TIDMCTEC
RNS Number : 8511U
ConvaTec Group PLC
04 August 2022
LEI: 213800LS272L4FIDOH92
4 August 2022
Convatec Group Plc
Interim Results for the six months ended 30 June 2022
Strong revenue growth, stable adjusted operating profit
and continued strategic progress
-- Good financial performance in H1 2022 notwithstanding the
challenging inflationary backdrop and continued investment in
Innovation, Sales & Marketing
-- Continued execution of FISBE (Focus, Innovate, Simplify,
Build, Execute) strategy in H1, notably:
o Entry into Wound Biologics(1) segment; exit from non-core
hospital care and related industrial sales activities
o Further progress with our new product pipeline; launch of
GentleCath Air Male in France and InnovaMatrix in US; acquired a
minority stake in BlueWind Medical
o Simplification and efficiency initiatives supporting reduction
in adjusted G&A to 9.7% of sales (H1 2021: 11.1%)
o Positive pricing performance and new Convatec masterbrand
launched
o Progress embedding 'Convatec Cares', our new Environmental,
Social & Governance (ESG) framework
-- On track to deliver full year guidance - further
demonstration Convatec is pivoting to sustainable and profitable
growth
Key financial highlights
Reported results Adjusted(2) results
========================= ================================= ===============================================
H1 2022 H1 2021 Change H1 2022 H1 2021 Change CC Change(3)
Revenue $1045m $1008m 3.6% $1045m $1008m 3.6% 8.0%
$ 204
Operating profit $87m $136m (36.0)% m $204m 0.0% 1.1 %
19.6 ( 70
Operating profit margin 8.3% 13.4% (510)bps % 20.3% )bps ( 130 )bps
Diluted earnings per
share 2.4 cents 4.2 cents (43.9)% 6.5 cents 7.2 cents (10.0)% -
1.717 1.717
Dividend per share cents cents 0.0%
-- Strong revenue growth: Reported +3.6% although significant FX
headwind. +8.0% on a constant currency(4) basis and +6.4% on an
organic(4) basis with positive performances across all
divisions
-- Reported operating profit 35.7% lower primarily reflecting hospital care exit costs
-- Stable adjusted(2) operating profit: +0.0% and +1.1% on a
constant currency(3) basis despite significant COGS inflation of
c.7% and investments in Sales & Marketing and R&D operating
expense of 15% on a constant currency basis
-- Adjusted(2) operating profit margin was 19.6% (H1 2021:
20.3%) with price/mix, productivity improvement, G&A reduction
and FX tailwind more than offset by inflation and the operating
expense investments. Operating costs will be more evenly phased
across the year in 2022 than in 2021.
-- Reported diluted EPS down 43.9% principally owing to the
hospital care exit cost. Adjusted(2) diluted EPS down 10.0%
primarily owing to treatment of US deferred tax; excluding the
recognition of deferred tax assets post the acquisitions, the
adjusted EPS would have been down 2.7%
-- Net debt(2) increased by $196 million largely owing to
strategic M&A investments: leverage of 2.3x net debt(2)
/adjusted EBITDA(2) (FY 2021: 1.9x)
-- Interim dividend of 1.717 cents declared (H1 2021: 1.717)
2022 outlook confirmed
Convatec is on track to deliver organic(4) revenue growth of
4.0-5.5% and constant currency adjusted operating profit(3) margin
of at least 18%, as indicated in March 2022, notwithstanding the
current inflationary backdrop.
Karim Bitar, Chief Executive Officer, commented:
"This performance demonstrates that Convatec is continuing to
pivot to sustainable and profitable growth. Our competitive
position and financial performance are strengthening as we
successfully execute our FISBE strategy. Convatec has achieved
strong sales growth and, despite the significant inflationary back
drop, a robust profit performance. We are confirming our guidance
for the full year."
"We remain focused on executing our strategy and are confident
in Convatec's ability to grow in line or faster than its markets
and to improve its operating margin to mid-20% over time."
--------------------------------------------------------------------------------------------------------------------------------------
(1) Wound Biologics segment as defined by SmartTRAK. Includes
skin substitutes, active collagen dressings and topical drug
delivery.
(2) Certain financial measures in this document, including
adjusted results above, are not prepared in accordance with
International Financial Reporting Standards ("IFRS"). All adjusted
measures are reconciled to the most directly comparable measure
prepared in accordance with IFRS in the Non-IFRS Financial
Information below (pages 36 to 42).
(3) Constant currency growth is calculated by applying the
applicable prior period average exchange rates to the Group's
actual performance in the respective period.
(4) Organic growth presents period over period growth at
constant currency, adjusted for: Triad Life Sciences (Mar'22), Cure
Medical (Mar'21) and Patient Care Medical (Dec'21) acquisitions;
Incontinence divestment (Dec'21) and, from 31(st) May, the
discontinuation of Hospital care and related industrial sales and
the reconfigured business in Russia.
Contacts
Analysts & Investors Kate Postans, Vice President of +44 (0) 7826 447807
Investor Relations & Corporate ir@convatec.com
Communications
Buchanan: Charles Ryland / Chris
Media Lane +44 (0)207 466 5000
Investor and analyst presentation
The results presentation will be held in person at UBS, 5
Broadgate Circle, London, EC2M 2QS at 9am (UK time). The event will
be simultaneously webcast and the link can be found here .
If you would like to ask a question please use the following
dial-in details:
United Kingdom - 0330 165 4012
United States - 800-289-0720
Access code: 9879873
The full text of this announcement and the presentation for the
analyst and investors meeting can be found on the 'Results, Reports
& Presentations' page of the Convatec website
www.convatecgroup.com/investors/reports .
Forthcoming Events
Trading update (for 10 months) 10 November 2022
Capital Markets Event - to be hosted 17 November 2022
in London
As highlighted in FY results in order to more evenly space the
cadence of financial communication and better represent
management's focus on long-term sustainable growth, the Group have
replaced quarterly reporting with trading updates.
About Convatec
Pioneering trusted medical solutions to improve the lives we
touch : Convatec is a FTSE 250 global medical products and
technologies company, focused on solutions for the management of
chronic conditions, with leading positions in advanced wound care,
ostomy care, continence and critical care, and infusion care. Group
revenues in 2021 were over $2 billion. With around 10,000
colleagues, we provide our products and services in over 100
countries, united by a promise to be forever caring. Our products
provide a range of benefits, from infection prevention and
protection of at-risk skin, to improved patient outcomes and
reduced care costs. To learn more about Convatec, please visit
http://www.convatecgroup.com
Forward Looking Statements
This document includes statements that are, or may be deemed to
be, "forward-looking statements". These forward-looking statements
involve known and unknown risks and uncertainties, many of which
are beyond the Group's control. "Forward-looking statements" are
sometimes identified by the use of forward-looking terminology,
including the terms "believes", "estimates", "aims", "anticipates",
"expects", "intends", "plans", "predicts", "may", "will", "could",
"shall", "risk", "targets", "forecasts", "should", "guidance",
"continues", "assumes" or "positioned" or, in each case, their
negative or other variations or comparable terminology. These
forward-looking statements include all matters that are not
historical facts. They appear in a number of places and include,
but are not limited to, statements regarding the Group's
intentions, beliefs or current expectations concerning, amongst
other things, results of operations, financial condition,
liquidity, prospects, growth, strategies and dividend policy of the
Group and the industry in which it operates.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. These
statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable by the Company, are
inherently subject to significant business, economic and
competitive uncertainties and contingencies t hat are difficult to
predict and many of which are outside the Group's control . As
such, no assurance can be given that such future results, including
guidance provided by the Group, will be achieved; actual events or
results may differ materially as a result of risks and
uncertainties facing the Group. Such risks and uncertainties could
cause actual results to vary materially from the future results
indicated, expressed, or implied in such forward-looking
statements. Forward-looking statements are not guarantees of future
performance and the actual results of operations, financial
condition and liquidity, and the development of the industry in
which the Group operates, may differ materially from those made in
or suggested by the forward-looking statements set out in this
document. Past performance of
the Group cannot be relied on as a guide to future performance.
Forward-looking statements are based only on information currently
available to the Group and speak only as at the date of this
document and the Group and its directors, officers, employees,
agents, affiliates and advisers expressly disclaim any obligations
or undertaking to release any update of, or revisions to, any
forward-looking statements in this document.
Operating Review for the six months ended 30 June 2022
Revenue
Total Group revenue increased by 3.6 % on a reported basis to
$1,045 million. There was a significant FX headwind during the
period and on a constant currency basis revenue rose 8.0% .
Adjusting for M&A and business restructuring (see footnote 4
above) Group revenue rose 6.4% on an organic basis.
Six months ended 30 June
H1 2022 H1 Reported Foreign Constant Organic(4)
2021 growth Exchange Currency(2) growth
/ (decline) impact growth / (decline) / (decline)
$m $m
Revenue by Category
Advanced Wound Care 307 294 4.4 % (6.2)% 10.6 % 7.3%
(3.1)
Ostomy Care 265 273 % (5.8)% 2.7 % 3.0 %
Continence and Critical (2.0)
Care 277 266 4.1% % 6.1 % 3. 6 %
(2.3)
Infusion Care 196 175 12.2 % % 14.5 % 14.4 %
(4.4)
Total 1045 1008 3.6 % % 8.0 % 6.4 %
========================= ========= ====== ============= ========== ==================== =============
Advanced Wound Care revenue of $307 million increased 4.4% on a
reported basis or 10.6% on a constant currency basis. This
performance was enhanced by the acquisition of Triad Life Sciences
on 14 March and on an organic basis revenue rose by 7.3%.
The business achieved strong growth in Global Emerging Markets
and Europe. This more than offset a decline in North America where
shortages of healthcare practitioners impacted procedure volumes
and our limited position in the foam segment continued to weigh on
performance. Convatec will be launching ConvaFoam in the US in Q4,
which we anticipate will have strong exudate and adhesion
properties.
Ostomy Care revenue of $265 million declined 3.1% on a reported
basis but increased 2.7% on a constant currency basis and 3.0% on
an organic basis.
During the period the business achieved continued strong growth
in Global Emerging Markets while Europe achieved a robust
performance, notwithstanding further rationalisation of less
profitable activities within Amcare UK. In North America, HSG
continued to grow referrals with new Ostomy patients although the
impact of planned SKU rationalisation continued to reduce reported
performance. Overall we are improving the mix and consequently the
margins. Across all geographies revenue from Convatec ostomy
products grew 4.3% on a constant currency basis.
Continence & Critical Care revenue of $277 million rose 4.1%
on a reported basis, 6.1% on a constant currency basis and 3.6% on
an organic basis. A strong operating performance was supported by
contributions from the Cure Medical and Patient Care Medical
acquisitions partially offset by the non-core incontinence disposal
and adjustments for the hospital care exit from 31(st) May, when
the Belarus factory closed.
Continence Care achieved revenue of $197 million, up 4.3% on an
organic basis with good levels of new patient starts. Critical Care
revenue rose 1.8% on an organic basis to $80 million during the
period with Flexi-Seal(TM) declining, as expected following strong
growth during COVID-19, whilst the hospital care products saw a
temporary increase in sales immediately following the announcement
of Convatec's decision to exit this product range.
Infusion Care revenue of $196 million increased 12.2% on a
reported basis, 14.5% on a constant currency basis and 14.4% on an
organic basis after adjusting for the exit of industrial sales from
31(st) May. This growth was primarily driven by continued strong
demand from diabetic customers for our innovative infusion sets
supported by favourable order phasing from key customers.
Historic revenue data
Reported Revenue H1 2020 H2 2020 H1 2021 H2 2021 H1 2022
$m
------------------- ----------------- -------- -------- --------
Advanced Wound Care 251 296 294 298 307
Ostomy Care 252 274 273 273 265
Continence and Critical
Care 244 254 266 277 277
Infusion Care 161 162 175 182 196
---------------------------- -------- -------- -------- -------- --------
Group 908 986 1008 1030 1045
---------------------------- -------- -------- -------- -------- --------
Organic(4) growth/(decline) H1 2020 H2 2020 H1 2021 H2 2021 H1 2022
%
------------------------------- -------- -------- -------- --------
Advanced Wound Care -4.8% -0.8% 16.3% 3.4% 7.3%
Ostomy Care 3.1% -0.5% 3.7% -0.1% 3.0 %
Continence and Critical
Care 10.6% 6.9% 3.0% 1.2% 3.6 %
Infusion Care 12.6% 21.2% 6.5% 12.5% 14.4 %
--------------------------- ------------ -------- -------- -------- --------
Group 4.1% 4.3% 7.4% 3.4% 6.4 %
--------------------------- ------------ -------- -------- -------- --------
Pivoting to sustainable and profitable growth
The execution of our FISBE (Focus, Innovate, Simplify, Build,
Execute) strategy is progressing well.
Focus
- We have continued to invest in our top 12 markets,
particularly in Sales and Marketing, and achieved faster growth in
these countries.
- We entered the large and rapidly growing wound biologics
segment(1) through the acquisition of Triad Life Sciences -
strengthening our Advanced Wound Care position in the US and
securing access to a complementary and innovative technology
platform. The integration is progressing well and we have now
renamed the business Advanced Tissue Technologies ('ATT'). We are
optimistic about the prospects in the biologics space and the
potential for our ATT business.
