Good day. Welcome to the Full Year 2017, 2018 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Lars Rasmussen, CEO. Please go ahead, sir.
Thank you. Welcome to our full year 2017, 2018 conference call. I'm Lars Rasmussen, CEO of Coloplast, and I'm joined by CFO Anders Lonning-Skovgaard, and Executive Vice President of Chronic Care, Kristian Villumsen, and our investor relations team. We will start with a short presentation by Anders, Kristian, and myself, then open up for questions. Please turn to slide number three. As announced earlier today, I have chosen to step down as CEO of Coloplast, the board of directors have unanimously appointed Kristian Villumsen as the new CEO, effective as of December 4th.
Being part of Coloplast for the last 30 years and leading the company since 2008, has truly been a great honor. I'm incredibly proud of all we have accomplished over the past 10 years to build one of the best performing and most profitable medtech companies in the world. We have advanced the interest of all our stakeholders, including our employees, shareholders, and most importantly, the consumers with intimate healthcare needs that we serve. The company and its employees have created excellent results and continues to deliver on the LEAD 20 strategy, turning Coloplast into a true consumer healthcare company and positioning the company for continued success.
I'm confident that Kristian, who has been a critical partner in running the company together with the broader executive management team and organization, will take Coloplast to new and greater heights in the years to come. Regarding the announcement to change the board of directors, I would like to thank our Chairman of the Board, Michael Pram Rasmussen, for a rewarding cooperation and for the vote of confidence 10 years ago. I'm honored to be nominated as the new Chairman of the Board, replacing Michael, who has chosen to not stand for re-election at the annual general meeting on December 5th. I look forward to working with the board and the new management team to secure a strong platform for future growth.
With respect to the new executive management team, the current structure with four members will continue. Coloplast has initiated a process to find Kristian Villumsen's replacement as Executive Vice President of Chronic Care. I would now like to hand over to Kristian before we go through today's results.
Thank you, Lars. I'd like to start off by saying that I am both humbled and honored to have been given the opportunity to assume the role as CEO for a company that I regard as strong and with a proven strategy and continued ability to year in and year out, deliver above market growth. I've had the opportunity to meet many investors and analysts at our Capital Market Day events over the years, but for those of you that are unfamiliar with my background, just a few remarks. I joined Coloplast in 2008, and I've held a number of senior management position across the company since then.
From 2014, when the executive management team was strengthened to include CFO and EVP Anders Lonning-Skovgaard and EVP of Global Operations Allan Rasmussen, and myself, I became responsible for the day-to-day running of global marketing and the sales regions in ostomy and continence care, as well as the innovation pipeline for both of these areas. I've been part of developing the LEAD 20 strategy together with the current executive management team, and I've spent the past two years leading the implementation of the strategy in the Chronic Care business. The immediate path forward for me will be to focus on executing on our LEAD 20 strategy and our ambition to accelerate growth. I look forward to meeting many of you in due course, as I transition into this new role.
Before I give the word back to Lars, I'd like to take this opportunity to thank him for strong leadership and mentorship over the last 10 years.
Thank you, Kristian. Now turning to today's results, which I am very pleased with. Coloplast delivered a strong fourth quarter of 8% organic growth and a 33% EBIT margin in fixed currencies. For the full year, Coloplast delivered organic growth of 8% and a 31% EBIT margin in fixed currencies. In November last year, we changed our long-term guidance and stepped up investments to accelerate growth. We have now delivered six consecutive quarters of 8% growth in a market that is growing 4%-5%. This speaks to the solid underlying performance across the business and our ability to consistently take market shares. Growth continues to be driven by the launch of new innovative products like the SenSura Mio and SpeediCath Flex, and strong commercial execution.
During 2017, 2018, we initiated several growth investments in U.S. ostomy emerging markets, continence care in Japan, Australia, and South Korea, interventional urology and wound care. We made investments in innovation focused on products development, as well as strengthening our competencies within pre-clinical medical marketing and market access. In 2018, 2019, we'll continue to focus on investing for growth and investment, and invest up to 2% of revenues in incremental growth in investments. In September, we hosted a capital markets day at our headquarters in Humlebæk, in Denmark, focusing on innovation and commercial initiatives to drive growth. The day provided an opportunity to meet the strong management team that is executing on our strategy every day. For those of you who were unable to attend, the presentations and webcast are available on our website.
Today, the Board of Directors approved an ordinary dividend of DKK 11 , amounting to a total of DKK 16 per share in dividends this year, an increase of 7% compared to last year, demonstrating the strength of our business and commitment to increasing shareholder value. Our guidance for 2018, 2019 is an organic revenue growth of 8% in fixed currencies and 8%-9% in DKK, and an EBIT margin of 30%-31% in fixed currencies and around 31% in DKK. Anders will explain how we have arrived at this guidance. Please turn to slide four. For the full year, our revenues grew 8% organically and 6% in DKK, and amounted to DKK 16.5 billion . Acquisitions of distribution companies contributed approximately 1 percentage point to reported growth.
