Good morning, everyone, and welcome to this conference on Straumann's 2017 first half results. Thank you for taking time to be with us today. We will be referring to the presentation slides that were published on our website early this morning. Before we begin, I have to inform you that our discussion will include forward-looking statements. Please take careful note of the disclaimer on slide two of the presentation and at the end of our press release. As usual, I will run through the highlights, and Peter Hacksteiner, our CFO, will share the performance and financial details with you. After that, I will tell you about our strategic expansion in aesthetic dentistry and the way we are organizing ourselves to unlock the exciting opportunities that our existing and new businesses offer. We will be happy to answer your questions.
We have a lot of news to share with you today, but I want to begin by highlighting our revenue and profit numbers, which show that our underlying business is growing strongly and continues to outperform the market. Excluding acquisition and currency effects, our organic revenue grew 14% in the first half of 2017, driven by double-digit increases in all businesses. In CHF, the increase amounted to 18%. In Q2, organic revenue rose also 14%, making this the ninth consecutive quarter of double-digit growth. Strong volume growth lifted our underlying EBIT margin by 90 basis points to 25.7%, while underlying net profit increased by 24%. One of the keys to our growth has been the ability to offer comprehensive solutions in both the premium and non-premium segments.
Our Straumann bone level tapered implant range continues to drive growth in the premium Straumann brand, while Neodent and the addition of Medentika, which we consolidated earlier this year, boosted our non-premium business. To create additional growth opportunities, we have decided to enter the field of orthodontics, which complements our current business very well. I am delighted to announce today that we are investing into two companies that provide us with a strong base in the fastest-growing segment of the orthodontics market. ClearCorrect is a well-established provider of clear aligners based in Texas, and Geniova is a young pioneer of hybrid aligners based in Madrid. The clear aligner business relies on digital workflows and equipment, which are also becoming essential in modern tooth replacement procedures. For this reason, we have decided to increase our stake in our digital partner, Dental Wings, from 55% to 100%.
Together with our investment in Rapid Shape, a leader in 3D printing technology, and our strategic partners, we now have a strong digital platform to support our implant, restorative, and orthodontic businesses. These additions, together with our full pipeline of growth projects, position us well for future success. Based on our first half performance, we are on track to deliver the underlying revenue and profitability increases stated in the raised guidance we shared with you in April. I mentioned that our ability to offer comprehensive solutions has been an important growth driver. This chart shows you our key product launches and the geographic rollout of our premium and non-premium businesses, which collectively have boosted our growth over the past five years. We are confident that our latest additions will support the trend going forward. Looking at this year, we followed a record first quarter with strong growth rates in Q2.
In our two largest regions, Europe and North America, we keep the pace up and also it is slightly elsewhere. We still performed exceptionally well, especially in Latin America, given the difficult economic climate. Our first half organic growth of 14% is reflected through the P&L, with margin expansions of 130 to 120 base points at the EBITDA and EBIT levels, respectively. Excluding one-time exceptionals, neither of each were cash relevant, earnings per share increased by no less than 26% to CHF 7.57. Looking at the historic context again, our revenue has risen 10% on a reported or 8% on an organic base each year over the past five years. At present, we estimate that the premium market is growing at 3%-4%, which includes our own growth.
Since 2012, our EBIT margin has increased from 15%-26%, and our earnings per share has expanded 26% per annum. Now for the details, let me hand over to Peter.
Thank you, Marco. Good morning, everyone. As you can see in chart 10, at this year's exchange rate, our half year revenue in 2016 would have been CHF 3 million higher. The acquisition effect of Medentika and Equinox in the first six months of 2016 added a further CHF 11 million to the reported net revenue of CHF 543 million. In the center of the chart, you can see the regional growth rates, while the regional contributions to overall growth are shown on the right. From a regional perspective, our largest regions, North America and EMEA, each contributed about a third of our growth. Asia-Pacific continued to be our fastest growing region and notched up a revenue increase of nearly 23%. Latin America achieved growth of 14% despite the challenging environment in parts of the region.
Now, let me add a few comments on the regional performances in Q2 for each region. EMEA maintained its pace in Q2 and delivered organic growth of 10%, despite two fewer selling days because of the early Easter last year. Expectedly, implant volumes were softer than in Q1, but growth did not slip thanks to strong demand for our non-premium solutions as well as higher sales in our CAD/CAM equipment business following the presentation of new digital solutions at the IDS. The strongest increases were in Belgium, the U.K., and most of the Eastern European countries. We enjoyed growth in the Middle East, and our young subsidiary in Russia posted dynamic growth in Q2. North America increased momentum as Q2 revenue reached CHF 76 million, corresponding to 17% organic growth. The performance was driven by strong demand across all businesses and in the premium and non-premium implant segments.
Many new customers were attracted by Roxolid, Straumann's new 2.9 millimeter BLT implant, and Neodent's range of tapered implants. Growth in Asia-Pacific eased slightly from 26% in Q1 to 19% in Q2, reflecting the very strong comparative period last year in Japan, which benefited from various new product launches and a large ITI Congress in Tokyo. Most of the growth was generated in China, driven by the dynamic premium market and benefiting from the rollout of the Anthogyr value brand. The fact that all our subsidiaries delivered good growth was particularly pleasing. The newly acquired Equinox business in India added 3% to reported growth. Finally, Latin America achieved organic growth of 13% in Q2, driven mainly by Straumann BLT and Neodent Acqua implants. Particularly strong demand in Mexico, together with growth in Colombia, Argentina, and Chile, helped to sustain the region's double-digit growth.
