ConvaTec Group PLC
LSE:CTEC
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ConvaTec Group PLC
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Good morning, ladies and gentlemen, and thank you for joining us for the ConvaTec Q3 Trading Update for the 3 months ending 31st December, 2019. My name is Chach, and I'll be the coordinator for this conference. I'd now like to hand over to John Crosse, VP, Investor Relations to begin the call. John, over to you.
Thanks, Chach, and good morning, everybody. And welcome to the Q3 trading update. Just a quick word from me to remind you of the forward-looking statement in the release that we put out this morning. And then it's my great pleasure to hand over to our CEO, Karim Bitar. Karim?
Thanks, John, and warm welcome to everybody on the line on my behalf and on Frank Schulkes' behalf for both of us here sitting together in Reading at our Headquarters. And it's a beautiful sunny day, and we're actually overlooking the Reading train station, we're just commenting on what a beautiful sight. But really delighted to be here this morning in the capacity of Chief Executive of ConvaTec, and I was really hoping to focus on 3 key elements this morning. The first one was to give you a little bit of a feel or a sense of my background. Two, was maybe to highlight to you what motivated me to join ConvaTec, what were some of the key reasons why I decided to go ahead and join ConvaTec. And then thirdly and lastly, I thought I'd try to give you a little bit of color in terms of the Q3 results and what the meaning or implication is for us moving forward. So in terms of background, what I would say is I'm delighted to be back into the health care industry. As several of you know, I've spent a large portion of my career, frankly, working with the Dow Chemical Company, Johnson & Johnson, Eli Lilly and Company and Genus. And there's really a common theme with all 4 of those companies. And the common theme really consists of 3 points. The first point is that in all cases these are multinationals. And so I've always thoroughly enjoyed working with global businesses and that's something that I truly value. The second theme with all of these companies is that they truly value innovation. They're very R&D driven, very focused on intellectual property, and that's something that I also truly value. And thirdly and lastly, I would say, all these enterprises have always had a focus on people, respecting people, developing people, growing people and ultimately, see individuals at the enterprise that, frankly, make the difference. And so very similarly, when you think about ConvaTec, I really see all 3 elements at ConvaTec; a global company with the opportunity to be innovative and a company that truly wants to value its people and grow its people. If you then step back and say, well, Karim, what specifically motivated you to join ConvaTec? I really would highlight 3 things. The first thing is that I've a real passion for patients and patient care and improving patient outcomes and a real passion for innovation, for science, for technology. And originally, I actually studied in the sciences, I studied biochemistry. The second thing that I have a real passion for is mid-sized companies. I think mid-sized company like ConvaTec is incredibly attractive because you're able to move very quickly, very rapidly and really have an impact in the marketplace. And so, having worked for smaller companies, very large companies, I must say that I find very attractive, the idea of working with a mid-sized company.Thirdly and lastly, when I assessed the situation at ConvaTec, I have to basically assess the nature of the opportunity, how attractive was the opportunity. And I looked at it through 2 different lenses. The first one was, how attractive were the end markets; and b, what was a relative competitive position of ConvaTec. And I really drew 2 conclusions. The first one was when looking at the end markets, a lot of these end markets are obviously related to chronic diseases, related to things like diabetes, related to things like, unfortunately, having to have maybe colon cancer, and therefore, having to go ahead and have an ostomy or stoma treatment. And when I started looking at that, it became pretty clear that long term structurally, when one is trying to meet these unmet needs, they're going to be there for quite some time. And structurally, you're going to see and continue to see some solid and robust growth in that sort of low single-digit to mid-single-digit range. So to me, overall, I said, when I look at the entire marketplace -- attractive end markets. The second thing I noticed was that the competitive position of ConvaTec's business was actually very mixed. And what I mean by that is that there were some businesses in some geographies that, frankly, were performing very, very well and actually were robust. But on the other hand, there also were some businesses in some geographies where performance could be significantly improved. And so you have a situation where the performance and competitive position is actually quite heterogeneous. And in my mind that variance or heterogeneity really stood -- really spelt or indicated or reflected a significant opportunity for growth, and I found that very attractive. So in summary, I would say, the passion for patients and innovation, the size of the company, and frankly, the heterogeneity to me is that significant opportunity. So moving forward, you might say, Karim, what are you going to really focus on? Really going to focus on getting closer patients, strengthening our innovation pipeline and then being absolutely relentless about execution excellence. At the end of the day, that's what fundamentally counts, that's what really makes a difference. It's actually being able to deliver and to execute. So hopefully, you've got a little bit of a sense of my background. You've got a little bit more of a feel for what were my motivators and what drove me to join ConvaTec. And then lastly, in terms of our Q3 results, what I would say is that they were solid results, but I think we need to put them in perspective. And what I mean by that is that this is a small step. There's a lot of work to be carried out, there's a long journey ahead of us, but we are determined to go ahead and pursue that journey. And as we pursue that journey, our focus is really on pivoting to sustainable and profitable growth. So on that note, I'm going to go ahead and pass the baton to Frank. And Frank is going to try to give you a lot more detail and lot more color in regards to these solid results that we experienced in the third quarter of FY '19. Thank you.
