REG - ConvaTec Group PLC - Interim Results
04/08/2022 07:00
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RNS Number : 8511U ConvaTec Group PLC 04 August 2022
LEI: 213800LS272L4FIDOH92
4 August 2022
Convatec Group Plc
Interim Results for the six months ended 30 June 2022
Strong
revenue growth, stable adjusted operating profit
and continued strategic progress
· Good financial performance in H1 2022 notwithstanding the challenging
inflationary backdrop and continued investment in Innovation, Sales &
Marketing
· Continued execution of FISBE (Focus, Innovate, Simplify, Build,
Execute) strategy in H1, notably:
o Entry into Wound Biologics(1) segment; exit from non-core hospital care
and related industrial sales activities
o Further progress with our new product pipeline; launch of GentleCath Air
Male in France and InnovaMatrix in US; acquired a minority stake in BlueWind
Medical
o Simplification and efficiency initiatives supporting reduction in adjusted
G&A to 9.7% of sales (H1 2021: 11.1%)
o Positive pricing performance and new Convatec masterbrand launched
o Progress embedding 'Convatec Cares', our new Environmental, Social &
Governance (ESG) framework
· On track to deliver full year guidance - further demonstration
Convatec is pivoting to sustainable and profitable growth
Key financial highlights
Reported results Adjusted(2) results
H1 2022 H1 2021 Change H1 2022 H1 2021 Change CC Change(3)
Revenue $1045m $1008m 3.6% $1045m $1008m 3.6% 8.0%
Operating profit $87m $136m (36.0)% $204m $204m 0.0% 1.1%
Operating profit margin 8.3% 13.4% (510)bps 19.6% 20.3% (70)bps (130)bps
Diluted earnings per share 2.4 cents 4.2 cents (43.9)% 6.5 cents 7.2 cents (10.0)% -
Dividend per share 1.717 cents 1.717 cents 0.0%
· Strong revenue growth: Reported +3.6% although significant FX
headwind. +8.0% on a constant currency(4) basis and +6.4% on an organic(4)
basis with positive performances across all divisions
· Reported operating profit 35.7% lower primarily reflecting hospital
care exit costs
· Stable adjusted(2) operating profit: +0.0% and +1.1% on a constant
currency(3) basis despite significant COGS inflation of c.7% and investments
in Sales & Marketing and R&D operating expense of 15% on a constant
currency basis
· Adjusted(2) operating profit margin was 19.6% (H1 2021: 20.3%) with
price/mix, productivity improvement, G&A reduction and FX tailwind more
than offset by inflation and the operating expense investments. Operating
costs will be more evenly phased across the year in 2022 than in 2021.
· Reported diluted EPS down 43.9% principally owing to the hospital
care exit cost. Adjusted(2) diluted EPS down 10.0% primarily owing to
treatment of US deferred tax; excluding the recognition of deferred tax assets
post the acquisitions, the adjusted EPS would have been down 2.7%
· Net debt(2) increased by $196 million largely owing to strategic
M&A investments: leverage of 2.3x net debt(2)/adjusted EBITDA(2) (FY 2021:
1.9x)
· Interim dividend of 1.717 cents declared (H1 2021: 1.717)
2022 outlook confirmed
Convatec is on track to deliver organic(4) revenue growth of 4.0-5.5% and
constant currency adjusted operating profit(3) margin of at least 18%, as
indicated in March 2022, notwithstanding the current inflationary backdrop.
Karim Bitar, Chief Executive Officer, commented:
"This performance demonstrates that Convatec is continuing to pivot to
sustainable and profitable growth. Our competitive position and financial
performance are strengthening as we successfully execute our FISBE strategy.
Convatec has achieved strong sales growth and, despite the significant
inflationary back drop, a robust profit performance. We are confirming our
guidance for the full year."
"We remain focused on executing our strategy and are confident in Convatec's
ability to grow in line or faster than its markets and to improve its
operating margin to mid-20% over time."
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(1) Wound Biologics segment as defined by SmartTRAK. Includes skin
substitutes, active collagen dressings and topical drug delivery.
(2) Certain financial measures in this document, including adjusted results
above, are not prepared in accordance with International Financial Reporting
Standards ("IFRS"). All adjusted measures are reconciled to the most directly
comparable measure prepared in accordance with IFRS in the Non-IFRS Financial
Information below (pages 36 to 42).
(3) Constant currency growth is calculated by applying the applicable prior
period average exchange rates to the Group's actual performance in the
respective period.
(4) Organic growth presents period over period growth at constant currency,
adjusted for: Triad Life Sciences (Mar'22), Cure Medical (Mar'21) and Patient
Care Medical (Dec'21) acquisitions; Incontinence divestment (Dec'21) and, from
31(st) May, the discontinuation of Hospital care and related industrial sales
and the reconfigured business in Russia.
Contacts
Analysts & Investors Kate Postans, Vice President of Investor Relations & Corporate +44 (0) 7826 447807
Communications
ir@convatec.com (mailto:ir@convatec.com)
Media Buchanan: Charles Ryland / Chris Lane +44 (0)207 466 5000
Investor and analyst presentation
The results presentation will be held in person at UBS, 5 Broadgate Circle,
London, EC2M 2QS at 9am (UK time). The event will be simultaneously webcast
and the link can be found here
(https://webcasting.buchanan.uk.com/broadcast/62bd8614c0d3e61cd0c97146) .
