Thank you for standing by, and welcome to the Q3 2013/2014 financial statement conference call. At this time, all participants are on a listen-only mode. There will be a presentation, followed by a question-and-answer session, at which time, if you wish to ask a question, you'll need to press star one on your telephone keypad. I must advise you, the conference is being recorded today, Wednesday, the 13th of August, 2014. I would now like to hand over to your first speaker today, Lars Rasmussen, CEO. Please go ahead, sir.
Thank you very much. Good afternoon, and welcome to this Q3 2013/2014 conference call. I'm Lars Rasmussen, CEO of Coloplast, and I'm joined by our new CFO, Anders Lonning-Skovgaard , and our investor relations team. Anders and I will start with a short presentation, and then we will open up for questions. Please turn to slide number three. We have yet again delivered a set of solid numbers, and I am very satisfied with the performance we today report to the markets. We delivered a solid organic growth of 9%. Our EBIT increased 13%, and our EBIT margin before special items came in at 33%. One key event in Q3 was the expansion of the executive management team from two to four members. Anders was appointed CFO, with responsibility for corporate finance and corporate IT.
Kristian Villumsen was appointed Executive Vice President, Chronic Care, with responsibility for global marketing, R&D, and sales regions within Ostomy and Continence Care. Finally, Allan Rasmussen was appointed Executive Vice President, Global Operations, with responsibility of global operations, procurement and quality, and environment. The expansion of the executive management team aligns with our growth strategy and our long-term financial guidance. I'm particularly satisfied with the fact that we could recruit for these positions internally. Another key event during the quarter was the execution of our capital markets day in June, and the subsequent release of the new long-term financial guidance. We're now aiming for 7%-10% of annual organic growth, sales growth, and a continuation of the annual 50-100 basis points operating margin improvements. Those of you that missed out on the day can find presentations and webcasts on our website.
For 2013-2014, we continue to expect an organic revenue growth of around 9%, and we expect an EBIT margin before special items of 43%-34% in fixed currencies. Please turn to slide four. Revenues were up by 9% organically, and 6% in Danish krone, and amounted to around DKK 9.2 billion. In Ostomy Care, organic growth was 8%, and growth in Danish krone was 4%. The growth continues to be driven by solid performance of our SenSura portfolio in Europe and in the U.S., as well as strong uptake in the market for bowel accessories. In addition, we also continue to see strong sales performance of Assura in markets like China and Brazil.
Organic growth in Q3 was 6% and was driven by continued good U.S. and emerging market performance, whereas the quarter saw the effect of low growth rates in markets like U.K., France, and The Netherlands. Our new generation of ostomy products under the brand name SenSura Mio, has now been marketed for six months. The product has been launched in 12 markets in Europe and North America, feedback is great. In Continence Care, organic growth was 11%, growth in Danish krone was 9%. In Q3, organic growth was 10% for Continence Care. Our very satisfactory growth was driven primarily by the SpeediCath product range, especially our compact range of products, as well as our bowel management system, Peristeen.
On top of our successful efforts to upgrade the U.S. market to high-end catheters, we also continue to see good performance in our self-care sales. Our connecting device business continues its satisfying performance in Europe and in emerging markets. Especially Q3 was satisfying, partly due to a successful TV campaign in France. In Urology Care, organic growth was 10%, and growth in Danish krone was 6%. In Q3, in isolation, organic growth was 9%. Sales of our Titan range of inflatable penile implant devices continued to drive the strong performance. This was also the case within Pelvic Health, where our single incision Mini Sling HES maintained its strong performance. Finally, our EndoUrology business continues its strong performance, adding to the solid 10% organic growth year to date. In Wound & Skin Care, organic growth was 10%, and growth in Danish krone was 7%.
Organic growth for wound care in isolation was 11%. Growth for the quarter was 9% for Wound & Skin Care. The growth continues to be driven by our Biatain and Comfeel range of products. Growth was driven by countries like China, Brazil, and Greece, on the back of continuous stable sales in European markets. Underlying wound care performance remained strong, despite low growth rates in China and Greece during Q3. Our Skin Care business saw moderate growth in Q3, as the contract manufacturing business saw good growth in the quarter. Turning to our geographical segments, we saw organic growth of 6% for the nine months of 2013/2014 in our European markets. Growth was driven primarily by U.K., Germany, and the Nordic region. Southern Europe continues its good performance on the back of good comparisons last year.
