Lars Rasmussen - CEO and President Anders Lonning-Skovgaard - CFO

Annette Lykke - Handelsbanken Christian Ryom - Nordea Markets Sebastian Walker - UBS Chris Cooper - Jefferies Michael Jungling - Morgan Stanley Carsten Madsen - SEB Veronika Dubajova - Goldman Sachs Patrick Wood - Citi Inês Silva - Bank of America Merrill Lynch Scott Bardo - Berenberg Martin Parkhøi - Danske Bank Oliver Metzger - Commerzbank Maja Pataki - Kepler Cheuvreux

Thank you very much. Good afternoon, and welcome to our Q3 '16/'17 conference call.

My name is Lars Rasmussen. I'm CEO of Coloplast, and I have with me today CFO, Anders Lonning-Skovgaard and our Investor Relations team.

We will start out with the usual presentation by Anders and myself, and then we will open up for questions. Please turn to Slide number 3.

In Q3, we delivered a solid 8% organic growth, which I'm pleased with. The growth was driven by good performance in many of our markets and a positive impact from new products launches, including SenSura Mio Convex, SpeediCath Flex and Brava Protective Seal.

In Q3, the U.S. recorded double-digit growth within Chronic Care.

This quarter, Colo has won a single-sourced contract within Ostomy Care, with one of the largest home health organizations in the U.S. We're also experiencing tailwind from market share gains in the U.S.

Urology business. With respect to the mesh litigation, further progress was made this summer when Judge Goodwin issued a court order stating that plaintiffs may no longer file claims against Coloplast in the ongoing MDL.

This is a further step forwards closure and full resolution of the MDL. Performance in Wound & Skin Care was disappointing due to a large negative impact from pricing reforms in Greece and France, which reduced our Wound Care growth from -- in Q3 by 6 percentage points.

In addition, the rebound in Skin Care did not materialize with the expected level due to contract losses in the U.S. On a positive note, I am pleased to see continued market share gains in Europe and double-digit growth in the Chinese Wound Care business again.

Our reported revenue in the third quarter has been reduced by DKK90 million due to a nonrecurring revenue adjustment related to an incorrectly managed contract with the U.S. Veterans Affairs from 2009.

Coloplast have proactively reached out to Veterans Affairs to resolve the matter, and we are now in a dialogue to determine the final amount. Our contract with Veterans Affairs has been renewed, and we have strengthened our internal processes and organization around contract compliance.

Together, with an external audit company, we have been through all of our U.S. contracts to ensure that they have been and are correctly managed.

Year-to-date, we delivered 7% organic growth, which is in line with our expectations. Our EBIT increased 9%, and fixed currencies before the one-off adjustment for Veterans Affairs.

And our EBIT margins in fixed currencies came in at 33% for the first 9 months before the one-off adjustments for Veterans Affairs. Our organic revenue guidance for '16/'17 is unchanged for 7% to 8%.

We expect to deliver in the low end of the range mainly due to weaker performance in Wound & Skin Care. The organic revenue guidance is not impacted by the one-off adjustment related to the U.S.

Veterans Affairs. Our reported growth is now expected to -- at around 6% from previously 7% to 8%.

The difference is mainly related to the DKK90 million one-off adjustment for Veterans Affairs and exchange rates developments, in particular, the fall in the U.S. dollar and the British pound against the Danish kroner.

Our EBIT margin guidance in fixed currencies is unchanged at 33% to 34%. We expect to deliver in the low end of the range.

Our EBIT margin in Danish krone is now expected at around 32%. Please turn to Slide number 4.

Year-to-date, our revenues grew 7% organically, reported growth of 6% and amounted to DKK11.5 billion. In Ostomy Care, organic growth was 7% and reported growth was 6% for Q3.

In isolation, organic growth was 7%. Growth continues to be driven by our SenSura and Brava portfolios especially in the larger markets like the U.K., Germany and China.

SenSura Mio Convex has now being relaunched in 16 markets and contributed significantly to the growth in the quarter. Finally, our SenSura portfolio showed satisfactory growth driven by China and Russia.

In Continence Care, organic growth was 8% and reported growth was 7%. In Q3, the organic growth was 10%.

The SpeediCath ready-to-use intermittent catheters continue to drive growth, and especially the compact category performs well. In the compact segment, we continued to see strong performance in markets like the U.S., France and U.K.

SpeediCath Flex has been launched in 14 markets and contributed strongly to growth in the quarter. Performance in our Conveen collecting device portfolio remains challenged by high competitive pressure.

And finally, we remain satisfied with sales growth for our Peristeen products. In Urology Care, organic growth was 11% and reported growth was 12%, and you can see, the organic growth was 10%.

The growth was mainly driven by sales of female pelvic health products, a segment in which we have gained market share after our last competitors have left the markets more than a year ago. We also continue to see satisfactory growth in this -- in sales of the Titan range of inflatable penile implant devices.

Finally, our endourology business saw satisfactory growth in Europe, in particular, in France. In Wound & Skin Care, organic growth was 0% and reported growth was 1%.

