ConvaTec Group PLC
LSE:CTEC
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ConvaTec Group PLC
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Ladies and gentlemen, we welcome you to the Q1 trading update for the year ending 31 December 2018. My name is Chance, and I'll be the coordinator for your call today. [Operator Instructions]I'll now hand you over to John Crosse, VP, Investor Relations, to begin. John, the line is now yours.
Thanks, Chance, and good morning, everyone, and thanks a lot for joining our Q1 trading update call this morning. We have a short presentation for you, then we'll be happy to answer your questions. I'm joined this morning by Paul Moraviec, CEO; and Frank Schulkes, our CFO. So just before we kick off, I'd just like to draw your attention to the forward-looking statements in the presentation and in our RNS, which was issued earlier this morning.And with that, I'll now hand over to Paul Moraviec to take you through the slides. Paul?
Thank you, John, and good morning, everyone. We made a solid start to the year in Q1, and overall, we're on track, and I'm satisfied with where we are as a business. We said back in February that 2018 would be a year of stabilization, focused on clear commercial and operational objectives, and this is what we've been executing on. We made progress across the group, with strong performances in 2 of our franchises, Infusion Devices and Continence & Critical Care, while the other 2 franchises reflected the impact of the supply constraints as expected. But we've been making progress here as well. And we're encouraged by good underlying demand across our franchises and our key brands.So on Slide 2, we made a solid start to the year, and we're comfortable with the full year guidance we gave in February. At a group level, our organic revenue performance was in line with our expectations and clearly demonstrates the benefits of our diversified portfolio. Group revenue of $458.2 million grew 3.7% on an organic basis. That's 7.5% on a constant currency basis, including the revenue contribution of Woodbury and our recent J&R Medical acquisition, both in CCC. On a reported basis, group revenue grew 13.7%, which includes a positive foreign exchange impact of 6 percentage points.Ostomy Care performance in the quarter reflects the supply constraints and consequent lost patients with last year, which we've talked about previously. I am, however, pleased with the underlying momentum we've maintained in this business, especially in the U.S. with our me+ program and other direct-to-consumer initiatives.In Advanced Wound Care, the recovery of our lost accounts due to the supply constraints, specifically in surgical cover dressing and hydrocolloid business, is progressing. However, we saw a strong demand in our core business for AQUACEL foam and silver.In CCC, our Home Distribution Group is continuing to take market share in the U.S. And in Infusion Devices, we launched MiniMed Mio Advance, our -- with our partner, Medtronic. This is our innovative new infusion device, which you may recall we named Ulysses internally.We're reaffirming our guidance for the full year, which we provided in February, with revenue growth expected to be between 2.5% and 3% on an organic basis and adjusted EBIT margin to be between 24% and 25% for the full year. We expect revenue to broadly reflect historical H1/H2 phasing and adjusted EBIT margin to have a significant H2 weighting as seen in prior years.Moving to revenue performance by franchise, which you can see on Slide 3. Advanced Wound Care grew 2.2% on an organic basis in the first quarter. Ostomy Care had declined by 2.5%. CCC grew by 5.6%. And Infusion Devices grew 16.3%. That adds up to 3.7% for the group overall, as I mentioned.Moving into the franchise performance in more detail. On Slide 4, in Advanced Wound Care, we saw continuing growth from our AQUACEL family of dressings, as I mentioned, in particular, foam and silver, specifically Ag+ in the U.K., Germany, Italy and other EMEA markets. Avelle continues to grow, although we still expect the contribution to the franchise or to this franchise overall to be modest.As I outlined in February, we're addressing our post-acute performance in the U.S., better aligning our resources and focusing on account conversion while repositioning our foam offering. We've seen a positive customer response with early wins, providing the encouragement of further investments.We've continued to rebuild momentum following last year's supply constraints, and we're progressing plans to regain lost accounts in surgical cover dressing and our hydrocolloid dressing, DuoDERM.The strong underlying growth in our core brands provides us with confidence that we can continue to make progress in our wound franchise as the year progresses.Turning to Slide 5. In Ostomy Care, revenue declined 2.5% in the first quarter, as anticipated. You'll recall we signaled Q1 would be weaker in Q4 due to Q4 orders we took in Japan. We're making progress in fulfilling backorders on our moldable products, and we continue to stabilize and optimize our manufacturing and supply chain in Haina. We anticipate that ostomy backorders overall will fall in the coming months, and we therefore expect our ostomy revenue performance will improve through the rest of 2018.We also continue to see good momentum in patient enrollment on the me+ ETC platform and in our Convex product launched last year.Turning to Slide 6. Continence & Critical Care delivered a strong performance in the first quarter, growing at 