Convatec Group PLC (CTEC) Earnings Call Transcript & Summary

Good morning, good afternoon, good evening, wherever you may be in the world. It's an absolute pleasure to be able to host you here. We are in-person here in London, but we have many folks who have connected to us. And I also want to make sure that I thank you. This is a significant investment on your part in terms of time and energy, and so thank you for joining us here today. And hopefully, you'll have a chance to learn a lot more about how we at ConvaTec are going to be delivering sustainable and profitable growth. Please note the disclaimer. Let's take a look at today's agenda. What is it that we're going to try to cover in the next several hours? The way we frame the agenda, in essence is to really try to do 3 things. I'll kick off and try to provide you a little bit with an overview of what is our path forward? What is our strategy moving forward to deliver sustainable and profitable growth? Thereafter, we're going to go through 5 different deep dives. Four of those deep dives will actually focus on the key categories in which we compete in it, Advanced Wound Care, Ostomy Care, Continence Care and Infusion Care. And then the last deep dive will focus on the whole simplification and productivity agenda, and we'll try to give you a lot more color around that. At the end, we'll conclude, and we'll talk a little bit about our financial prospects and Jonny will try to go ahead and highlight those to you. Makes sense to everybody. Okay. I'm getting quite a few nods. At this point, look, I am super excited and really delighted that I can introduce you to the entire ConvaTec executive leadership team. So 1 of our goals today was really to have affords you the opportunity to interact with all the leaders that are really running the entire enterprise. So at this point, I'm going to ask for the ConvaTec executive leadership team to stand up, so you can be known by everybody in the room. Thank you. Okay. So we'll have a chance to interact more so throughout the entire day. But what I wanted to do now was to really highlight to you -- if there was 1 single overarching message, we want to leave you with today, it's that fundamentally, we have laid the foundations for delivering sustainable and profitable growth. Now you might ask, what are the key drivers? What are the key elements of that foundation? And there really are 3 key elements to that foundation that then translate into very attractive financial prospects. The first element is all about the fact that we are leaders in the chronic care categories in which we compete in. And we have differentiated and complementary product portfolio. The second key element is that during the course of the last several years, we actually strengthened our competitive position, and we already are pivoting. The third element is that we've mapped out a path forward, which we've described as FISBE 2.0, and I'll be giving you a lot more color around what is FISBE 2.0. But in essence, through this new path forward, this is our corporate strategy, where you'll be able to see is that we will deliver year in and year out organic sales growth of 4% to 6%. In addition, during the course of the next several years, you'll see us move our operating margin in the mid-20s. This will be during the course of a medium-term outlook. When you go ahead and look at all these 3 elements, that underpin the foundation, what that translates into is some very attractive financial prospects. And fundamentally, what you ought to be expecting from ConvaTec moving forward is that we will grow our free cash flow and our earnings double digit on a compounded annual growth basis throughout the medium-term, okay? Now let's try to understand these 3 elements, okay, and give you a little bit more color. So what are the categories that we compete in? Advanced Wound Care, Ostomy Care, Continence Care and Fusion Care. They are large, multibillion-dollar categories. If you sum them all up together, they are roughly $14 billion. The growth rates are attractive, growth rates of anywhere between 4% to 8%. And in each and every one of these categories, we have a leadership position. Now you might say what's driving this leadership position. Well has a lot to do with our portfolio. When you start thinking about our portfolio being differentiated and complementary, I think it's important to try to understand how is it so complementary? The first thing I should come to your mind is that fundamentally what we produce are high-volume, high-quality consumables for chronic care conditions and diseases. Now when you look at the value chain from R&D to quality operations all the way to commercial, please realize that the complementarity and synergies fundamentally are most pronounced at the back end of the value chain in R&D and quality and operations and to some degree in the commercial arena. When you start thinking about R&D, let's think about, well, what technologies do we use and what capabilities do we use? When you think about technology, think about the adhesive and coatings technology. Does that only apply to Advanced Wound Care? No, not really. Adhesive and coating technologies fundamental to our Ostomy Care business. It's fundamental to our Infusion Care business. It's the same know-how. Very similarly, when you think about anti-infective technology, antimicrobial technology, which clearly, we apply in Advanced Wound Care. Is it only relevant there? No. It's relevant in each and every 1 of our 4 categories. So think about Continence Care and urinary tract infections. Think about Ostomy Care. Think about Infusion Care. The point I'm trying to make is that the technologies and know-how that we have are leverage across the entire portfolio. Similarly, there's a set of capabilities that we utilize, process development, clinical development, regulatory that we use across the entire portfolio. When you look at it in terms of quality operations, the technologies we use are common, injection molding technology, extrusion technology. The capabilities are also very much the same. We're committed to 1 quality management system for the entire enterprise, and that's the way we run it. And even when you go further downstream to the commercial arena, realize that certain technologies are common. So for example, our customer relationship management system, Microsoft Dynamics 365, we use across the entire enterprise. And when you look at capabilities, when we interface for example, with the payer, it's again a shared capability or if you look at, for example, how do we interface with consumers by our home service group there, for example, were interface both with Ostomy Care consumers, but also with Continence Care consumers. So hopefully, you're getting a sense that the complementarity in synergies run across the value chain. You might say, well, Karim, why is it so significant? Why is it so relevant? It's relevant because it hopefully gives you insight as to how we've organized ourselves. When you think about R&D, 1 global function headed up by Divakar Ramakrishnan, reporting straight into the CEO. We've doubled that investment. R&D and innovation are critical to us. Very similarly, quality operations, 1 head, John Haller. We run that on a worldwide global basis. In the commercial area, because we've got distinct customer groupings in terms of consumers and also in terms of health care providers, that's where we created the global business unit, and you'll have a chance to interface and interact with folks like Seth and Bruno and David and Kjersti today. Very well. So hopefully, you've gotten a sense now that we lead, we've got a complementary and differentiated product portfolio, which allows us to lead. In terms of progress we've made, what's happened the last several years. The first thing you'll note is that we have divested certain businesses. We divested the skin care business. We went ahead and moved away from the hospital care business. Would that a coincidence? No, very deliberate. We want to focus on chronic care. 93% of our revenue. So over 90% are in the chronic care arena. And in fact, we've bolstered our position in areas like Advanced Wound Care and Continence Care through bolt-on acquisitions. The second thing that we've done is we've invested heavily in the R&D area to go ahead and increase the number of new products that we're in the midst of launching, and that's exactly what's happened. Have the emphasis on intellectual property. So we've been filing and been very busy bunnies on that front. But also then in terms of execution, whether it's in quality in operations and ensuring that the complaints per million are coming down, by about 41%. We're increasing our productivity, making sure that our commercial efforts are focused on the A and B accounts, and we've increased that by 38%. So when you see that, then you might say, well, what are the financial benefits of doing what we've just described. Well, let's see where we were back in 2018. Back in 2018, revenues were flat. Profits were down. Let's fast forward several years. Revenues now are positive. They're accelerating, right? We're achieving already mid-single-digit organic revenue growth. Profits are starting to grow. And the EBIT margin did come down deliberately because we were investing more in the commercial arena, in the R&D arena. And you'll notice that starting this year, we're starting to get the initial signs of the operating profit margin starting to grow and increase. Okay, enough about the past. Let's focus on what's happening moving forward. So FISBE 2.0, what's this all about? Fundamentally, what we're going to basically be doing is, we're going to be playing again the same 5 notes, right? The same 5 pillars, but we'll accentuate particularly the element of focus, of innovation and simplification, and I'll give you more color. In terms of focus, we will continue to focus on 4 categories and 12 geographies with the U.S.A. and China being uber important. But within those 12 geographies and 4 categories, we will become obsessive about customer loyalty, and I'll be giving you more color around that. On the innovation front, we want to drive it even more aggressively. We want to go faster and deeper, so that we can make sure that our new product vitality index increases, the more and the larger proportion of our new of our sales are coming from new products. The simplification agenda, we need to drive productivity a lot more aggressively, and we'll spend a lot of time on that today. Fourthly, we're going to build and embed capabilities, but also work hard to create a winning and performance-oriented culture. And then lastly, when it comes to execution, we're going to keep on focusing on ensuring that what we say, we do. We want to make sure that we have a high do-say ratio. And we're going to do that while integrating ESG as a core element of our corporate strategy. Let's double click at this point and understand what are the elements of FISBE 2.0? So the first thing is how are we going to drive customer loyalty? The first thing we're going to do is we're going to consistently and systematically map out customer journeys. We should be thinking health care providers, doctors and nurses, consumers. We need to develop insight. What's the pain point? What's not working well? Then we need to correct it. So maybe there's a quality issue. And then we're going to measure systematically and consistently Net Promoter Score. It's a measure of customer loyalty. We're already starting to do this in some areas, but we're going to do it systematically and consistently. The reason we're going to do this is to ensure that we're driving the top line. What about our innovation? What are we going to do there? Well, the first thing is we're going to broaden and deepen our portfolio of new products. We're in the midst of launching 8 new products right now, but we already have line of sight of what are the next 8 products that we're going to launch in '23 and '24 and '25. I'm going to share with you 2 examples. The first 1 is -- we're looking to basically introduce our infusion set technology in the area of Parkinson's. Ensures you'll have a lot more color to share with you. The second area is in Advanced Wound Care. When we think about our Hydrofiber Technology, we're already working on the next-generation Hydrofiber Technology platform. The second thing we're going to be doing is reducing cycle time, going faster and quicker. And how are we going to do that? We're going to leverage the ideal process. There's a methodology that we've introduced at ConvaTec, to develop new products, to scale them up and then to launch them. We're going to go ahead and leverage stronger clinical capabilities, proactively manage the regulatory agenda, and therefore, we anticipate reducing the cycle time by 20%. But then say, well, bottom line, what does this mean to me? The bottom line, what it means to you is that we are committed to having at least 30% of our sales by 2025, derived or coming from new products. That's what it means for you. What about simplification and productivity? What are we thinking there? The first thing you'll observe is that we're thinking that we're going to drive simplification and productivity across the enterprise. We'll start in commercial. What can we do there? We can fully leverage, for example, our sales force Center of Excellence. We put in place a CRM system in North America and Europe. We're going to deploy it across all of the global emerging markets next year and fully leverage its capability. Brands, when we launch them, we don't want to do it in a disparate way, each country doing its own thing. No, one global positioning. We don't need 16 different agencies. We can narrow those down. So it's a global approach driven by the global business units. In the area of quality and operations, what can we do there? Significant opportunities to invest in robotics and automation, significant opportunity to drive our continuous improvement agenda. And in G&A, yes, we've built a global business service infrastructure, but there's an opportunity to utilize it more broadly and frankly, to focus on end-to-end processes, and Jonny will talk to you more about this. But the bottom line is simplification and productivity agenda is absolutely critical to ensure that we go ahead and drive and increase our operating margins. What about in the area of capabilities? Well, you need to be thinking about capabilities and culture. On the capability side, we've developed some fantastic new capabilities. As an example, in the area of pricing, we have a pricing Center of Excellence. We need to embed that, so we're fully leveraging it consistently across the entire enterprise, all geographies, all categories. At the same time, there are some new capabilities we need to develop. So for example, how do we start focusing now not only on pricing but also on reimbursement and access as we look at our portfolio becoming more technologically developed and more differentiated. On the culture side, this is a key element. One thing that we've done is to focus on how do you build high-performance teams. Think about who's getting all this work done? It's not an individual. It's a team. It starts with the ConvaTec executive leadership team, but it's a team. So we've partnered with the University of Michigan Ross Business School. And during the course of the last 18 months, we've been working with them and our top 100 leaders trying to figure out how do we drive the high-performance team agenda. It's an integral agenda of what we're doing. The second thing we're trying to do is to make sure that all colleagues, frankly, have career growth opportunities that we mentor them, that we coach them, that we reward them, and we recognize them, and we have a whole agenda around that. And then lastly, diversity, equity and inclusion for us is core to what we do. We're trying to create a highly meritocratic environment and a highly performance-oriented culture. And lastly, on execute, what are we looking to do there? Well, we already have a methodology today in terms of when we have big strategic initiatives, how do we approach it? We build the business case, we define who's going to do what, by when. We identify metrics and milestones, and then we track on a weekly basis. And we have full exposure across the ConvaTec executive leadership team, right? We're going to continue to do that, right? The second thing you'll notice is that as we think about ESG, we're incorporating it in the way we run our business. When we think about the environment, we're committed to net zero carbon emissions by 2045. We have robust plans now to reduce Scope 1 and Scope 2 emissions based on science-based targets. We're in the midst of finalizing our plans for Scope 3 emissions. When it comes to the whole area of customers, guess what? We want to ensure that the quality keeps on improving, and we want to ensure we have a stream of new products. And when it comes to colleagues, we're very committed to sustaining our very strong safety record and we're committed to a diverse, equitable and inclusive environment. And so by 2025, we've committed that we want to ensure that at least 40% of the senior leadership roles are actually led by women. So you might be saying, okay, I've gotten a better flavor for FISBE 2.0, heavy emphasis on customer loyalty, heavy emphasis on more innovation to get to a 30% vitality index. They're going to drive simplification, productivity. They're going to build and embed some capabilities and focus on their culture, and they're going to execute and integrate ESG. But who's going to do this? So I thought at this point, what I would do is share with you a video that might give you some insight as to what is the ConvaTec culture like, right? It's about 6 months ago, we had an opportunity to bring together all the top 100 leaders across the company in Boston. So I'm going to let you watch the video and hopefully it'll give you some insight. [Presentation]

I hope that was helpful to you to get a little bit of a sense of what ConvaTec is all about from a soft side, from a culture side. What I want to do now is just really try to conclude the opening by sharing with you what are our financial prospects looking like? And I think what I would tell you is they're very attractive. When you look at what we're going to do in terms of revenue growth, once again, we're committed to delivering year in, year out, organic revenue growth of 4% to 6%, okay? When you look at the operating margin, we firmly believe that we can go ahead and move the operating margin into the mid-20s. In addition, you'll see that we have a strong balance sheet, we're highly cash generative. We will continue to proactively pursue bolt-on acquisitions that can strengthen our competitive position. They can be technology-oriented, geographically oriented or capability oriented. When you put this all together, our belief is that medium term, what you should expect is that we will go ahead and deliver double-digit earnings and free cash flow growth on a CAGR basis. So on that note, I'm going to say thank you. And now I'm delighted to welcome up to the podium, David Shepherd, the Head of our phenomenal Advanced Wound Care business. David, it's all yours.

