Please note anyone who wishes to ask a question during the conference may press star and one on their touchtone 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. Participants are requested to use only hands up while asking a question. Please hold the line. The conference will begin shortly. Thank you.
Ladies and gentlemen, welcome to the Straumann Group Q3 2022 results conference call and live webcast. I am Sandra, the conference call operator. I would like to remind you that all participants will be in listen only mode, and the conference is being 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. 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 Guillaume Daniellot, CEO. Please go ahead, sir.
Thank you very much. Good morning, everyone, and thank you for joining this conference call on Straumann Group's third quarter results. Please take note of the disclaimer in our press release and on Slide 2. During this conference call, we are going to refer to the presentation slides, which were published on our website this morning. As always, the presentation and discussion will include some forward-looking statements. Today's conference will follow the usual format. As the agenda on Slide 3 shows, I will provide an overview on where we stand, and then our CFO, Peter Hackel, will share details about the business performance across our regions. After that, I'll give you an update on key strategic initiatives and our outlook for the future. Of course, we will both be available to answer your questions at the end of the presentation. Let's start with our highlights.
On Slide 5, you can see that we reached CHF 551 million in revenue in the third quarter of 2022, making a total of CHF 1.7 billion in the first nine months of the year. This leads to a strong organic revenue growth of 12% in the third quarter, leveling off at solid growth rate versus a very strong comparative period. In addition, the negative currency effect seen in the first half continued in this third quarter. One of the highlights was the Roxolid SLActive study, which demonstrates strong pre-clinical evidence of the quality of our premium implants offering versus our key competition. Secondly, the planned investment in Smilecloud was another highlight. This partnership is an important part of our significant efforts to accelerate the digital transformation of our customer solutions and to improve the user experience for clinicians.
We continue to work on our strategic priority to develop our consumer presence. We are proud that Dr. Smile now becomes our single direct-to-consumer marketing aligner brand in Europe, following the successful completion of the PlusDental acquisition. Together with our customers, partners, and our team, we were able to deliver a very good quarter despite the ongoing macroeconomic uncertainty. Based on the continued patient demand for our solutions, we raised our expectations for full-year organic revenue growth to the mid-teens percentage range and expect profitability at around 26%, including significant growth investments. On Slide 6, you can see that our solid growth continued in all regions during the third quarter of 2022. The patient demand remains good, enabling the group to continue its growth from the first half through the third quarter, with the largest contributions to revenue growth coming from the EMEA region with 15% organic growth.
As a highlight, Latin America remained the fastest growing region with organic growth of 21%. Given the macroeconomic developments in North America, we considered the 9% organic growth to be a good performance, and the same applies to Asia Pacific. In China, we see treatment delays on the one side due to the ongoing regional pandemic lockdowns. On the other hand, in the public sector, due to the tender process, the so-called VBP, that the Chinese government is planning to implement as part of the effort to make healthcare more affordable. Let's move to Slide 7.
In the half year presentation, I elaborated on the economic challenges and geopolitical developments we are all facing, how we evolved as a company, and why we feel confident that we are much stronger positioned and diversified today than during the last recession period, which will help us navigate through these more challenging times. We are also strongly believing in our high performance play or learner culture, as our people are truly the key to our success. Agility and entrepreneurship guide us to steer our activities in the region based on the local situations. Finally, and more importantly, we are operating in a CHF 18 billion addressable market with a market share of only 11%. Thanks to our innovation pipelines for the years to come, this represents a significant growth opportunity to achieve our ambition, reaching CHF 5 billion by 2030.
With this, I will hand over to Peter to provide additional details on the business and regional performance.
Thank you, Guillaume, and good morning, everyone. As usual, I would like to begin with our revenue development at the group level and will then provide an update on our four regions, as well as the performance of our businesses. On Slide 9, you can see how well our nine-month revenue developed with an organic growth rate of 18%. The negative currency effect in the first half continued in the third quarter due to unfavorable exchange rates development and almost doubled since the half year results. The impact amounted to CHF 32 million on our nine months revenue. The effect of merger and acquisitions added CHF 16 million, bringing the adjusted nine-month revenue base for 2021 to CHF 1.46 billion. The M&A effect in the third quarter was mainly due to Nihon and Frustel, which we consolidated as of January and July 2022 respectively.
In the center of the chart, you can see that all of our regions reported double-digit growth for the nine-month period, leading to 18% organic growth in group revenue. This was mainly driven by EMEA and North America, which contributed a combined total of more than 70% of overall growth, as you can see on the right of the main chart. Slide 10 shows the EMEA and North America regional growth. EMEA remains the group's largest revenue contributor and reported CHF 219 million in the third quarter of 2022, with strong organic revenue growth of 15% compared to 2021. Premium and Challenger implant sales remained high, and the digital business was successful, mainly driven by intraoral scanners. This was supported by the fast-growing dental service organization business in the region.
The Dr. Smile brand grew strongly while the ClearCorrect orthodontics business contributed to regional growth. The largest revenue contributor was Germany, followed by strong organic growth in Turkey and Eastern Europe, which includes Hungary, Czech Republic, and Romania. In the third quarter of 2022, the North America region showed a solid organic revenue growth of 9% to reach CHF 170 million. This growth was supported by the strong implant business led by the Neodent brand. In addition to the growth of the Straumann and Neodent brands, CareStack, a cloud-based practice management software which will offer clinicians a seamless end-to-end treatment management experience, has been launched. Macroeconomic developments in the region continued to influence patient demand for aligners, although the effect had a lower impact than in the second quarter.
