REG - ConvaTec Group PLC - Final Results <Origin Href="QuoteRef">CTEC.L</Origin> - Part 3
15/02/2018 07:11
- Part 3: For the preceding part double click ID:nRSO9401Eb
circumstances at the time of adoption and
upon transition choices adopted. It is therefore not yet practicable to
provide a reliable estimate of the financial impact on the Group's
consolidated results.
IFRS 15
IFRS 15, Revenue from Contracts with Customers 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. An assessment of the impact of IFRS 15 has been completed.
Revenue recognition under IFRS 15 is considered to be consistent with the
current practice for the Group's revenue. Based on the Group's assessment from
work performed, the adoption of IFRS 15 will not have a material impact on the
consolidated financial statements.
IFRS 9
IFRS 9, Financial Instruments, provides a new expected losses impairment model
and includes amendments to classification and measurement of financial
instruments. The Group does not expect that the adoption of IFRS 9 will have a
material impact on the consolidated financial statements but will impact both
the measurement and disclosure of financial instruments.
3. Significant Accounting Policies
Statement of Compliance
The Financial Statements have been 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 IAS
and interpretations issued by IFRSIC.
The principal Group accounting policies are explained below and have been
applied consistently throughout the years ended 31 December 2017 and 2016
other than those noted in Note 2 - Accounting Standards above.
Basis of Preparation
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.
2016 Reorganisation
On 31 October 2016, the Group completed the initial public offering ("IPO") of
its ordinary shares, was admitted to the premium listing segment of the
Official List of the Financial Conduct Authority and is trading on the main
market of the London Stock Exchange.
The Company was initially incorporated as ConvaTec Group Limited on 6
September 2016, with its registered office situated in the United Kingdom, and
was registered as a public company and changed its name to ConvaTec Group plc
on 10 October 2016.
Prior to listing, the Company became the holding company of the Group through
the acquisition of the full share capital of Cidron Healthcare Limited
("Cidron") and its subsidiaries (the "Existing Group"). Shares in Cidron, an
entity formerly owned by Nordic Capital and Avista Capital Partners, the
former equity sponsors and principal shareholders, were exchanged for
1,261,343,801 shares in the Company. These shares were issued and credited as
fully paid of 10 pence each giving rise to the share capital of $154.4
million.
Both the Company and the Existing Group were under common control before and
after the 2016 reorganisation. As a common control transaction, this does not
meet the definition of a business combination under IFRS 3 Business
Combinations and as such, falls outside the scope of that standard. As a
consequence, following guidance from IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors, the introduction of the company has been
prepared under merger accounting principles. This policy, which does not
conflict with IFRS, reflects the economic substance of the transaction. Under
these principles, no acquirer is required to be identified and all entities
are included at their pre-combination carrying amounts. This accounting
treatment leads to differences on consolidation between share capital in issue
($154.4 million) and the book value of the underlying net assets acquired,
this difference is included within equity as a merger reserve. Under these
principals, the Group has presented its Financial Statements of the Group as
though the current Group structure had always been in place. Accordingly, the
results of the combined entities for both the current and prior period are
presented as if the Group had been in existence throughout the periods
presented, rather than from the restructuring date.
Immediately prior to listing, management shares held in the subsidiaries of
the Group were converted to shares in the Company. Furthermore, the
modification of the MEP (defined below) management incentive plan resulted in
the issuance of further shares. The effects of these two events was to bring
the total shares in the Company immediately prior to listing to 1,300,000,000
from 1,261,343,801.
Basis of Consolidation
The Group Financial Statements include the results of the Company and all its
subsidiary undertakings. Subsidiaries are entities controlled by the group.
Control exists when the Group: (i) has power over the investee, (ii) is
exposed, or has rights, to variable returns from its involvement in the
investee and (iii) has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control listed above. All intercompany transactions and balances
have been eliminated. The consolidated financial information of the Company's
subsidiaries is included within the Group's Financial Statements from the date
that control commences until the date that control ceases, and are prepared
for the same year end date using consistent accounting policies.
Business Combinations
Acquisitions of subsidiaries and businesses are accounted for using the
acquisition method of accounting. Consideration transferred in respect of the
acquisition is measured at the fair value of the assets acquired, equity
instruments issued and liabilities incurred or assumed on the date of the
acquisition. Identified assets acquired and liabilities assumed are measured
at their respective acquisition-date fair values. The excess of the fair value
of the consideration given over the fair value of the identifiable net assets
acquired is recorded as goodwill. Acquisition-related cost is expensed as
incurred. The operating results of the acquired business are reflected in the
Group's Financial Statements after the date of acquisition.
Revenue Recognition
Revenue for goods sold is recognised to the extent that it is probable that
economic benefits will flow to the Group upon transfer to the customer of the
significant risks and rewards of ownership and revenue can be reliably
measured. Generally, products are insured through delivery and revenue is
recognised upon the date of receipt by the customer.
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods sold in the normal
course of business to external customers, net of sales discounts and volume
rebates. Due to the short-term nature of the receivables from sale of goods,
the Group measures them at the original invoice amounts without discounting.
Revenues are recorded based on the price specified in the sales contracts, net
of value-added tax, and sales rebates and returns estimated at the time of
sale. Revenues are reduced at the time of recognition to reflect expected
product returns and chargebacks, discounts, rebates and estimated sales
allowances based on historical experience and updated for changes in facts and
circumstances, as appropriate.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
Current tax
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method.
Deferred tax is recognised in respect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax is not recognised for
the following temporary differences: the initial recognition of assets or
liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit or loss, and differences
relating to investments in subsidiaries and jointly controlled entities to the
extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred tax is not recognised for taxable temporary
differences arising on the initial recognition of goodwill. Deferred tax is
measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date.
A deferred tax asset is recognised for unused tax losses, tax credits and
deductible temporary differences, to the extent that it is probable that
future taxable profits will be available against which they can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be
realised.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised based on tax
laws and rates that have been enacted or substantively enacted at the balance
sheet date. Deferred tax is charged or credited in the income statement,
except when it relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other
comprehensive income.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they
relate to income taxes levied by the same tax authority on the same taxable
entity, or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will
be realised simultaneously.
Current tax and deferred tax for the year
Current and deferred tax are recognised in the Consolidated Statement of
Profit or Loss, except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case, the current and
deferred tax are also recognised in other comprehensive income or directly in
equity, respectively. Where current tax or deferred tax arises from the
initial accounting for a business combination, the tax effect is included in
the accounting for the business combination.
Cash and Cash Equivalents
Cash represents cash on hand and cash held at banks. All liquid investments
with original maturities of three months or less are considered cash
equivalents.
Restricted Cash
In certain instances, there are requirements to set aside cash for guarantees
on the payment of value-added taxes, custom duties on imports, tender
programmes, and vehicle/office leases by financial institutions on the Group's
behalf. Total restricted cash balances were $5.7 million and $5.1 million at
31 December 2017 and 2016, respectively, of which $1.9 million and $2.6
million were current assets included in Prepaid expenses and other current
assets within the Consolidated Statement of Financial Position.
Dividends
Dividends payable to the Company's shareholders are recognised as a liability
in the period in which the distribution is approved by the Company's
shareholders.
Trade and Other Receivables
Credit is extended to customers based on the evaluation of the customer's
financial condition. Creditworthiness of customers is evaluated on a regular
basis. Trade and other receivables consist of amounts billed and currently due
from customers. An allowance for doubtful accounts is maintained for estimated
losses that result from the failure or inability of customers to make required
payments. In determining the allowance, consideration includes the probability
of recoverability based on past experience and general economic factors.
Certain trade and other receivables may be fully reserved when specific
collection issues are known to exist, such as pending bankruptcy. The Group
writes-off uncollectable receivables at the time it is determined the
receivable is no longer collectable. The Group does not charge interest on
past due amounts. The analysis of receivable recoverability is monitored and
the bad debt allowances are adjusted accordingly.
Trade and other receivables are not collateralised or factored. The Group
sells its products primarily through an internal sales force and sales are
made through various distributors around the world. Credit risk with respect
to accounts receivable is generally diversified due to the large dispersion of
customers across many different industries and geographies. Exposure to credit
risk is managed through credit approvals, credit limits and monitoring
procedures.
