COLTENE Holding AG (CLTN) Earnings Call Transcript & Summary

Dear analysts, dear investors, welcome to the COLTENE Financial Conference 2025. My name is Dominik Arnold. I'm the CEO of COLTENE. Together with me is Markus Abderhalden, the CFO. We start with the safe harbor statement for you to note. Then we come to the agenda, the highlights. I'm starting with the highlights for 2025, then Markus will go deeper into the financials for 2025, and we give you an outlook, forward-looking, and then conclude with the Q&A. So let me start with the key figures and the highlights. In overall, the dental market was flat in 2025, and COLTENE was flat as well. We neither won significant market share, nor we lost it. This is not satisfactory because we want to grow faster than the market. That's our aim, that's our goal, and we have achieved that in the second half year. A mix of flat growth, strong Swiss franc, the tariff-related costs all impacted our EBIT in a negative way. Markus will provide you more details around this in the financial results. How did we execute? COLTENE is a very large -- has a very large and diverse product portfolio, not a large company, but a diverse product portfolio. To drive the focus on these products, what we have done in last year is to create a pull and push strategy. What does that mean is we want that our sales team is focusing on the high-value product, where we have a high-value proposition and create the demand of the customer with a pull. On the other hand, we work through the dealers, which is our push that really we have the full portfolio and provide their activities to drive also on the full product portfolio. This helped us actually in the second half year in improving our results. However, again, this is a lag phase, and we hope now with the good performance in the second half year, this helps us also in 2026. Our business is heavily loaded on consumables. We have about 75% of our business in consumables and 25% in equipment. In North America, the equipment part is significantly higher, closer to 50%. Particularly in the equipment business, we saw the economic uncertainty having an impact. Equipment and capital investment can get delayed when there is uncertainty. Also there in the second half year, we saw some positive movement, but that came not so much through the market, but actually through our own activities. We launched in Canada our new washer. I will tell you more about this washer, which helped us really to significantly grow, and we have very strong and positive customer feedback. Margins, we already mentioned that we had currency impacts, tariffs, et cetera, that helped -- that actually didn't help us. And we have worked on cost reduction and also price increases, but there is always a lag phase. And again, we saw some improvement in the second half year, but not full for the year. New exciting products that are critical for the future for us to make sure that we are growing in the long term. We have changed our process on how we go after the innovation and changed our process to improve this as such. One biggest investment was for us in digital marketing. Now we have a fully AI capable and cloud-based CRM system, which we're now connecting digital marketing, the education that we give to the dentists, and our sales organization. I already mentioned, on the Infection Control side, some new innovations, which I'm going to share more later on. Organizationally, our focus was a lot on digital marketing. Now we have the organization in place. We have the process in place. Now we go into the execution. Operationally, on the organization, we focus mainly on North America. And there, our focus was really to ensure that we have a leadership that has a strong mindset of operational excellence and lean manufacturing. With this, I'm happy to hand over to Markus for providing more details.

