Slide 1: 2019 Annual Results & Strategic Update
2019 Annual Results & Strategic Update 28 February 2020
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 and agenda
Hosts and agenda John McAdam Frank Schulkes Karim Bitar Chairman Chief Financial Officer Chief Executive Officer 1. Introduction 2. Financial review 3. Strategic update 2
Slide 4: 1. Introduction
1. Introduction John McAdam, Chairman 3
Slide 5: 2. Financial review
2. Financial review Frank Schulkes, Chief Financial Officer 4
Slide 6: Financial results - Performance in line with expectations
Financial results - Performance in line with expectations 2019 2018 Growth Comments Revenue $1,827m $1,832m 2.3%1 • $49m FX headwind, $1.4m M&A Gross margin2 59.0% 60.2% (120) bps • (40) bps FX and (80) bps performance incl. transformation • Investment in transformation and MDR Opex2 % revenue 39.6%
Slide 7: 2019 revenue - Modest organic growth
2019 revenue - Modest organic growth Organic1 growth 2.3% 0.5% 1.9% 4.1% 4.1% 1 11 ($m) 18 (49) 1,832 3 11 1,827 2018 Advanced Wound Ostomy Continence & Infusion M&A FX 2019 Care Care Critical Care Care • Reported revenue declined 0.3% and grew 2.4% at constant currency • $49m currency headwind, pri
Slide 8: AWC & OC - Further improvement required
AWC & OC - Further improvement required Advanced • Foam and silver driving growth with strong performance from AQUACELTM Ag+ / Advantage anti-biofilm Wound Care1 • New product launch, ConvaMaxTM, in super absorber segment • Pressure on legacy portfolio remained FY 19 0.5% • Solid performances in EME
Slide 9: CCC & IC - Performing solidly
CCC & IC - Performing solidly Continence & • Strong performance from Home Service Group, gaining share in US continence market Critical Care1 • GentleCathTM Glide growing strongly • Hospital & Critical Care revenue declining modestly FY 19 4.1% • Growth benefits from prior year packaging recall Q4 1
Slide 10: Margin & cost review - Continuing to invest
Margin & cost review - Continuing to invest Gross margin1 rate % Opex1 % of revenue 39.6% 2.2% 36.7% 2.7% 2.7% TI & MDR YoY change 10.9% 11.4% R&D Movement (120) bps G&A One-off Transformation (30) bps 60.2 S&D 59.0 FX (40) bps Operational (50) bps 23.6% 22.7% 2019 2018 2019 2018 • Negative price /
Slide 11: Cash and leverage - Robust cash generation and continued deleverage
Cash and leverage - Robust cash generation and continued deleverage Adjusted Cash Flow ($m) Net Debt 2019 2018 31 Dec 2019 31 Dec 2018 ($m) ($m) EBITDA1,3 443 482 Long-term borrowings2 (1,486) (1,621) Cash and cash equivalents 386 316 Capex (61) (72) Net Debt (1,100) (1,305) 11.4% Δ NWC 52 (21) Net
Slide 12: Transforming ConvaTec by Pivoting to Sustainable and Profitable Growth
3. Strategic update Karim Bitar, Chief Executive Officer Transforming ConvaTec by Pivoting to Sustainable and Profitable Growth 11
Slide 13: Pivoting to Sustainable and Profitable Growth
Pivoting to Sustainable and Profitable Growth • Attractive markets Context • Mixed performance • Organisational complexity Challenge • Limited capabilities • Imbalanced P&L • Clear vision • Defined strategic pillars Path forward • Simplified operating model • New values 12
Slide 14: We compete in attractive markets
We compete in attractive markets Market size1 Market growth (circa $bn) (circa) Advanced Wound Care2 7.0 4% Ostomy Care3 2.5 4% Continence Care4 2.0 4% Infusion Care5 1.0+ 5% 1 Market size and growth information are estimates and are based on internal analysis and publicly available sources, includi
Slide 15: However, our performance has been varied
However, our performance has been varied ConvaTec 2019 revenue ($m) Performance Advanced Wound Care 570 Mixed Ostomy Care 525 Lagging Continence & Critical Care 457 Mixed Infusion Care 275 Leading 14
Slide 16: We face some internal challenges
We face some internal challenges Challenges Imbalanced P&L Revenue growth 1 Indicative comparator information for peer group based on publicly available 15
Slide 17: We need to serve the distinct needs of patients and caregivers
We need to serve the distinct needs of patients and caregivers Advanced Wound Care Ostomy Care Continence Care Infusion Care Who are our Patients of all ages Elderly patients Elderly and disabled Patients with long-term typical patients? patients needs, particularly diabetes What are their • Ulcers
Slide 18: As part of our transformation, we are strengthening our organisational architecture
As part of our transformation, we are strengthening our organisational architecture Vision Strategy Operating model Values 17
Slide 19: Our new vision
Our new vision “Pioneering trusted medical solutions to improve the lives we touch” 18
Slide 20: We have established five strategic pillars
We have established five strategic pillars to achieve our strategic intent of Pivoting to Sustainable and Profitable Growth Focus Innovate Simplify Build Execute on “must-win” in our work and our operations “mission-critical” with excellence markets and trusted solutions capabilities categories 19
