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

Welcome to the Coloplast interim financial statements for 9M 2021, '22. [Operator Instructions] With that, I'll hand the floor to our speakers. Please begin your meeting.

Good afternoon, and welcome to our Q3 '21/'22 Conference Call. My name Kristian Villumsen. I'm the CEO of Coloplast. And I'm joined by our CFO, Anders Lonning-Skovgaard; and our Investor Relations team. We'll start like we usually do with a short presentation by Anders and myself, and then open up for questions from you. Please turn to Slide #3. In Q3, we delivered 8% organic growth and an EBIT margin before special items of 30%. We delivered a respectable return on invested capital of 26% after tax and before special items, impacted by the acquisition of Atos Medical. Reported growth in Danish kroner was 21%. Atos Medical contributed 9 percentage points to the reported growth and delivered double-digit underlying growth. Before I dive into today's results, I'd like to zoom out and put a few words to the current operating environment. The world is in a very different place from where it was just a few months ago. Inflation is on the rise globally, supply chains are disrupted, interest rates are risen, consumer sentiment is weakening, and we have a pandemic still ongoing in parts of the world, of course, increasing uncertainty about the macroeconomic outlook. We're experiencing some of this firsthand at Coloplast. COVID-19 continues to impact performance in our business in China. Energy prices in Hungary, where we produce the majority of our products, have gone up by around 400% year-to-date. Our collecting devices business is impacted by raw material supply shortage, just to name a few. Despite these challenges, our business is sound, and I'm very pleased with the company's performance and resilience as we continue to take market share across all geographies. And most importantly, we continue to help a lot more people living with intimate health care needs globally. Let me also provide a short update on our sustainability strategy and performance. At Coloplast, we're committed to ambitious science-based climate action, in line with the Paris Agreement. In June, our carbon emission reduction targets were approved by the science-based target initiative. This approval was a recognition that the targets across our production and value chain are consistent with the reduction required to keep global warming to 1.5 degrees. During the first 9 months of the year, we reduced Scope 1 and 2 emissions by 15% and increased the share of renewable energy use by 8 percentage points to 71%, mostly driven by the replacement of natural gas with electric heating pumps in our near better site in Hungary. In May, we opened our second production site in Costa Rica. And here, I'm pleased to say that both of our production sites run on renewable energy directly from the grid. We've ongoing projects in the U.S. and China as well. So there's more work ahead of us, but I'm very pleased with the progress we've made so far. Now let's go through a few highlights from our third quarter. Our Ostomy Care business posted 10% organic growth, driven by solid growth across all regions, excluding China. The U.S. Ostomy Care business had another solid quarter and continued to grow at a double-digit rate. In the U.S. Continence Care, I'm encouraged by the healthy growth in new patients, which led to improved sales growth during Q3. Our Interventional Urology business delivered a solid quarter with broad-based growth of 11%. China remained impacted by COVID-19 and developed, as expected, in the quarter. New lockdowns and restrictions continue to emerge, resulting in reduced hospital access and the decline in procedural volumes in the affected areas. Outside of China, our emerging markets region continued to perform well with broad-based double-digit growth. Voice & Respiratory Care delivered double-digit underlying growth, driven by a very strong performance in the laryngectomy business, and both performance and integration are on track. I'm very satisfied with how the business is developing so far. Today, therefore, we maintain our financial guidance for the full year. Anders will take us through the details later, but overall organic growth is still expected at 6% to 7%, and reported growth in Danish kroner is still expected at around 15%. The EBIT margin guidance before special items is also unchanged and expected to be around 31%, and EBIT margin after special items is still expected at 28% to 29%. Now let's talk about the results in some more detail. Please turn to Slide 4. In Ostomy Care, organic growth was 7% for the first 9 months, and growth in Danish kroner was 10%. In Q3, organic growth was 10%, and growth in Danish kroner was 13%. Growth continues to be driven by our SenSura Mio and Brava-supporting products, and our SenSura and Assura/Alterna portfolios also continued to contribute to growth in emerging markets. From a geographical perspective, all regions contributed to growth, led by Europe and especially in the U.K., where both our manufacturer business and charter home delivery business continued to deliver solid growth. The U.S. also posted solid double-digit growth. Growth in emerging markets, excluding China, was double digit and broad-based, led by Latin America. Growth in China was flat in the quarter, as expected, due to the negative impact that COVID-19-related restrictions had on procedural volumes and access to hospitals. In Continence Care, organic growth was 6% for the first 9 months, and growth in Danish kroner was 9%. In Q3, organic growth was 5%, and growth in Danish kroner was 9%. Growth continues