Ladies and gentlemen, welcome to the Straumann Group Half Year 2019 Results Conference Call and live webcast. I'm Sherry, the conference call operator. I would like to remind you that all participants will be 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. Webcast viewers may submit their questions in writing via the Relative tab. 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 Mr. Marco Gadola, CEO. Please go ahead.
Good morning, everyone, and thank you very much for joining us today for this conference on Straumann's 2019 H1 results. As usual, the conference will include forward-looking statements, please take note of the disclaimer on Slide two and in our press release. As customary, I will give you a brief overview, Peter Hackel, our CFO, will share the business performance and financial details with you. After that, I will bring you up to date on recent key events, strategic initiatives, and our full-year guidance. We will look forward to answering your questions. Before I begin, I should point out that we have adopted the new IFRS 16 lease standard, we have also accommodated the new SIX regulation regarding the consistent, transparent disclosure of alternative performance measures, APM.
We have started to use the term core, which excludes acquisition-related asset amortizations, as well as exceptionals, as indicated in the footnote in Slide five and elsewhere in the presentation and media release. As you know, our practice has been to present our results according to IFRS, in addition, to provide you with the numbers excluding exceptionals in order to show the underlying performance. Peter will say more about this at the APMs later. 2018 was an outstanding year. It was our best since 2005, we knew that it would be a challenge to maintain the high pace. We therefore guided for total revenue growth to the low teens, which is still three times higher than the global implant market.
I am pleased to report this morning that we have exceeded that forecast, and despite considerable currency headwind, we have delivered H1 revenue of CHF 780 million, driven by organic growth of 16%. The strong top-line performance contributed to a 15% increase in our core growth and operating profit, with the respective margins reaching 37.5% and 26.3%. In Q2, we began to roll out the many new products that we presented at the International Dental Show in March. The most important of these is our next generation implant, BLX, which entered full market release in EMEA and is now launching in North America. Once again, we demonstrated our passion for creating opportunities with a string of new partnerships and investments, including distributor buyouts, investments in digital technology and services, as well as further investment in the lower value implant segment.
These and other growth initiatives, together with geographic rollouts and the continuing expansion of our existing business, give us the confidence to raise our guidance for fully organic revenue growth to the low to mid-teen percentage range. Looking at Slide six and our sequential performance, with the exception of North America, organic growth was very slightly softer in Q2 than in Q1. This partly reflects the early Easter and major rollouts in China and Brazil last year. In general, however, we are pleased with the performance, especially in our two largest and most competitive regions, which continue to deliver strong double-digit growth. The strong revenue growth is reflected through the P&L, as you can see on Slide seven. Our core EBIT margin expanded 10 basis points or 80 basis points excluding the currency impact.
20 basis points of the improvement were due to IFRS 16, which transferred some lease expenses from the OPEX line to the financial result. This explains why core earnings per share grew just 13% while EBIT rose 15%. Looking at the historic context on Slide 8, we have succeeded in increasing organic revenue in a highly competitive market at an average of 15% over the past five years, in comparison with mid-single digit growth in the market. Over the same period, our EBITDA margin, excluding exceptionals, climbed 390 basis points. Now for the business performance and financial details, I will hand over to Peter.
Thank you, Marco. Good morning, everyone. As usual, I would like to begin with our revenue development and the growth trends in our four regions. On slide 10, you can see that at 2019 exchange rates, our H1 revenue in 2018 would have been CHF 16 million lower, mainly because the euro, the Brazilian real, and the Turkish lira have weakened against the Swiss franc. The M&A effect this year added CHF five million to our adjusted revenue of CHF 780 million and was mainly related to one month of consolidated Anthogyr sales. In the middle of the chart, you can see that all our regions posted double-digit increases, bringing organic growth to 16%. This was driven by North America and EMEA, which collectively contributed almost 70% of overall growth, as you can see on the right.
North America, Asia Pacific, and Latin America all grew at a similar pace in H1. We anticipate that these regions will continue to outpace our stronghold, EMEA. Based on external market data, we believe that our market share expanded in all regions. As you can see on slide 11, our largest region, EMEA, maintained its momentum, although growth shifted between the quarters due to the timing of the Easter break. The Q2 performance was driven by the continuing success of BLT implants with additional lift from BLX, which was launched in most of the region's markets starting in April. The rollouts of Neodent and Zinedent implants, Medentika's multi-platform prosthetics, and botiss biomaterials also contributed to growth. By geography, France, Russia, and the Middle East were the main drivers, complemented by strong increases in Austria, Belgium, South Africa, and distributor markets.
Because of the pronounced Easter effect, Germany was only able to match its prior year Q2 revenue. In North America, organic growth edged up to 19%, driven by the U.S. implant business and ClearCorrect, which continues to grow dynamically in its home market. Further customer gains contributed to the strong growth in implants, which was driven by Straumann BLT and Neodent GM. BLX entered a limited release to a selected group of key opinion leaders. The pre-launch sales were encouraging but not significant. Emdogain and the introduction of botiss Jason membrane fueled strong growth in biomaterials. There was also a notable contribution from the clear aligner business, which grew 70%. Finally, the region made further gains in the DSO segment, which accounts now for 10% of its sales. Moving to slide 12 and Asia Pacific.
Organic growth reached 16% in Q2, slightly less than in Q1, reflecting the very dynamic expansion last year, which was boosted by major rollouts in China and exceptionally strong digital equipment sales in Japan. We continue to benefit from the size and dynamics of the Chinese market and our strong position there. It remains our growth powerhouse in the region and posted strong Q2 results in line with the Q1. Together with solid contributions from Australia and Thailand, it more than offset the sequentially slower growth in Japan and soft performances in India and distributor markets. In general, the region's performance was driven by premium and non-premium implants and digital equipment. Finally, in Latin America, organic growth remained in the high teens in Q2.
