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

Welcome to the Coloplast Q2 Conference Call. [Operator Instructions] Please note, this call is being recorded. I'll now hand the floor to our speakers in your meeting.

Good afternoon, and welcome to our first half 2021 conference call. My name is Kristian Villumsen, CEO of Coloplast, and I'm joined by our CFO, Anders Lonning-Skovgaard and our Investor Relations team. We'll start with a short presentation by Anders and myself, like we usually do, and then we'll open up for questions. Please turn to Slide #3. After an encouraging start to the year in Q1, we had expected a weaker second quarter due to a large stocking impact in our baseline and the continued negative impact of COVID-19 on our European Chronic Care business. We delivered 2% organic growth, a 33% EBIT margin before special items and a return on invested capital before special items of 42%. Adjusted for the DKK 150 million stocking effect in Q2 of last year, organic growth was around 5% for the second quarter. maintain our organic growth guidance for the full year of 7% to 8%. On the EBIT margin, we've upgraded our guidance from 31% to 32% to 32% to 33% before special items. The revised EBIT margin guidance reflects efficiency gains and lower cost across the business due to COVID-19. We're optimistic about the COVID-19 vaccine rollout, but the pandemic is still very much at large and our priorities remain clear: keep our people safe, continue to serve our customers and maintain business operations. At the same time, we're executing on our strategic priorities within the Strive25 strategy. And today, I'd like to mention just a few highlights. On innovation, we're making good progress on all key projects across our business areas within Ostomy and Continence Care, the clinical performance program is on track. We've hired a new Senior Vice President for R&D, [ Alexis Roberts-McIntosh ] will join us in July, and Alexis comes with a wealth of experience from innovation work across the health care space. And we look forward to welcoming her here to Coloplast. Within Interventional Urology, the feasibility study for our overactive bladder product within Nine Continents Medical has been completed with encouraging results. We're in the process of finalizing the pivotal study design that will be submitted to the FDA for approval later this month. In our chronic business in the U.S., we achieved a key milestone for our Ostomy business this quarter by securing access to the Vizient GPO, which is the largest group purchasing organization in the U.S. With Vizient and Premier, we now have contracted access to more than 75% of the U.S. hospitals, and we will invest to strengthen and expand our sales force. In our U.S. Continence Care business, we continue to grow our dealer business. We made a few tuck-in acquisitions during the quarter to broaden our insurance coverage. In the markets where we have good access, we're executing on investments in strategic areas, and those include Asia and Interventional Urology in the U.S. On our sustainability strategy, we've also made key progress this quarter on our production waste recycling ambition. Through collaboration with the local Hungarian waste management supplier, a large share of our production waste can now be used for rubber flooring for playgrounds and sports facilities. With 58% of our production waste recycled, we've exceeded our 2025 ambition of 50%, and we will set and communicate a new ambition later this year. We monitor our organizational health closely and have invested in a number of precautionary measures, initiatives and tools focusing on employee health and engagement to fight corona fatigue. We conducted an employee engagement survey in April. We're very pleased to see a score of 8.2 against a health care industry benchmark of 7.9. Within Global Operations, we're making solid progress on the Global Operations Plan 5. Our first high-volume production site in Costa Rica became operational this quarter and the construction of the next volume site has already begun. We've begun to realize cost savings from our automation activities, and we've seen efficiency gains in our high-volume production sites in Hungary. Moving to our results this quarter. A few highlights include continued strong momentum in emerging markets with 14% organic growth. The growth continues to be broad-based and especially strong in China and Latin America. We're pleased to see the continued recovery in elective procedures within our Interventional Urology business. With 9% organic growth in the quarter, our Wound Care business continues to post solid growth driven by Europe, China and