ConvaTec Group PLC
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ConvaTec Group PLC
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Ladies and gentlemen, welcome to the ConvaTec Q1 Trading Update for the 3 months ended 31st of March 2019. My name is Thornton, I'll be your coordinator on today's call. [Operator Instructions] I will now hand over to today's host, Rick Anderson, to begin. Rick, please go ahead.
Good morning, everyone, and thanks for joining us for our first quarter call. This is Rick Anderson. I'm joined by our CFO, Frank Schulkes. We'll have a brief slide deck to take you through on our trading performance for Q1 and then we'll be happy to take your questions. Before we get into the deck, I first want to touch on the progress we've made -- we're making on our Transformation Initiative we announced 11 weeks ago. First, what struck me has been the fantastic level of engagement and energy release that I've seen throughout the organization associated with our transformation. It's clear to me that the transformation is becoming a big part of our culture at ConvaTec, and we're seeing the development of what I've described as the ConvaTec way. While this has been encouraging, we're still impatient to move faster and start to see the benefits accrue in our financial performance more quickly. However, I would just say that I remain very confident about the plans we set out in February that will position us well for the future. And I look forward coming back to you in August with a further update. Now over to Frank to walk you through our first quarter revenues.
Okay. Thanks, Rick. Good morning. So on Slide 2, the revenue summary. We reported group revenue of $430.6 million, a decline of 2% year-on-year in organic terms but basically flat excluding the provision top-up. I will come back to you on that in a moment. This was in line with our expectations at a group level and reflected ongoing challenges as we discussed in February. So by franchise, Advanced Wound Care revenue fell by 6.8% on an organic basis, Ostomy declined by 0.8%, CCC grew by 1.8% and ID was pretty flat, declining just 0.2%. However, as you can see from the end column of the table, Wounds, in particular, but also Ostomy and CCC, where impacted by an additional one-off provision in the first quarter totaling $8.9 million. As part of our focus on improvement as well as preparing the implementation of a new contract rebate system module in the second half of 2019, we have done a deep dive in Q1 to compare our provisioning methodology to best practices in pharma. And based on that, we have improved our methodology to estimate future discount claims by distributors in the U.S. As a result, we have topped up our provision and we believe this now provides a better estimate of future distributor rebate claims. This resulted in a one-off top-up of the provision by $8.9 million. We process around $250 million of rebates each year, therefore, small differences in assumptions have an impact in particularly -- in particular when built up over several years. And I think it's important to note that this only impacts the U.S., which is our largest single market and its future discount claim provision is single largest accrual. And also that the change has no impact on the underlying revenue performance of the business in 2019. So excluding this top-up of the provision, Advanced Wound Care revenue fell by 3.2%, which included an approximate 200 basis points drag from our skincare business. As a reminder, skincare is a small part of the Wound business and has a disproportionate impact in the first quarter, which will moderate in the rest of the year. Ostomy grew 0.9%. CCC grew by 3.1% and ID was unaffected by the provision. I will now hand back to Rick, who will run through the franchises in a little more detail.
