Ladies and gentlemen, welcome to the full year 2023 results conference call and live webcast. I am Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions or comments in writing via the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Fabian Hildbrand, Head of Corporate Communications. Please go ahead, sir.
Thank you, Moira, and good morning or evening, everyone, and welcome to this webcast on the Medartis 2023 Full Year Results. We appreciate you taking the time to dial in. As usual, I'm joined by our CEO, Christoph Brönnimann, and our CFO, Dirk Kirsten. As customary, we will use a presentation slide deck, which was published this morning on our website, together with our press release and our integrated annual report. In particular, I would like to draw your attention to the disclaimer on slide two regarding forward-looking statements. On slide three, you can see today's agenda, and at the end of the presentation, we will look forward to answering the questions you might have and to an active participation. And with this, I would like to hand over to our CEO for his opening remarks and the key highlights of the year. Christoph, please go ahead.
Thank you, Fabian, and good morning, everyone. Welcome, and thank you very much for taking the time to join us on our full year 2023 presentation of Medartis this morning. It is my pleasure to announce that the full year 2023 was another successful year for the company. We have delivered on almost all of our strategic priorities, delivering innovation to the market, reaching profitable growth, and also protecting our gross margin. We have achieved a total net sales of CHF 212 million, which is a revenue growth of 12.5% at constant exchange rates. Our largest region, EMEA, was the key growth contributor, while the U.S. was the fastest-growing region. Excluding the NSI third-party manufacturing revenue, the internal sales growth was 17.4%.
The underlying EBITDA margin increased strongly by 3.6 percentage points to 15.9%, as also the gross margin improved in the second half of 2023. The strong results in 2023 make us optimistic for the coming year. On the next slide, I'm pleased that we not only achieved a strong internal growth at the upper range of the guidance, but gained market share in all the regions and business segments, as well as substantially improved profitability and cash flow. Our KeriMedical business, which is mainly the TOUCH prosthesis, continued its growth trajectory and doubled again in 2023. It develops into a significant growth driver and accounts for almost 20% of our business in those markets where we distribute the KeriMedical portfolio. The EMEA region has exceeded our expectations and surpassed the CHF 100 million mark for the first time.
The U.S. organization was strengthened in the area of sales support, training, education, and we have continued to expand the sales network for the upper, as well also for the lower extremities. The APAC and LATAM region are further gaining market share in all segments. Australia, however, had to absorb the authority-imposed price cuts. Brazil was a bit soft as an isolated market, but we have achieved, again, a strong growth in Mexico, and the distributor markets performed very well and compensated for the entire region. The opening of the IBRA Institute in Basel in the Q3 of last year has marked a milestone for training and education for us. Last but not least, we have made progress also in our culture journey, and I was proud to see that Brazil and Mexico have reached the certification for the great place to work.
We have continued to build our momentum in the U.S. market. The key factors were the sales expansion or the sales force expansion, the existing and new product portfolio, which we have gained market shares. We have onboarded 11 new distributorships across six states. Their revenue contribution is indicated in the yellow line in the chart on the left side. The distributors that we have onboarded the year before in 2022, indicated by the light blue line in the chart, accelerated in 2023, and the share of growth of our new distributors, which we have onboarded over the last 18-24 months, has now increased to a share of growth of 30% almost. I'm optimistic that the sales force expansion will continue to accelerate our growth in the U.S. also in this year.
With the expansion of the sales force, we have intensified our training efforts and will continue to invest in training and education for our sales reps and U.S. surgeons. Our key segments in hand and wrist has grown in the high 20% range. Also, the successful CCS product group has posted strong growth. The lower extremity business has also developed very well. However, the complexity in training effort for the treatment of the hallux valgus with the Lapidus procedure, with our new jig system, has been underestimated. We are in the execution of the national HPG contract, which provides access to more than 3,000 ASC and hospital facilities, and we expect the contract to continue to support our future growth. Also, we have initiated our production technology transfer to Warsaw, and we have produced our first Medartis screws in Warsaw locally in February of this year.
With these opening comments, I will hand it over to Dirk, our CFO, for the operational and financial review. Dirk, please.
Thank you, Christoph, and good morning, everyone. Before I start with giving you an update on the regions, here are the financial key highlights for 2023. Now, Christoph has already mentioned we grew 17.4% in our core business, which reflects market share gains in all regions. Our core gross margin is almost 83%, which is unchanged, strong. The reported dilution comes from opportunistic third-party manufacturing. The OpEx ratio has been improved back to levels before NSI acquisition, mostly generated by headquarter cost discipline. The reported EBITDA margin is at 15% or slightly upper, which is at the upper point of our guidance.
Last but not least, the balance sheet has been improved with respect to the employed capital, and as a result, the cash flow before M&A and financing was positive for the first time since IPO, with only one exception. I will give you more color on these financials later. Let me now first give you an update on the regions. Moving to page 11. In EMEA, we grew once again, circa 20% in 2023. Remember, for 2022, I showed you 17% CER growth, and for 2021, I showed you 22% CER growth. Europe continuously holds and further builds that momentum year by year. For 2023, the very strong growth from Europe comes jointly from all countries. The German-speaking countries, although having market share and distal radius of above 30%, were growing in the mid-teens, fueled by own products, but also by KeriMedical.
