Coloplast As Sp/Adr

Ladies and gentlemen, welcome to the Coloplast AS Q1 2024-25 Earnings Release Conference Call. I'm Valentina, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing SA and 1 on your telephone. For operator assistance, please press SA and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Willemsen, President and CEO. Please go ahead.

Good morning and welcome to our Q1 2425 conference call. I'm Christian Willemsen, the CEO of Coloplast, and I'm joined by our CFO, Anas Laninskoglu, and our investor relations team. We'll start with a short presentation by Anderson, 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%, which was in line with our expectations. Adjusted return on invested capital after tax and before special items was 15% on par with last year. Let me start today's call with a few highlights. On the 14th of November, 2024, the final local coverage determination policy for skin substitutes was announced. Kerasys was one of the few products that was added back to the final list of covered products as a result of the strong clinical evidence backing the efficacy of the Fishkin technology. Following a freeze of all regulatory guidance not yet in effect by the new U.S. administration, the implementation date of the final LCD policy has been moved by two months to the 13th of April, 2025. CareAssist's products are currently covered and will remain covered once the final LCD policy is implemented, and as such, this updated implementation timeline is not expected to impact current trading. Next, in December 2024, we announced the divestment of our skincare business. The divestment is a key initiative from the Simplicity and Profitability Improvement Program for our advanced wound care business area, which will result in a positive impact on the group EBIT margin of around 30 basis points this financial year. The divestment will reduce reported revenue for 24-25 with around 350 million Danish kroner or around 1.5 percentage points impact on reported revenue growth. Now, let's look at a few performance highlights from Q1. Our chronic care business is off to a good start with both ostomy care and continence care outgrowing the market. Incontinence Care Q1 marked the first quarter in which Luja was the main contributor to growth driven by the male catheter. We continue to receive strong feedback on Luja and its micro-hole zone technology from both users and healthcare professionals. We also continue the rollout of the female version of the catheter now available in nine markets with the U.S. as the latest launch market. Our two newest additions to the portfolio, Atos Medical and Kerasys, are also off to a good start with continued strong momentum and double-digit growth in the quarter. Finally, Q1 also marked a soft start in our interventional urology business in our emerging markets region. And interventional urology growth in the quarter was impacted by a voluntary product recall related to packaging initiated in December 2024. The issue with the packaging has been resolved, and we will resume sales of the affected products here in February. The emerging markets growth was impacted by a high baseline last year But despite the softer start, I expect an improvement in both businesses during the year. Now, let's look at today's results in more detail. Could I ask you to please turn to slide number four? In Honest to Me Care, both organic growth and growth in Danish Kroner were 7% in the first quarter. The Sensora Mio portfolio was the main growth contributor in Q1. Our latest addition to the ostomy care portfolio, Censura Mu in black, is off to a good start in the 12 markets where the range has been launched. Bravo range of supporting products also made a solid contribution to growth while our Censura and Asura alternative portfolios continue to drive growth in emerging markets. From a geographical perspective, growth in Q1 was driven by solid contributions from Europe and the U.S. The emerging markets region was impacted by a high baseline last year, as mentioned earlier, and delivered a softer Q1. The U.S. posted double-digit growth in the quarter, which includes solid underlying demand and also some benefit from a lower baseline last year. In continence care, both organic growth and growth in Danish Kona were 7% for Q1. The Lugia portfolio was the main growth contributor in the quarter, driven by the male catheter in the U.K. and Germany. The speedy cath and admittance catheters also contributed to growth in the quarter. Our two smallest segments in continence care, bowel care and collecting devices, both contributed to growth in Q1. From a geographical perspective, growth was driven by Europe and the U.S., while growth in emerging markets was impacted by a high baseline, as mentioned previously. Voice and respiratory care posted 11% growth for Q1, with growth in Danish corona of 10%. Strong performance in voice and respiratory care continues to be driven by broad-based contributions from both laryngectomy and tracheostomy, both of which grew at a double-digit rate in Q1. 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 ProvoxLife portfolio. A recent example of how we continue to develop the laryngectomy market comes from France, where reimbursement for heat and moisture exchangers was expanded from one HME per day to multiple HMEs per day, allowing users better choice and better situational use of the products. Growth in tracheostomy in the quarter was driven by continued solid demand and an increase in the number of patients served. From a geographical perspective, all regions contributed to growth, led by Europe and the U.S. In advanced wound care, organic growth was 12% for Q1 and growth in Danish corona was 7%. Reported growth includes four percentage points negative impact from the divestment of the skincare business reflecting one month of impact. Kerasys was the main growth contributor in advanced wound care with continued solid momentum and growth of 32% in Q1. Growth was broad-based with contributions from both the inpatient and outpatient segments. Kerasys' operating profit margin excluding PPA amortization was 12% in the quarter in line with expectations. The advanced wound dressings business grew 6% in Q1. From a product perspective, biotin fiber was the main growth contributor, followed by biotin silicone. In October 2024, our dressing portfolio was strengthened with the launch of biotin superabsorber, a soft and non-adhesive dressing for the treatment of wounds with high volumes of exudate. The product has been launched in key European markets with very positive feedback. In interventional urology, both organic growth and growth in Danish Kona were 1%. As mentioned earlier, growth in the quarter includes negative impact from the voluntary product recall in bladder health and surgery of around 25 million Danish Kona. We expect continued negative impact from the product recall in the second quarter of around 15 million Danish Kona, and as I mentioned earlier, sales of the effective products will resume here in early February. We expect to recover the majority of the lost revenues in the second half of the year as we continue to see unmet demand in the market for the effective products. The negative impact from the product recall was partly offset by a solid quarter in the endourology business driven by our laser equipment, the sodium fiber laser drive, and the men's health business in the U.S. also contributed to growth, while the women's health business had a neutral impact on growth. From a geographical perspective, the U.S. was the main growth contributor in Q1, while Europe detracted from growth due to the product recall. With this, I'll now hand over to Anders, who will take you through the financials and outlook in more detail. Please turn to slide number five.

