REG - ConvaTec Group PLC - Final Results <Origin Href="QuoteRef">CTEC.L</Origin> - Part 2
15/02/2018 07:06
- Part 2: For the preceding part double click ID:nRSO9401Ea
items that Group management believes are not related to the
underlying performance of the Group. These non-IFRS financial measures are
also used by management to make operating decisions because they facilitate
internal comparison of performance to historical results on a consolidated
Group basis. These measures are not measurements of financial performance or
liquidity under IFRS and should not replace measures of liquidity or financial
performance that are derived in accordance with IFRS.
The Group believes these measures are useful supplemental indicators that may
be used to assist in evaluating the Group's financial performance on a
consistent basis, similar to the way in which the Group's management evaluates
performance, that is not otherwise apparent on an IFRS basis, given that
certain non-recurring, infrequent or unusual items that management does not
otherwise believe are indicative of the underlying performance of the
consolidated Group may not be excluded when preparing financial measures under
IFRS.
Items adjusted for 2017 and 2016 include acquisition-related amortisation,
share-based compensation expense arising from pre-IPO employee equity grants
and restructuring and other costs primarily related to the Margin Improvement
Programme ("MIP Programme"). In addition, items adjusted in 2016 included
costs incurred in connection with the Group's refinancing and initial public
offering.
In 2017 the Board approved amendments to its non-IFRS financial measures
policy to provide better guidance on which items should be considered. This
follows the conclusion of certain activities in 2017 which related to the IPO
and refinancing, or items which are due to finalise in the coming financial
year, the latter principally relating to pre-IPO share-based compensation and
pre-IPO MIP Programme costs. This process follows the Group's first full year
as a listed company and reflects further consideration of the Group's
activities and strategy.
In determining whether an item should be presented as allowable adjustment to
IFRS measures, the Group considers items which are significant either because
of their size or their nature, and which are non-recurring. For an item to be
considered as allowable adjustment to IFRS measures, it must initially meet at
least one of the following criteria:
• it is a one-off significant item;
• it has been directly incurred as a result of either an acquisition,
divestiture, or arises from termination benefits without condition of
continuing employment; or
• it is unusual in nature e.g., outside the normal course of business.
If an item meets at least one of the criteria, the Group then exercises
judgement as to whether the item should be classified as an allowable
adjustment to IFRS measures.
Reconciliation to adjusted earnings - for the years ended 31 December 2017 and
2016
2017 Reported Adjustments Adjusted
(a) (b) (c) (d) (e) (f) (g)
$m
Revenue 1,764.6 - - - - - - - 1,764.6
Cost of goods sold (838.3 ) 126.6 22.7 0.7 - - - - (688.3 )
Gross profit 926.3 126.6 22.7 0.7 - - - - 1,076.3
Gross margin % 52.5% 61.0%
Selling and distribution expenses (377.5 ) - 0.3 - - - - - (377.2 )
General and administrative expenses (259.8 ) 14.3 6.0 7.0 - - 29.3 1.2 (202.0 )
Research and development expenses (41.2 ) - 0.9 - - - - - (40.3 )
Operating profit 247.8 140.9 29.9 7.7 - - 29.3 1.2 456.8
Operating profit % 14.0% 25.9%
Finance costs (62.1 ) - - - - - - - (62.1 )
Other expense, net (21.7 ) (2.6 ) - - - - - - (24.3 )
Profit before income taxes 164.0 138.3 29.9 7.7 - - 29.3 1.2 370.4
Income tax expense((h)) (5.6 ) (54.4 )
Net profit 158.4 316.0
Net profit % 9.0% 17.9%
Basic Earnings Per Share ($ per share)((i)) 0.08 0.16
Diluted Earnings Per Share ($ per share)((i)) 0.08 0.16
2016 Reported Adjustments Adjusted
(a) (b) (c) (d) (e) (f) (g)
$m
Revenue 1,688.3 - - - - - - - 1,688.3
Cost of goods sold (821.0 ) 136.8 23.8 - - - - 0.2 (660.2 )
Gross profit 867.3 136.8 23.8 - - - - 0.2 1,028.1
Gross margin % 51.4% 60.9%
Selling and distribution expenses (357.0 ) - 0.9 - - - - 0.9 (355.2 )
General and administrative expenses (318.2 ) 18.1 5.0 11.7 0.8 - 90.2 28.0 (164.4 )
Research and development expenses (38.1 ) 0.2 1.2 - - - - 0.4 (36.3 )
Operating profit 154.0 155.1 30.9 11.7 0.8 - 90.2 29.5 472.2
Operating profit % 9.1% 28.0%
Finance costs (271.4 ) - - - - 29.2 - - (242.2 )
Other expense, net (8.4 ) - - - - 8.4 - - -
(Loss) profit before income taxes (125.8 ) 155.1 30.9 11.7 0.8 37.6 90.2 29.5 230.0
Income tax expense((h)) (77.0 ) (51.2 )
Net (loss) profit (202.8 ) 178.8
Net (loss) profit % (12.0)% 10.6%
Basic Earnings Per Share ($ per share)((i)) (0.15 ) 0.13
Diluted Earnings Per Share ($ per share)((i)) (0.15 ) 0.13
_______________________________
(a) Represents an adjustment to exclude (i)
acquisition-related amortisation expense of $137.5 million and $136.1 million
in 2017 and 2016, respectively, (ii) accelerated depreciation of $1.3 million
and $11.1 million in 2017 and 2016, respectively, related to the closure of
certain manufacturing facilities, (iii) impairment charges and asset write
offs related to property, plant and equipment and intangible assets of $0.5
million and $7.9 million, in the aggregate, in 2017 and 2016, respectively,
(iv) a $2.6 million gain on the sale of fully depreciated assets in Malaysia
in 2017, and (v) an acquisition accounting adjustment of $1.6 million related
to acquired inventories that were sold in 2017.
(b) Represents restructuring costs and other-related costs
(excluding accelerated depreciation described above under (a)) primarily
incurred in connection with the Margin Improvement Programme ("MIP"), and also
includes other termination and leaver costs relating to organisation structure
changes and other costs.
(c) Represents remediation costs which include regulatory
compliance costs related to FDA activities, IT enhancement costs, and
professional service fees associated with activities that were undertaken in
respect of the Group's compliance function and to strengthen its control
environment within finance.
(d) Represents costs primarily related to corporate
development activities.
(e) Represents adjustment to exclude (i) loss on
extinguishment of debt and write-off of deferred financing fees and (ii)
foreign exchange related transactions.
(f) Represents an adjustment to exclude (i) share-based
compensation expense of $29.3 million and $85.9 million in 2017 and 2016,
respectively, arising from pre-IPO employee equity grants and (ii) pre-IPO
ownership structure related costs, including management fees to Nordic Capital
and Avista (refer to Note 12 - Related Party Transactions for further
information).
(g) Represents IPO-related costs, primarily advisory fees.
(h) Adjusted income tax expense/benefit is income tax
(expense) benefit net of tax adjustments. In addition to the tax impacts of
items (a) to (g), tax benefits resulting from the US Tax Reform and from the
acquisition of Woodbury have been adjusted for. See Note 5 - Income Taxes for
further details.
