Good afternoon from the Colplast headquarters in Denmark. My name is Ellen Bjergert and I am the Vice President of Investor Relations. And it's a great pleasure to be here today. On behalf of the Investor Relations team, a big welcome. We have an exciting program planned for you today for the next 3 hours.
Before we get into the program, a few practical details. So today we really look forward to all your questions. We encourage you to use the phone lines to ask questions. You can also ask questions via the chat function. And with that, we would like to get started.
And I am very happy to introduce our CEO, Christian Willemsohn.
Good morning. Good afternoon. Depending on where you're dialing in from. I wish I could say it's great to see you, but I hope that you can see me here. I had hoped that I'd be able to welcome you all here at our headquarters in Humblyberg, North of Copenhagen.
But alas, because of COVID-nineteen, this was not meant to be this time, but I'm happy that we can then make things happen this way. We planned a compressed program for you. The governing design principle has been that, we know that it's hard to keep people's attention for too long. So the program is going to span 3 hours today, and we have then placed a number of follow-up sessions, or deep dives as we call them, on both October 7, where we're going to walk through some of the key geographies that we have in chronic care, both the US and China, and also our smaller business areas, Interventional Urology and Women's Skin Care on that day. On October 9, there will be a separate session on our new enterprise theme around sustainability.
Today's agenda is, I believe, exciting. I'm going to open with what you might call the big picture, and I'll then hand over to Anna Scogor, our CFO, who will talk about the financial outlook. Anders will hand over to Camilla, who looks after our people and culture agenda, and Camilla will talk about what role that plays in our new strategy. We'll then have a first Q and A session that's going to last for about 15 minutes before we break to what I think many of you who have dialed in look forward to as today's main event, the topic of innovation. I've met many of you on the road over the past few years, and we've talked about this topic a lot.
You know it's a topic that's close to my heart. And today we're going to talk both about Nikolai's new organization and setup, but also our progress on the clinical performance program that Oliver Johansen, who runs our R and D, will present. We'll then transition to growth that Paul Marken will talk about that and efficiency, where Alan Rasmussen will present our Global Operations Plan 5. All told, today you're going to meet all of our executive leadership team and Oliver Johansen, and I hope that you're going to find that the day is worth your while. With that, let's get started.
In my session, I have a half dozen messages for you. The first one is LEAD20 strategy worked. Our LEAD20 strategy worked. It accelerated growth. We've created good value.
Many years ago now, about a decade ago, we initiated an effort to build what we call the consumer healthcare company of the future. It underpinned the strategy that we just concluded, and it also underpins the work that we're doing in this strategy period. I'll talk more about what I mean with that. Our new strategy that we call STRIVE 25 is going to be all about sustainable growth leadership. And you're going to hear me say more about that later, but the emphasis is innovation and growth in our 2 main geographies, US and China.
We're also fully committed to investing in and developing our 2 smaller business areas: Interventional Urology on the one hand and our Wound and Skin Care business on the other. Both businesses hold real potential for value creation, but quite different agendas for the coming period, and I'll also talk to that. We have a number of growth enablers on the efficiency front, the people front and sustainability front, all are topics of the new strategy that I'll get back to. And then finally, we will actively pursue M and A to build growth options, and I'll also talk to how we're thinking about doing that. The key word is active.
Now let me start by talking a bit to the kind of company that we are. The mission of this company has stood firm for more than 6 decades. This is a company that cares about people with intimate healthcare needs. This mission, this purpose, I can say on my own behalf and I know for many, many of our colleagues, is something that is a big component of them thriving in the Company. We have many people in the Company that choose to spend their entire career here.
One of the things that I've been trying to do after I became CEO was connect this purpose with our performance. I call it deliver with purpose. And what that means is that whenever we get together on a quarterly basis in our company and we talk about our financial results, we connect them with how many people we help. So my point is both to our organization and to all of you that a strong purpose walks hand in hand with strong performance. Now I said in my opening that we're building the consumer healthcare company of the future.
I know that's a bit of a lofty statement. We are basically evolving our company based on a conviction that healthcare is changing fundamentally. I've listed here on the left hand side of this chart 5 trends that I believe should come as no surprise to the people who are joining the call, and trends that affect how healthcare is developing across the world. The first one and most important one, is demographics. One brute fact: in 25 years, another 1,000,000,000 people are going to enter the age bracket of 60 plus, which is the age at which we all start to consume more healthcare.
That corresponds to all of the population in all of the Americas. It's a big deal. You all have smartphones in your pocket. Some of you may be looking at them right now rather than the screen. But you are, because of these smartphones, consumers of information.
You have the Internet in your pocket. You are also healthcare consumers. We all are, and have all become. This is the 1st place that we go to for information if something happens to us or somebody that we love. What that means is that if you are a health care company, you must be able to engage consumers directly in a language that they can understand, answering the questions that they have, and being on the platforms where they are.
This is a new discipline for health care companies, and I'll talk to how we're doing that. Health care is going digital, and health care information is going digital. So it's also incumbent upon all health care companies that you can capture and work with and work safely with health care information, extract insights from it and play it back to the constituents that you serve, be it health care professionals, consumers, or the health care system. Health care information is going digital. And what this all translates into is increased demand.
So our conviction is also that the trend that we've seen on price pressure that's not going away. That's just a fact of life if you work in healthcare. There will be pressure on prices, and there will also continue to be consolidation of channels. Now the question that you have to answer, if you accept that these trends are true, is as a healthcare company, how do you evolve the company that you are going to thrive from these trends and that they don't destroy you? We put together a simple conceptual model for what we believe is the recipe for driving growth in this type of environment.
It starts with products. This is a company that believes in innovation. It starts with products. At the core of these health care needs that we serve there is a product that is put together with care and quality that solves a medical need. But we also understand that Products are not enough.
They must come into the world and you must partner with healthcare professionals that they know about this product, they know how to use it, and ideally that they like it so much that they're going to become promoters of your innovation. You also have to be able to engage the people that use the products, consumers, and they ask different questions than your other customers on the healthcare professional side. And all other work as a company that you do around products, partnering with healthcare professionals and engaging consumers at scale, all of that work, you must prove to the payer that you add value. And the currency of that conversation with the payer is data. Data and digital tools is a big thing for the industry, it's a big thing for our Company and we've also been investing in building a much stronger infrastructure in the Company over the past strategic period and a number of digital tools that face customers.
Now let's have a look at the markets that we're in. All of the markets that we're in see underlying growth in the low to mid single digits. But of course, the positions that Coloplast holds across these markets is very different. For Ostomy incontinence, we are category leader, and we have some convictions about what it means to be the category leader. If you're the category leader, you set the tone, you set the pace, and you set the bar for what it means to be competitive in the category.
You've heard me talk a lot about the Clinical Performance Program. Building that level of products is what a category leader does, and this is also why we put it on the agenda for today. On Interventional Urology and on Wound Care, we are not leaders, but attackers. And the commercial agenda for businesses that have that type of position must inherently be different. You must be the attacker.
You must have more focus. And I'll talk to how we bring that to bear. Now LEAD 20 strategy has produced good results. I'm very satisfied with the results that we produced. Back in November 2017, we chased guidance to allow ourselves to invest more in growth.
We did, and growth came up. Until we ran into COVID, we delivered 12 consecutive quarters of 8% growth. EBIT margins have also been very favorable over the period, and investors have seen increasing cash returns over the period. So all told, I'm very satisfied with these results. Growth is tied to products.
And I'm very happy to be able to say that the innovative products that we have in the market today represent the strongest portfolio we've ever had. On the Ostomy side, everything revolves around the SenSura Mio portfolio. The SenSura Mio portfolio is built around a simple idea that if you have an ostomy, what you need is to get a fit to your body and the whole product range is built around that simple idea. We have products for different body shapes and supporting products that will allow you to get a bespoke fit for the best possible treatment for you. On the continent side, we've been focusing very much on getting our SpeediCath Flex portfolio built.
It's been a very important growth driver, in particular in the U. S. And on the wound and skincare side, it's been all about Biotane Silicone and our 3 d Fit technology. I'm super excited about what that technology has a potential and we're basically trying to build an entire category around that technology. On the Interventional Urology side, Titan and Altus continue to be our main brands in men's health and Women's Health.
Now, users still face challenges. Users still face challenges. And that's also why we've initiated our clinical performance program. So what I brought along here are two examples from the ostomy world and the continence world of how people still have problems with leakage and the associated skin conditions that can lead to both wounds, a lot of pain and readmission to hospital if they don't go, treated. On the other side, we're showing that if you are a permanent user of intermittent catheters, you risk having, or on average, you have almost 3 urinary tract infections per year.
If you are a wheelchair user and have a neurogenic bladder, this is very bad news and it's also potentially dangerous and can lead to hospitalizations and very, very dangerous complications if it goes on the right that's a bit of a snippet for what we're going to show you later, of our digital digital ostomy solution, but Nikolay and Oliver will be back with more on that later. One of the things that I'm very proud of with Coloplast is that we built a model that engages users at scale. So that fancy conceptual model that I showed you in the beginning of engaging consumers in this company that's real. It revolves around our Care program that is now live in more than 30 markets, engaging with millions of consumers in millions of high touch type of interactions, which are meaningful and provide great service. This is a decade long commitment.
So if you walk into South Korea, the care program that we run there is not the same that we have in China, which is not the same that we have in the US or in Argentina or in Italy. We built these programs. We built these patient support programs with our healthcare professional partners. And they are built with respect to the standard of care that we see in the countries that are relevant, the product portfolio that's available, and basically solving the issues that are the most pertinent to solve in that particular geography. Very, very important and something I'm very proud of that we've gotten to this stage.
We've also forward integrated our business in 5 of our top markets. We've done that based on a conviction that if you're present in the channel, there's a much greater likelihood that you can provide the best possible service of combining a great product with deep therapy area knowledge for a good experience for the people who use the product. We've also done that to make sure that people have access to our products and of course also to be present in the conversation with payers when it comes to price negotiations. Growth is not automatic. As much as I'd love for it to be a bit more automatic, it is a ton of work.
And it doesn't come without investments. So what you can see here is how we've invested in the LEAD 2020 period. We've invested up to 2% of sales annually across different functions and geographies. The main themes have been significant investments into sales and marketing. We often be sales representatives opening up new markets or new segments and significant investments going into R and D.
On the geography side, we've invested across all of the regions that we're in, but with a strong emphasis on US. I like to believe, and we've basically upheld this philosophy for some while now, that at any given point in time, we need to look at an attractive portfolio of growth opportunities that meet growth requirements for short, medium and long term. We care about the growth that it must be sustainable, which is also a core tenet of our new strategy. So in summary, I'm happy with the results that we've gotten from LEAD20 work. But like I say internally, we have more work to do.
On the innovation side, we've launched some great products, we must deliver the clinical performance program, and we must build options into our pipeline for future growth. We've defended our stronghold in Europe, but there's more growth opportunity to be had in Europe. We've come far in the U. S. On both Ostomy and Continence.
We've invested a lot. We've gotten growth up. We've been a strong challenger. It's now time to think about how we become a leader. On China, we've invested over decades to build the position that we have today.
We have a strong digitalized commercial model that has a lot of opportunity. We must leverage that into the next strategic period. Wound and skincare, it has definitely improved, but we also must drive margins to a higher level and I'll talk to how we're going to be doing that in the next strategic period. The Interventional Urology has delivered very strong growth, very high returns on invested capital, expanding margins. And post our strategic review, we have decided to also strategically develop that business for future growth.
That requires a revitalized pipeline because historically we haven't invested in innovation during the mass tort litigation that we were involved with. The business holds a lot of potential. I'll come back to that. And then finally, our GOP4 plan. I'm very pleased to be able to say it's delivered, on time, on money.
GOP5 is the biggest one that we have had. Look, we've had in plan yet and I'll talk a bit through it and Alan more so later in the program. That gets me to, Strive 25, as we call it the Strategy. On the left hand side here, you can see the at the upper level of the circle are 3 business areas that represent the sources of growth, and the 4 components that you see below are, if you will, levers that support growth. So innovation, efficiency, sustainability and people.
What you may also be able to see is that under STRIVE 25 it says Sustainable Growth Leadership. Sustainable growth leadership. We ask of all our leaders, what's your strive? And sustainable growth leadership is my strive. Sustainable because I am aspiring for sustainability to become a real enterprise theme in our company.
Sustainable also because I want our growth and performance to be sustainable. Leadership because we aspire to lead the categories that we're in. Not follow, lead. And we also aspire to evolve the way that we lead our Company. It is becoming harder to generate the growth as the company gets bigger.
But the emphasis is growth, innovation and growth. Now as you can see, we are maintaining the guidance that we already have in the market. We like this guidance for many reasons. One, it represents strong performance if it's delivered. And 2, it allows management to have a certain degree of flexibility to invest in and develop the company with the types of growth opportunities that we see in the company.
We still believe also that the margin guidance here requires a fair amount of discipline and will also reflect good returns. We've set ourselves up to deliver on this strategy. You'll see here on the left hand side, I really like these photos. We've set ourselves up here with 3 familiar faces on the left hand side: myself, Anas, our CFO and Alan, our EVP of Global Operations. And the novelty is really on the right hand side.
And what I'm organizing for here is simplicity and clarity of accountability and for the difference in the task at hand. We therefore have a new innovation area that's led by Nikolay and you'll hear more about this later. Nikolay's area essentially assembles all of the functions involved with building, delivering and launching, or if you say defining, building and delivering our commercial offering. This is a new thing in the company. I want one leader behind that effort.