Thanks, Frank. So now looking at the franchises, starting with Advanced Wound Care on Slide 3. As Frank said, trading in the first quarter was in line with our expectations reflecting the challenges we discussed with you in February. Underlying organic revenue declined by 3.2%. In Wound, there were 2 main drivers of performance in the first quarter. First, the drag from our skincare business and the continued trends in the fourth quarter of last year. Although combined drag on growth from our older DuoDERM and our base AQUACEL Hydrofiber product reduced slightly in the quarter. Our skincare business was a drag of around 200 basis points on growth in the quarter, and as Frank mentioned, this is relatively a small part of our wound franchise and we expect this to moderate over the remainder of the year. On the continuing Q4 trends in the U.K., despite some stocking initiated by the National Health Service in preparation for Brexit, we continued to see negative channel inventory movements overall in the quarter as outlined in our February announcement. AQUACEL Ag and AQUACEL Ag Advantage delivered good growth in the quarter. Avelle is now launched in the U.S. and initial wins with high-volume IDNs is encouraging. In the U.S., as previously outlined, we continue to see some underperformance. I'll provide more detail on the following slide on actions we're taking in U.S. Wound. We're pleased with the recently published American Academy of Orthopedic Surgeons' guidelines on the standard of care in infection control, including 3 out of the 4 supporting studies using AQUACEL Ag+, underlying our leadership in the silver market. On Slide 4, as you know we're moving to a new commercial model in the U.S. Wound team. New leadership in the Americas in the Advanced Wound -- and in Advanced Wound Care and new product approvals with Avelle, AQUACEL Ag Advantage at the end of 2018 has influenced the development of the program for last year. Our focus is on creation of market demand versus a pull distribution-focused model, accompanied by a much more disciplined and execution rigor. We've created a specialty sales force model, focused around disease state which we've deployed in Q1. We've been training and redeploying sales teams into this model and added our capabilities by hiring new salespeople, which we'll continue through Q2. I'd like for this to go much faster, but it takes time to get the right people in the right positions. On top of that, we've implemented an effective sales tool -- effective sales tools to enable the tracking of opportunities from identification through to targeting of the right call points, sampling and closing. This gives us much better real time indicators which are reviewed weekly, the who, what and where of the activities of our U.S. Wound team. This data allows -- this data also underpins our confidence in what we see as an improved performance as we go through the year in the sales -- and the sales team has built out. For example, in areas where the new specialty sales teams have been deployed, we're seeing significant increase in the calls and target IDNs. Overall, our call volumes up around 30% over the past 4 months. Moving on to Ostomy, where underlying organic revenue grew 0.9%. We saw good performance in LatAm and APAC during the quarter and continuing positive trends in some smaller European markets. We also continue to see good momentum in our newer ConvaTec product. But our performance also reflects weakness in the U.S. as outlined in our February announcement. To address this, we flattened the organization structure and are implementing changes to our commercial approach, including revised segmentation and targeting of our sales force to focus on the most significant opportunities. It's still early days, but we've just agreed to a partnership program with a large IDN to offer a total solution for ostomy, both product, training and patient support, which we hope will be a template of a best practice with our Ostomy business. Finally, from a small technical point, the renewal of the premier GPO contract will now be at the end of March 2020. Previously, it was December 2019 to align with contract expirations across product category. In CCC on Slide 6, underlying growth was 3.1% organic. Continence Care continues to drive overall growth. HDG performed well, growing above the overall U.S. market. On Slide 7, ID had a good quarter against the strong prior year comp. We saw a higher level of customer orders than we anticipated and the change in inventory policy in our biggest customer in the fourth quarter of last year was a one-off event and ordering patterns have now returned more -- to more normal. Our neria guard has now been launched in 10 markets, has been extremely well received by patients, nurses within the pain management and Parkinson's disease, and we're making good progress with potential partners for further market expansion. And longer-term, we continue to explore further applications beyond insulin therapy. So on Slide 8, we have a brief update on the Transformation Initiative. And as a reminder of what we said in February, this has 4 work streams: commercial excellence, operational excellence, business services transformation and portfolio optimization. Since February, there's been a lot of activity and the momentum is building. This is the single most important program within our business. We've engaged -- we've been engaging our people through more than 75 workshops in the past 2 months and bringing more discipline to our business model. As a result, the ConvaTec way is beginning to emerge with almost 300 leaders now trained in transformation. We'll provide a further update on our progress in August. So in summary, on Slide 9, trading was in line with our expectation and reflected the challenges outlined in February. The building blocks are in place to deliver improved revenue growth in U.S. Wound. In Ostomy, good performance in LatAm and APAC, continued weakness in the U.S. In CCC, HDG is continuing to outgrow the market in the U.S. And ID delivered strong levels of orders. And in our Transformation Initiative, I'm pleased with the momentum that's building. And as we discussed in February, my priority remains on improving execution. Finally, our guidance for FY 2019 is unchanged. And with that, we'll be happy to take your questions. So now I'll turn the call back over to Todd, and we'll open up the line.
[Operator Instructions] So our first question today comes from Sebastian Walker from UBS.
I've got 2, if I could. So just on the change in rebate provisioning accounting, that was part of a U.S. review with new management there. Could you comment on whether that -- you've completed an overall review and that this is the only change that has come out of that or whether you expect anything else over the remainder of the year? And then the second question is on guidance. I was wondering how you think about the organic growth guidance range given that you have the provision headwind. So are the expectations on the underlying business after Q1 better than what you gave at guidance at Q4, and therefore, you think you can recoup that? Or has the business underlying performed in line with what you expected before?