Brazil, which generates more than 80% of the region's sales, grew in the low teens, driven by Neodent and Straumann implants and boosted by biomaterials, with some additional lift from initial sales of clear aligners. Outside Brazil, our subsidiaries in Argentina, Colombia, Mexico, Peru, and Chile all reported organic growth of more than 20%. The production facility that is under construction in Curitiba is on track to open in Q4 and will meet growing demand for clear aligners and value implants. Turning to the next slide and looking at our performance by business. Implants and restoratives continued to grow at a solid double-digit rate and contributed the largest portion of growth. Straumann's Bone Level Tapered implant again posted strong growth, and we are on course to sell more than 1 million implants this year. Initial sales of our new BLX implant also contributed to growth.
Once again, our non-premium implant franchise outpaced the premium business, driven in particular by the international rollout of Neodent, Anthogyr, and Medentika, which helped to win customers and market shares in Brazil, China, Mexico, Turkey, the U.S., and distributor markets. Anthogyr was consolidated on 1 June and contributed more than CHF 4 million to the group's H1 revenues. Our digital business also reported strong sales expansion, fueled by clear aligners, although scanner sales were soft in Q2 as customers waited for new models that were presented at the IDS and have only just become available. In addition, supplies of Dental Wings scanners were temporarily interrupted by a fire, which we will tell you about in a minute. Finally, biomaterials was our strongest growing business, driven by robust sales bone graft and membrane products, and the rollout of botiss and [inaudible] products in certain markets.
Before commenting on our key financial statements, let me give you an overview of the special effects in 2019 and the financial implications of changing from excluding exceptionals to core results. As Marco mentioned, we have accommodated the new alternative performance regulation of the Swiss Stock Exchange, which is designed to provide more transparent and consistent non-IFRS reporting and will facilitate a like-for-like comparison between companies and over time. The new regulation will be mandatory for the full year. We have chosen to implement it already in our H1 report to ensure consistency in our publications throughout the year. Slide 14 lists all non-core items that occurred in the first six months of 2019.
The only difference between core and excluding exceptionals, which was used in the past, is the exclusion of amortization of acquired intangibles, which amounted to CHF 9 million and were more or less in line with the prior year. For your convenience, we have also provided the core figures for the H1 and full year 2018 in the backup of the presentation. As announced in June, we paid $35 million to settle a longstanding patent dispute between ClearCorrect and Align Technology. A further $60 million will be paid to complete the settlement because the potential scanner collaboration mentioned in the agreement did not materialize. Of the total CHF 51 million, a one-time administrative expense of CHF 26 million, including legal costs of CHF 2 million, affected our H1 income statement. The remainder was already considered as part of the acquisition accounting for ClearCorrect.
One other prominent exceptional is related to fire damage at Dental Wings, which was covered by insurance. The damage expenses are recognized in cost of goods sold and administrative expenses while the received insurance claim is shown under other income. Marco will tell you more about this in a minute. If you require further information about any of the exceptionals, I will gladly provide it when we get to the Q&A. The next slide shows the core financials in a nutshell. Core gross profit and EBIT both rose 15% with the respective margins reaching 77% and 28%. We achieved further gross profit improvements despite significant investments in innovative technologies and production capacity expansion. The gross margin improved 60 basis points, while the EBIT margin gained just 10 basis points, mainly because of adverse FX effects.
In the H1 2018, we benefited from a currency tailwind of 120 basis points in strong contrast to this year, when headwind reduced operating profit by 70 basis points. Core net profit rose 11% to CHF 170 million. The respective margin just fell short of 22%, 80 basis points lower than last year. 20 of these were due to the adoption of IFRS 16, and 40 basis points due to the revaluation of deferred tax liabilities related to the Tax Cuts and Jobs Act prior year. For completeness, you will find the year-on-year comparison on a reported IFRS basis on slide 16, followed by the APM reconciliation table on slide 17. Looking at the gross profit development on slide 18. Our gross margin in the H1 2018 amounted to 75.3% on a reported basis or 76.2% adjusted for currency and non-core items.
The improvement this year was mainly due to top-line leverage and efficiency gains, which added 90 basis points. A further 20 basis points were due to a more favorable product mix, resulting from softer sales of low-margin digital equipment. As a result, this year's core gross profit margin increased 60 basis points to 77.2%. Without the FX headwind, the margin would have increased 100 basis points. As shown in slide 19, the core EBIT margin expanded 80 basis points to 27.5%, due mainly to the aforementioned operational gearing. Higher OPEX expenses reflect our investments in R&D, new markets, and new segments. Unfavorable currency movements cut the margin improvement by 70 basis points, while the adoption of IFRS 16 improved it by 20 points. Increasing demand for our products, geographic expansion, and acquisitions all reflected in the continuing growth of our global team, which increased by more than 900.
Almost half joined us through acquisitions, including Anthogyr staff of almost 400, many of whom are pictured on slide 20. Most of the new jobs were created in sales and related functions in high-growth markets and in production. Here in Switzerland, we added more than 80 new jobs. As you can see in slide 21, the combination of the aforementioned operational factors contributed CHF 17 million to core net profit, which increased 11% to CHF 170 million. Without the one-time IFRS 16 effect, net profit margin would have been 20 basis points higher. Slide 22 provides a breakdown of our cash flow statement. Operating cash flow increased 23% to CHF 131 million, while free cash flow decreased 7% to CHF 58 million because of higher CapEx investments.
