ConvaTec Group PLC
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ConvaTec Group PLC
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Ladies and gentlemen, good morning, good afternoon, and welcome to the ConvaTec Q3 Trading Update Call. My name is Nandija, and I'm the coordinator on today's call. [Operator Instructions] I shall now hand over to your host, John Crosse, to begin. John, the line is yours.
Thank you, Nandija. Good morning, everyone. It's John Crosse, VP of Investor Relations, here. Thank you for joining us at short notice for this call. I would just direct you to the forward-looking statements we have in our releases from this morning, and I'll hand you straight over to Frank Schulkes, our CFO.
Great. Thanks, John. Good morning, everyone, and thank you for joining this call at short notice. This is Frank Schulkes, CFO. And I'm joined by our Chairman, Sir Christopher Gent. I hope you've had a chance to see the 2 RNS announcements we issued earlier today, one updating on Q3 trading and revising our full year guidance and the other announcing management changes. I'll run through the Q3 numbers and guidance. But before I do that, Sir Christopher has some comments to make on the management changes.
Thank you, Frank. Good morning, everyone. I, too, thank you for joining us. Along with our announcements of the Q3 performance and revised guidance, you will have seen that we have announced this morning the retirement from the company of the Chief Executive, Paul Moraviec, with effect from last Friday evening. During his tenure as Chief Executive, which commenced in 2014, Paul made important contributions to dealing with the challenges that the business faced at that time. These challenges were overcome, and in addition, he developed an effective commercial strategy as well as leading the company through its IPO. We wish him well in his retirement.It's now time for the next stage of the company's development. The board has appointed Rick Anderson as its Interim CEO. Rick has 25 years of senior executive leadership experience in the medical device industry, including 10 years at Johnson & Johnson and the last 10 years a COO of a leading health care investment firm. He has immediate and close knowledge of ConvaTec as he's been on the board for the last 2 years since our IPO. Rick will be very hands-on in this role, driving the business forward with full support of the executive team and the board. He will be full-time. At the same time, I, together with Steve Holliday, our Deputy Chairman and Senior Independent Director, will lead a process to find and appoint a permanent successor to the CEO role. A search company is already appointed, and we expect to receive an initial list of potential candidates later this month. We will say more on this topic at an appropriate time. I wish to reiterate that ConvaTec has fundamental sound business with good potential for growth and creation of shareholder value for the future.As ever, I am very happy to be available to shareholders on any questions they may have about this announcement.I would now like to hand back to Frank who will give you more details on the figures and take questions on the trading update.
Thank you, Sir Christopher. So on Slide 2, the headlines for the first quarter. We are adjusting our full year guidance for both revenue and adjusted EBIT margin, and this is primarily because we were recently made aware of a material change in inventory policy by our biggest customer in ID, effective immediately that will have a significant negative impact on orders in Q4. This is expected to lead to a fall in revenue in the fourth quarter of between $18 million to $23 million. We have also seen challenging dynamics in some wound care markets evidenced by a weaker-than-anticipated Q3 performance. As a result, we are lowering our revenue guidance for 2018 to 0% to 1% organic growth. So the basis for this change in guidance is largely driven by the sudden drop in ID, about 130 basis points, risks in wound account for about 40, 45 basis points and then risks in ostomy plus some CCC recall risks, the rest. Largely as a result of these revenue changes and constant adverse mix effects, guidance for adjusted EBIT margin in 2018 is now 23% to 24%.Turning to the Q3 numbers. After a solid first half broadly in line with expectations in Q3, we saw a significant lower level of revenue growth of 0.4%. Whilst we saw an improved performance in Ostomy, the overall result was clearly very disappointing.Q3 group revenue came in at $452 million, which is growth of 0.4% organic, 2.9% on a constant exchange rate basis and 1.5% reported. Ostomy Care delivered an improved revenue performance versus the second quarter and first half as indicated the last time we spoke in August, although the improvement was not as much as we had anticipated. Advanced Wound Care showed a marginal improvement versus Q2 against a weaker comp with challenging dynamics in the U.S. and U.K. leading to a disappointing performance. CCC was impacted by the Slovakia packaging recall, which we outlined in August. This had around $3.5 million revenue impact in the quarter and we expect some of that will come back in Q4, and I'll talk more about that in the moment.As you know, Infusion Devices can be lumpy and we expected a decline in revenue this quarter. We had significant tailwinds in the first half of 2018 and a tough comp from Q3 last year when we grew over 17%. On Slide 3, this is the franchise summary. Advanced Wound Care grew 0.8% on an organic basis. Ostomy Care grew 1.5%. As I said, both improving versus the second quarter. CCC grew 1.4%, which was slower than the first half, reflecting the impact of the Slovakia packaging recall, which will