Thank you, Dominik. Dear investors, dear analysts, dear ladies and gentlemen, I also welcome you to today's media conference. I'm pleased to present you the financial performance 2025 of the COLTENE Group, which can be summarized as follows. In a market with major or a lot of uncertainties, COLTENE kept net sales at previous year's level in local currencies. Operating margin decreased from 10.7% to 8.8%. Free cash flow of CHF 8.1 million, significantly below prior year. And the equity ratio decreased from 58.2% to 54.9%. At this point, I would like to emphasize that after a weak performance in the first half of the year, the performance in the second half of the year was strong and expected with a growth of 4.7% in local currencies and an operating margin of 11%. This demonstrates that the implementation of the strategy has a positive impact. Let me begin with an overview of the income statement. Net sales reached CHF 240 million in 2025. This represents a slight decrease of 0.2% in local currencies. While the higher-priced devices suffered from the reluctance of investment behavior in the U.S., we were able to gain market share in Europe. The U.S. and Canadian dollar, in particular, but also the euro further weakened against the Swiss franc and negatively impacted sales by 3.8%. As a consequence, net sales decreased 4.0% in the reporting currency Swiss franc. The EBIT amounted to CHF 21 million and represents a margin of 8.8%, which is 1.9 percentage points below or lower compared to last year. More details on the performance will follow on the next pages. 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 regard to our new strategy, the allocation of the 3 product areas was slightly revised again in 2025. For comparison reasons, we adjusted the previous year accordingly. Treatment Auxiliaries is with 39.8%, still the biggest product area, followed by the Infection Control with 33.5% and Dental Preservation with 26.7%. On the right side, you see the development of the 3 different businesses. While the bars show the absolute amount of net sales in the reporting currency Swiss franc, the growth rates are indicated in local currencies. Infection Control slightly increased by 0.1%. This is very encouraging given the fact that the market is currently investing cautiously due to the geopolitical uncertainties. The launch of the new HYDRIM instrument washer positively contributed to that performance. Dental Preservation remained unchanged and benefited from the recently launched file system with OGSF Sequence. Last but not least, Treatment Auxiliaries slightly decreased by 0.6% and suffered especially from a destocking of dealers in the area of impression material and wound treatment. Now we change the view from the product areas to the regions. With sales of CHF 113 million, North America remains the largest region, but slightly decreased its share from 48.9% to 47.1% as a consequence of a decline of 7.5% in the reporting currency Swiss francs. However, in local currency, the decline was only 1.3%. After a strong growth in the previous year, a destocking of one of our major dealer in the first half of the year, coupled with the current reluctance of investment behavior in higher-priced devices negatively impacted this region. EMEA, the second largest region, increased by 1.5%, mainly thanks to the market share gains in France, the Benelux countries and the Swiss domestic market. On top of that, U.K. recovered from the low base in 2024, while the Middle East suffered from the political development. Asia, the third largest region, suffered especially from the market in China due to an announcement to purchase a product in wound treatment through government tender or a so-called VBP program. Latin America, the smallest region, slightly increased by 0.4%. With this slide, I would like to show you the development of our operating results from 2024 to 2025. Hence, the starting point is the year 2024, where we achieved an EBIT of CHF 26.8 million. The volume effect is mainly driven by the stronger Swiss franc, as we have seen before. The gross margin decreased from 66.2% to 65.5% due to the following main reasons: Firstly, the effect from the unfavorable exchange rate development and especially the weakening of the U.S. dollar. And secondly, the expenses related to the U.S. tariffs. The countermeasures took effect with a time delay. We already saw a positive impact in the second half of the year, and therefore, it is also expected to have a positive impact in 2026 as well. The personnel expenses on the other side benefited from the foreign exchange development at the group level. The inflation-based salary increase could be offset by reducing 6 FTEs on average through efficiency gains and by lower variable compensation due to a lower company performance. And finally, also the other operating expenses benefited from foreign exchange development, but also from additional cost savings, while investments relating to our go-to-market activities increased, namely, we further increased expenses for product launches, for marketing campaigns and participating in several trade shows, all with a clear target to grow. Financial result in the reporting period amounted to a minus of CHF 0.5 million (sic) [ minus of CHF 2.6 million ] and was significantly lower than the previous year. While the interest expenses were further reduced, the financial expenses significantly suffered from the result of the foreign exchange rate differences. The effective tax rate was 19.0%, down from 22.7% in 2024, and benefited mainly from lower sales in countries with higher tax rates and to a lower extent, from a one-off effect in the previous year. With that, the tax rate is lower than our target range of 22% to 24%. The net profit as a result decreased by 27% to CHF 14.9 million, which represents a profit margin of 6.2%. The cash balance with CHF 20.6 million slightly decreased, but still ensures a stable liquidity. The increase in receivables by 9.8% is mainly driven by the higher sales in the last quarter of 2025. The inventory decreased by 4.9%, thanks to the foreign exchange developments, while in local currency, we saw a slight increase. Net debt significantly increased due to the weak cash flow. The shareholders' equity of the COLTENE Group as of the end of year amounted to CHF 101 million, and the equity ratio decreased from 58.2% to 54.9%, mainly driven by foreign currency differences. The total assets of the group are stable and amount to CHF 183 million, also mainly decreased by currency effects. As a result, the balance sheet of COLTENE Group continues to be extremely sound and provides room for inorganic growth. The operating cash flow for the reporting period substantially decreased by 51.8% and reached CHF 13.8 million, caused by a lower net profit base and a temporary increase in net working capital. The cash flow from investing activities is below prior year. However, considering the previous year's financial investment in a stake in Cobea AG, the investment would have been at the same level as last year. As a result, COLTENE Group achieved a free cash flow of CHF 8.1 million. With that, I'm at the end of my comments, and I would like to hand over back to our CEO, Dominik Arnold.

