Medartis Holding AG (MED) Earnings Call Transcript

So it seems that everybody seated. Good morning to everyone here in the room, but also to our dear listeners in the hybrid session on the Zoom at the other hand of the line. I'd like to welcome you to the 2024 full year results presentation of the Medartis Group. We appreciate you taking the time in a busy period. As usual, we will use the presentation slide deck as a reference for the conference. Please also have a look at the media release, I'm sure the analysts in the room have already carefully read it, but also our annual report, which is today published, and it's 198 pages long with a full comprehensive sustainability report. Everything was published at 7:00 a.m. this morning on our website. But now I'm delighted that our new CEO, Matthias Schupp, joins us for the first time for this full-year results conference, along, of course, with Dirk Kirsten, who most of you know already. Matthias joined us in November from the Straumann Group, where he spent the last 17 years successfully managing first the Western European business and then the Latin American business, including the value brand, Neodent out of its home office or home center, Curitiba, but more to that later on. Before we move on, I would like to make one legal and one housekeeping remark. You see on Slide 3, the agenda of today and on Slide 2, the disclaimer on the forward-looking statements because we also have, and most of you recognize this this morning, a completely new website. And there were some people struggling to find our annual report and the presentation. So just as a side note, if you open up the new step, which you see now in the browser, there's a drop-down menu that is required by the stock exchange where you show the ad hoc news, but also our reports and presentation. We will optimize that so because also customer centricity is important, you are our customers, we make that more user-friendly in a few days from now. Good. With that, I'd like to hand over to Matthias Schupp for his opening remarks and the highlights of '24.

Yes. Thank you very much, Fabian. Good morning to everybody. I'm very pleased that so many people joined our invitation here in Basel. I personally prefer face-to-face meetings, but also a very warm welcome to everybody listening on the conference call. Who is here in the room, had already the chance to hear a little bit to the Latin American, Brazilian rhythms, the music. We will come later to this. I started 4.5 months ago, as Fabian mentioned, actually on the 4th of November with Medartis after 17 years with Straumann. And out of this 17 years, I did 12 years in Brazil in Curitiba as the CEO of Neodent and responsible for the Latin American business of the Straumann Group. And yes, I think I can give you from the bottom of my heart, some insights what means the value segment, not only for dental, but also for Orthopedics in the future. What was my first focus? I spent only a few days in Basel when I started in November and immediately visited our U.S. organization for 2 reasons. First of all, of course, I was advised and informed about the challenges in the U.S. So I wanted to see what's about Warsaw, what's about the team we have in Warsaw, what is this nice production facility we have in Warsaw, how is the vibe feeling the people, but also meeting customers. And the second reason was, which was very important for me to feel the culture in Warsaw because I already had initiated in August the search for our new U.S. President. And I wanted to make sure that he fits culturally in this organization and has a strong commercial background. So I spent November most on the road really listening, listening, listening, learning, learning, learning. I have seen surgeries. I was surprised that this is not worse than what you see in dental surgery. So it was very good and eye-opening. And I also tackled immediately in the U.S. during my first visit, the setup in the U.S. in our U.S. organization, where we had 50% of our distributors. We have currently 57 distributors. I will come back to this later, where 50% worked not exclusively with our products, especially in upper extremities. So I knew immediately, we need to tackle this. We should not lose time. So I initiated this already before the new U.S. President started. Then coming back, my next trip was to Geneva, stopping on the hand surgeon Congress in Lugano, meeting a lot of surgeons, which was eye-opening fantastic, especially Swiss and German surgeons. And then I visited KeriMedical because I needed to understand this business and to get my hands around what does it mean? What are the opportunities? I see also surgeries for KeriMedical and getting really bounded with the owners and founders of KeriMedical. This was a little bit my first 2 months until December. And now we are coming to the key figures. What we reported today is a core revenue growth of 11.7%, which brings us to CHF 224.8 million sales for 2024 with a very well-managed Dirk, congratulations. EBITDA margin of 19%, and I would like to point out that for me in the future and Dirk knowns it, growth has to come with profitability. I think