- In May, we announced the decision to withdraw from non-core
hospital care activities and related industrial sales during the
remainder of 2022. Following the exit of these products, which last
year generated approximately $100 million of revenue, the Group
will be almost entirely focused on higher-growth and more
profitable chronic care markets.
Innovate
- We have continued to invest to strengthen our Technology &
Innovation capabilities and advance our pipeline; we increased
R&D expenditure by 15% to $47 million in H1 (H1 2021: $41
million).
- During H1 we started launching two new products:
o InnovaMatrix(TM) , our new ATT product, in the US. The take up
by healthcare providers has been promising.
o GentleCath(TM) Air Male , our new hydrophyllic (proprietary
FeelClean(TM) Technology) compact male catheter, in France. It is
early days, but the initial feedback from users has been positive
and we are now building out our commercial infrastructure in
Europe, expanding to the UK in the second half of the year. During
H2 we shall also be launching GC Air Male in the US.
- We acquired a minority stake in BlueWind Medical Ltd, the
developer of an innovative implantable tibial neuromodulation
device for the over-active bladder segment, securing a relationship
with a company developing a proprietary and differentiated solution
to treat over-active bladders in the US Continence space.
Simplify
- During H1 our adjusted G&A expenditure reduced by 5.1% on
a constant currency basis to 9.7% of sales.
- We continued to transition more finance and IT activities to
our Global Business Services ('GBS') centre in Lisbon and made good
progress with simplification of processes.
- We also continued to simplify our product portfolio. The
rationalisation of SKUs reduced growth in Ostomy Care by
approximately 80bps. This is expected to be more impactful in the
second half given the phasing of the rationalisation.
Build
- Our Pricing Centre of Excellence ('CoE'), in collaboration
with our business units, achieved 60bps of pricing improvement.
- We launched the refreshed Convatec brand and our new company
promise of 'forever caring' which have been well received by
customers.
- The Convatec Executive Leadership Team was strengthened in
April. Anne Belcher joined the Group from GSK to lead our Global
Emerging Markets business and Bruno Pinheiro, who led our
successful LATAM business before acting as Interim President for
GEM last year, has taken over Ostomy Care. John Haller joined us as
EVP, Chief Quality and Operations Officer, having previously been
at Stryker Corporation.
- Our Salesforce CoE has now established a single CRM platform
in N.America and Europe and is driving enhanced salesforce
productivity by increasing call rates and improving targeting.
Execution
- We delivered positive manufacturing productivity improvements
in the face of significant COGS inflation and continue to improve
the resilience of the supply chain.
- We made further progress with our Environmental, Social & Governance (ESG) agenda:
o Embedding 'Convatec Cares' , our new ESG framework; elevating
ESG through our strategic planning process and engaging all
business units and functional areas on priorities, targets and
commitments.
o Launched a new Diversity, Equity & Inclusion (DE&I)
and Wellbeing approach including strengthening our Employee
Resource Groups with executive level sponsors and creating
programmes such as our Black Education Leadership Programme
(BELP).
o In line with our commitment to reduce emissions and set
Science Based Targets (SBTs), we completed our Scope 3 materiality
assessment during the period and are on track to set our Scope 1
and 2 SBTs this year.
o Consistent with our commitment to support our communities, we
provided a humanitarian relief response for Ukraine valued at over
$1.1 million.
Operating profit
Adjusted gross profit rose 2.9% to $628 million (H1 2021: $611
million). Adjusted gross profit margin of 60.1% was 50bps lower
than the prior year with significant COGS inflation (of
approximately 7%) more than offsetting foreign exchange benefit of
50bps, pricing, mix and productivity benefits. Reported gross
profit was $555 million (H1 2021: $555 million).
Operational expenditure increased $18 million, or 4.4% year on
year on a reported basis or 9.2% on a constant currency basis,
driven by additional investment in growth initiatives across the
business partially offset by the reduction in G&A.
Total adjusted operating profit was unchanged at $204 million
(H1 2021: $204 million). The adjusted operating profit margin was
19.6% in the first half, a decrease of 70 bps versus prior year or
130bps on a constant currency basis. Reported operating profit was
$87 million (H1 2021: $136 million) primarily driven by the closure
costs and impairments relating to the exit of hospital care and
industrial sales activities.
Dividend
The Board is declaring an unchanged interim dividend of 1.717
cents per share (H1 2021: 1.717) reflecting continued confidence in
the future performance of the Group and cash generation.
Cash flow and leverage
Adjusted free cash flow post tax was $80 million (H1 2021:
$113m) during the first half with the decrease principally
reflecting higher working capital in the first half as well as
increased investment in capital expenditure.
The Group was also strengthened through inorganic investment -
spending $148 million on the Triad Life Sciences acquisition and
investing $31 million in the preference shares of BlueWind Medical.
A further $10 million of cash was used for lease payments and $59
million for dividends to shareholders.
The Group ended the period with total interest-bearing
liabilities, including IFRS 16 lease liabilities, of $1,438 million
(31 December 2021: $1,435 million). Offsetting cash of $272 million
(31 December 2021: $463 million) and excluding lease liabilities,
net debt was $1,077 million (31 December 2021: $881 million),
equivalent to 2.3x adjusted EBITDA (31 December 2021: 1.9x adjusted
EBITDA).
Group 2022 outlook
We are pleased with the growth we have achieved in 2022 and we
confirm our full year guidance.
We continue to expect full year organic revenue growth of
4.0-5.5% as growth in the second half is anticipated to be slower.
This is primarily owing to order phasing in Infusion Care coupled
with other light headwinds such as increased SKU and customer
rationalisation, US sequestration and French reimbursement cut.
We are on track to achieve our full year targeted constant
currency adjusted(2) operating profit margin of at least 18%, n
otwithstanding the inflationary backdrop (estimated 8-9% COGS
increase for Convatec for the full year, as previously guided) .
The margin in the second half is expected to be lower than H1
driven by the lagging impact of COGS inflation. Operating expenses
are expected to be more evenly phased than last year. The currency
tailwind on the margin is currently c.60 bps.
We continue to expect adjusted net finance expense for the full
year to be $50-55 million. The cash tax rate for the year is still
expected to be 18-19%, however the adjusted book tax rate for the
year is expected to be approximately 25%, following accounting
adjustments on the acquisition of Triad. Capex guidance is
unchanged at $100-120 million for the full year. We expect leverage
to trend down towards our target of around 2x over time.
We are confident about the future prospects for the Group as we
continue to pivot to sustainable and profitable growth.
Principal risks
The Board reviews and agrees our principal risks on a bi --
annual basis, taking account of our risk appetite together with our
evolving strategy, current business environment and any emerging
risks that could impact the business. Our framework and system of
risk management and internal control continue to develop and
updates to the principal risks and mitigation plans are made as
required in response to changes in our risk landscape. Details of
our enterprise risk management framework are set out in the Group's
2021 Annual Report and Accounts on pages 64 to 73.
The Board has reviewed the principal risks as at 30 June 2022,
taking into consideration the risks that existed during the first
six months of 2022 and those that it believes will have an impact
on the business over the remaining six months of the current
financial year. The principal risks have been assessed against the
context of the global inflationary pressures and volatile political
environment that are impacting all businesses at present. The
overall profile for the risks set out below remains largely
unchanged over the financial year in terms of their potential
impact on our ability to successfully deliver on our strategy:
-- Operational Resilience and Quality;
-- Innovation and Regulatory;
-- Information Systems, Security and Privacy;
-- Customer and Markets;
-- Legal and Compliance;
-- People;
-- Strategy and Change Management;
-- Environment and Communities; and,
-- Tax and Treasury.
However, as indicated in our May 2022 trading update the risk
landscape has changed in respect of our Political and Economic
Environment risk and People risk since the Annual Report was
published in March. The Political and Economic risk has been
elevated reflecting the continuing harshening environment created
by global inflationary pressures on all aspects of our business,
specifically our supply chain and cost of goods. In addition, we
are experiencing increased pressures on our ability to attract,
retain and maintain competitive remuneration for talent and skills
in light of the continuing squeeze on the cost of living for our
workforce.
We responded quickly to the evolving situation in Ukraine and
the surrounding region when it first emerged at the beginning of
the year. We reported the closure of our manufacturing plant in
Belarus that supplied products for our Critical Care and Ostomy
portfolios. We continue to assess any potential impacts on our
business with appropriate mitigation plans. We are fully committed
to continuing to comply with all applicable laws and regulations,
including any impacts of new sanctions relating to the ongoing
situation.
The Board assesses the overall risk profile of the Group to
ensure it is within our risk appetite. Principal risks continue to
be appropriately mitigated and work continues to reduce the net
exposure to the business to ensure that each risk remains within
our risk appetite.
Financial Review for six months ended 30 June 2022
The following table sets forth the Group's revenue and expense
items for the six months ended 30 June 2022 and 2021:
Six months ended 30 June
--------------------------------------
Reported Reported Adjusted Adjusted
2022 2021 2022 2021
$m $m $m $m
----------------------------------- -------- -------- -------- --------
Revenue 1,044.5 1,008.0 1,044.5 1,008.0
Cost of sales (489.6) (452.7) (416.4) (397.5)
----------------------------------- -------- -------- -------- --------
Gross profit 554.9 555.3 628.1 610.5
----------------------------------- -------- -------- -------- --------
Gross margin % 53.1% 55.1% 60.1% 60.6%
Operating expenses (467.8) (419.8) (423.8) (406.1)
----------------------------------- -------- -------- -------- --------
Operating profit 87.1 135.5 204.3 204.4
----------------------------------- -------- -------- -------- --------
Operating margin % 8.3% 13.4% 19.6% 20.3%
Net finance expense (28.2) (19.8) (23.0) (19.8)
Non-operating expense, net (12.8) (3.6) (7.0) (3.6)
----------------------------------- -------- -------- -------- --------
Profit before income taxes 46.1 112.1 174.3 181.0
Income tax benefit/(expense) 2.2 (26.3) (43.2) (35.8)
Effective tax rate % (4.8%) 23.5% 24.8% 19.8%
----------------------------------- -------- -------- -------- --------
Profit for the period (net profit) 48.3 85.8 131.1 145.2
----------------------------------- -------- -------- -------- --------
Net profit % 4.6% 8.5% 12.6% 14.4%
Basic earnings per share (cents
per share) 2.4 4.3 6.5 7.2
Diluted earnings per share (cents
per share) 2.4 4.2 6.5 7.2
Dividend per share (cents) 1.717 1.717
----------------------------------- -------- -------- -------- --------
Reported and Adjusted results
The Group's financial performance measured in accordance with
IFRS (IAS 34 Interim Financial Reporting as adopted by the United
Kingdom) is set out in the Condensed Consolidated Interim Financial
Statements and Notes and is referred to in this review as
"reported".
The commentary in this review includes discussion of the Group's
reported results and alternative performance measures (or adjusted
measures) ('APMs'). Management and the Board use APMs as meaningful
supplemental measures in monitoring the performance of the
business. These measures are disclosed in accordance with the ESMA
guidelines and are explained and reconciled to the most directly
comparable reported measure prepared in accordance with IFRS in the
Non-IFRS financial information section.
The commentary includes discussion on revenue on a constant
currency basis. Constant currency removes the effect of
fluctuations in exchange rates to focus on underlying revenue
performance. Constant currency information is calculated by
applying the applicable prior period average exchange rates to the
Group's performance in the respective period. Revenue and revenue
growth on a constant currency basis are non-IFRS financial measures
and should not be viewed as a replacement of IFRS reported revenue.
Organic growth represents period-on-period growth at constant
currency, excluding acquisition and divestiture activities.
Revenue
Group reported revenue for the six months ended 30 June 2022 of
$1,044.5 million (H1 2021: $1,008.0 million) increased 3.6%
year-on-year or 8.0% on a constant currency basis . Group revenue
grew by 6.4% on an organic basis, driven by strong growth in
Advanced Wound Care and Infusion Care, good growth in Continence
& Critical Care and robust growth in Ostomy Care. For more
details about the category revenue performance, refer to the
Operating Review.
Six months ended 30 June
------------------------------------------------------------
Foreign Constant
Reported exchange currency Organic
2022 2021(b) growth impact growth growth(a)
$m $m % % % %
---------------------- ------- ------- -------- --------- --------- ----------
North America 527.0 495.3 6.4% (0.1)% 6.5% 3.5%
Europe 363.7 374.8 (3.0)% (9.1)% 6.1% 6.0%
Rest of World ("RoW") 153.8 137.9 11.6% (6.9)% 18.5% 18.3%
---------------------- ------- ------- -------- --------- --------- ----------
Total 1,044.5 1,008.0 3.6% (4.4)% 8.0% 6.4%
---------------------- ------- ------- -------- --------- --------- ----------
(a) Adjusted for the acquisition of Triad Life Sciences
("Triad"), Cure Medical and Patient Care Medical, as well as the
divestment of the incontinence activities in 2021, and the exit
from hospital care and industrial sales, and restructuring of
activities in Russia during H1 2022.
(b) During the year ended 31 December 2021, the geographical
revenue information provided to the Group's CEO was changed to
better reflect the way in which the Group managed its operations.
The change was driven by the ongoing transformation initiatives and
aligns with the current management and reporting structure. The six
months to 30 June 2021 comparative revenue information has been
re-presented to reflect this change. Europe includes Russia, North
America comprises United States and Canada, and Rest of World
("RoW") comprises all countries in Asia Pacific, Latin America
(including Mexico and the Caribbean), South America, the Middle
East (including Turkey) and Africa.