On Slide 11, you can see that Asia Pacific continues to grow while Latin America is leading organic growth across all regions. In the third quarter of 2022, the Asia Pacific region achieved revenue of CHF 114 million, which is a 9% organic sales growth compared to the same period in 2021. As Guillaume mentioned, the slower growth in China due to ongoing governmental price regulation discussions around the VBP and the ongoing pandemic lockdowns had an impact on the result. However, the strong performance of the rest of the region, led by Australia, Taiwan, India, and Japan, largely offset the sales impact of the continued challenging situation in China. Digital solutions and implantology, premium as well as Challenger, are successfully contributing to regional growth.
With the regulatory approval of ClearCorrect in China and the opening of the new subsidiary, we continued to invest in the Asia Pacific region. Latin America was an absolute highlight in the third quarter. The region grew to CHF 48 million, up 21% on the base quarter in 2021. Regional growth during the third quarter of 2022 was therefore very strong. Patient flow is good, and we continue to gain market share in this region. Brazil remains the biggest revenue contributor in Latin America, with robust demand, notably for its leading implantology brand, Neodent. In addition to Brazil, Mexico, Colombia, and Peru showed good growth. As a highlight, the new innovative ceramic implant, Neodent ZI, was launched in Brazil, and the Virtuo Vivo intraoral scanner remains the largest growth contributor to digital solutions.
In addition, the orthodontics business is contributing well to the regional performance, expanding to Mexico, Colombia, and Chile. Turning to Slide 12, we can look at our performance by business. Implant sales once again contributed the largest share of our growth. The group's premium BLX and immediacy solutions continued to be an important growth driver, as well as our BLT implant sales, which grew double digits. Value implant growth outpaced the premium business again. Medentika was the strongest growing challenger brand, followed by Neodent, which was the largest contributor in absolute sales figures in this segment. Our digital and restorative business saw growth in the high teens, with the largest share coming from EMEA and North America, while Latin America impressed with Virtuo Vivo sales, which almost doubled. The trend of digitalization in dentistry is continuing, and the majority of the revenue contribution was especially supported by our intraoral scanner segment.
On a group level, our biomaterials business performed in parallel with the premium implant business. We saw solid growth in EMEA and good momentum in Asia Pacific due to the introduction of Synergan. Orthodontics was the fastest growing franchise, strongly supported by our doctor-led direct-to-consumer marketing expansion in Europe, which is progressing very well. Also, our B2B clear aligner business in Asia Pacific contributed strong growth. The macroeconomic situation in the U.S. influenced consumer confidence and impacted the performance of the ClearCorrect home market. However, the slowdown in the U.S. was offset by Europe and the progress of our consumer activities. With this, I will hand back to Guillaume.
Thank you very much, Peter. Let's move on to Slide 14 and take a look at our recent achievements and the group's strategic update. At the AAO Congress in September, we were proud to present the Roxolid SLActive preclinical study outcome that highlights our strong surface performance versus our key competitor. In this controlled preclinical study, the effect of implant surface and implant geometry on crestal bone formation and osseointegration were investigated by Professor Shihab Al-Kuran et al. Crestal bone formation is a crucial aspect for the aesthetic and biological success of dental implant cases, and therefore, the scientific community continues discussions about the best possible solutions. For the first time, we have a study showing that osseointegration was significantly improved with our Roxolid material and SLActive surface at eight weeks compared to a major implant competitor.
This is particularly important as the crestal bone formation is one of the key aspects to reduce the risk of peri-implantitis, which is one of the major risks associated with dental implants. Moving on to Slide 15. We have been very active in the third quarter on the sales and marketing front as we continue to invest in many local activities together with customers. Implantology performed very well in the third quarter, premium as well as challenger. Among many other events, we continued to position Neodent in Europe, launched our innovative ceramic implant, Neodent ZI in Brazil, and held a big SIRIOS X3 customer event. As mentioned, one of the highlights was the EAO Congress, which took place in September in Geneva.
There, to continue promoting our immediacy portfolio, we hosted a Zygomatic expert meeting and more than 750 participants registered for the corporate forum, where we also presented the Roxolid SLActive study. With this, let's move to Slide 16, where I would like to tell you more about our latest investment in Smilecloud, which I believe will be an important milestone in developing our digital dentistry offering. The dental environment continues to be transformed by digital innovation, and we aim to be at the forefront of providing an exceptional customer experience for dental workflows in both orthodontics and implantology. This is why we are always looking at innovations that provide a platform-based approach with seamless connectivity to our services and solutions, knowing intraoral scanners are the entry point to each and every case in the future.
Smilecloud is a young and dynamic company focusing on smile design and centralized collaboration platform developed by a dentist for dental professionals. It allows clinicians to design virtual mock-up smiles for patients with the support of three-dimensional biometric smile libraries using AI technology to support the most realistic simulation and best possible treatment outcome for patients. Smilecloud is enabling seamless collaboration among dental professionals and allows them to improve patient interaction by easily visualizing their future potential smile. The solution is already available to all dental professionals in Europe for the time being. We are focusing on integrating it into all our Straumann workflows and solutions to drive efficiency and simplicity. I'm very excited about this new strategic partnership, which will drive our digital dentistry offering forward in order to fulfill clinicians' needs.
