REG - ConvaTec Group PLC - Final Results <Origin Href="QuoteRef">CTEC.L</Origin> - Part 4
15/02/2018 07:06
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table summarises the estimated
fair values of the assets acquired and liabilities assumed as of acquisition
date. The following recognised amounts are provisional and subject to change:
• amounts for income tax assets and liabilities, pending
finalisation of estimates and assumptions in respect of certain tax aspects of
the transaction; and
• amount of goodwill pending the completion of the valuation of
assets acquired and liabilities assumed.
The Group will finalise these amounts as it obtains the information necessary
to complete the measurement process. Any changes resulting from facts and
circumstances that existed as of the acquisition date may result in
retrospective adjustments to the provisional amounts recognised at the
acquisition date. The Group will finalise these amounts no later than one year
from the acquisition date.
Provisional Amounts Recognized as of Acquisition Date $m
Non-current assets
Property, plant and equipment 0.2
Intangible assets((a)) 43.4
Other assets 0.1
Current assets
Inventories ((b)) 1.6
Trade and other receivables((c)) 8.6
Prepaid expenses and other current assets 0.4
Cash and cash equivalents 4.7
Total assets 59.0
Current liabilities
Trade and other payables (3.1 )
Borrowings((d)) (1.3 )
Accrued expenses and other current liabilities (4.4 )
Non-current liabilities
Borrowings((d)) (30.0 )
Deferred tax liabilities (9.9 )
Total liabilities (48.7 )
Net assets acquired 10.3
Initial cash consideration((e)) 79.5
Deferred purchase consideration paid into escrow((f)) 5.3
Total consideration 84.8
Goodwill arising on acquisition((g)) 74.5
Year ended 31 December 2017
Analysis of cash outflow in the Condensed Consolidated Cash Flow Statement $m
Initial cash consideration 79.5
Cash acquired on acquisition (4.7 )
Deferred purchase consideration paid into escrow 5.3
Net cash outflow on acquisition (per Condensed Consolidated Cash Flow 80.1
Statement)
(a) The following table summarises the provisional amounts and useful
lives assigned to identifiable intangible assets:
Weighted Average Useful Lives (Years) Provisional Amounts Recognised as of Acquisition Date $m
Finite-lived intangible assets:
Customer relationship 8 years 40.9
Indefinite-lived intangible assets:
Trade name((1)) Indefinite lived 2.5
Total Intangible Assets 43.4
(1) The provisional amount of indefinite-lived trade name has been
allocated to the Group's Woodbury Catheter ($1.3 million) and Woodbury
Incontinence ($1.2 million) CGU.
(b) Includes an estimated fair value adjustment to inventory of $0.1
million.
(c) The fair value of receivables acquired approximate the gross
contractual amounts receivable. The amount of gross contractual receivables
not expected to be recovered is immaterial.
(d) Effective 1 September, 2017, the date of acquisition, the Group
terminated the term loan and revolver agreement, repaid the assumed debt
outstanding and canceled the undrawn revolver facilities.
(e) The initial cash consideration includes cash at closing of $4.7
million.
(f) $5.3 million was paid on closing into escrow as security for the due
and punctual fulfilment by the seller of its obligations under the Share
Purchase Agreement. The escrow account will be maintained for 3 years, of
which (i) $0.4 million was released after 60 days, (ii) an additional $0.9
million will be released after 18 months, and (iii) the remaining $4.0 million
will be released after 3 years.
(g) Goodwill is calculated as the difference between the acquisition date
fair value of the consideration transferred and the values assigned to the
assets acquired and liabilities assumed. None of the goodwill is expected to
be deductible for tax purposes. The goodwill recorded represents the
following:
• costs savings and operating synergies expected to result from combining
the operations of Woodbury with those of the Group; and
• intangible assets that do not qualify for separate recognition (for
instance, Woodbury's assembled workforce).
The provisional amount of goodwill has been allocated to the Group's Woodbury
Catheter ($44.7 million) and Woodbury Incontinence ($29.8 million) CGU.
Acquisition-related costs
The Group incurred $0.9 million of transaction costs directly related to the
Woodbury acquisition through 31 December 2017, which includes expenditures for
advisory, legal, valuation, accounting and other similar services. These costs
have been expensed as acquisition-related costs.
Revenue and net profit of Woodbury
The revenue of Woodbury for the period from the acquisition date to 31
December 2017 was $18.9 million and net profit, net of tax, was $0.1 million.
The net profit, net of tax, includes the effects of the acquisition accounting
adjustments.
EuroTec
Description of the transaction
On 3 January 2017, the Group acquired the entire share capital of EuroTec for
a total cash consideration of approximately $30.4 million (€29.3 million),
including $5.0 million (€4.9 million) of the cash and cash equivalents
acquired. EuroTec manufactures ostomy care systems and commercialises its
products directly in the Benelux region and through distributor partners in
other markets. The acquisition was made to complement the product portfolio
and services provided to the ostomy market.
Assets acquired and liabilities assumed
The transaction has been accounted for as a business combination under the
acquisition method of accounting. The following table summarises the fair
values of the assets acquired and liabilities assumed as of acquisition date:
Amounts
Recognised as of
Acquisition Date
$m
Non-current assets
Property, plant and equipment 6.1
Intangible assets((a)) 12.5
Current assets
Inventories((b)) 4.4
Trade and other receivables((c)) 1.3
Cash and cash equivalents 5.0
Total assets 29.3
Current liabilities
Trade and other payables (0.7 )
Accrued expenses and other current liabilities (0.2 )
Non-current liabilities
Deferred tax liabilities (4.1 )
Total liabilities (5.0 )
Net assets acquired 24.3
Initial cash consideration((d)) 26.3
Deferred purchase consideration paid into escrow((e)) 4.1
Total consideration 30.4
Goodwill arising on acquisition((f)) 6.1
Year ended
31 December 2017
Analysis of cash outflow in the Condensed Consolidated Cash Flow Statement $m
Initial cash consideration 26.3
Cash acquired on acquisition (5.0 )
Deferred purchase consideration paid into escrow 4.1
Net cash outflow on acquisition (per Condensed Consolidated Cash Flow 25.4
Statement)
(a) The following table summarises the amounts and useful lives assigned
to identifiable intangible assets:
Weighted Average Useful Lives (Years) Amounts Recognised as of Acquisition Date $m
Finite-lived intangible assets:
Technology, one-piece ostomy system 8 years 8.4
Technology, two-piece ostomy system 8 years 3.1
Technology, accessories 7 years 1.0
Total intangible assets 12.5
(b) Includes the fair value adjustment to inventory of $1.5 million.
(c) The fair value of receivables acquired approximate the gross
contractual amounts receivable. The amount of gross contractual receivables
not expected to be recovered is immaterial.
(d) The initial cash consideration includes cash at closing of $5.0
million (€4.9 million).
(e) €4.0 million ($4.1 million) was paid on closing into escrow as
security for the due and punctual fulfilment by the seller of its obligations
under the Share Purchase Agreement. The escrow account will be maintained for
3 years, of which 50% (€2.0 million) will be released to seller on 3 July
2018 and the remaining balance will be released after the third year.
(f) Goodwill is calculated as the difference between the acquisition
date fair value of the consideration transferred and the values assigned to
the assets acquired and liabilities assumed. None of the goodwill is
deductible for tax purposes. The goodwill recorded represents the following:
• costs savings and operating synergies expected to result from combining
the operations of EuroTec with those of the Group; and
• intangible assets that do not qualify for separate recognition (for
instance, EuroTec's assembled workforce).
Goodwill has been allocated to the Group's EMEA CGU.
Acquisition-related costs
The Group incurred $0.6 million of transaction costs directly related to the
EuroTec acquisition through 31 December 2016, which includes expenditures for
advisory, legal, valuation, accounting and other similar services. These costs
have been expensed as acquisition-related costs. There were no transaction
costs related to the EuroTec acquisition in the year ended 31 December 2017.
Revenue and net loss of EuroTec
The revenue of EuroTec for the period from the acquisition date to 31 December
2017 was $11.3 million and net loss, net of tax, was $0.5 million. The net
loss, net of tax, includes the effects of the acquisition accounting
adjustments.
