Ladies and gentlemen, good morning. Welcome to the 2016 nine-month sales presentation webcast. I'm Sherry, the customer call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to connect to an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr Marco Gadola, CEO of Straumann. Please go ahead, sir.
Thank you. Good morning or good afternoon, ladies and gentlemen, and thank you for joining us for this conference on Straumann's 2016 nine months and third-quarter results. We will be referring to the presentation slides that were published on our website this morning, as always, we ask you to take careful note of the disclaimer on slide two regarding forward-looking statements. In recent months, we created opportunities through collaborations, investments, and acquisitions as we pursued our strategic priorities of targeting unexploited growth markets and segments and becoming the total solution provider for tooth replacement. Today, we will give you an update on these, first, I'll take you through the performance highlights, and our CFO, Peter Hackel, will explain the financials in detail.
At the end, we will be glad to answer your questions, as usual, participants listening online can ask questions anonymously by using the webcast feature in the bottom left corner. Starting with the highlights on slide number four. The main news today is that we have generated double-digit growth for four consecutive quarters, and over the first nine months this year, we outpaced the market by a factor of at least two. In Q3, our organic revenue climbed almost 13%, in CHF, the increase was 14%. All our businesses posted double-digit rises apart from Instradent, our value business platform, which is expanding at a triple-digit rate. By region, North America and Asia Pacific were the strongest performers, from a product perspective, our Variobase abutment family was a key growth driver alongside our bone level tapered implant range.
With regard to the strategic highlights in Q3, we expanded our shared technology platform, we started initiatives to address emerging markets in EMEA and to accelerate Instradent's penetration of the value segment. On the basis of the continued strong performance, we are well on track to deliver our full-year organic growth and EBIT targets, which we raised after our first half figures in August. Looking briefly at the third-quarter results in their nine-month context on slide number five, you can see that sequential revenue growth accelerated in North America and eased elsewhere. Peter will give you more granularity on this, I would like to hand over to him now for the performance details.
Thank you, Marco. Good morning or good afternoon, everybody. Looking at slide number seven. You can see on the left that our nine-month revenue in 2015 would have been CHF 5 million higher at this year's currency rates. After many years of currency headwinds due to the strength of the Swiss franc, we are currently benefiting from a positive currency impact. The acquisition effect added CHF 6 million, bringing the adjusted 2015 revenue to CHF 596 million. Using this basis in a like-for-like comparison, our net revenue in the first months of 2016 increased 13% in organic terms. You can also see that all our regions developed very positively, posting double-digit growth with the exception of EMEA. As Marco mentioned, Asia Pacific and North America were the fastest-growing regions, delivering respective growth of 19% and 16%.
Last but not least, LATAM expanded 15% in the first nine months despite the difficult economic situation in several markets, especially Brazil. On the right, you can see that our EMEA and North America regions were the main contributors to organic growth with roughly one-third each. The next two slides give you more details on the regional performance in Q3. Our largest region, EMEA, continued to grow robustly in Q3 at 8%, albeit slower than in the previous two quarters. This mostly reflects the fact that BLT completed its first full year on the market in Europe in Q3. The results were generally positive with Iberia, Italy, France, and Turkey ranking among the principal contributors in spite of their competitive local environment. Germany, Straumann's biggest regional market, continued to post revenue growth. We are pleased that the positive uptake of our botiss biomaterial range in January has continued.
This comprehensive range of GBR products clearly complements our implant business extremely well. As communicated previously, we became the exclusive distributor of botiss products in Germany in Q3 and have taken over their local sales team. North America was the most remarkable performer in Q3, with organic growth of 17%. As you can see in the bar chart on this slide, we have seen successive increases in each quarter thanks mainly to strong demand for our implant solutions. BLT is a clear door opener to general dentists and is particularly popular among surgeons who use early loading protocols and who perform Pro Arch solutions for edentulous cases. Implants were not the sole driver. Growth was healthy across all our businesses. The Variobase family, for example, helped us to win back lab customers as it offers a cost-effective, versatile solution with an original implant interface.
