REG - ConvaTec Group PLC - ConvaTec full year 2016 results <Origin Href="QuoteRef">CTEC.L</Origin> - Part 2
02/03/2017 07:06
- Part 2: For the preceding part double click ID:nRSB2939Ya
subsequently to Statement of Profit and Loss
Foreign operations - foreign currency translation differences, net of a tax benefit of $31.6 and a tax expense of $19.7 in 31 December 2016 and 2015, respectively. (16.7 ) (84.1 )
Other comprehensive loss for the year, net of taxation (23.4 ) (84.9 )
Total comprehensive loss (226.2 ) (178.3 )
All amounts are attributable to equity holders of the Group and wholly derived from continuing operations.
Unaudited Group Consolidated Statement of Financial Position as at 31 December 31, 2016
2016 2015
Notes $M $M
Assets
Non-current assets
Property, plant and equipment 264.8 251.5
Intangible assets 1,521.4 1,729.1
Goodwill 875.4 838.1
Deferred tax assets 22.0 5.3
Restricted cash 2.5 5.7
Other assets 11.4 23.3
2,697.5 2,853.0
Current assets
Inventories 247.5 228.9
Trade and other receivables 233.7 232.1
Prepaid expenses and other current assets 19.9 23.2
Cash and cash equivalents 264.1 273.0
Assets held for sale 5.6 -
770.8 757.2
Total Assets 3,468.3 3,610.2
Equity and Liabilities
Current liabilities
Trade and other payables 111.6 114.5
Long-term borrowings 4 38.5 21.5
Accrued expenses and other current liabilities 81.3 98.1
Accrued compensation 57.0 43.6
Provisions 9.4 3.6
Deferred revenue 2.2 4.3
300.0 285.6
Non-current liabilities
Long-term borrowings 4 1,737.1 3,477.0
Deferred tax liabilities 192.2 186.9
Provisions 1.1 1.1
Other liabilities 37.3 59.6
1,967.7 3,724.6
Total Liabilities 2,267.7 4,010.2
Equity
Share capital 238.8 154.4
Share premium 1,674.1 -
Retained deficit (2,658.2 ) (2,448.7 )
Merger reserve 2,098.9 2,098.9
Cumulative translation reserve (210.4 ) (200.4 )
Other reserves 57.4 (4.2 )
Total Equity 1,200.6 (400.0 )
Total Equity and Liabilities 3,468.3 3,610.2
Unaudited Consolidated Statement of Changes in Equity for the year to 31 December 2016
Share capital Share premium Retained deficit Merger Cumulative translation reserve Other reserves Total
Reserve
$M $M $M $M $M $M $M
At 1 January 2015 154.4 - (2,351.7 ) 2,098.9 (119.9 ) (3.4 ) (221.7 )
Net loss - - (93.4 ) - - - (93.4 )
Other comprehensive (loss)/income:
Foreign currency translation adjustment, net of tax - - (3.6 ) - (80.5 ) - (84.1 )
Remeasurement of defined benefit obligation, net of tax - - - - - (0.8 ) (0.8 )
Total other comprehensive (loss)/income - - (3.6 ) - (80.5 ) (0.8 ) (84.9 )
Total comprehensive (loss)/income - - (97.0 ) - (80.5 ) (0.8 ) (178.3 )
At 31 December 2015 154.4 - (2,448.7 ) 2,098.9 (200.4 ) (4.2 ) (400.0 )
Net loss - - (202.8 ) - - - (202.8 )
Other comprehensive (loss)/income:
Foreign currency translation adjustment, net of tax - - (6.7 ) - (10.0 ) - (16.7 )
Remeasurement of defined benefit obligation, net of tax - - - - - (0.4 ) (0.4 )
Recognition of pension assets restriction - - - - - (6.3 ) (6.3 )
Total other comprehensive (loss)/income - - (6.7 ) - (10.0 ) (6.7 ) (23.4 )
Total comprehensive (loss)/income - - (209.5 ) - (10.0 ) (6.7 ) (226.2 )
Issuance of shares under share-based compensation plans 4.7 - - - - 67.5 72.2
Issue of share capital 79.7 1,713.7 - - - - 1,793.4
Cost of issue of share capital - (39.6 ) - - - - (39.6 )
Share-based payments - - - - - 0.8 0.8
Deferred tax on share-based payments transactions - - - - - - -
At 31 December 2016 238.8 1,674.1 (2,658.2 ) 2,098.9 (210.4 ) 57.4 1,200.6