(i) Adjusted earnings per share and adjusted diluted
earnings per share has been calculated by dividing adjusted net profit by the
weighted average ordinary shares in issue and the diluted weighted average
ordinary shares in issue respectively, as calculated in Note 7 - Earnings Per
Share.
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.
Adjusted EBITDA, as shown below and used to determine cash conversion (see
below), adds back post-IPO employee share-based compensation charges and other
non-cash charges. The post-IPO share-based compensation and other non-cash
charges are not added back in the calculation of Adjusted earnings per share
above.
The following table reconciles the Group's Adjusted EBIT to Adjusted EBITDA.
2017 2016
$m $m
Adjusted EBIT 456.8 472.2
Software and R&D amortisation((a)) 7.3 6.7
Depreciation((b)) 33.3 27.9
Post-IPO share-based compensation((c)) 7.6 0.8
Adjusted EBITDA 505.0 507.6
_______________________________
(a) The following is a summary of software and R&D
amortisation as recorded in the Consolidated Statement of Profit or Loss for
each of the last two years:
2017 2016
$m $m
Cost of goods sold - 0.5
General and administrative expenses 7.1 6.2
Research and development expenses 0.2 -
Software and R&D amortisation 7.3 6.7
(b) The following is a summary of depreciation (excluding
accelerated depreciation), as recorded in the Consolidated Statement of Profit
or Loss for each of the last two years:
2017 2016
$m $m
Cost of goods sold 28.3 23.6
Selling and distribution expenses 0.4 0.3
General and administrative expenses 3.9 3.2
Research and development expenses 0.7 0.8
Depreciation, excluding accelerated depreciation 33.3 27.9
(c) The post-IPO share-based compensation was recorded in
General and administrative expenses in the 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 2017 and 2016 is as follows:
2017 2016
$m $m
Adjusted EBITDA 505.0 507.6
Working capital increase (31.9 ) (37.0 )
PP&E purchases (82.7 ) (66.5 )
390.4 404.1
Cash conversion 77.3 % 79.6 %
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, (iii) payments related to cash-settled AEP and MIP awards, and (iv)
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 2017 and 2016 is as follows:
2017 2016
$m $m
Net cash generated from operating activities 306.6 74.9
Add:
Cash interest payments 66.5 270.6
Cash tax payments 46.9 39.0
Cash-settled AEP and MIP awards - 30.2
Other payments((1)) 53.1 55.9
Less:
PP&E Purchases (82.7) (66.5)
390.4 404.1
Adjusted EBITDA 505.0 507.6
Cash conversion 77.3% 79.6
_______________________________
(1) Other payments represent payments related to the
IPO-related costs, 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 31
December 2017 and 2016:
2017 2016 Change
$m $m $m %
asset (liability)
Long-lived assets((1)) 2,893.5 2,707.2 186.3 6.9 %
Cash and cash equivalents 289.3 264.1 25.2 9.5 %
Borrowings, including current portion (1,822.9 ) (1,775.6 ) (47.3 ) 2.7 %
_______________________________
(1) Long-lived assets comprise property, plant and equipment,
intangible assets, and goodwill.
Long-lived assets
Long-lived assets increased $186.3 million, or 6.9%, to $2,893.5 million at 31
December 2017, from $2,707.2 million at 31 December 2016, primarily due to (i)
long-lived assets from the Woodbury and EuroTec acquisitions of $142.8
million, in the aggregate, (ii) additions of property, plant, and equipment
and intangible assets of $87.5 million, in the aggregate, and (iii) an
increase from foreign currency exchange of $137.9 million, partially offset by
(iv) the depreciation of property, plant and equipment, and amortisation of
intangible assets of $179.4 million, in the aggregate.
Cash and cash equivalents
Cash and cash equivalents increased $25.2 million, or 9.5%, to $289.3 million
at 31 December 2017, from $264.1 million at 31 December 2016, primarily due to
(i) cash generated from operating activities of $306.6 million and (ii) the
effect of exchange rate changes on cash and cash equivalents of $20.5 million.
These increases were partially offset by (i) $105.5 million paid during 2017
in connection with the Woodbury and EuroTec acquisitions, (ii) purchases of
property, plant, and equipment and capitalised software of $82.7 million,
(iii) scheduled 2017 loan amortisation payments of $39.6 million, in the
aggregate, related to the credit facilities, (iv) $31.3 million repayment of
borrowings assumed in connection with the Woodbury acquisition, (v) dividend
paid of $26.3 million, (vi) $10.5 million of accrued costs paid in connection
with issue of share capital in October 2016, and (vii) $9.6 million to fund
the Employee Benefit Trust to purchase shares in the Company.
Borrowings
Borrowings increased $47.3 million, or 2.7%, to $1,822.9 million at 31
December 2017, from $1,775.6 million at 31 December 2016, primarily due to (i)
foreign currency impact on the Euro denominated borrowings and (ii) the
non-cash amortisation of deferred financing fees and debt discounts. These
increases were partially offset by the scheduled 2017 loan amortisation
payments of $39.6 million, in the aggregate, related to the credit facilities.
Refer to Note 9 - Borrowings for further details.
LIQUIDITY AND CAPITAL RESOURCES
Overview
At 31 December 2017, the Group's cash and cash equivalents were $289.3
million. Additionally, at 31 December 2017, the Group had $192.9 million of
availability under the revolving credit facility. Restricted cash was $5.7
million at 31 December 2017 (refer to Note 3 - Significant Accounting Policies
for further information).
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. In 2017, the
Group generated $306.6 million of cash from operating activities. Significant
cash uses in 2017 included (i) $105.5 million paid in connection with the
Woodbury and EuroTec acquisitions, (ii) capital expenditures of $82.7 million,
(iii) interest payments of $66.5 million, (iv) income tax payments of $46.9
million, (v) scheduled 2017 loan amortisation payments of $39.6 million, (vi)
$31.3 million repayment of borrowings assumed in connection with the Woodbury
acquisition, (vii) $10.5 million of accrued costs paid in connection with
issue of share capital in October 2016, and (viii) $9.6 million to fund the
Employee Benefit Trust to purchase shares in the Company.
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 each of the last two
years:
2017 2016
$m $m
Net cash generated from operating activities 306.6 74.9
Net cash used in investing activities (182.6 ) (63.7 )
Net cash (used in) generated from financing activities (119.3 ) 4.5
Net change in cash and cash equivalents 4.7 15.7
Cash and cash equivalents at beginning of the period 264.1 273.0
Effect of exchange rate changes on cash and cash equivalents 20.5 (24.6 )
Cash and cash equivalents at end of the year 289.3 264.1
Cash flows from operating activities
Net cash generated from operating activities was $306.6 million and $74.9
million in 2017 and 2016, respectively. The following table sets forth the
components of net cash generated from operating activities for each of the
last two years:
2017 2016
$m $m
Adjusted EBITDA 505.0 507.6
Cash interest payments (66.5 ) (270.6 )
Cash tax payment (46.9 ) (39.0 )
Cash-settled AEP and MIP awards - (30.2 )
Other payments((1)) (53.1 ) (55.9 )
Working capital increase (31.9 ) (37.0 )
Net cash generated from operating activities 306.6 74.9
_______________________________
(1) Other payments represent payments related to the IPO-related
costs, restructuring and other related costs, remediation costs, ownership
structure costs and corporate development costs.