The U.K. grew in the high 20s. France grew in the low teens, but about two to three times of the market. The relatively smaller businesses in Spain and Poland grew massively again and are now starting to gain weight in the European portfolio. This all was additionally supported by strong distributor growth of above 30%. This stunning top-line performance was above our own budget expectations, and in early 2024, we see that this is continuing and the momentum is still, or again, very strong. In the U.S., we grew 21% in our underlying business. H2 was in line with H1. During 2023, we have continued to optimize our existing sales channels and also reviewed some distributor relationships based on their prior performance. This process takes time, but we have made a major step forward over the last couple of months.
We have invested in product experts, training and education to support our internal sales and independent agents' growth. In hand, we grew 20%. In foot, we even grew 30%. First sales have been generated with the new NSI products. However, we did not just push this innovation into the market, but followed a slower, more training-based approach. More visible uptake is expected during 2024, which also gives us confidence for our U.S. growth plan. In the first two months of 2024, the U.S. had a very strong start again, and as of February, we were at 99% on track of our budget. Now, Christoph will certainly give you more insight into our thoughts and initiatives with respect to the U.S. later.
APAC may look disappointing at a first glance, but we mentioned already in H1 2023, and even in full year 2022, that the Australian market has faced mandatory price cuts of about 15% so far. Another general cut of 5% is expected this summer, and in addition, some products were reclassified by the authorities, and prices will have to be reduced even more. You can imagine how challenging the situation is for our team, as the value growth achieved was only low single digits. However, the underlying volume growth in 2023 was about 16%-18% across all products. The team won further market share. In order to compensate new pricing realities, we have started to make some costs more variable and also change towards a hybrid business model with own sales reps and independent agents.
Australia remains one of our top five countries worldwide, and also here, they're generating good growth, also with the foot and ankle portfolio. This makes us confident going forward to visibly grow again once the upcoming price cuts have gone through our P&L during the next 12 months. At the same time, we're building continuously our business in Japan. We will also enforce our presence in upper extremities during 2024. According to Japanese market expectations, our product portfolio offers also increasingly sterilized solutions. 2024 will be an important year for us to execute our ambitious growth plan going forward. To round up, the APAC distributor markets have reached strong growth again. To conclude on the regions, LATAM has grown circa 20% in 2023. While we appreciate this growth, we had to accept that Brazil was behind plan, mostly due to delayed registrations from new products.
The regulator ANVISA changed their processes, and as a result, some registrations have been delayed for 12 months and more. We're expecting these to come only in Q3 this year. As a result, the Brazilian growth has temporarily dropped back to low teens. On the flip side, Mexico showed very nice growth above 20%, and the distributor markets grew even above 40%. Such as APAC, the LATAM region remains an important growth driver for us going forward. On page 12, we have updated you on the 2023 growth per segment. Please note that the lower extremities has been growing more than 30% and thus double than our traditionally strong upper extremity business. The latter, which already existing very strong market shares, has been supported by our partner products from Keri and from Field Orthopaedics.
Both product lines are fully integrated into our existing comprehensive portfolio, especially the partnership with Keri is strategic for us, as we intend to further increase our stake into the successful company. In lower extremities, we just recently launched a variety of new products for foot. In addition, the portfolio from former NSI will be systematically introduced to the American market. As lower extremities is more elective than upper extremities, our portfolio should get more and more balanced and risk diversified going forward. Elective procedures are better plannable, both from a resource and set management perspective. This should also allow us to improve our cost and capital efficiency going forward. Not to forget, CMF, with 15% year-on-year, it supports the overall group growth. Modus 1 has been gradually replaced by the new Modus 2 in many European countries.
In Japan, we already had introduced Modus 2 last year. In the U.S., we are not selling CMF yet. Finally, in LATAM, we will continue to sell Modus 1 until 2025. Now, moving back to the P&L and starting with the gross margin. Slide 13 highlights that the core margin, gross margin from our own products increased to almost 83%. In H223, it was even strengthened as we were able to increase prices in some countries and compensated for the adverse effects in Australia. Our sales from Keri products have a small dilutive impact on the overall gross margin. This has been more than compensated by significant efficiency gains in Basel manufacturing in the second half of the year. During 2023, we generated higher-than-planned sales from the third-party manufacturing products in Warsaw.
While these products are dilutive to our overall gross margin, we accepted additional manufacturing orders to fill our existing capacities. In late 2023, the first Medartis own screws were produced in Basel. This is an important milestone and now allows us to gradually increase manufacturing volumes with our own products. I guess in two to three years, the dilution from Warsaw should mostly disappear. In the meantime, we'll keep our focus on stabilizing or increasing our core gross margin in both plants. On page 14, you see the efforts of our cost management during 2023. As you can see, we were able to bring down the overall OpEx ratio from 83% to 75%. It is now back to levels before the NSI acquisition, already 1 year earlier than originally expected.