To cater for future growth, we continue to invest heavily in capacity expansion at our existing and new facilities in Villeret, Round Rock, and Curitiba. As a result, CapEx used for our existing business increased by CHF 14 million, and an additional CHF 15 million were related to the acquisition of Anthogyr. The change in net working capital added CHF 7 million to the year-on-year change in cash flow. Days of sales outstanding increased by three to 62, while days of supplies decreased by six to 185. Interest and tax payments increased by CHF 11 million. With that, I will hand back to Marco.
Thank you very much, Peter. As mentioned earlier, BLX is currently our most important launch, and the full market release got underway in most EMEA countries in quarter two. This is a large and exciting undertaking with a completely new surgical and prosthetic approach that involve training as well as a wide range of options and components. BLX is highly innovative and is priced at a small premium to our popular BLT range. The reception has been very positive, and we have already sold more than 30,000 despite heavy competitor discounting tactics. The launch program is now also underway in North America and Australia, and will start soon in Brazil, with other key markets to follow, pending regulatory approvals. In addition to developing BLX and the other key products presented early in the year, we have continued to replenish our pipeline with other meaningful innovations.
The two new ceramic products featured in slide 25 are good examples. The zirconia healing abutments deserve special mention because they are truly differentiating innovation. They are designed to prepare and shape the gum around the implant during the healing period before prosthetic restoration. By comparison with titanium, zirconia is more favorable to soft tissue attachment and less prone to plaque. The new healing abutments support soft tissue healing and are available for all Straumann bone level and BLT implants. I'm convinced that ceramic technology offers huge potential in implant dentistry, and together with our partners, maxon dental and Z-Systems, we have the products, technology, expertise, and resources to lead this field. We also have the advantage of a global footprint and a direct-to-dentist network focusing on value-added dental treatments.
This is a key to unlocking the potential of businesses like ClearCorrect, which is a pillar in our strategy to become a leading provider in aesthetic dentistry. Having brought the brands to international markets early this year, the full market releases in Europe, LATAM, and APAC have been constrained by our production capacity, which is fully absorbed by the strong increase in demand in ClearCorrect's home market, the U.S., where our customer base has grown 15% and the number of new case starts has risen by almost 60%. As Peter mentioned, our new production unit in Brazil will soon become operational, and capacity is also being increased to support our Clear line of business in China. This business offers us significant growth opportunity, not least because we have succeeded in bringing ClearCorrect's longstanding patent dispute with Align Technology to a friendly conclusion. Moving on to slide 27.
On May 9th, the headquarters and production center of our Dental Wings subsidiary in Montreal was severely damaged by a fire that was started by construction work in the neighboring unit. Fortunately, no one was hurt, but the facility and much of our inventory were no longer usable. We quickly relocated to contingency locations and were also able to shift some activities to our center in Berlin. Thanks to the speed, resourcefulness, and determination of the team in Montreal, we were able to resume all critical hard and software activities within two weeks, including assembly by our new Virtuo Vivo intraoral scanner. To concentrate on reducing the backlog of orders for Virtuo Vivo, we will postpone the launch of our new Virtuo Harmony lab scanner until next year.
The material damage of the fire is covered by insurance, I am pleased to report that we have already found a new permanent location which will be fully operational in October. I would like to take this opportunity to commend and thank our staff and the emergency services publicly for their part in getting Dental Wings back on track so quickly. Virtuo Vivo is one of several intraoral scanner options that we offer. Two and a half years ago, we began a collaboration with 3Shape, which has enabled us to sell Straumann-branded versions of their high-end TRIOS 3 and TRIOS 4 scanners. Recently, we entered a new agreement to deepen the collaboration by directly linking TRIOS scanners to our software platforms. This will offer fully integrated, seamless workflows for our CAD/CAM prosthetics and computer-guided implant surgery.
In addition, we have agreed to develop a seamless workflow for TRIOS users to plan and order ClearCorrect clear aligners through an exclusive app that will be included in future software updates. The digital workflows will be available on all TRIOS scanners that we sell and on other TRIOS scanners, depending on the respective distributor. The collaboration will thus add options and convenience for customers, as well as growth opportunities for our clear aligner, implant, and prosthetics businesses. As you can see in slide 29, less than 4% of dental clinics in China are equipped with intraoral scanners, but the market is emerging rapidly. With regulatory approval still pending for our Dental Wings scanner and TRIOS 4, our options are limited.
We have therefore entered a distribution agreement with Carestream to sell a co-branded version of their CS 3600, which has regulatory approval in China and is certified for our DWOS software. It is also compatible with our new Chinese clear aligner solution from Smartee. Another advantage is that the scanners are produced in Shanghai, where Carestream also operates R&D and customer support centers. With state-of-the-art equipment and software, our intraoral scanner portfolio is highly competitive. It ensures availability across regions and markets and meets all custom requirements, as you can see on slide 30. In addition to these collaborations, we are announcing two full acquisitions today that also support our digital business. We entered the 3D printer market three years ago by investing in Rapid Shape.
To complement the business and to generate recurring revenues with consumables, we are now acquiring Yller Biomateriais, a Brazilian company that specializes in the development and manufacture of high-tech materials for 3D printing. The other acquisition is Digital Planning Service Private Limited in Pakistan, a treatment planning and diagnostic company for clear aligners, which handles case planning for ClearCorrect. In summary, our digital business has entered three collaboration agreements and made two acquisitions in order to gain fast market entry and to gain full control over an important service provider. Apart from these agreements, we have made several transactions to advance our strategy of penetrating unexploited markets and segments.
To strengthen our foothold in the fast-growing, lower-value implant segment and to compete more effectively in markets where Korean brands are successful, we have invested in the South Korean implant company, Warantec. We estimate that this segment in Asia alone represents a 1.5 million implant market opportunity. In return for a capital increase, we have obtained a 34% stake in the company, and exclusive distribution rights to its products in China and other countries outside Korea. Slide 33 shows you how Warantec complements our implant portfolio, which now covers all implant price levels in the Asia Pacific region. Until now, the Straumann Group has been represented in Taiwan through domestic distributors and T-Plus, the implant company in which we hold a controlling stake. To gain direct access to customers, we have established and opened our own subsidiary.
