Ladies and gentlemen, good morning or good afternoon. Welcome to the Straumann first quarter 2017 results conference call. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. 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. Good afternoon, everyone, and welcome to this conference call on Straumann's 2017 first quarter revenue. 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 business and regional performances with you. After that, I will tell you about our strategic progress, the rollout program of new solutions that we presented at the major dental trade fairs in Q1, and our outlook. We will be glad to answer your questions.
As you can see in slide three, we have made a very good start to 2017 and have continued to build on the strong momentum of last year. Group revenue grew 20% in CHF to CHF 266 million, making this a record quarter for Straumann. I should add that we have benefited from two small acquisition effects and the fact that Easter fell later this year. Excluding acquisition and currency effects, our organic revenue grew 15%, which reflects the resources and energy we have invested, for example, in growth markets, new product solutions, and the non-premium segment. All our businesses achieved double-digit growth, both in volume and value. Our instrument business, which addresses the non-premium segment, continued to expand dynamically with another quarter of triple-digit growth. Geographically, our two largest regions, EMEA and North America, were the main drivers and each contributed 30% of our growth.
For the first time ever, the Straumann Group sold more than a million implants in one quarter, with all our categories growing, especially our tapered implants. To fuel growth going forward, we have stocked and accelerated our development pipeline and have entered further partnerships. As a result, we were able to present a large number of innovative products and solutions at major international trade shows around the world, meeting customers, generating leads, and expanding our addressable market. In view of this and our continuing good performance, we are raising our full-year guidance for top-line growth to the low double-digit percentage range with further EBIT margin improvement, as mentioned in February. Before I hand over to Peter, let me put our first quarter in the context of the previous 12 months.
As you can see in slide four, all our regions have topped their prior year performance. As a group, we have added 180 basis points to the strong organic growth achieved in 2016, which confirms that our strategy is paying off. Peter will give you more granularity on this. I would like to hand over to him now for the performance details.
Thank you, Marco. Good afternoon or morning, everybody. On slide six, you can see that our top line increased 19.5% on a reported basis. On the left of the chart, you see that our first quarter revenue in 2016 would have been CHF 3 million higher at this year's currency rate, mainly due to the appreciation of the Brazilian real, the US dollar, and the Japanese yen, which more than offset the depreciation of the euro, the British pound, and the Chinese yuan. The effect of acquisitions added approximately CHF 6 million, bringing the adjusted 2016 revenue to CHF 232 million. Using this base in a like-for-like comparison, our first quarter revenue in 2017 increased 15% in organic terms. As you heard earlier, EMEA and North America were the main regional growth contributors, posting organic increases of 10% and 17%, respectively.
Asia Pacific achieved the strongest relative increase, with revenue climbing 26%, while LATAM reported an increase of 15%, despite the difficult economic situation in Brazil. In summary, we have achieved double-digit growth across the board. Although we don't have a full picture yet, we are fairly sure that we are still significantly outpacing the market, which seems to be in good shape. The next two slides provide details of the regional performances and the quarterly trend. Our traditional stronghold, EMEA, returned to double-digit growth, benefiting in part from the early Easter last year and the fact that there were one and a half more working days for dental surgeries in Q1 this year. Growth was lifted by very good performances in Iberia, Russia, and Sweden. Fueled by the solid sales progression in Germany.
All businesses contributed to the positive trend in the region with the BLT, value-based, and botiss ranges making significant contributions. Our strong presence at the International Dental Show, which takes place every other year, helped also to generate leads. Across the Atlantic, North America reported a fifth consecutive quarter of double-digit growth, reflecting a sequential acceleration. The premium business expanded at similar rates in the U.S. and Canada. On the non-premium side, Instradent exceeded our expectations in the U.S. and began trading in Canada. We succeeded in generating volume increases from customers that were acquired in 2015 and 2016, in addition to winning new accounts and generating further leads.