So thank you, Karim, and thank you, everybody. It's great to have the opportunity to be with you today just to share our Advanced Wound Care business. Before I begin though, just a little introduction about myself. So I've been with the ConvaTec Wound Care business for 4 years now. Prior to that, I spent 27 years working in the medical device business for Johnson & Johnson, including as the worldwide President for the Biosense Webster business and Cardiovascular Solutions. And as the Area Vice President for the older medical device businesses in Southern Europe. Perhaps most relevant, I actually had 2 stints in the wound care business of Johnson & Johnson. And in fact, my first commercial role was an Advanced Wound Care sales representative competing against ConvaTec. So it's safe to say, I knew a little bit about the business and the company. We're very proud of our global Wound Care business, and we're committed to improving our already strong position. We're already a global leader, and we have a clear road map for sustainable success for the future, and we expect to consistently achieve mid- to high single-digit organic revenue growth. Today, we have leading brands such as AQUACEL and DuoDERM, which give us a really strong foundation and will enhance our leadership position with both organic and inorganic investments, ensuring that we retain our positions of strength and make inroads into those areas where we see significant opportunity. And we'll continue on our journey of driving improved commercial execution with even more focus on driving a better customer and patient experience, leading to stronger loyalty, as Karim said. So during this presentation, I'm going to give you some insight into our Wound Care FISBE initiatives in these areas. But before I do that, just a little bit of context about the market that we operate in and ConvaTec's position. So we operate in a large market, growing mid-single digits. And as the population becomes more elderly and develops more comorbidities such as diabetes, the need for Wound Care solutions will only continue to grow. Today, around the world, there are over 100 million patients suffering from wounds. And that's a tremendous burden on the patients themselves, but also on health care resource. And just to give you an example, here in the United Kingdom, it was estimated that back in 2018, the National Health Service spent over $8 billion on treating wounds. On the right-hand side of the slide, you can see the various subsegments of the Wound Care category. The size of these subsegments varies as does the growth rate. And we've clearly identified those key segments in which we want to compete and win. And that's antimicrobials, foams, biologics and single-use negative pressure, all high-growth segments. So let me explain ConvaTec's current position in the Wound Care market. From a segment viewpoint, we already have the #1 position in several key areas such as antimicrobials and hydrofibers with our AQUACEL portfolio and hydrocolloids with DuoDERM and we expect to maintain these strong positions. Importantly, we've got clear plans for the high-growth segments where we're not as strong today, Foam, single-use negative pressure and the biologics segment. We've got organic developments in our near-term pipeline for both foam and single-use negative pressure. We're very excited about these 2 segments as we believe that our new launches, we can grow share, leveraging the commercial infrastructure that we already have. And with our recent acquisition of Triad Life Sciences, which is now known as ATT, Advanced Tissue Technologies, we're able to successfully compete in the Biologics segment, which is another very large fast-growing segment. Today is primarily a U.S. market over the longer term, we see potential for global expansion. And we're confident that these new additions to the portfolio allow us to meet the differing needs of our health care practitioners and patients as their wounds progress to healing. And finally, just in terms of geography, we have a balanced global business. And whilst the global emerging markets are a smaller part today, we see tremendous growth in this area. So what have we achieved with FISBE 1.0? Well, in recent years, we've made great progress on pivoting our Wound Care business for sustainable growth. Clearly, there was an impact of COVID-19 throughout the time period, especially in the U.S. where we have more exposure to surgical procedures, but we bounced back strongly and quickly. Alongside the other ConvaTec business units, FISBE has been the strategy to drive our success. And we focus in all areas of FISBE, but for today, I'll focus on just 3. So firstly, as Karim said, our focus has been on the top 12 markets. And just as a simple example, we have increased our headcount in China by over 100% to drive growth. But this focus has also enabled us to exit noncore elements of the portfolio, such as skin care, and also a nonfocused market and SKU stockholding units. This drives better operational efficiency for us and also simplified our offering to the customers. Innovation is also key to our strategy. And as I said, we've made great progress on both our organic and inorganic portfolio, Triad being our most recent inorganic play. And finally, from a build perspective, we've created global centers of excellence for our commercial areas, sales force, pricing and marketing, and these serve across all the business units. They've allowed us to focus on driving the effectiveness of our commercial teams in a simplified, consistent global way. And just as an example, as Karim said, we have a sales force center of excellence that has delivered a CRM platform that's now available across 22 countries for the Wound Care business, representing about 70% of our revenue. And the last few FISBE countries will come on board in 2023. I'm also very proud we built a diverse, high-performing global team. And I'm proud to say that over 40% of our Wound Care senior leaders are female today, which is one of our key ESG objectives across ConvaTec. So overall, we're very pleased with our progress as we pivot towards sustainable and profitable growth, and we have a strong foundation on which to build for the future. So looking forward, just in terms of the organic pipeline development, we're making significant progress in 2 areas. We're very excited to be launching our new Foam platform, our ConvaFoam portfolio of dressings, very shortly in the U.S. and then around the world as the regulatory approvals follow. This is a large, fast-growing segment where we have great opportunity for growth due to our current modest share. And it's 1 of the 4 key segments we've targeted for growth. With the launch of ConvaFoam, we'll be able to offer customers a broad portfolio of products that provide longer wear times, due to increased absorption a new layer that we've added and also improved adhesive technology. But we're also focused on simplifying the experience for our users, both health care practitioners and patients, and I'll provide more color on that shortly. This new ConvaFoam platform complements our existing portfolio and commercial structure and helps us drive synergies across the business. And we're also moving ahead with our next-generation single-use negative pressure platform. This is the fastest-growing significant segment in Wound Care today and another one of our targeted segments for growth. Our combination of both new pump and dressing, offering a better patient experience due to ease of use, wear time and noise reduction will significantly enable us to strengthen our position in this fast-growing segment. On the inorganic side, our major recent investment has been ATT, Advanced Tissue Technologies. We completed this acquisition in quarter 1. And as we indicated in our recent trading statement, we're very happy with the performance. The integration into ConvaTec is going well, and we see clear synergies from being in the 2 companies together. We've got a clear strategy for growth for this innovative technology. Our initial focus is on the large existing U.S. market. We can leverage the brand name of ConvaTec along with the ConvaTec existing commercial infrastructure to complement the Advanced Tissue Technologies commercial teams as we continue to expand. And we expect these synergies to continue as the business grows. We're also making good progress on the U.S. pipeline and have recently received regulatory clearances to expand the portfolio with both InnovaBurn and InnovaMatrix powder. And these really enhance the current portfolio of InnovaMatrix products. Second phase outside the U.S. the unique nature of this technology being the only protein percental tissue approved as a device alongside the attractive COGS profile, offers us the opportunity to expand this technology to patients and HCPs around the world. And the plans for this are currently in development as we continue to progress the integration of ATT. Karim talked earlier about improving the customer experience, whether that be patient or practitioner to drive further loyalty. And as a Wound Care business, we'll track our progress on this through the company-wide Net Promoter Score initiative. But what does it really mean? So let me give you a couple of specific examples. With the launch of ConvaFoam, we'll roll out the use of simple QR codes. The first time we've done this at ConvaTec, and these will allow both patients and HCPs immediate access to key information about their dressing. Applications videos, tips on how to use and easy to understand patient information. This will really help make the products easier to use. And this is especially relevant in those markets where more and more care is done at home, either by the patients themselves or their families. And this is an increasing trend. The second area where we're improving customer experience is to provide [ educational ] support to help the wound healing process. Consistent with our forever carrying promise we're committed to improving patient outcomes. And this is not only through the product innovation, but also through the engagement with health care practitioners and the solutions we can bring to them. Since 2019, we've been working with some global key opinion leaders to create the Wound Hygiene framework, something we're very proud of. This framework, it's developed in partnership with clinicians around the world provides our customers with a simple 4-step process for treating their wounds. The customer feedback has been outstanding, very positive as they integrate Wound Hygiene into their treatment regimes. And most importantly, the patients are happy as their wounds improve the healing even faster. So we're very proud of this initiative, and I'd like to show you a quick video just to show the progress we've made. [Presentation]

So as I said, we're very proud of the progress so far. And looking forward, we're using Wound Hygiene to generate clinical evidence that demonstrates the positive impact this pathway can have on Wound Healing. And just last month, as we continue to build on the program, we were fortunate to have 30 key opinion leaders from 16 countries around the world join us as we continue to build and expand on this framework for the future. So both these types of solutions just create a stronger link between ConvaTec and our customers that goes beyond the products that we're traditionally known for. So finally, how are we driving improved commercial productivity? Across ConvaTec, we've been focused on improving productivity across the group through the creation of Centers of Excellence across all the business units. But here, I just want to focus on the impact that it's had on Wound Care. Karim touched earlier on the rollout of our CRM platform and how over 70% of our revenues are now tracked through the platform. And by the end of the year, we'll have all the FISBE countries on. This platform allows us much better insight into our performance. We have insight into the sales funnels and sales plans at an individual territory level around the world. And it provides us with key performance indicators to allow us to drive further productivity. Alongside this, we have a global segmentation and targeting approach that ensures we have the right call frequency in the right accounts with the right products. And this segmentation approach also helped drive the creation of an inside sales team in both the U.S. and Europe to better serve the account, where we don't have direct field force coverage today. The inside sales teams are a new capability for us, but is showing great progress as we continue to look for efficient ways to effectively support all our customers. And we've also developed simplified global processes and tools for sales force training, incentive compensation and business analytics, which are all part of our journey of productivity going forward. So we're pleased with the progress so far, but we'll continue to build on our capabilities and drive execution as we grow the business. So in summary, we're already a global leader in Advanced Wound Care and we have a clear strategy for future success. Through the exciting additions to our portfolio in the 4 growth segments, and the ongoing improvements in commercial productivity. We're confident we can achieve mid- to high single-digit organic growth. So thank you for your time today. And now let me hand over to Bruno to talk about our Ostomy Care business. Thank you.

