Ladies and gentlemen, good morning or good afternoon. Welcome to the Straumann 2015 Third Quarter Results Analyst and Media Conference Call. I'm Alice, Makaros' call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session.
The conference must not be recorded for publication and broadcast. At this time, it's my pleasure to hand over to Mr. Marco Godola, CEO. Please go ahead, sir.
Thank you. So good afternoon, ladies and gentlemen, and thank you for joining this conference call on Straumann's 2013 9 months results. With other companies also reporting today, we have moved our call forward by 30 minutes to avoid any conflict. I know that many of you have a busy program with other companies to cover. So thank you for joining this call.
We will be referring to the presentation slides that were published on our website this morning and I would like to draw your attention to the disclaimer regarding forward looking statements on slide 3 slide 2, sorry. I will begin with the key highlights. Then our CFO, Thomas Dresendorfer will take us through the quarterly numbers and the business performance before I conclude with a summary of our recent initiatives to open up new business opportunities and to drive the Straumann brand. After that, the lines will be open and we will be glad to take your questions. So let's start with the highlights on slide 4.
The good news this morning is that we have sustained our growth over 2 quarters and have made up for the disappointing start for the year. As a result, our 9 months revenue reached CHF 510,000,000 slightly above the comparative level of last year in organic terms. And before we go any further, let me explain what we mean by the term organic. For a true comparison of the underlying business, we have to exclude the effects of currencies and the discontinuation of the intraoral scanner business in North America and Europe last October. Taking this into account, we achieved organic growth of 3% in the 3rd quarter, which was driven by a continuing strong performance in North America, a return to growth in Japan and a strong acceleration in the region we refer to as the rest of the world.
This was mainly thanks to a recovery in the Middle East and strong sales in Brazil. Apart from the sales performance, we have made good progress with our strategy to address the value segment through a platform of separate brands. Earlier this month, we announced the acquisition of stakes in Medentica and Praatek and we launched a comprehensive range of Neodent products in Spain. We have also accelerated momentum in our pipeline and have introduced innovative solutions that make treatment possible for a broader range of patients. I will tell you more about these initiatives in a moment, But first, let me hand over to Thomas for the details of our business performance.
Thank you and hello everybody. As you can see on Slide 6, our net revenue in the 1st 9 months actually improved slightly in organic terms. Reported revenue in Swiss francs was 1% 1.6% lower, but this is because the effects of currency and the Atiel business amounts to CHF10 1,000,000 in the comparative period of last year, as you can see on the left of the chart. Currency effect was mainly due to a depreciation of the yen and the dollar against the Swiss franc. On the right, you can see that North America, Asia Pacific and the rest of the world all posted growth and collectively offset the shortfall in our largest region, Europe.
Moving on to Slide 7. The market performance picture is incomplete because one of the largest players still has to report. Nevertheless, the market is in better shape than last year, and we believe that our performance was above average. This reflects the fact that we have adapted our organization and strategy appropriately and are well positioned for 2014, especially in the view of the growth initiatives Marco will share with you in a moment. Looking at the next slide and the performance by business.
Implants posted solid 9 month growth with an acceleration quarter by quarter. Our high strength material roximus and our bone level implant range were the main drivers again. Since its introduction in 2009, the latter has become the group's bestseller in the U. S. And U.
K. The CATKAM digital business, which compromises digital heart and software as well as CATKAM prosthetic elements, was expected to be smaller than in the comparative period of 2012 due to the discontinued intraoral scanner distribution business and to a lesser extent, the transfer of certain digital activities to dental rings. Our business with regenerative products remained stable over the 1st 9 months. While sales of Envogain increased, the guided bone regeneration products were less impressive. Moving forward, regenerative products will have an increasing role in integrated customer solutions, especially in the GP segment.
With this in mind, we are developing a new synthetic bone substitute and presented encouraging preclinical results at the EAO. Turning now to the regions. The picture in Europe and North America has not changed much in the recent months. Market conditions remain difficult in Europe, while North America continues to be in good shape. Europe showed no improvement in quarter 3 and continues to suffer from the economic situation and lower price competition.
The region contracted 3% organically in Q3 and 4% over the 9 month period and now contributes 54% of group revenue. Q3 was constrained by Italy, Germany, the Netherlands and Iberia. In contrast, France, the U. K. And most distributor markets continued to report positive performances.