Unaudited Group Consolidated Statement of Cash Flows for the year to 31 December 2016
2016 2015
$M $M
Cash flows from operating activities
Net loss (202.8 ) (93.4 )
Adjustments for
Depreciation 39.0 31.0
Amortisation 142.8 150.1
Income tax expense (benefit) 77.0 (16.9 )
Impairment losses 4.7 -
Other expense, net 8.4 37.1
Finance costs 271.4 303.6
Share-based compensation 53.0 12.5
Hyperinflation (6.7 ) 3.1
Write off / disposal of assets 6.7 2.0
Changes in assets and liabilities:
Inventories (27.3 ) (3.3 )
Trade and other receivables (8.9 ) (11.7 )
Other current assets 0.3 5.4
Deferred revenue (2.1 ) (10.9 )
Accounts payable and accrued expenses 25.6 (9.3 )
Other liabilities 3.4 0.9
Other - 0.2
Cash generated from operations 384.5 400.4
Interest paid (270.6 ) (257.9 )
Income taxes paid (39.0 ) (42.2 )
Net cash generated from operating activities 74.9 100.3
Cash flows from investing activities
Acquisition of property, plant and equipment and capitalised software (66.5 ) (36.7 )
Proceeds from sale of property, plant and equipment and other assets 0.7 -
Change in restricted cash 3.5 (0.8 )
Capitalised development expenditure (1.4 ) (0.9 )
Other - 1.5
Net cash used in investing activities (63.7 ) (36.9 )
Cash flows from financing activities
Proceeds from issue of share capital, net 1,764.3 -
Proceeds from long-term borrowings, net of discount 1,792.6 1,649.9
Repayment of borrowings (3,531.6 ) (1,630.9 )
Payment of finance lease liabilities (0.4 ) -
Payments of deferred financing fees (20.4 ) (27.3 )
Net cash generated from (used in) financing activities 4.5 (8.3 )
Net change in cash and cash equivalents 15.7 55.1
Cash and cash equivalents at beginning of the year 273.0 237.5
Effect of exchange rate changes on cash and cash equivalents (24.6 ) (19.6 )
Cash and cash equivalents at end of the year 264.1 273.0
Supplemental cash flow information
Non-cash investing activities
Accrued capital expenditures included in accounts payable and accrued expenses 13.4 8.6
Selected Notes to the Unaudited Consolidated Financial Statements
1. Significant Accounting Policies
General information
The Company was initially incorporated as ConvaTec Group Limited on 6 September 2016, with its registered office situated
in the United Kingdom, and was registered as a public company and changed its name to ConvaTec Group plc on 10 October
2016.
The financial information contained in this document does not constitute statutory accounts as defined in sections 434 and
435 of the Companies Act 2006 or contain sufficient information to comply with the disclosure requirements of International
Financial Reporting Standards (IFRS).
On 31 October 2016, the Group completed the initial public offering ("IPO") of its ordinary shares, was admitted to the
premium listing segment of the Official List of the Financial Conduct Authority and is trading on the main market of the
London Stock Exchange. Prior to listing, the Company became the holding company of the Group through the acquisition of the
full share capital of Cidron Healthcare Limited ("Cidron") and its subsidiaries (the "Existing Group"). Shares in Cidron,
an entity formerly owned by Nordic Capital and Avista Capital Partners, the former equity sponsors and principal
shareholders, were exchanged for 1,261,343,801 shares in the Company. These shares were issued and credited as fully paid
of 10 pence each giving rise to the share capital of $154.4 million.