Organic growth for Wound Care in isolation was 3%. In Q3, the organic growth for the total business area was 1%, and for Wound Care, it was minus 1%.

The growth was driven by Biatain sales, in particular, Biatain Silicone in European markets, like the U.K. and Germany.

In Wound Care, the growth was challenged by price reforms in France and Greece, as well as a weaker momentum in a number of emerging markets, including Brazil. On a positive note, the Chinese Wound Care business has returned to double-digit growth.

The Skin Care business reported double-digit growth on an easy compared to last year. Finally, Contract Manufacturing of Compeed impacted growth negatively.

Turning to our geographical segments, we saw organic growth of 5% year-to-date, and 4% in Q3 in our European markets. The growth was primarily driven by U.K., Germany and France.

Organic revenue growth in other developed markets was 9% year-to-date and 14% in Q3. The strong performance in the U.S.

was primarily driven by strong demands for hydrophilic catheters. We are also experiencing tailwind from market share gains in the U.S.

Urology business. Growth rates in Australia and Japan remained satisfactory.

Revenue in emerging markets grew organically by 10% year-to-date and 14% in Q3. Year-to-date, we saw strong growth in markets like Russia and Argentina.

In China, Ostomy Care posted strong growth and we saw improving momentum in the Chinese Wound Care business. Negative growth in Greece, following health care reforms, detracted from performance.

I would now like to hand you over to Anders, and please turn to Slide number 5.

Thank you, Lars, and good afternoon, everyone. Gross profit was up by 5% to DKK 7.9 billion.

This equals our gross margin of 68%. We continue to see improvements in production efficiency at our volume sites and in particular, a positive impact from the relocation of SenSura Mio and Compeed to Hungary, which compensates for the negative gross profit impact from the launch of new products where the production economy is not yet fully optimized.

The gross profit was negatively impacted by wage inflation in Hungary, increasing depreciation levels and costs associated with the relocation of production to Hungary. In addition, the gross profit was negatively impacted by DKK16 million in restructuring costs related to the reduction in the number of production employees in Denmark.

The distribution-to-sales ratio came in at 28% comparable to last year. The ratio was impacted by incremental sales investments in primarily the U.S.

and Wound Care. The admin-to-sales ratio came in at 4% of sales, and up DKK45 million compared to last year.

The increase is related to patent litigation costs as well of DKK7 million and transaction costs related to the acquisition of Comfort Medical. The R&D-to-sales ratio came in at 4% of sales compared to 3% for the same period last year.

The 15% increase reflects higher activity levels. Overall, this resulted in an increase in operating profit of 4% and 7% in fixed currencies, which caused bumps to the EBIT margin of 32% in both fixed and actual occurrences.

In Q3, in isolation, the EBIT margin came in at 32% in both fixed and actual currencies. Excluding the DKK90 million one-off adjustment related to the U.S.

Veterans Affairs contract, the EBIT margin in actual and fixed currencies was 33% for the first nine months and 33% for Q3. Operating cash flow amounted to almost DKK1.7 billion and was down 2% compared to last year.

The positive impact from higher absolute earnings was offset by payments on escrow accounts to settle mesh claims. Year-to-date, mesh payments totaled DKK1.7 billion, and total mesh payment to date now amount to DKK4.1 billion.

Cash flow from investing activities was impacted by the acquisition of Comfort Medical for approximately DKK1.1 billion and capacity expansion in machines for the production of existing and new products and the site expansion in Tatabanya in Hungary. Investments in intangible assets and property, plant and equipment amounted to DKK423 million year-to-date.

Sale of bonds provided DKK167 million of cash contribution. Adjusted for payments made in connection with the mesh litigation and the acquisition of Comfort Medical, the free cash flow amounted to approximately DKK2.5 billion compared to DKK2.9 billion last year.

The difference is explained by lower tax payments last year, which means that the underlying cash flow is in line with last year. Finally, the second half of the share buyback program of -- in total DKK1 billion was finalized at the end of July.

Please turn to Slide 6. Our organic growth guidance for '16/'17 is unchanged at 7% to 8%.

As mentioned, previously, we expect to end the year in the low end of this range primarily due to weaker performance in Wound & Skin Care. We expect a strong fourth quarter due to continued stable growth rates in Europe and strong growth rates in North America.

We expect the continued acceleration in emerging markets both driven by China and our guidance assumes a positive impact from recent product launches. Our growth expectation for Wound & Skin Care for the year is now low single digit.

The impact of price reforms in France and Greece is larger than previously anticipated. And the rebound in Skin Care will not materialize to the expected level due to contract losses in the U.S.

Our reported growth is now expected at around 6% from previously 7% to 8%. The change in our reported growth guidance is explained by the DKK 90 million one-off adjustment for Veterans Affairs and exchange rate developments.

The currency impact is based on spot rate as of August 14, 2017, and the negative impact compared to last quarter is mainly a result of the depreciation of the U.S. dollar and the British pound against the Danish krone.

The acquisition of Comfort Medical is still expected to contribute 1.5 percentage points to our reported growth. We continue to expect a negative pricing pressure of around 1 percentage point on our top line.

