Good day, and welcome to the interim financial statements of nine months 2017, 2018 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. Good afternoon, and welcome to our Q3 2017-2018 conference call. My name is Lars Rasmussen. I am CEO of Coloplast, and I'm joined by CFO Anders Lonning-Skovgaard, and our investor relations team. We will start with a short presentation by Anders and myself, and then we'll take questions. Please turn to slide number three. I'm very pleased with today's results. We have now developed five 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 Convex and the SpeediCath Flex, and strong commercial execution.
In November last year, we made the decision to increase our investments into sales-enhancing initiatives, and we continue to see an initial return on these investments, which I'm very pleased with. Based on the expectations of a limited impact from the SpeediCath patent expiry, we have upgraded our organic growth guidance for the year from 7%-8% to around 8%. Our guidance in Danish kroner is unchanged at around 6%. Our EBIT margin guidance is unchanged in fixed currencies at 31%-32%, and in Danish kroner at around 31%. Our group strategy is centered around delivering profitable growth. We continue to make 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 400.
We have also accelerated the closure of our factory in Thisted, meaning that the restructuring costs will be higher this financial year than expected. Anders will walk you through this in details later. I'm pleased to announce that we have appointed a new leader for our emerging markets region. Andrew Robinson joins us on October 1st from Alcon, a Novartis company, where he has been leading more than 1,000 cross-functional employees in their Asia Pacific region. On September 18th, we will host a capital markets day at our headquarters in Humlebæk in Denmark, focusing on innovation and commercial initiatives to drive growth. I look forward to welcoming many of you to Humlebæk. Please turn to slide number 4. year-to-date, our revenues grew 8% organically and 6% in DKK, and amounted to DKK 12 billion .
The acquisition of Comfort Medical and Lilial contributed approximately 1 percentage points to reported growth. In Ostomy Care, organic growth was 9% year-to-date, growth in Danish kroner was 5%. For Q3, in isolation, organic growth was 7%. Growth continues to be driven by our SenSura Mio and Brava accessories portfolios in larger markets like the UK, Germany, and the 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, Argentina, and Brazil, growth continues to be negatively impacted by the Greek price reform. Overall, growth in emerging markets was weaker in Q3 compared to the first two quarters due to timing effects. More specifically, we have won several tenders that we will deliver on in Q4.
We continue to receive positive feedback from healthcare professionals and users who have trialed our new ostomy appliance, SenSura Mio Concave. We have now secured reimbursement and launched a new product portfolio in nine countries. Clinical studies have demonstrated that SenSura Mio Concave is superior with respect to key clinical parameters, including superior body fit, preference, and quality of life. We are proud to be introducing this new product category to end users. In Continence Care, organic growth was 9% year-to-date, and growth in Danish kroner was 7%. For Q3, in isolation, organic growth was 8%. The SpeediCath ready-to-use intermittent catheters continued to drive growth, and especially the compact versions performed well in countries such as the U.K., U.S., and France. So far, we have seen limited impact from the expiry of the SpeediCath ready-to-use patent.
We continue to see healthy growth on the standard portfolio, in particular in the US and in emerging markets. Growth continues to be negatively impacted by the price reform in Greece. SpeediCath Flex continues to contribute to growth in key markets like the U.K. and Germany. The launch of SpeediCath Flex Coudé Pro in the U.S. has been well received, and this will be a key growth driver going forward. Our Conveen collecting device portfolio posted positive growth due to satisfactory growth in France and emerging markets. Finally, sales growth for Peristeen products remained satisfactory. In Urology Care, organic growth was 10% year-to-date. Growth in Danish kroner was 5%. For Q3, in isolation, organic growth was 11%. The growth was primarily driven by sales of Titan penile implants in the U.S.
We see a satisfactory return on the large sales investments we made into the U.S. urology business last year, and continue to invest this year. Our end urology business saw satisfactory growth in especially France and Saudi Arabia. In Wound & Skin Care, organic growth was 3% year-to-date, and growth in Danish kroner was -1%. Organic growth for wound care and isolation was 4% year-to-date. For Q3, organic growth for the total business area was 11%, and for wound care and isolation, it was 12%. The stronger growth in Q3 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 has begun to meaningfully contribute to growth.