Thank you, Markus. So we come to the strategic direction. It remains to preserve the natural teeth. This connects us really at a hip with dentists and with patients alike. We have fine-tuned our messaging, our value proposition for this market in these 3 distinct segments. These segments, we all serve via dealers and have a distinct value proposition. And while we value AI as such, all of those segments are not directly impacted from AI disruption, and we can only value through our internal processes for such. In the Dental Preservation, we are focusing on saving the natural tooth. And we have, in particular, in the next slide, some examples on how we do that. On the Treatment Auxiliaries, treatment auxiliaries are more general consumables, very similar to what we have at home as well with your tissue, with your razor blade, with your detergents, which normally the dentists really love the same brand for a time. However, we need to produce that at the right price and the right performance. The Steri-Center is a unique room, very different to the dental office or the dental chair, with its unique value proposition, unique benefits that we can provide to that market. So you can see we have 3 different segments, which also gives us some opportunity for balancing our business case. Now I want to give you 2 examples on showing how we're driving value proposition, not just on a product level, but actually on a treatment level, which the dentists mostly can benefit. This is around saving the natural tooth, a big significant business on a global level, which in general grows, unfortunately, not so much in last year, but there is tendency for future growth to come. This is mainly through aging society. Root canal treatment comes mainly at older age, so does also implants. Now the implant market is significant with more than 10 million implants set every year. And if we can help the dentists to save some of those tooth or prolong or delay an investment into an implant, this can further give significant improvement for growth. One example I want to give you here is our OGSF file treatment. Now our OGSF file is simplifying the root canal treatment for the dentist. You can imagine, in the past, the dentist had 20 to 30 different files. He had to measure up and select what kind of file he takes for the next step of his procedure. This is time consuming. This requires a lot of decision-making while you do the treatment. With our sequence, you can reduce it to 5 files, a very clear sequence of one after the other. And together with our CanalPro Jeni motor, it allows a very guided treatment, which the dentist gets guided into the canal, ensures that the file is not breaking up, helps the dentist to decide how deep into the canal he needs to bring the file. All this will help not just an endodontic specialist, but our goal and aim is, with this, to provide a general practitioner an opportunity to do a proper root canal treatment in a faster, in a simpler, in a more reliable and ultimately more economical way. Another example I'll bring you from the Steri-Center. So as you can see, it's very different to a dental office that you normally see. When you look at the left upper corner, this is a well-equipped Steri-Center, and it looks much more like a kitchen. And there is a connection to the kitchen. I assume most of you on the call as well as here in the room have, in the kitchen, a dishwasher, right? Now normally, dishwasher gets used maybe once a day, but still we have one. In North America, in the U.S., in particular, 70% of all the Steri-Centers currently not have an automated washer. Even though when they have an automated washer, they run normally 3 to 10 times a day. This gives amazing amount of opportunities for future growth, to simplify the process at the dentist, to provide value in speed, in faster turnaround of their tools that they are using, in lower infection risk, in higher compliance, and ultimately with an economical solution. We mentioned before, Markus and myself, about the HYDRIM washer. Here, you can see as a picture, it's a little bit dark here, this is an automated washer specifically made for the dentistry. It is significantly faster than previous models. So it turns around the tools faster and requires 40% less water. We had a tremendous resonance in Canada, and we are going to launch it as we speak in this very month in North America. With this, we not only have the equipment, but they are all connected to the cloud. Like all our SciCan equipment are connected to the cloud. This gives further improvement for the customers, because he can improve his performance of the system, he can ensure the training of his staff, he can ensure that the service can log in and potentially help with troubleshooting, et cetera, et cetera, ultimately, all helping to economically run the Steri-Center with a high uptime. Now what are our focus areas moving forward to 2026? We continue on our journey on digital marketing and education and sales. Now having the new CRM system, our focus will be on how do we execute. We have the tools in place, we have the people in place. Now we need to ensure that we deliver the execution and actually bring this unique workflow opportunity to the market and get a return in additional sales growth. The special unique value proposition in the Steri-Center, where we focus on North America, creates tremendous opportunity, in particular with DSO. DSO are conglomerates in dental offices, because they are not just buying one washer, one sterilizer, but very often dozens, and obviously have additional value by bringing them all together in the cloud. Now this is on the value creation. On the value delivery side, we are looking at optimizing our process further. We are running on the operational excellence. Markus showed you the improvements we already made. We continue on that journey, in particular, with the focus on North America, as I mentioned. And we are going to utilize some AI tools. And our focus there is certain things that really bring an applicable value. There, we see priority on documentation, on regulatory documentation, as well as service support for our equipment business. Come to the outlook. While we're convinced on our strategic approach that it enables us to achieve a growth beyond the market of 1% to 2%, we see still massive amount of market volatility out there and geopolitical situation. This has an impact on our business in one way or the other. And this gives us challenges to give a proper outlook for the future. We see, in a stable market, that we can continue to grow and we can achieve, again, above-market growth. That's why our outlook is a low single-digit growth target for the year. The swing in ForEx and all the patient sentiment, which are limiting the growth at this moment, makes it also very unpredictable on the profitability. Again, there, we see an improvement over last year as such, and we aim for 9% to 10%. Again, with higher volume, our margin can significantly improve. And therefore, we see ultimately that on the long term, we can, with a volume effect, also achieve our ultimate target of 13% to 15%. Unfortunately, with the 2025, we are giving this outlook with a 1-year delay in 2028. We remain an attractive dividend with a strong payout system. We are in a solid business here. We are a long-term partner for the future. With this, I'm concluding with our mission, which I think not only as a business has a substantial value, but also as in a society to preserve natural teeth. With this, I conclude and open up for Q&A.