Year-to-date, we have seen moderate pressure from pricing reforms within Wound Care in France and Greece. For '16/'17, we continue to expect an EBIT margin of 33% to 34% in fixed currencies.

We expect to end the year in the lower end of this range. We now expect around 32% in Danish krone from previously around 33%.

The change in EBIT margin guidance in Danish krone is explained by the adjustment for Veterans Affairs and exchange rate developments. Higher growth from our new product launches still meets pressure on the gross margin, but we continued to relocate manufacturing out of Denmark to Hungary and have reduced the number of production employees in Denmark by 100 in the first 9 months of the year.

We expect the benefits to be absorbed by the cost of relocation and restructuring costs in 2016/'17. We also expect depreciation to increase at the same level as last year as a consequence of the last couple of years increase in CapEx.

We now expect our net financials to end the financial year '16/'17 at around minus DKK 75 million, impacted primarily by cash flow hedging gains on the British pound and U.S. dollar, partly offset by losses on the Brazilian real and Argentinian peso.

CapEx guidance for '16/'17 is still expected to be around DKK 700 million and is driven particularly by investments in more capacity for new and existing products, including SenSura Mio, Biatain Silicone and SpeediCath Flex, as well as Nyírbátor expansion, which is expected to be operational during the first half of '17/'18, and a new distribution center, which is operational as of Q4. Finally, our effective tax rate is expected to stay around 23%.

This concludes our presentation. Thank you very much.

Operator, we are now ready to take questions.

I have two questions. First of all, Lars, you have increased your capacity for your SenSura Mio Convex specs and have, according to your own words, been capacity restricted until end of March this year.

When will we see this more capacity materializing and increased growth rate for the Ostomy area? And then my second question is on Wound & Skin Care.

It is about a year ago, you announced an ambitious investment program for the division in the States. You were going to make a geographic expansion as well as increase your innovations or your investments in innovations.

You have, however, correct me if I'm wrong, the patients said that the innovations you were looking for were more like filling the gap or having the complete portfolio of products. Is this ambitious enough?

Will you be able to follow market growth or take market shares if you don't have a superior portfolio?

Thank you, Annette. On the Ostomy Care, I actually think that we are seeing a pretty strong contribution.

It takes a little while after you launch before you get full impact. And we also have a pretty strong base to compare up against last year.

So I think that if you take the market growth of Ostomy Care and then the growth that we are heading, it's a very strong performance. So I would not feel bad about the performance that we have now.

And I also think that there's a bit more to come, but yet, I'm pretty happy with what we have. And when it comes to Wound Care, I think it's worth to mention that it is 6 percentage points that we are missing out in this quarter, simply because of 2 markets, Greece and France, due to health care reforms.

So it also means that we have a number of markets where we're actually growing very strongly. But you are right that we are coming from a situation that we do not have a lot of market share.

It's not big nominal amount we need to grow a lot and -- or the opposite and difference from what we had in base line. So as we are growing, we will need a better and better portfolio to base the growth on.

And we're also investing for this. So if I look at what we're investing in R&D today compared to what we've invested for summer 3 years ago, it's a completely different story.

But how can you say that you think the current performance is good if you adjust towards the situations in France and Greece? You were looking for growth rate, 10% to 15% a year ago.

And...

Okay, fair enough. We still like to and need to have more growth to fulfill the ambition that we're having, so that's fair enough.

But we are in a situation now where we are winning market shares again in most of the markets that we are in, in Wound Care. So do we need more?

Sure.

And I didn't feel you answered my questions on what kind of products because you have previously said that you were sort of expanding shapes and some areas are more than going in for complete, new innovations. Is this still your strategy here is to more fill in the gap rather than making leap innovations?

I think I'll have to come back to the answer that I gave before, which is that if we'll take what we are investing today in Wound Care, it's significantly more than it was before. I think that we have not ruled out that we come in with new areas like, for example, in the PEEP area which is big in the U.S.

Or also going into my [indiscernible] so it's definitely -- I don't think that we have ruled that out. So if you -- if what you say is that we would only come with small additions to what we already have, I think it's a misunderstanding.

Of course, we also have to bring other stuff to the market.

This is Christian from Nordea. A couple of questions from me both on the U.S.

First of all, you say that you're seeing double-digit organic growth in the U.S. Chronic Care business.

Can you confirm whether you're seeing organic -- double-digit organic growth in both continents in Ostomy in this quarter? That's my first question.

And then the second question is on Comfort Medical and whether you are seeing a notable contribution to your organic growth from Comfort Medical through either value upgrade of your sales through this channel or through increased share of wallet in the channel?

Could you repeat the last question, please, because there was some hiccup in the connection when you said that.

Sure. So my second question is on Comfort Medical and whether you are seeing a contribution to your organic sales growth in Continence Care from Comfort Medical, either through upgrading sales in terms of the technology that you have through this channel or through increased share of wallet in the channel.

Yes. When we are looking at the our sales out numbers in both Ostomy and Continence Care, they are double digit in the U.S.

so I can confirm this. When it comes to Comfort Medical, there's no doubt that we are seeing that Comfort Medical is contributing to our growth.