And this is inherently very different work than the work that we do in the growth organization, which is sales. On the sales side, Paul Marken is responsible for sales in chronic care and wound and skin care. And Paul will be looking after our quarters, our years and also building the discipline and professionalism into our sales organizations that are required to receive and implement all of the great things that come out of innovation. So really what we're trying to reflect is that these are 2 very different tasks, but they're important to organize for right now with where the company is. Nikolay's core task will be delivering the clinical performance program, and he'll get back to that in a few minutes.
And Paul's core task is to sustain growth across all of the geographies and businesses that we're in. We've also renamed HR People and Culture and made that part of the executive leadership team. And I'm very pleased that Camilla has assumed that role. We aspire to do a number of things on that front that Camilla will talk to you about. And when it comes to Interventional Urology, we continue to run that as a separate business unit reporting to me.
Let me start with innovation. Like I said initially, this is core. At the core of what we do, there's a product solving a medical need. The clinical performance program that we have invested in over the previous strategy period, this strategy period must be delivered. We want these products to get into the world and make a real difference to the users that receive them.
Nikolai and Oliver will give you a status on where we are with that exciting work. We will continue to do the type of innovation work that we've also done historically, which is launching products within the existing technologies that we have. In fact, this has been a very large share of the historical growth story of coloplast. And we think there's plenty of runway also for that type of innovation. And then as something new, we are introducing a requirement of options into the pipeline.
We want to think about what comes also after this strategic period. We want to think about what type of product paradigm lies beyond what we see in Ostomy Care and Continence Care today. And the common denominator for everything that we will entertain on that front is that it must build long term growth. And we set ourselves up to do that type of work. We've set up a new technology scouting department in our innovation organization.
We've strengthened our corporate M and A team, and we've also strengthened our business development and M and A muscle on Interventional Urology. On the growth side, there's going to be growth across all three business areas. We want all three business areas to contribute to growth. And like I said earlier, the positions that we compete from are, of course, different. For chronic care, beyond the innovation agenda that I talked to on the previous chart, we are putting a lot of emphasis on our 2 largest markets.
China we've been in for several decades and we've built a very, very strong position in particular in Ostomy. We've built a position that has great coverage. We have a highly digitalized commercial model all the way from the interaction with patients in the hospital setting to their home. We see a lot of growth in the digital channel. Lots of the consumer and customer interaction is digitally enabled.
And this has been a core strength both during COVID, but we also believe for the future. China will be a core growth driver, and you'll hear Paul Marken also talk to how we think about expanding beyond the type of work that we do today. US is our single biggest growth opportunity. For those of you who followed the Company for a long time, you will have heard us talk about the U. S.
A lot. We've invested significantly into the US. And I'm very pleased that we've gotten performance to a place where we've also broken through some really important milestones, both on the GPO front, but also in the market share position front that Paul will also talk to when he comes on stage. The headline for our U. S.
Work is from challenger to leader. And then what I also put on this chart is market development. There's more to do on the market development side. We've seen very good growth from opening up new markets for reimbursement for intermittent catheters in Japan, South Korea, Australia, a number of markets in the Middle East and Latin America. But there's more work to do on the market development front also in our developed markets.
Wound and skincare is going to be all about 3 d fit. And then we've initiated a portfolio of projects to improve the gross margin, where we think there's more work to do that we can get this business to contribute more than it has historically. And then finally, Interventional Urology, which to be fair, has had a bumpy ride in coloplast. As you all know, we've been embroiled in mass tort litigation for a number of years. That has largely come to an end.
You all know that we conducted a 360 strategic review of this business and concluded that there's lots of potential in it. And by the way, this is already a very well performing business. So you will see us continue to invest in interventional urology, both organically and inorganically to pursue the growth opportunities that we have there. I'm also very pleased to announce a smaller such type of investment today that you can read more about online, but Coloplast has bought a position in a smaller development company called Francis Medical that has some very exciting technology that's relevant for prostate cancer. We'll get more into that both in the IU section and you can read more about it online.
Now, growth must be supported. Growth must be supported. We still have a very important efficiency agenda. Alan will come back to our Global Operations Plan 5. I already said that this is the most demanding yet.
You can think of the main requirement that we're posing on ourselves is that we must be FTE neutral throughout the strategic period in the operations organization as we grow. This requires some really serious work. Historically, we've had great leverage from our business support center in Poland that does a lot more than just back office and finance. We are going to continue to do that work and expand that position. And then we're also going to do some work on the people side that I think I'll allow Camilla to talk most to.
I'll just say this that if you want growth, you need growth leadership and we are going to revitalize the conversation about leadership in the company. It's also very important to me that we build a diverse company. And we've initiated some serious work on that front with important targets that I really want to make sure that we meet. And then on the sustainability front, or the ESG front, we are placing more emphasis on the E this time. So sustainability is a bigger topic than it's been before.
The environment is a bigger topic than it's been before. We are aspiring to become a 0 emission company by 2025 from our own operations. So this will be what is called Scope 1 and Scope 2. And we want to transition the company completely to 100% renewable energy. And with that, we don't mean buying certificates of renewable energy, we mean transitioning our operations to green energy.
We also have more work to do on the product and packaging side. We must get to 80% of packaging that's made from renewable materials. And we need to get to at least half of our production waste being recycled. I hope we'll have a chance to talk more about just how complex these challenges are with the kind of work that we do, but the targets are going to be very demanding. All the work that we have done as a company historically, what we call responsible operations, but this is really running a company with integrity and professionalism, living up to the UN Global Compact, etcetera.
Of course, all that work will continue. You can rest assured that the governance around that will continue to be highly professional. We will continue to invest. Innovation, different business areas, consumer, digital and sustainability. We will invest in all of these areas.
I should probably mention that the investment that we've allocated to sustainability and the projects that lie under that area runs in the couple of 100,000,000 in OpEx and CapEx. So we really mean business that we want to move things with it. I already talked about the U. S. And China emerging markets is also important for our investment into growth, as you can see here.
M and A, we're not a company that's done a lot of M and A. And I can say, what's different this time around. And at the end of the day, the only difference will be if we get to a place where we do things. What we've written up here is that we are going to be opportunistic about what we call a large place. You all know that the company has the capacity to act if we can see a path to value creation from such a transaction, but they are of course few and far between.
We are, however, significantly more systematic in how we have screened the opportunity space now than we were just a few years back. We've invested in building a stronger M and A and business development set up in Interventional Urology. We have a very good view of the map of early stage from early stage to mature companies that are present in the adjacencies that we think are interesting. And we've done similar type of work for the different businesses that we're in. So we have systematically screened for opportunities to expand in channel adjacencies and early stage technology.
And the Francis Medical investment is an example of something concrete that has come out of that work. My expectation is certainly that we are going to do more. We are definitely doing quite a bit of work. This chart is what it's all for. I asked my team to get me 60 years of data because this company has been a growth company for more than 6 decades.
I had to make do with 2 decades, 20 years as you can see here, but this is a growth company. And so the legacy of the company is growth. We believe that the future of the company is growth. STRIVE 25 is all about innovation and growth, and continuing to support this legacy that we have on this chart. Now, finally, before I hand over to Anders, a few words on COVID.
No doubt, this has been this has been a significant headwind to the Company this year. This had severe impact on elective procedures. It's also affected both our wound and skin care business, but also our chronic care business, particularly in the UK. It is a bad thing when your sales representatives can't get into the field and meet customers and they have to make do with digital solutions. And it's also challenging when clinical trials see headwind.
Having said that, I think we've done good work. We've kept our people safe, we've continued to serve our customers and we kept the lights on throughout this period and we've managed the Company like we always do with a lot of discipline. So also in this year we are going to report numbers with growth on top line and growth on bottom line. I can't tell you how proud I am of that because I've seen all the work that's gone into it and it's thanks to all of the 12,000 people that work in the company every day. Now my conviction is that this thing is going to pass.
COVID is going to pass. I know it's hard to really see it now with all the things that are going on in the news, but it will pass. And on the other side, there will be more demand for clinically differentiated products that reduce total cost to payers, not less. That's our agenda. There'll be more demand for digital solutions that engage customers and consumers, health care professionals and consumers.
More demand, not less. That's our agenda. And there'll be more demand for health care companies that can support the system and support consumers directly for good outcomes, even when times are tough and there's a pandemic, you can keep the model running and continue to make sure that people get access to product and are in good treatment. That's our model. So all in all, I think that we are in as a company in good shape.
I feel confident about our level of competitiveness and I'm optimistic about the growth opportunities that we have. And with that, I'm going to hand over to Anders Gogo, who will take you through our financial outlook. Thank you very much.
Thank you, Christian. My name is Anders. I'm the CFO in Coloplast, been with the company since 2006 and been the CFO since 2014. I will speak to value creation through profitable growth. But before I do that, I will speak to the short term.
So for this financial year, we're going to deliver an organic growth of around 4% and an EBIT margin in the upper end of around 31%. This is still something we are very satisfied with given the COVID-nineteen situation. Let me also put a few words to our outlook for next year. For next year, we are looking at a number of moving parts. Firstly, I'm expecting positive second half of our Urology business due to the challenging corona situation this year.
Secondly, we're also looking into some challenges in the chronic business. We have been talking quite a bit to the U. K. But we also see a lower info of new patients into other smaller markets, especially here in Europe. We also have some uncertainty in our Wound and Skin business, especially in the markets where we are exposed to the hospitals.
So that is China and France. And then finally, it's also worth mentioning that with the knowledge we have today, we are not looking into any bigger health care reforms as we saw in 2019, 2020 where we had the French health care reform. So overall, when I look into 2021, we are looking into a year that is very much back end loaded. So I'm looking into low single digit growth in the first half of the year and a double digit growth in the second half of the year. In terms of our margin outlook, the outlook for next year will be based on this year's margin.
And next year will be impacted by how much we will invest into growth and innovation. But we will also continue to be prudent on cost. As we are in the middle of the COVID-nineteen situation, we will still have a global travel ban. We will not do the same level of congresses, sales meetings, etcetera. So we will still be prudent on our costs.
So we will guide on our financials when we announce our annual report early November. And here we'll be more specific on how we see 2021. The outset for our STRIDE 25 period is very strong. I'm very happy to share with you that we continue to lead our peer group. When we are evaluating our performance, we are comparing ourselves with our peers across the medtech industry.
And if we compare on the margin and on the return on invested capital, we continue to be number 1. And that's something that we are very satisfied with. We're having a lot of focus on value creation. We're having a lot of focus on shareholder return. The way or the financial metric that we use in order to measure value creation is economic profit.
It's a metric we and the company have been working with for many, many years. And throughout the LEAD 2020 period, we have generated around $18,000,000,000 in terms of economic profit. It is very much driven by our growth. So it's very much driven by our organic growth that we have seen over the lead 2020 period. But we have also seen some contribution from our margin.
Our margin in the lead 2020 period has on average been around 32%. But we have also seen some contribution from our asset. And I'm happy to say that we have a very strong asset base that is also contributing to our economic profit development. As Christian just talked to, we are expecting on the other side of corona that the underlying market growth will continue to be in the level of 4% to 5%. It is very much driven by demographics.
It's where we are seeing more elderly people across the mature markets, especially here in Europe and North Americas. We're also expecting that access to health care will continue in emerging markets. In the lead 2020 period, we actually saw a number of openings of reimbursement. We had a situation in Korea, in Japan and also in Australia where reimbursement for intermittent catheters were opened up. So that contributed to growth.
But on the more challenging side, we are also expecting that price health care reforms will continue. So I'm also expecting over this Drive 'twenty five period that we will have a negative impact in terms of price of up to -one percent. Our growth will be driven by volume, but it will also be driven by mix. We have a number of markets where we are able to upgrade from lower priced products to higher priced products. For instance, in China, and Paul will come back and speak a bit to that later on.
When we look at the growth, Christian already talked a bit to it, but we had a strong period of growth throughout the lead 2020 period. And the 2 years before the corona hit us, we had 8% growth. What we were really happy about is that the growth was very much broad based. So we have been taking market share across all our regions and also across all our business areas. And if we look into the STRIDE 25 period, the message is basically the same.
We are expecting that the growth will be broad based. We're expecting that our chronic business will continue to grow more than the market. We have a very strong product portfolio in the Ostomy area, where we have over the lead 20 period been launching our Senzu Mio program. Within Continence, we are having a strong platform within the male segment, the SpeediCath Flex. And within the women's skin, we have a strong platform with our Biotin Silicone and we have most recently launched our Biotens fiber.
All of that will contribute to growth also in the STR1VE 25 period. Within the urology area, we are expecting high single digit growth driven by geographical expansion but also driven by moving our Indoorheology product portfolio to the U. S. Across our regions, we are expecting our European markets to grow more than the underlying market growth. We are expecting to take market share across Ostomy, Continence, Wound Care and Interventional Urology.
Our ambition for the U. S. Still exists in the level of around or minimum of 10% growth. And for Emerging Markets and China, we also expect to grow double digit. So all in all, as I said earlier, we are expecting to see a broad based growth both across our business areas but also across our regions.
Another important part of Coloplast is efficiency. Christian already talked a bit to it, but we have been focusing very much on efficiency and improving our margins over the last 10 years. The Global Operations plans have contributed quite significantly to the gross margin development over many, many years. And we're also expecting that the Global Operations Plan 4, the finalization of that and also the initiation of the Global Operations Plan 5 will contribute to our gross margin development. The big focus we will have in Global Operations Plan 5 will be optimization.