Most cost improvements come from rigorous saving discipline in headquarters, while the regions continue to invest into customer-facing activities. After the NSI integration, the U.S. also started to become more cost-conscious. However, at the same time, enforced their strategic investments into channel building, marketing, medical education. Only once we have achieved our sales milestone of $80 million at the end of 2025, we will shift towards more emphasis on the cost efficiency. Just to give you some figures on the potential here, if the U.S. had generated margins comparable to all other regions, our current OpEx ratio would already have been 5% lower. Slide 15 shows you the EBITDA year-on-year improvement or development over the last 12 months, starting from 2022 and adding back all the extraordinary factors which are related, especially to the NSI acquisition.
I think a fair prior year comparison would be 12.3% at CER or slightly higher as reported. During 2023, we were able to increase this margin to almost 16%, excluding the formerly reported IT hack in May 2023. Unlike some of our dynamic and innovative competitors, we believe that profitability has even become more important in the current financial markets. On page 17, I've summarized our net income, starting from the double EBITDA year-over-year, minus depreciation and amortization, financial income and tax. While the tax rate on the operating profit remains low, financial expenses have been high again, being affected by approximately CHF 4.5 million , mostly unrealized FX gains. Just to explain these numbers, I have more than CHF 200-250 intercompany loans in the group.
This is to finance accounts receivables, sets, and others. If the U.S. dollar, the euro, and also the yen and the Australian dollar have an average weakening of 7%-8%. You can easily calculate the FX risk in the same period. Only prudent FX management made it possible to minimize these losses. In 2024, we will review our transfer pricing concept to find further FX risk mitigation potential here. Let me also make some quick comments on page 18, which is showing you our recent efforts on balance sheet management, including the employed capital. This consists of our inventory level, the accounts receivables, and our asset investments. All three elements are driving growth on the one hand, but they also have a strong impact on the cash flow. As you can see, we have been working on all three levels during the last 12 months.
First, success is visible. Inventory was reduced by the new COO without creating any back orders. Our set investments have focused only on where they drive visible growth, and our accounts receivable were also collected slightly better than in prior years. All these measures have materially improved our cash flow. As you can see on the next page, 19, which shows the result of a combined cost efficiency and capital efficiency. I'm delighted to report to you that this, with only one exception for the first year, for the first time since our IPO, the group has generated a positive cash flow before M&A and financing again. This could be achieved despite the fact that we continue to invest into sets to fuel growth.
We built a brand-new Cath Lab in IBRA of IBRA here in Basel, and we have further invested into IT infrastructure and IT security, especially after the successfully defended cyberattack in May. At the end of 2023, we had CHF 25 million cash on our balance sheet. The group doesn't have any financial debt. Besides stronger operating cash flow, the cash increase versus 2022 also resides from a small rights issue, which we had done in early March, in context with the increase of our KeriMedical holding towards 47%. Going forward, we are strong enough to finance all operating investments with internal cash flow generation. Of course, if we plan to do any additional M&A, external financing would needed to be considered. And with that, let me close my comments and hand over back to Christoph.
Thank you, Dick. Please let me update you on our business and our business outlook for 2024. I would like to focus on some of our key success factors, which you see on the left side, which are the foundation of our strategy and also culture. I will elaborate on innovation, our expansion of indications to become the partner of choice for our surgeons, as well as training and education. In 2023, the ratio of new product sales as part of our total sales has further increased, which is expected for an innovation-driven company. Also, for 2024, we have planned for new product introductions in all our segments. Our first focus is to replicate the success of the hand and wrist segment in the entire upper extremities and become the provider of choice.
With the launch of the CCS extension in the Q2 of this year and the extension of the elbow system planned for the Q4, we are going to increase our share in trauma indications, and hence, have opportunities for cross-selling in especially dedicated trauma accounts. The scaphoid plates are a rather small volume indication, but as a specialized company in the hand, we offer now multiple solutions to our hand surgeons for the treatment of this particular fracture in the hand. The launch of the CMF orthognathic application, planned for the Q2, is a significant step forward in the patient-specific solutions for the CMF business, as especially the orthognathic interventions are a high volume indication. This launch will primarily target the DACH and also the French market.
The introduction of the new foot and ankle system, beginning as we speak in the Q1 of this year, expands our specialty plates for mid and hindfoot corrections that can also be used along with the LapiPrep in the U.S. market. This launch provides the opportunity to further strengthen our position in the upper limb and providing the foot and ankle surgeons the fixation method of their choice. Let's talk about the bunion jig market. In the U.S., about 450,000 hallux valgus are surgically treated per annum, of which about 20% or 80,000 procedures are performed as the more complex but more sustainable Lapidus bunionectomy procedure. The market is estimated to be around $400 million.
