Hello, and welcome to ConvaTec Group AGM Trading update call. Please note that this call is being recorded. After the speakers' prepared remarks there will be a question-and-answer session. If you would like to ask a question during that time, please press star and then one on your telephone keypad. Thank you. I'd now like to hand the call over to Jonny Mason, CEO. Please go ahead, sir.
Good morning, everybody, and welcome to our AGM Trading update call. The headline is that we've made a good start to the year with results for the first four months in line with expectations. We're on track to deliver our 2026 guidance. I'm going to hand over to our CFO, Fiona, to present those results, then I'll make some brief comments on strategic progress afterwards, and we'll take any questions that you have.
Thank you, Jonny, and good morning, everybody. For the first four months of the year, organic revenue growth of 4.8%, excluding InnovaMatrix, was broad-based across all four categories. InnovaMatrix represented about a 3% group headwind and was less than 1% of group revenue, in line with our guidance. Group organic revenue growth, including InnovaMatrix, was 1.6%. U.S. dollar depreciation year-over-year drove a material FX translation benefit with reported revenue growth of 5.5%. As we said at our full-year 2025 results in February, we expect growth to accelerate in the H2 given customer order phasing and as product launches build. We are well on track to deliver our guidance of 5%-7% organic revenue growth excluding InnovaMatrix for full-year 2026. Looking at each category. In Advanced Wound Care, organic growth, excluding InnovaMatrix, was mid-single digit.
Growth was led by LATAM and APAC and included solid growth in Europe, representing a growth pickup compared with the H2 2025. North America grew slightly versus a particularly strong growth comparative. ConvaFoam continued to perform well and win share, with further growth from our leading antimicrobial dressing, AQUACEL Ag+ Extra. We are on track to deliver mid-single-digit growth in 2026, underpinned by five wound product launches. In ostomy care, organic growth was mid-single digit, led by Europe and LATAM. Our Home Services Group continued to support new patient referrals in the U.S. Esteem Body, our one-piece soft convex product, continues to make excellent progress with positive customer feedback. We are growing share in all key markets. Our ostomy guidance for 2026 is unchanged at mid-single digit growth. Continence Care, organic growth was mid-single digit.
In North America, which represented over 90% of category sales, we saw further growth in patient volumes, driven by our excellent customer service at 180 Medical, our market-leading service company. Outside the U.S., growth was again very strong, off a small base. We continue to expect growth outside the U.S. to contribute at least a point of growth to the category as it did last year. Our growth guidance for the full- year is unchanged at mid-single digit. In Infusion Care, organic growth was mid to high single digit, as we expected. We continue to see strong demand for our infusion sets in both diabetes and particularly non-diabetes treatments as we continue to diversify. Our guidance for the full- year remains high single digit. We expect faster H2 growth given customer order phasing and as some new capacity comes on stream, with significantly more coming on stream in 2027.
We are on track to deliver our 2026 financial targets. As I've just outlined, group revenue growth and guidance for each category is unchanged. We continue to expect around GBP 20 million of InnovaMatrix revenue, significantly weighted to the H2, in line with prior guidance. Although market uncertainty is high. 2026 will be the low point in the market, and we will grow thereafter. We continue to expect group adjusted operating profit margin of at least 23%, driven by further operations, commercial, and G&A productivity. This includes around 40 basis points of full- year 2026 FX headwind, all of which occurs in the H1, and it assumes no material deterioration in the macroeconomic environment.
Given this, H1 adjusted operating margin in constant FX will be approximately flat on H1 2025, with simplification and productivity initiatives building through the H2, supporting margin expansion to at least 23%. We expect to deliver another year of double-digit EPS growth with 100% equity cash conversion. I'll now hand back to Jonny.
