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

Welcome to the Coloplast Q3 Conference Call. [Operator Instructions] Please note that this call is being recorded. Today, I am pleased to present Kristian Villumsen, President and CEO; and Anders Lonning-Skovgaard, Executive Vice President and CFO. Please begin your meeting.

Thank you very much, operator, and good afternoon to everybody, and welcome to our third quarter conference call. My name is Kristian Villumsen, I'm the CEO of Coloplast, and I'm joined by our CFO, Anders Lonning-Skovgaard; and our Investor Relations team. We will start with a short presentation by Anders and myself and then open up for questions. So if I could ask you all to please turn to Slide #3. In Q3, we delivered 11% organic growth, a 33% EBIT margin and a return on invested capital of 42%. For the first 9 months, we delivered 6% organic growth and 33% EBIT margin before special items. Today, we maintain our organic growth guidance for the full year of 7% to 8% and EBIT margin of 32% to 33% before special items. Anders will take us through the details later, but we now expect to be in the lower end of the organic growth range and the upper end of the EBIT margin range. Our operating environment is not yet back to normal, but the situation is improving across all our regions. Hospital access improved substantially over the summer, especially in the U.S. and our larger Europe markets. We're keeping a close eye on developments surrounding the Delta variant, especially in China and the U.S., but at this stage, we do not see widespread cancellations of elective procedures or significantly reduced hospital activity or access. Our growth this year is impacted by several baseline effects and one-offs, but if we take these out of the equation and look at the big picture, we're looking at a Chronic Care business that is recovering with Ostomy Care recovering faster than Continence Care. Most importantly, growth in new patients increased over the summer in both business areas. In Ostomy Care, we're back to pre-COVID levels across pretty much all markets. And in Continence Care, we're approaching pre-COVID levels. Our 2 smaller businesses, Interventional Urology and Women's Skin Care continued to post solid underlying growth rates. If we take a closer look at Chronic Care for a minute, I'd like to describe what we're seeing by geography. In Europe, we saw an improvement in underlying growth from Q2 to Q3, and we expect to see a further pickup in Q4. The development is encouraging and is driven by an effective rollout of vaccines and the resumption of cancer screening programs in treatment for chronic conditions. In the U.K., where the situation has been particularly severe, the growth in new patients in Ostomy Care is back to pre-COVID levels, and it is approaching pre-COVID levels in Continence care. Our Charter business is doing well and gaining market share. Moving to the U.S. The situation is also improving, but this is not yet visible in our results. Last quarter, we talked about weakness in our Continence Care business, and this continued into Q3. The growth in new patients is improving and close to normalizing now at pre-COVID levels, but our Q3 results reflect the effect of a prolonged period of time with lower growth in new patients. The Q3 results are also somewhat skewed by distributor buying patterns, but the U.S. will post growth again in Q4. Next year, we expect to be back on track in terms of delivering according to our ambition of more than 10% organic growth in the U.S. This assumes a continued normalization of growth in new patients in Continence Care and a positive impact from our growth investments. In Ostomy, the Vizient GPO went live on July 1 and we have already seen a number of early sole-source wins at large teaching hospitals. The sales force expansion is also on track, and we aim to hire and train all new sales reps before year-end. In emerging markets, we delivered 8% in Q3, which reflects timing of orders. The tenders are confirmed for Q4, and we expect solid double-digit growth for EM in Q4 and for the year. Broadly across all our markets, we're seeing continued market share gains. And before we dive into our results in more detail, I'd like to just spend some time talking about strategy. Please turn to Slide #4. We're executing on our strategic priorities within the STRIVE25 strategy. Today, I'd like to mention a few highlights on innovation and sustainability. We're making solid progress with the Clinical Performance Program within Ostomy Care and Continence Care. In Ostomy Care, we have received the CE mark for our digital ostomy tool developed to avoid leakage