14th Feb 2019 09:55
LONDON (Alliance News) - Medical technology firm ConvaTec Group PLC on Thursday promised "swift and strong action" on its "failures in execution" after its profit increased significantly in 2018 but fell short of company guidance.
Shares in ConvaTec were down 19% from 120.15 pence on Thursday.
The company's pretax profit was USD201.2 million for the year to December 31, rising 23% from USD164.0 million in 2017.
The company's Continence & Critical Care franchise saw the most overall improvement in revenue, posting USD443.0 million versus USD382.9 million, an increase of 16%.
Advanced Wound Care was also strong, with revenue up 1.7% to USD587.5 million from USD577.8 million. There was also growth in Ostomy Care, with revenue up 0.8% at USD533.3 million from USD528.9 million.
Infusion Devices was the only weaker franchise, with revenue down 2.4% at USD268.3 million from USD275.0 million.
Overall, revenue grew 4.0% to USD1.83 billion from USD1.76 billion but organic growth was only 0.2%, far below ConvaTec's forecasted organic growth of 2.5% to 3.0%.
ConvaTec's adjusted earnings before interest and taxation margin in 2018 was 23.4%, falling from 25.9% in 2017. This decline was worse than ConvaTec's guidance for a 24% to 25% adjusted earnings margin.
"These are disappointing results, in light of our revenue and margin guidance at the beginning of 2018. With the executive committee, I have undertaken an extensive review of the business since my appointment as [chief executive] and it is clear that swift and strong action is required to address the failures in execution which have caused the company to underperform," said ConvaTec Interim Chief Executive Officer Rick Anderson.
Anderson was appointed interim CEO back in October, after Paul Moraviec stepped down immediately. Anderson had been chair of US pharmaceutical and consumer products firm Johnson & Johnson.
"We have solid fundamentals, robust cash flows and we have reduced our leverage, but need to invest in the business over the next three years. I fully believe the changes we are making to our execution model will deliver the returns that our shareholders and other stakeholders rightly expect in the future," Anderson added.
Anderson said the company is implementing a "refreshed" execution model, developing a strong pipeline and simplifying its business while strengthening its "commercial and operational execution" through investment.
Anderson said these changed will be able to be "leveraged by an incoming CEO, without constraining any potential strategic changes they may wish to implement".
"The search for a permanent CEO has made significant progress since October, with a very strong short-list of candidates. The board is moving quickly on this key appointment," Anderson said.
The company declared a final dividend of 3.983 US cents per share, meaning that the full-year dividend was flat year-on-year at 5.700 cents per share.
Guidance is for organic revenue growth of between 1% and 2.5% in 2019 and an adjusted earnings before interest and taxation margin of 18% to 20% including operational spend of USD50 million for the planned transformation and for medical device regulation costs.
Excluding these two factors, adjusted earnings before interest and taxation would be between 21% and 22.5%. Longer term, revenue growth is expected to be "in line with or above market and adjusted [earnings before interest and taxation] margin expansion".
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