Convatec Group Plc · LSE:CTEC
Convatec — H1 2020 Earnings Presentation
28 slides from Convatec's earnings presentation, Aug 6, 2020
Slide 1: 2020 Interim Results & Update on Strategic Transformation
2020 Interim Results & Update on Strategic Transformation 6 August 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 Frank Schulkes Karim Bitar Chief Financial Officer Chief Executive Officer 1. Financial review 2. Update on Strategic Transformation 2
Slide 4: 1. Financial review
1. Financial review Frank Schulkes, Chief Financial Officer 3
Slide 5: Financial results – Solid first half performance
Financial results – Solid first half performance Constant Reported currency 2020 2019 growth growth Comments Revenue $908m $889m 2.1% 4.3% • $19m FX headwind, $1.9m M&A contribution • +60 bps operational, +40 bps FX tailwind, +40 bps Gross margin1 60.0% 58.6% 140 bps 100 bps rebate provision • Inves
Slide 6: H1 2020 revenue – Overall demand resilient, but mixed
H1 2020 revenue – Overall demand resilient, but mixed Constant Currency growth 4.3% (4.8)% 3.1% 11.5% 12.6% 18.1 (19.3) $m 908 889 25.4 (12.9) 7.8 2019 Advanced Wound Ostomy Continence & Infusion FX 2020 Care Care Critical Care Care • Reported revenue increased 2.1%, up 4.3% in constant currency • $
Slide 7: AWC & OC - Impacted by reduced volumes and customer stocking activity
AWC & OC - Impacted by reduced volumes and customer stocking activity • Significant declines in elective surgeries and lower chronic volumes due to fewer hospital Advanced and wound clinic visits, as expected Wound Care • Good growth in key Latin American markets offset by declines elsewhere HY 20 (
Slide 8: CCC & IC - Robust growth, strong COVID-19 related demand for Critical Care
CCC & IC - Robust growth, strong COVID-19 related demand for Critical Care Continence & • COVID-19 related demand provided tailwind to Critical Care Critical Care • Good performance from Home Services Group continues HY 20 11.5% 1 Q2 20 12.0%1 • GentleCathTM Glide growing strongly Infusion Care • St
Slide 9: Margin & Opex review – Continuing to invest in strategic transformation
Margin & Opex review – Continuing to invest in strategic transformation Gross margin1 rate % Opex1 % of revenue * Excludes non-recurring 40.0% (36.2%*) 40.0% (38.3%*) transformation investment and MDR costs 3.9 2.7 12.0 13.2 YoY change R&D Movement 140 bps G&A PY rebate provision 40 bps 60.0 S&M 58.
Slide 10: Cash and leverage - Robust cash generation and lower leverage
Cash and leverage - Robust cash generation and lower leverage Adjusted Cash Flow ($m) Net Debt H1 2020 H1 2019 30 Jun 31 Dec 30 Jun 2020 2019 2019 ($m) ($m) ($m) EBITDA1 223 205 Long-term borrowings2 (1,489) (1,486) (1,588) Capex (36) (31) Cash and cash equivalents 451 386 376 11.4% Net Debt (1,038)
Slide 11: H2 revenue and opex driving EBIT reduction versus H1
H2 revenue and opex driving EBIT reduction versus H1 • Advance Wound Care growth expected to remain negative in H2 Revenue • Ostomy Care growth expected to be lower than H1 Lower growth • Critical Care growth expected to normalise in H2 Opex • Strategic transformation investment will increase Higher
Slide 12: 2. Update on Strategic Transformation
2. Update on Strategic Transformation Karim Bitar, Chief Executive Officer Transforming by Pivoting to Sustainable and Profitable Growth 11
Slide 13: The strategic transformation focuses on five pillars
The strategic transformation focuses on five pillars to Pivot to Sustainable and Profitable Growth Vision: Pioneering trusted medical solutions to improve the lives we touch Focus Innovate Simplify Build Execute on key markets in our work and our organisation core capabilities with excellence and ca
Slide 14: Focus
Focus ▪ Rationalising the portfolio across products and markets ▪ Divesting Skin Care business – expect to complete in Q3 ▪ Exiting markets and serving more markets indirectly 13
Slide 15: Innovate