The inauguration event was combined with a scientific forum attended by 500 key accounts and dental professionals. Taiwan is an attractive market where more than 400,000 implants are sold per year. To create further growth opportunities in the Balkans, we have acquired the business and sales team of our former distributor in Croatia, and are establishing a hub there to serve the local market, as well as the distribution network in Albania, Bosnia, Kosovo, and Montenegro. More than 130,000 dental implants are placed annually in this Adriatic sub-region. Having our own local subsidiary provides the basis to invest in building the market and increasing our share. Our last piece of news concerns the DSO business. In quarter two, ClearChoice renewed its longstanding agreement with us as their preferred dental implant supplier for a further five years.
ClearChoice Dental Implant Centers are North America's leading network for full arch tooth replacement treatment. In addition to premium and non-premium implant systems, we will provide digital solutions, biomaterials, and tailored services to their growing network of 56 centers, enabling doctors to continue offering innovative and high-level dental implant care to their patients. That brings me to our outlook for 2019, which is summarized in slide 38. In brief, we expect to continue outperforming the global dental implant market, which we see growing at around 4%-5% in 2019, which includes our own significant gross contribution. Based on our H1 performance, we expect to achieve fully organic revenue growth in the low to mid-teen percentage range. We also expect core EBITDA and EBIT margin improvements in spite of further investments and excluding effects related to foreign exchange rates, acquisitions, and the adoption of IFRS 16.
As you know, our guidance is always barring unforeseen circumstances. The recent upset in trade relations between the U.S. and China is an example of an unforeseen circumstance that has affected currency exchange rates. As you can see in slide 39. In the present environment, it is very difficult to make forecasts that account for currency movements, which is why we have excluded the effects of foreign exchange rates in our guidance. Now, I would like to open the question and answer session. As usual, we will begin with our guests here in Basel before opening the lines to webcast participants. If you have a question, please enter your question in the webcast feature or press star and 1 on your phone to join the queue. Kindly limit yourself to two questions. This will give all participants a chance to ask a question within the available time.
Please, Rachel, can we have the first question from the room?
Yeah. Hi, it's Oliver Metzger from Commerzbank. My first question is on your guidance. Given the strong organic growth, 16% in the H1, and only a comparatively moderate increase of the guidance, so you still have the low in your wording. Could you describe the scenarios why you still have kept the low in the guidance? Because you have already some good momentum from the H1. My second question is on BLX. You named a more aggressive pricing of competitors. Are you surprised by the magnitude of the price decreases of them? Have you seen any changes for your launch strategy, given this apparently more challenging environment?
Concerning the guidance, I take the first question concerning the guidance. It's an increase of the guidance which reflects also the good results and the good performance of the H1 this year. In 2018, you are probably aware we had a second strong H2, with a record growth of almost 19%. Marco has also mentioned there are some macroeconomic environment which we cannot influence right now. I think the guidance is a fair reflection for our full year expectation based on the good first 2019, and a fair balance between upsides and opportunities that we're seeing, but also with certain risks that we see in the market environment.
To your second question, we are obviously talking about one very specific competitor. Yes, we were actually surprised by the amount of the discount increases. I guess you're aware of the impact this had on the overall performance of that franchise. More than 300 basis points reduction in EBIT margin and without actually a significant positive impact on the top line. This ahead of the IPO. Obviously, we were surprised by this move. We also don't believe that this is actually sustainable.
Thank you. It's Chris Gretler at Credit Suisse. I have two questions. The first with respect to, could you actually quantify the impact now from the fire at the Dental Wings operation, plus the capacity constraints at the clear aligner business? Then I think you also mentioned that you run some constraints on instrumentation set for BLX now. Maybe, I don't expect individually, but at least an overall kind of impact quantification maybe. That would be my first question. The second question, I think, you didn't mention the mini implants as a growth driver. Maybe could you quickly discuss how that's going and then also how you're getting on with the new material for the clear aligner business.
We have some internal numbers in terms of what the impact was of the three topics you mentioned. We have quite an important backlog when it comes to delivering and invoicing digital equipment, among others, due to the fire in Montreal. Which actually slowed down the production of the Virtuo Vivo. We are expecting for the H2 of this year, a strong development when it comes to digital equipment compared to the H1. I think that's a statement we can make today. This might potentially also have an impact on the gross margins, because we all know digital equipment's gross margins are lower than, for example, premium implants. When it comes to clear aligners, we had to delay the launch, the full market release in Europe to Q4 because of the production constraints which we have in Round Rock.
Our plan still is to deliver customers in Western Europe out of our Round Rock facility, at least for the foreseeable future. Also when it comes to launching our clear aligner business in China, we are not yet where we should be in terms of production capacity. I think these are statements we can make today. Please, Chris, understand that we are not actually putting a hard number behind this. These are obviously upside potentials for the H2 of the year. When it comes to mini implants. Mini implants, we had a much stronger Q2 compared to the Q1 in terms of selling mini implants. Honestly, there is still quite some convincing to be done internally, not actually to our customers. This is actually something new for our sales force.
We have to do some internal convincing that this is actually a valid and a good option, especially for elderly patients and for patients who don't need a fixed restoration for the next 40 years. We are getting this message through, slowly but surely, and I'm actually sure that from 2020 onwards, we will actually see much higher volumes coming through when it comes to mini implants. The last question was on clear aligner materials. We are actually cooperating with a company which has also delivered in the past, the largest player in this market. We have two projects ongoing to develop clear aligners with, I would say, a more user-friendly, a more comfortable material. We will however not launch this material this year. This is something to be expected for 2020.