this is very important for Medartis going forward. Yes, then we announced, and I will come back to this later, our acquisition of 51% of NeoOrtho, Brazilian value player, which a lot of history coming back, and I will explain to you later this. And yes, located in Curitiba Paraná, Brazil. And I can confirm that the growth story will continue for Medartis also in 2025. As said, I started the search of the new U.S. President in August, even before I joined officially Medartis as the new CEO. We found with David Thoni, a person who is really a leader. He is a fantastic human being. He has proven this in several industries and don't take it only because he worked at time in dental. It's not all bad what's coming from dental. I think it's also good sometimes that we have a fresh mindset and taking it from a neutral point of view. He is exactly the person, the U.S. organization with our 140 direct employees needs a leader. And you can imagine 1 year without a leader in the U.S., it was quite difficult. And I was surprised how motivated still this team is and committed this team is in the U.S. And after 2 months already because David is now 2 months on the job, you see the first results. He's in the market. He's with the surgeons. He has a strong connection with hospitals and ambulance surgery centers, and he is on top of our distributors and driving what I have initiated already with the team in November, since transition into exclusive distribution at least for upper extremities, which is key because imagine if a distributor in our core business of upper extremities is coming to the surgeon or to the hospital and has various systems, and it's like you can select what you want to use. This is for me and for my team, a no-go. So let's go please to the next chart. I call it one team because I truly believe that we only, as a team can move Medartis to the next level. And what has us brought to here will not bring us to the next level. Therefore, I'm very happy that I have not only highly committed and motivated and engaged, but also professionally a fantastic EMB. I will not go through all the names, but what is the main difference now is that the U.S. is part of my EMB and David Thoni joins this. Yes, we have 2 other regions, APAC and LATAM. And when they reach the critical size, is foreseen that they are also part of the EMV because as a team, we have to steer this company and there, the regions have quite an important function. EMEA was our key growth contributor, as you see on the reconciliation of our core sales. We are declining on the custom manufacturing, also on the third-party manufacturing in the U.S. This was clear, and I think this was announced throughout the last year. This was the former NSI production, which is now becoming more and more a Medartis production. So we will finish the last production for one of our third-party companies throughout this year. Yes, my congratulations, and I'm very happy with a fantastic EMEA team. I had -- Mario is sitting there. I had a chance to meet the entire team during our January kickoff sales convention, fantastic. I can learn a lot from this team. They worked it again, and they will work it again in 2025 because we have huge opportunities also in EMEA, but -- and then also the U.S. with the strongest growth. Now we can discuss, and you will ask me maybe in the Q&A session, is 17.3% enough? Maybe not, but it is what it is for last year. And I have to give credit to this U.S. team because in very difficult circumstances, they manage this, as I said, without a leader. Then we had our APAC region. We can also move to the next chart already, where we have the figures here. Our APAC region, which has suffered a little bit, especially in Australia because Australia is 2/3 of the business in APAC and our regional management is also sitting in Brisbane from price cuts over the last years. I think you know this, this was also announced. There were price cuts, first 5% and 10%, then another 5%. This, we still feel the impact in the first half of this year, but we do not foresee any further price cuts for 2025. This means that APAC also will come back to growth. And then Latin America, totally disappointing, but also here, well, I know the Brazilian business very well. I know what happened here. There was a change in the insurance companies in Brazil, especially for the premium companies. You know that premium, this is more for private hospitals. This is more for patients with different insurance companies. And in Sao Paulo, for example, the biggest region in Brazil, in the first 6 months of 2024, the nearly did no business. There was no chance for Medartis with a premium brand to go into these hospitals. I will come back to this later. This is one of the reasons with the value strategy with an ample opportunity, not only in Brazil, but also in Latin America. With the performance of Mexico, I'm happy. I think Mexico is in line what we could expect, but the biggest impact was coming from Brazil and here from the premium segment. And with this short overview, I would like to hand over to my dear CFO, Dirk, with the financial review. Dirk, please, the stage is yours.

