Ladies and gentlemen, good morning. Welcome to the Third Quarter 2017 Results Conference Call and Live Webcast. I'm sorry, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session.
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, sir.
Thank you, and good morning, ladies and gentlemen, and thanks for joining us for this conference call on Straumann's 2017 9 months results. We will be referring to the presentation slides that were published on our website early this morning. And before we begin, I should inform you that our discussion will include forward looking statements. So please take careful note of the disclaimer on Slide 2 of the presentation and at the end of our press release. As usual, I will take you through the highlights, and then Peter Hochert will share the performance and financial details with you.
After that, I would like to tell you about some recent expansion initiatives and our progress in bringing key products to hydro's markets. I will conclude the presentation with our outlook, after which we will be happy to take your questions. But first, let me begin with the highlights on Slide 4. Excluding acquisition and currency effects, our organic revenue grew 15% in the 1st 9 months of 2017, driven by double digit expansion throughout. In Swiss franc, the increase amounted to 19%.
With organic growth raising to 16%, Q3 was our strongest quarter in 9 years. North America was the main contributor and kept pace with organic growth in the high teens. Asia Pacific is another star performer and remains our fastest growing region with 9 months organic growth of no less than 24%. Our ability to offer comprehensive solutions in both the premium and nonpremium segments has been a key to our success. The Straumann BLT implant range continues to drive growth in our premium brand.
Daimler Dent implant and Adentika prosthetics both fueled our nonpremium business. With regard to geographical expansion, we have opened a a subsidiary in Iran, and we are well on the way to setting up further subsidiaries in Turkey and South Africa. I am pleased to report that we have completed also have some very good product news. Neodent launched a new We also have some very good product news. Neodent launched a new implant system that will succeed its Kolmour flagship line, and Straumann obtained key product approvals in China, Russia and India.
These additions and our full pipeline position us well for future success. Based on the continued strong performance, we are confident that our full year underlying revenue growth will reach 13% to 15%. As you can see in Slide 5, we sustained our momentum in North America and EMEA in Q3 and accelerated in Asia Pacific and Latin America. The result in North America with continued strong growth of 17% is particularly pleasing because it is a very tough market, and we are competing against the biggest conglomerates in our industry on their own turf. Slide 6 shows how our top line has increased over the past 5 years, and we are currently outperforming the global market by a factor of more than 3.
The outperformance is even more impressive when you exclude strong contribution to the global market growth. This success has come from double digit growth in implants in recent years and throughout 2017, fueled by our premium BLT implant range and the success of Neodent in the nonpremium segment. Our restorative business has also sustained double digit growth, driven by implant borne prosthetics, including cap camabotments, the cost effective LovaLog and VarioBase families and our Pro Arch solutions. Our highly successful digital solutions campaign at the IES early in the year simulated demand for our internal scanners and milling equipment, which also contributed to growth in Q3. Biomaterials is the group's smallest franchise, but it continues to be the fastest growing, albeit from a relatively low base.
And with that, I will hand over to Peter.
Thank you, Marco, and good morning, everyone. As you can see in Slide 8, our reported 9 months revenue in 2016 amounted to CHF 675,000,000 and would have been CHF 6,000,000 higher at this year's currency exchange rate. The acquisition effect of Medensica and Equinox over the same period as a further €17,000,000 bringing the adjusted revenue base in 2016 to €698,000,000 In the center of Slide 8, you can see the regional organic growth rates, while the regional contributions to the overall growth of 15% are shown on the right. From a regional perspective, our largest regions, North America and EMEA, each contributed 31% of our growth. Asia Pacific was the key performer and notched up a revenue increase of 24%.
Latin America also developed positively and achieved growth of 16%. Slides 910 provides more insight into the individual regional performances. Europe, Middle East and Africa performed consistently throughout the last three quarters and again posted growth of 10% in Q3. All businesses contributed to the positive results fueled by VLT and Prosthetic Solutions. Germany was the main absolute contributor with Iberia, France, Belgium and the UK delivering the strongest increases.
Our young subsidiary in Russia performed dynamically and benefited from the large Moscow dental salon where our premium and non premium brands appear together for the first time. North America held its pace in Q3 and again delivered organic growth of 17%. The performance was led by double digit growth in the premium and non premium implant businesses and lifted by our prosthetic franchise, bone graft materials and membranes. Many new customers were attracted by our new small diameter BLT implants. The heavy hurricanes in Florida and Texas brought disruption to many local dental practices.
Fortunately, there was no direct damage to our Capstone production sensor and our ClearCorrect facility, which are both in Texas. As a result, there was little impact on the group's Q3 results. Organic growth in Asia Pacific is up from 19% in Q2 to 28% in Q3. The newly acquired Equinox business in India added 3% to reported growth. China, Australia, South Korea and Japan all posted double digit increases.
