Nobel Biocare Interim Report 3, 2007 Zurich, Switzerland 30 October 2007 Continued strong revenue growth after nine months US business regaining momentum Additional cash return to shareholders in 2007 First nine-months highlights: Revenue up 18% (l.c.) to EUR 485.0 million Gross margin maintained at high level: 84.3% Profit from operations (EBIT) up 10% - margin at 32.2% Profit for the period* up 12% to EUR 121.1 million Basic earnings per share* up 14% to EUR 4.88 216 new jobs created First Procera manufacturing in Japan Additional CHF ~350 million cash return in 2007 through share repurchase via put option Outlook 2007: organic revenue growth of ~17% (l.c.); EBIT margin ~33% Table 1. Selected Income Statement figures Q3 Q3 9M 9M in EUR million 2007 2006 2007 2006 Revenue 143.3 132.5 485.0 429.0 Growth in local currencies 12.0% 25.3% 17.5% 25.1% Growth in 8.2% 22.3% 13.1% 26.1% Gross profit 119.9 111.8 408.9 359.3 Gross margin 83.7% 84.4% 84.3% 83.8% Growth 7.2% 23.7% 13.8% 27.9% Profit from operations 46.7 42.3 156.1 142.0 Operating (EBIT) margin 32.6% 31.9% 32.2% 33.1% Growth 10.4% 31.0% 9.9% 33.2% Profit for the period * 35.5 33.1 121.1 107.8 Profit margin * 24.8% 25.0% 25.0% 25.1% Growth 7.3% 42.7% 12.3% 33.9% Basic earnings per share*, EUR 1.45 1.32 4.88 4.29 Basic earnings per share, EUR 1.45 1.32 4.88 4.45 * excluding sale of associate Domenico Scala, CEO: We posted a further quarter of solid growth in revenues and earnings. Revenue growth of 18% in local currencies for the first nine months continues to be above the estimated market growth. In this transitional quarter we managed to regain momentum in our US business thanks to several measures taken. In some European countries, various factors resulted in a temporary slowdown. First initiatives taken should already have a positive impact in the fourth quarter. In Japan, we successfully opened our first Procera plant which should enable us to continue developing this very important market. In our recent, well-attended Investor Day we again demonstrated the attractiveness of our segment which comes with significant growth opportunities. Our confidence in our business model is also underlined by the additional share buyback for 2007. Nobel Biocare Group Interim Report 3, 2007 1 (17)
Revenues increased in the third quarter by 12.0% in local currencies to EUR 143.3 million compared to EUR 132.5 million a year ago. This compares with a high growth base of 25.3% in Q3 2006 which was driven by five very successful World Tour events. Overall, revenue growth of 17.5% in local currencies in the first nine months continues to be above the estimated market growth. In Europe, revenues in local currencies grew by 9.4% (Q3 2006: 20.9%) in the third quarter. For the first nine months, revenues in local currencies increased by 17.5% (9M 2006: 20.9%). Different performance patterns could be seen across the region: Consistently high growth was registered in Spain, Italy, the Netherlands, Norway and Poland, with France accelerating in the third quarter. Strong performance was also recorded in Russia and the Baltic States. Other markets, for example Sweden, Germany, the UK and Belgium, were affected by specific issues such as change in reimbursement scheme, phasing of sales between Q2 and Q3, organizational issues as well as the absence of World Tour events which had been conducted in 2006. Measures to address these specific issues have been initiated and should already have a first positive impact in Q4 2007. North American revenue growth regained momentum to 13.6% in local currencies in the third quarter (H1 2007: 9.8%; Q3 2006: 18.9%). Growth of 11.0% (24.8%) was recorded in local currencies for the first nine months, to EUR 165.8 million (160.7). Measures to address the changing market dynamics and demand patterns have already had an initial impact, including improved performance with our existing major customers in the specialist segment. These measures also include the focus on more cost effective rehabilitative solutions, such as All-on-4. In Asia/Pacific the Group achieved revenue growth of 16.2% in Q3 (2006: 54.0%), bringing first nine-month growth to 31.8%. The quarterly performance is very good considering the strong prioryear quarter which had benefited from two World Tour events and the FDI conference in China. This year the FDI conference was held in Dubai in October. The highlight in Q3 in Asia was the successful opening of our Procera production center in Tokyo. The opening event was attended by more than 1,200 dental professionals, demonstrating the strong interest and potential for Procera in this region. Table 2. Revenue by region quarter Q3 Q3 Growth in % in EUR M 2007 2006 EUR local curr. Europe 55.8 51.0 9.4% 9.4% Proportion of total revenue 39% 38% North America 54.9 51.5 6.6% 13.6% Proportion of total revenue 38% 39% Asia/Pacific 24.0 22.0 9.1% 16.2% Proportion of total revenue 17% 17% Rest of the World 8.6 8.0 7.5% 7.2% Proportion of total revenue 6% 6% Total 143.3 132.5 8.2% 12.0% Table 3. Revenue by region year to date 9M 9M Growth in % in EUR M 2007 2006 EUR local curr. Europe 218.6 186.1 17.5% 17.5% Proportion of total revenue 45% 43% North America 165.8 160.7 3.2% 11.0% Proportion of total revenue 34% 38% Asia/Pacific 72.4 59.1 22.5% 31.8% Proportion of total revenue 15% 14% Rest of the World 28.2 23.1 22.1% 25.4% Proportion of total revenue 6% 5% Total 485.0 429.0 13.1% 17.5% Nobel Biocare Group Interim Report 3, 2007 2 (17)