In Ostomy Care, organic growth was 9% for the full year, and growth in DKK was 6%. For Q4, in Isolation, organic growth was 9%. Growth continues to be driven by our SenSura Mio and Brava supporting the products in larger markets like the U.K., Germany, and U.S.. SenSura Mio Convex continues to contribute strongly to growth. Our SenSura and Assura/Alterna portfolio growth was driven by satisfactory performance in markets like China and Brazil. As expected, we delivered on tenders in emerging markets in Q4 that we won in Q3, but did not deliver on. Growth for the full year was negatively impacted by the Greek price reform, and we continue to receive positive feedback from healthcare professionals and users who have tried our new ostomy appliance, SenSura Mio Concave.
We have now secured reimbursement and launched the new product portfolio in 10 countries. We will launch the new SenSura Mio Baby and Kids portfolio over the coming year, defining a new standard for pediatric ostomy care products. In Continence Care, organic growth was 8% for the full year and growth in DKK was 7%. For Q4 in Isolation, organic growth was 7%. The SpeediCath ready-to-use intermittent catheters continue to drive growth, and especially the compact versions performed well in countries such as U.S., U.K., and France. So far, we have seen a limited impact from the expiry of SpeediCath ready-to-use patent. On the contrary, we continue to see healthy growth on the standard portfolio, in particular in the U.S. and emerging markets. Growth for the full year was negatively impacted by the Greek price reform.
SpeediCath Flex continues to contribute to growth in key markets like the U.K., France, and Germany. The launch of SpeediCath Flex Coudé Pro in the U.S. has been well received and will be a key growth driver going forward. Our convenient collecting device portfolio posted positive growth due to satisfactory growth in France and emerging markets. Finally, sales growth for Peristeen products remains satisfactory, driven by U.S., France, and the U.K.. In Interventional Urology, organic growth was 10% for the full year and growth in DKK was 6%. For Q4, in Isolation, organic growth was 10%. The growth was primarily driven by sales of Titan penile implants in the U.S.. We see a satisfactory return on the last sales investments that we made into the U.S. Urology business last year and continue to invest this year.
Our Endourology business saw satisfactory growth in especially France and Germany. In Wound and Skin Care, organic growth was 3%, 3% for the full year, and growth in DKK was flat. Organic growth for wound care in isolation was 5% for the full year. For Q4, organic growth for the total business area was 4%, and for Wound Care in Isolation, it was 6%. The growth in Wound Care was driven by stable growth in China and good growth across our European markets, driven by the Biatain Silicone portfolio. The newly launched Biatain Silicone Sizes and Shapes portfolio contributed meaningfully to growth. Overall, for the full year, the Greek price reform had a large negative impact on growth. The U.S. Skincare business detracted from growth this year in fourth quarter due to a high comparison base last year.
For the full year, the growth in Skincare was flat. Contract manufacturing of Compeed contributed negatively to growth in the first half of the year, due to inventory reductions in connection to the sale of the Compeed brand from Johnson & Johnson to HRA Pharma. As expected, the DKK 30 million negative impact in the first half was regained in the second half of the year. Turning to our geographical segments, we saw organic growth of 5% for the full year and 6% in Q4 in our European markets. The growth continues to be satisfactory across the portfolio of countries and in particular, in key markets like the U.K. and France. Organic revenue growth in other developed markets was 11% for the full year and 7% in Q4.
The U.S. Chronic Care business posted double-digit growth for the full year, driven by new product launches and the continued upgrade of the catheter market to hydrophilics. Growth in Q4 was negatively impacted by a difficult comparison period for U.S. Skincare. Growth rates in Japan and Australia remain very satisfactory. Growth in the U.S. for the full year was positively impacted by inventory reductions of DKK 70 million in Q1 last year. Revenue in Emerging Markets grew organically by 14% for the full year and 14% in Q4. Markets like China, Brazil, and Middle East continue to deliver a very satisfactory performance. A number of smaller markets that we have recently invested in, for example, Poland and India, also deliver strong performance. Growth for the full year was negatively impacted by the Greek price reform.
As mentioned earlier, we won several tenders in Q3 that we delivered on in Q4, in primarily Ostomy Care. With this, I'll now hand over to Anders.