accidents. Payer pilot studies in both Germany and the U.K. are on track to be initiated in Q4 of 2021. We're also working on a new Ostomy platform designed to reduce skin irritation. If you recall, our first pivotal trial showed insignificant results. We've now completed the root cause analysis. We've optimized the device design so that we can initiate a new pivotal study towards the end of 2021. In Continence Care, we've made solid progress on the product design and performance of our new catheter platform. We expect to run a pivotal trial in 2022, and we're now looking at launch later. Now moving on to sustainability strategy. Last week, the Intergovernmental Panel on Climate Change released the report concluding that human influence has unequivocally warmed the atmosphere, ocean and land. It was yet another reminder that we all need to act and we need to act now. At Coloplast, we're committed to an ambitious science-based climate action for a 1.5-degree future in line with the Paris agreement. During Q3, the company conducted a Scope 3 emissions screening to find out where in the value chain our emissions lie in order to determine where to focus our reduction efforts. By year-end, Coloplast will submit Scope 1, 2 and 3 emission reduction targets for official validation through the science-based target initiative. As part of the company's inclusion and diversity efforts, Coloplast has signed the consideration of Danish Industries' gender diversity pledge committing to a target of a 40-60 gender distribution in management and our Board of Directors by 2030. Finally, to provide increased transparency on tax, our Board of Directors has decided that Coloplast will publish country-by-country tax reporting together with our annual report this year. Now let's take a closer look at today's results. Please turn to Slide 5. In Ostomy Care, organic growth was 5% for the first 9 months and growth in Danish kroner was 2%. In Q3, organic growth was 4% and growth in Danish kroner was 2%. Growth continues to be driven by our SenSura Mio and Brava supporting products. Our SenSura and Assura alternative portfolios continue to post solid growth in emerging markets. As explained earlier, growth in Q3 was positively impacted by an improvement in underlying growth in Europe, driven especially by higher growth in the U.K. as well as a lower baseline due to destocking last year. Quarter was negatively impacted by lower growth in new patients and distributor buying patterns in the U.S. and timing of tenders also had a negative impact on growth in the quarter. And as mentioned earlier, these tenders are confirmed for delivery in Q4. In Continence Care, organic growth was 4% for the first 9 months and growth in Danish kroner was 1%. In Q3, organic growth was 5% and growth in Danish kroner was 4%. Growth continues to be driven by the SpeediCath ready-to-use intermittent catheters with a good contribution from the SpeediCath Flex portfolio as well as our SpeediCath Compact and standard catheters. In Q3, growth was driven by an improvement in growth in new patients in Europe as well as a lower baseline due to destocking last year. As explained earlier, growth was negative in the U.S. due to the impact of COVID-19 on growth in new patients and distributor buying patterns. Similar to what we saw in Europe, intermittent catheterization treatment and bowel management treatment has not prioritized fully during the pandemic in the U.S. as these treatments can many times be postponed and there are real alternatives. In Interventional Urology, organic growth was 22% for the first 9 months and growth in Danish kroner was 16%. In Q3, organic growth was 82% and reported growth increased by 73%. Growth in Q3 was positively impacted by the rebound in elective procedure as well as a lower baseline. Men's Health continues to lead the recovery and accounted for a significant share of the growth in the quarter. Women's Health also contributed to growth as elective procedures continued to resume and our single-use devices business in Europe also contributed to growth. In Women's Skin Care, organic growth for the first 9 months was 6% and reported growth in Danish kroner was 0.02. The Wound Care business in isolation delivered 11% organic growth for the first 9 months and 20% organic growth in Q3. 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 and also China posted another quarter of good growth, which was also helped by a weaker comparison period last year. Our Skin Care and Compeed contract manufacturing businesses returned to growth after several challenging quarters due to COVID-19. 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 6. Anders, over to you.