Our investment also enables Smilecloud to further develop its innovative technologies to improve the clinician and patient treatment journey. Moving on to Slide 17, I'm proud to share more about the latest ClearPilot 5.0 software release, which the team delivered as promised in October. This new version was released with additional functionalities to support the orthodontist specialist expectations to achieve the best possible treatment outcome for the patient. One of the most requested additions for detailed treatment planning is the new Bolton Insight analysis tool. It is a scientifically based medical analysis for determining discrepancies between the upper and lower jaw, which helps with treatment planning. The new tool also includes collision management, which helps to determine if there is enough space between the teeth to allow for movement, as well as an improved predictability functionality.
This release is an important step towards addressing our orthodontist needs in their daily work. On Slide 18, you can see that we are also working on the geographical expansion of ClearCorrect. In August, we have received the ClearCorrect regulatory approval in China and started to produce in our new production facility in Beijing, which help us prepare for the launch next year. This is an important next step in the geographical expansion of our orthodontics business. On Slide 19, I would like to give you an update on our consumer presence development. Following the successful completion of the PlusDental acquisition and the review of the future brand strategy, the group concluded it will run its direct-to-consumer clear aligner business in Europe exclusively under the Dr. Smile brand.
As a result, the group combined its capabilities in several areas, particularly medical expertise in the orthodontic space, to ensure high-quality care can be offered to help consumers. Talents from the PlusDental organization across different functions and levels decided to join Dr. Smile. In particular, we are pleased that the chief medical officer from PlusDental is now part of the Dr. Smile team to further upgrade medical excellence. In addition to further develop the capabilities of the brand, Dr. Smile has also expanded its business to Portugal and is present now in 11 countries in Europe today. This brings us to the full year outlook on Slide 21. While the patient flow was not as dynamic as in the previous quarter in some regions, demand for dental treatment remains good, which enabled the group to continue its growth from the first half through the third quarter.
In addition, our innovative solutions and strong execution drove growth in the third quarter and led to continued market share gains. As always, we'll seek to anticipate and mitigate any potential disruptions coming from geopolitical developments. Based on the continued patient demand for our solutions and the confidence in our high-performing team, the group raises the full-year guidance for organic revenue growth to the mid-teens percentage range and expects profitability at around 26%, including significant growth investments. Now, I would like to open the question and answer session. If you have a question, please press star and one on your phone to join the queue. As usual, we kindly ask you to limit the number of your questions to two, in order to give other participants a chance to ask their questions within the available time. Correspondent, can we have the first question, please?
The first question comes from David Adlington from J.P. Morgan. Please go ahead.
Morning, guys. Thanks for taking the question. Firstly, just on China and particularly next year, given you've got VBP as a headwind, but you've also got easy comps and the clear aligner launch, just wondering what your prospects were for growth in FY 2023 in China. Second question is on Russia and Ukraine. Just wondering if you're continuing to supply there and whether you plan to continue to supply there. Thanks.
Well, Daniel, those are really obviously key questions, especially for 2023 China. The answer is that we don't have full visibility again on how the VBP is going to play out. We have received the initial information as called by document one, where we know some input of the Chinese government to try to organize the VBP. Yet pricing expectations and some additional detail which are critical for scenario planning in the document two that should be released by the end of November. At this moment in time, it is difficult to express exactly what will be the situation in China in 2023.
However, this being said, we believe that we are positioned to of course play within the VBP with all our different brands. I think we are four brands now in China. We have Straumann, we have Anthogyr, we have T-Plus, and we have Warantec. We have the premium, the upper challenger and two eco lines that will allow us to capitalize on the opportunity from a volume standpoint. All in all, you know, we think that we are going to play our opportunities at the max and we will take that into consideration when the VBP rules are going to be completely expressed.
We still believe that China is an interesting market for us to invest as soon as we are playing well in efficiency, and this is what we are going to try to do in 2023. For Russia and Ukraine, I think this obviously is a kind of a standing still situation here with much more limited than the consumption that we see in those markets. Ukraine actually has been a bit more active because they try to get back to life, and we have been supporting our distributor very actively in order that they can resume activities and support entities that are performing treatments. I would say Ukraine has starting back again, even if it's a very slow number for us.
Russia has been a rather, I would say, stable and declining, as it was planned, in the second half of the year for us. We are going to see how this, very, you know, difficult, and terrible political environment, is evolving, to see what 2023 will look like in this part of the world.
Yeah, thanks so much.
The next question comes from Christoph Gretler from MIV Asset Management AG . Please go ahead.
Thank you, Sandra. Good morning, Guillaume, Peter. First of all, you know, just wanted to remark that, you know, we are quite impressed by your performance of Straumann and your employees here, you know, given the environment. To my questions, you know, two of them, you know. First, you know, could you comment on the visibility near term and, you know, I think, you know, in the past you mentioned that there is some insights into dentist schedules for the next couple of weeks. Could you indicate what you see there, and particularly kind of in the main markets in the U.S. and Europe? I understand you have relatively tough comps in Q4, so I was just wondering if you could comment on that.
The second question, with respect to your insourcing and outsourcing strategy in digital equipment. There was obviously some news flow about Medit, you know, lately. Could you maybe discuss, you know, in general terms, you know, how you see, you know, this insourcing and outsourcing strategy at Straumann with respect to dental equipment and what are, you know, the positives and negatives and how this will likely change, you know, given, you know, the business gets, you know, bigger and bigger. So that would be my two questions. Thank you.
