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ConvaTec down 25% on profits warning

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FTSE 100 medical supplier, ConvaTec has today warned on full year profits following supply issues in both its advanced wound care and ostomy care businesses and a lower than anticipated revenue contribution from new products.

The share price has fallen 25% today on the news while broker, Numis, has subsequently downgraded their recommendation from Reduce to Sell with a target price of 220p, down from 250p.

The business, which was London’s biggest flotation of 2016, cut its revenues and margins forecasts for the full-year in a trading update this morning.

Advanced wound care revenue in the three months to 30 September increased 1.4% versus the prior year as the franchise continued to be affected, as anticipated, by supply constraints on Surgical Cover Dressing and DuoDerm products which arose in the first half from the transfer of manufacturing lines to their Haina plant. 

However, the Group made less progress than anticipated in fulfilling EMEA backorders due to delays with logistics, including hurricanes disrupting shipping lanes in the Caribbean.

Revenue for Ostomy care in the three months to 30 September grew 0.5% year on year at constant exchange rates or declined 1.8% on an organic basis, reflecting a strong underlying performance in the U.S., offset by supply constraints which arose due to the transfer of the final manufacturing lines from Greensboro in the U.S. to their Haina facility.

Whilst the backorder level for Convex products is expected to be resolved by the year end, the backorder of Mouldable products is anticipated to continue throughout Q4 and into the first half of 2018

Paul Moraviec, Group Chief Executive Officer, commented

“I am disappointed that our performance in the third quarter was severely affected by supply issues in both Advanced Wound and Ostomy Care and a lower than anticipated revenue contribution from new products, leading to a reduction in our full year organic revenue growth expectations.” 

It is the transfer of the final manufacturing lines from Greensboro to Haina that has led to operational disruption and consequent cost inefficiencies and supply problems for the Group. “We are reviewing the financial implications for growth and margins in FY2018 and will provide further guidance at our preliminary results in early 2018.” added Moraviec

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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