Thank you for standing by. Welcome to the Q2 2013, 2014 financial statement. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question and answer session, at which time, if you 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, Wednesday, the 17th of May, 2014 . If you require operator assistance at any time, please press star zero. I would now like to hand the conference over to your speaker today, Lars Rasmussen. Please go ahead.
Thank you. Good afternoon, and welcome to this first half 2013-'14 conference call. I am Lars Rasmussen, CEO of Coloplast, I'm joined by CFO, Lene Skole, and our investor relations team. As usual, Lene and I will start with a short presentation, then we will open up for questions. Please turn to slide number 3. We have yet again delivered a very strong growth. Despite the expected lower Q2 compared with Q1, we delivered an organic growth for the first six months of 2013-'14 of 10%. Our reported EBIT was down 43% relative to the same period last year, due to the DKK 1 billion provision to meet expenses expected in connection with settling mesh claims against Coloplast in the U.S.
Excluding this provision, our EBIT guidance increased 14%, the margin came in at 33%, in line with our guidance to the market. Today, the board of directors approved interim dividends of DKK 844 million, which will be paid out shortly. This marks the first interim payment under our revised cash return policy, I am proud that we can do this at the same time as we are investing more than ever in increasing our sales growth. For 2013, 2014, we now expect an organic revenue growth of around 9%, we expect an EBIT margin before special items of 33%-34% in fixed currencies. We changed our growth guidance because we believe we can maintain the momentum of almost twice the market growth throughout 2013, 2014.
The margin guidance changes as a result of the higher expected sales. Please turn to slide number 4. Revenues were up by 10% organically and 7% in DKK, and amounted to almost DKK 6.1 billion. In Ostomy Care, organic growth was 9%, and growth in DKK 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 and increasing uptake in the market for Brava accessories. In addition, we continue to see strong sales performance of Assura in markets like China and Brazil. Organic growth in Q2 was 7% and was partly driven by the U.S. and emerging markets, where we delivered on a tender in Argentina, and where our new distributor in Algeria was stocking up its inventory.
Our new generation of ostomy products, under the brand name SenSura Mio, has now been marketed for three months. The product has been launched in 10 markets in Europe and North America. four more markets will come during 2014. In the three months of pre-marketing, we have received fantastic feedback, both from healthcare professionals and from users who have signed up. This confirms that we have launched a truly great new product in Ostomy Care. In Continence Care, organic growth was 11% and growth in Danish kroner was 8%. In Q2, organic growth was 12% for Continence Care. Growth was driven primarily by our SpeediCath product range, especially our compact range of products. The sale of self- catheters in the U.S. also had a good quarter, due to the change in buying patterns of a major distributor.
Our collecting device business continues its satisfying performance in Europe and in emerging markets. Finally, but not least, our bowel management system, Peristeen, continues its strong double-digit growth in markets like UK, Germany, and France. In Urology Care, organic growth was 10%, and growth in Danish kroner was 7%. In Q2, in isolation, organic growth was 9%. Sales of penile implants continued to drive the strong performance, and our market share continues to increase. This was also the case within Female Pelvic Health, where our single-incision mini-sling, Altis, maintains its strong performance despite difficult market conditions. Finally, our endourology business had a very strong quarter, adding to the solid 10% organic growth for the first half year. In Wound & Skin Care, organic growth was 11%, and growth in Danish kroner was 8%.
Organic growth for wound care in isolation was 13%. Growth for the quarter was 6% 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 sale in many European markets. We remain very satisfied with the underlying performance in our wound care business. Q2 normalized many of its movements of the movements we saw in the distributor level in Q1. The U.S. had a very challenging quarter, as last year's last contract with Kindred now is in the comparison numbers. During the quarter, we pilot-launched our Negative Pressure Wound Therapy solution in Switzerland in order to gauge attractiveness of this product portfolio in a well-established European Negative Pressure Wound Therapy market.
The product was launched in Brazil in the beginning of this year and has been very well received as an intuitive and simple solution compared with other products in the market. Our Skin Care and contract manufacturing business saw negative growth in Q2 on the back of a very strong Q1 with distributor stock filling. Our contract manufacturing business continues the satisfying performance in Q2. Turning to our geographical segments, we saw high organic growth of 7% for the first half of 2013/2014 in our European markets. We saw very satisfying performance in all European markets, despite the fact that Q2 slowed down a bit in many smaller markets. Growth was driven by major markets like U.K., Germany, the Scandinavian region, as well as Southern Europe.