The U.S. provided the largest country contribution to group growth, driven by the steady uptake of value-based and BLT. I should like to add that we have sold more than 300,000 BLT implants in North America since launch three years ago. At the Academy of Osseointegration in March, we introduced our 2.9-millimeter BLT, which was well-received and made an initial contribution to growth. Asia-Pacific also accelerated sequentially, driven mainly by dynamic growth in China. This reflects the investment in our training and education organization in recent years, also our entry into the value segment with Anthogyr here. In Japan, we continue to outpace the market, although growth was expected less than in the first quarter of 2016 when we launched BLT and Roxolid. Regional growth was complemented by strong performances in Australia, South Korea, and distributor markets.
In Latin America, we continue to grow strongly in Brazil thanks to our differentiated offering, integrated supply chain, and our dual price model. Mexico also posted strong results with good demand in both the premium and the value businesses. Our smaller subsidiaries in Colombia and Argentina also added to regional growth. Looking at our performance from a business perspective, implants were the main contributor to growth, with sales climbing more than 20%. Our high-performance premium implant material, Roxolid, and the increased uptake of Neodent Cone Morse and Acqua implants had a favorable effect on the product mix. As Marco mentioned, tapered implants were growing faster than our other ranges and accounted for more than 25% of premium implants sold in Q1. We expect this trend to continue. The restorative business also achieved double-digit growth, driven by strong demand for implant-born prosthetics, both standard and CAD/CAM.
We also reported initial sales from Straumann's new intraoral scanners and milling solutions. Finally, biomaterials continue to grow dynamically, particularly bone substitutes and membranes in EMEA and North America. With that, I hand back to Marco.
Thank you, Peter. Slide 11 features in our IDS presentation. It explains some of the reasons for our continuing growth. Since 2012, we have broadened our addressable markets by offering a full range of biomaterials, by providing comprehensive solutions for labs, by launching and competing with our own Neodent tapered implants, and by penetrating the non-premium tooth replacement segment. This year, we are entering the CAD/CAM in-lab and chair-side market. Next year, we plan to compete in the fully tapered premium implant market with a new design in our portfolio. Through these initiatives alone, we will have expanded our addressable market in six years by a factor of more than seven. As you can see in slide 12, we still have plenty of upside potential in all our businesses, including implants and abutments, despite the fact that we are the market leader.
Our global platform of strong brands and partners, together with our innovation and launch pipeline, put the Straumann Group in a unique position to gain further share of these markets, which collectively are worth approximately CHF 7 billion. There is also plenty of opportunity for us to grow geographically because we offer both premium and non-premium solutions that are affordable for a very broad population. A few weeks ago, we opened a Straumann Group subsidiary in Chile, which is predominantly a non-premium market, where implant dentistry is becoming more affordable, thanks to rising incomes. There is also much potential in well-established markets like Canada, where we have just taken our first step into the non-premium segment and now offer high quality, attractively priced alternatives to leading competitor brands.
To meet the growing demand for our products, we need to increase production capacity quickly. I recently shared with you our plans to expand our production facilities in Brazil and in Switzerland. In slide 14, you can see pictures of the new facilities we have constructed and equipped in Curitiba, which will become fully operational in quarter three. I referred to the importance of strategic partnerships for penetrating segments that we are unable to unlock alone. In Q1, we signed broad distribution agreements with 3Shape and Rapid Shape, which add industry-leading scanners and 3D printers to our digital portfolio. As you can see in slide 15, our digital solutions now includes scanners, software, lab, and chairside milling solutions, all Straumann branded and available from a single source with Straumann service and support. Moving on to slide 16.
We have also extended our partnership with RODO Medical by increasing our participation from 12% to 30%. We first invested in the company in 2014, when we saw the potential of their highly innovative technology for attaching prosthetic restorations to implants without cement or screws. In the meantime, RODO's Smileloc system has just become commercially available in initial markets. We have obtained exclusive distribution rights, except in North America and South Korea. We also have an option to increase our stake to 51% in 2021. Back on slide 12, you saw how RODO, 3Shape, Rapid Shape, and other partners fit from a market perspective. Slide 17 provides you with an update of our technology, manufacturing, and on-premise platform. As mentioned previously, the first quarter was marked by several major trade events, which enabled us to launch and present a large number of products and innovations.
