Good morning, everyone. Thank you for joining us for our 2016 full-year results conference here in Basel. We are using the presentation that was published on our website this morning. As usual, I would like to point out that our presentation and discussion will include forward-looking statements. Please take note of the disclaimer on slide two. As usual, I will start with the highlights. Peter Hackel, our CFO, will share the details of our 2016 performance and financials with you. I will take you through some of our strategic initiatives to unlock further growth opportunities. After sharing our full-year guidance for 2017 with you, we will be glad to answer your questions, which you can ask over the course, or live, or via the webcast feature online.
In a nutshell, the story today is that we achieved our strongest performance in eight years in terms of revenue growth, operating profit, and market share gains. While the market continued to grow at a fairly constant rate of 3%-4%, our growth accelerated. Is it visible now, please? No? Accelerated. We strengthened our leading position in the premium segment. At the same time, we moved up in the non-premium segment, where we now rank among the three largest producers of implants in the world. To support future growth, we enlarged our geographic footprint by entering new markets. We also entered the non-premium segment in several countries. We launched new products and solutions. Our pipeline is well-stocked for the upcoming trade fairs in 2017 and beyond.
To meet increasing demand and to drive future growth, we created new jobs. We continued our efforts to adopt a high-performance culture. Excluding acquisition and currency effects, our revenue grew 13%. For the first time in several years, we benefited from a slightly positive currency effect, which contributed partially to our reported growth of 15% in Swiss francs. All our businesses posted double-digit increases, with our non-premium business, Instradent, actually achieving triple-digit growth. All regions reported strong growth, led by North America and Asia-Pacific. In terms of products, the Straumann Bone Level Tapered implant has been a powerhouse for growth and has captured a 4% share of the global market in just two years. Based on the good performance, the board will propose a dividend increase at the AGM in April for the second consecutive year.
Looking ahead, our guidance for 2017 is for further healthy organic revenue growth and EBIT margin improvement. Before I hand over to Peter for the details, let me give you a few snapshots of our profitability, our full-year performance, and our market position. Thanks to the strong revenue growth of 13%, we succeeded in expanding the underlying EBIT margin by 120 basis points to almost 25%. Our underlying earnings per share rose 30% to CHF 11.94. In Q4, organic revenue growth increased slightly across the regions, except EMEA, which, as you know, is the most mature market. Slide eight puts our 2016 results into context. We have outpaced the market for four consecutive years. Our revenue growth is outstanding in the context of the global market for implant dentistry.
In the chart on the left, the gray line represents the estimated growth of the premium segment, including Straumann, which grew approximately 2%-3%, in contrast to the 3%-4% for the entire market. The non-premium segment continues to grow more rapidly than premium, but the difference between the two has diminished, mainly thanks to the strong growth of our premium business. As the chart on the right clearly shows, our expansion in the non-premium segment has not come at the expense of margins, which have risen 10 percentage points over the past four years. By consistently outperforming in recent years, we have strengthened our leadership position and currently hold a 23% value share of the market, which is worth approximately CHF 3.5 billion and comprises implants, abutments, and related surgical tools.
This is a relatively small but attractive segment of the global dental market, where annual sales total approximately CHF 24 billion. That completes the big picture. I will now hand over to Peter for the details.
Thank you, Marco. Good morning everyone from my side. As you can see in slide 11, at this year's exchange rates, our full revenue in 2015 would have been CHF 7 million higher. The acquisition effect of Neodent in the first two months 2015 added another CHF 6 million to the reported growth in Swiss francs. In the center of the chart, you can see the regional growth rates. On the right, how much each region contributed to the overall growth. Asia Pacific was our fastest-growing region, posting a 20% increase in revenue. North America grew 16% and contributed 32% of our overall growth. Our biggest region, Europe, the Middle East and Africa also contributed to 32% of overall growth and grew 9%. Latin America achieved growth of 15%, despite the challenging environment in the largest regional market, Brazil.
A further positive point is that all our subsidiaries reported growth. Let me add a few comments on the quarterly performances. In Q4, EMEA achieved organic growth of 8% with the strongest results in the U.K., Scandinavia, and our new subsidiary, Russia. Germany grew solidly, but not as strongly as France and Italy. The uptake of Botiss biomaterials in Europe added nicely to the result. We were pleased to take over exclusive distribution in Germany. North America kept up the pace in Q4 with organic growth of 16% as the rollout of new products and improved sales execution helped to expand our customer base. We have attracted new customers with Roxolid, Pro Arch, and BLT, but also with our Variobase, which have helped us to close the gap between the volumes of implants and prosthetics sold. Instradent also made further gains in the value segment, which spurred growth.
