Coloplast As Sp/Adr

Ladies and gentlemen, welcome to the Coloplast financial statement for the full year 2024-2025 and annual report 2024-2025 conference call. I am Sandra, the course call operator. I would like to remind you that all participants have been disanonymized and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Rasmussen, Interim CEO. Please go ahead.

Thank you and good morning and welcome to our full year 24-25 conference call. I'm Lars Rasmussen, interim CEO of Coloplast and I'm joined by Anders Lonning-Skovgaard, our CFO and by our investor relations team. We will start with a short presentation by Anders and myself and then open up for questions. Please turn to slide number three. We delivered 7% organic growth and a reported EBIT margin before special items of 28% for this financial year. That is in line with our revised guidance, but below the 8-9% organic growth expectations that we set forth at the beginning of the year. The adjusted return on invested capital after tax and before special items was 15% on power last year. Chronic care, including voice and respiratory care and excluding China, delivered a solid year while we faced performance challenges in interventional neurology and advanced wound dressings. Both businesses were impacted by product recalls with significant negative impact on performance. We also saw increased volatility in the biologics markets, driven by the postponement of the final LCD policy, which led to a slowdown in the momentum for keresis in the second half of the year. In many ways, 24-25 did not become the year we had anticipated. It became a significantly more turbulent year and one that forced us to take decisive actions. In the year, we restructured our business in China. Performance during Stripe 25 was muted, and while we remain committed to serving the Chinese market, we have streamlined our organization to align with the new market reality and ensure a sustainable focus presence. Secondly, we initiated several profitability initiatives in wound care, among others the divestment of our skincare business in December 2024. These initiatives are aimed at simplifying our business operations and improving profitability. Thirdly, we took important steps toward optimizing our cost base in interventional urology. both to protect our profitability in the light of recent performance challenges, but also to ensure that we have the capacity to invest in new growth initiatives, including in tibia, our implantable tibial nerve stimulator, expected to launch in 26-27, assuming we obtain FDA approval. At a group level, we have also made significant changes, which I am confident will be vital for a strong strategy execution towards 2030. By structuring our business into two distinct units, chronic and acute care, we will, to an even larger extent, be able to honor the differences in market dynamics, customer needs, patients' pathways, and business models. And with a new and strengthened executive leadership team, we now have a balanced mix of commercial and technical expertise and a strong team to lead Coloplast into the next strategic period. Please turn to slide number four. Looking ahead, I believe the investments we have made in Stride25 combined with the structural changes that we made this year provides Coloplast with a strong foundation and key building blocks for the future value creation. Our addressable market for chronic care and acute care has a combined value of more than 120 billion Danish kroner and we have the strongest product portfolio that we have ever had. There is ample opportunity to go for and we are well positioned to capture it. With our new strategy, Impact4, we will utilize our solid foundation while setting a new direction for the company with a strong focus on customers and value creation. The Impact4 focuses on four priorities, growth through innovative offerings, unlock next level efficiency gains, embrace technology including AI to elevate our user experience and scale, and finally cultivate a winning and sustainable company. And these promises are supported by clear financial targets. The first is to deliver an organic revenue CAGR of 7% to 8% through 2930. Then to grow EBIT in line with or above revenue growth, and finally to achieve a return on invested capital above 20% by 2930. By putting customers at the center, we aim to deliver best-in-class products, services, and support, reinforcing our ambition to double our impact and reach 4 million people long-term. In the strategic period, we will also maintain a strong focus on sustainability, and we have set clear targets to reduce our environmental impact through emissions reductions and less material used in our products and packaging. Finally, we aim to positively impact society by improving reimbursement, ensuring access for users and healthcare professionals to the best products and services, as well as investing in initiatives that benefits people and communities. Now let's shift gears for a moment and look at today's results in more detail. Please turn to slide number five. In ostomy care, organic growth was 6% for the full year and growth in Danish kroner was 4%. Organic growth in Q4 was 7% and growth in Danish kroner was 1%. Our Sensure Mio portfolio continues to be the main growth driver, followed by Brava's range of supporting products. Our Sensure and Assure Alternative portfolios continue to contribute to growth in emerging markets. From a geographical perspective, growth in the quarter was broad-based across regions, with good growth in Europe. a high baseline in the U.S. due to the resolution of the supply disruptions in Q4 last year, and strong growth in emerging markets driven by increased tender activity. Sales in China declined, reflecting weaker consumer sentiment and competitive pressures. In continent care, organic growth was 8% for the full year and growth in Danish kroner was 5%. In Q4, organic growth was 9% and growth in Danish kroner was 3%. Lucia, our new intermittent catheter with micro-hole zone technology, was the main growth contributor in the quarter, especially the female version, driven by solid contribution from Europe and the U.S. From a geographical perspective, all regions contributed to growth. Growth in Europe was driven by France, the U.K., and Italy. In emerging markets, growth was led by Latam. Voice and respiratory care posted 9% organic growth for the full year, with growth in Danish kroner of 