Thank you for standing by. Welcome to the Coloplast Strengthens Executive Management Conference Call. At this time, all participants are in listen only mode. There'll be a presentation followed by question and answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this conference is being recorded today, Tuesday, June 24th, at 12:30 P.M. U.K. time. I would now like to hand over the conference to speaker today, Mr. Lars Rasmussen, President and CEO. Please go ahead, sir.
Yes, thank you. Hello, and good afternoon, Lars Rasmussen here, and I am joined by Ian Christensen on this conference call. Today, we announced that as of July 1st, we are expanding our executive management team from two to four persons. The reason we're for this call is that I want to tell you some background about the new setup and the rationale behind it. Could I, by the way, have the operator to turn the page to slide number one which is the one starting with Coloplast Strengthens Executive Management? The change that we're doing is driven by the growth strategy, which we have pursued since 2012.
The whole idea about the widening and the strengthening of the Executive Management Team is to have both the energy level and the resources available to be able to drive all of the initiatives that we need to drive in order to pursue a growth which is more or less double up compared to the market growth, which we think is very exciting and also a very challenging ambition. Sometime back, I began in a discussion with the Board of Directors about how to organize executive management for this task going forward. We agreed that it was correct to strengthen the Executive Management Team.
Then as a follow-up to that, I had the same discussion and conversation with Lene. Lene she appreciates the rationale behind it, and she pauses, and she supports it. However, she found that it was not as interesting to continue in the executive management once it was expanded from two persons to four persons, as it would also mean that her role would be a different one than the one that she had been playing up until now. Simultaneously, there was an option coming up, and she have accepted a position as CEO of the Lundbeck Foundation.
Of course, I would right here and now like to thank Lene for her many years of strong Coloplast leadership in Coloplast and for the very, very good cooperation that Lene and I had together. I wish her the best of luck in her new role. The new members of the executive management team will be Anders Lonning-Skovgaard as CFO, Allan Rasmussen as Executive Vice President for Operations, and Kristian Villumsen, who will be leading the Chronic Care part or the ostomy and continence care part of the portfolio. Could you please turn to the next slide, operator?
Just to put a few more words on it, then I think that we have had a bit of an extraordinary setup in Coloplast since 2008, because 80% of our business is ostomy and continence care. I have been daily operational leader of the business areas, area over the years, together with my task as being the CEO of the company. With the growth that we have had and with the, with the, with the, all of the activities and initiatives that we have in front of us, it was, I think, an appropriate point in time to say that somebody else is taking over running the chronic care business, so that we now have Kristian running the chronic, the chronic care business.
We have still Nicolai running, and reporting to me, running the wound care business, and Steffen Hovard running the urology business, also reporting to me. Then I become a CEO of a more traditional kind, as you will see it in other, similar companies. So that's the background for the announcement that we came out with today I think that that would be a good point in time to for me to hand it back to you so that you can ask questions that you have in connection to this change of management.
Thank you, sir. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or the hash key. Once again, if you do have any question or comment, please press star followed by one on your telephone. The first question comes from the line of Ian Douglas-Pennant. Please ask your question.
Hi, it's Ian Douglas-Pennant , and I'll limit myself to two and then jump back in the queue. How long has this been in planning, please? Why did you not feel that the need to do this 12 or maybe even 24 months ago? I mean, it seems odd timing, especially this close to the Capital Markets Day that you had.
Well, in a sense, it's hard to make things match up when you talk about Capital Markets Day and then changes in the executive management, the Capital Market Day had been planned for a year or so. As you do know, you have an ongoing dialogue between executive management and maybe especially between the CEO and the Board of Directors about do we have the right setup to pursue the strategy that we're having going forward? I, you know, this came up, and it's been a discussion for a while, but it's not a discussion where you know, we don't feel that we have anything which is broken.
We actually feel that the company is running pretty well. We also appreciate that it is a very different task we have today compared to when we were doing the turnaround of the company, where we were extremely focused on the bottom line from the outset. Then more and more now we have a job, which is to steer all of the investments that we are putting into growing the company. I think it's a very appropriate point in time to take on board people to strengthen the commercial side of the executive management now, because we have seen that we are able to invest and also get traction from our investments, and we have quite some investments to go.
Oh, okay, great. Then, just on the cost side of the business, obviously your margins are very high, and I think obviously quite a lot higher than maybe some people would expect.
Yeah.
How can you ensure that you keep the same focus on cost control without that highly centralized power structure?
Yeah. That's right. We have been and will continue to be extremely centralized when it comes to cost control. If there's something where you could say that Anders Lonning-Skovgaard, he really an area where he had excelled over the years, that's definitely within that area. Just to mention what he did in his last job, he took on board an IT department. He managed to increase the customer satisfaction significantly, the employee satisfaction significantly, and he has at the same point in time, brought on board everything that we need in order to run our direct-to-consumer journey, which is a quite big setup, and he have cut the cost of running that department more or less in half.