Moving on to Asia Pacific. Growth increased sequentially from 17% in Q3 to 21% in Q4, despite the higher baseline in the previous year. All subsidiaries in the region posted double-digit growth in Q4, with China generating more than half of the region's growth, despite the fact that regulatory clearances for BLT and SLActive are still pending. We benefit from the buoyant market there from our first sales of front teeth implants in the value segment. In Japan, BLT and our SLActive surface together with Roxolid helped us to win further market share. The local CAD/CAM milling center complements our existing portfolio well. Finally, Latin America, where we saw the strongest quarterly acceleration as growth climbed to 15%. By merging Neodent and Straumann in Brazil, we have unlocked synergies in the supply chain, distribution, and administration.
One reason of our exceptional growth is the network of Neodent stores across the country, which assured product availability with customers having to keep stocks themselves, which can be a business lifesaver in a recession when patient flow is erratic. Our premium business in Brazil also benefited from this model, as most of the stores now carry Straumann products too. In addition to volume growth, Neodent succeeded in increasing the share of its higher-priced implants featuring internal connections, tapered designs, and the hydrophilic Acqua surface. Our range of digital solutions from Dental Wings and Amann Girrbach also added to growth. Apart from Brazil, the performance was impressive in Mexico, and our Argentinian subsidiary contributed initial sales. Looking at the group performance by segment. Our implant business was the main contributor to growth throughout the year. Volumes expanded at a double-digit rate, and as mentioned, BLT was the main driver.
One in four Straumann implants sold in Q4 was a BLT, and the trend continues. Marco will give you more details in a bit. Sales of prosthetics, both standard and CAD/CAM, also developed very positively, driven by the success of Straumann's Variobase abutments, which can be restored in milling centers, labs, or even in dental practices with chairside milling systems. The new digital solutions, which we offer in selected markets, also added to growth. Our smallest business, biomaterials, was the fastest-growing. The combined range of our own products with those of partners like Botiss, LifeNet Health, NIBEC, and GenOs, enables us to meet the requirements and preferences in each region. Based on available data, we won further market share from our competitors in this segment. In the next two years, we will work together with Botiss to offer their differentiated product range in more countries.
Before going into the key financials, I would like to point out that apart from the recognition of the deferred tax asset in the first half, which led to a one-time profit of CHF 43 million, there were no exceptional accounting events in 2016. Due to currency fluctuations, the deferred tax asset was CHF 2 million higher than reported in August and actually lifted our reported net profit above our EBIT. In order to facilitate the performance comparison and to show the underlying financial performance, we will refer to values excluding these exceptionals. The regular amortization of acquisition-related intangible assets is, however, included. You can find a further breakdown of the results on a half-year basis at the end of the presentation. Our reported gross margin in 2015 was 77%.
At 2016 exchange rates and excluding the Neodent business combination exceptionals, it would have been 180 basis points higher at 78.8%.
In 2016, strong volume increases lifted gross profit by 160 basis points. Plant utilization was at a correspondingly high level and contributed positively to the margin development. In spite of this, the gross margin was 50 basis points lower than in 2015, mainly because of the increase in our sales of third-party products and ramp-up costs related to the capacity expansion projects in manufacturing. Moving on to operating profit. After correction for currencies and exceptionals, our 2015 reported EBIT margin would have been 2 percentage points higher at 23.6%. In 2016, distribution costs increased by CHF 38 million as we continued to invest in high growth markets and in sales teams to address the non-premium segment. This reduced the operating income margin by 130 basis points, as you can see in the center of the chart.
In contrast to selling costs, administrative expenses increased under proportionally to sales thanks to operational gearing and tight cost management. This had the biggest positive effect on profitability and lifted the EBIT margin by 300 basis points despite a low million expense for the transfer of finance functions to our new European accounting service center in Germany. The change in the other income line had no impact on margin progression. Taking everything into account, our underlying EBIT margin increased 120 basis points to almost 25%. Slide 18 shows you how the combination of these factors affected the bottom line. Our underlying net profit improved by CHF 42 million, driven mainly by our operational progress. The financial result improved by CHF 13 million compared with the prior year, when it was reduced by the fair value adjustments of various financial instruments.
The result from associates increased by CHF 11 million, and perhaps I should remind you that in 2015, it included Neodent for 2 months and was reduced by provisions. This explains the main difference between the 2 years. The recognition of the deferred tax asset in Brazil turned the income tax line into a tax credit of CHF 7 million and lifted net profit to CHF 230 million. Otherwise, tax expenses would have amounted to CHF 35 million, reflecting a tax rate of 16%, which is in line with our normalized rate of 15%. Excluding the exceptional effect, net profit amounted to CHF 187 million. The corresponding net profit margin was 20%, 230 basis points higher than in the prior year. Slide 19 shows you how the cash flow developed. The improvements in our underlying profitability contributed CHF 39 million to cash inflow in 2016.
