Straumann Holding AG

Good morning or afternoon to all of you. Thank you for attending this conference call on the Stroman Group's Healthier Reasons. Please take note of the disclaimer in our media release and on slide two. As usual, the presentation and discussion will include some forward-looking statements. During this conference, we are going to refer to the presentation slides that were published on our website this morning. As shown on the agenda on slide three, I will go through the highlights first. Yang Xu, our CFO, will share the financial details, and then I will provide an update on our strategic progress and outlook. At the end of the presentation, we will both be more than happy to answer your questions. Let's start with our highlights and move directly to slide five. As you have seen this morning in the media release, we signed a definitive agreement to sell our Dr. Smile business to the Impress Group. Sequently, we have restated the numbers to refer to continuing operations, if not mentioned otherwise. With a revenue of 1.3 billion Swiss francs in the first six months of 2024, of which 655 million in the second quarter, we are very pleased with the performance we can report today. Our double-digit revenue growth, namely 16.1% in the first half, reflects the team's continued strong execution, which led to winning new customers and gaining market share in all regions. Due to the specific patient flow dynamic per region, which remained the same as in the first quarter, we grew 14.8% organically in the second quarter, on top of last year's strong comparison period. While the group continued to invest significantly in capacity expansion, education, and digital transformation, the core EBIT margin reached 27.8%, including currency headwinds. As mentioned before, we signed a definitive agreement to sell our doctor-led direct-to-consumer CleoLiner DrSmile business to Impress Group. With the acquisition of DrSmile, Impress Group is well positioned to compete in this market by combining the quality clinical treatment with consumer marketing expertise at scale. I will be happy to give you more details on this later in the presentation. One of our major highlights in the second quarter was the International Team for Implantology World Symposium taking place in Singapore in May. This event was the largest ITI Congress ever, bringing together more than 5,700 participants during four days. We presented many innovations and had numerous education sessions, which I will talk about in the strategic update of the presentation. Last but not least, due to excluding Dr. Smile from the numbers, we update our 2024 outlook to low double-digit organic revenue growth and expect profitability to be in the 27 to 28 percentage range at constant 2023 currency rates. Looking at slide six, overall, the specific patient flow dynamic per region remained the same as in the first quarter. I am very pleased that the EMEA region performed strongly with 12.4% organic revenue growth in the second quarter, with Italy, Iberia, Germany, and Eastern European countries as the main growth drivers. The implant business continued to grow considerably. Also, new innovations such as iXcel in France were pre-launched. In addition, the ClearCorrect orthodontics business continued to perform strongly. North America, the second largest region of the group, showed a positive 5.3% organic revenue growth, showing a sequentially improved performance. The implantology business remained the main growth driver, and the launch of the IXL Implant System showed positive momentum. In parallel, The demand for the digital business and, in particular, intraoral scanner was good. The launch of the custom implant prosthetic service unique, which I will talk about later, started also well. Latin America continued to deliver double-digit growth, despite the heavy floods in the state of Rio Grande do Sul in Brazil, which affected more than 2.3 million people and left thousands homeless. In light of this tragic event, the team focused on supporting the region and, among other measures, sent the new smile expectation, our mobile unit with two dental offices, to serve the people by offering dental care to impacted communities. Despite this, we continue to gain market share in Brazil, the largest and most mature market in Latin America. On top of this, besides opportunities in Central America, We also established a new studio in Costa Rica. The performance in the region was driven by New Zealand and very good double-digit growth of the orthodontic business. Finally, Asia Pacific was the fastest-growing region despite a gradually normalizing baseline in China. As you might remember, in the second quarter last year, the VVP and COVID-19 pent-up demand significantly accelerated patient flow in China and heavily influenced the performance of the region. In the second quarter this year, Antogir and Stroman, as brands, contributed the most to our implant growth franchise in this country. Now, the region excluding China is also developing very well with double-digit organic revenue growth in the second quarter. Growth was significantly driven by Neodent and Antogel in countries such as Australia, India, Thailand, and Vietnam. In most business areas, we have made great progress and intensified our education efforts in this region, supporting the strong performance. Notably, Neodent did focus on their educational activities in Kuala Lumpur, Malaysia, and Chennai, India, through partnerships with renowned universities. Anthogel is heavily investing education in China and is also building its presence in markets such as Vietnam. All these activities grow and are laying a solid foundation for the future. Allied Star, intraoral scanner cells, were encouraging in the countries where it has been launched, and the orthonautics business kept on gaining momentum and contributed positively to the regional performance. And with this, I hand over to Yang to provide additional details on the financials.

Thank you, Guillaume, and hello, everyone. I would like to start by speaking about our revenue on slide eight. Stroman Group's second quarter revenue reached 655 million Swiss francs, with an organic growth of 14.8%. Against a strong comparison quarter, or revenue growth of 12.4% in Swiss francs. At 2024 exchange rate, our 2023 second quarter revenue would have been 20 million Swiss francs lower. The currency effect was due to the depreciation of the Euro, Chinese renminbi, and various emerging market currencies. The M&A effect in the second quarter, which is mainly attributed to a light star, The distributors in Poland and the Baltics added 7 million to our adjusted revenue of 570 million Swiss francs. As Guillaume already mentioned, the specific patient flow dynamic per region remained the same as in the first quarter, which supported the strong regional performances. The Asia-Pacific region was growing the fastest despite a gradually normalizing comparison in China, and contributed the largest share to the group's revenue growth in absolute terms, followed by EMEA, North America, and a strong contribution from Latin America with 8 million Swiss francs. Looking at growth profit development in slide 9, the first six months of this fiscal year, the group's strong top-line growth led to a core growth profit of 923 million Swiss francs. which is a currency-adjusted increase of 119 million Swiss francs. The corresponding margin remained solid at 72.5%, despite an unfavorable mix and the VBP dynamics in China. Let's now move to slide 10. The core EBIT margin reached 27.8%, which is a currency-adjusted margin increase of 70 basis points above the prior year period. Currency movements had a negative impact of 190 basis point on the core EBIT, mainly due to the weakened Euro, U.S. dollar, Chinese renminbi, and emerging market currencies. While distribution expenses had a negative 30 basis point impact due to our ongoing investment in go-to market and logistics, we reduced the administrative cost thanks to our continuous operating leverage. which led to a positive impact of 260 basis points on the core EBIT margin. On slide 11, you can see our free cash flow, which remained stable in the first half of the year and stood at 145 million Swiss francs, 3 million higher than in the prior year. The free cash flow reached 11.4% of the revenue. As the group continued to invest in production expansion and digital transformation, capital expenditure in the first six months remained at a high level with 84 million Swiss francs. The dividend payments were the main driver of the cash flow from financing. The cash position at the end of June 2024 remained strong at 334 million Swiss francs. Let's continue with the slide 12. You will see a table with the core financials. Core gross profit rose to 923 million Swiss francs, and core EBIT was 354 million Swiss francs, with the respective margins reaching 72.5% and 27.8% in the first half of 2024. The gross margin declined by 180 basis points, while the EBIT margin increased to 70 basis points, despite the currency headwinds. which took 100 basis points off the growth margin and 190 basis points off the EBIT margin. Core net financial expenses were reduced by 19 million to 6 million Swiss francs. This improvement primarily reflects a stabilizing currency environment compared to last year, notably in emerging markets. Income taxes amounted to 60 million Swiss francs, resulting in an income tax rate of 17.5%, Core net profit reached 282 million Swiss francs, resulting in a margin of 22.2%. Core basic earnings per share increased from 1 franc 59 cents to 1 franc 76 cents compared to prior year. For full clarity, you will also find the comparison on the reported IFRS basis, as well as the core reconciliation table in the appendix of this presentation. and more details can be found in the first half-year financial report. For full transparency, you can see on slide 13 the numbers without and including the discontinued Dr. Smile business. Following the restatement, the group revenue grew 16.1% organically, and core EBIT margin reached 28.9% at 2023 currency rates. including discontinued operations, organic revenue growth would have been 12.9% and core EBIT margin 26% at average 2023 currency rates. Slide 14 leads us to performance by business overview. Strongman's premium and challenger implantology business volumes both performed very strongly with double-digit growth. Premium implantology was primarily driven by the BLT and Strongman's immediacy portfolio. The challenger brands continue to expand their global footprint with strong double-digit growth in all regions. Neodent stood out as the leading challenger brand, sustaining strong growth momentum across the regions. In orthodontics, our clear correct B2B business showed good traction and grew significantly above the market with double-digit growth. We remain dedicated to strengthening its go-to-market activities introducing new solutions, and further increasing our planning and education efforts. Our digital solution business continued with its strong contribution to the group's overall performance and posted double-digit growth, primarily led by the regions North America and Latin America. And with this, I'll give back to Guillaume.

