The last two years Coloplast have witnessed some serious in-house cleaning, but now comes the time to look forward and set new goals.

Internally, the executive agenda and mindset have shifted from focusing on turning the business around to growth.

By Vibe Hyltoft

When Coloplast's President and CEO, Lars Rasmussen, posed for a Berlingske photographer almost one year ago, it almost appeared in the photo that he was capable of walking on water. Only a single stepping stone beneath one of his feet gave the illusion of the CEO's abilities.

Since then the medical technology company's quarterly results have been so good that Lars Rasmussen indeed can, in the eyes of those around him, walk on water. Coloplast's goal to reach a profit ratio of at least 20% and an annual top-line growth rate higher than the average market growth has basically been achieved. Several years ahead of time.

This is not what a sceptical outside world had believed when the financial goals were presented, but confidence in Lars Rasmussen is now sky-high. The company share price has risen by more than 60% over the last year. However, this does not absolve Rasmussen from a steady barrage of pressing and unavoidable questions from share analysts and journalists: Isn't it time for you to set some new long-term financial goals for Coloplast?

Yes, Rasmussen believes that the time is nearly there:
 
"We need some new goals. Without a doubt. We could almost be tempted to set new goals before the end of the financial year (which closes at the end of September, ed.), but up until now we've been saying that we'd like to have a fully reported year before going out and making new promises to the market."

The temptation to set new goals is big, but Rasmussen refuses to allow himself to get caught up by the company's current success.

"There weren't very many people who believed in our goals at first, and we ourselves didn't believe that we would achieve them so quickly; so it would be really nice to put the final full stop and exclamation point in place before setting new goals", says Rasmussen.

Could that be in November, when you release your final annual accounts?

"Yes, that can't be ruled out.

We said that we wanted to reach a profit ratio of 19-20%, and we will have to reach 20% before it's all said and done", comments Rasmussen, who has reported a 20% profit ratio for the last two quarters.

Broad growth goals
Rasmussen may be keeping the new goals to himself, but turnover growth will certainly become an area of focus, as it is the top-line and not the chopping block that shall deliver future earnings growth.

Rasmussen will, however, go so far to say that top-line growth goals will hardly be more aggressive than they are today.

"Let's think about it hypothetically. If the market grows 5-6%, and we say that we will always grow faster than the market despite the fact that we are market leaders, then 6% growth is greater than the market rate; but then again, so is 12%. There may certainly be years when it makes sense to do things that don't bring about much top-line growth, but which set up the company in a new way", explains Rasmussen, who adds that the company's investors are quite satisfied with Coloplast's broad goals of outpacing the market in growth.

By the close of 2010 Coloplast will finish moving its production activities to China and Hungary. A move which has cost 400-500 jobs. There exists, however, the likelihood that Coloplast will once again start hiring, as the company is undergoing sustained growth.

"We're close to being a company that is hiring, and it feels completely different to be that kind of company", says Rasmussen.

Mentally, he has put the role of clean-up man behind him, and the guiding principle in the company's daily operations is now different.

"We have an agenda which we use to run the company, and we've changed the order of its main headlines. Whereas, before, the order was profitability, growth and processes, today the first headline is growth, then profitability and, finally, one company. We've implemented the changes internally, and it's quite a change shifting from profitability and that way of living, to growth", reflects Rasmussen.

Coloplast ready for acquisitions
Organic growth, yes. Growth through acquisitions, yes - but just not right now.

That has been the answer for some time now from Coloplast's chief executive, Lars Rasmussen, when conversations turn to potential sources of future growth. Today, however, the company has come so far in its clean-up operations in order to achieve profitable growth, that we're now hearing a new tone from the CEO. Coloplast will soon be ready to make acquisitions.

"We're earning more money than ever before, and we have a very good cash flow, which means that we're in a completely different situation when it comes to making acquisitions. Our appetite for acquisitions has grown significantly, because we now have a better handle on the business as well as the money needed, and now we'd like to act", says Rasmussen.

It's been four years since Coloplast was last in the market to buy, when the company purchased American-based Mentor's urology division for just below DKK 3 billion. Coloplast can easily make a similar-sized acquisition, as the company has DKK 5-6 billion to play with - without having to ask shareholders for assistance.

Interest in wound care
Coloplast is so large a company in the area of ostomy care that an acquisition would not be approved by the competition authorities; and in the area of continence care, there is nothing available for immediate acquisition.

"But there's plenty to buy in the area of wound care and urology.

Our wound care business is not running quite as we'd like it to, but we're doing quite a bit to turn things around.

We would like to achieve profitable growth in wound care, and it is an obvious place to look for potential acquisitions. Two of the big players in wound care are owned by private equity companies, and it is part of their model to one day sell", explains Rasmussen.

Specifically, he points to the wound care division at both Mölnlycke and Convatec, which are owned by Investor AB and Nordic Capital, respectively. Both companies are approximately twice as large as Coloplast in the area of wound care.

"It's nothing that would be completely beyond reach, if we were to set our minds to it", Rasmussen says, adding that Coloplast previously had its sights set on Mölnlycke.

Innovation to ensure Coloplast's future growth

Intel and Coca Cola are among the companies that Coloplast's chief executive recently visited, in order to fine-tune the innovation machine to deliver better products for future growth.

By Vibe Hyltoft

When people think Coloplast, they think relocation, lost jobs and cut-backs, but that is not the whole story.

Despite Coloplast's recent turn-around, the company has also invested heavily in three areas that are to keep it growing faster than market rates: innovation, a tighter control of the sales organisation, and the BRIC countries (Brazil, Russia, India and China).

Coloplast is already known to be an innovative company, but in order to launch new products that sell more on the market than seen in the past, the company has invested in a considerable upgrade of its research and development department.

At the same time, sales and marketing has become much more involved in product development.

"We've notched the entire innovation machine up a gear, and this will soon reflect in our new products", says Coloplast's President and CEO Lars Rasmussen.

In order to find inspiration and knowledge on innovation, Lars Rasmussen and several others from Coloplast have logged a great number of flying hours visiting top innovation companies such as Intel, BMW, Adidas, British Telecom and Coca Cola to discuss what drives innovation.

"Based on this we've been able to make an innovation model, which is a true upgrade of what we have today, and which we are now teaching our organisation to follow", Rasmussen explains.

New sales model
Coloplast's sales organisation has also found a new model to follow. Previously, it was up to the local subsidiaries to determine which products to invest in. Today, however, the entire sales organisation is trained in the same way, and there is now also a main office in Humlebæk, Denmark, which coordinates when the sales representatives are in the market for which products.

"It's no longer a question of how high the bar is set by individual country managers, but one of what the best can achieve", Rasmussen comments.

This new approach is intended to help win market shares - preferably in Europe, where Coloplast is based and where new market shares contribute most to the bottom line.

Top-line growth must also be created in the US which, over time, Rasmussen expects to become Coloplast's largest single market. Finally, Coloplast also has great expectations of the BRIC countries, where the company has invested heavily in building up sales strengths.