Thank you, Christoph. Thanks for the comment, much appreciated. What we can say, I think, on the visibility side, as we raise our guidance, we are obviously confident that Q4 will still develop positively versus the previous year, despite the hard comparison. We see still a good patient flow and especially on the implant side.
A little bit what we expressed since the beginning of the year seems to realize, which is good news because it was just assumptions that the implant side is now more resilient to more difficult times because GPs are now placing implants and they are keeping those kinds of activities into their practice and do not replace that by three-unit bridge as we have seen in the past. Secondly, we also see that implant treatment is more a functional treatment than an aesthetic treatment.
When patient has really some toothache or would like to, you know, to get a tooth replaced because there is no other option, the implant is now considered the gold standard, meaning that we are not suffering so much for downgrading the implant treatment approach, which is so far at least a positive news for us. Secondly, when it comes to the in-house sourcing activities, I think looking at what's the strategy of the Straumann Group here, how do we look at the world on the digital side? We are seeing two different approaches that are closed system on the one side, and we have competitors that are trying to maintain a customer and a clinician into the closed environment.
We are believing more on the open systems and open environment, exactly, like, some of our partners are doing. We believe that the clinician should buy a piece of equipment and should be free to what he's doing with it and where he's setting it up. That's why we have partnered with 3Shape and Medit as well, because they are both promoting and developing open ecosystems where we can then implement our platform. Why are we having a 3Shape, Medit and Vivo in our portfolio? That was the second very important, I would say, principle in our digital strategy. We want to be able to offer different price points like we are doing on the implant side, and offering the high-end premium with 3Shape, which are now also developing some mid-price range products.
With Medit, that was in the mid-price range to the low price range and into the entry segment where Vivo is playing and is actually getting a lot of traction. Thanks to this fact that we are covering all price points, we are positioning ourselves as a good partner for digital dentistry for all the customers we serve. Finally, how we want this to evolve. It's all about making sure that we are driving market penetration because this is increasing overall the consumption of our product. That we are keeping the open world as opposed to leading to a more closed environment where it's reducing the access to clinicians.
We are wanting also to increase our gross margin on those products by having some of our own systems and make sure we can balance the insourcing and outsourcing approach to our digital technologies.
Great. Thank you. I appreciate the remarks.
The next question comes from Julien Dormois from BNP Paribas. Please go ahead.
Hello, good morning, Guillaume. Good morning, Peter. Thanks for taking my question. One relates to the clear aligner business because it seems that you had a pretty strong quarter actually in clear aligners. I think you also commented that you saw a sequential acceleration particularly in the U.S., if I'm right. That obviously comes in stark contrast with what your main competitor, Align, reported last week, where they saw a pretty steep sequential slowdown. It would just be interesting from our side to understand what is really different at this time between the both of you and how you are currently achieving a much better performance than those guys, and maybe splitting that between Europe and the U.S. That would be really helpful.
The second question, it's more a housekeeping question, I would say, relates to margin. You have, it seems that you have slightly raised the margin guidance, now getting rid of the constant currency mention. Would you just be so kind as to what would be the expected impact from FX at this point in time for the full year, just so we understand what sort of upgrade we got this morning. Thank you very much.
Thank you, Julien. Clear aligner, then yeah, I think we got a better quarter in some regions than the second quarter. On our side, what we can comment and as usual, especially if I take Europe. Europe has been a positive for two reasons. First, we are starting from a low base, and we have always to highlight this. That's why we are also working a lot on market penetration, which is, of course, easier when you don't have a strong overall base to defend. The second thing is our also direct to consumer is still allowing us to develop our presence in Europe, which has been quite healthy also during the third quarter.
The Dr. Smile integration, well, the PlusDental integration to Dr. Smile has been successful, has been really fast. We have been very pleased with the team integrating the two company together, being not disruptive to the business and bringing the best out of the two worlds. Then the, I think, very fast integration and then successful outcome from a volume standpoint. North America, I would say, I would not say that it has been a stellar quarter. Yeah, the demand has been less impacted by macroeconomic environment than the second quarter. We see the demand being a bit more dynamic, but we believe we are not there compared where we were last year as an example.
On the margin side, Peter, do you want to comment on the FX?
Yes, Julien, thank you for the question on the margin side, and especially the impact of the FX on the margin. If you look at our half year results, you'll see we had a negative impact on the operating margin of roughly 60 basis points. Now in the third quarter, we saw an up and down on the FX development with a dip in the euro, partly a bit mitigated by increasing U.S. dollars. Now in October, we saw again an appreciation of the euro. So obviously it's a little bit reading in the crystal ball, I would say. However, for the full year, I would expect given current FX level as we see them, I would expect a negative impact of roughly one percentage points on the operating margin.
In addition, you see at the very end of the presentation, you see the revenue breakdown by the different currencies, if that helps you in updating your own assumptions.
Guillaume, Peter, thanks a lot for the help throughout the years, and all the best for the rest of your endeavors.
Thank you very much, Julien. It was a pleasure talking to all of you. Thank you.
The next question comes from Daniel Jelovcan from Zürcher Kantonalbank. Please go ahead.