8%. In Q4, organic growth was 9% and growth in Danish kroner was 7%. The good performance in voice and respiratory care continues to be driven by broad-based contributions from both laryngectomy and tracheostomy, with high single-digit growth in laryngectomy and double-digit growth in tracheostomy. In wound and tissue repair, organic growth was 8% for the full year and growth in Danish corona was minus 3%, which reflects 8 percentage points negative impact from the skincare divestment. Organic growth in Q4 was 5% and growth in Danish corona was minus 11%, which includes 11% negative impact from the skincare divestment. The advanced wound dressings business in isolation declined 6% in the quarter as China detracted significantly from growth due to the product return in initiatives in Q3. From a product perspective, biotin superabsorber and biotin fiber continued to perform well. Revenue from Keresis amounted to around 1.3 billion Danish kroner in the full year of which 339 million Danish kroner was in Q4. The organic growth in the quarter was 20% and an improvement compared to Q3 as expected. The inpatient setting continued to deliver solid growth and was the main growth contributor. The outpatient setting saw an improved momentum in Q4. This was in line with our expectations that the impact from our LCD postponement and the resulting market shift to higher priced products would be most pronounced in Q3. In interventional urology, organic growth was 2% for the full year and growth in Danish kroner was flat. In Q4, organic growth was 2% and reported growth in Danish kroner was minus 2%. Growth in the quarter was driven by good momentum in the mental health business. Our flagship product within mental health, the Titan penile implant, continued to perform well with the patient funnel positively impacted by our patient support program targeted at prospective patients. The women's health business also contributed to growth in the quarter. Within kidney and bladder health, the thulium fiber laser drive continued to deliver a solid growth contribution, but the segment overall detracted from growth due to the impact from the product recall. We have begun to see early signs of recovery across key accounts, but expect some negative impacts to persist into Q1. 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 six.

Thank you, Lars, and good morning, everyone. Reported revenue for the full year increased by 844 million Danish kroner, or 3%, compared to last year. Organic growth contributed 1.8 billion Danish kroner, or around 7%, to reported revenue. Divested businesses, mostly related to the skincare divestment in December 24, reduced reported revenue by 352 million Danish kroner, or around 1%. Fund exchange rates had a negative impact of 587 million Danish kroner on reported revenue or around 2%, mainly related to the depreciation of the US dollar and a basket of emerging markets currencies against the Danish kroner. Please turn to slide number 7. Gross profit for the full year amounted to 18.9 billion Danish kroner, corresponding to a gross margin of 68% on par with last year. The gross margin was positively impacted by a favorable development in the input cost, price increases, and country and product mix, partly offset by ramp-up costs at our manufacturing sites in Costa Rica and Portugal. The gross margin also included a small negative impact from currencies of around 20 basis points. Operating expenses for the full year amounted to around 11.3 billion Danish kroner, a 3% increase from last year. The distribution to sales ratio for the full year was 33% on par with last year. The increase in distribution cost was driven by continued commercial investments in carriers and higher sales activities across business areas. The admin to sales ratio for the full year was 5% on par with last year. The R&D to sales ratio for the full year was 3% on sales, also on par with last year. The special items expenses were extraordinarily high in 2024-25 and amounted to 469 million Danish kroner. The special items were related to profitability improvement initiatives, including the skincare divestment, management restructuring and the integration of Atos Medical. Overall, this resulted in an operating profit before special items of 7.7 billion Danish kroner in the full year and a 5% increase compared to last year. The EBIT margin before special items for the year was 28% compared to 27% last year. The EBIT margin included negative impact of around 110 basis points from the inclusion of kerosene, including PVA amortization costs, in line with the expectations, as well as around 30 basis points benefit from the divestment of the skincare business. Currencies had a small negative impact on the reported EBIT margin of around 30 basis points, related to the depreciation of the US dollar and a basket of emerging market currencies against the Danish kroner. In constant currencies, EBIT before special items grew 6% in full year 2024-2025. Financial items in the full year were a net expense of 1,044,000,000 Danish kroner compared to a net expense of 925,000,000 Danish kroner last year. The increase in net expenses was mostly due to a non-cash effect from currency exchange rate adjustments, which includes losses on balance sheet items driven by the depreciation of the US dollar against the Danish kroner. The ordinary tax expense for the full year was 1.4 billion Danish kroner, with an ordinary tax rate of 22% on par with last year. The total tax expense for the full year was 2.5 billion Danish kroner, impacted by the transfer of Kaos's intellectual property from Iceland to Denmark. As a result of the extraordinary tax expense, the effective tax rate amounted to 41%. As a result, net profit before special items for the full year was 4 billion Danish kroner compared to 5 billion Danish kroner last year. Diluted earnings per share before special items decreased by 21% to 17.76 Danish kroner. Adjusted for the extraordinary tax expenses related to Kels's IP transfer, the net profit before special items was 5.1 billion Danish kroner, a 123 million Danish kroner increase compared to last year. Adjusted diluted earnings per share before special items increased by 2% to 22.84 Danish kroner. Please turn to slide number 8. Operating cash flow for the full year was an inflow of 6.6 billion Danish kroner compared to an inflow of 2.8 billion Danish kroner last year. The positive development in cash flows