North America contributed slightly more than a quarter of group revenues and reported another strong quarter. Implants and regenerators posted double digit rises and demand for prosthetics was robust. As a result, the region achieved organic growth of 9% in Q3, reflecting our continued investment in marketing and sales and also the intact market environment, which is thought to be growing in the mid single digit range. The next slide reveals that Asia Pacific region has improved steadily throughout the year to deliver growth of 8% in the 3rd quarter. Japan seems to be clawing its way back from the market decline that has strangled it for the past year and a half.
Our Q3 revenue grew for the first time in 6 quarters. Also, I have to add that the baseline was lower this quarter. Being the region's largest market, Japan thus made an important contribution, which was complemented by dynamic expansion in the digital market as well as solid growth in China, Australia and Korea. In the rest of the world, which contributes 5% of the group total, dynamic growth of 35% was spread evenly across the Middle East and Latin America. As reported previously, we are pleased to see a gradual recovery in the distributor market in the Middle East.
And with that, I'll hand back to Markus.
Thank you, Thomas. Please turn now on to slide number 12. As you know, our intention is to remain the global leader in implant dentistry by offering innovative premium solutions supported by documented clinical evidence, education and service excellence. Being in a highly attractive business, we have to contend with an increasing number of local and regional value players who offer look alike products for a lower price. None of them offer the same level of innovation, quality, support, experience and peace of mind as Straumann does.
Nevertheless, we have to accept that they appeal to a large number of customers who are reluctant to pay for the proven added value offered by premium brands like Straumann, particularly when it comes to restorative products. To address these customers and to capture the significant business opportunity, we have decided to build a platform of value companies, the foundations of which were laid with the 49% acquisition of Neodend last year. 3 weeks ago, we announced the acquisition of stakes in Medentica and Graapec as further additions to the platform. Despite the price tax, we have chosen to acquire established brands rather than building up a second lower priced brand from scratch because it is quicker, simple and involves less risk. The companies in our value platform will operate as separate brands with their own philosophy, sales force and value proposition offering cost effective solutions tailored to local needs.
This approach does not mean that Straumann will reduce its focus on the premium segments. On the contrary, the premium segment remains attractive even in emerging markets where it may be small in absolute terms, but is expected to gain as purchasing power and disposable income increase. Slide 13 illustrates our separate brand strategy and our goal to offer both implant and prosthetic solutions in the value segment. This is where companies like Medetica fit in. And as you can see, we may add further companies over time.
Createc and Dental Links will also play a part in our premium offering, which is why they are connected with a dotted line. So let's look at the latest acquisitions starting with Medentika on slide 14. This company is a fast growing provider of cost effective prosthetics that are compatible with most leading implant and CAT Chem systems. Medentica also supplies a range of titanium implants and instruments. Having grown at more than 30% over the past 3 years, the company achieved revenues of €11,000,000 last year, most of which came from the prosthetics business in the domestic markets.
Also the company is expanding internationally through distributors in several countries. Medentika is well run, profitable and entrepreneurial and we want to keep it like this. In view of the company's strong track record, its expansion potential and its strategic relevance for Straumann, we believe that the price of €32,000,000 for a 51% stake is justified. I should perhaps note that the deal is still subject to clearance from the German antitrust authority, but we don't expect any objections. Moving to slide 15.
Creotech is smaller and a little younger than Medentica. It specializes in the research, development and manufacture of high quality innovative implant prosthetics including CAT scan bridges, bars and abutments. These are designed for a variety of implant systems including Straumann. Createch's high end bar and bridge solutions actually complement our portfolio. So it will also support our premium business.
The company is based in Spain and has begun to expand in Germany and other European markets. We have acquired a 30% stake and have options to increase up to 100% by 2020. Tier 2, our intention is to preserve the company's own character, dynamism and entrepreneurial flexibility. Moving on to the next slide. As I mentioned earlier, Neodent is a cornerstone of our value platform and will help us in areas where affordability is a key issue and where the value segment is growing considerably faster than premium.
Spain is an example of this. And I'm pleased to say that we have now established the Neotem brand in Spain with a dedicated sales organization offering a comprehensive product range tailored to local needs. And slide 17 gives you the big picture of how the various brands address different businesses and segments. Moving on to the product news. The chart on slide 19 is one that we shared with you in August.
It shows examples of exciting growth opportunities we are pursuing across a wide range of indications and with various levels of sophistication. Some are groundbreaking, others seek to take share from competitors. In each case, the size of the bubble indicates the market volume potential. In the Q3, we introduced 2 innovative high-tech solutions that address 2 of those opportunities. The first is on slide 20 and concerns the extension of rock solid plus SL Active to our entire range of implants.