9. Borrowings
A summary of the Group's consolidated borrowings at 31 December 2017 and 2016
is outlined in the table below:
2017 2016
$m $m
Credit Facilities Agreement:
Revolving Credit Facility - -
US Dollar Term A Loan Facility 743.3 760.5
Euro Term A Loan Facility 632.9 567.5
US Dollar Term B Loan Facility 421.1 424.6
Total Credit Facilities 1,797.3 1,752.6
Finance Lease Obligations 25.6 23.0
Total borrowings 1,822.9 1,775.6
Less: Current portion of borrowings 78.2 38.5
Total non-current borrowings 1,744.7 1,737.1
The terms and conditions of total borrowings outstanding at 31 December 2017
and 2016 are as follows:
2017 2016
Year of Face value Carrying amount Face value Carrying amount
Currency maturity $m $m $m $m
Revolving Credit Facilities((a)) 2021 - - - -
US Dollar Term A Loan Facility((a)) USD 2021 750.8 743.3 770.0 760.5
Euro Term A Loan Facility((a)(b)) EURO 2021 639.1 632.9 574.2 567.5
US Dollar Term B Loan Facility((a)) USD 2023 425.7 421.1 430.0 424.6
Finance lease obligations EURO/USD - 25.6 25.6 23.0 23.0
Total interest-bearing liabilities 1,841.2 1,822.9 1,797.2 1,775.6
(a) The current nominal interest rates for the Credit Facilities included
in the table above are described below.
(b) Total face value of the borrowings outstanding under the Euro Term A
Loan Facility denominated in euros was €532.4 million ($639.1 million) and
€546.0 million ($574.2 million) at 31 December 2017 and 2016, respectively.
The Group's Credit Facilities contain customary operating and negative
covenants, including, among other things, covenants limiting: (i) incurrence
of indebtedness; (ii) incurrence of liens; (iii) mergers, consolidations,
liquidations, dissolutions and other fundamental changes; (iv) sales of
assets; (v) dividends and other payments in respect of capital stock or junior
debt subject to an available amount built by consolidated net income; (vi)
acquisitions; (vii) transactions with affiliates; (viii) changes in fiscal
year; (ix) negative pledge clauses and clauses restricting subsidiary
distributions; and (x) holding companies.
The Group's Credit Facilities also contain a financial covenant, various
customary affirmative covenants and specified events of default.
At 31 December 2017 and 2016, the Group was in compliance with all financial
covenants associated with the Group's outstanding debt.
Credit Facilities
On 25 October 2016, the Group entered into the Credit Agreement (the "Credit
Agreement") with various financial institutions (the "Financing").The Credit
Agreement provides for (i) term A loans denominated in USD of $770.0 million
and euros of €546.0 million ($594.7 million at 25 October 2016) (the ''Term
A Loan Facilities''), (ii) term B loans denominated in USD of $430.0 million
(issued at an offering price of 99.5%, after adjustment for a discount of $2.2
million) (the ''Term B Loan Facility'' and together with the Term A Loan
Facilities, the ''Term Loan Facilities'') and (iii) a $200.0 million revolving
credit facility (the "Revolving Credit Facility", and together with the Term
Loan Facilities, the "Credit Facilities"). The Term A Loan Facilities are
repayable in semi-annual instalments (commencing 30 June 2017) in aggregate
annual amounts equal to (i) 2.5% in year one, (ii) 5.0% in year two, (iii)
7.5% in year three, (iv) 10.0% in year four, and (v) 7.5% in year five, in
each case of the original principal amount of the Term A Loan Facilities. The
Term B Loan Facility is repayable in semi-annual instalments (commencing 30
June 2017) in an aggregate annual amount equal to 1.0% of the original
principal amount of the Term B Loan Facility. Interest on outstanding
principal under the Credit Facilities is payable quarterly in arrears,
providing that no interest payment date shall occur prior to 31 March 2017. In
connection with the Financing, the Group entered into a commitment letter
dated 30 September 2016 with various financial institutions and incurred $3.5
million in fees, which were expensed to Finance costs in the Consolidated
Statement of Profit or Loss.
The net proceeds from the Financing, together with the net proceeds from the
issue of share capital, were used to (i) repay all amounts outstanding prior
to the Financing under the US dollar and euro term B loans of $785.5 million
and €741.3 million ($807.3 million), respectively, and (ii) redeem all of
the outstanding PIK Notes and all of the existing Senior Notes further
discussed below. As a result, for the year ended 31 December 2016, the Group
recognised (i) a loss on extinguishment of debt of $21.9 million, in the
aggregate, of which $2.6 million was recognised with respect to the pre-IPO
term loan facilities and was comprised of $1.9 million of unamortised deferred
financing fees and $0.7 million of unamortised original issue discount ("OID")
and (ii) a write off of deferred financing fees of $3.8 million related to the
pre-IPO revolving credit facility. The Group incurred fees of approximately
$23.9 million, in the aggregate, of which $21.3 million were deferred and
capitalised over the term of the Term Loan Facilities and $2.5 million were
deferred and capitalised over the term of the Revolving Credit Facility
(recorded in Other assets).
The Revolving Credit Facility of $200.0 million is available through its
termination date in certain currencies (USD, euro and sterling) at the
borrower's option and is used to provide for ongoing working capital
requirements, letters of credit, and general corporate purposes of the Group.
The Revolving Credit Facility allows for up to $50.0 million of letter of
credit issuances as well as $25.0 million for borrowings on same-day notice,
referred to as the swingline loans. There were no borrowings outstanding under
the Revolving Credit Facility at 31 December 2017 and 2016. Availability
under the Revolving Credit Facility, after deducting letters of credit of $7.1
million and $1.3 million, was $192.9 million and $198.7 million at 31 December
2017 and 2016, respectively.
The Credit Agreement also provides for the ability of the Group to enter into
incremental term facilities (the "Incremental Term Facilities") and
incremental revolving facilities (the "Incremental Revolving Credit
Facilities") and to issue senior secured, senior unsecured, senior
subordinated or subordinated notes (the "Incremental Notes" and together with
the Incremental Term Facilities and the Incremental Revolving Credit
Facilities, the "Incremental Facilities").
The Incremental Term Facilities and Incremental Revolving Credit Facilities
are subject to certain conditions and are available in (i) a cash-capped
amount equal to the greater of $475 million and consolidated EBITDA as of the
end of the most recently ended two half-fiscal year period, provided that the
consolidated total net leverage ratio (as defined in the Credit Agreement)
does not exceed 4.00 to 1.00, (ii) an unlimited amount so long as the maximum
total leverage requirement (as defined in the Credit Agreement) is satisfied,
and (iii) an amount equal to all voluntary prepayments or repurchases under
the Term Loan Facilities and voluntary prepayments under the Revolving Credit
Facility (to the extent accompanied by a corresponding permanent reduction in
the revolving commitments) (such sum, the ''Incremental Amount''), in US
dollars and/or euro (and, in the case of the Incremental Revolving Credit
Facilities, pounds sterling), provided that the Group satisfies certain other
requirements, including: no default or event of default, minimum borrowing
amounts of $15.0 million and, in respect of Incremental Term Facilities, a
maturity date and weighted average life to maturity of each individual loan
within the Incremental Term Facilities that is greater than the weighted
average maturity date of the Term Loan Facilities and if shorter, shall not
have an amortisation of greater than 5.0% per annum. Additionally, should the
yield on any Incremental Term Facility exceed the interest margin on the Term
Loan Facilities denominated in the same currency by more than 0.50%, then the
yield on the applicable Term Loan Facilities will automatically increase such
that the yield on such Term Loan Facilities denominated in the same currency
shall be 0.50% below the yield on the applicable Incremental Term Facilities.
Any loan advances made under the Incremental Term Facilities will rank pari
passu with or junior to the Term Loan Facilities and the Revolving Credit
Facility.
The Incremental Notes shall not exceed the Incremental Amount and are
available in US dollars and euro, provided that the Group satisfies certain
other requirements, including: no default or event of default and the issuance
shall be in an amount of no more than $15.0 million (or its equivalent).
Subject to certain conditions, the Group may voluntarily prepay their
utilisations under the Credit Facilities in a minimum amount of $1.0 million
(or its equivalent) for term loans or revolving facilities. Amounts repaid
under the Term Loan Facilities may not be re-borrowed. In addition to
voluntary prepayments, the Credit Agreement requires mandatory prepayment in
full or in part in certain circumstances including, in relation to the Term
Loan Facilities and subject to certain criteria, from the proceeds of asset
sales in excess of $20.0 million and the issuance or incurrence of debt and
from excess cash flow. In 2017, the Group made scheduled loan amortisation
payments of $39.6 million, in the aggregate, related to the Credit
Facilities. In 2016, the Group made payments of $21.5 million, in the
aggregate, related to the pre-IPO term loan facilities as follows: (i)
mandatory prepayment of $17.4 million for excess cash retained in the business
and (ii) scheduled March 2016 loan amortisation payment of $4.1 million.