Thanks, Fiona. It's only six weeks since our capital markets day, where we launched our accelerate strategy. The update today is entirely in line with what we said then. We continue to make good progress with our new product launches. In Advanced Wound Care, ConvaFoam continues to be well-received. Sales are building nicely. We have new capacity coming on stream, which sets us up to meet future demand for years to come. With ConvaNiox, we are creating a new category with our groundbreaking nitric oxide technology. The initial market release is progressing well. We expect the buildup of sales to be slow. We are as excited as ever about its long-term prospects. With ConvaFiber and ConvaVac, initial market releases are underway. All of that contributes to arguably the strongest new product pipeline in the wound care market.
These new products provide us with the platform to accelerate growth from 2027. In Ostomy Care, Esteem Body is performing very well, gaining share in all of our major markets. Our updated fecal management system, Flexi-Seal AIR, launches in 2026, and in 2027, we're looking forward to the launch of Natura Body, the two-piece soft convex. The recent GPO contract wins demonstrate the improvements in commercial execution which have been made by the team, and our guidance is to accelerate to mid to high single-digit growth in 2027, underpinned by these product launches and patient wins. In Continence Care, our market leading 180 Medical business continues to set the standard for U.S. patient service and care. As expected, we have seen no material impact of the U.S. catheter code changes. GentleCath Air for Women, our female compact catheter, is gaining share and contributing to our growth globally.
GC Air Pocket and Set and Cure Aqua are all on track to launch in the H2 of this year. We are well-positioned to accelerate growth to our medium-term targets of mid to high single digits. In Infusion Care, our growth is increasingly diversified. Non-diabetes again accounted for over 15% of revenues, and we're pleased to announce that we have signed our first patch pump supply agreement, enabling us to support a wider range of diabetes patients for whom patch pumps may be a preferred option, alongside our leading infusion set solutions for durable pumps. This demonstrates the capability and versatility of our technology to work across the full range of pump solutions. We see strong growth in Infusion Care sales for years to come, with double-digit revenue growth from 2027. Our CapEx is adding significant capacity to meet this demand, underpinned by long-term customer contracts.
In summary, we've made a good start to the year. Growth is broad based and across all categories, in line with expectations, and we're on track to deliver our 2026 guidance. New products are gaining share, and our innovation pipeline is stronger than ever. This year, we are busy building capacity and launching new products, and we're ready to accelerate and deliver innovative chronic care solutions to more people around the world. This will deliver sustainable 6%-8% organic revenue growth with mid-20s operating margin and double-digit EPS growth from 2027. Thanks very much, and we'd now be happy to take any questions that you have.
We are now opening the floor for question -and- answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your first question comes from the line of Graham Doyle of UBS. Your line is now open.
Morning, guys. Thanks for that. Can I ask just a couple of questions? Just firstly, on the guidance for this year. On the revenue side, I think you've talked about being at the lower end of the range of the H1. Just to check that that still stands. On the margin guidance for 2026, given it feels like there's probably a slightly more H2 weighting to it, could you just explain the confidence in terms of still reaching that 23%? That would be really helpful. Thank you.
Thank you, Graham. We are on track to deliver our full-year guidance of 5%-7%, excluding InnovaMatrix for the full- year. We have delivered 4.8%, excluding InnovaMatrix for the first four months. We will continue to build that revenue growth through the year. I think your assumption is reasonable for the H1. For the margin growth, as I said, we would expect to be around flat to the H1 2025 on a constant currency basis for the H1. We are confident in delivering our full-year guidance as our productivity and simplification initiatives build through the year, and as our new products continue to launch through the year. On track for our full-year guidance.
Okay, thank you. Maybe just a quick follow-up on 2027 as the midterm guide you reiterated today. Just given the inflationary backdrop, you hedged for this year. If we were to take something like recent spot prices, would it still be feasible to assume you can deliver what you've outlined for 2027 as well?
Yeah. Thanks, Graham. Let me remind you what I laid out at the Capital Markets Day. As you say, we are hedged for this year. We have both raw material and inventory stock. Therefore every, let's say, 1% increase in inflation this year will have a fairly immaterial impact to 2026. For 2027, for every 1% increase in inflation over that which we had assumed, and we had planned for around 3%, that would result in a GBP 7 million-GBP 8 million impact. Let's say, spot rates continue through 2027. That could mean a doubling of that inflation. If that were the case, that would be an impact of between GBP 20 million-GBP 30 million in 2027. We do not believe that that would knock us off track.
