Coloplast A/S (COLOB) Earnings Call Transcript & Summary

Good afternoon from the Coloplast headquarters in Denmark. My name is Ellen Bjurgert, 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'm very happy to introduce our CEO, Kristian Villumsen.

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 Humlebaek, north of Copenhagen. But alas, because of COVID-19, 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 U.S. and China and also our smaller business areas, Interventional Urology and Wound & Skin Care on that day. On October 9, there'll 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 Anders Skovgaard, our CFO, who will talk about the financial outlook. Anders will hand over to Camilla, who looks after our People & Culture agenda, and Camilla will talk about what role that plays in our new strategy. We'll then have a first Q&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 Nicolai's new organization and setup but also our progress on the clinical performance program that Oliver Johansen, who runs our R&D will present. We'll then transition to growth that Paul Marcun will talk about that and the efficiency where Allan Rasmussen will present our Global Operations Plan 5. All told, today, you're going to meet all of our executive leadership team. And all of you're handsome, 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 have created good value. Many years ago now, about a decade ago, we initiated an effort to build what we call the consumer health care 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 Strive25 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: U.S. 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 & 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&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 health care 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 that 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 health care 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 health care 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 health care is developing across the world. The first one and most important one is demographics. One brute fact in 25 years, another 1 billion people are going to enter the age bracket of 60 plus, which is the age at which we all start to consume more health care. 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 health care consumers; we all are and have all become. This is the first 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 health care. 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 health care 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, and you're going to hear us talk a lot about products today. 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, products are not enough. They must come into the world, and you must partner with health care 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 health care professional side. And all of the work as a company that you do around products, partnering with health care 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 in 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 and Continence, 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 of 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 LEAD20 strategy has produced good results. I'm very satisfied with the results that we produced. Back in November '17, 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. Both 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 continence 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 & Skin Care side, it's been all about Biatain Silicone and our 3DFit 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 Altis 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 2 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, 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 untreated for too long. That was the basic impetus for us to initiate the clinical performance program, and you can see here on the right, there's a bit of a snippet for what we're going to show you later of our digital Ostomy solution, but Nicolai 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 U.S., on Argentina, on Italy. We built these programs. We built these patient support programs with our health care 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 the 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 LEAD20 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, be often be sales representatives, opening up new markets or new segments and significant investments going into R&D. On the geography side, we've invested across all of the regions that we're in, but with a strong emphasis on U.S. 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 had from LEAD20 -- from the 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 & Skin Care, 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 deliberate, on time, on money. GOP5 is the biggest one that we have had -- we've had in plan yet, and I'll talk a bit to it and Allan, more so later in the program. That gets me to Strive25, as we call the strategy. On the left-hand side here, you can see 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 Strive25, it's a sustainable growth leadership, sustainable growth leadership. We ask up 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 all saw 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're 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 two, 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; Anders, our CFO; and Allan, our EVP of Global Operation; 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 Nicolai, and you will hear more about this later. Nicolai'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 Marcun is responsible for sales in Chronic Care and Wound & 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. Nicolai'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 & 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. Nicolai 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 a 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, 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&A team, and we've also strengthened our business development and M&A muscle on Interventional Urology. On the growth side, there's going to be growth across all 3 business areas. We want all 3 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 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 Marcun also talk to how we think about expanding beyond the type of work that we do today. U.S. is our single biggest growth opportunity. We've -- for those of you who've 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 U.S., 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 & Skin Care is going to be all about 3DFit. 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. Allan 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 or 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, on 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 zero-emission company by 2025 from our own operations. So this will be what's 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, et cetera. 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, 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 a couple of hundred millions 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&A. We're not a company that's done a lot of M&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 large plays. 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&A and business development setup 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're definitely doing quite a bit of work. This chart is what it's all for. 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, in 20 years, as you can see here, but this is a growth company. And so the legacy of the company's growth, we believe that the future of the company is growth. Strive25 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 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 U.K. 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 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 with 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 will 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 own 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 Skovgaard, who will take you through our financial outlook. Thank you very much.