our newly launched Biatain Fiber portfolio. Our challenge continues to be in Europe within the Chronic Care business and in particular, in the U.K. We assume that the worst is now behind us and that the situation will gradually improve in the second half of our financial year as vaccines are rolled out. In the U.K., the scale of the NHS waiting list is large, but Ostomy Care is expected to benefit from the prioritization placed on accelerating cancer diagnosis and elective surgery levels. Continence Care is expected to recover a bit more slowly because of intermittent catheterization and bowel management treatment being deprioritized. As our Chronic Care business recovers during the second half, we expect the recovery in Continence Care to lag Ostomy Care. Today, the Board of Directors approved a half year interim dividend of DKK 5 per share corresponding to a total interim dividend payout of approximately DKK 1 billion. Now Let's take a closer look at today's results, and ladies and gentlemen, please turn to Slide #4. In Ostomy Care, organic growth was 5% for the first 6 months and growth in Danish kroner was 1%. In Q2, organic growth was 4% and growth in Danish kroner was 1%. Growth continues to be driven by our SenSura Mio and Brava supporting products. Our SenSura and Assura/Alterna portfolios continue to post solid growth in emerging markets. Growth in Q2 was negatively impacted by stock building in Europe in the comparison period. Lower growth in new patients in Europe due to COVID-19 also weighed on growth as explained earlier. On a positive note, the emerging markets region continues to be the strongest contributor to growth, led by China, Latin America and tender deliveries in Russia. China posted solid in-market sales and benefited from an easier baseline and the U.S. also contributed nicely to growth. In Continence Care, organic growth was 3% for the first 6 months and growth in Danish kroner was down by 1%. In Q2, organic growth was 0% and growth in Danish kroner was down by 3%. Growth continues to be driven by the SpeediCath ready-to-use intermittent catheters with good contribution from the SpeediCath Flex portfolio as well as our SpeediCath compact and standard catheters. Sales growth for Peristeen products and collecting devices has been negatively impacted by COVID-19. In Q2, organic growth was flat due to the large stocking impact in the baseline as well as lower growth in new patients in Europe and the U.S. As explained earlier, intermittent catheterization treatment and bowel management treatment has not been prioritized during the pandemic as these treatments can many times be postponed, and there are all ties. On a positive note, we continue to see solid growth rates in South Korea and Japan where reimbursement for catheters was introduced a few years back. In Interventional Urology, organic growth was 4% for the first 6 months and growth in Danish kroner was down by 1%. In Q2, organic growth was 3% and reported growth was down by 2%. Growth continues to be negatively impacted by COVID-19, but the trend from Q1 continued into Q2 as elective procedures continue to rebound. In particular, March was strong and encouraging. Men's Health continues to lead the recovery in the U.S., delivering another quarter of double-digit growth. Towards the end of the quarter, we also began to see a pickup in women's health procedures. COVID-related lockdowns inhibited surgical procedures in the largest EU markets in Q2, but overall, our single-use devices business posted growth in Europe for the quarter. In Wound & Skin Care, organic growth for the first 6 months was 1% and reported growth in Danish kroner was down by 3%. The Wound Care business in isolation delivered 7% organic growth for the first 6 months. And in Q2, Wound & Skin Care delivered 1% organic growth and the Wound Care business in isolation delivered 9% organic growth. The Biatain Silicone and Biatain Fiber portfolios were the main contributors to growth driven by France, Germany and Spain. Biatain Fiber continues to deliver solid contribution to growth. China posted another quarter of solid growth, which was also helped by a weak comparison period and the European hospital business continues to be negatively impacted by COVID-19, but the community business is performing well. In the U.S., our Skin Care business continues to report negative growth due to weaker demand and our Compeed Contract manufacturing business detracted significantly from growth in the quarter due to lower demand as a result of the pandemic. With this, I'll now hand over to Anders, who will take you through the financials and outlook in more detail. Please turn to Slide #5.