Chris, let me add one comment on the fire at Dental Wings. What we have reported in the H1 year is the property damage including all the assets that we have and the respective insurance claim that we will get back from the insurance. If in the H2 we are facing temporarily higher costs because of extraordinary business circumstances such as moving costs to the new location, obviously that is covered by respective insurance claims as well.
Mirabaud. The first question is on DSO. You mentioned in the press release it's now 10% of North American sales. I would be curious to know a bit more about the margin. Is the EBIT margin already quite robust or even better than the group EBIT margin? That's this kind of stuff I would like to know. The second one is the BLX launch now in the U.S. compared to BLT. I guess due to the market structure, the U.S. launch, maybe you can also talk about the experience in the pre-launch, must be quicker than here in Europe. Cannibalization must be less. Is that a fair assumption? Thanks.
First question on the DSO margins. If you look at the DSO business, just the gross margin levels, obviously it's slightly dilutive. Clearly because the prices we get from DSOs or the discounts we have to grant are higher compared to an average dental practice. If you look at the EBIT margin, it's not dilutive because we obviously need less infrastructure and less support structure to serve DSOs compared to many dental practices who would make up the volume of sales we generate with one single DSO. BLX, the U.S. market is obviously, the key market when it comes to BLX. Our key competitor, when it comes to fully tapered premium implants, has a very strong franchise, a very strong business still in the U.S. We have actually attacked part of that business when we launched Neodent back in 2014.
However, also still today, when we look at the market for fully tapered premium implants, the U.S. is actually the most attractive market for us and obviously the key target market for BLX. Excellent.
Daniel Grünheid from Vontobel. A question on the BLX rollout in the U.S. Can we expect the full rollout as you have achieved now in Q2 in Europe? Are you ramping up capacity and this will be more gradual?
Yeah. We're going to roll out BLX in all parts of the U.S. It's not that we just start with East Coast or West Coast or anything. It's actually a full market release throughout the whole territory of the U.S., and by the way, also Canada. We have managed over the last couple of weeks to actually take tension out of our supply chain. We had supply problems with the drills. That was actually the issue. We are about to have these issues resolved. I do not anticipate that actually the launch will be hampered by supply problems.
Daniel Buchta from Vontobel. Two questions, if I may. The first one on the N1. The first indications on what it can do are out now. The implant itself was launched at the IDS already, but what Nobel highlights in particular is this new process of implantation. Can you say a little bit more of what we know at the moment, how this could affect BLX? Whether you still see BLX far ahead of Nobel's offering, and how you see that? The second one on the profit warning from Align we have seen. Align mentions two reasons. One is increased competition. Obviously, we all know that. Align also mentions that an aggressive marketing of DTCs could affect the traditional way of how selling Aligners, so basically their orthodontist business. Do you see that as well in your Aligner business?
Case growth has slowed a little bit compared to Q1 where it was 70%, now it's just 55%. Thank you very much.
Obviously, we take the launch of the N1 seriously. I think you're aware that the launch is not happening as we speak. It'll be actually a launch over the next quarters. As I understood out of the information provided by the respective company in the U.S., it will happen in Q2 of next year. It's in the future. Clinical evidence is not available yet. Honestly, we have to take this seriously. I think it's a move which was necessary to protect the franchise. It will make, let's put it that way, our lives a little bit more difficult. It will maybe take a little bit longer to convince today's competitive customers to switch to BLX.
I think in the long term, the potential for us, a market of more than CHF 200 million with 0% market share today, this is an incredible potential for us. Your second question on direct to consumer and Align's profit warning. Yeah, obviously this is a trend, and I think you're all aware of the upcoming IPO for SmileDirectClub. These direct to consumer franchises are popping up like mushrooms, left, right, and center. Obviously this is also a topic we have to consider. Also keep in mind, we have today mainly a U.S. business. The potential for us to take this business global, first into Europe, we're already in Brazil a little bit, and then actually into Asia Pacific, is still inherent. We also will actually have to think about different go-to market channels.
I think this is a statement we can also make today. We have to take this seriously and come up with a corresponding reaction.
Vontobel Asset Management. My question is going back a bit to Oli's question about the market and the H2. Do you see any trends in July where you see any markets to slow down a bit? Have you seen any clouds there? Can you give a bit more feeling to us what we should expect?
We don't comment individual months. Because you asked the question, you get an answer. July has been a very strong month. To the contrary, we haven't seen a slowdown. It's just the first month in the Q3. How should we take this? To give you a clear answer to your question, no, to the contrary.
Now we would like to move to the webcast participants and the guests on the phone. Chorus Call, can we have the first question, please, from your line?
The first question from the phone comes from the line of Patrick Wood, Bank of America. Please go ahead.
Perfect. Thank you very much. I have one last question. On the market shift away from parallel walls into tapered solutions just in general, do you think we're done with that shift now? Do you think the current split between those modalities, that's how it will be for the future, or do you think there's still more to go in terms of those unit shifts across? Thank you.
I can only give you an answer when looking at our own internal numbers. Obviously, our parallel-walled tissue-level franchise and parallel-walled bone-level franchise are not the most prominent growth drivers of our business. I think you fully understand that. BLT and now BLX, these are actually the two franchises when it comes to premium dental implants which are driving growth. The nice thing about tissue-level and bone-level, we have a very loyal customer base. There are hardcore bone-level parallel-walled and tissue parallel-Walled fans and users. That is actually the positive news. Clearly, if you look at also the latest clinical data, if you look at what immediate placement can do to the patients in terms of reducing treatment times, time to teeth, these are obviously very appealing indications to patients, and that's what more and more patients expect today.