Slide 21: Focus: We will invest strategically in key markets and categories
Focus: We will invest strategically in key markets and categories Invest heavily in top Compete effectively Serve indirectly or 12 markets in ~40 other markets exit ~35 tail markets 20
Slide 22: Innovate: differentiated patient-centric trusted medical solutions
Innovate: Our innovation will focus on providing differentiated patient-centric trusted medical solutions Trusted medical solutions Wrap-around Products Smart Design- Innovation Services to-value driven Patient centric Patient-centric across… innovation innovation Evidence- Digital based Personalise
Slide 23: Simplify: We are simplifying our operating model
Simplify: We are simplifying our operating model to be more customer-centric, agile, innovation-led and accountable CEO Advanced Wound Home Services Global Emerging Ostomy Care Continence Care Infusion Care Care Group Markets Technology and Innovation Quality, Operations and Regulatory Customer Supp
Slide 24: Build: building mission-critical core capabilities across the value chain
Build: We are building “mission-critical” core capabilities across the value chain R&D Supply chain Marketing Service Commercial Strengthening product, Producing high quality Focusing on customer Broadening our service Improving our process and clinical solutions reliably and insights, targeted capa
Slide 25: Execute: Instil executional excellence across the organisation
Execute: Instil executional excellence across the organisation More than 100 initiatives being implemented Examples (Commercial, Operational and Business Services) ▪ US Wound Care specialised salesforce ▪ Ostomy SKU rationalisation ▪ EU CRM implementation ▪ Packaging waste reduction ▪ AQUACELTM Ag A
Slide 26: Our new values will underpin our vision, strategy and operating model
Our new values will underpin our vision, strategy and operating model Do what’s Improve right care Pioneering trusted medical solutions to improve the Deliver Own lives we touch results it Grow together 25
Slide 27: Investing to realise Pivoting to Sustainable and Profitable Growth
To realise our strategic intent of Pivoting to Sustainable and Profitable Growth, we are investing Increasing non- Increasing investment Increased anticipated recurring in ongoing costs to annual gross benefits transformation c.$75 million in 2021, between investment to (previously $150 to $170 mill
Slide 28: In summary – Starting to transform ConvaTec
In summary – Starting to transform ConvaTec Financial performance is on track ▪ Modest revenue growth ▪ As expected, profits are down Transformation is being implemented at pace as we Pivot to Sustainable and Profitable Growth 2020 outlook: ▪ Constant currency revenue growth: 2.0% to 3.5%1 ▪ Constan
Slide 29: Q&A
Q&A 18: (ij ™ i EDI Natura"® @ WOrenyrern re —- AQUACEL Foamlite = sayacetas Avelle’ Aeris” ~~ ™ ™ GentleCath ESTEEM @ Flex Convex
Slide 30: Appendix
Appendix 29
Slide 31: Transformation investments and benefits
Transformation investments and benefits Now Previously Total: c.$210m Total: c.$150m Non- - Cost: c.$105m - Cost: $140m to $150m recurring investment - $35m to $40m excluded from adj. EBIT - Capex: $60m to $65m - Capex: c.$45m Recurring annual c.$75m pa by 2021 c.$50m pa by 2021 investment Annual gr
Slide 32: Transformation Initiative investments and benefits
Transformation Initiative investments and benefits Transformation investment • Transformation investment of c.$210 million over 2019 to 2021 (previously c.$150 million over 2019 to 2021). This consists of: • $140 million to $150 million of cost investment, of which between $35 million and $40 millio
Slide 33: Quarterly revenue performance
Quarterly revenue performance Quarterly reported revenues by franchise Organic1 growth rate by franchise (%) 2018 2019 2018 2019 $m Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q1 Q2 Q3 Q4 AWC 147 151 130 142 148 151 0.8 (1.8) (6.8) 3.3 3.6 1.8 Ostomy 132 136 120 133 132 141 1.5 (1.5) (0.8) 0.3 3.0 5.2 Care C&CC 108 115
Slide 34: Quarterly revenue performance
Quarterly revenue performance Quarterly reported revenues by region Organic1 growth rate by region (%) 2018 2019 2018 2019 $m Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q1 Q2 Q3 Q4 Americas 232 238 221 241 247 250 (1.1) (6.0) (5.0) 1.1 7.1 5.1 EMEA 185 185 177 181 180 186 1.3 (3.5) (0.2) 3.3 1.9 3.2 APAC 36 36 33 36 3
Slide 35: Exchange rate sensitivity
Exchange rate sensitivity ▪ ConvaTec’s geographic profile can lead to transactional currency impacts. ▪ We monitor key rates against the US dollar. ▪ 31st January 2020 spot rates would indicate a $6-7m gain on revenue and negligible impact on adjusted EBIT compared with average FY19 rates FY 2019 FY