In this overview, the change in EBITDA as well as inventory is adjusted by the Neodent consolidation effect last year. To meet increasing demand for our premium and non-premium solutions, we began expanding production capacity in Villeret and Curitiba, increasing CapEx by CHF 12 million to a total of CHF 46 million. We expect a similar level of investment this year as most of the projects will continue through 2017. Free cash flow in 2016 was constrained by higher trade working capital. Inventories increased mainly due to the extension of our product portfolio as well as the opening of new subsidiaries. In addition, we equipped the Neodent store and distribution centers in Brazil with Straumann products. Apart from this, strong top-line growth in emerging and distributor markets was followed by an increase in receivables from 53 to 55 days of sales outstanding.
Differences in share-based tax and interest payments as well as non-trading working capital made up the rest. In the latter, we saw an increase in recoverable VAT and also made some prepayments totaling 16 million. The combination of all these items meant that free cash flow reached CHF 139 million, bringing the respective margin to 15%. Our cash position at the end of the year amounted to CHF 164 million. On top of this, we hold treasury shares worth approximately 223 million. Adjusted for these shares, our equity ratio would have increased from 58% in 2015 to 65% this year, underscoring the strength of our balance sheet and our ability to invest further in growth initiatives.
Based on the positive results in 2016, the board proposes a 6% dividend increase to CHF 4.25 per share, which is subject to approval by the shareholders at the AGM on April 7th. The share will trade ex-dividend as of April 11th. Going forward, the board's intention is to further increase the dividend, of course, subject to further good performance. With this positive message, I will hand back to Marco. Thank you.
Thank you, Peter. When you came into the building this morning or looked at our annual report on our website, you may have noticed our new Straumann Group branding, which we have just launched. Our strategy to become the leading provider of tooth replacement solutions has brought several companies, brands, and partners into the Straumann network in recent years. The rationale behind the new overarching Straumann Group brand is to provide a common identity and to unite them. It allows the individual brands and partners to leverage the global reputation of Straumann without losing their own identity and without compromising our premium brand. It also enables us to further differentiate the Straumann premium brand with its characteristic green color scheme. Slide 22 shows you the various brands in our portfolio, some of which are fully or partially owned, while others are partners.
The latest additions in Q4 were Equinox, V2R, and maxon dental. For completeness, we have included the Korean companies, NIBEC and GenOs, which have manufactured biomaterials for certain markets for some time. On the next slide, you see pictures that were taken two weeks ago at CIOSP, which is the largest dental trade fair in Latin America. They illustrate how the Straumann Group unites premium, non-premium, and partner brands on one stand. In this case, with Neodent on one side, Straumann on the other, and technology partners like Amann Girrbach and 3Shape in between. Three years ago, it would have been unthinkable for us to sell premium and non-premium products from the same stand or shop. The fact that we now do this is one of many examples of the open-mindedness and entrepreneurism that our cultural journey is producing.
This brings me to our key strategic priorities, the first of which is to create a high-performance culture. By the end of 2016, more than a third of our staff around the world had taken part in our cultural training program, and our goal is to extend it to all employees by the end of 2018. We see progress with this initiative in various ways. For example, in a global staff survey, 90% of respondents said they actively supported our cultural journey and are proud to work for Straumann. 65% said they observed positive changes in our culture. For me, the clearest evidence of our efforts to become a high-performance culture are the sustained strong results we are sharing with you today. They have been achieved by a team of engaged and talented people who are our greatest asset.
In 2016, we created new jobs and invested in people, mainly in sales, in emerging markets, and manufacturing. Our global team increased by 9% to 3,800 employees, while here in Switzerland, the increase was almost 10% as we created 70 new jobs, mainly in production and research and development. Our second strategic priority is to become the total solution provider in tooth replacement, which enables us to compete against the large conglomerates in our field. Collectively, the markets we address are worth CHF 7 billion, and with the exception of CT and DVT imaging, we are now present in each segment across the tooth replacement workflow. Our share is still modest in some, and there is plenty of potential for us to unlock.
To expand beyond our stronghold in implant systems and to complete our product offering, we have invested in a network of partners to address both the premium and the non-premium segment. This chart shows the various partner brands and how they fit in our portfolio. In addition to gaining access to fields that support tooth replacement procedures, we have tapped into segments within the implant market where we were not present. In doing so, we have more than doubled our addressable market. Traditionally, our philosophy has been to focus on parallel wall premium implants where we are the clear leader. Bone Level Tapered took us into the much bigger segment of tapered implants, where we have already been very successful, gaining a 4% share in just two years.
As you can see in chart 30, the biggest remaining white spot for Straumann is in the fully tapered segment, and we have a number of projects running to address this. We are also working hard to bring a thoroughly tested two-piece ceramic implant solution to market that will complement our current PURE ceramic monotype version, which has been available in Europe and Australia for a while, and was launched in the U.S. and Brazil in 2016. Less than 1% of implants sold on the market today are ceramic. We expect demand and supply to grow significantly in coming years. We want to stay at the forefront of this development, which is why we have entered the joint venture with maxon motor to develop dental implant systems that are produced by ceramic injection molding instead of conventional milling technologies.