Both the Company and the Existing Group were under common control before and after the reorganisation. As a common control
transaction, this does not meet the definition of a business combination under IFRS 3 Business Combinations and as such,
falls outside the scope of that standard. As a consequence, following guidance from IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors, the introduction of the company has been prepared under merger accounting principles. This
policy, which does not conflict with IFRS, reflects the economic substance of the transaction. Under these principles, no
acquirer is required to be identified and all entities are included at their pre-combination carrying amounts. This
accounting treatment leads to differences on consolidation between share capital in issue ($154.4 million) and the book
value of the underlying net assets acquired, this difference is included within equity as a merger reserve. Under these
principals, the Group has presented its annual financial statements of the Group as though the current Group structure had
always been in place. Accordingly, the results of the combined entities for both the current and prior period are presented
as if the Group had been in existence throughout the periods presented, rather than from the restructuring date.
Immediately prior to listing, management shares held in the subsidiaries of the Group were converted to shares in the
Company. Furthermore, the modification of the MEP (defined below) management incentive plan resulted in the issuance of
further shares. The effects of these two events was to bring the total shares in the Company immediately prior to listing
to 1,300,000,000 from 1,261,343,801.
The Group's published consolidated historical financial statements for the year ended 31 December 2015 were included in the
prospectus issued on 26th October 2016 supporting the Group's initial listing on the London Stock Exchange ("the
prospectus"). The auditor's report on the 2015 financial statements included in the prospectus, which were prepared in
accordance with IFRS as adopted by the European Union (EU), was unqualified and did not draw attention to any matters by
way of emphasis without qualifying their report. The financial statements for the year ended 31 December 2016 are the first
financial statements prepared for the purposes of UK company law and in accordance with IFRS. The unaudited financial
information for the year ended 31 December 2016 has been extracted from the Group's financial statements. The audit of the
financial statements for the year ended 31 December 2016 is not yet complete. These financial statements will be finalized
on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered
to the Registrar of companies in due course.
Basis of preparation and accounting policies
The results are based on the Company's financial statements for the year ended 31 December 2016 which are prepared in
accordance with IFRS as adopted for use by the EU and as issued by the International Accounting Standards Board (IASB). The
annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU and therefore comply
with Article 4 of the EU International Accounting Standards (IAS) Regulations. The preliminary announcement has been
prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published
consolidated historical financial statements included its prospectus issued on 26th October 2016 supporting the Group's
initial listing on the London Stock Exchange ("the prospectus"). With the exception of the new standards adopted in the
year, as discussed below, there have been no significant changes in accounting policies from those set out in the
prospectus.
The consolidated financial information has been prepared on a historical cost basis, except for derivatives where fair
value has been applied. Historical cost is generally based on the fair value of the consideration given in exchange for
goods and services. The annual financial statements are presented in US dollars ("USD"), being the functional currency of
the primary economic environment in which the Group operates. All values are rounded to the nearest $0.1 million except
where otherwise indicated.
New accounting standards applied for the first time
In the current year the Group has applied a number of amendments to IFRSs issued by the IASB. Their adoption has not had a
material impact on the disclosures or on the amounts reported in the annual financial statements. The following amendments
were applied:
• Amendments to IAS 1, Presentation of Financial Statements: Disclosure Initiative.
• Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of Depreciation and Amortisation.
• Annual Improvements 2012-2014 Cycle, specifically amendments to (i) IFRS 5, Non-current Assets Held for Sale and
Discontinued Operations, (ii) IFRS 7, Financial Instruments: Disclosures, and (iii) IAS 19, Employee Benefits.
New accounting standards not yet applied
At the date of authorisation of the annual financial statements, the following new and revised IFRSs that are potentially
relevant to the Group, and which have not been applied in the annual financial statements, were in issue but not yet
effective (and in some cases had not yet been adopted by the EU):
• IFRS 2, Share-based Payment - effective for accounting periods beginning on or after 1 January 2018.
• IFRS 16, Leases - effective for accounting periods beginning on or after 1 January 2019.
• IAS 7, Statement of Cash Flows - effective for accounting periods beginning on or after 1 January 2017.
