Ladies and gentlemen, thank you for standing by. Welcome to today's interim financial statement for nine months, 2018/2019 conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you do wish to ask a question, you will need to press star and one on your telephone keypad and wait for your name to be announced. I must advise you, this conference is being recorded today, Wednesday, the August 14, 2019. I would now like to hand the conference over to your first speaker today, Kristian Villumsen . Thank you, and please go ahead, sir.
Good afternoon, and welcome to our Q3 call of 2018/2019. My name is Kristian Villumse n, I'm the CEO of Coloplast. I'm joined here by our CFO, Anders Lonning- Skovgaard, and our investor relations team. The agenda is, I'll take you through the business highlights. Anders will take you through the financial items and outlook, and then Anders and I will take the questions you might have. Please turn to slide three. I'm very pleased with today's results. We delivered another quarter with 8% organic growth in a market that's growing 4%-5%. EBIT grew 13% in the Q3 . Our return on invested capital was 46%. These numbers speak to the solid underlying performance across the business and our ability to consistently take market share and drive profitable growth.
Growth continues to be driven by the launch of new innovative products like SenSura Mio Convex, SpeediCath Flex, Biatain Silicone , and also strong commercial execution. We maintain our organic growth guidance for the year of around 8%, and our guidance in Danish kroner is also unchanged at around 9%. Our EBIT margin guidance is unchanged in fixed currencies at 30%-31% and in Danish kroner at around 31%. Over the summer, the French price reform reached a conclusion. For Coloplast, the price reform translates into a reduction of ostomy and continence prices of around 9% as of July 1, and around 2% for wound care as of June 1. We're working on mitigating activities, which include sharing some of the impact with the distribution channel. As announced in June, we're conducting an unconditional strategic review of our interventional urology business.
The review is underway. It's expected to be concluded at the latest by the end of 2019. Our group strategy is centered around delivering profitable growth. We continue to make good progress on our unparalleled efficiency agenda, and this quarter we completed our plan to reduce the number of production employees in Denmark from 700 to 200 with the closure of our Thisted factory. In Denmark, close to our headquarters, we have a fully dedicated innovation facility and factory, and all volume production is now located in low-cost countries. Next week, we will host our Meet the Management event in London, and the event will provide an update on our progress with the LEAD20 strategy as it moves into its final year.
It will also be an opportunity to meet with the wider management team at Coloplast, and we all look forward to meeting many of you in London. Please turn to slide four. Revenues for the first nine months grew 9% in Danish kroner and amounted to DKK 13.3 billion. In Ostomy Care, organic growth was 7% for the first nine months, and growth in Danish kroner was 8%. Q3 organic growth was 8%. Growth continues to be driven by our SenSura Mio and Brava supporting products in larger markets like the U.K., France, and Germany, and at the product level, SenSura Mio Convex continues to be the main contributor to growth. Our new ostomy appliance, SenSura Mio Concave, is now launched across 16 markets, and the portfolio is increasingly contributing to growth.
We continue to receive very positive feedback on the product. Given that this is a new product category for the ostomy market, we expect that the ramp-up will be slower compared to SenSura Mio Convex. Our new SenSura Mio Baby and Kids portfolio has now been launched in 11 countries and is expected to strengthen our position when competing for tenders and contracts. Our growth in the older SenSura and Assura portfolio was driven by satisfactory performance in emerging markets, with China as the key driver. From a geographical perspective, we continue to see solid growth in Europe, the U.S., and China. Growth in Q3 was lifted by improved tender activity in Russia as expected. In Continence Care, organic growth was 8% for the first nine months, growth in Danish kroner was 9%. Q3 organic growth was 7%.
