Coloplast As Sp/Adr

Ladies and gentlemen, welcome to the Coloplast full-year 2025-26 Earnings Release Conference Call. I'm Lorenzo, the Colos 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 star and 1 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 Gavin Wood, incoming president and CEO. Please go ahead, sir.

Good morning, everyone, and welcome to Coloplast's full-year 2025-26 conference call. I'm Gavin Wood, President and CEO of Coloplast, joined by our CFO Anders and our Investor Relations team. Today, we will take you through our fourth quarter and full-year results. More importantly, we will share how we are sharpening our priorities and the choices we are making to unlock the full potential of Impact 4. and then we will open the call for questions. Please turn to slide number 3. As communicated yesterday, we have revised our financial ambition towards 2030. We now expect organic growth of 5-7% per year, an EBIT margin in constant currencies in the mid-20s over the period, and return on invested capital around 20% in 2029-30. The revised ambition reflects two things, a more challenging external environment and our decision to invest more in the areas that will strengthen coloplast in the long term. Our ambition remains to outperform the market, supported by our strength in chronic care, attractive opportunities in interventional urology, and a more focused wound and tissue repair business. Our additional investment will mainly focus on the innovation pipeline beyond impact for and commercial opportunities in U.S. chronic care and interventional urology. Changes in the external environment reflected in our revised guidance include pressure from price reforms and inflation as well as impact from the reimbursement change in U.S. biologics. Anders will take you through the financial assumptions later. Let me first explain the strategic choices behind the revised admission. Please turn to slide number four. In Q3, I set out five priorities for the business. Today, I want to update you on how we are advancing them. We are concentrating our resources behind the first two, sustaining the strength of chronic care and increasing our focus on the U.S. Chronic Care remains at the core of Coloplast and central to our priorities. It represents more than 75% of group sales and is our main engine of growth, profitability and cash generation. This year, Lugia continued to gain traction. We expanded the Censura Miro portfolio and our direct businesses continued to deliver strong service levels and growth. We are now increasing investment beyond the current launch cycle to build the next generation of products in chronic care. We increased R&D expenditure by 13% this year, enabling a higher activity level. Our internal R&D capabilities will remain a key strength of our competitiveness, complemented by a more systematic approach to external ideas and technologies. In Q4, our manufacturing site in Portugal became operational. At 30,000 square meters, this is our largest site to date, adding capacity to support the demand for Lugia, our most important continence care innovation in a decade. Our second priority is the U.S. where several years of investment are beginning to translate into tangible results. We now have a broader market access through key GPOs, a stronger portfolio and leadership platform and a direct chronic care business which delivered strong double-digit growth this year. In ostomy care, our market share has increased to around 20% with our position in the acute channel even stronger and continuing to gain momentum. Our targeted innovation with the new two-piece click coupling is paying off and accelerating share gains in this segment. In interventional urology, our U.S. men's health business is in great shape. The business delivered double-digit growth, we've integrated Uromedica into our men's health platform, and we are now preparing for the phased launch of Titan Prime in the coming quarters. We will invest in these strong platforms to further strengthen our position and drive sustained share gains and growth. At the same time, we need to future proof our operating model in light of the dynamic environment, leveraging AI and digital initiatives, particularly in our comfort medical direct to consumer business. Our third priority is wound and tissue repair. With the focus firmly on restoring profitable growth in biologics, we are concentrating Kerasys on the inpatient segment where growth remains double digit and Kerasys has the strongest right to win. By end of Q4, approximately 85% of our U.S. biologic sales came from inpatient and 15% from outpatient, showing how significantly the business has already shifted. The outpatient reimbursement change has structurally altered the market. Our conviction in the category in Kerasys, however, remains high. In less than a decade, Kerasys has built a strong competitive position based on its proprietary technology, extensive body of clinical evidence, and continuous product innovation. Highlights this year include a new compact product platform and new data on chronic and burn wounds. In Chronic Wounds, a real-world study of 80 patients demonstrated superior clinical effectiveness with Kerasys fish skin grafts compared with the standard of care for treating severe, hard-to-heal stage 3 and 4 