Thank you, Kristian, and good afternoon, everyone. Reported revenue for the first 6 months decreased by DKK 44 million or 0.5% compared to last year. Organic growth contributed DKK 342 million or 4% to reported revenue. Foreign exchange rates had a significant negative impact of DKK 389 million or around 4% on reported revenue as expected due to the depreciation of the U.S. dollar, British pound and several emerging markets currencies against the Danish kroner. In particular, the Argentinian peso, Brazilian real and Russian ruble. The depreciation in the U.S. dollar accounted for approximately 50% of the negative currency impact. Please turn to Slide 6. Gross profit amounted to around DKK 6.5 billion, corresponding to a gross margin of 68%, which was on par with last year. The gross margin was positively impacted by savings from Global Operation Plans 4 and 5. On the other hand, gross margin was negatively impacted by increasing cost in Hungary due to salary inflation and labor shortages as well as extraordinary costs related to COVID-19 outbreak and ramp-up costs at our new volume site in Costa Rica. The gross margin includes a negative impact from currencies of around 40 basis points. The gross margin in Q2 benefited from positive product mix efficiency gains at our Hungarian practices and lower depreciation. The distribution to sales ratio for the first 6 months came in at 28% compared to 29% last year. The 5% decrease in cost reflects cost savings from lower travel and sales and marketing costs due to COVID-19, which was partly offset by investments in sales and marketing activities in Asia, Interventional Urology and consumer and digital initiatives. The admin-to-sales and R&D-to-sales ratios for the first 6 months came in at 4% of sales, on par with last year. In Q2, we took a further provision of DKK 200 million to cover costs in connection with the mesh litigation, which is booked as special items. The lawsuits are taking longer to settle than previously anticipated in part due to COVID-19, which has led to an increase in legal costs. The increase brings the total provision to DKK 5.85 billion. We have now settled around 97% of the known cases. In December 2020, the Coloplast MDL was closed, and we are seeing a very low inflow of new cases. Overall, this resulted in an increase in operating profit before special items of 3% for the first 6 months, corresponding to an EBIT margin before special items of 33% compared to 32% last year. The EBIT margin contains a negative impact from currencies of 70 basis points, mainly related to the depreciation of the U.S. dollar against Danish kroner. Please turn to Slide 7. Operating cash flow for the first 6 months amounted to around DKK 2 billion compared with around DKK 1.6 billion last year. The positive development in cash flows was due to a gain on financial items, a decrease in income tax paid and an increase in operating profit before special items of DKK 99 million. Cash flow from investing activities was impacted by increased investments in automization, IT and the new factory in Costa Rica. CapEx investments amounted to DKK 509 million for the first 6 months or 5% of revenues on par with last year. The acquisition of Nine Continents Medical reduced the cash flow by DKK 950 million. As a result, the free cash flow for the first 6 months was an inflow of DKK 446 million against an inflow of around DKK 1.2 billion last year. Adjusted for acquisitions, the free cash flow was up by 23%. Our trailing 12-month cash conversion for the first 6 months, excluding the Nine Continents Medical acquisition, was 90%. Net working capital for the first 6 months amounted to 25% of sales. For the full year, net working capital is still expected to be around 24% of sales. A new share buyback program totaling DKK 500 million was launched in Q2, and the program is expected to be completed before the end of the financial year. Please turn to Slide 8. For 2021, we continue to expect revenues to grow 7% to 8% organically and 4% to 5% in Danish kroner. The guidance assumes double-digit growth in the second half of the year, driven by resumption of elective procedures and hospital activity across business areas as vaccines are rolled out as well as a significant positive impact from the comparison period. Growth in the new patients in Europe in the chronic business is expected to gradually normalize throughout the second half of the year. In Wound Care, we expect continued solid performance in Europe and China. Due to the depreciation of mainly the U.S. dollar, Argentinian peso, Brazilian real and Russian ruble against Danish kroner, reported growth in Danish kroner is still expected to be 4% to 5%. The currency impact is based on spot rates as of May 5. For 2021, we now expect the reported EBIT margin in Danish kroner before special items of 32% to 33% from previously 31% to 32% due to efficiency gains and lower cost levels as a result of COVID-19. We estimate that roughly half of these savings will remain in our P&L next year from efficiency gains, less travel and more digitalized interaction with customers. After special items of DKK 200 million, the reported EBIT margin is expected to be 31% to 32%. The reported margin in Danish kroner is expected to be positively impacted by the hoof, but this is offset by depreciation of the U.S. dollar in a number of emerging markets currencies against the Danish kroner. To ensure that we emerge strongly from this COVID crisis, we continue to invest for growth in incremental investments into innovation and sales and marketing activities. For 2021, the bulk of the investments will go into Interventional Urology, Asia, the U.S. sales force expansion and consumer and digital activities. The gross margin this year will be positively impacted by operating leverage as well as Global Operations Plan 5. As mentioned previously, we have extracted some efficiency from Global Operations Plan 5 earlier than anticipated. The positive impact is expected to be partly offset by cost pressure in Hungary from wage inflation and labor shortages as well as ramp-up of costs to our new factory in Costa Rica and sustainability investments. Overall, the expectation is still at the gross margin for 2021 will be around the same level as '19/'20. We still expect our net financials to end the financial year 2021 at around DKK 0 million. Based on current exchange rates, the hedging gains that we saw in Q2 on balance sheet items will be offset by losses on cash flow hedges, on especially the British pound as the year progresses. CapEx guidance for 2021 is still expected to be around DKK 1.1 billion, and our effective tax rate is still expected to be around 23%. Thank you very much. Operator, we are now ready to take questions.

