Ladies and gentlemen, good morning. Welcome to the Straumann 2014 third quarter results analysts and media conference call. I'm Alice, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Marco Gadola, CEO. Please go ahead, sir.
Yes, good morning, ladies and gentlemen, and thank you for joining us for this webcast and conference call on Straumann's 2014 nine months results. We will be referring to the presentation slides that were published on our website this morning. As usual, I would like to draw your attention to the disclaimer on slide two regarding forward-looking statements. Before I take you through the highlights, I would like to begin with the personnel announcement. As you will have seen in the press release, our CFO, Thomas Dressendörfer, has decided to leave Straumann at the end of June next year in order to be closer to his family in Germany. Thomas has contributed significantly to Straumann's recent turnaround and has played a major part in the acquisitions that have built our multi-brand platform.
I would like to already take now the opportunity to thank Thomas personally for all he has done to bring Straumann back on track. In the coming months, Thomas will support the transition to the incoming CFO, Dr. Peter Hackel, who will rejoin Straumann next month. Peter Hackel is currently Chief Financial Officer of Oerlikon Drive Systems. He is well known at Straumann, having spent six years here in various roles, the last of which was head of group controlling and member of the executive management group. Peter brings a valuable combination of financial and business expertise to Straumann, and we are looking forward to having him back with us. Our Executive Vice President of Instradent Management and Strategic Alliances, Dr. Sandro Motta, is also leaving Straumann after having served as a member of the executive management since 2002.
Over the years, Sandro has made a major contribution to Straumann's business and product portfolio, and he has contributed significantly to improving the standard of care in implant, restorative, and regenerative dentistry, both through Straumann and the ITI. His successor will be announced in due course. We are sincerely grateful to Sandro for his many valuable contributions to our company, and we wish him all the best for the future. Now let me tell you about the business highlights. Thomas will take you through the numbers and the business performance. I will conclude with a summary of our recent growth initiatives, other news, and the outlook. After that, the lines will be open, and we will be glad to take your questions. We will begin with slide number five.
I am pleased to report that we have built on our solid first half performance and improved further in the third quarter. Revenue growth accelerated to 7% in local currencies, lifting growth over nine months to 5% in local currencies and 3% in Swiss francs. The performance was driven by growth across all regions, both in Q3 and over nine months in local currencies and in Swiss francs. North America and Asia Pacific were the star performers and both achieved double-digit growth in Q3. At the product level, customers have been converting in increasing numbers from titanium to Roxolid implants, which has driven volumes and revenues and has been a main contributor to our performance. I am also pleased to report that we have made further progress with our strategy to become the full solution provider of choice, adding new products and services to our portfolio.
We also took several small but significant steps towards our goal of becoming a global leader in the value segment by extending Instradent's international footprint. Finally, as I am sure you have noted in our press release, the improved performance has prompted us to raise our full-year guidance, and I will tell you more about each of these items in a moment. But first, let me hand over to Thomas for the details of our business performance.
Thank you, Marco, and good morning, everyone. Looking at the sequential development on slide seven, there are two things that stand out. The first is the fact that in Q3, we achieved our strongest top-line improvement in 15 quarters. The second is that we have been growing faster than our main competitor. Although we will have to wait until everyone has reported before we can confirm this. Looking at slide eight and the left side of the chart, you can see that at this year's currency rates, our nine months revenues in 2013 would have been CHF 13 million lower. Using this corrected figure as a comparison basis, our net revenue in the first nine months of 2014 increased 5% in organic terms. The currency effect was mainly due to a depreciation of the yen and the dollar against the Swiss franc, although the effect eased steadily.