Thank you, Kristian, and good afternoon, everyone. Reported revenue for the first 9 months increased by DKK 372 million or 3% compared to last year. Organic growth contributed DKK 840 million or 6% to reported revenue. Foreign exchange rate had a significant negative impact of DKK 481 million or around minus 3% on reported revenue as expected due to the depreciation of the U.S. dollar and several emerging market 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 7. Gross profit for the first 9 months amounted to around DKK 9.8 billion, corresponding to a gross margin of 68%, which was on par with last year. The gross margin was positively impacted by leverage on production costs and savings from Global Operations Plans 4 and 5. On the other hand, the gross margin was negatively impacted by increasing costs in Hungary due to salary inflation and labor shortages as well as extraordinary costs related to COVID-19 outbreak and ramp-up of costs at our new volume site in Costa Rica. Increasing raw material prices had an immaterial impact on our costs. Raw materials account for approximately 50% of our cost of goods sold, which amounts to an annual spend of around DKK 3 billion. We are monitoring raw material prices closely, and we have seen some pressure, in particular, on plastics and recycled paper. Based on our current knowledge, we expect to see continued pressure as we move into next year. But again, it will not -- or it will have an immaterial impact on the overall cost base. The gross margin includes a negative impact from currencies of around 40 basis points. The gross margin in Q3 was 69% and benefited from positive product mix due to stronger quarter for Men's Health and Interventional Urology. The distribution-to-sales ratio for the first 9 months came in at 28% compared to 29% last year. Distribution costs increased by DKK 40 million compared to last year, which reflects cost savings from lower travel and sales and marketing costs due to COVID-19, which were partly offset by growth investments. The admin-to-sales and RD-to-sales ratio for the first 9 months came in at 4% of sales, on par with last year. Overall, this resulted in an increase in operating profit before special items of 7% for the first 9 months, corresponding to an EBIT margin before special items of 33% compared to 31% last year. The EBIT margin contains a negative impact from currencies of 60 basis points, mainly related to the depreciation of the U.S. dollar against the Danish kroner. Please turn to Slide 8. Operating cash flow for the first 9 months amounted to around DKK 3.3 billion compared with around DKK 3.1 billion last year. The positive development in cash flows was due to an increase in operating profit before special items of DKK 323 million and a gain on financial items, which was partly offset by one-off tax payment related to the acquisition of Nine Continents Medical last year. 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 730 million for the first 9 months or 5% of revenues, which is 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 9 months was an inflow of DKK 1.6 billion against an inflow of around DKK 2.4 billion last year. Adjusted for the acquisitions, the free cash flow was an inflow of DKK 2.7 billion, up by 10%. Our trailing 12-month cash conversion for the first 9 months, excluding the Nine Continents Medical acquisition was 91%. Net working capital for the first 9 months amounted to 26% of sales due to an increase in inventories and trade receivables. For the full year, net working capital is still expected to be around 24% of sales. Please turn to Slide 9. For 2021, we continue to expect revenues to grow 7% to 8% organically and 4% to 5% in Danish kroner. We now expect to deliver organic growth in the lower end of the range. As the year progressed, our Interventional Urology and Wound & Skin businesses have performed better than expected; Chronic Care in Europe and Emerging Markets has performed in line with expectations; and the U.S. Continence business has seen a more severe impact from COVID-19 than expected at the start of the year. The guidance assumes double-digit growth in Q4, driven by the continued resumption of elective procedures and hospital activities across business areas as vaccines are rolled out. In the Continence Care business, growth in new patients is expected to normalize further towards a pre-COVID levels. In Wound Care, we expect continued solid performance in Europe and China, and Interventional Urology, we are on track to deliver solid double-digit growth for the year. Due to the depreciation of mainly the U.S. dollar, Argentinian peso and the Brazilian real against the 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 August 17. For 2021, we now expect the reported EBIT margin in Danish kroner before special items in the upper end of the range of 32% to 33%. This is due to efficiency gains and lower cost levels as a result of COVID-19, partly offset by commercial investments. The reported margin in Danish kroner is expected to be positively impacted by the Hungarian forint, but this is offset by depreciation of the U.S. dollar and the number of emerging markets currencies against the Danish kroner. The gross margin this year is positively impacted by operating leverage and the Global Raising Plans 4 and 5. We are making solid progress on GOP5 and have extracted efficiency gains. The positive impact is partly offset by cost pressure in Hungary from wage inflation and labor shortages as well as ramp-up costs at our new factory in Costa Rica. Overall, the expectation is now that the gross margin for 2021 will be higher than '19-'20. We now expect our net financials to end the financial year 2021 at around DKK 25 million from previously around DKK 0 million. Based on current exchange rates, the year-to-date gains on balance sheet items and cash flow hedges will be partly offset by losses on balance sheet items on a few emerging market currencies and 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] Our first question is from Patrick Wood from Bank of America.