Thanks to good demand for intra OS Dennis, Japan accelerated sequentially in Q3 and was the strongest quarter year to date. Growth also accelerated in Latin America in Q3 from a comparatively lower baseline in the prior year. The nonpremium business was boosted by the launch of new GMs and the very effective direct to patient marketing campaign in the large Brazilian market. On top of this, our younger subsidiaries in Argentina, Colombia and Chile performed well. These high growth markets have also added nicely to our regional growth.
Mexico has been enjoying a wave of strong growth driven by substantial customer acquisitions, but the severe earthquake in September has interrupted life and business in general. While our staff and facilities were not harmed, many dental practices were heavily affected, and it may take time to regain the dynamic expansion seen previously. To meet the increasing demand for current products and to cater for portfolio additions, we need more manufacturing capacity.
As you
can see in Slide 11, we have increased our production space at Neodent in Coorschieba by 60%, that is 5 0%. Over the next 18 months, we will expand milling capacity drastically by a third to cope with anticipated demand and this is on top of the first expansion phase that we just completed in Q3.
In Villeret, we are about to
start construction of an impressive new building on our existing site. As a bridge, until end of 2019, we have rented additional space nearby. And once the new building is finished, we will move those activities into it. These measures will provide the space to increase output by an estimated 70%. Across the Atlantic in Andover, we have leased additional space at our existing facilities, which will enable us to increase capacity by up to 60% as needed.
And with that, I will hand back to Marc. Thank you, Peter.
As you know, our strategy has 3 main pillars. The first is to foster a culture and an organization that drives high performance going forward. Our global workforce is another area of rapid expansion. Slide 14 shows that we have added almost 1,000 new members of Soft this year, of which roughly half have come through the acquisitions of ClearCorrect, PENZULRINX and Equinox and the consolidation of Medentica. Over the past 5 years, the number of our fully owned subsidiaries has risen from 29 to 46, reflecting our strategy to target unexploited growth markets and segments.
A few weeks ago, we opened a new subsidiary in Yam and are in the process of establishing 2 more, 1 in Turkey and the other in South Africa. These three markets are highly attractive. Collectively, they account for more than 1,000,000 implants annually. And despite the great need for tooth replacements, they are all under penetrated. Straumann products have been available in each one of these markets for many years through local distributors.
I am pleased to say that the latter has all agreed to join us, which will add more than 200 trained professionals to the Straumann Group and direct access to the existing customer base. With control over the distribution channel, we will implement a multi brand strategy to broaden the availability of affordable implant biggest launch what is probably our biggest launch event to date, which they call Big Bang. Having received some key approvals in Q3, we are now launching a number of important products and solutions in China, including DLP, which has been a key growth engine in other markets. It is available in high strength rock solid and with the SL Active Surface, both of which we can now offer throughout the Straumann implant range. In addition, we are launching the ANTOFIA fully tapered Axiom PX implant, which extends our nonpremium offering.
Our full arch restoration solution, Pro Arch, is also now available, and we are introducing a CADCAM prosthetics service. This is from a milling center in Shenzhen that will start operating during Q2 in 2018. The Big Bang launch event spanned 3 days and includes parallel conferences in 4 cities, which are expected a large number of participants. Yesterday, we had 1600 on-site and 13,000 online. In addition, we have received regulatory clearances for BLC in Russia as well as in India, where all our Straumann soft tissue and bone level implants are now registered.
We will launch the Straumann brand officially in a few weeks' time and will offer a broad range of premium and attractively priced options under the Straumann and Equinox brands. The most significant addition to our non premium portfolio in Q3 was Neodent's Grandmall implant system, which you can see in Slide 18. This is a new system which features a new connection and offers greater flexibility and simplicity, especially with regard to prosthetics. GM is Neodent's most significant development to date. The 1 year clinical data are excellent, and GM attracted 200 new customers in its 1st month on the Brazilian market.
Preparations are underway for the international rollout, which is scheduled for the second half of twenty eighteen. Moving on to Slide 19. Just over 6 months ago, we launched a large number of new products and solutions at the IDS. In spite of this, we were still able to present several further additions at the recent EAO in Madrid, powder free upgrade for the Dental Wings intraoral scanner, a portable intraoral scanner port and a surgical drill motor. All of these are strongly validated and branded.
As customary, we use the EO as a platform for experts to present their experiences on our products. Our scientific symposium drew a large audience and focused on eventual solutions, ProArt, Novolog and BSD with immediate restoration. Recordings of the symposium are available through our website. In addition to the clinical evidence presented at the EO, we have some exciting new data on our Estelle Active surface. Research now explains the mechanism behind the faster osseo integration and high success rate that has been reported in clinical practice over the past 10 years.
In brief, researchers have discovered the presence of on the surface of SL axis implants that do not occur on SLA equivalents, as you can see in Slide 20. The nanostructures increased the surface area by 50%. Together with wet ability, they enhanced wide range network formation, cell adhesion and osseointegration, which would explain the enhanced healing that we see in the clinic. These findings relate specifically to Active implants, which are unique to Straubel. Since we introduced SL Active, other companies have attempted to imitate it.