Q3 was also positively impacted by an easy comparison in Greece last year. Overall, year-to-date, the Greek price reform still has last negative impact. The U.S. skincare business detracted from growth in the quarter due to the intensifying competition in the U.S. Contract manufacturing of Compeed contributed negatively to growth year-to-date, due to inventory reductions in connection with the sales of the Compeed brand from Johnson & Johnson to HRA Pharma. As expected, part of the DKK 30 million negative impact in the first half was regained in Q3. Turning to our geographical segments, we saw organic growth of 5% year-to-date and 6% in Q3 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 12% year- to- date, and 10% in Q3. The U.S. chronic care business continues to post double-digit growth. In Ostomy Care, we continue to secure new hospital wins. Growth rates in Japan and Australia remain satisfactory. Growth in the U.S. year-to-date was positively impacted by inventory reductions of DKK 70 million in Q1 last year. Revenue in emerging markets grew organically by 14% year-to-date and 11% in Q3, and markets like China, Argentina, and Brazil continue to deliver very satisfactory performance. A number of smaller markets that we have recently invested in, for example, Turkey and India, also delivered strong performance, and growth year-to-date was negatively impacted by the Greek price reform.
As mentioned earlier, we won a number of tenders in Q3 that we will deliver on in Q4. With this, I will now give the word to Anders. Please turn to slide number 5.
Thank you, Lars. Good afternoon, everyone. Reported revenue year-to-date increased by DKK 667 million, or 6% compared to the same period last year. Most of the growth was driven by organic growth, which contributed DKK 920 million, or 8% to reported revenue. Acquisitions contributed DKK 135 million, or 1 percentage point, to reported revenue. Foreign exchange rate had a significantly negative impact of DKK 478 million, or 4 percentage points, on reported revenue, primarily due to the depreciation of the US dollar and dollar-related currencies against the Danish kroner. Reported revenue growth was 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 has not affected organic growth for the reporting period.
Please turn to slide 6. Gross profit was up by 4% year-to-date to around DKK 8.2 billion. This equals a gross margin of 67%, compared to 68% last year. FX had a significant negative impact of 60 basis points on the gross margin. year-to-date, in constant currencies and adjusted for the DKK 90 million Veterans Affairs payment in Q3 last year, the gross margin was 67%, compared to 68% last year. The gross margin was positively impacted by improvements in production efficiency at our volume sites and the relocation of SenSura Mio 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. Increasing depreciation levels also had a negative impact on the gross margin.
In Q3, we had DKK 21 million in restructuring costs related to the reduction of production employees in Denmark. In the first nine months, total restructuring costs were DKK 29 million. As Lars mentioned earlier, we have now completed the reduction of production employees in Denmark from 700 to 400. We have also accelerated the closure of the Thisted factory in Denmark, which means that the restructuring costs will be higher this year than we had originally anticipated. In total, we now expect to have DKK 45 million in restructuring costs this year, which is DKK 25 million more than we have previously communicated. The Global Operations Plan 4 is still expected to deliver an EBIT margin improvement of 100 basis points in 1920 and 150 basis points in 2021.
In total, we still expect approximately DKK 50 million in restructuring costs, but they will now be split between 2017-2018 and 2018-2019 versus previously 2018-2019 and 2019-2020. The distribution to sales ratio came in at 29%, compared to 28% last year. The 9% 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. 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 10% increase in R&D costs reflects a higher general activity level. Other operating income and expenses amounted to DKK 35 million, compared to DKK 15 million last year. The increase was mainly due to a non-recurring income from a patent settlement in Urology Care in Q1. Overall, year-to-date, this resulted in an increase in operating profit in fixed currencies and adjusted for the DKK 90 million Veterans Affairs payment in Q3 last year of 3%, corresponding to an EBIT margin of 31% in fixed currencies. In actual currencies and adjusted for the DKK 90 million Veterans Affairs payment, operating profit declined by 1%, corresponding to an EBIT margin of 30%. Operating cash flow amounted to DKK 2.8 billion, compared with DKK 1.7 billion last year.
The increase is primarily explained by higher mesh payments last year compared to this year. Total mesh payments year-to-date amount to DKK 0.4 billion. Total mesh payments to date amounted to DKK 4.6 billion. Cash flow from investing activities was impacted by the site expansion in Nyírbátor in 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 and property, plant, and equipment amounted to DKK 521 million year-to-date, up DKK 98 million compared to last year. 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 2.6 billion compared to DKK 2.5 billion last year.
The increase is mainly due to improved working capital management. Our cash conversion rate in Q3, calculated as a twelve-month trading average, was 103%. With respect to the mesh litigation in the US, 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 2017-2018, we now expect to pay out DKK 500 million of the remaining DKK 1 billion of the, in total, DKK 5.25 billion provision. Finally, the first half of the approved share buyback program of, in total, DKK 1 billion was completed in May. Please turn to slide 7. Our organic revenue guidance for 2017-2018 is now an organic growth of around 8%.
Our reported growth in Danish kroner is unchanged at around 6%. Acquisitions are expected to contribute 1.3 percentage point to reported growth. As Lars mentioned earlier, we have upgraded our full year guidance for organic growth from 7%-8% to around 8% due to the limited impact from the SpeediCath patent expiry. We have reduced the impact for the year from DKK 50 million- DKK 0 million. We still expect to see an impact from the healthcare reforms in Greece, in Ostomy Care, Continence Care, and Wound Care of up to DKK 100 million. In Q3, we adjusted our pricing towards our distributor to reflect a 25% price cut. We've also made some adjustments to the product portfolio that we will sell in Greece.
