REG - ConvaTec Group PLC - ConvaTec Group Plc First Half 2017 Results <Origin Href="QuoteRef">CTEC.L</Origin> - Part 2
03/08/2017 07:07
- Part 2: For the preceding part double click ID:nRSC9628Ma
151.1
Pro forma basic and diluted earnings per share ($ per share) 0.08
Pro forma effective tax rate 16.6 %
_______________________________
(1) Pro forma adjusted net profit is computed as adjusted net profit further adjusted to reflect the post-IPO debt
structure as if it had been in place as of 1 January 2016.
Adjusted EBITDA
Adjusted EBITDA is defined as Adjusted EBIT (defined above) further adjusted to exclude (i) software and R&D amortisation,
(ii) depreciation, and (iii) post-IPO employee share-based compensation.
The following table reconciles the Group's Adjusted EBIT to Adjusted EBITDA.
Six months ended 30 June
2017 2016
$m $m
Adjusted EBIT 193.5 209.0
Software and R&D amortisation(1) 3.7 3.2
Depreciation(2) 15.9 14.0
Post-IPO share-based compensation(3) 3.3 -
Adjusted EBITDA 216.4 226.2
_______________________________
(1) The following is a summary of software and R&D amortisation as recorded in the Condensed Consolidated Statement
of Profit or Loss for the six months ended 30 June 2017 and 2016:
Six months ended 30 June
2017 2016
$m $m
Cost of goods sold - 0.3
General and administrative expenses 3.6 2.9
Research and development expenses 0.1 -
Software and R&D amortisation 3.7 3.2
(2) The following is a summary of depreciation (excluding accelerated depreciation), as recorded in the Condensed
Consolidated Statement of Profit or Loss for the six months ended 30 June 2017 and 2016:
Six months ended 30 June
2017 2016
$m $m
Cost of goods sold 13.5 11.7
Selling and distribution expenses 0.1 0.1
General and administrative expenses 1.9 1.7
Research and development expenses 0.4 0.5
Depreciation, excluding accelerated depreciation 15.9 14.0
(3) The share-based compensation related to the share awards granted in November 2016 and during the six months
ended 30 June 2017 was recorded in General and administrative expenses in the Condensed Consolidated Statement of Profit or
Loss.
Cash conversion
The Group believes that cash conversion is a useful supplemental metric that provides a measure of efficiency by which the
Group is able to turn profit from operations into cash flow to service the requirements of debt and equity investors, as
well as paying for the Group's tax obligations, re-investing in the business for growth and enhancing dividend capacity.
Cash conversion is computed as the ratio of Adjusted EBITDA less change in working capital and capital expenditure to
Adjusted EBITDA.
The computation of cash conversion for the six months ended 30 June 2017 and 2016 is as follows:
Six months ended 30 June
2017 2016
$m $m
Adjusted EBITDA 216.4 226.2
Working capital increase (15.6) (12.2)
PP&E purchases (38.5) (30.2)
162.3 183.8
Cash conversion 75.0% 81.3%
Cash conversion is also computed as the ratio of net cash generated from operating activities adjusted for (i) cash
interest payments, (ii) cash tax payments, and (iii) other payments within operating activities, less capital expenditure
to Adjusted EBITDA. The resulting cash conversion figures are the same under either definition.
The computation of cash conversion for the six months ended 30 June 2017 and 2016 is as follows:
Six months ended 30 June
2017 2016
$m $m
Net cash generated from operating activities 120.9 53.0
Add:
Cash interest payments 36.0 128.1
Cash tax payments 15.4 13.9
Other payments(1) 28.5 19.0
Less:
PP&E Purchases (38.5) (30.2)
162.3 183.8
Adjusted EBITDA 216.4 226.2
Cash conversion 75.0% 81.3%
_______________________________
(1) Other payments represent payments related to restructuring and other related costs, remediation costs,
ownership structure costs and corporate development costs.
Financial Position
Selected measures of financial position
The following table presents a summary of the Group's financial position at 30 June 2017 and 31 December 2016:
30 June 2017 31 December 2016 Change
Asset (liability) $m $m $m %
Long-lived assets(1) 2,764.7 2,707.2 57.5 2.1%
Cash and cash equivalents 302.5 264.1 38.4 14.5%
Long-term borrowings, including current portion (1,808.9) (1,775.6) (33.3) 1.9%
_______________________________
(1) Long-lived assets comprise property, plant and equipment, intangible assets, and goodwill.