Thank you, Kristian. My name is Anders. I'm the CFO in Coloplast. I've been with the company since 2006. I've 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 are 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-19 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 am 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 inflow of new patients into other smaller markets, especially here in Europe. We also have some uncertainty in our Wound & 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 1920, 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 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-19 situation. We will still have a global travel ban. We will not do the same level of congresses, sales meetings, et cetera. So we would still be prudent on our cost. 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 Strive25 period is very strong. I'm very happy to share with you that we continue to lead the -- our peer group. When we are evaluating our performance, we are comparing ourselves with our peers across the med tech industry. And if we compare on the margin and on the return on invested capital, we continue to be #1, and that's something that we are very satisfied with. We're having a lot of focus on value creation. We are 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 LEAD20 period, we have generated around DKK 18 billion 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 LEAD20 period, but we have also seen some contribution from our margin. Our margin in the LEAD20 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 Kristian 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 LEAD20 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, and so that contributed to growth. But on the more challenging side, we are also expecting that price -- or health care reforms will continue. So I'm also expecting over this Strive25 period, that we will have a negative impact in terms of price of up to minus 1%. 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, Kristian already talked a bit to it. But we had a strong period of growth throughout the LEAD20 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 Strive25 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 LEAD20 period been launching our SenSura Mio program. Within continence, we are having a strong platform within the male segment, the SpeediCath Flex. And within the Wound & Skin, we have a strong platform with our Biatain Silicone, and we have most recently launched our Biatain Fiber. All of that will contribute to growth also in the Strive25 period. Within the Urology area, we are expecting high single-digit growth, driven by geographical expansion, but also driven by moving our Inter Urology product portfolio to the U.S. Across our regions, we are expecting our European market 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 a minimum 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. Kristian already talked a bit to it, but we have been focusing very much on efficiency and improving our margins over the last 10 years. 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. Allan 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 or where we are seeing headwinds into the Strive25, that is driven by depreciation, we will increase our CapEx allocation to optimization, and that will drive depreciation levels up. We will also, throughout the Strive25 period, establish one 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 Kristian said, we will invest into our sustainability agenda. We are expecting over the period to invest up to DKK 250 million, 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 Coloplast, that's sales, marketing and logistics. We will see some scale effects, especially here in Europe, that we then, again, we'll reinvest -- or the scale effect, we will then reinvest into our opportunities, either in the North Americas, in emerging markets, Asia, et cetera. And Kristian already talked a bit to our business center in Poland. We have over the LEAD20 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 Strive25. 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&D. So the R&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 Strive25 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&D within the Interventional Urology area. So overall, I still expect that we will have an R&D ratio of around 4% of sales. In terms of investments, as Kristian 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 are 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 percent 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 30%. So we are here to increase growth. We are here to invest into growth opportunities. So the scale affects the cost discipline. That is something we will reinvest in order to drive growth across the company. And as Kristian 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 bag orders. 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 the Strive25. 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 Kristian also talked to at the end, here -- that Kristian 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 Strive25 period. So to sum it up, we are here to create value. That is what we are focusing on in Strive25. There will be a lot of focus on innovation, a lot of focus on growth. We expect to grow the company between 7% and 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 Mohl, who is in charge of our People & Culture function.

I'm Camilla Mohl. I'm the Senior Vice President of People & 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 & 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 & 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 to our activities in that area, but also how we are progressing in that front. After my session, I will be inviting Anders and Kristian on stage for our first Q&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 Kristian alluded to in the beginning of his introduction, to make life easier for people with intimate health care 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 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 metrics 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 a stable employer in turbulent times, and the number has been positively affected by COVID-19. 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-19, 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 2/3 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 Strive25 and 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 & Culture: Evolving how we lead, developing talent for future and simplifying people processes, and I'll go through them one by one. 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 1,200 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 service to Peakon. Peakon 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 -- 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're 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, so now already achieving 54% 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, Strive25 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 Strive25 even stronger. And with that, I will conclude my session, and I will ask Kristian and Anders to join me on stage for our first Q&A session based on the first parts of today.

Hello, everyone, and welcome to our first Q&A session. Operator, we are ready to take the first question from the phone lines.

[Operator Instructions] Our first question comes from the line of Patrick Wood from Bank of America.

Perfect. I'll keep it to 2, please. And the first one will be on M&A, where it seems like the language has changed a little bit from you guys. And I'm just getting a sense of how proactive you're looking to be in that space. Would there be any kind of size of asset that would be off the table or you're 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 of the top line you've given for 2025, how important is it that you hit those new reimbursement codes on innovation to land within 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 first place? Just some color around that would be really helpful.

Let me try and take a stab at that and Anders, feel free to supplement. Good questions, Patrick, and thank you. On the first question on M&A, it is correct that the language has changed. We're also doing more screening work behind the scenes. If I 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-sized type of transactions. I hope 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 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&A than we have historically. Now on pricing of the clinical performance program and its importance for the long-term guidance, the -- 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. 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.

The next question comes from the line of Veronika Dubajova from Goldman Sachs.

I have 2 please, as well. My first one is actually a follow-up on, as shown in your comment, on how do you get to the 9%? Because obviously, if I look over the past 5 years, 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&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 it. 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 are 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 a lot, Veronika. I'll start and then 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 built a significant position in the EM region. And 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 one 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. Anders, anything you want to add?