Inventories
Inventories are stated at the lower of cost or net realisable value with the
cost determined using an average cost method. The cost of finished goods and
work in progress comprises raw materials, direct labour, other direct costs
and indirect production overhead. Production overhead comprise indirect
material and labour costs, maintenance and depreciation of the machinery and
production buildings used in the manufacturing process as well as costs of
production administration and management.
Net realisable value is defined as anticipated selling price or anticipated
revenue less cost to completion. Estimates of net realisable value are based
on the average selling prices at the end of the reporting period, net of
applicable direct selling expenses. Subsequent events related to the
fluctuation of prices and costs are also considered, if relevant. If net
realisable values are below inventory costs, a provision corresponding to this
difference is recognised. Provisions are also made for obsolescence of
products, materials, or supplies that (i) do not meet the Group's
specifications, (ii) have exceeded their expiration date, or (iii) are
considered slow-moving inventory. The Group evaluates the carrying value of
inventories on a regular basis, taking into account such factors as historical
and anticipated future sales compared with quantities on hand, the price the
Group expects to obtain for products in their respective markets compared with
historical cost and the remaining shelf life of goods on hand.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and accumulated impairment losses. Cost includes expenditures that are
directly attributable to the acquisition of an asset. Expenditures for
additions, renewals and improvements are capitalised at cost. Subsequent costs
are included in the asset's carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future economic benefit
associated with the item will flow to the Group and the cost can be measured
reliably. Replacements of major units of property are capitalised and replaced
properties are retired. The carrying amount of a replaced asset is
derecognised when replaced. Repairs and maintenance costs are charged to the
Consolidated Statement of Profit or Loss during the period in which they are
incurred.
Depreciation is calculated using straight-line method over the estimated
useful lives of each part of a property's, plant and equipment item, since
this most closely reflects the expected pattern of consumption of the future
economic benefits embodied in the asset. Land is not depreciated. Depreciation
commences when the assets become available for productive use, based on the
following estimated useful lives:
Buildings
20 to 50 years
Building equipment and depreciable land improvements
15 to 40 years
Machinery, equipment and fixtures
3 to 20 years
Leasehold improvements and assets under finance lease arrangements are
amortised over the lesser of the asset's estimated useful life or the term of
the respective lease. Maintenance costs are expensed as incurred.
Construction-in-progress reflects amounts incurred for property, plant,
equipment construction or improvements that have not been placed in service.
Interest is capitalised in connection with the construction of qualifying
capital assets during the period in which the asset is being installed and
prepared for its intended use. Interest capitalisation ceases when the
construction of the asset is substantially complete and the asset is available
for use. Capitalised interest cost is depreciated on a straight-line method
over the estimated useful lives of the related assets.
The assets' residual values, depreciation methods and useful lives are
reviewed, and adjusted if appropriate, at the end of each reporting period.
On disposal of items of property and equipment, the cost and related
accumulated depreciation and impairments are removed from the Consolidated
Statement of Financial Position and the net amount, less any proceeds, is
taken to the Consolidated Statement of Profit or Loss.
Intangible Assets
To meet the definition of an intangible asset, an item lacks physical
substance and is: (i) identifiable, (ii) non-monetary, and (iii) controlled by
the entity and expected to provide future economic benefits to the entity. The
Group's intangible assets consist of patents/trademarks and licenses,
technology, capitalised software (acquired and internally generated),
contracts and customer relationships, non-compete agreements, trade names and
development costs.
Initial recognition
Intangible assets acquired separately by the Group are measured at cost on
initial recognition and those acquired in business combinations are measured
at fair value at the date of acquisition. Following initial recognition of the
intangible asset, the asset is carried at cost less any subsequent accumulated
amortisation and accumulated impairment losses.
Purchased computer software and certain costs of information technology
projects are capitalised as intangible assets. Software that is integral to
computer hardware is capitalised as property, plant and equipment.
The Group follows the guidance of IAS 38 Intangible Assets ("IAS 38") on
internally generated development costs associated with its system. The costs
incurred in the preliminary stages of development are expensed as incurred.
Once a project has reached the application development stage, internal and
external costs, if direct and incremental, are capitalised until the software
is substantially complete and ready for its intended use. Costs related to
design or maintenance of internal-use software are expensed as incurred.
Upgrades and enhancements are capitalised to the extent they will result in
added functionality.
Amortisation of intangible assets is calculated using the straight-line method
based on the following estimated useful lives:
Patents, trademarks and licenses
3 to 20 years
Technology
10 to 18 years
Capitalised software (acquired and internally generated)
3 to 10 years
Contracts and customer
relationships
2 to 20 years
Non-compete
agreements
3 to 5 years
Trade names
10 years
Development
costs
5 years
The Group has finite-lived and indefinite-lived trade names. Indefinite-lived
trade names are not amortised but are tested for impairment annually or more
frequently if events or changes in circumstances indicate that the asset might
be impaired, either individually or at the cash generating unit ("CGU") level.
The assessment of indefinite life is reviewed annually to determine whether
indefinite life assessment continues to be supportable. If not, the change in
the useful life assessment from indefinite to finite is made on a prospective
basis.
Impairment of Non-Monetary Assets including Goodwill
The Group tests goodwill and indefinite-lived intangibles for impairment
annually or more frequently, if there are any impairment indicators. However,
property, plant and equipment and finite-lived intangibles are tested for
impairment only if indicators of impairment are present. For impairment
testing, assets are grouped together into the smallest group of assets that
generate cash inflows from continuing use and are largely independent of the
cash inflows of other assets or CGUs. Additionally, goodwill arising from a
business combination is allocated to CGUs or groups of CGUs that are expected
to benefit from the synergies of the combination. An impairment loss is
recognised if the carrying amount of an asset or CGU exceeds its recoverable
amount. Recoverable amount is the higher of value in use and fair value, less
costs of disposal. Impairment losses are recognised in the Consolidated
Statement of Profit or Loss. They are allocated first to reduce the carrying
amount of any goodwill allocated to the CGU, and then to reduce the carrying
amounts of the remaining assets in the CGU, on a prorated basis.
An impairment loss in respect of goodwill is not reversed. For other assets,
an impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been
recognised. The Group has not recognised any impairment reversals in 2017 or
2016.
Finance Costs
Finance costs include interest costs, standby fees, interest cost on
derivative financial instruments, and any loss related to debt extinguishment.
Interest costs are expensed as incurred, except to the extent such interest is
related to construction in progress, in which case interest is capitalised.
The capitalised interest recorded in 2017 and 2016 was $0.7 million and $1.1
million, respectively.
Provisions
A provision is recognised when there is a present legal or constructive
obligation as a result of a past event, it is probable that an outflow of
economic benefits will be required to settle the obligation and that
obligation can be measured reliably. If the effect of the time value of money
is material, provisions are discounted using a current pre‑tax rate that
reflects the current market assessments of the time value of money and the
risks specific to the obligation. Provisions are reviewed on a regular basis
and adjusted to reflect management's best current estimates. Due to the
judgmental nature of these items, future settlements may differ from amounts
recognised. Provisions consist of decommissioning provisions, restructuring
provisions, and legal claims and obligations.
The Group does not recognise contingent assets in the Consolidated Statement
of Financial Position. However, if an inflow of economic benefits is probable,
then it is appropriately disclosed in the notes to the Financial Statements.
Research and Development
Research and development expenses are comprised of costs incurred in
performing research and development activities including payroll and benefits,
clinical manufacturing and pre-launch clinical trial costs, manufacturing
development and scale-up costs, product development and regulatory costs,
contract services and other outside contractors costs, research license fees,
depreciation and amortisation of lab facilities, and lab supplies.
Research costs are expensed as incurred. Development expenditures are
capitalised only if the expenditure can be measured reliably, the product or
process is technically and commercially feasible, future economic benefits are
probable and the Group intends to and has sufficient resources to complete
development and use or sell the asset. Otherwise, development expenditures are
expensed as incurred. Subsequent to initial recognition, development
expenditures are measured at cost less accumulated amortisation and any
accumulated impairment losses.
Share-Based Payments
Prior to listing, the Group had granted share-based compensation to employees
under the Annual Equity Plan ("AEP"), Management Executive Plan ("MEP"), and
Management Incentive Plan ("MIP"). Post IPO, share-based incentives are
provided to employees under the Group's Long-Term Incentive Plan ("LTIP"),
Deferred Bonus Plan ("DBP"), Matching Share Plan ("MSP"), and Share Save plans
("Employee Plans").