Alan will come back and speak further to that. But that will have a quite significant impact on our FTE base. On the more challenging part of where we are seeing headwinds into the STR1VE 25, that is driven by depreciation. We will increase our CapEx allocation to optimization, and that will drive depreciation levels up. We will also, throughout this Drive 25 period, establish 1 more factory in Costa Rica.
That will also add more cost in terms of transferring goods to and raw materials to Costa Rica. I'm still expecting mid- to high single digit wage inflation in Hungary. And then finally, as Christian said, we will invest into our sustainability agenda. We are expecting over the period to invest up to DKK 250,000,000 both in CapEx activities but also in OpEx in order to drive and deliver on our sustainability ambition. So overall, we are expecting our gross margin over the period to be flattish.
If we look at the other cost items, I still expect that the distribution cost will be in the level of 28% to 30%. And distribution in Colopas, that's sales, marketing and logistics. We will see some scale effects, especially here in Europe that we then again will reinvest or the scale effect we will then reinvest into our opportunities either in the North Americas, in emerging markets, Asia, etcetera. And Christian already talked a bit to our business center in Poland. We have over the lead 2020 period increased our business center quite significantly to cover not only the traditional shared service functions like finance, HR, IT, procurement, but now the business center is also supporting our growth and commercial organization and especially the direct businesses.
And we're also expecting quite a lot of scale effects from that into the STR1VE 25. On the admin side, also as a result of our business center but also our common IT infrastructure, I'm still expecting to have an admin ratio in the level of 4%. And some of the scale effects we are having here will be reinvested into IT and especially IT tools to support our commercial agenda. And then finally, we have R and D. So the R and D ratio, we also expect that to be around 4%.
We increased it from 3% to 4% some years back in order to deliver on the clinical performance program. We will also, in the STRIVE 25 period, also deliver on our existing portfolio. So we have a number of launches also within the existing technologies. And we will also invest more into R and D within the intraniology area. So overall, I still expect that we'll have an R and D ratio of around 4% of sales.
In terms of investments, as Christian just mentioned, we are going to invest up to 2% of revenue into various commercial and innovative activities. My focus will still be on being disciplined in order to make the right decisions, but also to make sure that we're executing on the investments that we are planning to do. We are focusing on a number of criteria. Firstly, we're looking at the macroeconomic environment. So that needs to be rather stable.
Secondly, we are looking into the market attractiveness, what's the market size, what's the market growth. Thirdly, we are having a lot of focus on leadership, but also on the organization that we have in this specific market or region in order to make sure that we're executing on the investment that we are about to do. And then finally, the case financials also needs to be healthy. On the commercial investments, we are very much looking at payback. On the more innovative investments, we are looking also on payback but also on net person value.
So it is something we will continue to be disciplined around. And if things are not moving as we are expecting, then we're also willing to scale back and resource allocate our activities to areas where we see higher growth opportunities. In terms of the margin outlook, we are still working with the margin outlook of a minimum of 30%. So we are here to increase growth. We are here to invest into growth opportunities.
So the scale effects, the cost discipline, that is something we will reinvest in order to drive growth across the company. And as Christian already talked to, the minimum 30% EBIT margin guidance is giving us flexibility and maneuver room in order to invest some of the gains we are getting from either the efficiency program or the leverage effect back into the business. In terms of cash flow, we also expect a continued strong development in our cash flow. I'll just speak to some of the most important components. In terms of the tax ratio, I'm still expecting a tax ratio in the level of 23%.
That is under the assumption that the Danish corporate tax will continue to be at a level of 22%. Net working capital is also an area we're having a lot of focus on, especially in emerging markets where we are growing and where our payment terms are longer. We have a lot of focus on managing our DSO development. On the other hand, we have also decided to increase our inventory levels a bit in order to make sure that we are not running into or our customers are not running into backorders. But still, I'm expecting that our net working capital over the period will be around 24%.
In terms of our CapEx outlook, as a consequence of building factories in Costa Rica combined with our optimization agenda, we are going to increase our CapEx ratio over the period in the level of 4% to 6%. My view is that I will be in the upper end of this interval in the first half of the strategic period and in the lower end coming to the end of this Slide 25. And that is because we will open up a new factory in Costa Rica by the end of this calendar year. And our expectation is that we will open up another factory in Costa Rica in 2022. And that, combined with the optimization agenda, will drive up CapEx levels.
So we will, as Christian also talked to at the end, here our that Christian talked to in the beginning, we will continue to return cash through dividends, and we will continue between 80% to 100%. So that is something you should expect also throughout the STR1VE 25 period. So to sum it up, we are here to create value. That is what we are focusing on in STR1VE 25. There will be a lot of focus on innovation, a lot of focus on growth.
We expect to grow the company between 7% 9%. We expect the growth to be broad based and at the same time continue to deliver industry leading margins in the level of minimum 30%. So that's it for me. I will now welcome Camilla Muhl, who is in charge of our People and Culture function.
I'm Camilla Muehl. I'm the Senior Vice President of People and Culture. I've joined Coloplast 4 years ago as the leader of HR for the commercial businesses across business units and across geographies. 18 months ago, I took over the full responsibility for HR across the global organization, a function we now call people and culture. Throughout my session today, I will go through an introduction to what kind of an organization we are, how I view our outset in terms of organizational health, our priorities for people and culture, and then I will zoom in on a topic that is very close to my heart on inclusion and diversity.
I'll talk a little bit about our activities in that area, but also how we are progressing in that front. After my session, I will be inviting Anders and Christian on stage for our first Q and A session. Now let's start by looking at what kind of a company Coloplast is. We are a strong employer with a purpose very much at the center of everything that we do. Our mission, like Christian alluded to in the beginning of his introduction, to make life easier for people with intimate healthcare needs is at the center of everything that we do.
It is in our DNA and it is a core element of how we view a strong culture. We employ more than 12,500 people across the globe in more than 44 different countries and across 9 production facilities. We are a global and diverse employer with more than 60% female and more than 70 different nationalities represented. And now, I'll talk a little bit to organizational health. And I have 3 metrics that I use to talk about that for a company.
For our company, we have a high engagement score, and that is the first metrics for organizational health. We ran the survey in early March when the pandemic first hit the wider world. And despite turbulent times for our organization and every other organization out there, we actually still managed to get a high engagement score of 7.9. That is higher than industry benchmark. My second benchmark or my second metric for organizational health is our ability to retain talent.
So, our voluntary employee turnover is 8.7, and that's a strong number. It is a number that indicates that we are an attractive and stable employer in turbulent times, and the number has been positively affected by COVID-nineteen. It is an indication that we have an ability to retain talent during turbulent times. And I'm proud of the fact that we've not let people go due to COVID-nineteen, something that also looks into our future ability to retain talent. My last number is our ability to promote internal talent for critical managerial positions.
And this year, through strong succession planning, we've managed to gain that result at 2 thirds of internal talent for critical positions, something that I think we can also be proud of. So, overall, when we look at organizational health, we have a strong outset. And at the heart of delivering STRIDE 25% 7% to 9% growth is our people and our culture. We are going to do new things in this strategy period like delivering on our clinical performance programs, building automation and capabilities around that work and introducing new digital tools into our commercial model. That, among other things that you'll hear much more about during today, is going to set a very high bar for leadership and how we develop talent.
So, we have 3 focus areas in people and culture: evolving how we lead, developing talent for future, and simplifying people processes. And I'll go through them 1 by 1. We'll be evolving how we lead by introducing leadership programs fronted by executive leadership and other senior leaders of the company. We'll train more than 1200 leaders across the globe and we'll do so with a strong outset in culture. We'll be securing talent for future through strong succession planning for critical managerial positions and through targeted development programs across all levels of the organization with a focus on pipeline building through attraction of talent and development of talent.
And then, we'll be simplifying people processes. This year, we changed our vendor for engagement surveys to Pecan. Pecan is a modern 21st century provider of engagement platforms that we think fit well with how we see ourselves develop into the future. The platform offers instant feedback in a frequent format and a digital platform that we think
has a
great gives us a great support to how we lead and also puts engagement at the center of building a strong culture. We'll also be revising the way that we look at performance evaluations for our people. We want to cut to the core of what that is actually all about, namely driving great conversations between employees and their leaders on performance and development. So, we want to move away from heavy process and cutting to the core. Now, I just want to deep dive a bit into inclusion and diversity.
It is something that we've been working on over the past years. We've focused heavily, especially first on gender diversity, and I'll also talk a little bit about something that we've now introduced into something new. On gender diversity, I think we can be proud of our progression. So, when we first measured this back in 2016, we were 15% female in senior leadership positions and we are now at 24%. Over the past year alone, we've increased 3 points from 21% to 24%, something that I think we can be very proud of.
But diversity is not just about gender. So, we've introduced a new approach to diversity that we call diverse teams. We focus on gender still, of course, but we also focus on nationality and generation. And we fundamentally believe that diversity drives better innovation, better decisions and, ultimately, better business results. We also fundamentally believe that it's a leadership task to make diversity work, and we therefore focus on teams because in teams that's where leaders make choices to shape diverse teams.
Our bar is set high at 75% diverse teams by 2025 and we are right now at 51%. But if we zoom in on that number, we can see that if we focus and we've done so for our VP levels above, who we have asked to build strong plans for how they will achieve diverse teams within their responsibilities. We asked them that question last year, and we are already seeing that we've moved the needle from below 50% last year when we started this out to now already achieving 54 percent diverse teams. So I think we can say that we have confidence that we'll meet our ambitions at 75% diverse teams by 2025. Summing this all up, STRIVE 25 is an ambitious strategy, and our people and our culture is at the center of it.
With a strong focus on leadership and a very clear approach to how we develop talent, supported by simplified people processes, I am very confident that we will be able to deliver STR5 25 even stronger. And with that, I will conclude my session, and I will ask Christian and Anders to join me on stage for our first Q and A session based on the first parts of today.
Hello, everyone, and welcome to our first Q and A session. Operator, we are ready to take the first question from the phone lines.
Thank you. Our first question comes from the line of Patrick Wood from Bank of America. Please go ahead.
Perfect. Thank you very much for taking my questions. I'll keep it to 2, please. The first one will be on M and A, where it seems like the language has changed a little bit from you guys. I'm just getting a sense for how proactive you're looking to be in that space.
Would there be any kind of size of asset that will be off the table or looking at any and all assets regardless of size? That would be the first question. And then the second question, I'm just curious within the 7% to 9% guidance range on the top line you've given for 2025, how important is it that you hit those new reimbursement codes on innovation to land in that range? Does that get you from the very roughly the 7% to the 9% or do you need to hit those codes to get in the range in the 1st place? Just some color around that would be really helpful.
Thank you.
Let me try and take a step at that, and Anders feel free to supplement. Good questions, Patrick, and thank you. On the first question on M and A, it is correct that the language has changed. We're also doing more screening work behind the scenes. If I'll just without getting into too many specifics about how we think about leverage and things like that, Our appetite for a large place is significantly smaller than it is for small and medium size type of transactions.
I hope that that's enough color of that. I'd also say that for the IU business area, we are more active than in the other 2 at this stage. This is an This is an absolutely critical component of revitalizing and rebuilding the pipeline. And we can't really succeed with the long term ambition that we have for that particular business without getting into much more business development and M and A than we have historically. Now on pricing of the clinical performance program and its importance for the long term guidance.
So the share of absolute growth from the clinical performance program in the period, it all depends on how the clinical work is going to go, Patrick. But if I look at the projections that we have now, the clinical performance program will be even more important in the period that follows, Right? Remember that the categories that we deal with here are chronic. A patient population in Ostomy turns in about a decade in on the Continence Care side, it turns over multiple decades. So these are not markets that change that change overnight.
But they'll get an impact on the share that we can get from new patients. So it will help but it won't determine our ability to hit 9%. To hit 9%, we basically need all regions to pull at the ambition level that we have defined for them.
Thank you. Operator, we're ready to take the next question.
The next question comes from the line of Veronika Dubajova from Goldman Sachs. Please go ahead.
Good afternoon and thanks for taking my questions. I have 2 please as well. My first one is actually a follow-up on your comment on how do you get to the 9%. Obviously, if I look over the past 5 years, it's very firmly in the 7% to 8% range. And I'm just curious, is your view really that 9% depends on external factors outside of your control, like emerging market growth and GDP?
Or has your thinking on the level of investment and prioritization evolved a little bit? And do you think that you could get into that 8% to 9% if you were to deploy capital differently, think about a different shape of the P and L? Just would love to understand because the guidance is the same as it's been. But if I look at the past 5 years, not to dismiss the great accomplishments that you have had, you have been in the lower half of that. So it would be helpful to understand how you're thinking about running the business differently to get into that 8% to 9% range.
And my sort of follow-up on to that, I noticed in your geographic targets, you're talking about emerging markets growing at 10% -plus. Obviously, that number historically was much higher. And I'm just curious how you think that plays into that 8% to 9% growth range? Thanks so much.
Thanks a lot, Veronika. I'll start and Anders will supplement. I wish I'd have a simple equation for how to build a consistent 9% growth company that would be immune to what happens in the world. We are not immune to what happens in the world. So when the EM markets take a deep swing negative, of course, this affects a company like us.
We've built a significant position in the EM region. So we are exposed to some degree of volatility. You've also seen that we've been exposed from the negative effects on COVID. Now getting to 9% will require 1, that we can continue to grow double digit in the U. S.