Thank you, Christian, and good morning, everyone. Reporter revenue for Q1 increased by 420 million Danish kroner, or 6%, compared to last year. Organic growth contributed around 500 million Danish kroner, or around 8%, to reported revenue. Revenue from divested operations, mostly related to the divestment of the skincare business in December 24, reduced reported revenue by 47 million Danish kroner, or around 1%. Front exchange rates reduced reported revenue by 32 million Danish kroner, or around 1%, mostly related to the depreciation of a basket of emerging market currencies, such as the Argentinian peso, the Brazilian real against the Danish kroner, as well as the Japanese yen against the Danish kroner. This negative impact was only partly offset by the appreciation of the British pound against the Danish kroner. Please turn to slide number 6. Gross profit for Q1 amounted to 4.8 billion Danish kroner, corresponding to a gross margin of 68% on par with last year. The gross margin was positively impacted by a favourable development in input cost, price increases, and country and product mix. The positive development in the above-mentioned factors was partly offset by ramp-up costs of our manufacturing sites in Costa Rica and Portugal. The gross margin also included negative impact from currencies of around 40 basis points. Operating expenses for Q1 amounted to around 2.8 billion Danish kroner, increasing by 6% compared to last year. The distribution to sales ratio for Q1 was 33% compared to 32% in Q1 last year. The increase in distribution cost was driven by continued commercial investments in kerosene and higher sales activities across markets. The distribution cost also included around 20 million Danish kroner, extraordinary cost related to the new distribution center in the US. The admin to sales ratio for Q1 was 4% compared to 5% last year, primarily impacted by high baseline as well as benefits from synergies from the AdSense Medical integration. The R&D to sales ratio for Q1 was 3% of sales compared to 4% last year. Overall, this resulted in an operating profit before special items of 1.9 billion Danish kroner in Q1 and a 5% increase compared to last year. The EBIT margin before special items for Q1 was 27% compared to 28% last year. The EBIT margin continues to include negative impact of around 100 basis points from currencies, including PPA amortization costs. Currencies also had a negative impact on the reported EBIT margin of around 40 basis points, most related to the depreciation of a basket of emerging market currencies, as well as Japanese yen against the Danish kroner. Financial items in Q1 were a net expense of 69 million Danish kroner compared to a net expense of 253 million Danish kroner in Q1 last year, driven mostly by interest expenses related to the financing of the ASOS medical acquisition. The finance expenses were partly offset by gains on balance sheet items against the loss on balance sheet items last year. The ordinary tax expense in Q1 was 342 million Danish kroner with an ordinary tax rate of 22%, on par with last year. However, the total tax expense and the effective tax rate were impacted by an extraordinary tax expense of 336 million Danish kroner related to the transfer of Chaos' intellectual property from Iceland to Denmark. As a result of the extraordinary tax expense, the effective tax rate in Q1 amounted to 41%. The Kerasys IP transfer is made to ensure consistency with our tax model and will help us maintain simplicity in our infrastructure as we initiate the integration of Kerasys. The IP transfer will have a similar quarterly impact on the tax expenses for the rest of this financial year. As a result of the IP transfer, an extraordinary tax payment impacting cash flows will be made in Iceland from 26-27 at the earliest. The payment in Iceland will be fully offset by reduced tax payments in Denmark for a period of around 7 years, starting from 2024-2025. Adjusted for the kerosene IP transfer, net profit before special items in Q1 was 1.4 billion Danish kroner, or a 17% increase compared to last year. Adjusted diluted earnings per share before special items also increased by 17% to 6.38 Danish kroner. Please turn to slide number seven. Operating cash flow for Q1 was an inflow of 2 billion Danish kroner compared to an inflow of 1.8 billion Danish kroner in Q1 last year. The development in cash flows was mostly driven