If you would like to ask a question please use the following dial-in details:
United Kingdom - 0330 165 4012
United States - 800-289-0720
Access code: 9879873
The full text of this announcement and the presentation for the analyst and
investors meeting can be found on the 'Results, Reports & Presentations'
page of the Convatec website www.convatecgroup.com/investors/reports
(http://www.convatecgroup.com/investors/reports) .
Forthcoming Events
Trading update (for 10 months) 10 November 2022
Capital Markets Event - to be hosted in London 17 November 2022
As highlighted in FY results in order to more evenly space the cadence of
financial communication and better represent management's focus on long-term
sustainable growth, the Group have replaced quarterly reporting with trading
updates.
About Convatec
Pioneering trusted medical solutions to improve the lives we touch: Convatec
is a FTSE 250 global medical products and technologies company, focused on
solutions for the management of chronic conditions, with leading positions in
advanced wound care, ostomy care, continence and critical care, and infusion
care. Group revenues in 2021 were over $2 billion. With around 10,000
colleagues, we provide our products and services in over 100 countries, united
by a promise to be forever caring. Our products provide a range of benefits,
from infection prevention and protection of at-risk skin, to improved patient
outcomes and reduced care costs. To learn more about Convatec, please visit
http://www.convatecgroup.com (http://www.convatecgroup.com)
Forward Looking Statements
This document includes statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements involve known
and unknown risks and uncertainties, many of which are beyond the Group's
control. "Forward-looking statements" are sometimes identified by the use of
forward-looking terminology, including the terms "believes", "estimates",
"aims", "anticipates", "expects", "intends", "plans", "predicts", "may",
"will", "could", "shall", "risk", "targets", "forecasts", "should",
"guidance", "continues", "assumes" or "positioned" or, in each case, their
negative or other variations or comparable terminology. These forward-looking
statements include all matters that are not historical facts. They appear in a
number of places and include, but are not limited to, statements regarding the
Group's intentions, beliefs or current expectations concerning, amongst other
things, results of operations, financial condition, liquidity, prospects,
growth, strategies and dividend policy of the Group and the industry in which
it operates.
By their nature, forward-looking statements involve risks and uncertainties
because they relate to events and depend on circumstances that may or may not
occur in the future. These statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by the Company,
are inherently subject to significant business, economic and competitive
uncertainties and contingencies that are difficult to predict and many of
which are outside the Group's control. As such, no assurance can be given that
such future results, including guidance provided by the Group, will be
achieved; actual events or results may differ materially as a result of risks
and uncertainties facing the Group. Such risks and uncertainties could cause
actual results to vary materially from the future results indicated,
expressed, or implied in such forward-looking statements. Forward-looking
statements are not guarantees of future performance and the actual results of
operations, financial condition and liquidity, and the development of the
industry in which the Group operates, may differ materially from those made in
or suggested by the forward-looking statements set out in this document. Past
performance of the Group cannot be relied on as a guide to future performance.
Forward-looking statements are based only on information currently available
to the Group and speak only as at the date of this document and the Group and
its directors, officers, employees, agents, affiliates and advisers expressly
disclaim any obligations or undertaking to release any update of, or revisions
to, any forward-looking statements in this document.
Operating Review for the six months ended 30 June 2022
Revenue
Total Group revenue increased by 3.6% on a reported basis to $1,045 million.
There was a significant FX headwind during the period and on a constant
currency basis revenue rose 8.0%. Adjusting for M&A and business
restructuring (see footnote 4 above) Group revenue rose 6.4% on an organic
basis.
Six months ended 30 June
H1 2022 H1 2021 Reported growth / (decline) Foreign Exchange impact Constant Currency(2) growth / (decline) Organic(4) growth / (decline)
$m $m
Revenue by Category
Advanced Wound Care 307 294 4.4% (6.2)% 10.6% 7.3%
Ostomy Care 265 273 (3.1)% (5.8)% 2.7% 3.0%
Continence and Critical Care 277 266 4.1% (2.0)% 6.1% 3.6%
Infusion Care 196 175 12.2% (2.3)% 14.5% 14.4%
Total 1045 1008 3.6% (4.4)% 8.0% 6.4%
Advanced Wound Care revenue of $307 million increased 4.4% on a reported basis
or 10.6% on a constant currency basis. This performance was enhanced by the
acquisition of Triad Life Sciences on 14 March and on an organic basis revenue
rose by 7.3%.
The business achieved strong growth in Global Emerging Markets and Europe.
This more than offset a decline in North America where shortages of healthcare
practitioners impacted procedure volumes and our limited position in the foam
segment continued to weigh on performance. Convatec will be launching
ConvaFoam in the US in Q4, which we anticipate will have strong exudate and
adhesion properties.
Ostomy Care revenue of $265 million declined 3.1% on a reported basis but
increased 2.7% on a constant currency basis and 3.0% on an organic basis.
During the period the business achieved continued strong growth in Global
Emerging Markets while Europe achieved a robust performance, notwithstanding
further rationalisation of less profitable activities within Amcare UK. In
North America, HSG continued to grow referrals with new Ostomy patients
although the impact of planned SKU rationalisation continued to reduce
reported performance. Overall we are improving the mix and consequently the
margins. Across all geographies revenue from Convatec ostomy products grew
4.3% on a constant currency basis.
