ConvaTec : Trading Update for the three months ended 30 September 2019 30 October 2019

30 October 2019

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Trading in the third quarter for ConvaTec Group Plc ('the Group'), a leading global medical products and technologies company, was in-line with management expectations and full year guidance remains unchanged.

Key Points:

• Group revenue for the three months to 30 September 2019 was $462.9 million, 2.4% higher on a reported basis and 4.6%¹ higher on an organic basis compared with the prior year, in part reflecting the benefits of some short-term tailwinds. For the 9 months to 30 September 2019 revenue was $1,351.8 million, a decline of 1.6% on a reported basis due to foreign exchange movements, but growth of 1.5%¹ on an organic basis, compared with the prior year.
• Franchise Q3 summary:
  • Advanced Wound Care: organic growth of 3.6%¹ was driven by our silver portfolio, in particular AQUACEL^TM Ag+, and foam, whilst distributor inventory movements provided a short-term tailwind which will partly reverse in Q4;
  • Ostomy Care: organic growth of 3.0%¹ reflected a solid underlying performance against a weak 2018 performance;
  • Continence and Critical Care: organic growth of 8.0%¹ was flattered, as expected, by a weaker prior year comparator due to the packaging recall, along with continued growth in our Home Distribution Group (HDG);
  • Infusion Devices: organic growth of 4.3%¹ reflected a weaker prior year comparator.
• Transformation Initiative on track.
• FY 2019 guidance unchanged.

Karim Bitar, Chief Executive Officer, commented:

'I am excited to have joined ConvaTec and returned to the healthcare sector. Since I joined the Group at the end of September I have had the opportunity to visit several sites and engage with many colleagues; I have been encouraged by their enthusiasm and the potential within ConvaTec.

I am pleased we have reported a solid performance in Q3, but this is a small step on the significant journey ahead of us as we focus on pivoting to sustainable and profitable growth. As an organisation we need to get closer to patients, to strengthen our innovation pipeline and to drive a relentless focus on execution excellence.

I look forward to giving an update on our plans and progress next year.'

Group revenue

Group revenue of $462.9 million grew 4.6%¹ on an organic basis in Q3, compared with the prior year. Due to unfavourable foreign exchange movements, on a reported basis Group revenue grew 2.4%.

For the 9 months to 30 September 2019 Group revenue was $1,351.8 million, a decline of 1.6% on a reported basis, again due to unfavourable foreign exchange, but growth of 1.5%¹ on an organic basis.

In Advanced Wound Care, revenue of $147.5 million increased 3.6%¹ on an organic basis in Q3, a decent performance driven by our silver portfolio, in particular AQUACEL^TM Ag+, and foam. A number of markets in EMEA and Latin America performed well, while we continued to focus on leveraging our specialised and expanded salesforce in the US. There were some distributor inventory movements in the current and prior year which provided a tailwind in the quarter, which we anticipate will partly reverse in Q4.

In Ostomy Care, revenue of $131.7 million grew by 3.0%¹ on an organic basis in Q3, a solid underlying performance albeit set against a weaker performance in 2018. The quarter also benefitted from the timing of a tender in Latin America.

In Continence & Critical Care, revenue of $115.1 million grew by 8.0%¹ on an organic basis in Q3, driven by a good performance in Continence Care, primarily HDG. Critical and Hospital Care benefitted from a weaker prior year comparator, a result of the packaging recall which was instigated in the third quarter of last year, reducing the drag on growth from these businesses in the quarter.

In Infusion Devices revenue of $68.6 million increased 4.3%¹ year on year on an organic basis in Q3, driven by a good level of customer orders and a weaker prior year comparator.

The Transformation Initiative remains on track as we continue to implement the improvement projects and we will provide an update on progress with the FY19 results.

On 24 October 2019 the Group successfully completed a refinancing of the debt put in place at the time of the IPO in October 2016. The debt outstanding under this arrangement of approx. $1.6 billion term debt and an undrawn $200 million revolving credit facility has been replaced with a committed 5-year bank facility of a $1.5 billion term debt and a $200 million revolving credit facility, on more favourable terms overall.

As announced on 19 August, Dr. John McAdam has been appointed as Chairman of the Board and he assumed his position on 30 September 2019.

Outlook and guidance

The outlook for the Group for FY 2019 is unchanged:

• Organic revenue growth of 1.0% to 2.5%¹
• Adjusted EBIT margin 18% to 20%, including spend associated with the Transformation Initiative and Medical Device Regulation (MDR). Excluding these costs, adjusted EBIT margin is expected to be 21.0% to 22.5%.

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