Cash interest payments decreased $204.1 million, to $66.5 million in 2017,
from $270.6 million in 2016, primarily due to (i) the redemption in October
2016 of the PIK Notes and the Senior Notes, (ii) lower interest rates on the
Group's credit facilities a result of the October 2016 financing, and (iii)
the payment of commitment fees in 2016. These decreases were partially
offset by incremental interest payments related to the Group's credit
facilities, as the first interest payment subsequent to the October 2016
financing was made on 31 March 2017.
The other payments decreased $2.8 million, to $53.1 million in 2017, from
$55.9 million in 2016, primarily driven by costs related to our 2016 initial
public offering, partially offset by an increase in payments related to
service fees associated with MIP-related activities.
The working capital increase of $31.9 million in 2017 was primarily related to
the timing of receipts, purchases, and payments in the ordinary course of
business. The working capital increase of $37.0 million in 2016 was primarily
related to (i) an increase in inventory to support franchises through the MIP
consolidation of manufacturing facilities and (ii) timing of receipts and
payments in the ordinary course of business.
Cash flows from investing activities
Net cash used in investing activities increased $118.9 million, to $182.6
million in 2017, from $63.7 million in 2016. The increase was primarily due
to (i) $105.5 million, in the aggregate, related to the Woodbury and EuroTec
acquisitions in 2017 and (ii) an increase in capital expenditures of $16.2
million mostly related to the additional capacity for the Infusion Device
product portfolio and continued investment in the MIP. These increases were
partially offset by $5.7 million received in 2017 from the sale of the Group's
former corporate facility located in Skillman, New Jersey.
Cash flows from financing activities
Net cash used in financing activities was $119.3 million in 2017, compared
with net cash generated from financing activities of $4.5 million in 2016,
reflecting a decrease of $123.8 million, primarily due to (i) net proceeds
from the issue of share capital of $1,764.3 million in 2016 that did not
similarly occur in 2017, (ii) $31.3 million repayment of borrowings assumed in
connection with the Woodbury acquisition, (iii) $26.3 million of dividend
paid, (iv) $10.5 million of accrued costs paid in connection with issue of
share capital in October 2016, and (v) $9.6 million to fund the Employee
Benefit Trust to purchase shares in the Company. These decreases were
partially offset by (i) $1,699.4 million of net repayments, primarily driven
by the redemption in October 2016 of the PIK Notes and the Senior Notes, and
the October 2016 financing related to the Group's credit facilities and (ii)
$19.0 million related to the lower deferred financing fees paid in 2017.
Contractual obligations
The Group's contractual obligations consist mainly of payments related to
borrowings and related interest, operating leases, finance lease obligations
and unconditional purchase obligations. The following table summarises the
Group's contractual obligations at 31 December 2017:
Payments Due by Period
Total Within 1 year or on demand 1 to 2 years 2 to 5 years More than 5 years
$m
Borrowings, including interest((1)) 2,051.6 135.4 165.8 1,332.9 417.5
Operating lease obligations 61.4 20.2 14.5 18.4 8.3
Finance lease obligations 41.3 2.7 2.8 8.7 27.1
Purchase obligations((2)) 352.3 153.5 77.6 119.7 1.5
Total 2,506.6 311.8 260.7 1,479.7 454.4
______________________________
(1) Expected interest payments assume repayment of the
principal amount of the debt obligations at maturity.
(2) Purchase obligations consist of agreements to purchase
goods and services that are enforceable and legally binding which primarily
include (i) capital expenditures, (ii) minimum inventory purchases, and (iii)
obligations for warehouse, distribution, freight, and services.
Viability Statement
The Board considers the Company's financial status and viability on a regular
basis as part of its programme to monitor and manage risk. The Board has
concluded that the most relevant outlook period for this review should be
three years ("Viability Period").
In making their assessment, the Board took into account the potential impact
of the principal risks that could prevent the Company from achieving its
strategic objectives. Following an assessment of the Principal Risks and
Uncertainties facing the Group, the Board continue to adopt similar scenarios
to 2016 and believe these are still appropriate to encapsulate our risk
profile. The principal risks used in the assessment are described in detail in
the Principal Risks and Uncertainties section of this Annual Report. Plausible
downside scenarios were then designed to conduct sensitivity analysis and
measure the financial impact these risks would bring to the business.
Consideration was also given to a number of other individual risks and events.
Based on the consolidated financial impact of the sensitivity analysis and
associated mitigating internal controls and risk management actions, the
Directors concluded that the Company will be able to operate within its
existing bank covenants and maintain sufficient bank facilities and cash
reserves to meet its funding needs over the Viability Period.
The assessment of principal risks facing the Company and robust downside
sensitivity analysis, leads the Board to a reasonable expectation that the
Company will remain viable and continue in operation and meet its liabilities
as they become due over the Viability Period through to December 2020.
Going Concern
The Directors have, at the time of approving these 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 a period of at least twelve months from the
date of signing the annual report and accounts. Thus the Directors continue to
adopt the going concern basis in preparing these Financial Statements.
Responsibility Statement of the Directors on the Annual Report and Accounts
The responsibility statement below has been prepared in connection with the
Company's Annual Report and Accounts for the year-ended 31 December 2017.
Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
· The Financial Statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole.
· The Strategic report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
· The Annual Report and Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the Company's performance and position, business model
and strategy.
This responsibility statement was approved by the Board of Directors on 14
February 2018 and is signed on its behalf by:
Paul Moraviec
Chief Executive Officer
Frank Schulkes
Chief Financial Officer
FINANCIAL INFORMATION
TABLE OF CONTENTS
Page
Consolidated Statement of Profit or
Loss
29
Consolidated Statement of Comprehensive Income (Loss)
30
Consolidated Statement of Financial
Position
31
Consolidated Statement of Changes in
Equity
32
Consolidated Statement of Cash
Flows
33
Selected Notes to the Consolidated Financial
Statements
1. General Information
34
2. Accounting Standards
34
3. Significant Accounting
Policies
36
4. Segment
Information
45
5. Income Taxes
47
6.
Dividends
49
7. Earnings per
share 50
8. Acquisition of
Subsidiaries
51
9.
Borrowings
55
10. Legal
Proceedings
60
11. Financial Instruments
61
12. Related Party
Transactions
65
13. Subsequent
Events
66
Audited Consolidated Statement of Profit or Loss
For the year ended 31 December 2017
2017 2016
Notes $m $m
Revenue 4 1,764.6 1,688.3
Cost of goods sold (838.3 ) (821.0 )
Gross profit 926.3 867.3
Selling and distribution expenses (377.5 ) (357.0 )
General and administrative expenses (259.8 ) (318.2 )
Research and development expenses (41.2 ) (38.1 )
Operating profit 247.8 154.0
Finance costs (62.1 ) (271.4 )
Other expense, net (21.7 ) (8.4 )
Profit (loss) before income taxes 164.0 (125.8 )
Income tax expense (5.6 ) (77.0 )
Net profit (loss) 158.4 (202.8 )
Earnings Per Share
Basic and diluted earnings (loss) per share ($ per share) 7 0.08 (0.15 )
All results are attributable to equity holders of the Group and wholly derived
from continuing operations.
