Coloplast As Sp/Adr

Good morning, everybody, and welcome to our nine-month 23-24 conference call. I'm Christian Billimson, the CEO of Coloplast, and I'm joined by our CFO, Anas Learning-Skogul, and our investor relations team. We'll start with a short presentation by Anders and myself, and then open up for questions like we usually do. Please turn to slide number three. We delivered 8% organic growth and a reported EBIT margin before special items of 27% in our third quarter. Return on invested capital after tax and before special items was 15% reflecting impact from the acquisition of Kerasys. I'm satisfied with our performance. We continue to broadly outgrow the market and we're delivering solid growth in absolute profits. More importantly, we also continue to help a lot more people who live with intimate healthcare needs. Let me start today's call with a few highlights. First, innovation. This is a year with several significant product launches that will support growth, both during STRIVE25, but also beyond the strategic period. One of these products is LUJA, our new intermittent catheter with micro-hole zone technology. With Luja, we're setting a new standard in intermittent catheterization with a unique technology that enables full bladder emptying in one free flow, and therefore addressing key risk factors related to urinary tract infections. We are already seeing significant contribution to continence care growth from the male Luja catheter, which is available to users in now 13 markets. The launch of the female catheter is ongoing. and the product is currently available in four markets where it's received very positive customer feedback. Another important highlight relevant for our U.S. intermittent catheters business is the publication of a final coding decision for intermittent urinary catheters by the CMS late last week. With this final decision, the existing coding structure for intermittent catheters in the U.S. is updated to include three new codes, and with that differentiate between hydrophilic and non-hydrophilic catheters. The new coding structure will be implemented as of January 1, 2026. Let me remind you that under the existing coding setup, both hydrophilic and older generations of catheters are covered by the same codes, which means that patients don't always get access to the latest technology despite there being good evidence that hydrophilic catheters lead to better clinical outcomes. We consider this change, first and foremost, to be a win for patients. Patients will now be guaranteed access to hydrophilic catheters. We also consider it to be a win for innovation. Coloplast has been on the forefront of upgrading the US intermittent catheters market toward hydrophilic technology for many years. And today, more than 70% of our US intermittent catheter sales come from hydrophilic catheters. Still, many more patients remain that should have access to better technology, and we will continue to focus on upgrading the market both to hydrophilic catheters and, of course, also to our micro-hole zone technology, which sets a new standard in intermittent catheterization. Next, I'd like to turn to Kerasys. The business continues to grow at a strong double-digit growth rate of around 35% and continues to take market share in the biologic segment of the advanced wound care market. Performance and integration are both on track. So far, there's been limited impact on sales and operations from the draft local coverage determination policy announced earlier this year where Kerasys was not included on the draft list of covered products. As part of the LCD consultation period in June, We submitted comprehensive documentation to support Kerasys in getting back on the list of covered products. Our position is unchanged. We welcome the introduction of a clinical qualification for obtaining coverage and we perceive it as a positive development which will benefit patients. We continue to strongly believe that we have the right clinical evidence to prove the strength of Kerasys Fishkin and to get us back on the covered list. We continue also to expect a final OCD policy to be announced sometime in the second half of 2024. At the same time, we also continue to develop additional clinical evidence on Kerasys. A new randomized control clinical study comparing the performance of Kerasys Feshkin to standard of care in the treatment of complex diabetic foot ulcers is pending publication. This is the largest Kerasys study to date, with a sample size of more than 250 patients, and we look forward to sharing the results very soon. Before I move on to the details by business area, let me provide a brief update on our newly established distribution center in the U.S. During Q3, Coloplast established a new distribution hub to serve its chronic care, advanced wound dressings, and skin care businesses in the U.S. The U.S. is a strategic focus market for us, and given the expansion that Coloplast has experienced in the U.S. over the last years, There was a need to consolidate our distribution operations previously located in two centers. The new setup is expected to drive scale benefits while supporting future growth. This new setup