to be driven by SpeediCath ready-to use in emitting catheters with good contribution from the SpeediCath Flex portfolio as well as SpeediCath standard and compact catheters. Growth in the quarter was negatively impacted by back orders in our collecting devices business due to supply shortages experienced by raw material supplier. Production in sales resumed during the quarter, however, at reduced capacity due to continued supply uncertainty. The back orders on collecting devices are expected to persist into Q4. From a geographical perspective, all regions contributed to growth, driven by Europe and especially, the U.K. Emerging markets also contributed to growth driven by Latin America. In the U.S., Continence Care business, growth began to improve, driven by the normalization of growth in new patients towards the end of Q2. The improvements in sales growth has been slightly slower than expected, but the healthy underlying patient growth gives me confidence that sales growth will continue to pick up. In Interventional Urology, organic growth was 8% for the first 9 months, and growth in Danish kroner was 13%. In Q3, organic growth was 11%, and growth in Danish kroner was 19%. Growth in the quarter was broad-based. The Endourology portfolio was the main growth contributor, with solid performance across all regions. The U.S. Men's Health business made a solid contribution to growth as well, driven by the Titan Penile implants. In Wound & Skin Care, organic growth was 7% for the first 9 months, and growth in Danish kroner was 11%. In Q3, organic growth was 5%, and growth in Danish kroner was 10%. The Wound Care business grew 7% organically in the first 9 months and 4% in the quarter. Biatain Silicone portfolio was the main growth contributor, and Biatain Fiber also continues to perform well and contribute to growth. From a geographical perspective, Europe was the main contributor to growth driven by Germany and emerging markets -- the emerging markets region, excluding China, also contributed very nicely to growth. As expected, sales in China declined and continued to be impacted by COVID-19 and the limited hospital access in the affected areas. The Compeed contract manufacturing business also made a solid contribution to growth in the quarter. Voice & Respiratory Care contributed 5 percentage points to the reported growth in the first 9 months, reflecting 5 months of impact and 9 percentage points in the third quarter. The underlying growth for Voice & Respiratory Care in the quarter was double digit, driven by the laryngectomy business. Laryngectomy delivered solid double-digit underlying growth, driven by an increase in the number of patients served in existing and new markets as well as an increase in patient value driven by the Provox Life portfolio. All regions contributed to growth led by Europe. The tracheostomy and E&T business also contributed to growth and grew mid-single digit in line with expectations. 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 9 months increased by DKK 2.2 billion or 15% compared to last year. Organic growth contributed DKK 972 million or 7 percentage points to reported revenue. Acquired revenue for the first 9 months contributed DKK 773 million to reported revenue, of which DKK 757 million were related to the Atos Medical acquisition. Acquired revenue contributed around 5 percentage points to reported growth in the first 9 months. Foreign exchange rates had a positive impact of DKK 450 million or around 3 percentage points on reported revenue due to the appreciation of mainly the U.S. dollar, British pound, Chinese yuan against the Danish kroner. Please turn to Slide 6. Gross profit for the first 9 months amounted to around DKK 11.4 billion, corresponding to a gross margin of 69% against 68% last year. The gross margin was positively impacted by leverage on production cost and efficiency savings from the Global Operations Plan 5. The inclusion of Atos Medical and price increases also had a positive impact on the gross margin. On the other hand, the gross margin was negatively impacted by double-digit wage inflation in Hungary, increasing raw materials, energy and transportation prices as well as ramp-up costs at our volume sites in Costa Rica. The gross margin includes a positive impact from currencies of around 30 basis points. Operating expenses for the first 9 months amounted to around DKK 6.3 billion, an increase of around DKK 1.2 billion or 23% from last year. Atos Medical contributed with DKK 465 million to operating expenses, of which around DKK 96 million were related to the PPA amortization included under distribution costs. Excluding Atos Medical, the increase in operating expenses was DKK 710 million or 14% compared to last year. The distribution to sales ratio for the first 9 months came in at 30% compared to 28% last year. Distribution costs increased by DKK 894 million or 22% compared to last year, impacted by the inclusion of Atos Medical, high logistic costs, increasing sales and marketing and travel expenses as COVID-19 restrictions eased as well as continued commercial investments in the U.S. Interventional Urology and consumer and digital initiatives. The admin-to-sales and RD-to-sales ratios for the first 9 months came in at 4% of sales, on par with last year. Admin expenses increased by 33% for the first 9 months, impacted by the inclusion of Atos Medical as well as phasing of legal consultancy and IT costs. R&D expenses increased by 18% for the first 9 months, impacted by the inclusion of Atos Medical as well as increasing activity levels across our business areas. Overall, this resulted in an increase in operating profit before special items of 