• IAS 12, Income Taxes - effective for accounting periods beginning on or after 1 January 2017.
• IFRS 9, Financial Instruments: Classification and measurement - effective for accounting periods beginning on or
after 1 January 2018.
• IFRS 15, Revenue from Contracts with Customers - effective for accounting periods beginning on or after 1 January
2018.
The directors anticipate that the adoption of these standards in the future periods will have no material impact on the
financial statements of the Group except for IFRS 16, Leases, which will bring a significant portion of the Group's
operating leases on the statement of financial position.
The Group is currently evaluating the impact on its financial statements related to the following standards (i) IFRS 9,
Financial Instruments, which will introduce a number of changes in the presentation of financial instruments and (ii) IFRS
15, Revenue from Contracts with Customers, which may change the timing of revenue recognition to some companies within the
Group.
Basis of Consolidation
The annual financial statements include the results of the Company and all its subsidiary undertakings. Subsidiaries are
entities controlled by the group. Control exists when the Group: (i) has power over the investee, (ii) is exposed, or has
rights, to variable returns from its involvement in the investee and (iii) has the ability to use its power to affect its
returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above. All intercompany transactions and balances have been
eliminated. The consolidated financial information of the Company's subsidiaries is included within the annual financial
statements from the date that control commences until the date that control ceases, and are prepared for the same year end
date using consistent accounting policies.
Business Combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method of accounting. Consideration
transferred in respect of the acquisition is measured at the fair value of the assets acquired, equity instruments issued
and liabilities incurred or assumed on the date of the acquisition. Identified assets acquired and liabilities assumed are
measured at their respective acquisition-date fair values. The excess of the fair value of the consideration given over the
fair value of the identifiable net assets acquired is recorded as goodwill. Acquisition-related cost is expensed as
incurred. The operating results of the acquired business are reflected in the annual financial statements after the date of
acquisition.
Going Concern
The directors have, at the time of approving the annual financial statements, a reasonable expectation and a high level of
confidence that the Group and the Company has the adequate liquid resources to meet its liabilities as they become due and
will be able to sustain its business model, strategy and operations and remain solvent for the foreseeable future. Thus the
directors continue to adopt the going concern basis in preparing the annual financial statements.
Revenue Recognition
Revenue for goods sold is recognised to the extent that it is probable that economic benefits will flow to the Group upon
transfer to the customer of the significant risks and rewards of ownership and revenue can be reliably measured. Generally,
products are insured through delivery and revenue is recognised upon the date of receipt by the customer.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for
goods sold in the normal course of business to external customers, net of sales discounts and volume rebates. Due to the
short term nature of the receivables from sale of goods, the Group measures them at the original invoice amounts without
discounting.
Revenues are recorded based on the price specified in the sales contracts, net of value-added tax, and sales rebates and
returns estimated at the time of sale. Revenues are reduced at the time of recognition to reflect expected product returns
and chargebacks, discounts, rebates and estimated sales allowances based on historical experience and updated for changes
in facts and circumstances, as appropriate.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following
temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In
addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based
on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent
that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets
are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax
benefit will be realised.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the
asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other
comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different
tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realised simultaneously.
Current tax and deferred tax for the year
Current and deferred tax are recognised in the unaudited Consolidated Statement of Profit or Loss, except when they relate
to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred
tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax
arises from the initial accounting for a business combination, the tax effect is included in the accounting for the
business combination.
Cash and Cash Equivalents
Cash represents cash on hand and cash held at banks. All liquid investments with original maturities of three months or
less are considered cash equivalents.
Restricted Cash
In certain instances, there are requirements to set aside cash for guarantees on the payment of value-added taxes, custom
duties on imports, tender programs, and vehicle/office leases by financial institutions on the Group's behalf. Total
restricted cash balances were $5.1 million and $8.6 million, at 31 December 2016 and 2015, respectively, of which $2.6
million and $2.9 million were current assets included in Prepaid expenses and other current assets within the unaudited
Consolidated Statement of Financial Position.