Thank you very much, Yang. Let's talk about our achievements and the strategy update starting directly with slide 60. You might remember our three key pillars to success, which are innovation, education, and clinical evidence. In May, the Scientific Association International Team of Implantology, or ITI, which counts more than 25,000 members worldwide, held its World Symposium in Singapore. It was the largest dentistry congress ever, with more than 5,700 dental professionals attending more than 100 countries. I am delighted that we were able to support the event as a leading partner, organizing many scientific and educational activities, and presenting our latest innovation. Among many innovations, such as IXL and Falcon, the team presented our new Sirius intraoral scanner for the first time. The new scanner provides high accuracy, high scan speed, is easy to handle, and is integrated into a Stroman Access platform, which helps to process the digital information in an efficient way, improving the overall clinical workflow. Stroman Serious, with its compelling value proposition, complements our global iOS offering in the mid- to entry-level segment. Over the past 24 months, we have more than doubled our intraoral scanner base, and with Stroman Therios, we aim to further grow significantly. The importance of ITI for our growth is not limited to the congresses that take place every few years. ITI is a true strategic partner driving clinical education and research. In the U.S., now more than 2,000 dental professionals have an ITI membership. And in China, ITI has recently been recognized as an accredited dental training institution, which will be crucial to accelerate access and implant adoption to meet the significant demand in this specific country. Moving to slide 17, I would like to emphasize that we continue to build the infrastructure of our global platforms for access which supports dental professionals gaining efficiency across the treatment journey through a fully digital end-to-end workflow. Thanks to an open architecture with high data security standards, new Sproman Group services such as Smile in a Box and Unique can be integrated and added on a step-by-step basis. For now, North America is the first region to offer those solutions directly on Stroman Access. When the platform is launched in the other regions in early 2025, it will help improve efficiency and quality of patient care broadly. Now let's move to slide 18. I would like to give you more color on our recent unique launch in North America. Our cloud-based on-demand service which allows dental laboratories to outsource planning, design, and manufacturing of patient-specific implant prosthetics. Our enhanced offering includes custom abutments not only for all Stroman Group implants, but also for third-party brands, and in the second quarter, we added screw-retained bind bridges to our portfolio. What I like most about UNIQ is that we design it as a truly customer-centric solution. It provides great flexibility, predictable results, and a state-of-the-art customer experience thanks to an end-to-end digital workflow with an intuitive interface based on our Stroman access platform. It is challenging for dental laboratories to cope with fluctuation in demand, and depending on the location, to find well-trained technicians. With Unique, customers can grow their business significantly without investing in additional resources or equipment, as they can outsource the work to us. The launch in North America already showed good momentum in the second quarter, which is promising as Unique addresses an important part of the CAD-CAM prosthetic market. On slide 19, we move to IXL, which we launched in the first quarter of this year in North America. IXL is our new innovative premium implant system, which offers the unique benefit of four distinct implant designs with the simplicity of one single implant system for both bone and tissue-level treatments. The feedback from clinicians who have tried it already is very positive. They highly appreciate the flexibility delivered within the clinical procedure and the simplicity through the reduction of the stock-keeping units needed for all influence indications. IXL also got a lot of attention at the ITI World Symposium, which was an important introduction milestone of future launches to come, like the pre-launch in France as the first European country in May this year. Moving on to the business-to-business field of orthodontics on slide 20, the clear-liner market is estimated to be 5.3 billion Swiss francs, providing ample opportunity for us to grow. To size these opportunities, we will first strengthen our presence in existing markets by continuing to drive education. In the second quarter, ClearCorrect participated in international congresses and other education activities across all regions and more and more in Asia Pacific. Secondly, we expand our customer segment and begin to also focus on orthodontic specialists, which is starting to show some initial traction. Also in the second quarter, ClearCorrect further improved its services and technology. We strengthened our doctor-facing platform for a more efficient practice management and launched a new version of the ClearCorrect app. It offers clinicians an expanded range of features to easily start, review, and manage cases, and allows them to access ClearPilot software directly via the app. Going forward, and with selling DrSmile, we will focus even more on our B2B orthodontics business by increasing our investment in this area to keep strengthening our go-to-market approach. On slide 21, I would like to dive deeper into the sale of Dr. Smile. We signed a definitive agreement to sell the Dr. Smile business to Impress Group and will receive a minority shareholding of 20% on a fully diluted basis in the company. Founded in 2019 and headquartered in Barcelona, Spain, Impress Group is a leading provider of clear liners in Europe and operates a network of clinics in countries such as Spain, the UK, Italy, and Portugal. With the acquisition of Dr. Smile, Impress Group is well positioned to compete in this market by combining quality clinical treatment with consumer marketing expertise at scale. IMPRESS Group covers the end-to-end patient journey from the initial consultation to the clinical results, which will greatly enhance the patient experience. Through the combination with Dr. Smile, IMPRESS Group will benefit from a larger geographical footprint by adding Germany, France, the Netherlands, and Sweden. They commit to ensure the continuing support of all Dr. Smile patients currently undergoing treatment while we will continue to be a major supplier of clear aligners for Impress Group moving forward. The transaction is expected to close in due course. Moving on to slide 22, let me introduce you to recent transitions in the Executive Management Board. First, I'm delighted to announce that Sarah Dalmasso will join Stroman Group on August 19 as head of the Dental Service Organization which is a critical area for our organization. She has held several leadership positions at OmniCell and General Electric Healthcare and has a proven track record of growing franchises. She led diverse teams toward sustainable growth and brings a strong expertise in digital transformation. Secondly, Our chief people officer, Alastair Robertson, has decided to retire by the end of 2024 after an impressive career across different industries and five years at Stroman Group, where he made his mark as an exceptional culture leader. I am pleased to have Arnaud Middel succeeding Alastair Robertson in early August as chief people officer, with Alessandro supporting the transition until the end of the year. Arnaud joined us from the Siegfried Group, where he was Chief Human Resources Officer. Over the past 12 years, he supported the company growth from an HR perspective. Before this, he was instrumental in building strong global HR functions at Syngenta, Excel Instruments, and Balwa's Instruments. Also in July, we merged our data and tech team and the digital platform and technology departments, a key function for digital transformation success. Thomas Frieser, which Troman booked for the past two years, was appointed to lead the combined team as chief technology and information officer. Thomas looks back to more than 70 years of leadership experience in building high-performance teams and digital platforms. Together with his team, he built, among other achievements, the seamless, high-quality customer experience platform Stroman Access through integrated and automated digital dental workflows. Christian Ulrich, who was Chief Information Officer at Stroman Group since 2021, left the group in July to pursue opportunities outside the company. I would like to thank him for the significant contributions he has made over this period. Finally, as announced in July, Mathias Schupp, our head of Latin America, will leave Sproman Group by the end of October to become CEO of Medartes. In the last 17 years with the group, Mathias has significantly developed the LATAM region, supporting the new internet expansion to become a global challenger brand. I want to thank Mathias for all his accomplishments over the many years. The recruitment process for a successor is ongoing. Let's now have a closer look at our updated outlook. On slide 24, you can see our updated outlook reflecting the new situation. While we remain cautious looking at the challenging geopolitical and microeconomic uncertainties, We are confident that we will continue to gain market share within our addressable market of more than 19 billion Swiss francs. We believe in our strong execution ability, the innovation solutions that capture to different price points, and our geographic diversification. On our journey towards the 2030 ambition, we will focus even more on B2B orthodontics go-to-market activities continue to invest in growth and drive digital transformation. With this, we are confident to update our outlook for 2024 for continuing operations to achieving an organic revenue growth in the low double-digit percentage range and profitability in the 27 to 28 percentage range at constant 2023 currency rates. With this, I would like to open the question and answer session. If you have a question, please press star and one on your phone to join the queue. As usual, we kindly ask you to limit the number of questions to, in order to give all the participants a chance to ask their questions within the available time. Can we have the first question, please?