Thank you, Lars. Good afternoon, everyone. Before I go through the results, I would like to say thank you for Lars for his strong leadership and good collaboration. I would also like to say that I'm excited that Kristian has been selected as the future CEO, and I'm looking forward to continuing to work with Kristian in his new capacity. Reported revenue for the full year increased by DKK 921 million, or 6%, compared to the same period last year. Most of the growth was driven by organic growth, which contributed DKK 1.2 billion, or 8%, to reported revenue. Acquisitions contributed DKK 185 million, or 1%, to reported revenue.
Foreign exchange rate had a significant negative impact of DKK 584 million, or 4 percentage points, on reported revenue, primarily due to the depreciation of the USD and ARS against the DKK . The Argentinian economy is now defined as hyperinflationary, and therefore, Coloplast will apply hyperinflationary accounting principles to its Argentinian subsidiary, which represented 0.7% of revenues in 2017, 2018, with effect from Q4. The depreciation of the ARS had a negative impact of around DKK 120 million for the full year, of which DKK 45 million relates to the application of hyperinflationary accounting principles, and is included in the reported growth for Q4. Reported revenue growth was positively impacted by the DKK 90 million one-off revenue adjustment to the U.S. Department of Veterans Affairs in our third quarter last year.
The matter did not affect organic growth for the year. For the full year, the Greek price reform implemented in October last year in Ostomy care, Continence care, and Wound care, had a negative impact of around DKK 75 million. Please turn to slide six. Gross profit was up by 5% for the full year to around DKK 11 billion. This equals a gross margin of 67% compared to 68% last year. FX had a negative impact of 20 basis points on the gross margin. In fixed currencies and adjusted for the DKK 90 million Veterans Affairs payment in Q3 last year, the full year gross margin was flat compared to last year, at around 68%. The gross margin was positively impacted by improvements in production efficiency at our volume sites and the relocation of SenSura Mio and Biatain Silicone to Hungary.
The gross margin was negatively impacted by product mix due to the launch of new products, where the production economy is not yet fully optimized. In Q4, we had an additional DKK 20 million in restructuring costs related to the reduction of production employees in Denmark, bringing the full year amount to DKK 50 million versus DKK 20 million last year. As mentioned last quarter, we have accelerated the closure of the Thisted factory in Denmark, resulting in an increase in restructuring costs this year. The distribution to sales ratio came in at 29%, compared to 28% last year. The 8% increase is in line with our long-term guidance of increased investments to drive further growth over the next couple of years.
The clear majority of the new incremental investment cases for this financial year were approved in Q1 across our business areas and regions. Overall, new investments remain on track, and we have seen a return on some of these investments already. The admin to sales ratio came in at 4% of sales, on par with the recent trend. The R&D to sales ratio came in at 4% of sales, in line with last year. The 11% increase in R&D costs reflects a higher general activity level. Net operating income amounted to DKK 39 million, compared to DKK 21 million last year. The increase was mainly due to non-recurring income from a patent settlement in Interventional Urology in Q1. For the full year, our operating profit in fixed currencies increased by 4%, corresponding to an EBIT margin of 31%.
The numbers are adjusted for the DKK 90 million Veterans Affairs payment in Q3 last year. In actual currencies, and adjusted for the Veterans Affairs payments, the development in operating profit was flat, corresponding to an EBIT margin of 31%. Operating cash flow amounted to DKK 4.4 billion, compared to DKK 3.3 billion last year. The increase is primarily explained by higher mesh payments last year compared to this year. Total mesh payments for the year, for the full year, amounted to DKK 0.5 billion. Total mesh payments to date amounted to DKK 4.7 billion. Cash flow from investing activities was impacted by the site expansion in Nyírbátor, Hungary and the acquisition of a plot of land in Costa Rica, as well as capacity expansion in machines to produce new and existing products.
Investments in intangible assets, property, plant, and equipment amounted to DKK 669 million for the full year. CapEx to sales amounted to 4%. Adjusted for payments made in connection with the mesh litigation and acquisitions, including Comfort Medical and Lilial, the free cash flow amounted to approximately DKK 4.1 billion, which was approximately the same level as last year. Our cash conversion rate, calculated as a 12-month trailing average, was 99%. Net working capital amounted to 23% of sales, compared to 25% at the start of the year. Full year return on invested capital after tax, before special items, was 44%, against 47% last year. With respect to the mesh litigation in the U.S., we have settled more than 95% of the known cases.
We still view the provision as sufficient, and we are in the final phase of the mesh litigation. In 2018, 2019, we expect to pay out the remaining DKK 500 million of the, in total, DKK 5.25 billion at provision. Please turn to slide seven. For 2018, 2019, we expect revenues to grow around 8% organically in fixed currencies, and 8%-9% in DKK. Acquisitions are expected to contribute 0.4 percentage point to reported growth. Our guidance assumes stable growth trends across our regions, as well as a continued positive impact from new product launches and commercial investments. Our guidance assumes an annual negative price pressure of up to 1 percentage point. As highlighted in previous quarters, a reimbursement review for Ostomy Care and Continence Care is currently underway in France.