The key aim of this is to offer smaller, higher strength implants that reduce invativeness by avoiding bone augmentation procedures. The additional strengths of RockSolid has not only enabled us to make small diameter implants, it has also paved the way for a new 4 millimeter short implant, which we launched at the EAO. This is the shortest implant Straumann has ever sold and it is also the shortest, narrowest tissue level implant available. It is designed to avoid augmentation procedures in patients with insufficient vertical bone for conventional implants and could provide a simpler considerably less invasive alternative to heavily angulated implants in Edensula Solutions. It is backed by 5 year clinical data and like all other rock solid SL Active Implants, it comes with our Loxim transfer piece for improved handling convenience.
The other innovation we announced at the EO is our new ceramic implant, which you can see on the next slide. This is the 1st clinically validated ceramic implant to reach the market. It is also the 1st ceramic implant with an SLA like surface for enhanced osseo integration. It has a natural ivory tooth color and it is the product of an innovative manufacturing process that ensures exceptional reliability. All these features make it an excellent solution for patients who ask for metal free implants.
The availability of highly aesthetic ceramic implants with similar performance, flexibility and predictability to conventional metal implants could well change implant dentistry. And the final piece of news from the Q3 is our collaboration agreement with ReShape, a leading player in CATKAM. This makes it possible for their customers to produce customized restorations for our implants with an original Straumann connection. The key to this are Straumann library, which is integrated in ReShape software and the Straumann VarioBase abutment to which in technicians can attach a customized restoration. And that brings me to the outlook, which is of course barring any unforeseen circumstances.
We expect the positive developments in North America and other underpenetrated markets to continue, but we also expect the effects of the weak economy and consumer sentiment to continue in Europe. Based on the 9 months performance, we expect our fully organic revenue to be at least in line with last year. The successful outcome of cost reduction initiatives will drive sustainable profitability improvements as anticipated with the main savings in the second half. In the midterm, we aim to return to solid growth and further improve operating margins. Well, that concludes our presentation and brings me to the Q and A.
And I would ask you kindly to limit the number of your questions and sub questions to 2 and then to rejoin the queue. So operator, can we have the first question please?
We will now begin the question and answer session. The first question comes from Carla Benfiger from Bank Vontobel. Please go ahead madam.
Yes, good afternoon. I have two questions. The first one is on your strategy now moving to the value segment. I think that's very interesting. Can you maybe comment a bit where you see Straumann in about 5 years?
So how much is premium? How much is value? And the other question I have is regarding Rest of the World where you showed very strong growth. Was this related to specific tenders? Or do you expect this to also continue in Q4 to be that strong?
On your first question, Karl, where do we see Straumann in 5 years? In 5 years, we see Straumann as the overall leader in the overall dental implant market and with a global leading position in the premium as well in the value segment. This is actually our target. When you look at the distribution of our business between premium and value, clearly premium is and will remain the key focus area. That's where we will actually focus most of our activities.
And also in 5 years from now, we anticipate that our revenue percentage which we achieve with Straumann with the premium brand will be larger than what we will achieve with the different value brands. On your second question, rest of the world, we've seen strong growth coming out of Brazil in the Q3. This is not related to any tenders business. This is actually a trend which we've seen already during some of 2013. And at this point in time, there is no signal out there that would actually make us feel that this trend is not sustainable.
The other part of the rest of the world growth is coming more from the Middle East business. And in the Middle East, we are actually acting through distributors. And some of the business in the Middle East is also heavily impacted by tenders. So part of the growth has been impacted by tenders.
Okay. Thanks a lot. That's clear.
The next question comes from Chris Gretler from Credit Suisse. Please go ahead sir.
Yes. Hi. Good morning still probably. Just one question and I'll take your time. Basically, could you elaborate on what's going on in the German market?
Basically, I mean, the economy is not so bad, but the market seems to continue to be bad in general in dental implants. Could you elaborate, 1st of all, whether you think that's an economic issue in Germany or whether there is no kind of migration to a more lower end implants going on there helping particularly the premium players. I was just wondering your thoughts on that maybe. Thank
you. Yes. That's an excellent question, Chris. Obviously, in the German markets, the numbers we see when we look at our business and also at the overall dental implant market, they don't really tie with the overall economic situation of Germany. Germany's economy, we all know is actually performing rather well.