Reported nine months revenue in Swiss francs was just 2.6% higher than in 2013. On the right, you can see that all regions contributed to growth, with the largest contributions of CHF 9.5 million in each case, coming from North America and Asia Pacific. Our largest region, Europe, also contributed to growth, having declined in the previous two years. Looking at the quarterly performance by region and slide nine. Europe reported a positive third quarter, although growth was only moderate and the individual country performances are mixed. Scandinavia and the U.K. continued to post good results, and Italy also made a positive contribution. The largest subsidiary, Germany, maintained sales above the prior year level, while revenues declined in Switzerland. In North America, revenue jumped 11% in Q3, driven by strong demand for implants and lifted by bone graft and implant abutments.
Roxolid and SLActive helped us to gain share of wallet and new accounts. A small contribution also came from our new tapered implant line, which Marco will tell you later more about. Slide 10 shows a steady improvement in Asia Pacific throughout the year, reaching 17% growth in Q3. The main drivers are China and Japan, where the market for implant dentistry is clawing its way back from the declines experienced in recent years. In addition to this, the rollout of our SLActive implants enabled us to grow ahead of the market. In the rest of the world, which contributes 5% to the group total, regional growth increased by 3% in quarter three. This may seem modest, but it was achieved on a baseline of 35% in the previous year, when sales were boosted by large distributor orders.
Our associate company, Neodent, which leads the Brazilian market, posted low double-digit growth in Latin America for the nine-month period. Looking at the performance from a business perspective on slide 11, growth was driven mainly by implants, including Roxolid, SLActive, and the various new lines such as our PURE ceramic and 4-millimeter short implants. Demand for CAD/CAM prosthetics and cost-effective Variobase abutments was good, but not strong enough to fully compensate for the decrease in standard prosthetics. As a result, we are not able to grow the restorative business in line with implants. Regenerative achieved good growth driven by Emdogain. The botiss products were launched in October and did not yet impact our Q3 results. With that, I will hand back to Marco.
Thank you, Thomas. Please turn now to slide number 13. Straumann has worked hard this year to bring new products and solutions to customers. We presented several at the ITI World Symposium back in April and followed with launches in September at the EAO in Rome and at the botiss bone & tissue days in Berlin. The latter event was new for Straumann and provided access to more than 800 dental professionals, many of whom are new to our company. It was an ideal setting to announce the European rollout of the botiss range through our network. As you can see on slide 14, the regeneration system is comprehensive. It includes soft and hard tissue solutions and features both innovative and standard products to cover all indications, needs, and preferences. Having established the logistics chain, we launched the botiss range on October 1st.
Slide 15 shows you what the current rollout status is and which markets are still to come. On slide 16, you can see two additional regenerative products that we have licensed in to fill gaps in our regenerative portfolio in North America, where botiss is not yet registered. One is a resorbable collagen membrane called Straumann Membrane Plus, and the other is a bovine-sourced bone augmentation material, which we sell as Straumann Xenograft. Both products have excellent clinical profiles and handling. Moving on to slide 17. I would like to tell you a little more about our new Bone Level Tapered implants. We are quite optimistic about the product for three reasons. First, tapered designs now make up nearly 60% of the implant market, and their popularity is expected to increase, as you can see in the chart on the right.
Secondly, we are now able to effectively address the attractive market for immediate fixed full-arch tooth replacement. Thirdly, we are entering this segment with a differentiated new generation product that offers a tapered design combined with the proven benefits of Roxolid and SLActive. Based on initial clinical results and very positive feedback from clinicians, we have begun the controlled market release in Europe, North America, and Australia. We expect to proceed with a full release in the first half of 2015, except in parts of Asia and Latin America, where launch times will be determined by regulatory approvals. One of the most popular indications for Bone Level Tapered implants is immediate full-arch tooth replacement using screw-retained prosthetics, for instance, in the Malo Clinic protocol. This brings us to slide number 18. The implant itself is just part of the solution.
