Full Year 2023 Coloplast A/S Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome and thank you for joining the call the past full year 2022 'twenty three earnings release conference call.
Throughout today's recorded presentation, all participants will be in a listen only mode.
The presentation will be followed by a question and answer session.
If you would like to ask any question you May press star followed by one on your Touchtone telephone.
Press the Star key followed by zero for operator assistance.
I would now like to turn the conference over to Christian.
President and CEO. Please go ahead.
Thank you operator.
Good morning, and welcome to our full year 'twenty two 'twenty three conference call Christian Billups I'm, the CEO of Cole pluses I'm joined.
By our CFO I'm, not starting scorecard on our Investor Relations team.
We will start with a short presentation by Andrew said myself and then open up for questions as we usually do.
Could I ask you all to please turn to slide number three.
We delivered 8% organic growth and a reported EBIT margin before special items of 28% for the 'twenty two 'twenty three financial year.
Return on invested capital after tax and before special items was 17%.
The impact from the tough medical and <unk> acquisitions.
The fourth quarter, we delivered organic growth of 8% reported debit margin before special items of 28%.
I'm satisfied with this year's organic growth results as we continue to take market share across all our business areas more importantly.
To help more than 2 million people with intimate health care needs.
We also welcomed more than 260000, new users into our patient support program.
<unk> care.
In this challenging macro environment, we maintained an industry leading pop.
Profitability level still.
This year's EBIT margin is below our long term expectations for the decline in absolute profits, reflecting significant inflationary headwinds across many cost categories.
This was a year of heavy lifting.
A lot has happened.
In our external environment and internally we.
We manage through Covid repercussions in China.
We manage through supply disruptions in both home care Continence care.
We've been integrating ethos, we've acquired terraces.
We've had a lot of ongoing work to prepare for a year of launches.
'twenty three 'twenty four is a come back here.
You have launches in our core business.
A year in which we reaped the rewards of VITAS medical integration, a year, which includes revenue and gross margin benefit from caris.
It's also a year of a turning point in our profitability, what we expect to return to significant growth in absolute profits.
Now let.
Let me start with some key highlights from our strive twenty-five strategy. Please turn to slide number four.
Previous into Australia, 25 strategy I'm satisfied with the progress we've made on our priorities focused on four key pillars gross.
Innovation.
Operational efficiency and sustainability.
You start with growth.
Our core chronic care businesses, Ostomy and continence care delivered high single digit growth in the year.
Momentum in our core is strong.
A key highlight from chronic cares our ostomy care business in the U S, which grew at double digit rate.
Continued market share gains and solid progress.
Cross all channels.
The acute channel our contracts with the two largest group purchasing organizations busiest and premier.
Were both extended now valid into 2026.
We also obtained a sole platinum partnership for Ostomy care with Medline, a leading medical supply company, which represents a significant opportunity.
To strengthen our position in home health and advanced Tech roles.
And the community channel.
With stripe 25, we set out to build also mid and long term growth and value creation options through M&A.
We've made three significant investments in the first half of the strategic period with terraces at the latest addition to our portfolio.
Expect care assist to be growth accretive.
As of 'twenty, four 'twenty five adding around one percentage point to our organic growth in U P. S accretive as of 'twenty six 'twenty seven.
Getting closer to the company since we completed the acquisition on the 31st of August has confirmed our conviction.
That cares this is the emerging category leader in the U S centric biologics wound care segment patented and clinically important fishkin technology that terrorists as has developed.
Ultimate potential to strategically transformed our presence in our largest market advanced wound care and it also provides us with a strong commercial footprint in the U S.
At the same time.
Our global infrastructure provides care assist with a backbone for expansion beyond the U S in the medium and long term.
Now, let's turn to the second pillar of Australia 25 strategy innovation.
Blue job.
Our new intermittent catheter with a micro holds on technology is now launched in six markets with.
Very good feedback from both users and clinicians.
We're preparing for launch in more markets in the first half of 'twenty three 'twenty four we already have positive news from the U K, but we've been awarded reimbursement for Lou just at the price level of ambition and from the U S where the product has received a five 10-K approval.
Halo.
Digital leakage platform in Ostomy care is now expected to be launched in Germany, and the U K in the first half of 'twenty three 'twenty four.
Discussions are ongoing and.
And we remain optimistic about Halo as we believe it has strong potential to raise the standard of care <unk> users.
We now also have clinical evidence to support this with the results of the first clinical study showing significant improvement.
Both quality of life and not leased a 31% reduction in leakage for users that use halo.
Now, let me zoom in on operational efficiency.
'twenty two 'twenty three was the final year of our global operations plant, five which had an ambition of keeping blue collar headcount neutral through automation effectively releasing around a thousand ftes.
Program, it's been impacted by longer component lead times and in 'twenty. Two 'twenty three we achieved a release of around 800 ftes with the remaining FTE release expected in 'twenty three 'twenty four.
Today, We also announced our global operations plan, six which covers the three year period until 'twenty five 'twenty six.
Got six will support coal plus long term financial guidance through key initiatives, such as establishing a new manufacturing site in Portugal.
On a company wide procurement program aimed at driving cost efficiency.
We've chosen Portugal lots of new location for a manufacturing site due to its proximity to key European markets.
Stable supply of qualified labor.
And the very clear sustainability focus.
The new site in Portugal is expected to be operational in 2026.