The SpeediCath ready-to-use intermittent catheters continue to drive growth, and especially the compact catheters performed well in France, the U.K., and the U.S. SpeediCath Flex continues to contribute to growth in both Europe and the U.S. We also continue to see good growth on the SpeediCath standard portfolio, driven mainly by the U.S. The Q3 was negatively impacted by a weaker quarter in emerging markets due to softness in the North Africa region. Last year, in the second half of the year, we delivered on tenders in this region in ostomy and continence care, and we have not seen this demand return. The new SpeediCath Navi hydrophilic catheter, which is specifically designed for emerging markets and lower priced mature markets, has now been launched in Japan, Spain, and South Africa. Early customer feedback remains encouraging.
Our Conveen collecting device portfolio posted positive growth due to satisfactory growth in both France and the U.S. Finally, sales growth of our Peristeen products remains satisfactory, driven by both Europe and the U.S. In interventional urology, organic growth was 10% for the first nine months, and growth in Danish kroner was 13%. Q3 organic growth was 10%. The growth was driven by the sales of Titan penile implants and Altis single incision slings in the U.S., as well as our Axis Biologics portfolio. In Q3, the main driver of growth was the Axis Biologics portfolio, which is a substitute portfolio for the Restorelle DirectFix anterior products that the FDA ordered us to stop selling and distributing earlier this year. In wound and skin care, organic growth was 9% for the first nine months, and growth in Danish kroner was 10%.
Organic growth for wound care in isolation was 8%. Q3 organic growth for wound care was 6%. The growth in wound care continues to be driven by the Biatain Silicone portfolio in Europe, where Coloplast continues to take market share. Markets like the U.K. and France posted solid growth, and the newly launched Biatain Silicone sizes and shapes portfolio continues to contribute meaningfully to growth. China also continues to see good momentum, driven by the Biatain Foam dressing portfolio. The U.S. skincare business contributed to growth in the first nine months, driven by the InterDry portfolio. Contract manufacturing of Compeed also contributed positively to growth, helped by low comparative numbers in the first half of last year, which followed inventory reductions in connection with the sale of the Compeed brand from Johnson & Johnson to HRA Pharma.
Turning to our geographical segments, we saw organic growth of 6% for the first nine months in our European markets. The growth continues to be satisfactory across the portfolio of countries and business areas, and in particular, in key markets like the U.K. and France. Organic revenue growth in other developed markets was 11% for the first nine months. We continue to see satisfactory growth in the U.S., driven by all business areas. Growth rates in Japan, Canada, and Australia also remain satisfactory. Revenue in emerging markets grew organically by 13% for the first nine months. Growth was driven by markets like China, Brazil, and Argentina, as well as several smaller markets in, for example, Central and Eastern Europe. As explained earlier, growth in our Q3 was positively impacted by improved tender activity in Russia.
Softer demand in our North Africa region, as well as a strong baseline, impacted ostomy care negatively in Q2 and continence care in Q3. We expect this to continue into Q4. With this, I'll now hand over to Anders. Please turn to slide five.
Thank you, Kristian. Good afternoon, everyone. As Kristian mentioned, reported revenue for the first nine months increased by 9% compared to the same period last year. Most of the growth was driven by organic growth, which contributed 8% to reported revenue. Acquisitions contributed 0.5% to revenue, resulting from the acquisitions of Lilial and IncoCare in Q2 last year. Foreign exchange rates had a positive impact of 1 percentage point on reported revenue, primarily due to favorable development in U.S. dollar against the Danish kroner, which was partly offset by the depreciation of the Argentinian peso against the Danish kroner. Please turn to slide six. Gross profit was up by 10% to around DKK 9 billion. This equals a gross margin of 67%, which was in line with last year.
The gross margin was positively impacted by operating leverage, driven by revenue growth, as well as improvements in production efficiency. The gross margin was negatively impacted by product mix, high single-digit wage inflation in Hungary, restructuring costs, and acquisitions. Restructuring costs for the first nine months amounted to DKK 43 million, which is slightly more than expected. There will, however, be no more restructuring costs related to the closure of the Thisted factory. The currency impact on the gross margin was neutral. In Q3, the gross margin was positively impacted by operating leverage and a positive product mix from good growth in chronic care in Europe and U.S., as well as improving profitability on new products, including SenSura Mio Convex and SpeediCath Flex. The margin was also helped by an easier comps.
