Ladies and gentlemen, good morning or good afternoon. Welcome to the Straumann First Quarter 2017 Results Conference Call. I am Alice, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session.
The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Marco Gadola, CEO. Please go ahead, sir.
Thank you. Good afternoon, everyone, and welcome to this conference call on Straumann's 2017 Q1 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. And before we begin, I have to inform you that our discussion will include forward looking statements.
So please take careful note of the disclaimer on Slide 2 of the presentation and at the end of our press release. As usual, I will run through the highlights and then Peter Hochul, our CFO, will share the business and regional performance with you. After that, I will tell you about our strategic progress, the rollout program of new solutions that we presented at major dental trade fairs in Q1 and our outlook. Then we will be glad to answer your questions. As you can see in Slide 3, 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 Swiss francs to 266,000,000 making this a record quarter for Straumann. Also I should add that we have benefited from 2 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. And our insulin business, which addresses the non premium segment, continued to expand dynamically with another quarter of triple digit growth.
Geographically, our 2 largest regions, EMEA and North America were the main drivers and each contributed 30% of our growth. For the first time ever, the strong group sold more than a 1,000,000 implants in 1 quarter with all our categories growing, especially our tapered implants. To fuel growth going forward, we have stopped 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 4 major international trade shows around the world, winning customers, generating leads and expanding our addressable market. In view of this and our continued 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 Q1 in the context of the previous 12 months. As you can see in Slide 4, all our regions have topped the Brio Ear performance and 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, and I would like to hand over to him now for the performance details.
Thank you, Marco, and good afternoon or morning, everybody. On Slide 6, you can see that our top line increased 19.5% on a reported basis. On the left of the chart, you see that our Q1 revenue in 2016 would have been CHF 3,000,000 higher at this year's currency rate, mainly due to the appreciation of the Brazilian real, the U. S. 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 CHF6 1,000,000, bringing the adjusted 2016 revenue to CHF232 1,000,000. Using this space in a like for like comparison, our Q1 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% 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.
And also 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 1.5 more working days for dental surgeries in Q1 this year. Growth was lifted by very good performances in Iberia, Russia and Sweden and fueled by the solid sales progression in Germany.
All businesses contributed to the positive trends in the region with the BLT, value based and Fotis 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 5th 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, insulin 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 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 Viariobase and BLT. And I should like to add that we have sold more than 300,000 BLT implants in North America since launch 3 years ago. At the Academy of OSCE Integration meeting 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 and also our entry into the value segment with Onto here. In Japan, we continue to outpace the market also growth was expected less than in the Q1 of 20 16 when we launched DOT and RockSolid. 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 impact material works solid and the increased uptake of neodyns cone molds and wagwa 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 pro form a premium implant sold in Q1.
We expect this trend to continue. The restorative business also achieved double digit growth driven by strong demand for implant borne prosthetics, both standard and pad chem. We also reported initial sales from Straumann's new intra oral scanners and milling solutions. And finally, biomaterials continue to grow dynamically, particularly bone substitutes and membranes in EMEA and North America. And with that, I'll hand back to Marco.
Thank you, Peter. Slide 11 features in our IGES presentation, and it explains some of the reasons for our continuing growth. Since 2012, we have grown our addressable market by offering a full range of biomaterials, by providing comprehensive solutions for labs, by launching and competing with our own ethically tapered implants and by penetrating the non premium tooth replacement segment. This year, we are entering the CADCAM in lab and chairside market and 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 6 years by a factor of more than 7.
And 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 strong group in a unique position to gain further share of these markets, which collectively are worth approximately CHF 7,000,000,000. 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 strong group subsidiary in Chile, which is predominantly a non premium market where implant dentistry is becoming more affordable, thanks to rising incomes. There are also much potential in well established markets like Canada, where we have just taken our 1st step into the non premium segment and now offer high quality attractively priced alternatives to leading competitive brands.