Strong implant volume growth was the main business driver throughout the first half. The key contributors were the high-performance implant material Roxolid and the continuing success of our BLT implants, which accounted for more than a quarter of all Straumann premium implants sold in H1. This product category has not yet reached its full potential, considering that more than 50% of all implants placed are apically tapered and roughly 70% have a conical shape. Particularly noteworthy was the contribution from our innovative 2.9 millimeter small diameter tapered implant for the aesthetic zone, which was fully launched in Europe and in the U.S. in March. Our intense efforts to become a total solution provider for tooth replacement have led to a sustained double-digit growth in the restorative business. Following launches at the IDS, Straumann booked initial sales from its new intraoral scanner and milling solutions.
The sales contribution of digital equipment is expected to increase in the future as we are building a dedicated support and service organization worldwide. Biomaterials continued to be the smallest but fastest-growing segment and was driven by the international rollout of the botiss range and guided bone regeneration solutions with in-licensed products. We are working hard to make a comprehensive biomaterials portfolio available in Brazil, China, Japan, and the U.S. Moving on to the key financial statements. Slide number 14 provides you with an overview of the most important figures in the first half of 2017 and the same period a year earlier. Having obtained control of Medentika in Germany at the outset of the year, we have fully consolidated the business in our financial statements. The agreement with the founding shareholders enables us to direct all relevant activities of Medentika with an unchanged participation of 51%.
Last year, the business was still reported in the associates line below EBIT. This business combination, and to a lesser extent, the acquisition of Equinox in India, led to several one-time effects, which include inventory revaluation expenses of CHF 2 million in the cost of goods sold, and a one-time gain of CHF 25 million below the EBIT line. The latter is split between the revaluation of the fair value of the investment in Medentika of CHF 30 million, and the related currency translation losses of CHF 5 million, which were reclassified from the comprehensive income to the income statement. Both effects are shown in a separate line in the income statement on the gain on consolidation of Medentika. All these one-time effects and the related tax impact are defined as exceptionals. To facilitate the performance comparison, the key financial figures are shown both on a reported and a pre-exceptional basis.
Despite significant further investments in new markets and segments, geographic expansion, research and development and production capacity, we have further improved our underlying profitability. EBITDA and EBIT both rose 20%, with the respective margins reaching 29% and 26%. At CHF 141 million, reported net profit exceeded operating profit by CHF 3 million due to the business combination exceptionals mentioned earlier. Our reported gross margin in H1 2016 was 78.3%. Currency fluctuations only had a minor impact this time. Strong volume growth in premium and value implant solutions lifted gross profit in H1 2017 by 16% to CHF 418 million. The corresponding margin declined one percentage point to 77.2% and reflects the higher share of non-premium and third-party products, which have lower gross margins. On top of that, we have stepped up our capacity investments and increased the manufacturing personnel in all our implant facilities, this led to higher production costs.
We currently have a high degree of capacity utilization and want to create additional output for future innovations projects. Some of the ramp-up costs in manufacturing in Curitiba, where we have increased output by 50%, were not fully absorbed yet. On the next slide, you can see that EBITDA increased 120 basis points from 27.8% in 2016 to 29% this year. This is remarkable as the gross margin is lower than last year despite investment in high growth markets and our non-premium offering. Distribution expenses in the first six months increased by CHF 17 million to CHF 119 million. Thanks to our strong top-line growth, the distribution costs as a percentage of sales were 60 basis points lower than a year ago. Administrative expenses rose in absolute terms from CHF 146 million in H1 2016 to CHF 162 million in H1 2017.
This includes overhead and marketing costs for the newly added Medentika and Equinox businesses. Relative to sales, administrative expenses decreased 170 basis points to 30%, which contributed to the improvement in EBITDA margin. The change in the other income line had no impact on the margin development. On the next slide, you will see the same picture as before, but on operating profit level with some additional information on the acquisition-related amortizations, which we include in our underlying comparison. Slide 18 shows you how the combination of these factors affected the bottom line. Our underlying net profit improved by 24% to CHF 117 million, driven mainly by our operational progress, which amounted to CHF 25 million. The financial result was CHF 1 million lower than in the prior year, the result from our associated companies decreased by CHF 2 million, mainly reflecting the business combination of the highly profitable Medentika business.
Income tax expenses in the first half of 2017 amounted to CHF 17 million, in contrast to a tax credit in the prior year when the group benefited from a one-time tax gain in Brazil. This year, the aforementioned revaluation gain on Medentika lowered the effective tax rate to 11%. Our normalized tax rate remains unchanged at approximately 15%. In summary, net profit increased by CHF 23 million, the margin amounted to 21.6%, excluding exceptionals. On the next slide, you see the details of our cash flow statement. Thanks to the aforementioned profitability improvements, our EBITDA increased by CHF 27 million. As mentioned at the beginning of the year, we are investing heavily into future growth by expanding all our implant manufacturing facilities, which lifted CapEx by CHF 19 million to CHF 33 million in the first half.