Certain features of share-based awards, such as cash-settled share-based
payments to employees require the awards to be accounted for as liabilities as
opposed to equity. Liability awards are measured at the grant date based on
the fair value of the award and are required to be remeasured to the fair
value at the end of each reporting period until settlement. True up
compensation cost is recognised in each reporting period for changes in fair
value prorated for the portion of the requisite service period rendered in the
Consolidated Statement of Profit or Loss (General and administrative
expenses). The Group's 2016 reorganisation (discussed above) triggered the
modification accounting where the terms of awards (MEP units) were changed
immediately prior to listing to vested equity shares. The liability recognised
for such shares was converted to equity, with a true up cost recognised to
reflect the accelerated vesting period for shares not subject to a continued
employment clawback. Shares subject to continued employment are recognised
over the term of the clawback arrangement.
Equity-settled share-based payments to employees are measured at the fair
value of the award on the grant date. The fair value of the awards at the date
of the grant, which is estimated to be equal to the market value, is expensed
to the Consolidated Statement of Profit or Loss (General and administrative
expenses) over the vesting period, with appropriate adjustments being made
during the period to reflect expected and actual forfeitures. The
corresponding credit is to Other reserves in the Consolidated Statement of
Financial Position.
Financial Instruments
The carrying amounts reflected in the Consolidated Statement of Financial
Position for cash and cash equivalents, trade and other receivables,
restricted cash, trade and other payables, and certain accrued expenses and
other current liabilities approximate fair value due to their short-term
maturities. Debt obligations are initially carried at fair value less any
directly attributable transaction costs and subsequently at amortised cost.
At initial recognition, the Group classifies its financial instruments in the
following categories depending on the purpose for which the instruments were
acquired:
i. Financial assets
The Group initially recognises loans and receivables on the date that they are
originated. All other financial assets are recognised initially on the trade
date, which is the date that the Group becomes a party to the contractual
provisions of the instrument.
Loans and receivables are financial assets with fixed or determinable payments
that are not quoted in an active market. Such assets are recognised initially
at fair value plus any directly attributable transaction costs. Subsequent to
initial recognition, loans and receivables are measured at cost, less any
accumulated impairment losses.
The Group derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows in a transaction in which substantially all the risks
and rewards of ownership of the financial asset are transferred. Any interest
in such transferred financial assets that is created or retained by the Group
is recognised as a separate asset or liability.
ii. Financial liabilities
The Group initially recognises debt securities issued and subordinated
liabilities on the date that they are originated. All other financial
liabilities are recognised initially on the trade date, which is the date that
the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations
are discharged, terminated or expired. When the Group exchanges with the
existing lender one debt instrument into another one with the substantially
different terms, such exchange is accounted for as an extinguishment of the
original financial liability and the recognition of a new financial liability.
Similarly, the Group's accounts for substantial modification of terms of an
existing liability or part of it as an extinguishment of the original
financial liability and the recognition of a new liability. It is assumed that
the terms are substantially different if the discounted present value of the
cash flows under the new terms, including any fees paid net of any fees
received and discounted using the original effective rate is at least 10%
different from the discounted present value of the remaining cash flows of the
original financial liability.
The Group classifies its financial liabilities into the other financial
liabilities category. Such financial liabilities are recognised initially at
fair value less any directly attributable transaction costs. Subsequent to
initial recognition, these financial liabilities are measured at amortised
cost using the effective interest method. The effective interest method is a
method of calculating the amortised cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments through
the expected life of the financial liability, or, where appropriate, a shorter
period, to the net carrying amount on initial recognition.
Financial assets and liabilities are offset and the net amount presented in
the Consolidated Statement of Financial Position when, and only when, the
Group has a legal right to offset the amounts and intends either to settle
them on a net basis or to realise the asset and settle the liability
simultaneously.
Derivative Financial Instruments
Derivative financial instruments are classified at fair value through profit
or loss unless they are in a designated hedge relationship. Derivative
financial instruments are initially recognized at fair value on the date a
derivative contract is entered into and are re-measured at their fair value at
subsequent balance sheet dates.
Interest rate derivatives transacted to fix interest rates on floating rate
borrowings are accounted for as cash flow hedges and changes in the fair
values resulting from changes in market interest rates are recognised in other
comprehensive income. Amounts taken to other comprehensive income are
transferred to the statement of profit or loss when the hedged transaction
affects profit and loss. Any ineffectiveness on hedging instruments and
changes in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognised in the statement of profit or loss
within finance costs as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is
sold, terminated or exercised, or no longer qualifies for hedge accounting. At
that point in time, any cumulative gain or loss on the hedging instrument
recognised in other comprehensive income is retained there until the forecast
transaction occurs. If a hedged transaction is no longer expected to occur,
the net cumulative gain or loss recognised in other comprehensive income is
transferred.
Foreign Currency Translation and Transactions
Assets and liabilities of subsidiaries whose functional currency is not USD
are translated into USD at the rate of exchange in effect on the statement of
financial position date. The related equity accounts of subsidiaries are
translated into USD at the historical rate of exchange. Income and expenses
are translated into USD at the average rates of exchange prevailing during the
year. Foreign currency gains and losses resulting from the translation of
subsidiaries into USD are recognised in the statement of other comprehensive
income. Exchange differences arising from the translation of the net
investment in foreign operations are taken to a separate translation reserve
within equity. They are recycled and recognised in the Consolidated Statement
of Profit or Loss upon disposal of the operation.
In preparing the financial statements of the individual companies,
transactions in currencies other than the entity's functional currency
(foreign currencies) are recognised at the rates of exchange prevailing on the
dates of the transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at the
rates prevailing at that date. Non-monetary items carried at fair value that
are denominated in foreign currencies are translated at the rates prevailing
at the date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not
retranslated. Any gain or loss arising from subsequent exchange rate movements
is included as an exchange gain or loss in the Consolidated Statement of
Profit or Loss.
Hyperinflationary Economies
IAS 29, Financial Reporting in Hyperinflationary Economies ("IAS 29") requires
financial statements to be stated in terms of the measuring unit current at
the end of the reporting period whose functional currency is the currency of a
hyperinflationary economy. The financial information is restated based on the
consumer price index ("CPI") before being translated into a different
presentation currency. All amounts are translated at the closing exchange rate
at the date of the most recent Consolidated Statement of Financial Position.
Hyperinflation is indicated by the characteristics of an economy, which
includes a cumulative inflation rate over three years that approaches or
exceeds 100 percent, sales and purchases on credit take place at prices that
compensate for the expected loss of purchasing power during the credit period,
even if the period is short and the general population prefers to keep its
wealth in non-monetary assets or in a relatively stable foreign currency.
Venezuela has been considered as a hyperinflationary economy since 2010. The
hyperinflation accounting has been applied to Boston Estada (Venezuela based
subsidiary) in the Financial Statements. The financial information of the
subsidiary has been restated for the changes in the CPI (as published by the
Central Bank of Venezuela) of the functional currency and, as a result, are
stated in terms of the measuring unit current at the end of the reporting
period. This complies with the accounting treatment described in IAS 29. The
gain on the net monetary position in 2017 and 2016 were $10.4 million and
$12.2 million, respectively. The following table summarises the changes in the
Venezuelan CPI for the reporting periods ended 31 December 2017 and 2016:
Reporting Period CPI* Movement from previous reporting period
31 December 2016 7,729.5 228.0%
31 December 2017 25,338.5 228.0%
* Base period, 31 December 2007 = 100
Retirement Benefit Costs
Payments to defined contribution retirement benefit schemes are recognised as
an expense when employees have rendered service entitling them to the
contributions. Payments made to state-managed retirement benefit schemes are
dealt with as payments to defined contribution schemes where the Group's
obligations under the schemes are equivalent to those arising in a defined
contribution retirement benefit scheme.
For defined benefit retirement schemes, the cost of providing benefits is
determined using the Projected Unit Credit Method, with actuarial valuations
being carried out at the end of each reporting period. Remeasurement
comprising actuarial gains and losses, the effect of the asset ceiling (if
applicable) and the return on scheme assets (excluding interest) are
recognised immediately in the Consolidated Statement of Financial Position
with a charge or credit to the Consolidated Statement of Comprehensive Loss in
the period in which they occur. Remeasurement recorded in the Consolidated
Statement of Comprehensive Loss is not recycled. Past service cost is
recognised in the Consolidated Statement of Profit or Loss in the period of
scheme amendment. Net-interest is calculated by applying a discount rate to
the net defined benefit liability or asset.