Several claim that their implants are also hydrophilic and active. None have proven this mechanism, and none have published 10 year clinical data on the surface we have. All of these activities reflect our strategy of providing total solutions, which we have expanded to cover aesthetic dentistry following our decision to enter orthodontists. As you can see in Slide 22, we have completed the acquisitions of ClearCorrect and Dental Links and have consolidated them as of October 1. We have also closed the deals that require 35% of rapid sales, and the Genova transaction was completed earlier in the year.
The illustration in Slide 23 shows the similarities in the digital workflows for prosthetics and orthodontics. Both workflows start with impression taking, followed by design phase and completed with a customized manufacturing process. With Dental Links, Rapid Shades and other partners, we can provide the technology, materials and services to come both workflows completely, all from one source. And that brings me to our full year outlook, which we have updated this morning. In brief, we expect the global in class market to grow at a similar rate to 2016, and we are confident that we will continue to outperform this organic revenue growth of between 13% 15%.
And now I would like to open the question and answer session. If you are dialing in by phone, please make sure you have a good phone connection. Kindly limit yourself to 2 questions in order to give everyone the chance to ask a question. Webcast participants who wish to ask questions anonymously can use the tool in the audio webcast. So operator, can we please have the first question?
We will now begin the question and answer session. The first question is from Michael Junglin, Morgan Stanley. Please go ahead.
Thank you and good morning. And I have two questions. Firstly, on organic sales growth guidance for 2017, It sort of implies a very wide range of 9% to 15%. Why do you need such a wide range for the 4th quarter? And why would you even consider a growth rate in the 4th quarter that may be 9%, 10% or 11% given your current run rate?
Question number 2 is on operating leverage. In the second half, should we be thinking that you were caught positively by surprise as to the strong organic sales growth, meaning that you've got plenty of scope to show better margin expansion, EBIT than you did in the first half versus the second half, the stronger second half margin expansion than the first half?
Thank you, Michael, for the questions. Two questions. Just to write, 13%, we would have to achieve a 9% organic growth in the 4th quarter. And we believe strongly that we can actually deliver at least the 9% growth. That's why we say 30% is actually what we are extremely confident to achieve.
If we achieve 50% organic growth, obviously, in Q3 'four, then the full year growth would be 15%. So what we wanted to indicate with the raise of the outlook is that we are extremely confident that we will achieve at least 30% organic growth for 2017. On your second question, when you look at absolute growth for first half versus second half, there is not a lot of difference. It's more or less the same, even a little bit lower in the second half, obviously, depending on the growth rate in Q4, as you indicated before. However, you have to take into consideration that we actually grant salary increases normally effective April 1.
So we have, in the first half year, only 50% of salary increases compared to 100% in the second half of the year. And we also have increased our ATEs during the course of the years quite significantly to also coach and always the business in hand and to make sure that we continue to grow over proportionally in the years to come. So we will have more FTEs on average in the second half of the year compared to the first half. So taking this into consideration, I don't think it's a wise approach to actually estimate that the EBIT margin in the second half year will be considerably higher than during the first half.
Okay. And Mark, on the first question about organic sales growth implied for the Q4, Should we be concerned that maybe you've had a slower 4th quarter start and as a result, the 9%, 10% on the bottom of the range is perhaps appropriate or applicable?
I didn't say that, no.
Okay. So you're starting Q4 with a fairly good growth rate?
Yes. I think also 9% is a good growth rate, if you consider that the market is growing at 3%. So that still outperformed the market by a factor of 3%.
Well, Mark, I recognize it's roughly your share price of 9% would be a bit of a challenge, right? So the question is, are you starting the 4th quarter at a similar organic growth rate as we've seen for the 1st 9 months?
I mean, what I can tell you is that actually, the start of the 2 4th quarter was up to expectations.
Next question is from Julien Dumoulin from Exane.
Two questions on my side. The first one relates to your geographic expansion. So you have entered another set of new countries with a direct presence. I think you mentioned that you are now in like 46 countries. Are they still the top countries where you don't have a direct presence and which show a big potential?
And obviously, just a ballpark number would be enough, but just to get a sense on what you can do more? And the second question is that you indicated during the Q2 call that you would come up with more precise guidance or estimates regarding ClearCorrect now that you have closed the acquisition? So any indication on how you see revenue growth and margin development that's actually correct would be very helpful.
On your first question, looking at our geographic coverage to own subsidiaries, The larger markets we have covered now with the 3, obviously, projects which we have announced today, speaking about Iran, Turkey and South Africa. We still have not a very strong direct presence in the former Eastern European countries. And for example, Poland, we are still working through a distributor. Romania, we are working through a distributor. So these are interesting markets, interesting implant markets also, especially Poland, are fast growing.
So we are not yet fully where we want to be, but I would say over 90% of the direct presence we wanted to have when we actually launched a strategic initiative to actually further explode the product growth market we are where we want it to be. In terms of ClearCorrect, we will give you a more detailed update during the full year presentation in February of 2018. We are currently looking at which markets we want to enter 1st, outside, obviously, of the U. S. And that we are correct, as you all know, as per today, it's really a U.