[Operator Instructions] And our first question comes from the line of Veronika Dubajova of Goldman Sachs.

I have, sort of, 2, if I can. One is just looking at emerging markets growth in the second quarter, given the easier comp that you had year-on-year, I'm just a bit surprised to not see a better performance there. I don't know if there are some regions in there that might have softened or tenders that might have moved. Also kind of contrasting it with a very strong performance from ConvaTec. So if you can guys talk a little bit to what went wrong or maybe didn't go as well as one might have expected in emerging markets and if you're seeing any changes in the competitive environment in select markets, that would be helpful. And then my second question is just trying to think through the sort of progression in the exit growth rate that you saw at the end of the quarter and as you transition to Q3. Anders, I know you've given obviously the guidance for the second half, but if you can be a bit more specific as to kind of how you exited the Q2 period and as you're thinking about the third quarter, what we should be thinking about phasing of organic growth more broadly for the group, that would be helpful.

Should I start with the first question? And then Anders, you can get the second one. So Veronika, we came up, keep through with the 14% on the...

Sorry, your line is sounded a bit faint there.

Okay. Thank you for the question, Veronika. We came through with 14% growth. And true, there was a bit of an easier comp on China. China is back to good growth in, in-patients and good activity levels. But we saw growth being broad-based, really nice momentum in Eastern Europe and Russia, strong tender wins in Russia and deliveries in Russia, strong growth in LatAm. So I'm looking at a region where I think good momentum overall, and we are projecting a good year for us in EM. We're not picking up major events on the competitive side. But of course, we're also noting that other people are investing. I'm seeing broad-based growth in yen.

All right. Thanks for the question, running to the phasing of our growth in the second half. So as I mentioned earlier, we are expecting double-digit growth in the second half of the year. In terms of our third quarter, we are also expecting a very strong Q3 as a result of the baseline we had last year within IU. As you might recall, last year, we had a negative growth within IU of minus 40%. So we are expecting a strong Q3 as a result of that. But overall, for the second half, we are expecting double-digit growth. So I hope that answered your question.

No, that's helpful, Anders. And if I can just quickly follow up on that. Just I guess if you think about the IU business versus 2019, I know we're going back 2 years, but are you comfortable with the kind of pace of recovery that you're seeing? And I know you mentioned in your prepared remarks that things picked up towards the end of the quarter, if you can quantify that.