The link in slide 19 takes you to a short video which highlights our activities and launches at the IDS. I encourage you to watch it after this call. Slide 20 summarizes the main innovation themes. Slides 21 to 24 provide an overview of our new products and solutions, which are aimed at both the premium and non-premium segments. We shared the details on all of these at our press and analyst event in Cologne. You can still find them in the IDS media release and IR presentations on our website. Moving ahead to slides 26 and 27. We recently announced some changes in the Executive Management Team and the Board of Directors. In May, Patrick Loh will join us as Executive Vice President of our fast-growing Asia Pacific region, taking over from Alexander Ochsner, who is returning to Switzerland to head Global People Management and Development.
With regards to the board, Monique Bourquin and Regula Wallimann were elected as new members, adding diversity, bringing new skills, and filling the gaps left by the departures of Stefan Meister and Roland Hess. That brings me to slide 28 and our outlook for 2017, which, as always, is barring unforeseeable events and circumstances. In brief, we expect the global implant market to grow at 3%-4%, and on the basis of our strong performance, we are raising our guidance for organic growth to the low double-digit percentage range. This, together with the operational leverage, should lead to further improvements in our organic operating profit margin. Before we come to the Q&A, let me remind you that our next event is the ITI World Symposium here in Basel from the 4th to the 6th of May. We expect around 4,500 participants and would be glad to welcome you also.
Please see our website or contact our investor relations and corporate communication teams for more information. In addition to educational and scientific presentations, there will be an industry exhibition, and you can see our truck, which is touring Europe to present our range of digital solutions. Now I'd like to open the question and answer session. If you have a question, please press star and one on your phone to join the queue. You can leave the queue by pressing star and two. As usual, I would kindly ask you to limit the number of your questions to two and rejoin the queue in order to give everyone else a chance to pose their questions. Webcast participants who wish to ask questions anonymously can use the tool in the audio webcast, which you find in the bottom left corner. Chorus Call, can we have the first question, please?
Our first question comes from Michael Jüngling, Morgan Stanley. Please go ahead, sir.
Thank you, and good afternoon. I have two questions, and these are all in relation to margins. For the 2017 EBIT margin expansion, given that you've got similar growth for this year as last year, currency is slightly positive, is it fair to assume that the margin expansion of 160 basis points last year is now also a good guide for 2017? Second question is on the margin leverage. Is the potential for margin expansion more on the gross margin or more on the EBIT margin, given that you also have now a bit more capital equipment in your mix as a result of some new signings of technology? Thank you.
Thank you, Michael. Peter, do you want to take the first question?
Yes. Thank you, Michael, for that question. Let me start the answer with the reconfirmation of our strategy to reinvest part of the incremental operating profit, as well as part of the incremental operating margin, into the sustainable expansion of our business. Be it on the geographic side, be it in the further penetration of the value segment, or in developing and launching new innovations. At the full year results conference, I said that the consensus of 25.5% is a challenging target, is also an achievable target. With an increased size guidance and its higher sales expectations in 2017 compared to the beginning of the year, it might be gotten a bit less challenging to achieve the consensus, at the same time, it also gives us more flexibility to reinvest more of the incremental margin into the expansion of the business.
On your second question, Michael, yes, it's more on the EBIT margin. As you pointed out, the capital equipment gross margins are obviously less attractive than, for example, the margins we achieve with our premium implants. Many of these products we obviously purchase from partners. It's more an EBIT margin game when we look at, especially, the CAD/CAM segment.
May I just quickly follow up on the explanation for the margin guidance. Why would the margin expansion this year, with similar growth as last year, be less? I just don't see why a 25.5% margin would even be a big problem.
There is one additional point there you have to consider, Michael. The mix of our business between premium and non-premium is actually shifting more and more to non-premium. As per today, we as a whole, on the non-premium side, we do not yet generate the same EBIT margins like we generate on the premium side.
Great.
This will change in the future, today this is still the case.
That's very helpful. Thank you.
The next question comes from Veronika Dubajova, Goldman Sachs. Please go ahead.