Thank you, Matthias, and good morning, everybody here. It's the first time we all meet in Basel. So I'm very glad to welcome you also here in Basel. And I hope [indiscernible] And I'm happy to lead you through the figures, the technical figures and the financial figures over the next couple of minutes. So Page 12, I think Matthias has already explained shortly sales, which was 11.7% is slightly below the expectations, also our own expectations, which we set in the first half of the year. On the good side, we have a stable or slightly improving gross margin, which was at 82.8% for what we call the core business. I'll explain that in a couple of minutes, but also for the reported business, it was almost 80%. We have especially in the time of the CEO change and the transformation basis and also before the background that -- we didn't know how the top line comes in. We were cautious on spending. We were very prudently managing also our costs, especially in headquarters. And the result out of that is that we are announcing a 19% EBITDA margin for the core business or even slightly more for the as-reported business, and I will lead you through this. And then the EBIT margin was almost 10% with 9.5% for core also strongly improving versus the prior year. Most important thing for us is also we've always said that we want to finance our growth internally as much as possible that we improved our cash flow. Cash flow has increased for CHF 20 million. And as of the end of last year, we had almost CHF 140 million sitting on the balance sheet and with that one also being prepared for the acquisitions to come. So maybe to go on Page 13, which gives you an overview about the gross margin. I'm not going to go through all of the figures, but the 2 black bars and then maybe the middle in between is important. In general, I would say, we had a very high price discipline. We had the special impacts, which were from Brazil. Matthias will talk about that. But also Australia, where Matthias has already explained that we had additional price cuts, another 5%, which was planned, but then also up to 30% on selected products, which happened without any warning and without any announcement before at the beginning of last year. And they also led to lower-than-expected sales for Australia and with that one also to the need to correct the Asia region. So in general, I would say that the pricing discipline has been very good. We even increased prices also in line with innovation with new products, and we were able to hold the price, the overall price impact for the gross margin. What you see here is a negative minus 0.5% for Keri, which is a pure technical number. We currently keep in mind, we are a distributor of Keri. Our margins are around 70%, 75%. As we are only distributor, once we take over Keri, and we'll talk about that in a minute, the margins will go up. This negative -- this dilutive effect will disappear again, and we will show you margins which are even slightly higher than what we have. So the core margin of Keri is above 80%. And once we swap to the other model, then with fully owning Keri, this will disappear again. And then most importantly, very proud that our operations team led by Mario Della Casa, who is also in the room here, they have gained further efficiency. That was in Basel, also with in-sourcing some work and some products also, but also with reaching higher capacities, using the our utilization of the capacities and then also making some first improvements in Warsaw, which we acquired within the NSI transaction 2 years ago. So there, we have a positive impact and the sum of all the things then increased our gross margin slightly to 82.8%. We will not talk about the noncore elements but give you an overview about all noncore things in a couple of minutes. If we go to Page 14. There you see the EBITDA development. which increased almost 3 percentage points, led by the gross margin improvement, which I just explained, and then also by the cost savings. Now the cost savings I should comment on [indiscernible], especially in headquarter. We were very cautious when we saw that the second half of the year is coming in softer than what we expected. We have continued to invest into the regions. We've spent a lot of money for Japan, by the way, where we decided to go direct from an indirect business model. We kept our commitment also to Australia, where we continue to spend also because we believe that the market is there. And once it recovers also after the price cuts, we will see the growth again. And actually, we grew high single digit or even double -- low double digit on a volume basis in Australia. In the U.S., we gained some first profitability improvements after the NSI acquisitions. But still, we are committed to spend continued money into the U.S. for the sales force development and also for Keri when it comes for the preparation of Keri Touch. Matthias will talk about that. And we have been cautious in spending on LATAM as we saw that the LATAM market comes down and now have a different approach also to go forward. So with that one, cost management has been very balanced. Europe has also received additional money, also additional sets, and we try not to kill growth, but be a little bit more conservative on our headquarter and on the function side. With that one, maybe going into the next page. Yes, there has been feedback in the half year that we should show you a more consistent and more transparent picture about all the -- what we call the one-off factors or the adjustment factors. And so what we did and what we're introducing right now is a fully fledged APM in terms of performance measures system, which shows you how does the IFRS accounting look like and what's the reconciliation towards what we call core. I'm not going into all of the details, but let me just lead you through the 3 main columns here. We reviewed the NSI transaction at the potential sales, especially also from LapiPrep, and we concluded that we should make an adjustment. This adjustment now leads to an impairment on intangible assets, which is about CHF 18 million. On the other side, on the other hand, we had a milestone, which was related to sales and which goes along also with a contingent liability, which you have to build under IFRS accounting. And this contingent liability was released, that leads to an income of CHF 6.9 million. And the result of that for the combination of both effects is then the CHF 11 million, which we adjust for because it's a one-off factor. Also, we are taking off everything, the entire P&L, which is related to the noncore business, the third-party manufacturing business, which we acquired with NSI. It's a business which is fading out for third parties, we just use our capacities which we have in the factory. And all of the costs you see here, even including a write-off of old inventory, which we can't use anymore, which goes into the gross margin. And then on the other hand, on the right side, you see the combination of all of the other factors. On the positive side, I should mention CHF 4.8 million, which we received from an insurance to cover the IT hack, which some of you may remember in 2023, the cyberattack. And on the other hand, we had some extra costs which are related to the CEO change, but then also to the change, which we had in Japan towards a direct sales model, and these are summarized here under the CHF 2.7 million. So if you go from the left side to the right side, you're getting into the 19%, and that compares against approximately 17% from the previous year. If you go to the next page, which is then 16, shows our net result, which if you take out the non-core items, which I just mentioned, is now CHF 11.4 million, strongly improved versus the year before. It also includes I would call it even a positive impact from the finance result. We didn't have any negative impact from FX, which is the first year after the last 3 years, and also manage tax very prudently so that we even have a tax income. That leads now to 5.2% net margin, which, of course, we are committed to increase and to accrete in the future, but it was already a strong improvement versus the year before. And then maybe on the next page on 17, the cash flow, where all the things come together, the operational margin, which has become better. We have improved our accounts receivable management, especially towards the end of the year. We're very tight in our management here. We have continued to invest into sets, especially for the new products, for models 2 on CMF. We've spent a lot of sets also for the Japan to build that up, continue to spend sets for the U.S. And with that one, also build the basis also for future growth. And then we've been cautious on the CapEx side. All that together leads to a margin of about 6% free cash flow margin. And that one should also, over the next couple of years, continuously and gradually go up. At the end of last year, we had almost CHF 140 million cash on our balance sheet that prepresses us now to finance the acquisitions to come, both KeriMedical, which Matthias will allude to, and then also NeoOrtho, which we announced this morning. And I get back later to the NeoOrtho structure in a couple of minutes. Thank you.