That we can continue to grow I'd say also comfortably above double digit in EM and then maintain a 4% to 5% range in Europe. And then what can be ups and downs in addition to that of course is the level of momentum that we get in the smaller business areas and the success that we have with the product launches that we have in the pipeline. Andres anything you want to add?
No. It's maybe more to a question around emerging markets. So we continue to be very optimistic in terms of emerging markets. China has been a very important growth driver for Coropass for a number of years since we started the investment program, yes, almost 8 years back. And Emerging Markets has also contributed quite significantly to growth.
We are expecting that will continue. Emerging Markets will be an important part of our growth in STRIDE 25. And Paul will speak a little bit to some of the activities we are working on within Emerging Markets in order to deliver on that ambition level.
And can I just
ask a follow-up to that? I guess, I mean, it sort of seems to me reading the lines that the margin commitment you're making is 30% to 32%. Desire to make that 28% to to 30 and get that growth really to time, or you don't think you can do that?
So the guidance is the guidance, Veronika, otherwise we wouldn't have put it forward. If we felt that we had a better story to tell and a better way of developing the company, taking the margin further down and the growth further up because we found a different formula, we would have probably given it to you. But we think this is a good path forward, and it strikes a good balance between solid top line growth that represents a strong performance and still good returns.
Thank you for your questions, Veronika. We'll move to the next question on the phone lines.
The next question comes from the line of Michael Jungling from Morgan Stanley. Please go ahead.
Yes, hi. Thank you and good afternoon or good morning everyone. I have three questions. Firstly, if I look at your EBIT margin guidance, I'm curious how you are thinking about the gross margin development over sort of this 4, 5 year time horizon. Is the goal here to keep the gross margins the same up or down?
And then secondly, when it comes to the EBIT margin guidance, unless I've missed something, it seems to me that the upper corridor has not been clearly defined or at least there is some scope for uncertainty. Why would you not provide some more certainty as to where the EBIT margins can go if you were to grow at the upper end, let's say, of the 7% to 9%. And then finally, when it comes to CapEx to sales, it does seem to be moving up compared to history. Is this part of the business becoming more capital intensive by choice or because you feel that there is a desperate need to do that? And then maybe a comment on depreciation to sales for the midterm period.
Thank you.
All right, Michael. Thanks for those questions. Quite a few. So I hope I can remember all of them. So the first one was related to our gross margin, and I think I spoke a bit to it throughout my presentation.
We are expecting the gross margin over the period to be flattish. I am expecting positive impact from the Global Operations Plan 45, but we also have some headwinds in relation to further investment into our sustainability agenda. We still see mid- to high single digit wage inflation in Hungary. And then we will also have higher depreciation levels because we are going to increase our CapEx ratio. Your second question was related to our EBIT margin guidance.
And I think we have been talking to that quite a bit both in Christian's session but also in my session. So the EBIT margin guidance is in order for us to have flexibility and manure room to invest into growth opportunities. And we still see a number of growth opportunities across all our business areas and across all our regions. And that's also what we are aiming for over the next strategic period. Your third question, as I remember, it was related to CapEx.
And I also talked a little bit to that throughout my session. So the CapEx ratio, we are expecting that to go up from 4% to 5% in the previous strategic plan now 4% to 6% of sales. And I'm expecting to be in the upper end of that interval in the next couple of years because we are going to launch a new factory in Costa Rica. So we are about to finalize the first factory this year. And then we're going to initiate the 2nd factory that we expect to be done in 2022.
And then on top of that, we are increasing our CapEx allocation to the optimization program. And the optimization program, Alan will speak a little bit further to that at the end of today, but it's going to address the number of people we have across our volume sites. So we are having an ambition of avoiding more people across our volume sites. So the CapEx levels within the optimization agenda is going to address that. I think that was the The final
one on this was depreciation, how that's going to develop?
Yes, sorry for that. So the depreciation level, I am expecting that to increase over the period as a consequence of the increased absolute CapEx levels.
Can I maybe also make an additional comment here to Michael's question? So, Michael, we think these are good decisions strategically for the company that the automation decision is really about reducing labor inflation exposure. And Alan will talk to the magnitude of it, but keeping us at a constant level in terms of FTEs in operations is a pretty big deal when it comes to managing risk. The new site in Costa Rica is also about long term risk that we right now we have a very significant share of our manufacturing footprint in Hungary. And we're basically de risking the manufacturing network by getting an additional large site in the Americas.
So it's also about, if you will, strategic considerations for the portfolio.
Okay. Thank you for your questions Michael. We'll move to the next question on the phone lines. If you could please limit your questions to 2, then maybe we can get some more people on the scene today. Next question, please.
The next question comes from the line of Carsten Lundborg from SEB. Please go ahead.
Yeah. Thank you very much. Just first question to Christian. On your Slide 18, you said that you want to go from challenger to leader in the U. S.
Chronic Care segment. So in the combined segment of Osmo and Continence Care, I guess, can you tell us what your combined market share of these two segments is today? And also, what will it take you to be the market leader here? 2nd question, to sustainability, I guess. Appreciating the targets you're setting out in the release, but if I have to criticize you a little bit, then you're maybe not addressing the biggest challenge for you, namely the fact that all of your products are made of plastic or at least a lot of them are.
So what will it take for you to address this challenge in more detail towards the investors as well? Thank you.
Thank you, Carsten. 2 really good questions. I won't take away too much thunder from Paul's session, but Paul will talk to the work that we're going to be doing in the U. S. Our market shares on the continent size today are in the mid-30s, and on the ostomy side is in the mid- to high teens.
And so you can do the math on what it takes to become the leader. There are, if you will, leading data points for whether you're building a leadership position or not that Paul will talk to, but we've reached a couple of important milestones over the last strategic period that will be part of Paul's session. What does it take? Well, it's going to take a ton of work. It's going to take continued investments.
It's going to take innovation that is dedicated this particular market. So part of Nikolai and Oliver's remit is to have a U. S.-specific pipeline that this is a must succeed geography. And we're building on, if you will, the investments that we already made and the momentum that we already have. But no silver bullet, we must sustain the type of work that we've been active on for the last 5 years.
When it comes to sustainability, I take your point, we have an inbuilt dilemma in a company that's called coloplast, right? We sell medical consumables, but we also sell carcin medical consumables for very important health reasons That people shouldn't be reusing ostomy bags, urinary catheters or wound care dressings. And you're not going to find a healthcare professional that advocates that. Now, can you do something about the types of components that go into these products? Yes.
Are we also looking at that? Yes. But we are also pragmatic people, Carsten. We want to get our house in order. There are really impactful things that we can do on scope 12, if you will, to get our house in order that will lead to reductions in CO2 emissions that are in the tens of thousands of tons.
So that stuff is real. There are also relatively easy things to do. I mean, now my sustainability team are going to come chasing me when I say they're easy. But there are also more, you know, a set of pragmatic initiatives around using reusable materials for packaging. So we're basically plucking a number of fruits that are, if you will, easier to get to.
And then I'll say, I'd encourage you to join the sustainability session because we're doing more than what was just on my Page 18, a lot more. And there's also a ton of work that goes into working with suppliers and doing more with our footprint than just what comes from our own operations. So please make sure you join that session too.
Thank you, Carsten, for your questions. We'll move to the next question on the phone lines. Operator?
The next question comes from the line of Scott Bardo from Berenberg. Please go ahead.
Yes. Thanks very much indeed for taking my questions and the very professional update today. First question really is a bit of a follow on to Veronika's. I guess, history is worth considering before we talk to the future. And whilst the financial performance of the business has been excellent over the last many years, it is fair to say that your growth has been more at the low end, 7% organic range rather than your historic guidance of 7% to 10% or 7% to 9% or so.
So is it possible to comment a little bit about why the some of the higher aspirations weren't reached in recent years and why you think that could change going forward? The second question, please, just relates to R and D investment and clearly, Coloplast have excellent operating margins. But I think the most startling thing in the chart that you showed was a lot of the other peers that you compare yourself to have much higher R and D ratio. So clearly bought into this R and D investment notion earlier or more aggressively. How confident are you that a 7%, 8% R and D growth per year over the next 5 years is going to be enough to really deliver what you want to deliver with respect to innovation?
These are 2 great questions, Scott. So the truth is, if you look back over the past strategic period, we've run into different sorts of headwinds that have precluded us from getting all the way. So if you remember, over this period, we had we experienced significant turmoil in emerging markets in some years. We have also if you look back further we've had setbacks in U. S.
We've had setbacks in the U. K. We've typically had 1 or 2 material events happen as headwinds that have precluded us from getting to the upper end of the range. And then you ask why should we retain it? Well, we're ambitious people.
We think that the potential in the business there is potential in the business to get to that level. So we are chasing that number. We are trying to invest for that number. And if we only get to 8, it's not that we whip ourselves to death that we didn't get to the 9, but we are aspiring to run the business and get it to the high end of the range. And if we thought it was impossible, we wouldn't have put it out there.
We think it's possible. But of course, many things have to go right. And in particular, all of the large regions and countries have to pull their part of the job. Now when it comes to R and D and innovation, I think we need a lot more than the 3.5 minutes that we have left to get to that. It's a great question, Scott.
My first observation is that the most important thing, the most important thing for what you get out of innovation is that you have to be very clear about what you want. Very, very clear about what you want. And you have to be able to describe it in enough detail that and put enough pressure on the task at hand that the people who are basically building the concepts and developing the products have to, if you will, solve the problem within a confined both timeframe and set of cost parameters that doesn't, if you will, make it easy to get to the solution. Does the current ratio put pressure on the R and D team? I think you should ask Nikolai and Oliver that question when they're up here.
I hope it does. We still have lofty ambitions for what we want to come out of that area. But if you look at the relative distribution of innovation, if we find opportunities where we convince ourselves that there's more to go for, listen, we're going to hit that ball hard if we think that's the right thing to do. But right now, the job is to deliver what we already set in motion. And that's why we're going to talk a lot about the clinical performance program, where that program is and where the projects are.
But I already alluded to, Scott, that we want options in that program that talk to longer term growth also, which means that there will be investments in the portfolio that are of a different nature than they have been historically. But I feel quite confident that with the capital allocation that we have now, we can succeed in delivering the clinical performance program and run, you know, an innovative growth company.
Thank you for your question, Scott. I think we have time for one last question that's come in on the chat, and the question is from Christoph Kreitler from Credit Suisse. Christoph is asking how eager and how active does Coloplast want to be to participate in the ongoing channel consolidation? And if you could answer that by geography as well.
How eager, Christophe, it's a great question. Listen, I'm a pragmatist at heart. If we look at a number of these opportunities as they come on market, we find that a lot of that is just simply too expensive. So we have a first criteria, which is that when we look at any of these things, we need to see a path to value creation. So but we look at all of these in earnest.
And if we think that they make sense, we participate. We probably lean a bit more forward in geographies like the U. S. And in France, but I wouldn't rule out any other geographies. We will be pragmatic about that, but it must create value.
All right. That concludes our first Q and A session. Thank you for all your great questions. Now I would like to hand over the stage to Nikolay Buhl Anderson, our Executive Vice President of Innovation. Before I do that, we will watch a short video with users from all four business areas.
And the video clearly demonstrates that with superior products, we can help make our users' lives easier.
Hello and welcome to the Innovation Session. My name is Nikolai Buhl. And we have divided this session into 3 sections. First of all, I'm going to give you an update on our recently announced new setup within innovation. Then Oliver Johansen, Johansen, our SVP for R and D will give you an update on our pipeline and in particular zoom in on our very important, as you just heard, significant component in our new strategy, our clinical performance program.
And then we'll end up with a Q and A session. So, first of all, for those of you who don't know me, I have been with the company since 2,005. And although I, for the last period of time, have been heading up the wound in the skincare business, I actually started my career in Coloplast within chronic care. I've been working within product development, marketing and sales for our chronic care business. So I am super thrilled to be back into the chronic care business.
And I'm super thrilled to be heading up our new exciting innovation agenda within the strategy period. I think we have a super strong point of departure. I think you know that innovation has played a key role in who we are today. And as you also heard from Christian's presentation this morning, innovation is going to be a key component in our new strategy. We're actually also raising our ambitions in terms of what we want to get out of innovation in this new strategy period.
Because this time, we also want to be able to really show the relevance of our pipeline and our product solutions, not just from a clinical point of view, but also from a health economic point of view. Why? Because we really want to continue to raise the standard of care out there. This is not an easy and this is not a risk free journey. But this is what we are embarking on and we believe we can do it.
Why? Because we are the leaders within our categories. To do that, we have also created a new setup. And what is very important to have in mind, so when we say innovation, it's more than R and D. So as you can see here on the left side of the slide, the way we define our new innovation organization is that this unit needs to define, develop and deliver our commercial offerings.
To do that, I have created a new setup that you see here on the right side. And the way we have organized ourselves for success to deliver on this ambition, that is we have created 4 key functions within innovation. First of all, we have created a function that is solely responsible for defining our pipeline. Then we have R and D, who is responsible for delivering the pipeline. And then we have created a new unit that we call Payers and Evidence, where we have merged Medical Affairs, Clinical Operations and Market Access into 1 unit because we want to have one area that is key responsible for driving our clinical as well as our health economic agenda to the market.
And then we have marketing. And marketing here, of course, in particular, has the role of making sure so when we launch our new products into the market, we do it flawless towards consumers as well as to clinicians. Let's also spend a few minutes here on what is it that this new innovation unit that needs to solve for in the strategy period. There is no doubt about it that what we need in particular to zoom in on is to deliver on our ambition and our timeline when it comes to the clinical performance program. We do, however, also have a very exciting pipeline of other projects that not are under our clinical performance program that we need to make sure that we bring to the market with success.