The impact and timing of a proposed cut is still uncertain, but we currently expect that the impact will be in the second half of the financial year. We also expect a smaller reform in Switzerland across all businesses, business areas, and the pricing pressure among health insurance companies in Holland. The guidance in DKK is impacted by the appreciation of the US D against the DKK . The currency impact is based on spot rates as of October 30th, 2018. For 2018, 2019, we expect an EBIT margin of 30%-31% in fixed currencies and around 31% in DKK . The EBIT guidance in DKK is impacted by the appreciation of the US D and the depreciation of the HUF against the DKK , based on spot rates as of October 30th, 2018.
On our operating expenses, we expect broadly stable trends into 2018, 2019. We will again invest up to 2% of sales in incremental investments into innovation, market access, and sales and marketing initiatives in the U.K., emerging markets, and the U.S. across all business areas. We will also invest to ensure compliance with the EU's new Medical Device Regulation by 2020. Most of the investments will be initiated in Q1, hence, I expect a quality phasing similar to last year. Higher growth from our new product launches still means pressure on the gross margin, but as previously communicated, we continue to relocate manufacturing out of Denmark to Hungary, and we will close the factory in Thisted and reduce the number of production workers in Denmark by approximately 200 people in 2018, 2019.
We expect restructuring costs of approximately DKK 25 million in 2018, 2019, compared to DKK 50 million in 2017, 2018. We expect higher single-digit wage inflation in Hungary in 2018, 2019. Overall, our expectation is that the gross margin in fixed currencies will be in line with 2017, 2018. The Global Operations Plan IV is on track and is still expected to deliver an EBIT margin improvement of 100 basis points in 2019, 2020, and 150 basis points in 2020, 2021. We currently expect our net financials to end the financial year 2018, 2019, at -DKK 75 million, primarily due to hedging losses on USD against DKK .
CapEx guidance for 2018, 2019, is expected to be around DKK 750 million, and is driven especially by investments in more capacity for new and existing products, as well as factory expansion in Costa Rica and a new distribution center in U.K. Finally, our effective tax rate is expected to be around 23%. This concludes our presentation. Thank you very much. Operator, we are now ready to take questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Press star one if you'd like to ask a question. We will now take our first question from Patrick Wood from Bank of America. Your line is open. Please go ahead.
Perfect. Thank you very much for taking my questions. I have two, please. The first would be just around the general appetite for M&A, given your balance sheet and a lot of the assets, both because of what the market has done, but also individual assets have clearly become quite dramatically cheaper of late. I'd be curious to see if you have any sort of strategic review or intent change on that side. The second one is really on the wound and skincare business. At Q4, the margin stepped up quite handily year-on-year, which was very different from the first three quarters of the year. Is there anything we should be reading into the margin inflection in the fourth quarter?
In general, it'd be helpful to get some views that you have on the wound care market, given, obviously, you have some competitors out there cutting price, it'd be helpful to understand how that all works. Thank you.
All right. Let me start out by saying, by the way, that Kristian did present at the beginning of the meeting. He will not take further questions today. He will take questions in connection to the Q1 results when he assumes his new role in December. Then back to your questions, you're right, we have a good balance sheet. We also have a strong leadership team in place, a very experienced leadership team in place. We think we have the fundamentals in place.
... there if the right opportunities comes up. We have quite consistently pointed to the fact that if we were to strengthen our business, it would be in wound care, and it could also be on distribution on the Chronic Care side. That would be what we would be looking for, but we of course, do not have any plans. This is just a general comments that we have the balance sheet and the organization needed should opportunities exist. On the Wound and Skincare side, you're right, we are stepping up and seeing nice results. We had a quite negative impact for the full year of the Greek healthcare reform.
This basically speaks to the fact that when you're looking at Europe as in general, we have nice performance. We also have good performance in emerging markets, Northeast and China. We are investing to create a stronger platform in the U.S., and when it comes to the profitability side, I don't know if you'd like to add anything further to that, Anders?
What I can add is that you're right, we had a stronger Q4 profitability compared to the previous quarters. There are a couple of reasons for that. One reason is the Greek that impacting the wound care profitability quite negatively in the first quarters of the year. Secondly, we had an okay quarter in China, and then also a good quarter related to our Compeed business that is also part of the wound and skincare franchise. That's the main reasons.
Very helpful. Thank you.
We will now take our next question from Michael Jüngling, from Morgan Stanley. Please go ahead.