Borrowings under the Credit Facilities bear interest at either EURIBOR rate,
Eurodollar rate, or an Alternate Base Rate (''ABR''), in each case, plus an
applicable margin. Under the Term Loan Facilities, EURIBOR interest is
associated with the borrowings in euros; while LIBOR and ABR interest is
associated with borrowings in USD. EURIBOR, Eurodollar or ABR interest rates
may apply to any outstanding borrowings under the Revolving Credit Facility.
ABR, as defined in the Credit Agreement, is the greater of (a) the Prime Rate,
(b) the Federal Funds Effective Rate plus 0.50% or (c) the Eurodollar Rate for
a one month interest period plus 1.00%, provided that the ABR for the Term
Loan Facilities may not be less than 1.00%. The Eurodollar rate is subject to
a floor of 0.75% per annum in respect of the Term B Loan Facility and 0.00%
per annum in respect of all other loans. The margins applicable to the Term A
Loan Facilities denominated in euro range from 2.0% to 2.25% and the margins
applicable to the Term A Loan Facilities denominated in USD range from 1.0% to
1.25% if using ABR and 2.0% to 2.25% if using the Eurodollar rate and the
margins applicable to the Term B Loan Facility range from 1.25% to 1.50% if
using ABR and 2.25% to 2.50% if using the Eurodollar rate, in each case, with
the relevant step-down in margin occurring depending on the relevant first
lien net leverage ratio.
Senior Notes
The Senior Notes consisted of $745.0 million (the "US Dollar Senior Notes")
and €250.0 million senior notes (the "Euro Senior Notes") each due 15
December 2018 (collectively, the "Senior Notes"). The US Dollar Senior Notes
and the Euro Senior Notes bore interest at the rate of 10.5% and 10.875% per
annum, respectively, which was payable semi-annually on 15 June and 15
December of each year.
As discussed above, the Group redeemed all $745.0 million and €250.0 million
($272.3 million) of the outstanding principal amount of the US Dollar Senior
Notes and Euro Senior Notes, respectively, plus accrued and unpaid interest of
$39.1 million and €13.6 million ($14.8 million), respectively. In
connection with these transactions, the Group recognised a loss on
extinguishment of debt related to unamortised deferred financing fees of $9.1
million, in the aggregate, in the year ended 31 December 2016.
PIK Notes
On 12 August 2013, the Group issued $900.0 million principal amount of the PIK
Notes. The PIK Notes accrued cash interest at a rate of 8.25% per annum and
PIK Notes interest (if cash interest was not elected to be paid) at a rate of
9.00% per annum.
As discussed above, the Group redeemed all $900.0 million of the outstanding
principal amount of the PIK Notes, plus accrued and unpaid interest of $22.1
million. In connection with this transaction, the Group recognised a loss on
extinguishment of debt of $10.2 million, comprised of $6.8 million of
unamortised deferred financing fees and $3.4 million of OID.
Interest Related Information
Accrued interest related to the Group's borrowings was $0.7 million and $8.7
million at 31 December 2017 and 2016, respectively, and is recorded in Accrued
expenses and other current liabilities. Interest expense for the years ended
31 December 2017 and 2016 associated with the Group's borrowings was as
follows:
2017 2016
$m $m
Revolving Credit Facility((a)) 1.0 1.4
US Dollar Term A Loan Facility 25.3 3.9
Euro Term A Loan Facility 13.3 2.3
US Dollar Term B Loan Facility 15.2 30.7
Euro Term B Loan Facility((b)) - 29.8
10.5% US Dollar Senior Notes((b)) - 74.7
10.875% Euro Senior Notes((b)) - 28.9
8.25% PIK Notes((b)) - 62.1
Total interest expense on borrowings 54.8 233.8
(a) Represents the commitment fees in respect of unutilised commitments
under the Revolving Credit Facility.
(b) As described above, on 25 October 2016, the Group entered into the
Credit Agreement and immediately following the listing redeemed all if the
outstanding (i) PIK Notes, (ii) US Dollar Senior Notes, and (iii) Euro Senior
Notes and repaid all amounts outstanding under the existing credit facilities
at that time.
The weighted average interest rate for borrowings under the Group's
outstanding borrowings was 3.1% and 6.9% for the years ended 31 December 2017
and 2016, respectively.
Finance Lease Obligations
The table below presents total obligations under finance leases at 31 December
2017 and 2016:
Minimum lease payments Present value of lease payments
2017 2016 2017 2016
$m $m $m $m
Amount payable:
Within 1 year 2.7 2.2 0.8 0.6
1 to 5 years inclusive 11.5 10.0 4.9 3.7
After 5 years 27.1 26.2 19.9 18.7
41.3 38.4 25.6 23.0
Less future finance charges 15.7 15.4 - -
Total obligations under finance leases 25.6 23.0 25.6 23.0
Reconciliation of Liabilities Arising from Financing Activities
2016 Debt assumed on acquisition Cash flows Foreign exchange Non-cash movements 2017
$m $m $m $m $m $m
Borrowings - current 37.9 1.3 (40.9 ) 1.7 77.4 77.4
Borrowings - non-current 1,714.7 30.0 (30.0 ) 78.3 (73.1 ) 1,719.9
Finance lease obligations - current 0.6 - (0.6 ) 0.1 0.7 0.8
Finance lease obligations- non-current 22.4 - - 3.1 (0.7 ) 24.8
Total liabilities from financing activities 1,775.6 31.3 (71.5 ) 83.2 4.3 1,822.9
10. Legal Proceedings
The nature of the Group business exposes it to a variety of product liability,
regulatory and IP claims. The Group makes appropriate provision for
liabilities and disclosure of contingent liabilities in accordance with its
accounting policies, using informed and unbiased management judgement based on
the best available information at the time. However, it is not always possible
to predict outcomes and additional facts may come to light. As a result,
provision amounts and contingency disclosures are subject to revision over
time. In accordance with the accounting guidance related to contingencies, the
Group records provisions for liabilities when it is probable that a liability
will be incurred and the amount of loss can be reasonably estimated. Legal
costs related to litigation matters are expensed as incurred.
Corrections and Removals
In January 2016, the Group initiated a recall of a range of nebuliser products
in Europe, the US, Canada and China due to an increase in reports related to
the products' periodic inability to generate an atomised spray as intended.
Following an investigation, the Group determined that the issue was due to
variability in a molding process during manufacturing, which was duly
corrected. This recall was closed globally in December 2016. The Group
completed final destruction of the affected devices that were returned in
January 2017.
In May 2017, the Group initiated a global recall of a range of oxygen mask
products due to reports related to the products' failure to supply oxygen as
intended. Following an investigation, the Group determined that the issue
was due to inconsistency in the solvent bonding process during manufacturing.
A permanent correction was put in place. The Group completed destruction of
the affected devices in November 2017 and the Group will be closing out this
recall in the near future.
In 2017, the Group initiated two product recalls in Israel. A recall of
endotracheal tubes was initiated in Israel in June 2017 based on reports of
mismatched product labels and product size; this recall was closed in
September 2017. A voluntary recall for one lot of incorrectly manufactured
ostomy irrigation sleeves was initiated in October 2017 and was closed in
January 2018.
In October 2017, the Group initiated a recall of a single lot of ostomy skin
barriers in the US due to a labeling issue that impacted a small number of
products in the affected lot. The Group anticipates closing out this recall
in the near future.
In September 2017, Medtronic Misnamed, Inc. ("Medtronic"), issued a recall of
certain infusion sets, including the Quick-Set® and Silhouette® infusion
sets. The Quick-Set® and Silhouette® infusion sets include P-Cap
connectors designed by Medtronic and manufactured for Medtronic by the Group
for use with Medtronic insulin infusion pumps in diabetes care. Medtronic
modified the design of P-Cap connectors, which we have integrated into the
infusion set design.
Medtronic previously issued a recall of Quick-Set® and Silhouette® infusion
sets in June 2013. Medtronic issued this recall due to a potential safety
issue that can occur if insulin or other fluids meet the inside of the
tubing/P-Cap connector. The June 2013 recall has resulted in pending or
threatened litigation against various of the Group's entities. These lawsuits
allege that the infusion sets are defective and have caused injuries or death
to various plaintiffs. All of these cases also include claims against
Medtronic, and allegations that their insulin pumps (which the Group does not
make or sell) are defective. To the best of the Group's knowledge, as of this
report date, approximately twenty-two product liability lawsuits had been
filed. The Group's entities have been voluntarily dismissed without
prejudice from twelve of these lawsuits and dismissed with prejudice from two
lawsuits that have been settled. The Group has sent a demand to Medtronic
seeking indemnification for these lawsuits consistent with the terms of the
agreements between them. To date, Medtronic has rejected this demand. The
Group also carries product liability insurance, subject to a self-insured
retention, and has notified the insurance carrier about these lawsuits. The
remaining pending lawsuits are all in their early stages. At this point the
Group is unable to predict the likelihood of an unfavourable outcome or
estimate any potential loss.