Long-lived assets
Long-lived assets increased $57.5 million, or 2.1%, to $2,764.7 million at 30 June 2017, from $2,707.2 million at 31
December 2016, primarily due to (i) an increase from foreign currency exchange of $85.7 million, (ii) additions of
property, plant, and equipment of $32.8 million, and (iii) long-lived assets from the EuroTec acquisition of $24.7 million,
partially offset by (iv) the depreciation of property, plant, and equipment and amortisation of intangible assets of $88.1
million, in the aggregate.
Cash and cash equivalents
Cash and cash equivalents increased $38.4 million, or 14.5%, to $302.5 million at 30 June 2017, from $264.1 million at 31
December 2016, primarily due to (i) cash generated from operating activities of $120.9 million and (ii) the effect of
exchange rate changes on cash and cash equivalents of $11.4 million. These increases were partially offset by (i) purchases
of property, plant, and equipment and capitalised software of $38.5 million, (ii) $25.4 million paid in connection with the
EuroTec acquisition in January 2017, (iii) scheduled June 2017 amortisation payments of $19.6 million, in the aggregate,
related to the credit facilities, and (iv) $10.5 million of accrued costs paid in connection with issue of share capital in
October 2016.
Long-term borrowings
Long-term borrowings increased $33.3 million, or 1.9%, to $1,808.9 million at 30 June 2017, from $1,775.6 million at 31
December 2016, primarily due to (i) the foreign currency impact on the Euro denominated long-term borrowings and (ii) the
non-cash amortisation of deferred financing fees and debt discounts. These increases were partially offset by the
scheduled June 2017 amortisation payments of $19.6 million, in the aggregate, related to the credit facilities. The net
debt to last twelve months adjusted EBITDA ratio was 3.0x as of 30 June 2017. The net debt to adjusted EBITDA ratio was
3.0x as of 31 December 2016.
Liquidity and Capital Resources
Overview
At 30 June 2017, the Group's cash and cash equivalents were $302.5 million. Additionally, at 30 June 2017, the Group had
$193.6 million of availability under the revolving credit facility. Restricted cash was $5.1 million at both 30 June 2017
and 31 December 2016.
The Group's primary source of liquidity is cash flow generated from operations. Historically, the non-elective nature of
the Group's product offerings has resulted in significant recurring cash inflows. The Group generated $120.9 million of
cash from operating activities for the six months ended 30 June 2017. Significant cash uses for the six months ended 30
June 2017 included (i) capital expenditures of $38.5 million, (ii) interest payments of $36.0 million, (iii) $25.4 million
for the EuroTec acquisition, (iv) scheduled June 2017 amortisation payments of $19.6 million, in the aggregate, related to
the credit facilities, and (v) income tax payments of $15.4 million.
The Group's business may not continue to generate cash flow at current levels and, if it is unable to generate sufficient
cash flow from operations to service its debt, the Group may be required to reduce costs and expenses, sell assets, reduce
capital expenditures, refinance all or a portion of existing debt or obtain additional financing. The Group may not be able
to complete these initiatives on a timely basis, on satisfactory terms, or at all. The Group's ability to make scheduled
principal payments or to pay interest on or to refinance its indebtedness depends on the Group's future performance and
financial results, which, to a certain extent, are subject to general conditions in or affecting the healthcare industry
and to general economic, political, financial, competitive, legislative and regulatory factors beyond the Group's control.
The Group believes that the business has characteristics of strong cash flow generation. The Group's strengths include the
recurring, non-discretionary nature of its products, its diverse product offering and geographic footprint, and the strong
market position of the Group's leading brands. The Group believes that its existing cash on hand, combined with the Group's
operating cash flow and available borrowings under the credit facilities will provide sufficient liquidity to fund current
obligations, working capital and capital expenditure requirements, as well as future investment opportunities.