Gross profit for the third quarter increased to EUR 119.9 million (Q3 2006: EUR 111.8 million), resulting in a gross margin of 83.7% (84.4%). Gross profit increased to EUR 408.9 million for the first nine months compared to EUR 359.3 million after nine months 2006. The gross margin remains at a high level of 84.3% in the first nine months (9M 2006: 83.8%) and is evidence of Nobel Biocare s pricing discipline. The increase in gross margin was driven by volume growth and a positive mix effect as a result of higher demand for new products and solutions launched over the last two years. Profit from operations (EBIT) increased 10.4% to EUR 46.7 million (42.3) in the third quarter, with the margin improving from 31.9% to 32.6% - the highest EBIT margin ever in the third quarter. Good cost discipline and a favorable impact from lower social charges in connection with our option program compensated for the one-time effect of the costs associated with the CEO transition. Social charges relating to the staff option program were positive EUR 4.0 million in the third quarter, reducing the total charge for the first nine months to EUR 0.4 million compared to costs of EUR 1.3 million for the same period last year. Profit from operations (EBIT) increased to EUR 156.1 million (142.0) for the first nine months, an increase of 9.9%. Despite continued high investments in strategic initiatives, rapid staff expansion to support growth and adverse foreign exchange impact, the operating profit margin was maintained at 32.2% (33.1%). Currency - due to the relative weakness of the US dollar, revenue growth was lowered by EUR 16.2 million or 3.9%. Profit from operations (EBIT) was also lowered by EUR 9.6 million or 6.7 %, reducing the margin by 100 basis points. At constant currencies, profit from operations would have risen by 18%. Net financial expense totaled EUR 1.5 million for the first nine months (9M 2006: EUR 3.6 million). Taxation the underlying tax rate for the third quarter as well as for the first nine months remained unchanged at 21.7%. Profit (excl. sale of associate) for the third quarter period amounted to EUR 35.5 million (33.1). Profit for the first nine months increased to EUR 121.1 million compared to EUR 107.8 million last year, despite an adverse foreign currency impact. At constant currencies, net profit would have risen by 20%. Cash flow from operating activities for the first nine months amounted to EUR 81.8 million (EUR 94.8 million). Inventories slightly increased to EUR 35.7 million from EUR 30.5 million at year-end 2006 and EUR 32.1 million at the end of June 2007. Trade receivables decreased from EUR 159.4 million at the end of June 2007 to EUR 149.9 million at the end of September (31.12.2006: EUR 124.1 million). Net Cash decreased significantly to EUR 35.1 million from EUR 130.1 million at year-end 2006 (and compared to EUR 35.4 million at the end of June 2007), due mainly to dividend payments and share buybacks. Additional cash return to shareholders in 2007 the Group s ability to generate sustained cash flow enabled it to acquire 479,150 shares for a consideration of EUR 115.6 million in the first nine months of 2007. Nobel Biocare s confidence in its unique business model and ongoing financial strength, allows the Group to make an additional cash return for 2007. On 7 November 2007, the Group will grant one free put option per share. The put option will give each shareholder the right to sell, a fixed number of shares to the Group at a premium over the spot price. Each put option will have a maturity of three weeks, lasting until 29 November 2007. The put option will be tradable at the SWX Swiss exchange. The exercise of all options will result in the Group being committed to repurchase an additional ~900,000 shares at a price of CHF ~390. By so doing, the Group will return an additional CHF 350 million to its shareholders in 2007. These repurchased shares will be submitted for cancellation at the next Annual General Meeting on 27 March 2008. In total, the Group will have returned EUR 403 million in 2007. Nobel Biocare Group Interim Report 3, 2007 3 (17)
Additionally, the Group will issue a convertible bond. Shares underlying the convertible bond will be sourced from existing treasury shares and by purchasing call options. 1 Furthermore, the Group will now hedge its existing exposure from the Employee Stock Option program by means of derivatives rather than by holding physical shares thereby releasing funds totaling EUR ~81 million. All these transactions are expected to be priced in the course of today. A letter to the shareholders along with detailed information on these transactions can be found on the Investor Relations page of the Company s website www.nobelbiocare.com. The existing share buyback program is to be terminated. With this program the Group repurchased a total of 830,000 bearer shares - approximately 3% of the issued capital - over a second trading line. A proposal to cancel these shares will be made at the next Annual General Meeting. The Group intends to continue with the share buyback programs in 2008. Investor Day the Group s Investor Day on 27 September attracted high interest. The event was held at the Group s Procera Manufacturing and Training Center in Mahwah, New Jersey. The event was attended by more than 100 participants who were given access to Nobel Biocare s executive management team and gained further insight into Nobel Biocare s approach of providing evidence-based products and clinical procedures for restorative and esthetic dentistry and into the long-term growth opportunities in this industry. The Group s comprehensive Training and Education programs (T&E) are continuously adapted to respond to the feedback received from previous programs. The courses and programs now feature more customized, smaller learning and training environments in order to enhance the benefits to the participants. The programs attracted 5% more participants, i.e. more than 255,000, around the world in the first nine months. 