We still see the trend towards smart instrumentation, makes the procedure more reproducible and also more predictable, as the main driver for the anticipated strong growth. Then compression, and the first on and last off option is very much appreciated by the surgeon. In addition, our procedure allows the surgeon to choose the fixation method of his preference. However, we have most likely underestimated the training effort that it takes for the Lapidus procedure, as it still remains a complex procedure for the surgeons. While we are pleased with the system itself, we're going to increase our focus on medical training and education, starting at the sales reps, but also continue to focus on the training for the surgeons.
The KeriMedical portfolio has become a significant growth driver in our hand portfolio. Since the distribution start in 2021, the revenue has doubled year-over-year and has reached approximately 20% of the share of our total business in the markets where we sell the KeriMedical portfolio, which is Austria, Germany, and the U.K. The main driver, as you all know, is the TOUCH prosthesis for the treatment of the osteoarthritis in the base of the thumb. The so-called CMC-I arthroplasty provides a highly underserved market with significant potential. While in the age group of 55-74, the osteoarthritis is prevalent with approximately 20%, the trapeziectomy, where part of the trapezium is cut off, is the most common surgical treatment.
Joint arthroplasty for the thumb and the CMC joint has proven over time its reliability as an alternate procedure. KeriMedical has a total of over 50,000 TOUCH prosthesis implanted and has longevity data, which is now reaching five years, that proves the reliability of this procedure. The patient benefits from a more rapidly restored grip strength, mobility, and some function, while preservation of the thumb length. The history of the CMC-I arthroplasty dates back into the 1970s, and further generations were developed back in the 1990s. The dual mobility prosthesis of KeriMedical represents the latest and third generation of this type of prosthesis.
As many prosthesis have been developed in France and Belgium, the arthroplasty of the base of the thumb has already become the gold standard in those two countries. This means an estimated about 70%-90% of all the patients that undergo surgical treatment of the osteoarthritis in the thumb will receive an arthroplasty device in France and Belgium. In all other countries, this adoption rate is significantly lower, as displayed in the chart to the right. We currently estimate the adoption in Germany to be around 25%, which means that 25 out of 100 patients that undergo surgery are receiving a prosthesis, most likely a TOUCH, as we estimate our market share in Germany around to be around 70%.
We have experienced a very fast adoption rate in Germany in the CMC-I arthroplasty. What we see the potential is, if we achieve in Germany and other markets, like the U.S. as an example, a similar penetration rate like in France, the market volume could easily triple, if not increase, up to 35-fold, respectively, especially for the U.S. In addition, we see the limited competition in this segment, and new indication also presents cross-selling opportunities for our sales force in the upper extremities, and hand surgery and customer base. In Q3 of last year, we have reached another milestone in professional education and training. We have opened up the IBRA Institute in our headquarters in Basel. In a very short period of time, a total of 39 educational events have been conducted, which provided an excellent training experience for more than 500 surgeons.
We have also run several design surgeon labs, which facilitates the collaboration between surgeons and our engineers, and hence, significantly accelerates our development iterations. Please let me comment on our outlook for 2024. The focus area for 2024 remain very similar to what they have in this year. Our number one priority is, remains the U.S., where we focus on continuing to expand our sales channel in the upper, but also the lower extremity, which also comes with a significant increase in education and training events for the sales force, but also for the surgeons. We have a huge potential still in the hand and wrist segment, where we focus on driving penetration and market share gain with a very complete portfolio, while we continue to build the sales force and expand our portfolio in the lower extremities, especially putting focus on the NSI technologies.
In the Latin American region, we have probably a bit of a backup in the new product registration and launches due to a change in the approval process in Brazil. Now we're getting ready and expecting more product registration in 2024 than we had last year. CMF, we're still in the transition phase from the old Modus 1 system towards the Modus 2 system. As you can imagine or realize, the Brazilian market has been a very strong market for CMF for us.
But also the strategic priority is continuing to gain market share in the hand and wrist segment. In Europe, the priorities, given with a very high market share in the upper extremities, remain on KeriMedical products, drive penetration, especially in the, in the TOUCH prosthesis, but also focus now also with the new launches, gaining share and more traction in the elbow and the shoulder segment, while continuing to expand the lower extremities and building more dedicated sales force in the European markets. In Asia Pacific, Australia has started to adapt the go-to-market model as a result of the government-induced price reductions. So we're going to continue to focus on driving market share in the upper and lower extremities, and we're looking forward towards the end of this year to initiate the launch of the TOUCH prosthesis in Australia.
In the Japanese market, the focus is to continue to build up the upper extremities business. Please let me comment now on our outlook. As you may have heard and read, that Anthony Durieux-Menage , our CHRO, has decided to leave the company at the end of March. I would like to take the opportunity to thank him for his significant and various contribution, and I'm very pleased now to welcome our new CHRO, Inge Maes, who has officially joined yesterday. Inge has worked previously as Global Head of People and Organization at Sandoz, and was part of the executive committee of Sandoz. She brings a broad experience in HR operations, business partnering, has served in various international leadership roles, and has a passion for cultural transformation.