However, when looking at for example the latest DDGI data, these data clearly indicate that the dental implant volumes were decreasing during the 1st 9 months of 2013 quite substantially by more than 3%. So here the development of the overall economy and the development of our industry they don't really tie. Reasons for that, one reason which we see is actually that certain insurance companies, they are actually favoring reimbursement of conventional treatments compared to dental implant treatments, which actually shift certain procedures away from dental implants to conventional treatment. This is actually obviously something which hurts the whole industry. This is one of the reasons why the development of the German market is actually not in line with the overall economic development
of Germany.
Okay. Thank you.
The next question comes from Maya Pataki from Kepler Cheuvreux. Please go ahead madam. Yes, good afternoon. I have two questions from my side. The first would be, could you just give us a bit more details about the entry of Neodent in Spain?
When did it kick off? And what are the initial feedbacks that you get? And maybe also on how have you positioned Neodent pricing compared to value competitors in Spain? And then the second question was about Japan. You are stating or you said also the conference call that Japan is improving.
Is it that we're actually seeing an increase in volumes, which is significant? Or is it just that we're feeling that the market isn't that negative anymore and hence there is a gradual and slow improvement in market growth? Thanks.
Thank you for your questions, Majan. In terms of Neodent in Spain, we've actually started to sell Neodent to Spanish customers effective October 1.
Okay.
We have a sales force of 6 in place. We have 6 salespeople in Spain distributed throughout the whole country. The first feedbacks which we received from potential customers is very positive. They actually appreciate the price value proposition which we are bringing to the Spanish markets we nailed in. We have two lines promoting as we speak.
We have an internal and an external connection line. The external connection line we price at roughly €100 per implant. The external connection line is placed at roughly €70 per implant. From a pricing point of view, we are positioning Neodent at the middle lower range of the value segment in Spain. And actually through that we are able to offer an exceptional price value proposition to Spanish dentists.
On your second question on Japan, we believe that the worst is over in Japan. We also don't see negative press comments or press articles coming through anymore. So it looks like the market has actually the market has gone down in terms of negative reputation and negative press. And based on that, we've seen a rather positive development in the Q3. Is this development sustainable?
We will actually see and we will be able to give you obviously some more information when we talk about the Q4 and the full year in February.
Thank you. The next question comes from Hendrik Verfruhe from HSBC. Please go ahead, sir.
Yes. Good afternoon and thanks for taking my questions. First one would be on your value strategy. Looking at slide 13 in your presentation, it seems that you're and you will also in the future pursue to operate the brands separately to each other. So I'm asking myself, where is the added value Straumann can bring to that business?
Or are you just acquiring whatever is available on the market? And second question would be looking at the minor guidance upgrade, which is implied in the wording. Is it anything specifically that drove you to this new wording? Or is it just the overall development of certain regions? That will be it.
Thanks.
Okay. On your first question, where do we actually see added value by managing 2 different platforms, a premium platform and a value platform. I can give you the example of Neodent in Spain. What did we do in Spain? We were actually obviously separating a completely different segregated commercial organization with Neodent to completely separate it from the Straumann Spain commercial organization.
However, what we've also done, we've actually leveraged the back office functions. Or in other words, Straumann Iberia is providing finance, logistics, HR services on behalf of Neodent through a service level agreement. So there we actually regain certain synergies. We don't have to actually start from scratch when it comes to systems, when it comes to setting up a warehouse, when it comes to establish reporting systems etcetera, etcetera. So there are certain synergies by actually running 2 different entities in the same country and Spain is a nice example to that.
We obviously not just buying what is available out there. We have a clear strategy. Our strategy and our objective is to become the global leader in the value segment, which means we want to have a presence in the value segment in the largest markets when it comes to our industry. Brazil is already present with Neozant. When you look at other large markets the U.
S, we are actually looking at also entering this market potentially with the Neodem brand. Germany is a large market obviously. Italy also there potentially NelDent may fit to actually tap into the value segment in that market. So we don't just go out there and buy what is available. We have a clear strategy and a clear plan.
On your second question, the change of outlook that is actually due to stronger than initially expected Q3 and especially when it comes to the development in Asia Pacific. And when we talk Asia Pacific, especially the development of our Japanese business has been very pleasing and has been better than what we initially thought. So that made us slightly revise our full year outlook.
All right. Thanks.
The next question comes from Liza Klaive from SunTrust Robinson. Please go ahead madam.
Two questions. Just on the last point that you mentioned. What exactly was your growth rate in Japan in the quarter? And second, can you talk about trends you're seeing in the U. S.