Great. Thank you. I would like to ask three, please. Firstly, a question about sort of the CEO change and the management premium. Lars, since you became the CEO, I guess through, excellent execution, you've added material, sort of a valuation premium, to Coloplast. How do you safeguard this premium as the future Chairman? How involved will you be in the detail and the decision making of the organization? Question number two is on gross margin. What drove the Q4 gross margin expansion for the group, when for the previous three quarters, we saw significant declines, and I'm talking about the gross margin adjusted for, restructuring charges. This fourth quarter just seems to be incredibly good compared to the first three quarters. Question number three is on sales growth.
In your guidance, you highlight that it's 8% constant currency growth, but over the last two years, you've made acquisitions of about 1 percentage point. Should this perhaps mean that the organic growth rate is going to be more like 7%, if this M&A type bolt-on stuff continues, i.e., is the organic growth rate below the 8% for the next fiscal year in your guidance? Thank you.
On the CEO change, I think it's. Maybe I should start with what is it? I mean, I've been CEO for 10 years, and I would also like to have a chance to do something else in my professional life. I'm looking at a professional career or professional board career and because I think that I'm young enough for that still. I can do that at this point in time because I think the leadership team across the board in Coloplast is really strong, and Kristian was ready to step up to become CEO. I think that the timing was very good.
As I was explaining that to my chairmanship, they then said, or Michael Rasmussen said that he actually were having the same considerations, whether I would be willing to take responsibility as chairman of the board.
For me, the, I would like to do that, but given that there was a board that 100% agreed that that would be a good idea, and that the board would discuss that without me, and they would also discuss it with Kristian, if he could, then see me in that role also, because there is a risk that when you have had a successful run, that you would like to see that everything is going to be the same as it used to be. We have to be mindful that what we try to do with this company is to create more value every single year, and to create more value five years from now, would take that we do other things that we do today.
The mandate that I go into this new role with, is that we are going to create further value, and therefore, I expect changes to happen, of course. I'm no longer in an operational role, so I will be in a board position together with my board colleagues. We'll put all the pressure that we can on the executive management to deliver further growth and profitability, but that will be in that capacity. I'll not be an acting chairman of the board who will oversee or try to run out or run around in the company every single day. That's not what is in the future.
I'm going to assume responsibility for a board, and that's basically it. When it comes to gross margin, would you like to add to that? Yes. In relation to the gross margin development in Q4, Michael, the main reason for the strong gross margin compared to the pre-previous quarters, that the leverage effect, because we have had a high absolute revenue in our fourth quarter, the leverage effect on the fixed cost have been higher than the previous quarters. Then we've also had a, you can say, lower impact from currency. So that's the main reason. Could you repeat the last question, please?
The last question is that your guidance for sales growth is in constant, so the 8% is in constant currency, but you don't give us an organic growth number. Given that you've made acquisitions for the group accounting to about 1%, I'm just thinking whether the organic growth rate that you mean by 8% in constant currency is actually less. Is the 8%-
The 8% is an organic number.
Okay. Okay. The acquisitions that you've made then of 1%, in the past, that comes on top of those, on top of the 8%?
Michael, the way you should look at it, our growth guidance for 2018, 2019 is an organic growth of 8%. We are expecting the acquisitions that is coming in with Q1. Impact is around 0.4. That gives us a reported growth guidance in the level of 8%-9%.
Okay, great. May I quickly follow up on the CEO change? You held your capital markets day very recently, and there was no mention of a transition process, and I'm just curious as to why that happened, and also, why, is it an indication perhaps that you've done this on fairly short notice? You're still looking for a successor for Kristian. If it was planned, wouldn't you had a successor to Kristian already in the announcement today?
The way I understand this, Michael, is that the day you decide that you are going to do this, you also inform the market. When I mentioned to my Board of Directors that I wanted to step down as CEO, they chairmanship then said: "Would you consider to be chairman of the board?" That part of it had to be discussed at the Board of Directors, because I only wanted to take it if it was 100% consent from the rest of the board members, and therefore, they needed to be together, which they were today. The final decision was made today at the board meeting, and then we could inform the authorities.
Okay. All right. Thank you.
We will now take our next question from Annette Lykke. Your line is open. Please go ahead.
Thank you very much. I wondered if you could share a little bit more insight into the growth rate within continence care. If we look into the growth rate.
Into the growth rate for what?
For Continence Care. I wondered, on, in the light of your launch in the U.S. in May, with the Coudé Pro version of SpeediCath Flex, as well as we can see in the U.K., you have a very solid growth rate in U.K. as well. I'm just wondering what it takes to get you into a bit higher than the Q4 numbers of 7%. Also, should we expect the competitive landscape for Continence Care to be slightly different, with Coloplast launching also products into the market fairly soon? Are you expecting a lower growth? In other words, I could also say: Are you expecting a lower growth rate for Continence Care than you do for Ostomy Care?
