Investing with 'green' ratings? It's a gray area
BOSTON/NEW YORK Investors betting trillions on ethically-appealing stocks may not be getting all they expect.
* CEO says not interested in buying Nobel Biocare
* Looking for growth opportunities in China
* H1 net profit 69 mln Sfr vs 65 mln Sfr forecast (Adds CEO comments, shares, background)
By Caroline Copley
ZURICH, Aug 26 Straumann, the world's largest maker of dental implants, has no interest in joining the suitors for No.2 player Nobel Biocare, preferring instead to go after deals in the fast-growing Chinese market, it said on Tuesday.
The Swiss firm, battling sliding sales in its main market of Europe, has stepped up its investments in the Asia/Pacific region, where one in every five dental implants is sold.
Chief Executive Marco Gadola said the company was strong enough in the premium section of the industry - where local rival Nobel Biocare is also a force - but was scouting for further growth opportunities in China, where the market for lower-priced implants is growing at a rate of 20 to 30 percent.
"We are actively looking at potential partners to develop that segment in China," he told Reuters in an interview, adding deals could be in the range of 10-100 million Swiss francs ($11-$110 million).
Gadola said Straumann was not interested in buying Nobel Biocare, which announced at the end of July it was in "early" talks with potential acquirers.
Faced with sluggish demand for premium implants as cash-strapped consumers traded down to cheaper brands, Basel-based Straumann has focused on expanding in the value segment of the market which is growing at a far faster pace.
In contrast, Nobel Biocare has focused on bringing out new products and improving its relationships with dentists.
Straumann's strategy appears to be bearing more fruit in the short term. Sales, excluding the impact of currencies, rose 4.6 percent in the first half compared with growth of 2.5 percent for Nobel Biocare.
But investors remain to be convinced, sending Straumann's shares down 0.4 percent to 224.5 Swiss francs by 0828 GMT.
"The share is no longer very cheap and the improvements in results are coming overwhelmingly from the cost side," said one trader. "You can't keep squeezing costs forever."
Nobel Biocare shares were down around 0.3 percent.
Analysts have cited other dental implant players such as Henry Schein and Dentsply as possible acquirers of Nobel Biocare, while the company has reportedly attracted interest from U.S. conglomerate Danaher Corp and buyout group EQT Partners.
PREMIUM VS VALUE
Gadola said he expected value players to continue gaining market share at the expense of premium implant makers.
"If you take five years from now, the value segment will be larger than the premium segment which is not the case today. When it comes to volume it could well be that we see a 40-60 split, 40 percent premium and 60 percent value," he said.
Almost two thirds of sales growth in the first half came from the Asia/Pacific region and North America, boosted by the launch of SLActive Tissue Level implants in Japan.
Sales in Straumann's biggest region, Europe, were hit by a weak performance in Turkey and Russia, as well as an ongoing sales decline in Italy.
Straumann is trying to encourage consumers in Germany, Austria and Switzerland to trade up to its premium Roxolid implants by offering the newer product at the same price as an older range.
Gadola said the company was looking at expanding this new pricing strategy to other markets, including Turkey, Russia and Asia/Pacific, starting from the first quarter of 2015.
Net profit for the first half rose 28 percent to 69 million francs, ahead of analysts' average forecast of 65 million in a Reuters poll.
Lower operating expenses helped to improve the margin on earnings before interest and tax (EBIT) to 20.9 percent in the first half from 17.0 percent at the end of last year.
Gadola said he expected a lower EBIT margin in the second half since the firm normally makes fewer sales in that period, but added the company still might hit its medium-term 20 percent EBIT margin target this year.
The Basel-based company reiterated its full-year guidance for low-single digit sales growth in local currencies and an expansion in its operating income margin. (Additional reporting by Ruppert Pretterklieber; Editing by Stephen Coates and Mark Potter)