What is equally important is to have a flexible abutment system with various angles and heights and to offer high-performance, screw-retained fixtures. These are all features of our new solution, which we are branding as Straumann Pro Arch. To give you an idea of how seriously we take reliability in the development program, these new abutments went through more than 5,000 hours of tests, simulating more than 280 million human biting cycles. In order to offer a complete solution, in addition to the abutments, state-of-the-art CAD/CAM is needed, which is why we are continually improving our software and have just released the CARES 9.0 update. Finally, you need to offer reliable full-arch bridges like the example on slide 19, and this is where Createch comes into the solution. Createch specializes in high-end implant prosthetics, including CAD/CAM bridges, bars, and abutments, which can now be ordered through Straumann.
We own 30% of Createch. They also manufacture for other systems. Like botiss, Createch belongs to our technology platform, as you can see in slide 20. The company offers its solution not just for Straumann, but also for other main implant systems. Moving on to slide 21. Straumann Bone Level Tapered, Pro Arch, and a broad range of other solutions, including our Instradent platform, played an important part in winning ClearChoice as a new customer. ClearChoice performs more implant procedures than any other facility or network in the U.S., and their affiliated doctors will also have access to our Instradent brands. We will begin to supply ClearChoice in 2015 and are increasing capacity in preparation for this. Slide 22 shows our Straumann PURE Ceramic Implant Monotype, which we launched in a 4.1-millimeter diameter version in May.
Since then, we have completed the development of a 3.3-millimeter small diameter version for use in narrow spaces, which we launched at the EAO. Being fully ceramic, these implants address the needs of patients seeking metal-free implant solutions. They are highly aesthetic and highly predictable, thanks to our unique SLA surface for enhanced osseointegration. They are also very reliable, thanks to an innovative manufacturing process and a 360-degree strength test, which is applied to every single implant. These features all contribute to successful clinical outcomes, and the first clinical study yielded one-year success and survival rates of close to 98% with zero breakages. Before I come to the outlook, let me give you a brief update on the progress of our Value business, I would like to ask you to turn to slide 23.
In August, we announced the creation of a business platform to drive the distribution and internationalization of the various brands in our Value portfolio. The name of that platform is Instradent. The main news today is that Instradent has established a subsidiary in Italy and is preparing to launch the Neodent and Medentika brands there early in 2015. Instradent subsidiaries are also in place in Iberia and the U.S. with a view to adding Medentika products to the current range of Neodent products in the U.S. As you can see on slides 24 and 25, Instradent has recently built and launched its own website in addition to creating an e-shop. Slide 25 gives you an idea of how the various brands will be handled commercially within the Instradent platform.
That brings me to slide 26 and our outlook, which is, of course, barring any unforeseen circumstances. In summary, we have raised both our top line and margin guidance. Based on the positive developments, we now expect our full-year revenue growth in local currency to be in the mid-rate rather than low single digits. Despite investments and thanks to cost optimization, we expect to deliver our operating profit margin target of more than 20% already in 2014. On that note, I will move to the Q&A. I will ask you kindly to limit the number of your questions and sub-questions to two, then to rejoin the queue. 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 return to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Lisa Clive from Sanford C. Bernstein. Please go ahead, madam.
Hi. Two questions. First, your nice pickup in growth. You mentioned it's a bit hard to tell, seeing as we still have some companies to report. How much do you feel is from market improvement overall, and how much do you think may be from market share gains? Second question, just looking at slide 18 on the Pro Arch. There's been a lot of criticism from dentists around the potential risks from peri-implantitis, because in these systems, it's largely impossible to reach the implants to actually clean them when problems develop. Could you just comment on how much of an issue this potentially is and if there's any specific design features that works around this?
On your first question, Lisa, we estimate that the market in 2014 will grow between two and three percentage points. Mid 5% roughly growth would actually mean that we would gain market share in 2014. On your second question, on the design of our Pro Arch system and the question related to peri-implantitis, we have with SLActive something nobody else has. SLActive obviously accelerates the osseointegration process and is actually a safer option when it comes to these type of indications compared to every other solution which is in the marketplace.
Just to follow up on that. Basically you think the implant surface will be enough to sort of reduce the risk of peri-implantitis?
