Management summary 88
Risk assessment 92
Selected financial information 94
straumaNN GrOup
Consolidated balance sheet 100 Consolidated income statement 101 Consolidated cash flow statement 102 Consolidated statement of changes in equity 103 Notes to the consolidated financial statements 104 Report of the Group auditors 146
straumaNN hOldiNG aG
Balance sheet 150
Income statement 151
Notes to the financial statements 152 Proposal of the Board of Directors 155 for the appropriation of the available earnings
88 Straumann Annual Report 2006 Financial Report maNaGemeNt summary
executive interview
focus: financial challenges present and future Marco Gadola, CFO, Executive Vice President Finance & Operations
What have beeN the majOr fiNaNcial challeNGes fOr straumaNN iN 2006?
The biggest challenge has been managing our production costs, which have been impacted on the one hand by the further build up of our new facility in Andover, and on the other by the production of our new SLActive technology, which is more complex and expensive to produce than the conventional SLA implant surface. To compensate for the increase in the Cost of Goods Sold, we have had to steer and reduce our operating expenses and align them so that our selling and innovation power aren’t compro- mised. And lastly, we have worked hard to optimize our tax structure.
has aNythiNG chaNGed frOm aN accOuNtiNG pOiNt Of vieW?
Not essentially. In contrast to the previous years, when there were many IFRS changes, 2006 was a relatively ‘light’ year.
hOW has straumaNN’s fiNaNce team maNaGed With the rapid OrGaNizatiONal GrOWth?
The installation of SAP across the organization has been important. Now it’s a question of tuning and making sure we have the right systems and processes for the future in place: for example a harmonized chart of accounts, comprehensive profit-center accounting, and value-driver reporting. We also changed the organization of our finance organization at headquarters by establishing dedicated Group Account- ing, Group Controlling and Internal Audit functions and by strengthening the controlling of the sales regions and business units.
What – apart frOm tOp-liNe GrOWth – are the biGGest fiNaNcial challeNGes fOr 2007?
We want to improve the EBIT margin, which will mean tight expense management and production efficiency gains to offset the negative gross margin effect of SLActive as its share of our sales increases.
are curreNcies likely tO have a biG impact?
Obviously, I can’t predict how the main currencies that affect us will move. The great majority of our revenues are generated in Euros or US dollars and consolidated in Swiss francs. To limit our exposure (to the potential transaction risk) we enter into currency hedging forward contracts if appropriate.
89 Straumann Annual Report 2006 Financial Report maNaGemeNt summary
straumaNN achieves Net reveNue GrOWth Of 18 %
In 2006, the Straumann Group’s net revenue climbed 16 % in local currencies (l. c.) to CHF 599 million. After currency translations, the growth rate in Swiss francs amounted to 18 %. Operating profit rose 12 % to CHF 175 million, contributing to an 11 % increase in net profit to CHF 142 million. The operating and net profit margins reached 29.3 % and 23.7 % respectively, while earnings per share climbed to CHF 9.09, corresponding to an improvement of 11%.
OperatiONal aNd strateGic achievemeNts
One of our biggest undertakings in 2006 was the full-scale roll-out of our unique third-generation implant surface, SLActive, on all our major implant types throughout of our two largest regions, Europe and North America. Another major achievement was the build-up of our production plant in the USA, which opened in mid 2005. The costs associated with this project and the production of SLActive weighed considerably on the gross margin and constrained overall profit growth.
iNNOvatiON aNd NeW lauNches
In addition to SLActive, we introduced two new regenerative products, Straumann BoneCeramic and Emdogain PLUS, in Europe. To support and position these and other products, and to drive innovation, we continued to invest in research & development. In 2006, we had a larger number of ongoing clinical studies in more centers worldwide than ever before. In addition, we continued our marketing efforts for new and in-market products, for instance through a strong presence at major congresses and meetings. iNfrastructure
Following the large-scale relocations of 2005, the only major change in infrastructure in 2006 was the transfer of our UK country headquarters to larger, more accessible premises. The production expansion in the US continued according to plan: we added further CNC machines, almost doubled our production team, and began operating in two shifts. As a result, our US production capacity doubled.
distributiON chaNNels takeN Over
With regard to distribution channels, we achieved our aspiration of gaining direct access to all our cus- tomers in Western Continental Europe following the integration of our Danish distributor at the begin- ning of 2006. At year-end we took over direct distribution in New Zealand. Shortly after, we signed a memorandum of understanding that paves the way for us to acquire the Straumann-related business of our Japanese distributor. Once completed, the transaction will give us direct access to our customers in Japan as of the second-half of 2007.
iNcreased GlObal WOrkfOrce
We continued to invest in recruiting and training new talent, creating just under 200 new jobs world- wide and bringing our global workforce to 1534 at year-end. We conducted an extensive corporate alignment program to train every employee about our core values, brand, new visual identity and other key differentiators, and we carried out a major reorganization program to streamline and drive inno- vation and sales excellence.