Thanks, Karim, and thanks, everyone, for joining us for our Q3 trading update. So let me take you through the numbers now. As Karim mentioned, it was a solid quarter with group revenue of $463 million, increasing 2.4% on a reported basis. Taking out the impact of unfavorable effects, the organic growth was up 4.6%. And it is -- it's important to note that the performance was helped by some tailwinds, primarily timing benefits and a weaker prior year comparator, which I will run you through. But overall, we were in line with our expectations for the quarter. So on a franchise basis in Advanced Wound Care, revenue of $147.5 million, increased 3.6% on an organic basis in the quarter. A solid performance led by Silver in particular, AQUACEL Ag+ and foam. We achieved solid growth in several European markets and delivered a good performance in Latin America. We continued to focus on leveraging our specialized and expanded sales force in the U.S. during the quarter. Call rates in Q3 continued to rise as we on-boarded new starters. Our growth improved sequentially, largely due to timing benefits related to the phasing of orders, primarily in China and the U.S., and this was partially offset by the French reimbursement cut. Looking ahead to Q4, the Q3 timing benefits will partially reverse or not happen again, and we anticipate some headwinds due to likely changes in German silver reimbursement and as we already flagged in August, a controlled distributor inventory reduction in APAC. In Ostomy Care, revenue of $131.7 million grew by 3% on an organic basis in the quarter. We delivered solid growth in some European markets and strong growth in Latin America, which benefited from the timing of a tender in one of its bigger markets. Note that this growth is set against a weaker performance for Ostomy in 2018 within which Q3 was particularly low in dollar term. For Q4, the controlled distributor inventory reduction in APAC, I referred to a moment ago for Wound will also impact Ostomy, and we will see some planned SKU rationalization beginning in the fourth quarter. In Continence & Critical Care, revenue of $115 million grew by 8% on an organic basis in the quarter, driven by a good performance from HDG and the impact of last year's packaging recall, resulting in weak comparators. As a reminder in Q3 of last year, we experienced a negative impact from the packaging recall, which was about $3.5 million in revenue as well as the last part of our CCC SKU rationalization. Together, giving a tailwind to overall franchise organic growth this quarter of about 370 basis points and to overall group organic growth of around 90 basis points. In Infusion Devices, revenue of $68.6 million, increased 4.3% on an organic basis, driven by a good level of customer orders and also a weaker prior year comparator. We continue to expect full year growth to be below historical average growth rates due to the Animas exit, as we have indicated before. The Transformation Initiative is in line with the expectation for the year that was discussed in August and the early progress has continued when we'll provide an update when we report our 2019 full year results. And then last Thursday, we were pleased to complete a refinancing of the company debt on more favorable terms. It has been replaced with a committed 5-year $1.7 billion bank facility, comprising of $1.5 billion of term debt and a $200 million revolving credit facility. And then in terms of outlook for the group for the full year of 2019. This is unchanged. And as a reminder, we expect organic revenue growth of 1% to 2.5% and adjusted EBIT margin of 18% to 20%, including spend associated with the Transformation Initiative and MDR. Excluding these costs, adjusted EBIT margin is expected to be between 21% and 22.5%. And finally, I'm very much looking forward working with Karim to help drive business forward.And with that, I'm happy to take your questions.
[Operator Instructions] Our first question today comes from Amy Walker of Peel Hunt.
