Will then 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, of course, online or via the webcast feature In a nutshell, the story today is that we achieved our strongest performance in 8 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% to 4%, our growth accelerated Accelerated.
Accelerated
administration and 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 3 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 also entered the non premium segment in several countries.
We launched new products and solutions, and 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 and we continued our efforts to adopt a high performance culture. Excluding acquisition and currency effects, our revenue grew 13% and 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, Instagram, actually achieving triple digit growth. All regions reported strong growth led by North America and Asia Pacific.
In terms of the Straumann bone level tapered implant has been a powerhouse for growth and has captured a 4% share of the global market in just 2 years. Based on the good performance, the Board will propose a dividend increase at the AGM in April for the 2nd consecutive year. Looking ahead, our guidance for 20 17 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 quarter performance and our market position. Thanks to the strong revenue growth of 13 percent, we succeeded in expanding the underlying EBIT margin by 120 basis points to almost 25%, and our underlying earnings per share rose 30% to CHF11.94.
In Q4, organic revenue growth increased slightly across the regions, except EMEA, which, as you know, is the most mature market. Slide 8 puts our 2016 results into context. We have outpaced the market for 4 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% to 3% in contrast to the 3% to 4% for the entire market.
The nonpremium segment continues to grow more rapidly than premium, but 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 ten percentage points over the past 4 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 CHF3.5 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 €24,000,000,000 That completes the big picture, and I will now hand over to Peter for the details.
Thank you, Marco, and 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 7,000,000 higher. The acquisition effect of Neodent in the first 2 months 2015 added another €6,000,000 to the reported growth in Swiss francs. In the center of the chart, you can see the regional growth rates and 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 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. Now let me add a few comments on the quarterly performances.
In Q4, AMR 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 both these biomaterials in Europe added nicely to the result, and 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 RockSolid, Pro Arch and BOT, but also with our value basis, 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 SL Active are still pending.
We benefit from the buoyant market there from our first sales of Ontoge implants in the Value segment. In Japan, BLT and our SEL Active Surface, together with RockSolid, helped us to win further market share. The local CATKAM milling center complements our existing portfolio well. And finally, Latin America, where we saw the strongest growth early 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 near dense 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 carries the Raman product store. In addition to volume growth, Nieland succeeded in increasing the share of its higher priced implants featuring internal connections, tapered designs and the hydrophilic aqua surface. Our range of digital solutions from Dental Wings and Amanghebach also added to growth. Apart from Brazil, the performance was impressive in Mexico, and our Argentinean 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, VAT was the main driver. 1 in 4 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 CATKAM, also developed very positively, driven by the success of Straumann's barrier based 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 Bootes, Life Nattels, Nijbak 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 2 years, we will work together with Bootes 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 onetime profit of CHF 43,000,000 there were no exceptional accounting events in 2016. Due to currency fluctuations, the deferred tax asset was CHF 2,000,000 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 percent. In 2016, distribution costs increased by €38,000,000 as we continued to invest in high growth markets and in sales teams to address the nonpremium 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 42,000,000 driven mainly by our operational progress. The financial result improved by CHF 13,000,000 compared with the prior year when it was reduced by the fair value adjustments of various financial instruments. The result from associates increased by €11,000,000 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 £7,000,000 and lifted net profit to £230,000,000 Otherwise, tax expenses would have amounted to £35,000,000 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 187,000,000 The corresponding net profit margin was 20%, 2.30 basis points higher than in the prior year. Slide 19 shows you how the cash flow developed. The improvements in our underlying profitability contributed €39,000,000 to cash inflow in 2016. In this overview, the change in EBITDA as well as inventory is adjusted by the Neoden consolidation effect last year. To meet increasing demand for our premium and nonpremium solutions, we began expanding production capacity in Villeret and Coitiba, increasing CapEx by CHF 12,000,000 to a total CHF 46,000,000.
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 nontrading working capital made up the rest. In the latter, we saw an increase in recoverable VAT and also made some prepayments totaling €16,000,000 The combination of all these items meant that free cash flow reached CHF 139 1,000,000, bringing the respective margin to 15%. Our cash position at the end of the year amounted to CHF 164,000,000. On top of this, we hold treasury shares worth approximately 223,000,000 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 CHF4.25 per share, which is subject to approval by the shareholders at the AGM on April 7.
The share will trade ex dividend as of April 11. Going forward, the board's intention is to further increase the dividend, of course, subject to further good performance. And 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 and 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, NIEBEC and CHINOS, which have manufactured biomaterials for certain markets for some time. On the next slide, you see pictures that were taken 2 weeks ago at Siospi, 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, Straubman on the other and technology partners like Amon Gearpark and 3Shape in between.