The distribution to sales ratio for the first nine months came in at 29%, which was on par with last year. The 9% increase reflects increased investments across business areas and several markets. The admin- to- sales ratio for the first nine months came in at 4% of sales, on par with the recent trend. The 14% increase was mainly related to an increase in expenses within IT and legal. My expectation for the full year is that the admin- to- sales ratio will be around 4%. The R&D to sales ratio for the first nine months came in at 4% of sales, in line with last year. The 10% increase in R&D costs reflects a higher general activity level and investments into the MDR preparations.
Other operating income and expenses amounted to a net income of DKK 44 million in the first nine months, against DKK 35 million last year. The increase was mainly related to a DKK 16 million gain on the sale of former production facilities in Denmark. Overall, this resulted in an increase in operating profit of 11% for the first nine months, corresponding to an EBIT margin of 31%, against 30% last year. The currency impact on the EBIT margin was neutral. Operating cash flow amounted to DKK 2.6 billion, compared with DKK 2.8 billion last year. The decrease is primarily explained by an increase in working capital due to high inventory levels and strategic products, as well as an increase in tax made payments due to lower tax deductions this year in connection with the U.S. mesh litigation.
My expectation for the full year is that the working capital to sales ratio will be around 24%. Cash flow from investing activities included capacity expansion in machines to produce new and existing products. CapEx investments amounted to DKK 414 million for the first nine months, down DKK 107 million compared to last year due to timing of investments. As a result, the free cash flow was an inflow of around DKK 2.2 billion, against around DKK 2 billion last year. Our cash conversion in Q3, calculated as a 12-month trailing average, was 93%. I'd also like to mention that the second part of the approved share buyback program of DKK 500 million was initiated in Q2 and is expected to be completed in Q4. Please turn to slide seven.
For 2018-2019, we continued to expect revenues to grow around 8% organically and around 9% in Danish kroner. Acquisitions are expected to contribute 0.4 percentage point to reported growth. Our guidance assumes largely stable growth trends across our regions, as well as continued positive impact from new product launches and commercial investments. For the full year, we still expect emerging markets growth to be just under 15%. This is due to lower than expected demand in our North Africa region and a strong comparison period in this region in the second half of the year. We continue to expect mid-to-high single-digit growth for Wound Care for the full year. Our guidance assumes an annual negative pricing pressure of up to 1 percentage point.
As Kristian explained earlier, the reimbursement review in France, in Ostomy Care, Continence Care, and Wound Care is now concluded and will impact our Q4 this year. The bulk of the impact will be in our next financial year. We have also seen a smaller reform in Switzerland and pricing pressure among health insurance companies in Holland. For 2018-2019, we continue to expect an EBIT margin of 30%-31% in constant currencies and around 31% in Danish kroner. The revenue and EBIT guidance in Danish kroner is impacted by the depreciation of the U.S. dollar against the Danish kroner, and the depreciation of the British pound and the Argentinian peso against the Danish kroner. The currency impact is based on spot rates as of August 13. On our operating expenses, we expect broadly stable trends into our Q4 .
This year, we have invested between 1%-2% of sales in incremental investments into innovation and sales and marketing of initiatives in the U.K., emerging markets, and the U.S. across all business areas. Most of the incremental investments were initiated in Q1. Higher growth from our new product launches still means pressure on the gross margin, but as previously communicated, we have relocated manufacturing out of Denmark to Hungary, and the closure of our Thisted factory in Denmark is now completed. Restructuring costs came in at DKK 43 million, compared to DKK 50 million last year. We expect high single-digit rates increasing in Hungary in 2018-2019. Overall, our expectation is that the gross margin will be in line with 2017-2018.