It will also be the largest coal plus site to date with around 30000 square meters, removing the need for additional sites until 'twenty nine.
Judy.
The investment level is expected to be around 700 million Danish krone evenly split over the next three years, starting 'twenty three 'twenty four.
Which also means that our capex ratio for the remainder of the strive twenty-five period is expected to stay around 5%.
Sales.
Finally on our sustainability initiatives, we continue to make good progress on our recycling efforts, where we have already reached about 2025 ambition with 75% of our production waste now recycled.
In addition, we reduced our scope wanted to emissions by 10% from the base year of 18 19.
Including ethos medical and positively impacted also by phasing out of natural gas as well as electrification.
Before we take a closer look at today's results I just like to take this opportunity to say thank you to our around 16000 employees at <unk> for their continued commitment and hard work in another challenging year.
Dynamic labor market, a voluntary employee turnover rate remains stable and the employee satisfaction score continues to be well above the health care industry benchmark.
I'd also like to thank our users clinician partners and investors for their confidence.
<unk>.
With that please turn to slide number five.
In Ostomy care organic growth was 8% for the full year and growth in Danish kroner was 5%.
In Q4 organic growth was 9% with growth in Danish kroner of 2%.
Our sensor in Mew portfolio continues to be the main growth driver followed by the Brava supporting products.
All sensor and a sore I'll turn our portfolios continue to contribute to growth in emerging markets.
From a geographical perspective growth in Q4 was broad based with a strong quarter in emerging markets driven by double digit growth in China.
And Europe, driven by U K and the U S. Also made solid contributions to growth.
Incontinence care organic growth was 7% for the full year with growth in Danish kroner or 4%.
Q4 organic growth was 6% and growth in Danish kroner was negative 1%.
Both in Q4 was driven by solid high single digit growth in intermittent catheter us across the speedy cat portfolio with a good contribution from <unk>.
<unk> standard as well as flexible catheter.
The bulk business had another good quarter with.
With solid growth contribution while the collecting devices business attracted from growth in the quarter.
Packed it by order phasing.
From a geographical perspective, all regions contributed to sales growth led by the U S and a good quarter in emerging markets while growth in Europe was held back.
By collecting devices.
Markets, where reimbursement has been recently established or improved such as Poland stray Leah Japan.
Japan, and South Korea continued to perform well.
And all grew double digits.
Voice and respiratory care posted 10% organic growth for the period.
Since the first of February and 13%.
In Q4.
This also includes some benefit from a lower baseline last year.
We're all sitting there rejected me was high single digits, driven by an increase in the number of patients served in both existing and new markets as.
As well as an increase in patient value driven by the product's life portfolio.
All regions contributed to growth led by Europe.
Ralston tracheostomy in the E&P business was double digits.
With continued solid demand and positive impact from forward integration in key European markets as well as the U S.
During the year, we made good progress on the integration of VITAS medical into coal plus infrastructure and we are on track.
To deliver operational synergies of up to 100 million Danish kroner.
Organic growth in advanced wound care for the year was 7% and growth in Danish kroner was 8%, which also includes one month of impact from the cares this acquisition.
Q4, organic growth was 8% and growth in Danish kroner.
Was 14%.
The advanced dressings business grew 6% in the full year and 12% in the fourth quarter.
Growth in the quarter was driven by strong performance in Europe.
Fitting from the resolution of the back order situation as well as emerging markets driven by another solid quarter in China.
Well I think silicon portfolio continued to be the main growth contributor in the quarter.
Paresis delivered pro forma revenues of 772 million Danish kroner for 'twenty, two 'twenty three growing around 50%.
Revenue growth was broad based led by the hospital channel and surgical wounds.
<unk> operating profit margin, excluding PPA amortization was around 6% for the year as expected.
And then interventional urology organic growth was 10% for the full year and growth in Danish kroner was also 10%.
In Q4 organic growth was 5% and reported growth in Danish kroner was zero percent.
We're also in the quarter was both up against the high baseline last year and driven by men's health in the U S as well as emerging markets. The traction took off that basically was impacted by order phasing with this I'll now hand over to Anders will take you through the financials and outlook in more detail.
Please turn to slide six.
Thank you Christian and Hello, everyone before we look at the numbers I would also like to thank all our employees for their dedication and contribution in are you challenged by macroeconomic factors inflation high interest rates and unfavorable development in currencies have all put pressure on our financial performance in the year pardon me.
Been prudent on cost and focused I'm, hoping I'll use us posting a solid.
Right.
Reported revenue for the full year increased by 1.9 billion, Danish kroner or around 9% compared to last year.
Organic growth contributed 1.7 billion things corner around 8% to reported revenue.
Acquired revenue contributed 708 million things coma to reported revenue for the full year or around 3%, reflecting four months of impact from the <unk> medical acquisition and one month of impact from tariffs.
Foreign exchange rates had a negative impact of 495 million Danish kroner or around minus 2% on reported revenue mainly due to the depreciation of the British pound and the basket of other currencies against the Danish kroner.
Please turn to slide seven.
Gross profit for the full year amounted to $16 3 billion Danish kroner corresponding to a gross margin of 67% against 69% last year.
The gross margin was negatively impacted by increased prices for raw materials and energy double digit wage inflation in Hungary, and ramp up costs at our sites in Costa Rica.
The above mentioned headwinds were only.
