The directors present the strategic report for the year ended 31 December 2020.
Align Technology (“Align”) designs, manufactures, and offers the Invisalign system, the most advanced clear aligner system in the world, iTero intraoral scanners and services, and exocad CAD/CAM software. These technology building blocks enable enhanced digital orthodontic and restorative workflows to improve patient outcomes and practice efficiencies for doctors and is key to accessing Align’s 500 million consumer market opportunity worldwide. Align has helped doctors treat millions of patients with the Invisalign system and is driving the evolution in digital dentistry through the Align Digital Platform, our integrated suite of unique, proprietary technologies and services delivered as a seamless, end-to-end solution for patients and consumers, orthodontists and GP dentists, and lab/partners.
The orthodontic market for the treatment of malocclusions in the UK represents approximately 75,000 case starts annually. Align’s share of orthodontic case starts with Invisalign clear aligners remains largely underpenetrated compared to traditional wires and brackets treatment which represents most of the case starts; however, the Align’s growth reflects continued adoption of clear aligner therapy. As the benefits of clear aligner treatment over traditional wires and brackets, competition to replace wires and brackets is intensifying, with more companies offering new clear aligner products in Europe, including the UKI. Today, there are several clear aligner companies operating in the UKI including those offering ‘do-it-yourself’ (DIY) or home treatment remedies, many of these DIY companies spend considerable amounts on advertising directly to consumers. Align is committed to a doctor-centred model and the Invisalign system continues to be adopted by the British doctors, both dentists and orthodontists which reflects strong brand awareness and interest among patients who come into their doctors’ offices with a general high awareness of available teeth straightening solutions and who continue to search for Invisalign treatment by name. As the number of clear aligner competitors increases, it is essential that Align continue to invest in new technological enhancements and solutions, such as digital tools, as well as consumer demand creation programs and advertising.
Align Technology’s business continues to grow, driven not only by increasing demand for more convenient options for the treatment of malocclusion such as digital orthodontics and restorative dentistry offered by dental professionals, but also by numerous product innovations, ongoing adoption into the teenager segment, and evolving consumer demand programs while increasing operational efficiencies.
For 2020, the company's net revenue decreased by 22% year-over-year as a result of the COVID 19 impact. However, Align’s group total net revenues increased 2.7% year-over-year driven by Invisalign clear aligner volume growth
Align is committed to investing in world-class technology development, which we believe is critical to our vision of making clear aligner treatment available to everyone through doctors.
Align has been at leader the forefront in the digital dentistry revolution since 1997 –driving innovation through advanced science and technology including biomechanics, software algorithms, 3D printing and proprietary polymers to create a digital solution to replace traditional orthodontic treatment using wires and brackets. Today, Invisalign treatment is the most advanced clear aligner system in the world. In 2011 we added iTero intraoral scanners, moving virtual treatment planning and visualization chairside, enhancing doctor-patient communication and the entire treatment experience.
In 2020 we added exocad CAD/CAM software, which helps tens of thousands of dental professionals bring the precision, efficiency, and collaboration of digital production to restorative dentistry, implant planning, and more.
Align is still revolutionizing digital orthodontics and transforming the practice of dentistry with integrated digital workflows and virtual tools designed to improve clinical confidence, treatment efficiency, and patient outcomes and experience.
The Align Digital Platform is the foundation of that revolution – a unique combination of technology and services that delivers interconnected, interdisciplinary workflows and treatment solutions that move all aspects of treatment forward, from first consultations through to final smiles.
During 2020, Align Technology invested over $200M research and development globally directed toward technology innovations to deliver our next generation of products and platforms. These activities range from accelerating product and clinical innovations, to developing manufacturing process improvements, as well as researching future technologies and products.
To demonstrate the broad treatment capabilities of the Invisalign System, various clinical case studies and articles have been published that highlight the clinical applicability of the Invisalign system to treat the broadest range of malocclusion cases, including those of severe complexity from the simplest to the most complex case starts. We undertake pre-commercialization trials and testing of our technological improvements to the product and manufacturing process. We also hosted more than 1,000 educational events for Invisalign trained doctors in the EMEA region.
