“We had a good sales performance in the acquired urology business”, says Sten
Scheibye, President and CEO. “It shows, that our extensive integration efforts
are beginning to pay off. Ostomy products also continued the strong sales
performance, and thanks to our strong performance in the third quarter, we are
raising our full-year revenue forecast.”
Coloplast generated revenue of DKK 5,982m compared with DKK 4,776m for the same
period of last year, corresponding to an increase of 27% in local currencies
and 25% in Danish kroner. The breast care and brachytherapy businesses are
reported under ‘Profit from discontinuing operations', and historical figures
have been restated accordingly
Organic sales growth was 10% in local currencies. The acquired urology business
contributed 17% until 2 June 2007, after which date revenue from the urology
business was included in organic growth. Exchange rate changes reduced growth
in Danish kroner by 2 percentage points
Operating profit was DKK 786m, which translates into an EBIT margin of 13%.
Economic profit was DKK 270m compared with DKK 331m for the same period of last
year
Expressed less costs of integrating the acquired urology business and
amortisation of intangibles from that acquisition totalling DKK 219m, operating
profit was DKK 1,005m, equal to an EBIT margin of 17%, supported by the greater
cost effectiveness of the relocated parts of our production
The full-year 2006/07 forecast for organic revenue growth is raised from around
9% to around 10%, including the acquired urology business as from 2 June 2007.
The EBIT margin forecast remains at 12-13%. Long-term targets are unchanged
At 30 June 2007, Coloplast had bought back shares for DKK 372m under the DKK
1bn share buy-back programme, which will now be fully utilised during the
current financial year
Income statement and balance sheet
The divestment of the breast care business was completed on 31 March 2007 and
the divestment of the brachytherapy business was finalised on 8 June 2007. In
addition, we have received final settlement of the divestment of Sterling
Medical Services. Profit from the three businesses during the period of
ownership are recognised in the financial statements as net profit from
discontinued operations of DKK 483m. The comparative figures of the income
statement have been restated accordingly.
Comments on the company's income statement relate to the continuing operations
only.
The calculation of organic growth includes the increase from the acquired
urology business as from 2 June 2007, because the acquisition of the urology
business was finalised on 2 June 2006.
Revenue
Coloplast reported 9M revenue of DKK 5,982m, compared with DKK 4,776m in the
year-earlier period, a 27% improvement in local currencies and a 25%
improvement in Danish kroner. A main driver of revenue was the acquisition of
the urology business, which added 17 percentage points growth in local
currencies.
Organic growth was 10% in local currencies in both the 9M period and the third
quarter, which was satisfactory. The existing Coloplast business also grew by
10% in the 9M reporting period.
The positive performance in ostomy products as well as in the urology and
continence businesses continued with double-digit growth rates, whereas sales
of wound and skin care products improved by only 6% during the 9M period.
EBIT margin
Operating profit was DKK 786m corresponding to an EBIT margin of 13% against
16% the year before. The decline was due to effects from acquisitions totalling
DKK 219m. Adjusted for this factor, the operating profit of the underlying
business was DKK 1,005m and the EBIT margin was 17%.
Implementation of the new organisational structure and preparations for closing
down factories in Denmark led to costs totalling DKK 59m, which amount is
included in the DKK 90m restructuring provisions made for the 2006/07 financial
year.
Cost of sales rose by 33% during the reporting period to DKK 2,421m. This
amount included amortisation of intangible assets of the acquired urology
business of DKK 96m as well as integration costs of DKK 25m and restructuring
costs of DKK 20m. Adjusted for these factors and for the relatively higher cost
of sales for the urology products, cost of sales was up by 23% whereas revenue
was up by 25%. The good performance was aided by the greater cost effectiveness
of the relocated parts of our production.
Selling and distribution costs were up by 30% to DKK 1,906m, including DKK 76m
in integration costs. Adjusted for these items, the increase was 25%.
Administrative expenses rose by 29% to DKK 699m including DKK 22m for
relocation in the USA and DKK 39m in restructuring costs. Adjusted for these
items, the increase was 18%. R&D costs were up by 33% to DKK 218m.