Maxon is a leader in this field and holds various paid patents. The partnership thus provides us with access to this exciting technology and leading expertise. Gaining access to potential game-changing technology was also the reason for our investment in RODO Medical in 2014. RODO has developed a highly innovative device for fixing prosthetics to implants without screws or cement. The company received clearance from the FDA in Q4 and began to commercialize its groundbreaking Smileloc retentive sleeve in December. In addition to these innovations, we have a full pipeline of exciting development projects that we expect to bring to market in the next year or two. You can find more information on these on page 46 of our annual report. Finally, I would like to mention two agreements in the fourth quarter that are part of our strategy to target unexploited growth segments and markets.
The first concerns our German partner, Medentika. Our partnership with them goes back to 2013, when we bought a 51% non-controlling stake. In the meantime, the company has grown rapidly and will add revenues of approximately CHF 20 million to our top line. In Q4, we were pleased to sign an agreement to take over their distribution business in Germany, which is their largest market. This marks our entry into the non-premium segment in Germany, where we now offer a wide range of attractively priced prosthetics, both standard and CAD/CAM, for most competitor implant systems. Our 51% stake in Medentika has now become a controlling interest, and we began to consolidate the company at the beginning of this year. As 2016 drew to a close, we completed the acquisition of Equinox, fulfilling a long-held ambition to enter the fast-growing dental implant market in India.
The company is still relatively small with annual sales of just CHF 3 million. It is growing rapidly and profitably. It offers a range of products that are tailored to local needs and has established a leading position in the Indian market with an overall share of 15%. This acquisition also provides us with the local expertise and infrastructure to launch the Straumann brand there. We have made considerable progress in digital dentistry in the past two years, and we are now in a position to offer a great range of integrated solutions to dentists and labs, including intra-oral and lab-based scanners, as well as central and in-lab options combined with interconnected software platforms, validated workflows and materials, and all from a single source. One piece that has been missing is a compact chairside milling machine, which we now have.
It is integrated into the Carestream platform and together with our intra-oral scanning solutions, provides us with a state-of-the-art chairside system. This brings me to the outlook for 2017. We expect the global market for implant dentistry to grow at around 3%-4% in 2017, similar to its growth in 2016. We believe that we can again outperform the overall market by achieving growth in the high single-digit range. Despite further investments and assuming that currency exchange rates remain fairly stable, we assume further organic EBIT margin improvements from the 2016 level of 24.8%. As you know, we will have a small acquisition effect related to the inclusions of Medentika and Equinox. Now I'd like to open the question and answer session. Kindly limit yourself to two questions and maybe a follow-up before returning to the queue.
This will provide the opportunity for as many participants as possible to ask a question within the available time. 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. Finally, if you are dialing in by phone, please make sure you have a good phone connection. Please can we have the first question?
Carla Bänziger, Bank Vontobel. I have a question related to the guidance that you just gave. Can you maybe quantify a bit the impact you expect for the Medentika and Equinox acquisitions? That would be the first question.
Now, the high single-digit growth is actually organic. This is not including the impact of Medentika and Equinox. As pointed out before, Medentika revenues were around CHF 20 million. Top-line impact at Equinox was around CHF 3 million.
On EBIT?
Excuse me?
On EBIT, because the thing is that you say the EBIT margin increase is excluding the impact from the acquisition.
Thank you for that question, Carla. If we look at the operational business of these two businesses and the size of the business, then I would not expect a significant impact on the EBIT margin, neither positive nor negative. The terms of organic was not a hidden message that we wanted to give you. It was also in respect of the FX environment, because our EBIT margin development is always assuming a stable FX environment. Of course we are facing some additional charges due to the amortization of the acquired intangibles. The purchase price allocation is still ongoing, and I will give you with the half-year result, the latest, more specific guidance on the charges of these intangibles. If we look at the EBIT guidance, then our goal is for sure to overcome the 25%.
If you look at the current consensus, which is at 25.5%, then I think it's challenging. It's a stretch target. However, it's also not an unrealistic, not achievable target, I would say.
Maja Pataki, Kepler Cheuvreux. You're talking about market growth of 3% to 4%. That refers pretty much to the premium segment, I think. Can you give us an indication what you think the value market is growing? That would be my first question. When you look at your portfolio with regards to non-premium and premium, how do you place the Straumann SLA implant, for example? That's not clear premium, but it's also not non-premium. Where is that?
My follow-up would be, can you give us an indication of how much the non-premium accounts for roughly of your portfolio?
Thanks.