Today, we're also announcing a change or changes in our board of directors. Dr. Daniel Herren has decided not to stand for re-election anymore at the upcoming AGM, and the board will propose Ms. Martha Shadan and Mrs. Jennifer Dean as new members of the board. Ms. Shadan has previously served as CEO of the U.S. MedTech company, Miach Orthopaedics, and will bring extensive experience in the U.S. orthopedic market. Together with Ciro Römer , she will support the further expansion of the U.S. Ms. Dean is currently CFO at the Swiss-based MedTech company, Medmix. With her wide international financial experience, she will be a natural addition to our finance and audit committee. Based on the strong results in 2023, we are confident also for continuing our strong growth journey in 2024, and we are guiding, bearing unforeseen circumstances and an internal sales growth at 15%-17%.
We are also guiding for a 1 percentage point improvement in our underlying EBITDA margin, all at the constant exchange rates. With those comments, I would like to conclude and hand this back over to Fabian.
Yeah. Thank you, Christoph. Thank you, Dirk. Excellent. We now move seamlessly to the Q&A session. We have several questions coming in. As usual, we now first answer the question from the audio participants. We have reserved enough time for all the questions, so please go ahead. And, operator, although we have very experienced people on the conference call, could you please remind us on the technical details of the Q&A queue? Please go ahead, moderator.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. Webcast viewers may submit their questions or comments in writing via the relevant field. Anyone who has a question may press star and one at this time. The first question is from Sandra Dietschy from Octavian. Please go ahead.
Yes, good morning. This is Sandra from Octavian. Thank you for taking my question.
Good morning.
Good morning. My first one is on KeriMedical. Can you confirm that the TOUCH prosthesis is on track for FDA approval in Q1 2025? And you highlighted the immense market opportunity for TOUCH in the U.S. What are your thoughts on the pace of the uptake in that region? Would you expect a similar pace of adoption as seen in Europe, or what is the best comparable there? And also, if you could share how you're preparing for the launch, any learnings from previous launches where you have underestimated training efforts, that would be much appreciated.
Okay. Thank you for your questions, Sandra. At least, I mean, comment on the approval process, it's in the responsibility of KeriMedical, but the information that we have, it's nothing not being on track. On the potential, yes, of course, that's a market that needs to be built, of course. And I would say the experience that we take is basically the markets that we are active in. It's Germany, it's the U.K., and also Austria. We are following a rigorous training concept that KeriMedical has successfully installed in France and also Belgium. So, we're prioritizing the education over a fast acceleration in the top line. So, I would, I would say we're gonna be implementing in every single market that we would take, and the TOUCH prosthesis, and the first one out this year will be in Australia. It will be a no train, no use concept.
Which means, surgeons needs to undergo an intensive training in the lab to learn the procedure, to learn about the important step, and also having an opportunity to then go through the learning curve once they go back in the clinic. So, there is follow-up training again. So, I think the most important, and also this is the key success factor, is certainly the implant per se, but equally important is the rigor in training and learning for the procedure that the KeriMedical has implemented. We did follow exactly the same protocol in all the markets that we started. It has proven to be very successful, and that will also be the guiding principle as we go forward. So, training will come first before we accelerate the top line.
Super. Thank you, very helpful. And if I may, a second question, on the U.S. sales growth. To reach the targeted $80 million by 2025, you need to further accelerate the growth, obviously. Should we expect kind of a gradual acceleration of the growth, or is it rather a hockey stick into 2025? I mean, if the—a nd also maybe on the growth side, is this mainly market share gains in the hand and wrist segment, or the newly launched NSI products more important to accelerate that growth? That would be m y second question.
Okay, yes, to reach the CHF 80 million, which we confirmed, we are confident about, to reach it next year, it's certainly gonna continue to accelerate the momentum that we have. So, we're now above the 20%. As you remember, my expectation was slightly bit higher for last year, in the second half of the year, to be very honest. We have seen a bit of a weakness in the market in October, beginning of November, but the momentum is back and continues to accelerate. Why is it expected to accelerate? It is, as you have seen, and that's what I tried to show, is the onboarding of new distributors, they are accelerating through the annualization in the coming years.
So the more we start adding, the more we onboard, the more of an acceleration we will see through the new distributors. So therefore, confident that we're gonna accelerate. My expectation for this year, again, is to get into the mid-20% and then slightly into the higher percentage, probably then in 2025. From them, what I'm seeing now as we started the year, we're absolutely in that growth rate right now. So that's what I can confirm. For the segments, I mean, we gain share in every single segment in the U.S. I think it's certainly strongly driven in the hand and wrist, because we do have a very competitive portfolio.
We have sufficient options that we can provide to surgeons, whether it be DFOM, the Field Orthopaedics nail, maybe the KeriFlex of KeriMedical or the extensive hand system screws, CCS screws in the upper extremities. So that's certainly driving. That's a stronghold that we have, strongly driving the growth in the upper extremities, but also in the lower extremities. And it's not only the NSI technologies which accelerate, absolutely, yes, but it's the entire portfolio with the plate and the screw system. StealthFix has a coolness factor as well. So looking at the lower extremities is equally gaining share, but it's still on a low level.