[Operator Instructions].

All right. Let's get started maybe here in the room with questions. Yes, Daniel.

Maybe on the DSO exposure, at the Capital Markets Day, I think you mentioned you have a certain percent of sales with DSOs. And I don't remember, was that U.S. only or also in Europe, because in Europe, we also have quite some chains like in Spain and so on. Is that still ballpark the right number?

Yes. So the question was around DSO exposure and how much do we do business in DSO. So our major focus, obviously, the biggest percentage of DSO is in North America, right? And there, we have an organization that really focuses on DSO. As a percentage of sales, it's still actually lower than with dentists. That means we have a lower market share with DSOs as such in COLTENE products. With SciCan, it's different. Now to your question about Europe, we have established last year an organization that's particularly focused on DSOs. We have been underrepresented in DSOs in Europe. This is now going to change. We have now experts in U.K. that is focusing on this, where it's a big DSO market, and another one that is the Nordics, where we have a strong focus on DSO as well. Did I answer your question?

Across the board, it's roughly a certain percentage...

Yes, there's a certain percentage. Now from our business, it's still -- when we see -- it depends on the country, right, how much is DSO business. It's between 0 and 25%, 30%, right? Our exposure to DSO is significantly lower. It's more like in the 0% to like 15% target. So we have about half of that.

And the second question is on China, I mean, the output is 10% roughly. And I guess China is, as Markus was saying, probably not so. So the second question, then, of course, a follow-up would be the VBP program, which is quite prominent for the dental implants, everybody knows. What is the VBP for consumables? Or is that, I guess, different to dental implants?

Markus, why don't you answer the first question, I will answer the second.

Good. So the China market is the big majority in APAC. It's not half of it, but close to half of the market in APAC. Shall I?

Yeah, you can take.

So what the VBP program is concerned, they picked now one product of our consumable product portfolio, which we sell in the market in China. And that's where they issued or announced now a government tender. And for that particular area, the dealers started to destock because they don't want to have the material at the high price on their stock and then need to sell it to the government, because even if there is a government tender, it still goes through the dealers. That's the reason why. But so far, for COLTENE, only one product is considered in this VBP program, rest is not. It's in the wound treatment, which is in the Treatment Auxiliaries.

Yes, Sibylle.

I had a question about North America, which is a very important market for you. Could you tell us how much tariffs you have to pay?

So the question is about tariff in North America, how much we pay, right?

Yes.

