COLTENE Holding AG (CLTN) Earnings Call Transcript

Dear investors, we welcome you to the COLTENE Media and Financial Analyst Conference for the half year 2026. My name is Dominik Arnold, CEO of COLTENE. With me today is Markus Abderhalden, the CFO of COLTENE. Please note the safe harbor statement, as always. When we come to the agenda for this call today, I will start with the key highlights for this first half year. Then I will hand over to Markus for a deeper view on the financials. I will then conclude the presentation with some key learnings as well as the outlook before opening for you to ask questions and for us to answer. We, at COLTENE, see the first half year as a solid performance, but not exactly to our expected target. We achieved roughly the market growth, so we didn't lose significant share, but we also didn't gain shares, which is clearly our long-term goal. Profitability, while not yet at expected level, clearly improved in sequential quarters. We move into the second half year with more tailwind and confidence as last year and the reasons for us are the following: our EBIT improved in quarter 2 significantly. We kept our cost and our net working capital in an inflationary environment under good control. We start to see encouraging results from our investment in digital marketing and more and more revenue starting to be generated by new launch products and workload solutions, in particular, starting with the infection control business. Organizationally, we are in the middle of some key changes, mainly in the marketing and sales organizations to really drive customer and market orientation and ultimately help us on the profitable growth. Now I'm handing over to Markus for a deep dive on our financial performance.