Perfect. Very clear.
Yeah.
Thank you.
Okay.
The next question is from Edward Hall, from Stifel. Please go ahead.
Hi, Christoph. Hi, Dirk. Good morning. Thanks for taking my questions. Just a couple here.
Hi, Ed.
Firstly, on the working capital, it's a very, very different picture from last year. I was just wondering, what was the result of this? And maybe sort of honing in on more mature geographies such as Switzerland or Germany, and what does working capital look like in these mature geographies? I'm just trying to get a sense of what it could look like in the U.S. in three to five years, for example. And then my second question would be on, so the general price increases we've seen within orthopedics in the last 12, 18 months, talking across all orthopedics here. Typically, this hasn't really been the case. So, looking at your—what are your working assumptions on pricing increases this year?
And then honing in on the Australian market, obviously, with the price cuts we saw last year, is this likely to remain a constant theme, or is this a one-off in 2023? And what has the resultant volumes been in this market as a result of the price cut? Thanks.
Okay. Thank you for your question. I would suggest, Dirk, you start with the working capital, and then I will succeed.
Yeah, I can do the working capital and the other if you want. So working capital, I think the idea was also to compare what is working well in Europe, especially in the German-speaking countries, and then how that transforms into the U.S. going forward. What you have to know, I would, is that the Germans and also here in Switzerland, but also the Austrians, they're managing their sets extremely tightly. They're using a lot of what we call loaner sets. And when we look at what we call the set turns, they're very efficient. Means they're looking at what is a hospital which generates some sort of size. If the size is according to our expectations, those hospitals get a consignment set.
If the size is not sufficient, they would get a loaner set, and then the loaner set is being provided to them through our logistics, but just for the one elective procedure. Now, this is working extremely well. And in the U.S., I think the same model didn't exist in the past. Also, you have to know that in the U.S., we have a slightly different business model, where we even call them trunk sets, and also sales reps have the sets in the car, and they have to be much more flexible also, given the huge distances. We're getting extremely more behind the set efficiency in the U.S., especially now for the large indications, which is just the radius, but which also goes in foot and ankle at some point of time.
We're trying to also educate and measure people in the market, you know, on the set efficiency which they generate. This is a process that will take two to three years. I don't believe that you will see similar figures as we've seen in German-speaking countries, just because the model is a different one and also because the country is much bigger. But I'm seeing some upside potential if I look at set turns of 30%-40%. This is the one thing. On accounts receivable, it's also here we have a country, if you compare it with Germany, which has very low DSO, and the U.S., the U.S., which traditionally hasn't put a lot of focus on collection discipline. We have put the KPIs in place that also the U.S. will shorten that DSO significantly.
We're going step by step, so it's also a process together with our customers. We don't want to lose any customers, but also here, it's a process improvement. I'm confident we can do that over the next two to three years, two to three years. The question is, do we get to German levels? Definitely not, because in Germany, we have what we call discounts or Skonto. This doesn't exist in the U.S., but in the U.S., you can work also with credit cards, different mechanisms, and we should also get it down significantly. Also, here, it's a time of two to three years. It will not come from one day to the other. Now, if you want, I can also say a couple of words on Australia, because there the question was what was the underlying growth in volumes?
The growth in volumes was somewhere between 16% and 18%, as I think I said in my comments. The Australian team has gained market share. That's what we believe, if we compare it also with growth of our competitors, especially in the upper extremity business, but also increasingly, they're gaining in the lower extremity business. We've seen two cuts, one of 10%, which was one and a half years ago, another one of 5%, which came last July. There will be another one of 5%, which comes this coming July, and also there is some specific cuts on specific products which have been recategorized also mid-year.
So what I fear is that we will have an impact in 2024, until we get to normal conditions again. From there, you should see hopefully value growth equals or is even better than volume growth, and we'll be at the mid-teens. At least that would be my estimate.
Okay. Yeah, maybe to add on to Australia, I think, as it's not unusual. Australia has a history of reducing government-induced pricing on a regular basis, so every three, four, five years. Japan, for example, is a similar market. But the reduction, the size of the reduction is significantly higher than it used to be in history, which was probably 1%, 2%, or 3%, and now we have seen that the cuts that Dirk has elaborated on, which were significantly higher, which are also driven by the price differences between the public and the private sector. I think at the end it's gonna be sustainable. The prices are not gonna come up, and certainly not in that range in Australia. So, this is also why they have to adopt the go-to-market model.
For price increases, you're absolutely right. I think we had a situation going into last year and already started in 2022 to increase our pricing, increase our pricing, in terms of as a result of logistic costs, energy costs, inflation, and so on and so forth. And that was a process that has been started for the first time for a long time in the fall of 2022. So, the way it works, we have increased our pricing, and we continue to do that. It will have an effect over time in the list pricing. And any time, as you can imagine, when contracts are renegotiated, starting at the higher base at least protects the further erosion.