So yes, Veronika, the short answer is yes. We're comfortable with where the IU business is at the moment. We're seeing a strong growth in Men's Health going up, come up to a good start. The last couple of months, the activity levels are also picking up on the Women's Health side, so we definitely have an encouraging outlook for U.S. Demand has been a bit more subdued on the surgical side in Europe, but with growth in the disposable product. So we are expecting that things will project or progress as planned for the remainder of the year. Also, of course, helped by the vaccination rollouts and the general pickup in activity.

Our next question comes from the line of Maja Pataki of Kepler Cheuvreux.

Maja, we can't here you.

Can you hear me now? Hello?

Yes.

Okay. Sorry, I had some issue with my headset. And I'd like to start with a question of IU as well. If we look at the performance in Q1 and the comparative base and now Q2, it seems like there has been a bit of a softening. I was wondering if you could talk to that? Has it been due to the fact that we've seen again a bit in line with the pandemic development that we've seen the softness? Or do you think that Q1 has seen some pent-up demand come through, which has slowed in Q2? Just to understand a bit the growth rates compared to last year. And then the second question with regards to your cost savings that you've mentioned that half of the cost savings are going to be staying with you. Is that something because you're moving your -- some of your events to more digital platforms, so could you just talk to where you see sustainable longer-term savings in which areas?

Thank you, Maja, for the questions. So just quickly on IU, the headline perspective on where the IU business is, is positive. It's true that there is always a bit of this demand at the beginning of the year that is related to January, February and deductibles. So we've been seeing that pattern also in previous years. I'm looking at March and April and see a good pickup in growth. So we feel confident about the outlook for the year that the IU business is coming back on track. When it comes to your questions about sustained improvements on costs, the banal observation that I think you're going to hear also from a lot of other companies is we're traveling less. So we are taking lessons from the pandemic here where we think we can run the company with less travel and therefore, also cost savings. The marketing initiatives and customer interaction has seen a lot of digital initiatives over the past year. We think some of those are here to stay. And then I'll say, also from our Global Operations Plan 5, we're off to a good start. When it comes to strategy, There's really no change to what we're investing in and our geographical focus areas, it's more related to the how.

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

So I just wonder if you could help understand or expand a little bit your confidence in your share position and maintaining market share or increasing market share. It must be quite difficult to do, of course, when procedure volumes are falling off, but we've seen various competitive numbers from Boston Scientific and ConvaTec, splitting out growth that's a bit ahead of you this quarter. So I just wonder, again, can you help us understand your confidence levels in market share capture, please, across your various different businesses? The second question, please, just again relates to the sustainability of your current high EBIT margins. I appreciate that the cost base is somewhat depressed. I think in December or late last year at your capital markets event, you highlighted a rather flattish midterm EBIT expectations, similar gross margin, similar cost ratios. Is there any reason to revise that upwards now given your reassessment on operating costs? Or put another way, should we expect group margins to dip next year as costs resume?

Thank you, Scott. Two good questions. I'll comment on your first question, and Anders will take the second. So I feel good about the company's competitive position. And we've talked about this on numerous occasions that if you want to understand the company, these quarters that we talk about and where they are don't necessarily give the best of snapshot. So I think the 7% to 8% of growth for the year, we delivered that, that is a strong performance in the environment. And so for chronic, I feel good about the position, Scott, and how we're going to deliver the year. We have really good portfolios in the market. And there -- in general, all the newer brands are doing well and driving growth just as we would expect. If we turn to the 2 smaller business areas in Wound Care, we just closed a very strong quarter. And with good growth in both China and Europe and good growth contributions from Biatain Fiber. We're hoping to do a lot more on fiber as hospitals open up and we get broader access so on Wound Care. Good things coming. And of course, for IU, I would say we're going to have a good year. Part of that is going to be baseline, but we're seeing good growth momentum in Men's Health. I'm also cautiously optimistic now that the last 2 months of data on the Women's Health side in the U.S. is a good indicator for how the year will progress. And as you know, we've been investing in Endo to U.S. And then if you look a bit further ahead for growth, you'll also know that one of my convictions is that growth over the medium and long term will be tied to your innovation capability. And we've been investing in that now on the chronic side, with the clinical performance program for some years. As you know, this strategic period will have to deliver. These products, they are progressing through the pipeline. And I think we have some really strong answers to the needs that are out there for both Ostomy and Continence. There are some good things also coming for Wound Care. And then for Interventional Urology, we've ramped up organic R&D. We haven't invested there much historically, but we ramp it now. And as you know, we've made 2 smaller business development, M&A moves in that business also. The Nine Continents Medical is a move into an adjacency that holds a lot of promise and our investment into Francis Medical. It's also a company that we're quite excited about, so lots to do on all of them. I feel good about the competitive position, Scott.