Good afternoon, gentlemen, and thank you for taking my questions. I want to start talking a little bit about the market environment that you see out there. If I look at some of the commentary that your competitors have made about the market, it seems that they're maybe not as optimistic. I think, Peter, you made a comment that the market seems in a good shape. Can you give us an update on the kind of growth that you're seeing, maybe region by region right now, and any changes that you've seen in the last couple of months, or as you look into the second quarter, that would be quite helpful. My second question is just on the contribution effect from capital sales at IDS and the Easter effect.
Can you quantify that for us, Peter, so we have a better sense for what the underlying growth rate was like in Europe in Q1? Thank you.
Take the first one? Yes. What the first question was? The market.
Growth on the different markets.
First of all, overall, I'm not sure, Veronika, to whom you refer. Who made actually the comments that the industry is actually developing softer than we see it. Facts are that we had an extremely strong first quarter. Fact also is that Biomet 3i, they just came out with their numbers, and their first quarter was actually considerably better than the performance they reported during the preceding quarters. For me, this is also kind of an indication that it cannot be that bad. They showed 0% growth compared to many quarters in the past with negative growth. I don't know to whom you are referring when you say that competitors are actually stating that the market is actually becoming softer. We don't see that. The growth engine in our industry is still Asia-Pacific. This is also reflected in our numbers.
We were able to grow our business in Asia-Pacific by more than 25% organically during the first quarter. We also actually see a strong and very solid development in North America. This is also actually highlighted by the almost 18% organic growth of our business in North America. Europe is a relatively mature market, so there we don't see the same amount of growth like we see in North America and Asia-Pacific. Obviously Latin America, largest part and largest market in Latin America is Brazil. Latin America from a pure market point of view is not yet over the hill. We see some tendencies, especially in Brazil, that the market will recover, but obviously it's not yet where it was two years ago or three years ago, let's put it that way.
Strong growth in Asia-Pacific, market growth, very solid environment in North America, mature markets in Europe, and still kind of a difficult situation in Latin America, driven by the macroeconomic environment in Brazil. On your second question on the sales of capital equipment during the IDS, to be honest, there are not many of the sales already reflected in our first quarter numbers. You have to remember or to recall that IDS was at the end of March. Deliveries of the orders, and there are obviously some orders which we actually captured during IDS, and we also created quite some leads, especially when it comes to our new digital workflows. Expediting the orders didn't happen in the first quarter.
On the last part of the question concerning the Easter effect on the working days, if you just look at the pure working days on a weighted average level, we had 1.5 more working days in the first quarter 2017 compared to 2016 first quarter. If you break that down by region, then in Europe it's around two working days more, in North America it's around one working day more, and in Asia-Pacific, Latin America, it's on a blended average around half a working day more. If you assume 20 working days per month, then that makes 2%-3% more working days in the first quarter 2017 compared to 2016. However, the working days are only part of the story. The more prominent effect is the vacation season around Easter, but that's very difficult to quantify.
Of course. Very clear. Marco, I was referring to Danaher, who made some comments a couple of weeks ago that the market in the U.S. was off to not a very fast start. Thank you for all that color. It's really helpful.
You're welcome.
Our next question comes from Christoph Gretler, Credit Suisse. Please go ahead, sir.
Thank you. Hi, Marco. Hi, Peter.
Hi, Chris.
Hi. Looks like Q1 was now really ahead of expectation. Could you elaborate what was the main deviation relative to your original expectation? Also, now, given the flexibility to invest on the back of the higher sales, what would be the target areas where these investments now can be accelerated, actually?
As Peter already pointed out, at the end, all regions performed extremely well. All regions were slightly ahead of what we had anticipated to see during the first quarter. As Peter pointed out, also, all the business franchises developed extremely well. SDI, so our small diameter implant, was extremely well received, and most of that business is actually incremental. We didn't have a solution for some of the indications before. If I would have to pick on one specific driver of growth in Q1, which was actually more prominent than what we had anticipated when we actually went into 2017, I would actually highlight the SDIs, or the small diameter implants. In terms of what will we do now when it comes to investing into the future, what will we do more? I think we will continue with what we had in our plans.