Leases
i. Operating leases
Payments made under operating leases are charged to the Consolidated Statement
of Profit or Loss on a straight-line basis over the term of the lease.
ii. Finance leases
Leases where the Group assumes substantially all of the risks and rewards of
ownership are classified as finance leases as if the asset had been purchased
outright. Assets acquired under the finance leases are recognised as assets of
the Group and the capital and interest elements of the leasing commitments are
shown as obligations to creditors. Depreciation is charged on a consistent
basis with similar owned assets or over the lease term if shorter. The
interest element of the lease payment is charged to the Consolidated Statement
of Profit or Loss on a basis which produces a consistent rate of charge over
the period of the liability.
Non-current Assets Held for Sale
Non-current assets classified as held for sale are measured at the lower of
carrying amount and fair value less costs of disposal. Non-current assets
are classified as held for sale if their carrying amount will be recovered
through a sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly probable and the
asset is available for immediate sale in its present condition. Management
must be committed to the sale which should be expected to qualify for
recognition as a completed sale within one year from the date of
classification.
4. 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 years ended 31
December 2017 and 2016 by market franchise:
2017 2016
$m $m
Revenue by market franchise
Advanced Wound Care 577.8 559.5
Ostomy Care 528.9 512.1
Continence & Critical Care 382.9 356.5
Infusion Devices 275.0 260.2
1,764.6 1,688.3
Geographic information
Geographic markets
The following table sets forth the Group's revenue for the years ended 31
December 2017 and 2016 in each geographic market in which customers are
located:
2017 2016
$m $m
Geographic markets
EMEA 733.0 726.4
Americas 898.1 829.4
APAC 133.5 132.5
1,764.6 1,688.3
Geographic regions
The following table sets forth the Group's revenue for the years ended 31
December 2017 and 2016 on the basis of geographic regions where the legal
entity resides and from which those revenues were made:
2017 2016
$m $m
Geographic regions
US 591.1 543.8
Denmark 298.0 293.5
UK 149.4 157.0
Switzerland 107.8 110.8
France 92.5 90.1
Other((a)) 525.8 493.1
1,764.6 1,688.3
(a) Other consists primarily of countries in Europe, APAC, Latin America
and Canada.
The following table sets forth the Group's long-lived assets at 31 December
2017 and 2016 by geographic regions:
2017 2016
$m $m
Long-lived assets((a))
US 1,071.2 1,125.0
UK 438.8 432.9
Denmark 142.1 124.8
Slovakia 69.2 45.0
Dominican Republic 60.0 42.4
Netherlands 19.1 -
Other((b)) 20.9 16.1
Total long-lived assets 1,821.3 1,786.2
(a) Long-lived assets consist of property, plant and equipment and
intangible assets.
(b) Other consists primarily of countries in Europe and Latin America.
Major Customers
In 2017 and 2016, no single customer generated more than 10% of the Group's
revenue.
5. Income Taxes
A. Tax on profit (loss) for the year
Current tax on profit before income taxes in 2017 (loss before income taxes in
2016) is recognised as an expense in the Consolidated Statement of Profit or
Loss, along with any change in the provision for deferred tax:
2017 2016
$m $m
Current
UK current year charge 2.3 4.7
Overseas taxation 35.7 35.3
Adjustment for prior years 0.1 (0.2 )
Total current tax expense 38.1 39.8
Deferred
Origination and reversal of temporary differences (9.1 ) 43.4
Change in tax rate (22.8 ) (5.7 )
Adjustment for prior years (0.6 ) (0.5 )
Total deferred tax (benefit) expense (32.5 ) 37.2
Income tax expense 5.6 77.0
B. Reconciliation of effective tax rate
Variance in effective tax rate on prior year
The effective tax rate for the year ended 31 December 2017 was 3.4% as
compared with 61.2% for the year ended 31 December 2016. The variance in the
effective tax rate on prior year is primarily driven by 2017 impacts of: US
tax reform benefit of $28.1 million related to reduction in federal tax rate
and implementation of participation exemption on dividends; Woodbury M&A
purchase accounting benefit of $9.9 million; unremitted earnings benefit
primarily in the Dominican Republic of $18.4 million; the impact of lower
non-deductible costs incurred in 2017, including share based compensation and
2016 related IPO and reorganisation costs; and the 2016 prior year effect on
deferred benefit of $10.8 million. The reduction in the US main rate (35% to
21%) and Luxembourg main rate (19% to 18%) generated tax charges of $33.6
million and $17.1 million, respectively, on re-measurement of deferred tax
assets. As these deferred tax assets are fully provided for, there was no
impact on the effective tax rate as shown below.
Key factors influencing the effective tax rate
The Company's tax rate is sensitive to the geographic mix of profits and its
ability to recognize unrealized losses primarily in the US. Other factors that
could influence the effective tax rate include tax rate changes, changes in
tax legislation or regulations in jurisdictions where the Company does
business, evolving developments and implementation of the OECD's BEPS Actions,
or tax disputes.
2017 2016
$m $m
Profit (loss) before income taxes 164.0 (125.8 )
Profit before tax multiplied by rate of corporation tax in the UK of 19.25% 31.5 (25.2 )
(2016: 20%)
Difference between UK and rest of world tax rates (10.4 ) 13.1
Non-deductible/non-taxable items 4.1 35.6
Previously unrecognised losses and other assets 5.0 19.0
Amortisation of indefinite life intangibles 8.1 7.9
Taxes on unremitted earnings (2.4 ) 20.0
Deferred impact of tax rate changes (22.8 ) (5.7 )
Prior year effect on deferred - 10.8
Previously unrecognised tax benefits (4.2 ) 1.6
Other (3.3 ) (0.1 )
Income tax expense reported in the Consolidated Statement of Profit or Loss at 5.6 3.4 % 77.0 (61.2)%
the effective tax rate
C. Movement in deferred tax balances
A provision is recorded for deferred tax on the basis of all temporary
differences in accordance with the balance sheet liability method. Temporary
differences arise between the tax base of assets and liabilities and their
carrying amounts which are offset over time. Deferred tax is measured on the
basis of the tax rates applicable at the statement of financial position date.
The UK main rate is reduced to 17% effective 1 April 2020. Deferred tax assets
are recognised to the extent that it is probable that future positive taxable
income will be generated, against which the temporary differences and tax
losses can be offset. Deferred tax assets are measured at expected net
realisable values in 2017 and 2016. The following table shows movements in the
deferred tax assets and liabilities:
Inventory Loss Employee Equity Fixed Intangibles Uunremitted earnings Intercompany profit on inventory Other Total
carryforward benefits assets
$m $m $m $m $m $m $m $m $m $m
At 1 January 2016 (0.7 ) 5.6 1.3 (38.1 ) (7.4 ) (155.6 ) (3.4 ) 14.6 2.1 (181.6 )
Exchange adjustments - 0.1 0.5 1.4 0.7 14.6 - - - 17.3
Movement in Income statement (0.3 ) (5.3 ) (0.2 ) 4.5 (1.1 ) (3.5 ) (29.6 ) 3.4 (5.1 ) (37.2 )
Movement in Other comprehensive income - - (0.3 ) 31.6 - - - - - 31.3
At 1 January 2017 (1.0 ) 0.4 1.3 (0.6 ) (7.8 ) (144.5 ) (33.0 ) 18.0 (3.0 ) (170.2 )
Exchange adjustments (0.3 ) 0.5 0.2 - (1.0 ) (9.3 ) - - (0.7 ) (10.6 )
Movement in Income statement 1.6 (2.7 ) 0.5 2.1 0.5 36.0 2.4 (6.7 ) (1.2 ) 32.5
Movement in Other comprehensive income - - - 0.2 - - - - - 0.2
Other (0.6 ) 1.8 - - (0.7 ) (16.8 ) - - 1.8 (14.5 )
At 31 December 2017 (0.3 ) - 2.0 1.7 (9.0 ) (134.6 ) (30.6 ) 11.3 (3.1 ) (162.6 )
The Group offsets non-current deferred tax assets and liabilities in
jurisdictions where group tax relief or consolidated tax filing is available.