The first question comes from Richard Welton from Goldman Sachs. Please go ahead.

Thank you. Good morning. Two questions for me, please, starting on China. So firstly, how are you seeing the strong momentum in volume growth in China evolve now that you are facing tougher comps? If there's anything you could share around exit rate for the quarter, that would be very helpful. And then following up on China, have you seen any shifts in the competitive responses from other players in that market? That's the first question. Then my second question is on your guidance, and maybe just to clarify. Is the upgraded guidance entirely driven by moving Dr. Smile to discontinued operations, or is the core business also performing slightly better than you had expected at the beginning of the year? Thank you.

Yes, thanks for the question. Actually, in China, you're right. I think we will see, and we are starting to see more than strong comparative basis But we still see very positive momentum on the patient flow and the volume growth. Then that's why we are still positive for the second half to be able to achieve what we were anticipating already quite some time ago to keep this 15% to 20% growth rate for that second half. When it comes to competition, we see a lot of our competition being very active in China as well. But this has not changed so far any of our dynamic, as we have done very early some great investments on the education side, on the instrument side, in order to help new customers being able to place Strowman implants. then through that education side, we believe that we will still be able to keep gaining market share also in the periods to come. With regard to guidance, the updated guidance is coming significantly from the Dr. Smile, of course, divestiture, but also from a core business which is performing even before then planned. But obviously, the major part is coming from that Dr. Smile divestiture.

Great. Thank you very much.

The next question comes from Hassan El-Fakil from Barclays. Please go ahead.

Hi, good morning, and thank you for taking my questions. I have two, please. Firstly, you talked about strong growth in EMEA led by Challenger solutions. Could you quantify the growth in Challenger versus premium in EMEA and whether you've seen any similar trends globally and whether you're seeing any meaningful down trading across implants? And finally, would love to hear your feedback on IXL and the launch in France and the contribution and expectations going forwards here. And then secondly, on guidance, can you talk about how you view the second half and why you're expecting a deceleration in growth from the 16% organic achieved in H1 to the low double digits for the full year? Is there anything incrementally that you're baking in, or is this just some of the uncertainty that you talk about? Thank you.

Yeah, thanks. A lot of good questions as well. Then EMEA challenger, yes, double-digit growth. We are not giving, you know, the precise number, but what I can share, as we are usually doing, is that in EMEA, challenger growth has been double-digit, while premium has been single-digit, but still a healthy single-digit from our perspective. And actually, I look also at first half 2023, and actually, we don't see any change in that approach. We were double-digit growth in Challenger, single-digit in premium, still very healthy, then meaning that we have been able to grow both franchise at the same time, and we honestly don't see any down training as we speak in between one versus the other. Once again, it's mainly the geographical mix, which is pushing more significantly than the challenger brands, because mature markets such as France, Spain, Italy, Germany, the UK, the overall market is not growing as fast as countries that you would have in Eastern Europe, Turkey, EMEA, Middle East, sorry. then that's more that geographical mix, which is delivering also a significant boost to the challenger side. When it comes to IXL, I think we are really, really excited by IXL feedback from clinicians that have started to use that in North America. We have seen that a lot of the clinicians have expressed the fact that it's very intuitive to use They don't need or expect a lot of training after having used some of the first implants, especially on the BLC side, because, of course, BLX was known. Then I think very positive about the future of this product line and how it will contribute in the future. In France, it has just been pre-launched, and it's going to then get started more as a limited market release to ensure that we are not having any manufacturing disruption. Then we have also the clinicians that have used it, very positive feedback. When it comes to the impact on growth, it will be a step-by-step impact because we are focusing first and mainly at new customer acquisition you know we always said that growth and market share gain are mainly coming from innovation and that innovation is the name of the game in this market and this is what we are spending our time to when it comes to our go-to-market strategy first segment is new customer acquisition Second segment priority is share of wallet gain, meaning that the regular growth of our customers are mainly done with BLT and BLE still, and that the new IXL-BLC line will contribute step by step. Finally, on guidance, well, you know, when you look at the overall market dynamic, you know, the other side already coming with a significant high single-digit growth for the second half is pretty strong from our view. And it's lower than the first half for two reasons. The first one is the higher comparative basis. In China, you know, in Q1 2023, we were almost doing zero business in China. Then the comparison period in the first half was much easier than the second half. And the second reason is, of course, those uncertainties. We see still, you know, some of the back and forth when it comes to economy, like in North America or the overall discussion, again, about soft lending or hard lending. Then that's why we want to also plan some of the risk aspects here into the guidance until the end of the year. But we are still confident about significant market share gain over the period.

