Full-Year Financial Results 2007

Straumann lifts net profit by 25% in 2007

• Net revenue climbs 19% (17% in l.c.) to CHF 714 million
• Underlying¹ EBIT margin expands 3.0 percentage points to 32.3%
• Earnings per share (diluted) increase 24% to CHF 11.26
• etkon continues dynamic growth and expands internationally
• New generation Bone Level Implant well received
• Investments in new Asian subsidiaries to invigorate growth
• Distribution channels acquired in emerging Eastern European markets
• Cash flow from operating activities jumps 29%
• Proposed dividend of 25% to CHF 3.75 per share²

Basel, 7 February 2008: Straumann (SWX: STMN), a global leader in implant, restorative and regenerative dentistry, today reported net revenue growth of 19% (17% in l.c.) in 2007, driven by strong customer demand for existing, newly launched and recently acquired products. With net revenue reaching CHF 714 million, growth was lifted by a 6-percentage-point contribution from acquisitions, while favorable exchange rates added 2-percentage points to the top-line growth. Excluding the effect of the US import detention imposed on Biora products by the Food and Drug Administration (FDA) throughout 2007, the organic growth was 13%. The Group finished the year with fourth-quarter net revenue growth of 20% (19% in l.c.).

Operating profit (EBIT) rose 15% to CHF 202 million, corresponding to an EBIT margin of 28.2%. Excluding the effects of acquisitions and the import detention, the underlying EBIT margin increased to 32.3%. Profitability gains and tax improvements pushed net profit up 25% to CHF 177 million, yielding a net profit margin of 24.8%. With cash from operating activities jumping 29% to CHF 227 million, free cash flow rose 39% to CHF 186 million.

Robust underlying expansion
The solid underlying growth throughout 2007 was driven by Straumann’s core implant business, supported by the progressive conversion to SLActive, the third-generation surface technology that significantly reduces healing times and increases security⁴. More than 20% of Straumann implants now have this gold-standard surface and, thanks to its proven benefits, Straumann has maintained a price premium of approximately 30% above the standard SLA.

Progress in regeneratives
With the support of additional clinical data, Straumann’s regenerative business continued to develop solidly, except in the US, where the FDA has informed the company that a re-inspection (which is required before the import detention can be lifted) will be scheduled. The date still has to be confirmed and Straumann believes that its regenerative products could be available again to US customers and patients in the second quarter of the current year, pending successful re-inspection.

New generation Bone Level Implant doubles addressable market
One of Straumann’s biggest undertakings in 2007 was the clinical development and launch of its new generation Bone Level Implant, which doubles the company’s addressable implant market. The new implant and its comprehensive matching prosthetic portfolio were launched in initial European markets, North America, Australia and New Zealand in the fourth quarter and will be rolled out globally in 2008 and beyond.

Entry into promising CAD/CAM dental prosthetic market
The main strategic highlight in 2007 was the Group’s friendly acquisition of etkon AG at the beginning of March. This establishes Straumann in the highly attractive field of CAD/CAM dental prosthetics. The combination positions Straumann as a differentiated partner providing solutions to rescue, restore or replace teeth. At year-end, Straumann owned 95.4% of all etkon shares and expects the remainder to be tendered in the course of 2008, bringing the total purchase consideration to EUR 100 million. The cost implications of etkon include the amortization of acquired intangible assets and certain integration and restructuring costs. In the 10 months since the acquisition, etkon contributed CHF 27 million to Straumann’s 2007 net revenues.

Key distribution channels taken over
In July and August, Straumann acquired its Japanese and Korean distributors, gaining direct access to customers in the world’s fourth and fifth largest markets for dental implants. Subsidiaries and leadership were put in place rapidly, and most of the key management and staff were retained, making the transitions seamless from the customer’s perspective. Shortly after year-end, the Group took over distribution in Hungary and acquired its distributor in the Czech Republic and Slovakia. These initiatives mean that the portion of the Group’s revenues generated through third-party distributors is only about 5%.

New talent strengthens team
Straumann continued to invest in recruiting and training new talent with particular emphasis on strengthening its leadership team with high caliber managers from mature consumer industries. The global workforce increased by 421 to 1955 at year-end, of which 241 were newly created jobs.

Solid European performance
In Europe, where Straumann generated 64% of its business, full-year net revenue grew 16% in local currencies (21% in Swiss Francs) to CHF 459 million. Mid-teen growth was achieved throughout the year, with a solid fourth-quarter (15% l.c.) in view of the high comparative base in 2006, when sales grew 24% in l.c.

Most countries reported good performances with double-digit underlying revenue growth. etkon contributed to the regional expansion, predominantly in its home market Germany. The UK and Iberian subsidiaries enjoyed dynamic growth throughout the year, while the French subsidiary was restructured to invigorate growth. The fragmented Italian market was impacted by new tax regulations, which resulted in treatment delays towards the end of the year. In Sweden, treatment postponements in connection with reimbursement changes (expected in mid 2008) led to a marked deceleration.