Despite being a growth driver, the U.K. momentum was lower than in Q1, which also accounted for some of the slowdown in the quarter. Organic revenue growth in other developed market was 11% in the first half of 2013/2014. We continue to see strong performance across all business areas. We see continued strong growth in Ostomy Care, and we continue successfully our conversion efforts towards compact catheters in the U.S. market. Our Urology Care business continues its above-market growth, whereas our Wound & Skin Care business is facing tougher comparisons, which reduce the growth rate. Both Canada and Japan continue their satisfactory performance. Revenues in emerging markets grew organically by 25% in the first half of 2013/2014. Markets like China and Brazil continue to deliver very satisfactory performance.
We also deliver on a large tender in Argentina during Q2, as well as stocking up inventories with a new distributor in Algeria. This made up for an unsatisfying quarter in Russia, where tender activity was low. I will now hand over to Lene. Please turn to slide number 5.
Thank you, Lars. Q2 was yet another strong quarter in which we saw a strong development in our fundamentals. Gross profit was up by 9% to DKK 4.162 billion. This equals a gross margin of 68%, an improvement of 1 percentage point compared with first half last year. The improvement continues to be driven by higher production efficiency. The gross margin in fixed currencies was 69%, against 67% in the first half last year. The SG&A to sales ratio came in at 33%, which is equal to last year. So far this year, we have invested an incremental almost DKK 100 million in sales-enhancing initiatives. The investments in sales initiatives were mainly in emerging markets and the U.S. The admin to sales ratio came in 1 percentage point lower than in the same period last year.
This reduction was primarily related to improved efficiency and fewer projects. We also 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. R&D expenses amounted to DKK 185 million, down from DKK 195 million in the same period last year. The ratio to sales was 3% and in line with first half last year. All in all, this results in an EBIT margin before special items of 33%, compared with 31% in first half last year. Net of currency impact, the EBIT margin was also 33%. As Lars mentioned, we have announced a DKK 1 billion provision last week because new information was announced to the market when AMS announced a settlement covering the majority of their cases.
This new information, combined with the knowledge we already have, enables us to estimate the total cost of our mesh litigation. The reported EBIT margin, including special items, was 16% for the first six months of 2013/2014, and -1% for Q2 in isolation. For now, this provision will purely affect our P&L and balance sheet. Cash flow will not be affected until cases are actually settled. Free cash flow amounted to DKK 796 million, compared to DKK 872 million in first half last year. The 9% decrease was mainly due to increased taxes paid, where we paid DKK 200 million in on-account taxes. The board approved interim dividends of DKK 844 million, in line with our new cash return policies.
The dividend will be paid on May 14th, 2014, and the stock will trade ex-dividend from May 9th, 2014. For the avoidance of any doubt, our dividend policy will not be impacted by the DKK 1 billion in provision. Our reported net profit for the period decreased by 39% to DKK 761 million, corresponding to diluted earnings per share of 3.61 DKK, also a decrease of 39% compared with first half last year. Please turn to slide number 6. For 2013/14, we have increased our expectations to revenue growth from around 8% organically to around 9% organically, and from around 6% in DKK to around 7% in DKK.
The currency impact is based on spot rates as of the 23rd of April 2014. The negative impact is mainly a result of the depreciation of the US dollar and Japanese yen against the Danish kroner. Our organic growth guidance is based on continued stable and positive development in our main markets, which we have experienced since the beginning of the year. We have now raised the growth guidance to fully reflect the underlying performance of close to 9% organic growth. For 2013, 2014, we now expect an EBIT margin before special items of 33%-34% in fixed currencies and 33% in Danish kroner. Last quarter, we expected around 33% in fixed currencies. This change reflects the higher expected sales.
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 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. As a reminder, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. Your first question comes from Michael Jüngling. Please ask your question.
Thank you. Good afternoon. I have 3 questions, please. Firstly, on the gross margin, can you comment on how the depreciation of the renminbi will impact you in the second half? There seems to be quite a sharp depreciation of currency. Secondly, for provision, write backs, do you see further scope to reverse doubtful debt provisions for the remainder of the year? The third question I have is on Ostomy, with SenSura Mio. Can you sort of comment on a relative basis, how strongly Mio is as a product launch compared to previous product launches? Maybe we can make it quite simple, saying a 5 out of 10 would be an average product launch, maybe this is an 8 out of 10. Some sort of guidance on that scale, I think, would be, would be helpful. Thank you.