8% for the first 9 months, corresponding to an EBIT margin before special items of 31% compared to 33% last year. The EBIT margin contains a positive impact from currencies of around 40 basis points, mainly related to the appreciation of the U.S. dollar, British pound and the Chinese yuan against the Danish kroner. EBIT after special items was around DKK 4.7 billion, corresponding to an EBIT margin after special items of 28%. EBIT was impacted by special items of DKK 435 million, of which DKK 135 million are transaction integration costs related to the Atos Medical acquisition and DKK 300 million are related to the mesh provision booked in Q2. Please turn to Slide 7. Operating cash flow for the first 9 months amounted to around DKK 3 billion compared with around DKK 3.3 billion last year. The negative development in cash flows was mainly due to an increase in inventories and other receivables. Cash flow from investing activities was an outflow of DKK 11.4 billion compared to an outflow of DKK 1.7 billion last year, impacted by the Atos Medical acquisition this year and the Nine Continents Medical acquisition last year. Excluding acquisitions, investments amounted to around DKK 733 million or 4% of revenue. As a result, the free cash flow for the first 9 months was an outflow of DKK 8.4 billion compared to an inflow of DKK 1.6 billion last year. Adjusted for the acquisition of Atos Medical and Nine Continents, the free cash flow was an inflow of DKK 2.2 billion, an increase of DKK 511 million compared to last year. The trailing 12-month cash conversion for the first 9 months was 77%, impacted by the increase in inventories and other receivables. Net working capital amounted to 26% of sales at 30th of June '22 compared to 24% at 30th of September '21, impacted by an increase in inventories and phasing of trade receivables. We now expect the working capital to be around 25% of sales for the full year, impacted by an increase in inventories, mostly on raw materials where we have decided to build some additional safety stock to accommodate for potential supply chain constraints. Please turn to Slide 8. As Kristian mentioned earlier, our financial guidance for full year '21, '22 is unchanged. We still expect organic growth to be at 6% to 7%, and the key assumptions laid out in May still largely hold. Overall, we expect continued solid performance in Chronic Care across all our geographies, excluding China, where we expect procedural volumes and access to hospitals to remain negatively impacted by COVID-19 restrictions. Continence Care is expected to remain impacted by back orders in collecting devices as explained earlier. Wound & Skin Care is still expected to deliver in line with our Strive25 ambitions of above-market growth, however, negatively impacted by COVID-19 in China. Interventional Urology is still expected to deliver in line with Strive25 ambition of high single-digit growth. We have no current knowledge of significant health care reforms that will impact '21, '22. Our reported growth guidance in Danish kroner is still expected to be around 9% due to the positive impact from exchange rates. The Atos Medical acquisition is still expected to contribute around 6 percentage points to reported growth. In total, reported growth in Danish kroner is still expected to be around 15%. The reported EBIT margin before special items for full year '21, '22 is still expected around 31% and includes around DKK 150 million in amortization charges related to 8 months of impact from the Atos Medical acquisition. The reported EBIT margin after special items is still expected to be at 28% to 29%, impacted by DKK 300 million in special items related to the mesh provision booked in Q2 as well as one-off transaction and integration costs related to Atos Medical of around DKK 150 million. The gross margin for full year '21, '22 is still expected to be around 68%. The gross margin is expected to be positively impacted by operating leverage and efficiency gains through the Global Operating Plan 5 as well as price increases, currency tailwind and the acquisition of Atos Medical. The gross margin is expected to be negatively impacted by cost inflation, including a mid-single-digit increase in raw material prices and double-digit wage inflation in Hungary as well as increasing energy and transportation prices. On raw materials, the key pressure on prices is coming from plastics and paper. The EBIT margin guidance reflects an increase in operating cost related to the resumption of the business activities as the impact of COVID-19 recedes as well as some pressure on freight costs. Overall, I expect that operating costs will grow slightly above reported revenue growth before Atos Medical. The EBIT margin guidance also reflects additional incremental investments of up to 2% of revenue for innovation as well as sales and marketing purposes. This year, we are investing incrementally in all business areas, and regions with a key focus on the U.S. Interventional Urology and digital initiatives. We now expect our net financials to end the financial year '21/'22 at around minus DKK 300 million, including impact from Atos Medical. The blended interest rate for the debt financing of Atos Medical is around 1.25%. Our CapEx guidance for '21, '22 is now expected around DKK 1.2 billion and includes impact from the Atos Medical CapEx as well as integration CapEx. The effective tax rate is still expected to be around 23%, positively impacted by the increased deductibility on R&D cost in Denmark, which is partly offset by one-off tax payments related to the acquisition of Atos Medical. Thank you very much. Operator, we are now ready to take questions.