It also offers customers the flexibility of producing the restoration in one of our milling centers, in their own lab, or even chairside. Instradent performance in North America was also impressive as we made notable gains in the value segment. Moving on to slide number nine. Double-digit growth in all our Asia Pacific subsidiaries contributed to regional revenue growth of 17% in Q3. Not surprisingly, the key performer was China, followed by Japan. In the former, we are benefiting from investments in sales, training, and education, as well as the recently acquired Anthogyr value business, which contributed its first full quarter of sales. In Latin America, we delivered a robust performance in Q3, lifting organic sales by 13%. With this performance, we have clearly strengthened our market position and share, especially as the largest local market, Brazil, remains sluggish.
Mexico achieved the fastest growth with strong demand in both the premium and the value business. To be objective, I should point out that the regional growth was on top of a comparatively low baseline in the prior year, when Neodent incorporated a local distributor in Brazil. Looking at our performance from a business perspective, implants generated almost two-thirds of our growth, driven by the high-performance implant material Roxolid and our BLT implants. Since the initial launch at the end of 2014, BLT's share continues to grow in all regions. It is now registered in all large markets except China, and we have sold more than half a million units. The restorative business sustained its double-digit growth. This reflects our intense efforts over the past two years to become a total solution provider for dental labs.
Standard prosthetic sales developed very positively in the wake of strong implant growth and thanks to the increasing popularity of Variobase abutments . Biomaterials has been our fastest-growing business this year, thanks to successful collaborations with botiss and other partners, which have enabled us to roll out comprehensive regenerative solutions internationally. With that, I'll hand back to Marco.
Thank you, Peter. We look at our strategic progress, I would like to start with our initiatives to target unexploited growth markets and segments. You can see on slide number 13, our new subsidiary in Buenos Aires became operational in Q3 and incorporates our former distributor. With approximately 400,000 implants sold annually, Argentina is the second-largest market for tooth replacement in Latin America, with approximately 100 implants placed per 10,000 population annually. As the lion's share of the Argentinian market is non-premium, our subsidiary will sell both the Neodent and Straumann brands. Please turn to slide number 14. To accelerate penetration of the value segment in Europe, we have opened a European hub to serve countries in which we do not yet have a dedicated Instradent subsidiary.
The new hub is located in Freiburg, Germany, and will provide commercial management, distribution, and customer services to customers, distributors, and agents in the Benelux countries, Denmark, France, Hungary, the Nordics, and elsewhere. Beyond South America and Europe, our global footprint in the non-premium segment, which is shown in slide number 15, has expanded significantly this year with Anthogyr in China, Sinedent in Turkey, and more recently, Equinox in India. We also continue to penetrate new markets with the Straumann brand, both alone and through distribution partnerships. We currently operate in more than 50 distributor markets, two-thirds of which are in Eastern Europe, the Middle East, or Africa. You can see in slide number 16, we are combining our subsidiaries in Eastern, Central, and Western Europe into a single region under the leadership of Jens Dexheimer.
In addition to offering synergies and freeing up resources, this will enable Wolfgang Becker and his team to focus on expanding our business in Russia and the distributor markets, in addition to creating opportunities in new and emerging areas, for instance, in Africa and Central Asia. Moving to slide number 17. Rising demand for our product makes it necessary to expand production. We will extend our current initiatives to optimize capacity utilization through 2017 and are investing substantially in plant and equipment. The goal is to leverage output at our factories in Villeret and Andover by a quarter and to almost double capacity at Neodent's facility in Brazil. As a result, we expect CapEx to increase both this year and next year. Now let me bring you up to date on our third strategic priority, which is to become the total solution provider in tooth replacement.
Looking at slide number 19, our core implant business is complemented by a broad range of standard and CAD/CAM prosthetics, as well as a comprehensive range of biomaterials. We are extending our activities in each of these fields to meet medical needs, to make treatment possible for more patients, to enhance the standard of care, and to offer customers greater flexibility. In addition to developing new implant and restorative solutions this year, we have been working on implant maintenance. In biomaterials, we have added solutions for wound healing and enhanced bone regeneration, and we have expanded the geographical availability of the products in our portfolio. In prosthetics, we are rolling out high-quality, attractively priced restorations for competitor implants, and we are about to launch our unique glass ceramic material with considerable advantages for labs and dentists.
