Slide 1: 2018 Annual Results & Business Update
2018 Annual Results & Business Update 14 February 2019 0
Slide 2: Disclaimer
Disclaimer THIS PRESENTATION IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES OF AMERICA, ITS TERRITORIES OR POSSESSIONS, OR TO ANY RESIDENT THEREOF OR ANY OTHER JURISDICTION WHERE SUCH DISTRIBUTION WOULD BE UNLAWFUL OR TO ANY OTHER PERSON. This pres
Slide 3: Hosts & agenda
Hosts & agenda Rick Anderson Frank Schulkes Donal Balfe Chief Executive Officer Chief Financial Officer EVP Global Operations 1. Introduction – Rick Anderson 2. Financial and operational review of 2018 – Frank Schulkes 3. Execution model – Rick Anderson 4. Operational Excellence – Donal Balfe 5. Sum
Slide 4: 1. Introduction
1. Introduction Rick Anderson, Chief Executive Officer
Slide 5: Business review and initial conclusions
Business review and initial conclusions With Executive team completed deep dive Poor diagnostic of: Strong Leading Execution structural market • Franchise & Group strategic plans positions, Weakness in growth certain • Business units, geographies markets products products & • Leadership capabilities
Slide 6: 2. Financial and operational review of 2018
2. Financial and operational review of 2018 Frank Schulkes, Chief Finance Officer
Slide 7: Financial highlights
Financial highlights Performance in line with revised expectations 2018 2017 Growth Comments +2.7%1 Revenues $1,832m $1,765m • $44m net from recent M&A, $19m FX tailwind +0.2%2 Gross margin3 60.2% 61.0% -80 bps • 60.0% exc. FX, -100 bps performance • Investment in commercial initiatives and infrastr
Slide 8: 2017 – 2018 revenue bridge
2017 – 2018 revenue bridge Revenue ($m) Organic1 growth +0.2% 19 1,832 44 +0.2% -0.5% +4.1% -3.5% 16 1,765 1 (10) (3) 2017 Advanced Wound Ostomy Care Continence & Critical Infusion Devices M&A FX 2018 Care Care • Reported revenue grew 3.8%, or 2.7% at CER • $19m currency tailwind, principally Euro a
Slide 9: FY 2018: franchise performance – two franchises underperforming
FY 2018: franchise performance Two franchises underperforming…….. • Pressure on legacy portfolio Advanced • US underperformance – skin care, surgical cover dressing Wound Care • Challenging UK market dynamics continue to impact AQUACELTM HydrofiberTM • Q4 also reflects negative channel inventory mov
Slide 10: FY 2018: franchise performance – two in line with revised expectations
FY 2018: franchise performance Two delivering in line with revised expectations……… Continence & Critical Care • Strong performance from US Home Distribution Group • Impact of packaging recall c.$4 million lower revenue; Q4 impact $1.5 million FY 18 +4.11% • Launch of female next generation catheter
Slide 11: Margin and cost overview
Margin and cost overview Gross margin1 rate % Opex1 % of revenue 36.7% 35.1% 2.7% 2.3% YoY change 11.4% 11.4% R&D Movement -80 bps G&A 60.2 61.0 FX +20 bps S&D Operational -100 bps 22.7% 21.4% 2018 2017 2018 2017 • Increased commercial investment to support: • Negative price / mix • regional growth
Slide 12: Good cash conversion and reduced leverage
Good cash conversion and reduced leverage Adjusted Cash Flow ($m) Net Debt 2018 2017 2017 ($’m) 31 Dec 31 Dec EBITDA1 482 505 2018 2017 ($m) ($m) Capex (71) (83) Long-term borrowings3 (1,621) (1,797) 11.4% 11.9% Cash and cash equivalents 316 289 Δ NWC2 (21) (32) Net Debt (1,305) (1,508) Cash flow 39
Slide 13: 3. Execution model – “Pivot to Growth”
3. Execution model “Pivot to Growth” Rick Anderson, Chief Executive Officer
Slide 14: ConvaTec in numbers...