Yes. Thank you very much, Dirk. Yes, now we might come to the part you're most probably waiting for. I've heard this since my first day. "Everybody is expecting your strategic direction," and let's go to the next chart. I truly believe in a strong culture that the culture is the foundation of everything what we do. And therefore, I started already in February with my EMB and my extended EMB, which I call ENG, my direct reports, and a high-performance team workshop, where we put the customer in the middle of everything we do. And this is maybe one of the main differences if you compare to the past. We have only a right to win and the right to survive if we do what our customers and our customers are different ones. We have insurance companies, we have surgeons, we have hospitals, we have ambulance centers, but we have many areas in the company, they have internal customers. We need to do what they expect us to do. And this is around this IT, I and WE the business, the I is the person itself, the team. And I truly believe when we speak about the team, that agility with empowerment, bringing back the fun and passion in Medartis. This fun, this passion, wherever you are working for Medartis around the world, you are coming to the job and you know you are doing good things for the patients. You're bringing back quality of life, you're bringing back mobility or like we said it in our workshop, Fabian, re-enjoy life. This sounds simple, but this is not simple because this is a process. This is a lot of workshops with the team. And I'm so happy that after 4.5 months, I already feel I call this wipe. And then if we have this commitment, we can focus on our main goals with this innovation, coming up with meaningful innovation and meaningful innovation is not only the next screw and the new blade. Meaningful innovation, and I'm mentioning it here is also our entry into the digitalization into the service for our surgeons and for our hospitals. It is also the way how we communicate with our partners and customers starting this transformation, this digital transformation. This goes to digital planning in the future. This goes into patient-specific products, which I come back. And then in the middle of everything is the education. I truly believe that the education in our industry is a foundation. And we see it now with the preparation of the Keri Touch launch in the U.S. that education is key to become successful in the future. And this brings me also to a point that we are revamping our partnership with IBRA. We have with IBRA the International Bone Research Institute and partner on clinical scientific-based, which we could use much better in our future education activities. And then if I should take 3 points out of these dots, I would say it's agility, it's empowerment and it's passion. Our focus in the future will be literally from head to toe. This will not mean that we will change our product categories or that we will step out of one of the categories. But what I show here is that CMF, the head is our legacy of Medartis. Medartis was born with CMF. Medartis grew up with CMF. And we have so much know-how in this company. It is amazing, people, 15, 20 years working with Medartis, and they know all about CMF. And here also, we have a right to win. And of course, in our upper extremities where we have the chance, and I explain it to you to become a global leader. And then, of course, the lower extremities with foot and ankle, especially as our growth accelerator. I'm asked many times, "Matthias, but focus on the fastest-growing segment." And I have to tell you, this is irrelevant because if you see an 8 billion opportunity in an addressable market worldwide. We have a greenfield of opportunities to grow. Yes, it is true that lower extremities and foot and ankle, especially are a little bit faster growing than the upper extremities. But for us, this is irrelevant because we have chances in all areas, in CMF, in upper and in lower extremities. And on the left side, you see how our CHF 225 million are distributed last year in the different segments and already today, hand and wrist, which is the segment of Medartis. This is the complete portfolio Medartis has, and it will become much more attractive in the future. It's counting for more than 50%. But what you also see in this chart is how important already become KeriMedical for Medartis. And I'm speaking only KeriMedical in the 3 countries we are distributors of KeriMedical, which is Germany, Austria and the U.K. So speaking about CMF, I call it refocus on our foundation. It's not only our legacy, it also shows a clear trend to personalized solution, especially for tumor patients, for cancer patients. We have a fantastic, we call it CMX team already here in Basel, which is a digital team designing patient-specific reconstructions, not only for CMF, but also for upper extremities. I truly believe that this is our spearhead into the digital transformation and the digital transformation for the whole company, where we have to embrace all our employees to get on the train. And if I compare it a little bit with other industries, not only with dental, but with other industries, I would say that the orthopedic industry is still in a slow phase of digitalization, and we have the chance to do it right now. So we are not by no means late into this. We have to leverage our knowledge. We have extensive knowledge in-house for CMF. In the U.S., we are currently preparing the FDA registration. I expect this by end of this year, but it doesn't matter because we would not launch at the end of this year because we have to fully focus first on the KeriMedical launch in the U.S., and we have really to choose where to focus. So CMF in the U.S. will come in 2026. And CMF is also a market where you have only a few of those big players playing. I call them the elephants. And it's nice to play with the elephants because we should be, by definition, more agile. So I truly believe this is one of our chances for the future, and we have already a very nice CMF business in EMEA. And by the way, we have very good CMF business in Japan, for example, also with patient-specific designs. Next chart. As I said, hand and wrist, not only digital radios, but we have the most comprehensive portfolio in the industry. This is at least what I figured out speaking with surgeons, speaking with hospitals, but also getting information from competitors. This hand and wrist portfolio with KeriMedical coming will be extended, with this new opportunity to solve this [indiscernible] for older patients. And when I speak about older patients, it starts with 50. And I do believe that with 50, we are not yet too old. But one good thing is that starting 50, you can get it. And that up to 80, 85 years of age, the people today like more and more to have mobility. And this is good, and this is the opportunity for the future. We launched already. We are in the preparation of the launch for our new Hand System 2, we call it. So after 20 years in the market, the Hand 1 will be renewed. This is an innovation. We have, as I said, the digitalization already in hand and wrist as well, where we design patient-specific elements when needed in very difficult fractures or in very difficult patient situation. We -- KeriMedical is not only active in Europe. We already launched KeriMedical in Australia, and we expected the final clearance from FDA by end of June, July. You never know this exactly. But I can tell you that with a strong relation we have with the KeriMedical team already in Geneva, we have insights into the documentation. So we are on good track. And June, July should come. We are already preparing the setup for the U.S. I will come back to this later, and this opened us new doors. And in parallel, once we have finished the FDA clearance, we are starting the registration of Keri Touch in other markets, for example, in Latin America, in Brazil. So speaking about KeriMedical, this is an education-based approach. It is key that you train the surgeons before they do the first surgery. Keri Touch is a patient elective procedure. It is not -- and this is a big difference to trauma. It is not when the patient had an accident, skiing or whatever that he's in the hospital. And normally, he is not in a condition to say, "But doctor, please, could you put me a Medartis plate." He takes whatever the surgeon puts. Here with KeriMedical, we drive patients to the doctors. As I said, patients are becoming older. They are not