North America revenue grew by 6.4% on a reported basis and 6.5%
on a constant currency basis. This primarily reflected the strong
revenue performance in Infusion Care and includes the acquisitions
of Triad, Cure Medical and Patient Care Medical, as well as the
impact of divestment of incontinence activities in 2021.
Europe revenue decreased by 3.0% on a reported basis which was
primarily driven by currency headwinds. The growth was 6.1% on a
constant currency basis, reflecting the strong revenue performance
in Advanced Wound Care and supported by positive growth in all
other categories.
Rest of World ("RoW") reported revenue grew by 11.6% and 18.5%
on a constant currency basis, driven by strong growth in both
Advanced Wound Care and Ostomy Care in Asia and Latin America.
Reported net profit
Reported operating profit was $87.1 million, a decrease of $48.4
million as compared to the prior year. This reflects the 200bps
decrease in gross margin, which more than offset the 3.6% growth in
revenue. The decrease in gross margin was driven by 120bps of
divestiture and termination costs primarily relating to the exit
from hospital care and industrial sales activities, with the
remaining 80bps owing to significant inflationary pressures on both
raw material and freight costs, partially offset by
productivity/pricing/mix benefits.
Operating expenses increased $48.0 million to $467.8 million (H1
2021: $419.8 million) primarily reflecting $25.7 million of closure
costs and impairments for hospital care and industrial sales
activities, $22.0 million increase in selling and distribution
costs associated with higher revenues, the inclusion of acquired
businesses and higher labour costs in some areas. In addition,
there was a $6.3 million increased investment in research and
development to continue to develop the future pipeline of new
products, offset by $6.9 million decrease in general and
administrative expenses.
Reported net finance expenses increased by $8.4 million to $28.2
million in the six months to 30 June 2022 (H1 2021: $19.8 million),
reflecting increased interest rates and $5.2 million for the unwind
of discount relating to the contingent consideration for Triad.
Non-operating expenses increased by $9.2 million to $12.8 million
(H1 2021: $3.6 million) driven by $3.4 million of FX losses and a
$5.8 million increase in contingent consideration relating to the
2021 acquisition of Cure Medical.
The income tax benefit for the six months to 30 June 2022 was
$2.2 million (H1 2021: $26.3 million expense), resulting in
reported net profit of $48.3 million (H1 2021: $85.8 million) and
basic reported earnings per share of 2.4 cents (H1 2021: 4.3
cents).
Adjusted net profit
Adjusted gross profit was $628.1 million (H1 2021: $610.5
million) and the adjusted gross margin was 60.1% (H1 2021: 60.6%),
resulting from significant inflationary pressures on both raw
material and freight costs which more than offset
productivity/pricing/mix benefits and FX tailwinds.
The Group achieved adjusted operating profit of $204.3 million
(H1 2021: $204.4 million) with an adjusted operating margin of
19.6% (H1 2021: 20.3%). The 3.6% growth in revenue was offset by
the 50bps decrease in adjusted gross margin and increases of $22.0
million and $6.3 million in selling and distribution and research
and development expenses respectively.
Adjusted net profit fell 9.7% to $131.1 million (H1 2021: $145.2
million), driven by a $7.4 million increase in adjusted income tax
expense and a $3.2 million increase in the net finance expense. The
adjusted effective tax rate ("ETR") increased from 19.8% to 24.8%
principally due to the increase in US deferred tax expense
(non-cash) for the utilisation of federal tax losses that were
fully recognised as deferred tax assets following the acquisition
of Triad and profit mix between jurisdictions with different tax
rates.
Adjusted basic and diluted EPS at 30 June 2022 was 6.5 cents (H1
2021: 7.2 cents).
Taxation
Six months ended 30 June
------------------------------------
2022 2021
Effective Effective
$m tax rate $m tax rate
-------------------------------------- ------ --------- ------ ---------
Reported income tax benefit/(expense) 2.2 (4.8%) (26.3) 23.5%
Tax effect of adjustments (25.7) (7.5)
Other discrete tax items (19.7) (2.0)
-------------------------------------- ------ ------
Adjusted income tax expense (43.2) 24.8% (35.8) 19.8%
-------------------------------------- ------ ------
The Group's reported income tax benefit for the six months ended
30 June 2022 was $2.2 million (H1 2021: $26.3 million expense)
driven by recognition of deferred tax assets in respect of
previously unrecognised tax losses in the US, partially offset by
the increase in US tax expenses following the acquisition of
Triad.
After adjusting for certain financial measures that the Group
believes are useful supplemental indicators of future operating
performance, the adjusted effective tax rate was 24.8% for the six
months ended 30 June 2022 (H1 2021: 19.8%). The increase in
adjusted effective tax rate was principally driven by the non-cash
deferred tax expenses due to the utilisation of US Federal tax
losses which are now fully recognised as deferred tax assets
following the acquisition of Triad, and the profit mix between
jurisdictions with different tax rates.
Acquisitions and investments
Triad Life Sciences Inc ("Triad"), a US-based medical device
company, was acquired on 14 March 2022 for an initial consideration
of $125.3 million. The acquisition of Triad strengthens the Group's
Advanced Wound Care position in the US, securing access to a
complementary and innovative technology platform that enhances
advanced wound management and patient outcomes. In addition to the
initial consideration, there could be further contingent
consideration of up to $325.0 million based on two short-term
milestones and the performance during the first two years
post-completion, of which $25.0 million was paid in April 2022.
Refer to Note 7 - Acquisitions in the Condensed Consolidated
Finance Statements for further details.
The Group has contingent consideration of up to $10.0 million in
respect of Cure Medical, which is based upon post-acquisition
performance targets and to be paid by 2024. The contingent
consideration was increased by $5.8 million to $8.9 million
(discounted) in the period to 30 June 2022 (31 December 2021: $3.1
million), as a result of strong performance and forecast financials
which are expected to exceed previous expectations.
On 9 May 2022, the Group invested $30.7 million in preference
shares of BlueWind Medical Limited ("BlueWind Medical"). This
represents an investment into an innovative technology in the large
and growing over-active bladder market and strengthening of the
Group's Continence & Critical Care category. The investment is
held at fair value in the Condensed Consolidated Financial
Statements, which has not changed since the date of the
investment.
Strategic decision to exit from hospital care and industrial
sales
On 12 May 2022, it was announced that the Group would be
withdrawing from its hospital care activities and related
industrial sales during the remainder of 2022. The withdrawal from
these low margin activities is consistent with the Group's FISBE
strategy, with the Group focusing on higher-growth chronic care
markets with improved margins and higher levels of recurring
revenue.
Given the geopolitical situation in the region, the
manufacturing plant in Belarus which produces hospital care goods
ceased manufacturing on 31 May 2022 alongside a significant
restructuring of all operations in Russia. The remainder of the
hospital care and industrial sales activities will be mostly phased
out in the second half of 2022. Given this phased exit of the
hospital care and related industrial sales products, reported
revenue in 2022 is expected to be approximately $10 million to $20
million lower as a result of the exit, with the adjusted operating
profit impact of the exit being a decrease of $3 million to $5
million in 2022. At 30 June 2022, $38.4 million of closure costs
had been recognised, primarily related to asset impairments and
restructuring provisions.
Dividends
We are maintaining our interim 2022 dividend at 1.717 cents per
share, in line with the interim dividend for 2021. The decision to
maintain the dividend reflects the underlying financial strength
and cash generation of the Group, as well as the progress on
pivoting to sustainable and profitable growth and confidence in the
future prospects of the Group.
Free cash flow
Adjusted free cash flow, post tax, is one of the four key
performance indicators we use to monitor the delivery of our
strategy.
Six months ended 30 June
--------------------------------------------
Reported Reported Adjusted(a) Adjusted(a)
2022 2021 2022 2021
$m $m $m $m
-------------------------------------------- -------- -------- ----------- -----------
EBITDA 207.9 242.4 251.7 252.9
Share based payments 8.2 7.1 - -
Working capital movement (66.0) (69.8) (92.4) (66.2)
Gain/(loss) on foreign exchange derivatives 3.4 (0.9) 3.4 (0.9)
Capital expenditure (64.1) (43.6) (64.1) (43.6)
-------------------------------------------- -------- -------- ----------- -----------
Net cash generated from operations,
net of capital expenditure 89.4 135.2 98.6 142.2
-------------------------------------------- -------- -------- ----------- -----------
Cash conversion 43.0% 55.8% 39.2% 56.2%
-------------------------------------------- -------- -------- ----------- -----------
Tax paid (19.1) (29.0) (19.1) (29.0)
-------------------------------------------- -------- -------- ----------- -----------
Free cash flow, post tax 70.3 106.2 79.5 113.2
-------------------------------------------- -------- -------- ----------- -----------
(a) Adjusted EBITDA, adjusted working capital and adjusted
non-cash items are explained and reconciled to the most directly
comparable financial measure prepared in accordance with IFRS in
the cash conversion table in the Non-IFRS financial information
section.
Adjusted free cash flow, post tax, was $79.5 million (H1 2021:
$113.2million), with the decrease of $33.7 million principally
driven by the increase in investment in capital programmes, as well
as increase in working capital primarily reflecting the build of
inventory to improve resilience.
Sources and uses of cash
Sources of cash
The Group's primary source of liquidity is net cash generated
from operations.
Net cash generated from operations
Six months ended 30 June
--------------------------------------
Reported Reported Adjusted Adjusted
2022 2021 2022 2021
$m $m $m $m
----------------------------------- -------- -------- -------- --------
EBITDA(a) 207.9 242.4 251.7 252.9
Share based payments 8.2 7.1 - -
Working capital movement (66.0) (69.8) (92.4) (66.2)
Gain/(loss) on foreign exchange
derivatives 3.4 (0.9) 3.4 (0.9)
----------------------------------- -------- -------- -------- --------
Net cash generated from operations 153.5 178.8 162.7 185.8
Net interest paid (21.9) (18.8) (21.9) (18.8)
Tax paid (19.1) (29.0) (19.1) (29.0)
----------------------------------- -------- -------- -------- --------
Net cash generated from operating
activities 112.5 131.0 121.7 138.0
----------------------------------- -------- -------- -------- --------
(a) EBITDA is explained and reconciled to the most directly
comparable financial measure prepared in accordance with IFRS in
the cash conversion table in the Non-IFRS financial information
section.
Reported net cash generated from operating activities was $112.5
million (H1 2021: $131.0 million). The decrease of $18.5 million
primarily reflects a decrease in net cash generated from operations
of $25.3 million. The decrease in EBITDA of $34.5 million was
partially offset by $4.3 million of additional cash inflows from
foreign exchange derivatives in the six months to 30 June 2022 as
compared to the prior year, as well as $3.8 million of more
favourable working capital movements resulting from increases in
liabilities relating to strategic projects such as the exit from
hospital care and industrial sales activities, partially offset by
increases in inventory to improve resilience. Tax paid decreased by
$9.9 million to $19.1 million as a result of the timing of payments
on account and decrease in tax payments in the US, which is
partially offset by net interest paid which increased by $3.1
million, reflecting higher interest costs on the Group's
borrowings.
On an adjusted basis, the net cash generated from operating
activities decreased by $16.3 million to $121.7 million (H1 2021:
$138.0 million), primarily reflecting the $1.2 million decrease in
adjusted EBITDA and $26.2 million increase in working capital,
offset by $9.9 million decrease in tax paid.
Uses of cash
Cash and cash equivalents have decreased by $191.8 million to
$271.6 million at 30 June 2022 (31 December 2021: $463.4 million).
The $112.5 million of net cash generated from operations, together
with the decrease in cash and cash equivalents, was used to acquire
Triad for $123.2 million, pay the first $25.0 million milestone in
relation to Triad, invest in preference shares of BlueWind Medical
for $30.7 million, invest $64.1 million of capital expenditure in
our manufacturing lines and digital technologies, pay $10.4 million
in lease payments and $58.9 million in dividends to shareholders.
The year-on-year increase of $5.3 million in the cash dividend
payment reflects the increase in the 2021 final dividend and the
level of uptake of the scrip alternative as compared to the prior
year.
Liquidity and net debt
As at 30 June 2022, the Group's cash and cash equivalents were
$271.6 million (31 December 2021: $463.4 million) and the debt
outstanding on our borrowings was $1,348.8 million (31 December
2021: $1,344.6 million). Borrowings reflect a $500 million
unsecured senior note maturing in October 2029 and two five-year
multi-currency committed loan facilities which expire in October
2024. The Group has a $200 million revolving credit facility which
remained undrawn as at 30 June 2022 and also expires in October
2024. This, combined with cash of $271.6 million, provided the
Group with total liquidity of $471.6 million at that date. Of this,
$29.3 million is held in territories where there are restrictions
related to repatriation (31 December 2021: $37.5 million). From
time to time we review our balance sheet structure including debt
maturity profile, cost of capital and liquidity needs, and to the
extent we deem appropriate may consider various financing
alternatives, including opportunistically accessing the loan and
debt capital markets.
At 30 June 2022, the Group was in compliance with all financial
and non-financial covenants associated with the Group's outstanding
debt.