rebound in Q4. And ID declined 3.7%, which was expected, given the significant tailwinds we had in the first half as well as a tough comp.Going into the franchise and in more detail. Firstly, Advanced Wound Care. We continued to see a good performance from Ag+ anti-biofilm and Foam. And as we expected at the half year, our legacy products of DuoDERM and Base AQUACEL began normalizing in Q3. That meant they were less of a drag on overall franchise growth. But our skin care business remained a drag on growth due to competitive pressures in the U.S. As we said before, these 3 legacy products make up about 40% of franchise revenues.Surgical Cover Dressing is recovering from the supply issues in 2017 and growing this year, but it is at a much slower pace than we had forecasted. And in the U.K., we continued to see some challenging market dynamics, including NHS supply chain tendering activity and some timing of orders in Germany and the Middle East. This month, we launched AQUACEL Ag Advantage in the U.S. following our 510(k) approval in August. So overall, a modest improvement for Wound in Q3 versus Q2, but at a slower pace than we expected.Turning to Ostomy Care on Slide 5. Growth improved as we began to annualize the patient losses and supply issues we experienced in the second half of last year, but we expect the impact from patient losses in 2018 to group revenue growth to be at the top end of the 50 to 100 basis points range we've previously guided. We saw a good performance in Latin America and Asia Pacific, including China, and positive trends in some smaller European markets during the quarter.We saw continuing strong performance from new products, Accordion Flange, Esteem + Flex Convex and EuroTec's Varimate strips. me+ momentum continues with strong patient enrollments. We were also pleased to have agreed a 2-year extension to the Vizient GPO contract for Ostomy in the U.S. This contract now runs until June 2021.For Q4, we have a tougher comp as we had a large order in Japan at the end of last year, plus we see some downside risk around a couple of distributor orders as well as the retail channel in the U.S.In CCC, our Home Distribution Group again delivered good growth with GentleCath Glide performing well in the U.S. Revenue growth was impacted as expected by the packaging recall in our Slovakia plant to the tune of about $3.5 million and around 2/3 of that is orders on hold, so orders we have received, but we can't yet fulfill due to product availability; and then 1/3 is lost orders. The orders on hold should reduce in Q4, which will be a tailwind to growth. Around 70% of the affected products in Slovakia have now been repackaged and released to market, and we anticipate that the vast majority of the remaining 30% will be done by the end of the year. We continue to expect the total revenue impact for the year will be less than $5 million. There will be a margin impact of about $4 million related to this recall in terms of inventory write-offs and expedited shipping costs getting the products back into the market.Our ongoing product rationalization program had a small impact of around $0.5 million in the quarter.Turning to future growth opportunities. The female version of our next-gen catheter is already CE marked and will be launched in our first European market in the next few weeks. We've had great feedback from patients who have tried it, and launch activity will ramp up over the coming months and into 2019. We'll take a measured approach to rolling out country by country, so this will be a slow burn as we build momentum. And Europe remains a very attractive opportunity for us.Turning to ID on Slide 7. We continue to see good underlying demand in the insulin pump market. The Q3 performance in ID reflects strong tailwinds in the first half of this year as well as the tough comp versus last year, as I mentioned previously. The change in inventory policy by our biggest customer has led us to anticipate significant distortions to expected ordering patterns with a material reduction in Q4. As I said, this is expected to lead to lower revenues than we had planned in the fourth quarter of between $18 million to $23 million. So a business we expected to be growing 4% to 4.5% this year will be declining 4% to 5% instead.And summary on Slide 8. We saw a sequential improvement in Ostomy Care. Advanced Wound Care performance in Q3 was disappointing with continued challenges in the U.S. and U.K. in particular. Continence & Critical Care saw good underlying growth, but was impacted by the Slovakia packaging recall and strong product rationalizations. Infusion Devices performance reflects the tailwind seen in the first half and a tough comp year-over-year. Looking forward, we anticipate $18 million to $23 million lower revenue in Q4 in ID due to the change in inventory policy by our biggest customer. On top of that, we see some additional challenges in Q4 mostly in Advanced Wound Care. So we now expect full year 2018 organic revenue growth to be between flat and 1%. And largely, as a result of these revenue changes and adverse mix impacts, adjusted EBIT margin guidance is now 23% to 24%. To finish, some information on our cost-out program. We are developing a strong cost-out program with a 5-year horizon and cost-out opportunities in the 5 categories: manufacturing, excellence, sourcing, supply chain, footprint and simplification. We have improved our project management capability and have started to execute projects in the funnel. In light of today's leadership announcement, we have decided to provide you with this update alongside our 2018 annual results announcement in February 2019 instead of later in Q4 2018.We will now take any questions you have.