I have 3, I'll ask them individually, if I can. Karim, thank you very much for your opening remarks. You mentioned some common themes in ConvaTec with the other previous companies that you've worked at. Can you tell us what strikes you as different to your previous organizations? Or is different perhaps to what you had expected? And maybe elaborate a little bit on the geographies and businesses where you see the biggest opportunities for improvement currently?
Yes. I mean what I would say, Amy, is that I see a lot of similarities in terms of, the global nature. I do see similarities in terms of the opportunity to more aggressively drive the R&D agenda, the innovation agenda that's fundamental in the health care industry and in the medical device company. And obviously, whenever you're looking at it on a global advantage point, you sort of look at all of the colleagues you're working with, and it's always important to have a highly engaged group of colleagues that are motivated and really committed to making things happen. In terms of the opportunity and where are the variances. I think it's a little premature for me to comment at this point. I'm very much sort of in the early phases of joining ConvaTec. So it's been approximately a month. So I'm still counting working days, Amy, to give you a sense. I've had the pleasure to travel to many countries, whether that be in Europe or North America, and I'll be visiting places in Asia and Latin America. So I think it's premature at this point, but I am comfortable saying that I am observing a fair amount of variance, and I'm also comfortable in saying that the employees at ConvaTec have a positive attitude. It's a can do attitude, it's a desire to improve and, frankly, for Frank and I think that's encouraging. And so I think that, that bodes well.
Okay. And just a quick follow-up. Karim, as mentioned in the press release that you're planning to update the market going forward. Are you able to say at this point, do you think you'll give a more detailed outlook or feedback with strategy as early as the fourth quarter results next year? Or is it -- are the plans to do something separate to that, just so we know how to tune our expectations?
Yes. So I think really the plan that Frank and I have is to share with you the performance in February for all of FY '19. And I think at that point, it would be appropriate for Frank and I just to start sharing with you some initial thoughts, some preliminary views as to what is the future direction of travel going to be. I think one thing which is important to highlight in terms of future direction of travel is that in regards to the Transformation Initiative, Frank and I are incredibly committed to that initiative. We believe that, that is fundamental to the success of ConvaTec. And so during the course of my onboarding, I did have the opportunity to dialogue with Rick Anderson, the previous Executive Chairman and CEO. Obviously, not a decision-making capacity, but was kept abreast of some of those developments. And so I'm delighted that, that work has been carried out and that we've started to try to put interventions in place to improve commercial excellence, to improve operational excellence, to improve business services. And so, what I would say in terms of direction of travel, we'll try to provide you with a more preliminary view and a more broad view in February, but I think one thing I do want to highlight is that the commitment to the Transformation Initiative is very, very strong, and you'll absolutely see both Frank and I continue to work with the leadership team and the employees across ConvaTec to ensure that we execute and implement those initiatives and start to see the benefits in 2020 and 2021.
Great. I won't try to push you on guidance for 2020 and 2021, but just one last question, if I could, and then I'll drop back into the queue. Just on Continence & Critical Care, Frank, this might be one for you. I think you mentioned or it was mentioned previously at the H1 results that you were taking a very deliberate soft approach to launching your new catheter in Europe. I didn't see any reference to that in the release today. Is that process underway now? And can you give us some color on how the product is being received? And what your experience so far is telling you about the outlook for the full launch and the timing of that, please?
Yes, let me give you a little bit of color there. We have the product in patients, and we have received very favorable feedback from those patients. At this moment, the plan is to start marketing activity in early 2020 before a full launch later in the year.
The next question on the line is from Michael Jungling of Morgan Stanley.
I have 3 questions, please. Firstly for Karim. If I look at the press release and the comments that you've made on Page 1, you made reference to the need of getting closer to the patients and strengthening the innovation pipeline. And can you comment on what you intend to do and how you intend to finance these comments? Question number 2, I also noticed that there was no reference, the need for perhaps ConvaTec to be more involved in the emerging markets, where your exposure is less than your competitors. Kind of, how you're thinking about the emerging markets and the need to invest? And then finally, if I look at your guidance, but if I look at Q4 organic growth and you adjust for comparisons, you could theoretically, even if you adjust for some inventory destocking for maybe a 5%, 6% or even 7% organic sales growth number. Can you comment on why that would be an unrealistic type number for the fourth quarter organic sales growth?
So yes, let's take these 3 questions in sequence, I'll probably ask Frank here, maybe help me out with question number 3 on Q4 sales.
Yes, yes, of course.
