Convatec Group Plc · LSE:CTEC
Convatec — H1 2017 Earnings Presentation
29 slides from Convatec's earnings presentation, Aug 3, 2017
Slide 1: 2017 Interim Results
2017 Interim Results Continuing Execution of Our Strategy 3 August 2017 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: H1 2017: Continued Underlying Momentum
H1 2017: Continued Underlying Momentum Reported revenue $831.3 million grew +2.1% CER, or +1.5% organically1 • Including phasing impacts and short-term fulfilment constraints Underlying momentum across all franchises: • AWC: continued strong growth in foam, silver, surgical cover dressing and Avelle
Slide 4: H1 2017: Group Key Financial Metrics
H1 2017: Group Key Financial Metrics H1 2017($m) FY2016 ($m) Reported growth Reported growth CER growth +2.1% total Revenues Revenues 831.3 +0.3% +1.5%1 organic Gross Adj. Margin Gross 2 Margin 60.3% +150 bps +40 bps EBITDA Adj. 2 EBITDA 216.4 (4.3)% (8.5)% EBIT Adj. margin EBIT 2 margin 23.3% (190)
Slide 5: Franchise Summary
Franchise Summary H1 2017 Revenue ($m) H1 Organic Growth1 Q2 Organic Growth1 Advanced 2.6% 272.1 3.4% Wound Care Ostomy Care 254.7 2.4% 3.6% Continence & 175.1 (1.1)% (2.0)% Critical Care Infusion 129.4 (0.7)% 1.7% Devices Total Revenue 831.3 1.5% 1.8% 1 Organic growth is growth at constant exchange
Slide 6: Advanced Wound Care
Advanced Wound Care Continuing strong demand offset by fulfilment constraints Q1 Q2 4.2%1 2.6%1 • Continuing strong demand for AQUACEL®, especially foam, silver and surgical cover dressing • AvelleTM rollout continues, now selling in 12 countries • H1 growth impacted c.3%, fulfilment constraints, Fr
Slide 7: Ostomy Care
Ostomy Care Execution of strategy delivering accelerating growth Q1 Q2 • Revenue growth includes c.1% headwind from GPO contract 1.1%1 3.6%1 renewal • me+TM momentum continues • EsteemTM + Flex Convex success, strong global demand H1 2.4%1 • Launch of Accordion Convex • EuroTec integration going wel
Slide 8: Continence & Critical Care
Continence & Critical Care Good underlying momentum - Woodbury acquisition strengthens U.S. position Q1 Q2 • Successful U.S. launch of GentleCathTM Glide (0.1)%1 (2.0)%1 • Expansion of me+TM platform for continence patients • H1 growth impacted c. 5% or $9m, MIP product rationalisation2 • Woodbury a
Slide 9: Infusion Devices
Infusion Devices Customer product launches driving timing of demand Q1 Q2 • Expansion of manufacturing platform for Medtronic (3.1)%1 1.7%1 • Timing of new product launches by biggest customer shifted some demand to later in the year • Q1 and H1 impacted by channel inventory reductions H1 (0.7)%1 •
Slide 10: Continued Focus on R&D and Innovation
Continued Focus on R&D and Innovation R&D Phase 1 Concept Phase 2 / Development Phase 3 / Launch 22 11 Continued strong pipeline • 22 new projects started in H1 • 11 progressed to launch1 1 Launches and line extensions 9
Slide 11: Financial Overview
Financial Overview Nigel Clerkin 10
Slide 12: Financial Highlights
Financial Highlights H1 2017 H1 2016 Growth Comments +2.1%1 Revenues $831.3m $828.9m +1.5%2 • Organic growth2 Q1 1.2%, Q2 1.8% Gross margin3 60.3% 58.8% +150 bps • 40 bps performance, 110 bps FX Opex3 % revenue 37.0% 33.6% +340 bps • Planned business investments • Plc costs EBITDA3 $216.4m $226.2m (
Slide 13: H1 2016 – H1 2017 Revenue Bridge
H1 2016 – H1 2017 Revenue Bridge Revenue ($m) Organic growth 1.5% 3.4% 2.4% (1.1)% (0.7)% 5 6 9 (2) (1) 831 829 (15) H1 2016 Advanced Ostomy Continence & Infusion EuroTec FX H1 2017 Wound Care Care Critical Care Devices • Reported revenue grew 0.3%, or 2.1% at CER • $15m currency headwind, principal
Slide 14: MIP Update – H1 2017 Progress
MIP Update – H1 2017 Progress H1 achievements H2 priorities 1 Footprint • Complete Haina process qualifications Optimisation by end Q3 2 • Closure of Greensboro plant; • Complete key Slovakia validation LEAN / milestones including Ostomy production transfers to Haina Productivity adhesives equipment
Slide 15: Opex Overview