11. Financial Instruments
Policy
The Group's treasury policies seek to minimise financial risks and to ensure
sufficient liquidity for the Group's operations and strategic plans. No
complex derivative financial instruments are used, and no trading or
speculative transactions in financial instruments are undertaken. Where the
Group does use financial instruments these are mainly to manage the currency
risks arising from normal operations and its financing. Operations are
financed mainly through retained profits and, in certain geographic locations,
bank borrowings. The Group's policies have remained unchanged since the
beginning of the year.
Detail of the significant policies and methods adopted for each class of
financial asset and financial liability are disclosed in Note 3 - Significant
Accounting Policies.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be
able to continue as going concerns while maximising the return to shareholders
through the optimisation of the debt and equity balance. The capital structure
of the Group consists of debt, which includes the borrowings disclosed in Note
9 - Borrowings, cash and cash equivalents and equity of the Group, comprising
issued capital, reserves and retained earnings as disclosed in the
Consolidated Statement of Changes in Equity.
Financial risk management objectives
Based on the operations of the Group throughout the world, the Directors
consider that the key financial risks that it faces are liquidity risk,
currency risk, interest rate risk, and credit risk. The objectives under each
of these risks are as follows:
• Liquidity risk: ensure adequate funding to support working capital
and future capital expenditure requirements.
• Currency risk: reduce exposure to foreign exchange movements
principally between euro, USD and the British Pound sterling ("GBP").
• Interest rate risk: mitigate risk of significant change in market
rates on the cash flow of issued variable rate debt.
• Credit risk: minimise the risk of default and concentration
(discussed in Note 3 - Significant Accounting Policies- Trade and Other
Receivables).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group manages liquidity risk by
continuously monitoring actual and projected cash outflows to ensure that it
will have sufficient liquidity to meet its liabilities when due, without
incurring unacceptable losses or risking damage to the Group's reputation.
The tables below analyse the Group's financial liabilities at 31 December 2017
and 2016 by contractual maturity date, including interest payments:
Contractual cash flows
Within 1 year or on demand 1 to 2 years 2 to 5 years More than 5 years Total Carrying amount
$m $m $m $m $m $m
31 December 2017
Borrowings 77.4 110.7 1,223.3 404.1 1,815.5 1,797.3
Finance lease obligations 2.7 2.8 8.7 27.1 41.3 25.6
Trade and other payables 122.0 - - - 122.0 122.0
Accrued expenses and other current liabilities 41.7 - - - 41.7 41.7
31 December 2016
Borrowings 37.9 71.5 1,256.3 408.5 1,774.2 1,752.6
Finance lease obligations 2.2 2.3 7.7 26.2 38.4 23.0
Trade and other payables 111.6 - - - 111.6 111.6
Accrued expenses and other current liabilities 60.1 - - - 60.1 60.1
The contractual maturities of borrowings (excluding finance lease
obligations), inclusive of interest payments at 31 December 2017 and 2016 were
as follows:
Contractual cash flows
Within 1 year or on demand 1 to 2 years 2 to 5 years More than 5 years Total
Borrowings, including interest((a)) $m $m $m $m $m
31 December 2017 135.4 165.8 1,332.9 417.5 2,051.6
31 December 2016 96.7 121.2 1,383.2 433.1 2,034.2
_______________________________
(a) Assumes repayment of the principal amount of debt obligations at
maturity.
Additionally, if the Group was fully drawn against the $200.0 million
Revolving Credit Facility, the cash interest payments would have increased by
approximately $7.4 million and $6.0 million for the years ended 31 December
2017 and 2016, respectively.
Currency risk
The Group manufactures and sells its products in various countries around the
world and as a result of the global nature of the operations, it is exposed to
market risk arising from changes in currency exchange rates; however the Group
foreign currency risk is diversified. The Group's primary net foreign currency
translation exposures are the euro, GBP, and Danish Krone ("DKK"). Where
possible, the Group manages foreign currency risk by managing same currency
revenues to same currency expenses and strategically denominating its debt in
certain functional currencies in order to match with the projected functional
currency exposures within its operations and thereby minimising foreign
currency risk. As a result, the impact of the fluctuations in the market
values of assets and liabilities and the settlement of foreign currency
transactions are reduced.
Significant increases in the value of the USD relative to foreign currencies
could have a material adverse effect on the results of operations. Assets and
liabilities are converted based on the exchange rate on the statement of
financial position date, and statement of profit or loss items are converted
based on the average exchange rate during the period. Transactions that are to
be settled in a currency that is not the functional currency of the
transacting entity are recorded to the Consolidated Statement of Profit or
Loss at each remeasurement date or settlement date. Additionally, assets and
liabilities of subsidiaries whose functional currency is not USD are
translated into USD at the exchange rate at each statement of financial
position date. Any cumulative translation difference is recorded within
equity.
The following exchange rates for the major currencies have been applied at 31
December 2017 and 2016:
Currency Average rate/Closing rate 2017 2016
EUR/USD Average 1.13 1.11
Closing 1.20 1.05
GBP/USD Average 1.29 1.36
Closing 1.35 1.23
DKK/USD Average 0.15 0.15
Closing 0.16 0.14
Sensitivity analysis on currency risk
The most significant exposure to foreign currency risk relates to certain
borrowings. A reasonably possible 10% fluctuation of the USD against the EUR
applied to borrowings from third parties existing at 31 December 2017 would
have affected equity by the amounts shown below. This calculation assumes that
the change occurred at the reporting date and had been applied to borrowings
from third parties existing at that date. This analysis assumes that all other
variables, in particular interest rates, remain constant and ignores any tax
impact.
Equity
$m
10% strengthening of USD compared to EUR 63.9
10% weakening of USD compared to EUR (63.9 )
Interest rate risk
The Group's interest rate risk arises from borrowings. Borrowings issued at
variable rates expose the Group to interest rate cash flow risk.
Currency and Nature of Interest Rate of the Nominal Value of Borrowings
The currency and rate structure of the Group's borrowings at 31 December 2017
and 2016 were as follows:
2017 2016
Currency structure $m % $m %
USD 1,176.8 64 1,200.4 67
EUR 664.4 36 596.8 33
Total 1,841.2 100 1,797.2 100
Rate structure
Fixed 25.6 1 23.0 1
Floating 1,815.6 99 1,774.2 99
Total 1,841.2 100 1,797.2 100
Sensitivity analysis on interest rate risk
The loans under the Group's Credit Facilities bear interest at floating rates
of interest per annum equal to LIBOR and/or EURIBOR, or ABR, as adjusted
periodically, plus a spread. A plus or minus change of 1% in the interest
rates in effect on 31 December 2017 and 2016, would have a negative or
positive impact on the Consolidated Statement of Profit or Loss and on equity
of $18.2 million and $17.7 million, respectively, assuming that all other
variables remain constant and ignoring any tax effect. The Group manage the
risk centrally, by maintaining the appropriate mix between fixed and floating
rate borrowings, using interest rate swaps.
Interest rate swap contracts
As noted above, the Group has variable rate debt instruments and is exposed to
market risks resulting from interest rate fluctuations. In order to manage its
exposure to variability in expected future cash outflows attributable to the
changes in LIBOR rates on the US Dollar Term A and B Loan Facility, in May
2017, the Group entered into interest rate swap agreements. The Group interest
rate swaps do not contain credit-risk related contingent features and are not
subject to master netting arrangements. The interest rate swaps are designated
as hedging instruments in a cash flow hedging relationship. As such, changes
in the fair value will be recognised in other comprehensive income and
accumulated in the other reserve, with the fair value of the interest rate
derivatives recorded in the statement of financial position.
The following table presents the Group's outstanding interest rate swaps
agreements, notional amounts and related fair values at 31 December 2017. The
fair values are based on market values of equivalent instruments at 31
December 2017. These financial instruments are classified as level 2 based
upon the degree to which the fair value movements are observable. Level 2 fair
value measurements are defined as those derived from inputs other than quoted
prices that are observable for the asset or liability, either directly (prices
from third parties) or indirectly (derived from third party prices).
Notional Amount at 31 December 2017 Fair Value((c)) Assets/(Liabilities)
Effective Date Maturity Date $m $m
3 Month LIBOR Float to Fixed Interest Rate Swap((a)) 30 June 2017 30 June 2020 585.0 5.0
3 Month LIBOR Float to Fixed Interest Rate Swap((b)) 30 June 2017 30 June 2020 297.0 2.4
Amounts recognised in Consolidated Statement of Profit or Loss -
Amounts recognised in Consolidated Comprehensive Income 7.4
(a) Under the interest rate swap agreement, commencing on 29 September
2017, the Group is entitled to receive quarterly interest payments at a
variable rate equal to the 3 month LIBOR, subject to an interest rate floor of
0% and is required to make quarterly interest payments at a fixed rate of
1.709%. In addition, for hedging purposes, the notional amount is split into
six equal tranches.