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

I'll keep it to 2, please. I guess the first one on Ostomy. Thank you for some of the comments there. But I love if you could unpack a little bit more for us what looks like a very, very strong number? Was there some pricing effect? How much of it was the U.S. being stronger? Is there any kind of incremental details you could give because it was obviously quite a big number there? And then the second one, just curious, have you managed to have any discussions with less so the tender nations, well, let's say, more the sort of annual reimbursement style countries or governments or systems about how pricing might be able to be adjusted over the next, I don't know, a year or 2? Do you have any line of sight into the ability to get some of that cost inflation recognized in, let's call it, more the lift price side of the business, just to kind of help a little bit with what is a very difficult environment?

Thank you, Patrick. 2 good questions. We are very pleased with Ostomy in the quarter. It really reflects broad-based growth across Europe, EM and the U.S. I'll try and comment a bit on all 3 of them in turn so you get a bit more granularity. So I'd say Europe, the numbers that are coming out now on Ostomy reflects basically fundamentally good performance, but also that the market is recovered. We see good inflow of patients, strong performance across the continent. And in particular, if I want to highlight one, the performance coming out of the U.K. is very strong. In EM, it is also broad-based. There is an impact from tenders and phasing. Remember how EM looked last year, but we're quite pleased. It's led by LatAm. And then finally, of course, U.S. And for -- I can -- I'm sitting here looking at a screen with a lot of names that I know on the screen. And you've heard me talk about the U.S. and Ostomy Care many times. And you've also heard me say that once we want to place on the 2 GPOs that this was a very important moment in time for the company, and it triggered a significant expansion in the front line. This is what you're seeing. We've won quite a lot of business. The enlarged team is having an effect, and I'm just very pleased to see that. Of course, now we need to do a lot more of these types of quarters into the future, but it's a good start, good performance and kudos to the Ostomy team. To your question on pricing, you all know that if -- I mean, if you zoom out, we're a company that, to a large part lives from reimbursement from either private or public payers. This works fantastic in a low inflationary environment. It's more complex when you've got inflation on the rise. We have seen pricing changes, Patrick, from a number of geographies driven by payers. So U.K. is one. We also see payers in the U.S. have moved on pricing. There are active dialogues with payers in pretty much all of our major markets, mostly driven through -- mostly driven through industry associations in those respective markets. So this is very much an ongoing dialogue with the industry across the board. You should also note that we have done a lot of work over the past year on pricing. We have told you also that this year is going to be ASP positive for the group in an environment where we have typically guided to up to 1% negative pricing pressure, reflecting a ton of work and many different projects across the business, and we are looking to do a similar type of impact at least going into next year. So this is a very, very high focus area. I hope that gives you some granularity.