I'll take the first one. So indeed, I explained that we have done the deep dive on this specific provision. It is the single-largest provision we have. We will continue to look for improvements in the business. But we don't expect anything coming even close to what we discussed here in H2. So this one, there is nothing. But of course, we continue to look for improvements in all the processes that we apply. But there's nothing in size that comes close to what we're doing here in Q1 which is sort of just a catch-up over -- differences over years.
Yes. Let me take the one on the guidance. First of all, we have -- we're confirming our guidance again for the year and as we sort of look forward, we knew, as we described to you back in February, that Q1 would be a weaker start to the year, both in AWC in the U.S., U.K. and we expected a little softer ID performance which was -- which turned out to be a little bit better. So that was in line with what our group level on a small beat versus consensus. In AWC, our specialty sales force model has now been implemented and we're very optimistic about what we've seen in the early days of that deployment. We're still hiring people, still in the deployment of that model, but it gives us some reason to believe and we'll come back to that in August. And as we mentioned, the skincare business continues to be a drag on that -- on the overall business. It's a small portion of the business, but it got a disproportionate impact on us. CCC, we expect to be in line with historic levels, and our second-half comps are little bit easier. In ID, we think we'll have a better second half as well. And then obviously we mentioned we spent a lot of time talking to you about leadership changes we had made back in February, and we think we have the right leaders in the right jobs. So that gives us confidence about our guidance for the year.
Yes. Let me add a little bit to that. Of course, the provision is not helping. We get that. But as we said before, we are confirming our full year guidance, so no changes there. The other variable that -- of course, the variable is foreign exchange. And it could help us, it could hurt us. If I take spot prices today, it's probably a 30 bp hurt on an EBIT rate line, but that changes every day.
And just on the skincare. So could you comment on whether the magnitude of the headwind should continue over the remainder of the year or how should we think about that?
Yes. So last year, skincare was 90 bps to 100 bp drag. In Q1, it was disproportionate. And this is related to last year, in Q1, another supplier of similar skincare products was in a backorder position, and therefore, we had more orders in Q1 last year than normal. So therefore, that normalizes in the second quarter and beyond. So we expect that we will see a drag for the year and it's probably more in line with what we have seen in, for instance, 2018. A last thing I wanted to remark related to wound, in the second half, we will not have the impact of the destocking that we've seen in the U.K. Because there's been some Brexit stocking, but overall, there is a net destocking for our business in the U.K. Specifically in the Q1, it will finish somewhere in the second quarter. So we will have, also from that point of view, an easier run in the second half.
Our next question today comes from Veronika Dubajova calling from Goldman Sachs.
Two please, if I can. One is just looking at the CCC business. It seems from the performance this quarter that maybe the momentum here decelerated a little bit. Can you help us understand whether that was driven by the Continence or the Critical Care part of it? And maybe also, since we are in that topic, give us an update on the European catheter launch. My second question is sort of a slightly bigger question. When can we expect to get a strategic update on the size and shape of the portfolio going forward?
Okay. Veronika, I will take the first one. So we have seen a continuation of negative performance in the Hospital Critical Care business in total. So it is clearly a drag. Versus last year, ACG is still way outperforming the U.S. market and you have to think here about high single-digits growth, and that was in 2018 a couple of points higher. So I wouldn't call it a deceleration because it's still very much outperforming the growth of the U.S. market, but it's now in the higher single digits.
And Veronika, this is Rick. Thanks for joining us. So let me answer the next 2 questions you've got. On the EU catheter launch, we are -- we've continued our -- we're in a single market where we've launched our product. We're in patient evaluation. The feedback has been overwhelmingly positive both from patients and physicians, and we're continuing our planning for our ramp-up, for launch later in the year. And so we're quite optimistic about the patient feedback that we've received to date and we continue to progress in terms of our planning. So we'll give you an update on that at the first half later in the year. As it relates to the strategic update, as you know, one of the 4 work streams in our transformation is the portfolio optimization. We had teams that are working today as part of our Transformation Initiative on our portfolio in general. And our board continues to evaluate that work as it's happening in real time. And again, we're -- we plan on giving an update at the first half on the transformation. That will be part of that update. And just to reiterate the point that I made back in February, our goal would be to leave any -- both disposals and/or acquisitions -- major changes to the portfolio to Karim Bitar, our new CEO, as he comes in. And the table will be set for that. That's the goal. We may accelerate some of that, we may not, but we'll give you an update later in the year on that.
