TIDMCTEC
RNS Number : 9631X
ConvaTec Group PLC
03 May 2019
Trading Update for the three months ended 31 March 2019
3 May, 2019 (LSE: CTEC)
Trading in the first quarter for ConvaTec Group Plc ("the
Group"), a leading global medical products and technologies
company, was in-line with management expectations at a Group level
and reflected the ongoing challenges outlined in February.
Key Points:
-- Group revenue of $430.6 million included an additional
one-off provision in the quarter of $8.9 million, arising from a
change of accounting methodology as detailed below. Excluding this,
first quarter Group revenue was broadly flat on an organic
basis.
o Including this provision Group revenue declined 2.0%(1) on an
organic basis, 1.9%(2) on a constant currency basis and 6.0% on a
reported basis.
-- FY2019 guidance unchanged.
-- Transformation Initiative: momentum building, almost 300 leaders trained in transformation.
-- Franchise summary:
o Advanced Wound Care: ongoing drag from legacy portfolio and
continuing trends from Q4 '18 - underperformance in the US and
negative channel movements in the UK - more than offset good demand
for AQUACEL(R) Ag + / Advantage; Avelle(TM) launched in US;
deploying specialist salesforce in US;
o Ostomy Care: good performance in LatAm and APAC, continued
weakness in the US.
o Continence and Critical Care: Continence continuing to drive
growth.
o Infusion Devices: higher than anticipated customer orders
resulted in a good performance against a strong prior year
comparator.
Q1 2019 Q1 2018 Reported Organic growth(1) Organic
Reported Reported growth % % growth(1,3)
$'m $'m %
ex. rebate
provision
----------------------- ---------- ---------- ---------- -------------
Advanced Wound Care 129.7 147.1 (11.8) (6.8) (3.2)
Ostomy Care 119.6 128.0 (6.5) (0.8) 0.9
Continence & Critical
Care 108.4 108.4 0.0 1.8 3.1
Infusion Devices 72.9 74.7 (2.4) (0.2) (0.2)
Total revenue 430.6 458.2 (6.0) (2.0) (0.1)
Rick Anderson, Group Chief Executive Officer, commented:
"Trading in the first quarter was in-line with our expectations,
which reflect the challenges we outlined at our full year results
in February.
"Whilst our US AWC business continues to show weakness and I am
impatient for change, we have put in place the building blocks to
deliver improved revenue growth throughout the rest of the year. We
have become more segment focused, moving to a specialist salesforce
model and focusing more of our firepower on the largest
opportunities.
"Within Continence and Critical Care, our Continence business
continues to drive franchise growth, whilst Infusion Devices saw
strong levels of orders in the first quarter.
"Momentum is building in our Transformation Initiative, the
single most important programme within ConvaTec, engaging our
people through 75 workshops in the past 2 months and bringing more
discipline to our business model, with almost 300 leaders now
trained in transformation. We will provide more detail with our
interim results in August.
"My priority remains improving execution. Our focus on this,
along with our solid fundamentals and robust cash flows, mean that
I am confident we can deliver the improved performance that
shareholders and other stakeholders rightly expect."
Group revenue
Group total revenue of $430.6 million declined 2.0%(1) on an
organic basis and was broadly flat year on year, excluding a
one-off provision to revise the estimate of the distributor rebates
accrual. At constant exchange rates, total Group revenue was
1.9%(2) lower year on year, and 6.0% lower on a reported basis due
to unfavourable foreign exchange movements.
As part of ongoing improvements to methodology and data, we have
revised our accounting methodology to estimate expected discount
claims by distributors in the US. This resulted in an additional
one-off provision of $8.9 million being taken in the quarter, which
reduced first quarter Group revenue growth by 190 bps. On a
franchise basis, the impact of the one-off accrual reduced AWC
growth by 360 bps in the quarter, for OC the reduction was 170 bps
and for CCC it was 130 bps.
The following revenue growth numbers all refer to organic year
on year growth at constant exchange rates, excluding M&A and
the one-off provision described above.
Advanced Wound Care
Revenue of $129.7 million declined by 3.2%(1, 3) organically
compared to the first quarter of 2018.
Performance in AWC in the first quarter was impacted by two main
items: a weak performance from the skincare business and continuing
trends from Q4 2018 - underperformance in the US and negative
channel movements in the UK.