has, however, resulted in short-term supply disruptions during Q3, mostly impacting the chronic care business, and it has detracted around 20 basis points from the group's organic growth in the quarter. It's also resulted in extraordinary costs in the quarter, which are expected to persist into Q4. We are working hard on resolving these short-term challenges, and we expect to be back to normal operations in the U.S. by the end of Q4. Please turn to slide number four. In ostomy care, organic growth was 7 percent for the first nine months, and growth in Danish grona was 6 percent. Organic growth in Q3 was 8 percent, and growth in Danish grona was also 8 percent. Our Censura Mu portfolio continues to be the main growth driver. followed by the BRAVA range of supporting products. Our Censura and Asura alternate portfolios also continue to post solid growth in emerging markets. From a geographical perspective, all regions contributed to growth in the quarter with broad-based contribution across emerging markets in Europe, driven by the U.K. In the U.S., growth in the quarter improved. However, below are expectations and included impact from the establishment of the new Coal Plus Distribution Center that I explained earlier. Continence Care organic growth was 8% for the first nine months, and growth in Danish Corner was 6%. In Q3, organic growth was 8%, and growth in Danish Corner was 9%. Growth in the quarter was driven by good momentum in intermittent catheters across the SpeedyCath portfolio and the male Lugia intermittent catheter, which made a strong contribution to growth in our third quarter. Our bowel care business also contributed to growth driven by Peristin Plus in Europe, as well as the U.S., From a geographical perspective, growth was broad-based across regions, led by Europe, especially France and the U.K. Markets where reimbursement has been recently established or improved, such as Poland, continued to perform well and grew double-digit. In the U.S., growth in the quarter was impacted by the establishment of the new Colplast Distribution Center. Voice and Respiratory Care posted 10% organic growth for the first nine months, with growth in Danish Kroner of 8%. In Q3, organic growth was 11% and growth in Danish Corner was 9%. Reported revenue includes negative impact from product rationalization of 1% in the first nine months of the year and 2% in Q3. I am very satisfied with this performance, which continues to be at the upper end of our guidance range for voice and respiratory care, and it's driven by broad-based contributions from both laryngectomy and tracheostomy. Growth in laryngectomy in Q3 was high single-digit, driven by an increase in the number of patients served in both existing and new markets, as well as an increase in patient value, which is driven by the ProvoxLife portfolio. Growth in tracheostomy in the quarter was double-digit, driven by continued solid demand and positive impact from forward integration. From a geographical perspective, all regions contributed to growth led by Europe, as well as solid contribution from the U.S. In advanced wound care, organic growth was 10% for the first nine months, and growth in Danish Kroner was 42%. Organic growth in Q3 was 13%, and growth in Danish Kroner was 51%. Reported growth for the period includes impact from the acquisition of Kerasys. The advanced wound dressings business grew 10% organically in the first nine months. In Q3, organic growth in advanced wound dressings was 13%, which includes benefit from a lower baseline last year. and from order-facing in Germany. From a product perspective, the biotin silicone portfolio was the main growth contributor, while from a geographical perspective, growth was driven by Europe, especially Germany, as well as a solid contribution from emerging markets. Revenue from Kerasys amounted to 730 million Danish kroner in the first nine months and 269 million Danish kroner in Q3. The underlying revenue growth was around 35% in both periods. The inpatient channel and surgical wounds were the main contributors to growth. CARES' operating profit margin excluding PPA amortization was around 10% in both periods in line with our expectations. In interventional urology, organic growth was 4% for the first nine months and growth in Danish Corner was 3%. In Q3, both organic growth and reported growth in Danish Corner were 2%. The men's health business in the U.S. was the main growth contributor in the quarter, while both women's health and the bladder health and surgery businesses detracted from growth. The women's health business continued to be impacted by competitive pressure. The bladder health and surgery business was negatively impacted by backorders, which emerged as a result of constrained supplier capacity. We're already seeing an improvement in the backorder situation here in our fourth quarter, and as a result, we expect growth in interventional urology to return to mid-single digit in Q4. From a geographical perspective, the U.S. was the main growth contributor in Q3. With this, I will now hand over to Anders, who will take you through the financials and outlook in more detail. Please now turn to slide number five.