We are also expanding our presence in treatment planning, diagnosis, and digital dentistry, which is where our partnerships and common technology platform are crucial. The chart on slide 20 is familiar to most of you, not least because we have had to update it frequently with new additions in recent quarters. In addition to telling you about the latest addition, I would like to tell you about the progress we have made with existing partners. Please turn to slide number 21. Today, we are announcing that we have acquired a 30% stake in V2R Biomedical, which is a small, privately owned company in Montreal that specializes in prosthetically driven guided surgery solutions. Using CT and intraoral images of the patient, the V2R's experts plan the position, angulation, and depth of the implants by computer, taking the prosthetic requirements into account.
Once the treatment plan has been approved by the surgeon, a precise drill guide is produced and can be delivered simultaneously with the implants, drills, abutments, prosthetics, and other components, making it possible to perform tooth replacement and restorations in a single surgical appointment. This is what we call a smile-in-a-box solution. It saves time for the patient and adds convenience as well as confidence for the dentist. V2R adds to our expertise in this area, while Straumann offers them the opportunity to upscale and to broaden their international reach. Our agreement includes an option for Straumann to increase its stake to full ownership by 2020. Last year, we acquired a 44% stake in Valoc, a privately owned Swiss company that develops innovative products for securing overdentures to implants.
Our aim was to offer a technically superior, cost-effective alternative to the LOCATOR products that dominated the market segment for removable overdentures attachment systems. A few months ago, we successfully launched the innovative Novaloc system, which offers excellent wear resistance, low maintenance, precise fit, and a Straumann Original connection. We have successfully launched it in Europe and Australia, with other markets to follow as soon as we have regulatory clearances. As you can see on slide number 23, we have combined our partnerships with Dental Wings and Amann Girrbach to offer our own chair-side milling solution. The compact milling machine developed by Amann Girrbach is now being tested in clinics. The corresponding intraoral scanner produced by Dental Wings is already available through distributors in the U.S., and we are running market acceptance tests in Europe in preparation for launches in 2017.
The next slide shows you how the chair-side option fits into our total solution concept for prosthetic design and manufacture. Looking at slide number 25. With regard to n!ce, our innovative glass-ceramic material, we have been seeking a recognized partner to add marketing power and to help build the brand worldwide when we come to launch. I am pleased to report that we have signed an agreement granting global distribution rights to Planmeca, a global leader in the CAD/CAM space. Planmeca complements our plans to commercialize n!ce through our own channels. Finally, I would like to tell you about an agreement we signed with Zirkonzahn in Q3, which is summarized in slide number 26. Zirkonzahn is an international supplier of lab solutions, including prosthetics for a wide range of implant systems.
To gain access to the large number of dental laboratories they supply, we have signed an agreement enabling them to distribute our Variobase abutments, starting in Germany as a pilot market. That concludes the snapshot of our strategic achievement in recent months, and which brings me to the outlook. Following our first half results, we raised our expectations for full-year revenue growth to the low double-digit percentage. On the basis of the good progression since then, we are confident that we will achieve this and also our full-year EBIT margin improvements. On that positive note, I will move to the Q&A. I would ask you kindly to limit the number of questions and follow-up questions to two, and then to rejoin the queue. So operator, can we have the first question, please?
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets to ask a question. Anyone who has a question may press star and one at this time. The first question is from Ian Douglas-Pennant from UBS. Please go ahead. Mr. Douglas-Pennant, your line is open. Maybe your line is muted. The next question is from Veronika Dubajova, Goldman Sachs. Please go ahead.
Good morning. It's Veronika Dubajova here from Goldman Sachs. Thank you for taking my questions. I have two, please. My first one is, I'm curious, Marco, if you can give us a snapshot of what you see happening in the dental market globally. We've had some mixed data points, not in dental, but in some of the other more consumer sensitive medical markets in the last quarter in terms of the growth rate. I'm wondering if you can— Obviously, your performance looks stellar, but if you are seeing any changes in the underlying demand or the kind of patients that are being treated and the kind of procedures that are happening, that would be really helpful. My second question is on the chair-side solution. Great to see that coming to market.
