Straumann sets the pace as first-half net revenue climbs 22% in local currencies (l.c.)

• Strong second quarter (+29% in l.c.) lifts first-half net revenue to CHF 413 million (+22% in l.c.; +17% in CHF)
• Gross profit and EBITDA margins expand as efficiency gains more than compensate for new lower-margin products and unfavorable currency impact
• Net profit reaches new record level of CHF 101 million
• Bone Level Implant prosthetic range expanded and well received
• More than 200 new jobs created as Straumann strengthens marketing and sales and other global functions to drive sustainable future growth
• Green light for Straumann’s oral tissue regeneration products in the US
• Straumann on track to meet full-year guidance

Basel, 7 August 2008: An acceleration in sales in the second quarter of 2008 spurred Straumann’s first-half net revenues to CHF 413 million, corresponding to an overall increase of 22% (l.c.). Due to the prevailing strength of the Swiss franc against major currencies, growth amounted to 17% in Swiss francs. Seventeen percentage points of first-half growth were generated organically¹. Second-quarter net revenue climbed 29% (23% in CHF) lifted partly by additional selling days in most major markets due to Easter falling in the first quarter.

The Group achieved further gains in operational efficiency leading to a gross margin expansion. Operating profit before depreciation and amortization (EBITDA) grew faster (+19%) than net revenue, increasing the EBITDA margin by 40 basis points to 36.4%. Amortization charges for intangibles in connection with recent acquisitions², the overproportionate growth of etkon, which generates lower operating margins than implants, and the prevailing weakness of the US dollar constrained the operating profit (EBIT) margin to 29.0%. With the tax rate (15.5%) returning to normal, first-half net profit totalled CHF 101 million, yielding a net profit margin of 24.3%.

Bone Level Implant, SLActive and etkon drive momentum
Straumann continued to win customers with new products, solutions and services. Growth was sustained by the Tissue Level Implant business and boosted by the new generation Bone Level Implant, which has been well received. The clinical results with the new implant continue to impress, with outstanding implant survival and treatment success rates (99.3% and 98.7% respectively) reported in the large non-interventional clinical study, in which doctors can freely select the treatment methods according to indication³. At the end of the first quarter, the Group introduced a second wave of prosthetic components for the new implant, making this the most convenient, comprehensive and flexible bone level portfolio available.

Additional revenue growth was generated by SLActive, the third-generation implant surface that significantly reduces healing times and increases safety⁴. Impressive clinical results were presented and published in the first half of the year, including one-year results from a multicenter study, which show excellent implant survival despite the fact that more than 40% of the implants were placed in poor quality bone. The respective survival rates achieved after immediate or early loading were 98% and 97%⁵. SLActive is well on track to reach Straumann’s penetration target of 30%, despite the fact that it is not yet available in the large Asian market.

At the same time, the etkon CAD/CAM crown and bridge business, acquired in March 2007, continued to grow dynamically, fuelled by expansion in North America and new markets in Europe. Despite being a relative newcomer to the field, etkon has already begun to establish a strong scanner base beyond its home market in Germany. One highlight at the end of the first half was the release of new software with enhanced flexibility and design features, which add a further competitive advantage to the etkon solution.

Direct access to highly attractive crown and bridge segment in Iberia
Towards the end of the second quarter, Straumann completed the acquisition of the etkon franchise partner in Spain, which held exclusive distribution rights for etkon CAD/CAM products in Spain and Portugal. The acquisition gives Straumann direct access to one of the most dynamic dental markets in Europe. Straumann now owns all etkon franchise rights worldwide.

Progress in regeneratives
Following the successful re-inspection of the Group’s Biora facility in Sweden by the US Food and Drug Administration (FDA), the import detention on Biora products in the US, has been lifted. As a result, Straumann can now supply its range of oral tissue regeneration products to dental professionals and their patients in the US again. Straumann USA is taking orders and the products concerned – Straumann^® Emdogain, PrefGel^® and BoneCeramic – will be available shortly.

The outcome of the FDA inspection has enabled Straumann to proceed again with its resorbable membrane project, which has now been filed in the EU and US.

Further expansion into emerging markets
Having gained control of its business in the Czech Republic and Slovakia by acquiring 100% of the interest in its distributor at the outset of the first half, Straumann continued to build its presence in Eastern Europe through new distributors in Bulgaria and Macedonia.

New solutions to sustain future growth
The roll-out of recently launched products and technologies – notably etkon and the Bone Level portfolio – are strategic priorities that will drive sales development in the years ahead. In addition, the Group has a stocked pipeline of attractive projects that will contribute both to future growth and to further enhancing the standard of patient care. These include new materials for implants and prosthetics, as well as software for CAD/CAM and treatment planning.

One of the most exciting products in advanced development is Straumann’s new high strength implant material. Mechanical tests have already confirmed the superior physical properties of the new material compared with conventional titanium. More remarkably, the latest preclinical study data show that the new material achieves even greater biomechanical stability than the gold standard SLActive titanium implant⁶.

European subsidiaries outperform
Europe, which continues to generate just less than two thirds of Group revenues, posted an 18% rise in revenue (16% in CHF) to CHF 270 million, as Straumann gained market share. All key countries achieved double-digit growth, with France and Italy gaining impetus from the launch of the Bone Level Implant, which has now been rolled out successfully in all major European markets.

Germany enjoyed a highly successful national ITI meeting attended by 1650 participants. With CAD/CAM as a major theme, more than a quarter of the participants were dental technicians.

