- Full year organic sales growth guidance raised to a new range of 6% to 7.5%
- Adjusted operating profit margin guidance increased to 20.5%
- Medium term operating margin target in mid-20% range
The multi-year turnaround at medical products company Convatec (CTEC) finally seems to be gaining traction after the company raised full year guidance for the second time this year and delivered accelerated revenue growth in the first half to 30 June 2023.
Having been weak for most of the year, the shares responded positively to the latest news, gaining 4% to 213.4p. Chief executive Karim Bitar, who was previously boss of animal genetics firm Genus (GNS), took over the reins at Convatec in 2019 since when the shares are up around 20%.
Bitar commented: ‘This performance demonstrates the momentum Convatec is building - revenue growth is accelerating, and we are expanding our operating margin, despite ongoing investments to drive future growth and the challenging inflationary backdrop.
‘Given the strength of performance and the encouraging outlook, particularly in AWC, (advanced wound care) we are increasing our guidance for the full year.
‘We have now pivoted to sustainable revenue growth and are expanding our operating margin. We are increasingly confident of delivering sustainable future growth and an operating margin in the mid-20s.’
WHAT ARE THE NEW TARGETS?
Having already lifted organic revenue guidance in May 2023 to between 5% and 6.5% from 4.5% to 6% the company raised the bar again on 2 August to a range of 6% to 7.5% and increased adjusted operating margin to ‘at least’ 20.5% from 19.7% previously.
In the first six months the company booked revenue of $1.05 billion, up 2.7% in constant currencies, and adjusted operating profit of $214 million, up 7% representing an increased margin on sales of 20.3% compared with 19.6% in 2022.
Reported revenue growth was reduced by the strategic exit of the firm’s hospital care activities and related industrial sales in 2022.
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Improved mix of profitability, stronger pricing and increased productivity more than offset cost of goods inflation which resulted in a 2.2% gross margin expansion.
The company increased the dividend by 3% to $1.76 per share and ended the period with net debt of $1.29 billion equivalent to 2.5 times earnings before tax, interest, depreciation, and amortisation, a measure of financial leverage.
Over the last six months consensus 2023 earnings estimates have been revised down by around a third. Today’s upgrade in guidance and confident outlook should lead to upgrades.
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