Hello, Nandija, can we go to the questions please?
[Operator Instructions] Our first question comes from Ian Douglas-Pennant from UBS.
It's Ian Douglas-Pennant at UBS. So firstly, on the ID issues, can you just give us some confidence here that these Medtronic issues won't leak into next year? Clearly, there are some of these suppliers haggling for their business. Can you give us confidence that this isn't [ resulting in a ] wider decline in demand for your product? Secondly, on the cost-saving program, why have you decided to announce, you were going to do that in February, why not wait for the new CEO? And finally, a question for Chris, please. Could you comment on what you're looking for in the new CEO? Are you looking internally or externally? Are you looking for somebody from the industry or outside? Just some color on the criteria there, please?
Okay. Shall I start on ID? So we heard about a week ago from the customer that they were planning a significant change. And then the end of last week, we received more detail that indeed they were going for a very aggressive inventory target change. The information we've received from them is that they will execute this during Q4 and that is the information I have at the moment. The overall insulin pump market is continuing to perform very well. We have a great long-term partnership and development of projects and products with this customer for the long term, so we don't see anything else in it than just a radical change in inventory policy. The thing that is -- for 2019, if you think about the impact, so at this moment we don't think there is an additional impact. However, as you know, Animas is leaving the pump market and the business of Animas will be divided over the remaining pump manufacturers and we expect, of course, that a portion of this, although it will be a smaller portion, will go also into patch pump manufacturers. So there will be an impact there, and on top of that, there is going to be Animas inventory in the channels that need to be flushed out. And of course, we have to see how the Tandems and the Medtronics of this world are going to deal with that, but we stay in close touch with them. At this moment, that's the information we have, Ian. Related to the cost savings, well, we are developing the program over 5 years. As you know, we are already executing some of the projects in 2018 and in 2019 as well. So we want to make sure that, indeed, a new CEO will get input into this. At the same time, we don't want to continue to postpone it because we have a good program in development. We're executing on it. And therefore, with the board, we have decided to postpone, but in principle, we are going to have this presented in mid-February. So at this moment, I would say even if the new CEO is not there, we have, of course, Rick Anderson as an Interim CEO who is going to drive with the team the business forward. This is not just an acting role. So therefore, we have decided to go ahead mid-February.
Just picking up on that, Ian. Obviously, Rick, he starts today and he will want to look at the programs in detail and that will be reviewed with the board so that what you hear about in February will be something which is both approved and supported by the board because there may well be capital to be spent in order to achieve the improvement in productivity that we're seeking. With regards to the announcement, Rick is a very experienced executive and he will be driving the business full time. In the meantime, we will be setting out to find a permanent replacement, but obviously the potential candidates may either be on contracts themselves, so there will be inevitably some delay in bringing somebody through as the next Chief Executive. With respect to where we're looking, I think you would expect to see an external candidate appointed. We're looking at people not just from the med tech industry, but in related industries, which expands the scope of the people that we might be looking at. So that program is underway, the search company is already appointed and we look forward to receiving some initial suggestions from them later this month.
The next question is from Chris [ Trivolon ] from Crédit Suisse. Okay, it seems that Chris had disconnected. The next question is from Veronika Dubajova from Goldman Sachs.