The Group ended the period with total interest-bearing
liabilities, including IFRS 16 lease liabilities, of $1,437.8
million (31 December 2021: $1,435.1 million). Offsetting cash of
$271.6 million (31 December 2021: $463.4 million) and excluding
lease liabilities, net debt was $1,077.2 million (31 December 2021:
$881.2 million), equivalent to 2.3x adjusted EBITDA (31 December
2021: 1.9x adjusted EBITDA), with the increase being driven by
strategic investments such as the acquisition of Triad, purchase of
preference shares in BlueWind Medical and increased investment in
capital expenditure.
2022
----------------------------------------
Cash and
Borrowings cash equivalents Net debt
$m $m $m
-------------------------------------- ---------- ----------------- ---------
At 1 January (1,344.6) 463.4 (881.2)
Net cash outflow (15.5) (184.3) (199.8)
Foreign exchange 13.3 (7.5) 5.8
Non-cash movement (2.0) - (2.0)
-------------------------------------- ---------- ----------------- ---------
At 30 June (1,348.8) 271.6 (1,077.2)
-------------------------------------- ---------- ----------------- ---------
Lease liabilities (89.0)
-------------------------------------- ---------- ----------------- ---------
Total interest-bearing liabilities at
30 June (1,437.8)
-------------------------------------- ---------- ----------------- ---------
Net debt/adjusted EBITDA(a) 2.3x
-------------------------------------- ---------- ----------------- ---------
(a) Based on net debt, excluding lease liabilities, and the last 12 months adjusted EBITDA.
2022 Condensed Consolidated Interim Financial Statements
Condensed Consolidated Income Statement
Six months ended
30 June
------------------------
2022 2021
Notes $m $m
------------------------------------------- ----- ----------- -----------
(unaudited) (unaudited)
Revenue 2 1,044.5 1,008.0
Cost of sales (489.6) (452.7)
------------------------------------------- ----- ----------- -----------
Gross profit 554.9 555.3
------------------------------------------- ----- ----------- -----------
Selling and distribution expenses (287.3) (252.9)
General and administrative expenses (119.1) (126.0)
Research and development expenses (47.2) (40.9)
Other operating expenses 3 (14.2) -
------------------------------------------- ----- ----------- -----------
Operating profit 87.1 135.5
------------------------------------------- ----- ----------- -----------
Finance income 0.7 0.5
Finance expense (28.9) (20.3)
Non-operating expense, net 4 (12.8) (3.6)
------------------------------------------- ----- ----------- -----------
Profit before income taxes 46.1 112.1
Income tax benefit/(expense) 5 2.2 (26.3)
------------------------------------------- ----- ----------- -----------
Profit for the period 48.3 85.8
------------------------------------------- ----- ----------- -----------
Earnings per share
Basic earnings per share (cents per share) 2.4c 4.3c
Diluted earnings per share (cents per
share) 2.4c 4.2c
------------------------------------------- ----- ----------- -----------
All amounts are attributable to shareholders of the Group and
wholly derived from continuing operations.
Condensed Consolidated Statement of Comprehensive Income
Six months ended
30 June
------------------------
2022 2021
Notes $m $m
------------------------------------------------- ------ ----------- -----------
(unaudited) (unaudited)
Profit for the period 48.3 85.8
Other comprehensive (loss)/income
Items that will not be reclassified subsequently
to the Consolidated Income Statement:
Remeasurement of defined benefit pension
plans - (0.1)
Change in pension asset restriction - 0.1
Items that may be reclassified subsequently
to the Consolidated Income Statement:
Exchange differences on translation of
foreign operations (110.8) 3.4
Effective portion of changes in fair value
of cash flow hedges (7.7) (2.0)
Costs of hedging 0.2 (0.2)
Changes in fair value of cash flow hedges
reclassified to the Consolidated Income
Statement 10.2 0.7
Income tax relating to items that may
be reclassified (0.9) (0.5)
--------------------------------------------------------- ----------- -----------
Other comprehensive (loss)/income (109.0) 1.4
--------------------------------------------------------- ----------- -----------
Total comprehensive (loss)/income (60.7) 87.2
--------------------------------------------------------- ----------- -----------
All amounts are attributable to shareholders of the Group and
wholly derived from continuing operations.
Condensed Consolidated Statement of Financial Position
30 June 31 December
2022 2021
Notes $m $m
--------------------------------- ----- ----------- -----------
(unaudited) (audited)
Assets
Non-current assets
Property, plant and equipment 360.1 366.7
Right-of-use assets 81.0 83.6
Intangible assets and goodwill 2,195.5 2,058.5
Investment in financial assets 9 30.7 -
Deferred tax assets 26.5 28.9
Restricted cash 20.2 13.6
Other non-current receivables 8.3 11.9
--------------------------------- ----- ----------- -----------
2,722.3 2,563.2
--------------------------------- ----- ----------- -----------
Current assets
Inventories 319.7 308.8
Trade and other receivables 348.3 323.5
Derivative financial assets 11 23.7 15.1
Cash and cash equivalents 271.6 463.4
--------------------------------- ----- ----------- -----------
963.3 1,110.8
--------------------------------- ----- ----------- -----------
Total assets 3,685.6 3,674.0
--------------------------------- ----- ----------- -----------
Equity and liabilities
Current liabilities
Trade and other payables 301.7 342.5
Borrowings 10 142.5 144.8
Lease liabilities 19.5 19.7
Current tax payable 42.8 45.5
Derivative financial liabilities 11 21.9 11.7
Provisions 12 119.3 5.0
--------------------------------- ----- ----------- -----------
647.7 569.2
--------------------------------- ----- ----------- -----------
Non-current liabilities
Borrowings 10 1,206.3 1,199.8
Lease liabilities 69.5 70.8
Deferred tax liabilities 97.2 87.2
Provisions 12 31.7 1.7
Derivative financial liabilities 11 - 2.9
Other non-current payables 49.8 47.6
--------------------------------- ----- ----------- -----------
1,454.5 1,410.0
--------------------------------- ----- ----------- -----------
Total liabilities 2,102.2 1,979.2
--------------------------------- ----- ----------- -----------
Net assets 1,583.4 1,694.8
--------------------------------- ----- ----------- -----------
Equity
Share capital 250.5 247.0
Share premium 160.3 142.3
Own shares (2.2) (2.2)
Retained deficit (871.5) (842.0)
Merger reserve 2,098.9 2,098.9
Cumulative translation reserve (186.5) (75.7)
Other reserves 133.9 126.5
--------------------------------- ----- ----------- -----------
Total equity 1,583.4 1,694.8
--------------------------------- ----- ----------- -----------
Total equity and liabilities 3,685.6 3,674.0
--------------------------------- ----- ----------- -----------
Condensed Consolidated Statement of Changes in Equity
Cumulative
Share Share Own Retained Merger translation Other
capital premium shares deficit reserve reserve reserves Total
Notes $m $m $m $m $m $m $m $m
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
At 1 January 2022
(audited) 247.0 142.3 (2.2) (842.0) 2,098.9 (75.7) 126.5 1,694.8
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Profit for the period - - - 48.3 - - - 48.3
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Other comprehensive
loss:
Foreign currency
translation adjustment,
net of tax - - - - - (110.8) - (110.8)
Effective portion
of changes in fair
value of cash flow
hedges, net of tax - - - - - - 1.8 1.8
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Other comprehensive
loss - - - - - (110.8) 1.8 (109.0)
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Total comprehensive
loss - - - 48.3 - (110.8) 1.8 (60.7)
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Dividends paid 6 - - - (58.9) - - - (58.9)
Scrip dividend 6 0.9 18.0 - (18.9) - - - -
Issue of shares to
employee benefit
trust 2.6 - (2.6) - - - - -
Share-based payments - - - - - - 8.1 8.1
Share awards vested - - 2.6 - - - (2.5) 0.1
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
At 30 June 2022
(unaudited) 250.5 160.3 (2.2) (871.5) 2,098.9 (186.5) 133.9 1,583.4
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Cumulative
Share Share Own Retained Merger translation Other
capital premium shares deficit reserve reserve reserves Total
Notes $m $m $m $m $m $m $m $m
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
At 1 January 2021
(audited) 245.5 115.3 (6.7) (845.3) 2,098.9 (46.1) 109.1 1,670.7
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Profit for the period - - - 85.8 - - - 85.8
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Other comprehensive
income:
Foreign currency
translation adjustment,
net of tax - - - - - 3.4 - 3.4
Remeasurement of
defined benefit pension
plans, net of tax - - - - - - (0.1) (0.1)
Change in pension
asset restriction - - - - - - 0.1 0.1
Effective portion
of changes in fair
value of cash flow
hedges, net of tax - - - - - - (2.0) (2.0)
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Other comprehensive
income - - - - - 3.4 (2.0) 1.4
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Total comprehensive
income - - - 85.8 - 3.4 (2.0) 87.2
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Dividends paid 6 - - - (53.6) - - - (53.6)
Scrip dividend 6 1.3 24.8 - (26.1) - - - -
Share-based payments - - - - - - 7.0 7.0
Share awards vested - - 1.7 - - - (1.7) -
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
At 30 June 2021 (unaudited) 246.8 140.1 (5.0) (839.2) 2,098.9 (42.7) 112.4 1,711.3
---------------------------- ----- -------- -------- ------- -------- -------- ------------ --------- -------
Condensed Consolidated Statement of Cash Flows
Six months ended
30 June
------------------------
2022 2021
Notes $m $m
------------------------------------------------------------------- ----- ----------- -----------
Cash flows from operating activities (unaudited) (unaudited)
Profit for the period 48.3 85.8
Adjustments for
Depreciation of property, plant and equipment 20.0 19.8
Depreciation of right-of-use assets 11.0 11.7
Amortisation of intangible assets 75.6 73.7
Income tax (benefit)/expense 5 (2.2) 26.3
Non-operating expense, net 16.2 2.7
Finance costs, net 28.2 19.8
Share-based payments 8.2 7.1
Impairment/write-off of intangible assets 3 5.6 -
Impairment/write-off of property, plant and equipment 3 8.6 1.7
Change in assets and liabilities:
Inventories (21.6) 6.9
Trade and other receivables (39.1) (21.8)
Other non-current receivables 3.3 (1.7)
Restricted cash (13.5) (2.3)
Trade and other payables (0.2) (51.4)
Other non-current payables 5.1 0.5
------------------------------------------------------------------- ----- ----------- -----------
Net cash generated from operations 153.5 178.8
Interest received 0.7 0.5
Interest paid (22.6) (19.3)
Income taxes paid (19.1) (29.0)
------------------------------------------------------------------- ----- ----------- -----------
Net cash generated from operating activities 112.5 131.0
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (64.1) (43.6)
Acquisitions, net of cash acquired 7 (123.2) (85.1)
Payment of contingent consideration from acquisitions 7 (25.0) -
Investment in financial assets 9 (30.7) -
------------------------------------------------------------------- ----- ----------- -----------
Net cash used in investing activities (243.0) (128.7)
Cash flows from financing activities
Proceeds from borrowings 10 15.5 -
Payment of lease liabilities (10.4) (10.9)
Dividends paid 6 (58.9) (53.6)
------------------------------------------------------------------- ----- ----------- -----------
Net cash used in financing activities (53.8) (64.5)
------------------------------------------------------------------- ----- ----------- -----------
Net change in cash and cash equivalents (184.3) (62.2)
Cash and cash equivalents at beginning of the period 463.4 565.4
Effect of exchange rate changes on cash and cash equivalents (7.5) (2.1)
------------------------------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at end of the period 271.6 501.1
------------------------------------------------------------------- ----- ----------- -----------
1. Basis of preparation and accounting standards
Convatec Group Plc (the "Company") is a company incorporated in
the United Kingdom. The accompanying unaudited Condensed
Consolidated Interim Financial Statements of the Company and its
subsidiaries (the "Group") for the six months ended 30 June 2022
have been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and with IAS
34, Interim Financial Reporting as adopted by the United
Kingdom.
The Condensed Consolidated Interim Financial Statements should
be read in conjunction with the 2021 Convatec Group Plc Annual
Report and Accounts, which were prepared in accordance with the
United Kingdom adopted international accounting standards. The
accounting policies adopted by the Group in preparation of these
Condensed Consolidated Interim Financial Statements are consistent
with those set out in the 2021 Annual Report and Accounts, except
for those described below as new standards and interpretations
applied for the first time, as well as the new Group policy on
equity investments (Note 9 - Investment in financial assets).
These Condensed Consolidated Interim Financial Statements and
the comparatives are unaudited, except where otherwise indicated,
and do not constitute statutory financial statements. The statutory
financial statements for the Group in respect of the year ended 31
December 2021 have been reported on by the Group's auditor and
delivered to the Registrar of Companies. The audit report on those
accounts was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
The auditors have carried out a review of the financial
information in accordance with the guidance contained in ISRE (UK
and Ireland) 2410 'Review of Interim Financial Information
Performance by the Independent Auditor of the Entity' issued by the
Financial Reporting Council for use in the United Kingdom.
The Condensed Consolidated Interim Financial Statements are
presented in US dollars ("USD"), reflecting the profile of the
Group's revenue and operating profit, which are primarily generated
in US dollars and US dollar-linked currencies. All values are
rounded to the nearest $0.1 million except where otherwise
indicated.
The Condensed Consolidated Interim Financial Statements for the
six months ended 30 June 2022 were approved by the Board on 3
August 2022.