That's great. If I can, maybe just one quick follow-up for Frank. Frank, given the growth and the phasing in the portfolio in the first quarter, any comment you'd make in terms of the phasing of profitability for the business 1H versus 2H? And that's my final question.
Well, we will see a -- and this is pretty normal for a business with one exception that was 2018, we typically see indeed in the second half a higher percentage of the total revenue. It's typically anywhere between 51% and 53%. And that will drive for sure on the EBIT line a higher EBIT rate in the second half versus the first half. On top of that, as we discussed also in prior years, we typically also see some more productivity gains in the second half of projects that started. And of course, in the first half first quarter, we sell inventory that was produced the year before. So at higher cost. So we see -- like you've seeing in '16 and '17 on the bottom line, a pretty significant increase in EBIT rate, and that it's largely driven by the weighting of the revenue first half, second half.
But just to clarify, you would not expect that to be particularly more pronounced than usual this year?
No.
Our next question is from Patrick Wood calling in from Bank of America Merrill Lynch.
It's Patrick. I have 2, please. The first, I'm curious to get the -- any comments or thoughts you guys have on the Acelity deal. I know 3M is pretty strong compression and acute and Acelity is pretty good in outpatient and surgical. Do you think this changes the competitive environment or is it a nonevent for you? That'd be the first one. And then the second one, kind of a follow-on in some ways from what Veronika was suggesting and just to get some clarity. The incremental OpEx investment and also the mix, i.e. lower Wound Care mix at least in Q1, for the margin structure of H1 relative to H2 year-on-year, the margin changed, would you expect a slightly better performance year-on-year of the margins in the second half relative to first, if you see what I mean, i.e., is the first half somewhat more front end-loaded with investment relative to the second half? That would be helpful.
Take the second first?
Yes, okay. I wouldn't say the first half will be more front loaded from an investment point of view, but the big driver that will be significant -- will have a significant EBIT rate is more the revenue loading first half/second half. So that's how I would answer that question. There's not a particularly high front-loading of cost versus -- in first half versus second half. We're continuing to spend, as you know, specifically in transformation. But MDR costs will also ramp up, so -- and that's not something that will happen more in the first half.
And Patrick, this is Rick. Just to comment on the Acelity deal. I think there's -- for me, there's 3 big takeaways from the Acelity deal. One is it confirms that the markets that we compete in are very good markets as we discussed in February. And as -- if you look at our competitors' results for last few days, the -- to use wound as an example, these are great markets, structurally sound that are growing, and we're working very hard to get our fair share of that. Secondarily, 3M is a blue chip company and we have a lot of respect for them. It will be interesting to see how the integration goes and what they do in the marketplace. We'll be watching that. And then thirdly, I don't believe it changes any of our focus on execution in any way. We're totally focused on the execution plans for our company and specifically what we're doing in those markets. So for all intents and purposes, it doesn't change any of our planning in any way.
Our next question is from Chris Gretler calling in from Crédit Suisse.
It's Chris, I have 3 questions, actually. Now the first relates to the rebating. Actually, could you specify for how long these kind of provision, for what period it's now related to. But as you know, we can get bit of a sense about the significance. And I was just a bit surprised by -- you mentioned the $350 million as an annual rebate that you processed. I mean if I look at your U.S. businesses, maybe $600 million, $700 million. So basically, it's a very significant gross to net. Could you just confirm that? And the second question is on Kindred. We learned that for some reason, kind of it looks like that account has gone away from you. Could you kind of now specify the impact that you would expect from that over the next 12 months? And then the last point is just on the CEO hiring. I guess I have not heard kind of enough the rationale behind hiring Karim. So maybe if you could elaborate what made you kind of excited to hire him and what set him apart that would be great.
Chris, it's John Crosse here. Just we didn't get on our end your second question. You were asking about account loss, but we didn't get the name of the account, what you were referring to. Could you repeat the second question please.
Yes. It was Kindred home health in the U.S.