I'm not, I'm not too concerned about that because it's been what we have been driving at for the last few years. The people that we take on board in the organization or in the executive management now, they are people who have shown that they are able to handle both sides. Otherwise, we were not there to go with this.
Great. That's very helpful. Thanks.
The next question has come from the line of Veronika Dubajova. Please ask your question.
Good afternoon, Veronika Dubajova here from Goldman. Lars, two questions. One, I guess, you know, this seems to be signaling a changing focus in the organization from efficiency-driven growth to top-line-driven growth. Maybe you can just help us understand, in terms of the targets that you have set out for yourselves over the next three to five years, what proportion of the margin improvement was driven by efficiencies versus what was driven by growth and leverage? So that, you know, we can have a certain degree of confidence in the outlook that you have outlined a few weeks ago. The second question I have is, did you look at any external candidates to fill the CFO role? Thank you.
Thank you, Veronika. Yeah, I think we signaled a change in focus back in 2012. That was when we started to invest more to get growth. I also think it's very, very clear that we would not be able to keep expanding our margins, our EBIT, if we do not have a strong top-line growth. Because we need that in order to handle or to get economy of scale in the company. So nothing has changed since we had the Capital Market Day. We need the growth in order to finance the extraordinary sales initiatives.
We are still and will stay committed to increasing our gross margin, and we actually have our plan in place for what we want to do over the next three to five years to keep expanding the gross margin also. I think it is a balance that we need to strike, which I think we've been really good at up until now, where we have been able to grow the top line more and still expanding the bottom line. We need to do more of that will only happen if we are really good at growing the top line at the same point in time, because that's where we get the scale from.
We have, of course, discussed going externally for candidates. I think that if you have candidates inside that can take the job and that have a growth opportunity there, we should pursue that, and that's what we have done. That, of course, have a pretty big knock-on effect in the organization also. This is, of course, extremely motivating both for the people who are joining executive management, but also for a number of people outside of executive management.
Very clear. Thank you very much.
The next question has come from the line of Niels Leth. Please ask your question.
Good afternoon. To what extent would you expect these management changes to trigger changes in the layer below the executive management level?
It will trigger some changes in parts of the organization. But just to be a bit more precise on it, then Allan Rasmussen, who is running operations, he will still be doing that when he's entering the executive management, but he'll also take on board procurement and quality and environmental affairs. So in that sense, this will not open up for many different positions under him. That will be marginal. When it comes to the role that Kristian takes, he is in a sense, sliding into a role that I had before. Kristian is today running the emerging markets, and he will have to find a solution for how he's handling that longer term.
Emerging markets is a part of this new setup. So Kristian Villumsen will have his reports. He will be emerging markets, Adrian from the U.S., Alan Moran from region Europe, and then Nicolas from Global Marketing, and Oliver Johansen from Global Research and Development, which is research and development for the Chronic Care business. Those will be his new reports, and he'll have to handle them while he's also handling emerging markets until further notice.
Of course, when you put all of that under one person who's not at the same point in time, also running the company as a CEO, then there are options for streamlining and so on, and that is what Kristian Villumsen, he will have to work with CFO will have a very focused role, overseeing corporate finance and corporate IT. A number of other staff functions will now report directly to the speaker
All regional managers will be reporting to Kristian Villumsen?
Sorry?
All regional managers will be reporting to Kristian Villumsen.
We have a dedicated sales set up for Urocare, which is Steffen Hovard. If that's unchanged for him, we have a dedicated sales set up for Wound care, which will be unchanged for Nicolai. Some of the wound care business is handled by the chronic care sales force in some of the countries, and that is unchanged in this setup.
Okay.
Yeah. Yeah.
In this reorganization, has it been considered already now to name a crown prince for Coloplast, similar to what we have seen a few other Danish companies and big companies do in the past year?
No, that's, that has not been considered.
Okay. Thank you.
The next question comes from the line of Alex Klevan. Please ask your question.
Hi. Just first quickly, admin, I'm sorry if you covered this already. I got on late. How soon will we hear from Anders in an investor-facing capacity in terms of either roadshows or conferences?
Say that again, please? I'm sorry.
Just how soon will we hear from Anders, at the, you know, roadshows, conferences, and/or results?
Well, you'll see him at Q3.
Okay. In between then, any investor meetings or conferences or no?
No, I don't think so.
Okay. Okay. I guess second question, maybe just a more, a broader one, which you touched on earlier, but just in terms of succession planning, can you talk about your process around that, how robust it is, how frequently you're looking into it, and how far down in your organization you have succession planning put in place?
Yes. We actually running a quite comprehensive people cycle in the company. Just to give you a little bit of background on this, for example, I have in the old setup, I had nine direct reports, and I actually also have that in the new setup. In a normal year, I would conduct more than 100 interviews with people who work for my direct reports and people who work together with them. That means that I have a very good background for scoring people working for me and for giving them feedback. That process is actually going all the way through the company.
