Global medical products and wound care company ConvaTec (CTEC) said that it saw an improving revenue trend in the second quarter with growth of 2.1% and confirmed it was on track to meet full year guidance, giving the shares a 15% boost to 180p.
For the first half to 30 June, the company’s reported revenues of $889m were 3.5% below last year, but excluding a one-off provision and adverse foreign exchange movements of $33.2m ‘organic’ growth was 2.1%.
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Adjusted operating profit, which excludes the one-off provision, was down 18.8% to $165.2m representing a margin of 18.6%. The company has kept its margin guidance for the full year at between 18% and 20% even though it is spending $50m on restructuring.
Also, despite the drop in profits the company converted 89.9% of earnings before interest, depreciation and amortisation (EBITDA) into cash, up from 75.2% last year.
Executive chairman Rick Anderson said 'we expect to see further revenue growth for the Group in the second half. A key focus area is our US Wound business, where a more targeted and effective sales force is already showing encouraging signs.’
ADVANCED WOUND CARE
Underlying revenues in advanced wound care were flat during the half but there are indications that moving to a new sales force model in the US is starting to pay-off. The volume of sales calls with clinicians improved by 20% in the second quarter.
The company also saw good momentum in the European, Middle East and Asian (EMEA) regions, while the UK market remained challenging.
OSTOMY AND CRITICAL CARE
An improved second quarter performance pushed organic growth in ostomy products into positive territory with EMEA and Latin America the stand-out markets.
In the US the company won a contract with one of the top three hospitals by volume based on the quality of its product and service offering. ConvTec plans to use this success as a template for other hospitals.
The continence and critical care division achieved underlying revenue growth of 3% in the first half, outgrowing the US incontinence market. Final testing of its ‘next generation’ catheter against the market leader generated positive feedback, and will be incorporated into a new launch in Europe.
OUTLOOK
The company maintained its guidance for the full year to 31 December 2019 of organic revenue growth of 1% to 2.5%.
Regarding the lawsuit filed by Scapa (SCPA:AIM), which claims damages of $83.8m in response to ConvaTec terminating a contract, management has been advised by its lawyers that the claim has no merit and therefore the company has not made a provision in its accounts.
New chief executive Karim Bitar, formerly CEO of Genus, is expected to join the company on 30 September while the search for a new chairman is underway.