Cash flows
The following table displays cash flow information for the six months ended 30 June 2017 and 2016:
Six months ended 30 June
2017 2016
$m $m
Net cash generated from operating activities 120.9 53.0
Net cash used in investing activities (62.2) (27.8)
Net cash used in financing activities (31.7) (21.5)
Net change in cash and cash equivalents 27.0 3.7
Cash and cash equivalents at beginning of the period 264.1 273.0
Effect of exchange rate changes on cash and cash equivalents 11.4 (2.2)
Cash and cash equivalents at end of the period 302.5 274.5
Cash flows from operating activities
Net cash generated from operating activities was $120.9 million and $53.0 million for the six months ended 30 June 2017 and
2016, respectively. The following table sets forth the components of net cash generated from operating activities for the
six months ended 30 June 2017 and 2016:
Six months ended 30 June
2017 2016
$m $m
Adjusted EBITDA 216.4 226.2
Cash interest payments (36.0) (128.1)
Cash tax payment (15.4) (13.9)
Other payments (28.5) (19.0)
Working capital increase (15.6) (12.2)
Net cash generated from operating activities 120.9 53.0
Cash interest payments decreased $92.1 million, to $36.0 million for the six months ended 30 June 2017, from $128.1 million
for the six months ended 30 June 2016, primarily due to a decrease in the interest payments related to (i) the redemption
in October 2016 of the PIK Notes, US Dollar Senior Notes and Euro Senior Notes and (ii) a lower interest rates on the
Group's credit facilities as a result of the October 2016 financing. These decreases were partially offset by an
incremental interest payments related to the Group's credit facilities, as the first interest payment was made on 31 March
2017 since the October 2016 financing.
The other payments increased $9.5 million, to $28.5 million for the six months ended 30 June 2017, from $19.0 million for
the six months ended 30 June 2016, primarily driven by an increase in payments related to service fees associated with
MIP-related activities and the payments of cash-settled AEP and MEP awards.
The working capital increase of $15.6 million and $12.2 million for the six months ended 30 June 2017 and 2016,
respectively, was primarily related to timing of receipts, purchases, and payments in the ordinary course of business.
Cash flows from investing activities
Net cash used in investing activities increased $34.4 million, to $62.2 million for the six months ended 30 June 2017, from
$27.8 million for the six months ended 30 June 2016. The increase was primarily due to (i) $25.4 million related to the
EuroTec acquisition in January 2017 and (ii) an increase in capital expenditures of $8.3 million mostly related to
additional capacity for the Infusion Device product portfolio and continued investment in the MIP Programme.
Cash flows from financing activities
Net cash used in financing activities increased $10.2 million, to $31.7 million for the six months ended 30 June 2017, from
$21.5 million for the six months ended 30 June 2016, primarily due to (i) an increase of $15.5 million in quarterly
amortisation payments under the Group's credit facilities, (ii) $10.5 million of accrued costs paid in connection with
issue of share capital in October 2016, and (iii) deferred financing fees paid of $1.4 million. These increases were
partially offset by $17.4 million in mandatory prepayments for excess cash retained in the business under the Group's
credit facilities during the six months ended 30 June 2016.
INDEPENDENT REVIEW REPORT TO CONVATEC GROUP PLC
We have been engaged by the group to review the condensed set of financial statements in the half-yearly financial report
for the six months ended 30 June 2017 which comprises the Condensed Consolidated Statement of Profit or Loss, the Condensed
Consolidated Statement of Comprehensive Income / (Loss), 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 16. We have read the other information contained in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the group in accordance with International Standard on Review Engagements (UK and Ireland)
2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board. Our work has been undertaken so that we might state to the group 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 group, for our review work, for this report, or for the conclusions we have
formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed set of financial statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European
Union.
Our responsibility
Our responsibility is to express to the group a conclusion on the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board
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.