Opex Overview Increases Reflect Planned Business Investments, Plc Costs and Phasing Opex1 % of revenue Planned investments to support • Regional growth 37.0% • Product launches 33.6% 2.6% • Ostomy patient support 2.3% $7.2m Plc costs within G&A (90 bps) 11.9% 9.9% 13.4% increase CER 10.4% increase •
Slide 16: H1 2016 – H1 2017 EBITDA Bridge
H1 2016 – H1 2017 EBITDA1 Bridge EBITDA ($m) EBITDA 27.3% 26.0% margin 13 226 8 216 3 (34) H1 2016 Gross Opex Depreciation FX H1 2017 Margin EBIT1 209 194 EBIT margin 25.2% 23.3% 1 Results are adjusted unless otherwise stated. A reconciliation of reported to adjusted results is provided on slides 27
Slide 17: H1 2016 – H1 2017 Net Profit Bridge
H1 2016 – H1 2017 Net Profit1 Bridge Net Profit ($m) EPS $0.082 $0.06 151 (15) (1) 5 119 (21) H1 2016 pro forma 2 EBIT Finance costs Other expense Tax H1 2017 1 Results are adjusted unless otherwise stated. A reconciliation of reported to adjusted results is provided on slides 27 & 28 2 Pro forma ba
Slide 18: Good Cash Conversion and Strong Balance Sheet
Good Cash Conversion and Strong Balance Sheet H1 2017 Pre-Tax Cash Flow ($m) Net Debt EBITDA1 216 30 Jun 31 Dec 2017 2016 ($m) ($m) Capex (39) Long-term borrowings (1,804) (1,774) Cash and cash 303 264 Δ NWC (16) equivalents Net Debt (1,501) (1,510) Cash flow 162 Net Debt / EBITDA1 (x) 3.02 3.0 • 75
Slide 19: Capital Allocation Framework
Capital Allocation Framework Organic business Continue to de-lever, investments, within Now 3.0x opex framework net debt/EBITDA Capital Allocation Framework Pay dividend, Inorganic growth, Inaugural interim EuroTec & Woodbury dividend 1.4 cents per acquisitions share 18
Slide 20: Foreign Exchange impacts (vs prior year)
Foreign Exchange impacts (vs prior year) H1 2017 H2 2017 FY 2017 Revenues (1.8)% c.3% c.+0.5% Gross margin +110 bps c.(20) bps c.+50 bps Opex $(8)m c.$5-$10m c. neutral Results are adjusted unless otherwise stated. A reconciliation of reported to adjusted results is provided on slide 27 19
Slide 21: 2017 Guidance – Confirmed
2017 Guidance – Confirmed1 Group constant currency organic revenue growth rate greater than the 2016 rate • Includes a circa negative 1% impact from MIP initiatives (c.$15m full year effect) Additional benefit of EuroTec and Woodbury acquisitions (2016 revenues of €10m and $50m respectively) Revenue
Slide 22: Summary and Outlook
Summary and Outlook Paul Moraviec 21
Slide 23: Summary and Outlook
Summary and Outlook Continued progress across all franchises Ostomy growth accelerating Expect to deliver half of 300bps MIP target during 2017 Full year guidance maintained H2 growth underpinned by growing contribution from new products and unwinding of H1 timing impacts 22
Slide 24: Q&A
y Q&A Mos? Oo ma FoamLite Avelle’ ConvaTec —— 7 Sy) ow . GentleCath Rene ESTEEM @ Flex Convex
Slide 25: Appendix
Appendix 24
Slide 26: Quarterly Revenue Performance
Quarterly Revenue Performance Quarterly reported revenues by franchise Organic1 growth rate by franchise (%) 2016 2017 2016 2017 $m Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 AWC 131.3 137.7 142.9 147.6 133.7 138.4 8.9 7.5 4.0 6.1 4.2 2.6 Ostomy 2.3 1.1 2.6 1.0 1.1 3.6 121.1 128.7 129.3 133.0 121.8 132.9 C
Slide 27: Revenues By Geography
Revenues By Geography H1 2017 H1 2016 Reported Organic reported ($m) reported ($m) growth growth1 Americas 417.5 399.5 4.5% 4.1% EMEA 349.2 365.4 (4.4)% (1.2)% APAC 64.6 64.0 0.9% 0.2% Group 831.3 828.9 0.3% 1.5% 1 Organic growth presents year on year growth at constant exchange rates (“CER”), exclu
Slide 28: Reconciliation To Adjusted Earnings
Reconciliation To Adjusted Earnings Six Months Ended 30 June 2017 Adjustments Reported (a) (b) (c) (d) (e) (f) (g) Adjusted Six months ended 30 June 2017 $m $m $m $m $m $m $m $m $m Revenue 831.3 — — — — — — — 831.3 Cost of goods sold (402.3) 63.3 8.7 0.2 — — — — (330.1) Gross profit 429.0 63.3 8.7 0
Slide 29: Reconciliation To Adjusted Earnings Continued
Reconciliation To Adjusted Earnings Continued Six Months Ended 30 June 2016 Adjustments Reported (a) (b) (c) (d) (e) (f) (g) Adjusted Six months ended 30 June 2016 $m $m $m $m $m $m $m $m $m Revenue 828.9 — — — — — — — 828.9 Cost of goods sold (430.5) 70.2 19.2 — — — — — (341.1) Gross profit 398.4 7