Convatec Group Plc · LSE:CTEC
Convatec — H1 2019 Earnings Presentation
35 slides from Convatec's earnings presentation, Aug 1, 2019
Slide 1: 2019 Interim Results
2019 Interim Results 1 August 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 David Shepherd Executive Chairman Chief Financial Officer President AWC 1. Introduction – Rick Anderson 2. Financial and operational review – Frank Schulkes 3. Transformation update – Rick Anderson 4. US Wound update – David Shepherd 5. Summary and close –
Slide 4: 1. Introduction
1. Introduction Rick Anderson Executive Chairman
Slide 5: Interim Results 2019 – Key Points
Interim Results 2019 – Key Points • Group organic revenue in H1 flat1, +1.0% excluding the one-off rebate provision2 • Progress in Q2: Group organic growth 2.1%1 with growth across all franchises • Transformation Initiative on track: ― Annual gross benefit of $130 million – $150 million in 2021 ― $1
Slide 6: 2. Financial and operational review
2. Financial and operational review Frank Schulkes Chief Financial Officer
Slide 7: Financial highlights
Financial highlights Performance in line with internal expectations H1 2019 H1 2018 Growth Comments Revenue $889m $921m -3.5% • FX -360 bps, rebate provision -100 bps, M&A +10bps • Organic1 revenues flat • FX, rebate provision, flat operational Gross margin2 58.6% 59.3% -70 bps • Net productivity be
Slide 8: Revenue performance
Revenue performance Q2 - good organic growth H1 2018 – H1 2019 revenue bridge Organic growth excl. rebate provision 1.0%1 Advanced Ostomy Wound Care Care +0.0% +0.6% +3.0% +0.8% +3.3%1 +0.3%1 6.5 1.2 (100) bps 921.3 0.0 1.6 (360) bps (8.9) 0.4 888.9 (33.2) Continence & Infusion Critical Care Devices
Slide 9: H1 2019: franchise performance
H1 2019: franchise performance Advanced • Q2 organic growth +3.3%1, H1 flat1 ex. rebate provision Wound Care • AQUACELTM Foam and Silver growth offset by legacy products • US - completed our move to a new salesforce model, positive lead indictors H1 19 (1.8)%1 • AvelleTM disposable NPWT2 and AQUACEL
Slide 10: H1 2019: franchise performance
H1 2019: franchise performance Continence & Critical Care • Q2 +2.8%1 organic growth, H1 +3.0%1 ex. rebate provision • HDG remains growth driver H1 19 +2.3%1 Q2 19 +2.8%1 • Scaling up launch activity for next generation female catheter in Europe Infusion Devices • Strong level of orders from custome
Slide 11: Margin and cost overview
Margin and cost overview H1 gross margin1 rate % H1 opex1 % of revenue 40.0% 37.2% 2.7% 2.7% FX (25) bps TI cost 1.6% 11.6% 11.5% R&D Rebate (45) bps G&A Operational 0 bps 59.3 S&D 58.6 24.1% 23.0% H1 2019 H1 2018 H1 2019 H1 2018 • TI investment $13.7 million – largely in G&A • Efficiency programmes
Slide 12: Good cash conversion and reduced leverage
Good cash conversion and reduced leverage Adjusted Cash Flow ($m) Net Debt H1 2019 H1 ($’m) 2017 2018 30 Jun 31 Dec 30 Jun 2019 2018 2018 EBITDA1 205 229 ($m) ($m) ($m) Long-term borrowings2 (1,588) (1,621) (1,779) Capex (31) (35) Cash and cash equivalents 376 316 339 11.4% NWC 10 (22) Net Debt (1,2
Slide 13: 2019 Guidance maintained
2019 Guidance maintained Organic revenue growth 1.0% to 2.5%1 Adj. EBIT margin 18% to 20% Guidance assumptions Guidance assumptions Includes negative impact of one-off rebate provision in Q1 (c.- Negative impact of one-off rebate provision in Q1 (c. -40 50bps) bps) Assume price erosion for FY 2019 i
Slide 14: 3. Transformation update
3. Transformation update Rick Anderson Executive Chairman
Slide 15: Recap: Pivot to Growth
Recap: Pivot to Growth SIMPLIFY INNOVATE SEGMENT INVEST 14
Slide 16: Recap: Transformation Initiative
Recap: Transformation Initiative Commercial Excellence Operational Excellence Business Services Portfolio Optimisation Transformation $150 million investment 3 year investment Benefits programme Capex Operational cost $45 million $105 million Higher revenue growth More profitable revenue Payback 2 -
Slide 17: Transformation office established – embedding our new execution model
Transformation office established – embedding our new execution model Transformation Office People deployed Detailed tracking: into business to The ConvaTec Way weekly reviews, high accelerate and level of visibility Model to embed amplify more discipline and better execution into the business Tight
Slide 18: Transformation Initiative – progress in first six months
Transformation Initiative – progress in first six months • Completed significant US AWC salesforce restructuring & expansion Commercial Excellence • Improved pricing discipline Operational Excellence • Delivered net positive productivity Business Services • Scoped pilot initiatives and moved to deta
