ConvaTec maintains guidance as it clears backorders

The FTSE 250 company said group reported revenue was ahead 10.8% year-on-year to $921.3m, with growth put at 6.4% at constant exchange rates, or 2.6% organically.

It saw mixed results in its advanced wound care division, with a “strong performance” in ‘AQUACEL’ foam and silver offset by challenges in its older ‘DuoDERM’ and base ‘AQUACEL’ dressings.

There was apparently a good recovery in ostomy care,and strong organic revenue growth from continence and critical care, as well as infusion devices.

Good progress was also reported on the reduction of backorders, which were said to now be at a normal level.

ConvaTec’s adjusted gross margin decreased by 100 basis points, consisting of a 30 basis point negative foreign exchange impact and a 70 basis point operational impact, as a result of expected headwinds.

Its reported gross margin increased 50 basis points, due to lower restructuring costs year-on-year.

The company’s reported operating profit reached $122m - an increase of 31.5% year-on-year.

Adjusted operating profit was $203.5m - 5.2% higher year-on-year, with its adjusted EBIT margin falling to 22.1% from 23.3%, which the board said was in line with expectations.

ConvaTec’s board declared an interim dividend of 1.717 cents, for a payout ratio of 35% of adjusted net income on an annualised basis, in line with its policy.

Guidance for the full year was confirmed, with organic revenue growth set to be between 2.5% and 3.0%, and an adjusted EBIT margin of between 24% and 25%.

“In the first half of 2018, we delivered a solid performance and made good progress in many areas,” said group chief executive officer Paul Moraviec.

“Our continence and 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 hydrocolloid and base AQUACEL dressings, as a result of the supply constraints of last year and challenging market dynamics.”

However, Moraviec said that recent positive trends and early results from its growth initiatives gave it confidence that it would 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.”

Moraviec said the company was continuing to invest in the commercial areas of the business, and in new product development, while 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.”