Continence & Critical Care revenue of $277 million rose 4.1% on a reported
basis, 6.1% on a constant currency basis and 3.6% on an organic basis. A
strong operating performance was supported by contributions from the Cure
Medical and Patient Care Medical acquisitions partially offset by the non-core
incontinence disposal and adjustments for the hospital care exit from 31(st)
May, when the Belarus factory closed.
Continence Care achieved revenue of $197 million, up 4.3% on an organic basis
with good levels of new patient starts. Critical Care revenue rose 1.8% on
an organic basis to $80 million during the period with Flexi-Seal(TM)
declining, as expected following strong growth during COVID-19, whilst the
hospital care products saw a temporary increase in sales immediately following
the announcement of Convatec's decision to exit this product range.
Infusion Care revenue of $196 million increased 12.2% on a reported basis,
14.5% on a constant currency basis and 14.4% on an organic basis after
adjusting for the exit of industrial sales from 31(st) May. This growth was
primarily driven by continued strong demand from diabetic customers for our
innovative infusion sets supported by favourable order phasing from key
customers.
Historic revenue data
Reported Revenue $m H1 2020 H2 2020 H1 2021 H2 2021 H1 2022
Advanced Wound Care 251 296 294 298 307
Ostomy Care 252 274 273 273 265
Continence and Critical Care 244 254 266 277 277
Infusion Care 161 162 175 182 196
Group 908 986 1008 1030 1045
Organic(4) growth/(decline) % H1 2020 H2 2020 H1 2021 H2 2021 H1 2022
Advanced Wound Care -4.8% -0.8% 16.3% 3.4% 7.3%
Ostomy Care 3.1% -0.5% 3.7% -0.1% 3.0%
Continence and Critical Care 10.6% 6.9% 3.0% 1.2% 3.6%
Infusion Care 12.6% 21.2% 6.5% 12.5% 14.4%
Group 4.1% 4.3% 7.4% 3.4% 6.4%
Pivoting to sustainable and profitable growth
The execution of our FISBE (Focus, Innovate, Simplify, Build, Execute)
strategy is progressing well.
Focus
- We have continued to invest in our top 12 markets, particularly in
Sales and Marketing, and achieved faster growth in these countries.
- We entered the large and rapidly growing wound biologics
segment(1) through the acquisition of Triad Life Sciences - strengthening our
Advanced Wound Care position in the US and securing access to a complementary
and innovative technology platform. The integration is progressing well and
we have now renamed the business Advanced Tissue Technologies ('ATT'). We are
optimistic about the prospects in the biologics space and the potential for
our ATT business.
- In May, we announced the decision to withdraw from non-core
hospital care activities and related industrial sales during the remainder of
2022. Following the exit of these products, which last year generated
approximately $100 million of revenue, the Group will be almost entirely
focused on higher-growth and more profitable chronic care markets.
Innovate
- We have continued to invest to strengthen our Technology &
Innovation capabilities and advance our pipeline; we increased R&D
expenditure by 15% to $47 million in H1 (H1 2021: $41 million).
- During H1 we started launching two new products:
o InnovaMatrix(TM) , our new ATT product, in the US. The take up by
healthcare providers has been promising.
o GentleCath(TM) Air Male, our new hydrophyllic (proprietary FeelClean(TM)
Technology) compact male catheter, in France. It is early days, but the
initial feedback from users has been positive and we are now building out our
commercial infrastructure in Europe, expanding to the UK in the second half of
the year. During H2 we shall also be launching GC Air Male in the US.
- We acquired a minority stake in BlueWind Medical Ltd, the
developer of an innovative implantable tibial neuromodulation device for the
over-active bladder segment, securing a relationship with a company developing
a proprietary and differentiated solution to treat over-active bladders in the
US Continence space.
Simplify
- During H1 our adjusted G&A expenditure reduced by 5.1% on a
constant currency basis to 9.7% of sales.
- We continued to transition more finance and IT activities to our
Global Business Services ('GBS') centre in Lisbon and made good progress with
simplification of processes.
- We also continued to simplify our product portfolio. The
rationalisation of SKUs reduced growth in Ostomy Care by approximately
80bps. This is expected to be more impactful in the second half given the
phasing of the rationalisation.
Build
- Our Pricing Centre of Excellence ('CoE'), in collaboration with
our business units, achieved 60bps of pricing improvement.
- We launched the refreshed Convatec brand and our new company
promise of 'forever caring' which have been well received by customers.
- The Convatec Executive Leadership Team was strengthened in
April. Anne Belcher joined the Group from GSK to lead our Global Emerging
Markets business and Bruno Pinheiro, who led our successful LATAM business
before acting as Interim President for GEM last year, has taken over Ostomy
Care. John Haller joined us as EVP, Chief Quality and Operations Officer,
having previously been at Stryker Corporation.
- Our Salesforce CoE has now established a single CRM platform in
N.America and Europe and is driving enhanced salesforce productivity by
increasing call rates and improving targeting.
Execution
- We delivered positive manufacturing productivity improvements in
the face of significant COGS inflation and continue to improve the resilience
of the supply chain.