But in many cases, also has allowed us to, to ask for higher pricing, especially in the U.S., where the pricing, where the prices have been updated, over-proportioning compared to Europe. So that means in Europe, you're probably looking at somewhere at the range of 1%-3%, which is certainly higher than that in the U.S. But the question is always not about where you increase your price. The question is always: How much of the price increase can you realize? And that's a different story.
Perfect. Thank you very much, and congrats on the results.
Thank you.
The next question is from Edouard Riva from ZKB. Please go ahead.
Thank you very much, and good morning. I would have two question, and the first one is regarding Warsaw. You mentioned that the first tools has been produced. Could we take a step back and could you maybe just quickly explain what is the benefit of producing in the U.S.? Is it regarding transportation, as you were producing in Basel, or is it for other reasons?
Okay. Yes, you're absolutely right. We have started now the technology transfer into Warsaw. There are two reasons for it. Here in Basel, we still manufacture all our implants, but we have an infrastructure capacity constraint, as we have two floors that we can manage that we can produce. There's no more space. So we are working and relying on capacity increase through efficiency gains, through smaller machines. So with the growth that we project, we would probably have sufficient capacity in Basel for probably roughly another three years round about. So that's for us now also an opportunity to expand our manufacturing capacity with the production site in Warsaw, that came with the NSI acquisi`tion, first of all.
Second of all, the intent might be that we can produce for the U.S. market. That could also be in the context of sustainability, but that's certainly not the driver. But more of the driver is also, it's gonna provide us going forward with a hedge in the U.S. dollar. So I think that's basically the main drivers for transferring now the technology into Warsaw.
Great. That's very clear. Thank you very much. And my second question also regarding Warsaw is: When would you expect, the plant in Warsaw to produce the whole portfolio? Is it the goal, and when should that happen? Thank you.
As you can imagine, the technology transfer is not an easy thing to do. So, I think we have now started with the, with the screws, and we're gonna, we're gonna continue to run and produce the screws for this year. We will also prepare for manufacturing plates, but that will not be before Q1 next year. So, there is no, there is no, emergency or there's no urgency, let's say, to, to move the plates over to Warsaw as well. I think we also want to maintain the capacity that we have for the NSI technologies to be produced locally, but we would be ready as, as early as the Q1 to, to also move some plates over into, in, into Warsaw manufacturing.
Thank you very much.
You're welcome.
Next question is a follow-up from Sandra Dietschy from Octavian. Please go ahead.
Oh, thank you. I have a quick follow-up on pricing. Maybe I also missed it, but did you talk about Japan? Yeah, are there any planned price cuts in that region this year as well? And then, a quick question on the third-party business from NSI. I know it's a non-core business for you, and you expect it to decline in 2024. But for modeling purpose, is it fair to assume sales from this business will halve this year and then go to zero as of next year? Thank you.
Okay. Thank you, Sandra. Yes, I did quickly mention Japan on the price cuts, but not as a price increase. I just mentioned that Japan is known as once in a while experience government-instituted price cuts. They're normally in the range of 1%-3% maybe, but this year we don't expect any price cuts from the Japanese government. So therefore, we expect to have fairly stable pricing in Japan. And for the rest-
Okay, thanks.
I give it over to Dirk.
Sandra, I'll try on this one, although it's a difficult one. Just to give you the background, when we acquired NSI, we were assuming that we would lose some of that business relatively quickly. And I think you're referring to a statement which I made at that point of time, that over a three years period, it should completely fade out. By the way, also, the planning which we did also for the gross margin last year, was assuming we're doing something like CHF 5 million with this third-party business, and it got double. So extremely difficult for us. Why did we take these orders? Because currently we're not filling all the capacities. We're doing exactly what Christoph said, so move the technology and our production skills as fast as possible to Warsaw.
However, we need to get the volumes, and as long as we don't have the volumes, we do have fixed costs. And, there's two ways of getting rid of them. The one would be to cut them, but then you need to refill them in a couple of years again. Or alternatively, you keep this cost, and that means that you also take more orders once they arise. Now, you've seen it, more than CHF 10 million sales came from the third-party business, which was a surprise to us, which had an impact on the gross margin, difficult for us to guide. And exactly that's the reason why I'm not guiding you for this year. It is so difficult. Assume that it's gonna be less. How much less it will be? I don't know.
There should be a strengthening effect on the gross margin. At the same time, we will transfer our technology, and we have some costs related to that. So I can't tell you what the volume for the third-party business this year will be, and especially not for next year. I wouldn't be brave enough to make any assumption here. Sorry.
No problem. Fair enough. Thank you.
The next question is a follow-up from Edouard Riva from ZKB. Please go ahead, sir.
Thank you. Yeah, if I may, if we still have the time, I would have still two follow-up questions to ask you. The first one would be: Could you give us a bit more meat on the bone regarding the positive performance at the EBITDA level? I was quite surprised to see that there was approximately 40 FTE less than last year, and my guess is NSI double positions. But could you explain a bit more?