(b) Under the interest rate swap agreement, commencing on 29 September
2017, the Group is entitled to receive quarterly interest payments at a
variable rate equal to the 3 month LIBOR, subject to an interest rate floor of
0.75% and is required to make quarterly interest payments at a fixed rate of
1.749%. In addition, for hedging purposes, the notional amount is split into
three equal tranches.
(c) The fair values of the interest rate swaps are included in
non-current Other assets in the Consolidated Statement of Financial Position.
The Consolidated Statement of Profit or Loss includes the negligible
ineffective impact of the interest rate swaps.
Fair values of financial assets and financial liabilities
The carrying amounts reflected in the Consolidated Statement of Financial
Position at 31 December 2017 and 2016 for cash and cash equivalents, trade and
other receivables, restricted cash, trade and other payable, and certain
accrued expenses and other current liabilities approximate fair value due to
their short-term maturities. There are no other assets or liabilities measured
at fair value on a recurring or non-recurring basis.
Liabilities not Measured at Fair Value
The borrowings are initially carried at fair value less any directly
attributable transaction costs and subsequently at amortised cost. At 31
December 2017 and 2016, the estimated fair value of the Group's borrowings,
excluding finance leases approximated $1,819.5 million and $1,775.2 million,
in the aggregate, respectively. The fair values were estimated using the
quoted market prices and current interest rates offered for similar debt
issuances. Borrowings are categorised as Level 2 measurement in the fair value
hierarchy under IFRS 13 Fair Value Measurements. See Note 9 - Borrowings for
the face and the carrying values of the Group's borrowings.
12. Related Party Transactions
Prior to listing, the Group maintained an agreement with its equity sponsors
(the "Management Agreement"), whereby the equity sponsors provided certain
management advisory services. For services rendered by the equity sponsors,
an annual fee of $3.0 million was payable in equal quarterly instalments.
The Group also paid other specified fees, in accordance with the Management
Agreement. For the year ended 31 December 2016, the Group incurred $2.5
million ($1.8 million-Nordic Capital and $0.7 million-Avista Capital Partners)
in contractual fees to the equity sponsors for services rendered in accordance
with the Management Agreement. Upon completion of the IPO in 2016, the
Management Agreement was terminated.
The Group's revenue included $8.6 million and $7.4 million for the years ended
31 December 2017 and 2016, respectively, of revenue to a related party
(customers affiliated with Nordic Capital, shareholder and former equity
sponsor). The accompanying Consolidated Statement of Financial Position
includes a receivable from the Group's related party revenue recorded in Trade
and other receivables in the amount of $2.1 million and $1.2 million at 31
December 2017 and 2016, respectively. In addition, during the years ended 31
December 2017 and 2016, the Group purchased inventory product totalling $6.3
million and $0.7 million, respectively, from a related party (vendors
affiliated with Nordic Capital, shareholder and former equity sponsor). The
accompanying Consolidated Statement of Financial Position includes a payable
related to the Group's related party purchases recorded in Trade and other
payables in the amount of $0.1 million at 31 December 2017. At 31 December
2016, such related party purchases were fully paid.
Key management personnel compensation
Key management personnel are those persons who have the authority and
responsibility for planning, directing and controlling the activities of the
Group. The definition of key management personnel includes Directors (both
executive and non-executive) and other executives from the management team
with significant authority and responsibility for planning, directing and
controlling the entity's activities.
Key management personnel compensation for the years ended 31 December 2017 and
2016 comprised the following:
2017 2016(a)
$m $m
Short-term employee benefits 9.7 9,200,000.0 8.7
Share-based expense 26.2 38.2
Post-employment benefits 2.6 0.7
Termination benefits 0.5 -
Total 39.0 47.6
(a) The 2016 comparative has been restated to be on a consistent basis
with the 2017 presentation.
The above table does not include an outstanding loan of $0.2 million and $0.3
million at 31 December 2017 and 2016, respectively, to the Group's CEO. The
amounts of share-based compensation to the key management personnel disclosed
in the table above are based on the expense recognised under IFRS 2.
13. Subsequent Events
The Group has evaluated subsequent events through 14 February 2018, the date
the Financial Statements were approved by the board of Directors.
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. Refer to Note 6 - Dividends for further
details.
This information is provided by RNS
The company news service from the London Stock Exchange
$m (except share data)
Net profit (loss) attributable to the equity holders of the Group 158.4 (202.8 )
Basic weighted average ordinary shares in issue (net of shares purchased by the Company and held as Own shares) 1,951,006,350 1,376,365,276
Dilutive impact of share awards 2,935,460 -
Diluted weighted average ordinary shares in issue 1,953,941,810 1,376,365,276
Basic earnings (loss) per share ($ 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
table summarises the estimated fair values of the assets acquired and liabilities assumed as of acquisition date. The
following recognised amounts are provisional and subject to change:
• amounts for income tax assets and liabilities, pending finalisation of estimates and assumptions in respect of
certain tax aspects of the transaction; and
• amount of goodwill pending the completion of the valuation of assets acquired and liabilities assumed.
The Group will finalise these amounts as it obtains the information necessary to complete the measurement process. Any
changes resulting from facts and circumstances that existed as of the acquisition date may result in retrospective
adjustments to the provisional amounts recognised at the acquisition date. The Group will finalise these amounts no later
than one year from the acquisition date.
Provisional Amounts Recognized as of Acquisition Date $m
Non-current assets
Property, plant and equipment 0.2
Intangible assets(a) 43.4
Other assets 0.1
Current assets
Inventories (b) 1.6
Trade and other receivables(c) 8.6
Prepaid expenses and other current assets 0.4
Cash and cash equivalents 4.7
Total assets 59.0
Current liabilities
Trade and other payables (3.1 )
Borrowings(d) (1.3 )
Accrued expenses and other current liabilities (4.4 )
Non-current liabilities
Borrowings(d) (30.0 )
Deferred tax liabilities (9.9 )
Total liabilities (48.7 )
Net assets acquired 10.3
Initial cash consideration(e) 79.5
Deferred purchase consideration paid into escrow(f) 5.3
Total consideration 84.8
Goodwill arising on acquisition(g) 74.5
Year ended 31 December 2017
Analysis of cash outflow in the Condensed Consolidated Cash Flow Statement $m
Initial cash consideration 79.5
Cash acquired on acquisition (4.7 )
Deferred purchase consideration paid into escrow 5.3
Net cash outflow on acquisition (per Condensed Consolidated Cash Flow Statement) 80.1
(a) The following table summarises the provisional amounts and useful lives assigned to identifiable intangible assets:
Weighted Average Useful Lives (Years) Provisional Amounts Recognised as of Acquisition Date $m
Finite-lived intangible assets:
Customer relationship 8 years 40.9
Indefinite-lived intangible assets:
Trade name(1) Indefinite lived 2.5
Total Intangible Assets 43.4
(1) The provisional amount of indefinite-lived trade name has been allocated to the Group's Woodbury Catheter ($1.3
million) and Woodbury Incontinence ($1.2 million) CGU.
(b) Includes an estimated fair value adjustment to inventory of $0.1 million.
(c) The fair value of receivables acquired approximate the gross contractual amounts receivable. The amount of gross
contractual receivables not expected to be recovered is immaterial.
(d) Effective 1 September, 2017, the date of acquisition, the Group terminated the term loan and revolver agreement,
repaid the assumed debt outstanding and canceled the undrawn revolver facilities.
(e) The initial cash consideration includes cash at closing of $4.7 million.
(f) $5.3 million was paid on closing into escrow as security for the due and punctual fulfilment by the seller of its
obligations under the Share Purchase Agreement. The escrow account will be maintained for 3 years, of which (i) $0.4
million was released after 60 days, (ii) an additional $0.9 million will be released after 18 months, and (iii) the
remaining $4.0 million will be released after 3 years.
(g) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and
the values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for
tax purposes. The goodwill recorded represents the following:
• costs savings and operating synergies expected to result from combining the operations of Woodbury with those of the
Group; and
• intangible assets that do not qualify for separate recognition (for instance, Woodbury's assembled workforce).
The provisional amount of goodwill has been allocated to the Group's Woodbury Catheter ($44.7 million) and Woodbury
Incontinence ($29.8 million) CGU.