New standards and interpretations applied for the first time
On 1 January 2022, the Group adopted the three mandatory
pronouncements, Reference to the Conceptual Framework - Amendments
to IFRS 3, Property, Plant and Equipment: Proceeds before Intended
Use - Amendments to IAS 16, and Onerous Contracts - Costs of
Fulfilling a Contract - Amendments to IAS 37, and the annual
improvements to the IFRS standards 2018-2020. The adoptions have
not had a material impact on the Condensed Consolidated Interim
Financial Statements. Apart from these changes, the accounting
policies set out in the 2021 Annual Report and Accounts have been
applied consistently to both periods presented in these Condensed
Consolidated Interim Financial Statements.
New standards and interpretations not yet applied
There were no new or revised IFRSs, amendments or
interpretations in issue but not yet effective that are potentially
material for the Group and which have not yet been applied.
Going concern
The overall financial performance of the business remains robust
with a strong liquidity position maintained throughout the
period.
As at 30 June 2022, the Group held cash and cash equivalents of
$271.6 million (31 December 2021: $463.4 million), unsecured senior
notes of $500.0 million repayable in 2029, and two multicurrency
term loans totalling $860.1 million, of which $397.8 million is due
to be repaid in October 2024 and the remainder is amortising and
requires a capital repayment of $149.2 million within the next 12
months. The Group also has access to a $200.0 million multicurrency
revolving credit facility, which remains undrawn and is available
until October 2024.
In preparing their assessment of going concern, the Directors
have considered available cash resources, financial performance and
forecast performance, including continued implementation of the
FISBE strategy, together with the Group's financial covenant
compliance requirements and principal risks and uncertainties. The
Directors have used cash flow forecasts derived from actual
performance year to date, the Board approved 2022 budget and
longer-term strategic plan as foundations, which reflected the
funding requirements in relation to the remaining contingent
consideration for the Triad Life Sciences Inc ("Triad")
acquisition, which is dependent on short-term milestones and
performance over two years post completion. The cash flow forecasts
also include the impact of the exit from the low margin hospital
care and industrial sales portfolio.
In accordance with FRC guidance, management applied severe but
plausible downside scenarios linked to the Group's principal and
emerging risks, including supply chain disruption, cyber security
disruption, delivery of transformation initiatives, regulatory
breaches and geopolitical events leading to reduced revenues and
increased costs from inflationary pressures. Further details of the
specific scenarios are provided on pages 74 to 76 of the 2021
Annual Report and Accounts. The Board has reviewed these scenarios
in the preparation of the interim results and as part of the going
concern review and has concluded that these scenarios remain in
line with the Group's principal emerging risks and continue to
reflect the financial risk of downside events and circumstances
during the going concern period. Under each scenario the Group
retains significant liquidity and covenant headroom throughout the
going concern period. A reverse stress test, before mitigation, was
also considered which demonstrated that a reduction of >$182.0
million in EBITDA would be required in the next 12 months to create
conditions which may lead to a potential covenant breach. This is
considered to be implausible given the Group's strong market
position and diversified portfolio of products. There are no key
sources of estimation uncertainty in arriving at the going concern
conclusion and no
significant judgements have been required.
Accordingly, at the time of approving these Condensed
Consolidated Interim Financial Statements, the Directors have a
reasonable expectation that the Group will have adequate liquid
resources to meet their respective liabilities as they become due
and will be able to sustain its business model, strategy and
operations and remain solvent for a period of at least 12 months
from 3 August 2022.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the Condensed Consolidated Interim Financial
Statements, in conformity with adopted IFRS, requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported value of assets
and liabilities, income and expense. Actual results may differ from
these estimates or judgements of likely outcome. Management
regularly reviews, and revises as necessary, the accounting
judgements that significantly impact the amounts recognised in the
Condensed Consolidated Interim Financial Statements and the sources
of estimation uncertainty that are considered to be "key estimates"
due to their potential to give rise to material adjustments in the
Group's Consolidated Financial Statements within the next financial
year.
In preparing the Condensed Consolidated Interim Financial
Statements, no critical accounting judgements have been identified,
which is consistent with the Consolidated Financial Statements for
the year ended 31 December 2021. A key estimate has been identified
in relation to the valuation of the contingent consideration in
relation to the acquisition of Triad.
Valuation of the contingent consideration in relation to the
acquisition of Triad
The contingent consideration is based on both specified
post-acquisition financial and non-financial performance targets as
defined by the Merger Agreement. The contingent consideration is
fair valued at the date of acquisition with key inputs including a
weighted probability of different scenarios and revenue projections
based on internal forecasts, discounted using appropriate discount
rates.
Actual revenue results may differ from estimates, leading to a
change in the fair value of the contingent consideration.
Management have identified that reasonably possible changes in
certain key assumptions and forecasts may cause the calculated fair
value of the contingent consideration to vary materially within the
next financial year. Management have determined that the potential
range of discounted outcomes within the next financial year is
between $66.7 million and $213.1million, from a maximum
undiscounted contingent consideration of $325.0 million. Management
recorded $141.8 million as the discounted fair value consideration,
of which $25.0 million has been paid during the year.
The timing and amount of future contingent elements of
consideration is therefore considered a key source of estimation
uncertainty. Refer to Note 7 - Acquisitions for more
information.
2. Segment information
The Board considers the Group's business to be a single segment entity
engaged in the development, manufacture and sale of medical products
and technologies. R&D, manufacturing and central support functions
are managed globally for the Group. Revenues are managed both on
a category and geographic basis. This note presents the performance
and activities of the Group as a single segment.
The Group's CEO, who is the Group's Chief Operating Decision
Maker, evaluates the Group's global product portfolios on a revenue
basis and evaluates profitability and associated investment on an
enterprise-wide basis due to shared infrastructures and support
functions between the categories. Financial information in respect
of revenues provided to the CEO for decision-making purposes is
made on both a category and geographic basis. Resources are
allocated on a Group-wide basis, with a focus on both category and
the key markets but primarily based on the merits of individual
proposals.
Revenue by category
The following table sets out the Group's revenue by
category:
Six months ended
30 June
------------------
2022 2021
$m $m
----------------------------- -------- --------
Advanced Wound Care 306.7 293.8
Ostomy Care 264.9 273.4
Continence and Critical Care 276.8 266.0
Infusion Care 196.1 174.8
----------------------------- -------- --------
Total 1,044.5 1,008.0
----------------------------- -------- --------
Revenue by geography (a)
The following table sets out the Group's revenue by regional
geographic market in which third-party customers are located:
Six months ended
30 June
------------------
2022 2021
$m $m
---------------------- -------- --------
North America 527.0 495.3
Europe 363.7 374.8
Rest of World ("RoW") 153.8 137.9
---------------------- -------- --------
Total 1,044.5 1,008.0
---------------------- -------- --------
(a) During the year ended 31 December 2021, the geographical
revenue information provided to the Group's CEO was changed to
better reflect the way in which the Group managed its operations.
The change was driven by the ongoing transformation initiatives and
aligns with the current management and reporting structure. The six
months to 30 June 2021 comparative revenue information has been
re-presented to reflect this change. Europe includes Russia, North
America comprises United States and Canada, and Rest of World
("RoW") comprises all countries in Asia Pacific, Latin America
(including Mexico and the Caribbean), South America, the Middle
East (including Turkey) and Africa.
Details on revenue performance are discussed in the Financial
Review.
3. Other operating expenses
Other operating expenses were as follows:
Six months ended
30 June
------------------
2022 2021
$m $m
-------------------------------------- -------- --------
Divestiture related activities 12.8 -
Impairment of other intangible assets 1.4 -
-------------------------------------- -------- --------
Other operating expenses 14.2 -
-------------------------------------- -------- --------
As a result of the exit from hospital care and industrial sales
related activities, impairments of $8.6 million to property, plant
and equipment and $4.2 million to intangible assets have been
recognised during the period. See Note 8 - Divestiture for further
details.
4. Non-operating expense, net
Non-operating expense, net was as follows:
Six months ended
30 June
------------------
2022 2021
$m $m
----------------------------------------------------- --------- -------
Net foreign exchange losses(a) (8.6) (2.0)
Gain/(loss) on foreign exchange forward contracts(a) 11.7 (0.9)
Loss on foreign exchange cash flow hedges (10.1) (0.7)
Change in contingent consideration(b) (5.8) -
----------------------------------------------------- --------- -------
Non-operating expense, net (12.8) (3.6)
----------------------------------------------------- --------- -------
(a) Net foreign exchange losses primarily relate to the foreign
exchange impact on intercompany transactions, including loans
transacted in non-functional currencies. The Group uses foreign
exchange forward contracts to manage these exposures in accordance
with the Group's foreign exchange risk management policy.
(b) The $5.8 million expense relates to the change in fair value
of the contingent consideration for the Cure Medical acquisition,
as described in Note 7 - Acquisitions.
5. Income taxes
The Group's income tax expense is accrued using the tax rate that
would be applicable to expected annual total earnings (i.e. the estimated
average annual effective income tax rate applied to the profit before
tax).
The tax charge for the six months ended 30 June 2022 has been
calculated by applying the effective rate of tax which is expected
to apply to the Group for the year ended 31 December 2022 using
rates substantively enacted as at 30 June 2022.
For the six months ended 30 June 2022, the Group recorded an
income tax benefit of $2.2 million (2021: $26.3 million expense).
The Group's reported effective tax rate for the period ended 30
June 2022 was a benefit of 4.8% as compared with an expense of
23.5% for the period ended 30 June 2021, as the current period's
tax benefit includes recognition of $19.7 million of deferred tax
in respect of previously unrecognised tax losses in the US, which
is offset by the tax expense on the current period's utilisation of
US Federal tax losses that are fully recognised as deferred tax
asset following the acquisition of Triad. The prior year expense
included a net tax benefit for a deferred tax asset recognition in
the US upon the acquisition of Cure Medical, which was offset by
the tax expense on the revaluation of net deferred tax liability
for the increase in UK corporation tax rate from 19% to 25%
(effective 1 April 2023).
The Group continues to believe it has made adequate provision
for uncertain tax positions on open issues in accordance with IFRIC
23 Uncertainty over Income Tax Treatments. The ultimate liability
for such matters may vary from the amounts provided and is
dependent upon the outcome of discussions with relevant tax
authorities or, where applicable, appeal proceedings.
The Group continues to monitor tax reforms driven by the OECD's
BEPS Pillar 1 and 2 project to reform international taxation rules.
The Group has performed an initial analysis of the potential tax
impact of the proposed tax rules to the Group but is awaiting
expected new legislation in the jurisdictions in which the Group
operates to finalise the analysis. This has no impact on the
Group's result for the six months ended 30 June 2022.
6. Dividends
The Group ensures that adequate realised distributable reserves are
available in the Company in order to meet proposed shareholder dividends,
and the purchase of shares for employee share scheme incentives.
The Company principally derives distributable reserves from dividends
received from subsidiary companies.
In determining the level of dividend in the year, the Board considers
the following factors and risks that may influence the proposed dividend:
- Availability of realised distributable reserves;
- Available cash resources and commitments;
- Strategic opportunities and investments, in line with the Group's
strategic plan; and
- Principal risks of the Group.
The Board paid the 2021 final dividend in May 2022 and declared an
interim dividend to be paid in October 2022. The Board has taken
into consideration balancing the return to shareholders, the potential
impact on other stakeholders and the additional investment in transformation
in the period. The Board reviewed the financial strength the Group,
the Group's dividend policy together with s172 considerations and
has reviewed the realised distributable reserves position of the
Company and the forecast cash generation of the Group for the next
two years from the date of the dividend payment.
Dividends paid and proposed were as follows :
Settled
in Settled
Total cash via scrip
---------- ---------- --------------
pence cents No of scrip
per share per share $m $m $m shares issued
---------------------- ---------- ---------- ----- ------- ---------- --------------
Final dividend 2020 2.845 3.983 79.7 53.6 26.1 9,475,532
Interim dividend 2021 1.229 1.717 34.6 32.2 2.4 750,265
---------------------- ---------- ---------- ----- ------- ---------- --------------
Paid in 2021 4.074 5.700 114.3 85.8 28.5 10,225,797
---------------------- ---------- ---------- ----- ------- ---------- --------------
Final dividend 2021 3.161 4.154 77.8 58.9 18.9 7,192,010
---------------------- ---------- ---------- ----- ------- ---------- --------------
Paid in 2022 to date 3.161 4.154 77.8 58.9 18.9 7,192,010
---------------------- ---------- ---------- ----- ------- ---------- --------------
Interim dividend 2022 1.410 1.717 35.1
---------------------- ---------- ---------- ----- ------- ---------- --------------
The Company operates a scrip dividend scheme allowing
shareholders to elect to receive their dividend in the form of new
fully paid ordinary shares. For any particular dividend, the
Directors may decide whether or not to make the scrip offer
available.
The proposed interim dividend for 2022, to be distributed on 6
October 2022 to shareholders registered at the close of business on
26 August 2022, is based upon the issued and fully paid share
capital as at 30 June 2022. The dividend will be declared in US
dollars and will be paid in Sterling at the chosen exchange rate of
$1.218/GBP1.00 determined on 3 August 2022. A scrip dividend
alternative will be offered allowing shareholders to elect by 13
September 2022 to receive their dividend in the form of new
ordinary shares.
