Coloplast As Sp/Adr

Thank you, and good morning, and welcome to our Q1 25-26 conference call. I'm Lars Rasmussen, interim CEO of Codoplast, and I'm joined by CFO Anders Lonning Skogård and our investor relations team. We will start with a short presentation by Anders and myself, and then open up for questions. And please turn to slide number three. We delivered 6% organic revenue growth and 3% EBIT growth in constant currencies before special items. Return on invested capital after tax and before special items landed at 15% on par with last year's adjusted figure. We had a soft start to the year as expected. However, with a significant more turbulent quarter in caresses than we would have anticipated. I'll get back to that in a moment. For the year, we maintain our guidance of around 7% organic growth. We'll lower our growth expectations for Kerasis to around 10% amidst significant market uncertainty in the outpatient setting, but raise our outlook for interventional reality to high single digits following a strong start and improved outlook for the year. Before we dive further into the quarterly performance and outlook for the year, let me begin with a brief comment on our leadership team. In December, we announced two important changes to the executive leadership team. EVP of People and Culture, Dr. Rønnau, has decided to leave Coloplast to pursue the next chapter in her career, and Tommy Johns, Executive Vice President of Interventional Neurology, has decided to retire after more than a decade in Coloplast and more than three decades in the global life science industry. An external search is currently ongoing to identify a new leader, for the Global People and Culture Function, while Kevin Hartage will step into the role of EVP interventional urology on February 9th. Kevin brings extensive experience from the global med-tech industry, including senior leadership experience from Teleflex in the urology space, and I look forward to welcoming Kevin to Coloplast. Dorte and Tommy have both played key roles in ensuring a smooth leadership transition. I want to thank them for the continuity and stability they have provided throughout this period and wish them all the best in their future endeavors. Additionally, I would like to mention that the search for Coloplast's new CEO is progressing well and remains on track. I would also like to put a few words to key developments in Q1. Interventionally, we already delivered a strong start to the year with 8% organic growth driven by the mental health business. The product recall in kidney and bladder health is now behind us, and we are looking at a very healthy business expected to deliver high single-digit growth in 2025-2026. During the quarter, we reached the important milestone of submitting in tibia, our investigational tibial nerve stimulation device, to the FDA. This marks an important advancement towards the future launch of the device and our goal of bringing innovative and clinically differentiated solutions closer to the patients. NTBL plays an important role in delivering on our Impact 4 strategy for interventional urology, and I'm encouraged by the fact that we continue to see clear external confirmation of the relevance of the implantable TBL nerve stimulation space. Industry activity and investments in implantable TBL nerve stimulation continues to increase, indicating broader confidence in its therapy area and the role it may play in the future management of overactive bladder. These developments reinforce our long-term view of the opportunity within this segment. I would also like to highlight that we are further strengthening our product portfolio in interventional urology through an agreement to purchase the outstanding shares of Uomitica, a commercial state company with a minimally invasive solution for treating stress urinary incontinence, complementary to our existing mental health business. The transaction is expected to close here in February, and we have an immaterial impact on the group's financial performance in 2025-2026. while being accretive to intellectual and rheology financial metrics in the second half of the Impact 4 strategic period. Finally, I would like to spend a moment addressing the development we have seen in Kerasis in Q1. Kerasis delivered 10% organic growth in the quarter with an EBIT margin of only 1%. While we continued to see a healthy momentum in the inpatient setting in Q1, Keras' overall performance was subdued due to significant sales disruption from Medicare reimbursement changes in the outpatient setting, which resulted in negative growth in the outpatient setting. Effective January 1, 2026, Medicare has introduced a single fixed payment of 127 US dollars per square centimeter for all products in the outpatient setting covered by Medicare. At the same time, Medicare has withdrawn the already announced LCD also set to go into effect January 1st. Combined, this has triggered significant uncertainty in the skin substitute market as the channel adjusts, and we expect