CapEx is expected to remain around this level for the next two years, as we are just about to begin the construction of a new production building in Villeret. This is essential as our capacity is now fully utilized to absorb volume expansion. In addition, we have added specialized production machinery to manufacture innovative products that are currently in development. In both cases, we are investing in the future. The result was further constrained by higher net working capital requirements, due mainly to the opening of new subsidiaries and the extension of the group's product range, including digital equipment. Over the past two years, we have brought a number of innovative solutions and range extensions to customers, which have led to a marked increase in the number of SKUs and ultimately the days of supplies.
The dynamic sales growth in emerging and distributor markets with higher payment terms further led to an increase in accounts receivable. However, day sales outstanding were one day lower than in the same period a year ago. The combination of these effects meant that free cash flow reached CHF 45 million, bringing the respective margin to 8%. With this, I'd like to hand back to Marco.
Thank you, Peter. I'd now like to tell you more about our entry into new businesses and segments with the goal of expanding our addressable market. In recent years, our strategy has focused on three priorities. The first relates to culture, which is the way to get things done in an organization. The others are to target unexploited growth markets and segments, and to become a total solution provider in tooth replacement. Having come close to achieving the latter objective, we began to look into attractive complementary fields to see if we could create opportunities for further growth and synergies. Exactly a year ago, we held an offsite workshop with internal and external experts to discuss trends and opportunities. Based on the outcome, we decided to broaden our scope to become a total solution provider for aesthetic dentistry.
We are already executing this strategy expediently as the acquisitions and other initiatives we are announcing today show. The acquisition of ClearCorrect and the partnership with Geniova give us access to market worth one and a half billion francs annually. As a result of this and other initiatives like expansion in biomaterials and digital, the total value of the global markets we now address is approximately CHF 8 billion, in contrast to CHF 4 billion just three years ago, and less than CHF 1 billion in 2012, when we basically offered premium parallel-walled implants and a very restricted biomaterial portfolio. In the next few slides, I would like to show you why orthodontics and the clear aligner business in particular is such an attractive market. Estimates suggest that 75% of the teenage and adult population have misaligned teeth and require orthodontic treatment.
In 15%, the condition is slight and the need for correction is purely aesthetic. 45% have mild to severe malocclusion and are increasingly addressed, while the remaining 15% require treatment and are fully addressed in developed countries. This next slide compares the market for traditional brackets and braces with the market for aligners. Despite the fact that clear aligners account for only 10% of procedure volume, the market is estimated at $1.5 billion annually and is almost double the conventional market, where most of the value is generated by the orthodontist rather than the manufacturer. While the conventional market is growing in the low single digits, the clear aligner market is expanding at double-digit rates. Due to the high market potential and low penetration rates, the clear aligner business is particularly appealing to us. In addition, substitution technologies have been a key to Straumann's success over the years.
In contrast to conventional brackets, which are fixed to individual teeth and connected by wire, clear aligners are practically invisible and can be removed conveniently. For example, for eating or cleaning. The treatment costs are comparable to conventional options, and the popularity of aligners among teenagers is growing. This slide compares the penetration rate of our traditional implant business with the clear aligner market in North America. We have shown in the past that the North American implant market is under-penetrated. If you look at the numbers on this slide, you can see that the clear aligner market is even less penetrated. Of the 200 million people in North America affected by malocclusion, only half a million currently use aligners, which corresponds to a penetration rate of only 12%. More than 50% of the clear aligner market is in North America, where the penetration is three times higher than elsewhere.
This underscores the high potential for growth in other regions. I would like to mention that most aligner cases are still performed by orthodontists, and we believe that increased adoption by general dentists will be a key driver of further growth together with the factors listed on the right of the chart. General practitioners offer an even more significant opportunity to the Straumann Group as the global sales force can be leveraged for cross-selling. As you can see in the chart, 50% of Straumann's customer base are general practitioners. In addition to an overlapping customer base, there are other commonalities in our businesses. The patient scanning and the CAD/CAM processes are very similar in the restorative and clear aligner workflow. Having given you an overview of the market, let me tell you about the partners who will help us to unlock this potential.
Established 10 years ago, ClearCorrect develops and produces high quality, attractively priced clear aligner solutions that are used typically to treat minor to medium malocclusions. The company is growing quickly and generated sales of CHF 32 million last year with a staff of almost 200. The majority of its customers are general dentists who are served directly in North America or through sales agents. We are purchasing all outstanding shares in ClearCorrect for a total consideration of approximately CHF 150 million. I am pleased to add that the leadership team will stay with us to grow the business further. We have put a short video clip on our website to give you some idea of the energy and passion for creating smiles, which you can watch through the link on this page. Our two companies fit together extremely well in terms of business and culture.
ClearCorrect provides us with expertise in orthodontics and a strong foothold in the clear aligner market. In return, we offer them a global distribution and marketing network, brand leverage, potential additional production locations, and a digital technology platform that includes Dental Wings, RapidShape, 3Shape, and other partners. Geniova Technologies is a great complement to ClearCorrect. It is a dynamic, young company in Spain that has pioneered an innovative hybrid aligner solution. To support the expansion, we have provided a capital injection of CHF 3 million in return for a 38% stake and the right to become the exclusive distributor. Geniova Fast Aligners system combines the strengths of fixed orthodontic appliances with the flexibility of removable clear aligners. It produces movement only in the teeth that need correction and can be removed easily when required. It covers a broad range of treatment cases and is already available in some initial markets.