The Global Operations Plan 4 is on track and is still expected to deliver an EBIT margin improvement of 100 basis points in 2020 and 150 basis points in 2021. We still expect our net financials to end the financial year 2018/19 at - DKK 100 million, primarily due to hedging losses on the U.S. dollar against Danish kroner as a result of the appreciation of the U.S. dollar against the Danish kroner. CapEx guidance for 2018/19 is expected to be around DKK 700 million, and is driven by investments in more capacity for new and existing products, as well as a new distribution center in the U.K. 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, sir. Ladies and gentlemen, if you do wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel that request, please press the hash key. That is star and one to ask a question and the hash key to cancel. Thank you. Your first question comes from the line of Kate Kalashnikova of Citi. Please ask your question.
Hello, this is Kate Kalashnikova from Citigroup. I've got two questions. First, could you comment on why the growth in continence in emerging markets was softer this quarter? Also, could you share some color on Navi launches this quarter in Spain, Japan, and South Africa? How has this product been received by users? Then my second question is on the French reform again. How do you expect the headwind from the French reimbursement reform to be shared with distributors? During the last reform in 2014, the headwind was evenly shared with distributors. Is this still a reasonable assumption this time around? Thank you.
Thank you, Kate. To your first question about the continence growth, we are impacted by the comparisons that we have with business in North Africa from last year. We had a number of tenders that we delivered to, and basically there is no demand that we're seeing back this year, which impacts the numbers in continence. I'd also say, in general, the continence numbers were somewhat tough comps. The Navi launch is going well, and users like the product. It's now in markets where we also have, at least for Japan and for Spain, we also have a SpeediCath product available.
Clinicians and customers can choose between a more stiff product and a soft product, and we're finding good reception, so far, so good. Anders, you want to comment on the reform?
Yeah. In terms of the French healthcare reform, we are still working on this, we are still working on the mitigating activities. As we have communicated earlier, last time, the impact was shared 50/50. That is still our aim, this time, please keep in mind that we are now in the channel with our acquisitions of Lilial. Our aim is to get at the same level as we had last time, a 50/50% share, we are in the channel through the Lilial acquisition.
Okay, perfect. The weakness in continence is mainly due to North Africa. You're not seeing any softness in other markets, emerging markets?
Not really.
Perfect. Thank you very much.
Thank you. Your next question comes from the line of Veronika Dubajova from Goldman Sachs. Please ask your question.
Good afternoon, and thank you for taking my questions. I will keep it to two. My first one is actually, a follow-up on emerging markets. Just look at the growth rate, when you had a much easier comparison this quarter, you have a tougher comparison as you think about Q4. Just curious, with your degree of confidence to hitting this just shy of 15% number for the year, and as you kind of reflect on Q3, did everything go to plan, or were there some new headwinds that you saw emerge in the quarter? That's my first question. My second question is, looking at the divisional margins, the chronic care EBIT stepped down quite significantly in Q3.
Just curious, Anders, if you can give us a little bit of color on that, and what you are seeing from an underlying profitability perspective for the chronic care business. Thank you.
For EM, Veronica, I'd say that ostomy went to plan. I think you probably recall that we talked about the timing of tenders in Russia and when they would actually come in. We're seeing them come in. The softness really relates to North Africa and hits us this quarter, mainly on continence. I want to stress that when we say we have these problems in North Africa, you look to Latin America, we look to Central and Eastern Europe, and we look to Asia and China, we're seeing very good momentum.
We're confident that we'll get in just below our target range.
Yeah, in terms of the second question, around the chronic care segment operating profit, I assume that that's what you are referring to. We are this year, as you know, investing quite significantly into the business, and we are also allocating more investments into the chronic care business. That is one of the reasons why we are seeing a slight drop in the segment operating profit in Q3 versus the previous quarters. It's primarily due to the investment activities.
You're not seeing sort of underlying changes in profitability on a gross margin level or ASP? This is purely the phasing of investments that you're making.
Yeah. Yes, correct.
Okay.
We are seeing it's driven by the investments, so that's correct.
Okay. Thank you both very much.
Thank you. Your next question comes from the line of Michael Jüngling of Morgan Stanley. Please ask your question.
