Good afternoon, ladies and gentlemen, and welcome to the Coloplast Q1 2011, 2012 financial statements conference call. At this time, all participants are in a listen-only mode, until we conduct a question and answer session, and instructions will be given at that time. If anyone should require assistance during today's conference, please press Star and then zero on your telephone keypad. Just to remind you, this conference call is being recorded. I would now like to hand over to your chairperson, Lars Rasmussen. Please begin your meeting, sir, and I will be standing by.
Thank you. Good afternoon, and welcome to this Q1 2011-2012 conference call. I am Lars Rasmussen, CEO of Coloplast. I am joined by CFO Lene Skole and our investor relations team. Lene and I will start with a short presentation. Then we open up for questions. Please turn to slide number three. Our Q1 has been an eventful quarter. Our new markets developed very well, backed by strong growth in Russia and by China, that continues to deliver high growth rates. We are also pleased that we can now see the first tangible results of our U.S. plan. Growth has increased and follows the plan that our U.S. management has set out. It has also been a quarter where we saw continued slowdown of growth in Europe, particularly France, slowed down more than we expected.
Also Spain and Holland saw increasingly challenging market conditions. We then add stock reductions in Greece, that we ourselves were instrumental in, growth in Europe fell to 3% in the quarter. All in all, we ended the quarter with 4% growth, both organically and in Danish kroner. We did expect a slow Q1, we had expected a 1% or so higher growth, and we are therefore not satisfied with the 4%. We do, however, continue to be satisfied with our cost development. Our employees have shown very strong commitment and high performance over the past three years, and we are pleased that we have been able to honor this by paying out a special bonus to each and every one of them. The cost of this bonus is included in our margin for Q1. Also, our costs include a US dollar...
A $12 million U.S. dollar litigation payment in the U.S., where less than half was provisioned last year. Despite these major items, we can still report a solid EBIT margin of 26% for the quarter. For the full year, we continue to expect around 6% organic growth. We now expect around 8% reported growth based on our current exchange rates. We also continue to expect an EBIT margin of around 27% in local currencies, whereas we expect 28% in Danish kroner based on current exchange rates. Lene will provide more details on the guidance at the end of this presentation. Please turn to slide number 4. Revenues were up by 4%, both in Danish kroner and organically, to DKK 2.7 billion. As I mentioned earlier, this is not satisfactory.
ostomy care saw a satisfying organic growth of 6% in the quarter. A series of tenders in Russia, continued high growth in China, finally, a very good quarter in the U.S., had a positive impact. The quarter also saw continued contribution from our accessory range. In Europe, especially the U.K., did well. France and Spain, however, performed below expectations. In continence care, organic growth was 5%, current growth rates are below historic performance and hence not satisfying. Growth rates are picking up as planned in the U.S., this is not enough to compensate for the effect of the reimbursement change in the U.S. that we still enjoyed in the first quarter last year. The SpeediCath product range has been reintroduced in the U.S., all early indicators are green.
As was the case for ostomy care, the performance in France and Spain impacted growth negatively. Last year, sales were positively impacted by a large one-off tender in Southeast Asia. Our collecting device business saw almost flat growth in the quarter due to a reimbursement changes in France, which meant that we are no longer allowed to package two or more reimbursement codes in one package. This has led to large disruptions in France during the quarter. In total, our chronic care businesses grew 6% in the quarter. In urology care, organic growth was 3% in Q1, eleven-twelve, and reported growth was 5%, impacted by 2% from acquired business. Growth continues to be negatively affected by declining sales of female slings. Sales of mesh for pelvic floor repair remain satisfactory.
Sales growth of penile implants increased slightly during the quarter, especially in the U.S., but remained impacted by the combination of postponements of procedures and direct cancellations. In our European Urology business, growth was negatively impacted by a product recall of a stent, disrupting growth within the last endourology business. Our wound and skin care saw organic growth of -3% in Q1 2011-2012, and -6% for the wound care business in isolation. The wound care business was, as expected, heavily impacted by stock reductions in Greece. We still haven't turned around the business in France, which contributed to the decline in growth. On a positive note, we continue to see positive growth in Germany and now also in the U.K. The Italian wound care business is from 1st of January, part of the SBU.
This lastly completes the carving out of our wound care business from the chronic care business. We believe this has been the right move, and we expect performance to improve from this decision. If we turn to the geographical split of total sales, Europe experienced organic growth of 3%. Growth remains under pressure, especially in France, Spain, and to a certain extent, also Holland. Many markets have experienced fluctuations in distributor orders, and many European markets have experienced some general softness in Q1. As mentioned earlier, Russia and also U.K., did very well this quarter. Organic revenue growth in the Americas was 10% in the quarter. The U.S. management is executing in accordance with plan, and I'm very satisfied with the performance in the U.S. The Latin American markets also performed in accordance with expectations.