Partly offset by positive impact from the inclusion of <unk> medical price increases country and product mix as well as efficiency savings from the global operations train five.
The gross margin includes negative impact from currencies of around 30 basis points for the full year.
Alright operating expenses for the full year amounted to $9 4 billion Danish kroner.
Like for like increase in operating expenses.
Excluding inorganic impact from eaters medical incur losses was phone and a 9 million Danish kroner or 5% compared to last year.
<unk> medical contributed with 1.1 billion things corner to operating expenses of which 210 million Danish kroner in PPA amortization included under distribution costs.
<unk> contributed was 71 million beans, corn and operating expenses, reflecting one month of impact.
The distribution to sales ratio for the full year was 31% compared to 30% last year and includes impact from AIDS us medical in cases, and an increased level of commercial activities.
Houston costs also include continued commercial investments in Internet, urology, consumer and digital initiatives as well as medical.
Yeah, I've been to sales ratio in the full year was 5% compared to 4% last year.
Primarily impacted by the inclusion of <unk> medical.
R&D to sales ratio for the year was 12% of sales on par with last year.
Overall this resulted in a decrease in operating profit before special items.
1% for the full year corresponding to an EBIT margin before special items of 28% compared to 31% last year.
The EBIT margin for the full year contains around 90 basis points impact from the PPA amortization costs majority of which related to the <unk> medical acquisition.
Currency had a negative impact of around 60 basis points to the reported EBIT margin related to unfavorable development across the basket of currencies in the second half of the year.
Special items for the full year amounted to 74 million things corner. This special items include the funny final and a provision of 200 million Danish kroner related to the mesh.
District litigation cases in the U S insurance urology business and an income of 244 million things corner from the reassessment of the asos medical billing compliance provision both booked in in Q3.
In addition, special items include 65 million Danish kroner related to the Adas medically integration and 54 million Danish kroner related to transaction costs from the acquisition of <unk>.
From a financial items for the full year were a net expense of 746 million Danish kroner compared to a net expense of 312 million Danish kroner last year.
Driven mostly by interest expenses related to the financing of <unk> medical acquisition as well as losses on balance sheet items denominated in mostly U S. Dollar.
The tax expense for the full year was $1 2 billion things corner with a tax rate of 21% compared to a tax rate of 23% last year.
Positively impacted by the transfer of Asos medical intellectual property to Denmark.
As a result of the increase in net financial expenses net profit before special items for the full year decreased by 4% compared to last year.
Diluted earnings per share before special items decreased 6% to 22.4 16 school.
Please turn to slide eight.
Operating cash flow for the full year amounted to $4 2 billion Danish kroner compared to a 5 billion things corner last year.
The decrease in cash flows was driven by higher income tax paid.
Kris and interest payments due to the <unk> medical acquisition and an increase in working capital driven by inventories.
Inventories increased due to the higher level of safety stock on raw materials.
This increases and an increase in finished goods due to the transfer of production to Costa Rica.
Cash flow from investing activities was an outflow of 9 billion Danish kroner impacted by the acquisition of characters.
Compared to an outflow of $11 8 billion Danish kroner last year.
Impacted by the acquisition of <unk> medical.
Capex for the full year amounted to 1.2 billion Danish kroner or 5% of sales on par with last year.
As a result, the free cash flow for the full year. It was an outflow of $4 7 billion Danish kroner compared to an outflow of $6 7 billion Danish kroner last year, both impacted by the acquisitions.
The adjusted free cash flow for the year was an inflow of $3 7 billion Danish kroner.
Net working capital amounted to around 26% of sales compared to around 25% at the end of last financial year, most impacted by the increase in inventories.
We expect the net working capital to be around 25% in 'twenty three 'twenty four and return to our long term expectations of around 24% at the end of the strategic pivot.
The trailing 12 months cash conversion was 84% impacted by the development in working capital.
Now, let's look at the guidance for the 'twenty three 'twenty four financial year.
Please turn to slide nine.
What kind of free 20, full financial year, and we expect organic revenue growth of around 8% and then reported revenue growth of around 12%.
The reported EBIT margin before special items is expected at 27% to 24% 28%.
I will go through the detailed assumptions on the next slide but at the high level. We are looking towards a year with easing pressure from inflation, which will be offset by around 100 basis points dilution from the <unk> acquisition.
But 'twenty freeze before I also expect around 50 million Danish krone, and special items related to the ongoing integration of <unk> medical.
The net financial expenses for 'twenty, three 'twenty four I expected at around minus 700 million things corner, mostly driven by the eights as medical financing.
The blended interest rate for the dip financing of <unk> medical is expected to be around three 3%.
Capex guidance for 'twenty three 'twenty four is around 1.4 billion Danish kroner and includes investments in existing.
And our new manufacturing site impossible.
Our effective tax rate is expected to be around 22% positively impacted by the transfer of <unk> medical integrates with poverty.
Following the transfer of the intellectual property there will be an extraordinary tax payment of $2 5 billion Danish kroner in the second quarter of 'twenty, three 'twenty, four financial year, which will be offset by reduced tax payments in the following years.
Please turn to slide 10.
The organic revenue growth guidance assumes continued good momentum in 'twenty, three 'twenty four with growth across businesses and geographies in line with our stretch into five assumptions with the exception of China.
In China, while we are looking into an improvement in growth year over year, we do not expect the business to be back to double digit growth due to continued impact from lower average value per patient on our consumer business.