Great, thank you. I have three. Firstly, on the gross margin development in the Q3 , is this greater gross margin improvement in Q3, a sustainable improvement if we look at the next sort of rolling 12 months? I'm talking about the sort of 100 basis points of margin improvement. Secondly, on France, have you decided whether you will change the types of products that you will be selling into France? What have you seen your competitors do? Are they moving towards lower or less sophisticated products? Thirdly, on urology, once the strategic review is completed, and let's hypothetically assume you do dispose the business, the proceeds are likely to be significant. What do you intend to do with those proceeds, should you dispose of that business? Thank you.
If I start with the gross margin question, Michael, yes, the gross margin in Q3, it was stronger than in the previous quarters. It's driven by a couple of things. One thing is that we are continuing to see a leverage effect across our fixed costs within production, and we also are starting to see efficiency improvements. We also had a slight positive impact from FX. Finally, our comps compared to last year, the Q3 was also an easier comps. That's some of the main reasons for the gross margin development in the Q3 .
If we look a bit ahead, we are expecting that the impact from the Global Operations Plan 4 will start to impact our EBIT margin and especially our gross margin. Into our Q4 , we will start to see, that's my expectation, impact from the closure of Thisted, and also that we are not expecting more restructuring costs. My expectation that that will also go into next financial year.
Michael, if I should comment to your questions on France and urology. One of the worries that we had about the French reform was whether it would land with a conclusion where we couldn't sustain the product portfolio that we go to market with today. France is already before the discussions of this reform began, a country where we don't have all the newest technology in particular on the ostomy side, we were quite worried about that. I think the way that it's landed now, that we can maintain the portfolio, and I don't really have a good perspective on whether any of our competitors are coming to a different conclusion, but we're maintaining portfolio.
There will probably be some minor changes around packaging of products and things like that, but that's all just small operational stuff. The brands in the market will not change. On the review of interventional urology, not too much comment, but if you will, hypothetically, in the scenario that you describe, we pay out all excess cash through dividends and share buybacks.
Great. Thank you.
Thank you. Your next question comes from the line of Annette Lykke of Handelsbanken. Please ask your question.
Thank you very much for taking the time. First of all, if we look behind the, some of the negative elements from both Africa, how is the continent's performance for this, for the SpeediCath family, Flex Coudé and Compact? Also, as well, on the Concave ostomy uptake, if you could fill us in there a little bit. I'm just wondering on the pipeline, how the status are for the continents product decreasing urinary tract infections, and is the eSolution still the main feature for your new ostomy products? That's all. Thank you.
Annette, thanks for your questions. How's Continence doing? I'm quite satisfied with where our Continence business is. The new products are pulling growth, SpeediCath Flex is doing well both in Europe and the U.S. Of course, the product is growing bigger, so the relative growth rate against the higher level of comps is a little bit smaller, but the overall growth picture is strong. Concave, I'm very pleased with. It's increasing its contribution to growth. We're getting raving reviews from our customers. It's a.
We've said this many times, but this is not a hospital discharge product, so the combination of that and the fact that this is a new category also means that this is a category that's going to have a longer uptake profile, but I believe we're going to have a long run with the Concave. The product works, customers love it, and we see that in the numbers. Now, we get to the pipeline. Most of the stuff that we do with the pipeline, of course, is secret. We don't talk too much about that in public, but I hope that you'll be coming to London next week.
A big part, actually, of what we will be talking about next week is how we think about innovation, how we think about shaping reimbursement categories, and funding for innovation. We'll also share some of the progress, mainly focused, though, on where we are with ostomy, which is not just, if you will, and I put just in quotation marks, digital. It's more than that. For all of the new generation products, there is new technology in the product, and there is a clinical ambition related to them that kind of powers the idea behind each of them.