That's also why, if you look at the different segments, that's why fully tapered and apically tapered implants in general have higher growth rates compared to parallel-walled ones. From a clinical point of view, I think we all know long-term clinical outcome, parallel-walled implants are still an excellent solution, and there are many hardcore fans of parallel-walled solutions and indications.
Got you. That is helpful. Thank you.
Next question comes from the line of Sebastian Walker, UBS. Please go ahead.
Hi there. Thanks for taking my questions. I've got two, if I could. Just on the first one, I wanted to follow up on the end market question we had earlier. Some of your peers in North America are talking about market weakness in implants. Is that them just justifying the share losses to you, or are you seeing anything changing in the end markets? The second question was on EBIT margin. You had 80 basis points of core EBIT margin expansion in the H1 of this year, and your guidance is for continuous improvement, which I understand is around 30 basis points or so. How should we think about the H2 development? Is it just mix from more digital sales, or is there something else we should be thinking about? Thank you.
I'm sorry. We couldn't actually understand you very well. Could you repeat your first question again? Sorry.
Yep, absolutely. Can you hear me okay now?
Yes.
Okay, good. The first question was just on the North American end market. Some of your competitors are talking about some market weakness in implants. Is that them just justifying share losses to you, or are you seeing anything change there?
Market weakness in implants, we get quarterly data for the development of the total premium part of the market. When looking at the Q1 of 2019, based on the data we get, and we get the same data as our key competitors, the North American market, and specifically the U.S. market, has been developing at a higher rate compared to Western Europe. I can make this statement here. It always depends how you look at this. Also, if you look at Q1 2019 compared, for example, to Q4, Q3 2018, there was no sign of weakness or no sign of actually a slower growth. Again, this is data we share with all the relevant players in the North American market or in the dental implant market in general. To the second question, I would like to hand that over to Peter.
Yeah. If you are talking about the operating margin in the H2 and from the full year, generally, the H2 is, from a margin point of view, always a bit weaker than the H1, mainly because we have the full people that joined us in the H1 of this year already on board for the H2, and at the year end, we usually also start to hire the people, especially on the sales side, so that they are up and running for the beginning of 2020 already in the market.
If I exclude the FX impact in the H2, I think that the margin expansion of the H1 year is a good proxy for the H2 and for the full year as well, taking into account that the H2 is usually slightly less strong than the H1 year.
Great. Thank you both.
Next question comes from the line of Markus Gola, MainFirst. Please go ahead.
Thanks. Good morning. My question, my first one is on the BLX rollout. Initially, you expected some 300,000 incremental implants in year one. The current run rate of some 30,000 units is noticeably behind target, but obviously you have been impacted by these very strong competitor actions. Do you think your ambitious target is still achievable? What would be a more realistic number for BLX implants in year one? My second question is on the Asia-Pacific region. Have you noted any increased price competition on the implant side in any of the Asian countries in the course of 2019? Thank you.
Yeah. Maybe there was a misunderstanding, when it comes to the number you just mentioned. I don't recall that we mentioned that we're going to sell in the first year 300,000 BLX implants. We're going to sell that over a period of hopefully the next three to four years. Yes. If we're going to sell this year more than 100,000, I think we would be happy. With 30,000 in the first six months, I think we are on a good way. Keeping in mind that we have just launched, in IDS, BLX in Europe, that we are now also active in the U.S., that we will have full six months in all European markets. I think, target of 100,000 for the full year, I think that's already an ambitious one. 300,000, I'm sorry if at any occasions we might have mentioned this number.
I don't recall it, to be honest. This is obviously something which is not possible. Sorry to state that.
Okay. Fair.
On Asia Pacific?
Can I just interrupt for a second? Just to specify, Marco mentioned before the CHF 200 million market opportunity. These obviously, how do we estimate or how do we come around with this calculation? We estimate that the market for fully tapered premium implants is roughly 1.8 million units, times the ASP for the implant and abutment. That brings us to a market opportunity of roughly CHF 600 million, we estimate or we aim to shoot for about a third market share gain over the next few years. Therefore, that's a CHF 200 million market opportunity for Straumann in the premium segment. On Asia Pacific, your second question, price pressure. No. We have not seen ASPs coming down in the Asia Pacific region during the first six months.
Okay. Thank you both.
Next question comes on the line of Michael Jüngling, Morgan Stanley. Please go ahead.
Thank you, good morning. I have two questions, and hopefully we have a follow-up. First question is on BLX. Can you comment on what the actual growth contribution was to organic growth EMEA region in the Q2? Question number two is on ClearCorrect, and I would like to sort of follow up. Can you explain why both the case growth and your customer base growth in the Q2 slowed materially compared to where we were in Q1 of this year and the previous one or two quarters ending 2018? I still don't understand why the slowdown occurred in the Q2. Thank you.
Yeah. I am just thinking how to answer your first question without giving too much information. We mentioned we sold roughly 30,000 implants in the first six months. I guess you can all calculate or you all know more or less the ASP per stack of BLT. If you take that numbers times 30,000 and you add a price premium of BLX compared to BLT of roughly 5%-6%, that gives you a number, and you can assume that number is incremental growth, H1 2019 compared to H 1 2018. I think you can do the math. On your second question. Yes, you are right. We saw a slowdown in Q2 compared to Q1. However, still growing more than 50%, I think that is still a very strong development. I guess.
Is the market going to take it?
Your question is very [crosstalk] of only 30% growth. I don't think so, no.
Right
maybe you can help me a little bit with the second question.
All right. If I look at your customer base growth, it seemed it slowed down to 12% or so, or let's call it 10%, 11%, 12% in the Q2. A pretty weak number compared to what we saw in the previous three quarters. Therefore, I would have thought that customer base acquisition is probably the lead indicator for the growth potential over the coming quarters. Why was the customer base growth so weak in comparison to what we've seen in Q1, where it was 20%, Q4, where it was 30%? Help me understand why it slowed.