by positive development in changes in working capital, driven by trade receivables and inventories, partly offset by an increase in interest payments. Cash flow from investing activities was an outflow of 133 million Danish kroner compared to an outflow of 267 million Danish kroner last year. The development in cash flow from investing activities in Q1 includes positive impact of 192 million Danish kroner from the divestment of the skincare business. CapEx in Q1 amounted to 308 million Danish kroner with a CapEx to sales ratio of 4% on par with last year. As a result, the free cash flow for Q1 was an inflow of 1.9 billion Danish kroner compared to an inflow of 1.5 billion Danish kroner last year. Excluding the positive impact from the skin care divestment, the adjusted free cash flow was an inflow of 1.7 billion Danish kroner or an 11% increase from Q1 last year. The trading 12-month cash conversion was 85%. and net working capital amounted to around 25% of sales on power last year. Now let's look at the guidance for 24-25 financial year. Please turn to slide number eight. For the 24-25 financial year, we continue to expect organic revenue growth of 8% to 9% and an EBIT margin before special items of around 28%. The assumptions on both organic growth and the EBIT margin before special items outlined in November still largely hold. Reported revenue growth in Danish kroner is now expected to be around 7%, which includes around 1.5 percentage points impact from the skincare divestment and a neutral impact from currencies. On organic revenue growth, guidance assumes continued good momentum and stable supply and distribution of products across the company. A key development since November is the product recall in interventional urology, which creates a higher level of uncertainty, but as mentioned earlier, we are optimistic that we can recover majority of the lost sales in the second half of the year. On Kerasys, we continue to expect contribution of around one percentage point to our group organic growth, and the updated timeline for implementation of the final LCD does not change our expectations. On EBIT margin before special items, we continue to expect benefit from low inflationary pressure across cost categories and benefit from the profitability improvement initiatives in advanced wound care of around 30 basis points, mostly related to the skin care divestment. We are also starting to see a gradual improvement in the extraordinary cost related to the establishment of the U.S. distribution center, and we are on track to reach a normalized cost level at the end of Q2. For kerosene, we continue to expect a year with improved profitability. However, the impact for the group is still expected to remain at around minus 100 basis points. Finally, currencies are expected to have a limited positive impact on the EBIT margin with improvement expected as of Q2. In terms of phasing, we expect both organic growth and the EBIT margin to be second half weighted. For 2024-2025, I continue to expect around 130 million Danish kroner in special items. The net financial expenses for 2024-2025 are still expected at around minus 750 million Danish kroner, mostly related to interest expenses from the financing of Atos Medical Acquisition. Our ordinary tax rate for 2024-2025 is still expected to be around 22%. However, as a result of the Kairos' IP transfer from Iceland to Denmark, the effective tax rate is expected to be around 40% for the year. Our long-term expectations for tax rate of around 22 or 23% are unchanged. Capacity is still expected to be around 1.4 billion Danish kroner and includes investments related to the establishment of new manufacturing site in Portugal. On networking capital, I still expect the networking capital to sales ratio in 2024-2025 in line with our long-term expectations of around 24%. Finally, before we move to Q&As, I would like to mention that we will host a Capital Markets Day in Denmark on the 2nd of September 2025, where we will present our new 5-year strategy to the market. We will share further details about the event in due time. We look forward to seeing many of you in person in September. So 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 their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from a question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. And the first question comes from from Barclays. Please go ahead.

