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UPDATE 2-Britain's ConvaTec slashes revenue growth outlook, shares slump
October 16, 2017 / 8:06 AM / 2 months ago

UPDATE 2-Britain's ConvaTec slashes revenue growth outlook, shares slump

* Shares fall 21 pct, wiping $1.6 bln off market value

* Q3 performance at top two units marred by supply issues

* Supply issues to hurt full-year revenue growth, margins (Adds share movement, analyst and company comments)

By Justin George Varghese

Oct 16 (Reuters) - Medical technology company ConvaTec Group Plc on Monday slashed its full-year organic revenue growth forecast after supply issues hurt its third quarter, wiping off a fifth of its market value.

The maker of products used in acute wound care and critical care now expects full-year organic revenue growth in the 1-2 percent range compared with more than 4 percent previously forecast.

ConvaTec shares posted their biggest percentage drop since listing in October 2016, wiping 1.2 billion pounds ($1.60 billion) off its market value. The stock was the top percentage loser on the FTSE 100 index, which was marginally higher.

ConvaTec said performance in the third quarter was “severely” impacted by supply issues at two of its divisions, and lower-than-anticipated revenue contribution from new products.

However, the company reported a 6.8 percent growth in third-quarter revenue at $445.5 million.

The company said the supply issues principally relate to the movement of the Advanced Wound Care division’s manufacturing lines from the United States to the Dominican Republic. The unit makes surgical cover dressings and DuoDerm brand products.

The supply issues at the Advanced Wound Care segment are expected to be resolved by the end of the fourth quarter, the company said.

The company said logistics delays, including hurricanes disrupting shipping lanes in the Caribbean, hurt order fulfilments, and expects to fulfil the majority of the remaining backorders by the year-end.

Ostomy Care, ConvaTec’s second biggest unit, also experienced supply constraints, leading to a build-up of backorders and some loss of orders in the quarter, with resolution anticipated in the first half of 2018, the company said.

The divisions together make up more than 60 percent of company’s annual revenue.

ConvaTec, which said in August it was targeting a 300 basis-point improvement in adjusted gross margin for the year, said on Monday costs related to supply issues would hurt margin gains by 40 basis points.

“The result today somewhat undermines the equity story set out at the time of the IPO last year, which was a combination of margin expansion from streamlining and organic growth re-acceleration from re-investing in the business; this will most likely see CTEC’s valuation multiple contract,” said Morgan Stanley analyst Michael Jungling.

In August, the company reported a steeper-than-expected drop in first-half profit due to higher expenses.

Shares in the company were down 19.7 pct at 0823 GMT. ($1 = 0.7521 pounds) (Additional reporting by Rahul B in Bengaluru; Editing by Amrutha Gayathri)

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