I have 2, please. My first one is just trying to do a little bit of postmortem here and understand a bit better, Frank, what you think's gone wrong because the messaging from you, post Q2 in August and then also in September, was that the business was seeing an improvement. And so what would be helpful to understand is, is it that September was very poor? Or is it instead that the improvement you thought you were seeing actually was not materializing? So that would be helpful if you could talk about that. And relative -- or related to that, also comment on how you feel your internal forecasting and communication is working? Because it's quite surprising to see this magnitude of a downgrade for the business at this late a stage of the year. So that's my first question. My second question is as you think about 2019, I think you had some pretty ambitious targets for the Wound Care business returning back to market growth in Q4. That's clearly not going to be the case. The Ostomy business is maybe seeing slightly slower momentum than you had anticipated. So maybe just help us think through some of the pulls and pushes on the organic revenue growth side for those 2 divisions as you look at 2019.
Thanks, Veronika. Okay, so on the postmortem here. First of all, of course, the ID one was clearly a complete surprise to everybody, right? So that was late-breaking last week. If you then think about Wound in the summer, we have had discussions that Wound business, specifically in the U.S., to a less extent in Europe, needed an improvement in the second half versus the run rate that we have seen in the first half and that needed to be a pretty significant one. And in September, we basically saw that run rate coming out of Q3 was going to be extremely tough. And then when we closed Q3, we had another round of reviews with all the businesses basically towards the end of last week, understanding what was going on in Q3, why we didn't see the run rate improve, and of course, extrapolating that to the consequences of Q4. And that's basically why at this moment we see enough risk that Wound is a contributing factor to us coming off guidance. Now, if we think that about our forecasting capability, I think, Veronika, in the end, it probably comes down to commercial judgment being too optimistic, looking at opportunities, perhaps not focused enough on risk mitigation or realization of that with the commercial teams and the leadership team in general. So clearly, we have some work to do there and we're going to need to improve that collectively as a team. The commercial optimism was just -- in the end, it became too positive, and we couldn't realize the numbers that we thought we could realize in the summer.
And then the second part of the question was the outlook.
Yes, the outlook for 2019. Well, I don't want to get here into a 2019 discussion. The only thing I can tell you is, of course, based on what we're experiencing here is that, as you already mentioned, the exit rate of Wound will not be at market levels, which is what we forecasted before. So exit rate coming out of '18 will be lower. We will see gross cost-out benefits hitting our P&L. It will not be a linear function. And then we are continuing to launch products, so we will continue also to invest behind those products and invest in commercial activity so the expectation here is that OpEx as a percentage of sales will go up next year. Now how all these variables are going to pan out, we have to work through. In the next coming weeks, we're going to have our budget reviews with all the regions, the franchises and the functions, and we will report out on that when we do our guidance in mid-February.
That's great. And if I can just very quickly, Frank, for my final question. I think you've alluded -- well, Paul alluded to potentially reviewing the shape of the portfolio with regards to Critical Care. I suspect that review is now going on hold. But can you confirm whether that's the case or whether it's still ongoing?
Well, I think with Rick coming in as an Interim CEO, we're going to go full steam ahead driving the business. And as part of that, the review of that portfolio will also continue.
Our next question is from Paul Cuddon from Numis.
Just a Q4 expectation for Ostomy, please? I think you cited a sort of range of potential variables. And so what are you factoring into the base case assumption for Ostomy in Q4 in your 0% to 1% range, please? Then, secondly, where are we on sort of permanent franchise president for Wound Care?
Yes, okay. So on Ostomy, we saw, as I said, a small sequential improvement in Q3, but that was on an easy comp given that last year was negative. So Q4 comp will be a little tougher because we had last year in Q4 a bigger -- a big Japanese order. And the range, I'm not going to give you specifics here, but don't expect growth for Ostomy in 2018. That's perhaps the best way to describe it and it might be slightly negative. And the reason for that is, as I mentioned, there are some distributor orders that might be pushed out. We can see that in Europe as well as some in the retail channel in the U.S. And if just over $1 million, $1.4 million of change in the number is already 100 basis points change in organic growth in Ostomy, so very small numbers drive, in fact, pretty significant year-over-year basis points change. Then on the franchise leadership, we have announced a new leader for the Wound franchise. He will start -- David Shepherd, he will start the end of November and he's joining us from J&J.
The next question is from Kit Lee from Jefferies.
Kit Lee from Jefferies. Just have 2 questions, please. Firstly, you mentioned the headwind in U.K. in your Advanced Wound Care business. Just wondering how do you think about this NHS headwind going into 2019? And how do you aim to operate in this environment? And I'll come back with a second question.