We would control what we can control, and we would continue to deliver those simplification and productivity initiatives, which we have a strong track record of delivering. We would, if necessary, accelerate some of those in order to maintain our guidance for 2027. Now, if it deteriorated significantly beyond that, it may delay that progress, but at the moment, we are on track for 2027.
Awesome. Thanks a lot, guys.
Your next question comes from the line of Hassan Al-Wakeel of Barclays. Your line is now open.
Good morning, and thank you for taking my questions. A couple, please. Firstly, on Patch, great to see the supply agreement you've announced. When do you expect volumes to ramp, and how significant an opportunity do you think this is? Would it be significant enough to change the diabetes and non-diabetes mix that you've talked about in a material way over the medium term? Secondly, it'd be great if you can talk through what you're seeing in the European wound business, given some competitive commentary on reimbursement pressure and whether there's anything incremental to your mind on the ground. Thank you.
Hi, Hassan. Look, the Patch agreement is great news. It reinforces what we've said for a while, which is that our technology can service all different forms of pumps in the market, both diabetes and in other therapies as well. This is another piece of the puzzle. It's a further diversification of customer and product, which we've been pursuing for a while. It's not going to add volumes materially for some time because it isn't yet in the market. You shouldn't think about it as changing the guidance we've already given, which is for Infusion Care to be a double-digit growth business from 2027 onwards.
This is another piece of that strategy which underpins the delivery of that growth level. On European wound, we are continuing to launch the new products, in line with plan. They're continuing to grow share from a small base, and we aren't calling out anything in particular about European wound. It's continuing to add to our mid-single-digit growth for the category as we expected it to.
Your next question comes from the line of Kane Slutzkin of Deutsche Bank. Your line is now open.
Morning, guys. Fiona, just to follow up on the inflation piece. To what extent have you actually pulled on that five months of raw mats that you have with inventory? I assume you won't want to work your way through all of it. Are you seeing any sort of supply chain disruptions or any material increases to logistics costs? We did have one of your peers saying they don't think the levels of 2022, 2023 would repeat this time around. Do you sort of share that view?
Thanks, Kane. To your first point, we are comfortable with our inventory levels. We are managing well through 2026. We have seen some increases in logistics, but really fairly immaterial when we look at our cost base. Then your second part of the question about 2022, 2023. No, the situation that we're in at the moment does not reflect or feel like the situation that we were in in 2022 or 2023 at all, actually. I remind you that even with the inflationary spikes that we did experience in 2022 and 2023, we continue to grow our margin.
Okay, thanks. Could I just ask just on the share buyback program that we saw? I did have a few clients sort of asking, is there another one coming? Just wondering your thoughts on the potential to extend the buyback given where shares are currently sitting? Is it something you would perhaps consider at the half?
Well, we have a really clear capital allocation strategy. We're targeting 2 x leverage at the end of the year. As we've laid out before, if we don't have any material M&A concluding this year, we may return excess capital to our shareholders, but the share price would not drive that decision.
Okay, thanks. Sorry, last one, I'll just sneak in. Just any update on the CBP or anything on Section 232, anything there we should be aware of?
Still on track preparations as we said previously. Hasn't been any new news out of CMS. We are looking forward to reading framework guidance this summer. Nothing's really changed, Kane. We still believe we're in a strong position. We still believe that the number of distributors in the U.S., if this goes ahead in our categories, will shrink dramatically from thousands down to fewer than 20. As the biggest and one of the few who can fulfill national contracts, this will hold.
With regards to Section 232, Kane, there is an update coming at the end of the month, but we expect the Nairobi Protocol to hold.
[inaudible] Thank you.
