Coloplast's Strategic Overhaul: Can a Focused Play on Chronic Care and Wound Healing Drive Sustainable Growth?

Coloplast A/S (CPH:COL-B) has entered a pivotal phase, with its Capital Markets Day 2025 signaling a sharp pivot toward sustainable growth leadership under its Strive25 strategy. Amid leadership upheaval and operational turbulence, the medical device giant is betting on two core pillars—Chronic Care and Advanced Wound Care—to deliver 7-9% annual organic growth and an EBIT margin exceeding 30% by 2025. The question for investors: Can Coloplast execute this turnaround amid rising risks in China, regulatory headwinds, and a fractured leadership transition?

Chronic Care: Luja's Surge Masks Ostomy Care Headwinds

Coloplast's Chronic Care division is the engine of its near-term growth. The Luja™ line, a premium incontinence product, delivered 7% organic growth in the first half of 2024/25, offsetting stagnation in Ostomy Care (flat in Q2 due to China's slowdown and tender delays). Management's focus on high-margin Continence Care—where Luja holds ~30% global market share—suggests strategic discipline.

However, the Ostomy Care segment, which accounts for ~25% of revenue, faces hurdles. China's regulatory delays and emerging market tender phasing have slowed progress. Analysts caution that without a rebound in Q3/Q4, Chronic Care's full-year growth could slip below 6%, testing the Strive25 framework.

Advanced Wound Care: Kerecis's 30% Growth Shines, but Dressings Lag

The star of Coloplast's portfolio is Kerecis, its biologics subsidiary. Kerecis' marine-derived wound dressings grew 30% organically in H1, with an EBIT margin of 12% before amortization. The delayed U.S. Local Coverage Determination policy (now postponed to 2026) has removed a key overhang, enabling Kerecis to capitalize on its $1.5 billion global wound care opportunity.

Yet Advanced Wound Dressings—a legacy business—struggled with 3% growth in Q2, hampered by China's slowdown and high comparables. Management's $250 million sustainability investment (packaging, production) aims to reinvigorate this segment, but execution is critical.

Leadership Transition: A Double-Edged Sword

The abrupt exit of CEO Kristian Villumsen in May 2025 and the return of Lars Rasmussen (interim CEO, 2008–2018) injects uncertainty. Rasmussen's experience is a plus, but his temporary role raises governance concerns. Barclays notes that $450 million in restructuring charges—linked to the Interventional Urology recall and cost-cutting—will fall squarely on his watch.

The stock has slumped ~30% since late 2023, reflecting skepticism over leadership and the Urology crisis. Yet Rasmussen's focus on core businesses—Chronic Care, Wound Care—aligns with investor priorities. A permanent CEO with R&D/innovation expertise is key to sustaining momentum.

Divestitures: A Necessary Prune

Coloplast's decision to exit its Skin Care division—which dragged down reported growth by 1.5 percentage points—was strategic. By shedding low-margin businesses, management can reallocate resources to high-growth areas like Kerecis. This move also underscores a capital discipline that should improve returns on invested capital (ROIC).

Risks: China, Competition, and Regulatory Overhangs

• China's Ostomy Market: Slower-than-expected tender approvals could delay Ostomy Care's rebound.
• Wound Care Competition: Incumbents like 3M and upstarts like Kerecis rivals (e.g., ACell) pose threats.
• Interventional Urology's Lingering Woes: The division's 0% growth in H1 hints at deeper issues. A potential sale or shutdown could free up capital but risk reputational damage.

Financials: A Revised, Yet Manageable Outlook

Despite lowering its 2024/25 organic growth target to ~7% (from 8–9%) and trimming its EBIT margin to 27–28%, Coloplast's $1.1 billion interim dividend reaffirms cash flow resilience. With net debt/EBITDA at <2x, the balance sheet supports bolt-on acquisitions in wound care (e.g., MiMedx in the U.S.).

Investment Thesis: Buy the Dip, but Monitor Q3 Execution

Coloplast trades at a 37% discount to its 2023 peak, offering a compelling entry point. The Strive25 strategy's focus on high-margin products (Kerecis, Luja) and sustainability-driven cost cuts positions it to outperform peers in a cost-conscious healthcare landscape.

Risks remain, but the stock's ~12% dividend yield and $6.2 billion market cap (vs. $2.5 billion in cash) provide a margin of safety. Investors should watch for Q3 updates on Ostomy Care's China recovery and Urology's restructuring progress.

Bottom Line: Coloplast's strategic overhaul is a high-risk, high-reward bet. For those willing to overlook near-term noise, the company's $10 billion+ addressable market in chronic and wound care—backed by a disciplined cost structure—could deliver outsized returns by 2025.

Recommendation: Buy with a 12–18 month horizon, target price DKK 160/share.