Could I start out with the SenSura Mio question then? Because, first of all, it is a very big launch for us. It is a big program, where we are launching the first phase now. It is a program where the difference to what is in the markets, the way that people experience the product, the look and feel, but also the way that it performs, is very different to, you could say, the older generations of ostomy products. At the same time, we are putting the biggest marketing budget behind it, which is the biggest one that we have ever pulled off.
We think it's a, it's a very big launch for us. It is not done with what we do now. You will see more launches within this range of products going forward. This is just the beginning.
Right. If, I was to answer on the, let me start with the, debt, provision where we have written back DKK 20 million. That is, for now, what we believe is the, the right thing to do, and whether there could be more depends entirely on how we see the development in, in Southern Europe. As to the, Renminbi and how much that might impact us, so far, this has been a very, very limited, impact. There's not that much of, what we, of the actual expenses we have there that really originates in Renminbi. I would say it would be neutral to slightly positive.
Okay. Then a final question on D&A. It seems to have given you a nice boost to margins. Is it fair to say that the run rate for the remainder of the year will be somewhere around 105 million DKK per quarter?
I think when you look at the admin costs, the only thing that you should take out in your calculation is the write back of the DKK 20 million. Otherwise, it's probably fair to look at it as a reasonable run rate, but do remember to adjust for that.
Oh, I was referring to D&A, depreciation amortization. Sorry.
Sorry. I'm sorry I heard you wrong. I'm sorry about that, Mike. D&A, yeah, that should be more or less the same. Maybe slightly less for the second half. Sorry, it'll be about the same.
Okay. How come it's decreasing so much? Is it the amortization or is it the depreciation that is causing, the number to fall quite meaningfully?
What is actually causing it to fall is the Mentor depreciations, which are gradually becoming smaller and smaller. That's what is causing the effect. I think it has an effect of between 25 and 30 million DKK.
Great. Thank you very much.
Your next question comes from Ian Douglas-Pennant from UBS. Please ask your question.
Hi, yeah, thanks. It's Ian Douglas-Pennant at UBS. On the intermittent catheter business, I mean, maybe you could talk about how much of the kind of increased growth you're seeing at the moment is coming from the disruption from one of your competitors that you've talked about previously, especially in the U.S.
Could you please repeat that? I'm not sure that we understood what you said.
Sorry, let me try that. Is that better?
Yes.
What portion of the kind of the increase in growth rate, if you like, that we're seeing at the moment is due to the disruption that we're seeing from one of your competitors that you've talked about previously? Secondly, on the Ostomy Care business, how important, sorry, is the accessories business to the level of growth you're seeing at the moment? I mean, it seems like given how sticky this business is and what the underlying growth rates are, you're delivering some very impressive growth. I just want to understand.
Yeah.
what the kind of split is there? Thanks.
I can understand that, but we're not going to give you a lot of details on the accessories.
Just, I mean, just an idea would be helpful.
You know, the accessories business is not a business in all countries. It's, it's primarily a business in the U.K. and the U.S. You know, those two markets are, of course, important to us, but they are definitely not the majority of our business. When it comes to IC, I actually think that you have to shed a bit more light on it. I'm not sure that we fully understand what you mean by the disruption that one of our competitors had.
I was talking about the Convatec distributor story.
The fact is that in the U.S., you could say the generic products are is a big category for us still, and part of why we are the market leader there. That is not where we obtain our growth, because that's a market where we get, you know, tough price competition. What really are creating the growth that we see in the U.S. is the fact that we are converting the market from the old-fashioned technology to the SpeediCath technology and the SpeediCath Compact technologies. That is both a value upgrade of the market, but it is also a way to introduce the market to, you know, how a decent catheters should look.
In that sense, it's a very nice upgrade that we have there. It's very hard for me to talk about, you know, what happens with competitors. I don't have any take on that or any comments on what they're doing.
Okay, thanks. Then, just one more, if I can, on working capital. Lene, maybe you could just run us through each of the lines. I mean, obviously, the build up in inventory, I assume that's to do with the launch, but if you could just confirm that, and then there's this kind of increase in other receivables as well. Maybe you could talk about that. It just seems like everything's moved against you this quarter.
