ConvaTec misses expectations

Higher staff and marketing costs sent like-for-like operating expenses up by a tenth to $308m (£234m). Adjusted operating margins therefore narrowed to 23.3 per cent and adjusted operating profit dropped 12 per cent to $194m, well below consensus broker expectations. Numis has warned of the potential for downgrades for the full year to December 2017, but currently forecasts pre-tax profit of $422m and EPS of 18.5ȼ (from $416m and 18.3ȼ in FY2016).

There was also little to excite investors at the top line. Admittedly, demand continues to be strong for colostomy bags, although organic growth in the group’s biggest division – wound care – slowed to 2.6 per cent in the second quarter, while revenue in continence and critical care dropped 2 per cent over the half. After stripping out foreign exchange movements and the impact of recent acquisitions, overall revenue rose just 1.5 per cent.

But investors can take solace in the fact that the IPO allowed for a big debt repayment, which extracted $100m of interest expenses. The group therefore reported a 123 per cent increase in adjusted net profit to $119m.