Business improvements on track

Richard Laube, CEO: “Our Q3 results showed a sequential improvement over the previous quarter, but are not yet up to our standard. We are on track with our strategic initiatives by serving patients, driving our innovation program and strengthening our customer focus. We have seen healthy growth in North America and APAC excluding Japan, while conditions in EMEA became even more challenging, primarily due to increasing economic uncertainty. Our implant system sales are slightly positive, driven by the strong growth of NobelActive. We have successfully launched our new implants in the NobelReplace and NobelActive families, all of which received positive initial feedback and a high level of interest. While our NobelProcera high-precision consumables are growing at a double-digit rate, copings continue to decline. Much work remains to be done, but we are executing according to plan and are on track.”

The gross profit and EBIT margins for the first nine months are in line with the guidance for the full year: 76.1% and 12.9% respectively excluding exceptional costs (14.7% at CER). Reported profit from operations (EBIT) for the first nine months was EUR 49.1 million (2010: EUR 65.3 million), reflecting a margin of 11.8% (2010: 15.4%), or 13.8 % at CER. Year-to- date net profit amounted to EUR 26.5 million compared to EUR 40.5 million in 2010.

Product launches – Nobel Biocare launched three new implants for esthetic indications as well as a diagnostic and treatment planning software at AAOMS in Philadelphia and at the EAO in Athens. Leading dental professionals from across the globe got a first look at and hands-on feel for the new products. The level of interest was very encouraging.

The two additions to the NobelReplace implant system, NobelReplace Conical Connection and NobelReplace Platform Shift, expand the restorative options for the proven NobelReplace tapered implant body. NobelReplace Conical Connection features an advanced, third- generation internal conical connection and platform shifting to help achieve healthy soft tissue, while NobelReplace Platform Shift combines the tri-channel connection with platform shifting to enhance soft tissue volume and maintain NobelReplace’s ease-of-use. Both implants come with a complete assortment of pre-fabricated and individualized prosthetic solutions, as they support all existing prosthetics for tri-channel and conical connections.

The fast-growing NobelActive portfolio (~30% growth in volume and value year-to-date) has been augmented with a new NobelActive 3.0 mm small-diameter implant for safe placement in areas with limited space in the anterior region. As with other NobelActive implants, it is designed to enhance initial stability, and the implant position can be adjusted for optimal restorative orientation. Composed of commercially pure, cold-worked, grade 4 titanium, it is strong despite its small diameter.

These implant introductions are supported by the launch of the multi-platform NobelClinician, the industry’s first diagnostic and treatment-planning software available for both Mac OS® X and Windows® operating systems. This software serves an increasing customer need in the dental community, given that many dental professionals frequently use Apple devices in their dental practice.

All of these products are available to customers now and underscore the company’s commitment to offering innovative solutions with a strong focus on clinical needs and patient benefits.

Regional business performance
In Europe, Middle East and Africa (EMEA), revenue (CER) during the first nine months declined by 4.3% to EUR 173.4 million (Q3 2011: -5.4%). Increasing economic uncertainty led to a slowdown in most markets over the course of the reporting period. While Russia has recently shown good growth and Italy is maintaining its market share, Germany was behind expectations in Q3. Performance in Spain has improved, while the decline in Sweden persists. In various countries, overall development was adversely affected by the decline in NobelProcera copings and scanners.

In North America, revenue (CER) during the first nine months was up 6.5% to EUR 145.0 million (Q3 2011: 6.0%). Growth momentum continues to be strong for both implant systems and NobelProcera, in particular from individualized abutments and overdenture bars.

In Asia/Pacific, revenue for the first nine months was down 6.2% (CER) to EUR 89.0 million (Q3 2011: 0.8%). Japan, which accounts for about two-thirds of the regional revenue, has shown notable improvement in the third quarter after being severely impacted in the first half year by the earthquake and tsunami. Excluding Japan, regional revenue was up 6.5% as a result of continued strong growth in China and the distributor markets in Southeast Asia.

n Latin America/Rest of the world, revenue showed increasing improvement and was up by 4.2% (CER) for the first nine months for 2011 (Q3 2011: 19.3%).

Alpha-Bio Tec (ABT) reported continued double-digit growth for the first nine months of 2011, in line with the prior periods. ABT targets different customers, who are more price-sensitive.

Financial performance update
Gross profit for the first nine months was EUR 315.3 million (2010: EUR 330.5 million), reflecting a gross margin of 76.1% (2010: 78.1%). The gross margin for the implant business remained strong due to the overall volume growth in implant fixtures, but was affected by higher royalties, increased precious metal prices and lower abutment pricing. Gross margin for NobelProcera is showing initial signs of stabilization, due to strong control of incremental investments.