We have no current knowledge of significant health care reforms and expect positive pricing impact in 'twenty three 'twenty four however, at a lower level compared to 'twenty two 'twenty three.
The reported revenue growth guidance assumes around four percentage points of contribution from the <unk> acquisition, reflecting 11 months of impact and limited negative impact from currencies.
The gross margin is expected to be around 68%, we expect raw material prices to increase by around mid single digit compared to around double digit last year.
Blue collar wages in Hungary are expected to increase at a similar level to last year of around double digits.
And on the positive side, we expect tailwind from lower freight rates and energy prices as well as one off benefit from the position of the Italian payback reform of around 40 basis points last year.
Finally cares this is expected to contribute to the gross margin was around one percentage point.
Yeah.
The EBIT margin guidance before special items assumes prudent cost management of operating costs.
To grow below reported revenue in Danish krone.
Excluding acquired growth.
The EBIT margin also includes synergies from the integration of <unk> medical.
On the other hand as mentioned cares. This is expected to have a negative impact on the EBIT margin of around 100 basis points, which also includes around 100 million Danish kroner in that amortization charges impact.
Impact from currencies on the EBIT margin is expected to be negative.
Around 50 basis points with current spot rates.
In terms of facing maybe are expecting organic growth in the first half of the year to be in the low end of the guidance accelerating to the upper end at the guidance in the second half.
The contribution from Kansas to reported growth is expected to have us similar level across the quarters.
I expect significant negative impact from currencies on both the reported growth and EBIT margin in Q1.
Impacted by the development of the U S dollar as.
As a result of this the EBIT margin in the first half of the year is expected to be in the low end of the guidance accelerating to the upper end of the guidance in the second half.
With this I will hand over to Christian for final remarks, Please turn to slide 11.
Thank you Anders.
We now have a have to strive 25 strategic period behind us.
Since we announced the strategy our financial performance has been challenged by macroeconomic trends and events, including the COVID-19 pandemic and inflation.
These challenges have also confirmed the strength of our company and our model, we've been able to maintain growth.
And industry, leading profitability. Despite the external pressure, we expect a much stronger in the last few years of our strategic period, and we're working on a number of initiatives that position us well for long term value creation.
A strong core.
Chronic care businesses will be further strengthened with a significant number of product launches in the second half of our strategic period combined with solid contribution from our smaller business areas and the strengthening of the portfolio through the acquisitions of <unk> medical.
This I feel confident that we can accelerate our long term growth to 8% to 10%.
At the same time inflation across our key cost categories has started to come down.
And combined with initiatives from our golf six land, we're looking towards returning to an EBIT margin of 30% by the end of this strategic period, excluding terraces and then if it margin of more than 30% longtime including care says. Thank you very much operator, we're now ready to take questions.
Yeah.
Ladies and gentlemen at this time, we will begin the question and answer session.
Anyone who wishes to ask a question May press star followed by one on their touch tone telephone.
If you wish to remove yourself from the question queue. You May press star followed by two.
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Please lift the handset before making your selection.
One who has a question press star followed by one at this time.
One moment for the first question please.
The first question.
It's from.
Joe <unk> with Jpmorgan.
Please go ahead.
Hi, Good morning, and thank you for taking my questions I have three cheese and firstly can you just give us an update on how the carrier since integration is going and perhaps if you can talk to the phasing of opex costs to next to the shaft by 'twenty, four and going into FY 'twenty five.
And second could you. Please provide us an update on your outlook on China. You have mentioned close will probably be below the double digit strive twenty-five ambitions. So just trying to see how to quantify this and the impact on the Ostomy business.
I'm going to ask why 24 and in terms of the Anticorruption campaign is that mainly impacting the wound care segment or have you seen a drop down to the other businesses as well and just finally on your midterm guidance, which you had reiterated.
Around 30% excluding care says can you provide us a bridge of how you plan to get there from the 27% to 28% margin year, and then going into the midterm.
Just below 30 extra including carrier says.
Thank you and saw four three good questions I'm going to let me just start with the question on care space.
<unk> ended the year as planned.
With the $772 million worth of turnover, Danish kroner, and about 50% gross and net debt of around 6%. So basically.
On plan, we're off to we're off to a good start.
Just a reminder, the when it comes to integration, there's not that much going on this first year, but we're also very much focused on delivering the earn out.
We are focusing the integration activities on four core areas related to quality and regulatory affairs legal I T and things like that.
And of course that will be over time.
E a big piece of work on getting carriers onto the KOL <unk> infrastructure. We're also beginning to work on preparing.
For if you will geographical expansion.
There was a question what was that there was a question on cost phasing.
Yeah, just the phasing of Opex, how should we think about kind of that dilution.
Personal expenses.
Okay.
You shouldn't impact, but is it fair to see that that impact is probably going to be larger in the first year and she's not integrating this is going to 25, just kind of splitting that between 24 and 'twenty five.
So let me take that one so this financial year and we will include the amortization of around 200 million Danish Krone, and then the underlying EBIT margin ex the amortization for cases are we expecting that to develop linearly from the around <unk>.
6% they delivered last year to the 20% EBIT margin and we have communicated in the 25 to 26. So you should see that the EBIT margin improvement as a linear over the period.
And then to your question on China, I, just I just spent a week in China meeting with our with our team out there and.