shocked with the surgery itself. So it's done already in ambulance centers. So it takes around 30 to 40 minutes, and patient is walking home after the surgery. And we have -- I have spoken with patients, but I have also seen videos that patients after 8 weeks after surgery, they are playing in a band, the guitar. Or the most severe case was a patient in Germany. She is a member of the German Olympic team of Judo. She after eight weeks had a Judo competition. This is with all other procedures in the market, the suspensionplasty procedure is impossible, where the patients need 6 months to 1 year to recover and then they still have problems to move the thumb. You see I'm becoming a fan of Keri Touch because I really -- I understood that the thumbis the main mobility for the force in your hand. And I can imagine that patients and especially in the U.S., in Nevada, California, in Florida, playing golf or even doing simple things like opening a bottle of water are suffering. And we have patients in Switzerland, they came back to do the second thumb. So big hopes if we do it right with the education approach for KeriMedical. And as Dirk mentioned, we are only reflecting at the moment before the acquisition, the sales of the 3 countries where we have it in Germany, in the U.K., in Austria. What is the fastest running country in Europe for Keri Touch is currently France, fantastic, dominating the market in France. Next chart, please. This brings me to our strategic priorities. As I said before, all towards the customers. The customers are in the center of what we do. And the base of everything is a high-performance culture with a high-performance team. So we have 6 strategic priorities, and this is not the priorities how they are listed. So -- but accelerate the U.S., KeriMedical, our newly value strategy, regional share gains because I truly believe that in all regions, even in a region fast-growing like EMEA, we have ample opportunity to increase our market shares. Innovation and digitalization is one of our key priorities in the future. And Dirk will continue, like he has done in the past, to maintain our profitability and improve our cash flow. Now coming to the acceleration of the U.S. As I said, we have 140 people working at Medartis in the U.S. Most of them are sitting in Warsaw, Indiana. This is not the middle of the world. I don't know who of you here in the room were already visiting Warsaw. It's a very nice city. I was surprised. But it's not easy to get there. It's a 2.5 hours' drive from Chicago, but it is a place where you get the most qualified people also for the production. And I was told and I have seen it, it is a Mecca of orthopedic industry. So therefore, we have a lot of people also located in other states of the U.S. and not everything is in Warsaw. But our production is Warsaw, our back office is in Warsaw. We have 57 distributors, which counts for around 280 people on the field. We have also some direct sales force but mainly the distributors. As I said, we started already in November to have, especially in the upper extremities and here in hand and wrist distributors exclusively working with Medartis, only with Medartis. Now you can say but "Matthias, why this was not done in the past?" Because in the past, they were afraid that this would have an immediate impact in the business when you exchange distributors. We started to do it in November step by step. We are 50% through the exchange, and we will end up this by June. And the impact was limited. I see very good results in the U.S. Yes, it is a logistic effort. We have to change surgical cassettes. We have to train the sales rep. It's a kind of investment, but also a logistic effort, but it makes total sense. The upper extremities, as I said, will also be in the U.S. now a clear focus. Dirk already explained a little bit what happened with the acquired NSI products. I'm not looking back. But I have to realize that we have to focus our work, our spending, and our efforts on the things that make sense and not only business-wise but also in the regions where we can be more successful. We by no means with 280 people in the field and 140 people in the organization, we can play everywhere in the U.S. This brings me back to our KeriMedical launch in the future, where we really have to focus first on the key areas where the majority of the patients is sitting. Next chart, please. Our value strategy. The LATAM orthopedic market, and now let's focus first on LATAM. It's around CHF 600 million. We know and we did our homework that already today, 75% of Swiss market is value. 75% of Swiss market is not addressable for a premium player. And I mentioned it at the beginning, this was one of the hurdles last year, where we, as Medartis with a premium product, had problems to get into the private hospitals due to this insurance change. So this value segment offers us new opportunities, which we never had in Latin America, first in Brazil, then in Colombia, then in Mexico, in Chile, and later in Argentina. So don't be shocked. Argentina is a quite an interesting market, and it's coming back. I experienced this when I was criticized that I'm bringing good money from Switzerland to a bad economy in Argentina, but it paid off over the last 10 years. It's a gold mine. And it's the second largest market after Brazil. But this comes at a later stage. We have also a local production footprint, a state-of-the-art production. I will show it later now with the acquisition of NeoOrtho, which has much easier access to Latin America. You bring produced products, Latin American products under the Mercosur umbrella into the markets of Latin America with much lower or non-taxes. We have shortened the Anvisa clinical pathway as a local manufacturer in Brazil. Anvisa is the registration. And Anvisa is cooperating pretty, pretty close with the FDA more and more. And we have seen it already over the last 2 years that then it facilitates to get FDA registration if you are well registered with Anvisa. And we have a super technical team. We have a very qualified team, which we get from NeoOrtho on board. Next chart, please. This is the new state-of-the-art production facility. You might see in the logo that we are bringing back the purple from NeoOrtho. NeoOrtho, as Medartis, there are a lot of parallels. NeoOrtho was founded within Neodent, as Medartis was founded within Straumann. With a small difference that NeoOrtho only was separated from Neodent in 2012 because before the company was sold to Straumann. The company specializes in trauma, CMF, and spine. Yes, spine. They need the spine business in Brazil for the public tenders. This is just a portfolio extension. We do not intend to launch now Spine for Medartis or to bring the spine business forward in other countries through NeoOrtho. But for Brazil, it's quite impressive. It's quite important. But still most of the business is done in trauma and CMF. And as I said before, NeoOrtho coming out of Neodent, they are highly specialized in CMF. We will have a dual brand strategy. So we will not mix it up. We will have a commercial team selling premium, and we will have a commercial team selling value. This is what I have experienced over the last 12 years, which works and no cannibalization until today. We have, of course, opportunities on the back office side. On the finance, HR, administration functions, logistics, supply chain out of Curitiba, and we will use those opportunities. We are acquiring a state-of-the-art production facility, which is under full construction now. They are still in the old facility. The move is planned for October, November this year. And we are getting 198 new colleagues. About 80 of them are working in production and about 30 of them are in operations and logistics. We have now the opportunity to implement a multi price strategy. Normally, we could say, and this is, again, from my experience that in the dental business, the value implant is 50% cheaper than the premium implant. Today, in orthopedics, what we see, the price difference is 35%, but it might come to 50%. Therefore, you have no chance. And as a premium player, just to drop your prices is not a value strategy. This is very dangerous and should not be done. And yes, with this acquisition, the opportunity to go outside LATAM in the future as well, but this comes in the second part, not before 2028. I think we have a lot to do, first of this. So we will acquire an initial stake of 51%. Would you like to explain it, Dirk?