5.6% on an organic basis. Our reported revenue for the quarter also includes $15 million from Woodbury Holdings and $0.9 million by recent acquisition of J&R Medical. As you know, we also disposed of Symbius Medical respiratory business on the 1st of March.Our Home Distribution Group continues to grow faster than the overall U.S. continence market as we leveraged our reach, our extensive panel of insurers, our strong relationships with clinicians and our service levels to patients. We have now launched GentleCath Glide in 8 markets, including the U.S., and are planning to launch in several additional markets in Q2. Although as we've previously indicated, revenues from outside of the U.S. were fairly modest in 2018.Product rationalization continued in Q1, reducing revenue by around 0.8 percentage points.We are still targeting a 2018 launch for the first of our next-gen catheters, with clinical trials commencing soon.Turning to Infusion Devices. We saw good underlying growth in the insulin pump market, but we also had the benefit of a significant inventory increase by one of our major customers as well as a customer voluntary product recall, which started last year and finished in Q1. Along with the weaker first quarter in 2017, this created a significant tailwind, which delivered a very strong 16.3% organic growth. We expect that for the full year, growth will be broadly in line with the insulin pump market.A characteristic of the ID business is the quarter-on-quarter fluctuations, and this significant Q1 inventory increase is expected to be back in Q2.In the quarter, we launched MiniMed Mio Advance with our partner, Medtronic, to a very positive patient perception. We also continue to explore applications beyond insulin therapy with our neria guard infusion set.Turning to Slide 8. Let me recap 2018 commercial and operational objectives, which are highlighted in our February results announcement. As I mentioned, we're taking action to address our performance in the U.S. post-acute channel and wound, and this will drive improved growth in advanced wound care as we move through 2018.Foam and silver delivered a strong performance in the quarter, and revenues from Avelle continue to grow, although as previously indicated, revenues from Avelle will be modest in 2018.Our Ostomy strategy continues to progress, with growth on our me+ platform and good momentum in our Convex products launched last year.We're continuing with the stabilization and optimization of our manufacturing and supply chain in Haina, reducing scrap rates and improving overall equipment effectiveness and productivity. We will continue with that optimization to move towards and then beyond the efficiency levels that we saw in Greensboro before the transfer.We expect to deliver modest productivity improvements in 2018 in gross margin, offset by price erosion and other headwinds that we previously outlined.We've developed plans for cost out initiatives, focused on the 5 areas we mentioned in February, namely, sourcing, supply chain, manufacturing, footprint and simplicity. We continue to make progress validating the overall cost out opportunity, and we will give further guidance on the framework and size later this year.We bolstered our project management office with new hires in the operations area such as a new VP of Global Operations Engineering, who will take a key role in driving forward our productivity initiatives and continuous improvement.So in summary, on Slide 9, the first quarter demonstrates a solid start to the year. At a group-level performance, it was in line with our expectations. We saw strong performance from Infusion Devices and CCC. In Ostomy Care, we're stabilizing and optimizing our manufacturing and supply chain in Haina, and we expect that our ostomy performance will improve through the rest of 2018. In Advanced Wound Care, we remain confident that we can continue to make progress in winning back lost accounts, and we expect to deliver improved revenue growth in our wound franchise as we progress through the year. And finally, our guidance for the full year 2018 is reaffirmed.So with that brief overview of our first quarter results, we're happy to take questions. As John mentioned, I'm here with our CFO, Frank Schulkes. So operator, over to you, if you could let us have the first question, please.
[Operator Instructions] Our first question today, Paul, comes from Amy Walker of Peel Hunt.
I'll go through 3 if I can, please. The first question is you've obviously beat the top end of your guidance for the full year, but you've maintained the full year range today. Is that because of higher 2017 base as we move through the year or some conservatism on your part or a partial, perhaps, this is both? So that's the first question. The second question is, could you quantify for us in dollar terms the positive impact in the third quarter of the customer inventory increase and the product recall effect in ID? And Paul, I'm not sure if I understood you correctly, you expect that to carry forward into Q2. If you could give us an indication or thoughts on that as well, that would be helpful. And the last question is your comments on the Avelle launch, it seems consistently quite cautious to me. Why do you think the uptake is being a bit more muted than perhaps you would have expected so far? Is the longer life versus the incumbent product less compelling to medical practitioners than you'd expected? What's the reason? And what levers do you feel that you have to improve that? And I'll leave it there for now.