Market? How is your growth split between new customers, new to implant dentistry, where do you think you're actually winning share from other players? And also whether you're seeing an uptick from existing customers who are perhaps seeing higher implant volumes due to the recovery in consumer spending?
Okay. On your first question, you may appreciate that we don't communicate growth rates by country. The only hint I can give you is that we had a positive growth in the Q3 in Japan compared to many, many quarters before that with significant negative risk. And in terms of the development of the U. S.
Business, at the end it's a mixture of all what you just mentioned. We actually were able to increase share of wallet within our existing customer range. We've gained significant new accounts in the specialist segments, but also on the GP segment. And so at the end, it's a combination of all you just mentioned.
And perhaps one follow-up And
on top of that we also had a positive mix impact because we are selling in the U. S. A large part of our implants with the SL Active Surface and the rock solid material.
And actually on that point, I was just about to ask a follow-up. Specifically on that, you mentioned both pricing and product mix contribution. Is the U. S. Less price sensitive?
Is the sort of threat from discount players not as much of an issue in the U. S? Because it seems like a very different scenario than what's going on in Europe if you can actually put up pricing and if everyone's moving towards SL Active despite that being on the high end of your cost structure or pricing structure?
The U. S, if you look at the implants placed for 10,000 inhabitants and also the implant treatment ratio that the U. S. Is still kind of an underdeveloped market than comparing to the larger European markets like for example Germany or Italy or even Spain. So the potential for implants is significantly higher still in the U.
S. Compared to the large European countries. So this is one of the reasons for the market growth in the U. S. Price sensitivity, value segment, yes, this is also true what you are hinting at.
The value segment is not yet that strong in the U. S. Like for example in countries like Italy or Spain or more and more also in Germany. However, we are also seeing a tendency of value players gaining more and more share. I'm thinking about companies like Implant Direct or BioHorizons etcetera.
So the trend which we have seen in many European markets over the last couple of years, we see that trend more and more also in the U. S.
The next question comes from Martin Wales from UBS. Please go ahead sir.
Sorry. Could you just elaborate on that last comment about value players in the U. S. Versus Europe? I just want to be clear on what you're saying here.
Do you want me to repeat? Start by repeating and
then perhaps elaborate a little bit on what impact you expect value players to have in the U. S. Market in the longer term? Because clearly it's been the big premium growth market in recent quarters and presumably that's something you'd like to see continue as long as possible. So maybe just talk
a bit about the development of
the U. S. Market.
As I try to hint that, the U. S. Dental implant market is not yet at the same maturity stage like for example the Italian market or the Spanish market or the Korean market or the German market, which means that actually most of the market is obviously still dominated by the premium players. What we've seen over the last years is that actually with the tendency of maturing that also the share of value players starts to increase. And obviously, we anticipate that the same might happen in the U.
S.
And any idea what sort of timeframe that might start to happen?
It already happens. It's already happening. If you look at some of the value players in the U. S. And you look at their growth rates, they are very impressive.
And what implications does that have to your value strategy as you think of bringing it to the U. S. At some point?
That's what I mentioned before that actually when we look at into which countries we can actually leverage Neodent, we started in Spain. I mentioned also that potentially we would actually also go into the U. S. With Neodent and some other countries. So yes, we are watching the situation and we are actually preparing ourselves to tackle the value segment also in the U.
S.
Okay. And just coming back to your comments on Germany earlier very quickly. What can you do to try and reverse the trend of insurance companies reimbursing conventional treatments? What data do you have? Do you think you could are you trying to convince them to reverse that trend?
Do you have data that would support the use of your treatment of implants over conventional treatments? Presumably, yes.
Obviously, we have that. That's clear. It's more a question of cost. And what we are doing as we speak together with our competitors in the marketplace, we're obviously trying to take influence when it comes to the insurance companies and the bodies who at the end decide about reimbursement behaviors and habits in the German markets. Yes, we are obviously trying to take as much influence as possible within the boundaries and limits we have.
Okay. Thank you very much.
The next question comes from Michael Jungling from Morgan Stanley. Please go ahead sir.
Thank you for taking my questions. I have 2. Firstly on Neodent. Can you explain how the financials will work in Spain and also in other countries in which you may introduce Neodent? Because as far as I understand, you have the flexibility on the transfer price between Neodent and Straumann.
So you can choose to, I guess, effectively lock in more profits in Straumann for a better margin or you can allocate it to Neodent. Can you explain how that will work going forward? And then secondly on the Value segment, you mentioned civilcoms before that you want to become the industry leader. But I think with Neodent alone, you probably can't do this. So the question I have is, how much more capital do you think you will need to spend in the value segment?