Revenue in the rest of the world grew 3% organically in the quarter. China continued its strong performance, while the region was impacted negatively by close to 4% by the non-recurring last tender mentioned earlier. That concludes my part of the presentation. Lene will now provide more details on the financials. Please turn to slide number five.
Thank you, Lars. Gross profit amounts to 1.7 billion DKK, equal to a gross margin of 65%. This is an improvement of two percentage points compared to the same period last year, at par with last quarter, when adjusting for the positive write-backs we had in that quarter. The weakening in the Hungarian forint has had a positive but limited impact on gross margin so far. Continued efficiency in the production economy and lower salary expenses from transfer of production last year, were key drivers in this positive gross margin development. The SGA to sales ratio was unchanged at 36%, slightly above the level in full year 2010/11. During this quarter, a legal proceeding in which Coloplast was a part, was settled, we have to pay a total of $12 million in settlement.
The amount is significantly higher than we expected, therefore, less than half was provisioned last year. The proceeding concerns a partnership we took on in connection with the Mentor acquisition in 2006. SGA was impacted by extra bonus payment to all employees, as Lars mentioned earlier, as well as further provisions for bad debt in Southern Europe. R&D to sales came in at 4% in line with previous spend. This results in a reported EBIT margin of 26%, compared with 24% last year. Net of currency impact, the EBIT margin was also 26%. Our net profit increased by 19% to DKK 0.5 billion, corresponding to an earnings per share of DKK 11.6, against DKK 9.6 in the same period last year.
Free cash flow was DKK 162 million, compared with a minus of DKK 233 million in the same period last year. The increased cash flow compared with last year, was due to increased earnings, less cash tied up in working capital, and the acquisition of Mpathy Medical Devices last year. The effects were partly offset by an increase in net loss on realized foreign exchange hedging contracts and paid taxes. Net interest-bearing debt to EBITDA ended at 0.3 against 0.7 for the same period last year. Our net debt to EBITDA continues to be suspended as we continue our search for suitable investment opportunities in 2012.
As we have mentioned earlier, we do not aim to have excess cash on our balance sheet, but as we remain focused on investing in our business and on participating in a consolidation of our markets, we will, in an interim period, accumulate cash. Coloplast expects to start the share buyback program during the second quarter of our financial year. CapEx amounted to DKK 64 million, corresponding to a CapEx to sales ratio of 2%, reflecting continued low spend. Now, could I please ask you to turn to slide number 6? For 2011/2012, we still expect to grow around 6% organically and around 8% in Danish kroner at the current ex-currency exchange rates. In particular, the strengthening of the US dollar and the British pound sterling impact our guidance in Danish kroner.
As mentioned earlier, our Q1 growth was impacted by several larger events, the effect of which is expected to be absorbed as more quarters of growth are added. Examples of that would be stock reductions in Greece, a large tender impacting in emerging markets last year, high sales volatility in Russia, and the fluctuations in distributor orders we always experience when comparing quarters.
Our growth expectations for the year assume that performance will continue to improve in our U.S. business, primarily within chronic care. Further, we assume that our current soft growth in Europe will improve, and finally, that a certain pickup of our wound care business will occur during the fiscal year. We continue to expect an EBIT margin of around 27% in constant currency rates for 2011-2012. Mainly, the stronger pound sterling and the weakening Hungarian forint means that we increase our guidance in Danish kroner to around 28%. We realize that given our Q1 performance, where we present a growth that's approximately one percentage point lower than expected and a very strong underlying EBIT margin, you might have expected an adjustment in our guidance for the full year.
At this point in time, with only one quarter behind us, we believe, and indications support, that a growth of around 6% is achievable for the full year. We also feel that the macroeconomic uncertainties have increased, especially in Southern Europe. We believe that our guidance reflects the most realistic of the many different scenarios you can build around our economic performance for 2011-2012. Our CapEx guidance for 2011-2012 is unchanged at around DKK 300 million, corresponding to 3% of sales. Our effective tax rate is also unchanged at 25%-26%. This concludes our presentation. Thank you very much. Operator, we are now ready to take questions.
Thank you. Ladies and gentlemen, if you do have a question at this time, please press star one on your telephone keypad. To cancel your question, please press the hash or pound key. Once again, that's star one to register a question, and the hash or pound key to cancel. There will be a short silence while participants register for questions. Our first question comes from the line of Karl Bradshaw. Please go ahead with your question, announcing your company name.