Can you give us a bit of an understanding of competitively how your product compares with the Sirona solution? As you think about your pricing strategy and the ultimate size of that market opportunity, any thoughts you can share on that would be really, really helpful. Thank you.
Thank you for the questions. On the first question, I think you are mainly referring to the U.S., also, I guess commenting on what, for example, Henry Schein reported when it came to their numbers.
Correct. Yes
Obviously, when looking at our numbers, we see a different picture. North America has been our stellar region in Q3 with organic growth of 17.3%. We can actually not confirm what other players in the dental industry have commented recently. Obviously, we are gaining quite substantial share. Market is for sure not growing 17.3%, but overall, we see actually the industry, especially when it comes to our segment, tooth replacement, developing firmly and actually rather well. I think the other market which is currently, how to say that, a little bit unstable is the Brazilian market. There obviously the macroeconomic environment is everything else but stable. Also there we have posted double-digit growth. So also in the Brazilian market, we have been able, despite the difficult macroeconomic environment, to gain quite substantial share.
On the intraoral scanner or chair side solution on this question, the intraoral scanner, which we have launched in the U.S. and are about to launch in other parts of the market, it has been developed in conjunction with Dental Wings. It is actually a basic scanner, so it's a scanner which still requires powdering or spraying. It's an entry-level scanner with a lot of features which make it very easy to use for general practitioners. Also from a pricing point of view, it's actually an entry-level scanner, so it's more in the $15,000-$20,000 range from a pricing point of view and less in the $25,000-$30,000 price range, in which you have scanners like, for example, the 3Shape TRIOS 3, but also the high-end Sirona scanners.
When it comes to the mill, which we have developed jointly with Amann Girrbach, that mill has quite some advantages, which we will actually obviously make available to our customer base on the market at the time when we're going to launch it, which will be during Q1 of 2017.
Marco, can you comment on the pricing strategy you'll have for the chair side mill specifically?
The chair side mill will be priced around $30,000. Also there we are very competitive from a price quality point of view. We are actually quite convinced that we have here a very competitive offering, the combination of the Dental Wings intraoral scanner and the Amann Girrbach co-developed chair side mill.
Fantastic. Thank you very much for both of those. I will jump back into the queue.
The next question is from Chris Kretler, Credit Suisse. Please go ahead.
Yes. Thank you. Hi, Marco.
Hi, Chris.
Hi. Two question on Instradent. You mentioned this triple-digit growth earlier in your call. Could you elaborate maybe a bit on geographical performance in this business? The second question would relate to the two-piece ceramic product and the fully tapered implant. Is that still on track to get launched next year, and could you get us an update on that?
Sure. On Instradent, first of all, I want to stress the fact that still roughly 90%, more than 90%, slightly more, let's put it that way. Slightly more than 90% of our business year to date has been generated with Straumann-branded products. The non-premium segment is contributing a little bit less than 10% to the overall revenue of the group. Obviously a large part of that is coming out of Brazil, the home market of Neodent. We are still talking at sales with a relatively low importance to the overall revenue of the group. However, on that basis, actually all markets where we have launched Instradent are actually growing triple digits. The most dynamic market right now is the U.S. In the U.S., we are gaining quite significantly share on behalf of other players in the U.S. market.
Just to give you one piece of information, we have actually generated throughout the first nine months overall in our Instradent subsidiaries already more than 1,000 new customers. This also shows that the system is not only used by a few large ones, for example, but actually that the Neodent system also outside of Brazil, is actually starts to get accepted as really a system which can be used by specialists as well as general practitioners. On your second question, the two-piece ceramic implant. As we have communicated already before, we're going to launch at IDS in March of 2017. We are on track for that launch date. When it comes to the fully tapered implant, we're going to give a sneak preview of what we have in mind at the IDS. However, the LMR will actually start in Q1 of 2018.
Okay, good. Sounds good. Thank you.
The next question is from Oliver Metzger, Commerzbank. Please go ahead.