Yeah, good morning as well from my side. First question is on the premium implants. You mentioned BLTs still growing double digits. I'm quite positively surprised. I mean, the product is already eight years old, so where does this dynamic development comes from, especially considering the macro environment? I mean, is it, do you train new doctors, or is it competitive accounts conversion still ongoing? And then also in this context, you mentioned TLX as well. How about TLX? Is that doing well? Is that cannibalization of BLX or entering a new space? And, the second question is, also like before on DTC Dr. Smile. Sometimes I hear that orthodontists are not really very happy about your approach with Dr. Smile, but I'm not sure if this really is maybe badmouthing of competitors.
Can you explain the target group for Dr. Smile or actually the current users? Are there mostly GPs or do you also now refer with Dr. Smile to the specialists? That would be great to have some more granularity. Thanks very much.
Well, when it comes to BLT, actually, we have not said BLT is double digits, but I would say at least for the quarter. It's obviously very healthy, and growth is also significant. Why are we having a still very dynamic BLT growth? This is all a link to market share gain and the very strong impact of our immediacy campaign, that we will keep driving hard in the marketplace. Why is that? A lot of clinicians are using fully tapered implants, BLX, TLX, for then demanding cases or advanced cases when you do then immediate placement or immediate loading, where you need more primary stability. However, you don't need the so-called more aggressive treatment in all the different cases.
When you have simpler cases or cases where you have delayed loading, then you can use the more traditional apically tapered design, which is obviously very well documented, very safe, and very, very strongly performing. What we have seen is that we have been able to gain, and we are still gaining a lot of customers, thanks to our immediacy treatment that we convert with our BLX or TLX and Zygomatic, and which later on are convinced by the Straumann technology, i.e., the very unique features and benefits that are linked to our Roxolid material technology and our SLActive surface for faster osseointegration, which is then convincing them, and they are bringing all their then the consumption or implant usage to the Straumann side by afterwards including their portfolio, the BLT implant as well.
This is this kind of a pull-through that we are getting with BLT coming from our immediacy approach and our new customer acquisition strategy. For the Dr. Smile side, the Dr. Smile side is obviously as in different industries. When you have some channels, different go-to-market with different channels, you may have some channel conflict when the Dr. Smile approach is not well understood, because a lot of clinicians at times are mixing up in between the SmileDirectClub setup, which is a really direct-to-consumer with not having any clinician in the loop. That's why a lot of work on our side is done on communicating and explaining this channel and distribution model to clinicians in order that they can understand, they can be part of it.
Most of the Dr. Smile network dentists are GPs that are also then leveraging the capability for Dr. Smile to increase patient flow. We are seeing also specialists being interested because we are now able to drive, and we are putting some platform in place where we can redirect the more complex case that you cannot deal from a GP standpoint directly to specialists as well, and this is a pilot which is done in Germany to see how we can potentially help those patients that are very complex case, needing very high expertise, being treated by specialists.
This is an ongoing process, but together with driving more patient flow in those difficult times and helping patients to get more complex treatment with better communications in between the channels, we think that those are channels that can live side by side and deliver growth on one side and also happy patients on the other side.
Thank you, Guillaume. Just the TLX, cannibalization of BLX, or is that the different customer group?
TLX and BLX are the same customer group for immediacy treatment. Some prefer to have the, let's say, what we call the biological gap at a high level, and the TLX is allowing you to do better or easier prosthetic, but that's the same design on the low side of the implant, which is a fully tapered, and that's the same group of immediacy in the Straumann portfolio.
Okay, thanks.
The next question comes from Maja Pataki from Kepler Cheuvreux. Please go ahead.
Good morning. Thanks for taking my question. Yeah, I'm just wondering whether you can talk about the aligner market in China. I mean, you now have the approval for ClearCorrect to enter China next year, and while at the same time, we're hearing that there is quite a big price war ongoing among various players in China on the aligner side and also discussions to include aligners in the VBP contract. Has your view on China as an aligner market or aligner growth market changed over the last two years? Or do you still believe it's a market where you wanna be present, and how quickly do you think you will be able to get a foothold in the market? Thank you.
Yeah, thanks for the question, Maya. China is the one of the largest market of clear aligner in the world. If you would like to be a significant player globally, then this is clearly a market where you want to play. Are the market condition challenging? Yes, they are. But there are opportunities at the same time. When I look at the price, yeah, there are some challenging price war at the moment, but I think we see also the fact that the volume market potential is amazing. Being able to drive volume and being able to get a lot of capability to grow for organization is still something that we have to consider.
The first one is obviously, this is led by a large part of our organization in China, we are able through this to amortize also a lot of our structural costs. That's on this side, we have the overall profitability, which is also has to be considered, and not only the gross margin but the overall profitability that we can get from this country, with integrating all our different business. Clear aligner will be also very well integrated into the all digital workflow. When you are setting digital workflow and digital platform used for the dental planning, dental implants, it will be also a very obvious addition to be able to do your patient case. The synergy effect should not be underestimated in the future.
Finally, we think that our technology will allow us to have also very interesting benefits for the consumer. We are really looking at China as a wide, very competitive, as an interesting market for us to generate growth and being able to combine that with the existing business we are having in this country.
Thank you very much.
Sorry, Maja, just coming to the VBP. We have heard also about the VBP. There is no really clear, there is no timeline on the first side. Secondly, we know that VBP is more focusing on the public sector to start with, and the public sector of clear aligners is really limited at this moment in time. More will be needed to know on this side, but VBP is still pretty unclear on this side of the business.
Okay, thank you very much.
The next question comes from Daniel Jelovcan from Zürcher Kantonalbank. Please go ahead.