And how much dilution to ROIC do you think you're willing to go, sort of the bottom threshold for Schramen as a whole, ROIC with acquisitions? That's all. Thank you.
Yes, go ahead.
Okay. I'll pick up the first question and I'll pass back to Marc on the second one. On the near term financials, obviously, we just have a 49% stake, so we can't really work on these transfer prices the way you described. It's going to be on a non length principle. And the way we set up the business is that we, of course, want to make profits in a decent time.
We're going to have a start up phase, but it's going to be a profitable business going forward.
So on the as you sell Neodent in Spain, can I assume that the transfer price is going to be at a price where it is going to be dilutive or enhancing to Schrammahn's current group margins?
It's going to be enhancing. On the first year, you're going to have a start up phase obviously. You have to invest into sales force, into people. You have to get some it takes some time until the sales come. But we assume in the 2nd year it could obviously add it could be accretive.
Yes. The overall absolute margin, yes, but not to the relative gross margin, obviously, Michael. We are acting like a distributor in Spain. And obviously, as a distributor, you never have in a situation you manufacture yourself the product. So, in a situation you manufacture yourself the product.
So on a gross profit margin point of view, obviously, the Neodent business in Spain will have a dilutive impact, clear? Also on an EBIT margin point of view, this business is not accretive from a margin point of view to the Neodent Spain business, at least not in the 1st couple of years. And that's actually overall the case to come now to your third question that will be the case for the whole value set but for the next couple of years. And I understand your concern that there may be a dilutive impact on the overall financial picture of Straumann, yes. We are conscious about that, but that will be a fact of life for the next couple of years.
Okay. Great. And in terms of the capital that you think you will need to spend to become the biggest value player?
We mentioned that we have roughly CHF 300,000,000 available to invest into this segment. We've now invested €32,000,000 into the 51% stake of Medentica and roughly €3,000,000 for for Crayotec. So we are we have spent a little bit more than CHF 40,000,000 so far. Neota in Spain, there is no money which we have to bring up when it comes to acquiring the company. There we obviously have start up costs with hiring the sales force etcetera.
So there is still a lot of the CHF 300,000,000 which we mentioned which we have not spent yet.
Okay. Thank you very much.
The next question comes from Tom Jones from Berenberg Bank. Please go ahead sir.
Good morning. Thanks for taking the questions. I had 2 as well. The first, I just wondered if you could expand on your comments about the ceramic implant potentially being a game changer. And aside from the obvious aesthetic advantage, what advantage does a ceramic implant have over a titanium one?
And looking at the one you've got, it's a tissue level implant. And I just wondered how things sit from that perspective in the debate versus bone level versus tissue level and how the ceramic implant fits into that debate and trends within in that dynamic within the dental implant market? And the second question was just on the end game for the value strategy really. If I step back from Straumann for a minute and just look at the value segment as a standalone market, what effectively a How do you see that market panning out? If I look at it on a standard basis, I think this big Bethune office coming into that market is it's with products that are good but don't have huge differentiation from what's out there already.
This is clearly very bad for price in the value market. And in that context, what's the end game here? Is it just kind of trying to build huge scale as quickly as possible and end up having the competitive advantage of simply being the biggest in that market and out competing everyone else through that channel? Or are there some longer term competitive advantages you think you will have as a value player over anybody else that might be operating in the value segment? Just really kind of thinking long term sort of 3, 5 years out, what's the end game for this push into the value space?
Okay. Let's start with your first question on the ceramic implant. What's the advantage of the ceramic implant versus titanium? Honestly, besides the fact that it's metal free, there is no real advantage right now. So it's more an emotional advantage you have and there are people out there who want a metal free implant.
And they would never like they would never put something out of metal into their body. Or in other words, they will not undergo a dental implant treatment if the implant is not ceramic. So this is something which we found out during the different market research studies we've done. May there be other advantages from a clinical point of view of ceramic implants compared to titanium implants? Yes, potentially there might be advantages from an aesthetic point of view, from a soft tissue management point of view, potentially even from a peri implantitis management point of view.
There might be some advantages, but we don't actually claim this as we speak because we don't have the clinical data at this point in time. I also would like to point out that actually the monotype implant which we've launched at the EO is actually the first step. We're obviously working on a 2 piece implant, which will bring much more versatility also to the dentist to place this implant to the range of indications, which we'll be able to cover with the ceramic implant. Or in other words, this is actually the first step into the ceramic world. On your second question on the value segment, I assume that you appreciate that at this point in time we will not disclose our full strategy when it comes to what we intend to do with the value segment.