Dividends
Dividends payable to the Company's shareholders are recognised as a liability in the period in which the distribution is
approved by the Company's shareholders.
Trade and Other Receivables
Credit is extended to customers based on the evaluation of the customer's financial condition. Creditworthiness of
customers is evaluated on a regular basis. Trade and other receivables consist of amounts billed and currently due from
customers. An allowance for doubtful accounts is maintained for estimated losses that result from the failure or inability
of customers to make required payments. In determining the allowance, consideration includes the probability of
recoverability based on past experience and general economic factors. Certain trade and other receivables may be fully
reserved when specific collection issues are known to exist, such as pending bankruptcy. The Group charges off
uncollectible receivables at the time it is determined the receivable is no longer collectable. The Group does not charge
interest on past due amounts. The analysis of receivable recoverability is monitored and the bad debt allowances are
adjusted accordingly.
Trade and other receivables are not collateralised or factored. The Group sells its products primarily through an internal
sales force and sales are made through various distributors around the world. Credit risk with respect to accounts
receivable is generally diversified due to the large dispersion of customers across many different industries and
geographies. Exposure to credit risk is managed through credit approvals, credit limits and monitoring procedures.
Inventories
Inventories are stated at the lower of cost or net realisable value with the cost determined using an average cost method.
The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and indirect
production overhead. Production overhead comprise indirect material and labor costs, maintenance and depreciation of the
machinery and production buildings used in the manufacturing process as well as costs of production administration and
management.
Net realisable value is defined as anticipated selling price or anticipated revenue less cost to completion. Estimates of
net realisable value are based on the average selling prices at the end of the reporting period, net of applicable direct
selling expenses. Subsequent events related to the fluctuation of prices and costs are also considered, if relevant. If net
realisable values are below inventory costs, a provision corresponding to this difference is recognised. Provisions are
also made for obsolescence of products, materials, or supplies that (i) do not meet the Group's specifications, (ii) have
exceeded their expiration date, or (iii) are considered slow-moving inventory. The Group evaluates the carrying value of
inventories on a regular basis, taking into account such factors as historical and anticipated future sales compared with
quantities on hand, the price the Group expects to obtain for products in their respective markets compared with historical
cost and the remaining shelf life of goods on hand.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost
includes expenditures that are directly attributable to the acquisition of an asset. Expenditures for additions, renewals
and improvements are capitalised at cost. Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic benefit associated with the item will flow to
the Group and the cost can be measured reliably. Replacements of major units of property are capitalised and replaced
properties are retired. The carrying amount of a replaced asset is derecognised when replaced. Repairs and maintenance
costs are charged to the unaudited Consolidated Statement of Profit or Loss during the period in which they are incurred.
Depreciation is calculated using straight-line method over the estimated useful lives of each part of a property's, plant
and equipment item, since this most closely reflects the expected pattern of consumption of the future economic benefits
embodied in the asset. Land is not depreciated. Depreciation commences when the assets become available for productive use,
based on the following estimated useful lives:
Buildings 20 to 50 years
Building equipment and depreciable land improvements 15 to 40 years
Machinery, equipment and fixtures 3 to 20 years
Leasehold improvements and assets under finance lease arrangements are amortised over the lesser of the asset's estimated
useful life or the term of the respective lease. Maintenance costs are expensed as incurred. Construction-in-progress
reflects amounts incurred for property, plant, equipment construction or improvements that have not been placed in service.
Interest is capitalised in connection with the construction of qualifying capital assets during the period in which the
asset is being installed and prepared for its intended use. Interest capitalisation ceases when the construction of the
asset is substantially complete and the asset is available for use. Capitalised interest cost is depreciated on a
straight-line method over the estimated useful lives of the related assets.
The assets' residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at the end of
each reporting period.
On disposal of items of property and equipment, the cost and related accumulated depreciation and impairments are removed
from the unaudited Consolidated Statement of Financial Position and the net amount, less any proceeds, is taken to the
unaudited Consolidated Statement of Profit or Loss.
