second question, on the 20% in two to three 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. 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 than the cause. 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. I suspect you are referring not just to the economy, but perhaps also the competitive environment.
Again, if you look at slide five, 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. I think we are realizing that there are different market segments in our industry, and that with actually the Straumann brand, we can actually not tap into all of them. That we have to find other ways to also participate in the continuously growing value segment. If you look at the new organizational set up to now, we had three different product divisions in place. We had the Surgical Business Unit, we had the Prosthetics Business Unit, and we had a Regeneratives business franchise.
All of them were kind of acting in silos and were trying to sell their products to the corresponding customer segment. With the new organization, we will take a completely different approach. Again, we will actually take the best what we have in these three product portfolios, will 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. Also there, I think we are already taking measures and moving into the right direction. Obviously, things will not change overnight. I'm very positive again, that probably not this year, but in 2014, we will see hopefully positive growth coming out of this organization again.
Finally, on the cost restructuring, is it a coincidence? If you look at Q3, the cost savings beginning in Q3, or announced in 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 one could jump to that conclusion without any doubt. However, if you look actually at the trend of our net revenue over the last eight quarters, you just see that actually, the results we've seen in Q3, Q4, and Q1 are actually a continuation of this trend. The trend already started long before the cost-cutting measures were actually announced and implemented.
Okay, thank you.
So-
The last question for today comes from Ingeborg Ohle from Jefferies. Please go ahead, madam.
Good morning. 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 CHF 3.5 million 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. 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. Just for some macro information, we have a medical device tax that's 2.3% on the majority of the products. We have nicely packaged this price increase of 2.3%, this tax of 2.3%, 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 we have a tax of approximately CHF 3.5 million, which is more than offset. There's a small benefit on this medical device 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 judge 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. Obviously, the development of our markets 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.
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. 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.
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 we were not able to answer all your questions, please contact our investor relations department. Until we meet again, I wish you a pleasant day and goodbye. Thank you.
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