Annual Results for the twelve months ended 31 December 2022

09 March 2023

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Convatec Group Plc
Annual Results for the twelve months ended 31 December 2022

Strong revenue growth, stable adjusted operating profit and continued strategic progress

• Delivered good revenue growth and positive margin expansion, notwithstanding the challenging market backdrop
• Continued to strengthen competitive position through execution of FISBE (Focus, Innovate, Simplify, Build, Execute) strategy, notably:
  
  
  • Over 90% of revenue now derived from chronic care categories; entered the attractive wound biologics¹ segment and exited non-core hospital care and related sales
  • Good progress with three new product launches: GentleCath™ Air for Men, InnovaMatrix^® and Extended Wear Infusion Sets
  • Significantly advanced our simplification and productivity agenda, reducing adjusted G&A² spend to 8.9% of sales (2021: 11.7%)
  • Refreshed Convatec masterbrand launched, including new ’forever caring’ promise reflected in strengthened digital presence and improved packaging
  • Continued progress embedding ‘Convatec Cares’, our Environmental, Social & Governance (ESG) framework

Key financial highlights

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• Good revenue growth: reported +1.7% with significant FX headwind. +6.9% on a constant currency³ basis and +5.6% on an organic⁴ basis
  • Strong organic⁴ growth in Advanced Wound Care and Infusion Care, good organic growth in Ostomy Care and Continence & Critical Care
  • There was additional revenue from the acquisition in the wound biologics¹ segment, which was partially offset by the hospital care exit
• Adjusted operating profit²: +11.6% and +12.2% on a constant currency³ basis despite significant COGS inflation of 8.6% in line with guidance. Reported operating profit +1.8%  
• Adjusted operating profit² margin was 19.5% (2021: 17.7%) with price and mix improvement, G&A spend reduction and 80bps FX tailwind more than offsetting inflation and continued organic investment in commercial capabilities
• Adjusted² diluted EPS was 3.1% lower, primarily because of a significant increase in the effective book tax rate to 23.9% (2021: 15.0%), compared to a cash tax rate of 15.7%. Reported diluted EPS was down 46.6% primarily owing to higher adjusting items mostly relating to the exit of hospital care and Triad acquisition. 
• Strategic investments in acquisitions, higher capex to support future growth and increased inventory to improve resilience led to an increase in net debt⁵ of $187 million.
• Leverage⁶ at year end of 2.1x (2021: 1.9x) was in line with guidance.
• Increased final dividend of 4.330 cents proposed, giving total dividend of 6.047 cents (2021: 5.871 cents)

2023 outlook 

For 2023 we expect organic⁴ revenue growth to be between 4.5 – 6%, consistent with our medium-term target shared at our Capital Markets Event in November.

We remain focused on expanding our operating margin by growing revenue, improving our mix/price and delivering on our simplification and productivity agenda.  Inflation is expected to remain a significant headwind in 2023 with COGS inflation of 5-7%.  In addition we anticipate labour inflation in opex of 5-7% which is approximately double that of 2022.  On this basis, we expect modest further improvement in the adjusted operating margin in 2023 to at least 19.7% on a constant currency basis³.

Karim Bitar, Chief Executive Officer, commented:

“Convatec achieved good sales growth and, despite the challenging market backdrop, delivered positive adjusted operating margin expansion, ahead of guidance. Over the course of the year, we continued to make progress with our FISBE strategy, launching three new products and improving our competitive positions. The resulting financial performance is further proof that Convatec is pivoting to sustainable and profitable growth.

“We remain focused on executing our FISBE 2.0 strategy and are confident in Convatec’s growth prospects and ability to increase its operating margin to the mid-20s over the medium term.”

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(1) Wound Biologics segment as defined by SmartTRAK.  Includes skin substitutes, active collagen dressings and topical drug delivery 

(2) Certain financial measures in this document, including adjusted results above, are not prepared in accordance with International Financial Reporting Standards (“IFRS”). All adjusted measures are reconciled to the most directly comparable measure prepared in accordance with IFRS in the Non-IFRS Financial Information below (pages 41 to 46).

(3) Constant currency growth is calculated by applying the applicable prior period average exchange rates to the Group’s actual performance in the respective period.

(4) Organic growth presents period over period growth at constant currency, adjusted for: Triad Life Sciences (Mar’22), Cure Medical (Mar’21) and Patient Care Medical (Dec’21) acquisitions; Incontinence divestment (Dec’21) and, from 31^st May 2022, the discontinuation of hospital care, related industrial sales and associated Russia operations. 

(5) Net debt (excluding lease liabilities)

(6) Net debt⁵/adjusted EBITDA²

(7) Market size and growth based on aggregate of category estimates, internal analysis and publicly available sources, including SmartTRAK and Global Industry Analysts Inc. reports.

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