This brings me to our other investments in this area. Dental Wings is a leading provider of digital dentistry technologies, and its solutions cover the full digital workflow, from treatment planning to final restoration, including implant planning, dental scanning, prosthetic design, and manufacturing. Based in Montreal, Dental Wings has offices in Germany, France, and China, and its products are available in 45 countries. Last year, it generated revenues of CAD 28 million. Straumann first invested in the company in 2011 and expanded its stake to 55% two years ago. We are now increasing to full ownership for approximately CAD 50 million. I am pleased to add that we have just closed the deal to acquire a 35% stake in RapidShape, which we announced last quarter.
RapidShape is a leader in 3D printing technology and is supplying us with a Straumann-branded series of printers, which will enter full market release before year-end. To coordinate and drive growth in our digital businesses, we are creating a dedicated digital business unit under the leadership of Mike Rynerson, former CEO of Dental Wings, who has rejoined Straumann as a member of the Executive Management Board. The new BU combines our existing CAD/CAM development and production teams with Dental Wings and ClearCorrect. With a staff of 500 skilled employees, it will be one of the world's most powerful digital teams in our industry. Another important trend that demands close attention is the rapid increase in corporate dentistry. Growing at 17% annually, this segment already represents more than 10% of the dental implant market, and it is projected to double by 2020.
Not only is it driving implant penetration, it is expanding the market and transforming the delivery of dental care and treatment. With our portfolio and reach, we are well-positioned to lead this segment, and are creating a special unit dedicated to Dental Service Organizations under the leadership of Petra Rumpf as Executive Vice President, DSOs, and member of the Executive Management Board. With a dedicated team of high-profile managers in all key countries, it will offer our full range of products and services, both premium and non-premium, in tailored and packaged solutions. In addition to creating new business units, we are making some organizational adjustments to bring the Straumann and Instradent brands closer together under the Straumann Group umbrella. Our goal is to leverage synergies between our premium and non-premium activities and to create further growth opportunities.
One initiative is to simplify internal processes and to make ordering, delivery, and invoicing more efficient. At the same time, we want to enable our premium and non-premium sales teams to offer a broader range of solutions. For instance, enabling our non-premium sales teams to sell biomaterials and CAD/CAM solutions. In future, we will coordinate our Instradent activities in the regions rather than centrally, allowing us to capture further commercial synergies. As a result of all the initiatives we are announcing today, our group setup has changed significantly. With regard to implant systems, we have our flagship Straumann premium brand, two international non-premium brands, Neodent and Medentika, and several regional brands which are either fully or partially owned. Underneath, we have our new orthodontics range, our digital solutions and biomaterials, all of which are sold to customers irrespective of whether they use premium or non-premium implant systems.
Finally, we have a platform of other technology partners that support and create opportunities for our various businesses. As you can see in this slide, we have a very broad range of products and solutions that very few competitors can match. Furthermore, we have plenty of potential to unlock in all our businesses, even in implants where we are already the market leader. In fact, in some fields, we have only begun to scratch the surface. Before I come to the outlook, I would like to mention the recent changes to our executive leadership team that reflect our added focus on digital and corporate dentistry, as well as people management. At the beginning of the second quarter, Alexander Ochsner transitioned to his current role in global people management and development.
At the same time, Patrick Loh joined Straumann to take over from Alexander as Executive Vice President of our Asia Pacific region. As I mentioned a moment ago, Petra Rumpf will lead our new DSO unit, and Mike Rynerson joins the team as Executive Vice President of our new digital business unit. Both these units will be fully operational on January 1st, 2018. In brief, we expect the global implant market to grow at approximately 3%-4% this year, and we are confident that we will continue to outperform with organic growth in the low double-digit range. This, together with operational leverage, should lead to further improvements in the underlying operating profit margin, assuming that currency exchange rates remain fairly stable and barring any unforeseen circumstances. Now I would like to open the question and answer session.
As usual, we will give our guests here in Basel the opportunity to put their questions before we open the lines to our webcast participants. If you are dialing in by phone, please make sure you have a good phone connection. Webcast participants who wish to ask questions anonymously can use the tool in the audio webcast, which you can find in the bottom right corner. Please, can we have the first question now?
Carla Bänziger, Bank Vontobel. I have a question related to slide 22, where you actually state that the new addressable market is CHF 8.3 billion, and before it was CHF 7.5 billion. Which part of the clear aligners market are you not addressing? Because in theory, it should be 9%.
As pointed out, the ClearCorrect portfolio as it stands today is actually addressing mild and mild to strong malocclusion cases. The leader in the clear aligner segment, which we all know who it is, has actually today still a larger portfolio. They can actually address more cases, more indications than the ClearCorrect portfolio currently is able to. With the addition of Geniova, we believe that we have a position to, over the next couple of years, to catch up and to actually increase the range of cases we can address with our portfolio.
Can you maybe update us on the IP situation and the issue with Align Technology?
Yes. To be open and transparent, there are several legal cases against ClearCorrect, obviously initiated by the industry leader. You mentioned the name before. Fact is also that actually, in October of this year, many of the very strong patents of this company will expire. It is also from this point of view, in our opinion, an ideal point in time to actually enter this segment. As you pointed out, there are several cases ongoing as we speak.