Yes, thank you very much for taking my two questions and also congratulations on my side for the very good quarters in a difficult environment. Maybe the first question coming back to VBP regarding implants in China. I mean, I fully understand that you don't have full visibility yet in how this will evolve in the next couple of months. I mean, the two main factors or questions are on the one hand side on the price cuts, I mean, in the past, I remember you mentioned 50% to 60% lower ASPs. The second important variable is basically the spillover or not, from the public sector into the private market, where you assumed roughly 1/3 is public with relatively limited spillover effects.
Are those two assumptions from your side still valid for next year, or has something changed in that regard, especially the spillover? Because to my understanding, the Chinese government is putting pressure on private providers also to participate on that. The second question may be regarding Slide 10, where you have shown the organic growth by region. If I look at EMEA, I mean, obviously, the first quarter was exceptionally strong this year. Also second quarter was very good. Now we see another slowdown towards 15%, which is still obviously awesome in this environment. What is the main reason for this slowdown quarter-over-quarter now? Also, I mean, how is Dr. Smile holding up given what we see on the aligner side in the U.S.?
Is it still performing that strongly, or is there also some slowdown visible? Thank you very much.
Oh, lot of questions then.
No, no worries. Let's start with the VBP implant in China. I fully agree with you. That's very good. That's a good way to look at it. The first is ASP, the second one is spillover. Third one, we can say, what's the volume potential gain that we can get out of it with making sure that patient will then much more can afford much more implant treatment. We are still taking the assumptions that overall ASP will go down 50% to 60% from an implant price, meaning that this is the sell out from our side because this is distributor to the public sector.
There is a part of this impact, which is going to be absorbed by the distributor and in turn by our sales. A part of the scenario planning is that we are not going to get the full hit of 50% to 60%. You know, a part of this one, be it half of it, being a little bit more or less than half of it still has to be seen, but we will share a part of the burden with the distribution network. Spillover versus the private side, yes, I fully agree. The government is putting a lot of pressure on the private side.
However, something which is important to know is the private side for the price towards the patient, it's already quite lower than in the public sector. Public sector having the highest knowledge, and public hospitals has been doing the most complex treatment from the inception of the implant business in China. Some of them are already adding quite some competitive pricing to the patients. Not at the same level than the future pricing for patients, but meaning that the ASP impact will be anyway lower, but it's some significant impact on the private sector.
We still believe here that we have a way to keep some good ASPs on the private side because they need some support to finance their growth and need some support to also do a lot of education, which means that there are also some possibility for services through not having an ASP which is going to deteriorate too much. Additionally, we obviously expect a lot of volume gain for the brands that are going to be selected, which would help in some way as well to amortize some of the overall structural cost of the organization. When it comes to Europe or EMEA, then yeah, we had a very strong quarter with some specific impact in the also Middle East region.
We had, well, we consider 15% as being a very strong growth rate. We had a strong impact also on digital. That was there in the first half. Our 2021 first half in digital was not so strong, and then we had also a good comparative period. Then the very significant digital business has increased our first half in EMEA. That has been also some interesting contract we had with DSOs on the digital side help us to boost our volume in the first half in Europe. Then we see also the patient flow going a bit softer, especially in countries like the more Western Europe, while Eastern Europe is still quite dynamic.
At the end, I would say, looking at Dr. Smile, yeah, Dr. Smile is still very healthy. We don't see significant slowdown despite the consumer confidence which is going down, because we believe that the target group we are addressing is a bit different than the typical one going to the dentist, that are still, you know, like, still an emotional buy, where available income for young, urban, dynamic target group seems to be still quite significant for them to afford those kind of treatment.
That's very helpful. Thank you very much.
The next question comes from James Vane-Tempest from Jefferies. Please go ahead.
Hi, good morning. Thanks for taking my questions. I have two if I can, please. Firstly, even if at this stage you can't give specific guidance for next year, can you give us some thoughts, please, around how we should think about phasing into next year, also the effects of price increases as well, as we gather you haven't increased prices as much as some of your peers and the potential for kind of new product offerings? That's my first question. My second question, if I can just come back to, some points you made earlier on the consumer.
Just wondering, you know, you mentioned the sort of more kind of resilience, but given there are sort of higher mortgages, general inflation, just wondering if you are starting to see, you know, any behavior differences at the moment and also perhaps between consumers and dentists as well in this environment. Thank you.
Thanks, James. 2023, you know, again, I think it's difficult to plan for the time being. We are not there from a guidance on 2023. Something that I expressed at the beginning of the call is, I think, important. It does seem that our core, at least, activity on implants have some resilience versus, for example, the clear aligner side.
That implant is seen as a major part of the dental clinic activities that they are really maintaining these activities very significantly and still focusing on this one. If we apply this resilient perspective to 2023, there is some of course a positive perspective about having the capability to face still difficult macroeconomic situation and still being able to deliver thanks to some regions that are also less affected to deliver a positive 2023. Of course, we'll see our Q4 develop, and we'll be able to give more color for next year during our next call.
When it comes to the direct consumer or the clinicians, how do they see the impact that they have on margins and so on, I think this is obviously a key question. We are, again, as we speak, not seeing a very significant change in the way consumers are being addressed by, for example, the direct-to-consumer activity. They are more or less qualitative, I would say, activities, but much more qualitative data. You need to be, I guess, more selective and much more targeted when you do those activities to make sure that you can generate the profitability that we have been used to.