Your next question comes from the line of Seb Jantet of Panmure Liberum. Your line is now open.
Hi, and thank you for taking my question. I've only got one left, actually. Just wanted to pick up on the IC business and comments by Tandem in its last update about supply issues in terms of infusion sets. I'm just wondering if you could help us kind of understand to what extent that's been a drag on your revenue growth in IC in the first four months of the year. I guess following on from that, whether there was any update on the FDA warning letter at the Infusion Care front.
Yeah, sure. Thanks, Seb. Look, Tandem. I think the short answer is it hasn't been a material drag on revenue. We're disappointed to not have been able to keep up with the strong demand growing for certain of our infusion sets. We are working closely with Tandem to substitute from our own range those which are temporarily in short supply. We are expecting new capacity to start coming on screen from summer and to continue building through 2027. It's unfortunate, but it hasn't had a material impact on revenue. The H2 weighting of revenue growth in Infusion Care is something that we were expecting right from the beginning of the year, and that's down to customer order phasing, as it has been in previous years. As regards to the warning letter, we're working very hard on that.
We have very close dialogue with the FDA and with our customers to remediate the management of complaints, the processes and procedures that are related to those. In fact, I was talking to the FDA just this week on that, and it's going well. We want to remind you that, of course, the warning letter didn't relate to patient safety or product deficiency. It's important we fix it. We're working hard on it. We will fix it. We're on track.
Thanks.
Your next question comes from the line of Christian Glennie of Stifel. Your line is now open.
Good morning. Thanks for taking the question. Maybe a couple more around the patch pump deal, as much as you can say around the status of that asset. Is it something that's already on the market? If not, when it might reach the market? Does it have any implications in terms of the investments and capacity that you've already planned? Was that part of your current plans around that? Maybe is there anything you can say around the margin profile of supporting a patch pump versus your tubed infusion sets? Thanks.
Look, it's early days. The product is not in the market yet. We anticipate it to be in the next year or so. That's not for us to comment on. We're delighted that we've been chosen by the customer to support them in this important development. As I answered to a previous question, it's not material in itself to change any of the guidance that we've already shared. It's another piece that underpins our strong double-digit growth in Infusion Care for the years to come. The CapEx is incorporated within the guidance we've already given. It won't lead to an increase in CapEx beyond what's already been shared. The margin, we don't comment on margin by individual product, but it's in line with the portfolio of other products that we have.
Thanks. Can I ask a quick follow-up on InnovaMatrix, just checking in on the DFU and VLU trials, in terms of status of those and potential data from those trials?
We're still on track to publish results from the trials in 2026. Within this year. I think as Fiona said in her presentation, the market at the moment is very uncertain with InnovaMatrix. We were expecting there to be quite some transition in the market from how reimbursement used to work to the new price levels. That is ongoing. It's shaking out. Very little revenue is being generated on DFU and VLU at the moment by anybody. We're expecting that to pick up later in the year. As Fiona said, it's highly uncertain at the moment.
Okay. Thank you.
Your next question comes from the line of Julien Dormois of Jefferies. Your line is now open.
Yes. Hi, good morning, Jonny. Good morning, Fiona. Thanks for taking my questions. I have two. The first one, sorry for coming back again on this, but relates to the margin phasing for this year. If my math are right, what you indicated in terms of the flat margin in H1 and the majority of the FX headwind for the H1, that would probably mean that you have an H1 reported margin around 20.5%. If your guidance still holds for 23%, that would mean around 25.5% for the back half. That's a pretty steep ramp H2 versus H1. Would be just super helpful to have a sort of a very general bridge on how you plan to get there between higher growth productivity FX. That would be really helpful. The second question relates more to a more holistic question on Wound Care.
You obviously are in the middle of an unprecedented launch wave for new products in this category. Just curious how you are, let's say, prioritizing resource between ConvaNiox, ConvaFiber, ConvaVac, and so on. Just curious how you are handling that internally. Many thanks.