To meet the growing demand for our products, we need to increase production capacity quickly. And 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 3. 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 ReShape and RapidShape, which are industry leading scanners and 3 d 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 Rotor Medical by increasing our participation from 12% to 30%. We first invested in the company in 2014 when we saw the potential of the highly innovative technology for attaching prosthetic restorations to implants without cement or screws. In the meantime, ROSA's MyLog system has just become commercially available in initial markets and 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, RapidShape and other partners fit from a market perspective. Slide 17 provides you with an update of our technology, manufacturing and non premium platform. As mentioned previously, the Q1 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, and I encourage you to watch it after this call.
Slide 20 summarizes the main innovation themes and 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 share the details on all of these at our press and analyst event in Cologne, and you can still find them in the IDS media release and IR presentations on our website. Moving ahead to Slide 2627, we recently announced some changes in the executive management team and the Board of Directors. In May, Patrick Law 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 Bucke and Regula Valiman were elected as new members, adding diversity, bringing new skills and filling the gaps led by the departures of Stefan Maestro and Roland Hess.
That brings me to Slide 28 and our outlook for 2017. Midg as always is barring unforeseeable events
and circumstances.
In brief, we expect the global implant market to grow at 3% to 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 and A, let me remind you that our next event is the ITI World Symposium here in Basel from the 4th to the 6th 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, as you can see our truck, which is touring Europe to present our range of digital solutions. And now I'd like to open the question and answer session. As usual, I would kindly ask you to limit the number of your questions to 2 and rejoin the queue in order to give everyone else a chance to put 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.
So Chorus Call, can we have the first question?
Our first question comes from Michael Jungling, 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. 2nd 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. Dieter, do you want to
take the first question? Yes. Thank you, Michael, for that question. Let me start with 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 innovation. At the full year results conference, I said that the consensus of 25.5 percent is a challenging target, but is also an achievable target.
With an increased size guidance and the higher sales expectations in 2017 compared to the beginning of the year, it might be gotten a bit less challenging to achieve the consensus. But at the same time, it also gives us more flexibility to reinvest more of the incremental margin into the expansion of the business.
And 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 achieved with our premium implant because many of these products we obviously purchase from partners. So it's more an EBIT margin game when you look at especially the Cap Can segment.
Magnus, 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? Addison CYA 25.5 percent margin would even be a big problem.
There is one additional point you have to consider, Michael. It's the mix of our business between premium and non premium is actually shifting more and more to non premium. And as per today, as a whole on the non premium side, we do not yet generate the same EBIT margin slightly generate on the premium side. This will change in the future, but today this is still the case.
The next question comes from Veronika Dubajova, Goldman Sachs. Please go ahead. Good afternoon, gentlemen, and thank you for taking my questions. I 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.
And I think, Peter, you made a comment that the market seems in a good shape. So, 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? And then 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. The first question was on the market. Growth on the different markets. Yes. First of all, overall, I'm not sure Veronika to whom you refer.
So who made actually the comments that the industry is actually developing softer than we see it. Fact that we had an extremely strong Q1. Fact also is that a similar 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. So for me, this is also kind of an indication that it cannot be that fast.
They showed 0% growth compared to many, many quarters in the past with negative growth. So I don't know where 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. Obviously, 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 Q1. And we also actually see a strong and very solid development in North America. This is also actually highlighted by the almost 80% organic growth of our business in North America. Obviously, 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.
And obviously, Latin America, largest part and largest market in Latin America is Brazil. Also Latin America from a pure market point of view is not yet over the hill. So we see some tendencies, especially in Brazil, that the market will recover. But obviously, it's not yet where it was 2 years ago or 3 years ago, let's put it that way. So 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.
And on your second question on the sales of capital equipment during the IES, To be honest, there are not many of the sales already reflected in our Q1 numbers. You have to remember or to recall that I guess was at the end of March. And 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. So expediting the orders didn't happen in the Q1.
And 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 an average weighted average level, we had 1.5% 1.5 more working days in the Q1 'seventeen compared to 2016 Q1. If we base that down by region, then in Europe, it's around 2 working days more. In North America, it's around 1 working day more. And in Asia Pacific, Latin America, it's on a blended average around half a working day more.