Distributable reserves
Realised distributable reserves equate to the retained surplus
of the Company, Convatec Group Plc. The capacity of the Company to
make dividend payments is primarily determined by the availability
of these distributable reserves (which are fully realised) and cash
resources. The Company principally derives distributable reserves
from dividends paid by subsidiary companies, with the dividends
being paid out of the realised distributable reserves of the
subsidiary companies.
At 30 June 2022, the retained surplus of Convatec Group Plc (the
Company) was $1,494.8 million (31 December 2021: $1,590.3 million).
The movements in distributable reserves were as follows:
$m
---------------------------------------- -------
At 1 January 2022 1,590.3
Total comprehensive loss for the period (17.7)
Dividends paid (58.9)
Scrip dividend (18.9)
---------------------------------------- -------
Retained surplus at 30 June 2022 1,494.8
---------------------------------------- -------
7. Acquisitions
Triad Life Sciences Inc ("Triad")
Description of the transaction
On 14 March 2022, the Group completed its acquisition of 100% of
the share capital of Triad Life Sciences Inc ("Triad"). The
acquisition of Triad strengthens the Group's Advanced Wound Care
position in the US, securing access to a complementary and
innovative technology platform that enhances advanced wound
management and patient outcomes.
In addition to the initial consideration of $125.3 million, the
sellers may earn contingent consideration up to a maximum of $325.0
million, in the form of (i) two additional payments of $25.0
million each relating to short-term milestones; and (ii) two
earnout payments conditional on performance during year 1 and year
2 post completion, with the maximum earnout of $275.0 million based
on stretching financial performance over the period.
The discounted fair value of the contingent consideration at the
date of acquisition was $141.8 million, of which $25.0 million was
paid in April 2022 following attainment of the first short-term
milestone. Any additional contingent consideration is due to be
paid within three years of the acquisition date, subject to
achieving the specified targets.
Following completion of acquisition accounting, any changes in
the fair value of the contingent consideration will be recorded in
the Consolidated Income Statement in accordance with the Group's
accounting policies.
Assets acquired and liabilities assumed
The transaction meets the definition of a business combination
and has been accounted for under the acquisition method of
accounting. The following table summarises the provisional fair
values of the assets acquired and liabilities assumed as of the
acquisition date:
$m
Provisional
--------------------------------------------------------- -----------
Non-current assets
Property, plant and equipment 0.5
Right-of-use assets 2.2
Intangible assets - product related 154.8
Current assets
Trade and other receivables 4.1
Inventories 10.8
Cash and cash equivalents 15.9
--------------------------------------------------------- -----------
Total assets acquired 188.3
Current liabilities
Trade and other payables (2.9)
Lease liabilities (0.2)
Non-current liabilities
Lease liabilities (2.7)
Deferred tax liabilities (34.8)
--------------------------------------------------------- -----------
Total liabilities assumed (40.6)
--------------------------------------------------------- -----------
Net assets acquired 147.7
--------------------------------------------------------- -----------
Goodwill 132.3
--------------------------------------------------------- -----------
Total 280.0
--------------------------------------------------------- -----------
Initial cash consideration 125.3
Deferred purchase consideration paid into escrow(a) 13.8
Working capital adjustment(b) (0.9)
Contingent consideration 141.8
--------------------------------------------------------- -----------
Total consideration 280.0
--------------------------------------------------------- -----------
Analysis of cash outflow in the Condensed Consolidated $m
Statement of Cash Flows
--------------------------------------------------------- -----------
Initial cash consideration 125.3
Deferred purchase consideration paid into escrow(a) 13.8
Cash and cash equivalents acquired (15.9)
--------------------------------------------------------- -----------
Net cash outflow from acquisitions, net of cash acquired 123.2
--------------------------------------------------------- -----------
(a) $13.8 million was paid on closing into escrow as security
and indemnity by the seller for its obligations under the Merger
Agreement. It is expected that $1.3 million will be released within
the next 12 months once the closing statement is agreed and the
remaining balance will be released thereafter in accordance with
the terms of the Merger Agreement.
(b) This is the Group's calculation of the working capital
adjustment and forms part of the initial consideration. The final
amount will be determined in accordance with the terms of the
Merger Agreement and this has not yet been finalised at the
reporting date.
The fair values of the assets acquired and liabilities assumed
remain provisional due to the proximity of the acquisition to the
date of approval of the Condensed Consolidated Financial
Statements. The Group will finalise these amounts as it obtains the
information necessary to complete the measurement process. Any
changes resulting from facts and circumstances that existed as of
the acquisition date may result in retrospective adjustments to the
provisional amounts recognised at the acquisition date. The Group
will finalise these amounts no later than one year from the
acquisition date.
The goodwill recorded, which is not deductible for tax purposes,
represents the cost savings, operating synergies and future growth
opportunities expected to result from combining the operations of
Triad with those of the Group.
The carrying value of the Group's goodwill increased to $1,226.7
million at 30 June 2022 (31 December 2021: $1,156.3 million) as a
result of the acquisition of Triad ($132.3 million), offset by
foreign exchange movements ($61.9 million).
Acquisition-related costs
The Group incurred $2.8 million of acquisition-related costs
directly related to the Triad acquisition in the period to 30 June
2022, primarily related to advisors' fees. These
acquisition-related costs have been recognised in general and
administrative expenses in the Condensed Consolidated Income
Statement.
As part of the acquisition accounting, a $10.2 million increase
to the carrying value of inventories was required to reflect the
fair value of $10.8 million at acquisition, of which $4.0 million
was expensed to cost of sales in the Condensed Consolidated Income
Statement in the period to 30 June 2022 as the inventories were
sold.
Revenue and profit
The revenue of Triad for the period from the acquisition date to
30 June 2022 was $9.6 million and net profit for the period was
$1.2 million, before recognising acquisition-related intangible
asset amortisation charge of $4.0 million and the inventory fair
value uplift release of $4.0 million. If the acquisition had been
completed at 1 January 2022, reported Group revenue would have been
$4.4 million higher and the Group profit for the period would have
been $0.9 million lower for the six month period to 30 June 2022,
before recognising acquisition-related intangible asset
amortisation additional charge of $2.0 million.
Contingent consideration for Cure Medical LLC ("Cure
Medical")
On 15 March 2021, the Group acquired 100% of the share capital
of Cure Medical.
In addition to the initial consideration, the sellers may earn
contingent consideration of up to $10.0 million based upon
post-acquisition performance targets included in the Share Purchase
Agreement. The fair value of contingent consideration at the date
of acquisition and at 31 December 2021 was $3.1 million, which is
due to be paid within three years of the acquisition date.
As at 30 June 2022, management reviewed the expectation of the
contingent consideration based on the most recent Board approved
strategic plan and forecast information. The Cure Medical business
has outperformed its performance targets to date and the forecast
financials are expected to exceed the original expectations. The
discounted fair value of the contingent consideration has been
revised to $8.9 million and the remeasurement charge of $5.8
million has been recognised in non-operating expenses in the
Condensed Consolidated Income Statement.
8. Divestiture
Exit from hospital care and industrial sales activities
On 12 May 2022, following a strategic review, it was announced
that the Group would be withdrawing from its hospital care
activities and related industrial sales during the remainder of
2022. These low margin activities generated $101.4 million of
revenue in the year ended 31 December 2021 and do not represent a
separate major line of business or component of the Group.
As a result of the exit from the hospital care and industrial
sales activities, the Group recognised impairment losses in the
period ended 30 June 2022 in relation to the following:
- $8.6 million was recognised, within other operating expenses,
as an impairment to property, plant and equipment, primarily in
relation to manufacturing equipment in Belarus and Slovakia.
- $4.2 million was recognised, within other operating expenses,
as an impairment to product-related intangible assets.
- $7.5 million was recognised, within cost of sales, in relation
to the write-off of inventories which are not expected to be
sold.
In addition, the Group recognised $17.0 million of provisions in
relation to severance and contract exit costs in the period ended
30 June 2022. In the period to 30 June 2022, the Group has incurred
$1.1 million of divestiture-related costs in relation to legal fees
and administrative closing down costs.
Upon completion of the exit from all hospital care and related
industrial sales activities, the cumulative amount of exchange
differences recognised in other comprehensive income relating to
those operations will be recognised in the consolidated income
statement as a non-operating expense. The balance as at 30 June
2022 would have been a $15.8 million expense to the income
statement. The actual balance transferred will be calculated on
completion of the exit and will be classified as an adjusted item
in accordance with our APM policy.
9. Investment in financial assets
Accounting policy
The Group has made an irrevocable election to designate its
equity investment in BlueWind Medical at fair value through
other comprehensive income (FVOCI). It has been initially recorded
at fair value plus transaction costs and will be remeasured
at subsequent reporting dates to fair value.
Unrealised gains and losses are recognised in other comprehensive
income.
On disposal of the equity investment, any gains and losses that
have been deferred in other comprehensive income are transferred
directly to retained earnings.
Dividends on equity investments are recognised in the income
statement when the Group's right to receive payment is established,
it is probable the economic benefits will flow to the entity
and the amount can be measured reliably.
On 9 May 2022, the Group invested $30.0 million in preference
shares of BlueWind Medical Limited ("BlueWind Medical"). BlueWind
Medical is developing an implantable tibial neuromodulation device,
for the treatment of urge incontinence and urinary urgency. This
represents an investment into an innovative technology in the large
and growing over-active bladder market and strengthening of the
Group's Continence and Critical Care category.
In line with IFRS 9 Financial Instruments, the investment met
the definition of an equity instrument and the Group has made an
irrevocable election on initial recognition to measure the
investment at FVOCI. The Group considers this investment to be
strategic in nature and it is not held for trading.
In line with IFRS 13 Fair value measurement, this investment has
been classified as Level 3. As at the date of the transaction, the
equity investment was recorded at its cost of investment which
approximates to fair value plus transaction costs of $0.7 million.
Due to the proximity of the date of transaction to 30 June 2022,
the Group has considered applicable criteria for impairment
triggers for the investment and concluded that the fair value of
the investment approximates the cost of the investment.
10. Borrowings
The Group's sources of borrowing for funding and liquidity purposes
derive from senior notes and drawn credit facilities including an
undrawn committed revolving credit facility.
The Group's consolidated borrowings were as follows:
Year of 31 December
maturity 30 June 2022 2021
----------
Currency $m $m
------------------------------ -------------- ---------- ------------ -----------
Revolving Credit Facility Multicurrency 2024 - -
------------------------------ -------------- ---------- ------------ -----------
Senior Notes USD 2029 500.0 500.0
Term Loan Facility A(a) USD/Euro 2024 462.4 461.2
Term Loan Facility B(b) USD/Euro 2024 397.7 396.7
------------------------------ -------------- ---------- ------------ -----------
Interest-bearing borrowings 1,360.1 1,357.9
Financing fees (11.3) (13.3)
---------------------------------------------------------- ------------ -----------
Carrying value of borrowings 1,348.8 1,344.6
---------------------------------------------------------- ------------ -----------
Current portion of borrowings 142.5 144.8
Non-current borrowings 1,206.3 1,199.8
---------------------------------------------------------- ------------ -----------
(a) Included within Term Loan Facility A is EUR86.2 million
($90.4 million) and EUR78.4 million ($89.2 million) at 30 June 2022
and 31 December 2021 respectively, denominated in Euros. This
represents 20% (2021: 19%) denominated in Euros and 80% (2021: 81%)
denominated in US dollars.
(b) Included within Term Loan Facility B is EUR74.2 million
($77.8 million) and EUR67.5 million ($76.7 million) at 30 June 2022
and 31 December 2021 respectively, denominated in Euros. This
represents 20% (2021: 19%) denominated in Euros and 80% (2021: 81%)
denominated in US dollars.
Senior notes
Unsecured senior notes of $500.0 million are subject to an
interest cover financial covenant as defined in the indentures
which is a minimum of 2.0 times, with testing required annually at
31 December on the last 12 calendar months' financial
performances.
Credit facilities
The two term loan credit facilities are subject to financial
covenants based on a permitted net debt to adjusted EBITDA ratio
and interest cover test as defined in the credit facilities
agreement. Testing is required on a semi-annual basis, at June and
December, based on the last 12 months' financial performance. At 30
June 2022, the permitted net debt to adjusted EBITDA ratio was a
maximum of 3.5 times and the interest cover a minimum of 3.5 times,
terms as defined by the credit facilities agreement.
The Group was in compliance with all financial and non-financial
covenants at 30 June 2022 and 31 December 2021, with significant
available headroom on the financial covenants ($470.0 million debt
headroom on the net debt to adjusted EBITDA ratio (30%) as at 30
June 2022).
In the six months period to 30 June 2022, $15.5 million of
proceeds from borrowings was received in respect of the
Euro-denominated facilities relating to foreign exchange
restatement triggered by the movement on the USD to EUR exchange
rate.
Borrowings measured at fair value
The senior notes are listed and their fair value of $434.0
million at 30 June 2022 (31 December 2021: $507.7 million) has been
obtained from quoted market data and therefore categorised as a
Level 1 measurement in the fair value hierarchy under IFRS 13 Fair
Value Measurements.
For the Group's other borrowings, the estimated fair value at 30
June 2022 is $840.8 million (31 December 2021: $847.3 million). The
fair value of the Group's other borrowings is based on discounted
cash flows using a current borrowing rate and are categorised as a
Level 2 measurement in the fair value hierarchy under IFRS 13 Fair
Value Measurements.