That's really helpful. I mean on the tenders that you mentioned, were they material to the total loss to the number or not, particularly?

In EM, they did matter.

Our next question comes from the line of Hassan Al-Wakeel of Barclays.

I have 3, please. So firstly, can you talk about the strength in the gross margin in the quarter and what's driving that? Your guidance implies a significant step down from 69% closer to 67% in Q4. And it'd be great if you could walk us through the moving parts here? And to what extent some of this pressure you expect to persist into next year? And whether the FX tailwind that you mentioned reverses based on current spot rates? Secondly, could you talk about your expectation around the wage bill, particularly in Hungary, and whether this is likely to land where you expected for this year? And if you can share some initial thoughts into next year given the high levels of inflation? And then thirdly, could you talk a little bit about the performance in emerging markets ex-China and the quantum of phasing benefits from tenders in the urology business? And what are you assuming for China performance for the rest of the year?

All right. Thanks, Hassan, for your questions. Let me start with your first one related to the gross margin development. Yes, we delivered a gross margin for the quarter in the level of 69%. Remember, we have many moving parts impacting our gross margin, and one of the ones that is a positive impact from Atos. Now we had a full quarter of impact. We continue to see FX -- positive FX impact. We continue to see scalability and impact from the efficiencies that we're working on within the Global Operations Plan 5. When we move into the full year, I am expecting that the gross margin will decline in our fourth quarter. So I am expecting the -- for the full year, we'll sit with a gross margin of around 68%. And the main dynamics are mostly the same as we have seen so far this year. But I see further headwind from raw material price increases, freight and energy. So that will impact us more negatively into Q4, and that will also impact us into next financial year. But for the year '21, '22, I still expect the gross margin of around the 68% level, as I have previously said. So that was question number one. Let me move into question #2. As I remember, I said it was around our wage inflation in Hungary. So please remember, this financial year, we decided to do a significant wage inflation in Hungary when we started the year of high double-digit number. And that's, of course, already included in our numbers and it's included in our guidance. We are currently evaluating wage inflation and salary regulation for next financial year, and that is something we are working on as we speak. But at this point in time, I don't expect it will be at the level as we saw this financial year, but it is still something we are working on.

And then, Hassan, maybe to your questions on EM. When it comes to Interventional Urology, the tenders in urology for the quarter don't significantly impact the number. Even if you peel those out, we still have good double-digit growth without those tenders. And then for EM overall for the remainder of the business, really what we were alluding to before was last year, we had a tale of tenders that hit us in Q4 where we have some of that impact now in Q3 this year. But even if you control for that phasing effect, we still have very, very solid double-digit growth.

That's really helpful. And if I can just follow up on that gross margin comment around Q4. I wonder if we should think about that exit rate as a sensible assumption for the first half of next year, both on the gross margin, but also on the EBIT margin side, given some of that weakness that you talked about?