It's an important contributor, absolutely. Yes.
Okay. Thanks very much. I'll get back in the queue.
The next question comes from Michael Jüngling from Morgan Stanley. Please go ahead, sir.
Thank you. Good morning. Two questions, please. Firstly, on the EBIT margin, it seems you've got plenty of financial or accounting flexibility of delivering maybe this year a 20, 21 or a 22% EBIT margin for 2014. Where would you like to see consensus? In the end, you've got tremendous amounts of flexibility as to what you can do here. The second question is on North America. The North American growth seems to be much stronger than I thought. Are you benefiting from some integration challenges or at least some headline merger developments between some of your competitors? Are you already getting some benefits from ClearChoice? Initially, my impression was you may get some benefits already in the fourth quarter, but maybe you're already getting some benefits in the third quarter.
Some sort of explanation as to why the North American growth for you is so strong.
I'll pick up the first question. I'll hand over to Marco. On the first question, obviously, I will not take the flexibility what you have there. Your sales are growing tremendously. You see that we are outperforming the market most probably significantly. We are adding market share. You will have, let's say, this impact also dropping down to the bottom line. We're expecting, let's see, EBIT margin somewhere around 20 to 21% for this year. If sales continue in quarter four, very good. Let's see what happens. It's really sales-driven, the majority. On your second question, Michael, to the U.S., in the third quarter results, there are no ClearChoice sales included yet. The development is mainly driven through more efficient selling behavior of our sales force. We've made a couple of changes at regional level.
Regional heads we exchanged in underperforming regions, and that's now starting to pay off. We also had some positive headwind through the limited market release on the Bone Level Tapered implants. We've already sold a couple of 1,000 implants in Q3 in the U.S. And we also underwent a new training concept for all our sales force, the so-called Challenger sales training. We've done that in Q1 and Q2, mainly in Q1 of this year, and this is now actually bearing fruits and is yielding the anticipated benefits.
Okay. Thank you. Then for the margin again, if given that comps are a little bit easier in the fourth quarter than they are in the third quarter, plus you might get some more benefits from ClearChoice, some more product rollouts, is it feasible to assume that you may grow 7% in the fourth quarter and therefore that you may beat a 21% margin? Would that make mathematical sense?
If these assumptions come true, that could make sense. You know our market is, and sometimes they're not predictable. You have the feeling that your quarter four is running or is going the right way, and suddenly it turns the other way. You know how quickly these things can change. Just think about the Euro crisis. These things react very quickly, where sales may pick up in the U.S., but sales in Europe will impact the overall top line. We are in a lucky position that we are on a good run on the sales side, and this will be impacting our reported EBIT margin. We assume currently between 20% and 21%, if things turn out to be better, great.
Okay. Thank you. Very helpful. Thank you.
Our next question comes from Hendrik Lofruthe from HSBC. Please go ahead, sir.
Good morning, gentlemen. Two questions from my side. Firstly, kind of getting back to market growth. With the recent downturn in consumer confidence and macroeconomic headwinds, do you see, or do you have any feeling about whether this could already result in a near-term headwind for your business? Secondly, given that the Bone Level Tapered implant is just about to kick in, what are your expectations for this product for the next quarters, and how are you going to handle a possible cannibalization to your current portfolio?
Obviously, if we will enter into another financial crisis in Europe, this might also affect our business. Without any doubt. At the end, we don't have the crystal ball here to determine how overall the economy will develop. We still believe that in 2015, the overall market will grow around three percentage points. The overall dental implant market, a little bit better even than what we anticipate will be the development in 2014. Obviously, if there will be major economic turmoils, either in Europe or wherever on this planet, this might also affect our business. On your second question regarding Bone Level Tapered. The fact that more than 60% of all implants placed today are tapered implants, in a way already describes the potential we have with the Bone Level Tapered implant. Obviously, not all of the sales will be incremental sales.