Acquisition-related costs
The Group incurred $0.9 million of transaction costs directly related to the Woodbury acquisition through 31 December 2017,
which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been
expensed as acquisition-related costs.
Revenue and net profit of Woodbury
The revenue of Woodbury for the period from the acquisition date to 31 December 2017 was $18.9 million and net profit, net
of tax, was $0.1 million. The net profit, net of tax, includes the effects of the acquisition accounting adjustments.
EuroTec
Description of the transaction
On 3 January 2017, the Group acquired the entire share capital of EuroTec for a total cash consideration of approximately
$30.4 million (E29.3 million), including $5.0 million (E4.9 million) of the cash and cash equivalents acquired. EuroTec
manufactures ostomy care systems and commercialises its products directly in the Benelux region and through distributor
partners in other markets. The acquisition was made to complement the product portfolio and services provided to the ostomy
market.
Assets acquired and liabilities assumed
The transaction has been accounted for as a business combination under the acquisition method of accounting. The following
table summarises the fair values of the assets acquired and liabilities assumed as of acquisition date:
AmountsRecognised as ofAcquisition Date$m
Non-current assets
Property, plant and equipment 6.1
Intangible assets(a) 12.5
Current assets
Inventories(b) 4.4
Trade and other receivables(c) 1.3
Cash and cash equivalents 5.0
Total assets 29.3
Current liabilities
Trade and other payables (0.7 )
Accrued expenses and other current liabilities (0.2 )
Non-current liabilities
Deferred tax liabilities (4.1 )
Total liabilities (5.0 )
Net assets acquired 24.3
Initial cash consideration(d) 26.3
Deferred purchase consideration paid into escrow(e) 4.1
Total consideration 30.4
Goodwill arising on acquisition(f) 6.1
Year ended31 December 2017
Analysis of cash outflow in the Condensed Consolidated Cash Flow Statement $m
Initial cash consideration 26.3
Cash acquired on acquisition (5.0 )
Deferred purchase consideration paid into escrow 4.1
Net cash outflow on acquisition (per Condensed Consolidated Cash Flow Statement) 25.4
(a) The following table summarises the amounts and useful lives assigned to identifiable intangible assets:
Weighted Average Useful Lives (Years) Amounts Recognised as of Acquisition Date $m
Finite-lived intangible assets:
Technology, one-piece ostomy system 8 years 8.4
Technology, two-piece ostomy system 8 years 3.1
Technology, accessories 7 years 1.0
Total intangible assets 12.5
(b) Includes the fair value adjustment to inventory of $1.5 million.
(c) The fair value of receivables acquired approximate the gross contractual amounts receivable. The amount of gross
contractual receivables not expected to be recovered is immaterial.
(d) The initial cash consideration includes cash at closing of $5.0 million (E4.9 million).
(e) E4.0 million ($4.1 million) was paid on closing into escrow as security for the due and punctual fulfilment by the
seller of its obligations under the Share Purchase Agreement. The escrow account will be maintained for 3 years, of which
50% (E2.0 million) will be released to seller on 3 July 2018 and the remaining balance will be released after the third
year.
(f) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred
and the values assigned to the assets acquired and liabilities assumed. None of the goodwill is deductible for tax
purposes. The goodwill recorded represents the following:
• costs savings and operating synergies expected to result from combining the operations of EuroTec with those of the
Group; and
• intangible assets that do not qualify for separate recognition (for instance, EuroTec's assembled workforce).
Goodwill has been allocated to the Group's EMEA CGU.
Acquisition-related costs
The Group incurred $0.6 million of transaction costs directly related to the EuroTec acquisition through 31 December 2016,
which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been
expensed as acquisition-related costs. There were no transaction costs related to the EuroTec acquisition in the year
ended 31 December 2017.
Revenue and net loss of EuroTec
The revenue of EuroTec for the period from the acquisition date to 31 December 2017 was $11.3 million and net loss, net of
tax, was $0.5 million. The net loss, net of tax, includes the effects of the acquisition accounting adjustments.
9. Borrowings
A summary of the Group's consolidated borrowings at 31 December 2017 and 2016 is outlined in the table below:
2017 2016
$m $m
Credit Facilities Agreement:
Revolving Credit Facility - -
US Dollar Term A Loan Facility 743.3 760.5
Euro Term A Loan Facility 632.9 567.5
US Dollar Term B Loan Facility 421.1 424.6
Total Credit Facilities 1,797.3 1,752.6
Finance Lease Obligations 25.6 23.0
Total borrowings 1,822.9 1,775.6
Less: Current portion of borrowings 78.2 38.5
Total non-current borrowings 1,744.7 1,737.1
The terms and conditions of total borrowings outstanding at 31 December 2017 and 2016 are as follows:
2017 2016
Year of Face value Carrying amount Face value Carrying amount
Currency maturity $m $m $m $m
Revolving Credit Facilities(a) 2021 - - - -
US Dollar Term A Loan Facility(a) USD 2021 750.8 743.3 770.0 760.5
Euro Term A Loan Facility(a)(b) EURO 2021 639.1 632.9 574.2 567.5
US Dollar Term B Loan Facility(a) USD 2023 425.7 421.1 430.0 424.6
Finance lease obligations EURO/USD - 25.6 25.6 23.0 23.0
Total interest-bearing liabilities 1,841.2 1,822.9 1,797.2 1,775.6
(a) The current nominal interest rates for the Credit Facilities included in the table above are described below.
(b) Total face value of the borrowings outstanding under the Euro Term A Loan Facility denominated in euros was E532.4
million ($639.1 million) and E546.0 million ($574.2 million) at 31 December 2017 and 2016, respectively.
The Group's Credit Facilities contain customary operating and negative covenants, including, among other things, covenants
limiting: (i) incurrence of indebtedness; (ii) incurrence of liens; (iii) mergers, consolidations, liquidations,
dissolutions and other fundamental changes; (iv) sales of assets; (v) dividends and other payments in respect of capital
stock or junior debt subject to an available amount built by consolidated net income; (vi) acquisitions; (vii) transactions
with affiliates; (viii) changes in fiscal year; (ix) negative pledge clauses and clauses restricting subsidiary
distributions; and (x) holding companies.
The Group's Credit Facilities also contain a financial covenant, various customary affirmative covenants and specified
events of default.
At 31 December 2017 and 2016, the Group was in compliance with all financial covenants associated with the Group's
outstanding debt.
Credit Facilities
On 25 October 2016, the Group entered into the Credit Agreement (the "Credit Agreement") with various financial
institutions (the "Financing").The Credit Agreement provides for (i) term A loans denominated in USD of $770.0 million and
euros of E546.0 million ($594.7 million at 25 October 2016) (the ''Term A Loan Facilities''), (ii) term B loans denominated
in USD of $430.0 million (issued at an offering price of 99.5%, after adjustment for a discount of $2.2 million) (the
''Term B Loan Facility'' and together with the Term A Loan Facilities, the ''Term Loan Facilities'') and (iii) a $200.0
million revolving credit facility (the "Revolving Credit Facility", and together with the Term Loan Facilities, the "Credit
Facilities"). The Term A Loan Facilities are repayable in semi-annual instalments (commencing 30 June 2017) in aggregate
annual amounts equal to (i) 2.5% in year one, (ii) 5.0% in year two, (iii) 7.5% in year three, (iv) 10.0% in year four, and
(v) 7.5% in year five, in each case of the original principal amount of the Term A Loan Facilities. The Term B Loan
Facility is repayable in semi-annual instalments (commencing 30 June 2017) in an aggregate annual amount equal to 1.0% of
the original principal amount of the Term B Loan Facility. Interest on outstanding principal under the Credit Facilities is
payable quarterly in arrears, providing that no interest payment date shall occur prior to 31 March 2017. In connection
with the Financing, the Group entered into a commitment letter dated 30 September 2016 with various financial institutions
and incurred $3.5 million in fees, which were expensed to Finance costs in the Consolidated Statement of Profit or Loss.
The net proceeds from the Financing, together with the net proceeds from the issue of share capital, were used to (i) repay
all amounts outstanding prior to the Financing under the US dollar and euro term B loans of $785.5 million and E741.3
million ($807.3 million), respectively, and (ii) redeem all of the outstanding PIK Notes and all of the existing Senior
Notes further discussed below. As a result, for the year ended 31 December 2016, the Group recognised (i) a loss on
extinguishment of debt of $21.9 million, in the aggregate, of which $2.6 million was recognised with respect to the pre-IPO
term loan facilities and was comprised of $1.9 million of unamortised deferred financing fees and $0.7 million of
unamortised original issue discount ("OID") and (ii) a write off of deferred financing fees of $3.8 million related to the
pre-IPO revolving credit facility. The Group incurred fees of approximately $23.9 million, in the aggregate, of which
$21.3 million were deferred and capitalised over the term of the Term Loan Facilities and $2.5 million were deferred and
capitalised over the term of the Revolving Credit Facility (recorded in Other assets).