Well, the U.K. has been a very challenging environment and -- for a couple of reasons. The first one is that it is an environment that is largely focused on price, to be honest. The value of products is seen as less important and we see that also very clearly in the way the NHS, for instance, is behaving with very big price cuts in specifically the wound portfolio. And the second dynamic in the U.K. is that there are a lot of smaller players -- there are several players that are low-cost type manufacturers that are nibbling at market share. So we have lost some market share in the U.K. market as a result of that. At this moment, we don't see this go away in 2019, but of course, we will continue to try to sell the value with economic and clinical data. And this trend that we see is, I don't think, going to be a very long-term trend. But at this moment, we're suffering from it and we will counter by selling our products, including clinical and economic evidence, to counter those type of activities.
Okay, that's great. And then, I guess, secondly, can you just talk more about your catheter launch in Europe? What's going to be the launch process? Is it going to be a gradual rollout? And I think you mentioned the female version was approved. So what about the male catheter?
Yes, so the female version is CE marked, is inpatient and we have received very positive feedback on this product. We have -- we're going for a gradual rollout, so it's not going to be a full-blown European rollout. We have targeted one of the big markets in Europe. I don't want to tell you which market that is, I don't want to give that information away to competition. And that will be happening basically in the next couple of weeks. And then throughout '19, we're going to target other markets, and of course, we're going to invest behind that in terms of sales force, et cetera, et cetera. The male version is coming out in 2019, but we can't at this moment -- we can't give you a specific date on that yet.
The next question is from Chris Gretler from Crédit Suisse.
I actually have 2 questions to the Chairman since we rarely have the opportunity to have Mr. Gent on the call. So the first would be basically, I was hoping to get your opinion on the speed and the -- of the management changes here in ConvaTec. So now we are 2 years into the IPO, now we've seen a new CEO and new CFO, new head of Wound Care, I think a new head of the U.S. today. I mean, I've rarely seen such a fast change in management position as at ConvaTec. I was just wondering what your opinion was on this matter and how problematic this is because, I mean, in my experience at least, I've rarely seen a great company performing with such a strong turnover. That would be my first question.
Okay. Clearly, when we commenced as a public company, the board worked with the Chief Executive to discuss whether the people within this leadership team was the right caliber to take the business forward and there were identified some changes needed at that point. With respect to the CFO, he clearly indicated that he did not wish to move to the location in the U.K., which would mean he could work as an effective business partner to the Chief Executive. And therefore, that was a decision on his part and he stepped down as a result of that and Frank is -- was recruited as his replacement. With respect to some of the other positions, there was concern about commercial effectiveness and the need to improve the caliber of the people who were driving commercial effectiveness in the business. This necessarily takes a little time. You're right, it's not the best circumstance, but I believe that what we now have is an improvement in the positions -- the key positions in respect of the franchises. Now remember, this is a business that we want to move towards, franchises becoming over time business units, and that increases the requirement for high-caliber people to drive those -- the franchises forward. And on reflection, one would have to say that this business performance has been disappointing, and therefore, we needed to upgrade and increase the focus on effective commercial execution in the franchises. So I don't make any apology for this. It is obviously not desirable to have too much turmoil, but it's critical that we do have effective leadership within the business and that's what the board is seeking to achieve with the assistance of management. We have a very strong HR Director now, and we're working with the company to try and up the capability of the people who give business leadership. I would say to you that both Frank and Sean McGrath, the HR Director, are very much important building blocks of the future. We now obviously will be seeking an effective new Chief Executive who will take the business onto the next stage of its development.
Okay. And maybe my second question is basically a bit of an extension. In your press release, you write that the board continues to have confidence in the fundamentals of the business. Now if I look at the business since -- again, the IPO, basically that has barely any underlying growth margin in contrast to what was our original expectation, actually came down rather significantly, if I look at your new 2018 guidance. So maybe could you kind of now share with you -- with us the source of the board here and why you have now such strong confidence in the fundamentals, because at least so far what I have seen, the company delivering as a public company has not been kind of on par with that?
Well, I agree with you. And clearly, we are disappointed with the performance. I believe that there has been the degree of overoptimism in the assessment of the potential of the business. And part of what we're trying to do is ensure a new realism so that we have an appropriate foundation for making progress and for informing you, the investors. So I think the changes we've -- that have occurred, have in part been driven by the board, but also by a realization that we've got to rebase to move forwards in a much more effective way. I can assure you that Rick Anderson is a very experienced executive in this space and he will be leading the charge, strongly supported by the board and the executive team. But I can't hide the fact that we are -- we share your disappointment.