Okay. I think the first thing around the overall performance, if you look at the Infusion Device business, the underlying that we still see for that business is around that 5%. And so if you back out the inventory parts of that, the other parts of our business are exactly where we expect them to be. And Frank, I don't know if you want to add anything to that.
No, I think that, that's right. So the underlying business is growing in line with the market, which is at 5%, and Q1 is an extraordinary high quarter. We've seen this type of revenue volatility in the past 12, so for the year, we believe [indiscernible] market rate, yes.
And then as you point out, Amy, Q2 will be lower, of course, and I think we will see some sort of offset there. It's always very difficult to judge exactly where that will be, but obviously, it will be a lower quarter and there will be some form of sort of correction in that. And then on Avelle, as we've said before with Avelle, this is our first entry into the NPWT marketplace. And I think the key benefits of Avelle that we've seen with clinicians and nurses, patients has been extremely well received. The AQUACEL interface, the flexibility in terms of SKUs that we have with that product and the extended time that it runs full, all very, very well received. And we're working our way through market-by-market. I think that we will see that business growing and accelerating through this year. But we're already off to a very good start in Q1. So I think there's been a lot of learning from the company getting into the space. We've made those learnings. We're applying those learnings this year, and we're starting to see the early signs that, that's paying off. And I think that we are very accretive to the space and expect it to be a major contributor in the coming years.
Great. And just on the group guidance point, about having coming above the top end and maintaining the range. I just want to clarify, is that because you expect the comps to be a bit higher sequentially through the year?
That's right, that's right. I think if you look at where we were in Q1, there will be an adjustment of infusion in Q2, and then we obviously have the confidence second half. So broadly speaking, that's the way you should think about it.
Our next question on the line comes from Michael Jungling of Morgan Stanley.
I have 3 questions. Firstly, on the geographic sales growth, the U.S. seems to be consistently quite good, but if I look at Europe and APAC, it really is quite uninspiring at flat growth or even a slight decline. What is preventing you from doing a better job in EMEA and APAC? Secondly, when it comes to ostomy, can you provide a bit more clarity what will drive the improvement in growth for the rest of the year? And is a positive growth number organically a probability? Or is it probable? And question number two is on Continence Care, how sustainable is a 5% growth rate for the rest of the year?
Okay. So I think the first one, the U.S. The way that the regional numbers are calculated by default means that it represents where the customers are. So in the U.S., you see a lot of the Infusion Device business reflected in that U.S. number, which obviously inflates the U.S. and takes away from the European number. And also, it's mainly because our CCC business is growing so strongly in the U.S. market, which gives us a very good growth in the U.S. So with Europe, the underlying is obviously in better shape than that. Although, as we said before, we have seen some softness in some of the markets from a wound point of view, so I will say that in Q1, we're seeing a little pick up there. And so I think those are the key drivers there. And of the [ year low ] issue with Europe, of course, is that the backorder situation that we had, supply constraints in ostomy did affect Europe more than they did North America. And I think the -- what was your next question, Michael?
The next question was on ostomy. What will drive the improvement for the rest of the year? And is a positive growth number realistic for the year?
Yes, I think so. I mean, 2 things will drive that. In Q2, we're expecting a meaningful improvement in our open order recovery, and then that will be pretty much -- the open order issue, backorder issue, resolved by the time we get to the middle of the year and as we go through into the second half and what we're suffering from that. And the other part of it is I'm actually very encouraged by the underlying performance of the ostomy business. If we think about new patient capture, we're actually performing well there, particularly in the U.S. And also, our market shares have held up pretty well in the European market regardless of the situation. So when I look at my leading indicators for ostomy, I'm actually very pleased with where we are considering the challenges we had last year. So those are the 2 drivers of that.
So a positive growth number for the year is realistic? And Q2 is the first time of that.
Yes. It will take us time to build that, Michael. We obviously can't give you specific numbers yet. But I think that we're looking at -- it's probably the second half before we see a meaningful recovery. So think of a build going through the year, but Q2 being better than Q1.
Yes. I want to add something to that. I think if you look back also at our quarterly performance in 2017, you can see that Q2 was in a very high year-over-year growth [ quarter or so to comp ]. The second quarter is going to be tougher, and in the first quarter, as Paul said, we expect an improvement quarter-by-quarter, but we're not saying that ostomy will be positive already in the second quarter.
And then a Continence Care question, please. How sustainable is a 5% growth rate for the full year?