That means that at the end, you know, once a year, we're actually putting, you could say, a grade on every person, and if you get below a certain grade, you are, you will definitely be talking about how to improve. If you are at a certain level, you are considered for promotion. That is something we have done for quite some years, and that's also why we have been able to in many, many positions in the company to take people up. That's also what we're doing now with the executive management. I don't think it's trivial to fill positions in an Executive Management Team. I'm really, really pleased with the fact that we have so strong candidates that we can go with them for an expansion of the of the sales management as we are doing right now.
Hey, thanks very clear.
The next question comes from the line of Justin Smith. Please ask your question.
Yeah, thanks for taking my question, Lars. I just wondered if you could, it might be too early to ask this, but just any qualitative comments on how the exposure of your newly promoted, sort of candidates, how their exposure to the equity of the company will change in their new roles? In terms of stock options, et cetera.
You know, that, yeah, I must be sitting on a, on a little bit of a baseline. I was not really getting the question.
Sorry, Lars. Yeah, I just wondered if you could make any quality comments about how Anders Lonning-Skovgaard, Allan Rasmussen, and Kristian Villumsen's sort of stock options programs might change now that after their promotions?
Okay. I know. I think that's a bit too premature to get into that now. Of course, that will be quite visible.
We should assume that, but we should assume that their exposure it will increase sort of quite substantially. Is that a fair comment?
You know, the level that I have been running at, and Lena have been running at, and, you know, I think that's probably the level that we're talking about, but it's a bit early for me to talk about that.
That's still helpful. Thank you very much.
The next question comes from the line of Scott Bardo. Please ask your question.
Yeah, thank you very much. Just a couple of quick questions, please. Nicolas Nemery has been taking quite a front role certainly to the public markets in the company over the last few years, attending various conferences and on the sales side also. Can you just help explain the structure now with Nicholas being before Senior Vice President of Global Marketing, will he now report directly to Kristian, or is his role now redundant within the firm? If you could just clarify that, please.
Yes. It's, it's actually, you know, the way you should think about it is that nothing have changed since. What have changed is that I'm no longer the operational daily leader of the chronic care organization, that is now Kristian. Kristian, in that capacity, will have the exact same responsibilities as I had in that capacity. So that means that it will be, it will be if you want from the U.S., it will be Alan Moran from region Europe. It will be Oliver Johansen, who is in R&D, and it will be Nicolas Nemery , who is in global marketing. The structure is completely unchanged.
The only thing that have changed in that respect is that I am now more of a normal CEO, so I'm doing what CEOs normally do, and I don't have an operational, daily responsibility of running one of our bigger businesses as a leader.
Okay. Thank you very much for clearing that up. Just a couple of very quick follow-ons, please. Now that Anders will take the CFO position, have there been any initial discussions about changing the sort of structural role of his position? I'm thinking with particular reference to the potential for a future audit committee for Coloplast, or do you expect to maintain the status quo?
It's probably a bit early to say, but of course, of course, Anders' role is quite different to the role that Lena had, because Lena and I was two persons in the executive management, and we had split it, so that I had the line responsibility and Lena had the staffs. Now, Anders is starting out in a more narrow and traditional CFO role, and that is what he'll be pursuing. Apart from that, I don't have any comments to that specific question.
Thank you. Very last quick question from me. Just with respect to Lundbeck, I appreciate, Lars, you're also on the Board of Directors for Lundbeck. I just wonder whether you consider that position changing at all, given now that Lena takes over her CEO of that foundation?
No, I don't, I don't think so. What, what are you thinking about?
No, no, I just wondered whether your affiliation with Lundbeck were changes towards a result of obviously a major change in their management structure. It doesn't sound like that's gonna be the case.
Okay. You know, I think it's very important to say that the whole process that we have had leading up to this change in Coloplast has been very open. After I have agreed with the board, what we wanted to do, I had that discussion with Lena about changing and expanding the management team or the Executive Management Team, and she 100% agrees to the rationale behind this.
She was just, you know, feeling that it was a very different role for her, and that was why she, actually, you know, simultaneously, this opportunity in Lundbeck came up, and she could become the CEO of the Lundbeck Foundation there, and she felt that that was really, what she wanted to do in this specific situation. She's completely behind this, and I can only say that this is, this is 100% amicable.
Great. Well, thanks very much for answering the questions.
We have a follow-up question from the line of Ian Douglas-Pennant. Please ask your question.
Oh, hi. I'm sorry, just one quick question. I assume Lena isn't on the call. Has she now left Coloplast officially now?
No, this change will take place on the first of July.
Okay.
You know, as soon as you have announced this, she's more speaking in the capacity of Lundbeck than Coloplast, and therefore, we thought that this is more appropriate.
That's clear. Thank you.
There are no further questions at this time, sir. Please continue.
Okay, that's fine. Thank you very much for listening in. Have a great afternoon. Bye-bye.
That does conclude our conference for today. Thank you for participating. You may now disconnect your lines. Thank you.