We have a full portfolio of initiatives. If you look back at the chart in the presentation, which I commented on, slide number 12. It's now all about making sure that we actually increase our share in the new segments, especially when it comes to the digital workflow, the CAD/CAM segment. What we will do, obviously, is we still have, from a geographic coverage point of view, in some of our key markets, we might have potential to actually add a couple of salespeople. We have to be very careful there, because you're doing this during the year with all the targets and budgets already established, is sometimes also disruptive.
Obviously, we will actually now look even closer at opportunities to add people on the ground and to make sure that we actually bring our new products, our product portfolio in front of the customers.
Okay. That sounds good. Thanks a lot. Keep it up.
Thank you.
The next question comes from Kit Lee from Jefferies. Please go ahead.
Thank you for taking my questions. I have two, please. Just firstly, could you please give us more color on the number of new customers you generated from your BLT implant and the 2.9-millimeter version? The second question is on your full-arch solution. Could you please comment on the performance of that product portfolio during this quarter?
Yeah. Your first question is a little bit of a difficult one. We traditionally don't disclose how many new customers we make. What I can tell you is that on the SDI, a large part of the incremental volume came out of our existing customer base. Especially specialists, they have indications where small diameter implants are required, and they had to actually look at solutions different from Straumann in the past. We are now delivering this opportunity to them, and they are now in a position to actually switch out competitive systems and use our implants in their practice. Obviously, the SDI is also a great door opener to actually enter into practices where Straumann has not yet been the predominant system. On your second question on full-arch or ProArch, how we call it.
To be honest, this is still a segment where we don't yet play a major role. The full-arch restoration segment, and I'm now talking about the Straumann brand, so ProArch, I'm not talking about Neodent. Obviously, with Neodent, especially in the U.S., a large part of the growth in the U.S. with Neodent is coming from full-arch indications, like for example, through customers like ClearChoice. When we look at the Straumann franchise, the premium franchise, ProArch, and looking at the potential we have to enter the full-arch segment, we are just scratching the surface there. We are not yet one of the top players when it comes to full-arch restorations, or rehabilitations with premium implants.
Okay. Thank you very much.
The next question comes from Richard Felton, Bernstein. Please go ahead, sir.
Oh, hi. Thanks for taking my questions. I have two. The first is really focusing on M&A. I think you've commented now that you feel you've got most of the portfolio you need to be a total teeth replacement solution provider. Are you looking to move into any adjacencies beyond that, things like orthodontics, or should we really be thinking in terms of very small bolt-ons in the areas you're already playing? The second question is related. In the absence of significant M&A, should we be thinking about cash returns to shareholders going forward? Thanks.
When it comes to the CHF 7 billion market I've described before, dental implant systems, biomaterials and the CAD/CAM market. Looking at this space, we believe that we are very well set up. On one hand, when it comes to participations or partnerships with an equity stake, on the other hand, also when it comes to partners supporting our product portfolio and delivering us products and solutions to be able to offer a complete solution to dentists and to labs. The necessity on that side to do further larger M&A transactions is rather limited, which doesn't mean that we are not constantly looking at the market, and in case something interesting might pop up, which fits strategically, that we would not have a look at it. I think more interesting is our adjacent segments. You mentioned one, in our view, interesting segment, which is the orthodontics field.
Obviously, there's the fact that many of the Align patents will expire at the end of October. With the fact that actually when you look at orthodontics and implantology, that more and more general practitioners are realizing that there are inherent synergies in offering both treatments. Often you first have to put the teeth into the right position before you can place an implant, for example, but also when looking at the digital workflows, digital impression, taking CAD, planning of the indication, be it on the implant side or the orthodontic side. There are many synergies. Obviously, orthodontics is an interesting segment we are, as we speak right now, also looking deeper into. That doesn't mean that we are ready to shoot off. We are actually in a phase of, I call it always a desk research.
We are looking at the market, trying to better understand the market, trying to better understand who are the players in this market, and to form our own opinion, is this really an opportunity for us or not?
Great. Then on the cash returns?
As we already pointed out at year-end, the presentation, we are actually committed to constantly increase our dividend.