On a group level, we now expect negative pricing pressure of up to 1 percentage point on our top line due to healthcare reforms in Greece from previously more than 1 percentage point. We expect Wound & Skin Care to deliver a full year growth of 2%-4% due to improved performance in Wound care, offset by weaker momentum in skincare. The guidance in Danish kroner is significantly impacted by the depreciation of the US dollar, as well as the dollar-related currencies against Danish kroner. The currency impact is based on spot rates as of August 2nd. For 2017-2018, we continue to expect an EBIT margin of 31%-32% in constant currencies and around 31% in Danish kroner. The EBIT margin guidance includes the impact of the healthcare reforms in Greece, as well as acquisitions.
Our guidance continues to assume a proportionally higher absolute EBIT in the second half of the year compared to the first half. Historically, Q4 has always been our strongest quarter in nominal sales, translating into a higher EBIT margin, driven primarily by leverage on our fixed costs. We expect to see the same pattern this year. We also continue to expect broadly stable trends on our operating expenses. Overall, our expectation for the full year is that the EBIT margin in fixed currencies will be around the middle of the 31-32 percentage point range. High growth from our new product launches still means pressure on the gross margin. As previously communicated, we continue to relocate manufacturing out of Denmark to Hungary. We expect the benefits to be absorbed by the cost of relocation and restructuring cost of approximately DKK 45 million in 2017-2018.
We also expect high single-digit wage inflation in Hungary in 2017/ 2018. Overall, our expectation is still that the gross margin in fixed currency will be in the line with last year at around 68%. We now expect our net financials to end the financial year 2017 2018 at around -50 million DKK from previously 0 million DKK, primarily due to currency translation losses on balance sheet items denominated in Argentinian pesos and Brazilian real, only partly offset by hedging gains on the US dollar against Danish kroner.
Coloplast's guidance for 2017, 2018 is unchanged at around DKK 700 million, and is driven by investments in more capacity for new and existing products. The Nyírbátor factory expansion, which became operational during Q3, and the acquisition of a plot of land in Costa Rica, where we intend to build our future volume factories. 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 your equipment. Again, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Veronika Dubajova from Goldman Sachs. Please go ahead.
Good afternoon, gentlemen. Thank you for taking my questions. I will keep it to two. The first one is I'd love to get a little bit more color, Lars, from you about the momentum in Ostomy. It's quite hard for us to know what impact the tenders might have had. It would be good to understand, maybe excluding those tenders, how the business grew, and what your degree of confidence is in returning back to that very high single-digit growth rate that you were delivering in the first half of the year. My second question is for Anders. It's a bit financial. If I look at the divisional profitability that you are disclosing, both Interventional Urology and Wound & Skin Care have seen some margin compression on a 9-month basis.
Is this really where most of your investments are going into, and that's why we're seeing margins compress, or is there something else going on in the businesses that would explain that? Thank you.
All right. Hi, Veronica. The on the Ostomy Care, you see the impact from the from the orders that we talked about for emerging markets that we have not delivered. Actually, it's a bit more than DKK 40 million that we have produced, manufactured, that we are ready to ship, but where we are missing some of the shipping documents and bank guarantees to ship them. That will impact the growth for the quarter for Ostomy Care with approximately a couple of percentage points, a little bit more. It will also mean that the growth in the quarter for emerging markets would go to around 15% because it's all emerging markets related, of course.
In that sense, it's all there. We are quite confident that we will then deliver this in this current quarter, and that means that we have a little bit lower growth in the quarter we just reported, and we'll have a little bit higher compared to what we believed that we needed in order to deliver a year to the tune of 8% growth. It's actually the same very, very nice momentum that we continue to have, like what we have had for the first half year or so. I guess that was what you were asking, right?
Yep, that's very clear. That's very helpful. Thank you.
Yeah. Okay.
Veronica, in terms of your question related to our segment operating profit for Urology Care and Wound & Skin Care. Please be aware that the numbers we are reporting here is in reported currency. If we take Urology Care first, if we look at the underlying profitability development, we are seeing both high organic growth in the level of the 10% for the year. We're also seeing an underlying in fixed currencies, improved profitability levels. Due to the fact that a lot of the Urology Care growth is in the U.S., in reported currencies, the currency effect is quite significant. For the Wound & Skin Care part, we are also investing into this area.
The investment into Wound and Skin is also in the U.S., and that is also having an effect on the reported profitability levels.
Okay, that's very helpful. Can I just ask a quick follow-up? For the Concave, SenSura Mio, do you have an update on when you're planning to launch that in the U.S.? Thank you.
