Coloplast As Sp/Adr

Thank you very much, operator. Good morning, and welcome to our full year 23-24 conference call. I am Christian Willemsen, the CEO of Coloplast, and I'm joined by our CFO, Anas Learning Skoko, and our investor relations team. We'll start with a short presentation by Anders and myself, and then open up for questions as we usually do. Please turn to slide number three. We delivered 8% organic growth and a reported EBIT margin before special items of 27% for the 23-24 financial year. Return on invested capital after tax and before special items was 15%, reflecting impact from the acquisition of Kerasys. This year, we continue to help millions of people with intimate healthcare needs, and we also welcome more than 270,000 new users to our support program, Coloplast Care. In our fourth quarter, we delivered organic growth of 8% and a reported EBIT margin before special items of 26%. Anders will take you through the details later, but the EBIT margin in the quarter reflects significant negative impact from extraordinary costs, as well as negative impact from currencies. The EBIT margin run rate going into the 24-25 financial year is 27%. I'm satisfied with this year's organic growth of 8%. which reflects continued market share gains and a strong year in our chronic care businesses in Europe and emerging markets. Our two smaller businesses, Voice and Respiratory Care and Advanced Mooncare, both grew double-digit. Care Assist delivered growth of around 35% in line with our plan and with continued strong reception of the fish skin technology in the U.S.-centric biologics market. This was also a year of launches. with a significant number of new products being launched in our chronic care businesses and advanced wound care, and I'll get back to this in more detail later. We have a lot to be proud of this year, but we also encountered some significant challenges. The establishment of the new distribution center for the U.S. market has led to supply disruptions and extraordinary costs, impacting both our customers and financial performance, mostly in chronic care. The situation is now largely resolved, and we're able to meet the demand in the market, but we continue to operate at a lower efficiency level, and we expect operational efficiency to be fully normalized by the end of the first half of the 24-25 financial year. Our interventional urology business grew below expectations, impacted by competitive pressure, and while the business is expected to remain the lower growth ambition short-term, We are confident that we can return to high single-digit growth beyond the strategic period supported by the anticipated entry in the overactive bladder market within Tibia in the 25-26 financial year. Now let's look at some of the key highlights from our STRIVE25 strategy. Please turn to slide number four. First, let me talk a bit to growth. With our STRIVE25 strategy, we set out to add long-term growth and value creation options to our portfolio through M&A. We made three significant investments in the first half of the strategic period with the acquisitions of Atos Medical, Kerasys, and Intivia. We are now almost three years into the acquisition of Atos Medical, and I'm satisfied that both performance and integration of the business have progressed in line with our expectations. We also continue to see a significant white space opportunity with many people either not having access to the products or using significantly less products than optimal. I've said many times that ATOS Medical is a business that shares the same characteristics as our ostomy and continence care businesses. It uses the same growth model of great products, long-term partnerships with clinicians, and a strong direct-to-consumer engine and as such represents a significant long-term growth and value creation opportunity, much like our ostomy incontinence businesses have been for decades. With Kerasys, we acquired a highly differentiated technology based on fish skin. We aim to build a category leader in the biologics market with this acquisition. Kerasys gives us an opportunity to transform the value creation from our advanced wound care business and turn it into a strong contributor to the group. To support Keras's growth trajectory and continued market share gains, we have a strong focus on strengthening the body of clinical evidence that documents the performance of the Fishkin technology. Recently, we published the results of a new randomized controlled trial that we call ODIN. The ODIN study is the largest Keras's study to date, with 255 patients showing superior healing of severe diabetic foot ulcers treated with Kerasys fish skin compared to the standard of care. We will use the study results to continue expanding coverage in the U.S., and we have also submitted the study for consideration in the local coverage determination process. We continue to expect the final LCD policy to be published by the end of 2024. Next, let me talk a bit to innovation. is a year with several significant product launches that will support growth during STRIVE25 and beyond. With LUJA, our new intermittent catheter with a unique micro-hole zone technology, we're setting a new standard in the category by addressing key risk factors related to urinary tract infections, which remain a significant challenge for users. We're already seeing significant contribution to growth incontinence care from the male Lugia catheter and the launch of the female catheter is ongoing. The product is currently available in five markets where it's received very positive customer feedback. In ultimate care, we strengthened our main growth driver, the Sensura Mio portfolio with three new strategic product expansions in 2024. We also launched Halo, our digital leakage notification device in the UK where the product received national reimbursement earlier this year. and work to obtain reimbursement in