We're feeling very good about that number. I think the -- our customers, in particular, Medtronic, are performing extremely well in the market. The market is still holding up extremely well. We have other activities going on within the infusion business, particularly the launch of the Ulysses products, which is -- which will be sold through Medtronic, and in other indications. And we also have...
I'm asking about the Continence Care business. I was asking about Continence & Critical Care, not Infusion Devices. So how sustainable is the 5% growth rate in Continence Care for the rest of the year?
My apologies. Yes, I think that with that business, again, we feel very good about that. We're still continuing to gain market share, and we're launching, obviously, our GentleCath Glide through that platform. And so we're feeling very confident about the sustained 5%.
Our next question on the line, gentlemen, comes from Ian Douglas-Pennant of UBS.
Yes, it's Ian Douglas at UBS. So Ostomy, could you quantify, if you can, the headwind that you had from manufacturing issues this quarter? I know there's an element of judgment in there, but if you can have a guess, that will be useful. The second question is given we saw in Q1 that the lower-margin businesses, by my estimates, had been relatively strong and the higher-margin businesses are somewhat weaker, what does that imply for margin versus first half and for the full year? And the last question, when you were buying Woodbury, what was the competitive environment like when you were bidding for that? Have you noticed an increase in competitive intensity when you're trying to roll up [ distribute ]?
I think if I take the last one, maybe Frank can take the first 2. You may need to just go through the first one again because we had a breakup in the line here.
Yes. So I think you were asking what the impact was of the ostomy loss revenue given that we had the backorder issues in 2017. Actually, we still see what we also said in February, an impact of about 50 to 100 basis points in growth for the year in our business related to that patient loss and associated revenue loss.
And there was a question on margin. Second question was around margin, Ian?
Yes. So at this moment, I think if you look at the overall margin picture, it's a little bit more complicated than just looking at the different franchises because, of course, we also have margin differences between the different brands within the franchise, and then there's also margin differences between the different countries where we sell all of our products. So overall, at this moment, what I can see, Ian, is that we are basically in line with what we said in February, and that is that we don't expect a significant impact from mix. It will move between, in my view, a pretty narrow band, slightly positive or slightly negative. It's very tough at this stage after 1 quarter to comment on that for the rest of the year or for the first and second half.
And I think the last one, Ian, the M&A environment, I would say, the competitive intensity is high. As you would expect, I don't think that's no different, though, to what it's been in the past. We track all the companies that we think make good sense to us and try to build relationships with them over a period of time. And so obviously, what we want to try to avoid is a competitive situation, and we haven't had that situation so far. So I would say competitive environment, high, but I think we are made to navigate our way through that very successfully so far.
And Ian, just to clarify my first answer, it's 50 to 100 basis points for the whole group, okay? So that means that [indiscernible] impact on the ostomy franchise is higher than that.
And presumably even higher than that in Q1, given the impact is focused in Q1 and Q2.
That's right.
Our next question on the line, gentlemen, comes from Veronika Dubajova of Goldman Sachs.
I have 2, please. My first one is a follow-up on ostomy. I'm just trying to understand the various moving parts that you see -- that you saw in the quarter. Clearly, you had annualization of some of the patient losses last year. You, I think, remarked, Paul, that your underlying base business performed well. You had some of the fulfillment of the backorders. If I were to normalize the growth, can you help us understand what the performance was? And it's just -- maybe putting a little bit more color around your answer to -- that you gave to Ian, it would be helpful for us to have a better sense for what the underlying trend pattern is in the business. And then my second question is given where the first quarter has come in, has your degree of confidence in the full year guidance that you have changed at all? In particular, I'm curious around margin.
Yes. So perhaps you're right in terms of the ostomy business. Q1 was impacted by, number one, the patient loss accelerated, obviously, a little in Q4. And obviously, the fulfillment of the open orders, which we're making good progress on, but they still exists there. If you were to adjust for that, our sense is that the underlying growth would be around that 2% to 3% range. And what was the second question, Veronika?
Your degree of confidence in the guidance for the full year and whether that's changed at all versus where you were in February.
No, we're still comfortable with that level of guidance. So Q1 is exactly where we expected it to be in all the franchises. And so we're -- I think we're where we expected to be.
Okay. Okay. And then a quick follow-up. I think, Frank, you made a comment in the press release this morning about the phasing of profitability first half versus second half. Any further color you can provide on that?