We have done that now two years in a row. Should the year develop as we anticipate and as is reflected in our guidance, then I guess you can count on a further increase of the dividend for the business year 2017. On top of that, some of the cash, obviously, we will need to make sure we have enough capacity in place for the coming years. On one hand, at our site in Curitiba , and on the other hand, we are also investing into increasing capacity in our Villeret production site in Switzerland.
Great. Thank you.
The next question comes from Daniel Jelovcan, Mirabaud. Please go ahead, sir.
Yes, hello. My first question will be on the 2.9 millimeter implant. Can you give us a bit of flavor on how big actually this diameter is? I guess it's mostly going to the front teeth, so it's probably not so big, but still big. Just to get the flavor. The second question is actually, I counted now that you have the sixth quarter with double-digit growth in Latin America, despite quite modest economy. Can you give us a bit of flavor? I mean, Peter, you explained it already with Brazil, your integrated approach, but maybe a flavor how you developed relative to the market. How was the market growth, especially in Brazil? Your best guess.
Okay. Yeah. We made a survey in Germany, before we launched the small diameter implant, which was actually, I think, was during the third quarter of 2016. We asked the dentists how many patients they treat every month on a monthly basis, for which they use a small diameter implant. The results were that actually, on average, each one of these dentists had between five and 10 patients a month to treat with small diameter implants. We also asked the question, if Straumann would actually come out with a small diameter implant, would you consider to switch to Straumann? 90% of our customers told us yes. There is quite some potential on one hand to gain share of wallet. As I pointed out, on the other hand, we also believe that we have the best small diameter implant.
This is that because we are the only ones who have this diameter available in Roxolid. The smaller the diameter the implant is, the higher the probability that it breaks. With Roxolid, we obviously have considerably reduced risk of breakage. This to the SDI implant. Did you want to comment on Latin America?
Yes. Thank you for that question, Daniel. Market development in Brazil is still very challenging. It's more a flat to declining market. We are growing in, as you said, double digits in the whole Latin America and Brazil. One of the growth driver is still the unique distribution system that we have. We have 20 different distribution spots across the country, from where we are able to deliver to the dental practice within a few hours. That's a huge competitive advantage. Since the beginning of 2016, we have leveraged that distribution system also for the Straumann implant distribution. On top of that, further growth drivers in Brazil are the BLT implant line and Roxolid, and on the non-premium side, also a shift towards the Acqua surface of the Neodent surface. The market development, as I said, is flat to declining.
I would probably expect a slight improvement in the second half of the year, it's very difficult to make a prediction in Latin America, and the visibility there is rather limited for the time being.
Thank you.
To add what Peter just said, yes, Brazil is the predominant part of our business in Latin America. We started to generate business also through our own subsidiaries in Argentina. We are in the second year in Colombia. Mexico is just developing incredibly well. Our business outside of Brazil has actually, we have seen very nice growth rates coming through.
Okay, thanks. Just to follow up on the small diameter. When I did the calculation, now it looks like it's 20%-30% of all implants was potentially for small diameter. Is that correct, roughly?
Yeah. I think it's less, honestly, Daniel. The survey was done with 120 dentists. Honestly, I cannot tell you that this is really a relevant sample. Potentially we may have included in this survey more specialists than actually the total dentist community might represent. It's obviously it's a significant part, yes. We are closing a significant gap which we had in our portfolio, with the small diameter implant.
Okay, thanks. Great job. Thanks.
The next question comes from Maja Pataki, Kepler Cheuvreux. Please go ahead, madam.
Hi, good afternoon. Most of my questions have actually been answered, just one, and I'm sorry if I'm getting back to Michael's question with regards to the 160 basis points margin potential this year. Marco, I understand your argument that the value implants are coming in at a lower margin at this point in time still. However, if I recall from the full year meeting, the value segment accounts were still a relatively small part. Even if it is growing substantially stronger than the rest, it's very hard to understand why that would have such a big impact. If you could give us a bit-
a few more arguments so we don't run out and put the 200 basis points in our models, I guess that could be in your favor as well. Thanks.