Yes. Thanks, Kristian. And then the second question you have, Scott, around our EBIT margin development versus our Strive25 financial outlook. Yes, we are off to a better start. And as I said earlier, it's due to strict cost control. It's also corona-impacted. As Kristian mentioned earlier, we are traveling less. We are not having as many sales meetings, congresses, et cetera. But at the end of the day, we are off to a better start, and that's also why we are, this year, guiding for an EBIT margin of 32% to 33% before special items. And I think in terms of our efficiency programs, I think also we can be satisfied on where we are with our GOP5 implementation. We are seeing production efficiencies in Hungary, especially. And that is also contributing to our EBIT margin development. In terms of next year, as you all are aware, the outset for next year will be where we will land this year. So we will evaluate our EBIT margin guidance for next year also when we take additional investments into the equation. But the underlying level of 32% to 33% will be the outset also for next year, that's our expectation.

[Operator Instructions] And that next question comes from the line of Keith Lee at Jefferies.

I have 2 questions, please. My first one is just on skin care and contract manufacturing. Just how should we think about the impact of that in the second half, whether that will still be a drag to the women skin franchise or if you're expecting growth in that 2 business segments, please? And my second question is just on clinical care. You mentioned that right now, patients are being prioritized in that area. I'm just wondering if they have switched to any other solutions or technologies so might not come back to using intermittent catheters once they are allowed to?

So Keith, thanks for the question around our wound and skin business. And as we talked about earlier, our contract manufacturing of Comfeel and Band-Aid has been quite negatively impacted due to the corona in the first half. We are expecting it will come back in terms of growth in the second half and especially in our fourth quarter. If you might recall, last year, in our fourth quarter, we had quite a significant negative impact on our consumer business due to the corona situation. So we are expecting our consumer business, as we call it, will bounce back in the second half of the year and especially in our fourth quarter.

And Keith, to your second question, a good one. So for some of the patients who were supposed to get on an intimate catheter treatment who may be put on an indwelling catheter, there is a risk that they may not be able to transition back to IC treatment. We also have quite a significant share of the continence business that is within collecting devices and bowel management. And the bowel management procedures -- our assessment is that they are -- those patients are essentially postponed. The underlying demand is not going to go away. The people who end up on that treatment regime are typically years in progress. And so a delay of some months is not going to fundamentally change that. And for collecting devices, we also expect things to come back faster, but there may be some patients who cannot transition back to IC on the catheter side.

And we have a couple of questions coming through. This first is from the line of Jannick Denholt of ABG.

It's Jannick from ABG. Just 2 quick follow-ups. One of them just being a housekeeping question for you, Anders, depreciation and amortizations. Can you update us on, you can say, the outlook for the year, obviously coming in quite low this quarter comparably to normal, would be my first one. And then secondly, you talked a little earlier on the innovation pipeline. Any chance you can provide a little more color in terms of expectations of time lines? And I'm thinking both on the new Ostomy platform as a whole, but also this digital accessory, which one should convert? Or do they go hand-in-hand? And also how much behind the Ostomy platform is the continence platform?