As we've communicated we come out of a year now with the low single digit growth in China.
Selecting that we had.
The negative growth in the first half battling the COVID-19 incidences and things.
Things like that than a double digit growth here in the second half.
Our strong growth in new patient discharge. So the performance in the hospital channel has it has.
Ben good throughout really where we've seen a dip has been in the consumer channel where.
Tumors have purchased less they've tended to trade down and.
And so part of my review and visit to China was also growing.
It took quite a lot of depth on the dynamics in the consumer channel we've made a number of changes.
And we are up we're a month in them.
Cautiously optimistic that we're going to we're going to see are.
We're going to see a better performance come out of the out of the consumer channel, but I'm not expecting that.
Chinese consumers this year to just come back and start purchasing at at similar rates that they were pre COVID-19. There's just too much uncertainty in the in the China economy that has been of course, some rumbling from the anti corruption campaign that that creates a bit of uncertainty I view that as a thing that's basically.
Passing.
We welcome that.
But of course, well when when these things happen a Chinese hospitals tend to not make decisions and you can't really start new things.
And activity level scope it down, but it's it's passing.
And if you want to talk to Mr. Yeah. So let me speak to the midterm and moving parts, you're still committed to deliver a 30% EBIT margin ex sick raises in the 'twenty four 'twenty five.
The main drivers are first of all that growth we are expecting to continue to grow the business in the level of eight to 10 as we have communicated after the Christmas acquisition. Secondly, we are expecting that the gross margin will improve as.
The inflation input cost us starting to ease.
We have also initiated a pretty large procurement program that is addressing all our external spend across the company and we also expect that will contribute to the margin improvement and then finally, we are continuing with a very tight cost control and I would also expect the scalability.
See across the whole business will will impact the margin outlook. So we are still comfortable that we will get back to the 30% level ex terraces.
In 'twenty four 'twenty five and in terms of our longer term guidance of of 30%, including cases that would be in some years after.
And I think that's clear thank you.
The next question.
Is from Hasan <unk> with Barclays.
Please go ahead.
Hi, Thank you for taking my questions I also have three please.
If I could start with guidance could you help with the margin bridge to 2024, given the $27 nine year reported in 2023 and some of the key cost buckets here what are the key drivers for the top and bottom end of the guidance I guess I'm trying to understand the degree of buffer you have.
Given you are now talking about the lower and are now for the first half.
Secondly, following up on <unk> could you talk about the driver for the weaker pro forma margin of 6% versus your initial expectation at the time of acquisition of 10 has anything changed since you gave the guidance and how should we be thinking about 2020 for margins and then finally could you provide an update on the Italian payback peripheral.
You mentioned, a baseline benefit next year, given the 40 basis points of headwind to gross margin you booked them.
In the last year.
How is this resolved versus your expectation and what has been accrued historically and what's this impact higher or lower in the fourth quarter. Thank you.
Yep.
Let me start with the guidance for this financial year and the moving parts.
So I already talked to most of the you can see moving parts in my initial view.
But as soon as I communicated before paresis it'd be our guiding an EBIT margin in the level of 28% to 29%.
There are a number of moving parts on the cost of goods sold and it will be as I said earlier are seeing are the raw materials prices are increasing by something around a mid single digit energy. We have hitched as we have talked about a lot. So we will see a quite significant.
The improvement versus last year on that one and the same thing goes for freight.
On the and then on the wages in Hungary, and that'll be around double digit as as I mentioned earlier.
And on the gross margin and now I'll take you Italian provision a question. So as we talked about last year quite a bit.
We are part of this telling crawl back.
And throughout the year, we have made and are cool off at around 40 basis points. So it has been a equal across all the quarters.
We actually anticipated that it would be settled by doing awesome, but it continues to be delayed and now we expect some kind of a conclusion around Christmas.
And.
And but that's of course uncertain, but I am confident that we have accrued for for the historic you can say challenges related to the clawback.
But that is giving us some tailwind this year are off around 40 basis points.
So on the gross margin and the real you can see moving parts. If that is the raw material development, how is that going to develop my best view right now is the mid single digit.
So that's definitely something we are focusing a lot on also through the procurement activities. We are currently doing.
And then for the remaining part of the the Martin M. So we are you can say.
Very prudent on our cost so I'm expecting that the remaining part of our of our costs will grow at a lower level than than the growth and you will also see some benefits from synergies and the uncertainty around the full year EBITDA that's on the <unk>.
Currency side, where the spot rates, we are looking at currently we will have.
Some headwind of around 50 basis points. So those are some of the main moving parts towards the guidance for fourth for this year that before.
Or was this.
And then the house onto your question on care says it's.
It's it's quite simple we are ramping up.
And the ramp up has begun we have.
We have a team that's very eager to try and deliver the earn out.
So its basically its ramp up costs, we're adding quite a few people this year.
And.
You will see like we've said before the margin will gradually expand as we move towards the end of the peer 25, 26 that we will get to a margin of 20% so nothing really changed.
But we are ramping up.
Very helpful and if I can just follow up on the margin point I think you've you've talked about the the phasing of margins clearly how should we be thinking about phasing of growth and given given easier comps in the first quarter.
And so and so the growth as also mentioned earlier that we will have a little bit lower on the low end of our for the guidance in the first half from an organic growth point of view and then higher.
In the second half and it's mainly due to Oh urology business.
And then also the reported growth before Kocis will in the first quarter.