3 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. And 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 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 7,000,000,000 and with the exception of CT and DVT imaging, we are now present in each segment across the tooth replacement workflow.
Also, 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 Forreel philosophy has been to focus on parallel walled 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 2 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 2 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, but 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 a 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 SmileLock 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 2. You can find more information on these on Page 46 of our annual report.
And finally, I would like to mention 2 agreements in the 4th quarter that are part of our strategy to target unexploited growth segments and markets. The first concerns our German partner, Medentica. 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 CHF20 1,000,000 to our top line. In Q4, we were pleased to sign an agreement to take over the 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 CADCAM, for most competitor implant systems. Our 51% stake in Medentica 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. Also, the company is still relatively small with annual sales of just CHF3 1,000,000, 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 2 years, and we are now in a position to offer great range of integrated solutions to dentists and labs, including intraoral 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 Cares platform and together with our internal 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% to 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 EBITDIC margin improvements from the 2016 level of 24.8%. As you know, we will have a small acquisition effect related to the inclusions of Medentica and Equinox. And now I'd like to open the question and answer session.
Kindly limit yourself to 2 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. And finally, if you are dialing in by phone, please make sure you have a good phone connection. So please, can we have the first question?
Gardiner Van Siegel, Bank of 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 Medenticon and Equinox acquisitions? That would be the first question.
Now the high single digit growth is actually organic. So this is not including the impact of Medentica and Equinox. And as pointed out before, Medentica revenues were around CHF 20,000,000 Top line impact at Equinox was around CHF 3,000,000.
And on EBIT?
Excuse me?
And on EBIT because the thing is that you say the EBIT margin increase is excluding the impact from the acquisition, so
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 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. But 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 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 Patokhik, 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, sorry? The value market is growing?
That would be my first question. And when you look at your portfolio with regards to nonpremium and premium, How do you place the Straumann SLA implant, for example? That's not clear premium, but it's also not nonpremium. So where is that?
And
then my follow-up would be, can you give us an indication of how much the nonpremium accounts for roughly of your portfolio? Thanks.
So the 3% to 4% market growth assumption is the total market. So this is premium and value together. Our assumption is that also in 2017, the nonpremium segment will grow faster than the premium segment. So 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 2014 was to shift our customers from titanium to rock solid. And we have today a very high rate of rock solid adoption, which obviously frees up Sele products to actually compete against, I would say, yes, the upper value segment. So we are we will be able to actually compete with titanium SLA against upper level of the premium of the non premium segment. So that's the intention. And then looking at the composition of our revenue in 2016 between premium, 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, yes. Because it's still a premium product.
Okay. Thank you. Okay.
It's still a premium product. So we everything we sell onto the
It's Oliver Mesker from Commerzbank. The first question is on the chart on Page 8. You indicate that the premium implant market growth has slowed down. So if I look to some of your peers, I would fully agree. If I look in your business, they basically have owned.
So 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 a comment on your price development, in particular in 2016. So at the gross margin, you mentioned a positive volumepricemix. So were you able to achieve in the current environment still some positive price impact?
As I pointed out before, our assumption is that in 2016, the premium segment grew by roughly 2% to 3%. And obviously, if you look at our growth rate, if you will take the Straumann part out of the 2% to 3%, then the rest everybody else in the premium segment was even slightly negative. So we gained in the premium segment a lot of share on behalf of companies like, for example, Cimra and 3i. On the pricevolume mix? If
you look at the pricevolume mix, then 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 rock solid products through SL Active products, which will have a positive impact on the overall ASP. And in the value segment, I have also highlighted that we have an increasing trend to, for example, the hydrophilic aquasurface, which also comes with a price premium where we also see a positive impact on a mix effect on the price. If we look at list price increases in 2016 and the impact from list price increases, then these impacts were more or less insignificant.
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, on the ceramic side? That would be my first question.
And then 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 and 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 SEL Active. We have now long term results and we are learning more and more about what's behind SEL Active. And we believe that there is even more behind it than we have currently communicated. But we still need some time to actually come to conclusions. And 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 2 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. And at the same time, we are together with Moxone developing injection molded ceramic implants. And our target is to launch these implants during the course of 2018. At the same time, we are looking at the next generation of RockSolid.
And I guess you understand that I'm not giving you more details on this. But 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 2nd 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 breakeven in 2016. But obviously, 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 Lederach from Bank of America Merrill. 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 and D, marketing and admin? And am I okay?