North America extends momentum
In North America, which accounts for 19% of the Group, revenues reached CHF 79 million. Despite the unfavorable economic environment and the FDA import detention on Biora products in the US, North America posted first-half revenue growth of 18% and underlying⁷ growth of 20%. However, the continuing weakness of the US dollar meant that regional growth in Swiss francs amounted to just 3%.

Asia/Pacific boosted by new subsidiaries
In the Asia/Pacific region, net revenue jumped 61% to CHF 51 million (12% of Group), lifted by the acquisitions in Japan and Korea in the second half of 2007. Local management teams in both countries have been further strengthened and processes are being upgraded to align them with corporate standards. Straumann Australia continued to underpin the regional performance, gaining additional growth from the roll out of the Bone Level Implant and the CAD/CAM prosthetics business. Straumann’s new Asia/Pacific office in Singapore became fully operational strengthening the regional organization and presence of the Group.

Elsewhere, in the rest of the world, first-half revenues climbed 23% to CHF 13 million.

An attractive growth environment for new talent
Straumann continued to attract new talent, drawing high caliber professionals from global companies in the life sciences and consumer industries. Over the past 12 months, the global workforce has increased by more than 470, of which 201 were newly created jobs in the first half of 2008.

Profitability gains more than compensate for new business mix and currency effects
Strong top line growth, economies of scale and efficiency gains – particularly in implant production – collectively contributed to a 17% increase in gross profit to CHF 339 million. The gross profit margin edged up to 82.2% despite foreign exchange headwind and the lower EBIT margins of new products and technologies.

The strengthening of Straumann’s global marketing and sales organization together with other global functions (e.g. quality management) to drive sustainable future growth led to a rise in selling and administrative expenses to CHF 200 million, or 48.4% of net revenue. The Bone Level implant line and other promising projects contributed to an increase in research and development spending, which totaled CHF 21 million or 5.1% of net revenue.

Although operating profit (EBIT) rose 11% to CHF 120 million, the amortization of intangibles in connection with recent acquisitions (i.e. etkon and the distribution partners in Asia), the overproportionate growth of etkon, which generates lower EBIT margins than the implant business, and the prevailing weakness of the US dollar constrained the EBIT margin to 29.0%. The exclusion of these factors reveals a slight increase in the EBIT margin, while operating profit before depreciation and amortization (EBITDA) rose overproportionately by 19%, expanding the EBITDA margin by 40 basis points to 36.4%.

Net profit reaches new record level
Straumann has made a number of strategic acquisitions since early 2007, which have been financed through borrowings and with cash, resulting in increased financing costs and lower interest income from reduced liquidity. This led to a net financial result of CHF -0.8 million.

The comparative first half of the previous year benefited from non-recurring deferred tax income, which reduced the tax rate to a low 12%. Despite the fact that the rate rose to a more normal level of 15.5% in the current reporting period, first-half net profit reached a new high of CHF 101 million, translating into a net profit margin of 24.3%. Earnings per share rose 6% to CHF 6.45.

Investing for future growth
Net cash from operating activities declined from CHF 93 million to CHF 63 million in the first six months of 2008, mainly due to the settlement of taxes outstanding from 2006 and 2007, and an increase in net working capital. The roll-out of line extensions (e.g. Bone Level) and new products in various markets led to an increase in inventories. Capital expenditure, mainly for production expansion at a number of sites, amounted to CHF 33 million. Together, these activities yielded a free cash flow of CHF 30 million. Repayments of aforementioned borrowings amounted to CHF 81 million. The combination of all these factors together with the dividend payment of CHF 58 million meant that overall cash and cash equivalents stood at CHF 38 million on 30 June 2008.

Outlook (barring unforeseen circumstances)
On the basis of the underlying performance in the first half of 2008 and the expected contributions from new products, technologies and subsidiaries, Straumann confirms its expectation for full-year net revenue growth in the low to mid twenties range in local currencies.

As efficiency improvements are expected to exceed the higher levels of amortization related to acquisitions, the Group foresees an improvement of around 50 basis points in full-year operating margin calculated with constant (2008) currency rates. Accounting for the normalized tax rate and the current strength of the Swiss franc, the net profit margin is expected to be around 22%.

¹ ‘Organic growth’ excludes the impact of changes in foreign exchange rates, and includes the incremental revenue growth of an acquired business upon consolidation
² Notably the distribution partners in Asia and etkon
³ Straumann® Bone Level Implant NIS. Interim report. STARGET 2008; 2 18-19
⁴ Oates TW et al. Int J Oral Maxillofac Implants 2007; 22 :755-760
⁵ Ganeles J et al. Clin Oral Implants Res 2008; (in press)
⁶ J Gottlow. Data presented at AO Boston 2008
⁷ Excluding the effect of the US import detention on Biora products

This release contains certain “forward-looking statements”, which can be identified by the use of terminology such as “sustainable”, “future”, “on track”, “to reach”, “can”, “will”, “further”, “enhancing”, “forecast”, “could be”, “expect”, “foresee”, “attractive”, “expectation”, “outlook”, or similar wording. Such forward-looking statements reflect the current views of management and are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Group to differ materially from those expressed or implied. These include risks related to the success of and demand for the Group’s products, the potential for the Group’s products to become obsolete, the Group’s ability to defend its intellectual property, the Group’s ability to develop and commercialize new products in a timely manner, the dynamic and competitive environment in which the Group operates, the regulatory environment, changes in currency exchange rates, the Group’s ability to generate revenues and profitability, and the Group’s ability to realize its expansion projects in a timely manner. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report. Straumann is providing the information in this release as of this date and does not undertake any obligation to update any forward-looking statements contained in it as a result of new information, future events or otherwise.