As expected, the trend for growth in Europe is normalizing compared to the strong start of the year. U.K. growth momentum continues to slide a bit, and we can feel the impact from healthcare reforms in France and the Neatherlands. Organic revenue growth in other developed markets was 10% year-to-date, 2013-2014. We continue to see satisfying performance across all business areas. We see continuous strong growth in Ostomy Care, and we continue successfully our conversion efforts towards compact catheters in the U.S. market. Our urology business continues its above market growth, whereas our wound care business is facing tougher comparisons, which reduce the growth rate. In Q3, especially Japan, was impacted by stock building last year due to price increases. Revenue in emerging markets grew organically by 24% year-to-date, 2013-2014. Markets like China, Brazil, and also Argentina, continue to deliver very satisfactory performance.
Last quarter's inventory build up within our new distributor in Nigeria also impacted growth positively. Finally, Russia has started to deliver good growth as a consequence of higher tender activity. Looking at Q3 in isolation, growth was slightly lower due to distributor change in Taiwan, and we also had a slightly lower quarter in China. I will now hand you over to Anders, and please turn to slide five.
Thank you, Lars. Good afternoon, everybody. My name is Anders Lonning-Skovgaard, and I'm the new CFO of Coloplast. Before we move to the numbers, I would like to take the opportunity to introduce myself. I'm 41 years old. I'm married to Cecilia, who, among other things, is a politician in the municipality of Copenhagen, and we have two kids. My educational background is a Master of Science in Finance and Accounting, and I started my career at Carlsberg in 1999, where I had various financial positions. I moved to Coloplast in 2006, where I started as finance director for our Ostomy Care division, and then I moved into a role where I created a financial performance management unit with focus on sales and marketing.
Since 2010, I have been responsible for our global IT function, where my focus has been to reduce costs and make our IT organization more business-oriented. I look forward to work with you and seeing you over the next quarters. That's a bit about me. I will now move into the numbers. Overall, Q3 was another good quarter in which we saw a continued strong development in our business. Gross profit was up by 8% to DKK 6.3 billion. This equals a gross margin of 68.4%, an improvement of 1 percentage point compared with the first nine months of last year. The improvement continued to be driven by higher production efficiency. Currency had a small adverse impact on the gross margin.
The distribution to sales ratio came in at 28.5%, and that's on par with last year. So far this year, we have invested a little bit more than DKK 150 million in incremental sales-enhancing initiatives in emerging markets, China, and the U.S. The admin to sales ratio came in 0.7 percentage points lower than in the same period last year. This reduction was driven by improved scale effects from the top line growth, generally improved efficiency and fewer projects. In Q2, we have reversed a provision of DKK 20 million related to bad debt in Spain, as we earlier this year received DKK 45 million from the Spanish authorities. All in all, this results in an EBIT margin before special items of 33.1%, compared to 31.1% in the same period last year.
Current impact on the EBIT margin was minor. Our free cash flow remains strong, and we continue to return excess cash to our shareholders. In the first nine months of this fiscal year, we have returned nearly DKK 1.3 billion. The second half of our share buy back program will continue in 2015. Please turn to slide six. For 2013-2014, we continue to expect revenues to grow around 9% organically and 7% in Danish kroner. The currency impact is based on spot rates as of 5th of August, and the negative impact is mainly a result of the depreciation of the U.S. dollar, the Japanese yen, the Argentinian peso against the Danish kroner. For 2013-2014, we continue to expect an EBIT margin before special items of 33%-34% in fixed currencies and 33% in Danish kroner.
When we include the DKK 1 billion provision, the EBIT margin is expected to come in at 25%-26% in fixed currencies. The guidance includes investments in sales-enhancing initiatives, which are still expected to be in the range of DKK 200 million-DKK 250 million. Our CapEx guidance for 2013-2014 remains around DKK 500 million and includes investments in capacity for our new products like SenSura Mio, Biatain Silicone, and also investments in the planned expansion of our Nyírbátor site. Our effective tax rate is expected to be around 25%. This concludes our presentation. Thank you very much. Operator, we are now ready to take questions.