Quite significantly impacted by currency due to the U S dollar.
Perfect. Thank you.
Your next question comes from Melius, Stephanie Pataki with Kepler and still grow.
Please go ahead.
Yes. Good morning, Thanks for taking my questions I have a few let me start on China Christian.
And lower spending due to consumer sentiment has been has been a topic now for several quarters.
How convinced are you that this is not a structural trend that we're looking at into China. As you know it is just going to be impacted by that headwind for <unk>.
More than just a year.
My first question and my second question for them.
Well I'm just on the gross margin I mean, you've been you've been talking to the to the cost of goods sold.
With us on an end joined the call.
You sound hopeful that there would be a positive impact from the development on that side I'm surprised to see your gross margin guidance really just embedding P to P. Italian payback system is that just.
Cautionary approach to the to the margin gross margin from your side or is there anything else.
In there and then Christian the last question I'll get back to you on Medline. You mentioned that you are you have massive partnership there and offer significant opportunity could you maybe talk to how big or how we should think about the opportunity going forward. Thank you.
Yeah, Let me, let's start with the two questions for me, Mike I think a good. Good question. So yes. It is true. This dynamic has persisted in China, and really I am not too optimistic that the that the average spend is going to change much. This year I don't have visibility.
Two two to say that but.
But what I can see is that the company is very competitive in the hospital channel.
So we went public two out of three patients that leave a hospital in China, they've got good growth in new patients.
We've had <unk>.
Some of the hiccups in the consumer channel.
Where we are we are over the last year donated a few share points to some local competitors. We've made some changes to.
Two how do we work in the consumer channel and I just spent a week there with the team I feel confident that based on about six weeks' worth of data that we are we're rectifying this and can maintain a strong share position also in the in the online channel and get some growth. So we are we are guiding for a higher.
The growth this year.
A mid single digit in China, maybe mid single digit plus depending on the on how successful we all over the coming quarters, but I'm not I don't really have visibility to being much more optimistic about the Chinese Chinese economy, I don't think it's going to persist forever.
I don't think it's going to persist forever, there's just and if you look at the.
The raw data on China and the.
The demographic explosion that will happen there this will continue to be.
A significant growth driver for the company over the over the medium and long term Medline is up is.
A really good opportunity.
Medline very strong distributor.
Lots of salespeople are very very strong presence in home health. So I view this as part of the equation.
Two the plan, what we need to continue to grow Ostomy care double digit.
In in North America that we've done over the last 24 months. So that's how I see it.
Yeah, and let me take your question on the gross margin and so I am saying is you have an expectation.
Of around 67% and so I am a you can see are optimistic that we will see an improvement in our gross margin versus the 'twenty two 'twenty, three but I'm not going to guide specifically on the dissimilar.
And the same thing goes for when I include the cares. This I'm optimistic that we will sit with that group gross margin of around 68%.
Got it and just very quickly on the tax to the one time tax payment that you are taking in Q2 next year and you didn't you say that this is going to enable you to have lower tax payments going forward could you give us an indication of what kind of impact that should that should be.
And so some people have this negative cash flow impact in our second quarter or for round two.
<unk>.
<unk> 5 billion and then the you can say the reduced teck's will then be spread out over a four.
Four to five year period.
Thank you.
The next question comes from Christian <unk> with Danske Bank.
Please go ahead.
Yes, good morning, and thank you for taking my questions I have.
Three as well first one is on your pricing expectations for 'twenty two 'twenty three 'twenty four.
And they a Y a you don't spell out any impact of pricing in the gross margin bridge that you show on page number 10.
And then second question is a two the outlook for your working capital.
A ratio to sales.
You had about 26% how do you expect that to develop in the 'twenty four.
And then final question is a two eight us.
Yeah.
As I understand that you know I believe that you realize the full synergies.
That you spelled out a when announcing the acquisition.
Do you see scope for more potential synergies here as we look ahead. Thank you.
Alright, let me take them and take those questions. Thanks.
In terms of pricing.
So as we have also talked about quite a bit we saw positive price impact the last year and I'm also expecting positive price impact.
In 'twenty three 'twenty four driven by basically all businesses and most of the regions.
The impact I'm seeing in the in 'twenty three 'twenty four is however, a bit lower than last year, but it's not that significant that I am calling it out in the gross margin bridge a year over year.
And the second question around working capital.
I guess I'd be ended the year with a working capital ratio of around 26.
We are working on getting that reduced again and my expectation for the coming year 'twenty three 'twenty four is around 25% and I'm still having the ambition to deliver around 24% at the end of this strategic period.
And it's and the improvement it's a mix of improvement in our you can say accounts receivable, but also on our inventory.
Then in terms of our for you Yeah. Eight took integration question and so that's something we have been working a lot on over the last year, one and a half years and the work. It will also continue in.
In the next couple of years, we have gotten them.
Around half of the the synergies so far and we are expecting that will continue into the next year or so so the synergy.
We will continue to contribute to our EBIT margin development in the coming years.
Okay. Thank you maybe just a quick follow up so the Asa synergies that you're including 424 is that the 100 million run rate that you are.
I think spelling out when you did the acquisition.
No we are not at that level, yet and so it's not at the 100 million Danish kroner, yet that will be a little bit later, and so and I also sit up to 100 million.
Okay, great. Thank you.
The next question comes from Veronica <unk> with Citi.