Look, I think the idea that you want to get closer to patients is fundamentally the whole concept that we need to be very marketplace oriented and very, very customer centric. And I think it's critical that we realize that first and foremost, we're meeting unmet needs of patients. Now obviously, we're working with caregivers, and these can be physicians and nurses, et cetera. But I think it's imperative that as an enterprise that, that focus be first and foremost. It's the reason we exist, frankly. And an innovation for a medtech company, a medical solutions company like ours, it's fundamental that, that innovation capability be built and delivers continuous improvement. In terms of how to finance that? Look, we're going to work through that. And hopefully, we'll be able to give you more insight in February and throughout 2020. But obviously, the onus on us is to look at the current makeup of how we're investing and trying to go ahead and ensure that this one key area, which is the innovation area is appropriately financed. In terms of emerging markets, what I would say is that clearly, emerging markets are a significant opportunity and very similar to the whole area of innovation. It's something that we're actively assessing and exploring but it's obvious to us that, that is a significant opportunity. And so again, we need to assess and really analyze how to best seize that opportunity. And again, the plan would be next year to provide you with a little bit more color and specificity as to how we would do that. In regards to Q4 sales, I'll maybe just pass the baton on to Frank.
Sure. Michael. So comment is, of course, based on looking at a number from last year, which implies a very easy comp, but I think what is important to note here is that easy comp was 100% driven by the ID pattern. And as you know, ID was extremely lumpy. So you have to look at last year, excluding ID. And if you take ID out then basically, we were about flat. So not a tough comp, but not a particularly easy comp. And then you look at Q3, where the 4.6% was clearly helped by some tailwinds. We explained those. Some of those will reverse or won't happen again. And then we will, of course, have the APAC destocking activity that we highlighted in August already. We have uncertainty around the Silver performance in Germany, and then we will start with some SKU rationalization activity in Q4 as well. So therefore, if you look at Q4 and you come to a conclusion, 5% to 7%, I think that's sure not going to happen based on the reason I just explained.
Great. And a follow-up question on strategy. I'm trying to understand how you're thinking about the midterm. And how do you feel about maybe making a material sacrifice on margin with the upside being a faster organic sales growth earlier? Is that something that you are considering? Is this the way that you are thinking about how to restructure ConvaTec and improve performance? Or are you more of an individual who says, I'm happy to take a 3-year view, and it's steady as she goes.
Yes, I think it's really premature at this point to say what pathway are we going to take? I think the reality is that it's clear to us that we need to significantly enhance the innovation capability. And so we need to look at all different options, assess all the pros and cons and then decide what is the path forward. But I would say that we're very much in that diagnostic or assessment mode right now. And so, Frank and I are looking at that carefully. And hopefully, in due time, particularly in 2020, we'll be able to provide you with more insight on that.
The next question on the line comes from Veronika Dubajova from Goldman Sachs.
I have 2, one for Karim, one for Frank. I think very similar topics to what we've discussed. Maybe I start actually with the financials. I guess, Frank, it would be great to get your thoughts on where in the revenue growth guidance range you think is realistic to be thinking about for the full year. If I look at the low end of the range, it would imply effectively negative revenue growth in Q4. I'm surprised that you still kept that. Is there anything else that you see on the horizon that worries you? If you can just give us some guidance on that. That would be great. And then a bigger picture question for Karim and great to meet you on the phone. You've mentioned innovation as something that's incredibly important. Do you think the organization as you look at it today, is the right size and shape to drive that innovation at ConvaTec? And if not, kind of, 1 month and -- 1 month and I know it might be premature, but what are the big opportunities or changes you are contemplating there?
Okay. Let me start off. So we're not guiding towards any space within the range that we've given. So the range is 1% to 2.5% for the full year. Year-to-date, we're 1.5% and I think we've been clear on some of the dynamics in Q3 that helped us, the tailwinds and then some of the headwinds that we're going to experience in the fourth quarter. And that's where I want to leave it.