Yeah. Hi. Thanks a lot for taking my questions. Just the first one on your objective to become a total solution provider. Initially, I think you mentioned this objective already two and a half years ago. If you see your progress where you are now compared to the overall objective, how far are you already? My second question is also referring to your slide 19 total solution provider. Which of the now, I would say, unpenetrated areas is the most attractive field, just from a standalone perspective, and which one would bring the biggest portfolio benefits to your company?
Mm-hmm. We have obviously made quite, or not quite, considerable progress over the last two years to live up to this ambition. The last, I would say, important piece, which has been missing is to be able to offer to dentists a full-fledged chairside solution. The intraoral scanner and the chairside mill, together with a range of materials. As pointed out before, this is about to happen during the first two quarters of 2017. Once we have launched our intraoral scanner, the chairside mill and the corresponding materials, we have actually, I would say, all the pieces in place to really consider ourselves as a total solution provider for tooth replacement for labs as well as for dentists. Especially now, with the addition of V2R, which also gives us the opportunity to offer planning services for dentists and potentially even labs.
To answer your first question, we are rather close to actually fulfill this mission and to live up to this strategic ambition. In terms of attractiveness, obviously, the whole chairside market is an attractive market. It's still a relatively immature market. The penetration with intraoral scanners among dental practices around the globe is still relatively low. There is opportunity, obviously, to increase that penetration. In itself, this is a very attractive segment. We also have still, as we believe, interesting options on the biomaterial side. We have, for example, botiss not yet registered in many of our larger markets. I'm talking here, for example, about Brazil. I'm talking about North America. I'm talking about China and Japan. Also when it comes to biomaterials, we still have potential to especially expand the geographic coverage of our range.
On the prosthetic side, we have just announced the launch of what we call etkon iDent. This is actually a range of prosthetic solutions fitting non-exclusively only Straumann systems, but other systems. We are also about to actually increase the coverage when it comes to CAD/CAM manufactured solutions on competitive implant systems.
The next question is from the internet. The person would like to know what kind of growth rates can be expected in digital dentistry in general.
At least double-digit. Put it that way. The market itself is growing clearly above 10%. Yeah, I would say more than 10%.
Yeah.
Next question from the phone is from Chris Cooper from Jefferies. Please go ahead.
Hi, morning. Thanks for taking my questions. I have two, please. Firstly, in EMEA, the absolute growth still looks very good. In Q3, you have seen the slowest growth there for, I think, seven quarters. Could you please just elaborate a bit more on what's driven the sequential slowdown? It didn't appear like an especially challenging period last year. Perhaps, in answering that, you could also clarify how the performance broke down between the premium and value segments. Secondly, on your non-premium footprint, clearly you've expanded your exposure significantly this year. If we look at the regional mix, there still appears to be a few potential gaps. Can you just provide a sense of how you're thinking about the strategy from here? Do you think there's greater opportunity in deepening your portfolio in existing markets?
Is it more accretive to continue to enter new markets? Thanks.
On your first question, if you look at the last six quarters in EMEA, 8.3%, 8.5%, 8.3%, 9.4%. We had a stellar second quarter with 11.1% and now we're at 7.7%. 7.7% compared to what we achieved in Q2, 3, 4 and also Q1 of 2016 is actually not that far out of range. We are talking here on a couple of basis points. There is actually nothing to highlight in terms of do we have any potential problems in any one of our larger countries. It's a half a percentage point up or down when it comes to growth, I don't think makes such a big difference. On your second question, in terms of where do we still have potential to expand... Sorry. On the question on Instradent.
In Europe, we have Instradent companies in Iberia, in Italy and, since April of this year, also in the U.K. As announced during the call today, we are about to actually launch Instradent in some other countries in Europe, like France, like the Nordics, but also in the Benelux through this Instradent Europe platform. On your second question in terms of under-penetrated market or white spots. Yes, we still have obviously some under-penetrated markets, some white spots like, for example, the whole African continent, Central Asia, Middle East. Clearly, in these markets, we have a market share, which is not in line with the average market share of the group. We also have a little presence in the non-premium segment in these geographic areas. That's actually the reason why we have created this new region, emerging markets.