Hi, this is Karl Bradshaw from Morgan Stanley. Thanks for taking my questions. I have a few, and if I could start on the ostomy business. Could you tell us what the amount of the Russian tender order was for the ostomy business in the first quarter? Also, you mentioned some weakness in the French market, so I wonder if you could just provide a bit more detail as to whether that's competitive, pushback, or if that's actual reimbursement changes similar to what you're seeing in the continence care business. The second question relates to, continence care. When you talked about changes to reimbursement on urine bags and sheaths, could you give us a sense of when that began to take effect within the quarter?
Was this the beginning of the quarter or towards the end, just to give a sense of what we should expect in the following quarter? A similar question for wound care. You've mentioned that there's added sales pressure in your community channels that we should expect more of an impact from in the next quarter. Did we see any of that impact in Q1? Thanks very much.
Okay. When we talk Russia, in ostomy care, the amount is approximately DKK 20 million. Regarding France, I'd like to take a little bit of time to explain that. In France, we are buying data. They are called CS data. You might have heard about them. Their data telling us how much the wholesalers are selling to pharmacists, they're also telling how much home delivery companies are selling directly to patients. They tell the real story of what is being sold, there we see that actually throughout the third quarter, we see a higher sales from the wholesalers towards pharmacies than what we are selling from Coloplast to the wholesalers.
We have seen that before, and normally when you see it, is because the wholesalers, they are in, for some reason, they are reducing stocks. What I can say, and what we do know about the French situation, is that we are growing. In when you're looking at the real business in France, we are growing, and we are also gaining market share.
The continence care situation in France is that we that we used to have what is called Conveen Duo, which is a combined package of duo sheath and bags, and we sell them as a kit, and that is no longer legal in France, so therefore, the reimbursement codes have been changed, and we had to buy back the stocks, and that was that was the... We started that in November. We don't expect any effect from that in the coming quarters. Then, when it comes to wound care, I'm not completely certain what's, what your question was.
It was just related to, I think you were, if I sort of understand the text in your, in your release correctly, you were sort of alluding to, sort of further downward pressure in wound in the next quarter in the French market because of, I think, some increasing competition in the community space.
Yeah.
I was just wondering if you'd begun to see any of that in sort of the back end of the first quarter.
Okay. I would say that, you know that during the course of our turnaround, we in October 2010, we started investing in the community channel in U.K., France, and in Germany. Actually, so far, we see that Germany have picked up very, very, very nicely. Actually, in last quarter, we also saw U.K. picking up, delivering growth, and we are still struggling in France. Unfortunately, France is also the biggest single market we have in wound care. I don't think that the situation is worse in France than what it used to be, but it is still not where it should be, and France is important to us because it's as big as it is in wound care.
Just to clarify, do you, given this competition within the French market, do you expect a sequential decline within the French market between Q1 and Q2?
I would expect a Q2, which is more or less in line with what we saw in Q1. I don't have any reasons to believe anything else at this point in time.
Okay, that's great. Thanks very much.
Our next question comes from the line of Frank Andersen. Please go ahead with your question, announcing your company name.
Hello, this is Frank Anderson from Jyske Bank. I have two questions. Firstly, on your guidance, you still stick to your 6% organic top line growth, even though that you in this quarter made only 4%, and it is likely that the pressure that we're seeing in Southern Europe will continue at least into the next couple of quarters. Could you put a little more insight into what you expect to change for actually you can achieve the 6% guidance? That was my first question. My second question is regarding to the CapEx. I was just wondering if you could put also some flavor to when you expect to actually start to increase your CapEx in according with guidance. Thank you.
Okay. Yeah, well, I think that the question you have on guidance for the top line is a viable one. I think that what we tried to account for is that we had some one-offs in the first quarter, which we do not expect to come back in the rest of the year. I would also like to say out, from an outset, we ourselves are expecting that the first couple of quarters would be slower growth-wise, and the last couple of ones would be a bit stronger. Let's take them more, maybe one by one. We have the quick reduction of the stock, which have impacted the, especially the wound care business and also the growth in Europe quite significantly.
It impacted the growth in wound care to the tune of almost 4%. We have the situation in continence care in France, which is impacting the continence care growth by almost one percentage point in the first quarter. We also explained the fact that we got a very large tender or won a very large tender last year in Asia. That was also in continence care, and that was also almost reducing the comparison on the growth rate with 1%. Then for the first six months of this current year, we still have an effect, a negative effect from the SKU reduction, which we started last year.