Perfect. Thank you.

The next question comes from Maya Stefani Pataki from Kepler-Chevreux. Please, go ahead.

Yes, good morning. Thanks for taking my question. I was wondering if, maybe I've missed out, but whether you could talk a bit about the clear, correct performance in North America. You stated it's been, you know, strong double-digit growth globally, but how was the U.S. and second tied into that You referred to a value offering on ClearCorrect in the North American market. I was just wondering whether you could refer to whether that's a lower-priced product or whether that's just enlarging the overall offering. That's number one. And number two, would it be possible for you to give us comparable numbers for 2023, please? Just maybe on what was top line growth, H2 and full year, and also what was the absolute EBIT and EBIT margin in 2023? So we do have a bit of a comparison for 2024. Thank you.

Yeah, I think when it comes to clear correct, what we see as we expressed, WTT growth overall, double-digit growth in all regions except North America. We have seen then our business of clear correct very flattish to very, very slightly down. Then we have seen also that demand has been slower in line with the overall, you know, economic situation that we have seen. And we are, on the other side, not planning any value introduction of clear liner brand or activities in North America. I don't know from where you have been.

That might have just been wording in the press release then.

Okay. So, at least for clarification, we are not planning this. 2023, Yang? I would take this.

Hey, Maya, this is Yang. So in our financial statement for the first half year, actually, we have a full transparency. We also provided our Dr. Smyth numbers for the first half year revenue and EBIT. So if you were to more or less double that number, you would get the full year. But let me just give you directional numbers for the full year revenue-wise. Excluding Dr. Smyth for the full year would have been around $2.3 billion of revenue. And EBIT margin percentage-wise would be around 28%.

And the growth last year with Dr. Smile would have been where?

The growth would be around double digits, similar.

Thank you.

Sure. The next question comes from David Adlington from J.P. Morgan. Please go ahead.

Thanks for the question. Firstly, just on the U.S., I just wanted to get your thoughts in terms of how business is looking through July and your thoughts on the second half. There's the trends. And then secondly, just a question just on Dr. Smile. Are you expecting any cash proceeds or are you just basically giving the business away for free? And how does selling Dr. Smile impact your expectations for clear line of growth in Europe?

I think on the first one, Well, we have seen Q2 being pretty stable with Q1, and we are expecting the second half to keep that same stability. This is what we are seeing for the time being. then we expect having the same kind of patient flow, patient dynamic, nor improving that much or nor deteriorating, because we believe that while we expect some interest rate cut, obviously, like everyone, it will have a certain lag in order that it's going to be seen in the consumption on the implant side. When it comes to the Dr. Smile, yeah, go ahead.

Yeah, we don't disclose the terms of the conditions, but what we can say is, as you know, Dr. Smile is a dilutive business, and this diversity or the sales of the business actually provide us with the opportunity and to play our position with strength so that we can continue to reinvest in our B2B business, and you can see we have very good, strong B2B business growth momentum.

And coming to the growth rate of really impact, the growth of clear liner for EMEA? The answer is no from a growth rate standpoint, because I think we have been always looking at B2B completely differently, and it will still have the same dynamics on the B2B side. And we would potentially add, and we will add, the supply agreement that we have with Impress. for that new entity, then we are somewhat transforming our direct-to-consumer into a B2B business as we are going to provide those clinics also with the clear correct, clear line.

Thank you.

The next question comes from Oliver Metzger from Oddo BHF. Please go ahead.

Good morning. Thanks for taking my question. First one is, can you make a quick comment on the underlying implant dynamic in Europe Q2 versus Q1? And second, you mentioned double-digit growth for the challengers in all regions. Basically, that includes the U.S. So, does this mean, as a reverse calculation, that with premium implants, you still recognize the decline in the second quarter?

Thank you. I'm not sure I understood well the second question. First question was, sorry again, I was trying to understand.

The underlying implant dynamic in Europe Q2 versus Q1.

Yeah. Yeah, you know, I think we have one of the difference that we have seen has been also the fact that you had, if I remember well, you have Easter that is different also in Europe. 2023 versus 2024, and that has been one of the major differences that pushed some of the sales in the second quarter versus the first quarter. If you compare 2024 versus 2023, then that's one of the reasons that you have this difference. Because otherwise, if you look at our average daily sales and so on, it's really pretty close. then we have that effect which we have seen in that second versus the first quarter. But other than this, you know, we have a really stable, strong trend of new customer acquisition of go-to-market investments on both premium and challenger that are, you know, I would say constant. Second one is how do you do reverse calculation?

Let me rephrase my question. So you mentioned a double-digit growth of challengers in the U.S., and this means indirectly that the premium implants recognize a decline in North American IQ2?

No, no, no. They are on the other side. I think it has sequentially improved on the premium side, and we don't have any decline on the imprint side. Premium.

Okay. Thank you very much.

The next question comes from Graham Doyle from UBS. Please go ahead.

Morning, guys. Thanks for taking the questions. Just one on the sort of implied second half guidance and just one on the the Dr. Small disposal to follow up from David's question. And in terms of the H2 growth, you kind of fleshed out a bit there in terms of your expectations around tougher comps in China, for example, and still some disruption in the market in the U.S. What are you seeing in July, actually, just in terms of demand there? And the U.S. market presumably also benefit from that Easter trading effect. So what would you expect in Q3? And then just on the Dr. Small disposal, I appreciate you don't want to talk about consideration, but are you putting money into the new venture? So is there a situation where you're investing behind a new venture so it's not just a handover of the assets? So will there be a transfer of cash into that? Thank you very much.