D. Components of deferred tax assets and liabilities
The components of deferred tax assets and liabilities at 31 December 2017 and
2016 are as follows:
2017 2016
$m $m
Deferred tax assets 9.6 22.0
Deferred tax liabilities (172.2 ) (192.2 )
Net position at the end of the period (162.6 ) (170.2 )
E. Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following
items, because it is not probable that future taxable profit will be available
against which the Group can use the benefits therefrom. The following is a
summary of unrecognised deferred tax assets at 31 December 2017 and 2016:
2017 2016
$m $m
Deductible/taxable temporary differences - 49.2
Tax losses 2,217.4 1,878.1
Unrecognised deferred tax assets 2,217.4 1,927.3
F. Tax losses carried forward
The Group recorded UK net corporation tax losses carried forwards of $17.6
million and overseas net corporation tax losses carried forwards of $2,236.2
million at 31 December 2017. The Group recorded UK net corporation tax
losses carried forwards of $15.4 million, and overseas net corporation tax
losses carried forwards of $1,872.5 million at 31 December 2016. UK net
corporation tax losses can be carried forward indefinitely. The 2017
overseas net corporation tax losses carried forwards and years in which they
begin to expire are shown below:
Gross
Country Corporation tax losses Corporation tax losses expiration
$m
Luxembourg 1,640.1 Indefinite
US 533.9 2021
Other overseas 62.2 Various
Total 2,236.2
6. Dividends
Any decision to declare and pay dividends will be made at the discretion of
the Directors and will depend on, among other things, applicable law,
regulation, restrictions, the Group's financial position, working capital
requirements, restrictions on dividends in the Group's banking facilities,
finance costs, general economic conditions and other factors the Directors
deem significant.
At the Company's Annual General Meeting held in May 2017, shareholders
approved the implementation of a Scrip Dividend Scheme (the "Scrip Scheme").
The Scrip Scheme enables ordinary shareholders to elect to receive new fully
paid ordinary shares instead of cash. The operation of the Scrip Scheme is
always subject to the Directors' decision to make the Scrip Scheme offer
available in respect of any particular dividend. Should the Directors decide
not to offer the Scrip Scheme in respect of any particular dividend, cash will
be paid automatically instead. Under the current authority, the operation of
the Scrip Scheme will cease on the date of the third Annual General Meeting of
the Company, which will take place in 2019.
On 2 August 2017, the Board declared the first interim dividend in the total
amount of $27.7 million, representing 1.4 cents per share based upon the
issued and fully paid share capital as at 30 June 2017. The dividend on
ordinary shares was declared in USD and was paid in Sterling at the chosen
exchange rate of $1.32/£1.00 determined on 2 August 2017. A scrip dividend
alternative was offered in respect of the first interim dividend, allowing
shareholders to elect to receive their dividend in the form of new ordinary
shares at a Calculation Price of 272 pence for each new ordinary share which
was equivalent to one new share for approximately 256.6 shares held prior to
the ex-dividend date of 7 September 2017. On 20 October 2017, 377,948 ordinary
shares of 10 pence each were allotted and issued by the Company to those
shareholders who elected to receive the scrip dividend alternative.
On 13 February 2018, the Board proposed the final dividend in respect of 2017
subject to shareholder approval at our Annual General Meeting on 10 May 2018,
to be distributed on 17 May 2018 to shareholders registered at the close of
business on 6 April 2018 in the total amount of $83.9 million, representing
4.3 cents per share based upon the issued and fully paid share capital as at
31 December 2017. The dividend on ordinary shares shall be declared in USD and
will be paid in Sterling at the chosen exchange rate of $1.39/£1.00
determined on 13 February 2018. A scrip dividend alternative shall be offered
in respect of the final dividend, allowing shareholders to elect by 20 April
2018 to receive their dividend in the form of new ordinary shares. The interim
dividend of 1.4 cents per share and the final dividend of 4.3 cents per share
gives a total dividend for the year of 5.7 cents per share.
7. Earnings Per Share
Basic and diluted earnings (loss) per ordinary share for the years ended 31
December 2017 and 2016 was calculated as follows:
2017 2016
$m (except share data)
Net profit (loss) attributable to the equity holders of the Group 158.4 (202.8 )
Basic weighted average ordinary shares in issue (net of shares purchased by 1,951,006,350 1,376,365,276
the Company and held as Own shares)
Dilutive impact of share awards 2,935,460 -
Diluted weighted average ordinary shares in issue 1,953,941,810 1,376,365,276
Basic earnings (loss) per share ($ per share) 0.08 (0.15 )
Diluted earnings (loss) per share ($ per share) 0.08 (0.15 )
In 2016, all share awards were excluded from the calculation of diluted loss
per share, as the effect of including them would have been anti-dilutive. The
dilutive effect of potential shares issuable for share awards on the weighted
average ordinary shares in issue would have been as follows:
2016
Basic weighted average ordinary shares in issue 1,376,365,276
Dilutive effect of share awards 282,672
Diluted weighted average ordinary shares in issue 1,376,647,948
Share options to purchase approximately 5,231,000 and 3,120,000 ordinary
shares of the Group were not included in the computation of diluted earnings
(loss) per share for the year ended 31 December 2017 and 2016, respectively,
because the exercise prices of the share options were greater than the average
market price of the Group's ordinary shares and, therefore, the effect would
have been anti-dilutive
8. Acquisition of Subsidiaries
Woodbury Holdings ("Woodbury")
Description of the transaction
On 1 September 2017, the Group acquired the entire share capital of Woodbury
for a total cash consideration of approximately $84.8 million, including $4.7
million of the cash and cash equivalents acquired. Woodbury provides an
extensive array of incontinence and catheter products, as well as nutritional,
enteral feeding and vascular compression supplies. Woodbury has national
distribution across the US, delivering directly to customers in the home
environment. The acquisition will provide further breadth and reach to the
Group's home distribution unit and further consolidate the Group's leading
position in this market and bring its comprehensive end-to-end suite of
services to even more patients.
Assets acquired and liabilities assumed
The transaction has been accounted for as a business combination under the
acquisition method of accounting. The following
- More to follow, for following part double click ID:nRSO9401Ed to provide a
reliable estimate of the financial impact on the Group's consolidated results.
IFRS 15
IFRS 15, Revenue from Contracts with Customers 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.
An assessment of the impact of IFRS 15 has been completed. Revenue recognition under IFRS 15 is considered to be
consistent with the current practice for the Group's revenue. Based on the Group's assessment from work performed, the
adoption of IFRS 15 will not have a material impact on the consolidated financial statements.
IFRS 9
IFRS 9, Financial Instruments, provides a new expected losses impairment model and includes amendments to classification
and measurement of financial instruments. The Group does not expect that the adoption of IFRS 9 will have a material impact
on the consolidated financial statements but will impact both the measurement and disclosure of financial instruments.
3. Significant Accounting Policies
Statement of Compliance
The Financial Statements have been 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 IAS and
interpretations issued by IFRSIC.
The principal Group accounting policies are explained below and have been applied consistently throughout the years ended
31 December 2017 and 2016 other than those noted in Note 2 - Accounting Standards above.
Basis of Preparation
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.
2016 Reorganisation
On 31 October 2016, the Group completed the initial public offering ("IPO") of its ordinary shares, was admitted to the
premium listing segment of the Official List of the Financial Conduct Authority and is trading on the main market of the
London Stock Exchange.
The Company was initially incorporated as ConvaTec Group Limited on 6 September 2016, with its registered office situated
in the United Kingdom, and was registered as a public company and changed its name to ConvaTec Group plc on 10 October
2016.
Prior to listing, the Company became the holding company of the Group through the acquisition of the full share capital of
Cidron Healthcare Limited ("Cidron") and its subsidiaries (the "Existing Group"). Shares in Cidron, an entity formerly
owned by Nordic Capital and Avista Capital Partners, the former equity sponsors and principal shareholders, were exchanged
for 1,261,343,801 shares in the Company. These shares were issued and credited as fully paid of 10 pence each giving rise
to the share capital of $154.4 million.
Both the Company and the Existing Group were under common control before and after the 2016 reorganisation. As a common
control transaction, this does not meet the definition of a business combination under IFRS 3 Business Combinations and as
such, falls outside the scope of that standard. As a consequence, following guidance from IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors, the introduction of the company has been prepared under merger accounting
principles. This policy, which does not conflict with IFRS, reflects the economic substance of the transaction. Under these
principles, no acquirer is required to be identified and all entities are included at their pre-combination carrying
amounts. This accounting treatment leads to differences on consolidation between share capital in issue ($154.4 million)
and the book value of the underlying net assets acquired, this difference is included within equity as a merger reserve.