Hello, everyone. I'm excited to be here and share our growth story of Ostomy Care with you today. Before I begin, let me introduce myself. I have 70 years in ConvaTec and I'm in love with this company and passionate about Ostomy Care. I started here selling those products and now I have the privilege of leading this business unit and make the difference for patients across the globe. For me, Ostomy Care is all about the patients with 3 pillars, the right products, the right support and the right services. Now let's talk about the business. In the coming years, our goal is to deliver middle single-digit growth globally. We focus on 3 things. First, portfolio innovation, making it refreshed, simple and complete. The second, keep our pace in the emerging markets with focus on patient access and loyalty; and third, drive consistent commercial execution in the developed markets. So let me start and give you guys some perspectives about the market and our position. The Ostomy Care market is large and particularly attractive due to the recurring revenues associated with this chronic condition. The market is about $3 billion today, growing at 4%, mainly driven by the aging population, increasing underlying condition and improved assets in the emerging markets. In the U.S. and Europe, the markets are now mature and stable growing at 3%, and emerging markets is growing at 6% at this moment. Now let's talk about the patients and how they are supported in the journey. There are roughly 2.8 million ostomates globally with more than 400,000 new patients per year. On average, 60% of the new patients have a permanent stoma requiring solutions for the rest of their lives. And that can show a high level of loyalty to products and brands. For that reason, it's really important the partnership with the health care providers in the -- throughout the continuum of care, especially at the beginning of the journey. And while it represents only 7% of the revenue, it is a very important moment to introduce our products and services to the patient. And therefore, we work very closely with specialized nurses in the acute care, but it's also vital that we partner with nurses in the post-acute sector and support patients directly in the community. As you can see, the most significant part of the revenue lies in the community when the patients' become consumers. And as I said earlier, what they need is very clear. They need the right products, support and services to help them to live their lives to the fullest. Now let's talk about our business. Over the years, we have built a strong foundation. We have a global business with a strong presence in Europe, North America and emerging markets. And in many of them, we have #1 or #2 position. Another strength of ConvaTec is our strong brand reputation. This includes products, patient programs like me+ and services like 180 Medical in the U.S., Amcare in the U.K. They are all well-known and well accepted by health care professionals and patients. And as you can see, we have all the elements to drive sustainable global growth in the coming years. Under FISBE 1.0, we have made good progress, and our actions have stabilized the business and position it for growth. Here are a few examples. Innovation. We will launch our new offer in the Convex segment with the Esteem 2.0 starting late 2023. And also, we complete our Phase I of the Essentials Refresh. To simplify, we are executing the SKU rationalization program. And so far, we have eliminated 650 SKUs, it represents roughly 75% of the program road map. We expect to complete the program by the end of 2024. And we already see a positive impact in gross margin as a result of this. In terms of execution, we improved our productivity by focusing on segmentation and targeting powered by CRM. We are working in partnership with the Home Services Group to better serve our clients delivering a superior service experience to our consumers. And finally, we further improved service levels through consistent product quality and availability aligned with the ESG commitments that we have. This has improved our performance. The graph on the left shows that we are consistently growing ConvaTec products at 3.1% as customers increasingly prefer our brands and solutions. And when you consider our SKU program creates a headwind of about 100 basis points, then you can see that our products are already growing at market rate. So what we are doing to drive sustainable global growth in the coming years? We will continue to build a complete offering of solutions based on right products, support and services to drive a positive consumer experience and strong loyalty. But before I talk about our new product offering, let me try and educate you about Ostomy needs. They need to accommodate different shapes of stoma and abdomen. And our new offer in Convex will address these needs with a modern look and view. They need reliable technology, preventing leakage. In our moldable technology has demonstrated excellent outcomes, and this is a key driver of customer loyalty. They need accessories to protect the skin when applying and removing ostomy devices. And we recently launched our central line of accessories. Why Essentials? If you talk to ostomates, this is not a simple accessory. It is an essential component to deliver on their quality of life. And we are already seeing substantial growth from the center portfolio. In terms of support and services, will continue to drive our me+ program, offering robust clinical support to ostomates. And in the U.S. alone, we have more than 300,000 patients supported by me+ already. We will continue to expand our services in the community. For example, we have increased our new customer enrollment in 70% in the U.S. since 2019 through 180 Medical services. And in Latin America, our [ ConvaTec ] services continued to deliver great patient care with a Net Promoter Score over 19%. We plan to build on these foundational strengths to drive consistent commercial execution to developed markets and accelerate the momentum in emerging markets. Talking about emerging markets. Every country in the emerging markets is at a different level of maturity and access to Ostomy Care. We know these markets and we are already outperforming market growth. For example, China, we have excellent results, and we are growing significantly. By partnering with the health care providers, we are increasing both penetration in key accounts and hospital listing. Professionally education, it is another important part of our strategy, and we are investing heavily in this area. Another important point for us, pivotal point is the expansion of services to drive patient loyalty. We are building on our successful clinic model in LatAm and explaining the me+ program in emerging markets. Now the developed markets. In these mature and stable markets, we will grow our presence with consistency in commercial execution and improving productivity. We are leveraging our sales force excellence to drive programs to improve commercial effectiveness. This integrated with our patient-centric programs will enable us to deliver our growth in developed markets across the continuum of care. In summary, our goal is to deliver mid-single-digit growth based on 3 things. First, the portfolio innovation, as I said, making it refreshed, simple and complete. The second, sustain the growth momentum in the emerging markets, we focus on patient access and loyalty; and third, in developed markets, improve the consistency on our commercial execution across the continuum of care from hospital to home. Thank you very much. And now I would like to introduce Seth to talk about our Continence Care business. Seth?

Thank you, Bruno. Beyond what's in my bio, I thought it helpful to provide some additional context. I grew up in a family where all of my immediate relatives are physicians. Most nights at the dinner table, I would listen to my family, discuss stressful patient diagnosis. This would be followed by my father, calling patients late into the night. I had a front-row seat to what is required in true patient care. It went beyond the diagnosis and treatment and highlighted the vital importance of the emotional support and help with day-to-day needs. I also grew up understanding the demands and the pressures on clinicians. I witnessed the toll of regularly being responsible for delivering life-changing news. While I am the only one who did not pursue a medical degree, I felt a genuine draw to the societal benefit of health care. After 10 years in the infection control industry, I moved into Continence Care, where I've had the pleasure of serving for the past 10 years, the last 5 of which have been with ConvaTec. ConvaTec's Continence Care is principally built around the marketing, the sales and the servicing of single-use urinary catheters. This is a chronic care therapy. It typically grows as the population ages. For reference, the modern urinary catheter was invented in 1752. There are no pharmaceutical interventions or procedural cures for most conditions requiring catheters. We are distinguished in the largest region with a full solution that is solving the real physical and lifestyle needs of end users, both with products and quantified world-class service. We foresee a lot of headroom to achieve mid-single-digit growth via opportunities in product expansion and geographic access, specifically in Europe and key global emerging markets. Unquestionably, this is a home-based or community category. Individuals themselves manually insert through their urethra and into their bladder, a flexible catheter, 3 to 6 times a day, which takes approximately 2 to 3 minutes to drain the bladder in the bathroom. It is important to highlight that we have enduring relationships. Many of our customers are on this therapy for years, if not for life. The U.S. is the largest single market at roughly $900 million where ConvaTec has leadership positions in both direct-to-consumer service and manufactured products. While growth exists across different catheter product types, directionally pre-lubricated and discrete configurations are the highest opportunities with Europe and GEM as areas for us to focus and to compete. With a quick deep dive into the largest Continence Care global market, the U.S., we have achieved genuine leadership position as both the direct-to-consumer home care entity known as our Home Services Group, with roughly 40% share, and as a manufacturer of the combined cure medical and ConvaTec GentleCath portfolios with roughly 23% share. Our strategy in the U.S. has been to shape the segment. We feel discrete specialist sales and service teams, each focused on the end users, the referring clinicians and the channel partners. There are resulting competitive advantages from establishing truly distinctive and quantified customer experiences. On a blended average, these are 3- to 5-year relationships with the customer, the tails being lifetime customers and some short-term postsurgical customers. I emphasize that relationships are important. This is not a transactional business. We are involved in helping people reliably every single month with a wide array of catheter and broader lifestyle needs. For example, traveling with catheters, education on alternatives, general emotional support, billing issues. Those are just some examples. As evidence of our competencies, our Net Promoter Score to which Karim referred, is a key measure of customer loyalty. This has been about 80% over the past 5 years. So on a scale of negative 100% to 100%, a score above 70% is deemed world-class. We are at 80% for the last 5 years. For reference, public data indicates companies like Starbucks at 77% and Amazon at 73%. So over the past 20 years, we have also established a comprehensive network of 1,700 U.S. insurance plans. What does that mean? We can serve the vast majority of our patient referrals. The foundation of an excellent and sustainable service experience is our culture, and our technology. Our mission-driven culture is evidenced by our McKinsey Organizational Health Index score, which is in the top 10% in the world. Marrying that with our cutting-edge enterprise software, allows for accuracy and efficiency that is unrivaled. This is a productivity advantage, and we have proven it in our U.K. Amcare business as well. So one result of these factors is having a customer churn rate of less than 1%. That is the percentage of customers we lose to a competitor. What does that mean? When we establish a relationship with the customer, we almost never lose them to a competitor. So the combination of these forces along with the intrinsic economics of the category, enable us to operate at a very compelling customer lifetime value to acquisition cost with high retention. So with this strong foundation, we leverage this in catheters as well as in Ostomy. As Bruno described, our HSG is a key asset in how we approach Ostomy in addition to our core catheter business. In both urinary catheters and Ostomy, the vast majority of the customers' experience with their medical appliance occurs in the home or the community environment. Now there are 2 important themes to process here. Number one, we believe a major growth driver in health care is in the home or the community. It appears inevitable. It's actually been validated, if not accelerated by COVID-19. People were unable to visit physicians, clinics or hospitals, unless it was a true emergency. Companies and health care providers adapted to this remote dynamic as the need for health care do not stop. The second theme how are our customers live daily with their medical device is equally important to the device itself. Therefore, having this distinctive direct-to-consumer service capability affords us a strategic edge in both catheters and in Ostomy. We have proved that our service skill is exportable. We have standardized our U.S. and U.K. service operations on a common technology platform and adopted similar approaches to providing superb customer experiences. Thus, we are now providing at scale world-class direct-to-consumer services in the U.S. and in the U.K., both in catheters and in Ostomy. Our strategy has been to focus on these solutions for our customers. This is a combination of the device and the monthly service support. Our customers have holistic needs. This is how they live with their chronic conditions. However, an important part of offering solutions is having a broad range of products with different underlying technologies and designs. People select catheters for a wide variety of reasons. Some social, some emotional, some functional. We continue to expand with both the Convatec FeelClean technology and the Cure Medical, Hydrogel platforms. We are advancing our different formats including discrete to help even more customers with their needs. So while today, over 95% of our catheter business is in the U.S. and over 85% by HSG, we are focused on extending our reach in Europe, Latin America and key Asian markets. I did want to clarify that in our HSG business, you will notice over 50% of our business is on ConvaTec brands. This is simple. We offer both ConvaTec and non ConvaTec products in our service business as clinicians and patients love our service, but may have preferences for a particular branded product. So historically, we have delivered consistent mid-single-digit growth. I did want to point out that in 2021, our rate of growth decelerated. During COVID-19, in-person patient visits tapered significantly. This slowed our new patient starts in 2020, while the cascade effect of this was experienced in 2021. However, year-to-date 2022 is accelerating and returning to mid-single-digit organic growth rates. As we look at our FISBE 1.0 initiatives, we have spiked on the focus, the innovate and the build. So let me just step you through those quickly. With regards to focus, we have achieved quantifiable excellence in our service proposition to our customers. We are focused on how best to leverage this unique skill and our first foray is in the U.K. and has been very successful with our Amcare team. In addition, we have executed a proactive strategy of rationalizing our categories to those areas where service best matches our customers' needs. So we narrowed our scope away from adult diapers and nutrition products in favor of an emphasis on catheters and Ostomy. Secondly, in innovate. As cited earlier, we recognized portfolio expansion is important to meet the very diverse needs of our customers. Our technology and innovation, colleagues, along with our global quality and operations teams are laser-focused on additional portfolio extensions such as GC Air and [ Cure One ] all while ensuring our manufactured cost structure works for a reimbursement environment. Number three, in build. We have strong experience and successful acquisitions. So we see both organic and inorganic approaches to advance our strategy. For example, Cure Medical, which was acquired in the U.S. in March of 2021, and has been very successful across the entire distributor channel. However, beyond the product benefits of Cure's platform, we have many opportunities ahead of us in our R&D approach, our manufacturing capabilities and efficiencies and our marketing expertise. So a large part of our FISBE 2.0 efforts are on this Innovate path. As an example, let's take the growing $500 million discrete catheter subsegment, especially prevalent in Europe. As long-time players in the catheter market we know there are no silver bullets that solve all customer needs. Users have very different capabilities than once. They select a product based on diverse criteria. However, thematically, both enhanced lubrication and smaller or discrete configurations are key growth areas. Our next-generation FeelClean technology offers a simpler, smoother cleaner and, frankly, more comfortable experience, prior generation coded hydrophilic catheters, which lead the market today actually were invented 35 years ago. Our state-of-the-art FeelClean technology is developing greater evidence of an improved user experience. So leveraging this unique technology, we're expanding beyond our standard and very successful GentleCath Glide and bringing to market our pocket size GC Air offerings both for men and women. In fact, our GC Air for men was cleared by the U.S. Food and Drug Administration with claims of superior comfort and less stickiness. So in addition, we are continuing to succeed with Cure Medical's ready-to-use Hydrogel platform. This was developed through a long track record of user-driven rapid innovation. We will continue to innovate on this platform, expand the already broad range of discrete configurations available in the U.S. and make our Cure portfolio available in other regions of the world. So bottom line, we are continuing to invest in both platforms as our fundamental belief is having more alternatives for customers, especially in this discrete subsegment ultimately will increase our success. So as we look forward, we have a strong solution orientation and advancing product portfolio. We absolutely recognize how important it is to continue bolstering our U.S. leadership position. We're investing in next-generation technologies and methods in both manufacturing and service delivery. Doing so ensures we keep our quality high, our costs aligned with reimbursement environments, and our service levels as the benchmark in the category in both catheters and Ostomy. We see Europe and GEM as genuine near to midterm opportunities, but these geographies are at different stages. Major European markets are well developed with reimbursement economics. In the U.K., we see our Amcare service as a key lever to success. Thus, we have invested in 2022 to put a focused continence care field team in place. Each of France and Italy are key opportunities for us to advance, especially by gaining traction for our next-generation state-of-the-art FeelClean technology and serving some niches with future additions of Cure Medical products. Within GEM, as Bruno highlighted, our Latin American teams have established leadership positions in Ostomy as well as in Wound. Through their distinctive capabilities, we are starting now to make catheters a greater focus. Even though the reimbursement environment in various countries is still evolving. Core Asian markets for us are at earlier stage investments as the reimbursement for and thus, the use of catheters is still embryonic. However, given the size of the populations, the breadth of our products, our manufacturing and cost ranges, we are confident we must be present. We will seek to do that in partnership with our GEM colleagues, who are eager to focus on this product category for growth opportunities. So in summary, we are committed to the catheter category, and we foresee mid-single-digit growth ahead. So we will achieve this with numerous arrows in our quiver. Simply said: one, solutions, both products and services; two, portfolio breadth; and three, geographic expansion. So thank you very much. And now back to Karim for a Q&A session.

Thanks a lot. Very well. What we thought we'd do at this point, hopefully, we've shared a fair amount of information with you. I thought was to try to make this as interactive as possible. So we thought maybe we could take the next 20, 25 minutes just to really fill any questions you may have had on what we described to you up to this point. And then we'll do the same thing again after the next session. So really just opening it up to questions, anything on your mind.

Hassan?