First, when it comes to U.S., then we don't disclose month-by-month reasons, obviously. But that's why I said we are seeing stability already in the activity in Q3 versus Q2. That's why we, you know, we are planning kind of a constant approach here that we would be confident if the situation is staying the same, obviously, on the unemployment side. Here I have to say Easter effect is not very significant in NAM. You don't have Easter holidays so much as you are having in Europe massively, like it would be especially in Germany or also in the South European countries. We don't see that kind of disruption from Easter being on Q1 and Q2 in North America. When it comes to Dr. Smile, I think we are getting, as we said, 20% minority versus then the sell of this asset. And what we are supporting, we are supporting the restructuring of Dr. Smile that was planned in the second half. with some cash approach, which is just making sure that we are supporting the entity for then restructuring as we were planning to have done ourselves.

Okay, that's helpful. Could you just maybe say, why is there a lack of transparency around that, Dr. Small? I mean, I appreciate we've got some numbers for this year. We obviously didn't get them necessarily for last year, and we don't know the exact nature of the transaction. Is that just the nature of... the buyers on the other side? Or why is there that lack of transparency?

Well, I think we are never disclosing, particularly speaking, our different M&A activities. Then we have a lot of disclosure in our numbers at the second half of the... I think there is the number of... Well, Yann, maybe you want to add on the total asset that we're transferring, which is approximately 95 million Swiss francs. And I think you can find those details into the pages of our press release.

Okay, yeah, I appreciate it. Well, I couldn't find the second half sales, but I appreciate the rest. Thank you very much, guys.

Yeah, if I were to hold, within year half, we can use the first year half and triangle if it's small, it's similar.

Okay, thank you.

The next question comes from Veronica Dubaioba from Citi. Please go ahead.

Hi, guys. Good morning, and thank you for taking my questions. Two kind of bigger picture ones, if I can. The first one is just the decision to take a stake in Impressed Group. And obviously, it moves you more towards a vertically integrated business model. I mean, I appreciate there's a supplier arrangement here, but you are taking a 20% stake in a sort of dentistry chain. Just curious if this is a signal of something different. that you think is attractive and you're looking to do more off, or is this sort of a one-off unique situation that is specific to Dr. Smile and the exit? And just kind of how you think about that vertical integration downstream into dentistry directly. Is there something we should be reading into that choice here today? And then my second question is just, again, big picture questions. Obviously, we're scaling down the clear aligner business in terms of revenues this year. Just curious if that has any implications for how you think about the midterm growth rate and your ambition to hit that 5 billion Swiss francs that you've put out for 2030. Obviously, clear aligners were a big driver of that 5 billion number. So just curious if we need to be rethinking that or if the path towards growth rate looks different, towards that revenue looks differently. Apologies. Now that Dr. Smile is out of the picture. Thank you so much.

Yeah, I think, thank you, Veronica. Two good big picture questions as well. And I think it's important to clarify this one. The fact that we have 20% in this fully integrated dental company is really a one-off. It happens that this is how we have been able to find a better home for Dr. Smile and giving it the possibility to go to success thanks to a fully integrated approach from a patient journey. Then there is no strategic approach for us on willingness to go further in vertically integrated than the business model, then we are not planning to invest in dental chain or at least creating any competition to our existing customer group. Then we want to make it very clear and appreciate the questions for clarifying this. When it comes to mid-term ambition, we are reaffirming our 2030 ambition, which has been, again, defined in 2021 at 2021 ethics rate, obviously, because there has been all the growth rate that we have defined based on that 2021 baseline. then we are having and we will have, obviously, a different split in between the different business franchises. And this is, I guess, most of the case happening when you are doing a long-term ambition where things are going to evolve, obviously, differently than planned. But we see then our growth rate still being double-digit and having the capability to size many opportunities in front of us. Ortho is going to be still a major growth driver, as it is the case now. Digital is a major growth driver with our digital iOS, but also the future of our platform and keeping strengthening our core infant business and keeping market share in both major and emerging markets. thanks to our different price points positioning. Then that's why we are confident to hit these ambitions. And we are obviously then focusing on this and on innovation and education, which are the pillars of success for reaching that goal.

Thank you. And can I just ask a very quick follow-up on China? And I guess maybe try to ask the question differently. The 15% to 20% that you're still expecting in the back half of the year, Is that, is the revenue growth that you've seen in July consistent with that?

For which story, I'm sorry? For China. For China. Again, we will not disclose this moving forward, but, you know, we are confident that we will go to that 15% to 20% in the second half. Okay.

Thanks so much. The next question comes from Robert Davis from Morgan Stanley. Please go ahead.

Yeah, thanks for taking my questions. My first one was just around Europe. I realize you obviously stripped out the doctor's small business, but would just be kind of curious, you've on a headline basis seen, I think it's eight or nine quarters of sequentially slower growth. But that obviously had the doctor's small business included. Perhaps if you can just kind of give us an overview of the overall dynamic you've seen maybe over the last couple of years. for the European business if you were to take the Dr. Smile business out of those numbers, just what the growth pattern would be? That would be my first question. The second one was just, I guess, following up on some of the comments you made on the prior quarter on the impact of consumer confidence across your business. Perhaps you could just give us an update across different regions if you're seeing anything different in terms of areas that strengthen or weaken in terms of consumer confidence trends versus the last quarter. Thank you.

When it comes to EMEA, the past couple of years, I can, I have to share, of course, the big, the volatility of some of the variances of the EMEA performance have mainly come from the Dr. Smiles impact being on the high side, on the low side, and we had a pretty consistent, strong, than growth in EMEA. And this is what we have seen over the past two years. We really very limited . And the high single digit to low double digit has been really where our EMEA performance navigated with, yeah, very, very strong consistency. When it comes to, sorry, the second one was? Sorry, it was just on the consumer confidence by regions. On the last quarter, honestly, we have not seen a really significant difference versus the first quarter. I think we expressed in the first quarter that we have seen some again, of effect of the high interest rates starting really to impact consumption in North America. And actually, this is what afterwards all the dental payers have expressed, but only by now. And we are still seeing the same, but no deterioration or no improvement yet. And I think it will take a little bit of time for this. Europe is still pretty stable, but still pretty positive in all the different countries, actually. We were having, you know, UK not being always super optimistic, but as the UK influence market penetration is limited, it has, you know, very limited impact for EMEA, and we have seen anyway significant growth from the UK as well. then that way the consumer confidence has not been impacted on the U.K. demand. And in Asia-Pacific, then we know that China has a low consumer confidence, and we know some of the challenges from local economical situation. But what we have here on the implant dental side is that the VBP has been really, completely shifting this kind of situation. And we still see, because of the need of tooth replacement in China, in segments that can afford this now, that it has yet no significant impact on the trend we have seen since VBP has been implemented.

Thank you. Could I just squeeze in one follow-up around the FX impact on margins. On your previous guidance, you provided, I think, some commentary on the constant currency number and then a reported basis. Has there been any change in terms of the expectations on a margin basis for FX headwind for the year? Thank you.