Germany is ongoing, but it's been delayed, and we now expect launch of Halo in Germany in the second half of 2025. In advanced wound dressings, we launched biotane silicone fit, a new silicone dressing for the U.S. market with the aim to increase our presence in this key geography, where today we have a limited position. Now let me zoom in on operational efficiency. We're making good progress on the diversification of our manufacturing footprint. The ramp-up of Costa Rica continued during the year, and Costa Rica now accounts for 13% of produced volumes, almost double last year. The establishment of our new manufacturing site in Portugal is on track, and the site is expected to be operational in 2026. The site in Portugal will be the largest site for coal plants to date at around 30,000 square meters. The sites in Costa Rica and Portugal removed the need for additional factories until the 2930 financial year. Finally, on our sustainability initiatives, we continue to make good progress on our recycling efforts where we are ahead of our 2025 ambition, with 77% of our production waste now recycled. In addition, we reduced our Scope 1 and 2 emissions by 27%, from the base year 18-19, mostly driven by efficiency improvements and the phase-out of natural gas. Let's look at today's results in more details. Please turn to slide number five. In ostomy care, organic growth was 7% for the full year, and growth in Danish Kona was 6%. Organic growth in Q4 was 6%, and growth in Danish Kona was 7%. Our Sensura Mu portfolio continues to be the main growth driver, followed by the Bravo range of supporting products. Our Sensura and Asura alternative portfolios continue to post solid growth in emerging markets. From a geographical perspective, all regions contributed to growth in Q4. The U.S. posted double-digit growth and benefited from the resolution of the supply disruptions related to the establishment of the new distribution center, which emerged in Q3. Growth in emerging markets was held back by a high baseline last year, most notably in China, which had a neutral impact on growth in the quarter. In Continence Care, organic growth was 8% for the full year and growth in Danish Kona was 7%. In Q4, organic growth was 10% and growth in Danish Kona was 12%. Growth in the quarter was driven by good contribution from all segments with intermittent catheters in the SpeedyCath portfolio as the main growth contributors. The new Lugia intermittent catheter also made a strong contribution to growth in Q4, showing an acceleration compared to Q3. Growth in our bowel care business was driven by Peristein Plus in Europe and the U.S. Our collecting devices also made a solid contribution to growth in the quarter from a lower baseline last year. From a geographical perspective, growth was broad-based across regions. The U.S. made a solid contribution to growth and benefited from the resolution of the supply disruptions related to the establishment of the new distribution center. Markets where reimbursement has been recently established or improved, such as Poland, continued to perform well and grew double-digit. Voice and Respiratory Care posted 11% organic growth for the full year with growth in Danish Krona of 9%. In Q4, organic growth was 12% and growth in Danish Krona was 10%. Reported revenue includes negative impact from product rationalization of 1% in the full year and 2% in Q4. This strong performance in voice and respiratory care continues to be driven by thought-based contributions from both laryngectomy and tracheostomy, both of which grew at a double-digit rate in Q4. In laryngectomy, growth was driven by an increase in the number of patients served in existing and new markets, as well as an increase in patient value driven by the Provox life. portfolio. Growth in tracheostomy in the quarter was driven by continued solid demand and positive impact from forward integration. From a geographical perspective, all regions contributed to growth led by Europe and the U.S. In advanced wound care, organic growth was 10% for the full year and growth in Danish corona was 40%. Organic growth in Q4 was 10% and growth in Danish corona was 33%. Reported growth for the year includes 11 months inorganic impact, from the acquisition of Kerasys. Growth in advanced wound care in Q4 was driven by a strong quarter in skin care and one month organic contribution from Kerasys partly upset by lower growth in advanced wound dressings. The advanced wound dressings business grew 8% organically in the full year and 4% in Q4. Growth in the quarter included impact from a higher baseline last year and from order phasing in Germany. From a product perspective, the biotin silicone portfolio was the main growth contributor while from a geographical perspective, growth was broad-based, excluding Germany. Revenue from Kerasys amounted to around 1 billion Danish kroner in the full year, of which 296 million Danish kroner in Q4. The underlying revenue growth was around 35% in both periods. The inpatient channel and surgical wounds were the main growth contributors. Kerasys' operating profit margin, excluding PPA amortization, was around 10% in both periods. in line with our expectations. In interventional urology, organic growth was 5% for the full year and growth in Danish krona was 4%. In Q4, organic growth was 7% and reported growth in Danish krona was 6%. The men's health and endourology businesses were the main growth contributors in the quarter. Growth in the quarter also benefited from women's health, which returned to growth from a lower baseline in Q4 last year. and from the backwater situation in bladder health and surgery, which was stabilized in Q4. From a geographical perspective, the U.S. was the main growth contributor in Q4. And with this, I will now hand over to Anders, who will take you through the financials and outlook in more detail. Please turn to slide number six.