Okay. No, it didn't slow because we were also growing customer base in Q2 of this year. It didn't slow. The growth rate is not the same anymore, it's not like we are not gaining new customers anymore. What we have today compared to 12 months ago, we have larger customers. We are actually gaining larger customers, converting larger customers, and we also see more and more of our customers doing more and more cases. The average number of cases per customer has increased quite significantly.
Great. That's very helpful. A final question on BLX, please. That is, when you first launched BLX, there was a certain opportunity that you had expected, and you mentioned now that you didn't expect such a strong price discounting by Nobel Biocare. How do you feel about the opportunity now, given that we've got strong discounting? Before, you sort of reiterated the midterm outlook in terms of units, but what is the midterm outlook in terms of revenue if your major customer's discounting implants by 30% or 40%? Thank you.
The CHF 200 million opportunity stays in place. This is actually independent of what the company you just mentioned is going to do going forward. We all know they will be public company starting rather soon. They have to deliver also on expectations of their shareholders. I don't think that they will actually, right now, start a silly price war, which will actually not help anybody. On the other hand, what we also see is that we sell BLX not on price. Okay? Obviously, we can actually not ask double the price compared to the incumbents star product. However, with the features and benefits which we have with BLX compared to the incumbent, customers are actually ready to pay a quite significant price premium for BLX compared to the other product.
First of all, because they need less prosthetic components in their practice, because it's faster to place the implants due to the simpler drilling protocol. Thirdly, they can actually do more immediate cases with our implant compared to the incumbent's implant. This is actually tangible value which we can provide to our BLX customers. Obviously we don't like the reaction of the other company when it comes to pricing. Clearly, we don't like that, but we see this more than it will take us longer to get to our ambitions, to fulfill our ambitions than actually getting out of reach.
Great. Thank you.
Next question comes from the line of Veronika Dubajova, Goldman Sachs. Please go ahead.
Good morning, gentlemen. Thank you for taking my questions. I have two, please, actually sort of follow-ups to some of the questions that have been asked earlier. One, Peter, I was hoping you could help us think through the gross margin development, both year-over-year in the H1, and then how we should be thinking about in the H2 in the context of expectation of faster growth for the digital business. That giving us a little bit of a bridge in terms of the impact would be very helpful. My second question is actually a follow-up onto Michael's question. Can I just confirm you have not changed your pricing strategy for BLX since launch and since you've seen the discounting, or have you changed the prices that you are launching the product at? Thank you.
Shall I start with the first question on the gross margin development? Gross margin in the H1 this year was very strong, coming from three effects, I would say. First of all, the pricing discipline that we see in the market. Second, a favorable product mix. We have seen that we have a tailwind of 20 basis points due to lower, softer digital hardware sales. I would expect that the digital equipment sales in the H2 are considerably stronger. I would not only see a reversal of that effect in the H2, and that in the H2, I would expect a slightly lower gross margin and declining gross margin.
The third impact was also despite the capacity constraints that we have in all the implant manufacturing sites, we were able to further harvest efficiency gains, which is outstanding achievement of our operations colleagues in these manufacturing sites. In the H2 and for the full year, I would expect a slightly declining gross margin, mainly coming from a more unfavorable product mix in terms of gross margin perspective in the H2 2019. On the pricing, again, if you look at the gross margin, there is no indication that we actually lowered ASPs or prices. To the contrary, as Peter just pointed out, we are very disciplined, especially on BLX. Our target is to clearly position BLX above BLT. This is actually due to the fact that our cost of goods sold or our manufacturing costs for BLX are still considerably higher compared to BLT.
We have actually to sell BLX with a premium compared to BLT to make the same absolute gross margin when selling BLX compared to BLT. We are actually diligently following up on price developments by country, even going down to the sales rep level to make sure that we don't do silly things on pricing when it comes to BLX. That doesn't mean that we are not opportunistic. If we can actually switch a large competitive account, obviously then we are actually more flexible. In general, we are very disciplined, as Peter pointed out, when it comes to pricing, specifically on the BLX side.
That's great. Thank you.
Next question comes from the line of Tom Jones, Berenberg. Please go ahead.
Oh, good morning. I've two questions and one sort of statement, if that's all right. The two questions. I just wondered if you could give us some sense, with respect to the BLX launch, of how much of that is coming from existing Straumann customers kicking out somebody else to use your fully tapered, and how much is coming from competitive conversions. I guess it goes to the question of how easy it is to continue that growth trajectory from here. The second question was just on the ClearChoice contract. I wondered if you could give us some color on what you mean by preferred, because I assume, as you used that term, that the relationship isn't exclusive. Just some color around maybe whether there's some volume commitments, what percentages of their business is committed by the nature of that preferred contract.
Lastly, I'm not sure if I've heard anyone do it, so I'll do it now, but I just wanted to thank Fabian, maybe on behalf of all of us, for his help and assistance over the last 10 years. I think I speak for all of us when I say Fabian is probably one of the most thorough and diligent IRs in our sector. Thanks for all the help over the last 10 years, Fabian.
First question, share of wallet versus completely new accounts. It's roughly 50/50 right now. In terms of ClearChoice is our single largest customer worldwide. It's a very nice development. When we actually acquired the business back in 2014, they were running 32 clinics. They are now running more than 50 clinics. We are actually growing with this customer. There are no volume commitments on their side, so there are no minimum order quantity contractually defined. The business actually has been growing very, very nicely.
Great. Thanks very much.
Next question comes from the line of Kit Lee from Jefferies. Please go ahead.