S. Business. So we have beyond the process of defining pilots. We are in the process of actually also defining the working model or the operating model between Beoproix and our sales force organizations in the corresponding countries. And I would just ask you to stay tuned and to wait until February of next year, and then we will give you much more color on this business.
Okay. If I may just follow-up then, just on the U. S. Business, so the one you already well, this company has been in for many years. Can you just give us an indication on how growth has fared in 20 17?
I mean, are you more or less in line with Align? Or is it faster? Or any indication would
help us for modeling purpose?
If you look at the U. S. Business, the branded U. S. Business or the U.
S. Business sold under the ClearCorrect brand in 2017, it has been developing up to probably January. And if you look at the market, it's mainly aligned. To be honest, 2017, the ClearCorrect franchise, they lost 1 significant OEM business, which has been taken over by Align. I don't think I have to mention the name.
You can only imagine what business this is. This was obviously kind of, how to say, negatively impacting top line development. But the organic growth with ClearCorrect brand, the products in the U. S. Market was actually in line with market development.
Thank you very much.
Next question is from Patrick Wood from Citi. Please go ahead.
Patrick, thank you. Good morning, Marco, Peter and Palliane. Actually, if I may, please. Please. The first would be just on the implant market.
I'm curious, rather than just for yourselves, if you think of the market overall, do you think the power of all implant systems are still growing? Or have we gone to a point where pretty much all the global growth is on the tapered side this year? I'm just curious as to how you see the growth rates stacked up between globally power walled and tapered? And the second question would be, if you think about the Carolina business, if you sort of cast your mind forward, I don't know, 5 years, whatever time frame you'd like. I'm curious as to what proportion of malocclusions you think you could treat with a hybrid device between ClearCorrect and Genovia over that time frame?
I mean, are things like class 3 out of the question? Or long term, do you think you can treat the majority of the occlusions? Thank you.
Okay. On your first question, if you look at the market share we have in the premium implant space as when it comes to parallel implant, we are talking here roughly 80%. Obviously, with such a high share, your growth rates are kind of limited. But that doesn't mean that we didn't grow our Power and Roll franchise during the course of 2017. But it's obviously clearly below the growth rates which we have seen coming out of our BLT franchise because there, our market shares in the applicator segment, the premium segment, is still relatively below.
But we have been able to grow our parallel loan franchise during the course of 2017. On your second question, also here, I would actually like you to stay tuned until February of May. Obviously, we are looking at positioning Chenniora in a way that it's fulfilling what you just said before, kind of between traditional braces and brackets and clear aligners. That was also the reason why we divested into this company. But it's still too early to actually make detailed comments on the exact strategy, the exact positioning.
So I would like you to stay tuned until February of next year, and we will actually share much more information on the orthodontics business with you.
No, no, that's very helpful. If I could just do one quick follow-up, please, on the Powerwall and tapered side. I'm curious, what do you think has accelerated the shift towards tapered, not for yourselves, obviously, but for total market? It's unfair to me, reading trade magazines, you can drop out exactly why that shift seems to, and correct me if I'm wrong, accelerated in the last, let's call it, 2 or 3 years. What's driving that?
It's actually it's a philosophy question. And the market itself has been there since many, many years. Fact has been that Straumann has not been playing in the apical tapered and linked and harden. But that's not a new segment. If you look at the Nobels or the 3Is of this world, they have been focusing exactly on this.
2nd in the past, while Straumann was focusing more on the parallel world world side of the business. So it's not like this is a new segment. We just, as Straumann, we were actually not playing in this segment.
Of course. I understand that. I guess my question is for the total market. In total, do you think there is a shift towards Parallel Wall, not for you guys, just for the total market sorry, tapered rather than Parallel Wall, is the total market shape moving over towards tapered and away from Parallel Wall?
So what I can tell you is if I look at the growth rates of our parallel walled premium implants, and we only have parallel walled implants in the premium side. So we don't sell parallel walled implants under the Nodent brand or the Nodentica implant brand or on the HIRO Dental. We only have it on the premium side. And I look at actually the growth rate of our tissue and bone level parallel walled implants, and I compare that to market growth, obviously excluding Straumann, okay? Then we are still going above market with our Power and Roll franchise.
So in other words, we are also with the Power and Roll franchise, we are gaining share on behalf of the other premium players. Players.
Next question is from Lisa Clive, Sunpros. Please go ahead.
Hi. Just a few questions about use of cash on the business. This year, you've done several acquisitions, and it sounds like CapEx is going to be a bit higher on the back of sort of needed capacity expansion. Could you just give us a bit more firm guidance on how to think about CapEx in the next sort of 2 to 3 years? And then also on M and A, should we just continue to expect some more distributor acquisitions?
You have said you're direct pretty much in most of the markets, but is really where any M and A spend could go, perhaps also sort of selective local brands like what you did with Modentica? And then lastly, on the ClearCorrect, could you just specify the mention of the loss of the OEM business?
And had that actually happened before
you announced the purchase of ClearCorrect?
Can you repeat the last question?