Right. Thank you, Chris. Sorry about that. So let me start. You have Frank here. So perhaps it will help if I explain how this process around rebating works in the U.S. and that might give you an answer to the 2 questions you have. So we're selling through distributors and we have agreed contract with distributors on volume base list price. And the distributor sells on to the end customer, for instance a GPO. We also have agreed prices with those end customers and if they are lower than the list price at which we sell to the distributor, then the distributor can claim back the difference between the end customer contract price and their list price. And we process around $250 million of these, not $350 million. And this is really a standard practice in the industry. So this is not something ConvaTec-specific. So we hold a provision which is an estimate for these type of discounts and we have been using this provisioning methodology consistently for a very long period of time, for years. As I explained, we have now improved this methodology using pharma best practices. And if you now would assume the following, if we would apply this new methodology and we would go back in time, let's say, to 2010, we would, in 2010, see a small increase, a difference between the 2. And in 2011 again and in 2012 again, small changes every year. And these have been building up to, for instance, the amount that we have been taking in the first quarter. So we have decided to change and improve the methodology, and therefore we've taken this $8.9 million hit in the first quarter. But in fact, it relates to a very long buildup over time if you look at the difference in methodology. We're talking about difference in methodology to estimate these rebates. I hope that answers your question.
Yes, Chris, this is Rick. I'll take the next 2. In general, we don't really comment about accounts coming and going within a quarter. But I'll just make one general comment because some of our competitors do comment. Between Coloplast, Hollister and ConvaTec, all of us are doing the best we can to win sort of marquee accounts. We -- in the quarter, we landed some very high-profile IDNs that I will not be talking about, but those -- that's -- I put that in the course of a normal business, so I wouldn't comment any further than that. As it relates to the CEO hiring, let me just go back to what we said back in February before our announcement and then what we've said when we announced Karim's appointment. We said that our board had set out a very clear criteria for what we were looking for in a CEO, which is really anchored in what we think the needs of the business are: one, a proven track record of execution; two, that they came with the general management capability beyond just sales and marketing; and three, that they had led a transformation in their -- those are the 3 heaviest-weighted capabilities we recruited for. And then once we announced Karim, if you look at his profile as a leader, he spent more than 20-plus years in the industry, 15 years at Eli Lilly and Company, started his career in McKinsey and Johnson & Johnson. He led a chronic care business for diabetes for Lilly, both at a franchise president level and also as a regional leader. He brand plants as part of his responsibility as a president. And then he transferred that to a public company role at his current company, Genus, where we he led an extraordinary transformation of that business over the last 8 years. So in our view, Karim brought the -- both the transformation experience, a proven track record over an extended period of time that we could measure and then also he brought the general management capabilities. Because of our operational issues we faced in the past, we thought that was a very important part. So his background mapped very, very well to the criteria that our board had put together, and we're very proud to have Karim join us in the fall.
Our next question comes from Hassan Al-Wakeel from Barclays.
I have a couple, please. Firstly, could you elaborate on the weaker U.S. Ostomy performance? Where is new patient capture trending and where is it this relative to the community market share? And are you still on track for a new suite of products 18 months away in ostomy? And then secondly, on ID, where do you think we are in the switching process for patients ahead of the deadline later this year associated with the Animas exit?
Let me take the first, and Frank, you can take the second one.
Yes, sure.
Specifically to talk about Ostomy, we've seen bright spots in Ostomy outside the U.S., specifically in APAC and in -- here in Europe, where we're seeing a return to growth. Specifically within the U.S. marketplace, NPC continues to be challenged in the U.S. and we've taken actions to be able to do that. We've flattened the organization. We are -- we've segmented our market specifically to customers where we can put more firepower on the targets. The good and the bad of the Ostomy business, as you know, nothing happens fast, it sort of moves at a glacial pace. And we're focused on 2 points, one is new patient capture and the second is when -- our direct-to-consumer program where patients, about 60% of the patients rotate out of the product that they were put on in the hospital into a different product sometime in the first year. So we're investing heavily in our me+ direct-to-consumer campaign and that continues to grow, and we're happy with what we're seeing in terms of growth. Your second question specifically as it relates to our investment in our next-generation platform, we continue to progress those investments and our R&D teams are hard at work. And we'll give you an update on that -- on our progress there as our -- later in the year as well. Let me just ask Frank to comment on the ID question.