But as you also heard Christian alluding to, we also want to bring more innovation into our pipeline as we are launching elements that are in our pipeline. So defining new innovation we want to bring to the market is also going to be a key deliverable for the new organization. And then as we've been saying over and over again, if we want to be relevant, we need to prove it. And we need to prove it with real evidence. So one of the key things that we and my team is going to do is, of course, to elevate our ability to talk the clinical language both to clinicians and to payers.
What you also saw in Christian's presentation, and you will also hear it from Paul here a little bit later, we also see significant commercial opportunities in what we call market development. That means we want to give more end users access to our products through reimbursement expansion. But it also means that we want to drive up the clinical compliance of some of the products we already have out there. Then it's also worth mentioning, and you will also see that from Paul's presentation, we have a great portfolio of brands that we already have launched. We want to make sure that we truly commercialize the value of each of these brands.
And then last but not least, given that we are market leaders, we need to continue to set the standard for how you do marketing within the categories we operate, be it towards clinicians or be it towards consumers. So this is the agenda, and this is the structure that will be behind our new innovation agenda within the STRIVE 25 period. But as we have been saying a couple of times, what stands on top of everything is our clinical performance program. And therefore, I will now welcome Oliver to come in and give an update on where are we with our clinical performance program.
Hello. My name is Oliver Johansen. I've been with Coloplast for 18 years and I've been heading up R and D for 8 years. I've been very excited to give you an update on our innovation efforts. Today, I'll focus in on the clinical performance program where we have an ambition to raise the standard of care through clinical superior products.
During the LEAD-twenty period, we have launched a number of great products across all business areas and all product categories. We launched Ensua Mio Convex, which is the first portfolio of products within Ostomy Care that were based on clinically differentiated products, including significant reduction in leakage. It's been one of the biggest growth drivers for us during the LEAD-twenty period and one of the most successful launches in the history of the company. We've built on that success and expanded the portfolio with SenSura Mio Concave, a portfolio of products that are specifically designed for people with an outward body profile. In addition to this, we have launched an assortment of new products for hospital use, and we've also launched a new assortment of products for babies and kids.
As Christian mentioned, we have launched SpeediCath Flex, and we have expanded that success with a new product for CODEPO for the U. S. Market specifically. We have developed SpeediCath Navi for emerging market. And we have just launched a new SpeediCath soft catheter for the U.
S. Market to make us even more competitive in the Category 51. In Wound Care, we've also launched a number of new products, including our latest BioTin Fiber, which is off to a great start. Now as mentioned already, we have increased our R and D spend from 3% to 4%, and we have done this to improve a number of key R and D capabilities. We have strengthened our preclinical area.
We have strengthened our medical affairs area to ramp up our clinical programs. We've established a new embedded systems group that leads our digital efforts, which I'm happy to give you an update on today. And we've established a technology scouting function, which will work very closely with universities, start ups and other tech partners on identifying and building new growth options for the company. And then finally, at least, we have invested more into external development partners, which I believe is absolutely the key for us to raise the bar for innovation. So we're teaming up with companies that are experts in sensor technology, electronics, software, app development and new materials technologies to drive our efforts.
Now as part of the clinical performance program, we have improved and actually accelerated our activities within the preclinical area and the clinical area. We, in our labs, have established a capability to quickly screen and test the performance of new materials and new product designs that could, for example, be new catheter designs, testing those performances in pig urethras, as an example. After our preclinical work where we convince ourselves on the performance of the new technologies, we go into what we call pilot studies. Pilot studies usually involve 6 to 40 patients where we get preliminary indications on safety and efficacy. After pilot studies, we run pivotal studies where we use this data for reimbursement and price negotiations.
We use the data for regulatory submissions, and we use the data to support commercial claims. Within Ostomy Care, it usually involves 100 to 200 patients. The duration of the clinical trials are usually 4 to 10 weeks and with incontinence care, slightly longer. What you see on the right hand of the chart is basically the number of clinical studies. As you can see, we have increased it quite significantly in recent years.
This increase has been driven in the number of smaller pilot studies that we run for our big clinical performance programs, where we quickly iterate and learn about the performance of our new technologies. As Christian mentioned, innovation is at the core of our new STRIDE 25 strategy. We have 4 themes that are driving our R and D agenda towards 2025. The first one being delivering on the clinical performance program, which I'll spend most of my time today on. We have a second theme on continuing the launch cadence that you've seen in our Elite20 strategy.
We will continue that launch cadence across all our product categories. And then in addition, we need to build more growth options for the company through M and A activities and also through our newly established scouting function. And then we have a couple of themes that is all about improving our R and D efficiency and strengthening our R and D capabilities further. Today, I'm very happy to give you an update on 3 programs. I will start giving you an update on our digital efforts within Ostomy Care.
Secondly, I'll give you an update on our new Ostomy Care platform. And thirdly, I'll give you an update on our new catheter platform. Now we've tested our new solution end to end for the first time in a pilot study. The study was conducted over a 9 week period. It consisted of 3 phases: a Phase 1 where the users used their own products, which included flat, convex and concave products The second phase, they were the digital ostomy device, but where the users did not receive notifications and leakage alerts.
And then the 3rd phase where they actually received notifications on their smart device. 18 patients completed the study. The average age was 60 years old, ranging from 34 years old to 81 years old, and the average time that they have lived with a stoma was 17 years. And as mentioned, they primarily used SenSue Mu flat, convex and concave products. So it was a group of very experienced people using the best products in the industry.
So quite a tough crowd. As you can see to the left of this chart, these are some of the outcome areas that we were looking for. We were looking for how accurate are we at detecting leakage and how easy is the system to use for the users. And overall, I'm happy with the results. The pilot study showed high accuracy in detecting leakage.
We saw a 91% accuracy, which is pretty solid from the first time that we've tested this system end to end. And we believe with further optimization of our software algorithms, as we grow and grow our database, we can improve this accuracy even further. 67% of the users, they reported a high to a very high trust and reliability in the system. 61% of the patients, they would use the system frequently. And 83% of the patients reported that they felt very much in control of avoiding leakage onto their clothes, which is one of the key concerns for many users.
In addition to this, we saw that very positive feedback that the users found the system very easy to use. Now 3 out of the 18 patients did experience problems with the Bluetooth transmitter, and we can see that those 3 patients, that's impacting the scores that they're giving. And I'm not concerned about those challenges. They are impacting the results, but it's something that we will solve towards launching the products. Now as I mentioned, this was an experienced group using the best products in the world.
I'm overall happy with the results, but I believe we can drive even further value for the patient populations as we expanded also to patients that have been discharged recently from hospitals, and they often experience much more leakage problems. They haven't established properly routines, and we believe that we can drive a lot of value for this patient group also. Now the key challenge with this program is that there are no reimbursement codes for digital ostomy solutions. And we believe that connecting our products with a strong data driven service program like Coloplast Care, that we can drive a lot of value both for users and for payers. So we're choosing an exploratory approach here.
And through our burden of illness studies and life ostomy study, we have identified a number of value drivers that drive value both for payers and for users. And you can see some of those value drivers in this chart. It's all about reducing leakage. It's all about reducing the number of visits to GPs and health care professionals. It's about improving quality of life, etcetera.
We've chosen 2 countries to run a payer pilot in, Germany and the U. K. We've selected those countries because we have well established market positions. We have, in both countries, very strong coloplasmic care programs, and we have direct sales channels. These two markets have very different payer systems, and we want to test this solution and how explore how we can drive value with this solution in different, payer setup before we roll it out globally.
So this is truly a very exciting time. My next update is on our new ostomy platform, where we're addressing one of the key burdens for many users, which is a peristomal skin complications. 52% of all people living with a stoma that they report that is one of the key reasons for seeing a doctor and nurse. And our burden of illness study shows that up to 1 third of the product cost is saving if you can actually reduce the number of doctor and nurse visits and also reduce medications used for treating these skin complications. Now we've conducted a randomized clinical trial where we've tested our new skin protecting technology in a number of countries that you can see on the chart.
64 patients completed the study. Each patient were randomized into 2 groups, either using the test product or the standard of care product. They used the products for 6 weeks and then were crossed over to the opposite groups. And you can see the endpoints also on the chart that we're looking for endpoints related to peristomal skin complications. Now when I stood here a year ago, I presented positive clinical results from our Nu Skin Protecting technology.
In a number of clinical studies and in our lab results, we have shown a very strong improvement in skin complications and also clear user preference. We did not see that in this study. We didn't see a significant difference in skin conditions defined by pain, burning and itching. We saw a slight tendency for a lower fraction of moderate to severe skin issues. But we did, however, see a significant improvement in quality of life.
But overall, the study results did not live up to our expectations. We conducted a root cause analysis where we have clearly concluded that we believe in the technology, the technology works. We have patients that can sit with their own output for 8 to 24 hours without having skin complications due to the skin protecting technology. But the root cause analysis also clearly indicate that we need to optimize the device design further. And that's why we believe we are 12 months delayed with this program.
Those 12 months will be used for optimizing the device design and rerunning the pilot study to show significant improvement in peristomal skin complications. Thirdly, I'd like to give you an update on our new catheter platform. As Christian mentioned, one of the key challenges for users is the fear of getting a urinary tract infection. And this is a serious challenge, for example, for a person with a spinal cord injury. They don't have the normal sensation, the pain and discomfort that normal people have when they get a urinary tract infection.
They become aware of the infection when they have high fever, where there's a risk that the infection can spread to the kidneys, which can lead to hospitalization and in the worst event, to death. So it's a very big issue for these users. Now they have, on average, almost 3 UTIs a year and over 100 UTIs during their lifetime. And we have recently published a UTI risk factor model, which identifies the many risks that are related to getting a urinary tract infection. The ambition for our new catheter platform is to reduce UTIs, but as this model also highlights, it's multifactorial.
Some of it is related to the general conditions. Some of it is related to the local urinary tract conditions. Some of the risk factors are related to catheterization. And finally, some of the risk factors are related to compliance. We cannot address all risk factors with our catheter platform, but we believe we can address the key risk factors related to catheterization and compliance.
Now one of the key challenges that we have found in our research is any cathode on the market today is based on having 2 islets to drain the bladder. And we have shown in our labs that actually there's a very high risk of the bladder wall being sucked in to the catheter islets and therefore stopping the flow of urine. Now all patients are being taught to reposition the catheter to make sure that the urine continues to flow in terms of emptying the bladder, but there's several challenges related to this. Having the bladder wall being stuck into the eyelets and you reposition the catheter, there's a real risk of causing mechanical trauma. The second challenge is a lot of users, when the urine stops, they remove the catheter and leave a residual urine in the bladder.
And the problem with the residual urine in the bladder is that it's a great growth medium for bacterias, which can cause UTIs. And then the 3rd challenge for users is that they are worried about the positioning, which is basically a hassle for them, and that's something we want to do something about. So we have designed a completely new catheter design. So instead of having 2 eyelets, we have what we call a drainage zone, which consists of a number of micro islets that ensures that the urine will constantly flow, which can minimize residual urine and which makes it much easier for user to use the IC technique. We also know from our studies that people are concerned of inserting bacterias, so our new catheter platform will also include our Bacteria Barrier technology, which can reduce the risk of inserting bacterias.
Now we have tested both our own products and competitor products in the labs, where we see that this phenomenon exists for all catheters in the market, and we have proven in the labs that our new catheter design is practically clogging free. So the next step for us has been to test it in live pigs, which we have done with Owen Soo University Hospital. And the video that I'm about to show you, the first video shows you what a standard catheter looks like and the challenges that exist with having the bladder wall being sucked into the islets. So what you see on the first video to your left is the bladder wall being sucked into the islets, which actually stops the flow of urine. When this happens, the user need to reposition the catheter.
And it doesn't take a lot of imagination that if you reposition the catheter now, there's a real risk for causing mechanical trauma. What you see on the right hand side is our new catheter design, where there's always eyelets available, ensuring that the urine can flow constantly. It reduces significantly the risk of mechanical trauma. We believe this catheter design is quite unique. We believe we have a very strong patent protection, and we believe that we will own the space of clogging free catheters, which is a big thing for us.
One thing is now that we've tested it in our labs, we've tested it in live pigs, the next step for us is to test it on human beings. And we've just conducted the first phase of a number of pilot studies that we are running. The first phase here was 29 healthy volunteers, 15 male and 14 female. And they basically used our new catheter platform product versus standard catheters. You can see the endpoints up here.
We're looking for the number of times that we actually the user actually experienced urine stop. We looked at hematuria or blood in the urine, and we looked at the residual urine at first blockage. And the results indicate clearly that there are many benefits with our new microislet design. What you see on the left hand of the chart is that a standard catheter typically has 1.5 stops per catheterization, and that is reduced significantly with our new catheter platform. The chart in the middle, you can see that there's almost 40 milliliters of urine left at first blockage, and that's practically eliminated with our new catheter design.
And the 3rd chart shows that we in IC users, and I expect that we have those results in the first half of next calendar year. So to sum up my presentation, we have made significant progress across our clinical performance programs. I've given you an update on our exciting digital Ostomy solution, where we have had good results on the technical feasibility study that we run. We're getting ready to run payer pilots in Germany and the U. K.