Audited Consolidated Statement of Comprehensive Income (Loss)
For the year ended 31 December 2017
2017 2016
Notes $m $m
Net profit (loss) 158.4 (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 2.4 (0.4 )
Recognition of the pension assets restriction 0.2 (6.3 )
Items that may be reclassified subsequently to Statement of Profit or Loss
Exchange differences on translation of foreign operations 109.7 (183.9 )
Effective portion of changes in fair value of cash flow hedges 11 7.4 -
Income tax relating to items that may be reclassified (1.7 ) 31.6
Other comprehensive income (loss) 118.0 (159.0 )
Total comprehensive income (loss) 276.4 (361.8 )
All amounts are attributable to equity holders of the Group and wholly derived
from continuing operations.
Audited Consolidated Statement of Financial Position
As at 31 December 2017
2017 2016
Notes $m $m
Assets
Non-current assets
Property, plant and equipment 334.0 264.8
Intangible assets 1,487.3 1,521.4
Goodwill 1,072.2 921.0
Deferred tax assets 5 9.6 22.0
Restricted cash 3 3.8 2.5
Other assets 18.9 11.4
2,925.8 2,743.1
Current assets
Inventories 284.5 247.5
Trade and other receivables 269.0 233.7
Prepaid expenses and other current assets 32.3 19.9
Cash and cash equivalents 289.3 264.1
Assets held for sale - 5.6
875.1 770.8
Total Assets 3,800.9 3,513.9
Equity and Liabilities
Current liabilities
Trade and other payables 11 122.0 111.6
Borrowings 9, 11 78.2 38.5
Accrued expenses and other current liabilities 64.9 81.3
Accrued compensation 52.7 57.0
Provisions 2.2 9.4
Deferred revenue 3.1 2.2
323.1 300.0
Non-current liabilities
Borrowings 9, 11 1,744.7 1,737.1
Deferred tax liabilities 5 172.2 192.2
Provisions 1.6 1.1
Other liabilities 35.5 37.3
1,954.0 1,967.7
Total Liabilities 2,277.1 2,267.7
Equity
Share capital 238.8 238.8
Share premium 1.3 1,674.1
Own shares (8.1 ) -
Retained deficit (850.0 ) (2,650.2 )
Merger reserve 2,098.9 2,098.9
Cumulative translation reserve (58.4 ) (172.8 )
Other reserves 101.3 57.4
Total Equity 1,523.8 1,246.2
Total Equity and Liabilities 3,800.9 3,513.9
Audited Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Share capital Share premium Own shares Retained deficit Merger reserve Cumulative translation reserve Other reserves Total
Notes $m $m $m $m $m $m $m $m
At 1 January 2016 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
At 31 December 2016 238.8 1,674.1 - (2,650.2 ) 2,098.9 (172.8 ) 57.4 1,246.2
Net profit - - - 158.4 - - - 158.4
Other comprehensive income:
Foreign currency translation adjustment, net of tax - - - (4.7 ) - 114.4 - 109.7
Remeasurement of defined benefit obligation, net of tax - - - - - - 2.4 2.4
Recognition of pension assets restriction - - - - - - 0.2 0.2
Effective portion of changes in fair value of cash flow hedges, net of tax 11 - - - - - - 5.7 5.7
Total other comprehensive income - - - (4.7 ) - 114.4 8.3 118.0
Total comprehensive income - - - 153.7 - 114.4 8.3 276.4
Capital reduction of share premium - (1,674.1 ) - 1,674.1 - - - -
Dividends paid 6 - - - (26.3 ) - - - (26.3 )
Scrip dividend 6 - 1.3 - (1.3 ) - - - -
Share-based payments - - - - - - 36.9 36.9
Share awards vested - - 1.5 - - - (1.5 ) -
Excess tax benefits from share-based compensation - - - - - - 0.2 0.2
Purchase of own shares - - (9.6 ) - - - - (9.6 )
At 31 December 2017 238.8 1.3 (8.1 ) (850.0 ) 2,098.9 (58.4 ) 101.3 1,523.8
Own shares are ordinary shares in the Group purchased and held by an Employee
Benefit Trust to fulfil the Company's obligations under the Group's share
plans. At 31 December 2017, 4,204,211 were held in an Employee Benefit Trust.
The market value of Own shares was $8.2 million at 31 December 2017.
Merger reserve - In 2016, the Financial Statements were prepared under merger
accounting principles. Under these principles, no acquirer was required to be
identified and all entities were included at their pre-combination carrying
amounts. This accounting treatment lead to differences on consolidation
between share capital in issue and the book value of the underlying net assets
acquired, this difference is included within equity as a merger reserve.
Cumulative translation reserve - The foreign currency translation reserve is
used to record exchange differences arising from the translation of the
financial statements of foreign subsidiaries. In 2016, the Group reclassified
foreign exchange accumulated losses of $36.4 million from other comprehensive
income to the Consolidated Statement of Profit or Loss as a result of
restructuring of certain foreign subsidiaries as part of the IPO process.
2017 Condensed Consolidated Financial Statements
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
2017 2016
Notes $m $m
Cash flows from operating activities
Net profit (loss) 158.4 (202.8 )
Adjustments for
Depreciation 34.6 39.0
Amortisation 144.8 142.8
Acquisition accounting adjustment on inventory sold 1.6 -
Income tax expense 5 5.6 77.0
Impairment losses - 4.7
Other expense, net 21.7 8.4
Finance costs 62.1 271.4
Share-based compensation 36.9 53.0
Write-off/disposal of assets 2.5 6.7
Hyperinflation - (6.7 )
Changes in assets and liabilities:
Inventories (10.9 ) (27.3 )
Trade and other receivables (6.2 ) (8.9 )
Other current assets (6.3 ) 0.3
Deferred revenue 0.9 (2.1 )
Accounts payable and accrued expenses (27.3 ) 25.6
Other liabilities 1.6 3.4
Cash generated from operations 420.0 384.5
Interest paid (66.5 ) (270.6 )
Income taxes paid (46.9 ) (39.0 )
Net cash generated from operating activities 306.6 74.9
Cash flows from investing activities
Acquisition of property, plant and equipment and capitalised software (82.7 ) (66.5 )
Proceeds from sale of property, plant and equipment and other assets 2.6 0.7
Acquisitions, net of cash acquired 8 (105.5 ) -
Proceeds from assets held for sale 5.7 -
Change in restricted cash (0.6 ) 3.5
Capitalised development expenditure (2.1 ) (1.4 )
Net cash used in investing activities (182.6 ) (63.7 )
Cash flows from financing activities
Proceeds from issue of share capital, net - 1,764.3
Proceeds from borrowings, net of discount - 1,792.6
Repayment of borrowings (70.9 ) (3,531.6 )
Payment of accrued share capital issue costs (10.5 ) -
Payment of finance lease liabilities (0.6 ) (0.4 )
Payments of deferred financing fees (1.4 ) (20.4 )
Dividend paid (26.3 ) -
Purchase of own shares (9.6 ) -
Net cash (used in) generated from financing activities (119.3 ) 4.5
Net change in cash and cash equivalents 4.7 15.7
Cash and cash equivalents at beginning of the year 264.1 273.0
Effect of exchange rate changes on cash and cash equivalents 20.5 (24.6 )
Cash and cash equivalents at end of the year 289.3 264.1
Supplemental cash flow information
Non-cash investing activities
Accrued capital expenditures included in accounts payable and accrued expenses 15.4 13.4
Notes to the Condensed Consolidated Financial Statements
1. General Information
ConvaTec Group Plc (the "Company") is a company incorporated in the United
Kingdom under the Companies Act of 2006 with its registered office situated in
England and Wales. The Company's registered office and principal place of
business is at 3 Forbury Place, 23 Forbury Road, Reading, RG1 3JH, United
Kingdom.