Yes. So we've said in February that the Animas exit will have an impact on the 2019 growth rates for the ID business given that there's some disturbance here. Certain customers will go to Medtronic, certain customers will probably go to Tandem, some customers will possibly go to PEDGE pump. So far, what we've seen in the first 3 months, it is -- the switching is going as we planned. We had several models but in line also with what we signaled to the market in February. There is still Animas branded product demand in the market and we see an uptick -- and uptake on both the Medtronic side as well as on the Tandem side. So we continue to believe that the growth rate of the ID business in 2019 will be positive, but will be less than the historical market growth that we've seen of about 4%, and then it will normalize in 2020.
Our next question is from Paul Cuddon from Numis.
Just 2 questions from me. Firstly, on the anticipated divisional impact of -- kind of the potential France reimbursement changes in the future. And secondly, on the success of Home Distribution Group on Continence and Ostomy featuring a bit more heavily. To what extent did that sort of help the U.S. Ostomy business? And kind of the integration between 180 Medical and the me+ offering as well would be interesting.
Yes. Paul, so in the France reimbursements, I think you know that indeed, overall, there is a target of about $150 million that they want to take out of that total med tech industry. The discussions are continuing and moving between reimbursement cuts in Wound, foam specifically, as well as in Ostomy. And the latest we have received is that it looks like the Ostomy business -- or the Ostomy reimbursement will probably be higher, the cut, possibly in the double-digit percentage. And that the Wound cuts are going to be mid- to higher single digits. But no definitive answers yet. The -- there is still continuation of discussions. But that's the latest we've received out of the market.
Paul, just to respond to your question about HDG in Ostomy. We see that as a real opportunity. As you know -- and we've spoken about this ad nauseam that we believe HDG has a world-class capability in terms of how they interact with patients, payers, physicians. And our ability to sort of leverage that service model in our Ostomy business, we think, is a real opportunity and we're -- and we have -- there's ongoing work there to make that happen. So we'll -- again, we can -- at our sort of midyear update, we can give a little bit more detail around that. But I think that's one of our biggest opportunities within the HDG business to grow our share of ostomy support for both customers and patients because of the sort of capability that's resonate in the building there.
We now have a question from Alex Gibson of Morgan Stanley.
I have 2. The first one is just a follow-up on the compact catheter launch and a couple of questions there. Are there any elements that you can disclose which you think are differentiating versus peers at the current time? And what proportion of the European market are you going to be targeting with the launch this year? And finally, do you expect the product launch to help your Continence sales growth this year? And then my second question is on the guidance. Given that you've kept full year guidance constant, can you highlight what you've seen in Q1 that is giving you confidence in that you can offset the 50 basis points headwind from the rebating topic? Or should we just be expecting the range to shift 50 basis points from that?
Thank you, Alex. I'll take the first one. Frank will take the guidance question. So our launch -- our compact catheter launch here in Europe. Without getting into sort of the competitive nature of the product because we're in our pilot launch, I would just tell you that from a -- both aesthetics and patient confidentiality patient perspective, the product is highly differentiated from that perspective both in design and in terms of performance. And we'll be talking more about that as we sort of -- as we go into our full launch. The segment of the market that we are targeting, as you know in Europe, the high-end catheter segment is about a $500 million market segment here in Europe alone, of which we have -- this is all blue ocean for us, so we'll be entering into what we believe to be a terrific marketplace from a very low starting position. So we're excited about that in terms of growth. In terms of impact in '19, we have very modest expectations for the impact of that because of the timing of our launch, because we're in the market piloting and preparing for that launch. So from a financial perspective, it's not going to be that relevant to us, but it's a tremendous opportunity as we sort of look forward in our plans.
And to add onto that. Our estimation of sort of the high-end market where this product plays is between $500 million to $600 million in Europe. So it's a very sizable opportunity. But we're not going to go full Europe launch here, we're going market-by-market.
You got a question with the guidance.