Therefore, if you take that into consideration, and of course, with the numbers that we are looking at, where we see the daily sales, we have reasons to believe that we can deliver our guidance, and that's, of course, why we are sticking to it. As Lene explained, it's only three months that we have behind us. We see some underlying movements in the business, which really means that at least we believe that we can deliver the guidance. That's the reason for it. About the CapEx, we are fortunately developing new products, and we have a very strong program of new products that we are to launch in the coming years.
You will see that the investments will pick up over the year, so of course, to fulfill future new products, but also as to strengthen the capacity on the current products.
If maybe if I can just add on the CapEx, because, it is even our guidance for this year, it is lower, than what we have put out as our sort of longer term guidance of CapEx. If that's what you asked about, Frank?
Yeah.
Yeah, I had a feeling it was. We'll probably, for another couple of years or so.
Mm.
- remain at the levels that you see us at now, before we get to the longer term, 4% or so, CapEx that we expect.
Okay. Thank you very much.
Our next question comes from the line of Yi-Dan Wang. Please go ahead with your question, announcing your company name.
Thank you very much. I have three questions. The first question is more of a big picture one. You're making good efforts, it seems, in the U.S. Would you be able to tell us at this stage whether, you know, if you're successful there, to what extent that would offset the increasing pressures that you see in Europe? The second question is on the IC upgrade that you're implementing in the U.S., can you give us some sense of what the margin impact of that initiative is? Whether, you know, for the additional sales you get, you get actually higher margins than what you would normally get.
The third question is, the re-acceleration in the second half of the year, to what extent that will be driven by also very strong performance out of the out of the U.S. market? Thank you.
Yeah. One of the factors that should drive us out of the current low growth of 4% is, of course, U.S. There will be other factors, a normalization in Europe because we had all the bonuses. Of course, we are also seeing that U.S. is supposed or is already accelerating, so it will give us more. I think that when it comes to the IC and margins in the U.S., the way that you should understand it is that we, there have been no reimbursement changes in the U.S. So we are actually delivering into or under the same reimbursement scheme as the uncoated catheters are delivering on.
That means that we have to strike a deal with each of the distributors that we have, what kind of price that they are willing to pay for our products. There's no doubt that the coated catheters is, of course, they are more expensive than the uncoated catheters. We are selling them at a higher price in the U.S. Seen from a manufacturer point of view, we will increase the value of the market as we are implementing this change to the market as we're implementing.
Compared to what we would get for a coated catheter in Europe, we will get a lower margin and also a lower gross profit than we could, you know, than we could get in Europe. If you take the absolute profit that we make on a product in the U.S., it's higher than on one of the other products that we are exchanging it with. In that sense, it's not good for the margin, but when you're looking at real money, it's a win. Your U.S. big picture, I think it's early days in the U.S. We installed a new management team in U.S., May last year. They are now driving double-digit growth, and we expect them to come with more than what they have.
We let out or offset some of the missing growth that we have in Europe, of course. How that would impact us on a total picture, I cannot answer you right now.
Okay, thank you very much.
Once again, ladies and gentlemen, at star one to register a question and the hash or pound key to cancel. Our next question comes from the line of Klaus Madsen. Please go ahead with your question, announcing your company name.
Yes, hello, it's Klaus Madsen from Handelsbanken with a few questions. I was wondering, first, if you could comment generally on whether you've seen a broad-based trimming of distribution channels in Europe and not only in Southern Europe? If you see any sort of price erosion out of the ordinary in the quarter, or any market share shifts of any significance. Those are my first questions.
Yeah. We have seen some distributor stock movements. We have seen it in Sweden. We have also seen it in Germany, the French situation I described to you. Those would be the ones that we saw in Europe. In that sense, it's fair to say, but if you're looking at which of them have really impacted us, we have the one that I accounted for in France, where we have numbers, because we have the underlying data, and we also have the one with this dual stock impact. That's the ones that we have the numbers on.
Right. On pricing, market share movements?
It's, we have not seen any major price erosion. The biggest price erosion that we have seen in newer time would be the one that we saw last year on wound care. When you're looking at the chronic care business, we don't see anything specifically there. You know, we're struggling a little bit with if we can give you any number of the distributor stock movements, it's really hard to, it's hard to judge. We don't believe that on our global business, it will be more than maybe a quarter of percentage points on growth.
I think maybe it will also help to say that it's not sort of a general lowering of, of stock levels in anticipation of price decreases or anything. It is actually fluctuations that each have their own reason in various countries.
Yeah.
that we expect would level out. We have given information about, you know, particular ones like Greece, but otherwise.
Yeah.
There are different reasons for them.
Well, actually, we did have some rumors that one of the big distributors are closing down some of their warehouses in Europe, and thereby, it might be that there's a little bit of consolidation there because they also feel the pressure on prices. That's it's not something which is major, and it's not something which is going to be a sustainable impact on us.