216 new jobs created in the first nine months of 2007 to sustain the high growth momentum, Nobel Biocare has created 216 new positions in the first nine months. At the end of September 2007, Nobel Biocare employed 2,209 employees worldwide. NobelActive - is a new implant system with an innovative design that offers unique features and benefits not available with existing implants. NobelActive is designed to condense bone during insertion. The implant is especially effective in regions of diminished bone quality or quantity. The thread design also produces a self-drilling property, which often allows the implant to be inserted with fewer drilling steps and be reoriented during insertion. It also features unique prosthetic connections. It is available in two connection versions, one external and one internal. This implant system is currently in a pre-launch phase, involving a specified group of users and mandatory training. Interim results from an ongoing prospective multi-center study 2 were presented at the recent European Academy of Osseointegration meeting (EAO) held in Barcelona. 110 implants have been followed up after one year and confirm the good results obtained so far. Procera Software 2.0 is the latest update of the company s market-leading CAD/CAM dentistry Procera System. Based on a completely new platform, Procera Software 2.0 will provide enhanced features and benefits to both dental laboratories and NobelGuide users, including a more user-friendly interface, new Order Manager and online updates. Curvy Abutment is a titanium implant abutment designed to stabilize and promote excellent soft tissue seal. This abutment features a unique concave waist that provides more surface area 1 The distribution of this announcement and the offering or sale of the bonds in certain jurisdictions may be restricted by law. No action has been taken by Nobel Biocare or any of their respective affiliates that would permit an offering of the bonds or possession or distribution of this announcement or any other offering or publicity related material relating to the bonds in any jurisdiction where action for that purpose is required. Persons, into whose possession this announcement comes are required to inform themselves about and to observe such restrictions. 2 Evaluation of Nobel Biocare SFB and CFB Implants Ongoing clinical study in 12 centers. Clinical Research Department, Nobel Biocare AB. Nobel Biocare Group Interim Report 3, 2007 4 (17)
on which soft tissue can grow, enabling better short- and long-term esthetics to be achieved. This new abutment can be used with both NobelReplace and Brånemark System implants. A clinical pilot study was conducted on 41 patients involving 54 curved-waist abutments, and the results were published in a peer-reviewed journal 3 ; additional clinical studies of Curvy Abutment are currently being carried out, including a prospective multi-center study. NobelDirect - the Swedish Medical Products Agency (MPA) issued a statement on 31 August 2007 in response to amendments to the instructions for use of NobelDirect and NobelPerfect that Nobel Biocare had submitted to the Agency on 20 August 2007. Nobel Biocare is pleased with the answer and regards it as a significant step towards resolving this issue. The 3-year clinical documentation requested for review by the authority will be available in November. Nobel Biocare is confident that the study will confirm the good results obtained so far. In 2007, four more articles were published in peer-reviewed journals, including the two-year follow up on the prospective multi-center study showing a success rate of 98.8%. 4-7 Outlook the premium tooth replacement market is one of the most attractive areas within the healthcare industry. The underlying growth drivers and the market potential are fully intact and remain highly attractive. Nobel Biocare is ideally positioned to address the various market segments and changing environments with a differentiated approach. The Group has applied specific measures to address the temporary slowdown in certain countries. These measures have already shown (i.e. US business regaining momentum) or should soon show (i.e. in several European countries) first positive effects. For the full year 2007, Nobel Biocare expects to outgrow the market organically recording a revenue expansion of ~17% in local currencies and an operating (EBIT) margin of ~33%. NOBEL BIOCARE HOLDING AG Domenico Scala CEO 3 Rompen E, Raepsaet N, Domken O, Touati B, Van Dooren E. Soft tissue stability at facial aspect of inwardly-narrowed abutments in the aesthetic are: a pilot clinical study. J Prosthet Dent 2007;97(suppl): s119-s125. 4- Hahn J. Clinical performance and radiographic evaluation of one-piece implants used for immediate function. J Oral Implantol 2007;33(3):152-5. 5 SiepenkothenT. Clinical performance and radiographic evaluation of a novel single-piece implant in a private practice over a mean of 17 months. Journal of Prosthetic Dentistry, J Prosthet Dent 2007;97:69-78. 6 Finne K, Rompen E, Toljanic J. Clinical evaluation of a prospective multi-centre study on one-piece implants. Part 1; Marginal bone level evaluation after 1 year of follow-up. Int J Oral Maxillofac Implants 2007;22:226-234. 7 Finne K, Rompen E, Toljanic J. Prospective multi-center study of marginal bone level and soft tissue health of a one-piece implant after 2 years. J Prosthet Dent 2007;97:79-85. Nobel Biocare Group Interim Report 3, 2007 5 (17)