- We made further progress with our Environmental, Social &
Governance (ESG) agenda:
o Embedding 'Convatec Cares', our new ESG framework; elevating ESG through
our strategic planning process and engaging all business units and functional
areas on priorities, targets and commitments.
o Launched a new Diversity, Equity & Inclusion (DE&I) and Wellbeing
approach including strengthening our Employee Resource Groups with executive
level sponsors and creating programmes such as our Black Education Leadership
Programme (BELP).
o In line with our commitment to reduce emissions and set Science Based
Targets (SBTs), we completed our Scope 3 materiality assessment during the
period and are on track to set our Scope 1 and 2 SBTs this year.
o Consistent with our commitment to support our communities, we provided a
humanitarian relief response for Ukraine valued at over $1.1
million.
Operating profit
Adjusted gross profit rose 2.9% to $628 million (H1 2021: $611 million).
Adjusted gross profit margin of 60.1% was 50bps lower than the prior year with
significant COGS inflation (of approximately 7%) more than offsetting foreign
exchange benefit of 50bps, pricing, mix and productivity benefits. Reported
gross profit was $555 million (H1 2021: $555 million).
Operational expenditure increased $18 million, or 4.4% year on year on a
reported basis or 9.2% on a constant currency basis, driven by additional
investment in growth initiatives across the business partially offset by the
reduction in G&A.
Total adjusted operating profit was unchanged at $204 million (H1 2021: $204
million). The adjusted operating profit margin was 19.6% in the first half,
a decrease of 70 bps versus prior year or 130bps on a constant currency basis.
Reported operating profit was $87 million (H1 2021: $136 million) primarily
driven by the closure costs and impairments relating to the exit of hospital
care and industrial sales activities.
Dividend
The Board is declaring an unchanged interim dividend of 1.717 cents per share
(H1 2021: 1.717) reflecting continued confidence in the future performance of
the Group and cash generation.
Cash flow and leverage
Adjusted free cash flow post tax was $80 million (H1 2021: $113m) during the
first half with the decrease principally reflecting higher working capital in
the first half as well as increased investment in capital expenditure.
The Group was also strengthened through inorganic investment - spending $148
million on the Triad Life Sciences acquisition and investing $31 million in
the preference shares of BlueWind Medical. A further $10 million of cash was
used for lease payments and $59 million for dividends to shareholders.
The Group ended the period with total interest-bearing liabilities, including
IFRS 16 lease liabilities, of $1,438 million (31 December 2021: $1,435
million). Offsetting cash of $272 million (31 December 2021: $463 million) and
excluding lease liabilities, net debt was $1,077 million (31 December 2021:
$881 million), equivalent to 2.3x adjusted EBITDA (31 December 2021: 1.9x
adjusted EBITDA).
Group 2022 outlook
We are pleased with the growth we have achieved in 2022 and we confirm our
full year guidance.
We continue to expect full year organic revenue growth of 4.0-5.5% as growth
in the second half is anticipated to be slower. This is primarily owing to
order phasing in Infusion Care coupled with other light headwinds such as
increased SKU and customer rationalisation, US sequestration and French
reimbursement cut.
We are on track to achieve our full year targeted constant currency
adjusted(2) operating profit margin of at least 18%, notwithstanding the
inflationary backdrop (estimated 8-9% COGS increase for Convatec for the full
year, as previously guided). The margin in the second half is expected to be
lower than H1 driven by the lagging impact of COGS inflation. Operating
expenses are expected to be more evenly phased than last year. The currency
tailwind on the margin is currently c.60 bps.
We continue to expect adjusted net finance expense for the full year to be
$50-55 million. The cash tax rate for the year is still expected to be
18-19%, however the adjusted book tax rate for the year is expected to be
approximately 25%, following accounting adjustments on the acquisition of
Triad. Capex guidance is unchanged at $100-120 million for the full year.
We expect leverage to trend down towards our target of around 2x over time.
We are confident about the future prospects for the Group as we continue to
pivot to sustainable and profitable growth.
Principal risks
The Board reviews and agrees our principal risks on a bi‐annual basis,
taking account of our risk appetite together with our evolving strategy,
current business environment and any emerging risks that could impact the
business. Our framework and system of risk management and internal control
continue to develop and updates to the principal risks and mitigation plans
are made as required in response to changes in our risk landscape. Details of
our enterprise risk management framework are set out in the Group's 2021
Annual Report and Accounts on pages 64 to 73.
The Board has reviewed the principal risks as at 30 June 2022, taking into
consideration the risks that existed during the first six months of 2022 and
those that it believes will have an impact on the business over the remaining
six months of the current financial year. The principal risks have been
assessed against the context of the global inflationary pressures and volatile
political environment that are impacting all businesses at present. The
overall profile for the risks set out below remains largely unchanged over the
financial year in terms of their potential impact on our ability to
successfully deliver on our strategy:
· Operational Resilience and Quality;
· Innovation and Regulatory;
· Information Systems, Security and Privacy;
· Customer and Markets;
· Legal and Compliance;
· People;
· Strategy and Change Management;
· Environment and Communities; and,
· Tax and Treasury.
However, as indicated in our May 2022 trading update the risk landscape has
changed in respect of our Political and Economic Environment risk and People
risk since the Annual Report was published in March. The Political and
Economic risk has been elevated reflecting the continuing harshening
environment created by global inflationary pressures on all aspects of our
business, specifically our supply chain and cost of goods. In addition, we are
experiencing increased pressures on our ability to attract, retain and
maintain competitive remuneration for talent and skills in light of the
continuing squeeze on the cost of living for our workforce.