The Company and its subsidiaries (collectively, 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, continence and critical care and infusion
devices used in treatment of diabetes and other conditions.
The Financial Statements, on which this announcement is based, 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.
The is announcement is based on the Company's financial statements which are
prepared in accordance with IFRS as adopted by EU and therefore comply with
Article 4 of the EU IAS Regulations. IFRS includes the standards and
interpretations approved by the IASB including International Accounting
Standards ("IAS") and interpretations issued by the IFRS Interpretations
Committee ("IFRSIC").
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.
With the exception of the new standards adopted in the year, as discussed in
Note 2, there have been no significant changes in accounting policies from
those set out in ConvaTec's Annual Report and Accounts 2016. Those
accounting policies have been applied consistently throughout the period ended
31 December 2016 and the year ended 31 December 2017 other than as noted
below.
The financial information set out in this announcement does not constitute the
Group's statutory accounts for the period ended 31 December 2016 or the year
ended 31 December 2017 but is derived from those accounts. Statutory
accounts for 2016 have been delivered to the Registrar of Companies and those
for 2017 will be delivered following the Company's Annual General Meeting.
The auditor's report on the 2016 and 2017 accounts were unqualified, did not
draw attention to any matters by way of emphasis without qualifying their
report and did not contain a statement under section 498(2) or (3) of the
Companies Act 2006.
2. Accounting Standards
New standards and interpretations applied for the first time
In the current year the Group has applied a number of amendments to
International Financial Reporting Standards ("IFRS" or "IFRSs") issued by the
International Accounting Standards Board ("IASB"). Their adoption has not had
a material impact on the disclosures or on the amounts reported in these
Financial Statements. The following amendments were applied:
• IAS 7, Statement of Cash Flows.
• IAS 12, Income Taxes.
Otherwise the accounting policies set out in Note 3 - Significant Accounting
Policies, below, have been applied consistently to both years presented in
these Financial Statements.
New standards and interpretations not yet applied
At the date of authorisation of these Financial Statements, the following new
and revised IFRSs that are potentially relevant to the Group, and which have
not been applied in these Financial Statements, were in issue but not yet
effective (and in some cases had not yet been adopted by the European Union
("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.
• 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 future
periods will have no material impact on the Financial Statements of the Group
except for IFRS 16, Leases.
IFRS 16
IFRS 16, Leases, will bring a significant portion of the Group's operating
leases onto the statement of financial position. The standard represents a
significant change in the accounting and reporting of leases for lessees as it
provides a single lessee accounting model. As such it requires lessees to
recognise assets and liabilities for all leases unless the underlying asset
has a low value or the lease term is 12 months or less. The standard may also
require the capitalisation of a lease element of contracts held by the Group
which under the existing accounting standard would not be considered a
lease. Accounting requirements for lessors are substantially unchanged from
IAS 17.
The Group has established a working group to assess the impact of the new
standard. Work performed includes assessing the accounting impacts of the
change, the process of collecting the required data from across the business
and the necessary changes to systems and processes. From work performed to
date, it is expected implementation of the new standard will have a
significant impact on the consolidated results of the Group. On adoption,
lease agreements will give rise to both a right of use asset and a lease
liability for future lease payables. Depreciation of the right of use asset
will be recognised in the Statement of Profit or Loss on a straight-line
basis, with interest recognised on the lease liability. This will result in a
change to the profile of the net charge taken to the Statement of Profit or
Loss over the life of the lease. These charges will replace the lease costs
currently charged to the Statement of Profit or Loss.
The Group continues to assess the full impact of IFRS 16, however, the impact
will greatly depend on the facts and
- More to follow, for following part double click ID:nRSO9401Ec (a) (b) (c) (d) (e) (f) (g)
$m
Revenue 1,688.3 - - - - - - - 1,688.3
Cost of goods sold (821.0 ) 136.8 23.8 - - - - 0.2 (660.2 )
Gross profit 867.3 136.8 23.8 - - - - 0.2 1,028.1
Gross margin % 51.4% 60.9%
Selling and distribution expenses (357.0 ) - 0.9 - - - - 0.9 (355.2 )
General and administrative expenses (318.2 ) 18.1 5.0 11.7 0.8 - 90.2 28.0 (164.4 )
Research and development expenses (38.1 ) 0.2 1.2 - - - - 0.4 (36.3 )
Operating profit 154.0 155.1 30.9 11.7 0.8 - 90.2 29.5 472.2
Operating profit % 9.1% 28.0%
Finance costs (271.4 ) - - - - 29.2 - - (242.2 )
Other expense, net (8.4 ) - - - - 8.4 - - -
(Loss) profit before income taxes (125.8 ) 155.1 30.9 11.7 0.8 37.6 90.2 29.5 230.0
Income tax expense(h) (77.0 ) (51.2 )
Net (loss) profit (202.8 ) 178.8
Net (loss) profit % (12.0)% 10.6%
Basic Earnings Per Share ($ per share)(i) (0.15 ) 0.13
Diluted Earnings Per Share ($ per share)(i) (0.15 ) 0.13
_______________________________
(a) Represents an adjustment to exclude (i) acquisition-related amortisation expense of $137.5 million and $136.1
million in 2017 and 2016, respectively, (ii) accelerated depreciation of $1.3 million and $11.1 million in 2017 and 2016,
respectively, related to the closure of certain manufacturing facilities, (iii) impairment charges and asset write offs
related to property, plant and equipment and intangible assets of $0.5 million and $7.9 million, in the aggregate, in 2017
and 2016, respectively, (iv) a $2.6 million gain on the sale of fully depreciated assets in Malaysia in 2017, and (v) an
acquisition accounting adjustment of $1.6 million related to acquired inventories that were sold in 2017.
(b) Represents restructuring costs and other-related costs (excluding accelerated depreciation described above
under (a)) primarily incurred in connection with the Margin Improvement Programme ("MIP"), and also includes other
termination and leaver costs relating to organisation structure changes and other costs.
(c) Represents remediation costs which include regulatory compliance costs related to FDA activities, IT
enhancement costs, and professional service fees associated with activities that were undertaken in respect of the Group's
compliance function and to strengthen its control environment within finance.
(d) Represents costs primarily related to corporate development activities.