pressure ulcers. In burn wounds, study results showed that treatment with intact fish skin grafts significantly reduced hospital stay of length for severely burned patients compared with synthetic and collagen-based alternatives. These results further demonstrate the clinical strength of our technology, our conviction in the structurally robust inpatient market, where we have a right to win, thus remains high. The fourth priority I set out in Q3 was to create capacity to invest behind our priorities. This requires a more disciplined allocation of resources, concentrating investment behind the opportunities with the strongest strategic and financial potential. Through our Funding the Journey program, we have identified approximately 500 million Danish kroner Through the completed rightsizing of our organization in China, lifting profitability in biologics, organizational simplification, and lower indirect procurement spending. We expect approximately 75% of the impact from the program in 26-27, with full effect the following year. These are not savings in isolation. They are part of a broader reallocation resources towards innovation, the US and the capabilities required for the longer term growth. The program will deliver this broader shift through continuous improvement, simplifying how we work and stopping or reducing activities that are no longer sufficiently differentiated. Technology will also be an important enabler. Both in improving the customer experience and in making Coloplast faster and more scalable. Delivering on these priorities will ultimately come down to our people, which is why our fifth priority remains critical. Building on the people agenda I set out in Q3, we are now sharpening our focus on performance excellence, greater clarity and accountability in execution, and faster decision making. Bringing the five priorities together here is what you should expect from us. In 2026-27, we expect visible progress against each of these areas. In innovation, we need to deliver the current launch cycle while strengthening the product pipeline beyond impact four. Over the year, we expect to launch more than 10 products across all categories. In US chronic care, we now aim to continue The Around Double-Digit Momentum from 2526. This is a notable milestone and one we have been working towards for many, many years. In wound and tissue repair, the more focused biologics model needs to deliver around double-digit growth and an EBIT margin above 10%. Beyond the coming year, success means a stronger innovation contribution, greater US weight in our portfolio, and customer experience at greater scale. Please turn to slide number five. Looking at the strength of our foundation and the priorities we have set, I am excited about the future. We operate in structurally attractive markets, Hold category-leading positions and derive more than 75% of our sales from our powerful chronic care annuity model. Over the past decade, we have broadened Coloplast's growth opportunities through innovation, direct-to-consumer capabilities, acquisitions, and investments in the US. Our focus now is to translate these strengths into top-line growth, stronger innovation contribution, and greater US weight in our portfolio. In doing so, we are building on the capabilities that made Coloplast a global medtech leader with the ambition to set the standard of care at scale and extend that leadership for generations to come. Let me now turn to our performance in the 25-26 financial year. Please turn to slide number six. We delivered 6% organic revenue growth and 4% EBIT growth in constant currencies before special items, broadly in line with the guidance provided in April. Return on invested capital was 15% in line with last year's adjusted level. Chronic care remained strong and interventional urology delivered at better than expected start to the strategic period. This was partly offset by US outpatient reimbursement changes, which significantly affected biologics. Net profit and free cash flow developed strongly. Please turn to slide number seven. Looking at our performance by business area, Ostomy Care delivered 5% growth for the year and 6% in Q4. Growth was broad-based outside of China and supported by the Sensura Mio portfolio. Excluding China, Ostomy grew 7% for both quarter and the full year. In China, the new channel strategy, inventory reduction, and organizational rightsizing weighed on our growth. With new leadership and the principal changes implemented, we are now entering a more stable period. Continence Care grew 7% for the year and 5% in Q4, supported by Europe and Lusia. Despite a slower fourth quarter, In the U.S., Continence Care delivered double-digit full-year U.S. growth with a strong contribution from Comfort Medical. Voice and Respiratory Care delivered 8% organic growth for the year and 9% in Q4, driven by the laryngectomy segment. Wound and Tissue Repair grew 2% for the year and 1% in Q4. Advanced wound dressings grew 9% in the quarter, while biologics declined 12%, reflecting the continued impact from the outpatient reimbursement change. Interventional urology grew 7% for both the year and Q4, driven by men's health in the US. With that, I will hand over to Anders, who will take you through our financial performance. Please turn to slide number eight.