However, and if you assume 20 working days per month, then that makes 2% to 3% more working days in the Q1 'seventeen compared to 2016. However, the working days are only part of the story. The more prominent effect is the vacation season around the Easter rate, but that's very difficult to quantify.
Of course, very clear. And Mark, 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. But thank you for all that color.
It's really helpful.
You're welcome.
Our next question comes from Chris Kretzler, Credit Suisse.
Hi. Hi.
Looks like Q1 was really ahead of expectation. Could you elaborate what was the main deviation relative to your original expectation? And also given the flexibility to invest on the back of the higher sales, what would be the target areas where these investments can be accelerated actually?
As Peter already pointed out, at the end, all regions performed extremely well. So all regions were slightly ahead of what we had anticipated to see during the Q1. And as Peter pointed out, also all the business franchises developed extremely well. STI, 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. So 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 SDI, so the small diameter. 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. It's now about and if you look back at the chart in the presentation, which I commented on, 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 CapEx segment. And 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. But 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 disrupted. But 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, and keep it up.
Thank you.
The next question comes from Keith Lee from Jefferies. Please go ahead.
Thank you for taking my questions. I have 2, 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? And the second question is on your full arch solution. Could you please comment on the performance of that product portfolio during this quarter?
Yes. Your first question is a little bit a difficult one. We traditionally don't disclose how many new customers we make. But what I can tell you is that on the SDI, a large part of the incremental volume came out of our existing customer base. Because especially specialists, they have indications where small diameter implants are required.
And they have actually looked at solutions different from Stroma in the past and we are now delivering this opportunity to them and they are now in a position to actually switch out competitive systems and use our implant in their practice. But obviously, the STI 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 pro arch how we call it. To be honest, this is still a segment where don't yet play a major role. So the full arch restoration segment, and I'm now talking about the Straumann brand, so ProArts, 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 NEO then is coming from full arch indications like for example, some customers like ClearChoice. But when we look at the Straumann franchise, the premium franchise, Pro Arch and looking at the potential we have to enter the full Arch segment, we are just scratching the surface there.
So we are not yet one of the top players when it comes to full arch restorations and rehabilitations with premium implants.
Okay. Thank you very much.
The next question comes from Richard Biederkowski, Bernstein. Please go ahead, sir.
Hi. Thanks for taking my questions. I have 2. The first is really focusing on M and A. I think you've commented now that you feel you've got most of the portfolio you need to be a total tooth 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? And then I guess the second question is related. In the absence of sort of significant M and A, should we be thinking about cash returns to shareholders going forward?
When it comes to the €7,000,000,000 market I've described before, so dental implant systems, biomaterials and the CAT scan 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, but 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 lab. So the necessity on that side to do further larger M and 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 will not have a look at it.
I think more interesting is our adjacent segments, you mentioned that 1, in our view, interesting segment, which is the orthodontics field. Obviously, with the fact that many of the aligned patents will expire at the end of October. And 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 piece into the right position before you can place an impact, for example. But also when looking at the digital workflow, digital impression, taking CAD, so planning of the indication being it on the implant side or the orthodontics side.
So there are many, many synergies. And 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, but we are actually in a phase of like a whole it always desk research. So 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?
And then on the cash returns? Yes. As we already pointed out at year end, the presentation, we are actually committed to constantly increase our dividend. We have done that now 2 years in a row. And should the year develop as we anticipate and as is reflected in our guidance, then I guess you can count on the 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, that our sizing for each month. And on the other hand, we are also investing into increasing capacity in our delivery production side in Switzerland.
The next question comes from Daniel Jelukhan, Mirobo.
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? And second question is actually accounted now that you have the 6th quarter with double digit growth in Latin America despite quite modest economy. So 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. So how was the market growth, especially in Brazil? Your best guess, I guess.
Okay. Yes. Yes. We had we made a survey in Germany before we launched the small diameter implant, which was actually, I think, was during the Q3 of 2016.