(e) Represents adjustment to exclude (i) loss on extinguishment of debt and write-off of deferred financing fees
and (ii) foreign exchange related transactions.
(f) Represents an adjustment to exclude (i) share-based compensation expense of $29.3 million and $85.9 million in
2017 and 2016, respectively, arising from pre-IPO employee equity grants and (ii) pre-IPO ownership structure related
costs, including management fees to Nordic Capital and Avista (refer to Note 12 - Related Party Transactions for further
information).
(g) Represents IPO-related costs, primarily advisory fees.
(h) Adjusted income tax expense/benefit is income tax (expense) benefit net of tax adjustments. In addition to the
tax impacts of items (a) to (g), tax benefits resulting from the US Tax Reform and from the acquisition of Woodbury have
been adjusted for. See Note 5 - Income Taxes for further details.
(i) Adjusted earnings per share and adjusted diluted earnings per share has been calculated by dividing adjusted
net profit by the weighted average ordinary shares in issue and the diluted weighted average ordinary shares in issue
respectively, as calculated in Note 7 - Earnings Per Share.
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.
Adjusted EBITDA, as shown below and used to determine cash conversion (see below), adds back post-IPO employee share-based
compensation charges and other non-cash charges. The post-IPO share-based compensation and other non-cash charges are not
added back in the calculation of Adjusted earnings per share above.
The following table reconciles the Group's Adjusted EBIT to Adjusted EBITDA.
2017 2016
$m $m
Adjusted EBIT 456.8 472.2
Software and R&D amortisation(a) 7.3 6.7
Depreciation(b) 33.3 27.9
Post-IPO share-based compensation(c) 7.6 0.8
Adjusted EBITDA 505.0 507.6
_______________________________
(a) The following is a summary of software and R&D amortisation as recorded in the Consolidated Statement of Profit
or Loss for each of the last two years:
2017 2016
$m $m
Cost of goods sold - 0.5
General and administrative expenses 7.1 6.2
Research and development expenses 0.2 -
Software and R&D amortisation 7.3 6.7
(b) The following is a summary of depreciation (excluding accelerated depreciation), as recorded in the
Consolidated Statement of Profit or Loss for each of the last two years:
2017 2016
$m $m
Cost of goods sold 28.3 23.6
Selling and distribution expenses 0.4 0.3
General and administrative expenses 3.9 3.2
Research and development expenses 0.7 0.8
Depreciation, excluding accelerated depreciation 33.3 27.9
(c) The post-IPO share-based compensation was recorded in General and administrative expenses in the 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 2017 and 2016 is as follows:
2017 2016
$m $m
Adjusted EBITDA 505.0 507.6
Working capital increase (31.9 ) (37.0 )
PP&E purchases (82.7 ) (66.5 )
390.4 404.1
Cash conversion 77.3 % 79.6 %
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, (iii) payments related to cash-settled AEP and MIP awards, and (iv) 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 2017 and 2016 is as follows:
2017 2016
$m $m
Net cash generated from operating activities 306.6 74.9
Add:
Cash interest payments 66.5 270.6
Cash tax payments 46.9 39.0
Cash-settled AEP and MIP awards - 30.2
Other payments(1) 53.1 55.9
Less:
PP&E Purchases (82.7) (66.5)
390.4 404.1
Adjusted EBITDA 505.0 507.6
Cash conversion 77.3% 79.6
_______________________________
(1) Other payments represent payments related to the IPO-related costs, 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 31 December 2017 and 2016:
2017 2016 Change
$m $m $m %
asset (liability)
Long-lived assets(1) 2,893.5 2,707.2 186.3 6.9 %
Cash and cash equivalents 289.3 264.1 25.2 9.5 %
Borrowings, including current portion (1,822.9 ) (1,775.6 ) (47.3 ) 2.7 %
_______________________________
(1) Long-lived assets comprise property, plant and equipment, intangible assets, and goodwill.
Long-lived assets
Long-lived assets increased $186.3 million, or 6.9%, to $2,893.5 million at 31 December 2017, from $2,707.2 million at 31
December 2016, primarily due to (i) long-lived assets from the Woodbury and EuroTec acquisitions of $142.8 million, in the
aggregate, (ii) additions of property, plant, and equipment and intangible assets of $87.5 million, in the aggregate, and
(iii) an increase from foreign currency exchange of $137.9 million, partially offset by (iv) the depreciation of property,
plant and equipment, and amortisation of intangible assets of $179.4 million, in the aggregate.
Cash and cash equivalents
Cash and cash equivalents increased $25.2 million, or 9.5%, to $289.3 million at 31 December 2017, from $264.1 million at
31 December 2016, primarily due to (i) cash generated from operating activities of $306.6 million and (ii) the effect of
exchange rate changes on cash and cash equivalents of $20.5 million. These increases were partially offset by (i) $105.5
million paid during 2017 in connection with the Woodbury and EuroTec acquisitions, (ii) purchases of property, plant, and
equipment and capitalised software of $82.7 million, (iii) scheduled 2017 loan amortisation payments of $39.6 million, in
the aggregate, related to the credit facilities, (iv) $31.3 million repayment of borrowings assumed in connection with the
Woodbury acquisition, (v) dividend paid of $26.3 million, (vi) $10.5 million of accrued costs paid in connection with issue
of share capital in October 2016, and (vii) $9.6 million to fund the Employee Benefit Trust to purchase shares in the
Company.
Borrowings
Borrowings increased $47.3 million, or 2.7%, to $1,822.9 million at 31 December 2017, from $1,775.6 million at 31 December
2016, primarily due to (i) foreign currency impact on the Euro denominated borrowings and (ii) the non-cash amortisation of
deferred financing fees and debt discounts. These increases were partially offset by the scheduled 2017 loan amortisation
payments of $39.6 million, in the aggregate, related to the credit facilities. Refer to Note 9 - Borrowings for further
details.
LIQUIDITY AND CAPITAL RESOURCES
Overview
At 31 December 2017, the Group's cash and cash equivalents were $289.3 million. Additionally, at 31 December 2017, the
Group had $192.9 million of availability under the revolving credit facility. Restricted cash was $5.7 million at 31
December 2017 (refer to Note 3 - Significant Accounting Policies for further information).
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. In 2017, the Group generated $306.6
million of cash from operating activities. Significant cash uses in 2017 included (i) $105.5 million paid in connection
with the Woodbury and EuroTec acquisitions, (ii) capital expenditures of $82.7 million, (iii) interest payments of $66.5
million, (iv) income tax payments of $46.9 million, (v) scheduled 2017 loan amortisation payments of $39.6 million, (vi)
$31.3 million repayment of borrowings assumed in connection with the Woodbury acquisition, (vii) $10.5 million of accrued
costs paid in connection with issue of share capital in October 2016, and (viii) $9.6 million to fund the Employee Benefit
Trust to purchase shares in the Company.
