CNVVY - ConvaTec Group PLC (CNVVF) Q4 2023 Earnings Call Transcript

2024-03-07 13:10:25 ET

ConvaTec Group PLC (CNVVF)

Q4 2023 Earnings Conference Call

March 06, 2024 04:00 AM ET

Company Participants

Karim Bitar - Chief Executive Officer

Jonny Mason - Chief Financial Officer

Conference Call Participants

Graham Doyle - UBS

Kane Slutzkin - Numis

Anchal Verma - JPMorgan

Sam England - Berenberg

Jens Lindqvist - Investec

Christian Glennie - Stifel

Seb Jantet - Liberum

Veronika Dubajova - Citi

Jack Reynolds-Clark - RBC

Richard Felton - Goldman Sachs

Presentation

Karim Bitar

Good morning. Well, you guys are awfully quiet. I feel like I'm in a classroom here or something. Anyway, look it's really good to be with all of you today, and thank you for joining us. As you think about 2023, I think it's fair to say that ConvaTec delivered some really strong results, right? And I think what's also clear is that we're delivering sustainable and profitable growth.

What Jonny and I would like to do today is to really spend some quality time with you and discuss with you how is it that we're being able to deliver sustainable and profitable growth. And we want to do that by really looking at it through two key lenses. Lens number one is from a strategic vantage point what are we up to; and b, from a financial perspective, how are we actually delivering sustainable and financial – sustainable and profitable growth.

So as you think about that, let's try to focus on the financials first. From a financial perspective I think what's clear is that in 2023, we went ahead and accelerated our revenue growth and that was broad-based. Second, what you'll notice is that we expanded our operating margins for a second year in a row and thirdly, we actually saw an increase in earnings per share in free cash flow to equity. So clearly again strong financial performance.

But when you look at our competitive position that also strengthened. And what's particularly notable is now the strength of our pipeline and we'll spend more time there. So as you start thinking about strong financial performance, strengthening the competitive position and a rich and deep pipeline, that gives us confidence that we're going to go ahead and grow even faster. And so therefore, we've gone ahead and increased our medium-term outlook on the revenue side from the historical 4% to 6% to now it being 5% to 7%. In addition, we expect to continue to go ahead and grow and expand our operating profit margins.

Let's look at some data. I'm just curious, who was with us here about four years ago. Veronika was here. I remember Veronika, yes. I remember you too there. So I remember quite a few of you. But four years ago, we rolled out a new vision. And we started off with pioneering trusted medical solutions to improve the lives we touch, right? We said we're going to be R&D-driven, innovation-driven, trusted medical solutions. You could rely on us, right? Trusted, solutions, device plus service plus digital. And we were touching people's lives. We took it really, really personally, right? We were touching you physically, emotionally and socially, and it could be your mom, it could be my dad. It could be your brother, it could be my sister. And then we rolled out a corporate strategy FISBE: Focus, Innovate, Simplify, Build and Execute.

And as we vigorously executed on that strategy and really ensure that that vision comes to life, what you see is a clear acceleration in organic revenue growth. Back in 2018, our revenues were in essence flat as a pancake. And what you see progressively happening is that the revenues are growing from low single-digit to mid-single digit to high single digit. So how did we do that?

Well, the first thing we had and did was to go ahead and focus on execution, both commercial execution and execution in the area of quality and operations. We made sure that we increased our Do Say [ph] ratio, right, where that was improving targeting, or improving quality.

The second thing we did was to say, we are going to invest in R&D. This is an innovation-driven business. We're going to invest in commercial and that's what depressed our margins. That was a deliberate move. But in parallel what we did was we embarked on a simplification and productivity agenda, in G&A, in quality and operations, in the area of commercial. We also proactively manage price and mix, right? So for example, on the mix side, we exited businesses such as the skincare business and the hospital care business, low growth, low-margin businesses. But we added businesses such as Triad Life Sciences, US Biotech in the biologics area, high-growth, high-margin business.

And furthermore, what we had and did was to go ahead and leverage and take advantage of operating leverage, so when you started combining, this whole notion of operating leverage, price and mix and simplification, productivity, you're now starting to see the benefits in increasing operating margins. And you ought to expect that to continue moving forward. What about 2023? How do we do? What happened? I'm going to pass the baton to Jonny to answer that question....

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