No, we are not expecting a lower growth for Continence Care than we do for Ostomy Care. We have some strong comps in Europe last or for the quarter that we compare up against last year. That's the only thing that are different in this quarter. In that sense, we do see that is going according to plan, and the Pro launch is going really well. We actually, if anything, expect the growth rate in the U.S. to be very strong going forward. I see this as basically a comp issue in this quarter.
If I follow up with a question on BPT. Once you are launching this product in a year's time or so, should we see that as a sort of to come on top of the current growth, or do you expect the growth for the existing portfolio to sort of slow down, and then you will compensate or bring growth up to the 8% or 9% level with the BPT, or should we see it on top of what you already have right now?
BPT is primarily seen as a replacement product, sort of replacing the base product in the base SpeediCath product in many markets. So far, it is a way to set a higher standard for what the, you know, what is the sort of the entry-level catheter when you go into this market. You should see it as a more defensive move, and we have some other things in the pipeline that are more offensive when it comes to that. BBT is very much setting simply raising the bar for what it takes to compete in the hydrophilic catheter ready-to-use space.
Okay. Thank you. I'll jump back. Thank you.
We will now take our next question from Lisa Clive from Bernstein. Your line is open. Please go ahead.
Hi. Thanks very much. I have two questions. First of all, your strong growth in Wound Care in the quarter, is in contrast to your larger competitors, who are clearly having a tougher time. How much of this do you believe is market share gains due to their internal issues? I'm just trying to get a sense for how long this above market growth can last. Second question, following the reimbursement, I guess, a year or two ago, for single-use catheters in Japan, Korea, Australia, how far along are you in building out the sales force and really penetrating those markets, or, is there still way for greater adoption?
So the stronger growth in Wound Care is very much driven by the Biatain Silicone. It's driven by Europe. We are taking market shares in with what we're doing. We have launched a number of new products, and I think that if you're looking at it sounded as if you said it's something about internal issues with some of our competitors. If you're looking at the numbers that came out from Smith & Nephew, the numbers that you can also see with Convatec, it's most companies are growing. It's flat or at maximum, a couple of percentage points. We have a smaller business, but we also launched quite a number of new products.
The numbers that we are coming with is despite the fact that we have these issues in Greece. We have a footprint where we are strong in Europe, we are strong in, or have strong growth in Europe. We have strong growth in emerging markets. We have we are building a position in the U.S. We think that, if anything, we are not on a decelerating curve yet. It's on the contrary for wound care. How long that's gonna last? That's a good question.
You know, we are not guiding on the growth rates for each of the business areas that we're in, but we are guiding for the growth rate for the full business. We once again, as you saw, have 8% growth for the full year next year. That also includes a good growth in wound care. Then your question about Japan reimbursement is how much of the current potential are we covering with our sales force?
Yeah, effectively, and also Korea and Australia. I mean, those are fairly new markets for you for continence care, and I'm just wondering-
Yeah.
how far along you are in penetrating that.
Yeah. Maybe a good number would be approximately halfway. Maybe half of the current potential is covered by the sales force that we're having. Of course, we start from going for the accounts where there is the biggest opportunities, and then we are building it up from there. It is a sales which is different from the sales that we do in Ostomy Care, for example. We are very pleased with the traction that we're having, and our growth numbers in those markets are up compared to where they were a couple of years back due to this.
Mm-hmm. Okay, thanks.
We will now take our next question from Veronika Dubajova from Goldman Sachs. Please go ahead.
Good afternoon, and thank you for taking my questions. I have two, please. The first one's on the margin guidance for the full year. I'm a little surprised to see that there is a possibility that we might end up with a 30% constant currency margin for the year. If I sort of reflect back on what we discussed at the Capital Markets Day, it seemed to me that the 30% really would only be a possibility if you carried out some incremental acquisitions. Maybe, Lars and Anders, you can talk about under what scenarios you'd end up at that 30 versus the 31 constant currencies. Elaborate a little bit on the investment opportunities that you see for 2019, if those have changed since the Capital Markets Day.
My second question is just to push you a little bit more on the Continence Care growth rate. If I look at the group comparison, it really wasn't that difficult this quarter, and the growth here does seem to have slowed down. Maybe you can comment a bit more on the competitive environment that you're seeing, and give us a little bit more, a greater degree of confidence in that, on that growth as we head into 2019. Thank you.