Please go ahead.
Hi, guys. Good morning, and help you can hear me. Okay. I had three questions. Please the first one just wanted to understand that inflation and inflation assumption that you have at the gross margin guidance and your degree of confidence that that mid single digit.
Raw material inflation number is the right number.
I'm asking this.
Rest of the downside, but also rest of the outside of the state we have seen some deflationary pressure site left to go.
A little bit more insight into what you're seeing there. All my second question is just on that.
Halo progress.
And thank you for sharing some of the clinical data. This morning L. A where are you with the discussions that the German payer and what has been the hold up that's leading to that process, taking longer and then I have a third follow up after that but maybe I'll. Let you answer these two.
Yep. Thanks, a lot there, but only kept for your questions. Let me start with the raw materials and so what I said earlier.
Right now I'm expecting a mid single digit price.
Price increases on our raw material cost base.
When when we double click on the total cost category. We are seeing some are you can see categories that are increasing more and then if you're also seeing a quite a bit of categories, where we have a decline in the price.
It increases so it's really a mix of a number of different categories. So injection molding the packaging.
Got.
At CIT Huh.
I must say I am becoming more optimistic also because the general inflation level is starting to come down.
So but for now my assumption is mid single digits.
And then to your question on Halo Veronica.
Yes, we had a really promising results here now with more than 30% reduction in leakage are super positive responses from the people participating in the study.
And the holdup with the payer is really it's it's a it's a dialogue that we've had around what the.
If you will the app support to the users should actually entail and the German pay up basically insists that we complete the app development before before formalizing a decision and there's a there's a bit of time and actually making that happen.
So I'm, therefore, saying that we'll launch in the first half.
Still optimistic at this thing is going to make it to market and a.
Definitely with the data that we now have on the clinical side, we have a strong case to make.
That's that's very helpful. Thanks, Christian that maybe my final question really ties it.
Halo it slightly more bigger picture Adney innovate clinical innovation program, it's been a number of years that we've talked about it and waited for some impact here.
I'm just curious how you're feeling just more broadly about this initiative and its ability to drive accelerated growth rate and fiscal 'twenty four when we start to feed us or are we still a number of years away from that.
Sort of do a little bit south of <unk>.
All grading of the program that would be helpful. Thank you guys.
Well, that's the CEO of the company always want more and I want it faster.
But lew just coming.
And the second half of this strategic period, it will make an impact this is an absolutely incredible platform.
We're live in six markets will launch in most of the major markets now.
We are ahead of plan and in the first markets and that conversion.
<unk>.
Of our offering to be spearheaded by Lucia is well under way I am very optimistic about what we can do with that product of ryka. It will set a new standard for the category.
And I can see the way that our competitors is reacting they can see it.
So so I am definitely expecting that this is going this is going to accelerate the continence care growth in the last half of the strategic period. Remember this also needs to be rolled out to the full platform. We're starting with mail, which is two thirds of the market. It will come for females, who will do a set version.
And.
So definitely optimistic we've always been.
More hesitant about if.
If you will the path to market for a digital Ostomy appliance, we've got a great product. We now know that it also works clinically.
But the dialogues with payers to basically get it into market are there there are more technically complex and there are also just they are not as linear but but once we get it into market. I also feel confident that this will be a great addition to the Austin portfolio and also upgrade the value.
Austin to use us and therefore also upgrade the value of the market and then finally I just remind you Veronica there's a lot of other launches coming.
So we are looking into to use now where we will be launching a number of things on after me Bob management in wound care and so we are really moving into a more if you will.
I'm a launch point of view a significantly more.
Active period from the company, who basically rolling out the largest innovation roadmap in my 15 years with the company.
Yeah.
That's helpful. Thanks, guys.
The next question comes from Oliver Metzger with although E. Jeff. Please go ahead.
Good morning, Thanks for taking my questions.
First.
Who are on <unk> six so you focus on.
No company wide procurement can you remind us how procurement is organized currently so as we visited your facility some years ago.
I had the impression that procurement is already well organized and in this context Kennedy's.
An indication where do you see procurement costs to decline relatively.
And the third question.
Christian is a more general question on the wound care market. So apart from cruises.
I think youre doing a good job. However, the overall market dynamics remain unchanged so quite mature market. So given the changes we have observed over the last one off and he is in the kind of environment high interest rates.
Also more pressure from the health care system.
Do you see any changes that.
Concentration might start or.
And the landscape that will come with some manufacturers become more aggressive in price and market share.
To be quite interesting to know thank you.
Thank you for those two good questions. So just as a reminder, procurement is organized under operations.
We've not changed the way, we organize but of course, what's happened to the company over the last.
24 30 months.
The environment has changed significantly. So this has become a key focus area.
We are we are throwing resources after it a lot of renewed attention, we're anchored anchoring it and the executive team.
And this is we're not really giving you specific guidance on the impact of that program. We view it as part of a portfolio of initiatives for us to get back to the 30% margin.
To your question Oliver on the on the wound care market.
Uh huh.
I'm probably a.
I've been in the game too long to to come with any.
Definite answers on what will happen to that market I think that's been talks about consolidation for <unk>.
As long as I can remember.
I.
I am not necessarily saying that changed now.
We would need to see somebody fundamentally changed the strategic stance as you can see from the way that we are moving on the chessboard.
