Problems at wound care firm Convatec set to seep into 2018

Convatec, the wound dressing and colostomy bag producer, has seen organic revenues grow slightly more than expected, despite a disappointing year that saw its underlying profit margin shrink.

The figures

Convatec, which was listed in late 2016 by its private equity backers in what was then the largest float of the year, saw reported revenue rise by 4.5 per cent to $1.76bn this year.

Organic revenue growth – that which is generated by increased output or an expanded customer base rather than mergers and acquisitions – hit 2.3 per cent, beating guidance of one to two per cent.

Though reported profit increased 60.9 per cent to $247.8m, adjusted operating profit – which takes into account one-off gains and losses – shrank 3.3 per cent to $456.8m due to "increased investment in growth" and costs from forming the listed company.

Why it's interesting

An October profit warning, in which the company warned of supply issues in advanced wound and ostomy care, hit Convatec's share price and caused it to be relegated from the FTSE 100.

Today, Convatec warned these problems would likely bleed into 2018 as it dealt with backorders and loss of orders.

The company was slightly more bullish about its organic revenue growth for 2018, guiding in the 2.5 to three per cent growth range, but said that the profit margin would likely be lower "due to the decision to increase targeted investment".

Convatec added it was targeting "medium-term revenue growth" and expected momentum to return throughout 2018.

What Convatec said

"The fundamentals of our business remain strong. We expect to return to market levels of revenue growth in the medium-term and we continue to see further structural margin expansion opportunities, although progress will be delayed as we address the factors that negatively impacted on our 2017 performance," said chief executive Paul Moraviec.

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