No, we don't have a date for that yet.
Understood. Thanks very much.
Our next question is from Patrick Wood, from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Perfect. Thank you for taking my questions. I'll keep it to 2, if I can. The first will be on the Ostomy side in the U.S. I know you saw good growth on the accessories side, but I'm curious if I saw good growth outside of accessories, i.e., in the core bags business. On the back of that, how are you guys feeling about the GPO contract renewals that are coming up next year? That'd be the first one. Then on the second one, just a little bit of help, if you can, on the margin. I know at the group level, obviously, you've done quarters in the past where you've had the kind of margin that you need to hit the 31% reported group EBIT margin.
Hang on a second.
Yep.
Patrick, could after the DPO contract, the question that you started on there, could you start from there again?
Yeah, of course. Of course.
Yes.
Of course, of course. On the margin side, basically, for the group EBIT margin, the Q4 required is obviously fairly large, and I know you talked about getting leverage on the OpEx space, and obviously that benefiting. If you look at the year-on-year trend in the margin from Q1 to Q3, you need a big Q4 to make that work. Is that really all just operating leverage on the products, or is there something else going on that we can't see? That'd be really helpful. Thank you.
Okay. Maybe, Anders, you start with the margin question, then I come back to the Ostomy growth on bags and plates and the GPO.
Yeah. In terms of the margin, for the year, as I said earlier, we are expecting that the full year EBIT margin in fixed currencies will be in the middle of our range of 31%-32%. That requires a strong Q4. My assumptions are, as we also seen in the past, that we will have a strong nominal quarter, both in terms of sales. That will have a leverage effect across the business, both on the production side, but also across the fixed cost in the remaining part of the P&L.
My expectation is that the EBIT margin will improve in our fourth quarter.
Mm-hmm.
In terms of the cost levels, I'm expecting it will be, yeah, stable versus the remaining or versus the year-to-date numbers.
Gotcha.
All right. Then on the ostomy growth, I can confirm that on top of the accessories growth, we are winning shares on bags and plates in the U.S.
Mm-hmm.
When it comes to the GPO, I mean, by the way, we're also winning acute contracts and so on. On the GPO side, we are, of course, very, very, very aware that the bidding processes will be in 2019 for Vizient and for Premier. I think that we have a stronger position than last time, but that's not a guarantee, of course. We have a very, very strong convex offering. We have had a quite successful IDN strategy, which also meant that we became preferred supplier at the Cleveland Clinic and so on.
I think that we are in a very different position than last time. You only know the day that it's revealed who is on the GPO, whether you're on or not. It's a continuous effort for us to be on the GPOs because we think it's very important.
Of course. No, that makes, that makes sense. Thank you very much for answering the questions.
If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. Our next question is from Chris Gretler from Credit Suisse. Please go ahead, sir. Your line is open.
Thank you. Hi, Lars. Hi, Anders. I have actually three questions. Hi, on the first is on Wound Care. You know, I'm obviously very impressed, you know, with, you know, the growth momentum there. Maybe could you speak about, you know, the success you have so far in, on the U.S. market? That would be my first question. I'll take it one after the other.
Yeah. On Wound Care, the main driver of the growth that we are seeing is China and Europe. If you look at the U.S., then we have launched this, you could say, a key milestone for us is April this year, where we launched the Biatain Silicone, prevention, for prevention treatment. It takes time to get started there. And quite frankly, you know that our base is very small in the U.S., we can easily make a nice growth percentage. If you take the total impact on the group level for Wound Care, it's very limited what comes out of U.S. at this point in time.
It is China, and it is Europe that have very strong performance.
Okay, good. Yeah, let's see, huh? You know, the second question is on the price reforms, no? It looks now fairly quiet at the moment, you know. Maybe could you update us on, you know, what, you know, you see right now, and where we should be, what we should be aware of?
We don't think that price reforms are quiet, at least not if you look at Greece, where we are actually taking a hit of up to DKK 100 million this year. Apart from that, it's quiet, you could say. There will be a price review on Ostomy Care and Continence Care in France next year. That's the big thing that we are looking into for next year.
Okay. Maybe just on the SpeediCath, you know, it looks like, you know, the patent expiry, you know, has been substantially less severe, impact has been substantially less severe than feared, you know. I mean, there has to be certain gains now, in terms of profitability, you know, as a result of that, you know. Could you remind us, you know, what happened to those, you know, went those 2 investments or to kind of back up your guidance, kind of?
What we have done is that you'll see this reflected in the sales numbers. We started out with a guidance of around 7%, and then we increased it to between 7% and 8% because of no impact from the patent expiry, and now we are upping it to around 8% because we don't expect any impact this year from it. We don't expect to have any kind of reservation or anything else for this in the coming years. It's sort of behind us. That's how you see that? Maybe I'm not fully aware of what it is that you're referring to.
