Interim Results for the six months ended 30 June 2024

30 July 2024

Strong broad-based revenue growth and further strategic progress

Confirming full year and medium-term guidance

Strong broad-based organic revenue growth of 6.6%¹:

• AWC²: 6.7%¹ with very good growth in Aquacel Ag+ Extra^TM and InnovaMatrix^®, continued challenges in China
• OC²: 4.9%¹ with good growth in Convatec products driven by double-digit growth in soft convex portfolio
• CC²: 8.2%¹ with strong volume growth and price increases in the USA supported by international growth
• IC²: 7.3%¹ with ongoing strong demand for our innovative infusion sets as we diversify our customer base
• Reported revenue growth was 5.5% and constant currency³ revenue growth was 5.9%

Further strategic progress

• Innovation pipeline is delivering with new launches starting to grow segment shares:
  • InnovaMatrix^® grew strongly and recent Real-World Evidence demonstrates efficacy of the product
  • ConvaFoam^TM continued to win more than 50% of customer product evaluations in the USA
  • Esteem Body^TM launch is progressing well with a significant step up in new patient starts
  • GentleCath^TM Air for Women, which launched in France, is growing share in the female compact segment
  • Strong demand for Extended Wear Infusion sets for Medtronic’s 780G pump and our other innovative infusion sets for Tandem’s Mobi pump, Beta Bionic’s iLet pump, Ypsomed’s YpsoPump and AbbVie’s Produodopa Parkinson’s therapy in Japan and Europe
    
    
• Simplification and Productivity is progressing well:
  • Operations automation, plant network optimisation and continuous improvement projects added 50bps to adjusted operating margin
  • G&A expenses reduced to 7.5% of sales (H1’23: 8.2%), due to expanded scope of Global Business Services and further standardisation of processes

Improving profitability and cash

• Adjusted operating profit was $222.8m (H1’23: $214.1m) up 8.2% on a constant currency basis. Reported operating profit was $149.2m (H1’23: $123.4m)
• Adjusted operating margin was 20.0% (H1’23: 20.3%) and 20.7% on a constant currency basis. Price, mix and cost efficiencies more than offset inflation
• Free cash flow to equity was $57m (H1’23: $10m), up $47m, following improvements in working capital efficiency and capex investments to drive growth

Confirming 2024 and medium-term guidance

• 2024: organic revenue growth of 5-7%, now expected to be in the upper half of the range, adjusted operating profit margin of at least 21.0% on constant currency basis and double-digit growth in adjusted EPS and free cash flow to equity
• Medium-term: expect 5-7% organic revenue growth p.a., margin expansion to mid-20s in 2026 or 2027 and to achieve double-digit compound annual growth in adjusted EPS and free cash flow to equity

Karim Bitar, Chief Executive Officer, commented:

“The Group’s performance during the first half demonstrated the improving strength of our business – showing broad-based growth across all four categories.  Our pipeline of innovative new products is beginning to deliver growth in segment share and we made further progress improving our profitability.  We are pleased with this performance and are confident of delivering another year of strong revenue growth and further progress on profit and cashflow.

“We are focused on further strengthening the business as we continue to execute our FISBE 2.0 strategy.  We remain confident of delivering our medium-term targets of 5-7% organic revenue growth p.a., expansion of the operating margin to the mid-20s in 2026 or 2027 and double-digit compound annual growth in adjusted EPS and free cash flow to equity.”

Key financial highlights

 

• Adjusted³ diluted EPS 6.8 cents was broadly flat, up 4.5% on a constant currency basis, with operating profit growth offset by the higher adjusted net finance expenses. Reported diluted EPS rose 40.7% to 3.8 cents.
• Net debt³ of $1,234 million, leverage was 2.3x net debt³/adjusted EBITDA³ (H1’23: 2.5x and FY’23: 2.1x)
• Interim dividend of 1.822 cents declared – a 3% increase (H1’23: 1.769 cents)

Update on InnovaMatrix

InnovaMatrix is our innovative and proprietary mammalian placental extra cellular matrix for the treatment of chronic, surgical and trauma wounds.  InnovaMatrix saw strong double-digit growth during the first half and accounted for 4% of Group revenue.

InnovaMatrix has a strong scientific and clinical profile therefore we expect to achieve broad reimbursement coverage with both Medicare and private payors in the future.  This is based on positive feedback from many of the c.2000 physicians and nurses using the product and the strong clinical performance demonstrated in the recent Real-World Evidence (RWE) study (see page 4).

As highlighted at the trading update in May, the Medicare Administrative Contractors published a draft Local Coverage Determination (LCD) proposal, which is currently under consideration following a consultation period.    The outcome is uncertain but as currently drafted it could, for a period of time, lead to a curtailment of Medicare coverage of InnovaMatrix for diabetic foot ulcers (DFU) and venous leg ulcers (VLU).  Year to date we have seen no impact from the publication and there is a reasonable probability that the draft LCD proposal will be modified and/or delayed. 

In H1’24, approximately 20% of InnovaMatrix’s revenue was in indications or points of care not impacted by the draft LCD proposal. In H2’24 we will grow sales further in these other indications, we will start launching InnovaMatrix outside of the USA, and we have recently initiated randomised control trials (RCTs) in VLU and DFU.

We remain confident of the quality, safety and efficacy of InnovaMatrix, the positive impact on the lives of patients and the strong contribution it will make to Convatec’s growth going forward.

(1) Organic growth presents period over period growth at constant currency, adjusted for the acquisitions in Continence Care in 2023 and residual revenue following the exit of hospital care and related industrial sales

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

(3) 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 14 to 18)

(4) Biologics segment as defined and calculated by SmartTRAK

Contacts

Analysts & Investors	Sheebani Chothani Director, Investor Relations	+44 (0)7805 011046                  ir@convatec.com
Media	Buchanan: Charles Ryland / Chris Lane	+44 (0)207 466 5000 mediarelations@convatec.com