Yeah. I mean, it hasn't moved as much against us as you might see from the numbers, actually. Yes, there is a bit of increase in inventories, and that's got to do with the launch of new products. The big movements, the movement that you refer to as the receivable is actually in connection with the provision that we have made, because we have both made, you know, we have the provision of DKK 1 billion. Then we also have a product liability insurance of about half a billion DKK. Now, as we have taken the provision, then we now also account for the product liability as a receivable. It's not really a cash effect as such. It is because we now need to account for that as a receivable.
All right.
Do you see? Do you?
Yeah, yeah, I understand.
Okay, good.
Thanks very much.
That's the big fluctuations. It's not that all of a sudden a lot of other strange things are happening.
Okay. The only real thing is the inventory build-up then? Okay.
Yes. That's the only real thing. Therefore, when you look at the total working capital, there's not that big of a change, actually.
Okay, perfect. Thanks very much.
The next question comes from Alex Kleban from Barclays. Please ask your question.
Yeah, thanks for taking the question. Just two. First one, within budgeting and planning for the year, maybe three or four risks or opportunities you could highlight to us that would either be up or downside to the revised guidance as we go in H2? Second question, just on Wound Care. Could you give some indication of where you think your Wound Care market share is within dressings, and particularly versus your largest competitor in the space? Thanks.
Within Wound Care, it differs a lot from country to country. If you look at the total size of Coloplast business, we don't have much market share. We are, as we have said at several occasions, we are a subscale Wound Care business. We have significant market shares in China. We have significant market shares in Brazil. If you look at it in Europe, we think that we have, you know, it's a very broad range, I have to say, but we think that we have between 5%-15%, depending on where we are.
If you look at it in the developed markets outside of Europe, it's between 0% and 10%, and in emerging markets as a whole, we have 10%-20%. We have some very strong positions in China and in Brazil. That is, you know, the current success builds a lot on a couple of factors. One is that we have a good momentum in China and Brazil, that we have stabilized the situation in Europe, and that we have great success with Biatain Silicone.
You asked about upsides and downside on our growth guidance. It's actually neither a very conservative or a very optimistic guidance. It is actually a balance with sort of our best estimate for what will happen. I can't really say more about that.
maybe just to press, a bit, but I mean, are there any potentially some specific threats and tenders that might not come through? you know, in H2, when we think about countries like Russia or Eastern Europe, where there's, some turmoil at the moment, or anything just of that nature that, we need to be on the lookout for?
There's no doubt that Russia is, of course, it's a concern because of the situation we have there, but we also have to be mindful that it's only 3% to 4% of our-.
Yeah.
Of our total sales. Russia have always been fluctuating a lot, from one year and one to another, and from one quarter to another. Yeah, I think that's both the blessing and maybe also the opposite, that it is a very stable market and the possible risks and opportunities are normally, well, quite small.
Okay, that's clear. Thank you very much.
Your next question comes from Martin Parkhøi, from Danske Bank. Please ask your question.
Hello, Martin Parkhøi from Danske Bank. Just two questions on SenSura Mio, because you say it has been very well received, but can you elaborate a little bit about what is it that is that people are so enthusiastic about? Is it the new color? Is it the BodyFit? Is it the ballooning effect? How do you think at least the two last things is compared with products from competition? The second question, also to the SenSura Mio, as I understand it, that the users of ostomy bags could sign up to get some free samples.
Can you have you looked at how many of these users are actually non-Coloplast users at the moment? We can get an idea of this is not only a product going for new patients, but actually also going for the installed base. The last question on the inventory impact. In the first quarter, you said there was an inventory impact, you know, positively, and this could potentially be reversed in the second quarter. Have we seen a reversal? Can you then give us what has been underlying growth in the second quarter, where you in the first quarter said the underlying growth was 8%-9%? That was all.
SenSura Mio, I, you know, I have to say that, it is, of course, the full package that people like, but if I should be more specific, then the fact that it's not just the color, we are putting real fabric on the product, which means that the feel that people have on their skin is very, very different. They basically don't feel the product. The way it behaves when people are taking a shower, you know, whether it gets wet and so on, it doesn't get wet, and it doesn't absorb any water. It's more convenient than any other product in the market. That's maybe in the nice-to-have end.
The other part is probably more interesting, and that is that it does have the BodyFit Technology in the adhesive, which means that it's, it adds to the fact that you don't feel your appliance. Then, it really has a filter which is extremely well-functioning. That means that very few people are now experiencing ballooning. What people used to do is that they wake up at night, and then they have to empty their bag because they get air in it because of the clogging of the filter. You could say, well, this is, these are all small things, but if you add enough small things together, then you suddenly get a different experience.