All right, let me start with the margin guidance question, Veronika. The assumptions we are using is an organic growth of around 8%, and that is going from 7.5%-8.5% in terms of growth. Secondly, we are expecting next year to have a flat development in our gross margin, as I explained earlier, and then we will continue our investments into sales and marketing and innovation of up to 2%.
That gives an EBIT margin guidance in the level of 30%-31%. I'm not, it does not include further acquisitions.
Okay, so as I'm understanding.
Yeah, yeah. Go on.
Sorry, I was just going to ask to clarify. If I'm understanding what you're saying correctly, Anders, it's if you end up at the sort of slightly south of 8%, you'd be at 30.5%, and if you do slightly more than 8%, you'd be at 31%. Is that the way to think about it?
Yeah. that is, yeah, you're correct. that is to think about it.
That's great. Thank you.
If you look at the Continence Care growth comparisons, we had for Continence Care, if you exclude FSS and all of that, we had 5% growth in 2015, 2016. We have 7% growth for the full year in 2016, 2017, and 8% in 2017, 2018. The quarters, they can be a little bit lumpy, based on what are we, what are we selling in emerging markets and so on. What we see is that we see traction that is sort of putting us in the right direction. We actually see that we are more competitive now than we were two years back.
You are right that from quarter to quarter, there might be some swings, but it's not like we have basis for everything, or this is now going south or anything like that.
Okay. Thank you. If I just may, say, Lars, congratulations on the retirement. You will be very sorely missed. We wish you all the best, and Kristian, look forward to working with you. Thank you.
Thank you very much.
We will now take our next question from Yi-Dan Wang from Deutsche Bank. Your line is open. Please go ahead.
Thank you very much. I have a couple of questions. First of all, on the Convex product, is there any reason why your share of Convex products would not approach your share of flat products, which it would seem that is on a much higher level than your convex products? Secondly, on the Concave product, can you provide some color on how the buildup of Concave has been versus your expectations? You know, based on the launch experience of Concave in the key market so far, how long do you think it would take the Concave product to get to the same level of sales as Convex, for example? That would be helpful. Thank you.
On the Convex side, there's no doubt that Convex is picking up, we will be approaching the same average rate as we have for the rest of the portfolio. I also think that we are more competitive, I don't see any reason why we should not be able to do that and also go above it. When it comes to Concave, it's a new category. We don't have a lot of experiences by building new categories. If I look at the forecast that we have in the group on what we was expecting from the individual countries that are launching, we are trailing slightly ahead of those forecasts.
We are doing a little bit better than what we thought. Things are going according to what we planned for and also what we hoped for. It's still early days on Concave. We definitely see the need there, and the feedback that we get from people who are using it is that many people who had frequent leakage issues beforehand, they are now not seeing those issues.
Okay. Thank you. One, quick question for Anders. Based on the current spot rates, what would you expect the FX impact on your margin be for the coming year? Thank you.
As I said before, the EBIT margin in constant currencies, our guidance is 30%-31%. In reported currency, my expectation is around 31%, and it's very much driven by the development of the US D and the HUF, so the Hungarian forint.
Okay. Thank you.
We will now take our next question from Christian Ryom. Your line is open. Please go ahead.
Hi. Yeah, I have a couple of questions. My first question goes to your Ostomy business and more specifically, the accessories. I can see that in your market commentary, you now assume a higher market share, which suggests that you've outgrown the market, and also that the accessories business is growing significantly stronger than the rest of the Ostomy Care business. Can you first confirm whether this is correct? Secondly, how this impacts the profitability of your Ostomy Care business. Then I have a second question. Thank you.
Why don't you take that, Anders?
In terms of the, your question around accessories, you're correct that we have seen again this year a strong accessories growth development, and again, we are taking market share. Our market share is now in the level of 30%-35%. We have a strong portfolio, and it's also because we have now launched most of our accessories portfolio in emerging markets, including China. We are very satisfied with our accessories growth development. In terms of the profitability level, our accessories are also contributing to our profitability levels in Ostomy. Yes, that is also having a positive profitability impact.
If I may add to that, Anders, despite the fact that the accessories is growing faster than the rest of the portfolio, we are also taking market shares in bags and plates.
Okay, thank you. That's very helpful. The, my second question goes to, whether you can add any additional detail around where you will be increasing investment for the next year. This year we've seen you increase investment both in R&D and in your sales and distribution cost. Should we expect that the increments that you will implement for next year will be, will have a sort of similar distribution across your OpEx lines?
Yeah. Our expectation is that it will be a similar split. Most of the investments will impact our distribution to sales ratio, so we are continuing to invest into sales and marketing activities. As we also explained at the Capital Market Day, we are going to invest into the U.K., and we are going to invest into our Continence business in the U.S., and we're also going to invest into selected emerging markets and also into urology care. We will also invest further into innovation. As we have communicated also at the Capital Market Day, we are expecting to have an R&D ratio to sales of around 4%. We will also continue to invest into innovation in order to, yeah, launch great products also in the future.