ConvaTec in numbers... $1.8 bn 81% 9,400+ 110+ GLOBAL REVENUE CASH CONVERSION EMPLOYEES COUNTRIES $268.3 m $587.5 m INFUSION DEVICES REVENUE 2018 ADVANCED WOUND CARE REVENUE 2018 $533.3 m $443.0 m OSTOMY CARE CONTINENCE & CRITICAL CARE REVENUE 2018 REVENUE 2018 95% GROUP REVENUE FROM 20% OF SKUs 65%
Slide 15: Our markets offer attractive structural growth
Our markets offer attractive structural growth Market fundamentals c.$10bn addressable market Market Market Size1 Growth1 • Favourable Global Healthcare Trends Advanced - Chronic conditions are increasing Wound Care $5.32 bn 4-5%2 - Expanding access to surgery • Structurally Growing Markets Ostomy C
Slide 16: Leading market positions, products and brands
Leading market positions, products and brands Advanced Global Ostomy Ostomy Care Mkt. pos. Mkt. share. Global Silver Dressings Wound Care Mkt. pos. Mkt. share. #3 20% #1 32% Global Disposable Infusion Sets for Insulin Pumps Continence & Mkt. pos. Mkt. share. Infusion Critical Care Devices #1 Retaile
Slide 17: Execution has hurt financial and commercial performance
Execution has hurt financial and commercial performance ISSUE IMPACT • Performance of premium products diluted • Too focused on top line growth vs. margin Revenue • Revenue growth significantly below market • Too many products deliver low revenues & margin • Negative mix • Not selling differentiated
Slide 18: Our execution model needs to “Pivot to Growth”
Our execution model needs to “Pivot to Growth” SIMPLIFY INNOVATE SEGMENT Simplify our business in Build on our R&D Focus on products and a number of areas capabilities to be the geographies with including product range, leading product and potential for sustainable packaging and supply service devel
Slide 19: Simplify
Simplify WHAT ARE WE GOING TO DO? FUTURE CONVATEC • Transformation Initiative • Focused franchises with leading positions • Operational Excellence • Simpler management structure • Alignment of incentives & culture to • Efficient Business Services performance • Further SKU rationalisation • “Ops manu
Slide 20: Innovate
Innovate WHAT ARE WE GOING TO DO? FUTURE CONVATEC • Increased R&D investment • Constant pipeline of innovation • Improved customer insight mechanism • Consistent demand-pull from end users • Selective M&A • Command price premium OUTCOMES • Business better defended from generic products • Brand value
Slide 21: Segment
Segment WHAT ARE WE GOING TO DO? FUTURE CONVATEC • Invest in value-based clinical evidence • Focus on premium markets, segments & geographies • More active portfolio management • Better pricing power • Cost optimisation • “Pull” not “push” model OUTCOMES • Increased profitability • More predictable
Slide 22: Invest
Invest 2018 % of Medium- Drivers revenue term trend2 • Salesforce expansion and training; accelerate US AWC, global Selling & catheter launch, APAC expansion 22.7% • Project management capabilities in supply chain Distribution1 • More rapid expansion of successful products into new markets • Increas
Slide 23: Changes to our leadership team
Changes to our leadership team • George Poole, Americas President • ConvaTec APAC President since 2015, implemented successful commercial strategy • Supratim Bose, APAC President • Joined ConvaTec January 2019 from Boston Scientific • David Shepherd, Advanced Wound Care President • Joined ConvaTec N
Slide 24: Transformation Initiative to accelerate and amplify delivery
Transformation Initiative to accelerate and amplify delivery CEO led transformation office Commercial Excellence Operational Excellence Business Services Portfolio Optimisation Transformation David Shepherd & Kjersti Grimsrud Donal Balfe Frank Schulkes Stephan Bonnelycke SIMPLIFY INNOVATE SEGMENT SE
Slide 25: Transformation Initiative – investments and benefits
Transformation Initiative – investments and benefits $150 million 3 year investment programme Capex Operational investment $45 million $105 million Payback 2 - 3 years Additional ongoing costs1 $50 million p.a. by 2021 Higher revenue growth Benefits More profitable revenue Lower cost base 1 Addition
Slide 26: Transformation Initiative – a deep dive
Transformation Initiative – a deep dive CEO led transformation office OPERATIONAL Business Services Commercial Excellence Portfolio Optimisation EXCELLENCE Transformation • Annual benefits of $80 million by 2021 • Total costs of $50 million over 3 years, c.$30 million capex, c.$20 million programme
Slide 27: 4. Operational Excellence
4. Operational Excellence Donal Balfe, EVP Global Operations
Slide 28: Operational excellence framework