... on market share, it looks like your growth in the European ostomy market is pretty flat. Does that reflect the state of the underlying market, or does it reflect that competition has become slightly stronger than you maybe were used to?
No, I think that you see, there's a couple of things that are impacting or make you see that number, and one of them would be, the French situation that I accounted for, and there we know that the numbers will come back. It might also be the Spanish situation, because in Spain, we had an extraordinary large order in Spain in September. Which means that then when you look at the growth in October, November, December, it's well, it's actually a little bit negative in Spain. That's, it's more the movements there, so I don't believe that we see any changed picture in Europe on that.
Right.
Not a, not a, not a changed underlying one, at least.
Right. You gave a string of factors that had a negative impact on growth in Q1, but you also mentioned Russia contributing.
Yes
with close to 1% on the positive side.
Yeah.
If you add this picture up, with also the impact from distributor volumes hitting the quarter, what would be the actual net impact of what you can characterize as positive and negative one-offs?
I would say that a normalized growth on continence care would be more like 7% than the current 5%. That would be my take on it. On wound care, it would be more like 2% negative instead of minus 6%. On ostomy, it's a little bit harder for me to say. you know, I have the numbers for France, and I can see also what happened in Spain, but it's not much. you know, growing 6% in ostomy in Europe, we think that we are actually taking market share big time.
Growing 6%?
Yeah, sorry.
In ostomy.
In ostomy. Total, yes.
Total, yeah, right.
Yeah, global, yes. That's good. Yeah. Global, Europe, you know, what's the difference?
It's still there.
Just one last question. On SG&A, it's a rather impressive relative level. You're at 28% if you adjust for the arbitration. Do you see that as sustainable, or is that still at a rather low level, as we also saw in Q4 of last fiscal year, affected by maybe no marketing activity related to product launches? Should we hence expect it to trend upwards in the coming quarters?
There is still a relatively low burn rate for, in particular, market activities in the quarter. I would still, for the longer term, say, expect it to be around 29-30%.
Right. Thank you very much.
Our next question comes from the line of Martin Parkhøi. Please go ahead with your question, announcing your company name.
Hello, Martin Parkhøi from Danske Bank. Two questions which a little bit concerns what we already have been talking about. Just to be 100% sure with respect to your organic sales growth, and you have talked about all these things that you can adjust for. In your now, do you still expect 6% for the full year, which would imply close to 7% for the past last nine months? Do you not assume any impact there? I think that if we go back for the last many quarters, there's always been some kind of, you know, arguments for why growth was a little bit different from what it was. Is it just a dream case scenario, the last seven, nine months?
Secondly, in the first quarter, you will report some one-off cost of the different types, with the court case and the gift to the employees, also DKK 15 million write-down on the administration cost. What have you assumed for the full year? Are there more of these events which also will impact you in the last couple of quarters? The final question. Lars, you said something that you had expected the two first quarters would be a little bit slower, we would have higher growth in the last part of the year.
Should we assume that you mean that we also in Q2 should expect your organic growth to be lower than the 6% for the full year?
Let me start off with the dream scenario.
Exactly, yes.
I think that we have a couple of very, very solid one-offs that can explain part of the performance on the top line for this quarter. If you normalize for that, and, you know what? I reckon that this is a long explanation, but if you normalize for that, I think that we have a pretty stable business within our chronic care business, i.e., ostomy and continence care.
I think that we have heard that before, that there are a lot of different things. I think I'm just saying that we are not in a stable environment right now.
Yeah
things can still happen. I guess that...
Yeah, sure.
More can happen in the next quarters.
Absolutely. Absolutely, you are absolutely right. I, but still, I think that the outset, and I guess that the cornerstone for us, sticking to our guidance for now, is that we do believe that we have a pretty solid performance in our ostomy and continence care businesses. We cannot say the same thing about wound care. If you look at the numbers for urology care, that's not the same either. The dream case in this, in that sense, is that we still will see improvements in the U.S. We also see that Euro already is normalizing. The rest has to work as it is working now. Then we'll deliver the 6%.
Okay.
Just specifically on Q2, that you said that you had expected the first quarter?
Yes, but that's right. We, as Lena also said, it's a fact that we only have three months under the belt. When we look at what happened then, when we look at the daily sales, we think that we will be able to deliver the 6%, but, you know, it is a judgment. It's not a calculation, of course, but that's what we believe in.
Yes, I understand that, but you said that it would be back end loaded, so growth will be higher.
Yeah. Yes.
In Q2 specifically, now you say that, ahead of Q1, you had expected it to be lower than the 6%.
Yeah. Yes.