Further information is available from: Media: Nicolas Weidmann, Vice President Communications Tel: +41 43 211 42 80, +41 79 372 29 81 e-mail: nicolas.weidmann@nobelbiocare.com Investor Relations: Süha Demokan, Head of Investor Relations Tel: +41 43 211 42 30, +41 79 430 81 46 e-mail: suha.demokan@nobelbiocare.com Telephone conferences for investors and analysts will be held today 30 October at 08.30 CET and at 14.00 CET. The dial-in numbers for the telephone conference are: +41 91 610 5600 (in Europe) +44 20 7107 0611 (in the UK) +46 8 5069 2105 (in Sweden) +1 866 291 4166 (toll free number in the USA) For more details and additional dial-in numbers, see our homepage: www.nobelbiocare.com Financial Reporting Calendar: Full Year Report 2007 11 February 2008 Annual General Meeting 2008 27 March 2008 Interim Report 1, 2008 30 April 2008 Interim Report 2, 2008 11 August 2008 Interim Report 3, 2008 03 November 2008 The full Interim Report 3, 2007 is available in English and Swedish, while a shorter version media release is available in German. Disclaimer This interim report contains forward-looking statements that are subject to various risk and uncertainties. Future results could differ materially from those described in these forward-looking statements due to certain factors, e.g. changes in business, economic and competitive conditions, regulatory reforms, results of clinical trials, foreign exchange rate fluctuations, uncertainties in litigation or investigative proceedings, and the availability of financing. The character of the information is such that it shall be disclosed by Nobel Biocare Holding AG (publ) in accordance with the Swedish Stock Exchange and Clearing Operations Act (1992:543). The information was disclosed to the media on 30 October 2007 at 6.45 a.m. Nobel Biocare is a medical devices group and the world leader in innovative esthetic dental solutions with its brands Brånemark System, NobelReplace, NobelSpeedy, NobelPerfect, NobelDirect, Replace Select (dental implants), Procera (individualized dental prosthetics), NobelGuide (complete patient rehabilitation program) and NobelSmile (patient education and awareness program). Nobel Biocare is a total solution provider for restorative esthetic dentistry, offering a wide range of innovative Crown & Bridge & Implant products, as well as training and education, patient information and clinically documented treatment concepts. Nobel Biocare has over 2,200 employees and recorded revenue of EUR 601 million in 2006. The Company is domiciled and headquartered in Zurich, Switzerland. Production takes place at five production sites located in Sweden, USA and Japan. Nobel Biocare has direct sales organizations in 34 countries. The shares of the parent company Nobel Biocare Holding AG are listed on SWX Swiss Exchange and OMX Stockholm, Sweden. www.nobelbiocare.com / www.nobelsmile.com Nobel Biocare Group Interim Report 3, 2007 6 (17)
SELECTED FINANCIAL INFORMATION (unaudited) Q3 Q3 9M 9M FY in EUR million 2007 2006 2007 2006 2006 Income statement Revenue 143.3 132.5 485.0 429.0 600.6 Gross profit 119.9 111.8 408.9 359.3 504.8 Profit from operations (EBIT) 46.7 42.3 156.1 142.0 204.2 Profit before tax 45.3 42.1 154.6 142.3 202.8 Profit for the period w/o sale of associate 35.5 33.1 121.1 107.8 154.2 Profit for the period 35.5 33.1 121.1 111.7 158.1 Balance sheet Non-current assets 199.8 199.2 198.1 Current assets 316.0 257.5 306.0 Total assets 515.8 456.7 504.1 Total equity 336.8 316.8 360.8 Non-current liabilities 28.4 33.6 28.5 Current liabilities 150.6 106.3 114.8 Total liabilities 515.8 456.7 504.1 Cash and cash equivalents incl. bank overdraft 79.2 87.4 130.9 Miscellaneous Net cash from operating activities 33.7 36.4 81.8 94.8 160.3 Depreciation, amortization and impairment losses 4.3 3.9 12.4 10.7 15.6 Investments in property, plant and equipment and intangible assets 3.9 5.0 21.6 19.2 28.0 Employees at end of period 2'209 1'926 1 993 Ratios Revenue growth (%) 8.2 22.3 13.1 26.1 24.0 Revenue growth in local currencies (%) 12.0 25.3 17.5 25.1 24.4 Gross margin (%) 83.7 84.4 84.3 83.8 84.0 Operating expenses in % of revenue 51.1 52.5 52.1 50.7 50.0 Operating (EBIT) margin (%) 32.6 31.9 32.2 33.1 34.0 Profit margin (%) w/o sales of associate 24.8 25.0 25.0 25.1 25.7 Profit margin (%) 24.8 25.0 25.0 26.0 26.3 Return on equity (%) 34.5 33.8 34.5 33.8 47.0 Equity/assets ratio (%) 65 69 65 69 72 Share information Number of shares at end of period 26'562'569 26'234'743 26 299 225 Average number of shares 24'797'233 25'080'903 24 957 950 Number of shares after full conversion 26'617'318 26'617'318 26 617 318 Share price at end of period, CHF 315.25 307.75 360.25 Market value at end of period, MCHF 8'374 8'074 9 474 Basic earnings per share, w/o sale of associate, EUR 4.88 4.29 6.18 Basic earnings per share, EUR 4.88 4.45 6.34 Diluted earnings per share, EUR 4.85 4.42 6.29 Equity per share, EUR 13.58 12.63 14.46 Equity per share after full conversion, EUR 12.65 11.90 13.55 Nobel Biocare Group Interim Report 3, 2007 7 (17)
Risk and Uncertainties As a fast growing, innovative medical technology company, Nobel Biocare is exposed to various risks. Therefore the Group introduced in 2005 an Integrated Risk Management Process where various responsibilities are allocated. Generally, the Group categorizes its risks into: Strategic risks such as changes in the market, changes in the competitive landscape or new innovation by competitors; Operational risks such as risks related to quality assurance, regulatory affairs, the product development cycle, employees, supply chain, information technology, legal and intellectual property and patient safety; Tax risks; Reputation risks and Risks arising from the Companies use of financial instruments such as credit risk, liquidity risk or currency risk and interest rate risk. Additionally, the Group differentiates between internal and external risks. The Integrated Risk Management is discussed at least annually at Board level and the Group is in the process of documenting its Internal Control System (ICS). No material changes with respect to risks and uncertainties have occurred during the period reported, and for more information on risks and uncertainties facing the Company and the companies in the Group, reference is made to the pages 82-84 and 108-109 in the Nobel Biocare Annual Report 2006. The Annual Report is available on the internet at www.nobelbiocare.com. Assurance The Board of Directors and the President and CEO certify that the nine-month financial report gives a true and fair view of the Company s and Group s business, position and profit or loss, and describes the principal risks and uncertainties that the Company and the companies in the Group face. Nobel Biocare Holding AG Rolf Soiron Chairman of the Board Stig Eriksson Antoine Firmenich Robert Lilja Board member Board member Board member Jane Royston Rolf Watter Ernst Zaengerle Board member Board member Board member Domenico Scala CEO Zurich, 29 October 2007 Nobel Biocare Group Interim Report 3, 2007 8 (17)