That's a lot of what our marketing teams are also trying to do as well as our sales team or the clinicians on both the implant and the clear aligner side. All in all, we don't see any important disruption in consumer behavior at this moment in time.
Thank you. Perhaps if I could ask you, part of my first question a different way just on pricing. I understand you haven't put price increases through as much. How we should think about that and timing for that next year? Thank you.
Yeah. Sorry, Jim, prices went up. Yeah. Pricing. No, no, we are, I think we have done pricing increase at the beginning of 2022. We have actually realized price increases because this is also, you know, our ASPs have seen this effect that we are starting to do in the beginning of 2022, and we are planning, of course, a price increase in 2023 that will be higher than the one that we did in 2022, for absorbing a good part of the increasing cost we're having on our side based on the inflation effect.
Thank you.
The next question comes from Falko Friedrichs from Deutsche Bank. Please go ahead.
Thank you for taking my two questions. Good morning. My first one is whether you can provide a bit more color on your start to the fourth quarter now. I'm asking because one of your competitors seems to have flagged a bit of a slowdown in dental implants, and they're also seeing dentists trading down a little bit in October. I'm wondering whether you noticed that at all. My second question is on your equipment business and whether you noticed any softening in demand in the third quarter or the beginning of the fourth quarter now, given potentially lower CapEx spend by dentists. Thank you.
Well, on fourth quarter, I would say the situation is not falling apart. This is what I can share with it. It's too early to say, but we are still seeing a good or positive patient flow in the dental practice. As expressed also, then at the beginning of the call, we see some softening in some region, then it's not as dynamic as it was during the first half, but it's still holding there. We are positive for the fourth quarter to be still a positive quarter on our side as well. On the third quarter, on digital, it has been a very good quarter. It has been dynamic.
There is still quite some demand in the technology. I would go support your statement about down trading. I would say this is true on the digital side because a lot of GPs are now acquiring those tools. You know, specialists have a lot of potential to acquire and to do those kind of investments because they have also a high gross margin from their activity. GPs are a bit different, and they are representing now the bulk of the market to still penetrate, and they are looking at what are the solution alternative to them. That's why having on our side three different options from a price point, it's really interesting.
While we see this down trading on the digital side, we have not seen that in the rest of activity, the implant or the clear aligner.
Okay. Thank you. When you say you see some softening in some regions in Q4, I assume that refers to the clear aligner business, or would that also account for the implant business?
To be precise, I did not say Q4. I said we see some softening since the second half, where we have seen a good patient demand, but not as dynamic as before. The softening is on, I would say, more on the clear aligner side than on the implant side. If I would say that, it's a lot of clinicians saying that it's more difficult to convince patients, and that's why, again, the time to treatment is increasing. Then there is more delay in accepting treatment, but they have not so much challenge in getting consultation of people completely rescheduling treatment to a, you know, no clear date.
So far, I would say it's taking more time to convince patients, but they are still coming to the practice to get their treatment.
Okay, thanks very much.
The next question comes from Oliver Metzger from ODDO BHF. Please go ahead.
Good morning. Thanks for taking my questions. The first one is on your move from PlusDental to Dr. Smile. So it appears that you leave a dentist-driven pathway through a certain extent of a B2C offering. How do your economics change as the Dr. Smile approach seems to be leaner and therefore more profitable for your side? Number two, it's a quite general question on market dynamics for dental implants. Could you remind us where do we stand with regards to penetration rates of dental implants compared to the conventional treatments? So if you talk about the addressable market, it's more like the existing market. Where does stand the overall market compared to a total tooth replacement market?
What does it mean, not from a short term, but more from a mid to long term perspective, really to drive up further penetration rates?
Yeah, when it comes to Dr. Smile and the integration with PlusDental, then I think we have some of that combined effect that are positive for the profitability side. I think it's still an investment territory because you need still to drive the brand out there and to be the first choice as a brand when a consumer is looking at this type of treatment. There are still competitors out there which are providing the same kind of offering. Then it helps to have the critical mass in order to address this market in the best way. I would say from this side, it was a positive move for us and also we believe for the future.
When it comes to the overall implant market, you know, I think we have said our really exciting future, and our CHF 5 billion is coming from the fact that we are still operating in a very underpenetrated market. Our evaluation is that there are two billion missing teeth that could be replaced in the world. That's why we are working a lot in market penetration, in accessibility, in affordability. This is where education is still a key piece, especially in geographies like Asia-Pacific, in Latin America and still in countries like Europe and North America. There are still a lot of dentists that does not know to place implant and that want to learn in order to deliver the right patient care, not doing three-unit bridge.
Secondly, it's a lot about accessibility. That's why our, you know, the fact that we're covering all the different price points with all our brands, in between the premium with innovation, in, together, with the challenger brands, with a more affordable pricing and also then the compatibility of surgical kit, which is allowing dentists, to have lower, transfer costs when they move one brand to some of our challenger brands. We believe that we are, well, the best organization to be able to realize the largest part of this, addressable market that we need still, to keep, opening in a lot of those different geographies. We don't have a lack of opportunity to grow, when we look at, the different markets we are in.
Thank you.
The next question comes from Veronika Dubajova from Citi. Please go ahead.