And why don't I start with the innovation question. So remember, we've talked to you guys about 3 major projects, one being a new catheter platform. You should expect us to launch that in the first half of the strategic period. The progress is well underway. We have a strong concept in the clinically relevant concept . We're doing clinical strategy work at the moment. But we think we've got something there that is going to be quite exciting. On the digital Ostomy appliance, it's moving into pilots with payers in Germany and the U.K. And remember, this is the first time that we put the product into the wild, so to speak, where it will be used on a large number of patients. We're doing the pilots with payers because there is no established payment model for these types of devices. And I'm quite excited to see how these pilots are going to progress. They will run for a good year's time before we have sufficient data to form a conclusion on the impact. And then as we have told you earlier, we ran into some technical issues on the new Ostomy platform. We are working to resolve those. And we'll update you once we have clarity on what that means for launch time line.

Yes. And Jannick, in terms of your first question around depreciation and amortization, yes, we are developing -- or our depreciation and amortization line is developing better than I earlier anticipated. It's also helped by the currency situation on the Hungarian hoof. So my estimate is that the current run rate for the first half will be a good proxy for the full year. Also, please keep in mind, and I think we have talked to this in the past that the amortization we have on the Mentor acquisition and also Comfort Medical will start to be reduced also in the second half of this year and into next year.

And we have one further question in the queue so far. That's a follow-up from Scott Bardo of Berenberg.

So congratulations on the Vizient Ostomy GPO. I think now you now have relatively good access into the North American hospital market for Ostomy. But unfortunately, into this point, you haven't really had the opportunity to capitalize because of the COVID-19 crisis. So I wonder, Kristian, if you could help us understand what really needs to happen for you to really capitalize on this opportunity now? What degree of investment or go -- the change in go-to-market strategies you need to adopt to really inflect your U.S. Ostomy position? And so I wonder if you could talk to that a little bit. And second, somewhat related question. Now of course, we have a new administration in North America. I wonder whether your U.S. regulatory affairs, can you share any thoughts about the change in the reimbursement environment or any health care policy in the U.S. that we need to consider or is in discussion?

Thanks, Scott. Two good questions. So the Vizient win, to us, marks a very, very important milestone. So with the Premier win and now the Vizient win, it basically marks the first time that we believe we are competing on a fully equal footing in the U.S. ostomy market. And of course, we're going to invest in that. We have invested, I should say, in the Ostomy business in the U.S. for some time in building a dedicated sales team, building a strong care program and a DTC engine. We've also invested in home health presence. But with the double opening on the GPO side, we have so much expanded access that we are going to enlarge the sales footprint. And combined with the product portfolio that we have in the market, we think that's the recipe. So make no mistake, the reason that we have -- we've gotten on both of these contracts is a sustained effort, but it is also a recognition that the product portfolio is differentiated. And the signature, if you will, signature accounts that we have started working with and who's converted to Coloplast over the years, over the past few years have been instrumental in, I think, in persuading the GPOs that we should have broad-based access. We will be doing that. Basically now, our read of what's happening in the U.S. Net is that the vaccine deployment is happening at scale. We are expecting access to improve. We are seeing it improve in our own figures. So the time to start investing is now. And then to your second question, Scott, on whether we're seeing any, if you will, dark skies on the regulatory horizon not so far, but we are keeping both eyes and ears open.

Very good and thanks. Perhaps, the last follow-up, please, I see on the Wires that Anders has had an interview with one of the media companies. And there's a discussion about M&A and Coloplast capability and appetite to do deals. Obviously, you've made some smaller tuck-ins so far this year. But I wonder if you can comment as to whether the organization is poised to do bigger, more meaningful deals? Whether that still is very much a focus? Or whether some of these comments on the media are somewhat taken out of context?

So these discussions get a bit binary, right, when either there is a deal or there isn't. We made a couple of tuck-ins this past quarter. This has, I think, a very pragmatic event, Scott, we're basically increasing insurance coverage in our own channel in the U.S. As you know, we have very limited debt. We have the capacity to act. We have done a bit of M&A work on the IU side. But we'll update you, Scott, once we're ready to do more. I think that's as much as I'll say at the moment. It is a part of the strategy, and we will also be doing more in the strategic period. But stay tuned.