NOBEL BIOCARE GROUP CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INTERIM REPORT 3, 2007 The Interim report has not been audited or reviewed by the Company s auditors. Nobel Biocare Holding AG, P.O. Box, CH-8058 Zurich-Airport Tel +41 (0)43 211 42 00 Nobel Biocare Group Interim Report 3, 2007 9 (17)
CONSOLIDATED INCOME STATEMENT (unaudited) Jul-Sep Jul-Sep Jan-Sep Jan-Sep Full Year in EUR million 2007 2006 2007 2006 2006 Revenue 143.3 132.5 485.0 429.0 600.6 Cost of sales -23.4-20.7-76.1-69.7-95.8 Gross profit 119.9 111.8 408.9 359.3 504.8 Selling expenses -50.9-48.1-181.3-146.1-201.0 Administrative expenses -16.6-18.1-55.0-57.7-82.0 Research and development expenses -5.7-3.3-16.5-13.5-17.6 Profit from operations (EBIT) 46.7 42.3 156.1 142.0 204.2 Financial income 1.1 0.4 4.7 1.4 12.6 Financial expenses -2.5-0.6-6.2-5.0-17.9 Gain on disposal of associate - - - 3.9 3.9 Profit before tax 45.3 42.1 154.6 142.3 202.8 Income tax expenses -9.8-9.0-33.5-30.6-44.7 Profit for the period attributable to equity holders of Nobel Biocare 35.5 33.1 121.1 111.7 158.1 Basic earnings per share, EUR 1.45 1.32 4.88 4.45 6.34 Diluted earnings per share, EUR 1.44 1.32 4.85 4.42 6.29 CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) Note 30 Sep 30 Sep 31 Dec in EUR million 2007 2006 2006 Assets Property, plant and equipment 52.5 47.0 48.6 Intangible assets 134.3 134.7 136.2 Financial assets 1.7 2.7 2.4 Deferred tax assets 11.3 14.8 10.9 Total non-current assets 199.8 199.2 198.1 Inventories 35.7 28.0 30.5 Current receivables* 199.4 140.8 141.0 Financial investments* - - 2.2 Cash and cash equivalents 80.9 88.7 132.3 Total current assets 316.0 257.5 306.0 TOTAL ASSETS 515.8 456.7 504.1 Equity and liabilities Total equity attributable to equity holders of Nobel Biocare 8 336.8 316.8 360.8 Provisions 17.7 18.6 17.1 Other non-current liabilities 10.7 15.0 11.4 Total non-current liabilities 28.4 33.6 28.5 Total current liabilities 9 150.6 106.3 114.8 Total liabilities 179.0 139.9 143.3 TOTAL EQUITY AND LIABILITIES 515.8 456.7 504.1 * Derivative financial instruments are since 31 December 2006 reported under Financial investments. Prior period s comparatives were reclassified to conform with the current year s presentation. Nobel Biocare Group Interim Report 3, 2007 10 (17)
CONSOLIDATED CASH FLOW STATEMENT (unaudited) Note Jan-Sep Jan-Sep Full Year in EUR million 2007 2006 2006 Profit before tax 154.6 142.3 202.8 Adjusted for Depreciation and amortization and impairment losses 12.4 10.7 15.6 Financial income -1.3-1.4-2.5 Financial expenses 3.3 2.2 4.2 Gain on disposal of associate - -3.9-3.9 Cost for staff option programs 6 10.3 7.2 8.7 Other non-cash income and expenses -0.9-5.4-3.7 Changes in working capital and provisions Increase in trade and other receivables -30.3-11.0-11.1 Increase/decrease in inventories -5.2 2.1-0.4 Increase/decrease in trade and other payables -8.7-17.6-6.7 Increase/decrease in provisions, accrued expenses and deferred income -2.1 9.4 1.3 Income taxes paid -50.3-39.8-44.0 Net cash from operating activities 81.8 94.8 160.3 Acquisition of Property, plant and equipment -16.1-14.9-20.0 Intangible assets -5.5-4.3-8.0 Disposal of financial investments 1-34.9 34.9 Interest received 1.3 1.4 2.6 Net cash used in/from investing activities -20.3 17.1 9.5 Exercised warrants and options 32.4 20.0 26.4 Acquisition of treasury shares and settlement of related liability 8.3-120.6-117.0-135.9 Increase/decrease in interest-bearing liabilities 42.2 0.5 - Interest paid -1.7-0.3-1.6 Dividends paid 8.2-64.3-55.7-55.7 Net cash used in financing activities 2-112.0-152.5-166.8 Increase/decrease in cash and cash equivalents -50.5-40.6 3.0 Cash and cash equivalents at beginning of period 2 130.9 128.4 128.4 Effect of exchange rate differences on cash held -1.2-0.4-0.5 Cash and cash equivalents at end of period 2 79.2 87.4 130.9 1 Fixed term deposits 2 Cash and cash equivalents including bank overdraft Nobel Biocare Group Interim Report 3, 2007 11 (17)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited) Note 30 Sep 30 Sep 31 Dec in EUR million 2007 2006 2006 Balance at 1 Jan 360.8 357.7 357.7 Foreign exchange translation differences -7.9-8.9-3.8 Gain/(loss) on hedging instruments - 0.6 0.9 Net gains and (losses) recognized directly in equity -7.9-8.3-2.9 Profit for the period 121.1 111.7 158.1 Total recognized income and expense for the period 113.2 103.4 155.2 Acquisition of treasury shares 8.3-115.6-115.8-131.5 Share options and warrants exercised 8.1 32.4 20.0 26.4 Effect of staff option programs 6 10.3 7.2 8.7 Dividends to shareholders 8.2-64.3-55.7-55.7 Balance at end of reporting period 336.8 316.8 360.8 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 Organization Nobel Biocare Holding AG (the Company) is domiciled in Switzerland. The condensed consolidated interim financial statements of the Company for the period ended 30 September 2007, comprise the Company and its subsidiaries (the Group). Nobel Biocare is a medical devices group and the world leader in innovative esthetic dental solutions with its brands Brånemark