was mostly driven by lower income tax paid as 23-24 included 2.5 billion Danish kroner, extraordinary impact from the transfer of Atos Medical intellectual property. Changes in working capital and adjustment of non-cash operating items also had a positive impact on the cash flows from operating activities. Cash flow from investing activities was an outflow of 1.25 million Danish kroner compared to an outflow of 1.1336 million Danish kroner and included positive impact from the divestment of skincare business of 192 million Danish kroner. Cabex for the full year amounted to around 5% of sales on par with last year and includes around 450 million Danish kroner related to the new manufacturing site in Portugal, expected to be operational in 2025-2026. As a result, the free cash flow for the full year was an inflow of 5.4 billion Danish kroner compared to an inflow of 1.4 billion Danish kroner last year. The adjusted free cash flow for the full year was 5.2 billion Danish kroner compared with 3.9 billion Danish kroner last year, or a 32% increase. The trading 12-month cash conversion was 82%, while the adjusted free cash flow to sales was 19% compared to 15% last year. Networking capital amounted to around 26% of sales compared to 25% last year, impacted by increased inventories and decreased trade payables. Now let's look at the guidance for 2025-2026 financial year. Please turn to slide number 9. For the 2025-2026 financial year, we expect organic revenue growth of around 7% and around 7% EBIT growth in constant currencies before special items. We also expect a return on invested capital of around 16% up around one percentage point from 15% adjusted last year. The organic revenue growth guidance of around 7% assumes continued good momentum in chronic care, including voice and respiratory care, and improvement in momentum in both wound and tissue repair and interventional urology. In chronic care, we expect good contribution from our recent product innovation, In continence care, we expect Lucia to continue driving the momentum in intermittent catheters. In ostomy care, we expect the recent line extensions such as Sensuo-Miyo black bags and the new two-piece Sensuo-Miyo offering to continue their good launch trajectory and support growth. In wound tissue repair, we expect an improved momentum driven by kerosis, which is expected to deliver growth of around 25%, partly offset by the negative impact from the product return in advanced wound dressings in China from Q1 to Q3. On kerosis, performance is subject to a higher degree of volatility due to the expected changes to the skin substitute's coverage and payments in the outpatient setting as of January 1, 2016. In international urology, we expect growth to improve to around mid single digit in 25-26, up from low single digit last year. We expect continued strong momentum in our men's health business, driven by the Titan penile implant and stable performance in our women's health business. In kidney and bladder health, we expect to see a recovery as the impact from the product recall relapse in December 25, after which we are up against an easier baseline. Reported revenue growth in Danish kroner is expected at 4-5% and assumes 2-3% negative impact from currencies, especially the US dollar and to a smaller extent the British pound and the Chinese one, as well as a 2-month negative impact from the skincare divestment. The EBIT growth in constant currencies of around 7% assumes stable inflation levels and continued ramp-up in Costa Rica and Portugal. The EBIT growth also assumes that Kerasys will deliver an EBIT margin uplift to around 20%, driven by scalability in non-sales functions and Salesforce efficiency improvements, enabled by a good top-line momentum and a high gross profit margin of around 90%. Furthermore, the EBIT growth guidance includes the initiation of impact for investments, including global technology investments and AI, investments towards a new bowel care opportunity in the US, and investments related to Intibia. In terms of phasing, we expect the organic revenue growth to be a second half awaited, with a soft start in Q1, where we will have the impact from the product recalls in both advanced wound dressings and interventional urology. Furthermore, we expect a soft start in ostomy care due to a high baseline in the U.S. and order facing in emerging markets. For 2025-2026, we expect around 50 million Danish kroner in special items from acquisition-related integration costs. The integration of Atos Medical is progressing according to plan, and we will be finalized during the year. The net financial expenses for 2025-2026 are expected at around minus 500 million Danish kroner, down from around 1 billion Danish kroner in 2024-2025, mostly driven by a more favorable outlook on net exchange rate adjustments based on spot rates as of October 31st, and to a smaller extent lower net interest expenses due to lower net interest in bearing debt and lower interest rates. The effective tax rate for 2025-2026 is expected to be around 22%. Net profit is expected to significantly increase year over year, as 2024-2025 has been impacted by extraordinary high special items, high financial items due to negative exchange rate adjustment and the extraordinary tax expense related to the transfer of Keras's intellectual property. The capex to sales ratio is expected at around 5% and includes investments to complete the new manufacturing site in Portugal, investments in new machines for existing and new products, and IT and sustainability investments. On networking capital, we expect a networking capital to sales ratio in 2025-2026 of around 25%, down from 26% in 2024-2025. Our guidance is based on the knowledge we have today and assumes immaterial impact from tariffs as we expect our products to remain exempted and no impact from healthcare reforms in the year. On October 31, 25, the Centers for Medicare and Medicaid Services in the U.S. issued a final rule on the Medicare physician fee schedule for calendar year 26, with a fixed payment of $127 per square centimeter for all products in the physician's private office in the outpatient setting. We consider both this rule as well as the final LCD policy as positive for the market and chaos in the long term and we will closely monitor market developments in relation to these initiatives. With this, I will hand it over to Lars for final remarks. Please turn to slide number 10.