We won't be saying too much about the continents, innovation pipeline next week, but there is some news on that. I can say that we're making good progress, and I'll reiterate, like I've done in all my conversations when I've met people one-on-one or in different forums, this is a new level of innovation. All of the projects carry new technology and therefore also carry a different risk. All the more exciting if we succeed. We look forward to talking about it next week.
Okay. See you in London then.
Yes, you bet. I'll be in London.
Thank you. Your next question comes from the line of Hassan Al-Wakeel of Barclays. Please ask your question.
Thank you for taking my questions. I have three, please. Firstly, can you talk about whether you're seeing any impact from some of the recent continence launches at some of your competitors, notably Hollister, which seem to be progressing well? Secondly, in Ostomy, could you talk about how new patient capture is trending in the U.S.? Is this improving sequentially? If you could also please confirm where this sits relative to your community market share. Finally, if you could provide your expectations for finance charges for the full year, that'd be very helpful. Thank you.
Let me start with your first question related to competitor launches of continence products. We of course, follow all new products that get into the market very closely. We look at all the products that come into the market, we tear them apart to understand how they were built, test them, look at how they perform, and we use that in how we train our salespeople on how to look at each of them, so we are effective against them.
We're not seeing any major impact from these launches on our momentum, but it's probably also a little bit too early, but we are keeping a very close eye on all of them. On Ostomy and new patient discharge, we're growing nicely, as you know, in the U.S., with double-digit. Market is growing around 4%. We continue to take good share in acute, driven by winds that we've been talking to you about, both Cleveland Clinic and University of Chicago. We also see good traction in our sales to home health, where we won Kindred and Encompass.
Our new patient capture continues to be significantly above our overall market share of 15%. We still regard this as a big opportunity that we keep pushing. On finance charges, you want to comment on that, Anders?
Yeah. In terms of your third question, our expectations to the financial items, for the full year, my expectation is around -DKK 100 million. It's driven by hedging losses on the U.S. dollar, and also, losses on the Argentinian peso, as a consequence of the devaluation we have seen earlier this week.
Thank you.
That's my expectation.
Thank you. Once again, ladies and gentlemen, if you do wish to ask a question, please press Star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel the request, please press the hash key. Your next question comes from the line of David Adlington of JPMorgan. Please ask your question.
Hey, guys. Thanks for the question. One bigger picture, one which is a couple of years now since you elucidated the sort of new strategy of investing more on the cost side to try and accelerate top line. We've seen a little bit of acceleration on the top line, but maybe not as much as we had hoped. Just wondered if how you're feeling about that, whether you can see scope for further acceleration from here as we move into next year and the year beyond? The second question is just on Wound. I think you said mid to high single-digit for the full year. That implies a bit of a slowdown in Q4. I just wondering if you could add some color around that? Thanks.
Why don't I take that? We changed the guidance back in November of 2017 to basically get ourselves into a position where we could invest more into top-line growth. Basically, because we saw a number of good opportunities. We've done that, growth has also picked up. This is, I think, the ninth quarter that we report 8% growth. You know, I'm pretty happy with that number. If I remember, the market is growing at about half that rate. This means that our company is in good shape.
Customers like the products that we go to market with and the solutions that we present them with, and we have a team in our markets that are doing a good job. Now, would I like more? Definitely. Definitely. But getting more in the business as we run it now, means that we need all of our geographies to pull at the ambition level that we have. And we are seeing EM a bit subdued, and also for a bit longer than I would have liked, but there's more volatility in that region. We also want more growth out of the U.S., where we have invested.
We've got a good quarter here. We want many more really strong quarters out of the U.S. Of course, things happen when you run a business like ours. The French price reform happened. As much as I wish that I could just wish the 9% price cut away, it's going to be there for the better part of next year and also going to produce some headwind for us. By and large, if I think about do we have good momentum, and is the company performing? I think my answer is a resounding yes. It's also a resounding yes to your question of whether I'd want more.
