Convatec announces 2018 Interim Results

02 August 2018

Convatec Group Plc First Half Results 2018

Solid performance - full year guidance confirmed

Convatec Group Plc and its subsidiaries ("Convatec" or the "Group"), a leading global medical products and technologies company focused on therapies for the management of chronic conditions, today reports first half results for the six months ended 30 June 2018 in line with expectations, with guidance for the full year confirmed, despite a challenging environment in certain key markets.

Key points:

• Group reported revenue of $921.3 million grew 10.8% year on year, 6.4%² CER or 2.6%³ organically;
• Mixed results in Advanced Wound Care with a strong performance in AQUACEL^TM Foam and Silver offset by challenges in our older DuoDERM^TM and base AQUACEL^TM dressings; good recovery in Ostomy Care and strong organic revenue growth from Continence & Critical Care and Infusion Devices;
• Good progress on reducing backorders – now at normal level;
• Adjusted¹ gross margin % decreased by 100 bps, 30 bps negative foreign exchange impact and 70 bps operational impact, as a result of expected headwinds. Reported gross margin increased 50 bps due to lower restructuring costs year on year.
• Reported operating profit / EBIT $122.0 million, an increase of 31.5% year on year;
• Adjusted¹ operating profit / EBIT $203.5 million, 5.2% higher year on year; Adjusted¹ EBIT margin 22.1% (2017: 23.3%), in line with expectations;
• Interim dividend 1.717 cents, payout ratio of 35% of adjusted net income (annualised), in line with policy;
• Guidance for the full year confirmed: organic revenue growth 2.5% - 3.0%, adjusted EBIT margin 24% – 25%.
  
  

Paul Moraviec, Group Chief Executive Officer, commented:

“In the first half of 2018, we delivered a solid performance and made good progress in many areas. Our Continence & Critical Care and Infusion Devices franchises delivered strong results and in the second quarter Ostomy Care returned to positive organic revenue growth. Within Advanced Wound Care we have seen strong demand for our newer Foam and Silver dressings, although this was offset by headwinds in our older DuoDERM^TM hydrocolloid and base AQUACEL^TM dressings, as a result of the supply constraints of last year and challenging market dynamics. However, recent positive trends and early results from our growth initiatives give us confidence that we will see an improved performance in Advanced Wound Care in the second half.

“The backorders which arose last year continued to fall during the second quarter and are now at a normal level, as planned. Despite the modest decline in adjusted gross margin in the first half, we are making good progress with our cost out programmes. We continue to invest in the commercial areas of the business and in new product development, whilst further reducing leverage. We are well positioned to deliver on our plans during the remainder of the year and consequently our guidance for the full year is unchanged.”

Franchise Summary

Group reported revenue grew 10.8% in the first six months of 2018, 6.4%² CER or 2.6%³ organically and 8.1% reported growth in the second quarter, 5.3% CER² or 1.7%³ organically.

• Advanced Wound Care (“AWC”) revenue grew 6.6% on a reported basis, or 1.0%³ organically in the first half of 2018, and grew 3.3% on a reported basis and declined by 0.2%³ organically, in the second quarter. Our AQUACEL^TM Foam and anti-biofilm Silver platforms performed well, offset by challenges in our older DuoDERM^TM and base AQUACEL^TM dressings as a result of the supply constraints of last year and challenging market dynamics, most notably in the UK. Performance in the US post-acute channel continues to be a drag on growth, and we are taking action by rolling out a national US wound acceleration plan. We anticipate an improved performance from AWC in the second half of the year.
• Ostomy Care (“OC”) revenue grew 4.4% on a reported basis, but declined 1.0%³ organically in the first six months of 2018, and in the second quarter grew by 3.8% on a reported basis or 0.3%³ organically. We made further progress in reducing orders on hold in the second quarter, which provided a tailwind to performance. We continue to execute our strategy to return the franchise to consistent growth, with a good performance in Latin America and Asia Pacific and positive trends in some European markets.
• Continence & Critical Care (“CCC”) revenue grew 25.7% on a reported basis, 23.4%² CER or 5.7%³ organically in the first half of 2018, and by 24.7% on a reported basis, 23.3%² CER or 5.9%³ organically in the second quarter, with a strong Continence Care performance from our Home Distribution Group (“HDG”) being partially offset by planned product rationalisation, which reduced CCC revenue by c. $1 million in the first half.
• Infusion Devices (“ID”) revenue grew 12.2% on a reported basis, 9.2%³ organically, in the first half of 2018 and by 4.6% on a reported basis and 2.7%³ organically in the second quarter, a strong performance driven by one-off tailwinds and continued growth in the insulin pump market.

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Download the full text of this announcement and the presentation for the analyst and investors meeting.

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