We responded quickly to the evolving situation in Ukraine and the surrounding
region when it first emerged at the beginning of the year. We reported the
closure of our manufacturing plant in Belarus that supplied products for our
Critical Care and Ostomy portfolios. We continue to assess any potential
impacts on our business with appropriate mitigation plans. We are fully
committed to continuing to comply with all applicable laws and regulations,
including any impacts of new sanctions relating to the ongoing situation.
The Board assesses the overall risk profile of the Group to ensure it is
within our risk appetite. Principal risks continue to be appropriately
mitigated and work continues to reduce the net exposure to the business to
ensure that each risk remains within our risk appetite.
Financial Review for six months ended 30 June 2022
The following table sets forth the Group's revenue and expense items for the
six months ended 30 June 2022 and 2021:
Six months ended 30 June
Reported Reported Adjusted Adjusted
2022 2021 2022 2021
$m $m $m $m
Revenue 1,044.5 1,008.0 1,044.5 1,008.0
Cost of sales (489.6) (452.7) (416.4) (397.5)
Gross profit 554.9 555.3 628.1 610.5
Gross margin % 53.1% 55.1% 60.1% 60.6%
Operating expenses (467.8) (419.8) (423.8) (406.1)
Operating profit 87.1 135.5 204.3 204.4
Operating margin % 8.3% 13.4% 19.6% 20.3%
Net finance expense (28.2) (19.8) (23.0) (19.8)
Non-operating expense, net (12.8) (3.6) (7.0) (3.6)
Profit before income taxes 46.1 112.1 174.3 181.0
Income tax benefit/(expense) 2.2 (26.3) (43.2) (35.8)
Effective tax rate % (4.8%) 23.5% 24.8% 19.8%
Profit for the period (net profit) 48.3 85.8 131.1 145.2
Net profit % 4.6% 8.5% 12.6% 14.4%
Basic earnings per share (cents per share) 2.4 4.3 6.5 7.2
Diluted earnings per share (cents per share) 2.4 4.2 6.5 7.2
Dividend per share (cents) 1.717 1.717
Reported and Adjusted results
The Group's financial performance measured in accordance with IFRS (IAS 34
Interim Financial Reporting as adopted by the United Kingdom) is set out in
the Condensed Consolidated Interim Financial Statements and Notes and is
referred to in this review as "reported".
The commentary in this review includes discussion of the Group's reported
results and alternative performance measures (or adjusted measures) ('APMs').
Management and the Board use APMs as meaningful supplemental measures in
monitoring the performance of the business. These measures are disclosed in
accordance with the ESMA guidelines and are explained and reconciled to the
most directly comparable reported measure prepared in accordance with IFRS in
the Non-IFRS financial information section.
The commentary includes discussion on revenue on a constant currency basis.
Constant currency removes the effect of fluctuations in exchange rates to
focus on underlying revenue performance. Constant currency information is
calculated by applying the applicable prior period average exchange rates to
the Group's performance in the respective period. Revenue and revenue growth
on a constant currency basis are non-IFRS financial measures and should not
be viewed as a replacement of IFRS reported revenue. Organic growth
represents period-on-period growth at constant currency, excluding acquisition
and divestiture activities.
Revenue
Group reported revenue for the six months ended 30 June 2022 of $1,044.5
million (H1 2021: $1,008.0 million) increased 3.6% year-on-year or 8.0% on a
constant currency basis. Group revenue grew by 6.4% on an organic basis,
driven by strong growth in Advanced Wound Care and Infusion Care, good growth
in Continence & Critical Care and robust growth in Ostomy Care. For more
details about the category revenue performance, refer to the Operating Review.
Six months ended 30 June
2022 2021((b)) Reported Foreign Constant currency Organic
growth exchange growth growth((a))
impact
$m $m % % % %
North America 527.0 495.3 6.4% (0.1)% 6.5% 3.5%
Europe 363.7 374.8 (3.0)% (9.1)% 6.1% 6.0%
Rest of World ("RoW") 153.8 137.9 11.6% (6.9)% 18.5% 18.3%
Total 1,044.5 1,008.0 3.6% (4.4)% 8.0% 6.4%
(a) Adjusted for the acquisition of Triad Life Sciences ("Triad"),
Cure Medical and Patient Care Medical, as well as the divestment of the
incontinence activities in 2021, and the exit from hospital care and
industrial sales, and restructuring of activities in Russia during H1 2022.
(b) During the year ended 31 December 2021, the geographical revenue
information provided to the Group's CEO was changed to better reflect the way
in which the Group managed its operations. The change was driven by the
ongoing transformation initiatives and aligns with the current management and
reporting structure. The six months to 30 June 2021 comparative revenue
information has been re-presented to reflect this change. Europe includes
Russia, North America comprises United States and Canada, and Rest of World
("RoW") comprises all countries in Asia Pacific, Latin America (including
Mexico and the Caribbean), South America, the Middle East (including Turkey)
and Africa.
North America revenue grew by 6.4% on a reported basis and 6.5% on a constant
currency basis. This primarily reflected the strong revenue performance in
Infusion Care and includes the acquisitions of Triad, Cure Medical and Patient
Care Medical, as well as the impact of divestment of incontinence activities
in 2021.