Clearly, we will see some cannibalization because some of our current parallel wall customers, they might also try to take the tapered implant, and they might come to the conclusion that they like the tapered bevel because of different handling, because of the opportunity to reduce the time to tooth, because more immediate loading protocols, et cetera, are possible. Not all of our sales will be incremental. Again, with this implant, we are actually getting access to over 60% of the world market.
Thank you.
The next question comes from Daniel Jelovcan from Bank Vontobel. Please go ahead, sir.
Yes. Hello. Also from my side, two questions. First of all, the Pro Arch. Can you quantify a bit the market potential? I guess, the system is available only on four implants, and if yes, how much is that of the market currently your assumption? The second one: in Italy, is there a specific reason why you turned around the business there, or is it like it was the case in Spain, where it's just the base effect of many negative quarters? Those are the two questions.
Yes. On the Pro Arch, we estimate that roughly 10% of all cases are edentulous cases, which, at the end, are candidates for a Pro Arch solution.
Obviously, you can also put six implants in. Even if you want eight, it doesn't make sense. It's not restricted to just four implants. This is not Pro Arch. This to your first question. The second question related to Italy. Italy remains a difficult market, to be honest. We anticipate that also in 2014, the market is still, we see a negative development. What we have done in Italy, like in the other European countries, we've launched a so-called Big Bang Initiative. I guess you are very much familiar with that. We gained quite some competitive customers and were able to bring them over to Straumann because we were able to offer them a great product at the moderate and very acceptable price.
Okay. Thanks.
The next question comes from Mrs. Yvonne Wong from Deutsche Bank. Please go ahead.
Thank you very much. Maybe just one question. Top line's clearly developing very well, and it's driven by a number of moving parts, and it would be helpful for us to understand what the EBIT contribution of the top line coming from these various paths would be, and as a manager for the company, how you would balance that versus what you have coming through in the premium brand at the moment. That would be great. Thank you.
Thomas, do you want to take this question?
Not sure if I fully understand the question. Maybe.
I can rephrase.
Yeah.
Effectively, your top line is developing very well, but it's not just coming from your premium brand as we know it. It's coming from various sources.
Yes
your initiative in the value segment, for example, and going forward, more contribution from the regenerative alliances that you've made, et cetera. The financial benefits of those additional sources of revenue is different to how your premium revenues have been historically. It's really a question to understand how the financial benefits of these new sources of revenue are set up and how they would come through, and how we should think about the margin of the business going forward relative to the revenue growth that we're seeing.
Just take two examples. We have premium, which is growing. That we have an 80% gross margin on that. We have a certain cost structure behind that too, delivering us a margin of, let's say, 20%, 21%, in that range. We've always said that if sales continue to grow further, we'll also reinvest. You wouldn't expect that the margins would go up. On the value segment, if you take two simple things, and we've been communicating that also very clearly. Take Neodent. We're going to consolidate Neodent next year. Neodent has a gross margin of 78% or something around that, and the EBIT margin is between 35% and 40%. I would not say that we have significantly different lower profitability drivers going forward with the value segment. The companies we've been choosing like with Dentigo or like Neodent are EBITDA margin or highly accretive.
They're going to add value. For that reason we're doing that.
For the value segment, Neodent is special in that it has such high market share just in one single country, whereas the value revenues we generate from other countries will have less operating leverage. Can you comment on the EBIT contributions of those value revenues-
Yeah
the EBIT contributions of your regenerative revenues?
I will not go into details, but just again take the concept of what we're going for. We have, let's say, Neodent U.S., Neodent Spain, Italy, all the same. The cost what we have there is the incremental customer-facing cost. Everything else, the back office is Straumann. We're not adding costs. We're not adding people over there. There's no reason to assume that it will be dilutive. You will have, and that's what we said is always going forward for the first two years, you're going to have, let's say, a plus minus zero game. Maybe the first year slightly negative. As of year three, we're going to be positive adding to the 20%-21% range. On your question, Yvonne Wong, on the regenerative and different products.