Thank you, Christian, and good morning, everyone. Reported revenue for the full year increased by 2.5 billion Danish kroner, or 10%, compared to last year. Organic growth contributed 1.9 billion Danish kroner, or around 8%, to reported revenue. Acquired revenue from the kerosene acquisition contributed with 918 million Danish kroner to reported revenue in the full year, reflecting 11 months of inorganic impact. Acquired revenue contributed around 4% to reported revenue in the full year. One exchange rate had a negative impact of 260 million Danish kroner on reported revenue, or around 1%, related to the depreciation of the U.S. dollar, Japanese yuan, and a basket of emerging markets currencies, most notably Argentinian peso, against the Danish kroner. Please turn to slide number seven. Gross profit for the full year amounted to 18.3 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 chaoses, which contributed 100 basis points. In addition, favorably developing input costs, price increases, and the 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 significant negative impact from currencies of around 80 basis points. Operating expenses for the full year amounted to around 11 billion Danish kroner. The like-for-like increase in operating expenses excluding inorganic impact from currencies was 619 million Danish kroner or 7% compared to last year. Operating expenses developed largely in line with expectations with the exception of the extraordinary cost related to the establishment of the new distribution center in the U.S. Keros has contributed with 990 million Danish kroner to operating expenses in the year, of which 102 million Danish kroner were related to the PPA amortization included under distribution costs. The distribution to sales ratio for the full year was 33% compared to 31% last year. and includes impact from Kerasys and related PPA amortization costs. Distribution costs also include around 60 million Danish kroner in extraordinary costs related to the new US distribution center impacting the second half of the year. The admin to sales ratio for the full year was 5% on par with last year, primarily impacted by the inclusion of Kerasys. The R&D to sales ratio for the full year was 3% of sales compared to 4% last year. Overall, this resulted in an operating profit before special items of 7.3 billion Danish kroner in the full year, and a 6% increase compared to last year. The EBIT margin before special items for the year was 27% compared to 28% last year. The EBIT margin included negative impact of around 100 basis points from the inclusion of kerosene, including PBA amortization costs. Currencies also had a negative impact on the reported EBIT margin of around 80%, basis points, mostly related to the depreciation of the U.S. dollar and the basket of emerging market currencies against the Danish kroner. Let me also put a few words to our EBIT margin development in the fourth quarter. We delivered an EBIT margin before special items of 26%, a result that was below our expectations and impacted by extraordinary costs and currencies. Our fourth quarter included 45 million Danish kroner in extraordinary cost related to the U.S. distribution center, which was higher than my early expectations of around 35 million Danish kroner. We also had a one-off write-down of assets of around 25 million Danish kroner, impacting other operating expenses. Finally, currencies also put more pressure on the margin than initial estimates based on the spot rates from August. I expect the extraordinary cost to gradually diminish as we move into the new financial year, and I expect an improvement in our EBIT margin already in the first quarter of 2024-2025 compared to Q4. I'll get back to this on the next slide. Financial items in the full year were at a net expense of 925 million Danish kroner compared to a net expense of 746 million Danish kroner last year, driven mostly by interest expenses related to the financing of the AdSense medical acquisition. The tax expense in the full year was 1.3 billion Danish kroner with a tax rate of 21% on par with last year which includes positive impact from the transfer of AdSense medical intellectual property. The tax rate for the year was better than our previous expectations of around 22% due to mix of currencies. As a result, net profit before special items for the full year increased by 4% compared to last year. Diluted earnings per share before special items decreased by 1% to 22.34 Danish kroner. Please turn to slide 8. Operating cash flow for the full year was an inflow of 2.8 billion Danish kroner compared to an inflow of 4.2 billion Danish kroner last year. The development in cash flows... was driven by a higher income tax paid in the second quarter related to the AdSense Medical Intellectual Property Transfer, with a net negative impact of 2.5 billion Danish kroner. The tax payment will be offset by reduced tax payments in the following years, starting from full year 2023-2024. The tax payment was only partly offset by an increase in operating profits. Cash flow from investing activities was an outflow of 1.3 billion Danish kroner compared to an outflow of 9 billion Danish kroner last year, impacted by the acquisition of Kerasys. CapEx for the full year amounted to around 5% of sales, on par with last year. As a result, the free cash flow for the full year was an inflow of 1.4 billion Danish kroner compared to an outflow of 4.7 billion Danish kroner last year, excluding impact from extraordinary tax payments of 2.5 billion Danish kroner In Q2, the adjusted free cash flow for the year was an inflow of 3.9 billion Danish kroner. The trailing 12-month cash conversion was 81%. And networking capital amounted to around 25% of sales compared to 26% of sales last year driven by positive development in our inventories. Now let's look at the guidance for 24-25 financial year. Please turn to slide 9. For the 24-25 financial year, we expect organic revenue growth of 8-9% and an EBIT margin before special items of around 28%. Reported revenue growth in Danish kroner is expected to be around 8-9% with neutral impact from currencies. The organic revenue growth guidance assumes continued good momentum and stable supply and distribution of products