Improving the lives of the people we touch ConvaTec Group Plc Annual Report and Accounts 2018 2018 highlights Financial highlights1 Revenue Operating profit Earnings per share $1,832m +3.8% $268m +8.0% $0.11 +37.5% ,m m . ,m m . Adjusted EBIT2 Adjusted EBIT margin Adjusted earnings per share $429m -6.0% 23.4.% $0.16 m . . m . . 1. Certain financial measures in this Annual Report and Accounts, including adjusted performance measures above, are not prepared in accordance with IFRS. All adjusted performance measures are reconciled to the most directly comparable measure prepared in accordance with IFRS on pages 66 to 71. 2. Adjusted EBIT is equivalent to adjusted operating profit as reconciled on pages 68 to 69. Contents Overview Governance Financial statements Other information IFC Financial highlights and 72 Governance report at 124 Independent auditor’s 180 Shareholder information contents a glance report to the members 01 Introduction 73 Chairman’s governance of ConvaTec Group Plc 02 Our business at a glance letter 133 Consolidated Statement 04 Our investment case 74 Governance in action of Profit or Loss 75 Board statements and how 134 Consolidated Statement Strategic report we have applied the Code of Comprehensive Income 05 Strategic report overview 78 Leadership 135 Consolidated Statement 06 Chairman’s letter 80 Board of Directors of Financial Position 08 Chief Executive Officer’s 84 Effectiveness 136 Consolidated Statement review 86 Nomination Committee of Changes in Equity 12 Our market environment report 137 Consolidated Statement 16 Our business model 89 Accountability of Cash Flows 18 Our resources and 90 Audit and Risk Committee 138 Notes to the Consolidated relationships report Financial Statements 28 Our strategy 99 Engagement with 172 Company Balance Sheet 32 Our key performance shareholders and other 173 Company Statement of indicators stakeholders Changes in Equity 34 Risk management and our 100 Corporate Responsibility 174 Notes to the Company principal risks and Committee report Financial Statements uncertainties 102 Directors’ Remuneration 44 Viability statement report 46 Operational review 119 Directors’ report 56 Chief Financial Officer’s 123 Directors’ responsibilities review statement 59 Financial review Introduction Overview – IFC Strategic report – 05 Governance – 72 Financial statements – 124 Additional information – 180 “2018 was another challenging and disappointing year for ConvaTec. We did not deliver our financial and operational targets primarily due to ineffective execution. Following an extensive review of all aspects of our business, we immediately took action to address our underperformance. Information about our refreshed execution model is included in this Annual Report. “ConvaTec has the fundamentals to be a strong business. We are confident that our refreshed execution model, including the investments we will make in our core capabilities, will enable us to better capitalise on our strengths and market opportunities to deliver sustainable profitable growth in the medium to long term1.” Rick Anderson Chief Executive Officer 1. In the context of this Annual Report and Accounts “medium term” is two to three years and “medium to long term” is three to five years. 01 ConvaTec Group Plc Annual Report and Accounts 2018 Our business at a glance ConvaTec is a MedTech business, focused on the chronic care market, with leading positions in advanced wound care, ostomy care, continence and critical care and infusion devices. + Our Purpose We exist to improve the lives of the people we touch. 110Countries where Our Vision our products are To be recognised as the most respected and successful MedTech company worldwide. marketed and sold Our Mission We drive for excellence in all we do – anticipating and addressing our customers’ needs with advanced technologies and best-in-class products and services. Our strategy We aim to drive sales and earnings momentum by leveraging our portfolio of differentiated products and our leading positions in structurally growing markets. Our refreshed execution model is focused on four strategic drivers: Simplify, Innovate, Segment and Invest. Simplify Innovate Segment Invest Read more about our strategy on pages 28 to 31. Group reported revenue by geography 1. EMEA: 41% $747.4m 2. Americas: 51% $945.3m 3. APAC: 8% $139.4m 9,400+ Group reported revenue by franchise Employees around 1. Advanced Wound Care: 32% $587.5m 2. Ostomy Care: 29% $533.3m the world 3. Continence & Critical Care: 24% $443.0m 4. Infusion Devices: 15% $268.3m 02 ConvaTec Group Plc Annual Report and Accounts 2018 Overview – IFC Strategic report – 05 Governance – 72 No.1Our position in six We market and sell our products through our markets four franchises detailed below. Global