Thank you very much. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Your first question comes from the line of Hassan Al-Wakeel from Barclays. Please go ahead.
Yeah, thanks for taking the questions. Just three for me. First is if you can quantify the impacts of the Russian tenders for the quarter on the emerging market growth rate?
Oh, so you take them one by one?
I'll do one more, and yeah, sorry about the negative here.
No, we cannot quantify it, but it's, you know, what I can say about the situation in Russia is more or less the same as we have the other courses. There's a big swing if you have a short-term look at it, you have very, very big swings from actually one year to another, also from quarter to quarter. When you look at it over a number of years, we see that we have an increasing trend in Russia. Of course, we are very anxious to see what the current situation will then mean. So far we see an okay trend activity in Russia. I'm, you know, I can't quantify it for you.
Okay, no, that's fine. Second question is, Lars, just now that you have, I guess, two weeks of not running the Chronic Care business day-to-day, I suppose that's giving you a bit more breathing room, and just wondering what you're doing with that, I wouldn't call it free time, but I guess that excess capacity and, you know, Where are you gonna focus your energy, let's say, you know, going forward in the next, kind of six months to 1 year?
Yeah, I think that's a very good question actually, because the situation over the last couple of years have been that it's been hard for me to do anything else than looking after the Chronic business. This gives me a chance to, of course, still follow up, and push the Chronic business. I also have a bit more time now to look into the Wound Care business and our Urology business.
The fact is that over the last two years, we have invested quite significantly in a number of sales initiatives, which I would like to follow up on much more closely because all in all, we have almost committed the DKK 1 billion that we set out to do. That's a lot of new activities that we are embarking on. To top that off, we are right now launching the biggest, or the first part of the biggest Ostomy new product program that we have ever had.
I think there are so many moving parts in that it is great to have the chance to take a deeper dive in some of those. That is what I want to do. I can also say what I don't want to do. I'm not going to spend more time on external boards and stuff like that.
Okay, no, that's interesting. The last question, just on wound care, and we've seen another quarter of, I guess, subpar results from one of your main competitors there. I'm just wondering if you've seen any increased activity, given that you have been taking market share the past few quarters, any increased activity from your competitors, or if you expect a very strong response from them in terms of investment in marketing programs, salesforce, et cetera, in the next couple quarters?
I think that on the wound care side, it's. As we also said, when we had negative growth, this is one of the more dynamic business areas that we are in. I think that we all trying to be as sharp as we can in that area. We see the same activity level as we have seen over the last few years. I just think that we have managed to set a team which is strong, and we have been very fortunate with the timing and the launch and the quality of the silicone product that we brought to the market.
That is the prime driver of the growth that we have. Very shortly, we will have the capacity to meet the demand that we see in the market. As I said last time, and also the quarter before then we're actually in a situation where we cannot fulfill the demands for these products. Now we have two new machines that are ready to start producing from the 1st of October, so I'm looking very much forward to that.
Okay, that's it for me. Thank you very much.
Thank you. Our next question comes from Ian Douglas-Pennant from UBS. Please go ahead.
Oh, hi. Thanks for, thanks for taking my questions. On the Ostomy business, maybe you could just talk a little bit about the U.K. You highlighted this as a source of weakness. Again, maybe if you could just give us a little bit more color there. I was reading, I think, on one of your regional websites, that you are investing pretty heavily in the U.K. in Chronic Care. Maybe you could talk about that and whether that has implications for the operating leverage.
Mm.
-you think you can achieve in this business going forward? Then, just a quick one in wound care. There's been some headlines on one of the major news services, just some comments I think you made in a press interview about wanting to invest in wound care. I just want to double-check that's intended to be in line with your previous statements on this area.
Okay.
Thanks.
Yeah. I think that first and foremost, our Ostomy performance this quarter is impacted by the reduced prices in France, and also a little less pressure on the accessory sales in the U.S., where we last year were running, you know, a very hefty campaign launching these products or some of the product categories into the market. It's maybe a bit normalized this time. We had I say, maybe more quarterly swings that you see in the U.K., I certainly expect them to have a strong finishing of the year. Having said that, it's correct that we are investing in the U.K., and what we are investing in there is primarily in salespeople.