And I can also say that we are a little bit ahead of the plan that we have for Comfort Medical when we made the basis that we invested from. So I think that's very positive.

I've got 2, please. One, within Ostomy, so are you seeing increased competitive or increased competition across any major territories?

And if so, how are you responding there? And then secondly, on the reimbursement cut to Flex.

I'm surprised that the higher reimbursement level could be so easily overturned. So is this prompting any kind of change in strategy?

I mean, how do you plug it to the higher reimbursement codes and gain assurance that you can kind of remain there going forward?

Yes. I think that I'd like to say, just as a statement, that we are in an area where there is -- it's a competitive area that we're inside.

Our competitors are global, professional companies. So we are always seeing a competitive pressure no matter what markets we are in.

Has that changed significantly over the last couple of years? I don't think so.

So that is pressure on, and it's not a walk in the park to keep growing more than the market. So we have to launch new products, which we are doing all the time.

And we also have to be present in the chain vis-à-vis the customers. And we have an ambition, which is to have the best products in the market and to have the best service level in the market.

And that's what we're striving for every day. So no, I don't see a change in that.

When it comes to Flex in the U.S., we applied for the 52 code. We got into it.

We have gained a lot of customers in this simply because it is a significantly better product than the other coudé products, which are in the market. I mean, pick the products up that you see out there and try to look at them and then envision that you have to use them yourself.

I mean, it's not as painful to use what we have compared to what is in the market today. So it is a really good product and quite well supported.

But filed a complaint from a competitor on this and it was reviewed. And the class that we were in were overturned.

And I'm equally surprised that, that was possible, win an appeal process. But we keep the product in the markets.

We held up the case with all the customers that we have now, and that's basically how it is. How we respond to this depends on the outcome of the appeal process but we are going to respond to it.

Perfect. And is there any idea on timing of how long you would expect that appeal process to take?

No, we have not tried it before, to be honest, so I really don't know.

So just firstly on the VA overstatement, please. I'm just curious if, I guess, the process which uncovered this, I mean, what made the issue suddenly apparent eight years or seven or eight years after the fact and how confident, I guess, are you that was actually an isolated issue?

And then just to follow-up on the SpeediCath reimbursement code in the U.S. Could you just provide, please, a sense of the proportion of the segment of Flex relates to and what you believe, just on the appeals process what you believe the potential outcomes to be with that, please.

I'm not sure I get the last half part of your question. What is do you like us to -- would you like have the percentage of what Flex is today aftersales that we have?

Yes, correct. In the U.S.

We're not going to give, that's a little bit too detailed for us but...

I think you're misunderstanding...

You have to take note of the fact that it's not that many months ago since we launched it. So it's new to the market what we have picked up rapidly but there's a limit to how fast it grows in these markets, so it's not a proportion of the total sales of catheters in the U.S.

And the other part related to catheters, what was that?

Just on the appeals process itself. I mean, are we talking here about an expectation that we can get back on to the 660 reimbursement code?

Or is it more likely that we have some kind of one-off payment as the kind of optimal scenario, just your thinking on how that might go.

Yes. I mean, I don't know.

Really, we have appealed to get the product back into the 5 2 class. And that's really what we go for.

With regards to the VA, it was in actually, it was when we were in the contract renewal process that we took a deep dive into the current contract. And we could see that it was not, in all cases, that we have been able to come with the lowest possible price, so maybe I should go out a little bit and explain what it is.

When you have a contract with VA, you just have an obligation to offer to VA your products at the lowest price that you're offering this product to any other customer in the markets. And we have many hundred product codes and we have also a number of different price points in the market.

And there have been a process, in a way, an error in the way that this had been handled. So we have accumulated, you could say, an error, year-over-year since 2009, and that is what is now summing up to this DKK 90 million.

So we could see that something was wrong. And we -- so that's some months ago, and we actual contacted Veteran Affairs and said to them that we can see that we some errors and we are working on it.

So we had an external audit company, so altogether with us made a full review of all the contracts that we're having. And we think that this is to the tune of DKK 90 million, and this is what we have also now told Veterans Affairs.

We have been through everything in the contract. We have reported this in good faith.

And if we look at how this has been handled in other cases, we think that this is basically how it should be handled. And that's also why put the number in the contract.

The contract that we then were originally starting to review for has been renewed. So we have a new contract running with VA, so everything have sort of been worked on with VA in a straightforward and open manner.

I have three questions in relation to SpeediCath, please. Firstly, on SpeediCath patent.

I think, it's probably fair to say, in the past, you stated that the patent expiry would not have a material impact on your business. Can you then explain why you would launch litigation against MBH, OneMed, Hollister and Teleflex, just for entering a few months before the expiry of the patent.

If it doesn't matter, why even bother spending time on this? Question number two is on SpeediCath patent.

In the market of Denmark and Germany, one has been the reception of the competitive products had been launched, which you are now going for an injunction? And thirdly, the SpeediCath maximum impact from patent expiry.

Previously, you guided for a DKK 100 million as sort of a maximum headwind once the patent expires in September next month. Is that still the most relevant number that you have in mind?

Thank you. So why do you take patents?