On the ClearCorrect, you mentioned the sort of loss of customer loss there. And it was that something that had happened before you announced the acquisition of ClearCorrect?
Let me take the second question, and Peter can actually comment on the CapEx. Now we were obviously aware that this business has been lost. So that's why the growth rates of the ClearCorrect business in 2017 will not be spectacular. But again, having said that, the U. S.
Business, the ClearCorrect branded business is actually growing very, very strongly in line with the other key competitor in the U. S. Market. And the other one was a low yield deal, and that business was actually taken away from GearCorrect and was shifted to the other big player in the segment. And if you do a little bit of research, you will find out which business we are talking about.
On the CapEx side, Peter, Liza. As you have noticed through my presentation, we are going to an intense phase of capacity expansion at all the different sites that we have. We have just completed the 1st phase of expansion in Proitiba, and we are embarking on a second phase of expansion there. We will expand until the end of 2019 our production space in Villele by 70% that we can then gradually fill with respect with machines. So for this year, my assumption for full year CapEx is around CHF 65,000,000.
And in 2018, I would assume at least the same level of CapEx spend. It might even go up by another CHF 10,000,000 in 2018 and stay at a similar level in at the beginning of 'nineteen once we have then finalized all these expansion phases in all the manufacturing sites that we have around the globe.
Okay. That's very clear. And then on M and A, with is it really just distributors that make the most sense at this stage?
It's on one hand, it's distributable in the markets I described before. On the other hand, we are obviously targeting at becoming a global player also on the orthodontics side. If you look at some of the markets, for example, China or if you look at also Brazil, registration hurdles are relatively high. To give you an example, we would like to actually go into the Chinese market. We see it correctly.
It will take us 2.5 years to register the products there. So we don't want to wait 2.5 years, obviously. So it might be that we also do some bolt on acquisitions to actually build the global orthodontics business.
Next question is from Chris Grechler, Credit Suisse. Please go ahead.
Yes. Hi, good morning. Hi, Marco, Peter. I just have a quick question on the new products coming up and the ceramic implant in particular. Could you update us on where we stand on those projects and maybe the initial reaction and market update on the ceramic side?
And on the tapered side, whether all things are on track for a 2018 launch?
On the fully paid goods side, we will go into a limited market release during Q4 of next year. We are now with the 1st in men and trials that's underway. And we will actually do the full market release at IDS 2019. On the ceramics side, we're going to launch our 2 piece ceramic implants, the premium implants, which we call Pure, during the Q2 of 2018. And our injection molded ceramic implant target date is at LMR, so limited market release Q4 and then full market release Q1 2019.
And on the near term side? That's the injection mold, the ceramic injection mold.
That's the injection mold, okay. And then maybe John will speak, yes?
And the GM line, so the new Neodent gram molds, key stand line we have already launched in Brazil, and we're going to launch outside of Brazil end of Q1, beginning of Q2 2018.
Okay. And then just one clarification question. Think, to one was to Michael's on the operating profit margin. Did I understand you correctly that you stated that you would expect a substantially higher margin in the second half
compared to first half?
No. The opposite. Because we have tangentially, we have more OpEx in the second half due to salary increases, equity buildup throughout the year. And from a top line point of view, it's more or less the same between 1st 6 months and second 6 months. So I wanted to kind of, how to say that, put in relation the statement of Michael pointing out these two facts and actually alluding that to anticipate a substantial improvement of EBIT margin in the second half versus the first half is not really realistic.
Okay. No, I got that correct in that case. Thanks for all the clarification.
Next question is from David Adlington, JPMorgan. Please go ahead.
Hi, guys. I have 2 questions. Just one for me. You're clearly strongly outgrowing the markets and you're clearly executing very well there. But also your competition has clearly been losing share.
I just wondered if you're seeing or we are seeing some changes within the competition. I was wondering how you expect those changes to maybe pull through and how you expect the competition to respond.
Not all our competitors are not performing well. If you look at, for example, the Koreans, they are actually performing very, very strongly too. And so they are also gaining share like we are gaining share. There are some of the larger players, obviously, with some internal issues. I guess you are all aware of them.
If you look at the end supply, also, mobile is obviously still in a phase of actually getting back on track. We have seen some interesting movements on the Bell side with the entry into the ceramic implant field through the distribution of dental implants. They are also working on a couple of other projects. So I expect competition, yes, to come back. But at the end, I think we have a lot of exciting initiatives still in the pipeline.
We talked before about the product portfolio. We talked about geographic expansion. We're talking about the orthodontics segment. Digital, we are just starting to scratch the surface. So we still have a lot of exciting growth projects, which will allow us to stay ahead of competition also in years to come.
Next question is from Daniel Niel of Caen, Mirabeau. Please go ahead.
Yes, hello. Also from my side. Just the product and the content question, the product question is more, is the NeoDent GM cannibalizing the Centimeters? Or is it targeting different customers? Or is even the product quite different?
Or is it just a successor? That's my first question. And the second question is, you mentioned some countries which are more mature like Japan, Australia, where you recorded all the double digit growth. Why exactly was that? And the other country, Germany, you mentioned that's a key driver in Europe, which is quite astonishing considering all of the mature market.