The 3% to 4% market growth assumption is the total market. This is premium and value together. Our assumption is that also in 2017, the non-premium segment will grow faster than the premium segment. We assume that also in 2017, the non-premium growth will be around 2% to 3% and the premium growth will be around 2% to 3%, and the non-premium growth will be above 5%. Interesting question on titanium SLA. What we have been trying to do successfully over the last couple of years, since we actually introduced the Roxolid for all in 2014, was to shift our customers from titanium to Roxolid. We have today a very high rate of Roxolid adoption, which obviously frees up SLA products to actually compete against, I would say, the upper value segment.
We will be able to actually compete with titanium SLA against competitors in markets like Germany or other markets which are positioned at the upper level of the non-premium segment. That's the intention. Looking at the composition of our revenue in 2016 between premium and non-premium, still approximately 90% of our business is actually premium business.
Thank you. Just for clarification, if you take the SLA titanium, is that part of the 90% or?
Yes. Because it's still a premium product.
Okay. Thank you.
It's still a premium product. Everything we sell under the Straumann brand is premium, and will stay premium.
Hi, it's Oliver Metzger from Commerzbank. The first question is on the chart on page eight, you indicate that the premium implant market growth has slowed down. If I look to some of your peers, I would fully agree. If I look in your business, they basically haven't. Potentially you can give us a little more color about the underlying, or how you see the underlying dynamic in the premium segment. That's the first question. The second one is, comment on your price development, in particular in 2016. At the gross margin, you mentioned a positive volume price mix. Were you able to achieve in the current environment still some positive price impact?
Do you want to comment on this, or?
I can try to comment on that.
Yeah, he might like this one. As I pointed out before, our assumption is that in 2016, the premium segment grew by roughly 2%-3%. Obviously, if you look at our growth rate, if you would take the Straumann part out of the 2%-3%, then the rest, everybody else in the premium segment was even slightly negative. We gained, in the premium segment, a lot of share on behalf of companies like, for example, Sirona and 3i. On the price volume mix?
Mm-hmm. If you look at the price volume mix, we see in both segments, in the premium segments as well as in the value segment, we see a shift and an increasing share of higher priced products. In the premium segment, that's, for example, a shift to Roxolid products, to SLActive products, which will have a positive impact on the overall ASP. In the value segment, I have also highlighted that we have an increasing trend to, for example, the hydrophilic Acqua, which also comes with a price premium, where we also see a positive impact on a mix effect on the price. If you look at list price increases in 2016 and the impact from list price increases, these impacts were more or less insignificant.
Okay.
Hi, it's Chris. I have two questions. First, actually you have a long legacy in implant surfaces and metal. Could you update us on where you see more opportunities to innovate with respect to surface and materials, absent, of course, the ceramic side? That would be my first question. The second is on the value segment. Could you disclose or at least discuss the value growth outside Brazil, and where you have seen the best success? Maybe also an update on profitability levels in this area. Thank you.
On the surface, this is obviously a field we are putting a lot of resources into to actually, on one hand, fully understand what's actually behind SLActive. We have now long-term results, we are learning more and more about what's behind SLActive. We believe that there is even more behind it than we have currently communicated. We still need some time to actually come to conclusions. Obviously, we are also looking at further developing what we already have. On the material side, obviously ceramic implants is a key focus area, as I presented just before. We will actually launch during the course of 2017, our two-piece Ceramic PURE Implant, which is still based on traditional milling technology, but comes obviously with the ZLA surface, which is a similar surface like we have on our titanium SLA implants.
At the same time, we are, together with Maxon, developing injection-molded ceramic implants. Our target is to launch these implants during the course of 2018. At the same time, we are looking at the next generation of Roxolid. I guess you understand that I'm not giving you more details on this, obviously, this is also something we are putting focus and resources behind. In terms of the non-premium segment outside of Brazil, we had a very strong year in the U.S. The U.S. is clearly our second most important non-premium market behind Brazil. We have grown our business there by more than 100%. Overall, if you look at our non-premium business outside of Brazil, we have reached break even in 2016.
overall, that business is still far away from the EBIT margins which we are generating with the premium business and also is still diluting the overall EBIT margin of the Group.
Daniel Jelovcan of Zürcher Kantonalbank. Also two questions. The first one to Peter, maybe on slide 17. The EBIT margin bridge. Can you elaborate a bit more on the different items within R&D, marketing, and admin. Am I okay when I look at the absolute numbers in the annual report, the expansion of distribution, which you mentioned, and R&D, marketing, and admin, that's all in the distribution cost and in the admin expenses, right? It's a bit different. I would wonder about R&D and how much is capitalized, if anything.
If you look here at the expansion of the distribution cost, these are mainly the costs that we have outside in the selling subsidiary, I already mentioned that's also the area where we are investing, where we are increasing the number of staff on the one hand, to further support the growth of the business, on the other hand, also to expand our footprint and to open up new subsidiaries. If we look at the other cost block, the R&D marketing and administration costs, of course this is a big part here of the cost that we have in Switzerland. We see in marketing and R&D, we have already also announced during 2016 that we further increased the number of people here in Basel to fill our innovation pipeline for the next coming years.