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 each of the last two years:
2017 2016
$m $m
Net cash generated from operating activities 306.6 74.9
Net cash used in investing activities (182.6 ) (63.7 )
Net cash (used in) generated from financing activities (119.3 ) 4.5
Net change in cash and cash equivalents 4.7 15.7
Cash and cash equivalents at beginning of the period 264.1 273.0
Effect of exchange rate changes on cash and cash equivalents 20.5 (24.6 )
Cash and cash equivalents at end of the year 289.3 264.1
Cash flows from operating activities
Net cash generated from operating activities was $306.6 million and $74.9 million in 2017 and 2016, respectively. The
following table sets forth the components of net cash generated from operating activities for each of the last two years:
2017 2016
$m $m
Adjusted EBITDA 505.0 507.6
Cash interest payments (66.5 ) (270.6 )
Cash tax payment (46.9 ) (39.0 )
Cash-settled AEP and MIP awards - (30.2 )
Other payments(1) (53.1 ) (55.9 )
Working capital increase (31.9 ) (37.0 )
Net cash generated from operating activities 306.6 74.9
_______________________________
(1) Other payments represent payments related to the IPO-related costs, restructuring and other related costs,
remediation costs, ownership structure costs and corporate development costs.
Cash interest payments decreased $204.1 million, to $66.5 million in 2017, from $270.6 million in 2016, primarily due to
(i) the redemption in October 2016 of the PIK Notes and the Senior Notes, (ii) lower interest rates on the Group's credit
facilities a result of the October 2016 financing, and (iii) the payment of commitment fees in 2016. These decreases were
partially offset by incremental interest payments related to the Group's credit facilities, as the first interest payment
subsequent to the October 2016 financing was made on 31 March 2017.
The other payments decreased $2.8 million, to $53.1 million in 2017, from $55.9 million in 2016, primarily driven by costs
related to our 2016 initial public offering, partially offset by an increase in payments related to service fees associated
with MIP-related activities.
The working capital increase of $31.9 million in 2017 was primarily related to the timing of receipts, purchases, and
payments in the ordinary course of business. The working capital increase of $37.0 million in 2016 was primarily related to
(i) an increase in inventory to support franchises through the MIP consolidation of manufacturing facilities and (ii)
timing of receipts and payments in the ordinary course of business.
Cash flows from investing activities
Net cash used in investing activities increased $118.9 million, to $182.6 million in 2017, from $63.7 million in 2016. The
increase was primarily due to (i) $105.5 million, in the aggregate, related to the Woodbury and EuroTec acquisitions in
2017 and (ii) an increase in capital expenditures of $16.2 million mostly related to the additional capacity for the
Infusion Device product portfolio and continued investment in the MIP. These increases were partially offset by $5.7
million received in 2017 from the sale of the Group's former corporate facility located in Skillman, New Jersey.
Cash flows from financing activities
Net cash used in financing activities was $119.3 million in 2017, compared with net cash generated from financing
activities of $4.5 million in 2016, reflecting a decrease of $123.8 million, primarily due to (i) net proceeds from the
issue of share capital of $1,764.3 million in 2016 that did not similarly occur in 2017, (ii) $31.3 million repayment of
borrowings assumed in connection with the Woodbury acquisition, (iii) $26.3 million of dividend paid, (iv) $10.5 million of
accrued costs paid in connection with issue of share capital in October 2016, and (v) $9.6 million to fund the Employee
Benefit Trust to purchase shares in the Company. These decreases were partially offset by (i) $1,699.4 million of net
repayments, primarily driven by the redemption in October 2016 of the PIK Notes and the Senior Notes, and the October 2016
financing related to the Group's credit facilities and (ii) $19.0 million related to the lower deferred financing fees paid
in 2017.
Contractual obligations
The Group's contractual obligations consist mainly of payments related to borrowings and related interest, operating
leases, finance lease obligations and unconditional purchase obligations. The following table summarises the Group's
contractual obligations at 31 December 2017:
Payments Due by Period
Total Within 1 year or on demand 1 to 2 years 2 to 5 years More than 5 years
$m
Borrowings, including interest(1) 2,051.6 135.4 165.8 1,332.9 417.5
Operating lease obligations 61.4 20.2 14.5 18.4 8.3
Finance lease obligations 41.3 2.7 2.8 8.7 27.1
Purchase obligations(2) 352.3 153.5 77.6 119.7 1.5
Total 2,506.6 311.8 260.7 1,479.7 454.4
______________________________
(1) Expected interest payments assume repayment of the principal amount of the debt obligations at maturity.
(2) Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally
binding which primarily include (i) capital expenditures, (ii) minimum inventory purchases, and (iii) obligations for
warehouse, distribution, freight, and services.
Viability Statement
The Board considers the Company's financial status and viability on a regular basis as part of its programme to monitor and
manage risk. The Board has concluded that the most relevant outlook period for this review should be three years
("Viability Period").
In making their assessment, the Board took into account the potential impact of the principal risks that could prevent the
Company from achieving its strategic objectives. Following an assessment of the Principal Risks and Uncertainties facing
the Group, the Board continue to adopt similar scenarios to 2016 and believe these are still appropriate to encapsulate our
risk profile. The principal risks used in the assessment are described in detail in the Principal Risks and Uncertainties
section of this Annual Report. Plausible downside scenarios were then designed to conduct sensitivity analysis and measure
the financial impact these risks would bring to the business. Consideration was also given to a number of other individual
risks and events.
Based on the consolidated financial impact of the sensitivity analysis and associated mitigating internal controls and risk
management actions, the Directors concluded that the Company will be able to operate within its existing bank covenants and
maintain sufficient bank facilities and cash reserves to meet its funding needs over the Viability Period.
The assessment of principal risks facing the Company and robust downside sensitivity analysis, leads the Board to a
reasonable expectation that the Company will remain viable and continue in operation and meet its liabilities as they
become due over the Viability Period through to December 2020.
Going Concern
The Directors have, at the time of approving these 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 a period of at least twelve
months from the date of signing the annual report and accounts. Thus the Directors continue to adopt the going concern
basis in preparing these Financial Statements.
Responsibility Statement of the Directors on the Annual Report and Accounts
The responsibility statement below has been prepared in connection with the Company's Annual Report and Accounts for the
year-ended 31 December 2017. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
· The Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in
the consolidation taken as a whole.
· The Strategic report includes a fair review of the development and performance of the business and the position of
the Company and the undertakings included in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
· The Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's performance and position, business model and strategy.
This responsibility statement was approved by the Board of Directors on 14 February 2018 and is signed on its behalf by:
Paul Moraviec
Chief Executive Officer
Frank Schulkes
Chief Financial Officer
FINANCIAL INFORMATION
TABLE OF CONTENTS
Page
Consolidated Statement of Profit or Loss 29
Consolidated Statement of Comprehensive Income (Loss) 30
Consolidated Statement of Financial Position 31
Consolidated Statement of Changes in Equity 32
Consolidated Statement of Cash Flows 33
Selected Notes to the Consolidated Financial Statements
1. General Information 34
2. Accounting Standards 34
3. Significant Accounting Policies 36
4. Segment Information 45
5. Income Taxes
47
6. Dividends
49
7. Earnings per share 50
8. Acquisition of Subsidiaries 51
9. Borrowings
55
10. Legal Proceedings 60
11. Financial Instruments 61
12. Related Party Transactions 65
13. Subsequent Events 66
Audited Consolidated Statement of Profit or Loss
For the year ended 31 December 2017
2017 2016
Notes $m $m
Revenue 4 1,764.6 1,688.3
Cost of goods sold (838.3 ) (821.0 )
Gross profit 926.3 867.3
Selling and distribution expenses (377.5 ) (357.0 )
General and administrative expenses (259.8 ) (318.2 )
Research and development expenses (41.2 ) (38.1 )
Operating profit 247.8 154.0
Finance costs (62.1 ) (271.4 )
Other expense, net (21.7 ) (8.4 )
Profit (loss) before income taxes 164.0 (125.8 )
Income tax expense (5.6 ) (77.0 )
Net profit (loss) 158.4 (202.8 )
Earnings Per Share
Basic and diluted earnings (loss) per share ($ per share) 7 0.08 (0.15 )
All results are attributable to equity holders of the Group and wholly derived from continuing operations.