We are market leaders in the U.K. when you look at DACs, bags and plates, but we are only starting to build our position inside of accessories. And with the big launch that we do now of SenSura Mio, we think that we have a great opportunity to take market shares faster in the U.K., and that's why we are investing in salespeople in the U.K. over the coming couple of years. And that's a quite significant investment. So we'll have a very strong coverage in the U.K. When it comes to wound care, and the comments about this, it's like you are asking about M&A.
Sorry, I, just to be clear, I mean, you've obviously made some statements that.
Yeah.
you would be happy to invest in Wound Care in the past. I just wanted to double-check that
It's.
You were saying it again.
Let me say there's nothing new. I think that we have proven, not least to ourselves, that we're able to run a wound care business. We know that if we can add scale to our business, we'll be much more profitable than we are today. We look at the opportunities that may come up if that happens in the future, you know, nothing new.
Great. Thanks. Then just one quick one I hope, if I can. On Negative-pressure wound therapy, obviously an opportunity for you. Your listed competitor made a comment the other day that the pricing pressure and Negative-pressure was increasing more, perhaps more than they were expecting. Is that something that you're seeing? If so, are you driving that, or another new investors in this space, or is that, do you believe that is being driven by the market?
In a sense, I would like us to be big enough to take credit for such a comment. We have primarily been concentrating on the emerging markets, on Brazil and China. In that sense, I don't think that we are the ones who are putting pressure on the prices. Having said that, the system we come with comes with it's more simple, and it comes with a different cost level than many of the other systems in the market. We're not really present in the European markets today.
you still feel that the prices that you can achieve are attractive to make this an interesting opportunity for you?
Yes.
Okay, perfect. Thank you very much for your time.
Thank you. Next question comes from Martin Parkhøi from Danske Bank. Please go ahead.
Yes, Martin Parkhøi. Two questions. Firstly, on again, back to the Ostomy Care franchise. The launch, the significant launch activities you of course have in the quarter on SenSura Mio, have that created some kind of overall disturbance for the Ostomy Care business? Of course, if you, if you remove the pedal, the foot from the pedal a bit on the, on the older products. Is it, have we seen a short-term negative impact from this major launch? Just on the gross margin, of course, there was if we adjust for currencies, there was a gross margin improvement year-on-year. If you look compared to last quarter, we actually have a lower gross margin despite the fact of higher sales.
Are there anything extraordinary in the gross margin?
I think actually the questions that you are, that you're raising, are in a sense interlinked. It's hard to say if the launch activities have made any disturbances. There's no doubt that we have given away a lot of samples in this period. Of course, that would then be products, some of them would be products that we are not selling. Apart from that, it is actually positive that you are launching, and it gives your sales team an opportunity to visit customers again with more energy and so on. I cannot say that the launch activities have made anything negative, apart from the fact that we've given away more things for free, while we try to kick this off.
I also think that it's a bit interlinked to the, to the gross margin, and maybe you would like to comment on that, Anders.
Yes, I can do that, Lars. In terms of the gross margin, we started to really produce more SenSura Mio during this quarter, so we have started to ramp up, that's one of the explanations for a lower gross margin this quarter compared to the previous quarter. There's also a small adverse impact from appreciation of the HUF. Those are the main explanations.
Okay, will that be gone in the fourth quarter? Should we also expect to see the gross margin a bit under pressure for these factors?
That is not our expectation.
Okay. Okay. Well, thank you.
It is, you know, we expect our gross margins to go up, as Anders-
Mm.
-is saying over time, but launching such a big thing as SenSura Mio, of course, we feel it when we're pushing things into the market, when we're building stock and so on. In a sense, well, that's. It's positive that we see such a demand for it. We can't read too much about it.
Sure. Thanks.
Thank you. Our next question comes from Julien Dormois from Jefferies. Please go ahead.
Thanks so much for taking my questions. There's three. On Wound Care, after you've managed to turn this business around in the last three years, what are your next initiatives, and what is the margin potential ahead of us from this division? Secondly, on the long term margin guidance, could you list the businesses perhaps according to contribution significance and give us some color on those? Thirdly, on the healthcare reforms, what quarter was the first fully impacted by the price cuts in France? From what geographies do you see next price cuts coming your way that would impact the group in similar significance?
Could you take the last one again?