At the end, let's assume, and I don't give you here exact numbers, but let's assume that the botiss range is only contributing 50% gross margin. We don't have any additional investments. We already have the sales force there. Okay, we may have to produce one or two marketing flyers or we'll have to give out some samples or whatever, but it's still highly accretive in terms of EBIT margin.
Okay.
The infrastructure is already there. We don't actually build up a separate sales force just for the botiss range.
Okay. That's very clear. If I may sum it up. Effectively what you're saying is that your base margin for the business as it stands is running at about 20%-21%, but with incremental revenues, your margin on that incremental revenue is higher. Should we expect as you get actually more and more robust sales growth, that the overall margin of the group will increase, or should we think that you will continue to make investments and the amount of investments you will make will largely offset the higher contribution, your margin at the group level will be flattish at about 20%-21%?
I have to ask you to be a little bit patient here, Yvonne. In February, we will actually come up with the guidance for 2015.
We will also then obviously communicate again full P&L for the full year. I'm not in a position today to give you a guidance for 2015 and 2016. What we are actually telling you is that the 20% EBIT margin we will already achieve this year, which is earlier than what we anticipated, still a couple of quarters ago. All the other information, as mentioned, we will communicate in February of next year.
Okay. Thank you very much.
The next question comes from Veronika Dubajova from Goldman Sachs. Please go ahead, madam.
Good morning. Thank you very much for taking my questions. The first one is just related to the instradent activities, and I was wondering if you can give us a sense for the North American and European growth excluding instradent. Just trying to understand if it's making any material contribution to what we saw in the third quarter. My second question is, obviously, since you last reported, we've had some further consolidation in the market around you, and I'm just wondering what your thoughts are as you look at your competitive positioning. Are you happy with your share? As far as cash deployment is concerned, aside from Neodent, anything we should be thinking about over the next two to three years given the changes in market structure? Thank you.
On your first question, the contribution of the instrument business in Europe and in North America to the overall growth is still immaterial. It's not material yet. On your second question related to the recent developments in our industry, obviously, we are very much in detail following what is going on in our industry. The recent announcement of Danaher acquiring Nobel is something we also have to give some serious thinking into. At the end, we don't believe that this will actually change the competitive landscape in the mid-term. If longer term, this is a threat or an opportunity for us, I think it's still premature to come to a conclusion here. Fact is that we will be the only pure play remaining in this business.
I can tell you that a lot of our customers and a lot of dentists, they like to actually be part of a company which is completely focused on tooth replacement. That might be an advantage for us in the short mid-term, but how this all will play out in the longer term, I think today it's too premature to make a statement on that.
Okay. Any future priorities for cash deployment from your side, or should we just be thinking about Neodent in terms of the priorities in the short term?
No. Our ambition, and that's nothing new, is that also in the value segment, we want to become one of the global leaders. We have started to take the Neodent brand and also the Medentika brand outside of their home countries. On one hand, we have an organic approach, where we actually build the business from scratch in certain countries. That doesn't mean that we are not continuing to look at opportunities which may emerge on the M&A front. We are constantly looking at opportunities.
That's perfect. Thank you very much. I'll jump back into the queue.
The next question comes from Tom Jones from Berenberg. Please go ahead, sir.
Good morning. I have two hopefully fairly quick questions. The first was just on your Asia Pacific growth rate. Very nice growth that you achieved in that market. I just wondered how much, if any, of that growth was connected to changes in your distributor setup in China. Effectively, was there any significant stocking, either positive or negative, in China in the quarter that boosted your Asia Pac growth rate? The second question, I just wanted to pick up on a comment you made about Straumann and Instradent ramping up capacity. When you say ramping up capacity, do you mean ramping up production, or do you actually mean ramping up physical capacity? I was under the impression that a significant part of the operating leverage in your business was based on the premise that you had significant potential to increase output without any real increase in fixed costs.
Has that changed in some way in the last couple of years? Just some clarification there would be great.
