Good morning, everyone. Thank you for joining us today for this conference on Straumann's 2017 full year results. As usual, our presentation and discussion will include forward-looking statements, so please take note of the disclaimer on Slide 2 and at the end of our press release. In addition to the presentation slides and the press release, you can find the financial statements and further details in our annual report by using the link in the press release and at the end of the presentation. As usual, I will go through the highlights and Peter Hackel, our CFO, will share the performance and financial details with you. After that, I will bring you up to date on our strategic progress and our exciting growth opportunities. We will be happy to answer your questions.
Looking at the key numbers on Slide 4, our revenue grew by almost CHF 200 million and crossed the CHF 1 billion threshold for the first time. Organic growth increased to 16% over the full year, lifted by an acceleration in the second half. With our underlying EBITDA margin climbing above 29%, we were able to lift the operating profit margin to almost 26%. One of the keys to our growth has been the ability to offer comprehensive solutions in both the premium and non-premium segments. The Straumann BLT implant range continues to generate strong growth in our premium business, while our Neodent, Medentika, Zinedent, and Anthogyr brands fuel dynamic expansion in our non-premium business. We invested significantly in digital and corrective dentistry, as well as in partnerships to support our ongoing businesses.
Looking ahead, we are confident that our growth story will continue and expect to achieve low double-digit growth on top of the high baselines set in 2017. We launched more new products and solutions in 2017 than in any previous year. Together with our newly acquired businesses, they will make an important contribution to revenue development going forward. Slide 6 highlights the intensity of our M&A activity in 2017, which focused on broadening our scope, extending our reach, and strengthening our technology platform. One small interesting acquisition in Q4 was a startup company in the U.S. called Loop Digital Solutions. They have developed an online platform that facilitates the process of referring patients from general practitioners to specialists for implant placement. In addition to assisting doctors, it adds to safety by enhancing communication, and it helps to increase business by building referral networks.
I mentioned a moment ago that we achieved an acceleration in the second half. As you can see in Slide 7, our organic growth actually reached 18% in Q4, driven by Europe, North America, and strong sales in our digital business. Fueled by the strong top-line growth, our underlying EBITDA margin expanded 80 basis points and the underlying EBIT margin by 70. Like-for-like earnings per share climbed 27%. On the basis of this strong performance, the board of directors is proposing to increase the dividend to CHF 4.75, with an increase of CHF 0.50 compared with CHF 0.25 in 2016 and 2015. Looking at Slide 9, you can see that our organic revenue has risen 9% on average over the past five years, while our EBIT margin has expanded from 18% to 26%, and earnings per share has risen 22% per annum.
Our growth over the past five years has been generated through portfolio expansion, innovation, entry into new markets and segments, and geographical expansion. These and other factors are summarized in Slide 10. However, the success story has been written, driven, and sustained by our employees, whose entrepreneurism, agility, and play-learn mindset have made it happen. We have succeeded in outpacing the market for implant dentistry throughout the five-year period. In doing so, we have extended our leading share to 24%, as you can see in Slide 11. That completes my overview of the big picture, and I would like now to hand over to Peter for the financial and regional details.
Thank you, Marco, and good morning, everyone. As you can see in Slide 13, at this year's exchange rate, our full year revenue in 2016 would have been CHF 11 million higher than reported. The effect of merger and acquisitions contributed CHF 33 million to reported revenue growth, which includes the revenues from Medentika and Equinox over 12 months, as well as Dental Wings and ClearCorrect over three months. As you can see in the center of the chart, all regions posted double-digit increases, bringing organic growth to almost 16%, driven by North America and EMEA, which each contributed one-third to our organic growth, as you can see on the right of the chart. Once again, Asia Pacific was our fastest-growing region, with revenue surging 24%, while Latin America grew a solid 15%.
Looking closer at the regional performances in Q4 on slide 14, we see that momentum increased in our largest region, EMEA, as organic growth accelerated to 15%. This was driven mainly by the rollout of multiple new products following the IDS in March, strong sales of digital equipment, the robust performance in Western and Central Europe, and strong growth in Eastern Europe and the Middle East. By country, the main contributors were Germany, Italy, and France. Our highlights included the launches of Straumann BLT in Russia and Medentika in Turkey, as well as the opening of our new subsidiary in Iran. North America progressed positively as Q4 organic revenue growth exceeded 20%. This was driven by our premium and non-premium implant businesses and lifted by new products like Straumann's 2.9-millimeter BLT implant, our innovative Straumann allograft ring, and new additions in prosthetics, all of which attracted new customers.