Our next question is from Ian Douglas-Pennant.
Ian, hello?
I guess, we can move on to the next question for the time being. It's from Martin Hall from Hardman & Co.
The change in inventories that you've highlighted, Frank, are quite dramatic. I was just wondering if you could give us some guide, what is the distributor level of inventory days going from and to, by the change they're making?
Well, we have not received any input from our customer how many days of inventory they have. They manage, of course, a wide variety of channels in a global setting, so we don't have any insight in that. We have received from them the impact in orders for Q4 and they have given us some idea that, dependent on channel, that they want to go to certain targets, but that was more illustrative than anything else. As you can imagine, given the size of this, that they are going for a pretty drastic change in inventory management and they are going to go at it with a lot of speed. So it's tough for me to answer that because we don't have that specific information given that there is a variety of channels they manage worldwide, but it is a drastic change versus their current way of operating.
I think you also have to remember that there's been a change in how many companies are operating in that market and I think that is yet to be flushed out. So they've certainly taken very strong action which has impact on us, but this will play out a bit over the next quarter or so.
Our next question is from Patrick Wood from Bank of America Merrill Lynch.
Perfect. Just one from me, please. Could you give us some confidence that the covenants associated with the debt that you guys have won't be impacted in any way by the current update in terms of cash flow and in terms of the structure of the business? Just be helpful to get an understanding of what's going on there.
Yes, we don't expect any breach, not even close. And we still expect that our leverage will be below 3 by the end of the year based on this change in guidance. So we are still a every cash-generative business. So no concerns at all in that area.
The next question that we have comes from Alex Gibson from Morgan Stanley.
I have 2, the first one on Continence & Critical Care. So when you talked about the underlying growth of this business being 5%-plus and has been doing that for a couple of years, when will you have the visibility on the business actually reaching this level? And will product rationalization continue to the same extent? And then the second question on your margin expansion program or the cost-out program. You've been working on that for a year now, how has the program or your expectations of the program changed over that time period? Are there any elements where you see more upside, more downside? Some clarity there would be helpful.
Okay. Yes, thanks for the questions. So on CCC, the underlying this quarter was 100% impacted by the recall of $3.5 million, and we expect that this business will come back to normal levels of growth, plus a little bit because we will have some tailwind of the fulfillment of those back orders in Q4 already. So this is a very short disruption of that trend that the business sees. We have a great ACG business in the U.S. and that business is performing very consistently at high level. So this is just a one-quarter change. In Q4, you can expect CCC to be at that level [ for us ]. And then related to the cost-out program, so indeed, we have been working with the new operations VP on the cost-out program. We have a great funnel. As I've said in the past, we're managing this, indeed, as a funnel where we look at ideas, then we look at feasibility, then we basically prepare them to start executing and then we start executing. The overall program will have a horizon of about 5 years with better-defined programs, of course, in the early years and more concepts in the years of 4 and 5. We feel very good about that. I think throughout the year, the ideas have moved from ID stage, to feasibility, to ready to execute. And as I also mentioned in August, we already are executing and seeing benefits of the gross cost projects in 2018. So this is a -- going to be very much a live program. This is not going to have an end date really. Every year, we will execute projects and we will build a new funnel and add projects through the funnel so it will stay alive and it becomes a rolling source of contributions to gross margin, on top of course, the other variables that we see in the program. And as Sir Christopher has mentioned before, we are going to postpone this to February where we will come out with more detail.
We have a follow-up question from Chris Gretler from Crédit Suisse.
Actually, this is an operational question. So I was just wondering on this Vizient GPO, whether actually, you know, the contract extension, the options you draw, whether that's now coming at the same condition as we had before or whether there were now some price concession or term concession, for example?
Okay. So first of all, we had an option to extend this and we took that option. And the reason that we got this extension, I think we have great relationships over many years with Vizient. We have a strong market share in the U.S. and I think it's also a testament of how we managed through the whole back order situation. We offered some discount, but it was a lot smaller and is a much smaller impact versus the previous renewal that we did several years ago.
Our next question is from Nicholas Keher from RBC Capital Markets.
