ConvaTec Group reports accelerating organic revenue growth of 7.2%

ConvaTec Group plc (LON:CTEC) has announced its Annual Results for the twelve months ended 31 December 2023.

Accelerating organic revenue growth of 7.2%¹, broad-based across all four chronic care categories

·    AWC²: 9.5%¹ driven by strong performance in antimicrobials and growing position in wound biologics segment³

·    OC²: 4.2%¹ driven by 6% growth in Convatec ostomy products with strength in Global Emerging Markets

·    CC²: 6.5%¹ excellent customer service and higher reimbursement pricing in the US

·    IC²: 8.7%¹ continued strong demand for infusion sets with multiple product launches in 2023

Reported revenue was $2,142m (2022: $2,073m), up 3.4% and 3.2% on a constant currency⁴ basis, lower than organic because of the strategic exit of the non-core hospital care activities and related industrial sales in 2022

Further operating margin expansion

·    Strong adjusted gross margin expansion of 150bps to 61.6% principally driven by improved mix and stronger pricing coupled with further productivity, partially offset by inflation and FX

·    Adjusted operating profit margin of 20.2% (20.8% on a constant currency basis). Expansion of 70 bps (130 bps on a constant currency basis) with further progress in simplification and productivity of operating costs

·    Adjusted operating profit up 7.0% to $432m.  Reported operating profit increased to $263m (2022: $207m)

Delivering EPS and cashflow growth

·    Adjusted diluted EPS increased 6.1% to 13.4 cents.  Reported diluted EPS increased 106% to 6.3 cents

·    Free cash flow to equity⁵ rose to $228m (2022: $105m) resulting in equity cash conversion⁵ of 83%

Strong new product pipeline – further strengthening competitive position

·    Growing InnovaMatrix^® and ConvaFoam^TM in the US – positive clinician feedback

·    Acquired innovative anti-infective nitric oxide technology platform

·    Launching new compact hydrophilic catheter, GentleCath^TM Air for Women, in Europe

·    Broadening customers and applications in IC – partnerships with Beta Bionics (iLet insulin pump in the US), AbbVie and Mitsubishi Tanabe (Parkinson’s), Medtronic (780G in the US) and Tandem (Mobi in the US)

Confidence in outlook – improving earnings and cash generation

·    In 2024: we expect 5-7% organic revenue growth, adjusted operating profit margin of at least 21.0% on a constant currency basis and double-digit growth in EPS and free cash flow to equity

·    Medium-term: Based on the strength of the new product pipeline and improvements in commercial execution we have raised our organic revenue growth expectation to 5-7% p.a. (previously 4-6%), we also expect to reach a mid 20’s% adjusted operating profit margin by 2026 or 2027 and to deliver double-digit compound annual growth in EPS and free cash flow to equity

Karim Bitar, Chief Executive Officer, commented:

“Convatec’s revenue growth accelerated and was broad-based across all our categories.  We further expanded our operating margin and increased earnings per share and free cash flow to equity.

“We remain focused on executing our FISBE 2.0 strategy. Given our innovative new product pipeline and strengthened competitive position, Convatec has pivoted to a higher level of organic sales growth. We are on track to deliver our medium-term margin guidance leading to double-digit compound growth in EPS and free cash flow to equity.”

Key financial highlights

·    Net debt⁴ increased by $61m to $1,129m. Net debt to EBITDA ratio was maintained at 2.1x after $179m of M&A investment and $129m in capex investment to drive future growth, coupled with $111m dividend payment

·    The Board recommends a final dividend of 4.460 cents resulting in full year dividend of 6.229 cents, an increase of 3%

Percentage movements throughout this release are calculated on actual unrounded numbers.

(1) Organic growth presents period over period growth at constant currency, adjusted for: Triad Life Sciences acquisition (Mar’22) the exit of hospital care and related industrial sales and the reconfigured business in Russia (May’22) and the acquisition of A Better Choice Medical (Jul’23)

(2) AWC is Advanced Wound Care; OC is Ostomy Care; CC is Continence Care and IC is Infusion Care

(3) Wound Biologics segment, as defined by SmartTRAK.  This segment includes skin substitutes, active collagen dressings and topical drug delivery.  Triad Life Sciences was renamed Advanced Tissue Technologies (ATT) following its acquisition in mid-March 2022.  ATT began to contribute to the organic growth rate following the anniversary of the deal completion. 

(4) Constant currency growth is calculated by applying the applicable prior period average exchange rates to the Group’s actual performance in the respective period.

(5) Certain financial measures in this document, including adjusted results above, are not prepared in accordance with International Financial Reporting Standards (IFRS). All adjusted measures are reconciled to the most directly comparable measure prepared in accordance with IFRS in the Non-IFRS Financial Information below (pages 21 to 26).   Equity cash conversion is a new non-IFRS financial measure introduced in the year and is calculated as Free cash to equity/Adjusted net profit.

Investor and analyst presentation

The results presentation will be held in person at The Auditorium, Chartered Accountants’ Hall, One Moorgate Place, London EC2R 6EA at 9.00am (UK time) today. The event will be simultaneously webcast and the link can be found here.

The full text of this announcement and the presentation for the analyst and investors meeting can be found on the ‘Results, Reports & Presentations’ page of the Convatec website www.convatecgroup.com/investors/reports.

Forthcoming events

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