You do that to protect your technology and to protect you business. And it's very costly to take out a patent.

And once you get them and they are meaningful, I also think that we need to defend them all the way through. It is both, I think, a good business behavior, but I also think it's a statement that we take patents seriously.

We are in a situation where some of our competitors have been infringing our patents for years. And now that the verdict sort of went our way so there's no doubt that for many years, some of our competitors have been infringing our patents.

It also means that they, in an unrightful manner, obtained a significant sales and market based on that. And we would like to be compensated for that.

And that is why we go for it right away because this is basically what this is about. It's about protecting your rights.

So whether it's big or small, whether it's not that many months or whatever it is, we go for it because that's also how you build your best possible case once you need to get this resolved because it will have to be resolved in the court. So that's basically what it is.

And I think when it comes to the -- our expectation of the impact, we have evaluated that, again, of course, and we still think it's to the tune of DKK100 million, and that's our best -- it's our best judgment.

And can you comment on what you had seen in Denmark and Germany where -- compared to the did launched products that breached your patent? Did you...

They launched them 8 years ago, some of them.

Okay. And then quickly on the 100 million of headwind?

So Mike, it's very important to understand. It's not just a few months.

It's actually years of sales activities and business creation that have been sort of wrongful and that's what we are seeking compensation for. So that's of course also why we are reacting the way that we are reacting.

And then on the 100 million of headwind to SpeediCath, when you guide for fiscal year for your next fiscal year as part of the Q4 result, should we take the 100 million as the headwind to growth in that year? Is that the right way of looking about the 100 million guidance for the SpeediCath?

It will be part of the guidance for next year and it will be very specific as part of the guidance.

Carsten Madsen, SEB. Just a follow-up question to Christian Ryom's question on the double-digit sales growth for Ostomy and Continence in the U.S.

market. Lars, you mentioned that phaseout is double-digit positive for both segments.

And I'm asking just because when I read your report, you actually are not mentioning U.S. on the Ostomy Care.

So should I understand your answer in a way that is still a rather big difference between phase out and what you actually report in organic growth for the quarter? Or did I misunderstand something?

Yes. So I understand that you can always take small particles and divide them one more time.

But I think that what you should take note of when it comes to Ostomy is that we have had a significant number of good wins. And also the biggest home health win that we had, one of the biggest ones that exist in the U.S.

So we have a very, very strong performance there in the U.S. So that's far as I would go at this point in time.

Okay. And then maybe to Anders, on the soft of margin development.

You have a really strong, quarter in underlying terms and -- but even when adjusting for the 90 million and FX, etcetera, there's still very little margin development. We're actually seeing that -- it seems like it's sort of items below the gross margin, maybe distribution costs are impacting the EBIT margin negatively compared to the impact you are seeing on the gross margin.

So any comments you have -- are you still guiding quite optimistic for long-term margin development?

Yes. So overall, our underlying EBIT margin is developing as we expect.

So if we exclude the Veterans Affairs, our EBIT margin is actually -- or EBIT is actually increasing by 9% year-to-date. And for the full year, we are expecting to deliver within our guidance of 33% to 34%.

And I expect also a strong fourth quarter due to a high nominal revenue, but also I expect that our gross margin will also improve in the fourth quarter. And then we will continue to have a tight cost control also in the last quarter.

And that combined, I expect that will deliver within the guidance, also including the Veterans Affairs and DKK90 million amount. So that is my expectation for the remaining part of the year.

In terms of your question around the cap costs or our distribution costs, we have increased our R&D this year 15%. And that is in alignment with our strategies that we announced last year that we are willing to increase our activity levels within R&D, and that's also what we have done.

We have been, in the admin, we have included costs related to the Comfort Medical acquisition that we made earlier this year. And we are also -- have included costs related to the patent litigation cases that Lars talked about earlier.

But the underlying EBIT before FX we are very satisfied with.

I have a 3, please. The first one is on the 2-day reimbursement issue.

I just want to understand that you obviously have a pretty strong position in that market already with some of the historical products that you've been selling. If you are not able to get back to the 660 for the SpeediCath Flex, are you going to pull that product from the market and just resort back to selling your older portfolio?

And I guess, I mean, just walk us through how you're thinking? What will you do if you do not get back to the 660 reimbursement rate?

That, I think, would be very helpful. My second question is just to push you a little bit on the SpeediCath patent, DKK100 million impact in next year.

I think what you said previously is it's about 10% to 15% of sales that you would see exposed. I mean, DKK100 million would imply very minimal decline in those revenues, so can you maybe give us a little bit more color on as to what still gives you confidence in that DKK100 million?

And then my last is just a financial one. Anders, I don't know if you have any guidance for the net financial impact for this year given the hedging costs?

All right. Our liquidity side as -- we have actually, in a short while, obtained many customers on Flex in the U.S.

so we will keep the product in the market no matter what. Well, we then think about our position when it comes to how we position ourselves against the coudé and whether we can do more to get into that category.

Yes, of course, we will do that. But I mean, you being the market leader, having presented something to the market which is significantly over and above the experience that you can have with the current price in the category, of course, we go for it.