across the company. Growth across businesses and geographies is expected to be largely in line with our STRIVE25 assumptions, with the exception of our China chronic business and interventional urology. The chronic business in China and interventional urology businesses are both expected to grow at a mid-single-digit rate. Chaos is expected to continue its strong growth trajectory and contribute around one percentage point to group organic growth. This assumes that kerosene will remain on the covered list of products in the final LCD policy. We have no current knowledge of significant healthcare reforms, and we expect positive pricing impact in 2024-25, however, at a lower level compared to last year. The gross margin in 2024-25 is expected to be around 68% and improve compared to last year, driven by easing of inflationary pressure across input cost categories. In our biggest cost of goods sold category, raw materials, we expect flat development in prices year over year. Value adjustments in Hungary are expected to be around mid-single digit compared to around double digit last year. Electricity prices in Hungary, where we manufacture around 70% of our volumes, are hedged at around €100 per MWh compared to an average price of around €150 per MWh in 2023-2024. The positive development from the low inflation across input costs is expected to be partly offset by ramp-up activities in Costa Rica and Portugal. The EBIT margin guidance before special items assumes prudent management of operating costs expected to grow below reported revenue in Danish kroner. The EBIT margin assumption also includes positive impact of around 30 basis points related to initiatives to improve profitability in our advanced wound care business. excluding kerosene. The scope of the initiatives will be finalized in our first quarter with the expected full impact from Q2. For kerosene, we expect a year with improved profitability. However, the negative impact on the group is expected to remain at around 100 basis points. The negative impact from the establishment of the U.S. distribution center is expected to gradually come down by the end of first half of 24-25 with lower impact compared to 23-24. Parentheses are expected to have a neutral impact on the EBIT margin. In terms of phasing, we expect organic growth to be in the guidance range during the year. On the EBIT margin, we expect to start the year with an EBIT margin of above 27% in the first quarter, and then the EBIT margin is expected to gradually increase from here over the year. For 23-24, I expect around 130 million Danish kroner in special items, mostly related to the ongoing integration of ATSOS Medical and the above-mentioned initiative to improve profitability in advanced wound care. The net financial expenses for 24-25 are expected at around minus 750 million Danish kroner, mostly related to interest expenses from the financing of ATSOS Medical. Our effective Tax rate for 24-25 is expected to be around 22%, but our long-term expectations for our tax rate of around 23% are unchanged. CapEx is expected to be around 1.4 billion Danish kroner and includes investments related to the establishment of our new manufacturing site in Portugal. On networking capital, I expect a networking capital to sales ratio in 24-25 in line with our long-term term expectations of around 24 percent. With this, I hand it over to Christian for final remarks. Please turn to slide number 10.

Today, we announced that the Board of Directors have decided to expand our Coal Plastic Executive Leadership Team with immediate effect. We're now entering the final year of our STRIVE25 strategy. In this strategic period, we've made significant investments to expand the reach of the company and build fork world platforms to drive value creation in the years to come. The decision to expand the cold blast ELT was made to reflect this. Our upcoming 2030 strategy will be focused on unfolding the potential of our chronic care, abortion respiratory care, advanced wound care, and interventional urology businesses to deliver profitable growth. This is the task in front of the new ELT, and the new strategy will be communicated in the late summer of 2025. In the new setup, the Chronic Care Commercial and Innovation Organization will be gathered under one leader, Nikolai Poul, who is now Executive Vice President of Chronic Care. Paul Markin, previously leading our Chronic Care Commercial Organization, has decided to retire after a successful tenure at Coldplast. I'd like to take this opportunity to thank Paul for his commitment to our company throughout the last decade. He's been instrumental in delivering our STRIVE25 strategy and a valuable member of the ELT. The new ELT will include two new members, Kaulina Warnhoff-Holstenstern, leading voice in respiratory care, and Tommy Johns, leading interventional urology. Caroline and Tommy are both respected and experienced Gold Plus leaders, each in charge of one of our important gold platforms. In this strategic period, we've also invested into becoming a bigger player in advanced wound care in both dressings and biologics. There's a lot going on in both businesses. In our advanced wound dressings business, we're focused on significantly improving profitability. With Care Assist, we're focused on delivering year two of our commercial plan and integrating the business onto Cold Blast's IT infrastructure. As a consequence, our advanced wound care business will be represented in the ELT once we've successfully concluded the ongoing work. And for now, both businesses will continue to report directly to me. With this, I'd like to welcome the new members of the ELT and congratulate those that have a new responsibility. I look forward to starting the work on the 2030 strategy here in the autumn and unfolding the potential of our business to deliver on our long-term guidance of 8% to 10% organic growth and an average margin of above 30%. Finally, I'd like to say thank you to our more than 16,000 employees at Coal Plus for their continued commitment and hard work this year. I'd also like to thank our users, our clinician partners, and investors for their confidence in our company. Thank you very much. Operator, we are now ready to take questions.