Perfect. Hopefully, 2 quite quick ones. The first one, I'm probably late to the party on this, but I was interested in the transdermal work you guys are doing on postpartum depression. Is that an area that you're looking to push into more, not necessarily the depression side, but more on the transdermal work with your Wound Care business. So it was just a surprise. So curious as to how you're feeling about that? And then second question, obviously, the delay in patient starts in Ostomy has an effect on growth. But I'm just curious how we should think about that from your eyes going into 2022? On the one hand, you potentially got fewer reversals, but on the other hand, few absolute patients. So I don't really know how to factor those things through in the next, let's call it, 12, 18 months. I'm just curious if you were in our shoes, what kind of things we'll be thinking about in that topic?

All right. Patrick, thank you for the question. I'll start with the question number two on new patients. I'm sure there are a number of people on the line who are just as interested in this topic. So let me start with Chronic Care, and we have to answer this question, I think, by region. So we are expecting Q4 to further pick up compared to Q3. We're also expecting this improving trend to continue into the new year. We are going to be up against an easier comparison period. But of course, some of that benefit will be offset by the accumulated negative impact of lower growth in new patients that we've also seen in the last 18 months. On the other hand, the company has continued to invest in the commercial initiatives in Europe, and we also have a few product launches underway. On Emerging Markets, we are also expecting Q4 to come in significantly better here than Q3. We've got solid momentum. We also expect to deliver growth of -- in the double-digit range next year in line with STRIVE25. I should say, of course, particularly for some of the markets here in EM, we are monitoring the situation related to Delta closely, not least in China. In the U.S., we are expecting to deliver double-digit growth in line with STRIVE25. The improving trend in growth in new patients, we are expecting to drive higher growth. We are expanding our OC sales force. I'll remind everybody that Coloplast now for the first time has access to the 2 largest GPOs on the Ostomy side in U.S. and we have -- we are underway with expanding the OC sales team. We also have a few product launches going into the U.S. for the next year. Again, you have a bit of the same dynamic that you have in Europe that even though you have a favorable comparison period, you've also had a period where we've had a lower inflow to offset it. But net-net, we expect the U.S. to post a double-digit growth in line with strategy. If we move to the Interventional Urology business, we -- just for Q4, we expect to see continued strong performance. We also expect high single-digit, low double-digit type growth in the business next year. The type of performance that we have now compared to pre-pandemic levels is quite solid. It's a very strong commercial pipeline. And of course, again, here, I will say we are closely monitoring the situation in the U.S. related to COVID. But we don't expect any widespread lockdowns. You will see things happening from time to time at the hospital level, but it's not something that materially impacts overall surgical activity levels nor access. On the Wound side, we are, I would say, for next year, I mean, we are very happy with where the business is at the moment. We are expecting the growth trajectory to continue into Q4. I'm happy to see the Skin Care and contract manufacturing business also back to growth. So for next year, we are expecting to continue to grow above market around a mid-single-digit plus type growth levels. Again, Patrick, I will just say, we are, of course, monitoring for impact from COVID Delta in particular, for China. On your first question, Patrick, I'd just say we're not present in this part of the market. So I would say we're not pursuing that type of opportunity.

Okay. I thought I found some clinical trials suggesting otherwise. No, appreciate it.

Our next question is from Martin Parkhøi of Danske Bank.