That is what people say to us. It is, it's a different level. It works differently, and it feels differently, and it looks differently. That's an overwhelmingly positive receival that we get. About the sampling, you're absolutely right that our database is very elaborate. We have many users there, and not just Coloplast users. We scan every name in the database to see if we think it's relevant that we contact them for them to understand what options that Coloplast are coming with now.
We use, you know, everything that we have in the toolbox on the commercial side in order to get something or to get full impact on this launch. Having said that, this is the launch year, so the impact in this year is of course limited because we are actually still in the pre-launch phase. We will see full impact from next year, and we are still. Of course, we are addressing installed base, but we are, of course, primarily from next year, addressing the new patients. On the inventory side, you also had a question, and I'll hand you over to Lene in that regard.
Martin, I'm afraid I have to ask you to repeat the question.
Yeah.
Could you just do that for me, please?
I will like to do that.
Thank you.
In the first quarter, you reported 11% organic growth, you said, it was on an underlying basis, was 8%-9%.
Yes.
due to easy comparisons and due to a positive inventory impact. You said that we would potentially see a reversal of this positive inventory impact in the second quarter. You report 9% underlying, the question was: If you look at underlying growth, does that differ from the 9%?
Not really.
You have not seen a negative reversal of the positive inventory, you saw?
No, it's still that underlying-
Okay.
8%, 9%. Yeah.
Okay. Okay.
Your next question comes from Niels Leth from SEB. Please ask your question.
Good afternoon, Niels Leth from SEB. First question about the Continence Care division and to what extent the Compact Set introduction has impacted the strong organic growth that you reported? Could you tell us how many countries this product has now been launched, if the launch is complete on the Compact Set product? My second question would be what would be your remaining provisions for Southern Europe? Thank you.
The Compact Set is first and foremost, having an impact in France and in the U.S. because they are already big markets when it comes to these kind of products. In those markets, we have very, very nice growth in Compact Set. It is launched in more markets. In those markets, we have a different task because the task is to build the category. The impact there is less, so it's primarily coming out of actually two countries at this point in time, but it is quite robust. The whole SpeediCath range is still strong, but of course, the Compact Set is adding to that.
With regards to the remaining provision for Southern Europe, they are less than DKK 80, around DKK 75.
Your next question comes from Veronika Dubajova from Goldman Sachs. Please ask your question.
Good afternoon, thank you for taking my questions. I have three, if I can. The first one is just on the SpeediCath progress in the U.S., I think, Lars, in the past, you've given us a sense for when you look at your customer base, just how much, what proportion of them has been converted. I don't know if you have an update for us there in terms of percentage terms. The second question is just, ostomy, GPOs, can you give us a sense? I think there were some recent changes in contracts, if you can just walk us through those. My last question is around the competitive environment in ostomy.
Your competitor reported some pretty impressive Q1 growth rates yesterday, and I'm just wondering if you have any thoughts on, are you seeing any changes in behaviors from them or what might have driven that? Thank you.
The last one was in which business area?
In ostomy. Sorry.
Yeah. The SpeediCath in the U.S., I think that last quarter we said that we that we think that we have converted approximately 10%. It's still early days, of course, but it's it's a conversion which is not losing speed. It's actually, we can keep the speed up on it. We also see that people are not converting back again. You know, once you are on the SpeediCath, you stay there, so it's very, very positive. On the, you know, there is no change in the GPO situation on Ostomy Care at this point in time.
You know, this is something that is, where there's a lot of work going in, into these accounts, before decisions are made, but at this point in time, we don't have anything to report. When it comes to, you know, comparisons to other ostomy companies in the U.S., I think that the only thing that I would like to say about, our current performance in the ostomy business in the U.S. is, one, we have, a low market share, as you know, and two, we have a very, very strong growth, which we are very satisfied with, and we grow, as I also said last time, factors, faster than the market.
It's a performance that we are really happy with, and which we think that we are going to even up now, where we are right now going to launch the SenSura Mio in the U.S.
That's great. Lars, can I just take that as meaning you're not seeing different competitive behavior from the other two major players in the market?
I think that there's no doubt that it's very clear that, there's a serious competitor in town. I, you know, I think that our competitors have been doing their utmost so far, and they are still doing that. We are just winning much more than we used to.