The combined drag on growth from our older DuoDERM(TM) and base
AQUACEL(TM) Hydrofiber(TM) products reduced slightly in the
quarter, compared to the prior year, although our skin care
business (around 6% of franchise revenue) showed continued weakness
and negatively impacted franchise organic growth by around 200 bps
in the quarter.
In the UK despite some stocking initiated by the NHS in
preparation for Brexit, we continued to see negative year on year
channel inventory movements in the quarter, as outlined in our
February announcement. We continue to see challenging market
dynamics in the UK.
AQUACEL(TM) anti-biofilm silver delivered good growth in the
quarter, following the launch of AQUACEL(TM) Ag Advantage in the US
last year. We also saw good growth in our emerging markets in APAC
and Latin America.
As previously outlined, we have modified our commercial approach
in the US and our specialist salesforce model is now in place,
focused around disease state, and we continue to build out our
specialist sales team. This new model will drive in-market demand,
address performance issues and improve targeting and salesforce
effectiveness. We have completed our segmentation, and in areas
where the new specialist sales teams have been deployed we are
seeing a significant increase in call to the largest IDNs
(Integrated Delivery Networks). We are also delivering a more
targeted launch of Avelle(TM) and initial wins from large IDNs is
encouraging.
The financial benefits of these actions will take time to ramp
up but we anticipate an improving revenue performance in the US AWC
business throughout the rest of 2019.
Ostomy Care
Revenue of $119.6 million grew by 0.9%(1,3) organically compared
to the first quarter of 2018.
Performance in the first quarter reflected weakness in the US,
as outlined in our February announcement. To address this, we have
flattened our sales structure to get closer to the customer, and
are implementing changes to our commercial approach, including
revised segmentation and targeting of our salesforce to focus on
the most significant opportunities in the largest IDNs.
We saw good performances in Latin America and Asia Pacific
during the quarter and continuing positive trends in some smaller
European markets. We continue to see good momentum in our newer
Convex products.
We continue to invest in our me+ platform, driving momentum in
me+(TM) patient enrolment.
The Premier GPO contract for Ostomy has been extended to the end
of March 2020 - previously end of December 2019 - and we are
actively engaged in the contract renewal process.
Continence & Critical Care
Revenue of $108.4 million grew by 3.1%(1,3) organically compared
to the first quarter of 2018. Revenue included a contribution of
$1.3 million from J&R Medical, which was acquired on 1 March
2018. The Group also divested its Symbius Medical respiratory
business on 1 March 2018.
Continence Care continued to drive overall franchise growth. HDG
performed well, growing above the overall US continence market.
Infusion Devices
Revenue of $72.9 million declined 0.2%(1) year on year on an
organic basis, driven by strong customer orders offset by a robust
prior year comparator.
We have completed installation of our automated production lines
for MiniMed(TM) Mio(TM) Advance*, to significantly boost production
volumes to meet strong end user demand, although as previously
outlined this will have a dilutive impact on margin this year.
We also continue to explore applications beyond insulin therapy
with our neria(TM) guard infusion set.
Transformation Initiative
We have made good progress with our Transformation Initiative,
announced in February. Momentum is building in each of our four
workstreams: Commercial Excellence, Operational Excellence,
Businesses Services Transformation and Portfolio Optimisation. We
are bringing more discipline to our business model, and a "ConvaTec
way" is beginning to emerge through engagement of our people in 75
workshops, with almost 300 leaders now trained in
transformation.
People
As announced on March 25, Karim Bitar has been appointed as
Chief Executive Officer with an effective date of 30 September,
2019. Since 2011 he has been Chief Executive Officer of Genus Plc,
a leading global agricultural biotechnology company focused on
animal genetics.
Outlook and guidance
The outlook for the Group for FY2019 is unchanged from that
announced at the time of the FY2018 results on 14 February
2019.
-- Organic revenue growth of 1.0% to 2.5%(1)
-- Adjusted EBIT margin 18% to 20%, including $50 million of
operational spend associated with the Transformation Initiative and
Medical Device Regulation (MDR). Excluding these costs, adjusted
EBIT margin would be 21.0% to 22.5%.
There will be a webcast for UK analysts & investors today at
09:00 BST which can be accessed via the ConvaTec website
www.convatecgroup.com/investors/reports/ A recording will be
available on the site shortly afterwards.