We still see within the range. Of course, at the first half year, I think when we closed the book, there was closer to the lower end of the range. But right now, you may have observed in the past several weeks and Swiss franc continued to strengthen.

Okay, thank you.

The next question comes from Daniel Yellows from ZKB. Please, go ahead.

Yeah, good morning. Just one question left from my side. The ITI symposium in Singapore you mentioned in May, did that also have a positive impact in the second quarter in in the APEC region, like in the past, where often you had some discounts or so, or is the effect more visible in the third quarter? That's the question, thanks.

Yeah, actually, the ITI impact, the ITI Congress had some limited impact, I would say, in second quarter, because this is not really a place where we sell. This is a scientific Congress, where people are coming to see the latest clinical evidence that we are able to achieve with our portfolio. It's also about to see the innovation that we are bringing and how to implement that in a dental practice. But this is more on presenting the latest techniques and the latest evidence. for the scientific community. Then it's not related to one of cells that you are going to do, but it's going to be diluted all over the following months and weeks for all the new products that we have been presenting, like our new platform, our new iOS, iExcel has been presented, and so on. Something I think which is important to highlight here is the fact that We have been, of course, mainly pushing also our challenger brands in a lot of the Southeast Asia countries because Neodent was having the price point which was really adapted to those markets. And we have left the scientific space sometimes to Korean customers. And being able to invest significantly in major events in Asia-Pacific has really helped us also to position the Stroman brand as the right leader and reference for the implant business also in Asia Pacific with a lot of clinicians that were not used to see what Stroman Green premium brand is doing in clinicians coming from India, from Thailand, from Vietnam, from important countries such as Taiwan as well, and of course to name the most important one, market, besides China, that are Australia and Japan. Then we are thinking about iterating those kind of events with the Stroman also, premium brand in Asia Pacific because we have a lot to gain also there and not only on the challenger side. Okay, great. Thank you.

The next question comes from Julia Dormois from Jefferies. Please go ahead.

Yes. Hi, Guillaume. Hi, Jean. Thanks for squeezing me in. Two questions on my side, and the first one would relate to the gross margin trajectory. we have seen over the past few years the gross margin retrenching quite a bit from what used to be a 76 or roughly 76 percent gross margin to now 72 percent. Obviously ethics is playing a role and you highlighted that the mix is also playing a role but Would it be possible for you to give you a very rough overview of what is the respective gross margin level between premium and challenger implants and maybe also orthodontics and digital? It's just basically to get a sense of whether that 72% should now be seen as a floor for future gross margin development or if it would be safer to assume further deterioration in the context of faster growth from lower margin products. That would be the first question. The second question is on orthodontics. I think now with CareCorrect, you probably are still generating around 200 million Swiss francs in revenues in care aligners. So just checking that this is a fair number. And what would you expect in terms of growth from here, especially in the context of now being lower, having a lower critical mass versus your direct competitors like Envista or Densply? Is there a way for you to compete efficiently even from a lower scale?

Yeah, thank you, Julien. When it comes – I think it's interesting on the gross margin side because you mentioned only one of the three factors which are having an effect, or at least from a mixed standpoint. You're right that we have an ethics rate impact. And we have on the one side a portfolio mixed effect, which is obviously then the challenger or the ortho versus premium. We have a customer group effect, mixed effect, which is DSO versus conventional practices. And we have a geographical effect, which is, for example, China versus NAM or emerging market versus major market. And in all that mix, you have, of course, the ethics impact, which is there. And that's where I think the truth is not looking at specifically the franchise gross margin, but at the overall effect that is provided by those three, I would say, potentially unfavorable mix. Then that's the approach. Then when we look at... At the current growth margin and where we are versus, for example, last year, same period, you have a – and, Yang, you know, you correct me if I'm wrong, but it's 1 percent around ethics down, and you have afterwards the remaining effect, which is 50 percent geographical mix, especially China, VBP, and the remaining 50 percent, which is going to be product mix. Okay? And from where the trajectory is going from there, I think – The China VBP then has been absorbed because we will see that some remaining effects from some of the emerging geographies playing faster, but the biggest impact was China. The geographical mix will continue to play a small role on the portfolio side and the customer side as well. We will see potentially having STEP-BY-STEP VERY SMALL THEN EVOLUTION OF OUR GROWTH MARGIN BUT NOT YOU KNOW WITH A MAJOR DROP THAT'S WHY WE ARE HAVING VERY SIGNIFICANT PROGRAM ON EFFICIENCY GAIN AND LEVERAGING OUR SIZE AND THIS IS WHY YOU SEE THAT OUR OVERALL EBIT ACTUALLY HAS BEEN REALLY GROWING IF YOU REMOVE THE DR SMILE SIDE AND COMPARING JUST CONTINUING OPERATIONS we have a significant efficiency gain that has been achieved below the gross margin line. Yann, do you want to add anything on this?

Nothing to add.

Okay. Thank you. On the ortho side, we are, yeah, I think we are a bit lower than the numbers you gave because you can remove something like 50% of our overall top line that we had on the, on the on the clear correct side now uh but yeah we we do believe that growth is uh um is more than possible is uh is expected uh because this is what we are able to see now uh and we have the critical mass from a company standpoint uh being able to invest in technology go to market And then clinical capabilities. And that's what we are continuing doing. And we believe that we will be able to continue gaining market share in this segment on a pure B2B basis where we are going to focus very significantly.

Okay, that's very helpful. One quick follow-up, if I may, would it be possible just for you to give us a sense or maybe just rank the businesses between challenger brands, digital, and orthodontics by gross margin, just giving a sense of which one has the highest and which one has the lowest, maybe, if that's possible.

You know, implants are closed. We always said this. Gross margin percentage on the core implant side is closed. Then, you know, we are afterwards. And I would say afterwards when you go at Porto will be then coming afterwards and you would have digital. You have a lot of third-party products for the time being. Then as your gross margin on third-party product is by design lower because you are just a distributor. That's also one of the reasons why we have been then acquiring our iOS intraoral scanner company technology in China end of last year, because we want to be able to enter into the eco-segment, and we can enter into the eco-segment only if we can achieve a decent gross margin size, which was very difficult from a first-party product.

Okay, very helpful. Thank you so much.

The next question comes from Hugo Solveig from BNP Exxon. Please go ahead.

Hi, hello. Thanks for taking my questions. I have a couple left. Just on growth, please, can you give us the contribution of price to organic growth and also the impact from differentiation in Latin America to the 15% growth that you have had in the region? Second, relates to the exit rate in China, which you mentioned above 15%, 20% in July, if I'm not mistaking. Does this mean that you're still very comfortable without performing in the market, expected to grow over 20% over the next 18 to 24 months, which was, I think, a comment that you made in the previous calls? And if you have any insight on the next round for the VBPs, thank you.