And we asked
the dentist, how many patients they treat every month on a monthly basis, which for which they use a small diameter implant. And the results were that actually on average, each one of these dentists had between 5 10 patients a month to treat the small diameter implants. We also then asked the question, if Straumann would actually come out with a small diameter implant, would you consider to switch to Straumann? The 90% of our customers hold is yes. So there is quite some potential on one hand to gain share of wallet.
But as I pointed out on the other hand, we also believe that we have the best more diameter implant. And this is because we are the only ones who have this diameter available in rock solid. And the smaller the diameter the implant is, the higher the probability that it breaks. Now with rock solid, we obviously have considerably reduced risk of breakage. This to the STI implant, Steve, do you want to comment on Latin America?
Yes. Thank you for that question, Daniel. Market development in Brazil is very still very challenging. It's more a flat to declining market. We are growing in, as you said, double digit in the whole Latin America and Brazil.
1 of the growth drivers 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. And at the beginning since the beginning of 2016, we have leveraged that distribution system also for the Straumann implant distribution. Then on top of that, further growth drivers in Brazil are the PLC implant line and RockSolid.
And on the nonpremium side, also a shift versus the aqua 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, but it's very difficult to make a prediction in Latin America and the visibility there is rather limited for the time being.
And to add what Peter just said, yes, Brazil is the predominant part of our business in Latin America. But we started to generate business also through our own subsidiaries in Argentina. We are in the 2nd year in Colombia. And Mexico is just developing incredibly well. So our business outside of Brazil has actually we have seen very, very nice growth rates coming through.
Okay. And just to follow-up on the small diameter. So when I did the calculation now, it looks like it's 20% to 30% of all implants with potentially for small diameter. Is that correct, roughly?
Yes. This is actually I think it's less honestly, Daniel. It's because the one hundred the survey was done with 120 dentists. And honestly, I cannot tell you that this is really a relevant sample. So potentially, we may have included in this survey more specialists than actually the total dentist community might represent.
But it's obviously the significant part, yes, and we are closing a significant gap, which we have in our portfolio with the small diameter implant.
Okay. Thanks. Great, Rob. 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, but 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 full year from the full year meeting, the value segment accounts for still a relatively small part. And even if it is growing substantially stronger than the rest, it's very hard to understand why that would have such a big impact.
So if you could give us a bit a few more arguments, so we don't run out and put 200 basis points in our models, I guess that could be in your favor as
well. Thanks.
Yes, absolutely. I'm happy to hear that we have an opportunity to come back to this topic. Yes, it's still relatively small, but if you grow 100% and more on a relatively small number over a period of time, it also becomes in a way significant. And that's what we are doing. The Northern Premium business outside of Brazil is has been growing more than 100% in Q1.
And 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. We had last year, we started up in Argentina. We are starting now in Chile. These are predominantly non premium markets.
And we could actually also have chosen the easy way to just open up distributors and sell these products to distributors. But 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. But 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. So 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, Markus. And 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 dilutive?
I think that's actually yes, that's I honestly, I can it's not exact, but the tendency is there, as you point out. We obviously get more profitable with the existing franchises. And the new ones which we actually are opening up, they are 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.
And if I look today where we are, there is not that much left, which would actually deserve our physical presence with a known subsidiary in the non premium segment. We have 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 Tom Jones from Berenberg. Please go ahead, sir.
Just a couple of quick, hopefully, very easy questions for you. Firstly, on the Roto deal. The option you have to acquire the 21 sorry, the 51 percent stake in 2021, to the question, does that give you full control? And will you consolidate it if you exercise that auction? Or will it be like the Modentica arrangement where you had a majority but not full control?
And then 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 languages to your definition of organic operating profit margin improvement. At the full year, you just said it was excluding Medenta and Equinox.
And now you're saying it's excluding acquisitions and currency. Currency, I'm guessing, should be a help for you rather than a hindrance. So just wondering why you've changed the language there. And allied to that, I was wondering if you could give us some indication of what this kind of current currency impact would be. So maybe the way to ask the question is what would your 2016 margins have been at current FX rates?