Financial results
Coloplast's share of 9M profit was DKK 513m before profit from discontinued
operations. This was a 23% increase over last year's figure of DKK 417m. Profit
from discontinued operations during the 9M reporting period was DKK 483m,
bringing Coloplast's share of 9M profit to DKK 996m.
Financial items, which include interest, exchange rate and fair value
adjustments as well as bank charges amounted to a net expense of DKK 97m, as
compared with DKK 162m last year. Exchange rate adjustments were an income of
DKK 25m against an expense of DKK 36m last year. Fair value adjustments of
previously granted options were an income of DKK 2m against an expense of DKK
49m last year.
Changes in the DKK-exchange rates of Coloplast's invoicing currencies, mainly
against the US Dollar, reduced net revenue by DKK 67m. This was offset in
earnings by the lower costs in USD-terms, which also absorbed the higher cost
of sales caused by the appreciation of the Hungarian Florint. Accordingly,
exchange rate changes had a largely neutral net effect on EBIT.
The effective tax rate was 26%, equal to a tax expense of DKK 176m, compared
with 30% (DKK 176m) last year. The reduction of the Danish corporate income tax
rate from 28% to 25% lowered the effective tax rate by about two percentage
points. To this should be added the effect of a further 2 percentage point
reduction from a one-off adjustment of deferred tax provisions, which is also a
result of the amended Danish tax rules.
Balance sheet
Total assets fell by DKK 89m to DKK 7,893m as a result of the divestment of the
breast care business unit. Non-current assets fell by DKK 280m to DKK 4,838m,
while current assets rose by DKK 191m to DKK 3,055m, because of the higher
inventory levels needed to secure our supply capacity while production is being
relocated from Denmark.
The equity ratio was 42%. Trade receivables rose by DKK 59m in the 9M period,
equal to a 4% increase which was lower than the sales growth rate.
Economic profit
Economic profit was DKK 270m, as compared with DKK 331m last year. The decline
was attributable to integration costs and an increase in average invested
capital due to acquisitions. Economic profit was lifted by one-off income after
tax of DKK 88m from the divestment of business areas.
The one-off income of DKK 88m is after deduction of goodwill of DKK 395m, which
has previously been charged against equity but is included in the invested
capital, used in the calculation of economic profit. The calculation of EP is
based on a weighted average cost of capital (WACC) of 6.9% and an average
invested capital of DKK 7.9bn.
Cash flow statement
Cash flows
The free cash flow was DKK 887m. Net of DKK 783m relating to the acquisition
and divestment of business operations, the free cash flow was DKK 104m,
compared with DKK 443m last year.
The relocation of production to Hungary and China is progressing to plan.
Inventory levels have been temporarily increased due to the accelerated pace of
relocation and the closure of factories in Denmark.
Cash flows from operations were DKK 513m and dividend payments to shareholders
in respect of the 2005/06 financial year amounted to DKK 184m Total cash and
cash equivalents were minus DKK 15 million at 30 June 2007.
Investments in property, plant and equipment during the reporting period
amounted to DKK 438m, of which DKK 366m represented investment in non-current
assets under construction, mainly for the plants in Nyirbator, Hungary, and
Zhuhai, China, as well as for production equipment for manufacturing new
products.
The factory at Kokkedal, Denmark has been sold effective 1 January 2009 at a
capital gain of DKK 40m, which amount will be recognised in the first quarter
of the 2008/09 financial year.
Capital structure and share buy-back programme
The net debt was 1.7 times EBITDA at 30 June 2007, or below the 2.0-3.5 target
range. Coloplast has initiated a share buy-back programme involving the
purchase of Coloplast shares for DKK 1bn. As per 30 June 2007, we had bought
back shares under the programme worth DKK 372m.
Due to the share buy-back programme, the holding of treasury shares increased
by 808,190 during the reporting period to 2,698,989 shares, equal to 6.1% of
the Class B share capital.
As a consequence of a strong cash flow following the divestiture of the breast
care business unit and the brachytherapy activities it has been decided to
accelerate the completion of the share buy-back programme to the end of the
financial year 2006/07 and not as previously announced during 2008.