What was exactly the driver or the drivers in Germany?
GM versus Centimeters line. Obviously, our objective is down the road to replace Centimeters with GM. So there is obviously cannibalization. I don't know if it's the right word. It's actually phasing LCM and phasing in GM.
The big thing about the GM line is that the prosthetic part of the system is much more user friendly, especially for general practitioners. We have so far quite some problems with converting referral networks to Neodent because of the, I would say, the shortcomings of the prosthetic system. And we have corrected that with the GM line. So the GM line will now give us much more opportunities to go after referral networks, to go after specialized specialty businesses, especially in countries like the U. S.
So that's why we are extremely excited about the launch of the GM line. And your second question, Australia and Japan. To be honest, Australia in Australia, we have for many, many years underperformed compared to competition. We have now obviously BLT also in the Australian market. We have CAPCOM in the Australian market.
We have we are about also to launch a full and complete range of fine materials in Australia. In Australia, we are kind of catching up, basically, that way. Japan, also there, we are playing the digital part. We have our CATKAM center CATKAM milling center in Orita, which is actually a low start. It performed very, very well.
So we are seeing quite some exciting growth rates coming out of customized already parts in Japan. So that's driving the development in Japan. It was not mainly Germany. Germany had a very good Q3, but we also know all that the current market is not a fast growing market. It's actually a market which is relatively flat.
Main contributors to growth in Q3 were the Southern European countries, and I would like to mention especially Spain. So we have seen very nice growth coming out of our Spanish business.
Okay. And just a follow-up on the GM product. So the 200 customer wins then were mostly GPs, I guess.
Now the Centimeters today is
mainly a
CPP product. So these are some not some problems. I wouldn't say that it's a problem, but we didn't see such a lot of success was actually converting referral networks where actually the specialists placed the implant and the CTs, they do their prosthetic restoration. And this has been due to the fact that actually, the prosthetic components of the CEM system are not as intuitive as many of the GPs restoring implants would have wished to be, and we have addressed this with the GM right now.
No, but I meant the 200 new customers you won in the 1st month. That's Brazil and that was GPs, I guess, then mostly?
No, in Brazil, it's mainly a GP market. So that's why the CTCM in Brazil was not really an issue because Brazil is only a CP market. But we have the U. S, which is obviously a specialty market. We have the markets in Europe with the specialty markets.
And there, with the GM, we will have we believe that we will have quite some impact when it happens to return.
Yes, I
got it. Excellent. Super. Thanks.
Next question is from Maja Pataki, Kepler Cheuvreux. Please go ahead. Mrs. Pataki, your line is open.
Yes, good morning. Hi. I'd like to follow-up on Maestro's question with regards to Q4 growth. I mean, looking at what you reported in Q3, on one side, you've been talking about the earthquake, about the hurricanes had a minimal impact, but that's clearly out of the way in Q4. And you had quite some new countries and new product launches.
So I'm trying to understand whether the 9% implied is actually an option at all? Or whether that is just a number that you've given as a caution margin? And if it is a really realistic number, then it will be very helpful to understand where potential risks could come from. And then just a second question quickly, you stated that the implant growth accounted for twothree of the Q3 or 9 month growth. Could you give us a feeling for how the premium versus the incidence of the front?
Thank you.
Yes. 9% growth in Q4. Again, if you look at the total market development, even 9% would not be a bad development overall. But I agree with you that it would probably be slightly disappointed, yes? But if you look back at how we guide, how we give outlook in terms of performance, What we say we're going to deliver, we normally deliver.
And that's also our objective for full year 2017. Now to your second question. Of course. If you look at our business, we still have close to 90% of our turnover generated with premium branded strawman products. So the nonpremium business is slightly more than 10% already and is obviously growing over proportionately to the premium business.
But our premium business has been also in the Q3 growing double digitally.
So there's a question from the webcast coming in from a listeners.
The person would like to
know what kind of interest you see in the peak material, PEAK material for prosthetics and the enzyme, sorry, on? Daniel,
obviously, peak is an exciting material. It's making inroads into many segments of the metric industry. We are, as we speak, looking at peak as a potential material for obliviate or prosthetic components. The problem we speak today is it's still relatively expensive as a material. So it's more expensive, for example, than zirconia or titanium or cobalt chrome on one hand, and it's difficult to mill.
So also from a milling point of view, it's actually relatively difficult to mill. So these are the 2 shortcomings which we see today. But obviously, if these shortcomings at one point in time will be overcome, it is lighter than zirconia, obviously. It's as you say that, it's attractive also from a for the patient because the zircona bridges are quite heavy. It's not metal, so it's metal free.
So there might be some clear advantages of
The next question from the phone is from Oliver Metzger, Commerzbank. Please go ahead.
Yes, hi. Thanks for taking my questions. 2 are left. The first question is a follow-up on Maher's question regarding the double digit growth at your premium business in the 1st 9 months. Is it correct that, that means even an acceleration to the full year 2016 just from the pure premium business side?