Yes. So historically, the EBIT rate is significantly higher in this business in the second half versus the first half, and that's really driven by a couple of things. As you know, we have revenue seasonality. The second half revenue is higher than the first half. And then also, what you typically see is that the cost out program and productivity program in any business are building throughout the year. And then, finally, OpEx between the first half and the second half is not that different, so -- different that drives a significantly higher EBIT rate. For instance, in 2017, the difference between the first and the second half was around 500 basis points, and that was, in fact, with all the challenges we faced in the second half of 2017. So if you would adjust for that, you probably would be anywhere between 500 and 600 basis points lift, and that is also very much in line with what we saw in 2016, which was around 550 basis points more. So there is a significant lift, and this is the reason and it's historically proved.
Our next question, gentlemen, comes from Yi-Dan Wang of Deutsche Bank.
So just a clarification question on the ostomy growth. And the 2% to 3% underlying that you mentioned, is that also adjusting for the distributor benefit from Japan? And if not, what was the benefit from this in the Q4 '17? And what impact did that have on the Q1 '18 numbers? And how will that move in the rest of the year? And then on the second part, the backorder, I think at Q4 '17, you mentioned that would account for about 1% of the organic growth. So roughly what portion or what percentage of the backorder is being filled by the end of the March '18 quarter? And then, finally, one of your competitors is planning to launch a concave product, which will be a new category in ostomy. How do you think that would impact you? And do you have any similar products in your pipeline that could come to the market over -- in the near term?
Okay. I think the way to think about ostomy is that the 2% to 3% is the underlying growth that we see in the ostomy business if we adjust for the various things that we've just spoken about. We haven't been specific about the Japan situation, but I think that's the main soundbite to take away from this. If we adjust for the open orders and the patient loss, we're around that 2% to 3%. I think on the -- what was the next question you had?
On the back -- I can take that one. So if you look at the overall backorder position and the improvement we see in the first 6, 7 months of the year, the minority has been improving in the first quarter and we see a much more -- a much bigger reduction in the backorder in the second. So the impact will be more acknowledged in the second quarter versus the first quarter.
Okay. And then on the new products, I think about this as every market just continues to segment as it draws, and companies like ourselves and our investors will continue to launch products that fulfill specific needs or unmet needs in the marketplace. So we've been doing exactly the same thing. The Accordion Flange product, I think, will be a perfect example of that of post-operative [ interventions ]. And so indeed, we will continue to develop our product portfolio and continue to look for segments. And that's the way I would think about it.
Okay. So what portion of the patients do you think would benefit from these products? And do you have a direct competitor product for this? I mean, do you have a product that specifically addresses this need in your pipeline?
We have similar products. Yes, we have similar products, but I think this is a product that is identified as specific need in the marketplace. We don't have direct, but we have other products that obviously have been used for this indication. Yes, I think this is normal development in the marketplace. You see it quite across our businesses.
Okay. So -- and what is that product that you have in your portfolio that would address this change in the market?
The range of Convex products that we launched last year.
Our next question on the line, gentlemen, comes from Lisa Clive of Bernstein.
First of all, can you give us an update on your plans for building out Continence business in Europe? Have you made much of a push into that market yet? Or are you waiting for the release of your next-generation hydrophilic catheter before really trying to ramp up your presence in that geography? And a sort of related question, given the success of 180 Medical in the U.S., are you looking to acquire catheter distribution or home care businesses in Europe to expand that strategy in other markets? And then lastly, on the Avelle rollout, what kind of clinical data do you have supporting the product? Is that an area that perhaps needs to see further R&D investment in order to really maximize the commercial impact? And also, lastly, sorry, if you can give us an update on the U.S. approval and launch for Avelle.
Okay. So I think on the Continence business, we're still in the same position as we talked about in February in the sense that we have launched GentleCath Glide in Europe, although that's a very small segment. So we're making some sales there. That's mostly U.S. product, as you know. And we will -- the major opportunities for us remain European compact designed products. And so that's exactly what we're doing. And we would expect to be going into clinical trials later this summer, and we'll launch soon after. So that's the plan at the moment. I think -- so the next question was around 180 Medical, is that right? What was the question?
Yes, and really just the success there and whether you'd do something similar in Europe.
Okay. Okay. I think we have to keep our eyes open for opportunities. Clearly, we track a lot of different companies. So I think that initially, we'll be using the footprint that we have in Europe, which I think provides us with a very good launch position. And then we'll look at other opportunities as time goes on. From an Avelle point of view, we are still working with the FDA on the launch of that product, and I would expect that we will be seeing that product into the marketplace late in Q3. And was there -- I think there may be one other small question in there, Lisa. What was -- did I miss something here?