Slide 19: Attractive return on our investment plans
Attractive return on our investment plans $150 million TI investment Annual gross benefit in 2021: $130 – $150 million Price Portfolio Mix Our Optimisation Inflation aspiration: Bus. Services Depreciation top 1/3 Transformation Recurring TI Global Operational OPEX / COGS MedTec Excellence Commercial
Slide 20: 4. US Wound update
4. US Wound update David Shepherd President Advanced Wound Care
Slide 21: Introduction
Introduction • Joined ConvaTec in November 2018 • 26 years at Johnson and Johnson - variety of sales, marketing, strategic and general management roles – all within Medical Devices • Area Vice President, Southern EMEA with responsibility for all the J&J Medical Devices business in Southern Europe. •
Slide 22: US Advanced Wound Care
US Advanced Wound Care • US is 30% of Advanced Wound Care revenue • Not enough commercial discipline • Previously too focused on: • Insufficient drive of in-market demand ― acute vs. chronic in terms of segment • Our growth has been significantly below the ― Surgical Cover Dressing in terms of produ
Slide 23: Overview of strategy for acceleration: progress update
Overview of strategy for acceleration: progress update >20% improvement in 1. Improve focus on • Focus on top accounts for acute & chronic sales teams call rates in Q2 across top accounts • Weekly tracking of field activities salesforce 2. Expand and • Q1 - built Specialty focussed US sales teams Co
Slide 24: Summary of progress to date
Summary of progress to date Seeing positive lead indicators as new model settles down Accelerating call activity Rigorous tracking of activity and accountability Sales pipeline identified and validated – still lots of opportunity On track with our plan – focused on driving momentum 23
Slide 25: 5. Summary & close
5. Summary & close Rick Anderson Executive Chairman
Slide 26: Summary and outlook
Summary and outlook Improving trend in Q2 - expect continued progress in H2 Transformation - on track, spend H2 weighted Full year guidance maintained 25
Slide 27: Product brands
Blea «= Natura" @ Wlorwrnee AQUACEL FoamLite — aaceras) Avelle” GentleCath’ genio” ESTEEM © Flex Convex
Slide 28: Appendix
Appendix
Slide 29: Revenues by geography
Revenues by geography H1 2019 H1 2018 Reported Organic growth1 Organic growth1 reported ($m) reported ($m) growth ex rebate2 EMEA 358.1 378.3 (5.3)% +1.5% +1.5% Americas 462.3 475.1 (2.7)% (1.9)% (0.1)% APAC 68.5 67.9 +0.9% +5.6% +5.6% Group 888.9 921.3 (3.5)% 0.0% +1.0% 1 Organic growth presents ye
Slide 30: Quarterly revenue performance
Quarterly revenue performance Quarterly reported revenues by franchise Organic growth rate by franchise1 2018 2019 2018 2019 $m Q1 Q2 Q3 Q4 Q1 Q2 % Q1 Q2 Q3 Q4 Q1 Q2 AWC 147.1 142.9 146.8 150.7 129.7 141.7 AWC 2.2 (0.2) 0.8 (1.8) (6.8) 3.3 11.4% 128.0 OC 138.0 11.9%135.9 131.4 119.6 132.6 OC (2.5) 0
Slide 31: Quarterly revenue performance
Quarterly revenue performance Quarterly reported revenues by region Organic growth rate by region1 2018 2019 2018 2019 $m Q1 Q2 Q3 Q4 Q1 Q2 % Q1 Q2 Q3 Q4 Q1 Q2 Americas 234.3 240.8 231.9 238.3 220.9 241.4 11.4% Americas 8.1 x% 4.8 (1.1) (6.0) (5.0) 1.1 EMEA 192.2 186.1 184.6 184.5 176.9 181.2 EMEA (
Slide 32: FX rates
FX rates H1 2019 Average H1 2018 Average EUR/USD 1.13 1.21 GBP/USD 1.29 1.38 DKK/USD 0.15 0.16 H1 2019 Closing H1 2018 Closing EUR/USD 1.14 1.17 GBP/USD 1.27 1.32 DKK/USD 0.15 0.16 31
Slide 33: Reconciliation reported earnings to adjusted earnings
Reconciliation reported earnings to adjusted earnings Six months ended June 2019 Other Gross Operating Operating Finance expenses, Net Revenue profit costs profit costs net PBT Taxation profit Six months ended 30 June 2019 $m $m $m $m $m $m $m $m $m Reported 888.9 459.2 (365.6) 93.6 (32.1) (0.2) 61.
Slide 34: Reconciliation reported earnings to adjusted earnings
Reconciliation reported earnings to adjusted earnings Six months ended June 2018 Other Gross Operating Operating Finance expenses, Net Revenue profit costs profit costs net PBT Taxation profit Six months ended 30 June 2018 $m $m $m $m $m $m $m $m $m Reported 921.3 480.4 (358.4) 122.0 (32.9) (0.6) 88
Slide 35: Technical guidance
Technical guidance Tax • Effective tax rate c.16.5% Foreign • Approx. movement of US dollar on revenue and EBIT, $US weakens 1%: exchange Currency Revenue Adjusted EBIT EUR/DKK ~$5 million ~$2 million impacts GBP ~$2 million ~($1) million 34