Thanks, Frank. Yes. I think, Veronika, look, in terms of the innovation agenda, really 2 thoughts. So one bit, which I'll share with you is I'm less focused on size. I've often been asked in a variety of capacities at a variety of enterprises, do you need to be of a certain size, and do you believe in percentage of sales and investment and R&D. You know, [ yah da yah ], you heard this sort of common thematic. My simple view is to have a really strong innovation capability, it's all about the people. Ultimately, the equipment and lab spaces, et cetera, they're pretty fungible across competitors, right? And so the reality is it's really making sure that you build that innovation capability. And so, I think that the reality is that there's an opportunity here, as I was saying, we've got a heterogeneous situation that on the innovation side, we've had some good innovation at ConvaTec historically, but I think it's fair to say that we can do more, that we can improve and we can strengthen this dimension. And so I think it's really for Frank and I to figure out exactly, what -- how are we going to build this capability and how are we going to shape it in the future, but it's clearly something that is top of mind.
Great. And if I can just quickly follow-up, Frank. I guess, I appreciate you might not want to guide for a specific number within the range. But just curious, what -- I mean, can you see a scenario where you would end up at the low end for the full year?
Again, we're not commenting on that, Veronika.
Understood. Had to try.
Yes, I know.
The next question on the line, gentlemen, is from Sebastian Walker of UBS.
Firstly, just in terms of Ostomy growth. So even adjusting for the tender in the quarter that came in stronger than expected. So could you talk about where you're seeing an acceleration in terms of geographies? So that's the first question. The second one is bigger picture, just following up on what Veronika asked. So, Karim, I think historically there's been talk of reviewing perhaps the Critical Care business, the skincare business, are those things that you are considering or looking at currently or is there somewhere else where you're focusing your attention?
Yes. So why don't I let Frank tackle Ostomy Care question in regards to where we're seeing some of the stronger performance, and then I'll answer the second question in terms of the portfolio.
Yes, Seb. So in the -- the number was 3%. We had a little bit of a tailwind from tender timing, so between 2.5% and 3%. And to be honest, the story is very similar as we saw in the second quarter. We saw continued growth, decent growth in some European markets, and Latin America continued to be very strong. Why the number is a little different is largely a function of -- if you look at 2018 in dollar terms, Q3 was a very low quarter. It was something like $7 million lower than the second quarter and was $4 million, $5 million lower than the fourth quarter. So in terms of underlying growth by certain markets, a very similar story than the second quarter, and the number is a little lifted because last year Q3 was just a weak quarter in the 2018 overall picture.
Thanks, Frank. Yes, look, I think in terms of portfolio, what I would say is, again it's just too early to comment. I think it's premature. And frankly, as I was saying, still sort of under 20 working days at ConvaTec. So I think it's premature. So -- but I would just say look, very much in that diagnostic mode and that assessment mode and obviously, as we try to provide more color and specificity to our direction of travel in 2020, we'll be able to try to maybe answer some of these types of questions. But right now, I would say, very, very focused, Frank and I on, let's make the assessment and let's prioritize what we need to focus on. One key area that I've already said to you that we are definitely going to focus on is the Transformation Initiative. That stays paramount and the whole concept of needing to focus on execution excellence. Frankly, that's probably the top of mind concept or idea that we have right now.
Great. Could I maybe just follow-up on the Transformation Initiative. So when you kind of look at the budgets and the costing to the different programs that are being run. Are you at this stage -- are you happy with what has been set aside? Or do you think there might need to be some tweaks there?
I think the short answer, again, it's just premature to draw a conclusion. That's obviously something I'm looking at, which is what are the initiatives? What years are they focused on? When do we expect them to impact? What is the kind of investment required? But I think the positive thing is that there's a real commitment organizationally, and we're putting in place the resources to make sure that we drive that transformation agenda. So again, we're going to need to sort of size up. Is the investment going to suffice or not? But I think at this point, it would be premature to draw any conclusion.
We have a question from Paul Cuddon of Numis.
3 quick questions, please, guys. If you were to add up the tailwinds for Wound Care and the tendering for Ostomy. Are they as significant as the benefit you've had in CCC? Next on infusion devices. Sales have been pretty stable around the $70 million mark now. So I mean, any reason why we would now see a substantial decline in Q4? And just lastly, on the covenants. I think the last facilities were pretty generous. So if you could just run through the new debt facility covenants that would be appreciated.