Thank you, Gavin, and good morning, everyone. Reported revenue for the full year increased by 1.1 billion Danish kroner, or around 4%, compared to last year. Organic growth contributed with 1.6 billion Danish kroner, or around 6%, to reported revenue. Foreign exchange rates had a negative impact of 472 million Danish kroner, or around 2 percentage points on reported revenue. Mainly related to the depreciation of the US dollar, and a basket of emerging markets currencies against the Danish kroner. Please turn to slide 9. Gross profit for the full year amounted to 19.2 billion Danish kroner corresponding to a gross margin of 67% compared to 68% last year. The gross margin was negatively impacted by currencies with around 100 basis points related to the depreciation of a basket of currencies against the Danish kroner and the appreciation of the Hungarian For Rent and Costa Rican Kolon against the Danish Kroner. Ramp-up costs in Costa Rica and Portugal also impacted the gross margin negatively. During Q4 we started to see the impact from the Middle East, the conflict on raw materials, prices which increased by more than 2% and freight prices which increased by around double digit. You also saw impact from worst business area mix primarily driven by the decline in biologics. Operating expenses for the full year amounted to 11.8 billion Danish kroner, a 5% increase from last year. The distribution to sales ratio for the full year was 33% on par with last year. Distribution costs grew 4% versus last year, reflecting Kaos's one-off cost in Q1 and impact for investments during the year. The R&D to sales ratio for the full year was 4% of sales compared to 3% last year. The increase was driven by higher activity levels in chronic care and biologics. Overall, this resulted in operating profit before special items of 7.4 billion Danish kroner for the full year. In constant currencies, EBIT grew 4% compared to last year, while the reported EBIT decreased 3% compared to last year. The EBIT margin before special items was 26% compared to 28% last year, reflecting around 40 basis points incremental negative impact from chaos and around 100 basis points negative impact from currencies. Some of the negative impact from currencies was offset by currency hedges positively impacting our financial items. Kodoplast incurred special item expenses of 3.2 billion Danish kroner for the full year, of which 3 billion Danish kroner related to the caries impairment loss. Financial items for the full year were a net expense of 403 million Danish kroner compared to a net expense of 1 billion Danish kroner last year. The net expense included 629 million Danish kroner in interest Expenses partly offset by gains on exchange rate adjustments. The tax expense for the full year was 755 million Danish kroner with a tax rate of 20%, compared to 22% ordinary tax rate last year, impacted by the impairment laws on Goodwill related to kerosene. Net profit before special items for the year was 5.6 billion DKK or 418 million DKK increase when adjusted for the non-curring tax expenses last year. Adjusted diluted earnings per share before special items increased by 8%. Please turn to slide 10. Operating cash flow for the full year was an inflow of 8 billion DKK compared to an inflow of 6.6 billion DKK last year. The positive development in cash flows from operating activities was mostly driven by strong development in working capital, which ended at 24% of sales, in particular related to trade receivables and trade payables. Lower financial items also had a positive impact on cash flows, while higher income tax paid had a negative impact. Cash flow from investing activities was an outflow of 1.7 billion DKK. CapEx for the full year was 5% of sales, on par with last year, and includes investments related to the new manufacturing site in Portugal, which became operational in our fourth quarter. As a result, the free cash flow for the full year was an inflow of 6.3 billion DKK compared to an inflow of 5.4 billion DKK last year, or a 16% increase. Excluding acquisition costs this year and benefit from the divestment last year, the free cash flow increased 23% in the full year, with a strong free cash flow to sales ratio of 22%, compared to 19% last year. The trailing 12-month cash conversion was 98%. Turning to our sustainability performance, we are developing in line with our impact for ambition across most themes. Key highlights from the year include First, we are making good progress on decreasing our absolute Scope 1 and 2 emissions, which decreased by 52% in the year compared to the base year 2018-2019. driven by ongoing efforts to phase out fossil-based energy sources, as well as continued progress towards increasing the share of electric vehicles. Another important part of our sustainability strategy is improving access to healthcare. This year, we had a key success in the US, where the Centers for Medicare and Medicaid