That's also an area where we have increased our expenses. However, overall, it was an under proportional growth and especially the whole back office, there we are generating economies of scale right now.
Capitalization?
Capitalization, yes. We are capitalizing some R&D expenses. However, that's below CHF 1 million that we are capitalizing, and it's an even balance from the capitalization, the amortization charges.
Okay. The follow-up, second question. You flagged you have now 4% market share in tapered implant segment. The global market is a bit more than two-thirds. Your goal is certainly to be at the level where the group market share is or even more. I wonder about that, how much more resource you need to get there? How much is already covered? You need the same resources as you grow the top line to get more market share in taper, or how can we understand that?
It's also important to stretch the fact that when we talk about shares, we always talk shares with the Straumann brand. Obviously, a large part of the Neodent implants are tapered implants. If you look at the Neodent and the Straumann brand together, then our share today is already higher. We talk now about the share with the Straumann brand, where we have now approximately 4% share. Realistically, over the next years, we should be able to double that share. From 4% to 8%, then maybe 10%, but it's also a fact that this segment is the most competitive one. It's two-thirds of the market. Most of our competitors, they have one or some even more than one offering addressing this segment.
I think what's important to stretch again is the fact that the fully tapered segment is a segment which we see even growing more than the apically tapered segment. immediate loading, immediate restoration, full-arch restorations. Many dentists, especially younger ones, they like more aggressive thread designs, more aggressive just from an immediate loading perspective. For us, it will be important to come with a solution which addresses this segment and which hopefully will be as successful as the BLT has been when addressing the apically tapered segment. There, I think we still have a wide spot, and I'm pretty sure that we are on the right track to come up with something that will excite the dental community.
As there at the moment, no questions through the webcast. Chorus call. Can we now have the first question from the telephone line, please?
The first question from the phone is from Veronika Dubajova, Goldman Sachs. Please go ahead.
Thank you. Good morning, gentlemen. Thank you for taking my questions. I have two, please. My first question is a bigger picture question for you, Marco, in terms of M&A priorities. If you look forward over the next two to three years, I mean, you've alluded to some of the areas where you think you might need to invest a little bit more inorganically. Can you give us a sense for whether these acquisitions are likely to be smaller or larger? If you were to maybe stretch the balance sheet, how far could you go, and what kind of acquisition would warrant such an investment? My second question is for Peter on the working capital.
Obviously, you provided some comments on what drove the increases, but is the new level that you are seeing in the business now, should we be thinking of that level as a reasonable level going forward, both on an inventory and receivable level? Or do you see possibilities to maybe reduce inventories and receivables over the next 12-24 months? Thank you.
When looking at our current portfolio of brands and partnerships, when it comes to implant systems, we have a portfolio which allows us to actually enter all the interesting dental implant markets worldwide. We do not need another acquisition or another brand. With Neodent, Zinedent, Equinox, Medentika, we have strong value brands which allow us to solidify our current position and to continue to gain share also in the non-premium segment. Where partnerships and acquisitions might still play a role are on the digital workflow. We are not a material company, for example. Okay, we have now launched our first own material, the n!ce block, which is a lithium disilicate block. When it comes to provide a complete portfolio, for example, for chairside solutions, we will not be able to develop this ourselves. There we need another partnership or partnerships with strong material suppliers.
3D printing, for sure, is also something which is developing rapidly in our industry, especially at the dentist's office when it comes to printing guides, when it comes to printing bite splints, models, potentially down the road, even provisional crowns. This is also a field we are obviously looking at as we speak. Also there, we don't have the capabilities in-house to develop our own 3D printer and the corresponding materials. The third focus area, I was actually mentioning, I think last time, that we have just finalized our strategic review process, that we might look at entering adjacent segments. Obviously when looking at these adjacent segments, and I don't want to be specific today, when it comes to these adjacent segments, entering these will not be possible just through organic efforts.
Also there, we might need to come together with partners, and we might even have to consider some merger and acquisition activity.
Coming to your second question, Veronika, on the net working capital. Yes, I do see some improvement potential in managing the net working capital. Net working capital management was probably not in the focus over the last 12 months, where we went through a double-digit expansion phase of the business. That rapid growth of the business is of course, also a stretch for the production capacity. There are for sure some inefficiency in forecasting and planning the correct level of production to keep up with the growth. Also, on the receivables side, we could better manage the receivables. I see some improvement potential there in 2017. We will for sure work on this improvement potential. However, we will also not fiercely manage the net working capital to hinder or compromise on the expansion of the business and on our growth plans.
Very clear. Thank you. Marco, if I can quickly follow up on the M&A commentary. Would you say the probability is high that you do more smaller acquisitions over the next couple of years? Do you think there is a possibility we see a bigger deal from you? I'll leave it at that. Thank you.