Good morning, and thank you guys for taking my questions. I have two, please. One, I just want to go back to your China commentary, if that's okay from the beginning. I think in the past you sounded pretty confident in your expectation that China would still grow in 2023. I'm wondering if you are still willing to reiterate that or if your thinking on that has changed. So that's my first question. And my second question is clear aligners. Now, hoping you could give us a little bit of help in terms of helping us think through how large the business is today, geographically, U.S. and OUS, how you'd break that down given all the various acquisitions that you've done.
Maybe just comment on the growth rates that you've seen year to date in the U.S. versus in the rest of the world, even approximately, would be super helpful for us. Thank you.
Hi, Veronika. When it comes to China, I think again, I cannot tell you because we don't know the rules of the game for 2023. You know, I would love to be able to tell you, well, I'm sure that we are going to grow in China in 2023. Our assumptions are showing that we can still potentially grow in China in 2023. Now it will depend about the conditions in which we are going to evolve. There are scenarios that are very likely also to happen that could deliver us some, I would say, single-digit growth that we would be able to achieve in China.
Once again, when we will have the Document two and seeing how the VBP will play out, we'll be able to give more visibility. On the clear aligner side, I think we had, and it was since the beginning, that North America is still, I would say, on the B2B side, the larger part, the largest part of our business, if you exclude the direct to consumer. If you include the direct to consumer, I think it's more getting to the same level. We are having growth rate that are stronger in the rest of the regions than North America, just because of our penetration rate. We are starting in many markets, like in Europe, in Asia-Pacific, in Latin America.
Thanks to our very good base, then our growth rates are more dynamic than the one we see in the U.S. That's where we believe it will still be the case for a while. Why we are going to get more balanced business in between all the regions, or this is the case in the implant side.
That, that's very, very helpful, Guillaume. Maybe just I think in the past you've talked about sort of your clear aligners being about 10%, 11% of your sales. Is that still the case in 2022?
Yes, it is.
Okay, brilliant. Thank you very much.
The last question for today's call comes from Benjamin Driebe from Intertek. Please go ahead.
Hello, good morning, and thank you for giving me this opportunity of the last question. These are two ones, they're both about the aligner market. The first one would be, as it is such a growing market, there's also increasing competition by smaller companies who are entering this market. I was wondering, how serious is this competition for Straumann, and how do you aim to differentiate from your competitors? What makes the difference in Straumann's case?
Yes, Benjamin, I think good question. I fully agree that there is a lot of competition coming in as it has been the case, you know, on the implant side when we have seen all the challenger segment coming in ten years ago. Then what are the key differentiator of Straumann versus the small player? The first one is, and it will be the same on the implant side. It's innovation capability. I think the implant market is a very dynamic market when it comes to innovation.
A lot on the software side that sometimes we don't see, but getting the treatment, the treatment planning faster, more adapted to the case, more consistent in your realization of the case is something that you are seeing very often after the treatment, if it has realized as planned. This is where some of the small players are still struggling with being capable to develop software as fast as more the large organization who have the means to invest significantly in the software side. The second approach is education. A lot of GPs would like to start. They are all willing to do clear aligner, but you need to be able to train them and to educate them about what is really about moving teeth.
There is no magic into clear aligner. You still need to learn your ABC of orthodontics, knowing what is possible, what are the case you can treat, what are the case you can't treat, how then you have to convince the patient, how you are helping him also to go through the treatment. How do you monitor on your case? I think there is a lot of education to be done and support to be given to the dentist. Without having a significant support, locally on the field, meaning that you need to invest in your feet on the ground, then it's difficult to really reach a significant size.
That's the two very big point where the differentiation in the value proposition of Straumann with regard to technology, speed and frequency of innovation and education plus support on the local basis is making the difference.
Mm-hmm. Thank you very much. My second question would be about your main customer segment when it comes to clear aligners. I read some research that said about two-thirds of the patient groups are teens, teenagers, and about one-third are adults. I was just wondering, is Straumann targeting teens as well as a customer group? What do you think about this? I mean, shouldn't we be a bit cautious? I mean, daily life for teenagers is already because of social pressure, it's already like a daily beauty contest, isn't it?
Yes, you're right. I think if you look at the number of total ortho cases, two-thirds are teens, one-third are adults. However, when you look at clear aligner, it's exactly the opposite. Clear aligner penetration has been strong in the adult side, because I think 2/3 of the clear aligner cases are doing with adults and 1/3 on teens only. What is the reason for having more braces and brackets on teens is the fact that orthodontists are still trusting more compliance with clear braces and brackets, obviously, because well, you cannot remove them.
When the patients are paying quite an expensive fee for the treatment, you know, they are also wanting to make sure that the compliance of their kids for having the treatment will be there. However, the clear aligners are gaining ground on the teens treatment as well. ClearCorrect has been approved just a couple of months ago on the teens treatment case as well. But as they are also more advanced, very often this is done by orthodontist specialists. I would say our product portfolio is ready for teens, but our go-to-market is still waiting for our software able to deliver the necessary features and benefits that ortho are expecting in order that we can penetrate more actively this area.
This is what is planned for 2023. We are still planning having our ClearPilot 6.0 in the end of the first half of 2023. We are really pleased with this, and that should allow us to address then the ortho specialist segment and where we would be starting then to enter the teen case segment.
Okay, great. Thank you very much for this insight.
Okay, thank you. I would like to thank you for your attention. We look forward to speaking to you again soon, and we wish you a nice day and a warm goodbye from Basel.
Ladies and gentlemen, the conference is now concluded.