The Revolving Credit Facility of $200.0 million is available through its termination date in certain currencies (USD, euro
and sterling) at the borrower's option and is used to provide for ongoing working capital requirements, letters of credit,
and general corporate purposes of the Group. The Revolving Credit Facility allows for up to $50.0 million of letter of
credit issuances as well as $25.0 million for borrowings on same-day notice, referred to as the swingline loans. There were
no borrowings outstanding under the Revolving Credit Facility at 31 December 2017 and 2016. Availability under the
Revolving Credit Facility, after deducting letters of credit of $7.1 million and $1.3 million, was $192.9 million and
$198.7 million at 31 December 2017 and 2016, respectively.
The Credit Agreement also provides for the ability of the Group to enter into incremental term facilities (the "Incremental
Term Facilities") and incremental revolving facilities (the "Incremental Revolving Credit Facilities") and to issue senior
secured, senior unsecured, senior subordinated or subordinated notes (the "Incremental Notes" and together with the
Incremental Term Facilities and the Incremental Revolving Credit Facilities, the "Incremental Facilities").
The Incremental Term Facilities and Incremental Revolving Credit Facilities are subject to certain conditions and are
available in (i) a cash-capped amount equal to the greater of $475 million and consolidated EBITDA as of the end of the
most recently ended two half-fiscal year period, provided that the consolidated total net leverage ratio (as defined in the
Credit Agreement) does not exceed 4.00 to 1.00, (ii) an unlimited amount so long as the maximum total leverage requirement
(as defined in the Credit Agreement) is satisfied, and (iii) an amount equal to all voluntary prepayments or repurchases
under the Term Loan Facilities and voluntary prepayments under the Revolving Credit Facility (to the extent accompanied by
a corresponding permanent reduction in the revolving commitments) (such sum, the ''Incremental Amount''), in US dollars
and/or euro (and, in the case of the Incremental Revolving Credit Facilities, pounds sterling), provided that the Group
satisfies certain other requirements, including: no default or event of default, minimum borrowing amounts of $15.0 million
and, in respect of Incremental Term Facilities, a maturity date and weighted average life to maturity of each individual
loan within the Incremental Term Facilities that is greater than the weighted average maturity date of the Term Loan
Facilities and if shorter, shall not have an amortisation of greater than 5.0% per annum. Additionally, should the yield on
any Incremental Term Facility exceed the interest margin on the Term Loan Facilities denominated in the same currency by
more than 0.50%, then the yield on the applicable Term Loan Facilities will automatically increase such that the yield on
such Term Loan Facilities denominated in the same currency shall be 0.50% below the yield on the applicable Incremental
Term Facilities. Any loan advances made under the Incremental Term Facilities will rank pari passu with or junior to the
Term Loan Facilities and the Revolving Credit Facility.
The Incremental Notes shall not exceed the Incremental Amount and are available in US dollars and euro, provided that the
Group satisfies certain other requirements, including: no default or event of default and the issuance shall be in an
amount of no more than $15.0 million (or its equivalent).
Subject to certain conditions, the Group may voluntarily prepay their utilisations under the Credit Facilities in a minimum
amount of $1.0 million (or its equivalent) for term loans or revolving facilities. Amounts repaid under the Term Loan
Facilities may not be re-borrowed. In addition to voluntary prepayments, the Credit Agreement requires mandatory prepayment
in full or in part in certain circumstances including, in relation to the Term Loan Facilities and subject to certain
criteria, from the proceeds of asset sales in excess of $20.0 million and the issuance or incurrence of debt and from
excess cash flow. In 2017, the Group made scheduled loan amortisation payments of $39.6 million, in the aggregate, related
to the Credit Facilities. In 2016, the Group made payments of $21.5 million, in the aggregate, related to the pre-IPO term
loan facilities as follows: (i) mandatory prepayment of $17.4 million for excess cash retained in the business and (ii)
scheduled March 2016 loan amortisation payment of $4.1 million.
Borrowings under the Credit Facilities bear interest at either EURIBOR rate, Eurodollar rate, or an Alternate Base Rate
(''ABR''), in each case, plus an applicable margin. Under the Term Loan Facilities, EURIBOR interest is associated with the
borrowings in euros; while LIBOR and ABR interest is associated with borrowings in USD. EURIBOR, Eurodollar or ABR interest
rates may apply to any outstanding borrowings under the Revolving Credit Facility. ABR, as defined in the Credit Agreement,
is the greater of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.50% or (c) the Eurodollar Rate for a one
month interest period plus 1.00%, provided that the ABR for the Term Loan Facilities may not be less than 1.00%. The
Eurodollar rate is subject to a floor of 0.75% per annum in respect of the Term B Loan Facility and 0.00% per annum in
respect of all other loans. The margins applicable to the Term A Loan Facilities denominated in euro range from 2.0% to
2.25% and the margins applicable to the Term A Loan Facilities denominated in USD range from 1.0% to 1.25% if using ABR and
2.0% to 2.25% if using the Eurodollar rate and the margins applicable to the Term B Loan Facility range from 1.25% to 1.50%
if using ABR and 2.25% to 2.50% if using the Eurodollar rate, in each case, with the relevant step-down in margin occurring
depending on the relevant first lien net leverage ratio.
Senior Notes
The Senior Notes consisted of $745.0 million (the "US Dollar Senior Notes") and E250.0 million senior notes (the "Euro
Senior Notes") each due 15 December 2018 (collectively, the "Senior Notes"). The US Dollar Senior Notes and the Euro
Senior Notes bore interest at the rate of 10.5% and 10.875% per annum, respectively, which was payable semi-annually on 15
June and 15 December of each year.
As discussed above, the Group redeemed all $745.0 million and E250.0 million ($272.3 million) of the outstanding principal
amount of the US Dollar Senior Notes and Euro Senior Notes, respectively, plus accrued and unpaid interest of $39.1 million
and E13.6 million ($14.8 million), respectively. In connection with these transactions, the Group recognised a loss on
extinguishment of debt related to unamortised deferred financing fees of $9.1 million, in the aggregate, in the year ended
31 December 2016.
PIK Notes
On 12 August 2013, the Group issued $900.0 million principal amount of the PIK Notes. The PIK Notes accrued cash interest
at a rate of 8.25% per annum and PIK Notes interest (if cash interest was not elected to be paid) at a rate of 9.00% per
annum.
As discussed above, the Group redeemed all $900.0 million of the outstanding principal amount of the PIK Notes, plus
accrued and unpaid interest of $22.1 million. In connection with this transaction, the Group recognised a loss on
extinguishment of debt of $10.2 million, comprised of $6.8 million of unamortised deferred financing fees and $3.4 million
of OID.
Interest Related Information
Accrued interest related to the Group's borrowings was $0.7 million and $8.7 million at 31 December 2017 and 2016,
respectively, and is recorded in Accrued expenses and other current liabilities. Interest expense for the years ended 31
December 2017 and 2016 associated with the Group's borrowings was as follows:
2017 2016
$m $m
Revolving Credit Facility(a) 1.0 1.4
US Dollar Term A Loan Facility 25.3 3.9
Euro Term A Loan Facility 13.3 2.3
US Dollar Term B Loan Facility 15.2 30.7
Euro Term B Loan Facility(b) - 29.8
10.5% US Dollar Senior Notes(b) - 74.7
10.875% Euro Senior Notes(b) - 28.9
8.25% PIK Notes(b) - 62.1
Total interest expense on borrowings 54.8 233.8
(a) Represents the commitment fees in respect of unutilised commitments under the Revolving Credit Facility.
(b) As described above, on 25 October 2016, the Group entered into the Credit Agreement and immediately following the
listing redeemed all if the outstanding (i) PIK Notes, (ii) US Dollar Senior Notes, and (iii) Euro Senior Notes and repaid
all amounts outstanding under the existing credit facilities at that time.
The weighted average interest rate for borrowings under the Group's outstanding borrowings was 3.1% and 6.9% for the years
ended 31 December 2017 and 2016, respectively.