Operating expenses during the first nine months were EUR 266.2 million, almost unchanged from a year ago (2010: EUR 265.2 million) despite non-recurring costs of EUR 3.5 million related to Japan and the CEO change as well as a negative currency impact of EUR 2.5 million. Cost discipline in all areas remained high.

Profit from operations (EBIT) for the first nine months was EUR 49.1 million (2010: EUR 65.3 million), reflecting an operating margin of 11.8% (2010: 15.4%), or 13.8% at CER. This margin decrease is fully attributable to the aforementioned lower gross margin. Adjusted for non- recurring expenses related to Japan as well as to the CEO change, EBIT was EUR 53.3 million, which equates to a margin of 12.9% (14.7% at CER).

Currencies – Revenue growth continued to be negatively impacted by the weak US dollar while the high proportion of the Group’s operating costs incurred in Swiss francs and Swedish kronor had an adverse effect on the EBIT margin. For the first nine months, the currency impact on the EBIT margin level was -200 bps. This negative impact was almost fully offset by ongoing hedging gains (EUR 7.9 million), which are accounted for in the net financial result.

The net financial result for the nine months was EUR -12.3 million (2010: EUR 19.4 million). While 2010 included a non-recurring currency gain of EUR 30.0 million, the 2011 result was affected by one-off FX hedging costs of EUR 11.6 million against the further strengthening Swiss franc in view of the approaching maturity of the Swiss-franc denominated convertible bond. In Q3, specific hedges against a strong Swiss franc were put in place but subsequently lost their value due to the Swiss National Bank’s decision to peg the Swiss franc against the euro. Interest expenses and other financing costs continued to improve compared to the prior year. Excluding exceptional effects in 2010 and 2011, the net financial result improved from EUR -10.6 to -0.7 million.

Taxes – Tax expenses during the nine months of 2011 amounted to EUR 10.3 million versus EUR 44.2 million a year ago, and were impacted by non-recurring expenses resulting from changes in internal funding structures. The expected tax rate for the current year is 27.9% due to generally lower profitability and the one-off hedging costs in Q3. Excluding the latter, the expected tax rate would be approximately 25%.

Net profit for the first nine months was EUR 26.5 million (2010: EUR 40.5 million), reflecting a net profit margin of 6.4% (2010: 9.6%). This decrease mainly results from the lower operating profit, but it is also a reflection of the exceptional FX and tax effects incurred in both years.

Cash flow from operating activities for the first nine months amounted to EUR 50.9 million (2010: EUR 61.8 million). Cash & cash equivalents at the end of September 2011 amounted to EUR 188.7 million (2010: EUR 235.6 million). Net financial debt amounted to EUR 83.3 million at the end of the reporting period compared to EUR 6.6 million at the end of September 2010.

Launch of domestic straight bond issue – Nobel Biocare successfully launched its inaugural Swiss franc-denominated domestic straight bond issue in an aggregate principal amount of CHF 120 million with a coupon of 4%, due 10 October 2016. Nobel Biocare will use the bond proceeds to refinance a portion of the outstanding convertible bond, due on 8 November 2011.

Management changes – Effective 30 November 2011, Hans Schmotzer, Executive Vice President Research and Development and member of the Executive Committee has decided to leave the company to establish his own business. His responsibilities will be transferred ad interim to Hans Geiselhöringer, Executive Vice President Products and Development. Nobel Biocare thanks Hans Schmotzer for his contribution.

Subsequent to Melker Nilsson's appointment as Executive Vice President Global Sales and Customer Development in August 2011, the reporting structures within the Executive Committee will be streamlined. Michael Glenn Thompson, Senior Vice President and General Manager APAC, and Alexander Ochsner, Senior Vice President and General Manager EMEA, both of whom report to Melker Nilsson, will be stepping down from the Executive Committee, to dedicate their full attention to their regional and market responsibilities.

Outlook
Nobel Biocare expects the global dental implant market to grow only moderately, at a low- to mid-single digit pace in 2011. Growth in North America and Asia/Pacific excluding Japan remains stronger, while EMEA appears to be relatively flat.

Based on this expected market development, Nobel Biocare’s recent trend should continue. Implant systems growth should accelerate modestly in Q4 owing to the new implant launches. Strong double-digit growth in NobelProcera high-end consumables is expected to be offset by declines in tooth-borne copings, small-unit bridges and scanner sales.

For all of 2011, Nobel Biocare expects revenue (at CER) and EBIT margin (excluding currency impacts and exceptional expenses) to be in line with last year.

Contact
Nobel Biocare Management AG Postfach 8058 Zürich 58 Flughafen Tel. 043 211 42 00 Fax 043 211 42 42 info.switzerland@nobelbiocare.com