ConvaTec reports 'solid' first half despite Covid-19 impact

(Sharecast News) - ConvaTec reported a 4.3% improvement in first half revenue at constant currencies on Thursday, to $908m (£689.86m).
The FTSE 250 medical devices company said of that, its advanced wound care business saw revenue decline 4.8% to $251m, while its ostomy care division revenue was 3.1% firmer at $252m.

Continence and critical care was 11.5% higher at $244m, and infusion care revenues rose 12.6% at constant currency to $161m.

As anticipated, ConvaTec's second quarter was impacted by lower volumes in advanced wound care, and by the unwinding of increased customer inventories in ostomy care.

Reported EBIT was up 20.7% year-on-year at $113m, and adjusted EBIT advanced 10% to $182m, reflecting the prior year rebate provision, temporary cost reductions due to Covid-19, and net productivity gains.

The company's adjusted EBIT margin increased to 20%, from 18.6% year-on-year, and the board declared an interim dividend of 1.717 US cents, in line with the prior year.

ConvaTec said its strategic transformation was progressing "well", with investments proactively re-phased in response to the conditions resulting from Covid-19.

Recurring transformation investment in 2020 was now expected to be between $50m and $55m, down from $60m to $65m, of which $16m was in the first half.

As a result, annual gross benefits in 2021 were now expected to be between $130m and $150m, down from $150m to $170m.

The board reported a reduction in leverage to 2.2x net debt-to-adjusted EBITDA,, from 2.5x at the end of December, while adjusted cash conversion stood at 73%, down from 90% year-on-year, with the prior year benefiting from "favourable" inventory movements.

ConvaTec was maintaining its outlook, although it did note that uncertainty and the risk of disruption from the Covid-19 pandemic remained.

It said it was looking at lower revenue growth and a higher transformation investment in the second half, alongside a return to higher operating expense levels.

"In the first half, despite the disruption caused by Covid-19, we delivered a solid trading performance and continued to implement our strategy to pivot to sustainable and profitable growth," said chief executive officer Karim Bitar.

"Whilst there remains much work to do, we continue to push forward with key initiatives.

"In light of the current circumstances, we have accelerated some investments, in particular in our digital capabilities to respond to changes in customer engagement preferences, and our new operating model is embedding well."

Bitar said that conversely, other investments, such as salesforce expansions, had been deferred.

"Looking ahead, we remain committed to supporting and protecting our colleagues and the people and caregivers we serve, whilst continuing to maintain the resilience of our supply chain.

"We are conscious of Covid-19 related challenges in the second half, have taken proactive steps to address them where possible and are maintaining our full year outlook."

At 0917 BST, shares in ConvaTec Group were up 0.79% at 204.4p.