11. Financial instruments
A derivative financial instrument is a contract that derives its
value from the performance of an underlying variable, such as foreign
exchange rates or interest rates. The Group uses derivative financial
instruments to manage foreign exchange and interest rate risk arising
from its operations and financing. Derivative financial instruments
used by the Group are foreign exchange forwards and swaps and interest
rate swaps.
The Group utilises interest rate swap agreements, designated as cash
flow hedges, to manage its exposure to variability in expected future
cash outflows attributable to the changes in interest rates on the
Group's borrowing facilities.
Financial instruments are classified as Level 1, Level 2, or
Level 3 in the fair value hierarchy in accordance with IFRS 13 Fair
Value Measurements, based upon the degree to which the fair value
movements are observable. Level 1 fair value measures are defined
as those with quoted (unadjusted) market prices in active markets
for identical assets or liabilities. Level 2 fair value
measurements are defined as those derived from inputs other than
quoted prices that are observable for the asset or liability,
either directly (prices from third parties) or indirectly (derived
from third-party prices). Level 3 fair value measurements are
defined as those derived from significant unobservable inputs. The
only instrument classified as Level 1 are the senior notes, given
the availability of quoted market price (Note 10 - Borrowings). The
Group's derivative financial instruments, discussed below, are
classified as Level 2, and the Group's equity investment in
preference shares is classified as Level 3 (Note 9 - Investment in
financial assets).
The Group holds interest rate swap agreements to fix a
proportion of variable interest on US dollar denominated debt, in
accordance with the Group's risk management policy. The interest
rate swaps are designated as hedging instruments in a cash flow
hedging relationship.
In accordance with Group policy, the Group uses forward foreign
exchange contracts, designated as cash flow hedges, to hedge
certain forecast third-party foreign currency transactions for up
to one year. When a commitment is entered into, a layered approach
is taken when hedging the currency exposure, ensuring that no more
than 100% of the transaction exposure is covered. The currencies
hedged by forward foreign exchange contracts are US dollars, Swiss
Francs and Japanese Yen.
The Group further utilises foreign exchange contracts and swaps
classified as fair value through profit or loss ("FVTPL") to manage
short-term foreign exchange exposure.
The fair values are based on market values of equivalent
instruments. The following table presents the Group's outstanding
interest rate swaps, which are designated as cash flow hedges, at
30 June 2022 and 31 December 2021 respectively:
30 June 2022 31 December 2021
-------------------------- --------------------------
Fair value(a) Fair value(a)
Notional assets Notional assets
amount / (liabilities) amount / (liabilities)
---------- ---------
Effective Maturity
date date $m $m $m $m
-------------------------- ---------- --------- -------- ---------------- -------- ----------------
3 Month LIBOR Float to 24 Jan 24 Jan
Fixed Interest Rate Swap 2020 2023 275.0 1.8 275.0 (2.9)
-------------------------- ---------- --------- -------- ---------------- -------- ----------------
(a) The fair values of the interest rate swaps are shown in
current derivative financial liabilities in the Condensed
Consolidated Statement of Financial Position. There is no
ineffectiveness recognised in the Condensed Consolidated Income
Statement.
The following table presents the Group's outstanding foreign
exchange forward contracts valued at FVTPL and foreign currency
forward contracts designated as cash flow hedges, which form part
of current derivative financial assets and current derivative
financial liabilities:
30 June 2022 31 December 2021
-------------------------- --------------------------
Fair
value Fair value
Notional assets Notional assets
amount / (liabilities) amount / (liabilities)
------------
Term $m $m $m $m
-------------------------------------- ------------ -------- ---------------- -------- ----------------
Foreign exchange contracts designated
as FVTPL <= 3 months 706.0 20.8 864.6 14.5
Foreign currency forward exchange
contracts designated as cash flow <= 12
hedges months 18.5 1.1 40.8 0.6
-------------------------------------- ------------ -------- ---------------- -------- ----------------
Derivative financial assets 724.5 21.9 905.4 15.1
---------------------------------------------------- -------- ---------------- -------- ----------------
Foreign exchange contracts designated
as FVTPL <= 3 months 539.7 (12.3) 695.9 (6.5)
Foreign currency forward exchange
contracts designated as cash flow <= 12
hedges months 168.8 (9.6) 130.2 (5.2)
-------------------------------------- ------------ -------- ---------------- -------- ----------------
Derivative financial liabilities 708.5 (21.9) 826.1 (11.7)
---------------------------------------------------- -------- ---------------- -------- ----------------
12. Provisions
A provision is an obligation recognised when there is uncertainty
over the timing or amount that will be paid. Provisions held by
the Group are primarily in respect of restructuring, onerous contracts,
decommissioning, dilapidations, legal liabilities and contingent
consideration relating to acquisitions.
The movements in provisions are as follows:
Decommissioning Contingent
and dilapidations Restructuring Legal consideration Total
$m $m $m $m $m
----------------------------- ------------------ ------------- ----- -------------- ------
31 December 2021 1.2 5.0 0.5 - 6.7
Contingent consideration
from acquisitions - - - 141.8 141.8
Charged to the income
statement 0.5 19.7 - 5.8 26.0
Utilised - (6.6) - (25.0) (31.6)
Discount unwind - - - 5.2 5.2
Reclassification from
trade and other payables(a) - - - 3.1 3.1
Foreign exchange (0.1) (0.1) - - (0.2)
----------------------------- ------------------ ------------- ----- -------------- ------
30 June 2022 1.6 18.0 0.5 130.9 151.0
----------------------------- ------------------ ------------- ----- -------------- ------
Current provision - 18.0 - 101.3 119.3
Non-current provision 1.6 - 0.5 29.6 31.7
----------------------------- ------------------ ------------- ----- -------------- ------
(a) During the period ended 30 June 2022, $3.1 million has been
reclassified from trade and other payables in relation to the Cure
Medical acquisition to better reflect the estimation uncertainty of
the contingent consideration.
Decommissioning and dilapidation provisions
Decommissioning provisions are recognised when an item is
purchased to represent the estimated costs of dismantling and
removing PP&E and restoring the site on which it was located.
Dilapidation provisions are in respect of legal obligations, on the
expiry of a lease, to return leased properties in the condition
which is specified in the individual leases.
Restructuring provisions
Restructuring provisions are in respect of two restructuring
programmes in place during the period: the Group's Transformation
Initiative which is a global multi-year transformation programme
that commenced in 2019, and the exit from the low margin hospital
care and industrial sales portfolio. Further details in Note 8 -
Divestiture. All restructuring provisions are supported by detailed
plans and a valid expectation has been raised in those affected as
required by the Group's accounting policy.
Legal provision
Legal provision of $0.5 million is in respect of an ongoing
case. Legal issues are often subject to uncertainties over the
timing and the final amounts of any settlement.
Contingent consideration
Contingent consideration arising from business combinations are
fair valued on acquisition and at each reporting period. As a
result of the acquisition of Triad on 14 March 2022, the sellers
may earn contingent consideration as described in Note 7 -
Acquisitions.
During the period ended 30 June 2022, the contingent
consideration for the Cure Medical acquisition has been fair valued
to $8.9 million (discounted), resulting in an increase of $5.8
million to the previously recognised amount of $3.1 million. This
has been charged to the Condensed Consolidated Income Statement.
Refer to Note 7 - Acquisitions for further details.
13. Foreign exchange
The following table summarises the exchange rates used for the
translation of currencies into US dollars that have the most
significant impact on the Group results:
Six months ended Year ended
30 June 31 December
--------------- ------------------ ------------
Average
rate/ Closing
Currency rate 2022 2021 2021
--------- --------------- -------- -------- ------------
USD/EUR Average 1.09 1.21 1.18
Closing 1.05 1.19 1.14
------------------------- -------- -------- ------------
USD/GBP Average 1.30 1.39 1.38
Closing 1.22 1.38 1.35
------------------------- -------- -------- ------------
USD/DKK Average 0.15 0.16 0.16
Closing 0.14 0.16 0.15
------------------------- -------- -------- ------------
14. Commitments and contingencies
Capital commitments
At 30 June 2022, the Group had non-cancellable commitments for
the purchase of property, plant and equipment, capitalised software
and development of $19.5 million (31 December 2021: $32.1
million).
Contingent liabilities
There are no contingent liabilities recognised as at 30 June
2022.
15. Subsequent events
The Group has evaluated subsequent events through to 3 August
2022, the date the Condensed Consolidated Interim Financial
Statements were approved by the Board of Directors.
On 3 August 2022, the Board declared the interim dividend to be
distributed on 6 October 2022. Refer to Note 6 - Dividends for
further details.
Non-IFRS financial information
Non-IFRS financial information or alternative performance
measures ("APMs") are those measures used by management on a
day-to-day basis in their assessment of profit and performance and
comparison between periods. The adjustments applied to IFRS
measures reflect the effect of certain cash and non-cash items that
the Board believes distort the understanding of the quality of
earnings and cashflows as, by their size or nature, they are not
considered part of the core operations of the business. Adjusted
measures also form the basis for performance measures for
remuneration, e.g. adjusted operating profit. Reconciliations for
these adjusted measures determined under IFRS are shown on pages 40
to 42. The definitions of adjusted measures are as calculated
within the reconciliation tables.
It should be noted that the Group's APMs may not be comparable
to other similarly titled measures used by other companies and
should not be considered in isolation or as a substitute for the
equivalent measures calculated and presented in accordance with
IFRS.
In determining whether an item should be presented as an
allowable adjustment to IFRS measures, the Group considers items
which are significant either because of their size or their nature
and arise from events that are not considered part of the core
operations of the business. These tend to be one-off events but may
still cross more than one accounting period. Recurring items may be
considered in respect of the amortisation of acquisition related
intangibles assets in order to provide comparability between peer
groups where such assets may have been internally generated and
therefore, are not reflected on that company's balance sheet with a
resulting amortisation charge. If an item meets at least one of
these criteria, the Board, through the Audit and Risk Committee,
then exercises judgement as to whether the item should be
classified as an allowable adjustment to IFRS performance
measures.
The APMs are consistent with those disclosed in the 2021 Annual
Report and Accounts.
Adjustments to derive adjusted operating profit for the six
months ended 30 June 2022 and 2021 comprise the following credits
or costs:
- Amortisation of intangible assets in respect of material
acquisitions ($67.4 million and $65.5 million respectively).
- Costs incurred in respect of acquisition activities ($21.2
million and $1.7 million respectively).
- Costs incurred in respect of divestiture activities in respect
of the exit from hospital care business and related industrial
sales activities ($31.5 million and nil respectively).
- Termination benefits in respect of the Group's transformation
programme and exit from hospital care and related industrial sales
activities ($6.7 million and $1.7 million respectively).
- Impairment of assets ($1.4 million and nil respectively).
The tax effect of the adjustments is reflected in the adjusted
tax expense to remove the tax impact from adjusted net profit and
adjusted earnings per share.
Adjusted EBITDA, which is used to calculate the metric of
adjusted cash conversion and adjusted working capital, is
calculated by adding back share-based payments to adjusted
operating profit, together with the annual depreciation and
amortisation charge.
Amortisation of acquisition-related intangible assets
The Group's strategy is to grow both organically and through
acquisition, with larger acquisitions being targeted to strengthen
our position in key geographies and/or business categories or which
provide access to new technology. The nature of the businesses
acquired includes the acquisition of significant intangible assets,
which are required to be amortised. The Board and management regard
the amortisation as a distortion to the quality of earnings and it
has no cash implications in the year. The amortisation also
distorts comparability with peer groups where such assets may have
been internally generated and, therefore, not reflected on their
balance sheet. Amortisation of acquisition-related intangible
assets is, by its nature, a recurring adjustment.
Acquisitions related activities
Costs directly related to potential and actual strategic
transactions which have been executed, aborted or are in-flight and
which would improve the strategic positioning of the Group are
deemed adjusting items.
Acquisition-related costs relate to deal costs, integration
costs and earn-out adjustments which are incurred directly as a
result of the Group undertaking or pursuing an acquisition. Deal
costs are wholly attributable to the deal, including legal fees,
due diligence fees, bankers' fees/commissions and other direct
costs incurred as a result of the actual or potential transaction.
Integration costs are wholly attributable to the integration of the
target and based on integration plans presented at the point of
acquisition, including the cost of retention of key people where
this is in excess of normal compensation, redundancy of target
staff and early lease termination payments.
Divestiture related activities
Divesture related activities comprise of any gains or losses
made on disposal, impairment of directly related assets, contract
exit costs/penalties and any directly attributable transaction
costs resulting from the in-flight, aborted or completion of
disposal or exit of a business or market during the year. Directly
attributable transactions costs incurred as a result of
divestitures include legal and professional fees which are directly
related to the divestiture.
Impairment of assets
Impairments, write-offs and gains and losses from defined
programmes and where the Group considers the circumstances of such
event are not reflective of normal business trading performance or
when transactions relate to acquisition-related intangible assets
where the amortisation is already excluded from the calculation of
adjusted measures.
Termination benefits and related costs
Termination benefits and other related costs arise from
Group-wide initiatives to reduce the ongoing cost base and improve
efficiency in the business, including divestitures from
non-strategic activities. The Board considers each project
individually to determine whether its size and nature warrants
separate disclosure. Qualifying items are limited to termination
benefits (including retention) without condition of continuing
employment in respect of major Group-wide change programmes. Where
discrete qualifying items are identified these costs are
highlighted and excluded from the calculation of adjusted measures.