That's terrific. Just a quick one for Lene, please. Can you tell us of the 7,000 cases that you have on the mesh litigation, have you settled any so far? If so, just give us a sense for what proportion you have settled.
We haven't settled anyone so far. We have entered into agreements and principles in a few cases, and that the way it works is that you enter into an agreement and principle with a litigation lawyer, and after that, they actually have to go and get releases from the individual and users before you have anything that is firm and final. We haven't gotten to that stage yet with our cases.
Okay, you cannot give us a sense for when you might be expecting some of these cash outflows?
No, I wish I could, but no, we can't do that. We don't know when we will have that. It could be quite a long time before it's finally advised. It could still be years that we are talking, and I cannot give you a reasonable estimate for when we might start seeing some cash payout.
That's terrific. Thank you. I'll jump back into the queue.
Your next question comes from Christoph Gretler from Credit Suisse. Please ask your question.
Yes. Hi, good afternoon, Lars, Lene, and Ian. Actually, there is one question less now, essentially now. Could you speak about the price increases in Japan? Were they in excess of the VAT increase in general? Then maybe, you know, just quickly, you know, is there any teaser you can give us why we should come to Copenhagen early June?
That is, of course, to see the most spectacular capital market day that you have ever seen. Is what Ian has promised us.
Ian now feels the pressure.
To be serious, you know, that is a very good chance for you to meet our team. Since last time, there are a couple of new faces, which I think that you will be very interested in knowing. That's a good reason to get there. With regards to the Japanese price increases, and the, I think that what is important for you to understand is, and I think we talked about that a number of times, is that we are working with our prices across the board in the group. We have also been working in Japan to get a different pricing vis-à-vis the distribution.
I would not like to comment specifically on what that is. I can confirm that we have ended the negotiations. You see, of course, also that in the numbers.
Okay. Good. Well, see you in Copenhagen. Thanks.
I'll see you in Copenhagen.
Yes.
Your next question comes from Oliver Metzger from Commerzbank. Please ask your question.
Yeah, hi. Thanks a lot for taking my questions. The first one is, when you mentioned that you spent in the first half, DKK 100 million for the sales-enhancing initiatives. In the current Q2 results, do you see also some results of these initiatives? My second question, do you have already some expectations for relevant tender businesses in the third quarter? My last question is, similar to Chris's question. It's on the VAT increase. Have you seen any impact on volumes due to customers who bought more products than usual?
You know, it's very hard to be precise on some of your questions, because we have many tenders that we are working with every quarter. You know, I think that if you look at it over time, they will level out. The only place where we may see that tenders are a bit less frequent right now would be Russia. Because, you know, that is a 100% tender-driven market. You know, we have a lot of tenders we win. We have a number of tenders that we don't win. That is how it is every quarter. The bulk of our business is not driven out of tenders.
The bulk of our business is driven out of a stable consumption in the more mature markets. You then asked if we see any impact of the sales-enhancing initiatives that we're doing. I would believe so because, as you see, we are reporting 10% growth for the first half year. You saw last year, in the second half of last year, we saw that the momentum started to increase, and that is due to the investments that we're doing in sales-enhancing initiatives. The combination of good products and also the investments that we're doing, means that for the first half, we are basically growing twice as fast as the market. I think that's a very, that's a very, good proof that our investments are paying off.
Your next question comes from Gøran Høim from Nordea. Please ask your question.
Yes, hello. two questions. one on growth. you are now reporting a 10% organic growth for the first half, your underlying growth rate is 9%. Looking at past years, your, the growth momentum is usually stronger in the second half than in the first half. You're also launching this SenSura Mio, which should gain gradually more and more traction. You're guiding for 9% now. My question is basically, why is that that you expect the growth trend to decline? Is it tougher comparison, competition, or what is it?
Secondly, on the mesh, I see that your provision is in line with what Endo is offering. There's been a lot of noise to that in the market. Should we expect you to raise the provision if a large number of victims choose to reject the Endo offer?
Let me start with the first one. I think it's a very good question that you're asking. It's not the first time we have that question today. As we, as I just alluded to before, you saw a different growth momentum in our second half last year. We get into a bit more or stronger comparison numbers in the second half. We also said after the first quarter that was a very odd quarter because normally you would have some things that go really well and some things that are going not so well in a quarter. In our first quarter, we only had things that went really well.