Thank you, Christian, and good morning, everyone. Reported revenue for the first nine months of the year increased by 1.8 billion Danish kroner, or 10% compared to last year. Organic growth contributed 1.4 billion Danish kroner or around 8% to reported revenue. Acquired revenue from kerosene acquisition contributed with 730 million Danish kroner to reported revenue in the first nine months of the year, reflecting nine months of impact. Acquired revenue contributed around 4% to reported revenue in the first nine months. One exchange rate had a negative impact of 305 million Danish kroner on reported revenue or around 2%, related to the depreciation of the U.S. dollar, the Japanese yen, and the basket of emerging market currencies against the Danish kroner, most notably the Argentinian peso. Please turn to slide number six. Gross profit for the first nine months amounted to 13.6 billion Danish kroner, corresponding to a gross margin of 68% compared to 67% last year. The gross margin was positively impacted by the inclusion of kerosene which contributed with around 100 basis points. In addition, favorable development in input cost, price increases, and a baseline benefit of around 40 basis points from the Italian payback reform also had a positive impact on the gross margin. The positive development in the above-mentioned factors was partly offset by double-digit wage inflation in Hungary and ramp-up costs at our manufacturing sites in Costa Rica. The gross margin also included negative impact from currencies of around 80 basis points. I would also like to share that here in July we hedged around 70% of the expected electricity consumption in Hungary for 25, at a price of around 100 euros per megawatt hour compared to 150 euros per megawatt hour, which is in the price we hedged here in 24. Operating expenses for the first nine months amounted to 8.1 billion Danish kroner. The like-for-like increase in operating expenses excluding inorganic impact from kerosene was 383 million Danish kroner, or 5% compared to last year, in line with expectations. Kerosene contributed with 698 million Danish kroner to operating expenses, of which 77 million Danish kroner were related to the PPA amortization included under distribution costs. The distribution to sales ratio for the first nine months was 33% compared to 31% last year and includes impact from chaos and related PBA amortization costs, as well as increased level of commercial activities, including activities related to product launches here in Q3. Distribution costs in Q3 also included extraordinary costs related to the newly established U.S. distribution center. These extraordinary costs are expected to continue into Q4. The admin-to-sales ratio for the first nine months was 5% on par with the last year, primarily impacted by the inclusion of Kerasys. The R&D-to-sales ratio for the first nine months was 3% of sales compared to 4% last year. Overall, this resulted in an increase in operating profit before spatial items of 7% for the first nine months. corresponding to an EBIT margin before special items of 27% compared to 28% last year. The EBIT margin in the first nine months included negative impact of around 100 basis points from the inclusion of kerosene, including the PPA amortization cost. Currencies also had a negative impact on the reported EBIT margin of around 100 basis points, mostly related to the depreciation of the U.S. dollar and a basket of emerging market currencies against the Danish kroner. as well as the appreciation of the Hungarian for rent against the Danish kroner. Financial items in the first nine months were at a net expense of 621 million Danish kroner compared to a net expense of 628 million Danish kroner last year, driven mostly by interest expenses related to the financing of the ADSOS medical acquisition. The tax expense in the first nine months was 1 billion Danish kroner with a tax rate of 22%, compared to a tax rate of 21% last year. As a result, net profit before special items for the first nine months of the year increased by 7% compared to last year. Diluted earnings per share before special items increased by 1% to 16.87 Danish kroner and include impact from the equity raise in August 23. Please turn to slide 7. Operating cash flow for the first nine months was an inflow of 718 million Danish kroner compared to an inflow of 2.3 billion Danish kroner last year. The development in cash flows was driven by higher income tax paid in the second quarter related to the AdSense Medical Intellectual Property Transfer with a negative impact of 2.5 billion Danish kroner. The tax payment will be offset by reduced tax payments in the following years starting from this financial year. The tax payment was also partly offset by an increase in operating profit and an improvement in changes in working capital. Cash flow from investing activities was an outflow of 904 million Danish kroner compared to an outflow of 655 million Danish kroner last year. CapEx in the first nine months amounted to around 5% of sales on power last year. As a result, the free cash flow for the first nine months was an outflow of 186 million Danish kroner compared to an inflow of 1.7 billion Danish kroner. Excluding impact from the extraordinary tax payment of 2.5 billion Danish kroner, the adjusted free cash flow in the first nine months of 2023-2024 was an inflow of 2.3 billion Danish kroner. The trading 12-month cash conversion was 82%. Networking capital amounted to around 27% of sales compared to 26% last year, impacted by timing and country sales mix. We now expect the networking capital to be around 26% for this financial year. The long-term expectation of networking capital to sales ratio of around 24% is still unchanged. At the same time, we also adjusted the full year 2023-2024 Guidance on capex now expected around 1.3 billion Danish kroner from previously around 1.4 billion Danish kroner. Now let's look at the financial guidance for the year. Please turn to slide 8. Our financial guidance for 2023-2024 financial year is largely unchanged. We are on track to deliver a good year with growth above the market and a significant growth in absolute profits. The organic revenue growth for the year is still expected around 8% and the underlying assumptions on the performance by business area and geographies are unchanged. Our reported revenue growth in Danish kroner is still expected to be between 10 and 11% and continues to assume around 4 percentage points contribution from currencies and between 1 to 2 percentage points negative impact from currencies. We continue to expect a reported EBIT margin before spatial items of 27-28%, with unchanged underlying assumptions of a gross margin of around 68%. Prudent management of operating expenses and a negative impact from currencies of around 100 basis points, including around 100 million Danish kroner in amortization charges. I now expect negative impact from currencies of around 70 basis points from previously around 50 basis points. For 2023-2024, I expect around 80 million Danish kroner in spatial items related to the ongoing integration of ATOS. The net financial expenses for 2023-2024, I now expect around minus 850 million Danish kroner impacted by interest expenses. No changes to our assumptions on effective tax rates expected at around 22%. Thank you very much, operator. We are now ready to take questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. The first question comes from the line of Jack Reynolds. RBC Capital Markets. Please go ahead.