I mean, I just thought, I mean, these, you know, DKK 100 million less lost sales relative to your original expectation, you know, should have known pretty good, you know, incremental contribution margin. I was just wondering.
Yeah, that's right. Please remember that this is an investment year, so whatever we can get our hands on, we are investing in future growth. Then we try to basically model it so that we are delivering on the 31%-32%. As Anna alluded to in the presentation, we'll get into the middle of the range, with that. That's everything else we are investing, because that's what we have set out to do. We want to grow at the upper end of the 8%-9% interval, and that takes investment.
Yes, you know, fully understood. The last question is on Costa Rica, you know. I mean, could you actually speak about, you know, that, you know, location relative to your other manufacturing sites in terms of cost and, you know, preferential tax treatment, maybe?
Yes. So it's a mature area in a sense, because there are quite a number of medical device companies in Costa Rica already. It is not like when we started out our strategy 20 years ago in Hungary, where we had a lot of, you know, aids from the government and so on in order to establish factories. That's not what we are seeing. So there's no sort of benefits, and there's no tax impact either. We are going to invest to the same tune as when we were opening a factory in Hungary over the last years.
It's covered in the DKK 700 million this year, that we are keeping the DKK 700 million, and in that, we are investing approximately DKK 100 million in a piece of land. If you look at the, we bought 100,000 sq meters, where we can build approximately 60,000 sq meters of factories. If you're looking at the cost of labor in Costa Rica, it's approximately 15%-20% lower price than what we see in Hungary for the blue-collar workers. If you're looking at the white-collar workers, it's like there is almost a fixed price for white-collar workers across the globe. It's more or less the same that you're also seeing as we see in Hungary.
Skilled people are, of course, more costly. There's access to very well-educated people on the blue-collar side and also on the white-collar side. As we speak, we actually have people from Costa Rica in Hungary to be trained on new machines that will be transferred together with them back to Costa Rica. We are pushing ahead.
Okay, thank you very much.
If I may add, in terms of the building of the factory, that is included in our long-term CapEx guidance of the 4%-5%. That will start to impact the next year.
Okay. Again, thank you very much for your comments.
Our next question comes from Michael Jüngling, from Morgan Stanley. Please go ahead. Your line is open.
Thank you, good afternoon. I have 3 questions. Firstly, on SpeediCath, the patent expiry. Can you comment on whether you've seen new competition entering the market? I'm talking about smaller players, such as the smaller one that we've seen, in the U.K. You also mentioned, I think the risk is over for SpeediCath patent expiry. Does that mean that the ConvaTec launch expected later on this year, is irrelevant? Question number 2 is on emerging markets.
Can we pause it there?
Of course.
Let's take one at a time. I would, you'd never have me say that we don't see any risks on any of our product areas. We expect, and we actually expected, that there will be launches as a consequence of the patent expiry, and we have not seen any launches yet that we have noticed at least. Of course, we expect to see launches going forward. What I said was that we are not going to put any specific guidance on any competitive launches into our forward-looking guidance as a consequence of the patent expiry. There will be, of course, competitive products.
We also have, as you know, the BBT that we are ready to launch. Now our volume is actually much higher than what we had expected at this point in time, and therefore, we are postponing the BBT launch until we have more capacity, machine capacity on board. We're using the same machines to produce the new BBT product as for the standard SpeediCath products. That's why we don't think that we should take the risk of putting an extra new product into machines that are already pretty utilized. We had expected that the volume would go down due to the fact that we would have less sales of SpeediCath as a consequence of the patent run out.
That have not been the case. Therefore, we have this postponement. The only thing that you should take away is that we had a provision this year for the patent run out. We are not going to have a provision going forward. That's the only thing I'm saying. Of course, I would expect that we would have competitive pressure as we have always had.
Great. That's very clear. Second question is on Emerging Markets. Can you comment why you have leadership change for the Emerging Markets?
Yeah. Yeah, because, well, Michael, who was running it for us quite successfully for us for some years, he have, he's gotten a job where he got into the executive management of Ge, and where he could get an area where he could get end-to-end responsibility and profit and loss responsibility. That was, for him, the right point in time in his career to have that, and that was what he was wishing for. We couldn't offer something similar to him. He was sitting on a regional track here, and therefore he did the change.
Okay, great. The last question is on Wound & Skin Care. Can you talk a little bit about how you see the future? I'm talking about the consistency of organic growth. The volatility between quarters is extraordinarily high. How do you feel about more consistent organic growth between quarters for Wound & Skin Care?
I don't feel very well about saying that we will have consistent growth going forward in Wound & Skin Care. We have a 12% growth for the quarter. We have 3%, approximately 3% growth for the year-to-date. That's a very big discrepancy between the quarters. It is harder for us to predict. What I can say is that we are investing more and more into more innovation. We have had some years where we did turnaround on the business to make it more profitable. A couple of years back, we started to invest. We are launching, as we speak, new products.