Okay. So the tailwinds are in terms of basis point impact smaller than the CCC one. The CCC was a combination largely because of the packaging recall and a little bit of the tail end of the rationalization of the portfolio, which was about 370 bps for the specific franchise and about 90 for total. I would say, if you take out the tailwinds in Wound, you'll probably come a lot closer to 3% underlying growth. That's how you have to look at this. So the impact was material for Wound but not as big as CCC. Then ID $70 million, as I said before ID is following a very different pattern every year. They have a very lumpy quarterly profile, and therefore last year, we had a very weak Q4, but we had a very strong first half. And the weak Q4 was negative 25%. Given that this year we also had a very strong first half, you can't just translate that into, okay, last year you were negative 25%, so this year you're going to be plus double digits. That is not going to happen because a lot of the orders came already in -- earlier in the quarter, and therefore, I prefer besides being doing for the last 2 years to talk about ID more in terms of full year growth. And the full year growth is going to be lower than historical growth rates of about 4% to 4.5%, largely driven by the dynamic of Animas being out of the market. So that's how you have to look at it. Year-to-date, September 1.9%, full year less than 4%, and you can do the math.
And then the covenants.
Yes. Basically, let me just give a little bit of an overview of what we have achieved here. So first of all, of course, we have now pulled deals, $1.5 billion with a 5-year maturity all the way out to 2024. It is a deal with a relationship bank [indiscernible] only, and we also brought down the overall number of banks, in the prior year they were around 20 and it's going down to around 40 -- 14, sorry. We also have full flexibility to go into, of course, debt capital markets at a later stage, if we want to. And except for the sheer pledge, this is -- this debt is fully unsecured versus the prior one was fully secured. Covenants are pretty light. We basically have an acquisition spike in the covenants, which will allow us to go up to 4.5% or so. And then, of course, over a period of time, we have to bring that down. So a good deal for the company.
The next question on the line is from Chris Gretler of Credit Suisse.
Welcome, Karim, to here and wishing all the best. So I have a few questions. First actually on the refinancing and to follow-up. Could you actually quantify now the savings you expect from these new refinancing line? Will be my first question and then I have some operational.
Yes. So overall, the interest cost is going to be very similar than the old deal because on a pure deal-by-deal comp -- the interest also is coming down. But as you probably know we had on top of the prior deal, we had an interest swap in place that would expire in 2020. And that maybe brings down the interest charge from the old deal to the same level as the new deal. So that's how you have to think about it. Deal versus deal favorable, but because of the interest -- similar to interest call.
Okay, got you. And then just on the Wound Care business. In the U.S., I think you didn't really comment that you already see certain improvements. Is this sales force expansion impacting the growth from Q4 onwards? Or what would be your expectations?
Yes. So as you know in the first half, we have in the change our model to a more specialized sales force model, finalizing that with key hires, et cetera, over the summer, including training. In the second quarter, we already saw an improvement in call rates and that has continued in the third quarter, a low double-digit increase in call rates. Also in medical devices, it typically takes 6 to 9 months before sales people are going to be productive, and therefore in line with what we said in August, we don't really expect any improvement in output in 2019 because of that productivity ramp up, and we should start to see some returns coming in over the course of 2020.
And then just on the catheter business. Could you maybe, kind of, be a bit more specific on the performance of the HDG business in terms of growth rate? And how is it kind of double digit or also relative to -- on a sequential basis?
Yes. So if you take the easier comp out of the equation, we said it was about 370 basis points, you come to a 4% to 4.5% growth rate for CCC and HDG is growing a little higher than that. And then the number is dragged down by continued lower performance in hospital and Critical Care as we have experienced. So HDG is not a double-digit grower. It's somewhat higher than the 4%, 4.5% that we experienced with a total for the CCC business.
And then my last question is on Ostomy. You mentioned the SKU rationalization from Q4. Would you be able to quantify that? And I think you did so in the past on the CCC business, for example, so that would be helpful.
Yes, this is just a start of a relatively small sample of SKUs. So we're not really quantifying that at this stage. And when we are going to talk in 2020 about a transformation, there will be some more information about our overall plans. But at this moment, I would like to keep that under wraps.
The next question on the line is from Hassan Al-Wakeel from Barclay.
I have 2, please. So firstly on Ostomy, how is the U.S. business performing? And are we seeing any improvement in NPC rate trends? And how should we think about the business in Q4 and in next year? And secondly also in Ostomy, do you have an updated time line for the new product platform in this business, should we expect it to be a 2020 or 2021 event?