Yes. So yes, as we said, we're not changing our guidance. And in line with what Rick mentioned earlier in the call, what our reasons to believe here that we will change from the position where we are in Q1 to a 1% to 2.5% organic growth for the year. I think if you click through the different franchises, and we mentioned it before, the Wound business will go from negative to positive. A couple of clear points here are that the comps in the second half are easier than in the first half. As we mentioned before, skincare is a very disproportionate drag in the first quarter and that will moderate. So that will also be very different in the second half versus the first half. The destocking -- the net destocking that we experienced in the first half in the U.K. in Europe is stopping after the second quarter, so that will also help us. And then, of course, as we discussed, the change of the U.S. Wound business, the model to go to a more specialized sales force with more focus on in-market demand is happening in -- or has happened in Q1 and we're still hiring in the second quarter. So there is a disturbance in the first half that should subside in the second half and we should start to see indicators of an improvement in the performance of that business. So I would say those are the key areas why we believe that Wound is going to move from a negative to a positive. Ostomy Care, we've said, [ Paul ], already in February the gross projections for Ostomy, we don't expect a lot. It's going to be flattish to very low single digits, so no real change there. CCC will improve in also the second half. There will be easier comps for CCC as well. ACG is continuing to perform very well, much higher than the overall market. And then ID, although it was very small negative territory in the first quarter, is going to also see a very different comp perspective in the second half. And as I said before, we expect ID to be positive for the full year given that it was slightly down in Q1. That will also move to positive territory, specifically in the second half, not in Q1. So that will help us as well. And that's basically -- those are the key drivers why we're continuing to call the guidance here 1% to 2.5% even with indeed the headwind that we experienced in the form of the additional pop-up in the provision.
Okay. Yes, that's very helpful. Could I just ask one follow-up on the addressable market, the $500 million to $600 million. How much of that market do you think you'll be in by the end of this year? Is it going to be 30%, 20%? Any indication would be helpful.
Well, we prefer not to comment on that.
The first is from Kit Lee of Jefferies.
I have 2 questions, please. So firstly, just to clarify this. On your full year '19 guidance on revenue growth and EBIT margin, would this include the provisions said that you have in Q1 and potentially for the provisions through the year? And then the second question is on the Infusion Devices. I think 1Q probably came in quite ahead versus expectations. I'm just wondering, what do you think about ordering pattern for ID for the rest of 2019? I'm just wondering, if you have seen any pull forward of orders into this quarter? Or would 1Q be, I guess, a good base for the rest of the year?
Okay, yes. I will take both questions. The top-up of the provision of $8.9 million is in our number and, therefore, is part of our overall guidance. No exclusions. Nothing that's in there. On ID, we had -- the ID business is a very lumpy business. And we had sort of an extraordinary event happening in the fourth quarter. We expect in '19 that this business -- and it sounds a little goofy, but we'll go back to normal lumpiness. And Q1 was indeed somewhat better. I would say specifically the second half will be in positive territory. We expect that this one, that probably Q2 will still be depressed. The key thing here is though, coming back to what I said before, we expect the overall business for -- organic growth for ID in 2019 full year to be below historical market growth rate but positive. I hope that answers your question.
Our last question today comes from Yi-Dan Wang from Deutsche Bank.
I have 3 questions. So first one on skincare. I know it's not a great big -- it's not a big business for you, but can you give us some sense of what percentage of the Wound Care mix it is? And the reason for the weakness, was it just one contract that you lost and therefore is a one-off event? Or is something -- is the loss caused by a lack of focus on that business and therefore we should be expecting less from that book of business? And then secondly, can you comment on your exposure to Wound and Ostomy Care in France? And help us if those -- if the, I suppose, reimbursement cuts, that's sort of are being discussed at the moment, does go through what -- how that would impact you on the top line and on an operating margin basis? And then thirdly, you commented that the Wound -- the Ostomy business performed well in Latin America and Asia. Can you comment on whether there's sort of a -- that was driven by tenders? And whether those performance will be sustained going forward and why that would be?
Okay. So on skincare, skincare is about 6% of our overall global Wound business. So it is indeed small. This has been deteriorating for some time now, so this is not a 1 quarter event. So it is probably not a real business that is part core of ConvaTec. Second, on the exposure in France. The overall revenue in Wound in France is about 30% of the total Wound franchise. But of course, the reimbursement cuts are probably going to be focused more on the foam part of the business. We just don't disclose the exact numbers there. But of course, it's such that relatively smaller subset of the overall wound revenue. So it's not 30%, something lower than that. Ostomy is very small in France, it's probably around 3% or so. So that will not really have a material effect on comps there.
