Convatec raises guidance after robust sales growth

12th Nov 2024 07:59

(Sharecast News) - Wound care specialist Convatec raised its guidance for the 2024 financial year on Tuesday, following robust sales growth across its divisions.

The FTSE 100 company said that for the 10 months ended 31 October, it saw organic sales growth of 7.7%, driven by a broad-based performance across all categories.

Excluding InnovaMatrix, organic growth stood at 6.6%.

As a result, Convatec increased its 2024 guidance, projecting organic sales growth between 7.25% and 8%, up from a previous range of 6% to 7%.

The firm also raised its constant currency adjusted operating margin target to at least 21.5%, an improvement from the prior target of 21%.

Gross margins had benefited from enhanced operational productivity and a reduction in inflationary pressures in the second half of the year, alongside efficiency gains from Convatec's 'FISBE' strategy, which included commercial and general administrative improvements.

The company reiterated its expectations for double-digit adjusted earnings per share (EPS) growth and a substantial increase in free cash flow to equity by year-end.

Looking to 2025, Convatec said it aimed to further expand its operating margin and maintain double-digit growth in adjusted earnings per share and free cash flow-to-equity, regardless of the final Medicare coverage determination for InnovaMatrix.

Sales from products excluding InnovaMatrix were expected to grow organically by 5% to 7%, supported by an expanding product portfolio, productivity measures, and strategic commercial execution.

Performance across Convatec's divisions remained strong.

Advanced wound care achieved high single-digit growth, with InnovaMatrix performing particularly well outside of Medicare's draft local coverage determination scope.

Ostomy care and continence care delivered mid- and high single-digit growth respectively, benefiting from product launches such as 'Esteem Body' and 'GentleCath Air', alongside expanding market shares in North America and Europe.

Infusion care also saw high single-digit growth, fueled by rising demand for infusion sets in diabetes and non-diabetes treatments.

Convatec highlighted progress in innovation and operational efficiency, closing its EuroTec facility and announcing the closure of its Herlev site in Denmark to optimise its production network.

The firm also invested in direct-to-consumer capabilities with a small acquisition in France, and noted that its global business service centres were driving further savings in finance, IT, and human resources.

InnovaMatrix sales rose approximately 40% year-to-date, and although there remained uncertainty about Medicare coverage, Convatec said it was confident in the product's role in driving future growth.

Should Medicare exclude InnovaMatrix, Convatec said it expected only a temporary impact until further clinical evidence could be presented in 2026.

The company also noted new reimbursement codes for hydrophilic catheters in the US, set to be introduced in 2026, which it saw as a growth opportunity.

With a strong balance sheet, Convatec said it expected year-end net debt-to-adjusted EBITDA leverage to be around 2x, with capital expenditure and cash adjusting items in line with previous guidance.

"Convatec has delivered faster broad-based sales growth in the second half and operating margin is tracking materially ahead of the first half, driven by strong execution of our FISBE strategy and lower inflation," said chief executive officer Karim Bitar.

"This is further evidence that Convatec has successfully pivoted to a higher level of organic sales growth and profitability, and we are on-track to deliver a mid-20s operating margin in 2026 or 2027."

For the 2025 financial year, Bitar said the company expected to grow sales and operating margin further, and to deliver another year of double-digit growth in adjusted earnings per share and free cash flow-to-equity.

"This growth is driven by our clear strategy, our strongest-ever new product pipeline and the focus on execution excellence by our team of more than 10,000 colleagues around the world."

Reporting by Josh White for Sharecast.com.