Margins boost helps to push ConvaTec shares to record high

(Reuters) – British medical devices firm ConvaTec reported an 8% increase in annual operating profit for last year, helped by an increase in margins that was ahead of target.

ConvaTec shares traded up 6.4% at 259p at 0930 GMT, having earlier hit their highest level since the company floated at a price of 225p in October. ConvaTec has joined the FTSE 100 index of leading shares following the flotation.

The company, which focuses on the management of chronic conditions, reported adjusted operating profit of $472 million for 2016, a jump from the previous year’s profit of $437 million.

ConvaTec reported higher gross margins of 60.9% on the back of a “margin improvement plan” that delivered a boost of about 130 basis points, beating its earlier target of 50 basis points.

“ConvaTec is well positioned for the coming year, and ahead of schedule on our Margin Improvement Plan and now expect to achieve around half of the targeted 300bps improvement during 2017”, the company said in a statement.

However, the post-tax loss rose to $203 million compared to $93 million year ago, on the back of reorganisation costs and charges related to its stock market listing in October last year in which it raised nearly 1.5 billion pounds.

ConvaTec, which makes wound care and continence products, reported revenue rose 4% to $1.69 billion on Thursday, in line with the company’s own forecast.

The company is geared to strong market growth fundamentals and well insulated from US drug price risk, said analysts at Peel Hunt.

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