Christoph Gretler with Credit Suisse. Can I actually continue on this topic? What kind of precautionary measures did you take, to basically eliminate the risk associated with this past litigation bit? The second thing on ClearCorrect. Could you discuss margin trends and what kind of investments you are looking to do into this business going forward and maybe also the growth trends, the very recent growth trends? We've seen 16 numbers, just to see what growth trajectory they are on right now.
Now, I can assure you that we have taken cautious measures in terms of assessing the risk associated with these legal cases. There is a structure in place which protects the company through corresponding escrow mechanisms. We believe that we are very well protected against the exposure which we see related to the cases we just talked about. When it comes to the margin question, you know the gross margins of Align. Their margins are even better than ours. We are talking here gross margins of 80% and more. Obviously, they have more volume today. Their efficiency when it comes to producing aligners is at another level compared to ClearCorrect. We have identified several opportunities to bring the gross margin of ClearCorrect up over the period of time, over the next couple of years.
Obviously this is one of the first priorities we will be working on. In terms of growth, I can just refer again to the growth rates of Align and to the potential which we highlighted in the presentation. I would actually like to wait until the Q3 call. By then we will also have, I would say, not more transparency. We have a good transparency, otherwise we will have not entered into the transaction. We are also now aligning together with ClearCorrect management what is possible, what are actually first international expansion pilots. During the course of the Q3 call, we will be able to comment more on this and then also give you a little bit more color in terms of what can be expected in terms of revenue growth and margin improvements. Bear with us, please, for a couple of months.
Hi, Jürg. John Mirabeau. First, the normal question to the EMEA development. In the second quarter, you had the 10% organic growth and adjusting for the Easter effect probably adds 2%, 3% more. Despite the highest base amongst all quarters, you had a very high growth. Can you put a bit more granularity on that? Was it because of the IDS effect, or It's astonishing that this grows in EMEA. The second question, when the Align patents expire, I guess all the other big guys are also ready. Do you have any idea how much of a competitive advantage you have with ClearCorrect relative to the other bigger guys? Up next to Align, of course.
You want to take the?
Yes. I think it is a right observation that you made, John. It is an extraordinary achievement, the EMEA growth in the second quarter based on the high growth base that we had in 2016. I am not sure if we can expect a double-digit growth rate for the remainder of the year in that region. I think there are two factors that had also contributed to that. On the one hand, we see a very dynamic development in the Eastern European part of that region and in the Middle East, in that region. The other positive contribution was also that we were able to book initial CAD/CAM and digital sales after the IDS when we presented our new digital solutions that also came then into the second quarter in this year.
Just one add-on to Peter's comments. When it comes to the digital side of the business, yes, we had some initial sales, but far from having fully ramped up. During the second half of 2017, we expect that we will, for the first time, see really an impact of our complete digital offering, talking about intraorals, cameras, also what Rapid Shape will bring to the table, the TRIOS 3. That is still to come. Now to your second question.
Can I make one additional comment to EMEA? Of course, the Multi-unit range and the further growth of the Multi-unit range, especially in the European countries that also contribute to the good result in EMEA, because it is the fastest-growing segment that we have. Also, it is the smallest one.
Now to the advantage compared to other potential competitors or other potential entrants into the clear aligner segment. If you look at this segment a little bit more holistically, there are already hundreds of providers of clear aligners. However, these providers are typically relatively small outfits. These are more lab kind of setups. From an efficiency point of view, they are not able to actually manufacture and distribute clear aligners at big scale, like Align is able to do, and like ClearCorrect is able to do too. This differentiates ClearCorrect from many of the smaller and medium-sized companies. It's the scaling up capability of the production side. It's the production technology. This is actually why ClearCorrect, for us, was such an interesting target. The big guys, they also are now trying to actually establish something like this.
We believe that with ClearCorrect, we are really in a very competitive position when it comes to efficiently manufacture clear aligners. Not only the manufacturing of the product itself, but also the treatment planning. You need to have a very strong base of people who are able to actually provide the treatment planning to the dentist. Dentist is just sending the digital impression, then you have this service center with specialized people trained in actually then doing the treatment plan and sending this then back to the general practitioners. Also there, ClearCorrect is extremely well-positioned.
Holger Blum, DZ Bank. Two longer-term questions. You alluded that you expanded the addressable market from CHF 1 billion to CHF 8 billion within five years. How would you see the potential over the next five years? How big could your addressable market become by further expansion of your footprint? Second question then aligned with that would be what kind of market shares you think you can achieve in your territories, again, on a long-term horizon?
The mid- and long-term perspective and priority is now to make sure that in this CHF 8 billion addressable market, we increase our market shares considerably. We have a 23% share when it comes to dental implant systems. We have, I would say, a very decent share on the premium side of dental implant systems. When it comes to non-premium outside of Brazil, our share is still close to 5%. There we still have a lot of potential to increase share. If you look at the total CAD/CAM, the digital segment, we are talking here a CHF 3 billion market. Our share there is below 2%. We have tremendous potential there to increase our share. Also in biomaterials, a roughly CHF 500 million-CHF 600 million market, our share is not even 5%. On orthodontics, you have seen ClearCorrect sold CHF 32 million in a CHF 1.5 billion market.
The share there is 2%, 2%-3%. The priority for us over the next couple of years is to actually expand our share in these segments and actually to grow through expanding the share. Obviously, we are continuing to look at potential adjacent segments we could actually enter with our strong brand, the Straumann brand, which obviously could potentially offer opportunities for further profitable growth and to exploit further synergies. The first priority over the next couple of years will be to actually make sure what we have today at hand, that we exploit it to the maximum and actually increase our corresponding shares in the different subsegments.