Wolfgang Becker and his team, their focus is actually exactly on what you were hinting at making sure that the increase our share in these, for us, still under-penetrated markets.
Okay, great. Thanks. Just on the first one, maybe you could just give me a sense of how the performance in EMEA broke down between premium and value, please.
Yeah. The value, we call it now non-premium, by the way. We don't call you value, we call it non-premium. Also in Europe, the non-premium has obviously outperformed the premium segment. Still, as I pointed out, it's still at a very low base.
Great. Thanks a lot.
The next question is from Patrick Wood, from Citi. Please go ahead.
Perfect. Thank you very much for taking my questions, guys. I have two, if I may. The first would be, could you give us a sense for how large the CapEx increases over the next two years might be? Is this sort of CHF 10 million, CHF 20 million, something like that? What is the current, to your best estimate, utilization of the existing facilities that you guys are running at the moment? Are you running at sort of 70%, 60%? Just an idea there would be very helpful. The second question is really around Argentina. I would love to know what made you decide to go direct in that market. Was this to capture the distributor margin or was it really to have greater brand control or both of these things? Sort of what are your thoughts there and for other markets too? That would be helpful, please.
Maybe you take the first question, Peter, and I will answer the second one.
Yes, I take the first question on the CapEx. We have already announced with our half year results that we are also investing heavily in Curitiba in our Neodent production facility. For 2016, I said in the half year results, I would expect the CapEx level slightly above the one of last year. For 2016, it's somewhere around CHF 40 million. I would expect for 2017 and 2018 higher than normalized CapEx in the past. In 2017, due to the investments in the production site in Switzerland as well as further investments in Neodent, I would expect the CapEx level of around CHF 45 million. If we come to the capacity utilization, due to the strong volume growth since a couple of quarters, we are basically running in all the factories that we have more or less short of full capacity utilization.
Maybe to add on to this, that's also why we have actually held back in terms of increasing our presence in the non-premium segment because we want to make sure that we have enough supply. Until the end of Q1 2017, we will have increased capacity in our Curitiba site substantially, which will then give us actually opportunities to even more accelerate the buildup of our non-premium segment throughout the globe. On your questions, when it comes to Argentina, it's actually a similar situation we were facing in China and in Russia. We have been represented in Argentina through two distributors, one distributing our premium brand, Straumann, and the other one representing Neodent. We have seen that actually, the distributors they have, first of all, not covered the whole country. They were focusing on some specific areas.
Our Straumann distributor was mainly present in Buenos Aires, our Neodent distributor in the Mendoza area. They were actually just not, how to say, they didn't have the means to further invest into the business and to extend our footprint in this second most important market in Latin America. That's why we decided at the end that we actually take over. We are now obviously expanding the geographic coverage. We want to be present in all major cities, all major areas in Argentina with the premium brand, Straumann, as well as with Neodent. You may know or take into consideration that there is a free trade agreement between Brazil and Argentina, so we can actually import the Neodent products, which we manufacture in our Curitiba site without any import duties into Argentina, which is obviously a big advantage.
That's very helpful. Thank you. If I can be very cheeky and just ask, do you have a sense of what your current market share in Argentina is, roughly?
Yes, it's actually below 5%.
Wow, okay.
Combined, both brands, the Neodent brand and the Straumann brand.
Okay. No, that's very, very helpful. Thanks, guys.
Next question is from Alexander Morris from Bernstein. Please go ahead.
Hi there. I have two questions, both on Instradent in the U.S. Firstly, can you give us a sense of what proportion of your North America sales are Instradent and how that's progressing versus your expectations? Secondly, are you continuing to invest heavily in Instradent in the U.S.? If you could give us a sense of where we are with regards to profitability, that would be great.
The total contribution to revenue in North America is still below 5% when it comes to Instradent. Yes, we are continuously investing. We obviously don't have full geographic coverage yet in the U.S. We have now a little bit more than 20 sales reps on the Instradent side covering the U.S. territory. There are still some wide spots, which we are actually about to fill next year and in 2018. We are steadily actually increasing our presence. The success we have seen with the Neodent brand in the U.S. market is actually giving us the confidence that these are the right steps. From a profitability point of view, we are clearly still far away from the profitability levels of our premium business. For example, in the U.S., we will actually already break even in 2016.