Okay. Thank you, Julien. I'll take the first question. As I have said, our FX headwind at the operating margin level is concentrated in the H1. We are indicating that our H1 margin will be flat on a constant currency basis, versus H1 last year. As normal, our margin will continue to build as we progress through the year. It will ramp through the year, and it will be supported by the delivery of our simplification and productivity initiatives, which are H2 weighted. As you know, we have significantly expanded margin over recent years, strongly supported by our productivity initiatives, and they continue. Jonny, are you going to pick up wound?
Yeah. We're launching five new products at the moment in Wound Care, which is unprecedented in our business. We have been planning for it for years. At the moment, three of those are in limited market release, which is relatively light in terms of commercial resources. It focuses on the technology and the operations resources at the moment. As sales build, the commercial resources will take more of the strain. As I say, we've been planning for it for ages. It's all going to plan as expected. No surprises there.
Great. Thank you very much, both.
Your next question comes from the line of Veronika Dubajova of Citi. Your line is now open.
Hello, good morning. Thank you guys for taking my questions. I'm going to keep it to two as well. I'm going to, apologies, go back to the margins. Again, I just really want to understand, I think if I look at the last five years, I think the spread between the H1 and the H2, normally from a profitability perspective, has been about 200 basis points. I think the guidance is implying 500. Just help me understand. I'm having a really hard time bridging that gap from H1 to H2. Maybe, is it gross margin that you'd expect to meaningfully improve in the back half?
As OpEx comes down, if you can just give us a little bit more, because it is quite hard to see if I just look at the history of the margin progression of how you get to that 25% plus profitability in the back half of the year. My second question is on InnovaMatrix. If I do the math correctly, and it is possible I have not done it correctly, but that is why I want to check. I think the 3.2% headwind to top-line growth would imply that your run rate in the H1 of the year, probably for InnovaMatrix, is somewhere in the very low single digit million.
I think you did GBP 39 million last year in H1. The 3.2 would be about GBP 37 million. I just want to make sure that that's indeed what you're seeing, and that you are still comfortable with this assumption of the GBP 20 million, because you'd need to see some very substantial ramp there in the back half on that as well. Thanks so much.
Hi, Veronika. Look, let me take the InnovaMatrix one first. You're right. In the H1, it's low single-digit GBP million sales. That's what we expected. That's what we initially built into our expectation of GBP 20 million. It's on track. Those expectations were built on the expectation that the market would be developing as the year goes by. That some of the higher-cost players would be giving up on legal challenges and would be exiting the market. The practitioners would be getting back into the rhythm of prescribing these treatments with a new set of suppliers, and that the sales would build through the year. That was our premise, and as I say, we're on track at the moment with the plan. It is unusually uncertain, I think we have to admit. A lot has to happen for us to get to that GBP 20 million.
Will it happen in time? It might, but equally it might not. The GBP 20 million, we've described that as our best estimate for the time being. It might be more, it might be less. Let's see how quickly the market evolves. I think the important thing to retain is that this now is a very small part of our business. Whatever happens with Innova, we're on track to deliver 5%-7% growth for everything else. The 23% operating margin all in, including everything, and also double-digit EPS growth all in, including everything.
Veronika, thank you for your question about our margins. I'm not going to go into all of the details of the margin building blocks for the remainder of the year. As I said, on a constant currency basis, we will be around flat year-on-year for the H1. Our revenue continues to build through the H2 and will contribute to the margin expansion, as will our simplification and productivity initiatives, which will support further margin expansion as we manage our OpEx. We are on track to deliver at least 23% margin for the full- year, and we can give more detail at the half year.
Okay. Thanks, guys.
Your next question comes from the line of Susannah Ludwig of Bernstein. Your line is now open.