Okay. So the U.S. business, the NPC. We have data on NPC, of course. First of all, it's sample data, as you know, and it is always delayed. So the latest information we have is on the second quarter -- through the second quarter of 2019, and we continue to see a slow decline in NPC data in the U.S. So that business is not performing in line with the market and not contributing at all to the growth of the Ostomy business at this stage. The second question, really we don't comment on quarterly franchise or quarterly target numbers for organic growth. So I would like to keep that to myself at the moment.
And I think then there was a question just a little bit about the new product area.
Sorry. Yes, yes, right, right. Yes. So new product launch, I don't think there is going to be a new product launch or changes to the current platform foreseen in the year 2020.
The next question is from David Adlington of JPMorgan.
So just on your Wound business in Germany. Just wondered how exposed you were in terms of Silver and whether you're seeing any other markets reassessing the usefulness of Silver? And then also in Wound, one of your competitors recently launched a gel fiber product to compete with you guys. I just wondered if you had any early feedback on that and how you're trying to defend against any product launch?
Yes. So the Wound business in Germany, I think, is about 5% of our total business and about half of that is Silver. And as we have mentioned before, the fact that active ingredients are probably going to be taken out of the classical reimbursement that doesn't mean that we will lose that business, but of course, that will have to be replaced with non-active ingredient type products, where we have a good portfolio of opportunities. We expect that the official decision is going to be made public towards the end of the year, and then it will be implemented probably in the first half of 2020. However, there will also be guidelines for manufacturers like us, how we can get -- if it's going to be taken out, Silver back in classical reimbursement. On the competitor products -- listen, the gel fiber marketplace, there has been a lot of products, and it has been a competitive marketplace for a very long time. So no real change there, and we have not really seen any of that product yet. We believe we have a very strong product, a very strong brand with our AQUACEL product lines, and we have a great market share position in a lot of markets, but we have not seen any activity yet from that competitor.
The final question that we have time for today is from Charles Weston of RBC.
I have 2. First of all, just to touch back on to the ID lumpiness. You were talking about how it was a very strong first half last year and a weak fourth quarter, but that was specifically due to some inventory policy changes, which affected sales by $20 million. So without that, the revenues would have been flat in Q4. So is there any reason other than lumpiness why revenues wouldn't have rebounded in Q4 2019 compared to sort of unadjusted Q4 2018 number? And secondly, it's the first quarter for some time, you haven't talked about skin care. Is that because it's now just sufficiently small, it's not worth talking about? Or has that business stabilized?
Okay. So the first question, I don't know if I totally understand the question. Was that specifically related to ID?
Yes.
So last year indeed, Q4 was a very big negative. But as I said before, it was a negative 25%, because of quarterly lumpiness, you can't really look at that business quarter-by-quarter. And therefore, we assume -- you have to look at this at total year level and the total year will be below historical growth rates. So I don't know what is further necessary to explain that.
It was specifically about the change in inventory policy that happened in Q4 '18, which is the cause of the lumpiness in Q4.
That's right, that's right. Okay. So let me give you one more specific historical element here. In '17, there was a big recall activity that drove inventories down to very low levels in that specific customer. And then the plan was to get the inventory levels back to normal rates at the end of 2018. And that happened throughout Q1, Q2 and to a certain extent Q3. And then we got in Q4, suddenly this big correction that the customer decided we want to stay at these very low levels that we started with, and that is the reason why you saw a correction in Q4. But at the total level for 2018, the inventory levels were very, very similar. And as I mentioned before, we had a very strong first half in 2019. Is it okay?
Okay. Yes. And then on skincare?
Yes, skincare is for the full year, a clear drag. In Q3, we had a -- less of a drag but in total, as part of their legacy product group of about 40%, the overall drag for -- in the Wound Care franchise was very similar as we have experienced before. So pretty decent to good growth in Foam and Silver with a drag in the legacy portfolio and skincare is a portion of that. It's at similar levels as it was in Q3. Sorry, at Q2, sorry.
Okay, super. So I just want to sort of try to conclude by basically just saying, thank you to everybody on the call, on Frank's behalf, on my behalf, on John's behalf, and we're very much looking forward, and I'm certainly looking forward to meeting each and every one of you in person. And I just want to say thank you for the open and constructive dialogue. John, I don't know if there's anything else that you wanted to do or say at this point?
No. That's all for me.
Okay, super. Frank, anything here?
No.
Okay. Well, thank you to everybody, and we look forward to seeing you soon.
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