At the end, I think everybody agrees and if you look at the numbers, it's also very well supported that the value segment has grown much more than the premium segments over the last years and that the value players have taken share from the premium players. Now will this trend continue for the next 20 to 30 years? We don't know. Has it stopped already? We don't believe.
So we believe that over the next years this trend will continue and that at one point in time the part of the market in the hands of the value players will be larger than the market which is actually the market share which is in the hands of the premium players. Our ambition clearly is to stay the overall leader in the overall dental implant market. And to achieve that, we decided that we have to actually enter also the 2nd segment, the value segment.
Maybe I'll just ask you a slightly different way and on a slightly more short term basis. I mean, is the short term strategy more to try and pick up some of the share that's falling down from the premium end of the market? Or is it to go into the existing value end of the market and try and aggressively take share back off the people that are already there? Or will you just kind of take it whichever way it comes?
With the Straumann brand, we obviously also have the potential to tap into the upper range of the value segment. With our SLA titanium implant, we should be able to tap into parts of the value segment. If this is actually part of the question you had in mind. With the value brand, I'll just give you one example. We also know that in the marketplace, dental chains are actually becoming more and more important.
Now our experience when dealing with these changes that they actually they like to have different systems. They want to have a premium value system for value treatment, more economic treatments. So this is one example which gives you a little bit of a feeling that actually by having different brands in different segments, it will also open us up the opportunity to go off the part of the market we have not been really be able to go after. Because at the end these change they want to have one supplier. And if that supplier is actually able to provide them with a premium offering and a value offering, they obviously like that.
Perfect. That's very helpful. I'll jump back in the queue.
The next question comes from Veronika Dubajova from Goldman Sachs. Please go ahead, madam.
Good afternoon, gentlemen. Thank you very much for taking my questions. I have one which is rather short term and one which is a bit more strategic and long term. My short term question just relates to the U. S.
And clearly the market there has been doing rather well. Given some of the more disappointing macroeconomic data that we've gotten over the last month, have you noticed any change in foot patterns? Are you hearing anything from your dentist, which might suggest maybe there is a slowdown around the corner? Or are you still confident in maintaining this sort of high single digit type of growth for yourselves and presumably a little less for the market, but not far from where you are? My second question, which is a more strategic question is, Mark, I think your strategy moving into the value segment is something that we've all been wondering and looking for a while.
But as you think about what Straman looks like under that proposition, do you actually think you can ever achieve the type of margins that the premium business has today in the value segment in the medium term? And kind of what type of scale do you think you need to get to for this business to be, whether it's 20%, which is the margin goal that you have stated for the company or around that range? I mean, how big does your value business have to be before you can achieve that type of profitability? Or can you never get there? Thank you so much.
Your first question is a rather easy one. Your second question obviously is quite a difficult one. Now the Q3 has been over for 1 month. So and the Q3 and also if I look at the last month of Q3 in the U. S, it's not like in September the sales were falling all at the sound in the U.
S. Off the cliff to the country. And also when looking at the development of the October business, there is no indication that in the U. S. We've actually lost some growth dynamics.
So we have not seen any impact on our numbers of the turbulences in the U. S. Which we all obviously are aware And on the value segment on the margins, this is honestly this is a little bit a difficult question to answer right now because on one hand you have to differentiate between underlying margins and reported margins. Or to give you an example, Neodent, once we're going to acquire Neodent and consolidate Neodent 100%, We have quite some immaterial assets, intangible assets, which we have to amortize, which obviously will have an impact on the EBIT margins. So this will have a dilutive impact.
If you look at companies like Medentica just stand alone, their margins, their EBIT margins are actually extremely well in line with what we achieved with our premium business. So there is no dilutive impact just stand alone. However, by acquiring Identica, we obviously also acquire quite a considerable part of intangible assets which have to be amortized. So if you also take the amortization in consideration, the impact will be diluted. So it's not a question which I can answer you straightforward.
What I can tell you is that we are committed obviously when we report on our numbers going forward on a quarterly basis that we clearly split what is actually the strong and the premium business, how is that developing in terms of top line growth, in terms of margin development and what is actually the value segment business in terms of performance. Where do we grow there? What are the margins on that business? So that you can actually chart how is Straumann stand or how would Straumann stand alone development and what is actually development of the business stand alone.