Should we also expect Q2 to be lower and then see a massive growth in the third and the fourth quarter?
I can't understand your question.
Great.
It's really hard for me to answer it because I don't want to guide on quarters.
Okay.
What I said before was, we do see an impact to the tune of half a percentage point or so, maybe a little bit more from the SKU reduction. That's, that is in effect for the first two quarters, because then we come up against quarters where we have the same effect last year.
Okay.
In that sense, we would expect to see some back end loading.
Okay. Okay, thanks.
Q1, you also, Martin, asked about the EBIT margin.
Mm-hmm.
Our guidance there, I can do the math as well as you can, at least on this particular point. It's also correct that if you add back the CD or the arbitration award, the bonuses, the bad debt, then underlying, we are around 29%, and why should we be able to deliver that for the remaining part of the year? Clearly, the one-offs we have had in the quarter, they will have less of an impact for the full year. That should, you know, will obviously, they'll continue to be there, but will have less of an impact. Even with that, then you do get above the guidance that we have given.
Again, here, we know that it may be you could say it's conservative, but on the other hand, again, only one quarter, and we have uncertainties in particular in Southern Europe, it's where I'm most concerned. We have added to our provisions for bad debt. Right now, there are lots of discussions about Greece, what's going to be the outcome there. For those reasons, only one quarter and increased uncertainties, we've decided to stick with our guidance.
You have included more extra cost in your guidance than the DKK 80 million that you have in the first quarter?
We have included a cautiousness in that.
Okay. Okay.
That's the reason we end up where we do.
Okay. at both.
Yes.
Okay, thank you very much.
You're welcome.
Our next question comes from the line of Jesper Breitenstein. Please go ahead with your question, announcing your company name.
Yeah, hi, good afternoon. It's Jesper Breitenstein here from Carnegie. A couple of questions. The first one is a little bit related to Martin's question. If you exclude all the one-off you have seen on the revenue development, do you think that the visibility in your business has been blurred a little bit compared to what you're used to see in the past? Are you a little bit more uncomfortable with the, say, the outlook than you used to be, if we go back a year or two? That's one question. The other one is related to the provision for the bad debt in the southern part of Europe.
Have you seen any negative impact on revenues from changed trading terms, where you probably demand more cash upfront before you deliver? The last question was related to the SpeediCath launch in the US. If you could give any more favor on that, whether you are cannibalizing your own products or if the SpeediCath products are coming on top of your existing continence care business.
When it comes to the visibility, I think it's fair to say that it is less than it has been historically. You know, that we got a reform hitting us in Spain not that long ago, and just two weeks before, we had no idea it would come. It's the only time it's ever happened, but still, the situation in Greece is, I would say, very uncertain, and that's also why we reduced our stocks. We could maybe fold into this, one of your questions about the provisions that we have taken in Southern Europe, where, we are unwilling to extend the number of days, that we have as credit lines, and is that impacting our business?
Certainly, because that means cash on delivery, if you want to go up, because you cannot go above. That's a judgment call from our side, that with the uncertainties that we do see in those markets, we don't want to have bigger debts than what we already had. I think that we have been very good in steering it. If you take the last 24 months in the company, we have.
Sorry, is it with a lost revenue, or are you just getting, Okay, cash when you deliver?
No, it's very difficult for us to answer because the fact is that we are saying no to orders. Do they show up two weeks later when people have got some money again? Or have they, in the meantime, bought some of the goods other places? We simply don't know. When you have a very big position or a large market share in the market, I think that what we are doing is what you would do when you have this size, where this is of course an opportunity for new players to try to get a foothold.
I think maybe, just adding a bit on whether we have less visibility. I think we mentioned that, our last conference call, as more and more of our revenue come from, emerging on newer markets, Russia, Brazil, Argentina, China, and various others, then their pattern is simply such that it's much less predictable. That in addition to what Lars said, also means that we simply have to get used to seeing more fluctuations between quarters.
Yeah.
We did this some years back.
Then you asked a bit about about SpeediCath also, if we are eating away from our own base there. Yes, we are. We are also interested in doing that. We do know that once SpeediCath a user is using SpeediCath, I would almost say that it's growth on them. It means that they really like it so much that they are not willing to change it that easily. It is a unique technology. It is a way to get some shares in the market, which are really difficult to move. As you know, in the U.S., most of the catheters used there are just basic catheters with a gel on them, so they are very, very easy to switch around.
We do whatever we can do to change the market, but we don't do it at the price that we are losing money. It is, it's definitely, it's a very good business for us.
Is it a slow conversion or is it going fast? How much have you converted so far? Just understand how much we should expect from this in the back half of this year and also in the coming years.