We are of course, a bullish about taking a real position in biologics with the acquisition of <unk> and.
I can talk at length about.
That's why we think that there is.
It really interesting really interesting play there with that particular technology and there will also be opportunity for combination products with our existing business and synergies to the existing wound care business. So we.
We definitely think that there's a there's a good play.
But we can drive growth and value creation over the medium and long term.
Yeah, Okay. Thank you.
Do you see any more intense price competition this very disciplined.
Food care.
You fell out of my end can you repeat the question. Please.
Sorry about that do you see any.
Any form of stronger price erosion in the traditional wound care segment.
So that's definitely that's definitely hard competition and also price competition and of course and then in the in this type of environment. There. This may go up but that's definitely a risk that this may go up all of it.
Okay, great. Thank you very much.
The next question comes from Graham Doyle with UBS. Please go ahead.
Good morning, guys and thanks for taking my question just one for me.
On the cost side, we obviously focus a lot on the Cogs line and the gross margin, specifically, but theres more cost below that in sales and marketing and <unk>.
On R&D and G&A and I suppose one of the things that's been kind of interesting over the last four or five years as <unk> been investing heavily on the sales and marketing line in part for the.
The U S opportunity around Gpo's, but you need to.
Growth hasn't really accelerated on the back of that and it kind of begs. The question is is it getting harder to generate that growth in the core business ex carriages.
Or is it is the investment just not paying off in this particular instance, because presumably you could have the margin be materially higher at the EBIT level. If you were to maybe just rein in some of that spend I think most of us would've expected that spend to ease off at this stage, given where we're well advanced into the GPO opportunity. So if you could get a sense.
As to how you think about that and maybe just like what's the line of the bar that has to be met before you.
You either increase or decrease that's it thank you.
Yeah, So a couple of reflections.
Really good question.
I'll look at the cross of the Ostomy business.
8% growth business.
So depending on where you look three or four points above market.
Continence care and here I'll look at the catheter business is high single digit multiple points above market.
Of course, what what's what's happened now two two to the businesses that we've been impacted by China. So if you look at the way.
That that we've talked about growth acceleration in that mix, we had U S. At.
The double digit.
We had China.
We had innovation.
And of course, our ethos.
When we talked about at the last time, we had our investors assembled here at an HQ eight eight of us delivering.
U S I would say on Ostomy.
Delivering where just a tad below incontinence care, but still doing well, but China is of course not.
And now like I said to <unk> question earlier.
The latter half of the strategic period is when we need to reap the benefits of the investments that we've made into innovation. So I am definitely expecting that the larger platform will accelerate the continence care franchise.
And Graham maybe you can also just add that in the first part of the strategic pivot, we invested quite significantly across the business. So we invested in the U S selected European and emerging markets. We also increased our investments in innovation.
And we are not expecting it to continue investments at that level in the remaining part of the strategic program or strategic period. So so so that is a because we have done a lot of investments that we now expect it will it will pay off.
Okay.
It's actually really helpful. I appreciate the clarity there. Thank you guys bye bye.
In the interest of time the last question come from Barton Parkway with Seb. Please go ahead.
Yes.
And then I will just get them to do.
Just on the.
That's sort of the Martin.
Sorry for that.
And of course with the guidance this year 28 to trim that I'm sorry adjusted for Paris.
You still expect to deliver a 30%.
By the end of this drive 25 period. So I appreciate that you conducted detailed a breech.
As a as you have done for this year, but but still at the midpoint of 28, 5%.
How would the reach.
The one 5%.
By the end of the slide 25.
And then secondly, just on <unk>.
Poultry go.
And.
I know that was a question earlier.
So sorry, if I'm repeating that but the.
Can you maybe talk to me about how much volume at the end.
In five years time, do you expect to get out of them.
Calls ago, you talk about and attractive salary label in Portugal, maybe you can elaborate a little bit on that.
Compared to the other.
Manufacturing sites.
Sure.
Okay.
So thanks, a lot and marching to your first question around.
The the moving parts towards the 30% I think I already spoke to some of the key moving parts earlier in the call.
But firstly at Cid and growth needs to be in the level of 8% to 10%.
We are expecting gross margin will continue to improve and also through the procurement program that we have initiated and then we will continue to be prudent across the rest of the cost base, including having a impact from a scalability. So so those are some of the the main moving parts towards the 30.
<unk>.
In relation you in relation to your second question around possible.
So as you know we are also currently ramping up in Costa Rica.
And in Costa Rica.
<unk> around 20% to 25% of the production volume.
Will be produced by 'twenty five.
Portugal, now we announced it today.
We are expecting it would be up and running in 26. So it will take some time until we will see a significant you can see volume coming out of a possible.
With with the with the forecast we are currently doing.
And so I'm Martin to your question on salary levels in Portugal, right now they're on par with.
What we have in Hungary, but of course much much lower salary inflation.
Will be it will be a continence care factory.
So this is where we will base our larger expansion.
To begin with and I guess Martin when we get further down we can give you a bit of point us on how much of the volume it it'll be but.
That would be at a later stage.
Yeah.
Thank you.
Alright, ladies and gentlemen, thank.
Thank you for your questions today, we hope to see you on the road over the coming days and weeks.
Ladies and gentlemen, the conference is now concluded you may disconnect. Your telephone. Thank you for joining and have a pleasant day goodbye.
Okay.
Yeah.
Okay.
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Okay.
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