When I look at the absolute numbers in the annual report, the expansion of distribution, which you mentioned, and R and D, marketing and admin, that's all in the distribution cost and in the admin expenses, right? It's a bit different. So I would wonder about R and D and how much is capitalized if anything.
So if we look here at the expansion of the distribution costs, and these are mainly the costs that we have outside in the selling subsidiary. And 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 and on the other hand also to expand our footprint and to open up new subsidiaries. If we look then at the other cost block, the R and D, marketing and administration costs, then of course, this is a big party of the costs that we have in Switzerland. We see in marketing in R and D, we have already also announced due to us during 2016 that we further increased the number of people here in Basel to fill our innovation pipeline for the next coming years, and that's also an area where we have increased our expenses. However, overall, it was an under proportional growth and especially the hold back office there we are generating economies of scale right now.
And capitalization?
Capitalization, yes. We are capitalizing some R and D expenses. However, that's below CHF1 1,000,000 that we are capitalizing and it's an even balance from the capitalization, the amortization charges.
Okay. And the follow-up second question. I mean, you flagged you have now 4% market share on tapered implant segment. The global market is a bit more than twothree. Your goal is certainly to be at the level where the group market share is or even more.
I wonder about that. And how difficult is it to how much more resource you need to get there? I mean, how much is already covered? How much is it you need the same resources as you grow the top line to get more market share in Taper? Or can we understand that?
Now it's also important to stretch the fact that when we talk about shares, we always talk shares with Straumann brand. Obviously, a large part of the Neodent implants are tapered implants. So if you look at the Neodent and the Straumann brand together, then our share today is already higher. But 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, So from 4% to 8%, then maybe 10%, but it's also a fact that this segment is the most competitive.
Well, It's 2 thirds of the market. So most of our competitors they have 1 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. So 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.
And 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. So there I think we still have a white spot. And I'm pretty sure that we are on the right track to come up with something that will excite the dental community.
So as there are at the moment, no questions through the webcast. Corie's 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 2, please. My first question is a bigger picture question for you, Marco, in terms of M and A priorities.
If you look forward over the next 2 to 3 years, I mean, you've alluded to of the areas where you think you might need to invest a little bit more inorganically. But can you give us a sense for whether these acquisitions are likely to be smaller or larger? And if you were to maybe stretch the balance sheet, how far could you go and what kind of acquisition would warrant such an investment? And then 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're 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 the next 12 to 24 months? Thank you.
Yes. When looking at our current portfolio of brands and partnerships, when it comes to implant systems, we have a portfolio which allows us to to actually enter all the interesting dental implant markets worldwide. So we do not need another acquisition or another brand. With Neodent, Xenodent, Equinox, Medentica, we have strong value brands which allow us to kind of solidify our current position and to continue to gain share also in the nonpremium segment. There, partnerships and acquisitions might still play a role on the digital workflow.
We are not a material company, for example, okay? We have now launched our first own material, the NICE block, which is a lithium disilicate block. But when it comes to provide complete portfolio, for example, for chairside solutions, we will not be able to develop this ourselves. So there, we need another partnership or partnerships with strong material suppliers. 3 d 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.
And this is also a field we're obviously looking at as we speak. And also there we don't have the capabilities in house to develop our own 3 d printer and the corresponding materials. The 3rd 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. And 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.
Then coming capital, and net working capital capital, and 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 growth. Also on the receivable side, we could with the growth. Also on the receivable side, we could better work manage the receivables. I see some improvement potential there in 20 17, and we will for sure work on this improvement potential.
However, we will also not fiercely manage the net working
Very clear. Thank you. And Marcos, I can quickly follow-up on the M and A commentary. I mean, would you say the probability is high that you do more smaller acquisitions over the next couple of years? Or do you think there is a possibility we see a bigger deal from you?
And I'll leave it at that. Thank you.
You will not see another Neodenti, let's put it that way, but small 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 2nd 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?
And how long do you think you can keep up with such a high growth in the region?
Yes. The key drivers of our growth in Europe have been rock solid. Rock Solid for All, which we launched in 2014, then BLT in 2015. And the Vario based concept, which we have also launched around 2014 2015. So these have been the key drivers of our growth in Europe.
And on top of that, our cooperation with Spotis, which has put our Biomaterials business in Europe to another level.
Okay. I'm sorry. But just a follow-up, in terms of new things coming up to fuel that growth, is there anything on the agenda for 2017?