Yeah. On the healthcare reforms, just wanted to know what was the first quarter where you see the full impact of the France price cuts? From what geographies do you see the next price cuts coming your way that would impact the group in a similar way, similar significance?
In Wound Care, the next step you could say, I actually think that we have you already know, you know, a couple of years ahead, what will be the main activities. That will be to continue the launch of Biatain Silicone, where we have only been able to launch it in a limited number of countries because we have had limited capacity. That was what I mentioned before, that we get significantly more capacity now, which means that we can launch in more countries, and we can also launch more sizes and types, sizes and shapes. That's a very big activity for us.
Then Negative-pressure wound therapy, and to create a position in that market is a very big undertaking. Those are the most important activities that we have. The margin potential that depends on the size, I would say. You can find wound care companies that have more or less the same kind of margins as we have in the Coloplast business today. Of course, it takes a very different size than what we have today. The gross margin expansion from the different businesses, we have, I think there are two main contributors to gross margin expansion. One is cost margin improvement from our Global Operations.
They have expanded the gross margin activities in the Global Operations, have expanded the gross margin quite significantly over the last few years, but there's still something to go for. Then it is the second one would be Ostomy and Continence Care in Europe. Within the next couple of years, we start to become fully invested in the U.S. also. That means that U.S., which actually enjoys quite a good growth, will also start to contribute very significantly to sort of the leverage effect in the company. So those would be where we get the leverage from to expand our margin by 50 to 100 basis points, while we're still investing to grow the business.
The healthcare reforms and the price cuts in France?
Yeah, I think that it was a quite significant healthcare reform in France. We don't have any other healthcare reform on the horizon with a similar impact. The price reform started to take effect from September 2013.
Thanks very much.
You're welcome.
The next question comes from the line of Veronika Dubajova from Goldman Sachs. Please go ahead.
Good afternoon, gentlemen, and thank you for taking my questions. I have three. Lars, one, I was hoping you could comment on the competitive environment in the ostomy market. One of your competitors seems to be preparing for a change in ownership, and I'm just wondering if you're starting to see that, from how they're competing, and what you're seeing from them in the market. The second question is, to Anders just wondering, your predecessor, stated that the goal for the company was to have an unleveraged balance sheet. I'm just wondering if you have different thoughts on how to make the balance sheet efficient, or if you're going to stick with the targets that were communicated at the capital markets day.
The last one, hopefully a very quick one, if you have any guidance for us for the net financials for the full year, that would be very helpful. Thank you.
Yes. Let me start with the competitive pressure in Ostomy Care. I think what we have seen over the last few years is a, it's a kind of a very stable competitive situation. We have seen that Hollister, they are, they keep the pressure up, if you could say it like that. We have seen maybe a little bit a difference in ConvaTec. It's been like in periods that have spent more time on Wound & Skin Care. That's something we have looked at because it is one of the business areas where you can increase faster on the top line.
it has been kind of an on and off competitive situation on Ostomy Care, where they have had some years where they've been increasing prices quite aggressively and have lost some market shares on that, and other years where they've been more cautious. in that sense, I don't think that we have seen any major changes. we also know, of course, that there is this wish to have a change of ownership. we haven't seen much, I have to say.
That's very clear. Thank you.
Your question about the debt on the balance sheet, what was your question, really?
I mean, it was just a question around, you know, will you maintain the target of having DKK 1 billion pro forma net cash, or might you-?
Oh, no, that's gone. I think we have a stated goal that we're paying out the free cash flow. We started with interim dividends last year, as you know.
Yes. No, I-
That's gone.
No. Well, I think, you know, what Leen said at the Capital Markets Day was that there was no intention to leverage the balance sheet unless there was an acquisition.
That's correct.
I just was wondering if there was a change to that?
No, if we have an acquisition, that's of course, perfectly fine with us, to get some debt on the balance sheet. We're not going to leverage it unless there is an acquisition.
Okay. I was just confirming that there was no change to that, given that you have a new CFO in house.
No. That was a clear no from Anders also.
Terrific. Thank you. Anders, any guidance on the financials for the full year?
We are guiding around DKK 20 million for that part.
Terrific. Thank you very much. I'll jump back into the queue.
All right. Thank you.
Thank you. Your next question comes from Michael Jüngling from Morgan Stanley. Please go ahead.