Operational excellence framework Drive • War on waste • Health and safety first manufacturing • Optimise assets and footprint • Minimum impact on environment excellence Focus on • Right first time • Beyond compliance quality • Process and product excellence Maximise • Supplier collaboration supplier
Slide 29: Two case studies
Two case studies HydrofiberTM manufacturing – quality improvement • Focus on ConvaTec’s internal customers in Deeside • Line operators identified inconsistent textile quality in Ag+ machines, leading to product rejects • Defined ‘critical to quality’ process characteristics • Repositioned machine se
Slide 30: Driving continuous improvement
Driving continuous improvement Improved delivery capability Feasibility from (1 year ago) Development • Need to improve project management Projects muscle – more project managers and Execution engineers hired Complete • Increase number of Kaizen black & green belts – # green belts more than doubled,
Slide 31: Guidance for 2019
Guidance for 2019 Frank Schulkes, Chief Finance Officer
Slide 32: 2019 Guidance
2019 Guidance Organic revenue growth EBIT1 margin 1.0% to 2.5% 18% to 20% Guidance assumptions Guidance assumptions Improved AWC performance, supported by US c.$50 million investment in Transformation launches of AvelleTM and AQUACELTM Ag Advantage Initiative and MDR2 costs Expect year on year impro
Slide 33: 4. Summary & close
4. Summary & close Rick Anderson, Chief Executive Officer
Slide 34: Our execution model needs to “Pivot to Growth”
Our execution model needs to “Pivot to Growth” • Focused franchises with leading positions SIMPLIFY • Simplified range of more profitable products • Closer to the customer • Consistent demand-pull from end users INNOVATE • Command price premium • Constant pipeline of innovation • Focus on premium ma
Slide 35: Medium to long-term target: ≥ market growth
Medium to long-term1 target: Stronger Strong market Significantly structural positions, improved growth even better execution markets products Organic revenue growth Adjusted EBIT growth ≥ market growth > Revenue growth 1. Medium to long-term is 3 to 5 years 34
Slide 36: Natura"@ @ Wo esnremnnce AQUACEL
186 Natura"@ @ Wo esnremnnce AQUACEL Foamlite — syacetas) Avelle” ~~ NY ™ GentleCath’ (ene ESTEEM © Flex Convex |
Slide 37: Appendix
Appendix
Slide 38: Revenues By Geography
Revenues By Geography FY 2018 FY 2017 Reported Organic reported ($m) reported ($m) growth growth1 EMEA 747.4 733.0 +2.0% (1.3)% Americas 945.3 898.1 +5.3% +1.0% APAC 139.4 133.5 +4.4% +3.8% Group 1,832.1 1,764.6 +3.8% +0.2% 1 Organic growth presents year on year growth at constant exchange rates (“C
Slide 39: Quarterly Revenue Performance
Quarterly Revenue Performance Quarterly reported revenues by franchise Organic1 growth rate by franchise (%) 2017 2018 2017 2018 $m Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q1 Q2 Q3 Q4 AWC 147.9 157.8 147.1 142.9 146.8 150.7 1.4 2.3 2.2 (0.2) 0.8 (1.8) 11.4% 132.1 Ostomy 142.2 11.9% 128.0 138.0 131.4 135.9 (1.8) 0.3
Slide 40: Quarterly Revenue Performance
Quarterly Revenue Performance Quarterly reported revenues by region Organic1 growth rate by region (%) 2017 2018 2017 2018 $m Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q1 Q2 Q3 Q4 EMEA 185.3 198.5 192.2 186.1 184.6 184.5 (2.0) (0.5) (0.9) (2.1) 1.3 (3.5) 11.4% 225.6 Americas 255.0 234.3 x% 240.8 231.9 238.3 8.0 6.1 8
Slide 41: Reconciliation Reported Earnings To Adjusted Earnings
Reconciliation Reported Earnings To Adjusted Earnings Year ended 31 December 2018 Other Gross Operating Operating Finance expenses, Year ended 31 December 2018 Revenue margin costs profit costs net PBT Taxation Net profit $m $m $m $m $m $m $m $m $m Reported 1,832.1 973.8 (706.1) 267.7 (65.2) (1.3) 2
Slide 42: Reconciliation Reported Earnings To Adjusted Earnings
Reconciliation Reported Earnings To Adjusted Earnings Year ended 31 December 2017 Accelerated depreciation of $1.3 million relates to the closure of certain manufacturing facilities. The gain on disposal of assets of $2.6 million represents the sale of fully depreciated assets in Malaysia. Restructu
Slide 43: Adjusted net working capital
Adjusted net working capital 2018 2017 $m $m Reported Working Capital (23.2) (48.2) (Increase)/decrease in severance provision (3.6) 7.8 Decrease in accruals for remediation costs, corporate development and IPO-related costs 2.3 3.5 (Increase) in accruals for share based payment associated costs (0.
Slide 44: Technical Guidance
Technical Guidance Tax • Effective tax rate c.16.5% 11.4% Foreign • Movement11.9% of US dollar on revenue and EBIT, $US weakens 1%: Currency Revenue Adjusted EBIT exchange EUR/DKK ~$5 million ~$2 million impacts GBP ~$2 million ~($1) million 23.1% 22.4% 43