My second question is on the growth contribution at Biomaterials. So could you clarify whether you had a strong contribution from your franchisees or from your existing portfolio of
that business? So your first question,
16? We can say yes.
Yes, that's the case. Your second question on the Biomaterials. And I'm not sure what you what the question is really hinting at because both this, we obviously already have in our portfolio. So we have been selling this since 2014. So it's part of our biomass yields portfolio.
And if you look within your Biomaterials portfolio and you separate between your, I would say, traditional biomaterial portfolio and the franchise which came in this botanist, were a stronger growth contributor.
Okay. So you're talking about Endogain versus
Yes, exactly.
Okay. So now I understand. So ENDOGAIN is obviously not growing at the same pace like the other biomaterial. So it's growing in the, I would say, in the low single digit range, The bone regeneration product, so the bone the membranes and the synthetic bone filling materials, xenografts and autografts, they are growing much more much faster than in the game.
Yes. Okay. That's helpful. Thank you.
Next question is from Tom Jones, Berenberg. Please go ahead.
Good morning. I had a couple of questions, mainly for Peter, I think. On the margins, the guidance the guidance, sorry, explicitly excludes the effects of FX and acquisitions. We have come up with an absolute number. So it would be helpful if you could give us some color on where you think or what impact you think FX is going to have on the margin this year assuming rates stay where they are for the rest of the year?
And what kind of dilution or expansion from the margin do you expect from the acquisitions that you've made there of ClearCorrect and Dental Wings and the DentiCare? That would be my first question. And then the second one, I'd just be intrigued to know what kind of effects on your P and L the buyout of all the distributors has had. You said you've opened 17 subsidiaries in recent years, and most of those have been distributed buyouts. The reason I asked is clearly when you buy a distributor, you get an immediate uplift stocking issues aside in revenue growth because you're charging you're effectively booking the full end user price rather than the sale price of the distributor, where it comes from a positive effect on gross margins, but then they tend to be dilutive to EBIT margins.
So it'd be useful to know kind of what impact all those distributor acquisitions have had on both the revenue growth and margins over the last maybe 1 to 2 years?
Thank you for this question, Tom. So let's start with the first one on the margins and the FX. I mean, you have seen on the top line, we had a positive FX impact of roughly EUR 6,000,000 for the 1st 9 months. If you look at the details of this this FX impact, then we saw that in the beginning of the year, the positive impact mainly came from the Brazilian real, whereas for the second half of the year, if the euro stays at the current level where they are around 1.16 versus the Swiss franc, then I would expect a similar impact from the euro in the second half year, whereas the impact from the Brazilian real of the first half year goes considerably down as the Brazilian real appreciated in the second half twenty sixteen. So I would expect, for the full year, similar FX impact as for the first half year.
But the distribution between the different currencies, that will be different in the second half year. And when it comes to the distributor question that you had, I mean, for 2017, you have not really integrated any distributors. So I'm not quite do not quite understand what you are referring to in terms of margin development for this year.
I was more interested, Domin, to attribute the start on the revenue impact that that's had over the last 2 years because clearly you're outgrowing the market. But when you buy a distributor, you're not really gaining share per se in volume terms. You're just booking the same volume that you ultimately sell to customers at a higher price because you're cutting the distributor out. Yes, you get some additional cost. So I just want to get a feel for one of the very impressive revenue growth you feel that has come from just the natural effect of consolidating distributors because clearly, the price you sell to distributor is lower than the price of distributor sell to the customer.
So you may still sell the same number of implants and you get to book more revenue if you own the distributor or covered distributor now.
So there are obviously 2 effects. One is that we have in our top line, we have the difference between the selling price the distributor and the market price clearly. But what's even more important is and if you look at Russia, that's a nice example, no? When we take the business over, okay, we have much more focus. We can actually invest behind the business.
We can actually make sure that, for example, from a geographic coverage point of view, it has the full country covered, which we, for example, in Russia, we didn't have. We were only focusing on Moscow. We had a one rip in Saint Petersburg. And since we've taken the business over in Russia, we have been growing far above market. So it's not only a mathematical game in terms of internalizing the difference between in market price and selling price with the distributor.
Much more important is that we normally see when taking over distributors that actually volume growth just goes through the roof. I can give you the example of Iran. Yes, in Iran, we have distributors that's more than 10 years. The Iranian market is over 600,000 implants. Our market share in Iran today is far below 5%, okay?
And this is because the distributor was never actually ready to invest into the market and to make sure that the installment franchise gets its fair share of this, for example, very attractive Iranian market. So it's not only a mathematical equation. It's really also and we know that based on recent experience. It's also that once we manage the business, we see actually a significant volume increase.
Okay. So that's fine. I understand that. So and just to circle back to Peter on the margin question, I kind of can have a fairly good idea of what revenue or currency is going to do to the top line. But what I was really asked is kind of what impacts maybe you might be able to try to quantify currency movements are likely to have on the EBIT margin in 2017 versus 2016.
