Coloplast has reported interim financial results for Q113/14 (October 1 to December 31 2013).
Revenue was up by 7% to DKK3,063mn on 11% organic growth. Currency depreciation of foreign currencies against DKK, particularly of GBP, JPY and US dollar, reduced growth by 4%.
Sales of Ostomy Care products amounted to DKK1,273mn, equal to an increase in of 5%. Organic growth, at 10%, was driven by the portfolio of SenSura ostomy care products and the Brava accessory range. The growth performance was highly satisfactory in all regions, with strong contributions from the UK, Scandinavia, the US and China.
The high organic growth rate of Q113/14 was partly due to 2012 weak sales performance, particularly in southern Europe. In addition, Russia generated strong Q113/14 growth, driven by an increased number of tenders and a new distributor's inventory build-up.
Continence Care revenue was DKK1,085mn, a 7% improvement and 10% organically. Growth was driven mainly by the SpeediCath catheter portfolio, especially by compact catheters. The high Q113/14 growth rate derived mainly from the UK, as distributors in that market increased their inventories. Germany and Greece as well as delivery of a large order in the Middle East also helped drive the improvement. Sales were down in the US due to the revised rebate structure of a major distributor.
Sales growth for urine bags and urisheaths was highly satisfactory, driven by improved growth momentum and weak sales in Q112/13. Sales of the Peristeen anal irrigation system continue to grow at a satisfactory rate.
Sales of Urology Care products grew by 8% to DKK295mn, while the organic growth rate was 11%. Growth was mainly driven by Titan penile implants, which continue to win market share in the US. Sales of endourology products and Altis slings for treating female stress urinary incontinence, contributed nicely to the Q113/14 growth performance. Sales of products for treatment of pelvic organ prolapse were satisfactory.
Wound & Skin Care
Sales of Wound & Skin Care products amounted to DKK410mn , equal to a 13% year-on-year increase and a 17% organic growth. Organic growth for the wound care business was 15%, driven by sales of Biatain foam dressings. The strong Q113/14 revenue growth was driven especially by China, Greece and Brazil, with highly satisfactory sales of both Comfeel hydrocolloid dressings and Biatain foam dressings. The US business reported continuing strong growth. The European wound care business reported strong Q113/14 growth, which was mainly driven by sales of the new and improved version of Biatain silicone foam dressings. The strong growth rate was also due to the weak sales performance in China, Germany and a few other markets in Q112/13.
The inventory build-up by a major distributor was the driver of an extraordinarily high organic growth rate in the US skin care business. Contract production of Compeed also delivered strong growth.
Revenue amounted to DKK2,031mn , which translated into reported growth of 7%. Organic growth in the European business was 9%. All European markets reported satisfactory growth. Sales growth in the Continence Care businesses in the UK and Germany were the main drivers of the strong growth in Q113/14. The performance should also be seen relative to the prior year's weak developments in Spain and Italy.
Other Developed Markets
Revenue was unchanged from Q112/13 at DKK625mn. The depreciation of the JPY in particular, but also of US dollar and AUD against DKK reduced the reported growth by 10%. The organic growth rate was 10%, which was in line with Q412/13. The North American Ostomy Care business continued its positive performance in Q113/14. The Wound Care and Urology Care businesses also contributed nicely, while the decline in Continence Care sales in the US relative to Q112/13 was mainly due to revisions made to the discount structure of a major distributor.
Both Japan and Canada reported highly satisfactory growth. In Japan, the improvement was due in part to distributors building up inventories ahead of an announced price increase due to take effect in Q213/14.
Revenue increased by 20% to DKK407mn, while organic growth was 28%. The continuing depreciation of the BRL against DKK explained much of the eight percentage point difference in the growth rates. China, Greece and Brazil were significant contributors to the top-line growth. Russia, Argentina, the Middle East and North Africa were also notable contributors to the overall growth of this sales region. Inventory adjustments by the company's Greek distributor had a positive effect in Q113/14, while growth in Brazil and China was improved as a result of Q112/13 week sales.
Key Financial Information
Gross profit was up by 8% to DKK2,093mn from DKK1,930mn in Q112/13. The gross margin was 68% against 67% in Q112/13. The change was the result of improvements in production efficiency. At constant exchange rates, the gross margin was 69% and in line with the margin for Q412/13, which was impacted by the reversal of inventory provisions.
EBIT was DKK1,013mn, a 13% improvement from DKK897mn in Q112/13. The EBIT margin was 33% both at constant exchange rates and in DKK, against 31% in Q112/13. The improvement was mainly due to improvements in production efficiency and lower administrative expenses.
Net profit was up by 26% to DKK780mn, while earnings per share also improved by 26% to DKK3.63.
Financial Guidance f or Full FY2013/14
Coloplast expects organic revenue growth of around 8% and of around 6% in DKK, while the previous guidance was of around 7% organic growth and around 5% in DKK;
EBIT margin guidance is around 33%, both at constant exchange rates and in Danish krone.
capital expenditure is expected to be around DKK500mn; and
the effective tax rate is expected to be around 25%.
Based on the strong Q113/14 performance and the growing momentum of the company's business, the company has upgraded the guidance for the full-year growth rate from around 7% to around 8%. The anticipated sales improvement will be used to finance an increase in sales-enhancing initiatives, which are now expected to amount to DKK200 to DKK250mn for the year instead of DKK150 to DKK200mn.
The financial guidance assumes sustained and stable sales growth in Coloplast's core markets. Pricing pressure is expected to be slightly higher in FY2013/14 than it was in FY2012/13, but still below the long-term estimate of 1% in annual pricing pressure. The company's financial guidance takes account of reforms with known effects.
The EBIT margin guidance assumes that Coloplast, in addition to delivering on the sales growth, can successfully deliver results consistent with the previously estimated productivity-enhancement potential of an annual 0.5- 1.0% improvement of the overall gross margin.
Coloplast's current long-term financial ambition is to outgrow the market while achieving earnings margins that are in line with the best performing med-tech companies.
The overall weighted market growth in Coloplast's current markets remains at 4-5%.