Conclusion
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 2017 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
2 August 2017
Condensed Consolidated Statement of Profit or Loss
Six months ended 30 June Year ended 31 December
2017 2016 2016
Notes $m $m $m
(unaudited) (audited) (1) (audited)
Revenue 2 831.3 828.9 1,688.3
Cost of goods sold 10 (402.3 ) (430.5 ) (821.0 )
Gross profit 429.0 398.4 867.3
Selling and distribution expenses (186.5 ) (178.1 ) (357.0 )
General and administrative expenses 10 (127.3 ) (141.9 ) (318.2 )
Research and development expenses 10 (22.4 ) (19.7 ) (38.1 )
Operating profit 92.8 58.7 154.0
Finance costs 3 (29.3 ) (131.1 ) (271.4 )
Other (expense) income, net 4 (18.0 ) 23.8 (8.4 )
Profit (loss) before income taxes 45.5 (48.6 ) (125.8 )
Income tax expense 5 (21.3 ) (24.1 ) (77.0 )
Net profit (loss) 24.2 (72.7 ) (202.8 )
Earnings Per Share
Basic earnings (loss) per share ($ per share) 7 0.01 (0.06 ) (0.15 )
Diluted earnings (loss) per share ($ per share) 7 0.01 (0.06 ) (0.15 )
(1) Audited financial information for the six months ended 30 June 2016 was prepared and presented in the Group's 2016
Prospectus which represented the first IFRS financial statements of the Group.
All results are attributable to equity holders of the Group and wholly derived from continuing operations. The Notes on
pages 28 to 41 form an integral part of the Condensed Consolidated Financial Statements.
Condensed Consolidated Statement of Comprehensive Income (Loss)
Six months ended 30 June Year ended 31 December
2017 2016 2016
Notes $m $m $m
(unaudited) (audited) (1) (restated)(2) (audited)
Net profit (loss) 24.2 (72.7 ) (202.8 )
Other comprehensive income
Items that will not be reclassified subsequently to Statement of Profit or Loss
Remeasurement of defined benefit obligation, net of tax (0.1 ) 0.7 (0.4 )
Recognition of the pension assets restriction (0.1 ) - (6.3 )
Items that may be reclassified subsequently to Statement of Profit or Loss
Exchange differences on translation of foreign operations(2) 73.9 (138.4 ) (183.9 )
Effective portion of changes in fair value of cash flow hedges 13 (0.7 ) - -
Income tax relating to items that may be reclassified 0.4 4.3 31.6
Other comprehensive income (loss) 73.4 (133.4 ) (159.0 )
Total comprehensive income (loss) 97.6 (206.1 ) (361.8 )
(1) Audited financial information for the six months ended 30 June 2016 was prepared and presented in the Group's 2016
Prospectus which represented the first IFRS financial statements of the Group.
(2) Reflects the non-cash adjustment of $135.7 million for the six months ended 30 June 2016 due to the restatement (which
solely impacted the translation of foreign exchange on goodwill reflected through the cumulative translation reserve) as
described in note 14 of the annual accounts of the Group for the year ended 31 December 2016.
All amounts are attributable to equity holders of the Group and wholly derived from continuing operations.
Condensed Consolidated Statement of Financial Position
30 June 2017 31 December 2016
Notes $m $m
(unaudited) (audited)
Assets
Non-current assets
Property, plant and equipment 9 300.4 264.8
Intangible assets 10 1,493.1 1,521.4
Goodwill 11 971.2 921.0
Other assets 36.1 35.9
2,800.8 2,743.1
Current assets
Inventories 269.1 247.5
Trade and other receivables 248.6 233.7
Prepaid expenses and other current assets 29.5 19.9
Cash and cash equivalents 302.5 264.1
Assets held for sale 5.6 5.6
855.3 770.8
Total Assets 3,656.1 3,513.9
Equity and Liabilities
Current liabilities
Trade and other payables 13 111.9 111.6
Long-term borrowings 12,13 57.3 38.5
Accrued expenses and other current liabilities 65.2 83.5
Accrued compensation 52.7 57.0
Provisions 14 4.1 9.4
291.2 300.0
Non-current liabilities
Long-term borrowings 12,13 1,751.6 1,737.1
Deferred tax liabilities 210.2 192.2
Provisions 14 1.2 1.1