System, NobelReplace, NobelSpeedy, NobelPerfect, NobelDirect, Replace Select, (dental implants), Procera (individualized dental prosthetics), NobelGuide (complete patient rehabilitation program) and NobelSmile (patient education website). Nobel Biocare is a one-stop shop for restorative esthetic dentistry, offering a wide range of innovative Crown & Bridge & Implant products, as well as training and education, patient information and clinically documented treatment concepts. The condensed consolidated interim financial statements were authorized for issue by the Board of Directors on 29 October 2007. For the quarterly interim reporting, Nobel Biocare applies the 4-4-5 routine, which means that the first three quarters consist of 13 weeks (4-4-5) each. Note 2 Statement of compliance The Group applies International Financial Reporting Standards (IFRS). The unaudited condensed consolidated interim financial statements have been prepared in accordance with the requirements of IAS 34 Interim Financial Reporting. Note 3 Basis of preparation The condensed consolidated interim financial statements are presented in euro (EUR), rounded to millions with one decimal. The preparation of interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses as well as the disclosure of contingent liabilities. Actual results may differ from these estimates. Critical judgments made by management in the application of IFRS and key sources of estimation uncertainties were the same as those that applied to the consolidated financial statements for the year ended 31 December 2006. Income tax expense is recognized based upon the best estimate of the weighted average annual income tax rate expected for the full financial year. The accounting policies are the same as those applied in the consolidated financial statements for the year ended 31 December 2006, except for the fact that the Group as of 1 January 2007 Nobel Biocare Group Interim Report 3, 2007 12 (17)
adopted IFRS 7 Financial Instruments: Disclosures and amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures. The effect of adopting IFRS 7 and amended IAS 1 is described below. Note 4 Effect of adopting new and amended standards and interpretations The adoption of IFRS 7 Financial Instruments: Disclosures and amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures did not have an effect on these condensed consolidated interim financial statements. These standards will only have an impact on the disclosures provided in the consolidated financial statements for the year ending 31 December 2007. As already discussed in more detail in the consolidated financial statements for the year ended 31 December 2006, the IFRIC has issued a number of new interpretations that are effective for the 2007 financial year. These interpretations have no, or no significant, impact on the Group s consolidated financial statements. Note 5 Seasonality The Group is not exposed to material seasonal variations in its operations. Note 6 Share-based payment transactions On 9 February 2005, the Board of Directors of Nobel Biocare decided on a new staff option program for employees and officers of the Group. The staff option program comprises a total of 1,100,000 options, to be granted over three years. The options vest after approximately 27 months after the grant date and can be exercised during the one-year period starting on the vesting date. The options are conditional on 27 months of service being provided by the employees participating in the plan from the grant date. This program replaces the Company s previous staff option program that was launched in 2001. During 2005, 329,000 options were granted without consideration under the new staff option program. The exercise price for these options is CHF 252.40, which equals the average share price during five trading days following the publication of the full year report for 2004. Options granted in 2005 vest on 1 July 2007, and can be exercised during the period 1 July 2007 up to and including 30 June 2008. The fair value of the options granted in 2005 is CHF 42.12. During 2005, 2006 and the first six months of 2007 19,400 of the options granted in 2005 forfeited. As of 30 June 2007, 309,600 of the options granted in 2005 vested. During 2006, 358,150 options were granted without consideration under the new staff option program. The exercise price for these options is CHF 298.30, which equals the average share price during five trading days following the publication of the full year report for 2005. Options granted in 2006 vest on 1 July 2008 and can be exercised during the period 1 July 2008 up to and including 30 June 2009. The fair value of options granted in 2006 is CHF 50.25. During 2006 and the first nine months of 2007, 37,000 options granted in 2006 forfeited. 20 000 options were early exercised (refer note 11). As of 30 September 2007, 301,150 options granted in 2006 were outstanding. During March 2007 (and partially the six months thereafter), 411,650 options were granted without consideration under the new staff option program. The exercise price for these options is CHF 423.50, which equals the average share price during five trading days following the publication of the full year report for 2006. Options granted in 2007 vest on 1 July 2009 and can be exercised during the period 1 July 2009 up to and including 30 June 2010. The fair value of options granted in 2007 is CHF 71.34. During the first nine months of 2007, 8,100 options granted in 2007 forfeited. As of 30 September 2007, 403,550 options granted in 2007 were outstanding. Under IFRS 2, the fair value of the options granted is recognized as a personnel expense with a corresponding increase in equity. EUR 10.3 million were charged as a personnel expense for the nine months ended 30 September 2007 (the nine months ended 30 September 2006: EUR 7.2 million), of which EUR 4.1 million were charged for the three months ended 30 September 2007 (the three months ended 30 September 2006: EUR 2.1 million). A detailed description of the staff option program can be found in the corporate governance section and in note 19 of the annual report 2006, which is published on the web under www.nobelbiocare.com. Nobel Biocare Group Interim Report 3, 2007 13 (17)