So first is [indiscernible] we see sizable OpEx and CapEx going into the business over the last few years. Could you review these investments that are at a high level to how the post the top line as an example, ideally. And when you are -- specially, on the cost savings run rate that you had expected as part of this initiative. That's the first question. The second question, the gap between your service and the manufacturing margin market share is significant [indiscernible] the data there. Can you talk about your ambitions here? And trying to get the capital will be sold this and part of improving the profitability.

Super. Thanks a lot, Hassan. So let me take the first question, and I'll probably ask Johnny here to help me out, too. So we'll try to sort of do a little bit of team here. In terms of the increased operating expense and CapEx, where has it gone? And what are some good examples there. I would say in terms of operating expense, probably R&D area, I think, is a really good area, right? If you think about where we were at, historically, we would not have had, for example, capabilities in the area of process development. We didn't really have a clinical capability. Our regulatory was actually not fully focused and really run on a consistent basis worldwide. We didn't have a team just focused on human factor design, which is really critical in all of our categories. So when you look at the degree of investment that we made in R&D, I think the output you're starting to see, frankly, is being able to launch 8 new products right at this point in time, right? So I think there's clear evidence there on that. I can give you other examples of how to increase our investments, for example, in the commercial arena in a place like China or in a place like the U.S. We're actually growing our share of market in Ostomy Care in China. We are growing our share of market of Wound Care in China. We've accelerated our growth rate, frankly, in the U.S., for example, in wound care. So hopefully that gives you some clear examples of how it's consistent and coherent with our strategy. On the CapEx side, look, I would give you maybe as an example here, what have we done on the capacity front. And we've got a terrific business in the area of Infusion Care, significant differentiation, a strong IP position, robust partnerships. And frankly, we've been capacity constrained. And so we've been very, very busy bunnies, frankly, increasing that capacity, which has frankly helped us be able to drive top line growth. In terms of cost saving run rates, I don't know I'm sure if Jonny, you want to share anything on that top of your team?

I would just add 1 comment, I think, which is that on operating cost investments, I think there's been 2 phases. Initially, there were some onetime type operating expenses to get the transformation moving. And I think the commentary at the time was that these would be nonrecurring. And we've gone press that phase now. So in 2021, we won't be talking about nonrecurring operating expenses. The foundation has been set. And then I think there was a resetting of where the operating expenses were being directed. Karim mentioned that research and development expense has doubled, for instance. That's been reset on new level, along with investment in commercial effectiveness. And it's not anticipated that those levels are going to come down. Although to mid-20s EBIT margin, as you'll hear a bit later, is going to be by saving in other places rather than in those which have been set to new levels.

Thanks, Jonny. Seth, do you want to take the question.

Sure. So maybe you can just clarify. I think I heard something about launch mix and margin. I just wanted to make sure how I can be most helpful here.

Yes. difference between the service and the manufacturer market share is quite large in the U.S. So your ambition in terms of closing that and how meaningful the current launches will be in solving that [indiscernible].

Yes. Thank you for the question. Let me try and answer it this way. We always start with the patient, right? So from a service perspective, our interaction with the patient, we believe in choice, right? As I said, patients choose a variety of catheters for a variety of different reasons. Nothing will change about that. We will continue to educate patients and clinicians about alternatives that exist in the market and help them find the best product that might be suited for them. On the second side, on the product side, our responsibility, in fact, our obligation is to keep advancing our portfolio so that those same patients and clinicians actually desire and want more ConvaTec products, whether it's for their field clean technology, the ready-to-use or otherwise. So we have a two-pronged effort to continue on the path that we're on, right, which is just choice or an enhanced product.

Veronika?

It's Veronika from Citi. A question for David, maybe to start, just curious on the ConvaFoam launch. Why is the time line between the U.S. and the European launch is so different? And how are you thinking about the opportunity in each of those markets, respectively? That would be great. And then on the Ostomy mid-single-digit growth ambition, is there a time line to that? When do you expect or when will get there? Is that a question of do we need to get stem 2.0 out there? Do we need to stop to see SKUs in there. Just if you can contextualize that.

Sure. Do you want to take the first one?

So on time lines, it's really very simple. It's the new medical device regulations in Europe, put extra owners on approvals here in Europe now. So it's going to be consistent, I think, on most products that we launched that contrary to what we used to have where Europe launched for us in the U.S. followed, now it's going to be U.S. first, followed by Europe. And so it's really a factor affecting all of the medical device industry. In terms of opportunity, I think equally excited about both, probably bias to the U.S. because it's closer. But our share in the Foam segment is similar in both parts of the world. And so we're really excited to get the technology out in all the regions as soon as possible.

Thanks, David. So I guess another question was when will we get to mid-single-digit growth in Ostomy Care?

Yes. Look, I think these in 3 ways, right? As we are completing our portfolio offer, we will see more opportunities for us to deliver growth, right? And it will start next year as we presented to you guys. Commercial execution improvement is another lever, right? We expect to see more from these investments in sales force that we have at this moment. And the third, as we are offering more products through HSG, -- so this is a third lever that we feel that will make us more strong to deliver this mid-single-digit growth that we talked during the presentation. All combined, I expect to see that next year and growing in the midterm.

Thanks, Bram. I think there was a first [indiscernible], please.

Ed Ridley, Redburn. David, some questions on Wound Care. Great to see your initiatives to enter new markets. First on Biologics. Obviously, an interesting history of Biologics. If you all remember with some of your major competitors, [indiscernible] rebuts always been a great year. You talk about the cost profile. Can you give us some more color on that about the lower cost profile. And also on the relative affordability in terms of how you're going to position it in the market given the importance of pricing for that kind of technology? And then secondly, on negative pressure, very interesting update today on that. How are you going to position that against the [indiscernible]?

Okay. So 2 questions there, David. So I think one was cost profile and biologics, are we thinking that through from a pricing perspective and then -- how about [indiscernible], how are we thinking about that relative to maybe PICO?

Okay. So you're right. I think the Biologics segment reimbursement has been a topic for many, many years. Clearly, we are aware of that as we looked at the potential inorganic opportunities. And so when we assessed all the companies in particularly looking at Triad, we were very aware that there is potential for changes in reimbursement. Now it's an unturn market. I think there is no clarity today what's going to happen. But as we look to the products, we know that the -- it's a lot easier to be a 510(k) device in that market than it is perhaps some of the other tax technology. And that affordability also then allows us to assess the markets outside the U.S. Now every market will be different, and so we'll have to work both on regulatory approvals and reimbursement with the different countries. But again, having a device product allows us that flexibility. And then on negative pressure. Listen, it's a great market, growing fast. We're really excited. We have a platform developed today, but our next-generation platform. We believe that the learnings that we've had from the first generation typical at the medical device sector building our second generation. And so with the ease of use, with this reduction, the combination of a new pump and addressing, leveraging the technologies that we already have today, such as hydro fiber and antimicrobials, we believe that gives us a very strong offering to go into that segment and take share.

Thanks, Steve. I'll try to get here just horizontal. So Jens, do you want to start?

A couple of questions from me. Again, it's Jens Lindqvist at Investec. First of all, on Advanced Wound Care with ATT specifically. What are your thoughts on the reconstructive surgery in the market. I mean [ wind biologics ] are widely used in reconstructive procedures but it does not appear to sit at face value at least particularly well within your focus on [indiscernible] Care. My second question on Continence Care. Perhaps you'll do the first one first.

Okay. Yes. Listen, when we acquired ATT, we look at it as a platform. we're also very clear, sometimes you can have too many opportunities. And so as we laid out our strategy, there is a large existing market today where we believe we can play in the U.S. And that's the #1 focus. After that, we believe taking the technology outside the U.S., the same products that we have today. And then the third, which we further out more medium to long term, is where else can you take this technology, and we believe there are opportunities there. I think 8 months into the acquisition, let's get the focus area is completed first.

Okay. Understood. Moving on to Continence Care. That's a great question, by the way. Did I understand you correctly that as you aim to grow share in Europe and emerging markets that you will replicate the HD model and market, third-party products with regional appeal alongside your own? Is that correct?

So thank you for the question. Not necessarily where we create in HSG in every part of the world, right? We've first proven we've been able to do that successfully in the U.K. That's a primary market for us. That's attractive, and we're well set. I think the bigger driver for us as we expand in the short to medium term will really be around the field clean technology, right? We're solving real customer problems around stickiness discomfort or otherwise. So bringing this next-generation field clean technology to the forefront, we believe will actually influence patients and clinicians to help us succeed as we get going in the U.K. and in the rest of Europe. Frankly, we are not closing off opportunities to recreate HSG type of experiences, but that all depends on reimbursement environments and market access to us.

Okay. David Adlington from JPMorgan. So firstly, just on the Ostomy side. I just wonder if you could talk to the trend that you're seeing in temporary versus permanent ostomies and the impact that might have on the market. And then secondly, in Continence Care, as you expand out of the U.S., what sort of investment will that require? And how long will it be to actually be able to turn those businesses into profit making?

Okay. So 2 questions. I guess, what's the impact of sort of temporary stoma [indiscernible] and then when we going to get my ROI back on Continence Care investments. I think I [indiscernible].

Okay. Look, the idea of permanent versus temporary is a reality, right? And this is good because we are here for the patients. So we have to understand that. And another factor that's important for us to bake in is we are seeing more surgeries across the group, right? So it's a balance between new ostomates even by a period of time. but also amplifying the number of surgeries for patients. I think that the industry is accommodating how to deal with that and how to serve better the temporary versus the permanent, different types of approach, different types of support, but we are getting used to that. And it is the reality, good for patients.

Okay. With regards to the question on Continence Care, 2 vectors, they're right, investment size and time. So let's just break that up into EU 4, the nature of the investments is typically commercial in nature, right? Sales and marketing. Those investments have been made in the U.K. and in France, and we're expanding to Italy now, but those are mostly commercial investments and very important ones. As we think about Latin America and GEM, we have the benefit of leveraging the existing teams that we have in place. So really, the investment is much more around opportunity costs more so than anything else. But those teams that we have under Anne's leadership are extremely excited. So we see the investment size there as more moderate. In terms of time, I think as I related to you, this is a one patient at a time type market, right? So this will take slow, steady growth. There are entrenched competitors, especially in the EU 4, right? So we need to win with the field clean technology. We need to win with the capabilities of our sales execution. And frankly, that will be measured in years.

Richard from HSBC. If I heard you correctly, you said that by a certain year in the future, 1/3 of revenues will come from new products. That's 30% growth. But when I look at also organic growth figures, target you're setting it's all in mid-single digit. So there's another decent that equation, which I'm missing. Is there a churn which we need to think through in terms of -- because if you -- if 33% of revenues you're adding with the new product in 2 years' time, then why are we not talking about 15% or 10% growth a year? Why are we talking about mid-single digit?

Yes. Look, I think it's a fair question. The first thing I'll just clarify what I stated. So what we stated was that in terms of new Vitality product index, our goal is to get to 30%. So approximately 1/3 but 30% to be precise by 2025, right? The second thing you realize is you need to think about to what degree when you're launching new products, is there a substitution of maybe some current revenues you have to, right? So you have to factor that's an element in the equation, right? I think the other element here really is asking the question and say, "Hey, could you do better than 4% to 6%, right? And I think that's a fair legitimate question. I think the reality is that we are confident that we can deliver 4% to 6%. And I think it's possible that we could do better, right? But on the other hand, I think it's important to be grounded and to ensure that we deliver on what we say. And that's really important to us as an organization, right? And if you think about the history and the context of ConvaTec. So that's the way I would answer that question. Certainly, we'll strive for as much as we can do. We're going to drive the levers that we can implement and control.

Got it. And just a linked question. When we look at this mid-single-digit growth figure, we are looking at a world where inflation rates are absolutely crazy at the moment. But all these growth figures seem to be anchored to a world where inflation was not as crazy. So are you implicitly making an assumption that pricing contribution in that growth is going to be how it was, say, last 5 years on average? Or are you saying the pricing element is going to be 100 bps more and therefore, we are getting differ growth?

Yes. I don't want to steal all of Jonny's thunder enlightening because I think he answers that directly -- what I'll just say at this point, and if we don't answer it then please come back to me. But I think fundamentally, our view is that our pricing center of excellence have been doing a really good job, and I expect it to continue to do a really good job. But let's come back with specific numbers when Jonny is on stage. You're welcome.

Christian Glennie from Stifel. Maybe just few ones for David on the Wound Care side. You made a point about China and the investment in the sales team there. Just wondered if you could a few more numbers around that for some context in terms of the numbers on the sales, the proportion that China makes, contributes to the division at the moment? And how do you see that growing over the next few years? That's the first one.

Yes. Why don't we do a double act here. We'll have David kickoff. And then Anne, who heads up our Global Emerging Markets business. She maybe can give you even more color as to what's happening in China. Do you want to start?

So very excited about China. It's 1 of our top 2 physical countries. So we have a focused 12, but China and the U.S., 1 and 2. We made substantial investment, as I said, in the footprint. And the business is now growing very nicely and taking market share. Having said that, it started from a relatively low base. So it's still a small part of the Wound Care business today. But I think we're very excited about the potential in the market and where it can go.

So I'd like to add to David's comments there. Actually, we've not just added resource and investment in wound. We've also done the same in Ostomy. And actually, we're seeing very similar results. So in both areas, we're delivering this year despite the very -- there have been some significant headwinds given the COVID environment in China, particularly. However, we're delivering very strong double-digit growth. We're advancing significantly in terms of market share. And in the areas that I think both Bruno and David outlined in terms of areas of focus around really lifting our sales force and penetration and key accounts, improving productivity is obviously a key element of sales of what we're doing in the sales force as well as delivering and improving on professional education. So there are a number of attributes that are aligned with the points that David and Bruno made, which are actually helping us drive very strong growth, which we anticipate to continue across the coming years.