Other liabilities 36.8 37.3
1,999.8 1,967.7
Total Liabilities 2,291.0 2,267.7
Equity
Share capital 238.8 238.8
Share premium - 1,674.1
Retained deficit (954.0 ) (2,650.2 )
Merger reserve 2,098.9 2,098.9
Cumulative translation reserve (96.4 ) (172.8 )
Other reserves 77.8 57.4
Total Equity 1,365.1 1,246.2
Total Equity and Liabilities 3,656.1 3,513.9
Condensed Consolidated Statement of Changes in Equity
Share capital Share premium Retained deficit Merger reserve Cumulative translation reserve Other reserves Total
Notes $m $m $m $m $m $m $m
At 1 January 2017 (audited) 238.8 1,674.1 (2,650.2 ) 2,098.9 (172.8 ) 57.4 1,246.2
Net profit - - 24.2 - - - 24.2
Other comprehensive income/(loss):
Foreign currency translation adjustment, net of tax - - (2.1 ) - 76.4 - 74.3
Remeasurement of defined benefit obligation, net of tax - - - - - (0.1 ) (0.1 )
Recognition of pension assets restriction - - - - - (0.1 ) (0.1 )
Effective portion of changes in fair value of cash flow hedges 13 - - - - - (0.7 ) (0.7 )
Total other comprehensive income/(loss) - - (2.1 ) - 76.4 (0.9 ) 73.4
Total comprehensive income/(loss) - - 22.1 - 76.4 (0.9 ) 97.6
Share-based payments - - - - - 21.3 21.3
Capital reduction of share premium(1) - (1,674.1 ) 1,674.1 - - - -
At 30 June 2017 (unaudited) 238.8 - (954.0 ) 2,098.9 (96.4 ) 77.8 1,365.1
Share capital Share premium Retained deficit Merger reserve Cumulative translation reserve Other reserves Total
$m $m $m $m $m $m $m
(restated)(3)
At 1 January 2016 (audited) (2) 154.4 - (2,440.7 ) 2,098.9 (27.2 ) (4.2 ) (218.8 )
Net loss - - (72.7 ) - - - (72.7 )
Other comprehensive loss:
Foreign currency translation adjustment, net of tax(3) - - (2.5 ) - (131.6 ) - (134.1 )
Remeasurement of defined benefit obligation, net of tax - - - - - 0.7 0.7
Total other comprehensive loss - - (2.5 ) - (131.6 ) 0.7 (133.4 )
Total comprehensive loss - - (75.2 ) - (131.6 ) 0.7 (206.1 )
At 30 June 2016 (audited) (2)(3) 154.4 - (2,515.9 ) 2,098.9 (158.8 ) (3.5 ) (424.9 )
(1) In February 2017, the Company carried out a capital reduction which resulted in distributable earnings being increased
by $1,674.1 million as described in note 25 of the annual accounts of the Group for the year ended 31 December 2016.
(2) Audited financial information was prepared and presented in the Group's 2016 Prospectus which represented the first
IFRS financial statements of the Group.
(3) Reflects the non-cash adjustment for the year ended 31 December 2015 and the non-cash adjustment of $135.7 million for
the six months ended 30 June 2016 due to the restatement (which solely impacted the translation of foreign exchange on
goodwill reflected through the cumulative translation reserve) as described in note 14 of the annual accounts of the Group
for the year ended 31 December 2016.
Condensed Consolidated Statement of Changes in Equity (continued)
Share capital Share premium Retained deficit Merger reserve Cumulative translation reserve Other reserves Total
$m $m $m $m $m $m $m
At 1 January 2016(1)(audited) 154.4 - (2,440.7 ) 2,098.9 (27.2 ) (4.2 ) (218.8 )
Net loss - - (202.8 ) - - - - (202.8 )
Other comprehensive loss:
Foreign currency translation adjustment, net of tax - - (6.7 ) - (145.6 ) - (152.3 )
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 - - (6.7 ) - (145.6 ) (6.7 ) (159.0 )
Total comprehensive loss - - (209.5 ) - (145.6 ) (6.7 ) (361.8 )
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 payment transactions - - - - - - -
At 31 December 2016 (audited) 238.8 1,674.1 (2,650.2 ) 2,098.9 (172.8 ) 57.4 1,246.2
(1) Reflects the non-cash adjustment for the year ended 31 December 2015 due to the restatement (which solely impacted the
translation of foreign exchange on goodwill reflected through the cumulative translation reserve) as described in note 14
of the annual accounts of the Group for the year ended 31 December 2016.