Digital equipment, especially Straumann chairside mills and Dental Wings intraoral scanners, added to the growth. In Asia Pacific, growth eased slightly from the strong previous quarter, but we maintained momentum. China continued to be the growth powerhouse, driven by the premium business, sales force expansion, and an increasing presence in the value segment with the Anthogyr brand. Japan, South Korea, and Australia all posted double-digit growth. We launched a number of key products in China at a three-day symposium in four cities, which attracted more than 1,000 visitors on-site and 13,000 online. We also obtained key approvals in India and launched the Straumann brand at a similar event in Mumbai. Finally, in Latin America, organic growth rose 12%, despite the long seasonal break in Brazil and a strong previous quarter, when Neodent's innovative Grand Morse implant system was launched in Brazil.
Elsewhere, our new subsidiaries in Argentina, Colombia, and Chile all gained traction. Moving on to slide 16. More than two-thirds of our growth was generated by implants, with Straumann’s BLT and Neodent’s Cone Morse and Acqua implants were the star performers. In 2017, BLT became our top-selling implant in the U.S. Roxolid and SLActive kept momentum, and Titanium SLA enabled the Straumann brand to compete successfully in the lower premium segment. The non-premium business grew strongly, and our ability to offer a combined package with premium solutions has been a key to our success in the dental chain segment, where we won important tenders in Europe. In the restorative business, Straumann Variobase abutments continued to be a remarkable growth driver while CAD/CAM screw retained bars and bridges, Pro Arch edentulous solutions, and the NOVALOC fixation system for removable dentures all contributed to growth.
Revenues from intraoral scanners and milling equipment accelerated in Q4 and reflect Straumann’s efforts to offer complete end-to-end solutions. In biomaterials, we continued to grow strongly and further strengthened our competitive position. Demand for guided bone regeneration products were most notable in EMEA and North America. Moving on to the key financial statements. Slide 17 gives you an overview of the key figures. To facilitate a like-for-like comparison, the key financials are presented on both a reported and a pre-exceptional basis. Medentika and Dental Wings were previously reported as share of results of associates but now contribute to the financial statements above and below the EBIT line. As we communicated in August, the business combination of Medentika led to several one-time effects, which include inventory revaluation expenses of CHF 2 million on the costs of goods sold and a one-time gain of CHF 25 million below the EBIT line.
In October, we increased our stake in Dental Wings to 100%, which led to a revaluation gain net of effects of CHF 44 million. Both effects totaling CHF 69 million are shown in a separate line in the income statement on the gain on consolidation of Medentika and Dental Wings. We defined all these one-time effects, as well as the revaluation of an outstanding loan in the financial result, as exceptional effects. We achieved a further operational improvement in underlying profitability despite significant further increase in headcount and continued investments in R&D Production capacity and our go-to market activities critical to future growth. The EBITDA margin rose 100 basis points to 29%, and the EBIT margin moved 90 basis points up to almost 26%. Net profit increased 20% to CHF 276 million and was also driven by the aforementioned exceptional effects.
On a like-for-like basis, the bottom line increased 27%, but more on that later. Our reported gross margin in 2016 was 78.3%. Currency fluctuations had only a minor impact. Strong volume growth and stable pricing in our premium and non-premium implant solutions lifted the gross profit margin, but were offset by increased labor and ramp-up costs in the expanded facilities. The combination of these factors reduced the gross margin by 90 basis points. Plant utilization was at a correspondingly high level and contributed positively to the margin development. The increased share of third-party products, the cost of integrating acquired businesses, and the strong demand for lower margin digital equipment products had an adverse effect on our product and business mix and reduced the gross margin by 190 basis points. The combination of all these effects squeezed our underlying gross margin by 260 basis points to 75.8%.
On the next slide, you can see that the EBITDA margin increased 80 basis points to 29.3%, which is remarkable in light of the lower gross margin and the level of our investment in high growth markets and our non-premium business. The increase in operating profitability relates primarily to operating expense leverage of our administrative expenses, which accounted for 290 basis points, and distribution costs, which added 70 basis points. The change in other income had no impact on margin development. Slide 20 shows the change in depreciation and amortization broken down by regular and acquired intangible assets. Depreciation and amortization expenses increased by CHF 2 million and CHF 6 million, respectively. As EBITDA is a good proxy for the underlying operational improvements of the company, we will give it more emphasis in our future reporting. We expect further increases in depreciation in 2018 and 2019 due to operational expansion projects.