Thank you for taking my questions. I have three, please. Firstly, a high-level question on execution at Coloplast given recent distribution center issues as well as the small bladder health recall. What gives you confidence that these are isolated issues and that we should see more coloplast-like performance going forward? Secondly, on top line guidance, Christian, you talked about the lower end of the range reflecting an adverse outcome on the LCD last year. So is the upper end of the range now more likely? What are the key pushes and pulls to your mind when it comes to growth for the full year? And is LUJA still tracking ahead of internal expectations? And then thirdly, longer term within interventional urology, can you talk about how you're thinking about deepening penetration in the ITNS segment, which is low today, as in tibia launches and how you see coverage developing in this segment? Thank you.

That sounded an awful like five questions to me, Hassan, but why don't I take a stab at that. So on to the first question, high level on execution. We don't run a perfect company, and we've had two setbacks over the last 12, 18 months, one related to a distribution center and a quality problem in urology. We have dealt with those. I'll say the distribution center, we're back to service levels, and there'll be a little bit of cost lingering effect that we will very soon be out of. We have taken the learnings and the consequences from this, And then I'll say the company manufactures more than 1.5 billion medical devices. From time to time, quality issues happen. You should expect that we run a high-level, high-quality execution company, but not that we run a perfect company, Hasan. But these are certainly aberrations that I do not expect to repeat. On top line range, we are still guiding for eight to nine. So we're also guiding for a profile to growth this year where we are weighted to second half. What will drive a pickup in second half is EM. It is, of course, that we get out of the back order situation that we've had around IU We still continue to get good contributions to growth from innovation, and, of course, that our new acquisitions continue to deliver. It's a little too early to guide where we are on the range. We're just one quarter in. We also would like to see the LCD take effect, of course, but so far we're maintaining guidance, and I expect that we will land comfortably in range. On IU and the question on IT&S, For me right now, everything is about the clinical trial, Hasan, and what we can do with that technology will depend on the quality of the results that we get. And we will talk a lot more to how we think about commercializing the technology once we have the clinical data. We have, of course, thought about how you do that, what the commercial investments look like, what kind of training programs you put in place, what the commercial plan will look like. But at the end of the day, the strength of the clinical data will determine what kind of reimbursement that we'll be able to command and therefore also the strength of the case that we can make to clinicians in the market. So I'd like to speak more to that once I've got more clinical data in hand and then we can share what the commercial plan will look like.

Perfect. Thank you. I'll jump back in the queue.

Next question comes from Jay Cranall-Clarks from RBC Capital Market. Please go ahead.

Hi there. Thank you for taking the questions. I also have three, please. So starting with Kerasys and DFU, there's some kind of differing commentary coming from the different manufacturers around scope for the products included on the reimbursed list to benefit from the reduced number of products available on the market. Given the potential for the LCD to lead to the market to contract. Can you talk us through what gives you confidence that Coloplast will see volumes increase in DFU in April? And given this confidence, how's your thinking around medium term margin for Kerasys developed at all? The second question was on the manufacturing ramp-up costs. So I was wondering if you could quantify what costs from this have been included in the cost of goods in the quarter and remind us of your expectations of these costs going through the remainder of the year. And then my last question is on Larry, wondering whether you can quantify the contribution from the increase in patients versus the increase in patient value and how much kind of runway you see for patient value to increase over the medium term. Thank you.

So why don't I take question one and question three, and then Andres can take the question on manufacturing ramp-up costs. So on LCD, we are on the final policy. You will know now, like I commented on, that the implementation date has been postponed. We are on the list for DFUs but not for VLUs. We've also indicated that VLUs today is a low single-digit share of our portfolio. It's too early to talk about what kind of pickup will happen. We are, of course, deep in the operational planning. On this, and if you imagine that we have a reduction from a couple hundred products to less than 20, there will be, of course, quite a bit of commercial opportunity in that space. We are ready. We have a volume of product. We have the team in place. And exactly how it's going to play out, we don't know yet. We don't know yet. So the way that we're thinking about Kerasys is continuing the momentum, and of course it has the opportunity to accelerate if this plays out in our favor. When it comes to Larry, I'm very happy with the performance from ATOS on both Larry and Treyk. The growth model for the Larry business is part volume, so basically winning patients, getting them on to right product and right product mix and the right usage of product. And this has always been the growth formula. And you should remember that the ATOS business runs quite a large share of the business in our own channel. So we are speaking with patients on a monthly basis. We can introduce new products to patients on a monthly basis. And as you heard the example now from France, where we've worked on reimbursement changes over the past year and a half. We've managed to get the allowance for heat and moisture exchanges moved from one to multiple. And of course, that allows us to inform all patients that this reimbursement has taken effect and it drives a relatively immediate pickup. So it will be, my expectation is that it remains a key component of driving good service to patients, right product, right volume of product, right mix.

Okay, Christian and Lynn, Jack, let me take your second question around the manufacturing cost. So as you saw in our numbers, gross margin for Q1 is ballpark at the level of last year's Q1 gross margin level. It's driven by a couple of things. So first of all, the The input cost pressure is coming down. We are seeing that the low inflation levels are, you can see, impacting our input costs in a positive way. We have hedged energy prices at a lower level. And that is then partly offset by the higher manufacturing costs related to the ramp-up in Costa Rica. So we are still ramping up in Costa Rica. And then we are initiating the ramp-up in Portugal, where we are starting the investments, especially into white collar. And the other one that is offsetting the positives, that's foreign exchange rates. So those are the key moving parts on our gross margin for our first quarter. Thanks very much, Jess.