Yes. 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 the chairside mill. And this combined with a broad range of materials for dentists. So this is a new field for us.
We actually are starting from 0. We don't have any share there yet. So every single intraoral scanner or chairs that we're going to sell will be incremental revenue.
Okay. Thank you.
Next question is from Ina Silber, Merrill Lynch. Please go ahead.
Hi, good morning. Thank you so much for taking my questions. I have 2, please. So first of all, just when you think about your mix of business for 2017 from the gross margin perspective, do you believe that you'll still continue to see a positive ASP impact? And then 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. And then the second question is just the guidance for the top line growth is again quite a strong outperformance versus the market is what it implies. So can you just remind us where what are the main things that you believe that Straumann as an organization is doing much better than competition?
So 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 onboard, that will have a certain slightly negative impact on the gross margin. However, the goal is also to make that up with efficiency increases. And I think the more important point is that despite that slightly lower gross margin in 2016, all these products have an 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 RockSolid, S Selective and Aqua Share to improve our mix in the portfolio. And 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.
Yes. I mean looking at our key drivers, so why are we confident that also in 2017, we will outperform the market? We talked before about BLT that in the apical tapered segment, this storm, we only have 4% share. There is more possible. So 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. 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, so intros, candles, 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 BOTIS launched, for example. We are in the process of registering BOTIS there. We don't have a comprehensive portfolio in Japan. We don't have a comprehensive portfolio in Spain.
So also when it comes to Biomaterials, we still have quite some potential. And 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. So there are many, many different layers of growth. And altogether, these 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 2. 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. So I'm just wondering kind of 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 and A and they've been distracted and so forth, but they have to be doing something to try and improve their fairly dismal performance.
So given the visibility of this market is getting lower and lower for us external observers with the M and 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? And then 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?
Yes. Obviously, the competition also is 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 because we believe that some of our competitors, they underwent how to say that the face of more internal focus, focusing more on probably improving profitability, efficiency. We know that the 3i and Sema 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. And 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, Megachan, 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. And we are of the opinion that also without MegaChain, we have strong brands in our portfolio, which allow us to actually enter the nonpremium segments in all relevant markets, maybe with the exception of Korea. But Korea is a cutthroat market. Many, many implants there, yes, but from a profitability point of view, I'm not even sure if this is worth the efforts.
Or in other words, from a strategic point of view, MegaChain 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 are talking here about the AnyRidge system, which is liked by many, many dentists around the globe. But from a pure strategic point of view, it's not a must anymore.
Should I read into that 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 MegaChain through to a conclusion? Is that sort of what you're hinting towards?
Tom, I think you on the I said what I could say, you know, and I think you're a smart guy, you know, you make your own story out of it.
Okay, sure. And then maybe I could
just circle back to the competition question. I mean, 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? And 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?
Yes. It has always been an issue because otherwise we will not have a premium and a value segment. This has been we had to live with this fact for many, many years. Now the difference to what we did 5 or 6 years ago is that we now consciously want to play in the different segments. But price competition, that has always been a topic in our industry.
And 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 bring new products, new solutions to the market and always being one step ahead of the non premium players. And this is our ambition and that's also actually our R and D money goes into to make sure that this will still be the case also down the road.
Okay. That makes a lot of sense.
We just received 2 questions from the Internet. The first person would like to know an outlook on the African region. It might be a small submarket today, but how much growth do you foresee in the years to come there? Because you also stressed in Q3 that we're putting resources behind that region.
Yes. 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, so the more the northern African countries and obviously South Africa. And then the rest are still countries where dental implants play a minor role today.
But that doesn't mean that this is will also be the case in 5 to 10 years and that's why we are actually looking at ways to penetrate these markets. This will most probably be through a distributor model, distributor model, potentially except for South Africa. That market is big enough to support those and some of our competitors have their own organizations in South Africa. But the rest of the markets feel that we will actually penetrate as we distribute this. So 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, then yes, we have to actually look at this.
We have to make sure that we don't miss the train. But from a strategic priority point of view, it's not among the top strategic priorities we are focusing on right now.
And 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 on our own hands.
Yes. When we purchased 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. So 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, then I would return the speech back to Marco Verdola for the closing remarks.
So 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 3rd annual perception survey, which we conducted in December. And we congratulate the winners and would like to thank everybody for participating. Who was the winners and who won? Natixis.
Okay. Natixis.
Natixis in Paris as well as Vontobel in Zurich.
Okay. And 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. But for now, I would like to thank you again for your interest, and I wish you all a pleasant day. Thank you.