Medical products company, ConvaTec Group PLC (LON:CTEC), has cut its full year revenue guidance after supply issues in its Advanced Wound and Ostomy Care businesses hurt its third quarter performance.
Full year organic revenue is now forecast to rise between 1% and 2%, down from group’s previous expectation that it would grow more than the 4% reported in 2016.
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The maker of wound dressings and colostomy bags posted revenue of US$445.5mln for the third quarter ended September 30, up 5.1% on the previous year or 3.3% on an organic basis, as it continued to expand its product portfolio.
On a reported basis, total group revenue was 6.8% higher than a year ago, reflecting the benefit of the euro's gains on the US dollar and a US$7.5mln contribution from newly acquired businesses, EuroTec and Woodbury Holdings.
Reported revenue in the nine months to September 30 rose 2.5% year-on-year to US$1.27bn.
Supply issues impact third quarter margins
However, ConvaTec said its third quarter performance was “severely impacted” by supply issues in its Advanced Wound and Ostomy Care divisions and a lower-than-anticipated revenue contribution from new products.
The supply disruptions in the Advanced Wound business relate to the movement of manufacturing lines from Greensboro, US, to Haina, Dominican Republic, including delays in obtaining regulatory certification. The business experienced a loss of some orders after the company made less-than-expected progress in its efforts to reduce backorders.
ConvaTec expects the supply issues to be resolved by the fourth quarter.
In Ostomy Care, supply constraints were caused by the movement of the final two manufacturing lines to Haina, resulting in a build-up of backorders and some loss of orders during the quarter. The firm said progress is being made in reducing backorders on products and expects a resolution by the end of the fourth quarter.
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Lines producing the Mouldable range of products continue to run below full volume due to capacity constraints and the group does not expect this to be fixed until the first half of 2018.
Costs associated with the supply issues in the two divisions are expected to result in a 40 basis point (bps) hit to the margin benefit achieved in its margin improvement programme (MIP) in the first half of this year and the majority of the 90 bps delivered in 2016.
Business remains well positioned despite setbacks, says CEO
Chief executive Paul Moraviec said he was “disappointed” the third quarter was affected by supply issues and lower-than-estimated revenue contribution from new products.
"Despite these setbacks, the business remains well positioned in large, structurally growing chronic care markets, with strong brands, differentiated products and a strong and innovative R&D pipeline,” he added.
“We understand the operational issues we need to address, and are determined to drive performance and to deliver margin improvement in the future.”
Moraviec said the company is reviewing the financial implications for growth and margins in fiscal year 2018 and will provide further guidance at the preliminary results in early 2018.