In that sense, it was probably a bit too positive. Then we specifically, we also have seen that there are prices or there was price reductions in France, which are impacting us. You also see that we have stronger comparison numbers in wound care. We think on balance, if we, with where we are now, are able to come out with 9%, we think that's good. Having said that, it is, of course, very difficult to be precise on sales expectations. I think I have to say that because we have now twice this year upped our sales expectations.
With everything that we know now and all the interviews we have done, we think that 9% is a good number, and that is what we are going to deliver for the year. Yes.
You'd also asked about the mesh, whether you would expect us to increase this one. I hope not. It is our very best estimate, with everything that we know, and we have taken everything into account. Also the fact that we actually believe our products are safe products. With all the knowledge that we have today, that is our very best estimate.
Is it fair to assume that a large part of the knowledge you have now is based on the Endo offer? Because you didn't react to the settlement you made yourself, besides responding to the journalist article, so?
Well, what is fair is to say that with what we with the negotiations we have done ourselves is a relatively small part of what we have. When we then, at the same time, see a very big settlement in the market, then for as many cases as 20,000, then we do need to take that into account, compare with what we are doing ourselves, and then come up with a number on that basis. That is what we have done. It's not the same as saying that we have used the exact same number as Endo, which we haven't.
All right. Thank you very much.
Your next question comes from Scott Bardo from Berenberg. Please ask your question.
Thank you very much for taking my questions. Just really wanted to comment on the current business performance, which seems to be very strong on the top line. I wonder if, and it might be difficult to do so, but whether you think any of that growth relates to some stocking effects that you note in Algeria or this change in discounting model in Continence Care in the U.S., whether you think any of that performance you've seen so far has been benefited from that? On that line, your investments, I think, into sales growth initiatives, historically, you had expected it to take a little bit of time to accelerate the top line, obviously, that started to come through relatively well so far with new product launches coming through.
I guess, obviously, the market is quite excited about new products, and your current growth profile. What would be helpful for me is to understand, at this stage, do you see growth acceleration into next year? Or is this slightly an unusual base year for you as you sort of gradually roll out these new products? That would be helpful to tackle those two, if possible, please.
Talking effects in Algeria, I mean, it's, Algeria is not the biggest market that we do have. So it's not, well, it is adding to a positive picture, but it's, it is not something which is, you know, large million DKK numbers that we are talking about. The new products that we are bringing to the markets, as I said before, the new Mio or SenSura Mio products will not impact much this year. They will come in from next year. But the SpeediCare Compact Set is impacting this year.
But the reason why we are seeing an uptick in our growth numbers compared to last year, is primarily the fact that we have invested more in sales pressure. So you see that our emerging markets is growing much more than it did last year at the same point in time. And we also have strong performance in Europe. We also have strong performance in the U.S., so it's quite broad-based. But, you know, it's this point in time where we can talk about what is going to happen next year. We don't think so. We think that a 9% growth this year is really good and also more than we expected when we started the year, and that is what we can talk about.
Understood. Thanks. Well, just to get us, give us some sort of sense as to how quickly your new ostomy products are taken up in the market, can you share with us, obviously with, I think, over two years now, experience with the previous generation, SenSura Mio, can you share with us what percentage of your business in ostomy, is convert or was converted, or does that business equate to, with respect to your overall ostomy franchise? Just so we can get a sense of how quickly these new products are taken up.
No, we're not, we can't really share that. I also think that we have a generation of products here where we are going to get quite some learnings, because normally, when we bring new products to the market, we are, we are quite exclusive in the fact that we are launching them to the new accounts. In that sense, you always know that you get a very limited impact, because you are only addressing in principle, 10% of the addressable market. This launch is different.
It is a launch where we are also utilizing the quite big database that we have now to also speak with current users, and therefore, we don't have any take on how good are we at converting patients in there. That is something that we are learning as we speak. You also know this is very early days. It is actually, we're still in the pre-launch phase, which means that we give out free samples, and we are not, we only start the sales quite soon.
Understand. Thank you. Just last point on this, if I may. To your understanding currently, would such a product qualify for the Novation GPO contract you have outstanding? I know there was a debate as to whether the old generation was innovative enough to qualify for that GPO. Do you think that this product line now addresses that need?
That's a good question, and I don't have a comment to that at this point in time.
Lastly, just on Germany. Germany historically has been a very lucrative and important ostomy market for you guys. I noticed there was some management change in Germany. That also was at a similar time where I've seen comments about sickness funds strengthening negotiations on the flat rate in Germany. I don't know if there's anything you can share about the market dynamics in Germany, whether you see any real change or risk to that environment?