So we don't pull the plug on the products no matter what. On SpeediCath, the assumption's that they are behind our -- the scenario that we've built is that in the vast majority of the markets where we play, people are using, first and foremost, a lot of the compact catheters which are not impacted by this.

And secondly, a lot of the -- or most of the markets that we are in are handled by prescriptions. So if you pick up a prescription and you use that to get your products from, most of the companies that are distributing these kind of products, we'll see same reimbursement code and thereby, no matter if it's a new product or an old product, they will be reimbursed the same.

And they don't have a power to convert patients. So where we see the risk is in markets where you have a deal structure, where you have a tariff business set up, whereas some dealers can get products that are similar to the current SpeediCath straight for a lower price, and thereby, have a higher margin.

And of course, they will see what they can do to push it. This have, however, already happened in quite some markets because there are many products that are very, very close to this SpeediCath straight product where you just have to push the product to break and then pull and so on and so forth.

So a lot of the conversion have happened and we have seen that play out for some years. And that is why we, I believe, that we've been in town at a smaller number.

Our limited impact but that's, I have to say, that is our judgment. It's not specific science.

It's with all the insights that we have in the markets, market by market, where we're looking at how much have we already -- competitor pricing and so on. So that's of course, part of it.

And we keep the innovation going so that's -- part of it is that we have all of the compact products. We have just launched the Flex product, which is a significant upgrade to, first in the eyes of some people.

So in essence, I can't give you a very precise number. I'm not smarter even we're a year into this, but this is what we are basing it on.

And Veronica, in terms of the net financials. So based on the current exchange rates, I'm estimating a net financials for the full year of minus DKK75 million.

That's helpful. And Anders, can I just ask, I know you've not guided for '18, but if currency rates hold from here, is it fair to assume that you'll have another hit to margin next year from FX?

Or have I miscalculated something?

So in terms of the net financials for next year?

No. I'm asking more about EBIT margin impact from currencies for next year.

And I appreciate if you're not prepared to comment on it at this stage. I just, directionally, it seems to me that you should still have a pretty comparable headwind actually next year to profitably from currency as you're having this year.

Yes, but I'm not going to comment on our guidance for '17/'18. But the guidance that we are going to based it on, that is, the reported EBIT margin that we have guided for this year.

And we expect that the EBIT margin for this year, including the FX, is going to be around 32%. So that will be the basis for next year's EBIT margin guidance.

I have two, if I may. The first is on Urology, looking at the segmental margin case you've done pretty well year-on-year, I'm just wondering, is that a function of just the operating leverage from the strong growth.

Or have you seen any change in the underlying pricing dynamics, obviously, given competitive landscape there has changed a fair bit? The second one is similarly on the Continence Care and Ostomy combined division, the Chronic Care.

The margin structure there, even if I add back the VA seems a little bit light in Q3, is that purely a function of launch costs and really just driving SenSura Mio Convex, it'd be helpful to understand that.

So in terms of the second question around the margin for Q3, it also decides the increased cost related to the patent litigation that I spoke about earlier. We also are continuing our investment program, not only into R&D as I talked about but also into commercial investments across our business especially into the U.S.

but also into Wound Care. And so that's one of the other reasons as well.

The first question, can you just repeat that? That was related to Urology Care?

Yes. Similarly, for Urology Care, basically, the margin structure there looks like it's up quite a bit year-on-year.

Is that a function of pricing dynamics from the competitor's exit? Or is that operating leverage?

So it's a combination of leverage. So we have been growing quite decent around double digits for quite some time.

So we are seeing quite a big leverage effect. That's one element.

And we're also seeing an impact from mix in terms of our product portfolio. So the combination of that is the main reasons for an improvement in our Urology Care margins.

I think I only have one left, which is also on the margin. Because year-round, I'm not being able to fully understand what was the impact on currency -- sorry, of currency on the margins.

So could you tell us what that was, or if it was negative or positive, I can't really understand.

So for the year-to-date, our currency, or the currency impact is 0.3 on our EBIT margin. So that's the impact so far.

And for the full year, we are seeing a currency impact, so the fixed currency EBIT margin guidance, as I mentioned earlier, 33% to 34% and in our reported EBIT margin guidance, including the VA amount, our reported EBIT margin guidance is around 32%.

And so just on the guidance for the year, the 33% to 34%, surely, that was also impacted by this one-off. So that has absolutely no impact in your guidance at constant rates or would there be any comment that you will do?

So in the fixed currency, EBIT margin guidance for the year of 33% to 34%, we have also included the one-off related to Veterans Affairs.

But you don't want to specify what that does to the 33% to 34% range?

No. So it's impacting the DKK 90 million but we are going to be in the lower end, as I talked to in the beginning of the meeting.

Okay. And sorry, can you just confirm the impact on the EBIT margin from FX in the quarter, please?

So as I said earlier for year-to-date, the negative impact from currency is 0.3 and in the Q3, the impact from currency is 0.2.

I have a few, please. So firstly, some pushes and pulls with respect to contract wins.

It sounds like some good news in U.S. Ostomy Home Care, but some more negative news in Wound Care contracts.