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June
2017 2016
Notes $m $m
Cash flows from operating activities (unaudited) (audited)(1)
Net profit (loss) 24.2 (72.7 )
Adjustments for
Depreciation 9 17.2 21.0
Amortisation 10 70.9 72.4
Acquisition accounting adjustment on inventory sold 1.0 -
Income tax expense 5 21.3 24.1
Impairment losses - 4.5
Other expense (income), net 4 18.0 (23.8 )
Finance costs 3 29.3 131.1
Share-based compensation 21.3 32.2
Write-off/disposal of assets 1.3 4.5
Changes in assets and liabilities:
Inventories (4.5 ) (8.9 )
Trade and other receivables (1.0 ) (8.9 )
Other current assets (2.9 ) (0.3 )
Deferred revenue 0.9 (2.6 )
Accounts payable and accrued expenses (23.9 ) 20.6
Other liabilities (0.8 ) 0.9
Other - 0.9
Cash generated from operations 172.3 195.0
Interest paid (36.0 ) (128.1 )
Income taxes paid (15.4 ) (13.9 )
Net cash generated from operating activities 120.9 53.0
Cash flows from investing activities
Acquisition of property, plant and equipment and capitalised software (38.5 ) (30.2 )
Acquisition, net of cash acquired 8 (25.4 ) -
Proceeds from sale of property, plant and equipment and other assets 4 2.6 0.5
Change in restricted cash - 2.5
Capitalised development expenditure 10 (0.9 ) (0.6 )
Net cash used in investing activities (62.2 ) (27.8 )
Cash flows from financing activities
Repayment of borrowings 12 (19.6 ) (21.5 )
Payment of accrued share capital issue costs (10.5 ) -
Payment of deferred financing fees (1.4 ) -
Payment of finance lease liabilities (0.2 ) -
Net cash used in financing activities (31.7 ) (21.5 )
Net change in cash and cash equivalents 27.0 3.7
Cash and cash equivalents at beginning of the period 264.1 273.0
Effect of exchange rate changes on cash and cash equivalents 11.4 (2.2 )
Cash and cash equivalents at end of the period 302.5 274.5
Supplemental cash flow information:
Non-cash investing activities
Accrued capital expenditures included in accounts payable and accrued expenses 10.1 6.7
(1) Audited financial information for the six months ended 30 June 2016 was prepared and presented in the Group's 2016
Prospectus which represented the first IFRS financial statements of the Group. Certain reclassifications within net cash
generated from operating activities have been made to prior period amounts to conform with the current period
presentation.
Notes to the Condensed Consolidated Financial Statements
1. Basis of presentation and accounting policies
ConvaTec Group Plc (the "Company") is a company incorporated in the UK. The accompanying unaudited Condensed Consolidated
Financial Statements of the Company and its subsidiaries (the "Group") for the six months ended 30 June 2017 have been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union. The accounting policies
are consistent with those set out in the ConvaTec Group Plc Annual Report and Accounts 2016 (the "2016 Annual Report"),
except as described below under "Accounting standards".
The comparative figures for the year ended 31 December 2016 are based on the Group's Financial Statements for that period
and do not constitute the Group's statutory Financial Statements for that financial year as defined in sections 434 and 435
of the Companies Act 2006. The statutory Consolidated Financial Statements for the Company in respect of the year ended 31
December 2016, which were prepared under IFRS have been reported on by the Company'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.
Audited financial information for the six months ended 30 June 2016, and as at 30 June 2016 was prepared and presented in
the Group's 2016 Prospectus which represented the first IFRS financial statements of the Group.
The Condensed Consolidated Financial Statements are presented in 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.
Following the listing of the Company on 31 October 2016, the Company performed a share for share exchange common control
transaction which resulted in the creation of a merger reserve. The share capital and merger reserve presented within the
Condensed Consolidated Statement of Changes in Equity at 1 January 2016 reflects this transaction. Full information of
this transaction is disclosed within the 2016 Annual Report.
The Condensed Consolidated Financial Statements for the six months ended 30 June 2017 were authorised by the Board on 2
August 2017.