The Board of Directors intends to propose to the shareholders in general
meeting that shares bought back under the new programme be cancelled. The share
buy-back programme was launched within the scope of the existing authority
granted by the shareholders in general meeting for the repurchase of up to 10%
of the company's share capital.
Outlook and long-term objectives
Outlook for 2006/07
The forecast for revenue growth is now at around 22-23% in local currencies, up
from the previous forecast of around 22%.
The forecast for organic growth is upgraded from around 9% to around 10%,
including growth in the urology business as from 2 June 2007. The upgrade is
based on the consistently positive performance in sales of urology and
continence products and in ostomy products.
The EBIT margin is still expected to be 12-13%. The integration of the urology
business, restructuring initiatives and amortisation of intangible assets from
business acquired are still expected to reduce operating profit by
approximately DKK 360m and to affect the EBIT margin by some 4-5 percentage
points.
The EBITDA margin is still expected to be 18-19%.
We still anticipate synergies of DKK 75-100m per year after the full
integration of the acquired urology business and integration costs totalling
approximately DKK 230m.
For 2006/07 gross investments in property, plant and equipment (buildings,
machinery and operating equipment) are expected to amount to approximately DKK
600m. Investments in the new factories in China and Hungary are expected to
account for approximately DKK 200m.
The effective tax rate is expected to be about 26% instead of 30% as previously
estimated. This includes the permanent effect of around two percentage points
resulting from the reduction of the Danish corporate income tax rate from 28%
to 25%. To this should be added the effect in the 2006/07 financial year of a
further 2 percentage point reduction from a one-off adjustment of deferred tax
provisions, which is also a result of the amended Danish tax rules.
Healthcare reforms
A new set of lower nationwide reimbursement rates implemented for continence
care products in the German market took effect on 1 January 2007. The change
has lowered the reimbursement rates for our continence care products by an
average of about 10% compared with prices before 1 January 2007. We maintain
our estimate that the new prices will reduce Coloplast's 2006/07 revenue by DKK
20-25m. Our financial guidance allows for this reduction.
Germany introduced additional amendments to its healthcare regulations
effective 1 April 2007. The main change to previous practise is that German
sick funds are now in a better position to apply competitive tendering when
selecting providers of medical devices.
As the amended legislation is still being implemented, the changes are not
expected to impact our business results in the current financial year. Any
possible future impact will depend on the extent to which the German sick funds
apply competitive tendering rather than the existing fixed price system and on
our ability to act under the changed market conditions.
Coloplast is strengthening the German organisation with the aim to increase the
cooperation with the sick funds as well as with the service providers supplying
the sick funds. The good relationships with the health care professionals will
continue.
The British Department of Health has announced that the current review of the
arrangements under Part IX of the Drug Tariff for the provision of stoma and
incontinence appliances and related services to Primary Care is expected to
lead to a new consultation process with a revised proposal in September 2007.
The last round of consultations closed on 2 April 2007 and due to the high
level of responses, the Department of Health decided to review the original
proposal.
A consultation process lasts 1½ - 3 months and Coloplast therefore does not
expect any changes before 2008, which is in line with our latest update on the
British health care reform in stock exchange no. 8/2007, 23 May 2007.
As our forecasts for 2006/07 do not reflect any potential amendments to the UK
healthcare system, the extension announcement had no effect on our full-year
estimates.
Long-term targets
The business targets for 2012 are unchanged:
To double economic profit at least every five years towards 2012 based on the
financial results in 2004/05 Revenue of at least DKK 14bn
An EBIT margin of at least 18%
Major fluctuations in the DKK-exchange rates of important currencies,
significant changes in the healthcare sector or major changes in the global
economy may impact Coloplast's potential for achieving the long-term targets
and for meeting the full-year forecasts. In addition, such fluctuations may
also impact the company's accounting values.
Business Areas
The Group's results are reported as a single entity. However, details are also
provided on revenue and growth rates in local currencies for the quarterly
reporting period for Coloplast's products in each of the three business areas
as well as the category “Other”, which comprises revenue generated by the Group
from selling competitor products and from bonuses, discounts, etc.
Ostomy care
Gross revenue generated by Coloplast's ostomy care products was DKK 2,303m
compared with DKK 2,114m during the year-earlier period. This equalled 10%
growth in local currencies and was in line with expectations. The Q3 growth
rate was 12%, which was satisfactory.