And then sorry, second one quickly was on -- just to remind on time lines for the next-gen negative pressure and key markets and the time lines have launched for that.

David?

Yes. Key markets are very clear. The U.S. and Europe, the big 2 for us. I think what we'll see is the same as we touched on with ConvaFoam. The U.S. will launch first because of the regulatory time frame that will have to do clinical work to get the European approval. And so we're looking into '24, the U.S. launch.

Yes. And just in just one more then in terms of potential other bolt-on you did tried one earlier this year. What other areas and/or complementary -- if you look at potential for bolt-ons, what sort of technologies maybe or capabilities you would like to add through the inorganic in [indiscernible]?

Yes. Listen, first of all, our real focus right now is making a success of the one we've done. And I think it's very easy to go shopping after you've just finished and not focus on delivering and so we're really driving the ATT integration, we think it's pivotal. It was a significant segment. It was clearly one that was an organic play for ConvaTec. It's a real drive and focus to make it a success. It doesn't mean though that we're not keeping our antennas up and looking at other opportunities as they make them off.

I would just build on David's comment is spot on. When it comes to bolt-on acquisitions, we're looking at them across the entire portfolio, okay? So it's not exclusive to any one category. And again, the radar is up, whether it be a technology play, whether it be a geographic play, whether it be a capability play. We're very thoughtful in terms of assessing it from a strategic vantage point, what about the financial returns we expect. And I think with Jonny, we tend to be prudent and thoughtful as we do that. And then Eddie Douglas, who is with us here today, who heads up our Corporate Strategy and Corporate Development team is also instrumental in helping you drive that agenda.

My first question -- I'm [ Sadat ] from J.O. Hambro. My first question is for Seth and Bruno. You've both been here for a very long time. Just could you talk a little bit about what you -- how you see in ConvaTec transform in the last 3, 4 years? So any color you can give us on the day-to-day, what you've seen in terms of culture in your respective dividends would help. Second, you said you would now have visibility on 8 new products on the innovation front. Could you talk about what proportion of these products you would now classify as transformative? And the last, you've talked about embedding the existing capabilities and building new ones. Any color you can provide on the cost of building these new capabilities?

Sure. Okay. So 3 questions, maybe the first one in terms of how has the culture changed through time. I'll ask both Bruno and Seth to answer. And then I'll come back to the 8 new products and what part is transformative. And then as we build new capabilities, what is the cost implication, I think it's where you go. Seth, Bruno, you want to start?

Do you want me to go?

Yes.

I know you're the long time, we're at 17 years. Let's see if we have the same perspective. I love the question about culture. And look, I think the foundation of great teams and organizations is rooted in trust -- and in the 5 years that I've been here, the amount of trust that has been built in the organization is phenomenal, right? Now why is trust built, right? Its capabilities, it's do what you say you're going to do. and do it ethically. I would say, as Karim has come on board and we've built the team and added to it from the executive leadership team right through the organization, I would say there is a wholesale uptick in the amount of trust throughout the organization. So I view it extremely positively.

Yes, I would reinforce one specific point because it was in my presentation, it's about consistency, right, in execution, especially I think that we are pivoting, but we are -- we've made a lot of progress in that area. It's the most clear factor that is driving these results that we have presented to you, the consistency or the awareness that we, this is what we need, and we need to achieve that sooner or later.

Thank you. In terms of the 8 new products, which ones are transformative, I might invite Divakar Ramakrishnan, our Head of R&D, maybe to comment since he's sort of driving the portfolio. And Divakar, how do you think about that?

Yes, great question. I think as I think about this, the Wound Biologics segment with ATT actually represents a transformative platform for us. When I think about the question for Bruno, that's -- about half of them are what we call in the rapid titration category and about half of them are in new platforms. So these are new platforms where we build more steel and then we leverage them for other rapid platforms later on. So does that answer your question?

I should clarify. The 8 plus that you've said in terms of infusion set for Parkinson's and next-generation hydrofiber it's not given any job on average that you're thinking about, you might cover that later. So within that,next set of products that you are using, what proportion would you describe?

So you're saying just to confirm. So compared to the first 8, how does the next 8 potentially compare, right? So we have -- as Seth mentioned, we have line of sight to the next stage. We clearly see more of the next stage in the rapid titration category versus the new platform and transformative, and that is really in trying to deepen our portfolio and hit the vitality and also increase cycle time, and that's what's reflected there. Thank you.

Thanks, Divakar.Look, in terms of cost of building additional capability, I'd say modest fundamentally. So you look at an area, for example, such as reimbursement and access, right? up to this point, really focused on pricing. So it's really sort of an add-on the capabilities. So this is not armies of individuals or major investment. But it's an important capability that we need to establish. So if you look at how do we systematically go ahead and ensure that we're mapping out patient journeys and we're measuring that Promoter Score. Well, I would argue, too, that within our current budgets, what we should be doing, right? So I don't think it's going to be a key driver of incremental costs. I think just good business practices for a successful medical technology company like ConvaTec. Paul?

[indiscernible] I think over the years, I've heard about the commercial synergies that you're getting between Ostomy and Continence, particularly in the U.S. on the home services side, Wound Care and Ostomy and ultimately, Continence for emerging markets. I'm entirely sure you've ever mentioned the synergies between divisions for the European markets that perhaps you could elaborate on how you could kind of get a division to working better there? And then secondly, just on the general pricing environment across the divisions and the ability of your new products to kind of partly mitigate some of those pricing pressures and potentially in future extract better gross margins.

Yes. And I'll ask you the team to help me out on the synergies across Europe. I think the reality is that there are synergies, right? I mean you look at the way we interface with, for example, the payer, if there's tendering activity. The same that are doing this, whether it be in Italy or France, as an example, right? I think if you think about synergies, for example, with the Wound Care service business in the U.K. It does a lot of work in Ostomy Care. Does some work as an Advanced Wound Care and frankly, does also a fair amount of work in Continence Care as we go ahead and expand our portfolio, right? So I can go and give you many more examples, but I think maybe we haven't highlighted them to the same degree. But where there is commonality in terms of customer interface, clearly, we try to seize those opportunities. Let me ask my colleagues if -- would you add anything?

I just had the commercial centers of excellence, we talked about SFE, marketing and pricing. They serve all businesses, all regions. So we're really getting synergies there, and getting people to work together.

Thank you. Well, I would say there's a reputational benefit, right? As the company grows, as the forever carrying promise [indiscernible] hold that crosses ostomy catheters, wound, as you speak to hospitals, clinicians, whoever it may be. And I think we're starting to get real momentum there.

It's a really good point. And I don't know, Kjersti, wants to comment on this because usually sort of been championing the whole idea of a master brand, right, and the refresh here. But I can tell you, frankly, my visits out in this field, the fact that we now have a master brand under ConvaTec, I didn't know that was the same company that was being Ostomy Care. Oh, you guys -- really, infusion, I have no idea, you're so active in diabetes, right? So there is an element of positioning the company to be highly innovative, highly pioneering in consumables across Continence Care categories. I think we're just starting to get some of the initial benefits of that kind of position. I don't know, [indiscernible], you want to add anything?

[indiscernible] very close to my heart for a very long time. I was actually very saddened when I joined ConvaTec, because people in the health care business,had no idea how ConvaTec works, and you've got [indiscernible] and [indiscernible] but not ConvaTec as a company. And also, we felt quite stale. People saw the logo and talk of a finance institution. So to have been years. So I think it really tell about who we were and what we are actually doing and the fact that we are rebranded now and can see that it's actually lifting all of ConvaTec, and people understand who they are, what we stand for, and that goes across all categories. So I think we've just started that journey because we rebranded -- started the rebrand in May. So I think we will see amplification of this in the years to come.

Thanks, Jure, Steve. So it's 3:44, and I think we've earned ourselves all a break. So I'm going to encourage us to have a break. If I could ask for all of us to come back sharp, okay? We will start right at 4:10 p.m. here, so maybe come even a couple of minutes earlier, but there'll be some coffee and tea and biscuits, et cetera, outside. We'll start up again at 4:10. So it is about a 25-minute break. [Break]

First one is that we've gone through basically the 3 deep dives and I think we promised you 5 deep dives so we're going to go ahead and dive deep now to Infusion Care. We're going to do very similar with the whole simplification and productivity agenda. And so we'll have a little bit of a double act here with John Haller and Jonny. And then with conclude with financial prospects. And Jonny, we'll go ahead and do that. I just kind of give you a sense of from a process perspective. The second thing I've just got some feedback that when we do Q&A, if you guys could just be a lot louder when you're introducing yourselves in terms of your name and your firm. There's a lot of people that are connected and they weren't quite sure who is asking what questions. If I could just provide you that friendly reminder, that would be most helpful. At this point, look, super exciting business, Infusion Care. Without any further ado, Kjersti?

Thank you very much. I will build [indiscernible] energy boost during the break. I'm very excited to be here today and to discuss the Infusion Care business in a little bit more detail with you. But before diving in, I'd like to give you a little insight into my background. I've actually been in the ConvaTec for 5 years. I joined as President, DMA. And then when we changed the operating model, I got to lead the Continence Care business unit for 2 years. And then I got the responsibility for Infusion Care at the beginning of this year. But before joining ConvaTec, I spent my whole career in the diabetes field, in -vitro diagnostic, mainly point of care. So we developed small bench top analyzers and diagnostic tests that gave results in minutes. I held positions ranging from R&D, commercial positions and also leading manufacturing sites. In addition to that, I have 2 daughters who are now in the late 20s. And when the youngest was 7, she was diagnosed as a type 1 diabetic. So as you can understand, this area has been very close to my heart, both professionally and personally for a very long time. So before I get into the details, I want to highlight the key takeaways. We are the global leader of infusion sets. And we have a very clear strategy. We will continue to be the partner of choice and a clear market leader in diabetes, and we will leverage our proprietary modular platform beyond diabetes, where there are some significant opportunities such as Parkinson and in the treatment of pain. And by doing this, we expect to deliver high single-digit revenue growth. These key numbers give an overview of what we do and how broadly we reach people with chronic diseases. We are the global leader of subcutaneous infusion sets. And every single day, 1 million people living these chronic conditions are supported by us. And in order to serve all these people, we manufacture and deliver more than 110 million high-quality products every year. We've got 3 production sites, which John will talk a little bit more about. We have 2 in Denmark and 1 in Mexico and capacity and resilience have been the focus for us over the last couple of years, and we're making great progress. And this year, we will finalize expansions in both Mexico and Denmark. The market we operate in are diverse and very attractive. Diabetes is currently the single biggest opportunity. The number of people diagnosed with diabetes, it's currently more than 300 million, with both Type 1 and Type 2 growing at 4%. Our target group are the patients using automated insulin delivery solutions where the overall growth is approximately 8%. And we have a fantastic group of partners. We worked with Medtronic and Tandem for many years; and new partners like [indiscernible] who will be launching their iLED offering, including our infusion solutions. And our aim is to continue to be that preferred partner for all of them in years to come. And to do that, we need to continuously offer product enhancements as well as completing new technologies based on deep understanding of the customer needs, combined with market insights, and we can deliver solutions based on really good customer insight, and we can define them for high-volume collection. And our infusion sets are being used for other applications in addition to diabetes. There are approximately 8.5 million people living with Parkinson's disease. And currently, the drug [indiscernible] is approved in Europe as a third-line treatment for Parkinson and many patients are now using our solution, the neria infusion set together with the pump. In addition, palliative care management as well as primary immunoglobulin deficiencies are areas where we do see uptake of our solutions. And COVID has accelerated the trend towards more at home treatment, making the subcu therapies more and more relevant, and that's a key opportunity for us medium to long term. So if you look more at the diabetes segment, we believe it remains a very attractive market. The prevalence of diabetes is improving and is increasing, and technology is improving. And we expect the penetration of automated insulin delivery to continue to grow. Pump Therapy is under penetrated, and like I said, growing at 8%. And today, only 27% of Type 1s are using pumps and less than 1% of Type 2. That combined with the fact that more than 60% of all people living with diabetes do not meet the treatment dose. And hence, will benefit from changing to pump which has proven to give better clinical outcomes. And the fact that so many people living with diabetes are underserved in terms of treatment, that's a significant opportunity for growth. So the automated insulin delivery is a closed loop with an insulin pump and infusion set and the continuous glucose monitor. So these serves as close as technology allows as an artificial tankers for the patient. And the parts are connected via software algorithm, ensuring optimal glucose levels at all times user by addressing insulin bonuses from the pump. And our traditional infusion sets last from 2 to 3 days before they need to be replaced by new set. And the sets have different designs and features catering to the different needs of the customers. Our technology platform is modular based, and it's open up for applications beyond the traditional infusion sets. So if you look at this, other products are made of 4 distinct parts of which we have built deep expertise over the years and leverage capabilities from other parts of the company. So the insertion device has a retractable needle, ensuring that the insertion is safe, easy, and ensure consistent performance and an absolute exceptional user experience. The adhesive technology, ensuring both skin addition as well as being skin friendly. And our competencies and technologies in this area is not only selling from infusion care, but drawing on technologies and expertise both in Wound Care and in Ostomy Care. The tubing is made from a tunable high-performance polymer for properties, including hydropolicity, multiple layers, [indiscernible] flexibility and read compatibility. And here, we've been able to leverage expertise from Capita Material Technologies. And the cannula is the part goes into the body and hence must they open, prevent the solutions and consistently and safely deliver the drug. This can be soft steel based, and it can be in sort of the different angles. So we have built a strong base of competencies, processes and platforms that can enable us to innovate, develop and market high-quality products at scale and at cost. And the modules of the platform can be applied to more than durable pumps, where both patch pumps and glucose sensors would benefit from several of the technologies. So we actually believe that we are well positioned to play a major role in the patch segment, thanks to our core capabilities and our knowledge around insulin delivery. Also, our business unit has made good progress on the FSP strategy. Focus has been and will be to be the leader in diabetes with our infusion solutions. This is our base, and we will continue to be a top priority and where we have seen strong growth over the last 3 years. While performance can be varied from any [ 2 years ] dependent on our partners. But I am confident that we will achieve high single-digit growth in the coming years. Innovation keeps our success. And our partner, Medtronic, has launched the extended Infusion set in Europe. And this week, they're launching in the U.S. We're also developing infusion sets for the new very small mobile pump from Tandem. This will be the shortest infusion sets in the market and offer a very flexible solution for the patients. And as already mentioned, there are other disease areas where our solutions can be key, and we work in the different pharma and biotech companies to map and deliver on these opportunities. On execution, our ability to serve our customers and Karim mentioned that we have been capacity constrained, this is absolutely key. And we made a lot of progress with addition of several new production lines and footprint expansion in Denmark and Mexico. So overall, when we get to the end of '23, we should have ample search capacity for all of our partners. So then I wanted to zoom in on innovation efforts and talk a little bit more about the extended wear infusion set because this is a really good example of a codeveloped innovation, addressing key unmet needs. Like I said, the offering is now available both in Europe and in the U.S. So with this standard infusion set, the patient need to change every 2 to 3 days. And think of this when you saw the picture, you have a pump, you have an infusion set, you have a CGM. They need to be changed at different intervals. I can tell you to live with this condition, it's a heavy burden. I just actually read yesterday on Twitter, it's Type 1 saying, in general, a Type 1 are making 180 decisions every day related to their condition. Just think about that. So we did [indiscernible]. That is already launched, like I said, now you don't have to change every 2 to 3 days, you can change every 7 days. And it reduces the number of patients by half. In addition, it reduces the amount of plastic. It's 2 kilos per patient per year. And ConvaTec has introduced green design guidelines into our development processes and Infusion Care is leading the way in its launch. And this further builds into our ESG strategy to reduce ConvaTec's overall footprint. As already mentioned, medical conditions like Parkinson pain and VIB are treated using our infusion set and our neria infusion set will be part of the Adria drug 961, which is the very first subcutaneous delivery of the combined levodopa-carbidopa treatment for Parkinson's disease. And with that, I also wanted to just give you a glimpse into the daily life of personally living with Parkinson and being supported by our solutions. [Presentation]