Finance Lease Obligations
The table below presents total obligations under finance leases at 31 December 2017 and 2016:
Minimum lease payments Present value of lease payments
2017 2016 2017 2016
$m $m $m $m
Amount payable:
Within 1 year 2.7 2.2 0.8 0.6
1 to 5 years inclusive 11.5 10.0 4.9 3.7
After 5 years 27.1 26.2 19.9 18.7
41.3 38.4 25.6 23.0
Less future finance charges 15.7 15.4 - -
Total obligations under finance leases 25.6 23.0 25.6 23.0
Reconciliation of Liabilities Arising from Financing Activities
2016 Debt assumed on acquisition Cash flows Foreign exchange Non-cash movements 2017
$m $m $m $m $m $m
Borrowings - current 37.9 1.3 (40.9 ) 1.7 77.4 77.4
Borrowings - non-current 1,714.7 30.0 (30.0 ) 78.3 (73.1 ) 1,719.9
Finance lease obligations - current 0.6 - (0.6 ) 0.1 0.7 0.8
Finance lease obligations- non-current 22.4 - - 3.1 (0.7 ) 24.8
Total liabilities from financing activities 1,775.6 31.3 (71.5 ) 83.2 4.3 1,822.9
10. Legal Proceedings
The nature of the Group business exposes it to a variety of product liability, regulatory and IP claims. The Group makes
appropriate provision for liabilities and disclosure of contingent liabilities in accordance with its accounting policies,
using informed and unbiased management judgement based on the best available information at the time. However, it is not
always possible to predict outcomes and additional facts may come to light. As a result, provision amounts and contingency
disclosures are subject to revision over time. In accordance with the accounting guidance related to contingencies, the
Group records provisions for liabilities when it is probable that a liability will be incurred and the amount of loss can
be reasonably estimated. Legal costs related to litigation matters are expensed as incurred.
Corrections and Removals
In January 2016, the Group initiated a recall of a range of nebuliser products in Europe, the US, Canada and China due to
an increase in reports related to the products' periodic inability to generate an atomised spray as intended. Following an
investigation, the Group determined that the issue was due to variability in a molding process during manufacturing, which
was duly corrected. This recall was closed globally in December 2016. The Group completed final destruction of the
affected devices that were returned in January 2017.
In May 2017, the Group initiated a global recall of a range of oxygen mask products due to reports related to the products'
failure to supply oxygen as intended. Following an investigation, the Group determined that the issue was due to
inconsistency in the solvent bonding process during manufacturing. A permanent correction was put in place. The Group
completed destruction of the affected devices in November 2017 and the Group will be closing out this recall in the near
future.
In 2017, the Group initiated two product recalls in Israel. A recall of endotracheal tubes was initiated in Israel in June
2017 based on reports of mismatched product labels and product size; this recall was closed in September 2017. A voluntary
recall for one lot of incorrectly manufactured ostomy irrigation sleeves was initiated in October 2017 and was closed in
January 2018.
In October 2017, the Group initiated a recall of a single lot of ostomy skin barriers in the US due to a labeling issue
that impacted a small number of products in the affected lot. The Group anticipates closing out this recall in the near
future.
In September 2017, Medtronic Misnamed, Inc. ("Medtronic"), issued a recall of certain infusion sets, including the
Quick-Set and Silhouette infusion sets. The Quick-Set and Silhouette infusion sets include P-Cap connectors designed by
Medtronic and manufactured for Medtronic by the Group for use with Medtronic insulin infusion pumps in diabetes care.
Medtronic modified the design of P-Cap connectors, which we have integrated into the infusion set design.
Medtronic previously issued a recall of Quick-Set and Silhouette infusion sets in June 2013. Medtronic issued this recall
due to a potential safety issue that can occur if insulin or other fluids meet the inside of the tubing/P-Cap connector.
The June 2013 recall has resulted in pending or threatened litigation against various of the Group's entities. These
lawsuits allege that the infusion sets are defective and have caused injuries or death to various plaintiffs. All of these
cases also include claims against Medtronic, and allegations that their insulin pumps (which the Group does not make or
sell) are defective. To the best of the Group's knowledge, as of this report date, approximately twenty-two product
liability lawsuits had been filed. The Group's entities have been voluntarily dismissed without prejudice from twelve of
these lawsuits and dismissed with prejudice from two lawsuits that have been settled. The Group has sent a demand to
Medtronic seeking indemnification for these lawsuits consistent with the terms of the agreements between them. To date,
Medtronic has rejected this demand. The Group also carries product liability insurance, subject to a self-insured
retention, and has notified the insurance carrier about these lawsuits. The remaining pending lawsuits are all in their
early stages. At this point the Group is unable to predict the likelihood of an unfavourable outcome or estimate any
potential loss.
11. Financial Instruments
Policy
The Group's treasury policies seek to minimise financial risks and to ensure sufficient liquidity for the Group's
operations and strategic plans. No complex derivative financial instruments are used, and no trading or speculative
transactions in financial instruments are undertaken. Where the Group does use financial instruments these are mainly to
manage the currency risks arising from normal operations and its financing. Operations are financed mainly through retained
profits and, in certain geographic locations, bank borrowings. The Group's policies have remained unchanged since the
beginning of the year.
Detail of the significant policies and methods adopted for each class of financial asset and financial liability are
disclosed in Note 3 - Significant Accounting Policies.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while
maximising the return to shareholders through the optimisation of the debt and equity balance. The capital structure of the
Group consists of debt, which includes the borrowings disclosed in Note 9 - Borrowings, cash and cash equivalents and
equity of the Group, comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement
of Changes in Equity.
Financial risk management objectives
Based on the operations of the Group throughout the world, the Directors consider that the key financial risks that it
faces are liquidity risk, currency risk, interest rate risk, and credit risk. The objectives under each of these risks are
as follows:
• Liquidity risk: ensure adequate funding to support working capital and future capital expenditure requirements.
• Currency risk: reduce exposure to foreign exchange movements principally between euro, USD and the British Pound
sterling ("GBP").
• Interest rate risk: mitigate risk of significant change in market rates on the cash flow of issued variable rate
debt.
• Credit risk: minimise the risk of default and concentration (discussed in Note 3 - Significant Accounting Policies-
Trade and Other Receivables).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group
manages liquidity risk by continuously monitoring actual and projected cash outflows to ensure that it will have sufficient
liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Group's
reputation.
The tables below analyse the Group's financial liabilities at 31 December 2017 and 2016 by contractual maturity date,
including interest payments:
Contractual cash flows
Within 1 year or on demand 1 to 2 years 2 to 5 years More than 5 years Total Carrying amount
$m $m $m $m $m $m
31 December 2017
Borrowings 77.4 110.7 1,223.3 404.1 1,815.5 1,797.3
Finance lease obligations 2.7 2.8 8.7 27.1 41.3 25.6
Trade and other payables 122.0 - - - 122.0 122.0
Accrued expenses and other current liabilities 41.7 - - - 41.7 41.7
31 December 2016
Borrowings 37.9 71.5 1,256.3 408.5 1,774.2 1,752.6
Finance lease obligations 2.2 2.3 7.7 26.2 38.4 23.0
Trade and other payables 111.6 - - - 111.6 111.6
Accrued expenses and other current liabilities 60.1 - - - 60.1 60.1
The contractual maturities of borrowings (excluding finance lease obligations), inclusive of interest payments at 31
December 2017 and 2016 were as follows:
Contractual cash flows
Within 1 year or on demand 1 to 2 years 2 to 5 years More than 5 years Total
Borrowings, including interest(a) $m $m $m $m $m
31 December 2017 135.4 165.8 1,332.9 417.5 2,051.6
31 December 2016 96.7 121.2 1,383.2 433.1 2,034.2
_______________________________
(a) Assumes repayment of the principal amount of debt obligations at maturity.
Additionally, if the Group was fully drawn against the $200.0 million Revolving Credit Facility, the cash interest payments
would have increased by approximately $7.4 million and $6.0 million for the years ended 31 December 2017 and 2016,
respectively.
Currency risk
The Group manufactures and sells its products in various countries around the world and as a result of the global nature of
the operations, it is exposed to market risk arising from changes in currency exchange rates; however the Group foreign
currency risk is diversified. The Group's primary net foreign currency translation exposures are the euro, GBP, and Danish
Krone ("DKK"). Where possible, the Group manages foreign currency risk by managing same currency revenues to same currency
expenses and strategically denominating its debt in certain functional currencies in order to match with the projected
functional currency exposures within its operations and thereby minimising foreign currency risk. As a result, the impact
of the fluctuations in the market values of assets and liabilities and the settlement of foreign currency transactions are
reduced.
Significant increases in the value of the USD relative to foreign currencies could have a material adverse effect on the
results of operations. Assets and liabilities are converted based on the exchange rate on the statement of financial
position date, and statement of profit or loss items are converted based on the average exchange rate during the period.
Transactions that are to be settled in a currency that is not the functional currency of the transacting entity are
recorded to the Consolidated Statement of Profit or Loss at each remeasurement date or settlement date. Additionally,
assets and liabilities of subsidiaries whose functional currency is not USD are translated into USD
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