So I wonder, Lars, would you be kind enough to talk a little bit more about those and perhaps discussing those contracts that you've lost, and that target that you have gained, please. Also, just with respect to Flex, obviously, that's a disappointing crossing development given the significant R&D investment and all the costs and everything else that have been described.

Just to understand your comments or refine your comments further, Lars. Is it an anticipation that you'll continue to launch 6 products at full steam even if it's a less profitable product?

Is it likely to be a less profitable product for Coloplast than the previous generation? Do you see any mitigating factors to improve profitability from that product?

So that's the first and I have a follow-up, please.

Yes. It's a -- it's of course nice when you can be -- when I can be very specific on what kind of contracts that we have won and so on.

So the -- now I mentioned it, a big win on Ostomy Care and we will report later on who it is, but we are going to that in a joint press release with the hospital team or the home health team. And it's -- they just preferred to be the first ones to inform the members before we go out with it here.

So we just mentioned it because it is a significant win to us and it is. It is a fact that when you would talk about Skin Care, it is a contract-driven business.

So you win some hospitals, you lose some. You always have this, you could say, contracts that are expiring and contracts that are either won or where we're just starting up the service, the organization that was buying it from us.

And what we're just saying here is that is, at this point in time, slightly negative, so that's what we are talking about, but it can be completely different in 6 months from now. And therefore, it's not like we had a lot that were falling away, and then we have nothing to fill the void.

So it's not that kind of situation that we are talking about, it's more sharing a little bit more about how the nature is of these businesses. It's much more pronounced when we talk about Ostomy Care and Continence Care and so on because an ostomy care and continence care, you're basically in a hospital to get the [Indiscernible] community afterwards.

But Skin Care is a hospital business solely and that means that when you are in an institution that's why you are selling, but you don't sell to people and then leaving the institution. So therefore, we must more rely on the contracts that we're winning.

So I hope that puts some light on what it is and the differences when you're talking about contracts in Chronic Care and contracts in Skin Care. With regards to Flex...

[indiscernible] for the profitability of Flex and even [indiscernible] lower margin?

Yes. We are in an appeals process with Flex.

And I sort of made it very clear earlier in the call, that we are committed to stay no matter what the outcome is of the appeals process. And I fully understand that puts the company in a bit of worse negotiation position because there are many people who are already using the product.

But we are committed to lead the market, we cannot have a discussion about whether we have a product in the market or not. So the product is in the market to stay, and people who are prescribing the product and people who are using the products, they can continue to buy it and feel confident that they will also be served with this product in a year.

That's why we talk to it like we do here. The product is currently, of course, not as profitable as the other products.

It's also more complex product, and that is why we need to look at how we can work with it, but it's not a unprofitable product. So it's not just as profitable as the other ones.

And as I said, as -- depending on what they'll come after the appeal processes, we think that we belong also in the 5 2 category with a modern product and then we have to look at what does -- didn't say to qualify for it. And we are definitely go into follow a different process to make sure that we are not experiencing a similar situation once we might be there.

I hope that makes it clear.

And just one last question, please, Lars. And this really reflects back to the last capital markets and they update, I think, a day before the Brexit, right?

Since that time, obviously, the Wound Care business has not been progressing quite at expectation. You also made the acquisition of Comfort Medical, which, if you like, is an exciting growth opportunity but somewhat subscale.

I just wonder whether there is -- or whether you can share any thoughts as to these activities and market development since your last, triggers the requirement for more investments, to realize the full potential of the company, by from a top line, and from a market share position. I just wonder whether it's come to a point where -- are you willing to compromise margin a little bit to get growth back to where you seeing acceptable.

I think it's an excellent question. I think we have prepared some extremely good answers for it, and it's very much what we are going to debate when we have the Capital Markets Day in a couple of days.

So I'd rather sort of postpone the discussion on these topics until that because there we will have not just me and Anders, we'll talk about it. But we will have much more people to discuss this.

And we think we have some very good answers to this. We also think that we have some pretty exciting stuff going on that we like to take a deeper dive on when we meet Friday.

So I'd like to postpone the answers to that because you're right, it's all about what the quality of your offerings to the market both on the product side but also on a service side. And we are very well aware of that.

Understood. This [indiscernible] new financial targets -- well, we shouldn't discount those come Friday?

With -- so just to be 100% clear, the Capital Market Day is about what actions that we are going to do in the coming years, to deliver on the promises that we have in the markets. And also say there's new set of targets that will then have a different set of activities for -- it's a set of activities to deliver on the market, on what we have already promised.

Martin Parkhøi, Danske Bank. Actually, going back to the impact from the SpeediCath patent expiry as Michael asked about earlier.

I just wanted to confirm, again, because previously, you stated that even with the 100 million decline in sales from the SpeediCath patent expiry, then you will still be able to deliver on your long-term targets of 7% to 9%. But since you are, to be honest, in the very bottom of that level so do you still feel confident that you have a buffer to still deliver on your long-term targets despite this patent expiry?

And then second question, just to specifically on Q4, and the pick up you expect in the fourth quarter implied by your full year guidance, is that driven by improved performance? Or is it driven by easier comps from Q4 last year?