Thanks. Good morning, thanks for taking my questions. I have a couple. I guess starting with Infusion Care, would you be able to provide relative growth rates over the first four months for your diabetes versus non-diabetes business? Could you expand on your confidence in the H2 acceleration? I guess, to what degree is it orders and to what degree does capacity play a role? Maybe just in terms of your double-digit guidance from 2027, how much is capacity playing a role there versus how much is it driven by the demand side and your order pipeline? Just finally, on InnovaMatrix. Obviously, there's been a lot of disruption. You've talked to the uncertainty in 2026. Could you talk a little to your more long-term outlook for that business?
Sure. Thanks, Susannah. I'll take those. On Infusion Care four months, the pattern is similar to what it's been for the last few years, in that the other therapies are growing high, well in the double digits, much stronger than diabetes. Diabetes itself is a high single-digit growth business for the year. It was a bit softer in the first four months because of the customer order phase, as we described. For the full- year, diabetes will be in the high single digits. The other therapies are growing a bit faster. Orders versus capacity. It's orders that's driving the faster growth in the H2 and then also the double-digit growth from 2027. Capacity has to keep up, though. That's why we've increased our CapEx to keep up with this growing demand.
The new CapEx is starting to come on from summer this year and will be sufficient to support the faster growth in the H2. With double-digit growth each year, more capacity will be coming on stream in 2027 and in 2028. You asked about InnovaMatrix again. Look, we see 2026 as being the trough year. As I just described, there's a lot going on in the market right now. It's shaking out. It's starting anyway to shake out. For us, it'll be 1% of revenue this year, less than that. It becomes less of a swing factor. It becomes one of many products contributing to our growth going forward. We do think it will grow into 2027 because the demand is out there and our technology works.
When CMS gets through its transition to squeeze out the bad actors from this segment and to get the costs under control, we believe that the skin substitute segment will start to grow, as the other segments in wound care do. We're not expecting a return to the spectacular levels it used to be, but steady and strong growth from 2026 onwards is what we'd expect.
Great. Thanks so much.
Your next question comes from the line of David Adlington of JP Morgan. Your line is now open.
Morning, guys. Simple question. Most have been answered already, but maybe just coming back to InnovaMatrix or rather skin substitutes. Can you remind us how much of sales historically have been in DFUs and VLUs? Are those patients now being treated with instead?
Historically, DFU and VLU has been the big majority more than three-quarters of sales in that area. Last year, we started to look at diversification. We started to grow our business in dermatology, in ostomy surgery, in other channels. In the first four months of this year, those have been a much bigger proportion of the business because the DFU and VLU has shrunk right down. In the first four months of this year, it was less than half. It's much smaller this year than it has been historically, if that answers your question.
Yes. I suppose the question was, are you seeing any tailwinds in the rest of your business from these patients being treated with other products?
I'm sorry. I didn't quite catch that question. Did anyone catch that? Sorry, David, would you mind repeating that? I didn't quite get it.
Sorry, I'm in a bit of a noisy area. Just in terms of have you seen any tailwinds to the rest of your wound care businesses, patients have switched away from InnovaMatrix to potentially other treatments?
Oh, I see. Tailwinds to other bits of the business. Not that we've seen or not that we'd expect. When ConvaNiox starts to get more traction, it has strong efficacy against infected diabetic foot ulcers. We're seeing that through trials at the moment. Certainly ConvaNiox might, in the future, start to pick up some of that segment. No, unfortunately at the moment, what we fear is that some patients who would genuinely benefit from access to this skin substitutes treatment aren't getting it. That's why we think when the market transition plays through, we'll see demand start to grow again.
Thank you.
Thank you. I'd now like to hand the call back to you, Jonny, for closing remarks.
Well, listen, thanks very much, everybody, for your attention today. We're very pleased, just to summarize, that we've got off to a good start for 2026. Obviously, it's challenging circumstances in the world right now. This is a resilient business. The growth is broad-based, as we've mentioned, across lots of different products, categories, geographies. We're growing through it. Most importantly, our new product pipeline is working in the market, gaining share. Very happy with how we're getting on. We look forward to updating you again at the half year. Thanks very much.
Thank you for attending today's call. You may now disconnect. Goodbye.