Yes. So now I talked about this year, Hassan, and for next year, we are working on the numbers also on how we're seeing the growth, how we see the gross margin develop and how we see the expenses develop into '22, '23. But of course, some of the moving parts we are currently seeing on the gross margin will continue into next year. And please remember, Atos will also benefit us in Q1 until we started to include Atos from February 1.

Our next question comes from the line of Martin Parkhoi of SCB.

Just also a couple of issues -- things. Firstly, on -- also on the growth, again, with the 10% organic growth in Ostomy Care. Now you have suffered a bit on the cohort for it feels like ages now. But it seems like you're now almost out of that, except for China. Could we expect to see some extraordinary growth now, some -- I don't know for sure all the pent-up demand based on that you maybe are now behind? And then a second question, just do you have any clarity on the tenders on Russia, if you -- if there are any chance that you will also repeat them in the next financial year? And then just a technical question for Anders. Just on the electricity prices in Hungary, where you now have partly hedged some of that in Q4 and Q1 next year. Maybe you can review at what level that hedging has been done?

Thank you, Martin. Good question. Our view is that what you're seeing on Ostomy Care is not pent-up demand. And we base that view on the -- if you will, the raw inflow of patients into the business, particularly where we have direct businesses. We can also see that in the U.S., there is a good correlation. But of course, some of this is also -- some level of increased activity in some of these health care markets. But we do not see, and I don't think you guys should expect that health care systems will structurally come out of this with a lot more capacity. If anything, we have a worry across many of the geographies that health care systems are short on nursing staff. But it is us winning more patients. We are not expecting, Martin, this to be pent-up demand. Russia, we're still in Russia with a significantly reduced footprint. The way the Russian market works is it's a lot of tenders throughout the year in the different regions. We don't bid on the tenders, distributors bid on the tenders, but we're present in the country. We deliver products into the market, and we still have a reduced set up, but we're still active.

Yes. I mean, Martin, your third question related to the hedges on energy, yes, we have hedged our energy in Hungary for this quarter and for the coming quarter. It's something we did some time ago. So it is below our -- or the current spot prices. So -- but we have hedged to a large extent this quarter and the first quarter of next year.

Our next question comes from the line of Christian Ryom of Danske Bank.

I have 2 as well. So first question is to collecting devices in Continence Care and the backlog that you're currently building up due to supply constraints. Is that a backlog that we should expect you to deliver on in the next fiscal year, so say, incremental revenue on top of what would normally be expected for the collecting devices business? Or should we expect this backlog to sort of gradually fade out? And then second question is to China and the development that you're seeing in patient volumes, where are we? Have you begun to see any improvement in patient volumes since lockdowns were lifted? Or -- yes, what's the status?

Thank you, Christian. Two good questions. Collecting devices backlog, great question. At this stage, we don't know. I will say back orders are poison to the business, and back orders for this particular type of product, there are substitutes out there in the market. So we are going to lose some of these customers that will not come back and buy our product again. So the -- if you will, we don't just lose the revenue now. We also use the customer going forward. It's -- which is, of course, unfortunate. Some, we will be able to convince to come back because they're used to using the product. And then the final component of it is, of course, how long it's going to take us to get out of this supply issue. The net result of that, we don't know yet, but it's going to be -- I know this is not helpful. It's going to be between 0 and 100 somewhere, but you should certainly not expect the whole thing to come back, we don't. And then on patient volumes in China, we are still seeing a patient inflow at the 80 to 90 index levels. And it varies -- I have to say, it varies once you take the lid of that number, you really see strong correlation between where we have lockdowns. So you may have a region or a city where things look quite normal for a period of time, it gets locked down and then patient numbers decline, they decline immediately because hospital activity declines immediately. So it is a pretty dynamic situation. But in the aggregate, for the total business, it's still sitting below where we'd like it to be, so it hasn't normalized yet. And with what we're seeing now, we certainly do not expect that we're going to see a normalization this fiscal year, probably not discount the year either.

Our next question comes from the line of Graham Doyle with UBS.