Okay. And if I just may follow-up on that. I mean given that you've clearly stated you're interested in acquiring some of these assets out there. I mean have you seen a sort of growing competition in terms of the types of multiples that you'd have to pay for these assets since you've made that statement 3, 6 months ago?
I'm not sure if I should give you an answer to that. But I don't want to drive the prices
up.
The only comment I can make is that we are not the only ones looking at some of the attractive value assets which are out there.
Okay. Okay. Thank you very much.
I'll jump back into the queue. The next question comes from Inger Boggan Heuer from Jefferies. Please go ahead. Hi and thanks for taking my question. I will limit myself to one please.
In the Straumann brand of products, you mentioned that for example SLA Titanium could tap into the top end of the value segment. Portfolio could fall into that category? So what is the ratio between what you would consider differentiated premium products and what could be in the high end of the value segment? Thank you.
Just I have to make one correction here. Also our titanium SLA implant is a differentiated product, okay? I didn't say that because we are able with a product of that quality to actually get close to the pricing of some of our value competitors that this product is not differentiated anymore. Just to make sure that we don't leave here an impression which is not correct. And now if you look at our titanium SLA implant, this is still our most important product in the whole product range.
If I say we will be able to tap into the upper part of the value segment. I want to give you one example and it's Germany. In Germany, Camlog, they are selling their implants on an average selling price, average selling price of roughly €160 We as we speak have an average selling price of our titanium SLA implant of 15% to 20% above that, which we believe is not a huge gap. In other words, we may well think about even slightly adjusting downwards the pricing of our titanium SLA to get really close to the value segments. That's actually what I meant when I talked about tapping this part of the Straumann range into the upper range of the value segment.
Okay. Thank you for the clarification. That's helpful.
So we have the last question now. Then we have to stop.
The last question for today is a follow-up question from Lisa Klein from Sanford Bernstein. Please go ahead, Maren.
Hi. Two final questions. Number 1, you mentioned that the U. S. Was not seeing a lot of discount competition yet and perhaps that's just because it's an immature market.
But do you think there's any structural differences in the U. S. That could make it less susceptible to discount competition? Clearly, legal liability is a huge issue in the U. S.
Also, it seems that the smaller players who have gained a decent foothold in the U. S. Like ImplantDirect and BioHorizons certainly do spend money on sales support. So the reps are important. So is the nature of discount competition in the U.
S. Potentially going to be different from what we see in Europe? And then I'll follow-up with a second question afterwards.
Okay. And what you mentioned before, the characteristics of the U. S. Market when it comes to litigation risk, etcetera, yes, obviously this drives into the hands of premium players like Straumann, like Noble, etcetera. So clearly this is an advantage to the premium players.
And I also want to make one correction. I didn't say that the U. S. Is an immature market. What I wanted to hint at is the fact that if you look at the penetration with implants in the U.
S. Market, it's still at a considerably lower level compared to some of the markets of the large markets in Europe or in Asia, specifically Korea. So there is still some more potential in the U. S. To actually drive up the implant treatment ratio compared to other markets in Europe or in Asia.
Okay. And then second question, you mentioned in Germany that there's been an issue around, I guess, favorable treatment for bridges instead of implants. And you're currently trying to influence the insurance companies to improve that. My understanding is this is exactly part of the problem for the low penetration in the U. S.
It's also an issue in the U. K. With the NHS not covering implants. I believe as well some French insurance companies don't cover implants. If you're doing this lobbying in Germany, have you thought about doing the same in those three countries that potentially could be much larger than they are today?
Absolutely. Yes. Because at the end to drive up the implant treatment ratio will help everybody in the industry and that actually still the most important growth potential for the whole industry to bring up the implant treatment ratio and to bring back the bring down the ratio treatments which are done conventionally. But that's not only something we at Straumann are working on. Also our colleagues and peers and competitors in the marketplace.
They obviously through their channel they are trying to do the same. And do
you think you're making any progress particularly with an organization like the NHS?
I'm not sure if I should actually answer that. We obviously have to do that within the limits and boundaries we have. And one big leverage which we have is actually the patient marketing and to educate our patients and educate them that for them from a long term medical point of view it's better that they get treated with implants than the conventional way. And obviously, these are programs which we run, so direct to patient marketing, but also our competitors they are doing the same.
Okay. Thanks for that.
So thank you once again for your interest and full year results on February 25, 2014. If you were not able to answer all your questions, please contact our Investor Relations department. So until we meet again, I wish you a pleasant day and goodbye. Thank you.
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