Okay. Thank you. Matipse, when you can comment on the second and the third question.
In terms of wording changes, Tom, I mean, we were always talking about the organic margin, the organic profit margin. And when we are referring to organic, we are always excluding M and A impact as well as FX. So there's no change in the underlying meaning of the margin guidance in that respect. And if you are referring to the respective FX impact of the margin, then I mean you see the FX impact of overall on the top line, I said, is around 3,000,000 coming mainly from the Brazilian real, whereas euro, U. S.
Dollar, Japanese yen and the discount, they basically offset each other. And on Chart 34 of the presentation, we have the respective sensitivity to the different currencies that we have. So we see that the revenue sensitivity as well as the EBIT sensitivity to the different currencies that we
can calculate back what that would
mean based on today's FX environment for the respective absolute EBIT.
Okay. I'll go and work it out myself. And then the
on Roto? Yes. On Rodo, it's actually a similar construction like we had with Medentika. So even owning 51%, we will not consolidate the asset because we will also with 51% in 20 21. This doesn't come along with the majority of the Board.
So the majority at Board level will still be with the 3rd parties, not with us. For us, it's also the interesting part here really is the technologies. We are still in discussions with Rodol when it comes to where to manufacture the abutments. Obviously, the Smilog, the sleeve that will be manufactured by Rodelog, but the underlying abutments, there we are still discussing it. We will do that in our production side, so we actually potentially could set up together a joint venture.
I think the interesting fact about Grodo also is we have exclusive distribution rights. That means not only to use the rotor technology on Straumann implants. We have exclusive distribution rights to actually sell these abutments and the Smilog system on all existing implant systems.
And then just quick follow-up. Do you have any rough idea of when the IP around that starts to weaken around that technology? I mean, we're sitting in the dental implant industry. IP tends not to be that difficult to get around. I mean, how tight do you think the IP portfolio is around that product?
Honestly, you caught me by the on the wrong foot here. I would have to come back to you on this one.
Okay. No worries.
And the next question comes from Julien Dumouard, 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%. I 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. And the second question is about the evolution of the market for the parallel world bone level implants.
I mean, 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 wall bond 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 premium franchise compared to our premium franchise also on the implant side. And 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, this less cannibalization on our parallel tissue level systems, that's actually even growing. The bone level parallel wall franchise, yes, where we see quite some cannibalization through BLT.
Clearly, many of our traditional phone level parallel board users, they were giving VLT a try. They were convinced and actually they opted to switch from bone level to bone level tables. So 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 SL Active share up. And we will actually continue throughout the year 2016 to market our SL Active surface. We will and I can already give you a little bit of outlook here. We will actually 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 SL Active Surface.
And we are convinced that when it comes to our SL Active share that we are not yet where it could potentially be. So in Q1, we've already seen a very pleasing trend when it comes to the mix between SLA and SL Active. And obviously, SL Active is higher priced and has a positive impact on our ASP.
We have a follow-up question from Mr. Michael Jungling, Morgan Stanley.
I have one question which is in relation to the timing of the upgrade. It's I can't recall a period in the last 15 years where you upgraded your guidance in the Q1. 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, it's I mean, last year was kind of a specialty, but the previous sort of 15 years, it was very, very rare that you did this. And 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 back?
I guess you have been following us for quite some time. And I guess you also appreciate that we have more kind of the We just believe We just believe that when looking at the potential, again referring to the chart I mentioned before where we actually show the market shares and the different sub segments. We believe that the potential to grow is still that's great that it's quite a safe fit that we will actually achieve double digit growth in 2017. And honestly, after 50% in Q1, what arguments would we have had to tell you that we will not actually grow double digit? I
mean, there's the variables. For instance, Zimmer could improve their performance in North America in Q2, Q3. Yes. It surprises. So okay, thank you very much for the clarity.
Gentlemen, there are no more questions at this time.
Okay. So 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. And thank you again for joining us. Have a good day and goodbye.
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