the heightened market uncertainty to persist throughout the year. As part of the shift towards a fixed payment rate, the shield product brand will be phased out of the Medicare market and replaced by a renewed portfolio of the product brand Meridian, which is well-positioned to take market shares under the new fixed rate. This shift will create a negative mix effect as Meridian volumes are scaling. There is no doubt that the many unprecedented changes by CMS and the recent pivot with regards to the LCD in fiscal Q1 has made the operating environment increasingly difficult to navigate as a manufacturer. Similarly, we have seen an increased level of customer hesitancy to place large orders amid the significant market uncertainty. However, when looking ahead, we remain optimistic about the outlook for the category and caresses long-term. We support CMS's efforts to clean up the market, and we see both the now-cancelled LCD and the fixed payment rate as evidence that Kerasys remains well-positioned to compete and win in the skin substitutes market. Only 18 out of more than 300 products were in the final LCD, and of these, two were Kerasys products. That is a clear testament to the clinical efficacy of and differentiation of Kerasys products offerings. Kerasys is the only product in the market based on intact fish skin. It has a high resemblance to human skin and is proven to be more effective than the standard of care in healing severe wounds. In addition to being incredibly potent, the technology is also highly scalable based on its unique waste-to-value proposition, allowing for a highly efficient production set-up. No other products in the markets share the unique characteristics of the fish skin. And we have moved quickly in response to the changes. We have enhanced our go-to-market model to align with the new requirements and will roll out a series of product launches during the year or during this year to support this updated approach. I am deeply impressed by the agility, ingenuity and the grit of the Keresys team and the way that they have handled the situation. Long term, we therefore continue to believe Keresys will see continued strengthening of its competitive position relative to peers due to its unique technology and strong clinical documentation. With this, let's now take a closer look at the details by business area. In Austin, we care organic growth was 4% and growth in Danish kroner was flat in the first quarter. Ostomy care delivered a soft start to the year, as expected, due to negative growth in China, a high baseline in the U.S., and auto-facing in emerging markets. The rest of the year, we expect the growth momentum to pick up. In the U.S. business, the underlying performance continues to be strong, and in Q1, Premier has renewed Coloplast Group's purchasing agreement. the contract remains multi-source and effective for three years starting April 1st, 2026. In China, sales declined in the quarter, impacted by a continued weak consumer sentiment and competitive pressures from domestic players in the community channel, further amplified by a high baseline last year. From a product perspective, the Sensura Mio portfolio was the main contributor to growth, followed by the Bravo range of supporting products. The latest product launches within Sensuomio, the black bags and the new two-piece offering, both continue to perform well. Additional variants of the black bags were launched in Q1 and further variants are expected throughout 2025-2026. In Constance Care, organic growth was 7% and growth in Danish Kroner was 2% for Q1. The Lucia portfolio was the main growth contributor in the quarter, driven by both the male and female catheters in Europe, most notably in the UK, France, and Germany, and also in the U.S. Growth in the SpitiCath portfolio was driven by flexible catheters in the U.S. and LATAM. Within our two smaller segments in constant care, bowel care made a strong contribution to growth while collecting devices saw a slight decline in the quarter. From a geographical perspective, growth was driven by Europe and the U.S., while growth in emerging markets was impacted by order-facing. Voice and respiratory care posted 8% organic growth for Q1, with growth in Danish kroner of 5%. Laryngectomy delivered high single-digit growth in the first quarter, driven by an increase in the number of patients served in existing and new markets and an increase in patient value, driven by the provost's life portfolio. Tracheostomy delivered mid-single-digit growth, driven by solid underlying demand, partly offset by phasing in distributor markets. Growth in tracheostomy is expected to be back-end loaded and will pick up momentum in the second half of the year. In wound and tissue repair, organic growth was 5% for Q1. In Danish kroner sales declined 8% due to 8% negative impact from the skin care divestment in December 2024. As mentioned earlier, Keresis delivered A soft quarter with 10% organic growth due to the significant sales disruption from the