Thank you, Dominik. Dear investors, dear ladies and gentlemen, I also welcome you to today's media conference. I'm pleased to present you the financial performance of the first semester 2026 of the COLTENE Group, which can be summarized as follows. In a challenging market environment, COLTENE slightly increased net sales by 0.8% in local currency, achieved an operating margin of 5.1%, suffering from a lower gross margin. And last but not least, substantially improved the free cash flow to CHF 4.8 million, thanks to a better financial result and a further optimized net working capital. With that, the financial performance, as we already heard from Dominik of the first half year was not fully satisfying, but shows positive signs for the second half of the year at the same time. Let me begin with an overview of the income statement. Net sales reached CHF 112.8 million. This represents a slight increase in local currency, but a decline by 4.4% in the reporting currency, especially the U.S. dollar, but also the euro and Canadian dollar further weakened against the Swiss franc and as a consequence, negatively impacted sales by 5.2%. The EBIT amounted to CHF 5.8 million, represents a margin of 5.1%, which is 1.3 percentage points lower compared to last year. More details on the performance will follow on the next page. Starting from the top, let's have a look into the sales development of the different product areas. On the left side, you see the share of the 3 product areas with only minor changes. Treatment auxiliaries is with 39%, still the biggest product area, followed by the Infection Control with 34% and Dental Preservation with 26%. On the right side, you see the development of the 3 different businesses. Important to know, while the bars show the absolute amount of net sales in the reporting currency, the growth rates are indicated in local currency. In Infection Control, we could further gain market share, mainly thanks to the recent launches in the U.S. and Canada of a new HYDRIM instrument washer and products from the OPTIM family within the surface disinfection area. The Dental Preservation business unit declined by 1% in local currency. Product launches such as the CalciSeal root canal sealer were positively received and the OGSF file sequence continued to deliver above-average growth. But the business unit was affected by a destocking of a major distributor in the U.S. Treatment auxiliaries was also affected by this inventory reduction and recorded a decline of 1.5% in local currencies. Now we changed the view from product areas to the regions. North America remains the largest region, but slightly decreased its share from 48.3% to 46.4%, mainly as a consequence of a decline by 8.3% in the reporting currency. However, in local currency, the region was with minus 0.3% at the prior year's level. A change in the supply chain by one of our customers led to a slight shift of sales from the North America to the EMEA region. But more important, the positive effects from Infection Control were unfortunately offset by substantial destocking within the consumables of one of our major dealers in the region. For that reason, the second half of the year is expected to be improved again. EMEA, the second largest region, strongly increased by 6.8% and with that, outperformed the market growth, especially in the DACH and Benelux countries. Further to be noticed is a slight growth in the region, Middle East despite the geopolitical development. Asia's share declined to 10%, with sales down by 7.3% in local currency due to a challenging market situation in China and the timing effect for individual large orders in Japan. India, by contrast, showed a strong development. Latin America recorded a sales decline of 9.9% in local currency with a share of group sales at 5.5%. In individual markets, political uncertainties at the beginning of the year led to order delays, which are expected to be recovered in the second half of the year. With this slide, I would like to show you the development of our operating results from the first half of 2025 to 2026. Hence, the starting point is 2025, where we achieved an EBIT of CHF 7.5 million. The volume effect is mainly driven by the stronger Swiss franc as we have seen before. The gross margin decreased from 66.4% to 65% due to the following reasons. Firstly, the effect from the unfavorable exchange rate development and especially the weakening of the U.S. dollar but also euro against the Swiss franc. Secondly, due to a temporarily unfavorable product mix. And last but not least, the higher energy prices caused by the Middle East conflict partly -- led to partly higher material and logistic costs. Countermeasures have been implemented so that we expect this effect to be compensated in the near future. The personnel expenses benefited from the foreign exchange development as well, but also from a further cost reduction program, which resulted in 26 lower FTEs on average. With that, we were able to more than offset the inflation-based salary increases. And finally, also the other operating expenses benefited from foreign exchange development, but also from additional cost savings. The financial result in the reporting period amounted to a minus of CHF 0.6 million and were significantly better than the previous year. While the interest expenses were stable, the losses from foreign exchange rates significantly improved by CHF 1.3 million compared to the prior year period. The tax rate was 20.7%, down from 24.1% in the first half of 2025 and benefited from lower sales in countries with higher tax rates and a one-off tax refund from 2 subsidiaries. With the expected development in the second half of the year, we expect the tax rate to be in our target range of around 22% to 24%. As a result, the net profit amounted to CHF 4.1 million compared to CHF 4.3 million in the previous period and represents the same -- and represents a net profit margin of 3.6%. Cash balance temporarily increased by 29% and will be used to substantially reduce the financial debt in the second half of the year. Thanks to our operational excellence, the stock level further reduced by 5.4% or to CHF 54.4 million. Net debt increased due to the payout of the dividend in April. The shareholders' equity of COLTENE Group as of June 30, 2026, amounted to CHF 93 million. The equity ratio dropped from 51% to 49.4%, mainly due to the increased balance sheet as a consequence of the temporarily high cash balance. The total assets of the group are stable at CHF 190 million. As a result, the balance sheet of COLTENE Group continues to be extremely sound and provides room for organic growth. The operating cash flow for the reporting period substantially increased and reached CHF 7.6 million, primarily driven by an improved net working capital. The cash flow from investing activities is above prior year, driven by higher investments in property, plant and equipment, but still kept below our target range of around 4% of net sales. As a result, the COLTENE Group achieved a free cash flow of CHF 4.8 million. Cash flow from financing activities was CHF 1 million, heavily impacted by the payout of the dividend of CHF 11.9 million and the increase of financial debt of CHF 13 million. With that, I'm at the end of my comments to the financial performance and hand over again to our CEO, Dominik.