Secondly, I gave you an update on our new Ostomy platform, where we have seen several positive results from our labs and previous pilot studies. The last study that we ran didn't give the results that we'd expected, so we need to optimize the device design. We are firmly believing in the technology, and we believe that we are 1 year delayed. So for these two programs within Ostomy, we believe that we will launch both programs in the first half of the strategy period. Thirdly, I gave you an update on our new catheter platform, where we have good early indications that we're redefining what a catheter looks like.
We will continue developing the platform, which includes both male and female products and also Z products. We need to ramp up a pretty significant new manufacturing platform. We need to finalize the clinical studies, and we need to negotiate with for premium prices. And all this combined means that we are planning for launching this range of products in the second half of the strategy period. And then finally, in addition to all this, we will continue with our launch cadence of launching products into existing categories with our existing technologies.
That was my update for innovation. Now I'd like to invite Nikolay to the stage as we transition to Q and A.
We will now dive into our second Q and A session. And operator, we are ready to take the first question.
The first question comes from the line of Martin Parcoy from Danske Bank. Please go ahead.
Thank you very much. And as I stated, Martin Pager, Danske Bank. I have some questions regarding the digital Ostomy Solutions. Firstly, regarding the clinical relevance, how many now
the pilot study was
on a 9 week basis, how many notifications do they actually get on a daily or weekly basis? Then secondly, what kind of adoption rate of users do you expect under this 2025 plans? How many users do you actually think would adopt this technology? And then finally, on also on the same topic, you mentioned yourself a little bit there was no reimbursement carry for difficult solutions. I'm just curious to know, will this solution be an integrated part of an Ostomy offering or will this be sold as part of your accessory offering?
Right. Should I go to
the first step? Well, the first question regarding notifications, we basically believe that we have found an appropriate level to notify the users as the clinical studies showed that 83% of the patients, they actually felt confident that it helped them avoid leakage, which is one of the key concerns for users. Now, we see this solution as being an integral part of a service program, combining a digital product with our service program called Coloplast Care and we believe that that combined can drive value for both users and payers. But as you rightly mentioned, the reimbursement doesn't exist today for these digital ostomy devices. So we need to have an exploratory approach to find out how we best drive value.
And that's exactly what you want to get out of the pilot studies that Oliver spoke to.
But just again, you say that, yes, 83% felt confident that this would reduce leakages. But again, what is the material of this? How many alerts do they actually get? How often do you get an alert of a risk of a leakage? One thing that they feel more confident, but reality, how much leakage do they actually prevent?
Well, it's very much very user by user. And for each user, it can also vary day by day. We see from our research that leakage is very dependent on what you eat, the amount of exercise you do, the temperature. There's many factors that are driving how prone you are to getting a leakage. And I think what's unique about this solution is that it's custom specific, that it alerts you given the day that you are either going for a run or you're going for a swim.
It will help you with the right notifications depending on what your day looks like. And I think that's what is unique about this technology.
Okay, sorry. Go on.
No. And I think that's what's unique about this technology. And in addition to that, it works for any baseplate in the world, including competitor products.
Yes. But I'm so curious to know, in these 9 weeks that you tested it, on average of these 18 persons, how many alerts did they actually get?
Well, I can't share that number with you right now, but we believe that we found an appropriate level of alerts. It's a fine balance that we don't want to alert the user 10 times a day where it becomes annoying. You want to have trustworthy alerts. It's very much like getting the yellow card for saying, here is something that you need to be aware of, and the red card saying, now you need to do something before you have a leakage. And we believe with the algorithms that we have developed that we found an appropriate level which drives preference for the users.
And just reminding you that these users were very experienced users and using the best products in the industry. So we can believe we can drive even more value for the broader population.
Thank you for your questions, Maarten. We'll go to the next question on the phone lines, please, operator.
The next question comes from the line of Kit Lee from Jefferies. Please go ahead.
Thank you. I have two questions please. First question is just on the cadence of product launches into the existing reimbursement categories. Should we expect some new products in the next year or so? Or are these still pretty much in development process?
And my second question is on Wound Care. I'm just wondering if you what are your plans in developing some of the product in other categories, for example, in the civil dressing category? Thank
you. In the one, I couldn't hear the last part of the question for wound
care. Could you please repeat the last part of your question? Into which categories did you say?
Yes. Just around your plan for wound care, whether you have any plans to develop new product in other categories, for example, in the silver dressings category?
Do you want to take wound care?
So let's take the strategic question around what do you want to do with the Wound Care franchise. We have, as you also will see when we have the breakout session on Wound and Skin Care, a pretty clear direction for where we want to innovate. As Christian alluded to, we want to be very focused, and that means we are focused in on the foam segment. And in order to be fully competitive within the foam segment, we, of course, need to cater for both antimicrobials and non antimicrobials. We believe we have that.
And we believe that with our 3 d FIT technology, both for infected and non infected wounds, we have a competitive offering. What we are now catering for as well within wound care is fiber. And we'll talk further about that at the breakout session. But of course, we also want to have a competitive range in our fiber portfolio. So having also an antimicrobial offering in fiber is on our pipeline list.
And regarding your question on launch cadence, as you saw in my slide, we have launched a number of new products across all business areas and product categories in the lead-twenty period. And we expect that we will continue that launch cadence across all product categories.
Yes. Well, I can just add that the most recent launch is the SpeediCath soft launch in the U. S. Market. Operator, we'd like to take the next question now, please.
The next question comes from the line of Ed Ridley Day from Redburn. Please go ahead.
Thank you. Yes. So to repeat an earlier question, how do you both feel in terms of the funding you have for your R and D? Great to see some new initiatives and some new technologies being developed and more of a focus on clinical trials. But of course that costs and certainly in urology, your competitors spend substantially more as a percent of R and D.
So do you feel that the group's
R
and D spending target allows you the flexibility to develop these programs? Or should we potentially be seeing a little bit more flexibility around the 4% of sales R and D target?
I would like to give first comment on that one. I feel comfortable about what you're seeing in this STRIDE 25 period. Remember, in cash, it means more and more money year by year. So I think we have a pretty big capacity in terms of taking our pipeline wishes forward. I think the question is, of course, how many projects do you want to have in your pipeline?
And that's what we need to be very clear around. And that also comes back to the structure that I just announced. So we're going to have a dedicated group now that will be focused on defining what we want to bring into that pipeline. And as Christian also mentioned, what's going to be critical is that we very clearly can articulate what is it that we want to bring to the market at a much, much earlier stage than what we have done in the past. Now, what we, of course, also will do as part of our M and A agenda, and that is to look for solutions that might be out there that we don't need to develop ourselves, but that we can bring into our portfolio.
So M and A will definitely also be a key driver in our future desire to bring new products to the market and build a comprehensive pipeline of offerings.
Thank you.
All right. Thank you. I'll take a question from the chat function. So Maya Pataki from Kepler Cheuvreux is asking, so on the Ostomy leakage sensor, is it reusable? And what is the life cycle of these products?
Right. So the solution consists of a reusable part, which is basically the charger, the Bluetooth transmitter, and then there's a single use component, which is the adhesive layer with the sensor technology. So it both consists of a reusable and a single use component. Now it's still very early days that we are looking at here. So I think the key right now is to get this certain new great solution into the market and into the payer pilots, where we will get a lot more experience on the usage of the products.
Thank you, Oliver. I'll take one more question from the chat from David Adlington from JPMorgan. David is asking, so why did nearly 40% say that they did not want to use the system frequently? And he's also asking, what is the additional cost of the system?
Well, right now, it's too early to comment the cost part. I think the reason why 40% said they wouldn't use the system on a frequent basis is basically because it's users that on average have 17 years of experience with ostomy and are already using the best products that are available in the industry. So I think, of course, if you're an experienced user that have found a proper routine and don't have any worry about leakage, it doesn't make sense to use such a device. However, all our studies shows that 91% of users, they worry about leakage. And as the average life expectancy for an ostomy is 10 years, so we believe that there's a lot of new patients that are being discharged for the hospital that are struggling in getting proper routines in place.
And we believe combining a digital service with a digital ostomy device can actually increase the outcome for these patients quite significantly.
Okay. Thank you. Let's go to the phone lines. And operator, next question, please.
The next question comes from the line of Jernik Denholm from ABG. Please go ahead.
Hi, thanks for taking my question. U. S, obviously, huge importance to you guys also for the long haul. It's where you invest and it's, as Christian stated earlier, a key to your delivering on your growth. Why not already now include payer studies in this new digital solution in the U.
S. Where you can say value based, outcomes based, health economics and contracting in the future might be the 1st base where you actually might see that rather than maybe some of the more conservative European markets. Any thoughts when the U. S. Would be involved in this?
I think that will be key to drive that payer dynamic. Thanks.
Yes. Well, it's a very relevant point, and I think the U. S. Organizations have a pretty full agenda on launching new products, and we believe that getting some experience in some of our key markets here in Europe is the right approach to go. Having said that, U.
S. Holds a huge potential also for this solution. So that is definitely going to be on the road map looking ahead.
And maybe just a follow-up comment to that. So one of the things we're going to be catering for going forward is we don't just want to talk about a global pipeline. We will also now have earmarked pipelines for China and in U. S. So we have dedicated R and D efforts directed to those 2 geographies.
And obviously, what we're going to solve for is what we have earmarked in this strategy for U. S. And China.
All right. Thank you for those answers. Let's check if there's another question. Operator?
Next question comes from the line of Annette Luegge from Handelsbanken. Please go ahead.
Thank you so much for taking my questions. I'm interested to hear about your new ostomy solution that did not meet your requirements in the pilot study or in the pivotal study. I wonder if it's the protocol design or do you believe it's more related to the technology in itself? And the delay of these 12 months, would that be to make modification of that product? Also, a lot of your competitors are using different kinds of components in the adhesive to sort of improve skin conditions.
Is that something you're considering? And then on the digital solution, when should we expect this to reach market?
Thanks, Annette. I think that's a great question. I think Oliver, can you take a look? Yes.
Well, the root cause analysis basically concluded that we believe the skin protecting technology works. We have run several pilot studies that proved it work. We've seen it in the lab, consistently in our lab results. So, it's very clear that the skin protecting technology works, but we need to improve the device design. So that's what this is all about.
Now in terms of what was your second question? Could you repeat that, please?
It was more than as you see Hollister and others are using, for example, ceramide as a skin protection. Are you considering some sort of component in your plate to achieve similar solutions?
Well, we believe we will have a very unique skin protecting technology where we can deliver strong clinical evidence. I think the technologies that you are referring to, there is, I would say, very limited to no clinical evidence that those technologies actually work. And this is where we will differentiate ourselves towards competitors in solid high quality clinical work that shows that we can significantly improve
digital solution, when could we visit market?
Well, we expect both CE Mark and launch in the first part of this strategy period, so very much looking forward to that.
All right.
Should we check if there's a final question before we move on? Operator, please?
We have a follow-up question from the line of Veronika Dubajova from Goldman Sachs. Please go ahead. Hi, Veronika.
Thank you guys for squeezing me and I'll keep it to 2, please. Just curious what your appetite is when you, for instance, look at the leakage prevention to explore alternative payment models and reimbursements, risk sharing, etcetera. Is that at all a conversation you're having? And how open would you be to that? And then my second question is on the catheter platform, just your thoughts, will you go ahead with the launch even if you cannot get differential reimbursement?
Thanks, guys.
Yes. So I think as we definitely want to pursue here in the pilot is we want to pursue also a value based approach in 2 markets that we are going to pilot in. And that is exactly to talk about solutions and also to find out exactly how does a solution for this not only drive up better compliance and better clinical outcome, but also from an overall health economic point of view benefit payers. So we are definitely talking about value based approach in one of the arms in our pilot. And the second question, I think So you all Yes.
Sorry, could you repeat the second question?
My second question was, would you go ahead and launch the new catheter platform even if you cannot get differential reimbursement for it?
Well, our ambition is clearly to show UTI reduction, but there is also other relevant clinical endpoints like residual urine, reducing mechanical trauma that are key risk factors for getting UTIs. So, we believe that there are other clinical endpoints to go for And overall, we are designing these products to be on par with the products that they will eventually cannibalize. So it can definitely be a growth driver for us for the mid and long term.
And if I just may supplement to that comment here from Oliver, Weronika. There's no doubt about that the reason why we're also doing the clinical studies is because we want to build new categories, so we get the reimbursement. So the reason why we put efforts and money behind clinical programs of this nature is to achieve reimbursement.
Thank you for your questions, Veronika, and everyone else for great questions. Now it's time to move on to the next session. We will soon welcome Paul Marken to the stage.
Well, good afternoon, everybody, our participants from Europe, and good morning to those of you joining us from the U. S. My name is Paul Marken. I'm the Executive Vice President for Growth. I've been with Coloplast since 2015.
I joined the company as a Senior Vice President for our emerging markets and over the last 2 years have been the Executive Vice President for ChronicCare. And whilst I'm talking to you today about ChronicCare, please be aware that I will be assuming responsibility for our wound and skin care business in the very near future. And also, as a reminder today that we will be having a workshop and breakout session on October 7, where I'll be joined by Manu Varma, our Senior Vice President for North America, as well as Howard Sway, our Senior Vice President for Asia. So we'll be able to talk to you further about some of the content that you will see today. And as you can see from our theme, it's sustaining growth leadership.
And why is that important to us? Because we have a track record of sustained growth. And it's our ambition over the course of this strategic plan to continue on that, to continue on enduring growth. And we believe that's an external validation of not only the value that we bring to the market, but as you've just seen through the video, the impact that we make on people every single day. And leadership, and you hear it, you've heard it before today because as a market leader in the sectors that we play in, we're continuing to look to raise the bar to set the standard, whether that be innovation or whether it be in the way we go to market in our commercial model.
