Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Coloplast A/S (CLPBF, Financial) delivered 8% organic growth and a reported EBIT margin before special items of 27% in the third quarter.
- The company launched several significant products, including the Luja intermittent catheter, which is already contributing to growth in 13 markets.
- The acquisition of Kerecis is performing well, with the business growing at a strong double-digit rate of around 35%.
- Coloplast established a new distribution center in the US, expected to drive scale benefits and support future growth.
- The CMS decision to update coding for intermittent urinary catheters is seen as a win for patients and innovation, potentially increasing access to hydrophilic catheters.
Negative Points
- The new US distribution center caused short-term supply disruptions, impacting chronic care business and detracting around 20 basis points from the group's organic growth in Q3.
- Extraordinary costs related to the new distribution center are expected to persist into Q4, with an estimated total of DKK50 million for the year.
- The women's health business continues to face competitive pressure, impacting growth in the interventional urology segment.
- The Chinese market remains challenging, with patient values still depressed compared to pre-COVID levels, affecting growth in the ostomy care segment.
- Foreign exchange rates had a negative impact of DKK305 million on reported revenue, related to the depreciation of the US dollar, Japanese yen, and emerging market currencies.
Q & A Highlights
Q: Can you provide details on the commercial costs, particularly for Luja women and other products, and how these costs are expected to progress through Q4?
A: We invested significantly in commercial activities for product launches in Q3, which was higher than in the first half of the year. Additionally, costs related to the new US distribution center were around DKK15 million in Q3, expected to increase to DKK50 million for the year, with DKK35 million extra in Q4. We expect to deliver within our guidance for the year, with an EBIT margin of 27%-28% and organic growth around 8%. (Anders Lonning-Skovgaard, CFO)
Q: Are you expecting a rebound in US chronic care sales once distribution issues are resolved?
A: Yes, we expect chronic care US to sit at high single digits in the second half of the year, down from previously around double digits. (Kristian Villumsen, CEO)
Q: Regarding the CMS decision for new codes for hydrophilic catheters, were you expecting premium pricing, and what are the implications for volume uplift?
A: We were not expecting a change in the fee schedule. The key takeaway is that CMS now recognizes the importance of technology, which is good news for patients and innovation. This decision will drive a shift towards hydrophilic catheters, leading to better clinical outcomes. (Kristian Villumsen, CEO)
Q: Can you provide more color on cost structure improvements for next year, particularly around COGS inflation?
A: We expect raw material prices and inflation levels to come down. We have hedged electricity prices at a lower level for next year. We will continue to ramp up costs in Costa Rica and see some negative impact from Kerecis due to their lower margin. FX is also giving us more headwind into Q4. (Anders Lonning-Skovgaard, CFO)
Q: When do you expect to see an acceleration in continence care growth due to the rollout of Luja?
A: The male catheter is in 13 markets and is shaping up to be our strongest launch in continence care. The female product is in 4 markets. This is a chronic category, so growth will continue into next year and beyond. (Kristian Villumsen, CEO)
Q: Can you provide an update on the China market and when it might recover?
A: Surgical activity levels are robust, but patient values are still depressed compared to pre-COVID levels. We are not seeing reasons to be more optimistic until we see changes in our numbers. (Kristian Villumsen, CEO)
Q: What is the impact of the CMS coding update on the degree of switching between hospital and homecare?
A: About 60% of volumes are still uncoded. The new coding structure will make it significantly more challenging to switch patients back to uncoded products. (Kristian Villumsen, CEO)
Q: How quickly do you think the CMS reimbursement change will translate into a change in prescription behavior?
A: It will be a prolonged push, requiring education of thousands of customers and payers. We have a sizable setup in the US that has been driving the conversion to hydrophilic technology for a long time. (Kristian Villumsen, CEO)
Q: What are the expectations for Kerecis' growth rate and margin improvement?
A: We are on plan with Kerecis, expecting a CAGR of 30% and margin improvement to 20% by '25-'26. The business needs to continue growing to achieve these targets. (Kristian Villumsen, CEO)
Q: Can you elaborate on the supply disruptions and the expected resolution in Q4?
A: We faced operational snags in consolidating two distribution centers into one. Productivity is improving, and we expect to be back to normal operations by the end of Q4. (Kristian Villumsen, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