Thank you, Markus. Our strategic direction remains to preserve the natural teeth. This connects us at the hip with the dentists and the patients alike. We have further fine-tuned over the last year the message and the value we create in our 3 distinct segments. These segments, which all serve via dealers have all a distinct value proposition to dentists and an opportunity for growth. This different business units also gives some stability in a more and more volatile market environment. While we are utilizing digital and AI for internal process improvement, which indirectly benefit dentists and our business model has a low disruption potential, specifically coming from AI. The Dental Preservation is focusing on enabling dentists to preserve natural tooth longer, safer, reliable and more economical. We decided, as COLTENE, to focus on the preservation of teeth, but not to pursue pure aesthetic technologies such as teeth whitening. We stay invested in this business, however, indirectly, but see the go-to-market very differently to be successful. In Treatment Auxiliaries, we deliver day-to-day consumable product to dentists. While not directly impacting the dental treatment outcome, they make a big difference indirectly to supporting the dentist in its daily performance. They are loved by dentists in their daily work, such as we love our own detergent, toothpaste, et cetera. The Steri-Centre is a unique room at a dentist with a unique requirements, which we serve with SciCan as the only pure workflow provider. In the next few slides, I would like to show you some examples on how we make progress on delivering true values. Here, we start with Dental Preservation. Next year, we are launching our next-generation Jeni, endodontic motor, which is further helping the dentist to shape the root canal in a much safer and faster way and enabling actually the preservation of tooth. This is particularly focusing on the general practitioner, our target market and is critical to expand this business further and see this significant growth potential. Another example is the just launched Brilliant Bleach Shade, allowing us to restore not just natural teeth, but also whitened teeth. Here, we see the Treatment Auxiliaries benefits or improvements we have made in the last year. I would like to start with dental hemostasis. This is to stop the bleeding. We are one of the top 3 provider in Europe, and we strengthened our positioning in the market and also the margin improvement by in-sourcing it and expanding the portfolio, but also now we are looking into expanding into new markets beyond Europe. Another example is the Dental Dam, which more and more dentists prefer synthetic material due to allergies or tearing. And here, we just have launched our new SyntX Dental Dam, which is actually growing faster than we expected and really shows the benefit to the dentist. The last one is to be competitive and to have local production becomes more and more important in today's market situation. We will do this pragmatic and nimble. With this, we have set up a joint venture in China as well as a local assembly and filling in India to serve the local needs better. Now we come to the last business, Infection Control or better -- actually the SciCan business, we call where we are the only full workflow provider in North America. All starts with a secure supply of the right water quality and the management of the waste. For this, we have just launched the latest water and steam management system unmatched in the market. The HYDRIM washer we launched last year in Canada and this year in the U.S., and Markus already told you about the successful launch and the significant growth we have achieved with these new products. Besides, also the OPTIM OS1 wipes, which is new launch last year, is continued to grow in double digit. This is just a few examples on how we work on innovating and provide value to the dentist. Now I'm coming to the focus areas for the remaining of the 2026. We have built the foundation to bring value to the dentists with innovative workflow solutions and also digital marketing. Now we need to improve our commercial execution to ensure we bring this value to the dentist through our sales organization. We didn't move as fast as planned with our commercial organization. Hence, we made some adjustments, which we are convinced will help us to drive the growth we're expecting and fulfill the potential from our workflow solutions. The financials show that we continue to improve our cost efficiency through processes. We will continue on this journey and see further cost improvement in the second half year and beyond. Due to our global setup, we are anchored with local manufacturing setup in all our key markets, except China and India, where we are now on a good track to produce a significant portion of our business growth in the country itself in the next years to come. I'm concluding here with the outlook. We are not yet where we want to be on our financial performance. However, we are confident that we have built the foundations, and we see this lays a strong customer-centric innovation focus together with a customer-facing organization, which really brings this value to the market. This, we see as the key for our success, but it takes more time and effort in this highly regulated market. We are convinced we can get back to a slightly outgrow the market, which we believe is growing in the range of about 1% to 3%. A sustainable EBIT of 13% to 15% remains our midterm target. We achieved this step by step and mainly through growth. Our aim is to create investor confidence with a stepwise improvement over time. We see this as the only sustainable way. COLTENE remains and is financially sound. This allows us to continue with an attractive payout ratio to our investors. With this, I conclude, and I would like to open up for Q&A.

[Operator Instructions] there are no questions at this time. I would now like to turn the conference back over to Dominik Arnold for any closing remarks.

It seems that we have answered all the questions that you have. I thank you for the participation and the support and trust in COLTENE. And I wish you all a wonderful summer and hopefully see you again for a successful report out for our financial year results. Thank you so much.