On your first question, Tom, in China, no impact yet of actually us absorbing the margin of our distributor. We are still in the process of changing the model from a single distributor to a multi-distributor setup. We have not yet changed any business or taken any business away. To date, still a single distributor, Beijing Focus Medical, and have reallocated that to other distributors. This will actually start to be the case from Q4 onwards.
BLT. I think the ramp-up was in the context of BLT launch. We are, as said before, we are launching the BLT in the U.S., then we will continue with Europe. For that to change, we obviously have to ramp up the production. You will see that impact on the inventory at the end of the year.
Okay. You put the comment on the ClearChoice slide.
Oh.
Okay, yeah. That's the same.
Okay. Now, what we have to do, Tom, obviously, is we want to make sure that we can actually provide the full solution. Also the CAD/CAM and actual bars, bridges, hybrids, et cetera, for indications like Pro Arch. We don't have these manufacturing capabilities yet fully in place. We are expanding our Villeret production site over the next couple of quarters to actually be in a position to also offer this part of the Pro Arch solution.
Excellent
to clear other customers in the U.S.
Perfect. Just to be clear, you still have the significant ability to ramp up output of dental implants without really putting any additional capital into the business. Is that correct?
This is correct.
Perfect.
Next question comes from Carla Bänziger from Bank Vontobel. Please go ahead, madam.
Good morning, gentlemen. I just have a follow-up question on the Big Bang. Can you give us an indication how much of the European growth is thanks to this initiative? It's probably a bit hard to predict, but just to get your feeling about this. Maybe how far are you in the process of this? Do you see other countries where you will go to introduce this, or is it now set up like it is?
A large part of the growth or the development in Europe is thanks to Big Bang. It's significant part of the development of the growth in Europe. We do not yet have Roxolid with the new transfer piece, Roxolid, registered in Asian markets, so in Japan and China, our two largest Asian markets. We also don't have it registered yet in Brazil, which is also a significant or a large market for us. Once we have the registration in place, we will obviously also look at potentially replicating what we've done in Europe in these markets. We have to wait until we have registrations in place.
Okay, thanks. That's very clear.
Next question comes from Maja Pataki from Kepler Cheuvreux. Please go ahead, madam.
Yes. Good morning. Thanks for taking my questions. I actually think I have only one, and apologies if that has been addressed, because I was slightly late to the call. Your view on the changes in the industry is that you don't think that there is any negative impact in the short to mid-term, but potentially long run, you would take a look at it. If we look at it from a different side, could you already feel in Q3 that some of the salespeople at 3i and Zimmer and potentially also at Nobel Biocare were
Kind of demotivated and therefore it was in combination with your new product, actually even an easier sell to make to gain new customers?
It's an interesting question, Maja. Honestly, I cannot give you an answer on this. There is no news that has arrived at my level indicating this, that 3i or Zimmer or Nobel have now demotivated the sales forces in place. I don't have any feedback neither from our sales force or from our country management teams that this is the case.
Okay, thanks.
We were also not swamped by applications of competitive salespeople wanting to join Straumann. We have also not seen a tendency into that direction.
Okay, that's very helpful. Thank you.
The next question comes from Oliver Metzger from Commerzbank. Please go ahead.
Hey, good morning. Thanks a lot for taking my questions. The first one is just on your test of price elasticity with a more attractive offering with German-speaking countries. In the past, you've stated that the initial feedback was positive. Probably you could comment how that has developed over the last two quarters, and also how probably competition might have reacted. My second question is on the Japanese market. Q1, Q2 were impacted by the change in VAT. Do you think that the current pace which you have described is more a kind of recovery from Q2 or do you think it's more a true underlying growth?
Let me try to answer question one. Just to keep in mind, we have actually not reduced prices except for the fact that in Germany, we replaced year-end bonus through a reduction of the list price. At the end, overall for the customer in terms of pricing, nothing has changed through the Big Bang. I think it's very important to realize that and to state this once again. What we have done is actually giving our customers a better product at the same price they actually were able to buy an inferior product in the past. This is the thinking and the philosophy behind Big Bang. On your second question-
VAT.