Clinical data.
The clinical data. No, that's a great point. And naturally, it's a relatively young launch for us, and so we are collecting that data. And you're absolutely right, we already have data and we are generating a lot more. So that's the key part of the [indiscernible].
Our next question, gentlemen, comes from the line of Paul Cuddon of Numis.
Just 2 for me. Could you elaborate on the expectations for gross margin for the half and the full year? And secondly, on the potential for infusion set beyond diabetes and perhaps timing of when that could generate more material revenues.
I will take the margin one. So in February, we mentioned that we expected a modest contribution from productivity cost outs as well as price erosion around the 1% mark. And we said that the modest productivity contribution was really driven by cost out programs kicking in that would be partially offset by elevated [indiscernible], some commodity pressure, higher depreciation of labor rate inflation. As I look at the business from my seat now here in May, basically, that is playing out as we expected. So no change there from a guidance point of view. In terms of first half, second half, I already mentioned that there's quite a significant change, a lift in EBIT rate between the first half and the second half. And of course, there is also, historically, and you can see that, a lift between the first half and second half in gross margin, again, driven by the revenue seasonality, higher in the second half versus the first half, and the typical building of cost out programs throughout the year. If I -- looking at the numbers here, 2017 was something like 130 basis points increase of the first half to the second half. And again, that was facing a lot of the challenge in the second half. So if you adjust for that, the historical number is in fact -- the historical lift is higher, and in 2016, it was around 400 basis points. So I would say we will see again a significant lift also there in gross margin, and for the year, in line with what we guided towards in February.
And then on the Infusion Device business, the subcutaneous opportunity is very exciting. And obviously, we're pretty resourced behind that. We are in discussions with a number of large pump companies, and that includes setting up clinical trials. So we see this as a sizeable opportunity in the longer term, but I would emphasize that this is at the very early stages of development.
Our final question today is a follow-up question from Michael Jungling of Morgan Stanley.
I have a couple follow-up questions. When it comes to Ostomy, I wanted to clarify whether the Q1 organic growth benefited materially from filling backorders or not. Secondly, on Continence, this product rationalization headwind of 80 basis points in Q1, does that headwind continue at the same rate for the rest of the year? Or does it ease? And question number three is on the self-lubricating catheter that you mentioned you would be launching in the second half this year. You just mentioned the word compact. I didn't think that compact was an option because it was still on the patent from Coloplast. So I was -- I thought the product that you're launching was a self-lubricated catheter only competing with SpeediCath but not SpeediCath compact. Can you please clarify the word compact?
Sure, Michael. So on Ostomy, think about Q1 as some filling of open orders, making good progress there, but that being offset by lost patients, particularly the...
More than offset.
Yes, more than offset due to there would be issues last year. So that's the way to think about that one.
Yes. On CCC 80 bps rationalization, at this moment, I would say this is probably going to continue. I can't specifically say it's going to be even every quarter, but at this moment, perhaps the best to say is that it is for sure, over the next 3 quarters and then probably a little tail in the fourth quarter. In the end, we're getting into very small differences here, but it's not going to be only in the first 6 months of the year, and it's going to be about a $3 million impact for the year.
And on the last point, I simply use that product -- that compact description as a category, the smaller form factor category that exists within the -- that catheter space, particularly relevant to the European space. Does that answer your question, Michael?
It does, it does. And in Ostomy, so in -- for the rest of the year, are we expecting that the backorders will come back through more strongly, let's call it, in Q2, then the loss [ pace ], meaning that it will start to show up more in the second quarter? Would that be correct?
Yes. So as we said, the backorder reduction in Q1 was pretty modest. We see an acceleration of the backorder improvement in the second quarter. And basically, in the second half, we should be at normal levels of backorder, which you normally see in running a business. So that means that in the second half, we're going to continue to gain patients back, and it's going to be the focus, and slowly build on top of that, plus, of course, the comp in the second half will be a little later than specifically in the second quarter. Did that makes sense?
Yes, it does.
Okay, listen. Again, thank you, everyone, for joining the call this morning. I think with that, we'll draw it to a close. Our interim results are out on the 2nd of August. And of course, myself, John Crosse and Kirsty are on hand to answer any other questions in the meantime. Again, thank you for joining, and good morning.
Ladies and gentlemen, if you feel that you missed any part of this conference, a replay will be available to listen to shortly. Please contact your call organizer for more details. Thank you for listening, and have a lovely day.