If you look at the total P&L, including obviously, manufacturing cost of goods sold, we will actually in 2016 break even in the U.S.
Great. Thank you.
Then 2017 should be the first year with some positive contributions.
Okay, thank you.
Next question is from Tom Jones from Berenberg. Please go ahead.
Good morning, and thank you for taking my questions. I have two big picture ones really. The first is just in relation to all your subsidiaries, to call them that you have across the business now and all your distributor agreements. Most of these businesses you either own or a lot of them, you own minority stakes or the distribution agreements. In a way that leaves the performance up to the performance of the individual subsidiary, which is great when things are going well. How do you maintain control of all these interests, and how do you deal with things when things start to go awry? Because you don't have full control over a lot of these, so you're dependent on an awful lot of third parties to deliver the strategy for you.
I was wondering, it's all good when the economic picture is okay and the markets are growing, but what happens if we have another repeat of '08, '09 when things get difficult, and then you suddenly don't have the ability to control all these businesses. It really just a sort of corporate oversight question, really. Secondly, related to that, you seem to be buying in or renting in a lot of expertise into your business, whether it's through acquisitions or through distributor agreements. Why are you so, or why have you been so forthcoming in that regard, and why are you not doing more of this internally? I look at the V2R Biomedical acquisition or the state you've just bought. Drill guides are not exactly rocket science, and that's something that's been around for a while.
Why did you think it was better to go outside the business rather than develop this internally? Because ultimately, if you're renting expertise or you're buying in R&D, you're ultimately having to pay away value that's been created by somebody else. Just a sort of big picture question as to why you're more keen to use distributors and to buy in stuff rather than try and develop this stuff internally.
Interesting question. Just to clarify one point, when it comes to distribution, when it comes to actually selling products to our customer base, we do this either through 100% owned subsidiaries or obviously through distributors in markets where we feel it's not yet worth from a business volume point of view to have an owned subsidiary. We don't actually sell our products in geographies where we have companies where we only own 25%, 30%, 35%. What you are relating to is actually on slide number 20, are our partners who actually bring technologies to the table, capabilities to the table, we internally do not have.
To give you an example again, when it comes to a scanner technology, scanner software, or when it comes to biomaterials, we came to the conclusion that our core competence as the Straumann Group is to develop implants and prosthetic components. That's where we are really strong at. Our core competence has never been, and will also not be in the future, to develop scanner software, scanner equipment, or when you look at our Amann Girrbach, milling equipment. That's not our core strengths. That's why we are partnering up with companies who have this competence.
We are actually taking their products, we are adding these products to our product portfolio in order to be able to offer our customers around the globe, dentists and labs, full solutions, starting from preoperative planning at the dentist's office, up to actually providing the material the dentist needs for actually manufacturing chair side, if he or she wants, for provisional crowns or inlays or onlays. This is actually our total solution provider strategy. You might ask yourselves, "Why do you then even take some stakes in these companies?" That's exactly for the reason you were hinting at. At the end, we want to have certain control over our strategic suppliers. That's why we have a rather important stake in Dental Wings. That's why we have a call option out there to actually get a stake in botiss. That's why we have with Createch Medical, a stake.
That's why we have with Valoc, a stake. The V2R case, it's not only about drill guides. I fully agree with you. Drill guides, there's no rocket science. We are actually manufacturing drill guides in our centralized milling outfits for customers. We have the technology there. V2R is much more. V2R is actually an integrated solution, starting from a planning service to the dentist for complicated cases, up to delivering in one shot at the point of actually the operation, not only the drill guide, but also products like prosthetic provisional bone reduction guides, the drills and everything which is needed to actually help the patient to walk out of the office with a solution that allows him or her to actually continue a normal life. That's actually what V2R is all about. V2R is not about drill guide manufacturing. It's much, much more.
Sure. Then maybe just to follow up, if we look from this point forward, do you think you'll continue to add technology partners at the same rate that you have done over the last two or three years? Or do you think you're largely done now?