At the same time, intangible amortization charges will increase due to acquisitions, some of which have been completed in 2017 or will be completed this year. I should point out there that the purchase price allocation for ClearCorrect has still to be completed and will add to our amortization charges. Moving on to slide 21. The EBITDA margin expansion added 80 basis points to EBIT margin, while D&A charges reduced it by 10 basis points. Overall, the EBIT margin increased by 70 basis points like-for-like and reached a level of 25.7%. As you can see on the chart, the combination of these operational factors contributed CHF 58 million to net profit. Excluding exceptionals, the net financial result remained stable. The group's share of results from associate partners was a negative CHF 10 million compared with a negative CHF 2 million in 2016.
The decrease mainly reflects some special one-time expenses as well as the business combination of Medentika, which was classified as an associate in the prior year and now contributes positively to the EBIT line. I would like to stress that the amortization and tax expenses have already been deducted from the associate result line. These businesses supply state-of-the-art products to the Straumann Group companies, which help to grow our revenues and had an overall positive impact on our operating and net profit. Income tax expenses amounted to CHF 48 million, in contrast to the exceptional tax income of CHF 7 million in 2016. Adjusted for special effects, the year-on-year difference was negligible, as you can see in the chart. The special effects included a CHF 43 million tax gain in Brazil in 2016. In September 2017, we sold treasury shares for CHF 260 million.
The respective cash profit of CHF 97 million increased equity and cash, but did not affect the P&L. In contrast to the special tax of CHF 8 million, which reduced net profit. Taxes in 2017 also include an expense of CHF 7 million as a result of the U.S. Tax Cuts and Jobs Act. We had to revalue some of our deferred tax assets related to tax loss carryforwards of our newly acquired businesses. Adjusted for all one-time effects, net profit margin would have amounted to 21.3%, 90 basis points higher than a year ago. On the next slide, you see the details of our cash flow statement. Free cash flow amounted to CHF 155 million. Thanks to the aforementioned profitability improvements, our EBITDA increased by CHF 64 million.
Capital expenditures increased CHF 27 million to CHF 73 million, primarily due to expansion plans in our premium implant facility in Switzerland and our capacity increases in the U.S. and Brazil. Days of supply increased by three to 174 days due to our extended offering in digital, geographical expansion, and the increase in SKUs due to portfolio expansion. The dynamic growth in emerging and distributor markets led to an increase in accounts receivable, and days of sales outstanding increased by one to 56. The combination of these effects resulted in a free cash flow margin of 13%. Return on equity amounted to a very solid 32%, and we are net cash positive. This concludes my regional and financial review, and I'd like to hand back to Marco for the strategic update and the outlook.
Thank you, Peter. Our growth strategy continues to focus on these three priorities, and I would like to share some examples of our recent progress with you, starting with people and culture. The strengths, diversity, and spread of our global team increased more in 2017 than in any previous year. We added more than 1,000 employees, bringing our global team to almost 5,000. Roughly half of the newcomers came through internal expansion and the rest through acquisitions across five countries. Of the employees that were added through internal growth, 329 were in production and 241 in sales. Here in Switzerland, we welcomed 153 new members of staff, the large majority of which were in production. We continued our cultural journey to promote the player-learner mindset and behaviors that will drive high performance and future success.
We extended the program of workshops and training modules to China and Latin America. Piloted a new additional program to foster entrepreneurial excellence. Moving on to our second strategic priority of targeting unexploited growth markets and segments, we took advantage of the Equinox infrastructure in India to establish a group subsidiary and to launch the Straumann premium brand. We also opened a subsidiary to serve customers directly in Iran. We signed various agreements to acquire distribution companies in Turkey, Portugal, and South Africa. We estimate that collectively, they account for one and a half million implants sold annually. We also continue to invest in growth markets like China and Russia, adding people and offices, and bringing key products to market.
Looking at the premium and non-premium markets on slide 29, you can see that despite our leading position, we have a relatively small market share, especially in the non-premium segment, where we have only scratched the surface in markets outside Brazil. This, the fact that the market is growing, mean that there is significant potential for us to unlock. On this map, the gray color countries are those in which one or more of our non-premium brands are available. I hasten to add that we have only taken early steps in some and do not yet have a full portfolio, for instance, in Russia. The blue countries are all markets where we intend to enter the non-premium segment in the next two years. Slide 31 is one example of why we are confident that we can succeed in this segment. Neodent's credentials are excellent.