There is also a conference call facility:
-- Telephone number: UK + 44 20 3936 2999; US + 1 646 664 1960
-- Passcode: 800793
The presentation for the call can be downloaded at:
www.convatecgroup.com/investors/reports/
Enquiries:
Analysts and Investors
John Crosse, VP Investor Relations +44 (0)7500 141435
Mark Reynolds, Director Investor
Relations
investorrelations@convatec.com +44 (0)7551 036625
Media
Bobby Leach, VP Group Corporate
Affairs +44 (0)7770 842226
Finsbury +44 (0)207 2513801
Revenue by Geography
Q1 2019 Q1 2018 Reported Organic growth(1) Organic growth(1,3)
Reported $'m Reported $'m growth % % %
ex. rebate
provision
--------------- -------------- -------------- ---------- --------------------
Americas 220.9 234.3 (5.7) (5.0) (1.2)
EMEA 176.9 192.2 (8.0) (0.2) (0.2)
APAC 32.8 31.7 3.5 8.9 8.9
Total revenue 430.6 458.2 (6.0) (2.0) (0.1)
Revenue in Americas declined 1.2%(1,3) on an organic basis.
Growth from HDG was offset by a weaker AWC and Ostomy performance,
as noted above. On a reported basis, revenue was 5.7% lower,
reflecting the distributor rebate provision which reduced growth by
380 bps and unfavourable foreign exchange impacts, partially offset
by the inclusion of J&R Medical.
Revenue in Europe, Middle East and Africa was 0.2%(1) lower on
an organic basis as a result of lower AWC growth, primarily in the
UK, partially offset by growth in CCC and ID. On a reported basis,
revenue was 8.0% lower due to unfavourable foreign exchange
movements.
Revenue in Asia Pacific grew 8.9%(1) on an organic basis,
primarily driven by OC and AWC, partially offset by CCC. On a
reported basis revenue grew 3.5% due to unfavourable foreign
exchange movements.
Foreign exchange rates
Q1 2019 Average Q1 2018 Average
--------- ---------------- ----------------
USD/GBP 1.30 1.39
USD/EUR 1.14 1.23
About ConvaTec
ConvaTec is a global medical products and technologies company
focused on therapies for the management of chronic conditions, with
leading market positions in advanced wound care, ostomy care,
continence and critical care, and infusion devices. Our products
provide a range of clinical and economic benefits including
infection prevention, protection of at-risk skin, improved patient
outcomes and reduced total cost of care. To learn more about
ConvaTec, please visit www.convatecgroup.com where a copy of this
announcement can also be found.
Forward Looking Statements
This document includes statements that are, or may be deemed to
be, "forward looking statements". These forward-looking statements
involve known and unknown risks and uncertainties, many of which
are beyond the Group's control. "Forward-looking statements" are
sometimes identified by the use of forward-looking terminology,
including the terms "believes", "estimates", "aims" "anticipates",
"expects", "intends", "plans", "predicts", "may", "will", "could",
"shall", "risk", "targets", forecasts", "should", "guidance",
"continues", "assumes" or "positioned" or, in each case, their
negative or other variations or comparable terminology. These
forward-looking statements include all matters that are not
historical facts. They appear in a number of places and include,
but are not limited to, statements regarding the Group's
intentions, beliefs or current expectations concerning, amongst
other things, results of operations, financial condition,
liquidity, prospects, growth, strategies and dividend policy of the
Group and the industry in which it operates.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. These
statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable by the Company, are
inherently subject to significant business, economic and
competitive uncertainties and contingencies. As such, no assurance
can be given that such future results, including guidance provided
by the Group, will be achieved; actual events or results may differ
materially as a result of risks and uncertainties facing the Group.
Such risks and uncertainties could cause actual results to vary
materially from the future results indicated, expressed, or implied
in such forward-looking statements. Forward-looking statements are
not guarantees of future performance and the actual results of
operations, financial condition and liquidity, and the development
of the industry in which the Group operates, may differ materially
from those made in or suggested by the forward-looking statements
set out in this Presentation. Past performance of the Group cannot
be relied on as a guide to future performance. Forward-looking
statements speak only as at the date of this document and the
Company and its directors, officers, employees, agents, affiliates
and advisers expressly disclaim any obligations or undertaking to
release any update of, or revisions to, any forward-looking
statements in this document.
1. Organic growth presents year on year growth at constant exchange rates, excluding M&A.
2. Constant exchange rates growth is calculated by applying the
applicable prior period average exchange rates to the Group's
actual performance in the respective period.
3. Excluding one-off provision to revise the estimate of the distributor rebates accrual.
* MiniMed(TM) Mio(TM) Advance - trademarks of Medtronic MiniMed Inc.
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END
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