We'll of course use the opportunity with our new strategy process to talk about how, you know, how does the value creation path look for the coming strategy period when we announce that in spring, summer of next year. I think we've got a good balanced portfolio of investments as I look at it now, with both the short-term investments that are pretty pragmatic in sales force expansion and more meaningful investments, medium and long term, that are related to access and innovation. I'm pretty happy with it. I forgot the second question. What was the second question?
Yes, wound care, just in terms of any implied slowdown in the fourth quarter.
In terms of our wound care for the full year, we are expecting, as we said earlier, a growth in the level of mid to high single digit. Year -to- date, we are at.
8%.
Year -to- date, we are around 8%. We are expecting into Q4 some headwinds from the healthcare reform in France. Please remember that our French subsidiary, or our French business within wound care is one of our bigger ones. Overall, we are looking into mid to high single digit growth for our wound care business for the year, and that's something we are satisfied with in a market that is growing 2%-4%.
Great. Thank you.
Thank you. Your next question comes from the line of Niels Leth of Carnegie. Please ask your question.
Good afternoon. My first question is about the effect of hyperinflation accounting. Is it correctly understood that the DKK 32 million you record in net financial items has a similar positive effect on your organic growth, so that if we adjust for that, the hyperinflation calculation would have affected your organic growth positively by around 0.25 percentage points in the first nine months of this year? My second question is on the French healthcare reform. Will distributors initially absorb the full price cut, and then it will flow to manufacturers at a later point? Or how fast do you actually expect to see the effect on your P&L? Thank you.
In terms of the hyperinflation in Argentina, yes, we continue to handle Argentina as a high inflation country. You cannot, you can say, correlate the hyperinflation impact with the organic growth. The organic growth in Argentina, yes, there is some price related contribution, but we also see an underlying volume, and we also see an underlying mix impact in our Argentinian business. When that is said, in our fourth quarter, we will be impacted by the development of the Argentinian peso we saw earlier this week, because we are treating it as a hyperinflation market, and that means that we are using the currency rate at the end of the quarter. That was Argentina.
Are you saying that the effect of the Argentine hyperinflation accounting, is it bigger than the DKK 32 million that you mentioned in your statement?
On the organic growth?
Yes.
I'm not going to comment specifically on how much we are growing in our Argentinian business. We are this year having a good year from an organic growth point of view. Argentina is contributing to our emerging market growth. As I said earlier, we are seeing it's also driven by underlying volume, and it's driven by underlying mix impact. Also price, as I said earlier. The other question, the French healthcare reform. It was communicated early July with an impact for the manufacturers from July 1. We are seeing the impact from July 1. What we are working on is to mitigate that impact towards the trade. Our aim is to have an impact of 50/50.
We are in the trade, this time, so we have acquired DVL, and that means that the impact this time will be bigger, than we saw when we had the healthcare reform in France, last time.
Okay, it will be felt already from the coming quarter?
Yeah.
Yes.
The impact will be already here in the fourth quarter.
Yeah.
from July 1.
Yeah. Okay. Just a final, kind of high-level question on your strategy. Why would you sell your urology division? It's your fastest growing business.
W e haven't concluded anything like that. What we're saying is that we're doing a review of it, much in line with how we've talked about the business as we move through the mass tort that we've been a part of in the U.S. We've said a number of times that as we get to the conclusion of that we would have a hard look at what role the urology business should play in the portfolio and how we create value. We'll, I expect that we'll be able to conclude, we'll be able to conclude on the process before we get to the end of the year.
Okay. Thank you.
Thank you. Your final question comes from the line of Sebastian Walker of UBS, London. Please ask your question.
Hi there. Thanks for taking my questions. Just one, if I could. Has there been any update on the Premier GPO contract? How are discussions going on there?
No, there's no conclusion on Premier. The process is ongoing. We expect that it will reach a conclusion in this fall. With implementation by first of April, contract start.
Great.
Sometime this fall, we expect a conclusion.
Thank you.
Thank you. There are no further questions. Please continue.
Okay. From our side, thank you very much. I'll see all of you in London next week, hopefully. Have a good day.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may now disconnect. Would the speakers please stand by?