You will not see another Neodent deal, let's put it that way. Smaller acquisitions, to put our feet into some of the segments I highlighted before, I would say don't exclude that. That's absolutely possible, yes.
Very clear. Thank you both very much.
The next question is from Julien Dormois, Exane. Please go ahead.
Hi. Good morning, gentlemen. My question is basically related to Europe, EMEA actually. This is the second year in a row, where you reach a mid to high single-digit organic growth, which is pretty impressive given the market conditions. Could you just remind us of what have been the main drivers of that strong performance? Has it been more like share gains or introduction of new products, that kind of stuff? How long do you think you can keep up with such a high growth in the region?
The key drivers of our growth in Europe have been Pro Arch, which we launched in 2014, then BLT in 2015. The Variobase concept, which we have also launched around 2014 and 2015. These have been the key drivers of our growth in Europe. On top of that, our cooperation with Botiss which has put our biomaterials business in Europe to another level.
I'm sorry, just a follow-up. In terms of new things coming up to fuel that growth, is there anything on the agenda for 2017?
Yeah. What will be important is the whole digital workflow. As mentioned before, we're going to launch our chairside workflow consisting out of intraoral scanners and a chairside mill. This combined with a broad range of materials for dentists. This is a new field for us. We actually are starting from zero. We don't have any share there yet. Every single intraoral scanner or chairside mill we're going to sell will be incremental revenue.
Okay. Thank you.
Next question is from Ines Silva, Merrill Lynch. Please go ahead.
Hi. Good morning. Thank you so much for taking my questions. I have two, please. First of all, just when you think about your mixed business for 2017 from the gross margin perspective, do you believe that you'll still continue to see a positive ASP impact? Just a small sub-question is, do you think that the ramp-up of costs due to the expansion of manufacturing will also have a small negative impact in 2017 as it had in 2016? That's my first question. The second question is just the guidance for the top-line growth is again quite a strong outperformance versus the market. It's what implies. Can you just remind us what are the main things that you believe that Straumann as an organization is doing much better than competition? Thank you.
Let me address the first part of the question and the margin development. Let me start with the gross margin development. As we are taking more and more third-party products on board, that will have a certain slightly negative impact on the gross margin. However, the goal is also to make that up with efficiency increases. I think the more important point is that despite that slightly lower gross margin in 2016, all these products have incremental positive effect on the absolute EBIT as well as on the margin because we can leverage our fixed cost back-office structure with taking on more third-party products and with driving the revenue. I think that is the important point. Concerning the ASP, then yes, we are for sure driving also this year our Roxolid, SLActive, and Acqua to improve our mix in the portfolio.
Of course, also with all the innovations that we are launching, it's the goal to achieve a positive mix effect with the new products and the innovations that we are launching.
I mean, looking at our key growth drivers, why are we confident that also in 2017 we will outperform the market? We talked before about BLT, that in the apically tapered segment with Straumann, we only have 4% share. There is more possible. BLT will also in 2017 and also 2018, contribute to actually outperform competition because I'm convinced we're going to increase this 4% share. The value segment, we are just scratching the surface when it comes to the value segment outside of Brazil. Okay, we had a very good year in most of the markets where we are now present with a value offering. But also there, our share is still relatively low. I mentioned the digital workflows. I ntraorals, CAD/CAM, chairside mills, materials. Biomaterials, we are not yet present with a comprehensive biomaterials portfolio in all the relevant markets. Just as an example, Brazil.
In Brazil, we have not yet Botiss launch, for example. We are in the process of registering Botiss there. We don't have a comprehensive portfolio in Japan. We don't have a comprehensive portfolio in Spain. Also when it comes to biomaterials, we still have quite some potential. Finally, the geographic extension. LATAM, Argentina, Chile, just as examples, but also markets to actually further increase our reach in the value segment. I mentioned here, for example, Canada, but also Russia, where we are not yet present with a value offering. There are many different layers of growth, and altogether, this make us believe that also in 2017 we will be able to outperform the overall market.
Thank you very much.
The next question is from Tom Jones from Berenberg. Please go ahead.
Thank you for taking my questions. I have two. First of all, on the competitive landscape, you're clearly doing a lot better than the competition, but I can't imagine that they're going to be very pleased with their own performance. I just wondering what you're seeing in the marketplace in terms of how your competitors are responding to you doing so well and them doing so badly. I know a lot of them have got tied up in M&A and they've been distracted and so forth, but they have to be doing something to try and improve their fairly dismal performance.
Given the visibility on this market is getting lower and lower for us external observers with the M&A that's gone on, it would be helpful if you could tell us what you're seeing in terms of the competitive behavior, and maybe sort of split your answer into premium and value segments. Just a quick question. I wonder if you could give us an update on where we are with MegaGen and your thoughts on that situation at the moment.