Intangible Assets
To meet the definition of an intangible asset, an item lacks physical substance and is: (i) identifiable, (ii)
non-monetary, and (iii) controlled by the entity and expected to provide future economic benefits to the entity. The
Group's intangible assets consist of patents/trademarks and licenses, technology, capitalised software (acquired and
internally generated), contracts and customer relationships, non-compete agreements, trade names and development costs.
Initial recognition
Intangible assets acquired separately by the Group are measured at cost on initial recognition and those acquired in
business combinations are measured at fair value at the date of acquisition. Following initial recognition of the
intangible asset, the asset is carried at cost less any subsequent accumulated amortisation and accumulated impairment
losses.
Purchased computer software and certain costs of information technology projects are capitalised as intangible assets.
Software that is integral to computer hardware is capitalised as property, plant and equipment.
The Group follows the guidance of IAS 38 Intangible Assets ("IAS 38") on internally generated development costs associated
with its system. The costs incurred in the preliminary stages of development are expensed as incurred. Once a project has
reached the application development stage, internal and external costs, if direct and incremental, are capitalised until
the software is substantially complete and ready for its intended use. Costs related to design or maintenance of
internal-use software are expensed as incurred. Upgrades and enhancements are capitalised to the extent they will result in
added functionality.
Amortisation of intangible assets is calculated using the straight-line method based on the following estimated useful
lives:
Patents, trademarks and licenses 3 to 20 years
Technology 10 to 18 years
Capitalised software (acquired and internally generated) 3 to 10 years
Contracts and customer relationships 2 to 20 years
Non-compete agreements 3 to 5 years
Trade names 10 years
Development costs 5 years
The Group has finite-lived and indefinite-lived trade names. Indefinite-lived trade names are not amortised but are tested
for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired,
either individually or at the cash generating unit ("CGU") level. The assessment of indefinite life is reviewed annually to
determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment
from indefinite to finite is made on a prospective basis.
Impairment of Non-Monetary Assets including Goodwill
The Group tests goodwill and indefinite-lived intangibles for impairment annually or more frequently, if there are any
impairment indicators. However, property, plant and equipment and finite-lived intangibles are tested for impairment only
if indicators of impairment are present. For impairment testing, assets are grouped together into the smallest group of
assets that generate cash inflows from continuing use and are largely independent of the cash inflows of other assets or
CGUs. Additionally, goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected
to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or
CGU exceeds its recoverable amount. Recoverable amount is the higher of value in use and fair value, less costs of
disposal. Impairment losses are recognised in the unaudited Consolidated Statement of Profit or Loss. They are allocated
first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the
remaining assets in the CGU, on a prorated basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised. The Group has not recognised any impairment
reversals in 2016 and 2015.
Finance Costs
Finance costs include interest costs, standby fees, and any loss related to debt extinguishment. Interest costs are
expensed as incurred, except to the extent such interest is related to construction in progress, in which case interest is
capitalised. The capitalised interest recorded in 2016 and 2015 was $1.1 million and $0.3 million, respectively.
Provisions
A provision is recognised when there is a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of economic benefits will be required to settle the obligation and that obligation can be measured
reliably. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that
reflects the current market assessments of the time value of money and the risks specific to the obligation. Provisions are
reviewed on a regular basis and adjusted to reflect management's best current estimates. Due to the judgmental nature of
these items, future settlements may differ from amounts recognised. Provisions consist of decommissioning provisions,
restructuring provisions, and legal claims and obligations.
The Group does not recognise contingent assets in the unaudited Consolidated Statement of Financial Position. However, if
an inflow of economic benefits is probable, then it is appropriately disclosed in the notes to the annual financial
statements.
Research and Development
Research and development expenses are comprised of costs incurred in performing research and development activities
including payroll and benefits, clinical manufacturing and pre-launch clinical trial costs, manufacturing development and
scale-up costs, product development and regulatory costs, contract services and other outside contractors costs, research
license fees, depreciation and amortisation of lab facilities, and lab supplies.
