ConvaTec earnings slide as it focuses on margin improvement

Medical products and technologies company ConvaTec saw group reported revenue rise 0.3% in its first half to $831.3m, it reported on Thursday, with constant exchange rate growth sitting at 2.1% and organic growth of 1.5%.

The FTSE 100 firm said its margin improvement programme brought a 40 basis point performance benefit in the six months to 30 June, with a 150 basis point increase in adjusted gross margin to 60.3% including favourable foreign exchange movements.

EBITDA fell by 4.3% on a reported basis, however, to $216.4m, while that drop was 8.5% on an organic basis.

Operating profit was down 7.4%, or 12.2% organically, to $193.5m, with its EBIT margin sliding 190 basis points to 23.3%.

The company said it was making “continued investment” in the business to support product and regional growth, plus the inclusion of public company related costs for the first time led to adjusted EBIT margin 190 bps lower.

Adjusted earnings per share stood at six cents, rising from four cents at the same time last year.

“These results show the continued progress we are making across the business, as we deliver on our strategy to drive growth, innovation and efficiency,” said group chief executive Paul Moraviec.

“During the first half we saw accelerating growth in our ostomy Care franchise, which delivered 3.6% organically in the second quarter, driven by a strong performance in the US and continued underlying momentum across our other three franchises.

“Our margin improvement programme delivered a further net 40 basis points of gross margin benefit in the first half at constant currency, and we continue to expect to deliver around half of the targeted 300 basis points adjusted gross margin improvement during 2017.”

On the operational front, ConvaTec reported continued solid demand growth in foam, silver, surgical cover dressings and ‘Avelle’ in its advanced wound care segment, offset by changes to reimbursement rates in France and short-term fulfilment constraints.

In ostomy care, the board said continued execution of its strategy delivered “accelerating” revenue growth, while in continence and critical care and infusion devices there was “good underlying momentum”.

A number of strategic acquisitions throughout the period had strengthened the group’s franchises, ConvaTec’s board claimed, with the acquisition of Woodbury Holdings immediately accretive on completion and building on the success of 180 Medical.

It added that the EuroTec integration was on track.

“The first half has been busy for new product launches across all our franchises, as we continue to leverage our strong pipeline and invest in growth,” Moraviec explained.

“In the period we launched ‘GentleCath Glide’ in the US and ‘Flexi-Seal PROTECT’ in the US and Europe, and our ‘Neria Guard’ infusion set for non-diabetes conditions in June.

“We also continued the global rollouts of ‘Avelle’ and ‘Esteem+ Flex Convex’, and have just launched our convex Accordion range.”

ConvaTec made its inaugural interim dividend of 1.4 cents per share, and said its guidance for the full year remained unchanged with revenue growth weighted towards the second half of the year.

“Building on our solid start to the year, with our balanced portfolio across products and geographies, and structurally growing addressable markets, we are confident for the future and delivering our full year guidance, with accelerating growth in the second half underpinned by a growing contribution from new products and the unwinding of first half timing impacts,” Paul Moraviec added.