Medicare reimbursement changes in the outpatient setting. The advanced wound dressing business declined 3% in Q1. China detracted significantly from growth impacted by the product return initiated last year with a negative revenue impact of around 25 million Danish kroner in the first quarter. From a product perspective, biotin superabsorber was the main growth contributor. the contract manufacturing business posted solid double-digit growth in the first quarter, reflecting a front-end loaded year. In interventional urology, organic growth was 8% and growth in Danish kronos 3% for Q1. As mentioned earlier, the men's health business in the U.S. delivered a strong first quarter and was the main contributor to growth. Our flagship products within men's 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 and the kidney and bladder health business also contributed to growth. 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, Lars, and good morning, everyone. Reported revenue for Q1 increased by 17 million Danish kroner or 0% compared to last year. Organic growth contributed around 393 million Danish kroner or around 6% to reported revenue. Divested businesses related to skincare in December 24 reduced reported revenue by 77 million Danish kroner or around 1%. For an exchange rate reduced reported revenue by 299 million Danish kroner or around 4%, mostly related to the depreciation of the US dollar, the British pound and a basket of emerging market currencies against the Danish kroner. Please turn to slide number 6. Gross profit for Q1 amounted to 4.7 billion Danish kroner corresponding to a gross margin of 67% compared to 68% last year. The gross margin was negatively impacted by currencies of around 30 basis points and ramp-up costs in Costa Rica and Portugal. This was partly offset by favorable impact from lower inflation on raw materials, freight and utilities. Country and product mix also had a positive impact. Operating expenses for Q1 amounted to around 2.9 billion Danish kroner, or 2% increase compared to last year. The distribution to sales ratio for Q1 was 33% on par with last year. In absolute terms, the distribution costs were also in line with last year. The flat development in distribution costs reflects 20 million Danish kroner in one-off logistics costs in Q1. related to the new distribution center and lower sales costs in China following the organizational restructuring in Q1 last year. This was partly offset by one-off costs to enhance Kairos' go-to-market model under the new Medicare reimbursement model. The development in distribution costs were also positively impacted by the depreciation of the U.S. dollar against the Danish kroner. The admin-to-sales ratio for Q1 was 5%, compared to 4% last year, and includes around 15 million Danish kroner in one-off advisory costs incurred by Kerasys in connection with the recent CMS regulatory changes in the U.S. outpatient setting. The R&D to sales ratio for Q1 was 4% compared to 3% last year, reflecting phasing of costs within chronic care R&D and high activity levels in Kerasys. Overall, this resulted in operating profit before special items of 1.9 billion Danish kroner in Q1. In constant currencies, EBIT grew 3% compared to last year, while reported EBIT declined 3%. The EBIT margin before special items for Q1 was 26% compared to 27% last year, negatively impacted by the significantly reduced EBIT margin in chaos due to low organic growth and large one-off costs. Currencies also had a negative impact on the reported EBIT margin of around 30 basis points, mostly related to the depreciation of the US dollar, the British pound and a basket of emerging markets currencies against the Danish kroner, as well as appreciation of the Hungarian for rent against the Danish kroner. Financial items in Q1 were a net expense of 24 million Danish kroner compared to a net expense of 69 million Danish kroner in Q1 last year. reflecting low interest expenses and gains on exchange rate adjustments, mostly related to the US dollar. The blended interest rate was around 2.6% in Q1, down from around 3.1% in Q1 last year. The tax expense in Q1 was 394 million Danish kroner, compared to an ordinary tax expense of 389 million Danish kroner last year, and a total tax expense of 725 million Danish kroner last year. due to a non-recurring expense of 336 million Danish kroner related to the transfer of Chaos' intellectual property from Iceland to Denmark. The tax rate was 22%, on par with ordinary tax rate last year. As a result, the net profit before special items and adjusted for the non-recurring tax expense last year decreased by 14 million Danish kroner in Q1 and adjusted diluted earnings per share before special items decreased by 1%. Please turn to slide 7. Operating cash flow for Q1 was an inflow of 2.2 billion Danish kroner compared to an inflow of 2 billion Danish kroner in Q1 last year. The positive development in cash flows was mostly driven by lower financial items, partly offset by higher income tax paid. Cash