Europe revenue decreased by 3.0% on a reported basis which was primarily
driven by currency headwinds. The growth was 6.1% on a constant currency
basis, reflecting the strong revenue performance in Advanced Wound Care and
supported by positive growth in all other categories.
Rest of World ("RoW") reported revenue grew by 11.6% and 18.5% on a constant
currency basis, driven by strong growth in both Advanced Wound Care and Ostomy
Care in Asia and Latin America.
Reported net profit
Reported operating profit was $87.1 million, a decrease of $48.4 million as
compared to the prior year. This reflects the 200bps decrease in gross margin,
which more than offset the 3.6% growth in revenue. The decrease in gross
margin was driven by 120bps of divestiture and termination costs primarily
relating to the exit from hospital care and industrial sales activities, with
the remaining 80bps owing to significant inflationary pressures on both raw
material and freight costs, partially offset by productivity/pricing/mix
benefits.
Operating expenses increased $48.0 million to $467.8 million (H1 2021: $419.8
million) primarily reflecting $25.7 million of closure costs and impairments
for hospital care and industrial sales activities, $22.0 million increase in
selling and distribution costs associated with higher revenues, the inclusion
of acquired businesses and higher labour costs in some areas. In addition,
there was a $6.3 million increased investment in research and development to
continue to develop the future pipeline of new products, offset by $6.9
million decrease in general and administrative expenses.
Reported net finance expenses increased by $8.4 million to $28.2 million in
the six months to 30 June 2022 (H1 2021: $19.8 million), reflecting increased
interest rates and $5.2 million for the unwind of discount relating to the
contingent consideration for Triad. Non-operating expenses increased by $9.2
million to $12.8 million (H1 2021: $3.6 million) driven by $3.4 million of FX
losses and a $5.8 million increase in contingent consideration relating to the
2021 acquisition of Cure Medical.
The income tax benefit for the six months to 30 June 2022 was $2.2 million (H1
2021: $26.3 million expense), resulting in reported net profit of $48.3
million (H1 2021: $85.8 million) and basic reported earnings per share of 2.4
cents (H1 2021: 4.3 cents).
Adjusted net profit
Adjusted gross profit was $628.1 million (H1 2021: $610.5 million) and the
adjusted gross margin was 60.1% (H1 2021: 60.6%), resulting from significant
inflationary pressures on both raw material and freight costs which more than
offset productivity/pricing/mix benefits and FX tailwinds.
The Group achieved adjusted operating profit of $204.3 million (H1 2021:
$204.4 million) with an adjusted operating margin of 19.6% (H1 2021: 20.3%).
The 3.6% growth in revenue was offset by the 50bps decrease in adjusted gross
margin and increases of $22.0 million and $6.3 million in selling and
distribution and research and development expenses respectively.
Adjusted net profit fell 9.7% to $131.1 million (H1 2021: $145.2 million),
driven by a $7.4 million increase in adjusted income tax expense and a $3.2
million increase in the net finance expense. The adjusted effective tax rate
("ETR") increased from 19.8% to 24.8% principally due to the increase in US
deferred tax expense (non-cash) for the utilisation of federal tax losses that
were fully recognised as deferred tax assets following the acquisition of
Triad and profit mix between jurisdictions with different tax rates.
Adjusted basic and diluted EPS at 30 June 2022 was 6.5 cents (H1 2021: 7.2
cents).
Taxation
Six months ended 30 June
2022 2021
$m Effective $m Effective
tax rate tax rate
Reported income tax benefit/(expense) 2.2 (4.8%) (26.3) 23.5%
Tax effect of adjustments (25.7) (7.5)
Other discrete tax items (19.7) (2.0)
Adjusted income tax expense (43.2) 24.8% (35.8) 19.8%
The Group's reported income tax benefit for the six months ended 30 June 2022
was $2.2 million (H1 2021: $26.3 million expense) driven by recognition of
deferred tax assets in respect of previously unrecognised tax losses in the
US, partially offset by the increase in US tax expenses following the
acquisition of Triad.
After adjusting for certain financial measures that the Group believes are
useful supplemental indicators of future operating performance, the adjusted
effective tax rate was 24.8% for the six months ended 30 June 2022 (H1 2021:
19.8%). The increase in adjusted effective tax rate was principally driven by
the non-cash deferred tax expenses due to the utilisation of US Federal tax
losses which are now fully recognised as deferred tax assets following the
acquisition of Triad, and the profit mix between jurisdictions with different
tax rates.
Acquisitions and investments
Triad Life Sciences Inc ("Triad"), a US-based medical device company, was
acquired on 14 March 2022 for an initial consideration of $125.3 million. The
acquisition of Triad strengthens the Group's Advanced Wound Care position in
the US, securing access to a complementary and innovative technology platform
that enhances advanced wound management and patient outcomes. In addition to
the initial consideration, there could be further contingent consideration of
up to $325.0 million based on two short-term milestones and the performance
during the first two years post-completion, of which $25.0 million was paid in
April 2022. Refer to Note 7 - Acquisitions in the Condensed Consolidated
Finance Statements for further details.