I guess that this, what we are doing, with this market now, we're talking years. It's not something that you're just switching, over a few quarters.
I think it is one of the good examples that we often talk about when we are asked: How can you fight the price cuts, price pressure? I mean, this is one of the good examples where we actually can do something on our mix, make some mix changes, that can help us, and that's what we're doing.
The improvement in the U.S. in the last quarters should more come from ostomy and maybe skin care.
It's both, it's ostomy and skin care, but it's of course, also continence care. It's not a revolution that we are doing, because you have to remember that every time we convince a dealer that he takes SpeediCath products on board, he is losing money compared to what he used to do on the catheter range. What he gets is a unique technology, and he can use that to take more spinal cord injury patients on board, and they are using a lot of other products apart from the catheters, and that is why it's such a good deal for them.
In talking about continence in the U.S. and whether that actually really impacts the growth rates, and also remember that in the comparison quarter last year, we still had the impact from the reimbursement change being a positive one for us, and that sort of faded out over the year. On an all other things equal basis, you should actually expect very low continence care growth rate in the U.S., and this, of course, is something that we do that will offset that. You have to remember, the comparison quarters had still the high growth rates.
Yeah. Yeah.
Okay. Thank you very much.
Our next question comes from the line of Scott Bardo. Please go ahead with your question, and can now see your company name.
Thank you very much. Good afternoon. Yeah, a few questions, please. Firstly, I wonder if you could give us a little bit of a more detailed update on France. I appreciate you've discussed some of the changes in the distribution channels, some consolidation there. The weakness in France, I guess, comes ahead of an anticipated price cut in France, which should impact more your fiscal 2013. I just wondered, you know, is it sensible for us to continue to assume this weak environment going forward, or do you think that actually you should at least this year, have a bit of an uptick? More broadly in Europe, you discussed that Russia is a big component of the growth.
Would you go so far as to say that in Western Europe now, your ex growth, or could you perhaps quantify what your current growth is in Western Europe, please? Just third question would be on, I understand that you were unsuccessful, in a patent infringement case you raised against Hollister in Germany. Just wondered if you could give us an update on what your intentions are going forward, and whether you suspect there'll be an increased competition in various markets from VaPro? Thank you.
It might be that I have not been very specific about France. What I explained about France really is that we do see that our underlying sales in France, from the wholesalers directly to pharmacists, you know, pharmacists do not carry any stock. If the pharmacist is selling products, that's because they are or buying product from the wholesalers, it's because they are selling them straight away. It's not because they are building any stocks. So the numbers that we buy, which is the one I call the shares numbers, they just show us that our underlying growth in France is good. It's not been very good in the quarter, which means that there have been a stock reduction.
We have seen that before, and that means that growth will pick up again in France. That's how we see it. You are correct that in France, we have been warned that there will be discussions about reimbursement levels on ostomy and continence care. We don't know when they will start, but when we know something about it, we will of course, explain it. Did that so we have no news, basically. Did that answer your question on France?
Thanks very much, Lars. I mean, is it correct to assume that you and the industry should have some indications of the suggested pricing reforms in France within the next month or, you know, few months, or?
I simply can't say. We have tried this a number of times in France, and they act when they act, but they don't tell us in advance when they, when they plan to act. We just know that they, that they signaled they would probably start negotiations during the course of 2012. That's what we know.
Okay, thank you. The second question is more broadly on European growth.
Yeah, well, I can give you a Eastern and a Western European growth. You know, there are a number of countries in Europe that grows, but none of them are growing as fast as Russia. On the other hand, Russia is also a market where suddenly they might run out of money, and then you see a different picture for a period of time. Russia is not a stable country, like many of the other countries when it comes to reimbursement.
Understand. Thanks. Just to understand, the products being tended in Russia, certainly for ostomy care, these are more Assura rather than SenSura. Is it possible to sort of give us a sense of whether there's a unfavorable profit mix with the growth stemming from sort of different dynamic within Europe?
Well, the new markets are not that meaningful when it comes to total turnover yet. In that sense, it's not really, I'm not able to quantify it. You know, it's not just Russia, which is doing great. U.K. is doing good. You know, all the Nordics are doing good. Italy is, by the way, doing really good. You know, it's not all of the new growth or all of the new money which is coming out of Russia.
Understand. Thank you. Perhaps the last question?
On Hollister, that's a more technical one. It's, you know, it's this product called VaPro. Have you seen the product?
Yeah.