Under these principals, the Group has presented its Financial Statements of the Group as though the current Group structure
had always been in place. Accordingly, the results of the combined entities for both the current and prior period are
presented as if the Group had been in existence throughout the periods presented, rather than from the restructuring date.
Immediately prior to listing, management shares held in the subsidiaries of the Group were converted to shares in the
Company. Furthermore, the modification of the MEP (defined below) management incentive plan resulted in the issuance of
further shares. The effects of these two events was to bring the total shares in the Company immediately prior to listing
to 1,300,000,000 from 1,261,343,801.
Basis of Consolidation
The Group Financial Statements include the results of the Company and all its subsidiary undertakings. Subsidiaries are
entities controlled by the group. Control exists when the Group: (i) has power over the investee, (ii) is exposed, or has
rights, to variable returns from its involvement in the investee and (iii) has the ability to use its power to affect its
returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above. All intercompany transactions and balances have been
eliminated. The consolidated financial information of the Company's subsidiaries is included within the Group's Financial
Statements from the date that control commences until the date that control ceases, and are prepared for the same year end
date using consistent accounting policies.
Business Combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method of accounting. Consideration
transferred in respect of the acquisition is measured at the fair value of the assets acquired, equity instruments issued
and liabilities incurred or assumed on the date of the acquisition. Identified assets acquired and liabilities assumed are
measured at their respective acquisition-date fair values. The excess of the fair value of the consideration given over the
fair value of the identifiable net assets acquired is recorded as goodwill. Acquisition-related cost is expensed as
incurred. The operating results of the acquired business are reflected in the Group's Financial Statements after the date
of acquisition.
Revenue Recognition
Revenue for goods sold is recognised to the extent that it is probable that economic benefits will flow to the Group upon
transfer to the customer of the significant risks and rewards of ownership and revenue can be reliably measured. Generally,
products are insured through delivery and revenue is recognised upon the date of receipt by the customer.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for
goods sold in the normal course of business to external customers, net of sales discounts and volume rebates. Due to the
short-term nature of the receivables from sale of goods, the Group measures them at the original invoice amounts without
discounting.
Revenues are recorded based on the price specified in the sales contracts, net of value-added tax, and sales rebates and
returns estimated at the time of sale. Revenues are reduced at the time of recognition to reflect expected product returns
and chargebacks, discounts, rebates and estimated sales allowances based on historical experience and updated for changes
in facts and circumstances, as appropriate.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following
temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In
addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based
on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent
that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets
are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax
benefit will be realised.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the
asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other
comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different
tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realised simultaneously.
Current tax and deferred tax for the year
Current and deferred tax are recognised in the Consolidated Statement of Profit or Loss, except when they relate to items
that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are
also recognised in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises
from the initial accounting for a business combination, the tax effect is included in the accounting for the business
combination.
Cash and Cash Equivalents
Cash represents cash on hand and cash held at banks. All liquid investments with original maturities of three months or
less are considered cash equivalents.
Restricted Cash
In certain instances, there are requirements to set aside cash for guarantees on the payment of value-added taxes, custom
duties on imports, tender programmes, and vehicle/office leases by financial institutions on the Group's behalf. Total
restricted cash balances were $5.7 million and $5.1 million at 31 December 2017 and 2016, respectively, of which $1.9
million and $2.6 million were current assets included in Prepaid expenses and other current assets within the Consolidated
Statement of Financial Position.
Dividends
Dividends payable to the Company's shareholders are recognised as a liability in the period in which the distribution is
approved by the Company's shareholders.
Trade and Other Receivables
Credit is extended to customers based on the evaluation of the customer's financial condition. Creditworthiness of
customers is evaluated on a regular basis. Trade and other receivables consist of amounts billed and currently due from
customers. An allowance for doubtful accounts is maintained for estimated losses that result from the failure or inability
of customers to make required payments. In determining the allowance, consideration includes the probability of
recoverability based on past experience and general economic factors. Certain trade and other receivables may be fully
reserved when specific collection issues are known to exist, such as pending bankruptcy. The Group writes-off uncollectable
receivables at the time it is determined the receivable is no longer collectable. The Group does not charge interest on
past due amounts. The analysis of receivable recoverability is monitored and the bad debt allowances are adjusted
accordingly.
Trade and other receivables are not collateralised or factored. The Group sells its products primarily through an internal
sales force and sales are made through various distributors around the world. Credit risk with respect to accounts
receivable is generally diversified due to the large dispersion of customers across many different industries and
geographies. Exposure to credit risk is managed through credit approvals, credit limits and monitoring procedures.
Inventories
Inventories are stated at the lower of cost or net realisable value with the cost determined using an average cost method.
The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and indirect
production overhead. Production overhead comprise indirect material and labour costs, maintenance and depreciation of the
machinery and production buildings used in the manufacturing process as well as costs of production administration and
management.
Net realisable value is defined as anticipated selling price or anticipated revenue less cost to completion. Estimates of
net realisable value are based on the average selling prices at the end of the reporting period, net of applicable direct
selling expenses. Subsequent events related to the fluctuation of prices and costs are also considered, if relevant. If net
realisable values are below inventory costs, a provision corresponding to this difference is recognised. Provisions are
also made for obsolescence of products, materials, or supplies that (i) do not meet the Group's specifications, (ii) have
exceeded their expiration date, or (iii) are considered slow-moving inventory. The Group evaluates the carrying value of
inventories on a regular basis, taking into account such factors as historical and anticipated future sales compared with
quantities on hand, the price the Group expects to obtain for products in their respective markets compared with historical
cost and the remaining shelf life of goods on hand.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost
includes expenditures that are directly attributable to the acquisition of an asset. Expenditures for additions, renewals
and improvements are capitalised at cost. Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic benefit associated with the item will flow to
the Group and the cost can be measured reliably. Replacements of major units of property are capitalised and replaced
properties are retired. The carrying amount of a replaced asset is derecognised when replaced. Repairs and maintenance
costs are charged to the Consolidated Statement of Profit or Loss during the period in which they are incurred.
Depreciation is calculated using straight-line method over the estimated useful lives of each part of a property's, plant
and equipment item, since this most closely reflects the expected pattern of consumption of the future economic benefits
embodied in the asset. Land is not depreciated. Depreciation commences when the assets become available for productive use,
based on the following estimated useful lives:
Buildings
20 to 50 years
Building equipment and depreciable land improvements 15 to 40 years
Machinery, equipment and fixtures 3 to 20 years
Leasehold improvements and assets under finance lease arrangements are amortised over the lesser of the asset's estimated
useful life or the term of the respective lease. Maintenance costs are expensed as incurred. Construction-in-progress
reflects amounts incurred for property, plant, equipment construction or improvements that have not been placed in service.
Interest is capitalised in connection with the construction of qualifying capital assets during the period in which the
asset is being installed and prepared for its intended use. Interest capitalisation ceases when the construction of the
asset is substantially complete and the asset is available for use. Capitalised interest cost is depreciated on a
straight-line method over the estimated useful lives of the related assets.
The assets' residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at the end of
each reporting period.
On disposal of items of property and equipment, the cost and related accumulated depreciation and impairments are removed
from the Consolidated Statement of Financial Position and the net amount, less any proceeds, is taken to the Consolidated
Statement of Profit or Loss.
Intangible Assets
To meet the definition of an intangible asset, an item lacks physical substance and is: (i) identifiable, (ii)
non-monetary, and (iii) controlled by the entity and expected to provide future economic benefits to the entity. The
Group's intangible assets consist of patents/trademarks and licenses, technology, capitalised software (acquired and
internally generated), contracts and customer relationships, non-compete agreements, trade names and development costs.
Initial recognition
Intangible assets acquired separately by the Group are measured at cost on initial recognition and those acquired in
business combinations are measured at fair value at the date of acquisition. Following initial recognition of the
intangible asset, the asset is carried at cost less any subsequent accumulated amortisation and accumulated impairment
losses.
Purchased computer software and certain costs of information technology projects are capitalised as intangible assets.
Software that is integral to computer hardware is capitalised as property, plant and equipment.