Before we now move on to the Chorus Call line, we have a couple of questions here from our webcast participants. I'd like to start with a financial question for Peter. The person here wants to know if the Curitiba, our Brazilian manufacturing site, ramp-up cost impacted gross margin in H1, as you explained. Can you tell us how much that was and when it goes away?
Thank you for that question. Let me start probably with answering that question with a comment on our colleagues in production and logistics. I think we are extremely satisfied with their performance. They do a terrific job to manage the double-digit volume growth that we have on the premium side, as well as on the non-premium side. If we look at the decline of the gross margin by roughly one percentage point, I would say there are three different impacts or effects. One are the ramp-up costs in Curitiba. I would say that is around 20-30 basis points. That was mainly in the first half of this year as we started to build and extend the capacity in last Q4 2016, with the extension of the production building and the new logistics center.
The second impact that I would quote is another decline of the gross margin, temporary decline, because we are running at full capacity, and we need to outsource some auxiliary and some side products currently to focus our own production on the production of the core volumes and the core implants. That is around another 20 basis points. Then we have a negative impact of about 40 basis points due to the continuous addition of third-party products. As I have already commented earlier, despite the fact that they are decreasing the gross margin, they have positive incremental impact on the absolute EBIT as well as on the EBIT margin.
Thank you, Peter. The next question is more related to the digital business. Marco, you showed us or explained to us that we're going to have a new business unit as of January 2018 with the digital business. The person would like to know what services and function solution are integrated into that digital business unit.
What's incorporated in this business unit is everything that's related to CAD/CAM and digital. Our CAD/CAM milling centers are part of this business unit. We have four CAD/CAM milling centers currently running, one in Markkleeberg to serve our European customers, the one in Arlington for North America, Curitiba for Latin America, and then in Japan for the Japanese market and the surrounding markets. This is part of it, then all the R&D efforts. Our research and development set up in Gräfelfing is part of the digital business unit. Our R&D colleagues here, as well as all the product management resources related to our digital business. There are partnerships, Dental Wings, ClearCorrect, and also the management of the partnerships when it comes to Rapid Shape, Reshape, Amann Girrbach, et cetera. This is all part of the digital business unit.
Another person would like to have an update on the ceramic implants. We introduced at the IDS that we're going to have a two-piece ceramic implants both on the premium and value side. Could you give us an update on that as well?
We have, in the meantime, received very positive results on the injection molded ceramic implant, which we, as announced, we're going to launch under the Neodent brand during the course of 2018. The pure two-piece ceramic implant is actually in a market acceptance test, we are actually testing that implant with selected customers. During the first half of 2018, we will actually go into market release for that implant. We are continuing to invest into building a top-notch ceramic implant franchise.
Good, maybe the last one before we move on to our guest on the telephone line. Can you outline the revenue synergies drivers between being a total solution provider on the restorative side and now being also present in the orthodontic field?
I can just give you one number, which I think explains why we are so excited about now entering the orthodontic segment. Between 30% and 40% of implant treatments, before actually the implant treatment can be done, the teeth have to be moved into the correct position. There is a close link between moving teeth first before you actually can do the implant treatment. I think this number alone already shows you the synergies and how close these two segments are together. We are now able actually to go after GPs, also after certain DSOs, for example, and we can actually come with comprehensive solutions, starting with the digital workflow, so intraoral scanning, treatment planning, and then offering to that same customer what he or she needs to actually move the teeth into the right position and then removing or restoring the missing teeth.
This is, we believe, a competitive advantage not many of our competitors are able to offer.
Thank you. We'll move on to the Chorus Call line. As a question of courtesy, please limit your questions to two, so to give all the participants a chance to ask a question within the available time. Chorus Call, can we have the first question from the line?
The first question from the phone is from Michael Jüngling, Morgan Stanley. Please go ahead.
Hi, thanks, and good morning. I have two questions on ClearCorrect. I would appreciate it if you can give more clarity on the profitability of ClearCorrect. Is it profitable today or is it still loss-making? Also the geographic distribution. It seems to me it's mostly in the U.S., but on the ClearCorrect website, it also has images for Australia and Europe. Question number two is on the clear aligners investment that may be required. Conceptually, will you be selling these products through your existing implantologist sales force, or do you have to create a separate one? How does distribution look like with respect to the investments of clear aligners?
On your first question on the profitability. Yes, the company has been profitable in 2016. Obviously not at the levels of the largest competitor, but it's a profitable company. To your second question, yes. Outside of the U.S., they have some distribution partnerships already in place, namely in Australia, and in the U.K. These are their two, I would say, larger distributors. They're already dealing with as we speak today. On your third question, do we have to build up a separate sales force? No. The idea is actually to leverage our existing sales force, and that's why it's so important that we have this overlapping customer base. We are currently in the process of gathering internal data to actually assess how many of our existing customers today are actually already dealing with orthodontic treatments, and specifically with clear aligners.
Obviously this would then be our first target group to go after. What we obviously need is we need to have specialists, field specialists, on the orthodontics side. In the U.S., for example, it's already a very positive situation in so far that ClearCorrect started to have own people in the field, during 2016. Our view when it comes to the U.S. market is that we can actually deploy our Straumann U.S. sales force and Instradent U.S. sales force to generate leads. Then we have specialists following up, doing the training, and then actually converting the customers to ClearCorrect.