No, it's maybe more to your 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 Coloplast 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 Strive25, 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 between the lines that the margin commitment you're making is 30% to 32%. Desire to make that 20% 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.

The next question comes from the line of Michael Jungling from Morgan Stanley.

And I have 3 questions. Firstly, if I look at your EBIT margin guidance. I'm curious how you're 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.

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 a positive impact from the Global Operations Plan 4 and 5, 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 Kristian's session, but also in my session. So the EBIT margin guidance is, in order for us to have flexibility, a maneuver 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 to 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 are going to initiate the second 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, Allan 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 side. So the CapEx levels within the optimization agenda is going to address that. I think that was...

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. The automation decision is really about reducing labor inflation exposure. And Allan 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, right? That we -- right now, we have a very significant share of our manufacturing footprint in Hungary. And we're basically derisking 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.

[Operator Instructions] Next question, please.

The next question comes from the line of Carsten Lønborg from SEB.

Yes. Just first question to Kristian. 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 Ostomy and Continence Care, I guess, can you tell us what's your combined line's share of these 2 segments is today? And also, what will it take you to be the market leader here? Second question to sustainability, I guess, appreciating the targets you are 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, mainly the fact that all of your products are made of plastic or at least a lot of them are. So what it will take for you to address this challenge in more detail towards investors as well?

Thank you, Carsten. Two really good questions. I won't take away too much thunder from Paul's session, what Paul will talk to the work that we're going to be doing in the U.S. Our market shares on the Continence side 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 Nicolai 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, Carsten, 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 health care 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 1 and 2, 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 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 -- 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.

The next question comes from the line of Scott Bardo from Berenberg.

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 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&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 can pay yourself to have much high R&D ratio. So clearly bought into this R&D investment notion earlier or more aggressively. How confident are you that a 7%, 8% R&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, right? 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 have 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&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 time frame and set 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&D team? I think you should ask Nicolai 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 an innovative growth company.

Thank you for your question, Scott. I think we have time for one last question. Let's come in on the chat. And the question is from Christoph Gretler from Crédit 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 -- Christoph, 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'll probably lean a bit more forward in geographies like the U.S. and in France, but I wouldn't rule out any of the geographies. We will be pragmatic about that, but it must create value.

All right. That concludes our first Q&A session. Thank you for all your great questions. Now I would like to hand over the stage to Nicolai Buhl Andersen, our Executive Vice President of Innovation. Before I do that, we will watch a short video with users from all 4 business areas. And the video clearly demonstrates that with superior products, we can help make our users' lives easier. [Presentation]

Hello, and welcome to the innovation session. My name is Nicolai 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, our SVP for R&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&A session. So first of all, for those of you who don't know me, I have been with the company since 2005. And although I, for the last period of time, have been heading up the Wound & Skin Care 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 Kristian's presentation this morning, innovation is going to be a key component in our new strategy. We 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're 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&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&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 one 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 time line when it comes to the Clinical Performance Program. We do, however, also have a very exciting pipeline of other projects that not under our Clinical Performance Program that we need to make sure that we bring to the market with success. But as you also heard Kristian 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 of is, of course, to elevate our ability to talk the clinical language, both to clinicians and to payers. What you also saw in Kristian's presentation and you will also hear 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 Strive25 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&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 LEAD20 period, we have launched a number of great products across all business areas and all product categories. We launched SenSura 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 LEAD20 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 Kristian mentioned, we have launched SpeediCath Flex, and we have expanded that success with a new product for Coudé Pro 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 Biatain Fiber, which is off to a great start. Now as mentioned already, we have increased our R&D spend from 3% to 4%, and we have done that -- done this to improve a number of key R&D capabilities. We've strengthened our preclinical area. We've 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 have established a technology scouting function, which will work very closely with university, 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 their 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 performance in [indiscernible] as an example. After our preclinical work where we [ conference ] 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 within Continence 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 preclinical performance programs, where we quickly iterate and learn about the performance of our new technologies. As Kristian mentioned, innovation is at the core of our new Strive25 strategy. We have 4 themes that are driving our R&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 LEAD20 strategy. We will continue that launch cadence across all our product categories. And then in addition, we need to build a more growth option for the company through M&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&D and efficiency and strengthening our R&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. So let's look at our efforts within our -- the digital space within OC. It's a true pleasure to introduce you to this digital groundbreaking ostomy solution. [Presentation]