Yes. Martin Parkhøi at Danske Bank. A couple of questions. First on the margin side. Anders, can you just talk about what -- if we look at the -- your ending at the high end this year, but some is maybe of a nonrecurring nature. What kind of -- what should we expect to see as the underlying base for the EBIT margin when looking into next year? And then just on the -- on that note on the gross margin where you now are somewhat more positive on the development this year than previously, is that sustainable going into the coming years as well? And then maybe also, again, on the China development, can you just talk about [indiscernible] emerging markets being lower this quarter but not due to China? Can you talk about the development? And also maybe some details about -- we were told about earlier that people now are actually maybe buying fewer products, which means a lower value per patient and how you see that development? And why this is the case right now?

Yes. Let me start with your first question, Martin, so thanks a lot, around our EBIT margin development. So as I said earlier, we are delivering a strong EBIT margin so far this year, and we are expecting before special items to deliver an EBIT margin in the level of -- or in the upper end of 32% to 33%. And that is driven by a strong gross margin and actually also stronger than I had expected previously. Due to -- that we are on track with our Global Operations Plan 4 and 5, we are seeing quite a strong contribution. But we have also, especially in the third quarter, seeing quite strong contribution from mix, especially from Urology. This year, we are also impacted by extra costs related to COVID, also high salary inflation in Hungary. So we also have some headwinds. If we look into next year, there are also a number of things I would like to highlight. So without giving guidance for next year, of course. We are -- when we look at the gross margin, the outset is strong, but we are also looking into some headwinds. We -- I talked a little bit about it, but we are seeing an increased pressure on raw materials -- raw material prices. And as I said earlier, we have a total purchase of raw materials in the level of DKK 3 billion. And we are seeing some raw material price increases probably in the level of 1% to 2% coming into next year. The other challenge we are facing for next year is ongoing salary increases in Hungary. We are seeing high salary inflation. So that's another headwind. But of course, we will also see a contribution from our Global Operations Plan 5. The efficiency gains we have seen this year will continue. So it is -- there are both positives and negatives coming into '21-'22. And then on the cost side, this year, we have seen savings related to COVID. We have not done as many sales and marketing activities. We still had throughout the year, a global travel ban. And we are starting to see a normalization of those cost categories, especially here in Q4 and into next year as well. And this, combined with the increased investments into our commercial organization, we are expecting that our cost next year will be higher than our growth. So those are some of the underlying dynamics when we look at the '21-'22.

And then, Martin, to your question on China, I'd say the overall inflow in terms of patients to the business has been healthy. So if you look at the Ostomy side, we are back to pre-COVID levels, very strong performance in the hospital channel and our care program in China working well. If you look at what's happening in the online space, also the teams had very strong performance over the past quarter. But what we can't see is that the average order size going through the business has declined. And you'll recall that China is an out-of-pocket market. And so we view this as does our local team, we view this as a part consumer sentiment given where the country is at the moment. I am, of course, following very closely the development on the COVID side and the Delta variant and how the Chinese authorities are managing this. And I think I can safely say that they are on the ball. We see quite swift action and very large-scale testing and isolation of any infected that the authorities find. So while we've seen outbreaks, we also see them pretty fast decline. But we do see it, Martin, in the -- in consumer sentiment. So the average basket size from consumers is down, but it's in single-digit percentage territory.

Our next question is from Maja Pataki of Kepler Cheuvreux.

Just 1 question, with regards to Delta, what we should expect? And I understand, Kristian, that you are very closely monitoring what is happening and nobody really knows where the ball is going to go. But do you have anecdotical evidence from your salespeople when they're talking to reps at hospitals that there has been also a learning curve at hospital set things were this time around, even if hospitals start to fill up more from where we are today, that there is going to be a different way to deal with patients ex COVID. So in a sense, saying like even if COVID hospitalization continue to rise, we should not see an impact on your revenues as hospitals are better equipped or better managing what is happening.