Any follow-up?

The next question comes from Richard from GS. Please go ahead.

Thank you very much. Good morning. Just two questions for me, please. The first one on Luja. I was wondering if you'd give any additional color on the traction you're seeing in the women's product. I think you've added a further four markets since your four-year results. I'm just interested to hear feedback on those additions and also how we should think about phasing of further market rollouts from here. That's the first one. And the second one, just to follow up on gross margin, and particularly the ramp-up costs in Costa Rica and Portugal, would it be possible to quantify the size of that headwind on gross margin and then thinking about the forward-looking impact, how we should think about that headwind in future periods and when it starts to reduce? Thank you.

Thanks, Richard. So the Lugia rollout continues. The male product is in top 12 markets now. We are in nine markets now with Lugia female, and it's getting good traction. I'm looking at similar pickup curves to the male product. Of course, for the purposes of moving the entire catheter franchise, we need a full offering to – to both males and females, so I'm glad to see that. And you'll see that rollout continue. We will be in the same market, so in top 12 markets, also with the female product, and that rollout will be happening during this year.

Yeah, and to your second question around the gross margin, so I talked to the moving parts for Q1. When I look at the full year, I'm expecting our gross margin to improve, to sit around the 68% level as we have guided for. So it's similar moving parts as Q1. So we are looking at a lower pressure from input cost. We have hedged the energy prices at a lower level. Compared to last year, we also have increased salaries in Hungary at a mid-single-digit level, whereas last year... It was a double-digit level. And then, yes, we are ramping up, as I said earlier, in Costa Rica still, and we're also starting up in Portugal, and that is offsetting some of the benefits we see on the other categories. And then the final thing is the foreign exchange rates. We had a negative, or we have headwind on that in Q1, and I'm expecting from Q2 we will start to see... some tailwind from FX. So those are the moving parts for the full year gross margin.

Thanks, Anders. And maybe just to follow up on the ramp-up costs in Costa Rica and Portugal. I mean, should we think about that getting potentially more of a headwind through the year, neutral, or slightly better from here in terms of the phasing of those projects?

I'm expecting a similar level, but remember also throughout the year, as normal, our revenue, absolute revenue, will be at a higher level, so we will also have some scalability as a consequence of higher absolute revenue throughout the year. But especially the ramp-up in Costa Rica will start to be finalized over the course of the year.

Thank you very much.

The next question comes from Antal Verma from JP Morgan. Please go ahead. And we now have a question from Lisa Clive from Bernstein. Please go ahead.

Hi. Three questions from me. First of all, women in continents, just thinking through when the declines there will stop losing a big headwind, I believe from your various disclosures that women's incontinence is probably around 11% of urology in recent years, with perhaps the business declining almost 50% last year. So just wanted to confirm that that's now maybe 5% of that portfolio and just trying to understand whether we're nearly at the bottom of that decline and when we'll see it annualized. Second of all, for VLU, for the Medicare patients in the physician's office, you're obviously not included. Apologies if I missed it, but do you have a trial underway? Is this an area where you're focused on trying to get reimbursement or because you tend to be more focused on the hospital channel, you'll just sort of let that go? And then lastly, on HALO, just would love an update on the outlook for reimbursement and market entries and just thoughts on the ramp up over the next 12 to 18 months.

Thanks. Thanks, Lisa. Three good ones. First off, on women's in urology, the... Julian, you can go ahead with your question now. Yeah. Can I just check that you have audio from our side? Yes. Yes, we do. Okay. Apologies. Before we move, Julian, before we move on to the next question, I think I owe Lisa... Lisa had a few questions that I would just address. Women's health, we had flat performance in the quarter, so the business decline has stopped. And, of course, the decline last year has taken the share of portfolio down. Now the strong focus is to drive the Altus product and the clinical evidence that we have around that product to serve customers. And, of course, the big news for that portfolio is is going to be the Antibia product, but the business decline has stopped. On the question of veal use for Kerasys, we have a trial underway, and of course we expect to also be admitted once that trial has concluded. And then finally, the question on HALO and the payers in Germany. Unfortunately, I have no news to report on that side. The German authorities have not provided an answer to us. With that, I think we can go on to you, Julian.

That's very fine. Hi, good morning, everyone. So I also have three questions, if I may. The first one relates to voice and respiratory care. Obviously, a pretty strong Q1, but I just noticed that the comps get significantly tougher for the remainder of the year. So how should we think about growth in that space? And you mentioned some positive reimbursement evolution. So is there anything there that could explain the relative confidence in sustained momentum for the next two quarters? Second question relates to keresis and the delay in the implementation of the LCDs. There's been also some speculation around that maybe it could be due to some political backlash and some providers asking for more time. What is your degree of confidence that this will actually take place in April, from April onwards? And the third question, could you just shed more light on this €26 million management restructuring charge that you had in Q1? Sorry if I missed that, but that's a pretty sizable amount, so just curious as to what it relates to.