With its new perfected Grand Morse implant system, Neodent is set to win further customers from our biggest rivals. We launched the Straumann Group brand at the beginning of 2017, specifically with this in mind. As the year progressed, it became clear that the group brand allowed us to bring our premium and non-premium businesses closer together, reducing complexity, creating synergies, and making life easier for customers. We are therefore integrating all our instrument activities, which were previously segregated and will coordinate them through the regions rather than from headquarters. This enables us to coordinate our sales teams and to tailor both our mix and sales approach to local markets. It also enables us to accelerate the rollout of our non-premium brands.
That brings me to our third strategic priority, which is to become a total solution provider in aesthetic dentistry. Digital solutions play a crucial part here, which is why we have created a dedicated digital business unit that became operational on the 1st of January. It combines our existing digital activities with Dental Wings and ClearCorrect, forming a powerhouse of 550 dedicated employees where research and development, production, portfolio management, training, and education are all coordinated. The potential for this business is significant. For example, in two of the most advanced dental markets, the U.S. and Germany, only 15%-20% of dental practices have an intraoral scanner. In Brazil and China, it is less than 5%. In contrast, dental laboratories are more advanced, but not everywhere.
By more than two-thirds of labs in the U.S. and Germany have desktop scanners, just one in four Brazilian and Chinese labs use digital technology. Our continuing truck campaign is one of several promotional initiatives to take our digital solutions to the customer. In the past two years, we have forged partnerships with the goal of providing a full digital suite, which now includes a choice of intraoral and in-lab scanners, milling machines, and 3D printers, all connected by powerful software. This provides us with a complete solution, which we are rolling out globally. In January, we launched the Straumann brand TRIOS Intraoral Scanner in North America, which offers dental practices a top-notch product that plugs into our CARES software and connects with our chairside lab and central milling options. Finally, I would like to update you on our orthodontics business.
The global clear aligner market is worth more than CHF 1.6 billion and is growing at double-digit rates. ClearCorrect has a modest share, which we are determined to grow through the initiatives outlined in slide 37, including broadening the indications for our aligners, leveraging the Straumann sales organization, and increasing adoption. The clear aligner treatment concept is still at an early stage outside the U.S. Leveraging the Straumann sales organization, increasing adoption, enabling general practitioners to identify and treat patients, and driving international expansion will be the key levers going forward. We are adding to ClearCorrect's reach in North America by using the Straumann sales force to generate leads. In Europe, we are running pilots in four European countries to determine the best sales approach, which we intend to implement in the second half of this year. In Asia, we are looking into the possibility of partnerships in China.
In Latin America, we are planning an initial launch in Q4 of this year. That brings me to the outlook for 2018. I have mentioned the exciting potential in various segments. Slide 40 puts everything together in one chart and shows just how much potential we can address in markets that are collectively worth CHF 11 billion. Looking specifically at 2018, we expect the global implant market to grow at approximately 4%, and we are confident that we will continue to outperform with organic revenue growth in the low double-digit percentage range. Operational leverage should lead to further improvements in our EBITDA margin. Despite continued high levels of CapEx investments and a rise in amortization charges, we expect to achieve a stable EBIT margin. Now I would like to open the question and answer session.
The opportunity to put the questions before we open the lines to our webcast participants. If you have a question, please enter your question in the webcast feature or press star 1 on your touch-tone telephone to join the queue. Kindly limit your questions to two questions. This will give all participants a chance to ask a question within the available time. Can we have the first question in the room, please?
Yes. Carla Bänziger, Bank Vontobel. First of all, can you give us a bit of sense of how much sales you generated with third-party products and what kind of growth you are roughly expecting there for 2018? The second one is on the non-premium. Also, if you could give us an indication where you are there in terms of sales and margin and how much you see the margin improvement there going forward. Thanks.
Thank you for the questions, Carla. Let's start with the second question, the non-premium question. Non-premium is growing above the premium segment, and that's about two percentage points to the growth rate. We generated in total sales of between 10% and 20% in revenue with the non-premium product. I also expect in 2018 that non-premium is growing above the premium business, not only from a market perspective, but also from our internal revenue perspective. Concerning the sales of the third-party products, I assume you refer there mainly to the digital equipment part that we added new to our product portfolio in 2017, especially in the second half, and it was one of the reasons why the growth rate in the fourth quarter was a bit above the expectation.