When it comes to tooth replacement, I think we have almost everything we need. However, our ambition longer term is obviously, we want also to increase our footprint when it comes to the overall dental industry.
Yeah.
Today, it's not the right point in time to talk about that at full extent. We obviously are thinking about the next 5 to 10 years, what are actually initiatives, what are potential adjacent segments into which we might move and thus further increase our footprint when it comes to the total dental industry, not only the tooth replacement segment.
Sure. That's an interesting thought. That's given us all something to mull over. I'll get back in the queue.
Next question is from Romain Zana, Exane BNP Paribas. Please go ahead.
Yeah, thanks for taking my question. Just a basic one regarding pricing. Could you give us more color about your product mix evolution and the average selling price? Maybe also some comment about the pricing trend for the market. Thank you.
You want to take this, Peter?
Yeah. If it comes to pricing, what we see, that's not the first quarter, we have already commented that earlier, we see a continuous shift to higher-priced implants, especially to the Roxolid implants and especially also to the SLActive implants. Without implementing any list price increases, that helps us to increase our ASPs, especially in the implant area. However, having said that, if we look at the growth rate, the growth rate is clearly driven by volume speed in the implant or in the prosthetics area and is not driven by price. Price is only adding a fraction to the growth rate that we experienced in the first nine months.
It's all clear. Thank you very much.
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We take two more questions.
The next question is from Ines Silva, Bank of America Merrill Lynch. Please go ahead.
Hi. Good morning. Thank you so much for taking my question. I have just one, please. I was wondering if you would highlight any different dynamics in terms of cost base related with the recent launches, especially given that you're entering a sort of different kind of market with the chair-side. Thank you.
Yeah. Our guidance when it comes to the EBIT margins for the full year 2016 has not changed. When it comes to 2017, we will actually give you the corresponding guidance during our full year conference call in February of next year. However, what I can comment already today is, when you look at only the gross margin, obviously, the whole chairside setup is diluting our gross margins because we don't have the same margins on equipment like we have, for example, on the consumables like implants and prosthetic parts. However, when you look at the incremental operating expenses, which are needed to actually commercialize these products, they are relatively low. We don't need an additional sales force. The lead generation will happen through our dentists and our lab sales force. What we need to build up is our certain resources when it comes to first-level support.
The second-level support, repair, et cetera, that's actually provided by our partners. When it comes to the scanner Dental Wings and when it comes to the milling machines by Amann Girrbach. Overall, we don't anticipate a dilution when it comes to the EBIT margins. On the contrary.
That's very helpful. Thank you. Can I just confirm, you also don't anticipate any kind of extra costs just related with the launch itself?
No, we anticipate some incremental costs. Obviously, as I just pointed out, we will have to build up a first-level support structure. When customers have an issue with one of the equipments, that they can call and we can hopefully then resolve the majority of these cases with the first-level support. There are some incremental operating expenses, clearly. What I wanted to point at is that despite the fact that we will have a dilution at gross margin level, the incremental operating expenses, which we have to add to our cost base, are not that much that we will see a dilution of the overall EBIT margin at group level.
Thank you. That's very helpful.
Gentlemen, the last question comes from the internet. The person would like to know, Marco, you pointed out that you come up with a price-attractive entry-level scanner combined or complemented by competitive offering on the mill side. What kind of ambition level Straumann has and what are the adaptation rate you expect to be?
I guess everybody appreciates that we will not disclose during this call our internal plans when it comes to the number of intraoral scanners and the chair-side mills we want to sell still this year and then obviously next year. Our ambition is obviously not to take over the road now over the next couple of years. That would be completely out of reach. We believe that we can actually play a significant role in the fast-growing market for chair-side solutions, especially when it comes to intraoral scanners, so digital impression taking. Thank you again for your interest and participation in this call. If we were not able to answer all your questions, please contact Fabian in our investor relations team.
We look forward to seeing you at our full year results conference in February or at one of our investor relations events in November, which are listed on slide number 30. Until then, we say goodbye and we wish you all a pleasant day. Thank you.
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