On your second question-
VAT.
VAT impact in Japan.
First of April. We had a VAT impact obviously in the Q1 because it was March, all the people ordered more due to the increase as of 1st of April. You can assume that the current, let's say Q3 run rates, we have the SLActive launch. We had it for tissue level, and we're going to have it now for the bone level. You could assume that at least for some quarters, this growth rate may be slightly lower because we have some pipeline filling, all these things that could be sustainable.
Yeah. Coming back to my first question. It's absolutely clear you're offering a better implant for the same price, but have you seen some reactions of competitors which think, "Oh, probably Straumann makes a good result from this more attractive offering, so as our reaction, we reduce price." Have you seen something like this?
Not from our main competitors, no. We have not seen any significant moves when it comes to list prices. At the end, average selling price is a different topic, but this is not something we are privileged to actually have insight into. Obviously, the marketplace is becoming much more fierce. Competition is becoming much more fierce. Obviously for larger customers, discounting or bundling or giving packages which are very attractive, it is not something new. That has always been the case. Just looking at the list price developments of our competitors' list prices, we have not seen any significant moves there.
Yeah. Okay. Thank you.
We have now, I think the last question. Okay.
Yes, we have a follow-up question from Mrs. Lisa Clive from Sanford C. Bernstein. Please go ahead, madam.
Hi. Thanks. Two final questions. Lastly, just because I think there seems to be a bit of confusion on this, could you just clarify: at the moment, my understanding is most of your discount endeavors, because you have minority stakes, you are not actually consolidating that at the revenue line, so therefore your growth really is driven by the pickup in premium sales this quarter. Second, also just trying to tease out the core premium implant sales growth. You mentioned that CAD/CAM was below implant sales growth, was it in fact negative? How long do you think it will take to get the CAD/CAM business in total back to growth? Could you remind us of what % of sales it is today?
Okay. On your first question, you are absolutely right. Our investments into Neodent and into Medentika and the other investments or convertible bonds which we have out, nothing of that has been consolidated has been contributors to net revenue down to EBIT. Obviously, we have to show or we are showing the results under the financial results line.
Associates
as associates. Up to EBIT, nothing has been included yet except for our own organic efforts. The Instradent U.S., the Instradent Iberia, and a few of the Instradent Italy businesses. However, as I pointed out before, the contribution of these businesses to top line and EBIT have been insignificant so far. On your second question, when we talk about CAD/CAM, we have to make sure that we differentiate between tooth-borne and implant-borne. If you look at our implant-borne CAD/CAM franchise, that business is actually even proportionately to our implant volume growing. Where we obviously see a decline is everything that is tooth-borne. The tooth-borne franchise, so single crowns, bridges, tooth-borne plates, which is still the larger part of our CAD/CAM business, this part of the business has been declining already for a couple of years due to the trend to chairside milling, in-lab milling.
I guess my question is, I understand those are the two big trends and the same thing happened to your largest competitor as well. I'm just trying to figure out at what point we hit that intersection where the growth from the implant-based business is doing well enough, and that proportion of sales from the implant-based business is doing well enough to offset continued losses of tooth-borne. Again, if you could just tell us what % of sales is the total CAD/CAM overall.
You mean including scanners and everything? It's everything?
Yes.
It's still relatively small.
I mean, it's sort of five-ish %.
Lisa, the question is, I don't want to avoid to give you an answer here, CAD/CAM, Variobase. If you take the Variobase business, is that CAD/CAM or is that standard prosthetics? More and more, if you actually restore a tooth, you actually have a ti base, and you put actually a CAD/CAM crown on top of it. It's different also to cut. Where do you want to make the cut? What is actually CAD/CAM and what is no CAD/CAM?
That's fair enough. Thanks very much.
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