Could you ask again the first question on LATAM? Because it was not very clear. Thank you.

Sure. I guess it's just from a group growth perspective, the contribution from price and also hyperinflation, which is particularly strong in LATAM.

Well, I think contribution for growth is mainly volume gain. I think it's a You know, we have done a price increase that, of course, are because of the VVP. You know, you have a still we were adding into the first four months of the year already the pre-VVP pricing in China that has been afterwards implemented only starting by May. Then I would say that China is offsetting the price increase that we have done in other regions. then it's mainly coming from volume and very limited inflation. When it comes to your several questions on China, yeah, I think we said 18 to 24 months, but it was already like almost 12 months ago. Then we are planning that this kind of market dynamic to still remain. But the more it goes, the less kind of visibility over the long term we have. We believe that the market will be able to grow something like 15% to 20% again in the next six to nine months, and afterwards we will see, because that will be then quite 18 months after post-DDP, and we'll see what it's going to be. then we still believe and we did not say that we grow 15% to 20% in July. This is not what we said. We said that we are confident to grow at least 15% to 20% for the second half. That's what we expressed and I think I want to confirm this.

The next question comes from Falco Friedrichs from Deutsche Bank. Please, go ahead.

Thank you. My first question is on guidance for this year. Guillaume, you mentioned that most of the increase is related to this Dr. Smile disposal, but you also said that the underlying business is performing slightly better than you had anticipated. Can you give us a bit more color on which pockets are performing slightly better than you initially thought? And then my second question on LATAM, is there anything noteworthy to point out in terms of the dynamics you've seen in the quarter? Thank you.

Yeah, you know what works even better than planned? 16% is obviously a very strong outcome, looking at the current market dynamic, honestly, when we look at the rest of the industry. Then what works better, it has been, of course, then on the one side, our EMEA numbers, which are very strong, and that has been continuing already on a pretty strong base in the first half last year. Then having double digits was we were planning more high single than low double. We have also Asia Pacific and again China that has been delivering more than our expected 20% and especially in the second quarter, then I think China has been stronger than planned. And I think our ortho B2B has also been very dynamic in all the other regions except North America. It's a lot about the overall investment that we have done so far in most of our franchises that deliver above-the-end plan. And on the LATAM side, Yeah, I think, no, the thing that we would highlight is the fact that on the one side, we have this really critical event in the flood in the south of Brazil that has been impacting the business, impacting our teams. and where the reactivity and on the one side the professionalism to really support customers that have been impacted but also our team mates that have been impacted by this really tragic event has been really impressive and we have been very pleased by how the company has reacted to also compensate for some of the shortfalls coming from these regions. You know that this region, Porto Alegre, is one of the, you know, mostly developed economically speaking. That's one of the big part of our business. And being able to deliver still that strong double-digit growth is really demonstrating the commitment of our teams to be able to support the customers and support our activity.

Thank you.

The next question comes from Julien Ouadour from Bank of America. Please, go ahead.

Hi, good morning. Thanks for squeezing me in. So the first question, it could be a bit premature to already look at next year, but I'm just wondering how lower interest rates and, by consequence, easier financing for the patients could positively impact your business. I think that 10% of your group sales is related to the full-arch cases, which have been a let's say, heavily impacted over the past 18 months. So would you call for a kind of potential pent-up demand? And if yes, any quantitative details that you could give us today? And the second question is on competition. So some of your closest peers undergo, let's say, important restriction programs at the moment, including additional investment in products, innovation, Salesforce. How do you monitor this situation? Is there anything which worries you at this point of time? And is there also the reason why you're increasing the investment following the Dr. Smile disposal? Thank you.

Yes, I think it's interesting. Well, that would be an interesting perspective as well for us about having quickly some lower interest rates. especially in North America, which is where, once again, it had a major impact. And we know that North America can bounce back also quite quickly when the macroeconomic conditions are right. I believe there will be some pent-up demand when it comes to the full house. I don't think that it's possible to really... measure that or put the numbers behind that for the time being, because we will see those interest rates cut that will have a step-by-step effect. And I don't think that it's going to be, you know, a huge change on one quarter to the other. But I do believe that the full-arch cases will be better off as soon as, you know, interest rates after a period of you know, four to six months or so, will have been done. And it has to be significant interest rate cut, obviously, in order for households to see the difference on what they are keeping at the end of the month. What is also an interest point to consider is in North America, the DSO market is now pretty And it's pretty developed. And a lot of the DSO segment is practicing or those full-out procedures. And they are a huge market driver because they do a lot of investment from a communication and advertising standpoint. in kind of a negative macroeconomic environment, then they are reducing significantly also spend, and they are advertising much less than what they used to do. And that's also one of the reasons why this is slowing up demand, because not all the players can invest as they were doing in the past. then lower interest rates and seeing demand coming back and conversion rate being higher, we'll see also higher advertisements for full-arch cases especially, and we'll see also demand then being more dynamic. And this is what we are expecting to see as soon as the macroeconomic environment will be better than what they are currently. When it comes to competition, you know, we really don't focus on competition. We focus on customers. And we are investing for customers, for making sure that we're able to answer better their needs. And this is only the thing where we are spending time and money. that we respect our competitors, we think that some are in a restructuring mode, some are also very dynamic, then it's all about making sure that we're taking our decisions for staying ahead and meaning that focusing on the future and the future demand of customers much more than what competitors are doing. And that's really the philosophy we had for quite some time, and we are continuing to keep and keeping that customer obsession at the center of our culture, which has been playing really well on our side.

Thanks. I mean, thanks, Guillaume. If I can squeeze in a very quick follow-up on, let's say, like on clear aligners. So you said that with clear correct. I mean, you still expect to gain market shares in the future. One of the big questions we receive a lot from investors, what's the kind of market growth rate in the midterm for ClearLiner? I mean, what's your view on the market growth on a global basis?

I think the market growth has been impacted, and we have been discussing a lot those questions. I think it was a year or 18 months ago when we were talking about inflation and so on. I think the clear-liner market has been indeed not resilient or not very resilient looking at those kind of microeconomic downturns versus the influx. where it was a lot seen now much more as a really medical procedure, which is important, that people were still wanting to undergo and invest, versus some of the clear-liner side where the market has been developed further, and a lot of those clear-liner cases have been also adult comfort or, let's say, aesthetic treatment where people have been postponing. I still believe that the clear-liner market will benefit from better microeconomic conditions with higher consumer confidence, and I still believe that this clear-liner market will grow double-digit in the years to come. Perfect. Thank you very much, Guillaume.

Sure.

The next question comes from Subhanji Gupta from HSBC. Please go ahead.