Due to their nature, these adjusted costs may span more than one
year. Restructuring costs not related to termination benefits are
reported in the normal course of business and are not adjusted.
Reconciliation of reported earnings to adjusted earnings for the
six months ended 30 June 2022 and 2021
Profit
Finance Non-operating for
Gross Operating Operating expense, expense, the
Revenue profit costs profit net net PBT Taxation period
Six months ended $m $m $m $m $m $m $m $m $m
30 June 2022
-------------------------- ------- ------- --------- --------- --------- ------------- ----- -------- -------
As reported 1,044.5 554.9 (467.8) 87.1 (28.2) (12.8) 46.1 2.2 48.3
Amortisation of acquired
intangibles - 56.9 10.5 67.4 - - 67.4 (15.0) 52.4
Acquisition related
costs - 4.0 6.2 10.2 5.2 5.8 21.2 (1.6) 19.6
Divestiture related
costs - 7.6 23.9 31.5 - - 31.5 (7.5) 24.0
Impairment of assets - - 1.4 1.4 - - 1.4 - 1.4
Termination benefits
and related costs - 4.7 2.0 6.7 - - 6.7 (1.6) 5.1
-------------------------- ------- ------- --------- --------- --------- ------------- ----- -------- -------
Total adjustments
including tax effect - 73.2 44.0 117.2 5.2 5.8 128.2 (25.7) 102.5
Other discrete tax
items - - - - - - - (19.7) (19.7)
-------------------------- ------- ------- --------- --------- --------- ------------- ----- -------- -------
Adjusted 1,044.5 628.1 (423.8) 204.3 (23.0) (7.0) 174.3 (43.2) 131.1
-------------------------- ------- ------- --------- --------- --------- ------------- ----- -------- -------
Software and R&D
amortisation 8.2
Depreciation 31.0
Share-based payments 8.2
-------------------------- ------- ------- --------- ---------
Adjusted EBITDA 251.7
-------------------------- ------- ------- --------- ---------
Profit
Finance Non-operating for
Gross Operating Operating expense, expense, the
Revenue profit costs profit net net PBT Taxation period
Six months ended $m $m $m $m $m $m $m $m $m
30 June 2021
-------------------------- ------- ------- --------- --------- --------- ------------- ----- -------- -------
As reported 1,008.0 555.3 (419.8) 135.5 (19.8) (3.6) 112.1 (26.3) 85.8
Amortisation of acquired
intangibles - 55.0 10.5 65.5 - - 65.5 (7.1) 58.4
Acquisition related
costs - - 1.7 1.7 - - 1.7 - 1.7
Termination benefits
and other related
costs - 0.2 1.5 1.7 - - 1.7 (0.4) 1.3
-------------------------- ------- ------- --------- --------- --------- ------------- ----- -------- -------
Total adjustments
and their tax effect - 55.2 13.7 68.9 - - 68.9 (7.5) 61.4
Other discrete tax
items - - - - - - - (2.0) (2.0)
-------------------------- ------- ------- --------- --------- --------- ------------- ----- -------- -------
Adjusted 1,008.0 610.5 (406.1) 204.4 (19.8) (3.6) 181.0 (35.8) 145.2
-------------------------- ------- ------- --------- --------- --------- ------------- ----- -------- -------
Software and R&D
amortisation 8.2
Depreciation 31.5
Impairment/write-off
of assets 1.7
Share-based payments 7.1
-------------------------- ------- ------- --------- ---------
Adjusted EBITDA 252.9
------------------------------------------------------- ---------
Acquisition related costs of $21.2 million (six months to 30
June 2021: $1.7 million) are directly related to actual strategic
transactions which have been executed and which seek to improve the
strategic positioning of the Group. The majority of the costs are
related to the deal and integration costs incurred on the
acquisition of Triad on 14 March 2022 and the discounting unwind of
the related contingent consideration. The impact on gross profit of
$4.0 million relates to the release of the acquisition fair value
uplift on inventories in relation to those which have been sold in
the period to 30 June 2022. Additionally, the fair value of the
contingent consideration in respect of the 2021 Cure Medical
acquisition has been increased by $5.8 million and has been
recognised as a non-operating expense and excluded in calculating
adjusted profit for the period. The net cash impact in relation to
acquisition costs was $2.5 million in the period. In the six months
ended 30 June 2021, the acquisition costs are in respect of the
Cure Medical acquisition.
Divestiture related costs of $31.5 million are directly related
to the phased exit from the low margin hospital care business and
industrial sales portfolio, and includes the impairment of
property, plant and equipment and intangible assets, write-off of
inventories, and contract exit costs (refer to Note 8 -
Divestiture). The exit will be completed over the remainder of the
year. The net cash impact in relation to this was $0.6 million in
the period.
Impairment of assets of $1.4 million relates to a legacy
acquisition related customer relationship asset which was impaired
as part of rationalisation activities in the portfolio.
Termination benefits and other related costs of $6.7 million
(six months to 30 June 2021: $1.7 million) are primarily in respect
of the severance costs from the Group's withdrawal from its
hospital care and industrial sales portfolio. The net cash impact
of these costs was $6.0 million in the period.
Other discrete tax items relate to the tax benefit of $19.7
million from the recognition of deferred tax upon the acquisition
of Triad. In the six months to 30 June 2021, other discrete tax
items relate to the tax benefit of $9.3 million resulting from
recognition of deferred tax following the acquisition of Cure
Medical, partially offset by a $6.9 million tax expense relating to
revaluation of deferred tax liabilities for acquisition intangibles
in the UK following the enactment of Finance Act 2021 on 10 June
2021 and $0.4 million tax expense which arose as a result of
adjustment to the Swiss deferred tax asset following formal
agreement with the Swiss Tax Authorities in 2021.
Reconciliation of operating costs to adjusted operating costs
for the six months ended 30 June 2022 and 2021
Six months ended 30 June
----------------------------------------------------------------------------------
2022 2021
--------------------------------------------- -----------------------------------
S&D(a) G&A(b) R&D(c) Other(d) Operating S&D(a) G&A(b) R&D(c) Operating
costs costs
$m $m $m $m $m $m $m $m $m
------------------------- ------- ------- ------ -------- --------- ------- ------- ------ ---------
As reported (287.3) (119.1) (47.2) (14.2) (467.8) (252.9) (126.0) (40.9) (419.8)
Amortisation of acquired
intangibles - 10.5 - - 10.5 - 10.5 - 10.5
Acquisition related
costs - 6.2 - - 6.2 - 1.7 - 1.7
Divestiture related
costs 10.7 0.4 - 12.8 23.9
Impairment of assets - - - 1.4 1.4 - - - -
Termination benefits
and related costs 1.7 0.3 - - 2.0 - 1.5 - 1.5
------------------------- ------- ------- ------ -------- --------- ------- ------- ------ ---------
Adjusted (274.9) (101.7) (47.2) 0.0 (423.8) (252.9) (112.3) (40.9) (406.1)
------------------------- ------- ------- ------ -------- --------- ------- ------- ------ ---------
(a) "S&D" represents selling and distribution expenses.
(b) "G&A" represents general and administrative expenses.
(c) "R&D" represents research and development expenses.
(d) "Other" relates to the impairment of assets from the Group's
withdrawal from the hospital care and industrial sales
portfolio.
Reconciliation of basic and diluted earnings per share to
adjusted earnings per share for the six months ended 30 June 2022
and 2021
Six months ended 30 June
--------------------------------------------------
Adjusted Adjusted
2022 2022 2021 2021
$m $m $m $m
--------------------------------------- --------- ------------- --------- -------------
Net profit for the period attributable
to the shareholders of the
Group 48.3 131.1 85.8 145.2
--------------------------------------- --------- ------------- --------- -------------
Number Number
--------------------------------------- --------- ------------- --------- -------------
Basic weighted average ordinary
shares in issue 2,018,377,510 2,004,985,601
Diluted weighted average ordinary
shares in issue 2,031,279,646 2,024,506,676
--------------------------------------- --------- ------------- --------- -------------
cents per cents per cents per cents per
share share share share
--------------------------------------- --------- ------------- --------- -------------
Basic earnings per share 2.4 6.5 4.3 7.2
Diluted earnings per share(a) 2.4 6.5 4.2 7.2
--------------------------------------- --------- ------------- --------- -------------
(a) Excluding the deferred tax asset recognition following the
Group's acquisitions, adjusted diluted EPS decreased by 2.7% to
7.4c for the six months ended 30 June 2022 (six months ended 30
June 2021: 7.6c).
Cash conversion for the six months ended 30 June 2022 and 30
June 2021
Six months ended 30
June
---------------------
2022 2021
$m $m
---------------------------------------------------------- ---------- ---------
Operating profit 87.1 135.5
Depreciation of property, plant and equipment 20.0 19.8
Depreciation of right-of-use assets 11.0 11.7
Amortisation of intangible assets 75.6 73.7
Impairment/write-off of property, plant and equipment
and intangible assets 14.2 1.7
---------------------------------------------------------- ---------- ---------
EBITDA 207.9 242.4
Non-cash items
Share-based payments 8.2 7.1
Working capital movement (66.0) (69.8)
Gain/(loss) on foreign exchange derivatives 3.4 (0.9)
---------------------------------------------------------- ---------- ---------
Net cash generated from operations 153.5 178.8
Acquisitions of property, plant and equipment and
intangibles assets (64.1) (43.6)
---------------------------------------------------------- ---------- ---------
Net cash for cash conversion 89.4 135.2
Income taxes paid (19.1) (29.0)
---------------------------------------------------------- ---------- ---------
Free cash flow 70.3 106.2
---------------------------------------------------------- ---------- ---------
Reconciliation of Adjusted net cash and Adjusted free cash flow (to
calculate Adjusted cash conversion)
Six months ended 30
June
---------------------
2022 2021
$m $m
---------------------------------------------------------- ---------- ---------
Net cash for cash conversion 89.4 135.2
Acquisition and divestitures adjustments 2.6 1.3
Termination benefits and related costs adjustments 6.6 5.7
---------------------------------------------------------- ---------- ---------
Adjusted net cash for cash conversion 98.6 142.2
Income taxes paid (19.1) (29.0)
---------------------------------------------------------- ---------- ---------
Adjusted free cash flow, post tax 79.5 113.2
---------------------------------------------------------- ---------- ---------
EBITDA 207.9 242.4
Adjusted EBITDA 251.7 252.9
---------------------------------------------------------- ---------- ---------
Cash conversion 43.0% 55.8%
Adjusted cash conversion 39.2% 56.2%
---------------------------------------------------------- ---------- ---------
Reconciliation of Adjusted working capital
Six months ended
30 June
------------------
2022 2021
$m $m
-------------------------------------------------------- -------- --------
Working capital movement(a) (66.0) (69.8)
(Increase)/decrease in termination benefits(b) (0.7) 4.0
Increase in respect of acquisitions and divestitures(b) (25.7) (0.4)
-------------------------------------------------------- -------- --------
Adjusted working capital movement (92.4) (66.2)
-------------------------------------------------------- -------- --------
(a) Working capital movement is the change in assets and
liabilities total within the Condensed Consolidated Statement of
Cash Flows on page 20.
(b) These are the cash flow impacts to the adjusted items shown
in the reconciliation of earnings to adjusted earnings tables on
page 38.
Net debt
Net debt is calculated as the carrying value of current and
non-current borrowings, net of cash and cash equivalents and
excluding lease liabilities.
30 June 31 December
2022 2021
$m $m
--------------------------------------- ------- -----------
Borrowings 1,348.8 1,344.6
Lease liabilities 89.0 90.5
--------------------------------------- ------- -----------
Total carrying value of borrowings 1,437.8 1,435.1
Cash and cash equivalents (271.6) (463.4)
--------------------------------------- ------- -----------
Net debt (including lease liabilities) 1,166.2 971.7
--------------------------------------- ------- -----------
Net debt 1,077.2 881.2
--------------------------------------- ------- -----------
Net debt/adjusted EBITDA(a) 2.3 1.9
--------------------------------------- ------- -----------
(a) Net debt excludes lease liabilities, and adjusted EBITDA for
the 12 months to 30 June 2022 has been used in this
calculation.
Directors' Responsibilities Statement
The Directors confirm that to the best of their knowledge:
-- The Condensed Consolidated Financial Statements have been
prepared in accordance with IAS 34 as adopted by the United
Kingdom; and
-- The interim management report includes a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the Condensed
Consolidated Financial Statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The composition of the Board of Directors of Convatec Group plc
has changed since reported in the 2021 Annual Report and Accounts.
A list of current Directors is maintained on our corporate website
( www.convatecgroup.com ).
By order of the Board:
Karim Bitar Chief Executive Officer 3 August 2022
Jonny Mason Chief Financial Officer 3 August 2022
INDEPENT REVIEW REPORT TO CONVATEC GROUP PLC
We have been engaged by the Group to review the condensed
consolidated set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 which
comprises the Condensed Consolidated Income Statement, the
Condensed Consolidated Statement of Comprehensive Income, the
Condensed Consolidated Statement of Financial Position, the
Condensed Consolidated Statement of Changes in Equity, the
Condensed Consolidated Statement of Cash Flows and related Notes 1
to 15.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the
Group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the Group a conclusion on the
condensed set of financial statement in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
3 August 2022
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