It's always a bit difficult to say how that will be developed because we are not selling a digital equipment every other month to a dentist. We sell a digital equipment once in a couple of years, so the demand there might be a bit more erratic than in the implant development business. However, if we look at the share of sales that we generate with the digital equipment, it's still a very low share compared to the total overall sales that we generate, and it's in the single-digit percentage.
Hello.
Can you give us some information, the slide you provided in, what was that, 34, with the penetration in China and Brazil for the digital stuff, which is very low, where you are in terms of approvals? I don't have every product line in mind-
-in every region. Basically China and Brazil.
In Brazil, we are present in the lab and in the dentist digital segment. We have, I don't know if you know that, we have distribution, for example, of the Amann Girrbach products in the Brazilian markets. We also have the inLab, the Dental Wings inLab scanners distributed in the Brazilian market, and we have started with 3Shape and the Dental Wings intraoral scanner. In Brazil, we have the full portfolio already in the market. In China, we are not yet in the digital segment. The labs scanners are registered, so we are actually looking at starting to distribute labs scanners in the Chinese market during the course of 2018. The intraoral scanners, the Dental Wings intraoral scanner is not yet registered, but we are also looking at potentially starting to distribute the 3Shape intraoral scanner during the course of 2018.
China is still, we are not yet in the digital field. We are about to open up our own CAD/CAM milling center in China. I think I informed you about this already quite some time ago. The opening will be end of March, and then from April onwards, we will be able to sell CAD/CAM manufactured abutments and other products to the Chinese customers.
Okay, thanks. The second question regarding the gross margin bridge on slide 18. I didn't really get the point with the minus 90 basis points from volume price and labor. Volume should normally be positive on the gross margin. I understand totally the mix effect, but I didn't understand fully the volume effect.
Can I take the question?
Yeah.
There are two answers to that, Danny. On the one hand, we are really running at capacity limit, we had to outsource the production of some less critical part, of course, not of the implant production, but of some less critical auxiliary parts to some third-party suppliers, and outsourcing the product comes at a higher cost for us. That's the one hand. On the other hand, you are aware that we are investing in the expansion of our production capacity at basically at all the different sites, that comes up also with a certain ramp-up cost because we have to add the people and takes a couple of weeks or a few months until these people are really productive and trained, and we need to absorb that there. These costs are certain one-time ramp-up costs which are not fully absorbed by the production increase.
These are the main two factors in that bucket there. In price, as we have said, we have seen stable prices, price is not really neither a factor that drives revenue nor that drives profitability.
Paul Techie, Kepler Cheuvreux. I have two questions with regards to margins. You've been very helpful in showing your potential on the sales side and what is driving top-line growth. Can you help us understand a bit better what the margin developments or what the parameters will be that influence the margin development? A, the consolidation of, or the full consolidation of the acquisitions, what kind of, how much of a dilutive impact should they have or could they have? It would be really helpful if you could give us a rough number for depreciation and amortization for 2018 and 2019 because you indicated it's going to go up, right? Just to be able to do the math in our models. Thanks.
Let's talk with the second part, Maya, concerning the amortization. I think we need to see the year 2018 as a certain transition year. We made quite some acquisitions in 2017. We only consolidated them in the last quarter. For Dental Wings, we had the acquisition, and you see that on chart number 20: you see the amortization charges there for Dental Wings, CHF 1.2 million. You can factor that then for the full year, which will be an amortization of roughly CHF 5 million for the full year in 2018. We have not finalized the purchase price allocation for ClearCorrect since 2018, the ClearCorrect amortization will add. You will ask how much that will be. As we have not finalized that one, I cannot really give you a number, but I would say that's a number somewhere in the highest single million digit.
If you add these two factors, you already see that the amortization is going up something like around
10%-15%, in that order of magnitude compared to the year 2017. That's also the reason why we see the EBIT margin more on a stable development, whereas we see further underlying operational improvements in the EBITDA margin that will increase in 2018. At the same time, we also need to be aware on the development of the gross margin. In 2018, I assume that we will see some headwinds on the gross margin due to the change in the portfolio mix. That is not that the gross margin of the different product lines are going down, but we will have a higher share of the non-premium business. We will have a higher share of third party and digital equipment, which we will also see a headwind on the gross margin.