leader Silver dressings, alginate and gelling fibre dressings, hydrocolloid dressings and Advanced Wound Care Ostomy Care Financial statements – 124 (“AWC”) Devices, accessories and disposable infusion sets for Advanced wound dressings services for people with a insulin pumps and skin care products for the stoma (a surgically-created management of acute and opening where bodily waste is chronic wounds resulting from discharged), commonly resulting US leader ongoing conditions such as from causes such as colorectal Intermittent catheter retailer diabetes and acute conditions cancer, inflammatory bowel resulting from traumatic injury disease and bladder cancer. and fecal management systems and burns. Key brands: Key brands: AQUACEL™, AQUACEL™ Ag+, Esteem™, Esteem™+, Natura™, AQUACEL™ Ag Foam, Natura™+, Stomahesive™, Additional information – 180 AQUACEL™ Ag Advantage, Durahesive™, InvisiClose™ Avelle™ System, DuoDERM™, and me+™ Sensi-Care™ and Aloe Vesta™ Continence & Critical Care Infusion Devices (“CCC”) Disposable infusion sets for Products and services for people diabetes insulin pumps, similar with urinary continence issues pumps used in continuous related to spinal cord injuries, infusion treatments for multiple sclerosis, spina bifida conditions such as Parkinson’s and other causes, and devices disease and a range of products and products used in intensive for hospital and home care units and hospital settings. healthcare markets. Key brands: Key brands: GentleCath™, Flexi-Seal™, inset™, comfort™ and neria™ UnoMeter™ and me+™ 9,400+ Corporate responsibility (“CR”) Our overall approach to CR is aimed at supporting the fulfilment of our Purpose. Read about how we do this throughout this report and Manufacturing in our Corporate Responsibility Report which is available on our plants website at www.convatecgroup.com/corporate-responsibility. Improving the lives of the 9 people we touch ConvaTec Group Plc Corporate Responsibility Report 2018 03 ConvaTec Group Plc Annual Report and Accounts 2018 Our investment case Focused on delivering sustainable profitable growth in the medium to long term. Leading market positions in large and Research and development (“R&D”) structurally growing chronic care markets capabilities Our chronic care marketplace is: In recent years we have developed and commercialised a number – Valued at c. $10 billion. of innovative products that deliver proven outcomes. We own – Growing, on average, at 4%–5% per annum over the next five an extensive IP portfolio. See pages 22 and 23 for further years due to fundamental structural trends including ageing information about our R&D capabilities, our new product populations, increasing incidence of chronic conditions and better development pipeline and our IP portfolio. access to healthcare. Our refreshed execution model aims to enhance our R&D We are the leader in six key markets and have strong brands and capabilities and strengthen our innovation pipeline and development a number of market leading products. See page 12 for further processes. See page 30 for information about how we will deploy information about our market positions. our R&D capabilities more effectively to drive our strategy. Our refreshed execution model is focused on capitalising on our market leadership positions and opportunities in the growing chronic care marketplace. Diversified, balanced business with strong Focused on delivering sustainable brands and differentiated products profitable growth Our differentiated products and technologies portfolio addresses The objective of our refreshed execution model is to better a wide range of increasingly prevalent chronic conditions. capitalise on our core strengths and market opportunities, to deliver sustainable profitable growth and long-term value for all stakeholders. Our product portfolio includes market-leading brands such as See pages 28 to 31 for further information about our strategy and AQUACEL™, Avelle™, Esteem™, Natura™, GentleCath™, Flexi-Seal™ our refreshed execution model. and neria™. We are a cash-generative business, with an adjusted cash We operate globally across all key geographies, either with a direct conversion rate of 81%.1 presence or through distribution partnerships. Establishing trust with our stakeholders and with broader society In line with our refreshed execution model we will focus on premium is key to our long-term success. This means that we must act with markets, segments and geographies to deliver the most profitable integrity and behave responsibly at all times. growth on a sustainable basis. 1. Adjusted cash conversion is reconciled on page 71. 04 ConvaTec Group Plc Annual Report and Accounts 2018 Strategic report overview Overview – IFC In this Strategic report we cover our development