Now this is truly exciting. 91% of users, they worry about leakage. And we want to provide these users with an intelligent solution that enables them to live that life that they want and to give them peace of mind. And we have here developed a unique ostomy solution that works underneath any base plate in the world, including flat, concave and convex products, and it also work with competitive products. It's based on advanced sensor technology and software algorithms that can detect leakage. We send users notifications via a Bluetooth transmitter. And given the user's consent, we collect that data into our cloud solution. And this very much support our digital aspiration of connecting our products with our services. Now imagine a user having problems contacting our Coloplast Care. We will give -- the user is using this device have access to data about their usage pattern, leakage pattern, et cetera, and we can support them in a completely different way than we can today. We also believe that as we get more and more data, we will actually be able to support the users with first- and second-level support automatically. And we can also make proactive services that actually contact users that are seeing worse outcomes than their peer groups. So this is truly going to make a difference for a lot of people around the world. Also with real-life data, we believe that we can have and drive different conversations with payer systems. So this is indeed very exciting times. Now we have tested our new solution end-to-end for the first time in our pilot study. The study were conducted over a 9-week period. It consisted of 3 phases of Phase I, where the users used their own products, which included flat, convex and concave products. The second phase, they wore the digital ostomy device, but where the users did not receive notifications and leakage alerts. And then the third phase, where they actually received notifications on their smart device. 18 patients completed the study. The average age was 60 years old, ranging from [ 31 ] 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 the SenSura Mio 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 are looking for. We are looking for how accurate are we at detecting a 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 have 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 on to 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 is impacting the scores that they are 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 live 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, et cetera. 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 Coloplast Care programs, and we have direct sales channels. These 2 markets have very different payer systems, and we want to test this solution in 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 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 1/3 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 have 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 endpoint also in the chart that we are looking for endpoints related to peristomal skin complications. Now when I stood here a year ago, I presented positive clinical results from our new skin-protecting technology in a number of clinical studies and our results, we have shown 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, 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 cost analysis also clearly indicate that we need to optimize the device design further. And that's why we believe we're 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 an update on our new catheter platform. As Kristian 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 check 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 the worst event, to death. So it's a 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 catheter in 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 into 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 are several challenges related to this. Having the bladder wall being stuck into the islets 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 their 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 third 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 so instead of having 2 islets, we have what we call a drainage zone, which consists of a number of micro islet 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 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 Odense 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 needs 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 islets 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 have tested it in our labs, we've tested 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 end up -- 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 micro islet 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 third chart shows that our new catheter platform reduces blood in the urine following catheterization. So even though it's still very early days, I'm very happy with these results. And we will continue with these studies 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 are 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 2 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 set products. We need to ramp up 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 Nicolai to the stage as we transition to Q&A.

Thank you, Oliver, for that exciting update on innovation. We will now dive into our second Q&A session.

The first question comes from the line of Martin Parkhøi from Danske Bank.

And Martin Parkhøi at Danske Bank. I have some questions regarding the physical ostomy solutions. Firstly, regarding the clinical relevance, how many -- now the pilot study was on a 9-week basis, how many notifications do they actively get on a daily or a weekly basis? Then secondly, what kind of adoption rate of users do you expect under this 2025 plan? 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 carrier 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 a part of your accessory offering?

Right. So first well, the first question regarding notifications, we basically believe that we have found an appropriate level to notify the uses as the clinical study 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 our service program, combining a digital product with our service program 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 explorative approach to find out how we best drive value.

And that's exactly why we 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 it actually prevent?

Well, it very much vary 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 either going for or 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 base platelet in the world, including competitor products.

Yes. But I'm still 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 alert. It's a balance that we don't want to alert the user 10 times a day where it becomes an annoyance. You want to have trustworthy alerts. It's very much like getting the yellow card for saying, "Here's something that you need to be aware of," and the red card is saying, "Now you need to do something before you have a leakage." And we believe with the algorithms that we have developed that we've 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 believe we can drive even more value for the broader population.

Thank you for your questions, Martin.

The next question comes from the line of Kit Lee from Jefferies.

I have 2 questions, please. The first question is just on the cadence of product launches into the existing reimbursement category. Should we expect some new products in the next year or so? Or are they 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 products in other categories, for example, in the seals and dressing category?

In the what? I couldn't hear the last part of the question. Sorry.

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 products in other categories, for example, in the seals and dressing category?

Do you want to take Wound Care?

So let's take the strategic question around what do we want to do with the Wound Care franchise. We have, as you also will see when we have the breakout session on Wound & Skin Care, a pretty clear direction for where we want to innovate. As Kristian 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 nonantimicrobials. We believe we have that. And we believe that with our 3DFit technology, both for infected and noninfected 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 LEAD20 period. And we expect that we will continue that launch cadence across all product categories.

Yes. Where I could just add that the most recent launch is the SpeediCath soft launch in the U.S. market.

The next question comes from the line of Ed Ridley-Day from Redburn.