Thank you. Very helpful. Can I just clarify one thing in your press release? Did you purchase Clear Choice? I wasn't aware that you did.
We purchased Clear Choice. It's stated in the press release. That's a significant mistake. No, we didn't.
Because on-
Oh, okay.
on page eight.
it says in the bottom, "Assuming acquisitions, Clear Choice.
Clear Choice? Oi, oi. Okay.
Right. Probably meant to be Clear Choice, I suspect.
Page eight.
It's footnote number six. It refers to Clear Choice.
No, Mike, that's a mistake. It should state Clear Choice.
Okay, great. Thank you.
I hope that Clear Choice-- it's U.S., though, they are still asleep. Good. Fine. Any other questions?
The next question is from Tom Jones, Berenberg. Please go ahead.
Good morning. I had two questions. The first was just on your branding and the pulling of the two businesses together. I noticed the old green of Straumann and blue of Instradent has kind of disappeared, and everything's gone a sort of black color. One of the reasons why you initially set out to have two separate brands was to avoid cannibalization. Do you not increase the risk of that happening with the two brands coming closer together? If so, why do you think that risk is now much less than it once was, and why it makes more sense to pull everything under one brand? I'm just a little bit unclear about the path that those two brands are taking into one. A bit more color there would be helpful.
The second question was that you said in the release that you'll use some treasury stock as part of the acquisition consideration. Was that your choice or the vendor's choice? Because it just seems to me slightly odd when you can basically get money for free, or in fact, you can be paid to get money in Switzerland at the moment, why you would be using or issuing equity at this point.
To your first question, just to clarify probably what this could potentially be misleading. We still will deploy two different sales forces. There will still be a premium and a non-premium sales force. The face to the customer, there we still have the segregation between premium and non-premium. What we're going to change is the management of these sales forces. In the past, we had one central organization managing all our non-premium businesses. What we have seen over the last couple of years is, on one hand, that the overlapping customer base is very small. We are talking 2%-3%. Then even digging into more of the detail, most of these customers who buy from us premium and non-premium brands, they all started to buy non-premium products from us by throwing out another non-premium supplier in their practice. Cannibalization proved to be extremely low.
However, what we have also seen is that actually between 50% and 60% of our customers, they use more than one system in their practice. The majority of them, they use a premium and a non-premium system in their practice. Through actually these very strong Chinese walls, which we have established, and also through the fact that we are actually up to now, we are managing the businesses completely separately. We have left many potential commercial synergies on the table. That's why we've decided that we actually change the management of our non-premium business, that actually our regional heads, our EMB members, they will now be in charge of managing within their corresponding region, the premium and the non-premium business.
We believe that actually through doing this, we will be able to leverage much more of the commercial synergies which we have left on the table so far.
Perfect.
To your second question, on the treasury shares. Also here, probably a little bit misleading. The Clear Choice transaction, we haven't paid the money yet. Okay. The money is not yet out of the company. We also will not actually settle the purchase price consideration in treasury shares. We just consider that treasury shares are also liquid assets, like actually the cash on hand we have. We will actually obviously think about what is the best way of settling the transactions. We just talked about CHF 150 million, roughly, for Clear Choice, approximately CHF 50 million for Dental Wings.
Okay. That makes sense.
The next question is from Veronika Dubajova, Goldman Sachs. Please go ahead.
Good morning, gentlemen, thank you for taking my questions. I have two. I'm just wondering, I know it's probably a little difficult to speculate at this stage, but I'd love to get your thoughts on what you think will happen in the market once we have more competitors into clear aligners post the patent expiry at the end of this year. It just has seemed to me for a while that maybe the pricing that you see in the market today might not necessarily be sustainable if you have more players in there. It'd be great to get your thoughts and maybe how you've thought about that as you've modeled the business going forward. Then my second question is a financial one for Peter in terms of currencies.
Looking at the move in the Swiss franc, can you give us a sense for how we should be thinking about the currency impact for the second half of the year, specifically for margins? Thank you.
To your first question, Veronika, as you pointed out, it's pure speculation because we obviously have no insights into the strategies of the Danaher, Dentsply Sirona, et cetera, of this world. The only thing we can state is that this market is extremely attractive. High margins, under-penetrated, especially outside of the U.S. More and more GPs actually entering this segment, which will actually grow the market by itself. A lot of synergies also with other businesses we already have in place today. It's an extremely attractive market. Obviously, attractive markets also attract competitors. It's in the nature of the game. I'm convinced that we will not be the only ones actually trying to grab a piece of this very attractive and tasty cake. However, again, we don't have insights into the strategic planning of our competitors.
We are prepared that we will not be the only ones trying to actually enter this very attractive segment. However, as pointed out before, with 2% market share, with the Straumann power behind it, with our global distribution and sales force network, with our digital capabilities, we are convinced that we can actually do better than 2%.
On the second question concerning the financial impact due to the currency development. You see on the chart number 56 in our presentation, you see on the one hand, the sensitivity to our four most important currencies, the euro, the U.S. dollar, the Brazilian real, and the Japanese yen. You also see there our assumptions or our calculated half year average rates for the first half 2016 and first half 2017. That definitely will help you for your modeling. If we look at the development in the first half year, then I think we also saw rather diverse developments. The beginning of the year, euro was weaker than the comparative period, and since the end of July, we saw a rather big increase in the euro with the peak at CHF 1.15 .