It's a mitten catheter that Hollister launched in Germany in the beginning of 2009. We believe that the product is infringing some of our actually granted patents, and that's why we sued Hollister for product infringement at the district court in Düsseldorf, and they ruled against us, and we actually think that that was wrong. We have appealed this to the Federal Court of Justice in Germany. Just to quantify the threat, it's we don't see much of movements on VaPro, but it seems to be interesting in Germany because they have a habit of almost trying to do sterile catheterizations in the SCI centers. That's why it's probably an interesting market for them.
We also estimate that their market share in Germany is very low and single digits.
I'm sorry, just last question and as a follow-up here. You don't think that this may pave the way for Hollister to get a little bit more aggressive, in supplying the markets, not just in Germany, but across Europe now? Is that a real threat, or do you think not?
No, it's very easy for competitors to belittle each, you know, other's products and so on. What I can say is that I would definitely think that you should try to look at the product and compare it to what else is in the market, and then remember that it is a pretty expensive solution.
Thanks very much for the answers.
Welcome.
Our next question comes from the line of Veronika Dubajova. Please go ahead with your question, announcing your company name.
Good afternoon, Veronika Dubajova here from Goldman Sachs. Thank you for taking my questions. Most of them have been answered already, but I guess two that I'm curious about. One, lean in terms of receivables that you have outstanding in the PIGS countries, can you give us a sense for how much more there is on your balance sheet, and how you're thinking about the probability of having to take provisioning for that further down the line? Second, just curious, you've made a lot of comments saying that the U.K. market, actually, or you performed very well in the U.K. Just wondering if you can give a little bit of color on, is this the efforts that you've been putting through in wound? Has there been an underlying improvement in the market?
Any color that you can give us to help us understand what's happening?
Want to start with the UK.
Yeah. Yes.
Go on.
Yes. The U.K. markets, well, it's actually one of the most competitive markets we have. There are more competitors there than anywhere else. But it's also a market where we have, where we have a almost a unique position because we have a Dispensing Appliance Contract, Dispensing Appliance Contract. We are the largest of the sort or of the kind of business in the U.K. Which means that we're also distributing a lot of our competitors' products through our business. Therefore, we do understand the market dynamics in U.K. to a greater detail than in any other market, I guess, on the plans.
You know, with the product portfolio we have and with a very good insight into the market, we are able to turn that to our advantage. That means that U.K. is actually doing pretty nicely across the board on the product ranges that we are carrying there.
Okay, with regards to your questions on the receivables in the fixed countries, we have the countries constitute about 11% of our revenue. In terms then of receivables, they are at 25%, so quite a large chunk of our receivables. We have made provisions for, I think, a good share of that, and the share that we believe is correct now. I think now it's more a question of we will have to see what happens, because obviously we have provisioned everything that we believe we should do.
As I mentioned, when we had the margin discussion earlier on in the guidance that, you know, that there are certainly a lot of uncertainties, right now, and I don't know what it's gonna look like in a quarter from now, but right now we're comfortable with what we have provisioned.
That's great. If I could just one follow-up in terms of, in terms of you thinking strategically about corporate activity, can you give us an update on where you are with your priorities and whether anything's changed?
There are no changes to what we go for. It's, as we explained, I think a number of times, the most important business on earth for us is our ostomy and continence care business in Europe. Every time we grow a point in Europe, it's very, very important for us. It's very important to us that we do invest significantly in emerging markets. It's very important for us to become successful in the U.S., and that is what we are spending every attention we have on.
Yeah. Let me just rephrase that, I guess. My question was, in terms of the process that you're looking for on the acquisition side?
Yeah.
How much further do you think you are from a solution, to the wound care conundrum, let's say?
That's, we can't be more specific on that than we...
No news on that one.
Have been.
Understood. Thank you.
Our next question comes from the line of David Adlington. Please go ahead with your message, announcing your company name.
Hi, it's David Adlington from JPMorgan. Thanks for taking the questions. Most of them have been asked, but just a, maybe a housekeeping one. I think you took a part provision on the litigation, that you're taking the rest on this quarter. Just wonder when you took the first part of that provision, which I think was probably about DKK 30 million.
We took the first provision last year. It was actually, I think it was at the beginning of the year, and then we increased it slightly towards the end of the year. At that time, obviously, we thought we had made a very conservative provision, but it was the beginning of the year, and then we took a little bit extra at the end of the year in Q4.
Right. We should assume the bulk of that was taken in the first quarter last year?
At least in the first half last year.
Right.
Just a bit more in Q4, but nothing, not a lot, not a whole lot.
Okay, thank you.
I'm so sorry, but we have to stop now. We don't have time for any further questions today, so we'll stop in time. You can always call our investor relations team, you know that, Yen and Tim , and they would be ready to take all the other questions that we did not answer. Thank you very much, and looking forward to seeing you guys.
Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect your lines. Thank you.