Thank you, Maja. Of course, it's a critical question. I fundamentally see the world in a very different place today than it was 12 months ago. The vaccines really matter. And sometime into the future when we look back at this, I mean, in some sense, what happened over that 12-month period on developing vaccines for all of us probably go down in history as some -- as one of the biggest achievements in health care ever. At the practical frontline level that we have, I'd say, overall, Maja, we've pretty good access. And in China, we have improving access. In Europe, we also have improving access and much more broad-based access in the U.S. We're also quite confident that hospitals have learned a lot. So one thing is that depending on the country that you look in at, of course, the absolute level of admissions is, of course, nowhere near what it was at least when you look to Europe. I am conscious that we now have states in the U.S. where we are seeing admission rates go up. But even in those states and where you might see hospitals cancel elective procedures, surgeons and teams have learned a lot, they're finding alternate sites to conduct the surgery. So we're not seeing broad-based lockdowns an impact in the making. I'd also say one requirement that we are expecting is that the industry -- the authorities are going to require from industries that people who want to work with the hospitals and have access to hospitals that they're going to document that they have been vaccinated for credentialing. So at the very high level, Maja, definitely improved, lots of learnings that I think also make it highly unlikely that we're going to see anything close to what we went through with 12 months ago.

So Kristian, then we should maybe just think about it potentially adding a couple of months to the normalization in patient discharge level, something like that. If things get worse, then it might take 1 or 2 months longer until we get back to where we were in pre-pandemic levels?

Of course, we have to monitor this and see whether this starts to generate a lot of admissions. But if I look at admission levels broad-based in Europe, things are improving week on week. And discharge rates are improving week on week. And we're seeing the same pattern for U.S. even with the development on the Delta that we've seen in some of the southern states.

Our next question is from Veronika Dubajova of Goldman Sachs.

I'm kind of going to circle back to some of the themes that have already propped up, apologies for that, but I just want to push you a little bit on kind of some of the moving parts. And I guess just my first question is Kristian for you, just your degree of confidence on being able to hit the 7% to 9% organic sales growth as you look at '22 that you've guided for in the midterm. And I guess as you think about it, what are some of the variables that you think represent upside risks versus downside risks? And then I just want to confirm, Anders, your comments on the margin piece is am I right to think that you'd expect margins to contract as you think about 2022 versus '21? I have a follow-up after that, but maybe get these out of the way first.

Thank you, Veronika. Of course, lots of moving parts. I'd say, at the high level, I feel more optimistic about the future than I did 12 months ago. Of course, if I just walk through the different business areas, I'd say on the Chronic Care side, we have an accumulated negative impact of lower NPDs for the pandemic period. And we believe that, that's going to probably more or less cancel out the weaker comparison period, right? So we are objectively looking at a lower comparison period that would help us, but we expect the impact of lower NPD to cancel that out. We expect improvement in growth in Europe versus '19-'20; U.S. around double digit. And this is really on the back of the investments that we're making, the increase in patient recruitment momentum. And also the product launches that are coming underway. And then for EM, we expect that business to deliver double-digit growth. It's going to deliver double digit this year, and we expect it also to do that the next year. Wound Care, around mid-single digit, mid-single digit plus. And IU, high single digit to low double digit. And then if you ask what are some of the sensitivities for me, of course, back to Maja's question also, if we see serious scale up of Delta, that could affect how things pan out. But we really regard this as unlikely for the main markets at this stage. On the positive side, definitely, I have -- we have a few product launches coming that I expect to contribute. I expect the investments that we've made into both Europe, our digital initiatives and the U.S. to also contribute. So I hope that answers your question.

All right. Veronika, your question related to our margin. So I gave some of the moving parts into next year at -- earlier in this call. And then please also bear in mind, when we upgraded the margin guidance before special items back in our second quarter from 31% to 32%, 32% to 33%, I also mentioned back then that half of the guidance upgrade at back then that it was related to permanent savings and the other half was more a lower spend due to the COVID situation. So that is also important to take into consideration.

Okay. No, that's very clear. And then sort of a follow-up for me, just very quickly, and I know this is a very tough question to answer. But obviously, while vaccination rollout has been a huge success in U.S. and Europe, and it seems to be making a difference. Rest of the world is very, very far behind. And Kristian, I'm just kind of curious how you're thinking about that. And maybe just remind us, China aside, what are some of the other key markets for you on the EM side that have been key drivers of growth that we should watching for as we move into '22, especially as it comes to normalization. And that's it for me.