Yes. Can you hear me? 51%, that's the initial stake. There's a plan to acquire the rest within the next 4 years, so until 2028, '29. We'll consolidate the business most probably as of 1st of May. So that means the closing is expected to be by the end of April. From then, we will get the entire sales into the P&L, of course, as well as the cost and everything. There's a clear path, as I said, also towards 2028, '29, where we will get the rest of the shares, the remaining 49%. And also, I should say that if you look at the '24 figures, NeoOrtho is accretive compared to Medartis, we will not have any dilution effect, which is going through our P&L. Now also, I should mention that the transaction is already prefunded. We have money sitting on our bank accounts. We have additional bank lines. So we can do the first step, which is not the biggest acquisition per se and execute or hope to execute that then by the end of April, or early May.

Super. Thank you very much. And here's the final picture. These are the 198 new colleagues. I will be with them next week on Monday, and we will start the project. The project name is called Fusion. And yes, I will have a project leader doing this. It would not be myself. I did it once now. I give it to a project leader. And I'm very forward-looking that NeoOrtho with no doubt, will be a great, great, great partner for Medartis and will drive together with us our future, not only in Brazil, not only in LATAM. Yes. So APAC, I mentioned already the reimbursement price cuts. You see here our new General Manager for Japan. I think it makes sense in Japan, you might agree with me to have a Japanese country manager who speaks Japanese. So this was one of the first things we did. Kenyu now started on the 17th of February, so really early. He has quite some things to do because we are moving from distribution to direct business. This is a process which already continued throughout the last year. We had some leadership issues in Japan. Now with Kenyu, we have also the right persons here and also the right communication within the organization. So I expect that this transition will get speed. I'm not worried at all and still 2/3 of the APAC region is Australia, where also our regional headquarter is sitting. We are in parallel, expanding the product offering sterile and nonsterile options to be really flexible for what the customer in Japan needs, the surgeon and the hospital in Japan. We cannot just believe that they have to work what we have and what we have to offer. Now we have to adapt what really the hospitals in the different countries and regions need. And as I told you in the beginning, I'm very happy with the performance of our CMF business, which is driven through a distributor in Japan, a dedicated -- again, when you have a dedicated distributor, it is okay. If you have a distributor is like a wholesaler, then it's not working out. Therefore, the CMF business in Japan is really something we can build on also in the future. With this, I'm coming now to the outlook 2025. Upper extremities, a clear focus. When we go to the elbow, we have with the Avenger system now, especially for the U.S., an opportunity in very severe fractures for the surgeons decide on the spot when the patient is already on the table if they use plates or if they use the Avenger Radial Head System. Why is this so important? Because the surgeon when a patient from an accident comes in, he doesn't know how it looks like when he opens the elbow. And then normally, they decide for the safe procedure. They take a system where all the opportunities are on the table. Now we have all the opportunities, and this gives us a good step into the elbow surgery in the U.S. The other new elbow fixation is our Dorsal olecranon, which is, yes, as typical for Medartis, this is the new blade with a fantastic anatomical design, an option which the surgeons was waiting for. They wished it. It's coming as an innovation from us with extended exchange with our surgeons, for trauma surgeons, especially, and it's now in the launch phase. Then we have our new hand generation, Hand 2, which I mentioned to you, which replaces our Hand 1 generation after 20 years. But still, I would say our Hand 1 generation is still fantastic. Well, I'm not a surgeon but when I see the 2 systems, I say, "Wow, wow, after 20 years, we still have a super system," and we are coming now with the Hand 2 system, which is with good results in the current limited market release, especially in the European region, in EMEA and the U.S. And last but not least, CMX, the portfolio includes now patient-specific treatment options across all segments, not only CMF, but also upper and lower extremities. And I truly believe that this is coming more and more in the future that for severe cases or for surgeries, for example, this cancer surgeries, that the hospital or the surgeon is planning in advance that he is planning for a patient-specific solution. And we are quite fast with those patient-specific solutions. They get it within a few days. So it doesn't take weeks. And I truly believe also speaking with our team, they are all -- they are digital masterminds sitting here in Basel that we can expand this also to our other regions in the future. Our outlook, barring any unforeseen circumstances, an organic growth of 13% to 15% core sales and core EBITDA margin in the high teens range continuing our operating leverage and the cost discipline, which was perfectly managed also last year by -- not only by Dirk, but I would say, by all together my EMB. So Fabian, this was it from my side. What was that too long?