Note 7 Segment reporting Nobel Biocare s business is conducted in one business segment comprising two product groups, Implants and Crown & Bridge, with similar risks and rates of return. The business is managed on a global basis and is run in four geographical areas. Secondary segment reporting is based on geographical areas, as the risks and returns from the business conducted by Nobel Biocare derive from the global product assortment, supported by the global marketing, quality, logistics and research and development functions. Revenue by region - quarter Q3 Q3 Growth in % in EUR M 2007 2006 EUR local curr. Europe 55.8 51.0 9.4% 9.4% Proportion of total revenue 39% 38% North America 54.9 51.5 6.6% 13.6% Proportion of total revenue 38% 39% Asia/Pacific 24.0 22.0 9.1% 16.2% Proportion of total revenue 17% 17% Rest of the World 8.6 8.0 7.5% 7.2% Proportion of total revenue 6% 6% Total 143.3 132.5 8.2% 12.0% Revenue by region year to date 9M 9M Growth in % in EUR M 2007 2006 EUR local curr. Europe 218.6 186.1 17.5% 17.5% Proportion of total revenue 45% 43% North America 165.8 160.7 3.2% 11.0% Proportion of total revenue 34% 38% Asia/Pacific 72.4 59.1 22.5% 31.8% Proportion of total revenue 15% 14% Rest of the World 28.2 23.1 22.1% 25.4% Proportion of total revenue 6% 5% Total 485.0 429.0 13.1% 17.5% Note 8 Equity 8.1 Share capital The total number of outstanding shares in Nobel Biocare Holding AG on 30 September 2007 was 26,562,569 (31 December 2006: 26,299,225). The increase is due to the exercise of warrants and options. The share capital may be increased by issuing no more than 54,749 shares, each with a par value of CHF 2, to be fully paid up, equaling an amount of no more than CHF 109,498 by virtue of the exercise of option rights granted to employees, directors and officers of the Group. 8.2 Dividend Based on the AGM decision on 26 April 2007, the Company paid a dividend of CHF 4.25 (2006: CHF 3.50) per bearer share, less 35% withholding tax, to its shareholders on 3 May 2007. The total amount of the gross dividend paid was CHF 106.0 million or EUR 64.3 million (2006: EUR 55.7 million). 8.3 Treasury shares On 1 January 2007, the Company held 1,450,850 own shares. Nobel Biocare Group Interim Report 3, 2007 14 (17)
On 7 April 2006, the Company announced a share buyback program of maximum 1,500,000 shares on a separate second trading line. The Company intends to cancel these shares when all the shares under the program have been acquired. During the nine months ended 30 September 2007, the Company acquired 479,150 shares for a consideration of EUR 115.6 million under this share buy back program (during the nine months ended 30 September 2006: EUR 51.4 million related to this share buy-back program plus EUR 65.9 million related to a share buy-back program that was terminated on 20 March 2006). During the three months ended 30 September 2007, the Company acquired 80,000 shares for a consideration of EUR 16.4 million under the share buy back program, during the three months ended 30 September 2006 219,000 shares for a consideration of EUR 41.7 million. The cash outflow for the nine months ended 30 September 2007, relating to acquisition of treasury shares, amounted to EUR 120.6 million (for the nine months ended 30 September 2006: EUR 65.9 million related to this share buy-back program plus EUR 51.3 million related to a share buyback program that was terminated on 20 March 2006). Due to tax reasons, 10,000 treasury shares acquired before 2004 were sold for a consideration of EUR 2.6 million. At the same date the same amount of shares was acquired under the on-going share buy-back program for the same consideration. The total amount of Nobel Biocare Holding AG shares held by the Company at the end of the interim period was 1,930,000. Nobel Biocare s activities within its share buyback program are reported bi-weekly on the web under www.nobelbiocare.com. 8.4 Minority interest During 2003, 2004 and January 2005, Nobel Biocare Sverige AB purchased shares from the minority at a price of SEK 620 per share (plus interest from 16 January 2003 until payment date less deduction for dividends paid between 16 January 2003 until payment), resulting in a minority interest of 51,930 shares (0.2 percent) in Nobel Biocare AB as of 31 January 2005. At the beginning of February 2005, the remaining minority shareholders agreed that Nobel Biocare Sverige AB can, against a bank guarantee of SEK 49 million, obtain immediate ownership of the remaining 51,930 shares (0.2 percent) in Nobel Biocare AB. Thereby, the only remaining issue for the Arbitration panel to decide upon will be the final price that Nobel Biocare Sverige AB should pay for the 51,930 remaining minority shares. Between 1 February and 31 December 2005, Nobel Biocare Sverige AB (after 15 November 2005; Nobel Biocare Holding AB, see below) purchased 6,815 shares from the minority shareholders. Between 1 January and 31 December 2006, Nobel Biocare Holding AB purchased 5,130 shares. During the nine months ended 30 September 2007, Nobel Biocare Holding AB purchased 2,199 shares, of which 200 shares during the three months ended 30 September 2007 (5,030 shares during the nine months ended 30 September 2006, of which 0 shares during the three months ended 30 September 2006) from the minority shareholders. As the Nobel Biocare Group is the owner of the remaining 37,786 shares (0.2 percent of the total shares), the Group does not (since 31 December 2005) present any minority interest but a liability representing the purchase value of the remaining 0.2 percent shares in Nobel Biocare AB. On 20 June 2006, the Arbitration panel ruled in favor of Nobel Biocare that the final purchase price for the remaining minority shares, which Nobel Biocare has to pay for is SEK 620 per share (plus interest from 16 January 2003 until payment date less deduction for dividends paid between 16 January 2003 until payment). The minority appealed against this ruling on 20 August 2006. At 15 November 2005, Nobel Biocare Holding AB and Nobel Biocare Sverige AB merged, whereupon Nobel Biocare Holding AB became party in the compulsory redemption process. Note 9 Short-term interest bearing loans As of September 30, 2007, the Group had short-term interest bearing loans in an amount of EUR 42.2 million. Nobel Biocare Group Interim Report 3, 2007 15 (17)
EUR 30.1 million represent fixed term loans with an average interest of 3.07 % and a due date of 22 October 2007 and EUR 12.1 million represent a fixed term loan with an interest of 2.98 % and a due date of 22 December 2007. In addition, the Group had short term bank overdrafts of EUR 1.7. All covenants were met at 30 September 2007. Note 10 Ongoing disputes At the beginning of July 2005, a lawsuit against Nobel Biocare claiming patent infringement was filed by a doctor in New York. The suit concerns two patents, which the doctor alleges are infringed by the Stargrip products. Nobel has evaluated these patents in depths and has numerous defenses that it will vigorously pursue. Nobel Biocare contends that it does not infringe these patents and that the patent claims are invalid based upon prior art. This suit has been put on hold by the court pending further investigation in the US patent office. In July 2006, Nobel Biocare was served a lawsuit filed in Düsseldorf, Germany, by the Belgian company Materialise N.V. Materialise alleges that Nobel Biocare's solution NobelGuide infringes a European patent held by Materalise N.V., respectively one of its affiliates. On 14 August 2007 the Lower Regional Court of First Instance (Landgericht) in Düsseldorf decided that NobelGuide infringes patent rights of Materialise. This decision can be provisionally enforced against deposit of a security of Euro 1.6 million. Nobel Biocare had previously investigated the patent at issue in the lawsuit as well as the corresponding US Patent. In the opinion of Nobel Biocare and its German and US patent attorneys, Nobel Biocare is not infringing valid patent claims of Materialise Nobel Biocare is confident of the strength of its own intellectual property rights protecting NobelGuide. Therefore, Nobel Biocare has appealed the decision of the Düsseldorf court in September 2007. In the same context Nobel Biocare has filed a claim with the German Patent Court in June 2007 in order to nullify Materialise s patent already. Furthermore, Nobel Biocare has filed a lawsuit with the US Federal Court in Santa Ana (California) in August 2007. The purpose of the suit is to obtain a declaratory judgment that Nobel Biocare is not infringing any valid patent claim of Materialise N.V. by offering NobelGuide solutions in the US. The Company expects the issue surrounding the NobelDirect and NobelPerfect in the Swedish market to come to a conclusion within the nearer future, after certain adaptations of the Instructions for Use for both products have been developed in close dialogue with the Swedish Medical Products Agency (Läkemedelsverket). During July 2006, Nobel Biocare has been served a demand for arbitration in the US under a license agreement. The licensor alleges that royalties under the agreement are owed to him for certain additional products. In June 2007 an amiable agreement could be reached, which not only resolved the issues under discussion but also allowed Nobel Biocare to get a license for the future use of all these patents. There is an ongoing discussion with the Swedish Tax Authorities on the deductibility of interest payments on a loan received by Nobel Biocare AB from the Company s Netherlands Antilles affiliate. The Company is of the opinion that these interest payments are deductible and has underpinned this position with a statement by an independent Swedish expert on tax law. There are other minor IP-related as well as other disputes regarding contractual obligations, including warranty- and labour related disputes, arising from the ordinary business of the Nobel Biocare and its subsidiaries pending. In the opinion of the Management, and based on currently available information, the handling and settlement of these disputes will have no adverse material effect upon the financial position or operation of the Group. Note 11 Management Changes On 30 July 2007 the Board of Directors appointed Domenico Scala as CEO, effective 1 September 2007, in the context of the regular succession process. On 29 July 2007 the Company signed a termination agreement with the former CEO consisting of cash compensation of EUR 2.1 million and vesting of options in an amount of EUR 1.2 million (IFRS 2). Additionally, one-time cost, such as search and legal cost, in an amount of EUR 0.8 million occurred related to the change. Nobel Biocare Group Interim Report 3, 2007 16 (17)
On 15 October 2007 Nobel Biocare announced that with effect of 1 December 2007 Petra Rumpf is appointed to the Executive Committee as Head of Business Development & Strategic Planning. Note 12 Subsequent events There have not been any material events between the end of the interim period and the date of authorization that would require adjustments to the condensed consolidated interim financial statements or disclosure. Nobel Biocare Group Interim Report 3, 2007 17 (17)