Services implemented three new codes for hydrophilic catheters from January 26. Finally, we have had a strong focus on organizational health and I'm pleased to see that employee satisfaction continues to be above the industry benchmark at 78% out of 100%. Now let's take a closer look at our updated 2030 ambition and the financial guidance for the coming year. Please turn to slide 11. As Gavin already shared, we now expect organic revenue growth in the range of 5-7% per year for the rest of the Impact 4 strategic period ending in FY2930. The revised organic growth guidance reflects the reimbursement change in biologics and increased level of pressure from healthcare reforms, where we now expect neutral to negative pricing impact for the remainder of the Impact 4 period. Coloplast operates in reimbursed categories, making pricing pressure from healthcare reforms a key risk to our business. In the 26-27 financial year, reforms will be implemented in France and Germany, impacting both chronic care and our dressings business. In addition, we are preparing for the competitive bidding program in the US, expected to take effect in January 28, where impact continues to be uncertain. The growth assumptions per business areas are as follows. In chronic care we expect continued good momentum with growth above the market and interventional urology we continue to expect mid to high single digit growth. In wound and tissue repair we now expect mid single digit growth from previously around double digit growth, driven by the reimbursement change in the outpatient setting in biologics. For the 26-27 financial year, we expect organic revenue growth of 5-7%. The assumptions per business area are largely in line with our 2030 ambition. Please turn to slide 12. Turning to profitability, we now expect an EBIT margin in the mid-20s range over the period, in constant currencies and before spatial items. Our updated ambitions include The updated ambition also reflects the external headwinds from pricing pressure and inflation. In addition to the investments presented at our Capital Markets Day, we will invest more offensively to support value creation during the strategic period and beyond, with a specific focus on innovation and the pipeline before or beyond impact fall, as well as the U.S. To partly offset the impact from the step up in investments and external headwinds, we have initiated the Funding the Journey program. which aims to broaden resource allocation and free up around 500 million Danish kroner with full effect in 2027-2028 financial year. Around 75% of the impact will already become visible in our financial year 2026-2027 and most of it will impact the operating expenses aligned primarily distribution cost. For the financial year 2026-2027 we expect an EBIT margin of around 25% which includes the following assumptions. On gross margin, we now expect inflationary pressure of 3-4%, impacting raw materials and freight, which accounted for around 55% of total cost of goods sold of 9.7 billion DKK in the previous financial year. We also expect continued headwind from ramp-up costs, in particular driven by Portugal. Our operating expenses assume impact from the step-up investments planned for the year. At the same time, our funding the journey program will support the step-up in investments and partly offset the gross margin headwinds. Please turn to slide 13. The remaining financial assumptions for 26-27 financial year are as follows. Reported revenue growth in Danish kroner is expected to be 7-9%, with a positive impact from currencies of around two percentage points. While the reported EBIT margin will include up to 50 basis points positive impact from currencies calculated using the current spot rates. Return on invested capital after tax before special items is expected around 16%. Special items are expected to be around 200 million Danish kroner related to our Funding the Journey program. CapEx to sales ratio is expected to be around 5%, the effective tax rate is expected to be around 22%, and net financials for the year are expected to be around 900 million. In terms of phasing, we expect a slower start to the year due to the continued impact on organic growth from the reimbursement change in biologics, with improvement already in Q2. The EBIT margin will follow a similar trajectory impacted by the top-line development in biologics. Finally, in terms of our capital allocation priorities, we continue to target a dividend payout ratio of 60-80% over the period, while simultaneously bringing our leverage ratio to below 2 times EBITDA. We believe that the updated ambition today provides both realistic and ambitious targets, enables us to invest in the long-term strength of the company, and allow us to deal with incremental external headwinds while maintaining our position as growth and profitability leader in medtech. Thank you very much. Operator, we are now ready to take questions.