Well, we don't provide an exact number of what we pay. But what I can tell you is that, of course, starting with the Liberation Day, we had this exposure. At the beginning, I think it was 10%. And then it went up, obviously, with this 39% for Switzerland, in particular, and the European area was then negotiated to 15%. And then later, also Switzerland came down to this same level of 15%. So to answer your question, we started to pay these U.S. tariffs with this Liberation Day, which was in the first half of the year. And then we started our countermeasures, which consists of price increases as well. So we reacted on that with price increases. But I think we did it very smart in the way that we made these price increases over the whole product portfolio that allowed us to make these price increases to a low single-digit level, and that was absorbed by the market very well. But that came with a time delay. And for that reason, we had a negative impact, in particular in the first half of the year, because we did the price increases only in the course of the second half of the year. That's where we then realized the positive impact. Now one important message which I would like to give as well is we do not want to take advantage out of this system. So what we try to do is to really carefully increase prices to cover our exposures and to hand that over or put that through the market.

And the second part of my question is we have now January and February of this year. Could you tell us how you see trends? Are the markets coming back, plus the markets also important for you?

Yes. So how has the market now in 2026 developed for us? It's still too early, honestly speaking, how it is after 2 months. In particular, for us, important are the sell-out data, and sell-out data are always a little bit delayed as such. Now sell-in data are depending on dealers, and dealers very often, beginning of the year, don't order a lot, because they have fulfilled their requirements end of the year, and they are normally starting with a good inventory. Not that we have, in general, a significant higher inventory than last year, that's not the case, but it's always a soft start. Now when you look at the regions, I think North America had a better start than last year, and that's encouraging. We hope it will stay so. Anything to add, Markus?

Nothing.

Yes.

The gap between your 2026 EBIT margin target and the one in 2028 is 455 basis points, which is kind of huge. You implied a growth rate of 3% to 5%. I don't think that's enough to make that gap possible that you get up like that with higher volumes. What exactly do you need as growth or measures to make this 455 basis points up in these three years?

Well, one of the biggest parts will be the growth, because we have infrastructure ready, which allows us to produce more without investing. So this is clearly one of the biggest contributors. So the EBIT margin heavily depends on whether we achieve this year-over-year growth rate. That's part number one. But as you mentioned, this is not enough. Second, what I would like to mention that the base of 2025 is maybe now not the right base, because we suffered from this U.S. tariffs, which we hopefully will not see again in 2026, or it is expected not to be seen anymore. So the base is now lower than where it should be. The third and also important thing is that through the global purchasing organization, we also will -- and we have a funnel where every year, we have a lot of projects which we put in a funnel to save on the supply chain. That's another point. Then what also is relevant, we will increase prices again in the future, which we believe will be absorbed by the markets. And that will also help to increase especially the gross margins. And then the last point is we have a strong commitment. And also here, we have a funnel where we put every year projects into it to gain efficiencies within the operations. I think this is also -- and Dominik mentioned that on his slide, on the value delivery side, that's where we commit a year-over-year gain, efficiency gain of 5% within the operations. And then last, also at COLTENE, we want to make advantage out of AI development. That means also in administration -- not always only in operations, but also in the administration, we would like to benefit from this development. And with that, we can bring the structure cost further down. Does that answer?

Yes. That means that in time, this 3% to 5% growth you see in the midterm could be enough to reach this [ 14% to 15% ] EBIT margin by 2028?

Well, maybe I'll answer it in different words. It's one of that. So we say -- like Markus said, it's several things. When you look at the second half year of last year, with growth, we get to 11%, even though some of the other costs were still in there, right? So for our perspective, this is possible from a volume effect, improve our cost as well. And we need, obviously, also a little bit of headwind from the market, right? If the market is not positive, it will be challenging. It also has a challenge if the Swiss franc increases in value over time, this is natural. We need to adjust to that. But if it increases so dramatically like more than 10% and so on, that is obviously making it more challenging. So that is probably more the big question mark out there on how we improve the EBIT margin. I'm happy to share maybe next year that we show you more about how do we get there and the kind of a waterfall and how do we achieve that target.

You kind of already have answered my question. I guess one of the reasons you mentioned that the last year wasn't too successful was because of headwinds and tariffs and uncertainties in the Middle East. In my perception, these problems are still going on. Do you think that all the points that was mentioned before can overcompensate the uncertainties?