For me, the key important KPI is the EBITDA margin development, and we will see a further increase in the EBITDA margin in 2018. From a pure operational point of view, I would not expect that ClearCorrect and Dental Wings will have a significant impact on the margin.
Just to double check. I misunderstood when you said that both 2018 and 2019 amortization costs were to go up.
I mean, the amortization charges, we have one step in 2018 because we need to catch up.
Okay. Not another step.
In 2019, it depends on the M&A activities that we have in 2018, of course.
Yeah, of course. Okay, that's good. Thanks.
On the depreciation, as we are in a high investment cycle, I mean, you have seen we have invested CHF 75 million this year. In 2018, I would expect another at least that amount of CapEx and in 2019 as well. CapEx would then probably go down after 2020, and that will add then also a bit to the depreciation in 2019 going up, of course.
A question to the room. Yes, please.
One question on the aligner rollout strategy. Actually, could you speak about the competitive landscape in Brazil, given that it looks like now you should soon be able to launch there, and also basically on the European side, what has been the criteria to select the four countries and which they are actually? That would be the aligner question. The second is relating to the pipeline in your implant business. If you could give an update on your efforts on the fully tapered and the ceramic implant side.
In the Brazilian market, also there the leader is Align Technology. There are also some local aligner companies in the Brazilian market. However, if you look at their scale and the way how they manufacture it, has nothing to do with the way how Align Technology is manufacturing clear aligners and how we at ClearCorrect are manufacturing clear aligners. These are smaller setups. Our intention in the Brazilian market obviously is to leverage the Neodent infrastructure from a production point of view, but also very importantly, the whole shop infrastructure. As you know, we are actually entertaining a network of own stores throughout Brazil, which for the aligner business, potentially is very attractive because you actually can bring impressions there, you can scan it there, and you can actually shorten time of delivery. In Europe, it is also Align Technology, is the strong player.
Align Technology has over 70% global market share, they are everywhere, the strongest force. Also in Europe, you have smaller players, these are more large labs. If you look at how they manufacture clear aligners compared to Invisalign or also ClearCorrect, it is at a different scale. The four markets in Europe we are looking at is Scandinavia, we are looking at Switzerland, we are looking at Germany, and we are looking at the U.K. The second question was?
Pipeline in implants.
Pipeline in implants. I think we also communicated quite some time ago already that we still have one gap in our implant portfolio, and that's the fully tapered premium segment. The NobelActive type of implants, which we estimate is roughly 30% of the total premium market. If you take the assumption of roughly 7 million-8 million premium implants, this is a potential of 2 million-2.5 million implants in this segment. We have already CE mark for our new implant line for some of the diameters. We are about to get the CE mark for the rest of the portfolio, and our objective is to go into a limited market release in Q4 of this year, then to do a full market release during IDS in March of 2019. This is one of the initiatives.
The second important initiatives when it comes to our implant pipeline is the injection molded ceramic implants. I think we have also talked about this one. We have a joint venture in place with maxon motor. Also there, we will go into an LMR at the end of 2018, and our objective is actually to go into a full market release during Q1 2019 with the launch at IDS in March. These are our two key initiatives when it comes to implants.
Andreas Möckli, Aargauer Zeitung, Schweiz am Wochenende. I have a question regarding the expansion in Villeret. You added roughly 100 jobs there in the past year. Can you shed a little bit of light on what you did there? Were there new buildings or was it done all in existing facilities? Also your thoughts on the Swiss franc. You were, some years ago, very much concerned about the strengthening of the Swiss franc. Now it has weakened, but still it could change again. Now you're building up quite significantly jobs in Switzerland again.
In 2015, we actually used the remaining space at our existing buildings in Villeret. We still had a little bit of space to add CNC machines. We also hired a third-party facility in Courgenay, where we are now manufacturing mainly instruments. We are now in the process of building a second, not a second factory, but a second building, which will help us to add more than 50% of capacity in Villeret. That building will be finalized during the second half of 2019. 2018 and first quarter of 2019, we are in the phase of actually ramping up our production capacity in Switzerland. We are a Swiss company. We are committed to Switzerland. Swiss made is actually one of the key features of our premium implants. You're right. Now the exchange rates have actually turned into our favor.