Yeah, most of that is certainly related to that. We also gave up China, as you've seen, last year, so comparing it. We have also, I think Christoph has mentioned that in Australia, for example, we moved some of the former sales reps into independent agent contracts, which then, if you look in the statistic, also miss a point. But yes, a lot of that is referring to the U.S. It was, on the one hand, the transformation time which we had building up double resources in May 2022, when moving from Exton to Warsaw and then also reducing some of the resources again. We've also slightly streamlined our production in Basel, given the volumes, not in Basel, sorry, in Warsaw, given the low volumes which we have there.
On EBITDA, on cost management, it is not so much a FTE, or personnel cost thing, if you look at our annual report, but it's been especially consultants, third-party costs. So Christoph mentioned it, things which were related to inflation, and which we were able to compensate. So we've gone really through the entire team, looked at where do we have, I'm not saying cut, but some potential to further drive them down, but not mainly on the FTE side, but on everything else.
Great. Thank you. Very clear. Thank you very much. My final question would be, what you have mentioned regarding the level of complexity on the LapiPrep and the fact that you underestimated the time of formation of surgeons. Is it something, a lesson that you will take with you for the launch of the Keri TOUCH, or is it another level of complexity? I mean, by that, probably less complexity, or is it similar? Could we expect the same thing? Thank you.
That, that's a great, that's a great question, Edouard. As a learning organization, yes, we're gonna take learnings forward. Yeah, I can assure you. I think there's a, there's a difference between, between the Lapidus and the, the Keri, because the Keri, we have now already three years of experience in markets like Germany, U.K., and also Australia. So, we know how much, how much training it will take. I think the complexity, in a joint replacement is less than, than, than in a Lapidus procedure. It's less because at the end, it's, it, it's a procedure, that removes the joint and replaces it by an implant, to be, to, to be very simplistic in, in, in, in this, in, in this statement.
On the other side, the treatment of a hallux valgus, so a Lapidus procedure, is not only about getting the first ray of bone into the right direction and into the right rotation. The source of the instability, the source of the deformity, could also be much more up in the TMT-1 joints, where maybe a hypermobility could be a root cause. So, once the surgeons diagnose and go intraoperatively, they may also choose to stabilize the hypermobility in the joint, which goes beyond just the cut and the fixation of the Lapidus correction. So, I think it's— when I talk about the complexity, it's about the diagnosis. It's the complexity of additional options in order to stabilize the hypermobility and the root cause of the deformity.
I think that is a complexity which we need to adopt also our procedure. But it's an integral part of the training of the surgeons, how to standardize and how to run that procedure is using LG. I hope I was not too technical in my response.
No, very clear. Thank you very much.
You're welcome.
A very interesting point, Christoph. Thanks for sharing that. We have finally two questions that came through the internet or the webcast interface. The first question is related to KeriMedical. The person would like to know, did you gain, in order to capture the 75% market share in Germany in a relatively short period of time, did you gain share for—from existing, or did you sell it to existing customers or new customers?
That's a very good question. It's probably most of it is new customers. It's a procedure that formerly has been conducted and was called the trapezectomy, which is the resection of part of the trapezium. That was the gold standard or is the gold standard, depending on what position you take. So, anyone moving to a TOUCH prosthesis is basically a new user adopting a new procedure and a new treatment for the same osteoarthritis in the base of thumb. On the other side, the prosthesis is not a completely new treatment method. There has been first and second generation prosthesis in the market, all of them not very successful.
Once in a while, surgeons have good results, they stayed with them, but also as a result now of MDR, many larger companies have decided to remove first generation, second generation prosthesis from the market. So we may also have picked up some of those procedures, but that's certainly not the majority.
Okay, thank you, Christoph. The last question is on the NSI portfolio. Can you disclose the sales you achieved in 2023 and how much you expect in 2024?
No, we don't disclose sales on individual product or technologies. But we have last year already said that we have taken down the forecast that we focused on, and Dirk has mentioned it again on education, rather than just a quick update. But we certainly expect now an uptake in especially the Lapidus procedures for 2024.
So, thank you very much for your engagement. Excellent questions and also thank you for your interest in Medartis. With this last question, we are going to close this out, but before we terminate this webcast, let me draw your attention to the IR calendar on slide 34. We hope to meet as many of you as possible in person during the roadshow or any of the listed conferences. And with that, I would like to hand over to Christoph for maybe a closing remark.
No, again, I thank you very much for taking the time. It has been a great pleasure. I think it is a successful year that we experienced in 2023. Not only the top line, but also significant performance and then the good results on the bottom line and also cash flow, which makes us confident now going into 2024, where we want to continue on that strong foundation. So that's where we base our optimistic outlook on. And I thank you again for taking the time, listening in, and if you have any questions, I hope to gonna see you in the roadshows, and we can further elaborate on any main topic that you may have. So, thank you very much and have a great rest of your day.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.