flow from investing activities was an outflow of 412 million Danish kroner compared to an outflow of 133 million Danish kroner last year. The increase partly reflects a low baseline due to the 192 million Danish kroner impact from the divestment of skincare business last year. CapEx in Q1 amounted to 414 million Danish kroner with a CapEx to sales ratio of 6% compared to 4% last year. CapEx in Q1 includes around 97 million Danish kroner related to the new manufacturing site in Portugal. which is expected to be in operations in Q4 this year. As a result, the free cash flow for Q1 was an inflow of 1.8 billion Danish kroner compared to an inflow of 1.9 billion Danish kroner last year. Excluding benefit from the divestment last year, the free cash flow increase in the first quarter was 8%. The free cash flow to sales ratio was 26% compared to 24% last year, and the trading 12-month cash conversion was 82%. Networking capital amounted to around 25% of sales on par with last year. Finally, the return on vested capital after tax and before special items was 15% on par with last year, adjusted for the impact from the chaos's IP transfer last year. In January, we refinanced our €800 million credit facility, retaining the facility's existing terms and conditions. The structure remains a standard credit facility, and the facility now matures in January 2019. Now let's look at the guidance for the 2025-2026 financial year. Please turn to slide number 8. For the 2025-2026 financial year, we continue to expect organic revenue growth of around 7%, and around 7% EBIT growth in constant currencies before spatial items. We also continue to expect a return on invested capital of around 16%, up around 1% from 15% adjusted last year. The organic revenue growth guidance of around 7% assumes continued good momentum in chronic care. In interventional biology, we now expect high single-digit growth versus mid-single-digit growth previously, following a strong quarter. In wound tissue repair, we now expect caries to deliver growth of around 10% versus around 20% previously, reflecting the significant sales disruption from Medicare reimbursement changes in the outpatient setting and a high uncertainty around the timing of the recovery. Within advanced wound dressings, we continue to expect negative impact from the product return in China in the first nine months of the year. Reported revenue growth in Danish kroner is now expected at around 4%, from around 4 to 5 percent previously, and assumes around 3 percentage points negative impact from currencies, up from around 2 to 3 percentage points previously. The versant currency outlook is mostly driven by the further depreciation of the U.S. dollar. For the year, we continue to expect the negative currency impact to be driven primarily by the U.S. dollar, and to a smaller extent the British pound, the Chinese yuan, and now also the Japanese yen. The EBIT growth in constant currencies of around 7% assumes stable inflation levels and continued ramp-up costs related to our manufacturing sites in Costa Rica and Portugal. The EBIT growth guidance also includes the initiation of impact for investments, including global technology investments and AI, investments towards the new bowel care opportunity in the U.S., and investments related to Intibia. For caretakers, we expect a significant EBIT margin uplift the rest of the year, with chaos' full-year EBIT margin around double-digit, compared to 1% in Q1. We expect currencies to have a negative impact on the reported EBIT margin of around 50 basis points, driven by the depreciation of the US dollar and the British pound against the Danish kroner, and the appreciation of the Hungarian for rent against the Danish kroner. In terms of phasing, we expect the organic revenue growth and EBIT growth in constant currencies to be second-half-weighted, following a soft start here in Q1, as expected. For 2025-2026, we continue to expect around 50 million Danish kroner in special items. And we also continue to expect net financial expenses of around minus 500 million Danish kroner, based on spot rates as of February 4th, down from around 1 billion Danish kroner in 2024-2025. The effective tax rate for 2025-2026 is still expected to be around 22%. Net profit is expected to significantly increase year-over-year as 2024-2025 was impacted by extraordinary high special items, high financial items due to negative exchange rate adjustments, and finally the extraordinary tax expense related to the transfer of chaos as intellectual property. The CapEx2 sales rate is still expected at around 5%, and net working capital is still expected at around 25%. Our guidance is based on the knowledge we have today and assumes immaterial impact from tariffs as we expect our products to remain exempted. 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've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questionnaires on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Hassan Al-Waqil from Barclays. Please go ahead.