So when it comes to the 7% to 9% growth expectation and the patent expiry, then the answer to your question is yes, we expect to be able to deliver on our long-term guidance also with the patent expiry. So just to be very clear on that.

And then for the last quarter, then we need at least 8% growth in Q4. And the growth will come from stable growth rates in Europe.

It will come from high single-digit growth rates in other developed markets. And by the way, we have somewhat of a strong baseline that we have against in Q4 in U.S.

chronic. And then it will come from an acceleration in growth in the middle markets, and that is sort of funded in the double-digit growth in China.

And the strong momentum that we can see in the couple of -- two in three markets, including Argentina and Brazil. So that's basically the underlying assumptions and expectations for Q4.

Okay, because as I recall it, there was also one-off impact in Q4 last year in U.S. Ostomy franchise where you had and back or of 30 million in your Ostomy.

So I guess that will serve as an easy comparison?

You have...

Now that is also correct.

That's also the case.

My first one's a more general question on SpeediCath Flex. So you specifically mentioned positive contribution to growth.

So could you just give us any indication from your recent experience whether the SpeediCath Flex users are mainly generated from your existing patient base? Or is it also a good opportunity to get new patients onboard?

My second question is on Urology Care. So you continue to show performance, which is above historic average so Ostomy Care in H1.

So despite if you name some positive impacts of some product, could you also explain the overall dynamic, whether you see is an effect in general, in average a higher demand for the product apart from Altis slings or the Titan implant? And my final question just on this general slowdown in Wound Care, you specifically mentioned the Netherlands and France, but could you give us also some color about the general volume growth?

Is it still at a similar rate and one that you grow? Or do you see also there some slowdown effect?

SpeediCath Flex, it's a -- I don't have with me here an effect split of how many comes from new patients and how many are changeovers. But if I just take what I hear about it, it's more new than it is existing that is changing all because it's a very different technology to use than when you use the kind of technology that we already have in the market.

So in that sense, it is. I think it's fair to say that it's more new than it is existing conversion of patients.

And that's also how we launch it. We are very much aware that this is a product with a new technology and therefore, we use largely our databases to reach out to people, who today are using either similar technologies and -- or who have shown an interest in that early on in the conversations with us.

And then of course, we also have the injunction going on in markets where there is the [indiscernible] have been used beforehand so that's, of course, what's also product -- new customers to us. With regards to Wound Care, it is especially Greece and France where we have health care price reforms, not health care reforms but price reforms, and they are impacting very much as I mentioned a couple of times.

It's 6 percentage points growth, negative you could say, that we would have had if we had not those impacts. So that implies that our growth in the UK is not as strong as it was last year but it still about the market growth.

However, our growth in China is significantly stronger than it was a year ago. So I think that overall, outside of these two markets that are very hard hit, we have quite acceptable, actually, pretty good performance.

When it comes to Urology Care, I think I missed out on what the question was.

Just you may support this general very good growth which you presented over last quarters and you specifically named that growth as related to the Altis slings or also the Titan penile implant, but could you also give more a deeper view into your portfolio whether growth was mainly driven by these two product groups or whether it was more for the whole portfolio that you see some acceleration of growth?

It is primarily those two product groups that are driving it. So -- and that always show where we are primarily investing and of course, especially in getting, like I say, a reasonable share of the female pelvic health area because that's what have been up for, for perhaps you could say after one of competitors were leaving.

That is also what is impacting our profitability because get much more scale on our business with what we're doing now. So sales per rep is so significant and that's what you see on the bottom line.

I think we already had the last question. We are over time.

Lars, I'd like to come back to the reimbursement issue that we're seeing and you've been very open about the profitability of the product and also demand?

The reimbursement -- is that on what product?

The SpeediCath. Yes, on the coudé, sorry, in the U.S.

The Flex, okay.

Yes, sorry. What I'm trying to understand is how important was the product with regards to the growth that you were hoping to achieve in the U.S.?

Or in other words, as long as we're at the 180, shall we think about your long-term growth, a guidance of 7% to 9% remaining more at the bottom of that range? It would be very helpful if apart from the profitability, you could also help us -- or help us how to think about growth?

So Flex is a very good product. It's not a product that I may be proved wrong, which is I don't expect it to be high volume product like the compact products are and like the straight products are because they are, you could say, giving a stronger security to people who are using it because if you have this fear of you and tracking face and you feel more safe when you use it, but it's also significantly different use and it takes more time to use than a normal product.

Now [Indiscernible] products. So in essence, it's not being a basis for 7% to 9% guidance at all.

And it is, as I said, not as profitable, of course, in the new categories that was in the other one but are we able to explain our EBIT margin the way that we expected also with this category, yes, we are. So in that sense, it's not a product that has same kind of growth expectations as the SpeediCath Convex or some of the other sort of high-volume products that we are talking about.

That's never been in the plans that we have. If it turns out to be great, but that's not in the plans.

All right. I think that concludes our conference call for today.

Thank you very much for your questions and we are looking very much forward to see many of you on Friday in London. So thank you for now.