Align is exposed to numerous risks due to its global activities and handles these risks responsibly in accordance with our business policy.
The risks and uncertainties that relates to the future profitability of the business are:
Overall economic trading conditions
Adverse business conditions, particularly in connection with measures imposed to stop or slow the spread of COVID-19
Changes in the competitive landscape
For a more detailed description of the various risks and uncertainties in connection with Align’s business, please review the risk factors in Align’s Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on 26 February 2021 and most recent disclosures on Form 10-Q filed with the SEC on 2 November 2021.
Currently, our clear aligner products compete with traditional metal brackets and wires and increasingly against clear aligner products manufactured and distributed by new market entrants as well as traditional manufacturers of wires and brackets and from traditional medical device companies, laboratories, start-ups and, in some cases, from doctors themselves.
Our operating results depend to a significant extent on our ability to market and develop our products. The life cycles of our products are difficult to estimate due, in part, to the effect of future product enhancements and competition. Our inability to successfully develop and market our products because of competition or other factors would have a material adverse effect on our business, financial condition, and results of operations.
Competition to replace traditional wires and brackets as the treatment of choice for malocclusion is increasing and we expect more visible and dynamic efforts from existing manufacturers of wires and brackets and providers of clear aligners. We also expect other companies will introduce clear aligner solutions that will compete directly with us. These efforts are already occurring in Europe and are currently most pronounced in the UK, Ireland, and Germany.
Our success depends on our ability to profitably develop, manufacture, market and obtain regulatory approval or clearance of new products and improvements to existing products. There is no assurance we can successfully develop, sell, and achieve market acceptance of new or improved products and services.
In the short term, our business remains susceptible to the impact of the COVID-19 pandemic. On the one hand, all or a material portion of our products may be viewed as discretionary purchases and therefore more susceptible to any global or regional recession that may result from efforts to prevent or delay the spread of the virus. Moreover, efforts to slow or prevent a recurrence of the spread of the virus are likely to continue causing disruption and uncertainties in the markets resulting in curtailed operations by our customers and their patients for an indeterminate period. This in turn could impact our operations as purchasing decisions are delayed or lost, logistics complexities because of closed customer offices, sales and marketing efforts are postponed, and manufacturing operations are curtailed to adjust to declining sales. On the other hand, COVID-19 has also demonstrated the benefits of digital dentistry and virtual appointments, which may motivate doctors to use more digital solutions such as Align’s products and services including the iTero scanner and Invisalign system.
Furthermore, we are working to mitigate the impact of social distancing for our customers and their patients. These efforts include moving most of our clinical education program critical to doctor engagement online, launching our Invisalign Virtual Appointment and Invisalign Virtual Care tools.
Globally rising incomes and higher life expectancy are the main growth drivers in the dental market, which is at the same time characterized by moderate price pressure due to concentration among dental practices. Local fluctuations in demand due to changes in the healthcare system will continue to occur.
Align Technology’s products help dental professionals achieve the clinical results they expect and deliver effective, cutting-edge dental options to their patients.
Our goal is to give patients of all ages access to the smiles they want and deserve. Our smile-changing technology and innovations are designed to meet the demands of today’s patients with treatment options that are convenient, comfortable, affordable, while helping to improve overall oral health. We strive to help our doctor customers move their practices forward by connecting them with new patients, providing digital solutions to help increase practice efficiency and helping them deliver the best possible treatment outcomes and experiences to millions of people around the world. We achieve this by continued focus and execution of our strategic growth drivers of patient demand & conversion, orthodontist utilization, GP adoption, and international expansion.
Align Technology pioneered the market for clear aligners, and today the Company is the leader in the evolution of digital dentistry and developing its global footprint. Our innovative products and technology and focus on providing Invisalign trained doctors with exceptional hands-on customer support, has enabled the Align to continuously outpace the growth rate of the underlying orthodontic market. The Company will continue to drive its business growth while gaining share of the existing orthodontic market and expanding the global market for clear aligners.
Key Performance Indicators
The Company does not monitor any Key Performance Indicators due to the nature of remuneration model.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2020.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The results for the year are set out on page 10.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit :
the information given in the strategic report and the directors' r eport for the financial year for which the financial statements are prepared is consistent with the financial statements ; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' r esponsibilities s tatement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements , the directors are responsible for assessing the company ' s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements .
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below .
the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
we identified the laws and regulations applicable to the company through discussions with directors and other management, and from our commercial knowledge and experience of the industry;
we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company, including the Companies Act 2006, taxation legislation and data protection, anti-bribery, employment, environmental and health and safety legislation;
we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and
identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud;
considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations; and
understanding the design of the company’s remuneration policies.
To address the risk of fraud through management bias and override of controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions;
assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and
investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
agreeing financial statement disclosures to underlying supporting documentation;
enquiring of management as to actual and potential litigation and claims; and
reviewing correspondence with HMRC.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
The income statement has been prepared on the basis that all operations are continuing operations.
Align Technology UK Limited is a private company limited by shares incorporated in England and Wales . The registered office is 2800 The Crescent, Solihull Parkway, Birmingham Business Park, Solihull, B37 7YL. The principal place of business is 6th Floor, Cannongate House, 62-64 Cannongate Street, London, EC4N 6AE.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements , including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group . T he company has therefore taken advantage of e xemptions from the following disclosure requirements:
- Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
- Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’ : Interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income ;
- Section 26 ‘Share based Payment’ : Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements ;
- Section 33 ‘Related Party Disclosures’ : Compensation for key management personnel .
The financial statements of the company are consolidated in the financial statements of Align Technology Inc, incorporated in the United States . These consolidated financial statements are available from its registered office at 2820, Orchard Parkway, San Jose California, 95134, United States.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss .
Basic financial assets, which include trade and other receivables and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss , except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including trade and other payables , are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. A m ounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are s ubsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value th r ough profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Tangible fixed assets are recorded at cost less accumulated depreciation. Judgement is required to determine whether there are indicators of impairment of the company’s tangible assets. Factors taken into consideration in reaching such a decision include the economic viability and expected future financial performance of the asset.
An analysis of the company's revenue is as follows:
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
Under the 'Amended and Restated 2005 Incentive Plan', the company's ultimate parent, Align Technology Inc, a company listed in the US Stock exchange, issues shares of Align Technology Inc upon vesting of restricted stock units (RSUs) or performance stock units (PSU). The issuance of shares and cash received upon exercise or sale is undertaken solely by Align Technology Inc.
During the year ended 31 December 2018, the UK company started to reimburse the US company, the extent of share based incentive relating to the employees in its payroll, calculated in accordance with the intrinsic fair value of the units as on the date of grant, apportioned over the vesting period. The expense payable for the year amounted to £552,540 (2019: £815,929).
Align Technology Inc's relevant employee benefit plans are summarized as follows:
(1) RSU
RSUs granted under this plan vest over four years, based on continued employment, and are settled upon vesting in shares of Align Technology Inc's common stock for on a one-for-one basis. The fair value is the listed market price on the grant date of Align Technology Inc's stock on NASDAQ (US stock exchange).
(2) PSU
PSUs granted under this plan vest over a period of three years commencing from the date of grant based on continued employment. Any market units that vest in accordance with this plan, will be paid to participant in whole shares at the end of the vesting period. The number of market stock units in which the participant may vest will depend upon Align Technology Inc's stock price performance as compared to the NASDAQ Composite price performance for the performance period.
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax asset set out above is expected to reverse within 12 months and relates to the utilisation of short term provisions. The deferred tax liability set out above is expected to reverse in a period greater than 12 months and relates to accelerated capital allowances that are expected to mature within the same period.
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
During the year the company entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
The company has taken advantage of the exemption available in Paragraph 33.1A of FRS102 whereby it has not disclosed transactions with other companies that are wholly owned within the Group.
The balances due with the parent entities are interest-free, unsecured and repayable on demand.
The i m mediate parent company is Align Technology BV, a company registered in the Netherlands.
The financial statements are consolidated into the ultimate parent company , Align Technology Inc , which is registered in the United States of America. Copies of the financial statements can be obtained from Align Technology Inc, 2820, Orchard Parkway, San Jose, California, 95134, United States.
No one person has overall control.