We're also launching ourselves into the U.S., where we have basically not touched the Wound & Skin Care business very much, and definitely not invested in it since I became CEO of the company. In that sense, we are in a situation where we are investing more in Wound & Skin Care, therefore I also expect, on average, to see a higher growth rate in the Wound & Skin Care area going forward, because that's what we're investing for. From quarter to quarter, it's very hard to predict what is going on.
Great. Thank you so much.
This year we are, Michael, this year, we are also impacted by the Compeed business. As we talked about, in the first half, that there was a destocking on our Compeed business in the first half, part of this destocking effect is back in our third quarter. That is also a reason why we see these fluctuations quarter-over-quarter.
Great. Thank you.
Our next question comes from Ian Douglas-Pennant from UBS. Please go ahead. Your line is open.
Thanks very much. The first question is on the wound care market. I'm very surprised to see such good growth coming out of that this quarter. Could you talk about firstly, the pricing pressure that you're seeing globally, but also the U.K. in particular, and your exposure to that market? The second question is on the growth investments that you're making. Are you still seeing lots of opportunity for investments, or do you think the kind of rate of OpEx growth should slow next year, and then we'd see margin expansion? Thanks very much.
On the wound care market, yes, we see quite some pressure. And we have been more optimistic on the market growth than most of our peers for the last couple of years, and we are adjusting into their levels. Because we have actually expected that the market will grow something like 3-5%. And we are more, maybe more seeing something between 2% and 4%, and maybe more 2% than 4% for the time being. And that is a consequence of price pressure, and that is a consequence of some of the leading companies in the market offering very, very big discounts to stay on the contracts that they're already having.
Also to a level where we have been very surprised to see what is going on. You know, there's a very big difference if you have rebates strategies carried out by smaller players in the market, or if you see rebate strategies carried out by the big ones in the market, and we see the big ones. That is. Then you basically have to follow suit as a smaller player. That is really taking value out of the market, and I guess that that is what we're seeing. In a sense, it's quite negative. Having said that, we have very strong growth in Europe. We also have very good growth in China, as I mentioned a couple of times.
Since we have such a big footprint in Europe, it means a lot to us that we see this growth. I can only confirm that the U.K. market is a market where there is a lot of rebates given. It's a very, very competitive market for the time being. We are keeping up quite well, not least because we have good innovation in the market.
Sorry, could I just confirm that the pricing pressure you're talking about, that is that's a global thing, it's not any one market more than others, U.K. aside?
It's very much Europe. It's very much Europe, and then U.S., and then it sort of lessens when you get into emerging markets compared to what it's been in the past. All right?
Yeah, thank you.
Yeah, if you look at the growth initiatives, as you know, we try to grow 7%-9%. As we also specified, we'd like to get to the upper end of the interval. Now we're at 8%, so not too bad. We see a lot of opportunities to invest. It is however, having said that, it is an investment year we have this year. We are also investing quite a bit, and we also see opportunities going forward to both grow at a high pace and also to expand markets.
I hope that you'll come to our capital markets day, because we will spend quite a bit of resources explaining how we see the market and the opportunities to grow as a company, but also the opportunities to grow the markets because we think that there are many opportunities that we can still go for. We are quite optimistic about growth, and it's not just about covering more sort of geographical space. It is very, very much about the innovation and innovation driven.
As you know, we have spent the last couple of years, sort of creating a parallel product portfolio, that we are going to launch from 2020 and onwards. We are going for the first time to really talk about that at the capital markets day. We think that have the potential to expand the market.
Great. I've got my flights booked, so I'll see you there. Thanks very much.
Yeah. Good. That's good. Looking forward to seeing you.
Our next question is from Yi-Dan Wang from Deutsche Bank. Please go ahead, your line is open.
Thank you very much. I have several questions. Starting with a quick follow-up, if I could. When would you be launching the BBT product into the market? Then secondly, a question to Anders: Why would the margin in urology and Wound & Skin Care be affected much by the FX when the products are largely made in the U.S.? I mean, some are made in Europe, but the amount of the products that are made outside of the U.S. that are sold into the U.S. is relatively limited. If I'm wrong in thinking about that, please correct me. I'll start with those, and then.
Yeah.
A few questions to Lars. Thank you.
You know, we're only allowing two questions per person, Yi Dan, so you're already out of questions.
Oh, it doesn't include follow-ups? Everyone has follow-ups, you know, I'm just covering the.
Okay, okay. When we talk about BBT, I would rather not give an answer to when exactly we are launching it. As I said, BBT is going to be produced on the same machines as the current products are produced on. Since we are selling much, much more than what we thought, we have a higher volume on those machines. Therefore, we have ordered new machines. When the new machines are here, then we can launch. We ordered the new machines some time back, and it takes approximately a year for a machine to be ready. It's not for sure that the capacity is available.