When I first got a diagnosis years ago, I was devastated. Parkinson's. I used to think, that's what old people get. I was not ready to get Parkinson's. I started off taking a lot of pills. But as my condition progressed, I was open to more advanced treatment, full therapy. This treatment really helps me live a more normal life with my condition. And luckily, I have my families supporting me. And I'm fortunate enough to have a health care professional who cares about my condition. She keeps encouraging me to exercise. So now I meet my friends once a week and ride my bike. We always end up at a cafe and talk about life over a cup of coffee. I'm still learning to in with Parkinson's. Just talking about it with my friends was a big hurdle. It is not easy. But at least I have treatment options and support I have hope for the future.

So to summarize, we're the global leader for infusion sets for subcu drug delivery. And the lion's share of the business is in the diabetes segment and will continue to be the main focus. Key driver will be continue to innovate and develop new solutions at scale and cost for our customers. We can expand our platform technology to current and new partners in durable insulin pumps as well as touch pumps and CGM. And outside diabetes, there are several exciting opportunities for us to pursue. So with that, I bring it over to John, who will talk about [indiscernible].

Thank you. Thank you, Kjersti. I'm excited to talk to you today about our simplification and productivity journey in Global Quality and Operations. Before I do just a brief introduction, I started my career as an army officer, Airborne Ranger, member of a worldwide rapid deployment force. I love the sense of clarity around the mission and the need for teamwork that the military brought. And when I transitioned to medical device many years ago, I found a similar sense of mission and connection to why we do what we do. I spent 26 years at Stryker Corporation, mostly in operational leadership roles, living and working in different geographies around the world. I had the opportunity to lead the global operations team, the 12,000 in 43 sites around the world at a time when we grew the business from $9 billion in annual revenue to $14 billion in annual revenue. I'm delighted to be at ConvaTec where we have absolute clarity on our promise, on our mission and our values and complete alignment on those. And I'm excited to work with our global operations team around the world to do the great things that we can do to build a world-class supply chain. So let's talk about simplification and productivity. You heard from the 4 business unit leaders about the commercial excellence journey they're on and what they're doing to drive simplification productivity. You'll hear from Jonny talking about the G&A component of that journey. And I'll talk you through 3 global programs that we're driving in GQO. That's going to be plant network optimization. It's going to be automation and robotics and continuous improvement. Before I do that, I would like to spend a little bit of time just talking about our GQO team, our manufacturing network and some of the other key initiatives that we have going on. Our manufacturing network consists of 10 sites around the world. Nearly 60% of our employees work in those manufacturing locations. -- you'll notice that each of our business units is supported by multiple manufacturing locations throughout the world. You'll also notice that some of those manufacturing locations serve multiple business units. So we do have a fair amount of shared technologies, product and process that's leverage in those facilities and great opportunity to drive continued productivity across that manufacturing network. Beyond the data points that have been expressed so far just wanted to add a little bit of perspective to our GQO team. My first couple of months in the role earlier this spring when I joined the company, we're spent traveling to our manufacturing locations. I was very pleased with the level of professionalism and the strong capabilities that our people have around the world. We've got a very capable and committed team in each of these manufacturing sites. We've got strong manufacturing capabilities to do the processes that generate the products that we put into the market day. The real opportunity that's there that we've gotten the team to collaborate and sign up for now is to drive standardization of those best practices across the global network, and that's a big part of our journey for productivity. Safety first, quality always. This phrase resonates throughout our manufacturing locations worldwide. Very simple phrase and very powerful. It's also completely aligned with our ESG agenda, and I want to talk to you about 3 specific areas where we see that alignment. The first is with safety and our commitment to our colleagues, we have a very low loss injury rate. We're sustaining that. The way we sustain that safe environment is we proactively look for hazard observations, looking for things that could cause accidents and then eliminating them accidents happen, and that's our commitment to our colleagues. With regard to energy, you see a really nice trend, and I'm very proud to be able to say that next year in 2023 across that global manufacturing network, 100% of the electricity in all of those locations will be of renewable sources. We also have 4 of our locations that generate some of their own energy through solar panels, and we'll continue on that journey. And the third pillar, which lines up very well with our ESG agenda is quality and our commitment to our customers. We're fully committed to 1 global quality management system. have a very robust internal audit program, and that is our of intensely looking within our operations. Where are the areas of opportunity to strengthen and to identify those and resolve those before we have external audits, and that's how we maintain a very high level of compliance throughout the network. And then with regard to complaints per million, you heard Karim speak earlier about the nice reduction we've seen over the past couple of years. We're committed to continuing to drive that reduction, signing up for a 10% year-on-year reduction. We've made great improvements in our ability to deliver product to our customers on time in 2022. you can see that we struggled like many other companies in the fourth quarter of 2021, the global supply chain challenges, ports were pretty well clogged up, containers were hard to come by, raw materials were difficult to source. So our ability to deliver on time to our customers suffered steady progress throughout this year. In first half of 2023, we'll get those service levels above 95%, and then we'll take them upward from there. To improve our customer experience, we've added capacity throughout the network to be able to produce sufficient products to insulate our customers for future supply chain disruptions. We've also introduced a real-time tracking system, which allows our customers to have visibility from order right through to delivery of their product. When it comes to resilience in the short term, we've invested in strategic inventory, raw materials and finished goods in adequate quantities to provide security for our customers to know that products will be delivered regardless of supply chain challenges. And we're continuing to expand our efforts to dual source raw materials and do more dual manufacturing throughout our manufacturing network. All of these efforts around quality and customer service are lined up behind our objective to drive NPS, Net Promoter Score higher. We're connecting every employee on the GQO team with NPS to understand what he or she does on a daily basis to help improve our ability to take care of the people that rely on our products each and every day. So let's talk about the three global programs that will drive simplification and productivity and we'll start with plant network optimization. At the end of the day, plant network optimization is all about creating the most efficient manufacturing network, both internally and externally. How do you do that? You look outside at the external environment, you look inside of your internal capabilities, we identify all of our core competencies in our manufacturing locations. But then with a very critical eye, we select the ones that help us create a competitive advantage in the marketplace. And then in the core competencies where you can create a competitive advantage, that's the ones that you keep in your internal manufacturing network. That's where you invest your capital and spend the energy. And then you're very willing to outsource to qualified partners in our supply base to do the other work. So they've got strong quality systems, a keen ability to deliver to customers on time and good cost that's the outsourcing that we do. Collectively, that drives plant network optimization. Automation is a tremendous opportunity for us at ConvaTec. We're on a journey with this one. Osted in Denmark is the only site that we would consider as highly automated. The vast majority of our fabrication and production is done in a highly automated environment. We've also deployed packaging automation in Osted, not throughout the entire site, but a fair amount of it is also resident in the Osted facility. Of our other top five sites, which is where most of the opportunity lies for automation, we do have some automation, and the teams have done a really nice job automating some of their production lines. We've not yet taken on the packaging challenge in those other facilities. But the beauty of the opportunity is that it's not a question of whether we can automate our production and our packaging. It's just a question of how quickly can we proliferate already existing know-how throughout the network. So for example, the automation that we deploy in Reynosa in Mexico is the exact same equipment doing the exact same process that we already have in Osted, Denmark. We have a packaging automation project in Deeside in the U.K., and the equipment that will be used for that is very similar to the equipment that we're already using in Osted. So our challenge now is to as quickly as possible, drive that automation agenda. I'd like to give you a really clear example in our Infusion Care business of what -- how powerful automation can be. If you look at these two lines, it's the exact same product being packaged. The only difference is on one line, it's staffed by our team members. On the other, you see collaborative robots positioned to do the packaging. So this is where infusion sets are put into thermal form blisters that then go into containers and cardboard boxes and are then palletized. All of that happens without human contact where we have packaging automation. The benefits are many, and they start with the employees. What we're able to do is take the tasks that our employees like lease either for the difficulty of the task or the repetitiveness of the task, and we automate those. This allows us to have fewer employees in our manufacturing locations doing more skilled efforts to create value for our customers. And then from a company perspective, it drives improvements in quality. We have better process control, more predictability and lower cost. So really important that we drive the automation and robotics agenda throughout ConvaTec. Each time we deploy automation, we also further insulate ourselves from labor inflation in the future. I'd like to show you a short video with a good example of what this high-speed precision automation look like. This is taken from our facility in Osted. Let's take a look at it. [Presentation]

So in our high-speed automated lines, what you observed was the preparation and the placement of the components into the automated line. You saw a variety of very precise assembly process is taking place, which we may not have seen is that we have some very high-tech vision systems that do verification throughout the process to really monitor and control our process and ensure that the output is the quality product. There are over 70 distinct feeding, assembly and verification steps on the high-speed line that you just observed in the video. Continuous improvement is really the core of our simplification and productivity journey. It starts with ideation events. We're trying to drive a continuous improvement culture to all of our manufacturing sites. Ideation events involve bringing cross-functional teams together at multiple levels of the organization, meetings take place in conference rooms on the shop floor and in labs. And the one thing that everybody has in common is just bringing ideas on how we can improve. And those ideas come together cumulatively and result in a variety of projects being executed at each of our manufacturing locations. Those projects lead to benefits in quality, ability to deliver to customers on time and also cost. I highlighted one for you today, which is our flow wrap packaging project. And what this will do in the first quarter of 2023, we'll begin to ship product that our customers prefer with a flexible lightweight packaging, they've given us great feedback on it is far less packaging material that's consumed to package our product and therefore, it's significantly less cost and because it is smaller, it's also cheaper to transport it around the globe. So the benefits for, again, our customers as well as our ESG commitments are resident in a single project like that. And that's not uncommon that many of these continuous improvement projects bring multiple benefits. So those are the three global programs we will drive. What does it all mean that we're going to deliver? You can count on us for enhanced quality, greater resilience, and improved productivity throughout our manufacturing network. Our efforts in the medium term will lead to an approximate 50 to 75 basis point improvement to margin. And as I said at the outset, I'm very confident in the capability and commitment of our GQO team around the world to deliver on these initiatives and deliver these results. I'd now like to turn it over to Jonny, who will talk to you about G&A.