It was okay. But Matthias is not just bringing back me personally. He's also bringing purple and the passion back to the company. And I can tell you, you can also feel the vibes in the room that's very contagious. Now moving seamlessly to the Q&A session. I'm sure there was a lot of stuff presented by Matthias and Dirk and there will be questions. We will, as always, tackle the questions in the room first and then move on to the Zoom line. Anna Kathryn has the microphone. So probably the people here in the front have the most questions, but I invite everybody to ask their questions. Just a technical point. So if you on the Zoom line want to ask a question in the emoji section there is a because we talked a lot about the hands there's also a nice hand click on it and we see that you would like to be ask a question then we call your name and then please open up your microphone and your camera to go ahead. Thank you very much. The first question comes from Sandra Kunzle from Bank Octavian.

I have first a question on your sales guidance. So the guidance of 13% to 15%. Could you provide a bit more color on the building blocks behind that guidance? And what would it take to reach the upper end or potentially even exceed that guidance? Is that all dependent on the acceleration in the U.S. or yes, just your thinking behind that range? And then also on the U.S., you have a clear focus to accelerate the growth in the U.S. and you explained that it's, on one hand, the focus on the upper extremities and then the change in the distributor channels. Are these the 2 main things you have to tackle to accelerate the growth in the U.S. or are there other things like access to hospitals, et cetera, where you have still some challenges to really accelerate the growth? And maybe if I may accelerate means already this year, we can expect a higher growth in the U.S. than the 17.3% you have achieved in 2024 or is that more a midterm outlook?

I would not have expected from you a different question, Sandra. Yes, no, bear in mind, that I'm 4.5 months, not years, months with the company. And I totally understand your question. I feel totally comfortable with the guidance we give today because we have currently the distributor change in the U.S. still 50% running. Yes, it went smooth with the first 50% but I have to see together with David, how this runs for the second 50% of distributor change. I believe that the other regions like APAC and LATAM are slowly coming back. I would feel very comfortable, and I'm used to deliver. So I'm shying away to overpromise and then not to deliver. I think this is the worst what can happen. Therefore, let me come back when we see each other again in August with the half year results. And then I have a good feeling also how the distributor change in the U.S. worked, how our KeriMedical further expansion in Europe works. And then you can ask me the question again. For the U.S. it's not only the upper -- yes, we are focusing on the upper extremities. We are planning the introduction of CMF in 2026. We have a huge upside next year with the commercialization with KeriMedical, which will be only education this year, but we're preparing then the sales of KeriMedical next year. We are not only changing distributors, Sandra, we are also focusing on regions in the U.S., as I said, the U.S. is so huge that with the people on hand we have currently in the market, you cannot attend everything, and then you get lost. So we need really to get the hands around on the big centers. And we know, for example, that hand surgery Northern Florida, Orlando and Tampa, I was there. Those are the big, big centers, and we were not present. We have to get in. And this is personal contact. And this is what David, for example, knows by heart and this is now what he is transmitting to our regional sales managers. We need to be very close to the customers, opening doors because everybody in the U.S. knows Medartis. And guess what? They have a very good opinion about Medartis, Swiss quality, innovative, fantastic screws, everybody loves the screws, and they hate our customer service. I have to use this word. And this we have to change, and this is not rocket science, but it takes time.

And the next question comes from Daniel Jelovcan from ZKB. That stands for Zürcher Kantonalbank.

Just 3 questions for the beginning. The Hand 2. I mean, in general, the Hand 1, I guess, is quite a meaningful franchise within your hand and wrist portfolio. Is that a correct assumption? And does the hand 2, I guess, an old surgeon will not change to the Hand 2 when he used the Hand 2 for 20 years? Or yes, is it also a certain cannibalization? Or do you get new customers? Maybe I'll just take this first.

I would not say this is a cannibalization, but I would say that we have new blades in the hand too. We have plates with a hook. Now again, I'm not the product specialist yet, but they explained it to me how it works. And also older surgeons, Daniel, I don't know how you define older, but let's say, the more experienced surgeons, they love this new blade with a hook because it facilitates them the surgery and how they put the blades on. So yes, I would say that definitely this hand too is a quite good door opener also for the U.S. For EMEA, our hand and wrist portfolio is already strong. We have quite some good market shares in Europe. And this will, I would say, on top push our presence in the ORs in the operation rooms.

Maybe Daniel. Second question. Daniel, before you move on because we also have the luxury of having our CTO in the room. So I'll hand over the microphone to him so he can give you more technical details.

Thank you. So I'm not going to spend a lot of time on it, but I think it's a fair question. And the idea really is to build on what we have. So it's not a complete changeover. We're removing some of the plates that are used very seldomly given some are not used at all. And we are adding plates that were requested that we learned throughout the experience. So there is a conversion. It's more an upgrade for existing customers. And then there's many aspects that are not so spectacular in a discussion like this one. But just the fact that, for example, as a hospital, you can configure the plates you want in your system. It's a huge differentiator for the hospital. It's an advantage for us as well in our supply chain, adding instruments. We often talk about implants, but the instruments are even more important because they help you put the implants in. So it's really keeping it fresh and building on what worked in the past.

