ConvaTec Group H1 Earnings Call Highlights

Key Points

• ConvaTec maintained its 2026 targets after delivering 5% first-half organic revenue growth excluding InnovaMatrix, 6% adjusted EPS growth and a 21.2% operating margin. Management expects stronger second-half growth, particularly in Infusion Care, and reaffirmed double-digit full-year EPS growth.
• InnovaMatrix remains a significant headwind: first-half sales dropped to £2.5 million, prompting a £69 million non-cash impairment charge and reducing full-year revenue expectations to £5 million–£10 million. The company expects the product to approach breakeven in the second half as U.S. market conditions stabilize.
• Shareholder returns and future investment increased: ConvaTec raised its interim dividend by 15% and launched a £200 million share buyback, while investing about $90 million in 2026 growth capital—primarily to expand Infusion Care capacity and support its product pipeline.

ConvaTec Group LON: CTEC said it remained on track to meet its 2026 financial targets after reporting 5% organic revenue growth in the first half, excluding the impact of its InnovaMatrix skin-substitute product.

The company said revenue growth was broad-based across its four chronic-care categories, while it continued to invest in manufacturing capacity, new-product launches, simplification programs and technology. Management reiterated its expectation that growth will accelerate in the second half, led principally by Infusion Care.

First-half operating margin was 21.2%, down 10 basis points from a year earlier but up 50 basis points at constant currency. Adjusted earnings per share rose 6%, with the company maintaining its expectation for double-digit EPS growth for the full year.

Chief Financial Officer Fiona Ryder said ConvaTec expects around 100% free-cash-flow-to-equity conversion for 2026 despite lower first-half cash flow, which reflected working-capital timing and growth capital expenditures. The company increased its interim dividend by 15% and announced a £200 million share buyback program to be completed by year-end.

InnovaMatrix Creates Revenue and Margin Headwind

InnovaMatrix sales fell £37 million year over year to £2.5 million in the first half, creating a little more than a 3% headwind to group revenue growth. ConvaTec now expects InnovaMatrix revenue of £5 million to £10 million for the full year, compared with previous expectations, representing an estimated 2.5% headwind to annual group revenue growth.

The company took a £69 million non-cash impairment charge related to the product. Ryder said the reduction in expected InnovaMatrix revenue would not have a material negative impact on results beyond 2026.

Management attributed the weak performance to uncertainty in the U.S. skin-substitutes market, including lower prices set by the Centers for Medicare & Medicaid Services, litigation challenging those actions and audit activity that has reduced physician activity. The company said InnovaMatrix sales began to improve in May and June versus earlier in the year, though the recovery has been slower than expected.

Management said InnovaMatrix did not make money in the first half, but it expects the business to be close to breakeven in the second half. The company said roughly $10 million in sales would be required for the product to reach breakeven on an ongoing basis.

All Four Care Categories Contributed to Growth

• Advanced Wound Care: Revenue rose 3.4% excluding InnovaMatrix. Management said wound-care markets were somewhat softer than in 2025, while May and June were affected by order phasing for Aquacel. It still expects mid-single-digit growth for the category in 2026, supported by the continued rollout of ConvaFoam.
• Ostomy Care: Organic growth was 4.3%. Esteem Body, the company’s one-piece soft convex pouch, was annualizing at about $60 million in revenue and continuing to gain share. ESENTA accessories represented 20% of Ostomy Care sales. Flexi-Seal sales declined 4%, which management attributed to fewer intensive-care procedures during a less severe flu season.
• Continence Care: Organic revenue grew 5.9%, driven by U.S. volume gains, international expansion and demand for hydrophilic products. GentleCath Air for Women more than doubled year over year and contributed one percentage point to category growth.
• Infusion Care: Organic growth reached 7.4%, supported by diabetes demand and high-double-digit growth in therapies outside diabetes, including infusion sets used with AbbVie’s Parkinson’s disease treatment. Management expects double-digit Infusion Care growth in the second half and high-single-digit growth for the full year.

Management said it has purchase orders supporting its expectation for stronger second-half Infusion Care growth and does not need newly added capacity to meet that near-term demand. Most of the larger capacity expansion is expected to come online in 2027 and later.

Margin Improvement Expected in Second Half

ConvaTec reaffirmed guidance for an operating margin of at least 23% in 2026, despite an expected full-year InnovaMatrix drag of about 80 basis points and a foreign-exchange headwind of about 40 basis points.

Ryder said the company expects a substantial second-half margin improvement due to higher seasonal revenue, four additional trading days in the second half, a more favorable Infusion Care sales mix, a lower InnovaMatrix impact and continuing productivity initiatives. These measures include manufacturing automation, strategic sourcing, debottlenecking, organizational simplification and reduced commercial and general-and-administrative expenses.

The company said it expects operating margin to reach about 25% in the second half and remain in the mid-20% range from 2027. Management also noted that the legacy Bristol Myers Squibb amortization charge ended in July, reducing the gap between ConvaTec’s reported and adjusted financial results going forward.

Investment Supports Product Pipeline and Future Growth

ConvaTec is investing about $90 million in growth capital expenditures during 2026, with the largest share directed toward Infusion Care capacity. It is also investing in manufacturing and launches across Wound Care, Ostomy Care and Continence Care. Management said capital expenditure is currently elevated as it adjusts to a higher growth trajectory, but expects it to settle at 5% to 7% of sales over time.

The company highlighted its pipeline of “Wave Two” products, including ConvaNiox, ConvaFiber, ConvaVAC, Cure Aqua, GentleCath Air Pocket and Set, and Natura Body. ConvaNiox, a wound dressing initially focused on diabetic foot ulcers, is in limited market release and evaluation. Management said its first randomized controlled trial showed 60% more ulcers healed within 12 weeks and wound-area reduction three times faster than standard care.

ConvaTec expects ConvaNiox to begin contributing meaningfully from 2028 rather than 2026 or 2027. It also said Flexi-Seal Air’s launch has been delayed into 2027 to accommodate product-design refinements following customer evaluations.

Management confirmed its medium-term objective of 6% to 8% annual organic revenue growth from 2027, supported by product launches, market-share gains and double-digit Infusion Care growth. It also expects continued double-digit EPS growth and leverage of about two times EBITDA at the end of 2026, including the newly announced share repurchase program.

About ConvaTec Group (LON:CTEC)

ConvaTec Group PLC engages in the development, manufacturing, and sale of medical products, services, and technologies in Europe, North America, and internationally. The company offers advanced wound dressings and skin care products for the management of acute and chronic wounds resulting from various conditions, such as diabetes, and acute conditions resulting from traumatic injury and burns. It also provides ostomy care solutions, including devices, accessories, and services for people with a stoma resulting from colorectal cancer, inflammatory bowel disease, and bladder cancer.

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