The Group follows the guidance of IAS 38 Intangible Assets ("IAS 38") on internally generated development costs associated
with its system. The costs incurred in the preliminary stages of development are expensed as incurred. Once a project has
reached the application development stage, internal and external costs, if direct and incremental, are capitalised until
the software is substantially complete and ready for its intended use. Costs related to design or maintenance of
internal-use software are expensed as incurred. Upgrades and enhancements are capitalised to the extent they will result in
added functionality.
Amortisation of intangible assets is calculated using the straight-line method based on the following estimated useful
lives:
Patents, trademarks and licenses 3 to 20 years
Technology
10 to 18 years
Capitalised software (acquired and internally generated) 3 to 10 years
Contracts and customer relationships 2 to 20 years
Non-compete agreements 3 to 5
years
Trade names
10 years
Development costs 5
years
The Group has finite-lived and indefinite-lived trade names. Indefinite-lived trade names are not amortised but are tested
for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired,
either individually or at the cash generating unit ("CGU") level. The assessment of indefinite life is reviewed annually to
determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment
from indefinite to finite is made on a prospective basis.
Impairment of Non-Monetary Assets including Goodwill
The Group tests goodwill and indefinite-lived intangibles for impairment annually or more frequently, if there are any
impairment indicators. However, property, plant and equipment and finite-lived intangibles are tested for impairment only
if indicators of impairment are present. For impairment testing, assets are grouped together into the smallest group of
assets that generate cash inflows from continuing use and are largely independent of the cash inflows of other assets or
CGUs. Additionally, goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected
to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or
CGU exceeds its recoverable amount. Recoverable amount is the higher of value in use and fair value, less costs of
disposal. Impairment losses are recognised in the Consolidated Statement of Profit or Loss. They are allocated first to
reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the remaining
assets in the CGU, on a prorated basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised. The Group has not recognised any impairment
reversals in 2017 or 2016.
Finance Costs
Finance costs include interest costs, standby fees, interest cost on derivative financial instruments, and any loss related
to debt extinguishment. Interest costs are expensed as incurred, except to the extent such interest is related to
construction in progress, in which case interest is capitalised. The capitalised interest recorded in 2017 and 2016 was
$0.7 million and $1.1 million, respectively.
Provisions
A provision is recognised when there is a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of economic benefits will be required to settle the obligation and that obligation can be measured
reliably. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that
reflects the current market assessments of the time value of money and the risks specific to the obligation. Provisions are
reviewed on a regular basis and adjusted to reflect management's best current estimates. Due to the judgmental nature of
these items, future settlements may differ from amounts recognised. Provisions consist of decommissioning provisions,
restructuring provisions, and legal claims and obligations.
The Group does not recognise contingent assets in the Consolidated Statement of Financial Position. However, if an inflow
of economic benefits is probable, then it is appropriately disclosed in the notes to the Financial Statements.
Research and Development
Research and development expenses are comprised of costs incurred in performing research and development activities
including payroll and benefits, clinical manufacturing and pre-launch clinical trial costs, manufacturing development and
scale-up costs, product development and regulatory costs, contract services and other outside contractors costs, research
license fees, depreciation and amortisation of lab facilities, and lab supplies.
Research costs are expensed as incurred. Development expenditures are capitalised only if the expenditure can be measured
reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the
Group intends to and has sufficient resources to complete development and use or sell the asset. Otherwise, development
expenditures are expensed as incurred. Subsequent to initial recognition, development expenditures are measured at cost
less accumulated amortisation and any accumulated impairment losses.
Share-Based Payments
Prior to listing, the Group had granted share-based compensation to employees under the Annual Equity Plan ("AEP"),
Management Executive Plan ("MEP"), and Management Incentive Plan ("MIP"). Post IPO, share-based incentives are provided to
employees under the Group's Long-Term Incentive Plan ("LTIP"), Deferred Bonus Plan ("DBP"), Matching Share Plan ("MSP"),
and Share Save plans ("Employee Plans").
Certain features of share-based awards, such as cash-settled share-based payments to employees require the awards to be
accounted for as liabilities as opposed to equity. Liability awards are measured at the grant date based on the fair value
of the award and are required to be remeasured to the fair value at the end of each reporting period until settlement. True
up compensation cost is recognised in each reporting period for changes in fair value prorated for the portion of the
requisite service period rendered in the Consolidated Statement of Profit or Loss (General and administrative expenses).
The Group's 2016 reorganisation (discussed above) triggered the modification accounting where the terms of awards (MEP
units) were changed immediately prior to listing to vested equity shares. The liability recognised for such shares was
converted to equity, with a true up cost recognised to reflect the accelerated vesting period for shares not subject to a
continued employment clawback. Shares subject to continued employment are recognised over the term of the clawback
arrangement.
Equity-settled share-based payments to employees are measured at the fair value of the award on the grant date. The fair
value of the awards at the date of the grant, which is estimated to be equal to the market value, is expensed to the
Consolidated Statement of Profit or Loss (General and administrative expenses) over the vesting period, with appropriate
adjustments being made during the period to reflect expected and actual forfeitures. The corresponding credit is to Other
reserves in the Consolidated Statement of Financial Position.
Financial Instruments
The carrying amounts reflected in the Consolidated Statement of Financial Position for cash and cash equivalents, trade and
other receivables, restricted cash, trade and other payables, and certain accrued expenses and other current liabilities
approximate fair value due to their short-term maturities. Debt obligations are initially carried at fair value less any
directly attributable transaction costs and subsequently at amortised cost.
At initial recognition, the Group classifies its financial instruments in the following categories depending on the purpose
for which the instruments were acquired:
i. Financial assets
The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are
recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of
the instrument.
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market.
Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition, loans and receivables are measured at cost, less any accumulated impairment losses.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is
created or retained by the Group is recognised as a separate asset or liability.
ii. Financial liabilities
The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated.
All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a
party to the contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged, terminated or expired. When
the Group exchanges with the existing lender one debt instrument into another one with the substantially different terms,
such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new
financial liability. Similarly, the Group's accounts for substantial modification of terms of an existing liability or part
of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that
the terms are substantially different if the discounted present value of the cash flows under the new terms, including any
fees paid net of any fees received and discounted using the original effective rate is at least 10% different from the
discounted present value of the remaining cash flows of the original financial liability.
The Group classifies its financial liabilities into the other financial liabilities category. Such financial liabilities
are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition,
these financial liabilities are measured at amortised cost using the effective interest method. The effective interest
method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the
relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the
expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Financial assets and liabilities are offset and the net amount presented in the Consolidated Statement of Financial
Position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net
basis or to realise the asset and settle the liability simultaneously.
Derivative Financial Instruments
Derivative financial instruments are classified at fair value through profit or loss unless they are in a designated hedge
relationship. Derivative financial instruments are initially recognized at fair value on the date a derivative contract is
entered into and are re-measured at their fair value at subsequent balance sheet dates.
Interest rate derivatives transacted to fix interest rates on floating rate borrowings are accounted for as cash flow
hedges and changes in the fair values resulting from changes in market interest rates are recognised in other comprehensive
income. Amounts taken to other comprehensive income are transferred to the statement of profit or loss when the hedged
transaction affects profit and loss. Any ineffectiveness on hedging instruments and changes in the fair value of derivative
financial instruments that do not qualify for hedge accounting are recognised in the statement of profit or loss within
finance costs as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer
qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in
other comprehensive income is retained there until the forecast transaction occurs. If a hedged transaction is no longer
expected to occur, the net cumulative gain or loss recognised in other comprehensive income is transferred.
Foreign Currency Translation and Transactions
Assets and liabilities of subsidiaries whose functional currency is not USD are translated into USD at the rate of exchange
in effect on the statement of financial position date. The related equity accounts of subsidiaries are translated into USD
at the historical rate of exchange. Income and expenses are translated into USD at the average rates of exchange prevailing
during the year. Foreign currency gains and losses resulting from the translation of subsidiaries into USD are recognised
in the statement of other comprehensive income. Exchange differences arising from the translation of the net investment in
foreign operations are taken to a separate translation reserve within equity. They are recycled and recognised in the
Consolidated Statement of Profit or Loss upon disposal of the operation.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are not retranslated. Any gain or loss arising from
subsequent exchange rate movements is included as an exchange gain or loss in the Consolidated Statement of Profit or
Loss.