Mm-hmm. Yeah. Obviously, competition also has its ambitions to not just let Straumann take shares away year after year. That's also why we don't actually guide for another year of double-digit growth. We believe that some of our competitors they underwent, how to say that, a phase of more internal focus. Focusing more on probably improving profitability, efficiency. We know that the 3i and Zimmer franchise went through a difficult period of time through the merge. They lost some good people. Obviously also there the focus was clearly internally and not when it comes to customers or developing new products. We are sure that this will change, and that's why we are guiding to top-line growth of high single digit and not double digit like we actually achieved in 2016. When it comes to your second question, MegaGen.
As you know, we communicated this, we are in an arbitration process. We have different opinions in terms of how much is that business worth. I would also like to make the point today that actually from a strategic point of view, the situation has changed considerably compared to actually when we were purchasing that convertible bond in 2013. In the meantime, we have been able to actually expand our portfolio of non-premium brands. We are of the opinion that also without MegaGen, we have strong brands in our portfolio which allow us to actually enter the non-premium segments in all relevant markets. Maybe with the exception of Korea. Korea is a cutthroat market. Many implants there, yes, but from a profitability point of view, I'm not even sure if this is worth the efforts.
In other words, from a strategic point of view, MegaGen today doesn't play the same role like back in 2013. It's still a very good company with a very modern and state-of-the-art dental implant system. We're talking here about the AnyRidge system, which is liked by many dentists around the globe. From a pure strategic point of view, it's not a must anymore.
Should I read into that we should be more thinking about you simply just having the convertible redeemed rather than converting the stock and/or pushing this dispute you've got with MegaGen through to a conclusion? Is that sort of what you're hinting towards?
Tom, I said what I could say.
Okay, fair.
I think you're a smart guy. You make your own story out of it.
Okay, sure. Then maybe I could just circle back to the competition question. Are you seeing evidence of any of the bigger peers trying to replicate your strategy in terms of having been complete solution providers and covering all price points? Do you think that there's a big risk that pricing becomes a more significant issue in this industry as the competitors come back again?
It has always been an issue. Otherwise we would not have a premium and a value segment. We had to live with this fact for many years. The difference to what we did five or six years ago is that we now consciously want to play in the different segments. Price competition, that has always been a topic in our industry. To defend the premium franchise and the share of the premium segment, there is only one way to do this. This is through innovation, through actually bringing new products, new solutions to the market, and always being one step ahead of the non-premium players. This is our ambition, and that's also where actually our R&D money goes into to make sure that this will still be the case also down the road.
Good. Okay, that makes a lot of sense. Cheers.
We just received two questions from the internet. The first person would like to know an outlook on the African region. It might be a small sub-market today, but how much growth do you foresee in the years to come there? You also stressed in Q3 that we putting resources behind that region.
We have now done obviously much more work to understand the dental implant market on the African continent. We estimate that in total this is a roughly 250,000 to 300,000 implant market, so it's still a relatively small market today. The key markets in Africa are Egypt, Morocco, Tunisia, Algeria. More the Northern African countries, and obviously South Africa. The rest are still countries where dental implants play a minor role today, but that doesn't mean that this will also be the case in five to 10 years. That's why we are actually looking at ways to penetrate these markets. This will most probably be through a distributor model, potentially except for South Africa. That market is big enough to support those own structure, and some of our competitors have their own organizations in South Africa.
The rest of the markets we will actually penetrate is through distributors. If you compare today the potential of Africa, for example, compared to just a market like Argentina, where today are already more than 400,000 implants sold, we have to actually look at this. We have to make sure that we don't miss the train. From a strategic priority point of view, it's not among the top strategic priorities we are focusing on right now.
Another one from the internet. This person would like to know what's the plan with all the treasury shares we have on stock. Currently we have more than 3% of our own stocks in our own hands.
When we made that bigger purchase of our treasury shares, we always said we have different options for which we can use them, be it use them as an acquisition currency, be it to use them to destroy the shares in terms of a share buyback, or build up another strategic anchor investor in our company. We are not under pressure to make up our mind and take a decision there, and we are still considering all three options are open.
Thank you for all the excellent questions. If there are no further questions here in the room, just looking around maybe, and apologize again for the bad sound quality at the beginning of the call. I would return the speech back to Marco Gadola for the closing remarks.
Thank you also for my part for your questions. At the end of the presentation, we have included a selection of the responses from our third annual perception survey, which we conducted in December. We congratulate the winners and would like to thank everybody for participating. Who was the winners and who won?
Natixis.
Wow, okay. Natixis?
Natixis in Paris as well as Vontobel in Zurich.
Okay. In closing, I'd like to draw your attention to the investor event calendar and the invitation for our investor breakfast at the IDS in Cologne, which is upcoming now in the end of March, which you can find on slide 48 and on our website. 48, slide 48, and on our website. We look forward to meeting you at one of these events. For now, I would like to thank you again for your interest, and I wish you all a pleasant day. Thank you.