Thank you, good afternoon. Three questions, firstly, on European growth. If I adjust your growth rates for comps, we sort of have seen a slowdown from sort of Q1 all the way down to Q3. I'm sort of wondering why we're sort of seeing this comp adjusted deceleration. Is this more of a temporary development, or is it more of a structural change? Some sort of insights on that will be useful. Secondly, coming back to Ostomy, I mean, normally when you launch new products, you should see an acceleration in growth. Can I confirm that the net impact from launching SenSura Mio did contribute to growth in the third quarter? I have a question on working capital.
Can you comment on why we've seen some large changes in trade and other receivables and also payables? It's in your notes, some fairly large changes. Thank you.
Let me start off with the sales stuff. On in Europe, actually, the fact that we had an unusually high Q1 means that when you... It depends how you look at it. If you take it from Q1 and until now, you will see that Europe is going down in momentum. It was simply unusually high, what we saw in Q1. Are we expecting just to see Europe continue to go down? No, of course not. Europe will also enjoy a growth from the fact that we are launching both new SenSura Mio and also the new SpeediCath Eve.
By the way, we also see a better performance now, in both surgical urology and in wound care, for, you know, globally. That will also impact Europe. It's not, it's not a trend. It is an effect of an anomaly, I would say. When it comes to Ostomy Care, the moment we launch a new product, then that is what we push into the hospitals. Then you immediately see that the product that we used before as the growth driver in hospitals, that will be withdrawn.
You'll very soon see a stabilization, where people who are already using the old product, they keep using that. Where the growth in the business comes from the new product, and that's also the case with SenSura Mio, it's already contributing to... It's already a, a, you know, a good part of the growth that we see in Ostomy Care. We, of course, expect that over time, that the ostomy, the ostomy growth will pick up as a consequence of the launch of the new SenSura Mio , because it's, you know, mind you, we have only launched the first part of a very big program. We are going to be increasingly competitive within the ostomy field as we're launching the rest of that portfolio over the coming years.
Is it, before we go on to the financial, is it fair to assume then that in the fourth quarter we'll start to see an improvement in ostomy growth?
I would be quite hesitant to start guiding you on growth per business area, per quarter. What I tried to put into my answer is that we feel extremely confident with the situation that we have in ostomy, with the growth rates that we have in ostomy. If anything, we think that our underlying momentum in the ostomy business will be going up over the coming quarters due to the massive investments in new salespeople and due to the launch of the SenSura Mio .
Great. Thank you. Then on the financial question, please.
Yeah.
Yes. In terms of our net working capital, it has slightly increased to 24%, and it's primarily driven by buildup of SenSura Mio for the launches we are going to do in the autumn and into 2015. On top of that, we also settling the cases related to the provision, and that will gradually turn into payables that will be paid to the plaintiffs. That's what you can start to see in our financials.
When other receivables goes from - DKK 70 to - DKK 380, what would that be? Then trade and other payables goes from DKK 22 to DKK 470.
That is in relation to when we are settling cases in relation to the mesh situation, that there will be that they are going into payables from receivables over time.
Okay. Thank you.
Thank you. Next question comes from Yi-Dan Wang from Deutsche Bank. Please go ahead.
Thank you very much. I have a couple of follow-ups and a question or two. On the follow-up, on the gross margin, it sounded like your gross margin will contract further before it goes back up again. Can you just give us a sense on the timing of that, and when could we see your gross margin trough and then pick up? To what extent will that contraction be offset by the operating leverage you have in the business? The second question is on the Urology business. Now that you're settling the mesh cases, can you comment on your willingness to invest in that division?
Thirdly, can you comment on SenSura Mio's impact on the U.S. market and more specifically, on your position in the GPOs? Thank you.
Anders, could you comment on the gross margin? Because I think, I'm not able to express myself clearly, because I don't think that I said that we're going to have a further contraction, but maybe you'll comment on that.
As we said, we have year to date, an improvement in our gross margin of 1 percentage point compared to last year, and that is driven by production efficiencies, and we will continue to see that development over time.
we don't expect-.
So, so the-
We don't expect, or plan for a further contraction, as you say, of the gross margin, due to the launch of SenSura Mio. What we plan with is to continue to improve on our gross margin. That is, that is, also, you know, the whole planning, that we have in the company, have been, does also include, an increasing, gross margin over time.