Thank you, John. Hello, everybody. Very nice to see many of you again. And for those of you I haven't met yet, I'm now into my 10th month as CFO here at ConvaTec and enjoying it very much. Previously, I've got 16 years of experience as a CFO in public listed companies and private equity-owned companies, big ones and small ones. And in particular, I've had a lot of experience of leading transformational change, simplification and productivity programs, which is directly relevant for this stage of ConvaTec journey. I'm the last presentation today. And in about 20 minutes, we'll go back to Q&A. I've got two parts. First of all, I'm going to talk about simplification and productivity in G&A. And then I'll move on to talk about the financial prospects for the business. So as you've already heard, our simplification and productivity agenda has three parts. You've heard about the commercial piece from the category leaders. You've just heard from John on operations. And on G&A, we spend over $200 million per annum, about 10% of our sales on the important administrative functions of the business. Now these functions are [ right ], but that's not efficient. It's too expensive. We've made good progress. We're well underway in our journey to improve G&A. We established a Global Business Services function in 2020, and it's now up to a decent scale. It enables us to deliver economies of scale by centralizing expertise in cost-efficient locations, and we can drive productivity by standardizing and simplifying processes and by reducing low-value activity. We've set up all of the major finance and IT processes in our Global Business Services. You can see them listed in the middle of the chart. And the volume of transactions that we are processing now has increased to a substantial scale. Just a few examples. We're serving 12,000 customers in nine different languages. We pay over 200,000 invoices each year, and we're making and delivering management accounting reports for 70 countries. Here's a couple of examples that bring to life the progress so far. On the left, automation. So through 2020 and 2021, we've been automating the receipt of customer payments. And we now process over 14,000 customer payments each month with very little manual intervention, which reduces error rates and improves productivity. On the right, reduction of low-value activity. This graph represents the number of low-value manual journals processed each month for the business. And through this year 2022, the number of those has been reduced by 47%. Continuous improvement of this nature is what enables our colleagues to spend more time doing high-value activity and also for us to reduce costs. So reducing costs. We've reduced G&A by approximately $50 million over the past couple of years when taking account of inflation. That reduction has included less reliance on external consultants and contractors. Some of those were brought in temporarily to be fair in favor of using internal expertise. It's involved relocating headcount dispersed around the globe to central locations of good cost efficiency, and it's involved standardizing projects and starting to introduce automation. But there's a long way to go, and there is significant further opportunity. On an ongoing basis, we are leveraging our GBS platform. So finance and IT, which are well established there, we are increasing the scope of the activities, and we're increasing geographic coverage. We are adding more digital tools and more automation, including, for example, some self-service apps. And then we're incorporating more of the group's processes within GBS, which I'll give you an example of in a moment. Next steps, further opportunities going forward. We have a large network of fixed offices around the globe, which dates from pre-hybrid working times. And we've got the opportunity to improve the working experience of our colleagues and to save costs. We've got an HR transformation underway, which will modernize the way we manage ConvaTec's most valuable resource including talent development, career pathways and other factors. But it will also give us a simplification and productivity opportunity as we deploy central processes such as payroll, training, onboarding, centrally into GBS, and we can use people analytics to improve the experience of our colleagues. And then we could also include more functions within the simplification and productivity journey, for example, procurement, pricing and some legal operations. Now this chart is intended to show the opportunity to increase efficiency of including processes end-to-end within GBS. At the top, we've got record to report which is entirely managed by GBS now, and it works well. We do 6,000 journals. We complete the financial statements for 40 legal entities, all in one location. So the opportunity there is to expand this process that works well into greater geographies such as our operations in Asia. At the bottom, that process is sourced to pay, and you can see that only some parts of it are managed by GBS currently. Outside of GBS, we have 15,000 suppliers who provide products and services to the organization. They're managed in the countries around the globe, and that generates about $100 million of invoices per annum. So the opportunity there is to create a catalog of standard products and suppliers in order to leverage the group's buying power. And then to automate those catalog products for processing within GBS. By standardizing further processes and automating more, it gives us the opportunity to become more productive and to save more costs going forward. So as I've said, and to conclude on G&A, we are well on the journey of improving productivity. This year, we expect costs to be around about 10% of sales, which is down 3 points over the last couple of years. And we have a clear target to get down to 7% over the next few years. Now there's a lot of work to do, but we have a plan. And in this area of G&A, we're not innovating. This is not rocket science. What we'll be doing is only what other people have already done before. And that's what gives us confidence that we will achieve our target. So let me change tack and talk about the financial prospects of the group, which you can see are attractive. First, a reminder of the targets we've discussed already today. Top line growth of 4% to 6% per annum organic revenue that will be delivered by the categories, as you can see on the screen, with Infusion Care and Wound Care growing fastest and then with Ostomy Care and Continence Care growing at mid-single digits. And then we will increase our margin to the mid-20s with three main levers. We've already talked about simplification and productivity. I'm going to talk about margin mix now. And then I'll wrap it all together with operating leverage thereafter. So margin is going to improve through mix for three main reasons. The first one is portfolio focus. So over the last couple of years, we've made a number of divestitures and acquisitions, to focus the business more on chronic care in our four categories. Now this has the benefit of improving margin because we are divesting lower margin and lower growth sales, and we're increasing higher-margin and higher-growth sales, and that will continue. The second area is growth across categories. Our categories with richer margins being infusion care and wound care are growing faster, and that will continue into the medium term. And then the third area is within categories. So within each category, we're working really hard to improve the margin by increasing the proportion of ConvaTec manufactured products in our sales by increasing the amount of in-house manufacturing in those products. and by rationalizing out lower profitability SKUs. So a combination of all these three factors means that we will see positive margin mix going forward over the medium term. So then a word on price. We have made good progress on price since we introduced in the Center of Excellence. But we operate in markets where it is not straightforward to pass on price increases because of inflation in costs. There are some opportunities in B2B relationships or where there are distributors. And certainly, the existence of high inflation gives you better grounds for discussing price with customers. But nevertheless, it's not straightforward. The progress we've made has been by rolling out best practice around the operations. So disciplined approach to discounting, global minimum prices controlled centrally, better training, better reporting, better analysis, but more focus. By rolling out best practice of this nature, we've seen positive price development last year and in the first half of this year by 50 and 60 basis points, respectively. And that compares to a previous pattern of 1% to 2% price deflation across the sector. So our medium-term target is to deliver flat to positive price development. Now inflation is a significant headwind to our progress on margin. We've set out on the left there, the approximate proportion of composition of our costs. And the arrows indicates the intensity of inflation that we have been experiencing. So in 2022, we expect inflation on all of our cost of goods to be in the range of 8% to 9%, as we said back in March, albeit it will end up at the top of that range. And we see the shape of inflation changing. So in raw materials, in freight, logistics, the rate of inflation is abating. But in utilities and in labor costs, the rate of inflation is increasing. When you put it all together, we think that in 2023, inflation will still be a very significant headwind to the business and to margin improvement, albeit perhaps slightly less overall than in 2022. So this pulls it together. This is how we are going to deliver improvement in EBIT margin from what we expect to report in 2022 of 19% plus to mid-20s over the medium term. The biggest improvement will be from simplification and productivity where you'll get three points from G&A and then across a combination of commercial and operations, there will be another couple of points. And then margin mix. The three areas I just talked about, that will add another couple of points. I've said that inflation is a headwind, operating leverage. The benefits of 4% to 6% sales growth every year on a partly fixed cost base will cover inflation over time, but not next year when inflation is expected to be more significant. Now the simplification of productivity and the mix levers are within our control. And that is why we are confident that we will be able to deliver the target. Now we don't want to be precise about timing at this stage because of the macro uncertainty that is out there in the world. Unless inflation deteriorates further, you should expect positive margin development every year until we get to the target. And honestly, if it hadn't been for inflation, we'd be well on the way towards it already. Now when we deliver the sales growth and the EBIT margin targets, that will lead to, as Karim said at the beginning, double-digit growth in earnings and free cash flow. Now the growth won't be double digit next year. because of the significant external drivers of significant inflation and also the market rates on financing costs. But it will be double-digit growth over the medium term as these targets get delivered. And delivery of the sales growth and the EBIT margin improvements will also drive strong growth in cash flow. This chart shows in dark blue on the outside, current on the left and medium term on the right with the uses of cash in colors in the middle. And let me just talk to those very briefly from the bottom up. So working capital. That includes the $20 million additional investment in strategic inventory that we've made to improve resilience in our supply chain. CapEx, we expect that to settle at a run rate of about $100 million a year, after though, a few years of higher investment. Leases and adjustments. That's where the transformation costs sits for fundamental restructuring of the business, such as the exit from hospital care this year. And then you've got financing and tax which we expect to go up following the development in the market rates. But even though some of these uses of cash are expected to increase, what you'll see from your models is that the free cash flow increases quite substantially, and it increases faster than the EBITDA. So how will we use that cash? Our capital allocation principles are underpinned by a strong balance sheet, prudent approach. We are reiterating our target of net debt being 2x EBITDA. Now we will apply that flexibly. And we'll be comfortable going up to 2.5x for appropriate M&A but there will always be a clear path back towards our target of 2x. We've just announced today that we have refinanced our bank facilities, $1.2 billion of bank facilities for five years. We've got some of the audience in the room to thank. These are being refinanced at slightly improved credit margins compared to our previous bank facilities, reflecting stronger credit standing. Those, in addition to the bond, which we also have $500 million, mean we have got plenty of liquidity for any circumstances. Our first priority for investment will be organic growth. Whether that be OpEx or CapEx, we will invest in the innovation pipeline and in commercial effectiveness to sustain the growth of 4% to 6% per annum. And then it will be a progressive dividend policy. We'll look to increase the dividend every year in line with our payout ratio of 35% to 45%. Bolt-on M&A is next. This will be focused on strengthening our competitive positions in our focus areas. And thereafter, any surplus capital would be available for return to shareholders. But with all of the good opportunities that we've got to invest in the business, we don't think that's likely in the medium term. So let me finish with this slide, which Karim showed at the beginning. And just to reiterate, that delivery of the sales growth of 4% to 6% per annum and delivery of the margin improvement to mid-20s leads to double-digit growth in earnings and in free cash flow over the medium term on a compound basis. It's an attractive financial profile. And I hope you've heard today that we have the ability to deliver it. And we're looking forward to the journey. So thanks very much for your attention. I'll now hand you back to Karim for Q&A.

Okay. Do you guys feel like you know a lot more about ConvaTec? Yes. I got lots of nods. Okay. Excellent. So look, we wanted to make this an interactive session again. So we welcome questions. Anybody who hasn't yet asked a question, let's start with folks who have yet to start. I'll start right here. Please introduce yourself nice, loud and clear.

Jack Reynolds-Clark from RBC. First one on the Infusion Devices side, wondering if you could give any color around the kind of the time lines to the patch pump products and also potentially the Parkinson's and other indications there? And then just on the...

It might be easier to take one at a time with you, is that okay?

Yes, no problem.

I think the first one is timing around the whole area of diabetes and patch and then timing maybe around Parkinson's. Maybe I would pass that on to Kjersti.

Yes. So thank you for the question. Yes, as we saw for patch, our technology -- we have a technology platform that can be used. We're working with our partners, the current one, add the new ones to see what's the next stage in the development of pumps because you have the durable ones, then you might have hybrid pumps. I think you might have heard about that, thinking of the Omnipod, which is fully disposable, but there might be hybrid ones, it is actually better solution. So we're working on all of that without giving any exact time lines. On Parkinson, we know that AbbVie waiting for approvals. So that would most probably launch next year. And then we're very excited about that opportunity. And for two reasons. One, it's a fantastic solution for the Parkinson's patients. And you saw the number of Parkinson's patients is huge. So then we just have to see what this could be. But again, the launch of this might be already next year, and we'll take it from there.

And then the second one was on [indiscernible], on the EBIT bridge. Obviously, very helpful diagram there. I know you said that you wouldn't discuss or you don't quite know what the medium term means yet. But I was wondering if you could provide any color on kind of the timing of those relative components? What should we start to see coming through first? And what easy wins and the kind of harder things to achieve?

Look, I think you should expect steady progress certainly, on G&A, steady progress on simplification and productivity in all its components, steady progress and on mix as well. Those programs that are under our own control well, they're under our control and we'll deliver them. The uncertainty is in the macro environment. And that's why we just think it's imprudent to be very precise about timing when there is so much uncertainty in the macro environment. But it's medium term, it's not forever, and you should expect positive progress every year.

Okay. Why don't we go to the gentleman here with the pink necktie.

Robert from Morgan Stanley. I have two questions. The first one was just around the comments you made on SKU rationalization. I'd just be curious to know how much further you got to go there? And what's the risk it takes for the part of your growth targets or what are your mix of growth ambition is more difficult if you're taking our product offerings to your customers at the same time?

I'm assuming here, Rob, you're referring to the SKU rationalization of Ostomy Care. Is that what you're trying?

Yes, correct. Yes.

I think, look, I think Bruno highlighted this, and please Bruno, jump on in here if you want to add any more. But fundamentally, we've reduced the SKUs by about 650. I think Bruno highlighted that about 75% of the SKU rationalization has been completed. And by the end of 2024, we should be all done. So clearly, that has created a headwind of about 100 basis points, I think that's what Bruno said. And I think there'll be still some continued headwind that we will experience in '23 and '24.

And then my follow-up was just around the ordination opportunity, you flagged robotics and automation in one of your slides I'd just be curious there. How big of a component is that in your assumptions of your EBIT bridge in terms of your progress? I'm guess -- I'm so sorry to asking the question of how much is headcount reduction coming in the next sort of 2 to 5 years? How much is sort of direct cost out to part of that bridge assumption?

Yes. Maybe I'll ask Jonny to try to answer that. And then John, if you have anything else you'd like to add to it?

Yes. John showed a number of 50 to 75 basis points of productivity improvement for everything going on in GQO. And automation and robotics is one part of it. There's also continuous improvement. There's also network optimization. So when you ask how much is it, it's less than the total there. without wanting to get too specific about it. And I don't think you should be expecting to see any large redundancy bills coming, if that's what you're worried about. This will be gradual over time and absorbed.