Oh, thank you. I have two, please. I guess firstly just on ClearAligner sales in Q2. Just to clarify that, was the contribution from outside U.S. pretty minimal? Now you have basically delayed the full launch into full Q this year. Secondly, on DSO, I know you mentioned ClearChoice, but I'm just wondering on your overall D-DSO customer base, maybe can you comment on the growth rate there? How much have you expanded your DSO customer base in the H1 of this year? Thank you.
Mm-hmm. The ClearAligner business outside of the U.S., specifically when looking at Europe and Brazil, has been less than CHF 1 million for the H1-year. I think we can state that number. Our DSO customer base, yes, we are constantly expanding our customer base. We would obviously like to mention the wins, the customers specifically. However, very often they don't like that. That's why we are not publicly announcing some of the larger wins, which we were actually enjoying also in Q2. What I can tell you is that our DSO business is over-proportionately growing compared to the rest of the business. I think this statement we can make, and that we are actually constantly gaining new accounts.
Okay, great. Thank you.
Next question comes from the line of Maja Pataki, Kepler Cheuvreux. Please go ahead.
Yes. Hi. Thanks for taking my questions. Actually, most have been answered. Just could you remind me, please, of the exposure that you have to Argentina? I do remember that you've entered the market a couple of years back. Now, in light of the recent developments in that country, could you just give us an update of the relevance for your revenues and how you see the market developing for you? Thank you.
Argentina. Hmm? Overall, if you look at Argentina compared to Brazil, it's roughly 3% of the Brazilian market. I don't know if that helps, but actually it puts the Argentinian business into perspective. It's one to 30. We make more than 30 times more, generate more than 30 times more revenue in Brazil compared to Argentina. Looking obviously at local currencies, not converted into Swiss francs, but it's actually at a still relatively low level.
Thank you.
The last question from the phone comes from the line of David Adlington, JP Morgan. Please go ahead.
Hey, guys. Thanks. The question must've been answered, maybe just on ClearAligner, just following up on Michael's point. I think he was getting to the fact that Case starts, I heard it was in a big step-up in Q1 and Q2 year-on-year, Q2 versus Q1 looked a bit flatter. I just wanted to get a feel for, it sounds like you've had some capacity constraints and you've got some more capacity coming online. Should we expect another step up with that capacity coming online, or should we expect that capacity to come on more gradually? Thanks.
Yeah. Again, I don't think that flat is the right word to use. We had 55% more case starts compared to Q2 of 2018.
Yeah. I think what comes from, if you look on slide 26, when we look at case starts Q2 versus Q1, actually hasn't been much growth.
Yeah. Okay. Maybe we have to choose another way of presenting the numbers. You don't see here the growth. I agree, but there is growth. We sold more cases in Q2 compared to Q1. Next time we should change the grid, or however we present that.
Just a housekeeping, considering the fact that you have now some smaller acquisitions done, the impact in the H2 of acquisitions, can you give us a guidance of how much that will be?
Obviously, if you look at the H1, I said out of the CHF 5 million, about CHF 4 million are coming from Anthogyr. You can extrapolate that if we take that CHF 4 million per month. We consolidated Anthogyr one month only in the first six months. If you take the July figure and extrapolate that for the full year, I think you come to a reasonable assumption for the Anthogyr impact. I would extrapolate the other remaining CHF 1 million also for the full year. I think you have a right, reasonable assumption for the full year.
The new ones you announced today are small?
Yes.
Very small. The very last question, a small Swiss implant company presented a worldwide innovation at the IDS. I read just now a digital implant, meaning that they can do it 3D without an abutment, just everything tailor-made on the implant. Have you heard about that, what do you think about that, do you have maybe even any plans in the future? Thanks.
Yeah. You talk about the company with three letters?
Yes.
We are fully aware of their system. We had a deep look into this. It's kind of interesting. It's actually something we had developed many years ago, and we didn't think it makes commercial sense. We were even approached by this company if we might be interested in actually distributing the corresponding solution. That's all I can say right now.
Maybe to conclude, we have one final question from the webcast participant. This person would like to know our situation in China. The growth of some of the Korean companies have been quite strong over the past couple of years. If we are able to compete head-to-head with those guys in Korea, so i.e., are we showing also growth rates in China of 30%, 40% on the implant business, obviously?
If we also show that growth? Yes. Yes. Yes, we do.
We can confirm that. Okay.
Okay.
Those are all the questions we had from both in the room, from the Chorus Call line, as well as from the webcast. Marco, if you want to finish with the closing remarks, please.
Yes. Before closing, I would like to introduce you to Marcel Kellerhals, who is taking over responsibility for investor relations at the beginning of next month. Marcel is our head of corporate finance, prior to joining Straumann in 2018, he spent 16 years in finance in the global logistics industry. Before that, he worked in client relationship management for three Swiss banks. His knowledge of the capital markets and our reporting systems will make him a valuable investor relations partner for you. Marcel is taking over from Fabian Hildbrand, who is leaving us to pursue a career opportunity in another industry, so not in implants or med tech, another industry. I guess you will communicate to the relevant people what you're going to do.
As head of investor relations and market intelligence, Fabian has done a truly exceptional job in serving Straumann shareholders and investors community over the past 12 years. He has earned great respect and friendship throughout our stakeholder community, and I have no doubt that you will want to join me in thanking him and wishing him all the very best for his future. Thanks again, Fabian, and again, a warm round of applause. As I understand, you will actually introduce Marcel to the key stakeholders. There will be, as I understand, a launch next week in Zurich. You will have ample opportunity to get to know Marcel better. I would like to thank you all again for joining us today. We look forward to seeing you at one of the upcoming IR events, which are listed on slide 42.
For now, we wish you all a wonderful rest of the day. Thank you.
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.