And I don't think we covered the impact of acquisitions on margins, so whether that's going to be a positive or negative effect for the full year as a whole.
Well, on the EBIT side, Tom, I think I said that I would expect a similar impact in terms of base points for the full year as for the first half year.
Okay.
I'm sorry if I have not been clear there. If we look at the acquisitions, I mean, we will consolidate same for the last quarter. And amortization of the And when it comes to the amortization of the acquired intangibles, I will give you more color with the full year results 2017 and with the guidance 2018 on that question then.
Okay. All right. So Fabienne.
Next question is from Veronika Dubajova, Goldman Sachs. Please go ahead.
Good morning, gentlemen, and thank you for taking my questions. My first question is just on the impressive growth that you've delivered in the Q3. And I noticed that in your prepared remarks, you sort of listed Neodent as first and then listed BLT after that. Can you maybe help us understand if you kind of think about the growth in developed markets, the U. S.
And European business, to what extent the contribution to growth from Neodent has increased in the Q3 versus what you were tracking at in the first half of the year? Or am I just reading too much into how the press release was structured? So some color or correction to my impression would be helpful on that. And my second question is just a housekeeping question. In the press release today, you said that Dental Wings and Clear Correct were annualizing $46,000,000 of revenues in 2016.
But if I look at the disclosure that you gave at first half, the number was actually a bit higher than that, it was 54%. So have I just misunderstood something? Or have you as you've integrated the businesses, has your view of the revenue base changed versus where it was a quarter ago? Thank you.
Your first question, Veronika, thank you for pointing this out. And it's a good piece of advice how we swap the press releases in the future. The largest part of growth also in Q3 came from DLT. And so DLT is still the key growth driver of the overall business. And then number 2 is our nonpremium business.
And BLT is obviously premium. On your second question on the numbers, Dental Links, you're correct. I hand over to people.
Yes, I think probably the number that we provided in the press release today, that's the number of the 3rd party revenue in terms of roughly EUR 45,000,000 in Switzerland. When you're referring to the other numbers in the half year and firstly, that was the total revenue plus. Please see where that part of the Venti Ventures revenue is already generated through our own sales organization already today. And so going forward, that is basically then intercompany revenue of CenterLink. That's the only difference between these two numbers.
There's nothing in terms of change in the underlying in the numbers or whatever.
Okay. That's very clear for that. Thank you for that, Peter. And Marco, can I just follow-up on the BLT? I think a couple of quarters ago, you gave us some statistic on kind of what your market share was in the bone level tapered implant.
Can you maybe give us an update on where you are, either sort of in terms of absolute implant sales now for BLT or from a market share perspective? That would be helpful.
I'm very reluctant to actually disclose this. Obviously, this would be information which our competitors are very much welcome to get. So I'm reluctant to disclose this. Obviously, our share is increasing because we are this BLT increasing faster than market growth, and we are gaining share in the apical and paper implant segment, premium apical paper implant segment. Its market share is obviously still significantly below our Para evolves franchise, but that also doesn't come as a surprise, taking into consideration that we have around the same share there.
But I don't want to disclose COVID numbers here. Please have some understanding for that. Of course, obviously, some of our competitors might listen to the call, and I don't want to give this information out.
Okay. Understood. I'll pick that up with Fabienne afterwards then. Thank you very much.
Next question is from Markus Gola, MainFirst Bank. Please go ahead.
Hi, thank you for taking my question. There's only one left actually and it's with regard to working days. So my question is whether you would have less working days in any of your regions in Q4 compared to Q4 last year?
I will take that question for the Q4, the number of the working days. It's basically stable that there's less than one working day less in this year compared to last year for the last quarter overall.
Okay. Thank you.
The last question is from Carla Benkser from Toebel. Please go ahead.
Good morning, gentlemen. Just a quick one on the Chairside Solutions. Can you maybe give us an update how this launch now ends since the idea? And maybe also give a bit of an indication how you see demand between Dental Links and the 3Shape scan?
We are obviously selling those, both indoors, candles, dental rings and V shape. For the more developed markets, I'm talking here markets like Germany, for example, but also certainly the U. S. Sweeshade is still the more attractive offering because Dental Wings, for example, they don't have a colored scanner yet. We have now launched the EAO, the powder free Dental Wings handpiece.
So that's available now. Com is not available now. And there are many customers in more developed markets. They like to have colors in drawers camera options. From a workflow point of view, we are about ready to actually launch the fully integrated workflow on the ventilings with the T Series chairside mill.
So that's actually ready to be launched. And for 2 spawn and implant borne, while we are still working with 3Shape on a fully integrated workflow 3Shape controllers handled to C Series chairside mill. And obviously, we started even later with that project compared to the Dental Wings integration into the C Series chairside mill. So I think that was the last question. In closing, I'd like to draw your attention to the Investor Relations calendar, which you can find on Slide 27 and on our website.
Thank you for your questions. If you have further questions, you are welcome to contact our colleagues in Investor Relations and Corporate Communications. Thank you for your interest, and have a good day. Thank you.
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