Yes, I would agree. I think it's important to point out that, that gradualness that Jonny refers to, when you're keeping up with a growing business, it allows that to be a very graduated impact.

So let's see who is yet to ask. So I'm going to go to the gentleman with the glasses there, please. Most of you had glasses, I'm sorry. I think the person is closer to me, if you've got a pink shirt we'll go to with you. Yes. Sorry about that.

[indiscernible]. Two questions, if I can. On the extended wear set. So clearly, you've got a product that's going to be changed less frequently but there's a lot of value created for the customer. I'm wondering how you split that commercial kind of value creation with the customer and how we should think of that in terms of impacting revenue growth and margins in that business? And then the second question is one for John, which is more around the packaging piece, $850 million kind of products produced this end -- as this year. You've got automated packaging and one out of, I think, five of your kind of sites there. Why are you changing it more quickly?

Okay. Great questions. I've never asked you on that question by the way. Let me pass it up to Kjersti first. Extended wear infusion sets, I think value creation versus value capture, how are we managing that?

Yes. So you're right. For the person with diabetes, the value of this solution is higher than the effect of selling less infusion sets. And you can actually go a little bit like when the blood glucose strips went to CGM, very high value for the patient. When it comes to the split between our partners and us in that respect, that's not something that I'm going to share with you at this point in time.

The only thing I would say though, in terms of value sharing from a margin impact, it doesn't worsen in any way, shape or form for us, right? So if you're sort of doing simple math and saying, "Hey, I doubled the length what happens to price?" I think for -- from an ROI perspective, I think it's fair for you to assume that in terms of value capture, which at least as good as what we have been capturing historically. I'll just add that. Let's go to the next question about packaging, why can't we go faster, John, than earlier?

Thank you. So what I alluded to, which you might have picked up on, in our global manufacturing network, historically, it was not run as one global network. So where we are today is we're at the beginning of a journey where 10 locations are learning to collaborate and share best processes. So if you take the packaging automation as an example, the first thing we have to do is just demonstrate feasibility across those different sites and come up with a platform and validate it and demonstrate that we've got something that works across the board. And then as quickly as we can scale that. But it's a multistep process. But if you take that time upfront, it will pay dividends later as opposed to going as fast as you can in 5 or 6 locations at one time.

Makes sense. Super. [indiscernible] behind you, please.

[indiscernible] from UBS. So I just wanted to talk about 2023 growth. Just given the fact that this year, you're probably going to be in the upper end of your organic growth guidance. And then you've also got the hospital business that you are closing down. Customer rationalization is going to be a smaller headwind next year. And then you've got the triad coming in, into organic growth next year. Are you not tempted to raise your growth range next year? And then just my second question is just on pricing. What do you expect for pricing next year relative to this year?

Okay. It sounds like, Jonny, there's a lot of question about what's going to happen in 2023? So what do we anticipate in terms of revenue growth and pricing? Jonny, how do you want to handle that?

Well, I will start by saying today is not about detailed guidance for 2023. And you'll hear more on that in the normal calendar, which will be in March in our year-end results. all at said, yes, we're pleased with how organic sales have gone this year and it was nice to be able to bump up slightly the growth expectations for this year, it's still within the range. And so I doubt we will be increasing the range next year, but let's see in March. What was the last one?

Just on pricing.

Yes, pricing. Well, that's clear, which is that, as I said in the presentation, we are looking to have a flat to a small positive impact from price every year, benefiting from our pricing COE. Now that might sound like a modest ambition, but it's in the context of a sector which has previously gone down by 1% to 2% per annum. So small positive is our target.

Super. Okay. Good gentleman right above Hassan, please.

Kane Slutzkin, Numis. Just like to take you back to a comment you made earlier [indiscernible] around the vitality index you mentioned, I think, the word substitution. I'm just wondering with sort of the new launches. Is there an element of cannibalization that takes place with your existing sort of products? I'm not sure that what you were referring to in substitution. And how confident are you at the sort of new products are coming in at gross margins?

Yes. So a 2-pronged question. I think on the first part is to what degree could there be a substitutionary canal. I think it's fair to say that there could be some. So just as a practical example, as you go ahead and provide a higher-performing offering, same case of foam, David was talking about foam earlier. We do have a foam offering already in the marketplace, right? So again, it's been a very category by category and product offering -- by category by category and product offering by product offerings. So that would be my first comment that I would say in terms of substitution. And help me out again with your second part?

[indiscernible]

Yes. I'd say like in terms of margins, it's something that we're always focused on, meaning we're focused both on top line growth and margin expansion. And then ultimately, frankly, what is the ROIC and IRR, Fundamentally, that's what we're looking at. I think with new products, we're striving continually to improve from a mix perspective. I think Jonny alluded to this. The reality is that oftentimes when you're launching a new product, there is a learning curve element to it, right? So maybe initially, your volumes are a little bit lower, and you've got to slide down that learning curve, see the volumes grow and increase. Now, Jonny, would you want to add anything?

Nothing.

Does that answer your question?

Yes.

Super. Why don't we go to Hassan?

It's Hassan from Barclays. I've got two, please. So firstly, on Infusion Care. Could you update us on the rough mix and concentration of key customers as well as the risks you see from, a, your customers, such as Tandem producing their own infusion sets, and b, market share gains in patch pumps at the expense of durable pumps? And then secondly, Jonny, following up on the bridge and timing, if I could push you a little, if we did happen to assume that medium term was a 5-year horizon, then margin expansion would be anywhere between 400 to 700 basis points or 80 plus per year, which is significant. And I guess, given what you talked about 50 to 70 with operations, is this the right way of thinking about it? Or is it far off the mark? And is it more back-end loaded?

Okay. So try to untangle this whole margin area, right? Okay. So we'll give Jonny a little bit of time to reflect on the answer to that question. Why don't we start off with the Infusion Care area? I think a little bit of questioning around mix and concentration? And hey, are there any risks? I think you highlighted Tandem and the Pac area, right? So I'll pass it on to Kjersti.

Very good. Yes. So I mean there is no secret in the fact that our 2 big long-term partners are Medtronic in Tandem, who has been growing really, really well in the platform market. But also, like you said, the fact that the tax bump with Insulet Omnipod 5 is doing a really good job. But when you look at the overall automated insulin delivery, it's growing at 8%. And the fact that -- like I said in my presentation, so many people are not beating the treatment target for people on MDI to get on to pumps, whether they're durable or patch because there will be a solution for all of them, and it won't be the same. So I think for me, it's actually more opportunities when you see how many people are not yet on automated solutions.

Just to really emphasize, I think most of you will know, but the real area that we're competing with is multiple daily injections, which we call MDI, right? So our fundamental thesis is that automated insulin delivery will displace multiple daily injections. If you don't buy that thesis, then hey, there's an issue. We firmly believe that, okay? And I think what Kjersti did wonderfully was just to highlight that if you believe in automated insulin delivery is going to grow in a material way, then there's much more opportunity than just being on a durable pump. She highlighted to you the CGM, the CGM are, how would you do the patch pump area. So from our vantage point, there's significant opportunities. I just want to echo her thoughts or ideas.

Good try, Hassan. Look, I don't think you are wild off the mark, first of all. I think important context is that we will be delivering an increase in margin this year despite inflation being 8% to 9%. So we're on the road. And if it hadn't been for inflation 8% to 9%, we'd be further down the road. There are certain of the levers we talked about today, which are in our control, and we will deliver them in a steady manner. There is no sense in which they will be back-end loaded. But we can't be precise about timing. It would be imprudent to be because we don't know what inflation is going to be over time. So how long will operating leverage, cancel out and cover inflation. That's an unknown, which isn't in our control.

Super. Gentlemen with the blue tie.

It's Sam England from Berenberg. Could you just give us a sense of the CapEx expectations for the automation strategy and then over what sort of period that's going to be phased in? And then give us a sense for how you assess the ROI on the automation strategy than what the payback period is?

Okay. So CapEx for automation and how much might we want to invest there and what kind of paybacks are we thinking about? I think Jonny this seems [indiscernible]

Should I kick off with that one? Look, we described a run rate of CapEx of being about $100 million in a couple of years' time. And probably 2/3 of that is likely to be in operations, I think. And then of that 2/3, you'll have half of it related. These are just broad numbers, half of it related to simplification and productivity and the other components dealing with maintenance and network optimization and the other things in John's control. The way we measure the financial return on automation is the same as we measure anything else actually. We're looking for IRRs comfortably above our cost of capital. And that usually means in the kind of mid-teens or upwards, and we're looking at net present value and payback. We are very focused on delivering a strong financial return for all of the CapEx that we deploy.

Great. Maybe just a follow-up on the outsourcing strategy that you mentioned. What's the current split between in-sourcing and outsourcing? And where do you think that will get to over time? What sort of cost savings do you think you could achieve from sort of more outsourced manufacturing?

Okay. So what is our current split between outsourced and in-sourced? And what might our strategy moving forward look like? So maybe, John, do you want to take that one?

Yes, sure. If you look at the strategy, I think it's not so much a question of changing our ratio today, which is kind of in the middle of our COGS portfolio. It's not so much shifting the balance of more out versus in. It's really making sure that you are investing internally the key capabilities are to give you a competitive advantage. So as new products come out, with those inherent processes in them, investments will take place there. What you'll see is our manufacturing network will become more focused and more productive. And then our strategic partnerships outside the state to doing more work for us will be at a deeper level because the dependency goes to a higher level as well.

Okay. Why don't we go back to Veronika and then we'll go back to a gentleman in pink.

It's Veronika Dubajova from Citi. Two questions for me. One, just circling back to the CGM topic. And I would love to understand Kjersti from you what that development time line looks like? And what do you need to do to get into that space? And maybe sort of what's your competition if you are to play in that space, that would be helpful, I think, for everyone to understand. And then I'll ask my financial question after that, if that's okay.

Okay. Kjersti, please.

No. So as result, we have a modular technology platform now. So there are a lot of components in place that can be supplied. So thinking of CGMs, which is -- we're not going to do a sensor, right? You have some really, really strong competitors that would have been out there that's doing that, that we can deliver a better solution for any of them with our technology. That's clear. So that's something that Divakar and team are working on. I don't know whether you would like to say anything about time lines, opportunities, at least on that bucket?

I would just say -- sorry, I'll let Divakar comment. I think in terms of time lines, it wouldn't be appropriate to comment, honestly, Veronika. Divakar may want to add more color to how we're thinking about it. I would just echo Kjersti's thought, which is there's a clear opportunity. The opportunity has been identified. We're actively pursuing it. I don't know if you want to add to that?

Yes. I think from a technology perspective, I mean, it's a modular platform. So whatever time it takes for us do our internal one is what it would be for others. Then it comes down to volume. It also comes down to whether our partners would have to do clinical studies with all this. So that's as generic as I can get. I think Kjersti's point really was, hey, we have an amazing platform. and we can double down, we can go. We see a huge opportunity in type 1 and type 2. And it's not just the durable pump. So it gives us a broad moat so that we can go offensive, we can broaden our portfolio of innovation.

Thanks, Divakar.

And I know you don't want to comment on the time line, but if I say, is it in the medium term, is the answer to that, yes? Or is it in the long term?

I would say, look, the entire theme today has been medium term. So medium term, it is.

Whenever we figure out the magic. [indiscernible]. One for Jonny on the capital allocation and returning excess cash to shareholders. I'm just curious how you're thinking about that in terms of obviously wanting to maintain flexibility for M&A. Is that something that's a short-term priority or are guys accumulate cash for the next couple of years until you make a decision on that?

No, I think I said in the presentation, we don't see it as likely that there will be cash available for return to shareholders in the medium term because we've got lots of great opportunities to invest in the business. And that starts with organic opportunities that we've been talking about today, both OpEx and CapEx, and it also includes bolt-on acquisitions. And the difference between internal investments and external investment effectively is sometimes they're delivering kind of the same thing. So we do see that very much as a pool of investment available to drive the business forward.

It's David Adlington from JPMorgan. Just on the Parkinson's opportunity again. How many of those 8.5 million patients are Stage 3 and 4? And how long do you expect to stay on infusion therapy? And then just in terms of the price of the IC device for Parkinson's, is that a premium to diabetes or similar sort of price point?

I guess I can take last part first. If you think of what that treatment total cost to be for Parkinson patient and the fact that it is on our own branded solution, probably say it will be in the premium range. I have to -- I don't know the exact number of patients being in Stage 3 and 4. Unfortunately, mainly everybody gets there. And when you get on this medication, you will stay on this medication because this is as good as it gets in the treatment time line.

Super. Thanks. Do you have any other questions? Anybody else? Okay. We're running right on time. So we're on schedule. We would say here. Look, I guess what I wanted to do at this point was just really to say a huge thank you to all of you. It's really been tremendous just have you actively participate and learn more about ConvaTec. I hope you've gotten a clear sense that fundamentally, our level of optimism and confidence that we're going to deliver sustainable and profitable growth is high, right? And I'm very comfortable telling you that my level of optimism and confidence relative to three years ago has certainly increased. So on that note, I'm just going to say a big thank you to all of you for everybody here in the U.K., in London, we've got a wonderful reception. Not only were there be some food and drinks, but we're also going to have some demos. So if you're curious to learn more about our customers and more about our products and services, each one of the category leaders will be hosting a booth with a demo, and we would encourage you to actively participate. So on that note, thank you very, very much, and we'll be in touch.