Okay, thank you.
We will now take our next question from Scott Bardo. Please go ahead.
Yeah, thanks very much for taking my questions. Yeah, just to say, Lars, it's been a great ride. Congratulations on the promotion, and also welcome, Kristian. First question for me, please, just to follow on the accessories performance. Obviously, this has been a strong success story, going from a very small market share to over 30% in four or five years or so. I also understand this has been a very fragmented market with lots of different players and lots of different products. My question is: Is there room for further market share expansion in your mind, or have you now reached saturation point?
I'd also like to follow up a little bit on the performance in other developed markets for the quarter, which seem to have slowed somewhat to around 7%. I just wonder if you could give us some sense of whether that's North America not performing to expectation or if there's some other key developed regions that have been responsible for that slightly, you know, below-trend growth.
Thank you for your comments, Scott. On the on the accessories, we think we can grow quite a bit more than what we have done now, because it is, as you said, a fragmented part of the market, and that means that this is a place where there's a vast opportunity to expand the market. We have, for example, also recently started to really go into into the into Emerging Markets where we are building the categories. It means that it's not only can we take more market shares because we have a portfolio which is getting more and more complete, but we also now use it to expand the market.
You'll both see bigger market shares, but you will also see a growing market. We are sort of adding to the growth of the market going forward. Does that make sense?
Yeah, it does. Thanks, Lars.
Yeah, yeah. Then on the other developed markets, it's actually quite impacted this quarter by the fact that we had this very strong push on Skincare last year, because one of our competitors got a close down from FDA. We don't have that effect this year. All in all, that's actually enough to skew the numbers, so you see this. Apart from that, it's actually in line with what you saw last year.
Understood. Thanks.
Growth-wise.
Quick follow-up.
Growth-wise.
Growth-wise. Just a follow-up, you seem to be pretty confident that there'll be no real change in the price pressure dynamic, if you like, that the group sees on an annual basis, but have pulled out or called out regularly this French reform impact. I just wondered, have you got actually some visibility on timing and magnitude in France at this point? Perhaps you could just share a few more details there. Lastly, some of your competitors in the wounds market have pointed towards the U.K. being an increasingly weak environment with increased tender patterns and price pressure. I just wondered, are you seeing those dynamics? Is that something that concerns you? Thanks.
So there's this rumor about the French reform. We also expect that to be in the second half of the year. What kind of numbers that we will arrive at once that is negotiated, we don't know. Once we get clarity on that, of course, we'll share it immediately, but this is going to be a negotiation situation. As long as they'll be negotiated, I don't expect that we will have any further comments than what you have had all along, that there'll be a price review.
Any other question on the U.K. wound?
Yeah. Yeah, on the wound, what we see is that we see increasing of that we see positive growth in the U.K.. As I said before, we have new products to work with, and we have a smaller market share. Of course, we are probably not the first ones to feel, you know, all the movements that are going on in the market with the market shares that we're having, but we are seeing a positive development in the U.K..
Very good. Thanks so much .
We will take our last question now from Ian Douglas-Pennant from UBS. Please go ahead.
Thanks very much for taking my question, and just like to add my voice to the echo of people saying congratulations to Lars Rasmussen. You've made a lot of money for your shareholders, and I think you've probably made your patients' lives a lot better as well, so congratulations.
Thank you.
Well, I hope. I think so. Firstly, on Kristian's replacement, are you looking internally or externally for that role, and can you lay out any other criteria that you're looking at there? Secondly, on the Vizient contract, or the GPO there, have you done any more work on what you could do differently next time to get a different result, please?
We, having had Kristian in the role before, we have a pretty clear view on what we go for. We are open, of course, for options both internally and externally. We are looking into that very concentrated right now, but I can't comment further on it at this point in time. Your second question, sorry, was about?
The GPO contract.
Yeah. Of course, of course, we take it quite seriously about the GPOs because we think that's the next level for us in the U.S. So we have all the measures in place on that. But nothing... I mean, the only thing that really counts is that we are winning the GPO contracts, right? So, yeah. So we do whatever we can. All right. Operator, back to you.
It appears there are no further questions. I'd like to turn the conference back to our host for any additional or closing remarks.
Yeah. Thank you very much, everybody, for some very, enjoyable meetings. I will be roadshow-ing a little bit, next week. I know that I'm meeting some of you, so I'm looking forward to that. Thank you very much.
This concludes today's conference. Thank you for your participation. You may now disconnect.