ConvaTec reiterates guidance after first-half revenue growth

Woundcare and medical products and technology specialist ConvaTec announced a robust set of interim results on Tuesday, with broad-based organic revenue growth of 6.6%.

The FTSE 100 company said the growth was driven by substantial gains across its advanced wound care (AWC), ostomy care (OC), continence care (CC), and infusion care (IC) segments.

Despite challenges in the Chinese market, AWC saw a 6.7% increase, fuelled by the success of Aquacel Ag+ Extra and InnovaMatrix.

OC grew 4.9%, propelled by double-digit growth in the soft convex portfolio.

CC saw an 8.2% rise, supported by volume growth and price increases in the USA, and IC reported a 7.3% increase due to strong demand for innovative infusion sets.

The company said its innovation pipeline was showing promising results, with new product launches enhancing segment shares.

Notable successes included the growth of InnovaMatrix, significant patient uptake of Esteem Body, and market share gains for GentleCath Air for Women in France.

Additionally, there was strong demand for Extended Wear Infusion sets for Medtronic's 780G pump and other innovative infusion sets.

ConvaTec said its strategic initiatives in simplification and productivity were progressing well, contributing to a 50 basis points increase in the adjusted operating margin through automation and process optimisation.

General and administrative expenses were reduced to 7.5% of sales, down from 8.2% in the first half of 2023.

The company also reported improvements in profitability and cash flow.

Adjusted operating profit rose to $222.8m, an 8.2% increase on a constant currency basis, while reported operating profit climbed to $149.2m from $123.4m in the same period last year.

Its adjusted operating margin stood at 20.0%, or 20.7% on a constant currency basis.

Free cash flow to equity surged to $57m, up from $10m in the first half of 2023, driven by enhancements in working capital efficiency and strategic capex investments.

ConvaTec confirmed its full-year 2024 guidance, expecting organic revenue growth to be in the upper half of the 5% to 7% range, with an adjusted operating profit margin of at least 21.0% on a constant currency basis.

The company also anticipated double-digit growth in adjusted earnings per share and free cash flow to equity.

For the medium term, ConvaTec projected 5% to 7% annual organic revenue growth, margin expansion to the mid-20s by 2026 or 2027, and double-digit compound annual growth in adjusted earnings per share and free cash flow to equity.

“The group's performance during the first half demonstrated the improving strength of our business - showing broad-based growth across all four categories,” said chief executive officer Karim Bitar.

“Our pipeline of innovative new products is beginning to deliver growth in segment share and we made further progress improving our profitability.

“We are pleased with this performance and are confident of delivering another year of strong revenue growth and further progress on profit and cashflow.”

Bitar said the company was focused on further strengthening the business as it continued to execute its ‘FISBE 2.0’ strategy.

“We remain confident of delivering our medium-term targets of 5-7% organic revenue growth per annum, expansion of the operating margin to the mid-20s in 2026 or 2027 and double-digit compound annual growth in adjusted EPS and free cash flow to equity.”

Reporting by Josh White for Sharecast.com.