We're also pushing on, you know, the button and launching the. It depends on several factors. You could say that within the coming year, we'll have the capacity ready, but when we are launching that's that that'll. You know, I can't say that at this point in time. It is the capacity part, which is basically what we're waiting for.
you seem to have a lot more capacity issues these days than you had previously. I mean, you're launching a lot of very innovative products.
Mm-hmm.
All of them seem, well, more than not, that are seeming to do better than you would expect. Why are you guys not planning a bit more into the capacity part and, you know?
Yeah. Yeah, that's a good question. It's.
It shouldn't cost that much more money.
We just need to.
to bring,
We just need to adjust.
a few more machines.
Yeah, you're right. We need to adjust to a more positive outlook, and that's the only thing. So it's a really good question, Yi Dan. Of course, we should have done that, because it's crazy not to sell if you can. The second part of the question, Anders.
In relation to the Interventional Urology profitability, you are right that the majority of our sales in the US of our penile implants business is also produced in the US. The dollar is impacting the top line, but you also need to take into account that we are investing quite significantly into Interventional Urology. We have expanded our sales force quite significantly, both the last year but also this year, and that is also included in our P&L for Interventional Urology.
Okay. All right, that's clear. My question to Lars: When we look at the ostomy market in the U.S., clearly you made some very good progress with the Cleveland Clinic. Are you able to say what kind of readmission rates the Cleveland Clinic achieved with your product versus Hollister's products? How much of that was achieved with, you know, due to product versus services? How has the amount of work Coloplast need to do and the amount of time required to win new contracts changed since the Cleveland Clinic?
I can't give the specifics that you are asking for in the first part of your question. There's no doubt that with the success that we are seeing, we are also in a position where we can be significantly more targeted in the way that we go about other targets that we have in our list. Also it means that we can be much more precise in the way that we are preparing ourselves to be competitive when it comes to the bidding process for the next round of GPO bids that comes out in 2019.
As I said before, there's no guarantee, of course, but we are significantly more competitive now than we have ever been before in the market, both when it comes to the kind of programs that we have behind us and also the product portfolio. We didn't have convex the last time we went about this. We didn't have Concave. We, there's a number of accessories that we did not have. We have, we basically have the full portfolio. We even have the new hospital assortment in the market, and that means that we have a completely different standing.
Okay, last one. We saw very, well, actually pretty good Continence Care growth. The growth rate being maintained versus previous quarter, despite a much tougher comparison. How much of that is coming from the FlexPro benefit in the U.S., if any, yet?
We do have the progress on FlexPro as we anticipated. It was launched last quarter. It's still a small product in this environment because it is actually a pretty large environment that it's coming into. As I think that the way you should think about FlexPro is that it is a key driver for growth in the U.S. Continence Care side for the next years.
Okay. Thank you very much.
We will now take our next question from Christian Ryom from Nordea. Please go ahead. Your line is open.
Hi, good afternoon. This is Christian. I have only one question regarding the gross margin dynamics going forward. You commented on the gross margin here in the third quarter, that that was negatively impacted from your product mix, specifically lower production efficiency on the new products. How should we think about when we look both to Q4, but also into next year in terms of your launch pipeline of new products? Will this be a sort of a persistent negative impact we will have? What are the timelines for saying, for say, start delivering production efficiencies from your move of newer products to Hungary? Thank you.
In terms of our gross margin, as I talked to earlier, the gross margin is negatively impacted in Q3, but also year-to-date from the mix, as we are selling more of the new launches we have been doing over the last couple of years. We have addressed this by firstly reducing the number of production employees in Denmark from 700 to 400 production employees, and that program we have just finalized. The next phase of our production optimization program, the GOP IV, we have also initiated, and that program is going to bring EBIT margin improvements of 100 basis points in 1920, and 150 basis points in 2021.
What we are working on in this program, that is, consolidation of the two sites we have in Denmark. We are expecting that we will close Thisted by the end of the next financial year. We're also working on optimization of procurement, as raw materials is around 50% of our cost of goods sold. I also expect that we will continue to see a more scalable effects on our volume side. We are working on a number of activities in order to improve our gross margin going forward. As I said earlier, this year, also due to the restructuring cost in fixed currencies, it is in the level of last year. That's also how I see it for next year.
Okay, thank you. Maybe one follow-up. I think you've earlier commented that you've now completed your move of the Concave portfolio to Hungary. How far along are you there in terms of gaining the scale benefits from production? Is that a matter of months or a matter of years in terms of sort of gaining the full gross margin effect from that product or that production move?