Innovate New ConvaTec Innovation Centre in Boston, USA Building core platform capabilities • Opened in Q1 2020; in addition to existing R&D centres in UK and Denmark • Improves access to top talent and leading 2 healthcare and technology partners, in key US market Kendall Square, Boston Company Map
Slide 16: Simplify
Simplify Global Business Services (“GBS”) ▪ Based in Lisbon, successfully went live in May ▪ Majority of recruitment and onboarding carried out virtually ▪ Starting to deliver improved service and efficiency in IT and finance 15
Slide 17: Build
Build Salesforce Excellence Digital Marketing Innovation WoundCon, Global Professional Education – May 2020 ▪ Areas of focus – Global CRM – Business analytics – Training – Incentives ▪ Approx. 1,300 participants from more than 70 countries ▪ Benefits – Fast and efficient to deploy – Global reach – M
Slide 18: Execute
Execute Examples Implementing over 100 Supply Chain Digital initiatives across the value chain cost reduction Engagement - China ▪ Measurable impact ▪ Reduced cost of foil ▪ Improved interaction with ▪ Instilling execution packaging material 18% patients and HCPs culture ▪ Annual savings of $1.2m ▪
Slide 19: Summary and Outlook
Summary and Outlook Solid first half performance ▪ Grew revenue and earnings ▪ Interim dividend declared in line with prior year Steady progress with strategic transformation while responding to COVID-19 challenges 2020 outlook maintained: uncertainty due to COVID-19 ▪ Constant currency revenue grow
Slide 20: Q&A
Q&A at Natura” © @ AQUACEL ta ig ™ NY ™ Foamlite ADU ACELAS) Avelle gers ~~ . GentleCath ESTEEM © Flex Convex
Slide 21: Appendix
Appendix 20
Slide 22: Transformation investments and benefits
Transformation investments and benefits Now Previously Total: c.$210m Total: c.$210m Non- - Cost: $140m to $150m - Cost: $145m to $155m recurring investment - $30m to $35m excluded from adj. EBIT - $35m to $40m excluded from adj. EBIT - Capex: $60m to $65m - Capex: $60m to $65m Recurring annual c.$7
Slide 23: Strategic transformation investments and MDR costs
Strategic transformation investments and MDR costs All figures in $m H1 2019 FY 2019 H1 2020 FY 2020 Non-recurring opex investment1 14 39 25 50-55 Non-recurring capex investment - 23 12 c.30 Non-recurring adjusted items - 4 6 20-25 Recurring opex investment2 - 12 16 50-55 MDR3 1 5 9 c.20 1 Largely G
Slide 24: Quarterly revenue performance by franchise
Quarterly revenue performance Quarterly reported revenues by franchise 2019 2020 $m Q1 Q2 Q3 Q4 Q1 Q2 AWC 130 142 148 151 132 119 Ostomy 120 133 132 141 128 124 Care C&CC 108 112 115 120 119 125 ID 73 71 68 63 81 80 Group 431 458 463 475 460 448 Values may not sum due to rounding 23
Slide 25: Quarterly revenue performance by region
Quarterly revenue performance Quarterly reported revenues by region 2019 2020 $m Q1 Q2 Q3 Q4 Q1 Q2 Americas 221 241 247 250 253 240 EMEA 177 181 180 186 175 172 APAC 33 36 36 39 32 36 Group 431 458 463 475 460 448 Values may not sum due to rounding 24
Slide 26: Exchange rate sensitivity
Exchange rate sensitivity ▪ ConvaTec’s geographic profile can lead to transactional currency impacts. ▪ We monitor key rates against the US dollar. ▪ 30th June 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 20
Slide 27: Reconciliation of 2020 reported earnings to adjusted earnings
Reconciliation of 2020 reported earnings to adjusted earnings Non- operating Gross Operating Operating Finance expense, Revenue profit costs profit costs, net net PBT Taxation Net profit Six months ended 30 June 2020 $m $m $m $m $m $m $m $m $m Reported 908.0 491.6 (378.6) 113.0 (26.3) (5.2) 81.5 (22
Slide 28: Reconciliation of 2019 reported earnings to adjusted earnings
Reconciliation of 2019 reported earnings to adjusted earnings Non- Finance operating Gross Operating Operating costs, expense, Revenue profit costs profit net net PBT Taxation Net 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) 61.3 (16.