The Group has contingent consideration of up to $10.0 million in respect of
Cure Medical, which is based upon post-acquisition performance targets and to
be paid by 2024. The contingent consideration was increased by $5.8 million to
$8.9 million (discounted) in the period to 30 June 2022 (31 December 2021:
$3.1 million), as a result of strong performance and forecast financials which
are expected to exceed previous expectations.
On 9 May 2022, the Group invested $30.7 million in preference shares of
BlueWind Medical Limited ("BlueWind Medical"). This represents an investment
into an innovative technology in the large and growing over-active bladder
market and strengthening of the Group's Continence & Critical Care
category. The investment is held at fair value in the Condensed Consolidated
Financial Statements, which has not changed since the date of the investment.
Strategic decision to exit from hospital care and industrial sales
On 12 May 2022, it was announced that the Group would be withdrawing from its
hospital care activities and related industrial sales during the remainder of
2022. The withdrawal from these low margin activities is consistent with the
Group's FISBE strategy, with the Group focusing on higher-growth chronic care
markets with improved margins and higher levels of recurring revenue.
Given the geopolitical situation in the region, the manufacturing plant in
Belarus which produces hospital care goods ceased manufacturing on 31 May 2022
alongside a significant restructuring of all operations in Russia. The
remainder of the hospital care and industrial sales activities will be mostly
phased out in the second half of 2022. Given this phased exit of the hospital
care and related industrial sales products, reported revenue in 2022 is
expected to be approximately $10 million to $20 million lower as a result of
the exit, with the adjusted operating profit impact of the exit being a
decrease of $3 million to $5 million in 2022. At 30 June 2022, $38.4 million
of closure costs had been recognised, primarily related to asset impairments
and restructuring provisions.
Dividends
We are maintaining our interim 2022 dividend at 1.717 cents per share, in line
with the interim dividend for 2021. The decision to maintain the dividend
reflects the underlying financial strength and cash generation of the Group,
as well as the progress on pivoting to sustainable and profitable growth and
confidence in the future prospects of the Group.
Free cash flow
Adjusted free cash flow, post tax, is one of the four key performance
indicators we use to monitor the delivery of our strategy.
Six months ended 30 June
Reported Reported Adjusted((a)) Adjusted((a))
2022 2021 2022 2021
$m $m $m $m
EBITDA 207.9 242.4 251.7 252.9
Share based payments 8.2 7.1 - -
Working capital movement (66.0) (69.8) (92.4) (66.2)
Gain/(loss) on foreign exchange derivatives 3.4 (0.9) 3.4 (0.9)
Capital expenditure (64.1) (43.6) (64.1) (43.6)
Net cash generated from operations, net of capital expenditure 89.4 135.2 98.6 142.2
Cash conversion 43.0% 55.8% 39.2% 56.2%
Tax paid (19.1) (29.0) (19.1) (29.0)
Free cash flow, post tax 70.3 106.2 79.5 113.2
(a) Adjusted EBITDA, adjusted working capital and adjusted non-cash
items are explained and reconciled to the most directly comparable financial
measure prepared in accordance with IFRS in the cash conversion table in the
Non-IFRS financial information section.
Adjusted free cash flow, post tax, was $79.5 million (H1 2021: $113.2million),
with the decrease of $33.7 million principally driven by the increase in
investment in capital programmes, as well as increase in working capital
primarily reflecting the build of inventory to improve resilience.
Sources and uses of cash
Sources of cash
The Group's primary source of liquidity is net cash generated from operations.
Net cash generated from operations
Six months ended 30 June
Reported Reported Adjusted Adjusted
2022 2021 2022 2021
$m $m $m $m
EBITDA((a)) 207.9 242.4 251.7 252.9
Share based payments 8.2 7.1 - -
Working capital movement (66.0) (69.8) (92.4) (66.2)
Gain/(loss) on foreign exchange derivatives 3.4 (0.9) 3.4 (0.9)
Net cash generated from operations 153.5 178.8 162.7 185.8
Net interest paid (21.9) (18.8) (21.9) (18.8)
Tax paid (19.1) (29.0) (19.1) (29.0)
Net cash generated from operating activities 112.5 131.0 121.7 138.0
(a) EBITDA is explained and reconciled to the most directly comparable
financial measure prepared in accordance with IFRS in the cash conversion
table in the Non-IFRS financial information section.
Reported net cash generated from operating activities was $112.5 million (H1
2021: $131.0 million). The decrease of $18.5 million primarily reflects a
decrease in net cash generated from operations of $25.3 million. The decrease
in EBITDA of $34.5 million was partially offset by $4.3 million of additional
cash inflows from foreign exchange derivatives in the six months to 30 June
2022 as compared to the prior year, as well as $3.8 million of more favourable
working capital movements resulting from increases in liabilities relating to
strategic projects such as the exit from hospital care and industrial sales
activities, partially offset by increases in inventory to improve resilience.
Tax paid decreased by $9.9 million to $19.1 million as a result of the timing
of payments on account and decrease in tax payments in the US, which is
partially offset by net interest paid which increased by $3.1 million,
reflecting higher interest costs on the Group's borrowings.
On an adjusted basis, the net cash generated from operating activities
decreased by $16.3 million to $121.7 million (H1 2021: $138.0 million),
primarily reflecting the $1.2 million decrease in adjusted EBITDA and $26.2
million increase in working capital, offset by $9.9 million decrease in tax
paid.