As we have mentioned earlier, we have moved our Concave machines from Denmark to Hungary, and we have actually been producing in Hungary for quite some time. We are starting to see an improved production economy on our Concave production quarter-over-quarter. The more volumes we are getting through, the more efficient and the lower unit cost that we are going to see. It is something we are seeing improvements on quarter-over-quarter.
Okay, thank you.
Our next question comes from Oliver Metzger from Commerzbank. Please go ahead. Your line is open.
Yeah, hi. Thanks a lot for taking my questions. Not so many left. The first one is just a comment on the pricing of SpeediCath flexible markets outside the U.S. We have a quite good visibility, but out of U.S., could you just give us a feeling to which the price premium has a similar expanded U.S. or which magnitude it could be? My second question is on a comment on your emerging markets performance. Which was heavily impacted by Greece. As an important market for you, it would be quite interesting to know how the underlying emerging markets, excluding Greece, would have been developed. Yeah, basically, these are my two questions.
Okay. I'll take the last one first. I think maybe you came a little bit late into the call. The thing is that we had 11% growth in emerging markets in the third quarter. Because of these orders that we actually did receive and manufacture, but that we could not ship because we were sort of missing bank guarantees and other documents. If we take that's approximately a little bit more than DKK 40 million. That means that the growth would have been around 15% if you take that back, and that would also impact primarily Ostomy Care. That also means that the growth in Ostomy Care would have been 9% instead of 7%.
I mentioned those numbers because we are quite confident that we are going to ship them this quarter, so they come on top in that sense, in this quarter that we're in now. Pricing on Flex outside of the U.S. is more or less in line with what you call SpeediCath Compact, the pricing. That's not the same kind of premium as for a Coudé type of product or this type of product, because it's not really the Coudé category in Europe, it's more a standard product. In that sense, it's priced in a different way in Europe than it is in the U.S.
Yeah. To my first question, potentially was a misunderstanding. What would have been the performance of emerging markets excluding Greece?
You'd have to take approximately DKK 800 million for the full year, DKK 75 million for year-to-date.
Okay.
because that's the impact from Greece.
Okay. Okay. Okay, very simple. Thank you.
We will now take our next question from Kit Lee from Jefferies. Please go ahead. Your line is open.
Oh, hi. Thank you. I only have one left. Just a question on the SenSura Mio Concave launch. Have you seen any competitive wins since you've launched the product? Or have most of the sales mainly come from, I guess, your own patients switching from one of your products to the concave version? Thank you.
Please be aware that this is a completely new category. For us, it's a matter of introducing a new category to both professionals and to patients. Therefore, it's we are having real sales, but we are building a market, and therefore, it's not something that is going very, very fast. We can't point to specific wins that we have had due to concave. Of course, we have a more complete range than anybody else in the market has at the time being.
Okay. Thank you.
All right. I think that we are ready for the last question.
Our last question comes from Annette Lykke, from Handelsbanken. Please go ahead. Your line is open.
Thank you very much. My question was in respect to China, if or when you would launch a SenSura Mio program, and are you also launching the convex products range in China? Just a question on U.K. We have seen a couple of companies suffering a bit from NHS. So far it doesn't look like you are suffering, but are there any risks that the financial crisis there would hit the use of Ostomy or any of your other products? Thank you so much.
We launched the SenSura product range a few years ago in China. That's our focus for the time being. Of course, it's a market that is developing quite rapidly. It's a market where we have very high market shares, and we do whatever it takes for us to grow in a profitable way. In China, we have significantly more than 50% market share and are quite committed to drive the market there. It's also the one or the one place where we have the highest share of customers that are served on an online basis. It's a very, very interesting market for us.
I'm sorry, I missed out the second part of your question, Annette.
in respect to SenSura Mio, have you also launched the convex bag bags assortment in China?
no, no, we have not. Not yet.
Okay. Is that a plan? Do you expect, I guess, obesity is also an issue in these markets and.
It's an opportunity at some point in time. We have not launched it as we speak.
Okay. The other question one was on NHS in U.K. Do you see any potential negative impact looking forward, as we've seen some healthcare companies suffering in this market?
No, it's developing quite nicely for us. When you're looking at the share gain that we're having, and also total business that we're looking at in the U.K. Of course, the big downside in the U.K. have been the currency part, where we've had a significant impact from the currency. If you're looking in isolation at the way that the market is going, we have a very strong organization and very good gains. Some years back, you know, that the CCDs were implemented in the society.
So far, they have shown quite a good understanding towards the quality of products that people need to have, and also the accessibility that people need to have to these kind of products in order to be able to take care of themselves for as long a time as possible, because that's really what this is about. It is about taking care of yourself, and not being, not needing any professional aid in connection to changes and so on.
Okay. Thank you very much.
All right. Thank you very much. Looking forward to seeing all of you over the next weeks. Have a nice day.
This concludes today's conference call. Thank you for your participation. You may now disconnect.