Audited Consolidated Statement of Comprehensive Income (Loss)
For the year ended 31 December 2017
2017 2016
Notes $m $m
Net profit (loss) 158.4 (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 2.4 (0.4 )
Recognition of the pension assets restriction 0.2 (6.3 )
Items that may be reclassified subsequently to Statement of Profit or Loss
Exchange differences on translation of foreign operations 109.7 (183.9 )
Effective portion of changes in fair value of cash flow hedges 11 7.4 -
Income tax relating to items that may be reclassified (1.7 ) 31.6
Other comprehensive income (loss) 118.0 (159.0 )
Total comprehensive income (loss) 276.4 (361.8 )
All amounts are attributable to equity holders of the Group and wholly derived from continuing operations.
Audited Consolidated Statement of Financial Position
As at 31 December 2017
2017 2016
Notes $m $m
Assets
Non-current assets
Property, plant and equipment 334.0 264.8
Intangible assets 1,487.3 1,521.4
Goodwill 1,072.2 921.0
Deferred tax assets 5 9.6 22.0
Restricted cash 3 3.8 2.5
Other assets 18.9 11.4
2,925.8 2,743.1
Current assets
Inventories 284.5 247.5
Trade and other receivables 269.0 233.7
Prepaid expenses and other current assets 32.3 19.9
Cash and cash equivalents 289.3 264.1
Assets held for sale - 5.6
875.1 770.8
Total Assets 3,800.9 3,513.9
Equity and Liabilities
Current liabilities
Trade and other payables 11 122.0 111.6
Borrowings 9, 11 78.2 38.5
Accrued expenses and other current liabilities 64.9 81.3
Accrued compensation 52.7 57.0
Provisions 2.2 9.4
Deferred revenue 3.1 2.2
323.1 300.0
Non-current liabilities
Borrowings 9, 11 1,744.7 1,737.1
Deferred tax liabilities 5 172.2 192.2
Provisions 1.6 1.1
Other liabilities 35.5 37.3
1,954.0 1,967.7
Total Liabilities 2,277.1 2,267.7
Equity
Share capital 238.8 238.8
Share premium 1.3 1,674.1
Own shares (8.1 ) -
Retained deficit (850.0 ) (2,650.2 )
Merger reserve 2,098.9 2,098.9
Cumulative translation reserve (58.4 ) (172.8 )
Other reserves 101.3 57.4
Total Equity 1,523.8 1,246.2
Total Equity and Liabilities 3,800.9 3,513.9
Audited Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Share capital Share premium Own shares Retained deficit Merger reserve Cumulative translation reserve Other reserves Total
Notes $m $m $m $m $m $m $m $m
At 1 January 2016 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
At 31 December 2016 238.8 1,674.1 - (2,650.2 ) 2,098.9 (172.8 ) 57.4 1,246.2
Net profit - - - 158.4 - - - 158.4
Other comprehensive income:
Foreign currency translation adjustment, net of tax - - - (4.7 ) - 114.4 - 109.7
Remeasurement of defined benefit obligation, net of tax - - - - - - 2.4 2.4
Recognition of pension assets restriction - - - - - - 0.2 0.2
Effective portion of changes in fair value of cash flow hedges, net of tax 11 - - - - - - 5.7 5.7
Total other comprehensive income - - - (4.7 ) - 114.4 8.3 118.0
Total comprehensive income - - - 153.7 - 114.4 8.3 276.4
Capital reduction of share premium - (1,674.1 ) - 1,674.1 - - - -
Dividends paid 6 - - - (26.3 ) - - - (26.3 )
Scrip dividend 6 - 1.3 - (1.3 ) - - - -
Share-based payments - - - - - - 36.9 36.9
Share awards vested - - 1.5 - - - (1.5 ) -
Excess tax benefits from share-based compensation - - - - - - 0.2 0.2
Purchase of own shares - - (9.6 ) - - - - (9.6 )
At 31 December 2017 238.8 1.3 (8.1 ) (850.0 ) 2,098.9 (58.4 ) 101.3 1,523.8
Own shares are ordinary shares in the Group purchased and held by an Employee Benefit Trust to fulfil the Company's
obligations under the Group's share plans. At 31 December 2017, 4,204,211 were held in an Employee Benefit Trust. The
market value of Own shares was $8.2 million at 31 December 2017.
Merger reserve - In 2016, the Financial Statements were prepared under merger accounting principles. Under these
principles, no acquirer was required to be identified and all entities were included at their pre-combination carrying
amounts. This accounting treatment lead to differences on consolidation between share capital in issue and the book value
of the underlying net assets acquired, this difference is included within equity as a merger reserve.
Cumulative translation reserve - The foreign currency translation reserve is used to record exchange differences arising
from the translation of the financial statements of foreign subsidiaries. In 2016, the Group reclassified foreign exchange
accumulated losses of $36.4 million from other comprehensive income to the Consolidated Statement of Profit or Loss as a
result of restructuring of certain foreign subsidiaries as part of the IPO process.
2017 Condensed Consolidated Financial Statements
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
2017 2016
Notes $m $m
Cash flows from operating activities
Net profit (loss) 158.4 (202.8 )
Adjustments for
Depreciation 34.6 39.0
Amortisation 144.8 142.8
Acquisition accounting adjustment on inventory sold 1.6 -
Income tax expense 5 5.6 77.0
Impairment losses - 4.7
Other expense, net 21.7 8.4
Finance costs 62.1 271.4
Share-based compensation 36.9 53.0
Write-off/disposal of assets 2.5 6.7
Hyperinflation - (6.7 )
Changes in assets and liabilities:
Inventories (10.9 ) (27.3 )
Trade and other receivables (6.2 ) (8.9 )
Other current assets (6.3 ) 0.3
Deferred revenue 0.9 (2.1 )
Accounts payable and accrued expenses (27.3 ) 25.6
Other liabilities 1.6 3.4
Cash generated from operations 420.0 384.5
Interest paid (66.5 ) (270.6 )
Income taxes paid (46.9 ) (39.0 )
Net cash generated from operating activities 306.6 74.9
Cash flows from investing activities
Acquisition of property, plant and equipment and capitalised software (82.7 ) (66.5 )
Proceeds from sale of property, plant and equipment and other assets 2.6 0.7
Acquisitions, net of cash acquired 8 (105.5 ) -
Proceeds from assets held for sale 5.7 -
Change in restricted cash
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