We've had a couple more questions coming through. The first is from the line of Kate Kalashnikova of Citi.

Hello Kristian, Anders, it's Kate Kalashnikova from Citi. I've got 2 questions. The first one is on Interventional Urology. Given better-than-expected procedure volume recovery in Men's Health and all improvements that you've seen in recent weeks in Women's Health, why are you not assuming any pent-up demand benefit in the guidance this year? Are you simply waiting to see more evidence of improving procedure volumes in Q3? Or is it just a timing issue? And if so, do you expect pent-up benefit next year in Interventional Urology? And then the second question is on Chronic Care. Could you update us on new patient discharge for Ostomy in the U.K. and Continental Europe? Perhaps how much improvement have you seen from January when you notice the patient discharge in the U.K. was about 60% of pre-COVID level, 85% in Continental Europe? And also, could you comment on new patient discharge for continence?

Sure. So to your first question, it's true that we're not assuming a lot of pent-up demand. We'll definitely celebrate it if it's there, Kate. I guess we also want to see a few more months behind us. We're encouraged by the progress so far, particularly for Men's Health. Women's Health, we only have a couple of months now with increasing momentum. So let's see that when we get a few more months behind us. When it comes to your question on new patient discharge was mainly Europe, correct?

Yes, Europe and the U.K.

Yes. So for the U.K., we are seeing the Ostomy new patient discharge approved ahead of the continence new patient discharge. We've seen OC come from, I would say, index 60 to now index 80, index 80 plus, while continence is lagging a bit behind, it's still sitting around a bit more than 60, index 60. And if you look to the rest of Europe, we are seeing a relatively mixed picture. I would say the smaller markets that would cover, let's say, Switzerland, the Benelux and Nordics. We're seeing numbers around the index 80 range. But for Germany and Italy, we're seeing better numbers and better momentum. So it is a bit of a mixed picture.

Okay. And could you comment on the U.S. as well? That would be helpful. .

So on the U.S., for new patient discharge, we are seeing pretty much normal around Ostomy. So that's also what leads us to be if you will, bullish about investing in that side of the business and continents around index 80.

And we have one further question in the queue so far. That's from the line of Carsten Lønborg of SEB.

Just one question here. Kristian, I was just following up on a comment you had about the new Ostomy platform, as you said, you have previously told us that you had a setback. And -- but I also think you said back then that the root cause was identified. Maybe I'm putting a little bit too much emphasis on your wording, but to me, sounds a little bit like that you didn't really have had a lot of progress in fixing the root cause over the last couple of months. Is that correct? Or...

So it's clear. It's true cost. We have isolated the root course. We also believe that we have a fix, but without walking into, if you will, our development progress in too much detail. We still haven't decided probably how long it is going to take. So when an appropriate time to launch would be.

[Operator Instructions] And we've had one further question come through. That's from the line of Jannick Denholt of ABG.

Again, Jannick from ABG, just a follow-up. On the savings, I understand that some of them on OpEx side are structural, obviously, also, you can say the post-pandemic scenario, less traveling, et cetera. Anders, can you quantify, you can say, at least split them out a little bit. Where do you see that being the most? Is it on admin? Is it on SMB? Or how should we think of that going forward?

So Jannick, as I said earlier, I expect that half of the improvements we have seen will continue. And it's a little bit mix across our P&L. We are having a better start as we talked to you guys about on the gross margin as a consequence of the global operation plans and the execution we have seen so far. But we're also seeing some efficiency gains on the other P&L items. So it is a little bit of mix across our P&L.

[Operator Instructions] Okay. There seems to be no further questions from the phone, so I'll hand back to our speakers for the closing comments.

So no long comments from our side. Thank you all for your interest in the company, and please do reach out to us if you have follow-up questions. And otherwise, we will see you out there.