And second question, Australia, I mean, the price cuts, they are there for I even remember from my synthesis times, they are there since a very long time. So how does it progress in the future? I know you have no crystal ball, but maybe you know better than.

For this year, we expect nothing, Dirk you can explain since when it starts.

3 years ago, it started with 10%, and it was always starting in July. Then we had another 5%, which was last year and then another 5%. So altogether, you've seen the market coming down, the price cuts on a cumulated basis, which is more than 20%, 25%. What has come on top of that was that selected products at the beginning of last year, it was announced and it was executed 1st July last year, were reclassified. And as a consequence of that, there were additional price cuts of up to 30% between 10% and 30%. So this is finished. We expect it to finish by July this year. Then also the comparison basis gets better and then the volume impact shows also or the volume growth will tend towards value growth again. Hopefully, it's finished by then, 1st July.

And in the future, did the government indicate something?

We're not aware of any, and we should hope that it's finished by now, yes. Daniel. I should also say we're coming from a very, very high level. So it has adjusted a little bit towards other countries, but we're starting at a very, very high level with margins on a gross margin basis, which is much above 90%.

Maybe if I can add just to what Dirk said, the government realized that there's a big or quite a significant gap in pricing between the public and the private market, and they wanted to bring these price points together. And that's why they implemented free in force so that the industry has time to adapt to it in 3 steps, and that was communicated well in the beginning. So now we are at that moment that we don't expect any further price cut.

And last question. I mean, how do you convince the U.S. distributor to go exclusive with you? I mean, if I would be a very good distributor of the product portfolio, I would say, "Yes, sorry, but I would lose 80% of my business." How does that work in daily life?

Yes. First of all, the distributors know and anticipate that Keri will come. So this is for them quite interesting for the future. in hand and wrist and upper extremities. This is one thing. And the other thing is that they understand that we have the most comprehensive portfolio in this area. Young distributors, this is also an advantage, what I have seen. Sometimes smaller distributors, which are not working with 100 sales reps, which are more dedicated. And the market is becoming quite competitive. And because there are 2 different surgeon types, the lower extremities and upper. If a distributor goes to upper and sees opportunities, then he sometimes is also stepping out of the lower extremities, which is even becoming more complex with the latest acquisitions in the U.S. market. So yes, there are quite some distributors interested in our portfolio.

Then we move on to Sibylle Bischofberger Frick from Bank Kantonal.

I have a question also on the outlook 2025 with a core EBITDA margin of high teens. First, was this high teens? Is it 17% to 19%? And then I would like to understand the building blocks of the development of the margin with 19% EBITDA margin in 2024. This means it could be a decreasing EBITDA margin. Does it have to do with the less investment due to the management changes? Or what are the reasons behind?

Okay. Thank you very much for the question. Yes, we would assume 17% to 19%. I think that's a fair assumption, high teens. I'm looking at this more from a strategic perspective. I must say very honestly, we came out slightly higher than expected with 19%. It could have been also 18%. We were cautious when we had the half year figures, and we took back some of the investments, which are now moving into the next year. That's right. It's delayed investments. The other thing is whether it's 18% or 19%, for me, honestly, it is not so important. We need to do the right things. We need to invest into the countries. And if then that compromises the margin in 1 year, 4 percentage point, I'm not really concerned. We will continue what we have done, which means fuel the U.S. We will put additional sets into the U.S. We will build up the sales force, the channels, as Matthias has said. We will spend money for the Keri launch, which comes now new, especially the preparation also for Keri Touch. And that will cause some costs. Last year, you didn't have a General Manager. Also, we had some other effects, which were slightly positive. So start with the 19%, which is the ambition for 2025. And if it's then 18% or 20%, it's just the volatility around the number. But we remain cautious, but we will not compromise the business and we put money into especially where it drives growth.

Then the second question is about NeoOrtho and the acquisition. Could you give us any hint about the size of the acquisition? And then you said it's not dilutive. Does it mean dilutive on the gross margin or EBIT margin just to understand...

Size, we will inform you in 6 months' time when we also do the PPA, the purchase price allocation with all of the details. What I can tell you, it's been already mentioned, I think, by Fabian earlier today, it's somewhere between CHF 10 million, CHF 15 million, CHF 10 million and CHF 15 million, not CHF 50 million. That's approximately the size. The company grows faster than we grow given the underlying market development, especially in the value segment. Profitability was meant on the accretion element was meant on the EBITDA level. If you look at the gross margin, they're starting with a completely different price, they have gross margins which are somewhere between around 60%. I just want to give you an example how pricing comes together. If you take a distill radius in Brazil and you look at our pricing in the market, it's somewhere between USD 1,200, USD 1,400 as a starting point. Then you have the value segment, which is about $600, it's half of it. And then you have a lot of players which are left on this, and we would even call them cheap or ECO or whatever and it starts somewhere with $400, $300, $200, endless. It could be also 50 for distal radius, something like this. So take the $600 as a midpoint. And then if you calculate the margins, they are calculating very efficiently, we would have a margin which is not comparable to our margin, which would be about 80% to 90%. What we will have going forward is efficiency improvements. So Mario Della Casa has all been tried in Curitiba, also working together with the team in Curitiba on the new manufacturing plant, also coming up with ideas how we can drive the efficiency. And I guess that we will drive up the margin, especially when we get to higher volumes and when we can expand also into other Latin American markets.