I think, well, we have been over this a couple of times, actually, I think, because Germany is, as you say, an important market to Coloplast. It is also a market that has been quite efficient in driving our costs, and they have done so over the last 15, maybe even more years, or maybe 20 years. Therefore, therefore, we have seen many smaller things. We don't see any immediate large-scale healthcare reforms on the horizon. There's no doubt that the healthcare insurers, they are trying to pursue cost savings, and they also include lump sums and so on.
I think actually that the situation in Germany is, as it has been for many years now, there are pressure on prices. There are, you know, the market dynamics are quite strong, and have been so because, also because of the home care segment that we have there and the different players that are in there. I think also that we are doing quite well in that market, and that we have a very strong market share there.
Yeah. Okay, great. Thanks very much, Lars.
The next question comes from Michael Jüngling from Morgan Stanley. Please ask your question.
Great. Thank you. A few more questions. Firstly, on NPWT, can you comment on the progress that you're making with the distribution of ExtraCare? Secondly, on the net financial guidance, there's always some large swings in the fair value adjustments of the forward contracts. Can you just give us an indication of what the second half should look like in terms of net financial income? Finally, question number three, on staff retention. I think over the last two or so quarters, we've had, you know, Claus Bjerre leave, Vagn Heiberg leave. We've now had Timo Buer leave in Germany. Is it becoming an issue to retain good staff, and where did the head of Germany go to? Did he go to a competitor? Thank you.
Yes. No, Timo did not go to a competitor. He went to a different company in the industry where he could get a regional responsibility instead of a German responsibility. We don't think that we have an issue with retention. We would, of course, always like to keep everybody on board all the time. The fact is that around Heiberg, he had said in good time that he wanted to retire. Claus Bjerre's contract in the U.S. was coming to an end, and he wanted to take on board a CEO position in a different company instead of getting back to an SVP position in Coloplast.
That's, you know, that is his choice. He will, of course, pursue that according to what his wishes are. We don't feel that people are leaving because they feel that we are on a wrong track. We have a great team, and of course, people are looking at the team and see if they can get some of the competencies that we use to drive Coloplast into their companies. On the negative pressure, it's a bit too early to say what I said in the beginning was that we are happy with the conclusions that we get so far from the two pilots that we're doing in Brazil and in Switzerland.
We get very important learnings about how we can bring, or make this business become important to us. We are very satisfied with where we are now, but it takes a bit of time to get the input that you need to have in order to take the next steps.
You asked about our net financial income, and you are absolutely right. It does seem to fluctuate quite a lot. If we look at the rates, as they are now, our best estimate for the full year is a net financial income of around DKK 45 million.
Great. On MPWT, a follow-up. When can we expect to see meaningful sales come through, defined as maybe adding a point or so of organic growth to your wound care business?
Yeah. I cannot be specific on that. What I can say is that it is the pilots are living up to the expectations that we had when we start the pilots out. We are actually following the plan that we had. There is actually a very good chance to see the product and discuss this further if you come for the capital market day a little bit later. At this point in time, I cannot comment more on this specific initiative.
Great. Thank you very much.
Okay, your next question comes from Ian Douglas- Pennant from UBS. Please ask your question.
Hi. Yeah, funny enough, Michael actually just asked my two last questions, but I'm gonna ask one of them in slightly different way, if I can. Amongst your direct reports, Lene and Lars, what has been the staff retention over the last two years? If you just give it in a percentage number, if you, if you happen to have that.
Yeah.
Yeah.
The staff retention.
Yeah, for those reporting to us?
Yeah.
Very high.
We have, you know, I think that we are above 90, well, we are above 90% that have been retained, thereabout. It's, well, it's, you know, it's not even at the top of our minds, because otherwise we would be able to give you a better, be a better answer on it. It's Claus Bjerre and-
Vagn Hauberg.
Vagn Hauberg that have left, and that's it.
Yeah. I don't think we've had any other leaving.
No.
Okay, great. I mean, it just, I was wondering whether this question keeps popping up because you give more disclosure than everybody else, or because it was actually an issue, but it seems to be around the disclosure side, so thanks very much.
You're welcome.
There are no further questions at this time.
Okay.
Okay.
I would like to say thank you very much on behalf of Lene and myself for participating and for your questions. We are looking very much forward to seeing you over the next weeks.
Thank you. That does conclude our conference for today. Thank you for participating. Goodbye.