Research costs are expensed as incurred. Development expenditures are capitalised only if the expenditure can be measured
reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the
Group intends to and has sufficient resources to complete development and use or sell the asset. Otherwise, development
expenditures are expensed as incurred. Subsequent to initial recognition, development expenditures are measured at cost
less accumulated amortisation and any accumulated impairment losses.
Share-Based Payments
Prior to listing, the Group had granted share-based compensation to employees under the Annual Equity Plan ("AEP"),
Management Executive Plan ("MEP"), and Management Incentive Plan ("MIP"). Post IPO, the share-based incentives are provided
to employees under the Group's Long-Term Incentive Plan ("LTIP"), Deferred Bonus Plan ("DBP") and Matching Share Plan
("MSP").
Certain features of share-based awards, such as cash-settled share-based payments to employees require the awards to be
accounted for as liabilities as opposed to equity. Liability awards are measured at the grant date based on the fair value
of the award and are required to be remeasured to the fair value at the end of each reporting period until settlement. True
up compensation cost is recognised in each reporting period for changes in fair value prorated for the portion of the
requisite service period rendered in the unaudited Consolidated Statement of Profit or Loss (General and administrative
expenses). The Group's reorganisation triggered the modification accounting where the terms of awards (MEP units) were
changed immediately prior to listing to vested equity shares. The liability recognised for such shares was converted to
equity, with a true up cost recognised to reflect the accelerated vesting period for shares not subject to a continued
employment clawback. Shares subject to continued employment are recognised over the term of the clawback arrangement.
Equity-settled share-based payments to employees are measured at the fair value of the award on the grant date. The fair
value of the awards at the date of the grant, which is estimated to be equal to the market value, is expensed to the
unaudited Consolidated Statement of Profit or Loss (General and administrative expenses) over the vesting period, with
appropriate adjustments being made during the period to reflect expected and actual forfeitures. The corresponding credit
is to other reserves in the unaudited Consolidated Statement of Financial Position.
Financial Instruments
The carrying amounts reflected in the unaudited Consolidated Statement of Financial Position for cash and cash equivalents,
trade and other receivables, restricted cash, trade and other payables, and certain accrued expenses and other current
liabilities approximate fair value due to their short-term maturities. Debt obligations are initially carried at fair value
less any directly attributable transaction costs and subsequently at amortised cost.
At initial recognition, the Group classifies its financial instruments in the following categories depending on the purpose
for which the instruments were acquired:
i. Financial assets
The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are
recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of
the instrument.
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market.
Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition, loans and receivables are measured at cost, less any accumulated impairment losses.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is
created or retained by the Group is recognised as a separate asset or liability.
ii. Financial liabilities
The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated.
All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a
party to the contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged, terminated or expired. When
the Group exchanges with the existing lender one debt instrument into another one with the substantially different terms,
such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new
financial liability. Similarly, the Groups accounts for substantial modification of terms of an existing liability or part
of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that
the terms are substantially different if the discounted present value of the cash flows under the new terms, including any
fees paid net of any fees received and discounted using the original effective rate is at least 10% different from the
discounted present value of the remaining cash flows of the original financial liability.
The Group classifies financial liabilities into the other financial liabilities category. Such financial liabilities are
recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition,
these financial liabilities are measured at amortised cost using the effective interest method. The effective interest
method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the
relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the
expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Financial assets and liabilities are offset and the net amount presented in the unaudited Consolidated Statement of
Financial Position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them
on a net basis or to realise the asset and settle the liability simultaneously.
Foreign Currency Translation and Transactions
Assets and liabilities of subsidiaries whose functional currency is not USD are translated into USD at the rate of exchange
in effect on the statement of financial position date. The related equity accounts of subsidiaries are translated into USD
at the historical rate of exchange. Income and expenses are translated into USD at the average rates of exchange prevailing
during the year. Foreign currency gains and losses resulting from the translation of subsidiaries into USD are recognised
in the statement of other comprehensive income. Exchange differences arising from the translation of the net investment in
foreign operations are taken to a separate translation reserve within equity. They are recycled and recognised in the
unaudited Consolidated Statement of Profit or Loss upon disposal of the operation.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are not retranslated. Any gain or loss arising from
subsequent exchange rate movements is included as an exchange gain or loss in the unaudited Consolidated Statement of
Profit and Loss.