Thanks, Veronika. Good question. So of course, China is #1 in our portfolio of EM markets. And I don't know if you're following that, but I mean, of course, they're doing a massive vaccination program and continue also these, I think, quite hard-hitting measures to contain Delta whenever it pops up its head. Latin America, we have a number of important markets, most prominently Brazil. Brazil has been stable through the pandemic irrespective of, of course, the impact that COVID has had on the country. Business has continued to be strong. Russia is an important market. And I'd say, in general, when I say Russia, I'd also say, Eastern Europe, we have a very, very strong presence. So for all of those markets, we are following the development very closely. And then finally, Middle East. So all of those markets will -- we're watching them closely Veronika.

Our next question is from Michael Jungling of Morgan Stanley.

I have 3 questions, please. Firstly, on the digital ostomy platform. Can you comment on what it means by doing payer pilot studies in Germany and the U.K.? What are the endpoints that you are trying to achieve here that will also allow you then to say these products can be a success. Question number two, if I look at some of the questions I asked earlier, some companies, including yourself about the midterm margin opportunity post COVID, many companies highlighted that it could have a better margin after COVID because new selling ways seem to work. Can you confirm whether that situation is unchanged for you? Has COVID-19 given you the opportunity to have structurally longer term better margins? And then question number three is a little bit of a tough one, perhaps slightly unkind, but if I look at your organic growth comp adjusted, it's your second worst result since the pandemic, and yet we can see all around the world, things are improving, including vaccinations. How do you know that this is not an execution problem and rather something else, which you've highlighted? What sort of comfort do you have that this is not a competitive situation that you're falling into?

Thank you, Michael. Three good questions. I'll take number one and number three, and then I'll hand it over to Anders. So let me start with your question on the new ostomy platform. We -- sorry, the new ostomy digital platform. We're running payer pilots, Michael, because there's not a product like this out in the world today. There's not really a category in which it fits. And so we basically have to prove to payers that we add value. I'll say there's been quite a lot of interest in getting this ball rolling. But because it's so new, we're also doing quite a lot of data collection with the new platform. So when it comes to endpoints, there are, of course, hard end points we're going to look at with the type of skin issues that people would have. So assuming that if you have a significantly lower number of leakages, you'll have fewer skin issues that are often quite painful and require treatment. We'll look at readmissions. But we're also going to look at a number of other KPIs that are related to how people are doing. And how they are responding to the benefit of the product. So it's going to be, I would have to say, somewhat exploratory to begin with, but I think we'll know quite early on whether patients like it. And if they like it, I'm absolutely convinced that we're going to find also a path to value. Now when it comes to organic growth, and whether this is an execution issue, this is, of course, something that we are very, very close to Michael. And when it comes to execution and relative performance, we look at the leading indicators that are about patient recruitment, about hospital volume sales and the share of hospital volume sales and how that develops. We look at our care enrollments. We look at the performance in our direct businesses. So we feel quite confident when we say that this has to do with the market and baseline effects and the dynamics that we described in the U.S. rather than execution. I feel good about the portfolio in the market today and our position. I also feel very good about the pipeline that's coming. But of course, I understand that you have to ask this question, but we feel good about where we are. Anders?

Yes. All right. Thanks, Kristian. So in relation to your second question, Michael, around the permanent savings. As I have communicated previously, we are seeing some permanent savings as well. We are seeing that, especially across our sales and marketing organization in relation to travel. We are not traveling as much. And our expectation is that going forward, we will not travel to the levels we did pre COVID. We will also have some more efficiency in the way we are operating our company. And that's why we, back in our second quarter announcement, announced an upgrade of the margin for this year as explained earlier. But please also remember, we are also allocating some of these savings into investments into new commercial activities. And we have invested or decided to invest into a number of areas, especially in the U.S. where we are expanding the sales force. We are seeing a normalized spend level within Urology where we had a very low spend level last year. So we are doing a number of things in order to drive the top line growth.