Substantial pick-up in North America
In North America, which accounts for 22% of the Group, revenues reached CHF 154 million. The import detention in the US meant that net revenue increased just 7% in l.c. (3% in CHF) compared with 2006. Excluding this effect, the underlying business grew 16% in local currencies over the full year and 18% in the fourth quarter, reflecting an encouraging pick-up in US implant sales and the contribution of the Bone Level Implant launch in October. Throughout the year, Straumann upgraded its education and sharpened its sales approach. These initiatives, together with the continuing success of SLActive, consistent pricing discipline and the successful launch of our new Bone Level Implant at the end of October, fuelled a progressive improvement of our business performance.

Asia/Pacific boosted by new subsidiaries
In the Asia/Pacific region, net revenue rose 42% to CHF 81 million (11% of Group). While the third and fourth quarters were boosted by the acquisitions in Japan and Korea, the underlying growth in both countries had slowed in the run-up to the transition. It will take some time to recapture dynamic growth although the integration has progressed well and key issues have already been addressed. Apart from this, the regional performance was underpinned by consistent strong growth in Australia, which took over direct distribution in New Zealand at the outset of 2007. Another regional highlight in 2007 was the opening of a Straumann Representative Office in Beijing, China, which will provide important insights into this key emerging market.

RoW continues dynamic performance
In the rest of the world – where Brazil and Mexico are among the key contributors – full-year revenues climbed 61% to CHF 20 million. This was on top of the particularly strong growth rates in 2006, underscoring the attractive potential in this group of countries.

Profitability gains drive operating profit up 15%
The cost of goods sold increased slower than net revenue thanks to process improvements, scale effects and a decrease in start-up costs in Andover. This offset the higher costs of the complex production of SLActive and the Bone Level Implant, as well as the dilutive effect of the restorative business. As a result, gross profit rose 21% to CHF 582 million and the gross margin expanded 1.5 percentage points to 81.6%.

Sales and administrative expenses increased to CHF 356 million or 49.9% of sales, while research and development costs increased slightly to CHF 31.2 million or 4% of sales. In spite of the integration, start-up, and personnel costs related to the aforementioned acquired businesses, operating profit before depreciation and amortization (EBITDA) rose 12%, with the EBITDA margin exceeding 34%.

The operating profit rose 15% to CHF 202 million, while the EBIT margin was squeezed by just over 1 percentage point to 28.2%. Excluding the effects of acquisitions and the US import detention, the underlying EBIT margin would have expanded 3 percentage points to 32.3%.

Net profit margin expands to 24.8%
For currency hedging considerations, the acquisition of etkon was financed with cash and a short-term euro loan, which will be repaid using earnings generated in euros. Interest expense on the loan, together with other financial expenses amounted to CHF 6.6 million. This was mostly offset by interest of CHF 4.1 million. Currency exchange rates were mainly responsible for the negative net financial result of CHF 7.0 million. A one-time revaluation of deferred tax liabilities and a further improved tax structure resulted in an exceptional full-year tax rate of 8.9%. The underlying tax rate going forward is expected to be in the region of 17%. Profitability gains combined with tax structure improvements led to a 25% rise in net profit to CHF 177 million. The net profit margin increased 1.1 percentage points to 24.8% and diluted earnings per share consequently rose 24% to CHF 11.26.

Strong improvements in cash flow
Net cash from operating activities rose 29% to CHF 227 million. Net cash used in investing activities amounted to CHF 250 million, of which CHF 162 million were due to the etkon acquisition. Net cash from financing activities was a positive CHF 58 million reflecting the aforementioned euro loan. Free cash flow increased strongly to CHF 186 million, lifting the free cash flow margin to 26%.

The combination of all these activities together with a dividend payment of CHF 47 million meant that overall cash and cash equivalents on 31 December 2007 amounted to CHF 190 million.

Proposed dividend increase of 25% to CHF 3.75 per share
On the basis of the 2007 performance, the Board of Directors proposes a 25% increase in the ordinary dividend to CHF 3.75 per share, subject to the shareholders’ approval at their annual general meeting on 28 March 2008. This corresponds to a payout ratio of 33%.

Outlook (barring unforeseen circumstances)
The strength of Straumann’s underlying business and the growing contributions from new products, technologies and subsidiaries are expected to drive full-year revenue growth in 2008 to the 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. With the tax rate returning to normal, the net profit margin is expected to be around 23%.

¹In this release ‘underlying’ means excluding the effects of businesses acquired in 2007 and the import detention on Biora products in the US.
²The Board of Directors proposes a dividend of CHF 3.75 per share for 2007 payable in 2008, subject to shareholder approval.
³Defined as net cash from operating activities less capital expenditures plus proceeds from sale of property, plant and equipment and financial assets, in % of net revenue
⁴Oates TW et al. Int J Oral Maxillofac Implants 2007; 22 :755-760

Disclaimer
This release contains certain “forward-looking statements”, which can be identified by the use of terminology such as “proposed”, “subject to”, “will”, “as of”, “could be”, “scheduled”, “addressable”, “believe”, “attractive”, “invigorate”, “outlook”, “expected”, 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.