Julian, thank you. Let me take the first two, and then Anders will take the last question. Boys in respiratory care, it is, of course, when you run a double-digit growth business, the comps gradually get harder. I'm expecting the business to deliver a year around double-digit. One of the call-outs that's positive on the laryngectomy side is the increased reimbursement in France. We've guided for the business when we acquired it that it would deliver between 8% to 10%. We're definitely comfortable in that range, and I'm glad we're starting at the high end of the range. The tracheostomy business is doing well. Good momentum, so all told, really, really good progress also on the integration side. On the Kerasys LCD, The delay, as we understand it, is following a freeze of all regulatory guidance. That's not yet in effect by the new U.S. administration. So it's not, if you will, something that is LCD specific, but it's one of these blunt instruments that have been made use of by the incoming U.S. administration. There is, of course, always uncertainty with these types of transitions, but for now I have No evidence to suggest that this would not go into effect come April.

And Julian, your third question related to the 26 million Danish kroner, that's related to the executive leadership changes we made back in November.

All right. Thank you very much.

The next question comes from Maya Stephanie Pataki from Kepler Chevro. Please go ahead. Yes, good morning.

Thank you very much for taking my questions. I have two. First of all, Christian, I was wondering if you could provide us a bit of an update on what you're seeing in U.S. chronic care sales post the disruption of the distribution center. In a call late last year, you mentioned that it will take you some time to understand whether there have been some market share losses and whether you can claim back those patients. I was wondering... If you have more color to share on that, and then my second question, how are you seeing the situation in China? Have there been any material or noteworthy change that you would like to talk about? Thank you.

Thank you, Maya. Two good questions. The U.S. business strong first quarter here. Just remember we had relatively benign comps also for this quarter. I will say when I look at the sales out momentum of the business, it's sitting at high single digits, suggesting that we've come through the rough without too much damage. But of course, I'd like a few more months and quarters under my belt before calling final verdict on that. But so far, so good. I'm expecting the business to deliver a high single digit growth year. In China, hospitals look good, momentum in hospitals look good, but I'd say on the whole, really no change. I'm expecting a mid-single-digit year. It was a mid-single-digit Q1. The outlook for the economy and the way that consumers behave, we're really not seeing anything that makes us more optimistic at this stage. Great. Thank you very much.

The next question comes from Nils Granholm Lee from Carnegie. Please go ahead.

Thank you for taking my questions. If I may, could you first talk about the sustainability of your R&D to sales ratio, which seems to be on a continuous slide down? Secondly, could you talk about your expected paid tax rate once the transfer of your IP rights to Denmark has been completed. Thank you.

So, thanks a lot, Nils. Let me take your two questions. So, first of all, in terms of our D2 sales ratio, it was around 3% for Q1. There's a bit of timing. And then also, please remember, we have now included Kerasys and Atos, where the ratio is lower than the total ratio. I'm expecting the ratio for the year to sit something around three, three and a half percent of sales. So that's how we look at the R&D to sales ratio for this financial year. In terms of your second question around the IP transfer and the tax So as I explained earlier, we have done this because we are now starting up the integration of Kerasys into our IT infrastructure, and we will complete that work later this year. And as part of that, we are also moving the IP rights of the Kerasys to Denmark, and that has an extraordinary impact on our tax rate for this financial year. In terms of the payments, so the cash flow, We will start to see that from the financial year 26, 27 and onwards. And that will be a net effect of around 1.3, 1.4 billion Danish kroner from, as I said, 26, 27. So that's my high-level assumptions.

And for how many years would you benefit from that?

So the overall benefit, it's around seven years that we are expecting. So that's my assumption. Thank you.

The next question comes from Aisha Noor from Morgan Stanley. Please go ahead. Hi, good morning.

Thanks for taking my question. I have just two. The first one is on the continence care business. Are you able to break out in terms of catheter segment growth in particular and whether you are seeing any solid share wins there? Just would have thought with the launch of a new flagship platform like Luja, you might see a stronger growth development for continents in the first quarter. And then my second question is a follow-up on Intibia. Does your guidance for 2025 contemplate any sales contribution from or commercial investment into the launch of this product? Or are you in kind of a wait-and-see mode until you get the pivotal data in June, and then you will announce some commercial initiatives in the third or fourth quarter? Thank you.