Yeah. Absolutely. I'm happy that we have an opportunity to come back to this topic. Yes, it's still relatively small. If you grow 100% and more on a relatively small number, over a period of time, it also becomes, in a way, significant. That's what we are doing. The non-premium business outside of Brazil has been growing more than 100% in Q1. On top of that, we are adding constantly new franchises. Especially when it comes to the non-premium segment. The latest addition was actually now Canada in Q1. Last year, we started up in Argentina. We are starting now in Chile. These are predominantly non-premium markets. We could actually also have chosen the easy way, to just open up distributors and sell these products to distributors.
We are actually more looking at exploiting the full potential at the mid-longer term, and that's why we decided to go direct and to actually set up our own companies in these markets to go after the non-premium business. Obviously, all these companies, in a startup phase, they are heavily diluting when it comes to the EBIT margins. This will change, obviously, over time. When we talk mid-longer term, the potential that this business is actually increasing in terms of EBIT margin and is more and more accretive to the current EBIT margin, is obviously there.
Thanks, Marco. Just a quick follow-up on that. Since we have some of the new franchise segments turning more profitable, but you're adding new segments or new markets, shall we think of the value segment as being, as a group, as a total, relatively flattish on margin, with some improving and some being more diluted for the time being?
Honestly, it's not exact, but the tendency is there, as you point out. We obviously get more profitable with the existing franchises. The new ones, which we actually are opening up, they're kind of diluting the EBIT margin of the overall non-premium business. Yes, you're absolutely right. It's more a question of the speed, how many of these new franchises are we setting up? If I look today where we are, there is not that much left, which would actually deserve our physical presence with an own subsidiary in the non-premium segment. We will have achieved by the end of this year, I would say, 90% of where we want to be.
Okay. Thank you very much. That's very helpful.
The next question comes from Thomas Jones from Bernstein. Please go ahead, sir.
Hi. Good afternoon. Just a couple of quick, hopefully fairly easy questions for you. First on the RODO deal. The option you have to acquire the 51% stake in 2021. Two questions. Does that give you full control, and will you consolidate it if you exercise that option, or will it be like the Medentika arrangement where you had a majority stake but not full control? Allied to that, does that then give you the U.S. distribution rights for that product? The second question is, I just noticed that in the release you slightly changed the language as to your definition of organic operating profit margin improvement. At the full year, you just said it was excluding Medentika and Equinox, and now you're saying it is excluding acquisitions and currency. Currency, I'm guessing, should be a help for you rather than a hindrance.
Just wondering why you've changed the language there. Allied to that, I was wondering if you could give us some indication of what the kind of current currency impact would be. Maybe the way to ask the question is, what would your 2016 margins have been at current FX rates?
Okay, thank you. Maybe you can comment on the second and the third question.
In terms of wording changes, Tom, we were always talking about the organic margin, the organic profit margin. When we are referring to organic, we are always excluding M&A impact as well as FX. There is no change in the underlying meaning of the wording of the margin in guiding in that respect.
Okay.
If you are referring to the respective FX impact of the margin, you see the FX impact of overall on the top line, I said this is around CHF 3 million coming mainly from the Brazilian real, whereas EUR, USD, JPY, and GBP, they basically offset each other. On page 34 of the presentation, you have the respective sensitivities to the different currencies that we have. You see that the revenue sensitivity as well as the EBIT sensitivity to the different currencies that you can calculate back what that would mean based on today's FX environment, for the respective absolute EBIT.
Okay. I will go and work it out myself. The-
So-
the RODO.
Yes. On RODO, it is actually a similar construction like we had with Medentika. Even owning 51%, we will not consolidate the asset because we will also, with 51% in 2021, this does not come along with the majority of the board. The majority at board level will still be with the third party, not with us. For us, the interesting part here really is the technologies. We are still in discussions with RODO when it comes to where to manufacture the abutments. Obviously, the Smileloc, the sleeve, that will actually be manufactured by RODO. But the underlying abutments, there we are still discussing if we will do that in our production site, if we actually potentially could set up together a joint venture. I think the interesting fact about RODO also is we have exclusive distribution rights.
That means not only to use the RODO technology on Straumann implants, we have exclusive distribution rights to actually sell these abutments and the Smileloc system on all existing implant systems.