Hi, thanks for taking my question. So my first question is, you have reaffirmed your 2030 guidance. So what is the assumption you're making about growth in APAC region, considering that there might be another round of VBP in 26, 27? And second, on your digital business, could you give some color on growth of that business versus the broader group, as well as margins, and also what geographies are seeing more demand in digital? Thank you.

Well, I think let's start by the first one. Yes, 2030 ambition, we will have different growth rate, obviously, by region. We are not disclosing exactly the growth rate that we are planning on each of the region. It's still, you know, a long-term perspective, but we can obviously say that we expect Asia Pacific then to be double-digit and to help us from a CAGR standpoint being potentially the more dynamic region from a growth rate standpoint. This being said, looking at the potential in all the different regions and the fact that Implant and Clearliner are still very under-penetrated market even in North America and Europe, we believe that those major markets and major regions will still deliver significantly lower growth rates, but potentially even higher absolute value. Could you help me, again, understand your second question?

Second question is on the digital business. So what is the growth and margins compared to the group sales and margins? And also what geographies are seeing more demand in digital?

Okay. Thank you. Sorry for asking again. On the digital side, then the growth is also dynamic. We're also double-digit growth. And I think this is also related to all the investment in digital transformation that we are doing and we are continuing doing. We are focusing very significantly to the customer needs in this environment. because one of the risks in digital is to focus on technology, and whereas we are focused really on the customer needs and trying to simplify their experience. So far, I think this is paying off, and we are also increasing our capability to sell those solutions with, yeah, I would say specific teams that are able to deliver in the right manner our value proposition. Then growth is double-digit. We expect it still to be quite significant in the years to come with the innovation that we are planning to deliver to the market on our own, but also with our partners like PreShape being still a very solid partner of ours in the digital field. On the gross margin side, this is what we express is lower than the rest of our own product lines and the other franchises. Because we still have a lot of third-party products. Then on the third-party product having much lower gross margin, then this is, of course, positioning this digital business as the last gross margin provider from a percentage standpoint. But we are growing in the meantime our consumables, like unique as a service, where customized prosthetics are also then improving very significantly the gross margin of the overall franchise. And what is strategically important for us is that while we are implementing this digital workflow at a lower gross margin, we are looking at driving a lot of consumables out of it from a customized prosthetic standpoint where then very significant higher gross margins can be achieved. And from a geographical standpoint, I think the digital franchise is developing at full speed in all regions. And the major reason for this is because of our different price points. Once again, I think they are high-end segments. with the very advanced technology provided by FreeShape, which is very strong in mature markets like North America, like Europe, but you have all emerging markets like in Latin America and Asia Pacific that are looking for, you know, more affordable solutions, and this is where we have our solutions, which is allowing them to provide the right answer. It's the same than what we're doing on the implant side. Being able to approach all the different price segments is allowing us to keep the same dynamic in the different regions.

Thank you. The next question comes from Sibyl Bischof-Perge from Bank von Tobel. Please, go ahead.

Thank you very much. Good morning. I have also a question about the outlook. First, you say the restated EBIT margin was 28% in 2023, and the outlook is for 27% to 28%. What are the main drivers for a flight to lower margin expectations? And the second question is about currency effect on the outlook. Earlier, you said on sales would be 5% to 6% minus currency headwinds. and on the margins, 100 to 200 basis points. Could you confirm that? Thank you.

I take that, yes. Current defects, we confirmed that. We already talked about it. And secondarily, the outlook, as we said, we're very pleased with our Sloan B2B growth momentum. You have observed the post-VBP. We have a growth margin that's lower, but we're very pleased, actually, with our operating leverage that we were more than overcompensating that in the first half year. And critically speaking, that what we want to do is to start with a position of strength and reinvest into our business so we can really sustain our market, above market growth. So what we're doing is essentially take out what we originally guided, 26% of constant currency margin of prior guidance, and reinvest some of them, not entirely, reinvest some of the Dr. Smile and back into the business so that we can continue to grow, grow rapidly.

Thank you.

We have a follow-up question from Maya Stefani-Pataki from Kepler Shriver. Please, go ahead.

Well, actually, thank you very much. That was just my question with regards to What is the reason why you're guiding for flat 200 basis points down on margin on local currency, whereas you've been previously guiding for 100 basis points up? But then it's related to China and investments into Chinese growth. Did I get that now correctly from your answer to Sibyl?

It's not only reinvesting in China. It's reinventing first, reinvesting first. a lot on B2B ortho, which is really critical, because obviously that's where we want to have the highest potential growth and, of course, taking significant ground on this market segment. And while our technology now is offering us the opportunity, as expressed in the first part of the presentation, to start tackling the orthodontist specialist target group, then we know we need more feet on the ground and we need to make sure that we do more investment towards this target group. We, of course, need to further develop our digital portfolio, which is at the moment then pushing a lot of our digital workflow as one of the major differentiation that will allow us not only to sell some of the digital equipment, but especially sell a lot of consumables such as implants and prosthetics because of the convenience that we're going to deliver. Then while we're going to invest Much more on the ortho B2B side, we will keep investing on all part of our business, including China, of course.

Got it.

Thank you very much. The last question for today's call comes from Veronica Dubayova of Citi. Please go ahead.

My apologies and thanks for squeezing me in for a follow-up. I think it's the same question that Maya has tried asking as well as the bill, but I just wanted to confirm. So previously you had expected in CR terms about 100 basis point improvement in the core EBIT margin going from 25% to 26%. Right now what you're saying is you're going to go from 28% to 28%, so basically flat margin. So the incremental 100 basis points headwind, is that entirely the clear correct investment and B2B investment? And have I understood that correctly, or have I missed some other moving parts in there? Thank you.

Veronica, I think the right way to think about it is putting the original context of how we guide it. We guided 26% of constant currency of last year versus last year. And then this time, we say we're actually going to grow our margin to 27% to 28% on a low double-digit growth. So when you do the calculation, you will see Actually, we will deliver more EBIT in absolute amount. I think this is important. And secondarily, what we said is, yes, we are in the position of strength. We do want to invest so that we can drive above market growth. I think Guillaume said enough, and this is the position we take. We want to have the flexibility to invest, and we are investing so that we can grow significantly.

Okay. But, I mean... And just to be clear, the margin last year excluding Dr. Smile was 28%, correct? Right. So the guidance you've given is the 28 last year becomes 27 to 20 this year. So you're saying at best margins are flat year on year, whereas before you were talking about margins going up 100 basis points. So I'm just trying to understand the delta in there is the investment. Nothing else has changed, correct?

The Delta's investment, nothing else has changed. And also, as you know, the second half year, normally the Dr. Smile probabilities are not higher.

Okay. Understood. Thank you so much.

Thank you. Then I would like to thank you for joining us today and your interest in us, obviously. We are looking forward to seeing you again soon and wish you a good rest of the summer. Have a nice day and goodbye from warm Basel.