It could well be that, in two, three years, the situation might be different again. I can just describe again, we are committed to Switzerland. We've taken steps during the Euro crisis when it comes to sourcing from third parties in currencies different from the Swiss franc. Our core manufacturing side, when it comes to premium implants, will stay in Switzerland, and we are committed to invest and actually to make sure we have sufficient capacity to cater the growing demand for our premium implants.
Just one quick follow-up. What's the scope of the investments you're doing in Villeret this next year?
Well, as we have said, this year total or 2017 total investments were around CHF 75 million, and it will stay at that level for 2018 and 2019, and I would say a higher fraction of that is in Switzerland overall. If you just look at the building and the production site that we are building there, it's a very sound double-digit million number that we are investing there.
Just to understand, the full CapEx of 2017 was CHF 75 million, it should be the same amount in 2018 and 2019, right?
At least I would say in 2018. It could even be a bit higher in 2018, yeah.
Okay. This means also that the depreciation will go up, not only the amortization in 2018, right?
Yes.
Okay.
Yes, you have seen the depreciation also went up in 2017 already by roughly [inaudible] , yeah.
Okay. This is then the gap between EBITDA margin increase and EBIT margin [slant]?
The entire amortization and higher depreciation. Yes, correct. Of course, the investments that we are doing are also under construction, for example, the building until the end of 2019, we then start the depreciation.
On slide 14, the EMEA and North America sequential growth acceleration in the last quarter. Both, of course, very impressive. You mentioned for EMEA, the digital sales, completely understood. Can you shed a bit more light on Middle East? Was that also tender related? More kind of a one-off, I mean, one-off, of course not one-off, but maybe a quarterly event, and we have to wait for the next one. Also, why Germany especially, quite a mature market, was one of the growth drivers. Was that because of the non-premium as well or across the board? In North America, also on this slide, we didn't really mention here digital. Does that mean it was purely an acceleration on the volumes-- on the implant side, or had digital also a certain role?
In Q4, if you look at EMEA, we had a very strong fourth quarter, for example, Iran. The first time in Q4, we really saw a payback on the investments we did to actually penetrate the Iranian market. Also very strong fourth quarter in Turkey, where we have been able to switch many customers to Medentika, this was mainly non-premium. Middle East was kind of normal business, there were no big tenders or big deliveries in Q4. Germany, for sure, the digital business helped. We sold a lot of intraoral scanners in the fourth quarter, in-lab milling machines. As Peter mentioned, Q4, a couple of percentage points in Q4 were due to the launch of 3Shape intraoral scanners. They added a couple of percentage points to overall growth in Q4. The U.S., we have not launched 3Shape yet.
That's actually what we're going to do in Q1, as I pointed out. North America, really the core of the growth was coming from our dental implant business. It's always a question of interpretation. Growing more than 10% in a market that grows between 3% and 4%, I think is still not shabby. It actually means that we're going to grow again our share also in 2018. Obviously the range between 10% and 15% is relatively wide. We are in February, so it would also not be prudent to give you an exact number. The year is still young.
Before we move on to the Chorus Call line, I have one question from an audio webcast participant. This person would like to know the upcoming European medical device regulation, the changes, if that will be a burden for the discount players because the compliance costs will raise for them, and are they going to be potentially taken out of the market due to these higher costs?
I would say it's a burden to everybody, not only the discount players, because it means additional costs. We already seen some of them coming through in 2017 because we have ramped up our regulatory and quality resources quite considerably. First of all, to understand what this new European medical device regulation is all about. There is no clear guidance or clear guideline what this really means, what you really have to do. It's actually at the end, the industry which has to actually form an opinion about what has exactly to be done. We all know implementation will be in Q2 2020, so we have a little bit more than two years, actually, to deal with it.
Yes, tendentially, obviously the smaller companies, for them, because they have to comply at the same level as the big ones, for them, it's potentially even a bigger burden than for companies like us or the Danaher or Dentsply of this world.
Thank you, Marco. Operator, can we have the first question from the audio line?
The first question from the phone comes from Patrick Wood from Citi. Please go ahead.
Perfect. Thank you very much for taking my questions. I have two, please. The first is on the FTC investigation in the U.S. of the dental distributors. I'm just curious to get your thoughts on that and whether that affects you guys on any level at all. I'm assuming almost all of your sales in the U.S. are direct rather than really materially through these guys. I'm just curious to get your views on that. The second one, if I can, please. I'm not a patent expert, but I was just curious on the Align court ruling with ClearCorrect on the treatment planning side. Is that particularly relevant? How should we be thinking about that going forward and the growth ambitions within ClearCorrect? Thank you.