Okay. Maybe I clarify on that. The impact we've seen on gross margin from the launch of SenSura Mio, is that all we're gonna see? I mean, has that maxed out, or is there a bit more incrementally?
That's a good question. What we have done right now is that we have filled up stocks and served the launch or prepared for the launch in 12 countries over the last six months. That's, of course, a big thing which is impacting us right now.
You're all set for the launch, so we shouldn't see incrementally any more impact on gross margin from the Mio launch?
It's, you know, if you're in for a quarterly guidance, it's of course, very hard for me to give you that, specifically, but we expect our gross margin to grow year-over-year.
Okay. Thank you.
With the Urology business, your question was about our willingness to invest further in that business. I'd like to reiterate what I said last quarter. We are very cautious with our investments in that particular business. We are investing what it takes to make it grow, and we are expanding both our top line growth and also our EBIT margin in that business, and have done that over the last years, and we continue to do that also next year. We are very cautious with investments, and we need to finalize the litigations before we...
Then take stock of the situation before we're willing to do any investments that are over and above what we already do. Then your question to the new impact, what was that say again?
Can you comment on the significance of being able to launch Mio in the U.S. market and how that.
Ah.
-impact your position in with the GPOs and therefore-
Yes
... the growth rate team, in the U.S., or your share in the U.S.?
Yeah, you know, as of now, we have just launched in the U.S., so as of now, there's no change. Of course, as we get more and more scale in the U.S., as we have better and better products and more and more diversified products, I think that our position becomes better. I would like to transmit to you that we that we have changed the situation as of now, but we haven't. All the steps that we are taking are steps that are moving us in the right direction and positioning us in a better way than we have been before.
From memory, the Novation innovation contract that you guys got is supposed to open up the U.S. market for you quite significantly, assuming that, you know, once you have the new products in.
Yeah.
Previously, you only had a partial SenSura Mio product in the range in the U.S. market. With a new, with the additional SenSura Mio that you're launching, can you give us some sense of what portion of the Novation contract you can now access? Not right now, but say three, six, a year or two down the line?
I think it becomes a bit too detailed. I can't answer that right now, at least.
You do expect that as you launch additional SenSura Mio, that your percentage, or the percentage of the market you can access will increase quite significantly?
Yes, I think that's a fair assumption. The way that we handle it today, as you know, is that we sell what is possible to the GPOs, or most of the GPOs. Where we are not on contract, we sell what is possible in separate contracts, and that it is both time-consuming and quite cumbersome for us. Nevertheless, we are growing quite significantly in the U.S. But as we get more and more scale, that's of course not the way to go about it. We need to be better represented in the GPOs when it comes to Ostomy.
Okay. Thank you.
Thank you. Your next question comes from the line of David Adlington from JP Morgan. Please go ahead.
Hello. Sorry, yeah, my question's been asked. Thank you. Okay.
Thank you. Your next question comes from Scott Bardo from Berenberg. Please go ahead.
Yeah, thanks very much for taking my question, welcome, Anders. It seems to me that there's very little from the company's perspective in today's update, that you didn't outline in your very sort of detailed strategy and financial update only a few months ago. One thing that does appear to have changed a little bit is some moves in the supply chain. Lars, I'd just be very interested to hear your thoughts about Nordic Capital's move, GHD, the largest ostomy homecare company in Germany, and whether you think there's any ramifications for your business, both positive or negative. That would be great to hear your thoughts. Second question, also on the U.K. market.
Obviously, that's been a great source of growth for you guys. You continue to invest for the longer term growth in that market.
What, sorry, which market was that?
Sorry, the U.K. market.
The U.K. market, okay.
You just, I don't want to over sort of interpret just a comment that you put in, into the release here, but you mentioned it was a little bit softer. Is that anything you think specific to the competitive dynamics? Is the market getting a little bit tougher? Is that just a bit of wash out from a nice fill-in growth you've had from accessories? Anything really to raise any potential sort of indication of a change in the environment in the U.K., or is it just simply one quarter is a little bit softer? The last question, just on France, please. We've obviously seen some modest price contractions in France, which I think you've absorbed relatively well.