Easiflex ostomy products were again major contributors to sales growth, and
sales of Assura ostomy bags were also satisfactory, especially open bags with
the Hide-away outlet. SenSura has now been launched on 17 markets, with the USA
and Canada as the most recent additions, and sales of this product continue to
outperform expectations. SenSura is launched in all major markets by the end of
the financial year.
Healthy revenue growth was reported in the USA and in most European markets,
including France and the UK. In Germany, Coloplast's homecare company HSC
reported sales growth and the company continued to strengthen its position in
the distribution market by expanding its portfolio of products and services.
Urology and continence care
Gross revenue from Coloplast's urology and continence care products increased
by 63% measured in local currencies to DKK 2,376m, 52 percentage points being
generated by acquired business. Organic growth for the 9M reporting period was
11% in local currencies, while the Q3 organic growth including the urology
business as from 2 June 2007 in local currencies was 12%.
The most significant growth drivers were sales of catheters and urine bags.
These two product areas account for half of the sales generated in this
business area.
Sales in the acquired business performed well in the third quarter, and the
2006/07 forecasts include an increase in overall sales from business acquired
relative to the 2005/06 financial year.
Sales grew in line with the market in June 2007, the first month in which
Coloplast also controlled the activities in the year-earlier period. In the
North American market, growth was especially driven by sales of continence
products and implants.
The integration of the urology business is progressing to plan, and the current
key initiatives involve the planned strengthening of sales growth.
Wound and Skin Care
Gross revenue from Coloplast's wound and skin care products increased by 6%
measured in local currencies to DKK 939m, up from DKK 905m in 9M 2005/06. Q3
revenue growth however was only 4% in local currencies.
Revenue growth was driven by sales of Coloplast's advanced Biatain foam
dressings as well as sales of skin care products, but the sales growth was not
satisfactory.
Sales of Biatain - Ibu were still short of expectations. The product has been
well received by customers, but building a new market for an entirely new and
innovative wound care product has proven more challenging than expected.
The growth of this business area has prompted a new strategy involving a
special effort towards selected customer groups in prioritised markets. We
estimate that the new strategy will restore double-digit growth rates within
12-24 months.
Geographical markets
Revenue generated in Europe improved by 18% in local currencies to DKK 4,777m.
Organic growth was 9%, driven by sales of ostomy and continence products.
In the Americas, revenue improved by 111% in local currencies to DKK 831m.
Organic growth was 16%. Sales of ostomy products in the USA improved at a
satisfactory rate, while sales of urology and continence products to the US
market also produced a healthy growth rate.
Revenue generated in the rest of the world was DKK 374m, a 21% increase in
local currencies. The organic growth rate was 16%.
Management statement
The Board of Directors and the Executive Management have considered and
approved the interim financial statements of Coloplast A/S for the nine months
to 30 June 2007.
The financial statements, which are unaudited, have been prepared in accordance
with the requirements of the International Financial Reporting Standards and
additional Danish disclosure requirements for the interim financial statements
of listed companies.
We believe that the financial statements give a true and fair view of the
Group's assets and liabilities, financial position and profit for the period
under review.
Executive Management
Sten Scheibye
President, CEO
Lene Skole
Executive Vice President, CFO
Lars Rasmussen
Executive Vice President, COO
Board of Directors
Michael Pram Rsmussen
Chairman
Niels Peter Louis-Hansen
Deputy Chairman
Thomas Barfod
Håkan Björklund
Mads Boritz Grøn
Per Magid
Torsten Erik Rasmussen
Ingrid Wiik
Knud Øllgaard
Further information
Investors and analysts
Lene Skole
Executive Vice President, CFO
Tel. +45 4911 1665
E-mail: dklsk@coloplast.com
Jørgen Fischer Ravn
Head of Investor Relations
Tel. +45 3085 1308
E-mail: dkjfr@coloplast.com
Press and the media
Jens Tovborg Jensen
Head of Media Relations
Tel. +45 3085 1922
E-mail: dkjto@coloplast.com
This announcement is available in a Danish and an English-language version. In
the event of any discrepancies, the Danish version shall prevail.