Sure. Just a quick follow-up. Do you have any rough idea of when the IP around that starts to weaken around that technology? We are sitting in the dental implant industry, IP tends not to be that difficult to get around. But how tight do you think the IP portfolio is around that product?
Oh, honestly, you caught me on the wrong foot here. I would have to come back to you on this one.
Okay, no worries.
As a reminder, if you wish to register for questions, please press star and 1 on your telephone. The next question comes from Julien Dormois, Exane BNP Paribas. Please go ahead, sir.
Hi. Good afternoon, Marco and Peter. Two quick questions on my side, please. The first one relates to the growth in implants on the implant side of your business. You have indicated that in Q1 you grew it by more than 20%. Was just wondering whether we should think about it as being mostly volume, and whether you would comment on the pricing side of the equation. The second question is about the evolution of the market for the parallel-walled Bone Level implants. This is a market where you have a huge market share. I was just wondering whether there is a degree of cannibalization in terms of the BLT market growing very, very fast. What does that mean for the parallel-walled Bone Level market? Is it growing? Is it flat or what?
In terms of ASPs, if you look at our overall ASP at group level, it's actually slightly declining, but this is actually also due to the mix of premium to non-premium. Obviously, we have been growing more with our non-premium franchise compared to our premium franchise, also on the implant side. This caused a negative mix effect and had obviously an impact on the average ASP per implant sold throughout the Straumann Group. On your second question, we see less cannibalization on our parallel Tissue Level systems. That's actually even growing. The Bone Level, parallel-walled franchise, yes, there we see quite some cannibalization through BLT. Clearly many of our traditional Bone Level parallel-walled users, they were giving BLT a try. They were convinced, and actually they opted to switch from Bone Level to Bone Level Tapered. There we see some cannibalization.
Okay, that makes sense. If I could just follow up on the first question, then if we were to split the implant business, let's say with the premium side, how would you qualify ASP just for the premium side of your business on the implant?
Among the premium side actually, we had a very good first quarter also in terms of bringing our SLActive share up. We will actually continue throughout the year 2016 to market our SLActive surface. I can already give you a little bit of outlook here. In Q4 we will launch an active communication campaign, and through that campaign we will actually publish and communicate the latest know-how we have gained when it comes to the SLActive surface. We are convinced that when it comes to our SLActive share, that we are not yet where we could potentially be. In Q1 we've already seen a very pleasing trend when it comes to the mix between SLA and SLActive, and obviously SLActive is higher priced and has a positive impact on our ASP.
Okay, thank you.
We have a follow-up question from Mr. Michael Jüngling, Morgan Stanley. Please go ahead, sir.
Yeah, thank you. I have one question which is in relation to the timing of the upgrade. I can't recall a period in the last 15 years where you upgraded your guidance in the first quarter. Is the reason for the upgrade because also in Q2 the momentum is very strong both on sales and also on the margin development?
If I recall correctly, Michael, we did the same thing already last year.
Well, last year was kind of a specialty, but the previous 15 years it was very, very rare that you did this.
I'm just curious why you chose Q1 rather than maybe a Q2 when you've got more of the double-digit growth guaranteed or in the bag.
I guess you have been following us for quite some time. I guess you also appreciate that we have more kind of the reputation to be rather conservative. We don't actually communicate something or promise something we don't really believe that we can achieve it. We just believe that when looking at the potential, and again referring to the chart I mentioned before where we actually show the market shares in the different sub-segments, we believe that the potential to grow is still that great that it's quite a safe bet that we will actually achieve double-digit growth in 2017. Honestly after 15% in Q1, what arguments would we have had to tell you that we will not actually grow double-digitally?
There are many variables. For instance, Zimmer could improve their performance in North America in Q2, Q3.
Yeah.
The interest rises. Okay. Thanks very much for the clarity.
Gentlemen, there are no more questions at this time.
Okay. Thank you for your interest and your questions. In closing, I'd like to draw your attention to the investor relations calendar, which you can find on slide 33 and on our website. Thank you again for joining us. Have a good day, and goodbye.
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