Just in your release today, you just mentioned that there's still an outgoing review for Ostomy Care and Continence Care, which you expect to occur next year. I just wonder whether there's been any further insight as to the nature of that sort of pricing review, whether that will be broadly in line with what we've seen to date. Thank you.
When it comes to the German home care situation, and Nordic Capital's acquisition of GHD, I think that leaves the situation unchanged from, as at least seen from our side. We, we do not have much business with GHD. I don't believe that it's going to be significantly bigger now that now that ConvaTec had happened. I do know that, or it's my impression that ConvaTec do not have a big business with GHD as of today, at least. That means that GHD must have other sources for their ostomy business than us and ConvaTec.
Now that it is Nordic Capital that have acquired them, it might be that some of the bigger suppliers that they have, they will see that now, but it's at least not something that we expect will be very visible to us. We think that we have a market share within GHD, which is the market's, or we have a sales to them, which is a kind of sales that is hard for them to avoid. If I may be so blunt. With the U.K. markets, as I said earlier on, we think we can do so much more in the U.K., specifically with the launch that we have just done of new SenSura Mio.
Also with the accessories, and that's why we're investing quite heavily now, to get a different position in U.K. I'm actually very excited about that. It's one of our biggest investments and definitely the biggest investment that we do in Europe. I think that's quite exciting. I have high hope for that. It is a great market. Then on the French healthcare reform, there are no further news on that one, no further thoughts.
Okay, thanks very much. Just a quick follow-up, please, Lars, just on Germany, just for my understanding, because obviously, historically, the relationship with GHD caused a bit of volatility, and impacted Coloplast growth. I don't think your share has changed meaningfully since that period in Germany, so arguably you were too big to avoid back then as well, but it still was relatively disruptive when they went with another player. I just wondered why then it might be different this time if they decided to rely to their core suppliers?
I think the main reason why we look at it a bit differently this time, is that I think that we have a very strong home care business in Germany.
Mm.
I think we have a good leadership in place. That's one part of it. The other part is that the German healthcare authorities have been good at taking cost out of the whole value chain in Germany. If you are to make disruptive moves like we have seen in the past, in today's environment, the payback time may be very long for you. I'm not certain that it is the same logic that ruled, you know, back in time, still applies.
Got it. Thanks very much for answering my questions.
Sure.
Thank you. As a final reminder, that was star one for any further questions. We have a follow-up question from the line of Alexander Kleban. Please go ahead.
Since we have just a bit more time, I was gonna ask about the negative pressure wound pilots going out in Europe, and I think it was Brazil. You talked about it a bit at the Capital Market Day, but just checking in to see if you have any feedback on that initially, with the Devon product?
Yeah, that's right. It's Brazil, and it's also in Switzerland. As I think we said at the Capital Market Day, we have positive feedback. That now means that. By the way, in Europe, we also had increased via distributor. That means that there are a few changes that we need to do to the products in order for it to be what we consider to be fully competitive. That is what we're doing as we speak. Then we are committed to invest to get the position that we think is or that we find interesting in a Negative-pressure wound therapy markets.
Okay. Would we be thinking then, I guess, to give you enough time to make the changes, maybe mid-next year, something like that, for a bigger launch?
I would expect that we start to increase the pressure over the coming months. I think that mid-next year is probably a good point in time to revisit.
Okay, perfect. Thanks.
Thank you. You have a question from the line of Søren Holm from Nordea. Please go ahead.
Mm-hmm.
Yes, hello. I was cut off the call early on, so I apologize if the question has been answered at that point. On the CMD, you were quite positive and bullish about China, and now you are highlighting some softness there in the wound care business, and also in general. Could you maybe elaborate? Is that just quarterly fluctuations, or what is going on there? Is the underlying China market moving as you had expected?
Yeah, no, actually, that question didn't come up, so thank you for that. It is a short-term, well, a negative spike, you could say, and it's all concerned about the two regions in China, where we had a visit to our distributors, and we think that they had a bit too much on stock. We are reducing stocks, and of course, when you do that, you don't sell as much. We expect that to be back on track actually quite shortly.
Okay. Thank you.
Thank you. We have no further questions at this time.
All right. We'd like to say thank you very much for participating, and we're looking forward to seeing you over the coming weeks. Thank you.
Thank you very much. That does conclude our conference for today. Thank you for participating. You may all disconnect.