Hyperinflationary Economies
IAS 29, Financial Reporting in Hyperinflationary Economies ("IAS 29") requires financial statements to be stated in terms
of the measuring unit current at the end of the reporting period whose functional currency is the currency of a
hyperinflationary economy. The financial information is restated based on the consumer price index ("CPI") before being
translated into a different presentation currency. All amounts are translated at the closing exchange rate at the date of
the most recent Consolidated Statement of Financial Position. Hyperinflation is indicated by the characteristics of an
economy, which includes a cumulative inflation rate over three years that approaches or exceeds 100 percent, sales and
purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit
period, even if the period is short and the general population prefers to keep its wealth in non-monetary assets or in a
relatively stable foreign currency.
Venezuela has been considered as a hyperinflationary economy since 2010. The hyperinflation accounting has been applied to
Boston Estada (Venezuela based subsidiary) in the Financial Statements. The financial information of the subsidiary has
been restated for the changes in the CPI (as published by the Central Bank of Venezuela) of the functional currency and, as
a result, are stated in terms of the measuring unit current at the end of the reporting period. This complies with the
accounting treatment described in IAS 29. The gain on the net monetary position in 2017 and 2016 were $10.4 million and
$12.2 million, respectively. The following table summarises the changes in the Venezuelan CPI for the reporting periods
ended 31 December 2017 and 2016:
Reporting Period CPI* Movement from previous reporting period
31 December 2016 7,729.5 228.0%
31 December 2017 25,338.5 228.0%
* Base period, 31 December 2007 = 100
Retirement Benefit Costs
Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered
service entitling them to the contributions. Payments made to state-managed retirement benefit schemes are dealt with as
payments to defined contribution schemes where the Group's obligations under the schemes are equivalent to those arising in
a defined contribution retirement benefit scheme.
For defined benefit retirement schemes, the cost of providing benefits is determined using the Projected Unit Credit
Method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement comprising actuarial
gains and losses, the effect of the asset ceiling (if applicable) and the return on scheme assets (excluding interest) are
recognised immediately in the Consolidated Statement of Financial Position with a charge or credit to the Consolidated
Statement of Comprehensive Loss in the period in which they occur. Remeasurement recorded in the Consolidated Statement of
Comprehensive Loss is not recycled. Past service cost is recognised in the Consolidated Statement of Profit or Loss in the
period of scheme amendment. Net-interest is calculated by applying a discount rate to the net defined benefit liability or
asset.
Leases
i. Operating leases
Payments made under operating leases are charged to the Consolidated Statement of Profit or Loss on a straight-line basis
over the term of the lease.
ii. Finance leases
Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases as
if the asset had been purchased outright. Assets acquired under the finance leases are recognised as assets of the Group
and the capital and interest elements of the leasing commitments are shown as obligations to creditors. Depreciation is
charged on a consistent basis with similar owned assets or over the lease term if shorter. The interest element of the
lease payment is charged to the Consolidated Statement of Profit or Loss on a basis which produces a consistent rate of
charge over the period of the liability.
Non-current Assets Held for Sale
Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs of
disposal. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable
and the asset is available for immediate sale in its present condition. Management must be committed to the sale which
should be expected to qualify for recognition as a completed sale within one year from the date of classification.
4. 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 years ended 31 December 2017 and 2016 by market franchise:
2017 2016
$m $m
Revenue by market franchise
Advanced Wound Care 577.8 559.5
Ostomy Care 528.9 512.1
Continence & Critical Care 382.9 356.5
Infusion Devices 275.0 260.2
1,764.6 1,688.3
Geographic information
Geographic markets
The following table sets forth the Group's revenue for the years ended 31 December 2017 and 2016 in each geographic market
in which customers are located:
2017 2016
$m $m
Geographic markets
EMEA 733.0 726.4
Americas 898.1 829.4
APAC 133.5 132.5
1,764.6 1,688.3
Geographic regions
The following table sets forth the Group's revenue for the years ended 31 December 2017 and 2016 on the basis of geographic
regions where the legal entity resides and from which those revenues were made:
2017 2016
$m $m
Geographic regions
US 591.1 543.8
Denmark 298.0 293.5
UK 149.4 157.0
Switzerland 107.8 110.8
France 92.5 90.1
Other(a) 525.8 493.1
1,764.6 1,688.3
(a) Other consists primarily of countries in Europe, APAC, Latin America and Canada.
The following table sets forth the Group's long-lived assets at 31 December 2017 and 2016 by geographic regions:
2017 2016
$m $m
Long-lived assets(a)
US 1,071.2 1,125.0
UK 438.8 432.9
Denmark 142.1 124.8
Slovakia 69.2 45.0
Dominican Republic 60.0 42.4
Netherlands 19.1 -
Other(b) 20.9 16.1
Total long-lived assets 1,821.3 1,786.2
(a) Long-lived assets consist of property, plant and equipment and intangible assets.
(b) Other consists primarily of countries in Europe and Latin America.
Major Customers
In 2017 and 2016, no single customer generated more than 10% of the Group's revenue.
5. Income Taxes
A. Tax on profit (loss) for the year
Current tax on profit before income taxes in 2017 (loss before income taxes in 2016) is recognised as an expense in the
Consolidated Statement of Profit or Loss, along with any change in the provision for deferred tax:
2017 2016
$m $m
Current
UK current year charge 2.3 4.7
Overseas taxation 35.7 35.3
Adjustment for prior years 0.1 (0.2 )
Total current tax expense 38.1 39.8
Deferred
Origination and reversal of temporary differences (9.1 ) 43.4
Change in tax rate (22.8 ) (5.7 )
Adjustment for prior years (0.6 ) (0.5 )
Total deferred tax (benefit) expense (32.5 ) 37.2
Income tax expense 5.6 77.0
B. Reconciliation of effective tax rate
Variance in effective tax rate on prior year
The effective tax rate for the year ended 31 December 2017 was 3.4% as compared with 61.2% for the year ended 31 December
2016. The variance in the effective tax rate on prior year is primarily driven by 2017 impacts of: US tax reform benefit of
$28.1 million related to reduction in federal tax rate and implementation of participation exemption on dividends; Woodbury
M&A purchase accounting benefit of $9.9 million; unremitted earnings benefit primarily in the Dominican Republic of $18.4
million; the impact of lower non-deductible costs incurred in 2017, including share based compensation and 2016 related IPO
and reorganisation costs; and the 2016 prior year effect on deferred benefit of $10.8 million. The reduction in the US
main rate (35% to 21%) and Luxembourg main rate (19% to 18%) generated tax charges of $33.6 million and $17.1 million,
respectively, on re-measurement of deferred tax assets. As these deferred tax assets are fully provided for, there was no
impact on the effective tax rate as shown below.
Key factors influencing the effective tax rate
The Company's tax rate is sensitive to the geographic mix of profits and its ability to recognize unrealized losses
primarily in the US. Other factors that could influence the effective tax rate include tax rate changes, changes in tax
legislation or regulations in jurisdictions where the Company does business, evolving developments and implementation of
the OECD's BEPS Actions, or tax disputes.
2017 2016
$m $m
Profit (loss) before income taxes 164.0 (125.8 )
Profit before tax multiplied by rate of corporation tax in the UK of 19.25% (2016: 20%) 31.5 (25.2 )
Difference between UK and rest of world tax rates (10.4 ) 13.1
Non-deductible/non-taxable items 4.1 35.6
Previously unrecognised losses and other assets 5.0 19.0
Amortisation of indefinite life intangibles 8.1 7.9
Taxes on unremitted earnings (2.4 ) 20.0
Deferred impact of tax rate changes (22.8 ) (5.7 )
Prior year effect on deferred - 10.8
Previously unrecognised tax benefits (4.2 ) 1.6
Other (3.3 ) (0.1 )
Income tax expense reported in the Consolidated Statement of Profit or Loss at the effective tax rate 5.6 3.4 % 77.0 (61.2)%
C. Movement in deferred tax balances
A provision is recorded for deferred tax on the basis of all temporary differences in accordance with the balance sheet
liability method. Temporary differences arise between the tax base of assets and liabilities and their carrying amounts
which are offset over time. Deferred tax is measured on the basis of the tax rates applicable at the statement of financial
position date. The UK main rate is reduced to 17% effective 1 April 2020. Deferred tax assets are recognised to the extent
that it is probable that future positive taxable income will be generated, against which the temporary differences and tax
losses can be offset. Deferred tax assets are measured at expected net realisable values in 2017 and 2016. The following
table shows movements in the
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