Thank you, Aisha. Two good questions. So the Luja launch continues. It's doing well. So we can see very consistent market share gains on the male side. We started with the male product, which is about 60% of the market, a bit more than 60% of the market. We're now rolling out female. I'm seeing a similar pickup curve on launch, so I'm also expecting, of course, once we have a full offering in the market, that you're going to see impact on the franchise. Bear in mind that when we report the continence care business, we have two of the product categories in there. One is a bowel management or bowel care franchise in our collecting devices business. But the impact on the business this quarter is really phasing in EM. The underlying growth in the catheter business is strong, and it's picking up. When it comes to Intibia and investments, there will be some costs this year. We're basically preparing for that ahead of the launch. But, of course, we do not start to spend – significantly until we know the strength of the clinical data, and I don't have visibility to that until we get into the other side of summer of this year. Commercialization would happen in 25, 26, and I forgot who asked the question earlier, but the entire investment thesis will rest on the strength of the clinical data and the resulting reimbursement level. So the clinical data is absolutely critical for decision on investment level, but there's a bit of cost already.

Thank you. If I could follow up with one question on the wound business. I think you flagged some destocking behavior in December in anticipation of the LCDs coming into effect in February. How has customer behavior evolved since then? And could your Kerasys growth come well above the 30% target this year, given this combination of delayed implementation and then inclusion for DFUs?

So we haven't seen too much change in terms of customer behavior. So all the products that are at risk of or that will disappear from the market when the final policy takes effect are, of course, now still in market. There are a number of companies still promoting them. and it is still too early to speculate. But like I said to one of the previous callers who asked a question about this, of course, this creates an opportunity. If we reduce the number of products from 200 to less than 20, we have prepared for the opportunity in terms of ensuring that we've got significant volume ready in the market. Of course, we've got commercial plants We are in close dialogue with customers about it, but the final effect, TBD.

Thank you very much. The next question comes from Marianne Boulot from Bank of America. Please go ahead.

Thank you very much for taking my questions. The first one is a quick follow-up on wound care. Could you provide maybe an update on the Kerasys trends you're seeing today and especially trying to understand if you've seen some customers already shifting from competitor's product to Kerasys or asking for samples and maybe trying to prepare ahead of the LCD implementation? And my second question is on voice and respiratory. Could you share if there are any key countries yet to approve reimbursement, like you had Poland, for example, here, and how big of an opportunity it could be for the rest of this year? Thank you.

So on Kerasys, of course, there's been a lot of noise in the market related to this. Many customers are asking questions about how the policy is going to pan out. And, of course, we are active in those dialogues. And some customers are, of course, also getting samples. We've also seen a few orders, but we haven't seen a major market shift. So we expect that once we get closer to implementation date, more customers will change behavior. And like I said to the previous caller, we are ready. On ATOS, this work of opening up access for the products and reimbursement for the products is part of the growth model. It's, by the way, also part of the growth model for the continence business and the ostomy business. And I've previously talked about those businesses. The ostomy business has grown for 70 years. The continence business has grown for 35 years. The ATOS business right now is a 35-year-old category. It's still growing. Penetration is relatively low. So we've got good penetration in northern Europe. You go to southern Europe, we've got about half the penetration of northern Europe of treatment. And we move to the U.S., penetration is lower. And in EM, there's hardly any use. So this will remain a growth lever for many years to come. And we've got, at any given point in time, we've got a portfolio of projects that we're working on to open reimbursement. So you will probably also hear in the coming years, hopefully, more good news. But it's not one where we have one waiting in the immediate pipeline that we would expect would dramatically change the trajectory of the business. It's part of running a business that's sitting comfortably in the 8% to 10% growth range.

Okay, thank you very much. The next question comes from Martin Renaud from Nordea. Please go ahead.

Hi, thank you very much for taking my questions here, Christian and Anders. I try to keep it to just three questions, please. The first one would be on emerging markets, which has come out a bit slower than the double digits that you are aiming for and that you expect to see. to come back in the next quarters. Can you maybe just put some color on how much of that is just facing of orders? How much is maybe less hyperinflation and how should we see this going forward? Is that already a Q2 thing that we are going to see a pickup or how will that look like? That's the first question. And then the second question would be, I think, Christian, you have implied a few times in this call that you are ready for an acceleration after the LCD is implemented on Caressus. But I guess you expected this to be effective in two weeks from now. So have you ramped up sales costs here in Q2? in the anticipation of the LCD implementation that we're going to see in the numbers. That would be the second question. And then just the third question is a bit to understand if we should potentially see anything on this. But there have been some investigations in Denmark concluding that Coloplast is margin-squeezing distributors with its dominant position. Just are you aware of any other markets where Coloplast has a dominant position and where they are undergoing similar position investigations that we should be aware of. That would be the third question. Thank you.