Accounting standards
During the six months ended 30 June 2017, the Group has applied the following IFRSs issued by the International Accounting
Standards Board: (i) IAS 7, Statement of Cash Flows and (ii) IAS 12, Income Taxes. Their adoption has not had a material
impact on the disclosure or the amounts reported in these Condensed Consolidated Financial Statements.
IFRS 15
IFRS 15 "Revenue from Contracts with Customers" will be effective for accounting periods beginning on or after 1 January
2018. It supersedes IAS 18 "Revenue" and establishes a principles-based approach to revenue recognition and measurement
based on the concept of recognizing revenue when performance obligations are satisfied. The Group has an ongoing project
to assess the impact to its financial statements. This project has involved reviews of the Group's key contracts and the
use of questionnaires and detailed contract discussions with finance teams to identify the most likely areas of change
across the Group's business units and different revenue streams. Based on the Group's preliminary assessment from work
performed to date, the Group believes that the adoption of IFRS 15 will not have a material impact on the consolidated
financial statements but work is still ongoing to fully quantify its impact.
Significant accounting judgements and estimates
The preparation of 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 amount of assets and liabilities,
income and expense. Actual results may differ from these estimates. In preparing these Condensed Consolidated Financial
Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources
of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements for the year ended
31 December 2016.
2. Segment information
The Group's management considers its business to be a single segment entity, being engaged in the development, manufacture
and sales of medical products and technologies. The Group is a global medical products and technologies group focused on
therapies for the management of chronic conditions, including products used for advanced chronic and acute wound care,
ostomy care and management, continence and critical care, and infusion devices used in the treatment of diabetes and other
conditions. The Group sells a broad range of products to a wide range of customers, including healthcare providers,
patients and manufacturers. The R&D manufacturing and central functions are managed globally for the Group. The revenues
are managed both on a franchise and regional basis. 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 generally evaluates profitability and associated
investment on an enterprise-wide basis due to shared geographic infrastructures between the franchises. In making these
decisions, the CEO evaluates the financial information on a Group wide basis to determine the most appropriate allocation
of resources. This financial information relating to revenues provided to the CEO for the decision making purposes is made
on a combination of a franchise and regional basis, however profitability measures are presented on a global basis.
Revenue by franchise
The Group generates revenue across four major market franchises:
Advanced Wound Care: The Advanced Wound Care franchise includes advanced wound dressings and skin care products. These
dressings and products are used for the management of chronic wounds resulting from ongoing conditions such as diabetes,
immobility and venous disease, as well as acute conditions resulting from traumatic injury, burns, invasive surgery and
other causes.
Ostomy Care: The Ostomy Care franchise includes devices, accessories and services for people with an ostomy or stoma (a
surgically-created opening where bodily waste is discharged), commonly resulting from colorectal cancer, inflammatory bowel
disease, bladder cancer, obesity and other causes.
Continence and Critical Care ("CCC"): The CCC franchise includes products for people with urinary continence issues
related to spinal cord injuries, multiple sclerosis, spina bifida and other causes. The franchise also includes devices and
products used in intensive care units and hospital settings.
Infusion Devices: The Infusion Devices franchise provides disposable infusion sets to manufacturers of insulin pumps for
diabetes and similar pumps used in continuous infusion treatments for other conditions. In addition, the franchise supplies
a range of products to hospitals and the home healthcare sector.
The following table sets forth the Group's revenue for the six months ended 30 June 2017 and 2016 by market franchise:
Six months ended 30 June
2017 2016
Revenue by market franchise $m $m
Advanced Wound Care 272.1 269.0
Ostomy Care 254.7 249.8
Continence & Critical Care 175.1 178.6
Infusion Devices 129.4 131.5
831.3 828.9
Geographic information
Geographic markets
The following table sets forth the Group's revenue for the six months ended 30 June 2017 and 2016 in each geographic market
in which customers are located:
Six months ended 30 June
2017 2016
Geographic markets $m $m
Americas 417.5 399.5
EMEA 349.2 365.4
APAC 64.6 64.0
831.3 828.9
Geographic regions
The following table sets forth the Group's revenue for the six months ended 30 June 2017 and 2016 on the basis of
geographic regions where the legal entity resides and from which those revenues were made:
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