First one is just -- it's a question about -- just on the investment case since IPO, it's really -- it's actually broken now for ConvaTec. And actually, would the board now consider more radical options to create shareholder value, given that the company is still [ in like ] CFO's [ ambition ], should be around 3x levered by year-end, but perhaps under-invested, since the IPO -- or before the IPO, to combat the challenges from peers in specific markets, which is Ostomy and Wound, et cetera, or even CCC in Europe, and actually perhaps a good opportunity here with a reset would be to think about the 4 divisions or franchises you have and perhaps maybe it's time to realize value from 1 that doesn't -- or 2 that don't fit as well with the group as the others? And would the board consider these kind of options now with the share price where it is, given the events we've seen over the last 1.5 years? And then I've got a follow-up.
Okay. Well, first of all, I don't necessarily think that the investment thesis is broken. Our execution is not being effected. We are in long-term chronic care markets and we have a very good product setup. What we have not done is execute as effectively as we would like to have seen. With respect to, are we committed to the existing strategy, it's actually a reasonably strong strategy, but we've always been open-minded about whether we'd be in all of the divisions we're currently in and that kind of strategic review is something, which, as a board, we do review and obviously it depends upon whether there are people who are interested in whatever dispositions we have. But we're very flexible, we would look at anything that would cause us to think about whether the structure of the business and how we should go forward, so -- and that has always been the case by the way. Yes, we think the strategy is fundamentally sound, but it is about how well we perform. And clearly, we have not been performing as well as we ought.
And then the second one is just to go back on Infusion Devices from, I think, the first question of the morning. Just in terms of, have you seen your largest customer take on perhaps a new customer or -- a new supplier, sorry, or -- I mean, this material change in revenue, it's such short notice. What -- are you -- do you -- can you definitively say if that customer has taken on a new supplier or not in the period? Or if there has been a shift in...
I'll hand over to Frank to do the detail. But clearly, an existing supplier to the market has withdrawn and that has created a degree of uncertainty and presumably also affecting our supplier. So as far as we know, no new supplier has been taken on.
I think if you look at our ID business and the relationship we have with our customers, especially the big customer we're talking about here, we have a very long-standing relationship that goes much further than here a commercial relationship because we are codeveloping products, we have codeveloped products and we are continuing to codevelop. We have several projects in the pipeline for the future with this customer. On top of that, we just launched our new product, the Ulysses product, and the customer is extremely excited about that because their patients are extremely excited about that. So I think from a relationship, we have a very strong relationship, a very long-term relationship that goes much further than commercial. And so there is no indication whatsoever that we're here dealing with a possible second supplier coming in to take a sizable piece of that business.
We have a last question from Justin George from Reuters.
So just one question that I had was the impact, yes, the news that we heard about the inventory orders declining is -- was known to us quite short notice. And do you see any long-term impact from this? Or is it just an immediate impact this year? And secondly, we just wanted to confirm that you had earlier said that you don't see any additional impact from this apart from the impact this year.
Yes, so as far as I know and what has been communicated to us in the meeting that ID leadership had with the customer's leadership end of last week was that they were planning to execute this during Q4. Of course, we stay in close contact with them. So if that changes, we will know, first. Second, at this moment the only, I would almost say, related impact that we don't know how that's going to impact us specifically is, of course, the fact that Animas is leaving the industry. That business will go to the Tandems and the Medtronics of this world, a piece will go to patch pump, as I said before. And there will be Animas' inventory that needs to be flushed out. How the remaining suppliers are going to deal with that inventory is, at this moment, for me, not known. But we will work with our customers on that also when we are going into our planning cycle and budget cycle for 2019. The last point I want to make is, so there is no change to the underlying strength of this market and the underlying strength of the business. This is truly a correction driven by the very drastic inventory policy change at our biggest customer.
Okay. I think that is the last of the questions. Thanks, Nandija. There was one on the webcast just to cover that one off, which I think was actually pretty much the same as the last question we had there. So I think that one has been answered, around is the inventory reduction finished at the end of Q4 or is there an impact in 2019? I think we've answered that one. So I think we will wrap up there. Again, thank you for joining this call at short notice. And please get in contact with us if you have any further questions. Thank you.
Thank you. Bye-bye.
Thank you.
Ladies and gentlemen, this does conclude today's call. Thank you for joining, and have a lovely day.