Hyperinflationary Economies
IAS 29, Financial Reporting in Hyperinflationary Economies ("IAS 29") requires financial statements to be stated in terms
of the measuring unit current at the end of the reporting period whose functional currency is the currency of a
hyperinflationary economy. The financial information is restated based on the consumer price index ("CPI") before being
translated into a different presentation currency. All amounts are translated at the closing exchange rate at the date of
the most recent unaudited Consolidated Statement of Financial Position. Hyperinflation is indicated by the characteristics
of an economy, which includes a cumulative inflation rate over three years that approaches or exceeds 100 percent, sales
and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit
period, even if the period is short and the general population prefers to keep its wealth in non-monetary assets or in a
relatively stable foreign currency.
Venezuela has been considered as a hyperinflationary economy since 2010. The hyperinflation accounting has been applied to
Boston Estada (Venezuela based subsidiary) in the annual financial statements. The financial information of the subsidiary
has been restated for the changes in the CPI (as published by the Central Bank of Venezuela) of the functional currency
and, as a result, are stated in terms of the measuring unit current at the end of the reporting period. This complies with
the accounting treatment described in IAS 29. The gain on the net monetary position in 2016 and 2015 were $12.2 million and
$9.5 million, respectively. The following table summarises the changes in the Venezuelan CPI for the reporting periods
ended 31 December 2016 and 2015:
Reporting Period CPI* Movement from previous reporting period
31 December 2015 2,357.9 86.9%
31 December 2016 7,729.5 228.0%
* Base period, 31 December 2007 = 100
Retirement Benefit Costs
Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered
service entitling them to the contributions. Payments made to state-managed retirement benefit schemes are dealt with as
payments to defined contribution schemes where the Group's obligations under the schemes are equivalent to those arising in
a defined contribution retirement benefit scheme.
For defined benefit retirement schemes, the cost of providing benefits is determined using the Projected Unit Credit
Method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement comprising actuarial
gains and losses, the effect of the asset ceiling (if applicable) and the return on scheme assets (excluding interest) are
recognised immediately in the unaudited Consolidated Statement of Financial Position with a charge or credit to the
unaudited Consolidated Statement of Comprehensive Loss in the period in which they occur. Remeasurement recorded in the
unaudited Consolidated Statement of Comprehensive Loss is not recycled. Past service cost is recognised in the unaudited
Consolidated Statement of Profit or Loss in the period of scheme amendment. Net-interest is calculated by applying a
discount rate to the net defined benefit liability or asset.
Leases
i. Operating leases
Payments made under operating leases are charged to the unaudited Consolidated Statement of Profit or Loss on a
straight-line basis over the term of the lease.
ii. Finance leases
Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases as
if the asset had been purchased outright. Assets acquired under the finance leases are recognised as assets of the Group
and the capital and interest elements of the leasing commitments are shown as obligations to creditors. Depreciation is
charged on a consistent basis with similar owned assets or over the lease term if shorter. The interest element of the
lease payment is charged to the unaudited Consolidated Statement of Profit or Loss on a basis which produces a consistent
rate of charge over the period of the liability.
Non-current Assets Held for Sale
Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs of
disposal. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable
and the asset is available for immediate sale in its present condition. Management must be committed to the sale which
should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Derivative Financial Instruments
The Group enters into derivative financial instruments to manage its exposure to foreign exchange rate risk using foreign
exchange forward contracts. Further details of derivative financial instruments are disclosed in the notes to the annual
financial statements.
Derivative financial instruments are classified at fair value through profit or loss unless they are in a designated hedge
relationship.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in the unaudited
Consolidated Statement of Profit or Loss immediately unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge
relationship.
2. Earnings Per Share
Basic and diluted loss per ordinary share for the years ended 31 December 2016 and 2015 was calculated as follows:
2016 2015
($M, except share data)
Net loss attributable to the equity holders of the Group (202.8 ) (93.4
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