I just have 2 quick ones and 1 slightly longer one. Just on Europe in Wounds, we know one of your peers mentioned there might have been some stocking there, a similarly strong performance. Did you see any of that? And then you talked about U.S. Ostomy and the progress there, could you maybe give us a sense of the growth rate there to maybe compare to what you're doing? So pre-COVID -- so was it strong double digit or is it a little bit below that? And then one slightly more complex one. You're obviously targeting a 31% margin this year on an adjusted basis, and we discussed some of the headwinds in Hungary around labor and also energy. If we were to assume spot rates prevailed on energy for the next -- the last 3 quarters, I suppose, of next year and your wage pressure was to reach sort of low double digits, so not as bad as last year, but sort of where the central bank are indicating in Hungary, is it feasible to assume a 31% margin is deliverable? Are there levers elsewhere in the business that mean you can generate that operating leverage?

Thank you for those questions. Quickly on Wound, at least from our view of our business, the growth number that comes out of Wound Care from Europe is, if you will, a clean number and reflects demand in the market for the products. So we don't really see it in irregular purchasing patterns from customers. U.S. Ostomy Care, I talked about it previously. This is clearly an acceleration in the business, also prior to where we were to COVID. And it reflects good wins, pull-through on wins. And of course, it also reflects that we now go to market with a significantly larger sales team that we did pre-COVID, right? So we've got, let me just phrase it like, very solid double-digit growth.

Yes. And then your third question related to how we're moving into next year, as I understood it, Graham. So it's something that we, of course, are currently working on. And our P&L for next year, everything starts with the top line. We are pleased to see the growth is coming back to pre-COVID levels. Kristian talked to China, that is still some uncertainty. But more or less, the other parts of the business are at the levels we have been focusing on in our Strive25, you can say, strategy. And then on top of that, we have Atos. So as we have said many times, we are expecting Atos to deliver growth in the level of 8% to 10%. And I would say, so far, so good. We have seen a strong momentum since we closed the deal earlier this year. When we look at the gross margin development into next year, some of the moving parts that I talked to earlier, impacting our Q4 will continue into next year. One of the bigger ones, that is the energy price levels. We see significant volatility on the energy price points, especially in Hungary, and that's where there will be some additional headwind. But on the other hand, we also have a lot of focus on increasing prices across our business also into next year. As we mentioned earlier this year, we are expecting positive price impact this year. And I'm actually also expecting that for next year also because we are not looking at any bigger health care reforms. And then that brings me to the OpEx levels or the expense level. This year, our expenses are growing more than the -- or slightly more than the revenue. Next year, we are going to be a bit more prudent on our costs. Also because of the uncertainties we see especially around the gross margin and some of the dynamics I mentioned earlier. So those are some of the moving points that we are working on and looking into for '22, '23. I hope that gave a little bit more color to your question.

Our next question comes from the line of Mattias Häggblom of Handelsbanken.

I have 2, please. So Voice & Respiratory Care showed double-digit underlying growth, which could mean quite a wide range of options, I guess, by definition. I think I understand what you're saying here, but I was wondering if you could be a bit more specific what double digit means and talk about key drivers for this unit in the quarter. And then secondly, once the ramp-up is made and clear in Costa Rica, remind me how to think about your gross margin structure once utilization of this site gets up to an acceptable level?

Thank you, Mattias. So I think -- I know I can say a bit more. So the underlying performance for Voice & Respiratory Care is a very strong growth in laryngectomy, which is low teens and mid-single-digit type growth in tracheostomy, but both in line with plan, if anything, slightly ahead of plan. Good patient acquisition momentum, good progress on improving retention, good progress on working with product mix and the new Provox Life plan. And we're also moving ahead, I think, nicely with getting our arms around the tracheostomy category. So the tracheostomy category is going to be a longer run. The company that Atos Medical had acquired before we acquired them, called TRACOE, will first have to be integrated into Atos and then we can integrate the whole asset. So -- but good progress from a growth point of view.