Now it comes a little bit down, it's very difficult to make the forecast, I think the chart number 56 and the sensitivities and our assumptions will help you for your models that you can enter there the respective data. If it stays at the current level, then we definitely will have a positive impact on the margin side as well as on the top line, mainly driven by the euro and to a lesser extent, driven by the Brazilian real in the second half.
That's great. Thank you. Marco, if I can just follow up on the clear aligners outside of the U.S., what are the sort of short near term markets that you want to expand into?
Some European markets, and honestly, we have identified the markets, but I'm not sure if I should actually disclose this at this point in time. I don't want our competitors to get some insights into our strategy. Obviously, some of the European markets we feel are potentially very attractive.
Okay. Fantastic. Thank you very much, both.
The next question is from Maja Pataki, Kepler Cheuvreux . Please go ahead.
Yes. Thanks for taking my question. Two quickly. One, H1 results are again a confirmation that you found a very balanced way to spur growth, but also to improve your margins. I would like to understand, if there is any way that you can tell us already, how shall we think about margin progression going forward with all the announcements you did today. Will you follow the same mindset that you will invest into growth and therefore margin progression might be not as strong as it could be? Can you confirm that there will be margin improvement also in the coming three years? The last question is, could you shed a bit light on Instradent growth? Have you seen the same strong growth momentum continue that we've seen in 2016? Thank you.
Yes, Maja, thank you for your question on the margin progression. I think there's no reason why we should change our very successful strategy to reinvest part of the incremental margin into the expansion of the business. I probably would compare the current situation with Clear Choice a little bit with our entry into the non-premium market with the business franchise Instradent. At the beginning, it was more loss-making. Now it's a profitable business. As the profitability of this business is increasing, we can afford to invest part of the incremental margin into the extension of the orthodontics business. There's no change in the underlying strategy that we had in the past.
The second one was the Instradent question?
Yes, the Instradent. Instradent is continuing to grow high double-digit in all the markets where we have our Instradent franchises. Obviously, the growth rate in the first year is from zero to indefinite, you have extremely high growth rates in year 2. The growth rates are tendentially coming down, they are still extremely positive and, as I pointed out, high double-digit, close to even triple-digit growth.
Thank you.
We have a follow-up question from Michael Jüngling. Please go ahead.
Thank you. I just want to follow up on the margin progression for the coming years. If I assume that ClearCorrect only has a couple of million of profits, that is pretty much an instantaneous sort of 70, 80, 90 basis points of dilution. You also will, I guess, have to make some significant investments around the globe. Should we expect a meaningful, if you like, one-time step down in margins before margins recover? Or is that an incorrect assumption? Question number two is, you mentioned that in EMEA, you introduced in some more countries, the non-premium implant brands. Could you clarify which other European or EMEA markets that has happened in, please?
No, you shouldn't expect that. As Peter pointed out before, our non-premium business is actually growing significantly, not only on the top line, but also on the margin side. This actually will help to compensate for some potential dilution when it comes to the startup of the orthodontics business. Don't be worried. Don't expect any dip in the development of the margins. To your second question, especially pleasing is the development of the non-premium business, as Peter pointed out in the Middle East. In Europe, very pleasing, the development in Iberia. Still continuing to be extremely positive development there. Turkey is a very important non-premium market for us as we speak, with a very nice development over the recent past. We are now also in Russia with a non-premium franchise. We have started the U.K. approximately 12 months ago, also this business is taking off.
Germany is growing very fast and very successfully. There we are actually selling the Medentika implant range, not the Neodent implant range, together with the Medentika MPS offering. I cannot highlight one specific market. Overall, the non-premium business is developing very nicely.
Marco, I was more interested in which new geographical markets have you recently introduced the non-premium segment? Because I read page four of the press release, it talks about.
It's actually.
It says that you've expanded into more geographical markets, therefore I was more curious into what these markets were.
Okay. Now I get your question. It's actually on the presentation. If you look at slide number five, you see the markets we entered in in 2017. Most of them are outside of Europe. You see here Canada, we entered Chile, we entered Russia. We entered Colombia last year. We have just recently entered also Iran. Turkey will be present with our own subsidiary. These are, I would say, the most important markets to mention.
Nothing in Europe, because the statement was under EMEA heading, right? It was under the EMEA heading.
Entering into new direct markets.
Okay. Good point. EMEA is Europe, Middle East, Africa. Okay. The majority of the new setups when it comes to non-premium was actually in the MEA, Middle East, Africa part, and less on the European part. That's probably where the confusion is coming from.
Okay. Is there any intention of moving into some of the main European markets in which you're not in today?
For example?
Well, I don't know all the geographic regions that you're in, but there must be some.
Oh, okay. I just mentioned Germany, I mentioned Spain. Italy we are in. U.K. We are about to enter France, too. Scandinavia is not yet really a non-premium market. Switzerland, neither. These ones are not on our focus right now. I would say the larger markets we are already in or about to enter.
Great. Thank you.
That was the last question.
Okay. In closing, I'd like to draw your attention to the investor relations calendar, which you can find on slide 54 and on our website. Thank you again 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 and goodbye. Thank you.