And I'll take the Ostomy question. So in -- as I mentioned to you before, we are seeing some growth pockets and we're happy about that. But as you know, Ostomy is a pretty concentrated market. We have about 20% market share globally. And if you look at where we've seen the growth, this sort of performance uptick in Asia, it's really driven by China and ASEAN. Latin America, double-digit growth. We've seen some of our -- some countries in Europe, like Italy we've seen a 7% rise. And then one of the more encouraging things is our me+ program worldwide continues to grow, specifically the U.S. marketplace where we're capturing patients from the -- that new patient capture both our patients, our competitors' patients coming into our database where we have the opportunity to talk those patients and be helpful and service them in a full-service way. And that gives us an opportunity at the 1-year -- 6-month to 1-year mark where those patients are switching out based on the adaptations or changes in their body. We see good growth in our convex products associated with that. So we believe that those trends will continue in some of those markets given our strength in those markets, and our focus is to drive that growth there, but also continue to work diligently in the larger market like the U.S. where it's really about new patient capture in that sort of direct-to-consumer campaign that I discussed earlier.
Okay. So if we look at the growth that you reported for -- in Ostomy Care in the quarter, that was against an easier comp. So in underlying terms, the momentum deteriorated further. When do you think we could see benefits of your initiatives in the U.S.? Or will we be see that, the deterioration in the momentum, actually turn? Would that be a 2019 event or would it take you longer than that, do you think?
Yes, our -- well, like I said, we continue to see deterioration in our NPC in the U.S. marketplace, where we're -- that's being offset by growth in sort of our emerging market on an overall basis. So I would -- based on the initiatives we've taken and the work that we're doing in the U.S. market specifically and our concentration in -- and I mentioned to you we've had some early wins with IDNs and sort of a new offering that we put together, we're optimistic that we'll see that continue to improve in the back half of 2019 and we'll update you later in the year on that.
And then this deterioration in the NPCs in the U.S., was that -- did that kind of start with the manufacturing issues? Or had it been going -- just been going on for quite some time in the U.S.? So what I'm asking is, do you think that your products and your sales initiatives, absent the manufacturing issues, you would be able to recover the NPCs?
No. I understand. But...
Yes. I can take that. So we've seen, if you go back several years, a deterioration of NPC and then it starts to stabilize and in fact started to crawl up. And so there was trend change and then the supply issues in Haina came. So that started a further slow reduction of NPC. So in fact, the business was starting to change and then had a setback related to or driven by the Haina supply issue. So given that there was a proof point there, we firmly believe that we will be able to stabilize the NPC and start to grow it. But this will go at a very different pace than, for instance, what we're seeing in Wound. As Rick said, this business still moves at a glacial pace, so it will be a longer horizon when we will see that happen. But we have some proof points of basically '17 before the Haina issues started, things have -- can go -- can stabilize and go up.
Yes. I will just mention -- go back to our February comment. Our supply issue that we have from the Haina issue, that goes back a year or 2 now, hurt us deeply and we commented on that in February. And it's important for us to be a more reliable supplier to our customers and these patients, because at the end of every one of these products is the patient and it's incredibly important for us to do that. And we've been working very hard to ensure, both on a customer and a patient level, that they can depend on us to deliver on that. And that gives us some confidence that, to Frank's point, even though this market has moved at a glacial pace, we feel good about our ability to supply our customers. And our teams are working really hard to increase the demand for our products.
Just one last follow-up, if I may. So I mean the competitive environment has increased since your manufacturing issues. So has the rate of deterioration of your NPCs been stable, so if it were in a declining, I don't know, what percent, x percent? Is it still at that x percent or is it x plus percent now? Or may even be x minus given that you've seen some improvements already. But...
Well, the data is always delayed. So I don't have Q1 data yet, okay, so I can only comment on 2018 data. And basically, it has been a pretty stable decline. So not an accelerated...
Okay. Not accelerated decline.
Right. No, no.
That was our final question today. I'll hand back to you now, Rick.
Well, thank you, Todd. Well, thank you, everyone, for participating today. We appreciate the opportunity to give you an update and we look forward to continuing to do so. And in any individual calls, our teams are ready to be able to respond to you if additional questions are there. And we look forward to our midyear update in August. Thank you very much.
Bye-bye.
Ladies and gentlemen, that does conclude today's call. Thank you for joining, you may now disconnect your line.