And as we leave the LEAD 2020 period, where we've got a very strong basis for which to look forward to 2025. We have broad based growth of 7% or 8% above the market, and that's been driven by a portfolio of innovative world's best products and delivered to the market with a strong and robust commercial model. Our trajectory in the U. S. Is tracking on double digit growth with notable wins in our Ostomy Care Acute Sector with wins in the IDNs as well as a position recently on the very important Premier GPO contract.
And in Continence Care, we continue to drive the upgrade to hydrophilic catheters in our Continence Care market. In China, very important growth market for us. And our growth has been significantly above the market in Ostomy Care, and that's been driven by a large sales force, which covers the entire country a strong and compelling digital presence, very relevant to the Chinese consumer and the broadest ostomy offering for both patients and for consumers. Over the lead 2020 period, we also worked with many government affairs authorities to establish new reimbursement policies for intermittent catheters, particularly in big Asia Pacific markets, Japan, South Korea and Australia. And the development of those markets now is fueling strong growth for us in our Continence Care business in Asia Pacific.
Over the last 5 years, we've also continued to solidify our offering with Consumer, Coloplast Care and Direct as we've moved to be the consumer health care company of the future. And this model has proved to be particularly robust, especially as prevented into the COVID-nineteen pandemic period. And in response to COVID-nineteen, and you'll hear from me a little later on this, we are adapting and we're rebalancing our customer engagement and go to market model. As most of you know, Chronic Care represents the backbone of our company with more than 75% of Coloplast sales, and we continue to outgrow the market. We are the number 1 in the categories that we participate in, in Ostomy Care and Confidence Care, and we have a balanced portfolio with a relatively even split of business between the two business areas.
We have a broad geographic footprint, Europe being our largest market where the undisputed market leader, but we also have a strong presence in emerging markets and also in the other developed markets, notably being the United States and Canada, Japan and Australia. So we have a strong broad offering and a balanced portfolio. And in both business areas, we are outgrowing the market to maintain and sustain and build on our leadership position. Now in despite of the COVID-nineteen pandemic, we believe the market growth drivers and trends are fundamentally supportive for strong future growth. And you've heard Christian talk about those before.
So we remain not only optimistic but ambitious about the future trajectory of the company in Chronic Care. And when we talk about our strategy looking forward, our STRIVE 25 strategy is there to enable us to deliver solid growth above the market towards 2025. And that strategy revolves around 5 key themes. The first theme, innovation. And as we talk about innovation, we look towards raising the standard care.
What does that mean? Firstly, it means winning with the superior products, including SenSura Mio, SpeediCath Flex that we already have in the marketplace. We've seen good growth contribution coming from this innovation that we've launched in the last couple of years, but we also know there's more opportunity for growth coming for these markets from these products as we continue to drive adoption and adaptation in the marketplace. We also can see opportunity to launch new products within existing technologies, whether that be line extensions, portfolio gap fillers or products that will refresh our portfolio. And as you've heard from Christian and you've heard from Oliver, we will deliver on the clinical performance program through this strategic planning period.
During STRIVE 25, we're going to focus on 2 key markets, the biggest health care markets in the world, being the United States and in China. And in the United States, it's all about being coming from being a challenger, where we're perceived as a challenger, to that of a legitimate leader in the marketplace. And our first key strategy here is winning market share across the Ostomy patient pathway. We have already seen good traction in the acute sector, and that's driven by a very strong sales force, which we've invested into and expanded, our GPO and market access teams as well. But we also know that to win in Ostomy, it's not only about winning in the acute sector, but also about maintaining a strong position in home health as patients transfer from the hospital back to home and then maintaining people on their products in the community.
We also see strong growth opportunities as we continue to protect and grow our IC market. That's promoting the adoption of hydrophilic catheters into the community, particularly where over 2 thirds of patients are still on uncoated catheters. And we're going to continue to grow and build on our DME or our direct business called Comfort Medical. In China, it's about building on our current market leading position. We've invested a lot into China, and we will continue to invest.
We're going to maintain our momentum in our core OC business with our strong sales force and our continued introduction of new product technology into the marketplace. But we also recognized over the next 5 years, we have to diversify the company offering into China. We're going to be developing our IC business there. That's predominantly cash pay at the moment, but we'll also be working on reimbursement programs, whether they're provincially or nationally, to build a business of substance incontinence care. And as you know, that market is very much driven by cash pay and out of pocket consumers.
And we've got a compelling digital offering now, a good strong consumer business, but we're going to continue to expand and evolve that business and customize products specifically for the consumer in China to continue to fuel that growth. Now let's talk about Europe. Europe's our largest market. We've got a stronghold position in market and we're still very ambitious for growth in Europe. Our strategy over the next 5 years is to maintain that market leadership, to leverage our OC innovations, our new products, our SenSura Mio Convex, SenSura Mio Concave and couple those with services so that we can deliver value to all health care stakeholders across the continuum.
As market leaders in IC, intermittent catheters, we also can see big opportunities to do market development, to increase penetration and adoption of catheterization in pathologies which are currently underpenetrated, multiple sclerosis, benign prostatic hyperplasia, as well as develop and develop compelling user compliance programs which will ensure consumers that are currently in our database are going to be using products to the prescribed level. So they get the best possible outcomes they can out of our product lines. We've got strong direct businesses in all of our markets in Europe. We're going to continue to drive the growth and invest in those direct businesses because they're particularly important with respect to our relationship with the consumer but also in many markets with the payer. And when it comes to emerging markets, this has been a strong growth engine for us.
We're going to continue to fuel that. But the strategy here is going to be about focused investments, focused investments in the large core fast growing markets. We're also going to continue to build our e commerce business platforms because many of these markets have out of pocket consumers. And it's very, very important that we have an offering for them to be able to access and buy products in those mature markets. We'll continue our work on securing IC reimbursement in new markets in Latin America, for example, in parts of Central and Eastern Europe.
And we're also going to optimize model in small markets, so we can free up capital to further invest in those large fast growing markets. And over the last 5 to 7 years, we have built market leading key enablers to support our commercial model and especially to support our transition to a health care consumer health care company of the future. Our key enablers have been very, very strong for us, particularly at the onset of the pandemic. They ensured that we were able to supply consumers without disruption as well as remain engaged and reassure them that they will continue to get products and the great services that we offer to ensure that they not only get their products but could get strong advice on health care, particularly during this time of isolation. And when we talk about our direct businesses, and you can see we have a direct presence in our top markets around the world.
And there's a very strong strategic rationale for having that. Firstly, our direct businesses allow us to serve customers on an individual basis and consumers on an individual basis to ensure they get the best possible health outcomes. It's also been a very vital component for us for our growth engine as well for the growth of the company. Our direct businesses are growing at high single digit growth, so they're very supportive of our total growth agenda. In times of crisis, like we've seen recently with the pandemic, it's enabled us to control and ensure continuity of product supply.
Having direct access to consumers and payers means we can talk in a more fulfilled manner about how we meet their needs. And by having coupled with our CARE program, we can show that we can improve patient outcomes and just as importantly, protect the patient pathway, which means patients are assured of getting the products they're prescribed on when they're discharged from hospital because that's what meets their typical individual condition. And our coloplasts care presence, which we're very proud of, we've built that in conjunction with health care professionals around the world. It's customized for each country. We now have a presence in over 30 countries.
We have 1,800,000 consumers in our database, and we make over 3,000,000 calls a year. That's 3,000,000 individual interactions with our consumers. And we continue to make sure that they've got access to our samples and supply. And at the core of our commercial model and particularly just to enable our consumer strategies is our data management and digital tool set. And we have very clear priorities about what we need to deliver over the next 5 years to ensure we continue to digitalize the company and make it even more pertinent to the future state that you saw earlier in Christian's slide on market dynamics.
Firstly, an engaging mobile offering for health care professionals, for consumers and for prescribers. For health care professionals, we are making an offering and delivering an offering now so that health care professionals can seamlessly enroll consumers into our COLOR plus care program without paper and faxes and mail and an inefficient way of enrolling, GDPR compliant ways of enrolling patients into COLOR plus care. And for consumers, it's about health care in a pocket. It's about allowing our consumers to take control of their own health. And we're providing digital apps for self health care where they have access to product information, simple guides on routine and treatment and basic self health control as well.
In terms of transactional activity, online ordering platforms with a simple user experience enables hospitals, trade customers and consumers to seamlessly buy and access our products and our samples. And one of the strengths of the company is having a high performing infrastructure, which not only allows us transparency on the business performance, but it also allows us to be very efficient in the backbone of the organization. It also enables us to have a high impact service deployment whenever we need to upgrade or deploy new IT service offerings to the marketplace. And it's this one high performing infrastructure which enabled us to quickly move our office based staff, and that included our care consultants and our DTC teams around the world into home working environment at the start of the pandemic. And the challenges of the pandemic do mean that we need to continuously rebalance and adapt our consumer and customer engagement and our go to market model.
Our field sales force since the start of the year in many countries has largely been grounded. We have taken that opportunity though to upskill our sales force, focus on training and skills in selling in a virtual environment. They have been able to maintain strong relationships either over the phone, through video conferencing and where possible with face to face visits. But we do recognize that sales productivity is a little lower when you can't go and visit the customer directly. Notwithstanding that, we've also provided our sales force with the digital tools necessary to help them sell internally and support our customer service teams.
And we are seeing higher productivity here. And direct to consumer and our Cola Plus Care outreach program, it's a strategic asset for us. It enables us to engage greater into the community. We've continued to scale that up. It's easily scalable.
Our sales force have supported us in that and it's ensured that we again keep continuity of engagement with consumers, particularly in this very challenging time. So in closing, our STRIVE 25 ambition is to continue to outgrow the marketplace. I have a strong conviction that we'll continue to do that, And I'm very much looking forward to our next 5 years with the company. We will be sustaining growth leadership. Now I'll turn it over for questions and answers.
Thank you.
Thank you for your presentation, Paul. We will now move to the 3rd Q and A
The first question is a follow-up question from the line of Michael Jungling from Morgan Stanley. Please go ahead.
Great. Thank you. A couple of questions, please. Firstly, on China, can you comment on how large the IC market is in China with Western Technology today? Question number 2 is how large is your IC business in China?
And where do you see it by the end of the new period? And then finally on the sales model, it seems many companies have seen COVID-nineteen as a way of sort of repositioning their sales force education and training, it's been kind of effective. Do you feel that you need the same number of salespeople to grow? Or has COVID-nineteen shown you a way of engaging with customers in a different way that is less costly and perhaps just as effective? Thank you.
Good questions. Thank you. I'll take the China question first because it's all our Continence Care business and it's Continence Care in general in China, we're talking catheters here, is very, very small. And that's predominantly because of the standard of care that's currently deployed in the marketplace. So it's a small part of our business now.
It's predominantly cash pay through a subscription model. And notwithstanding that, we still think there's significant opportunity even to tap into that cash pay market. As you're probably aware, larger continents markets happen because of reimbursement. But that's more of a longer term play. We will be working both at the provincial level and the national level to present the evidence around reimbursement and the health care benefits of using intermittent catheterization over the course of the next few years.
I don't expect that to happen straight away, but it will happen. When we talk about the sales force model and we talk about why do you have care professionals and the sales force. It's not only about selling, but it's also about in servicing, product demonstrations, etcetera, as well. And when you build the relationships, you certainly can build strong relationships with your customers. But as you also know, when we're taking on new customers, for example, if we win a tender or get on to a new GPO account, we need to establish those new relationships in those accounts.
And that's particularly where you need in person sales force. Irrespective of that, we can and we are in the process of adapting our model, digitalizing it so we can conduct more virtual sales calls. The customers are receptive to that. But the feedback we still get is they still like to see the sales force. So we rebalanced the model when COVID eventually does finish, and I firmly believe it will.
We will still see a strong need for a compelling field sales force, not only to sell the products but detail and educate our consumers as well, particularly when you see the clinical performance program that's coming up.
Great. Can you just comment on how large the IC market is in China for Western Technology of approximate size?
It's small at the moment, Michael.
Okay. Thank you.
Thank you for your questions, Michael. We'll move to the next question on the phone lines, please.
The next question comes from the line of Janik Denholm from ABG. Please go ahead.
Hi, thanks for taking my questions. Two questions, if I may, please. 1, so you talked about, you can say like more key focus in emerging markets where you also allude to, you can say, a little more of, let's call it, flexible reshuffling of some of the money flow in terms of the investments there. Can you, by any means, quantify, you can say, how much spending is actually flexible in that regard and how much can be shoved around? And so that just sort of reconfirm that your new ambitions for merchant markets is comfortable double digit growth, as I think Christian said, where prior was above 15%.
So please put that in respect. And the second question would be, I asked earlier on, you can say the engagement of your new products and clinical trials with also U. S. Peers. Given you just won the Premier account, Visteon would be obviously a good win for you guys.
How do you view the importance of engaging some of these? Maybe early on in trials, couldn't that help you guys also winning some of that? Thanks.
Okay. Let me take the emerging markets question first. And we have a very strong presence in most of the large emerging markets. In fact, all of the large markets that we classify as emerging. And as we look at the portfolio of countries within our emerging market portfolio, we can see we can free up a significant amount of capital by optimizing the business model, certainly enough to give us the additional investment that we need, whether that be in the sales force, in marketing, in e commerce, in the larger businesses.