Could you repeat the second question? I didn't fully understand that on ClearCorrect.
Yeah, of course. It was the patent review, where the courts upheld a couple of Align's patents on the treatment planning side. Is that something we should think about, or is it not particularly relevant to the ClearCorrect growth trajectory?
Okay. On the first question, no, we are not affected. We have a little bit of business going through distributors. We are selling our Dental Wings intraoral scanners through Benco. A little bit of business we have, but in general, we are not affected by this investigation. On your second question, the latest patents which were published by Align, they do not affect ClearCorrect because ClearCorrect is actually manufacturing their clear aligners in a different way. We are outside of that patent.
That's perfect. Thank you very much.
The next question from the phone comes from Tom Jones from Berenberg. Please go ahead.
Good morning, and thanks for taking my questions. I had two. The first was just on the market growth outlook. I'd be intrigued to know some color on where you get your 4% from. The reason I ask is, with you expected to grow low double digit, if Nobel can continue its current performance, they should grow high single digit. You've already alluded that the value segment, which is mainly the others in your chart, are growing above market. That would imply that 60% of the market is growing in the high single digit or better range, which would imply the remaining 40% must be suffering some fairly severe declines. I'm just intrigued to know who you think is really going to suffer over the next 12 months to get to your 4% market growth rate. The second question, one for Peter.
I just wondered if you could give us some more detail on the revaluation of this loan. What was that about? What happened? Why did you have to write it down? Where in the balance sheet does that asset currently sit? Because there doesn't look to be much that's big enough to represent a CHF 16 million write-down.
I take the first question. Peter, you can actually talk about the loan. The 4% market growth, there are no really hard data like in the FMCG industry, for example, in terms of how fast the market really grows. We actually are basing this on a survey we do on an annual basis with our subsidiaries. Okay. We also have this TIMDC panel in place, where we actually send in data, and the data is actually audited by an independent company. We know pretty well what our share is in the premium segment. Through this panel, we are also asking the other industry players, what is your assumption in terms of market growth? It's a combination of this panel of all the larger players in the industry, projecting the growth of the market and our own assumptions based on the market intelligence from our countries.
Clearly, as you pointed out, the non-premium market is supposed to grow faster than the premium market. The 4% is a blended rate, includes Straumann. If you take us out, obviously the market growth is lower. If you look at the premium growth, we estimate that the premium segment will grow, including us, between 2% and 3%, and the non-premium one will grow between 5% and 6%. The 4% is a blended rate.
Sure.
Peter, maybe you can take the loan question.
Coming to the second question concerning the loan. That was a loan that we disbursed at the beginning of 2017, obviously the development in the later months were different than what we expected at that point in time, that in the second half of 2017, I came to the conclusion based on the assessment of the situation, that it's prudent to revalue the loan. Therefore, as this transaction happened in 2017, if you look at the balance sheet at the end of 2016 and 2017, you would not really see that difference comparing these two balance sheets. I would like to point out that that loan was not given to one of our associated companies, it was also not a loan that was given to support the top-line growth.
Okay.
Otherwise, I ask for your understanding that I cannot go into more details on that topic.
All right. Okay, fair enough. Well, maybe in the next case, I can have a third question that you might answer. The gross margin profile between H1 and H2 is quite a severe drop, H2 versus H1. For 2018, should we be thinking the full year 2017 is a reasonable proxy, or should we now be thinking that the H2 2017 is a better benchmark for how to think about gross margins in 2018?
For 2018, I would expect a further headwind on the gross margin side, but as I pointed out, we can compensate that on the EBITDA level. The reason why the gross margin in the second half 2017 was a bit lower than in the first half is on the one hand, that we really ramped up the digital equipment business, and on the other hand, we also consolidated, as you know, the ClearCorrect Dental Wings operation in the last quarter, which also come with a slightly lower gross margin compared to our traditional implant business. If you look at the gross margin in the second half 2017, that's for sure a better proxy for 2018 than the full year gross margin 2017.
Perfect. Thank you very much.
Thank you for your questions. If you need further information, you will probably find it in our annual report, which was published today and is online. Of course, you are welcome to contact our colleagues in investor relations and corporate communications. That concludes our conference today. We look forward to seeing you at one of the upcoming financial conferences or during our roadshow meetings, which are outlined on slide 44. Thank you again for joining us, and have a great day.