Thank you, Martin. Three good questions. On emerging markets, remember tough comps last year. We grew, I think, 19% last year in the quarter, very, very strong quarter. This is largely phasing. It is a more volatile region. As you know, it's phasing related to Eastern Europe, Russia, and a bit of Middle East. I am expecting the region to deliver a high single-digit growth year. LCD, I have the footprint I need for now. So you could say that the number of people that we've got in market were It's not like we've ramped up dramatically. We're trying to run a very strong growth business. Of course, every year we put on salespeople and try and get them on board and make them effective. Part of the commercial model here will be just to really become very good at that. We continue to deliver on it, but we have the footprint. We're ready. The fact that it comes two months later doesn't really change the plans completely. So I'd say the Kerasys team also grew, as you can see, 32% in the quarter. It's not like we've run out of work to do and opportunities to pursue. So more to come once we see the go-live date. On the Danish court case from the competition authorities, I'm not going to comment too much. I'll say we are in fundamental disagreement with the verdict. We have appealed it. and it will play its way through the appeal system and courts. We are not aware of any type of case like that anywhere else in the portfolio of countries that we serve.

That's very clear. Thank you so much for the thorough answers.

The next question comes from Jiang Nungian from CT. Please go ahead.

Hi, guys. Thanks for taking the question. I am following the trend of having three questions as well. The first question is just a quick check. In terms of your four-year guidance on margin, in this release, you said that you're expecting to see margin improvement initiatives in AWC, so in advanced wound care, whereas in the previous release, you said in advanced wound care, excluding caresses. I was wondering if there is anything to read into this change of wording. Perhaps is there any cost savings identifying caresses? So that was my first question. The second question is in terms of the U.S. distribution center cost, is there any more cost that we should be expecting in the remainder of this year? And for my last question, thinking of the bladder health recall, I understand the sales have been resumed in February, but... How do you assess the risk of lost cells for the catheters and the drainage products in question rather than being recovered later in the year? Thanks.

All right. Let me start with the two first questions. So in terms of margin guidance for the year, I'm expecting that that the divestment of the skin care, including some margin optimization activities within the dressings business, will contribute with around 30 basis points to our margin guidance. So I hope that clarifies the first question. On question number two, whether we are expecting more costs related to the distribution challenges in the U.S., I'm expecting a bit more here in the U.S., in Q2 in the level of 10 million. That's my current estimate.

And then finally, Yang, to your question on bladder health. Of course, there's always a risk when you have quality problems like we've been through that we've lost some customers. We are quite optimistic. It's been a relatively quick process. We've got product in market now waiting to be released. And we are seeing a good demand. There are a number of our competitors in the market who are also, who've also had some supply issues. So there's strong demand in markets. So I'm optimistic that we're going to recover the significant majority of what affected us here in Q1.

Thanks, guys.

The next question comes from Carsten Lorber-Mansen from Danske Bahn. Please go ahead.

Excellent. Thank you very much. I actually only have one or maybe two questions left. The first one is... A way to look at the LCD and the new reimbursement you're securing for the Kerasys products could maybe be to talk about the individual patient value. So one thing is how many new patients you will be able to get, but what will be the value per patient once this is implemented? Are they on a yearly basis being allowed to use more dressings at a lower price, or what do you think will happen here?

Also, from memory, I'll just check. Alexandra would just check while I'm answering. From memory, there will still be, I think, an opportunity to use six dressings as part of the updated policy. When you look at our current use in market, when we look at the average of our current use, it is sitting around five to six. And Alexandra is just correcting me that the value per patient that's covered by the LCD is actually eight dressings over 12 weeks. Now, it's a little difficult to predict because that doesn't mean that everybody will be using eight. Of course, it's basically a number where you could use up to. So the final impact on patient value, I don't know yet.

Is it your impression today that the patients are usually less to save money because maybe not free red burst?

Or do you think there's room for... No, I'm hoping it's because the wounds heal, Carson. Okay. So the intent of the policy is to drive good clinical outcomes. And, of course, if you're healed after you've used five or six dressings, then you shouldn't be using more product.

Okay. Okay. And then secondly, maybe very briefly towards the end, you have this, you give up the micro-hole technology, but some of your competitors are running some campaigns against micro-hole technology. Are you feeling anything in the market in terms of loss of market share pressure from these marketing campaigns? No. No.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Christian Willumsen for any closing remarks.

So I just wanted to apologize that we lost connection there for a couple of minutes during the call. We look forward to engaging with all of you on the road here over the coming days and weeks. And please reach out to our Investor Relations Department should you have any follow-up questions related to today's call. Thank you very much.