What we do recognize is that it's better to focus your investments on the large, faster growing markets than try and split it too thinly. And we've been actively doing that over the last 12 months. Particularly, there's been markets where we've very much reduced our investiture, maybe even exited. But instead of taking that money back to corporate, we've allowed emerging markets to redeploy that capital, whether it be to build a sales force or do something else that would enhance our position in our 5 largest markets in emerging markets. So the flexibility is there and we're quite agile in doing that.
Now when it comes to the U. S. And it comes to Visteon, of course, it's an incredibly important GPO for us and an important contract for us to be on. And the work for that is starting now. And you'll hear more about the work that we are doing on October 7.
But as you know, with GPOs, they're looking at what is your current offering today, where is the company going in the future, what is the innovation that you're delivering, What is the value that you're delivering? It's not only about price and how compelling are you as a partner for hospitals in that GPO environment and portfolio as well. So of course, when we talk to the GPOs, when we talk to Viesient, we'll not only talk about the technology and the products that we have today, which are resonating very, very well in the U. S, but also about what the future will look like as well. So I would imagine it will be part of the conversation.
All right. Thank you for those answers, Paul. And thank you, Michael and Janik for good questions. And now we will move on to today's final presentation. I'm pleased to welcome Alan Rasmussen, our Executive Vice President of Global Operations to the stage.
Good afternoon, and welcome to this last session on operations. My name is Alain Rasmussen. I'm the EVP of Global Operations, and I've been with the company for 28 years now. For the past 12 years, I've been heading up Global Operations. And at this session, I'm going to talk about the new plan for Global Operations, the Global Operations Plan 5, also called GOP5.
And as many of you will know, this is not the first plan we are introducing in Global Operations. We have actually been using these Global Operations plans for more than a decade now to set the direction and ambition level for our global operations. What is also common actually for all the previous plans that we have delivered on, by the way, is that we have gained a lot of value out of offshoring activities to Hungary in China. This has now come to an end, and the possibilities for offshoring is actually exhausted. So in this new plan, you will see a shift where we shift to from offshoring and more into automation.
But before I go into the details about GOP 5, I would like to talk just a little bit about the outlook and some of the external factors also influencing the future. As I said, we have some challenges ahead of us. We have some headwinds, and I already mentioned the first one, no more benefits of offshoring. We are also seeing labor shortages and base inflation in Hungary. And then we are seeing a lot of new requirements coming out of the MDR, of course, requirements that goes for all companies, the medtech industry.
We are going to do a lot of activities in the coming years to make sure that we can actually comply with the new NPR in 2024. Earlier today, you heard both Nikolai and Oliver talk about a lot of new and exciting products. And of course, it's great with all the new products. But from an operations point of view, I also have to say that the new products, they are basically all more expensive and a bit more complex than the one they are substituting. And that again means that I have to purchase more expensive and more advanced production equipment, taking up more square meters and driving up cost.
So that's a challenge. On the right hand side of this slide, you can see that as we are planning to grow the company 7% to 8% on the top line 7% to 9%, sorry, on the top line in the years to come, of course, we'll also see an increase in the production volume. At the same time, complexity is going up. We are still adding on more SKUs to the business, and we expect the number of SKUs to go up with around 4% in the years to come. So this is just to give you a flavor of the outlook of this plan some of the external factors influencing us.
And the next question is, of course, what to do about it? How do we ensure that we can mitigate these headwinds and keep on creating value? Well, the answer, of course, is Global Operations Plan number 5. No surprise. And what I want to do now is to talk about a little bit more in details about the 5 different themes that Gov5 consists of.
The first is called commercial focus. And the reason for this theme being here is basically to make sure that everybody in operations, they keep on working and understanding that the top number one priority will always be to support the commercial agenda. So basically, this theme is all about moving closer to our colleagues in growth and innovation to make sure that we have the right fit and the right setup to service our end users. The second theme is called seamless supply, and this is basically about ensuring a seamless supply throughout the supply chain. It's also in this team that we are working with the risk reduction, as we have done in GOP 3 and GOP 4, to make sure that we mitigate the chance of supply disruptions.
The 3rd theme is called Network and Footprint. And in a way, this is also a Global Operations classic. We always look at how we can make sure that we have the right footprint, that we have the right network of distribution centers and that we have the right capacity to serve our end users. And later, I will talk a little bit about one of the main activities within this theme, setting up a new manufacturing platform in Costa Rica because in this planned period, we are going to add on 2 new volume sites in Costa Rica. On the right hand side, you can see the next two themes called simple and cost efficient, which is basically about making sure that we are simple and cost efficient in everything we do across the organization.
Under this heading, we also find you will also find things like the lean activities we do, the continuous improvement at the factories and all the procurement activities. The 5th theme is called automation. Automation is a very important part of this new Global Operations Plan, and this is actually a source for financial savings. Now that we are no longer seeing benefits from offshoring, this will actually be one of the areas where you will see a lot of financial savings coming in the coming plan period. I will dig a little bit more into that in just a short while.
So here you see the 5 main themes in the GOP5 plan. And by the way, on top of this, we also have the sustainability activities that is anchored in the overall STR1VE 25 strategy. This is also going to be led and managed out of Global Operations. Let's take a look at where the financial savings are going to come from in the Cop5 plan period. Basically, we have 3 sources.
The first being automation that I already mentioned. We are going to invest around DKK 450,000,000 over the next 3 years in automation at the volume sites, most of it in Hungary and China. And by doing that, we are actually going to reduce the need of new employees with more than 1,000 at our volume sites. And this translates into savings of around DKK 150,000,000 annually. A second area of focus and a second source of savings in this planned period will be the work we do in procurement.
We are spending more than CHF 2,500,000,000 a year in direct materials for manufacturing. So it's evidently important that we can keep on having a competitive price on our raw materials, obviously. And in this planned period, we actually expect to keep a flat level, meaning a 0% increase throughout the planned period. And this, of course, requires a lot of hard work from our colleagues in procurement. And of course, we will have to implement a lot of new materials also.
But the ambition remains no price increases over the planned period. The 3rd source of financial savings would be scale effects or leverage on our global functions because we also plan here actually to avoid having to hire additional employees. I think actually this morning, Christian, he also alluded to it that we will see a flat FTE development over this planned period. Today, we are around 7,000 people in Global Operations. And by the end of this planned period, we also plan to be around 7,000 employees.
And of course, this will give us a lot of leverage also on our headquarter functions. Taking a closer look at the first one being automation. So what is it all about? Automation is a huge thing in the GOP5 plan, and it includes more than 30 programs and involves more than 300 production machines. But it's not only the machines we are going to automate.
We are going to automate a lot of handling of materials, a lot of quality controls, a lot of packaging of finished goods. So it's a combination of different things that we are going to automate. But what is common for all of it is that it's going to be based on known technologies. So we have been working with automation and operations in Coloplast for more than 25 years. The difference here is that we do it to a much larger extent than we have done historically.
This is because we want to find financial savings, of course, but it's also to mitigate the challenges we are seeing around labor shortages, especially in Hungary. So we are basically basing this automation effort on known technologies, like vision systems and pick and place robots. So it's not cutting edge technology here. It's something we know how to do. It's something we know how to work with.
And the effect, as I already alluded to, will be a saving of almost 1,000 employees in terms of people we don't have to hire. And that will actually bring the level of Blue Collars workers constant over the planned period, resulting in a DKK 1 150,000,000 annual savings. As you all know, it's very important to have a robust setup in operations. A reliable supply chain is key. And I'm glad to say that during this COVID 19 crisis, we have actually been able to keep all our manufacturing sites and all our distribution centers running, enabling us to service our customers throughout this planned period.
But we want to make it even more robust, and we want to make sure that by setting up more factories in Costa Rica, we will actually spread the geographical risk. So by the end of the planned period, we will have an even more robust setup than we have today. And about Costa Rica, I mean so far, we have been operating in a rental facility small scale, but our experience so far in Costa Rica, they are actually very, very good. And we plan to add on additional 700 to 800 employees over the coming 3 years. So to sum it up, we have so far been very successful in implementing our global operations plans, number 1, 2, 3 and 4.
And I'm absolutely confident that we will also be successful in implementing this one.
Thank you. That brings us to the final Q and A session. Operator, we are ready to take the first question.
The first question comes from the line of Patrick Wood from Bank of America. Please go ahead.
Super. Thank you very much for the details on the operations side. I guess one of my questions would be, you point out to the increased complexity of the products. To what degree is during the design phase of these products is supply chain and operations involved within that design process to help create a production process that's actually efficient and that isn't going to create a headache for you later, where you have to reverse engineer everything and build out a load of automation. How involved are you in the early stages of design to prevent that situation from happening?
Thanks.
Thank you, Patrick. I think it's a great question. To make a long story short, we are involved in the early phases of R and D, and we do work with design for manufacturing. This does, however, not change the fact that the new products, they are more advanced. They are more advanced in their design.
They contain more components and more expensive materials. So net net, it still ends up in a situation where you have more complex and more expensive products.
Okay.
Thank you, Patrick. Next question please, operator?
The next question is from Scott Bardo from Berenberg. Please go ahead.
Yes, thanks very much for taking my question. Alan, I think you've been at the company a long time and done a fantastic job with group productivity and gross margin. I wonder if you could share some sentiment surrounding the comment that your gross margins appear to have peaked some 6, 7 years ago. Is it now disappointing that you stand here today and highlight that the best that can be done is mitigate any pressures rather than further progress gross margin? It seems that this is a less ambitious plan than in the past.
So I just wonder if you could add some comments so we can understand, if you like, the challenges and opportunities?
Yes. Thanks a lot. Great question. As you heard Anders say earlier today, we expect a flattish gross margin over this planned period. But I can tell you that in the GOP5 plan, we are going to create a lot of value.
And I've already went through some of them in terms of automation, in terms of procurement in order to create savings and improve gross margin. But there is also headwinds that we will have to mitigate in this planned period. And there are also other factors that are influencing negatively the gross margin development. You heard about some of them today. You heard about a change in product mix, more expensive and new materials and new products.
And then, of course, increased depreciation also because of more CapEx. But I would say all in all, you also have to understand that the outset is very different in the GOP5 plan period compared to what it was in GOP4 or GOP3 because now all the benefits of offshoring are basically exhausted. But all in all, when I look at the GOV5 plan, I'm very proud of this new plan, and we are going to create value also net net and contribute to a positive gross margin development from this plan.
Understood. And second question, please. And I think Christian alluded to this historically, but when visiting some of your plants in Hungary where most of your manufacturing capacities are, it seemed to me at least that these already highly automated facilities with a lot of industrial machines involved in the manufacture. Can you specifically specifically outline the more obvious areas for automation that are not already in the group?
Yes, sure. I mean, you're right. We have some in Hungary that are highly automated. We also have some that are fairly manual. We have something that is semi automated.
But all in all, there's still a huge potential for automation. And that, of course, will help us mitigate the shortages in the labor market and also, of course, the waste inflation that we are seeing. But I can assure there's a lot we can do in terms of the way we handle product, load products into machines, make visual quality controls. Today, I mean, we have 100% inspection, visual inspection of an operator when we send products out the door. This we will substitute by vision systems and so on.
So I mean, there's a lot we can do within automation. And by far, the biggest contribution to the 1,000 people we don't have to employ in the planned period will actually come out of Hungary. So there's still a lot we can do. There will also be a lot of stuff we can do from an automation point of view in the GOP6 plan.
Thank you, Alan. Thank you, Scott. We have time for one final question. The question comes from Niel Slit from Carnegie. You need to add 700 to 800 employees in Costa Rica.
Does
it mean you have to reduce by the same number in Hungary?
No, it does not. The great thing one great thing about being in a growth company is, of course, that we can do things like this without having to lay off people in Hungary. We are going to transfer a lot of activities out of Tatapani and Neabata into our new site in Catargo in Costa Rica. But we can do this without laying off people that are employed there because of the employee turnover, because of the growth and because we have some temporary workers there also. Yes.
Thank you, Alan. That concludes our final Q and A session. A big thank you to all of you who have participated today. Thank you for asking great questions. And on behalf of the Investor Relations team, thank you for joining.
If you have any follow ups today, do not hesitate to reach out to myself or to Rasmus. And, I will shortly invite Christian back onto the stage, and he will tell you a little bit about the program that we also have lined up for you over the next couple of weeks. But a big thank you to everyone for joining.
Hello again. I hope that you have enjoyed listening into the program that we've put together for you today. We promised early on that we would try and keep it at 3 hours, and here we are. So I am not going to repeat all the messages that we've been through today other than say that this team has conviction in the plan. Sustainable growth leadership is a strong continuation of the track record that we have in the company.
Now we understand that there is much more to talk about. So we have also set up a number of sessions over the coming days weeks for us to talk about what we have presented to you all here today. So you can see here on the left hand side, there'll be a number of roadshow calls lined up, with geographical emphasis on investors in different time zones. And we have a number of deep dive sessions on October 7 October 9. On October 7, it will be China US for chronic care.
It will be Wound and Skincare Interventional Urology. And on Friday, October 9, we'll have a chance to deep dive into the work that we'll be doing on sustainability. On behalf of my entire team, I want to thank you for all the good questions that you have posed today. The interest that you show in our company, we really appreciate that. And I also want to take this opportunity to thank our Investor Relations team and the team here who made all of this possible now that we couldn't unfortunately see you here in person.
I hope that, that will be different the next time around. Have a good day.