Uses of cash
Cash and cash equivalents have decreased by $191.8 million to $271.6 million
at 30 June 2022 (31 December 2021: $463.4 million). The $112.5 million of net
cash generated from operations, together with the decrease in cash and cash
equivalents, was used to acquire Triad for $123.2 million, pay the first $25.0
million milestone in relation to Triad, invest in preference shares of
BlueWind Medical for $30.7 million, invest $64.1 million of capital
expenditure in our manufacturing lines and digital technologies, pay $10.4
million in lease payments and $58.9 million in dividends to shareholders. The
year-on-year increase of $5.3 million in the cash dividend payment reflects
the increase in the 2021 final dividend and the level of uptake of the scrip
alternative as compared to the prior year.
Liquidity and net debt
As at 30 June 2022, the Group's cash and cash equivalents were $271.6 million
(31 December 2021: $463.4 million) and the debt outstanding on our borrowings
was $1,348.8 million (31 December 2021: $1,344.6 million). Borrowings reflect
a $500 million unsecured senior note maturing in October 2029 and two
five-year multi-currency committed loan facilities which expire in October
2024. The Group has a $200 million revolving credit facility which remained
undrawn as at 30 June 2022 and also expires in October 2024. This, combined
with cash of $271.6 million, provided the Group with total liquidity of $471.6
million at that date. Of this, $29.3 million is held in territories where
there are restrictions related to repatriation (31 December 2021: $37.5
million). From time to time we review our balance sheet structure including
debt maturity profile, cost of capital and liquidity needs, and to the extent
we deem appropriate may consider various financing alternatives, including
opportunistically accessing the loan and debt capital markets.
At 30 June 2022, the Group was in compliance with all financial and
non-financial covenants associated with the Group's outstanding debt.
The Group ended the period with total interest-bearing liabilities, including
IFRS 16 lease liabilities, of $1,437.8 million (31 December 2021: $1,435.1
million). Offsetting cash of $271.6 million (31 December 2021: $463.4 million)
and excluding lease liabilities, net debt was $1,077.2 million (31 December
2021: $881.2 million), equivalent to 2.3x adjusted EBITDA (31 December 2021:
1.9x adjusted EBITDA), with the increase being driven by strategic investments
such as the acquisition of Triad, purchase of preference shares in BlueWind
Medical and increased investment in capital expenditure.
2022
Borrowings Cash and cash equivalents Net debt
$m $m $m
At 1 January (1,344.6) 463.4 (881.2)
Net cash outflow (15.5) (184.3) (199.8)
Foreign exchange 13.3 (7.5) 5.8
Non-cash movement (2.0) - (2.0)
At 30 June (1,348.8) 271.6 (1,077.2)
Lease liabilities (89.0)
Total interest-bearing liabilities at 30 June (1,437.8)
Net debt/adjusted EBITDA((a)) 2.3x
(a) Based on net debt, excluding lease liabilities, and the last 12
months adjusted EBITDA.
2022 Condensed Consolidated Interim Financial Statements
Condensed Consolidated Income Statement
Six months ended 30 June
2022 2021
Notes $m $m
(unaudited) (unaudited)
Revenue 2 1,044.5 1,008.0
Cost of sales (489.6) (452.7)
Gross profit 554.9 555.3
Selling and distribution expenses (287.3) (252.9)
General and administrative expenses (119.1) (126.0)
Research and development expenses (47.2) (40.9)
Other operating expenses 3 (14.2) -
Operating profit 87.1 135.5
Finance income 0.7 0.5
Finance expense (28.9) (20.3)
Non-operating expense, net 4 (12.8) (3.6)
Profit before income taxes 46.1 112.1
Income tax benefit/(expense) 5 2.2 (26.3)
Profit for the period 48.3 85.8
Earnings per share
Basic earnings per share (cents per share) 2.4¢ 4.3¢
Diluted earnings per share (cents per share) 2.4¢ 4.2¢
All amounts are attributable to shareholders of the Group and wholly derived
from continuing operations.
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June
2022 2021
Notes $m $m
(unaudited) (unaudited)
Profit for the period 48.3 85.8
Other comprehensive (loss)/income
Items that will not be reclassified subsequently to the Consolidated Income
Statement:
Remeasurement of defined benefit pension plans - (0.1)
Change in pension asset restriction - 0.1
Items that may be reclassified subsequently to the Consolidated Income
Statement:
Exchange differences on translation of foreign operations (110.8) 3.4
Effective portion of changes in fair value of cash flow hedges (7.7) (2.0)
Costs of hedging 0.2 (0.2)
Changes in fair value of cash flow hedges reclassified to the Consolidated 10.2 0.7
Income Statement
Income tax relating to items that may be reclassified (0.9) (0.5)
Other comprehensive (loss)/income (109.0) 1.4
Total comprehensive (loss)/income (60.7) 87.2
All amounts are attributable to shareholders of the Group and wholly derived
from continuing operations.
Condensed Consolidated Statement of Financial Position
30 June 2022 31 December 2021
Notes $m $m
(unaudited) (audited)
Assets
Non-current assets
Property, plant and equipment 360.1 366.7
Right-of-use assets 81.0 83.6
Intangible assets and goodwill 2,195.5 2,058.5
Investment in financial assets 9 30.7 -
Deferred tax assets 26.5 28.9
Restricted cash 20.2 13.6
Other non-current receivables 8.3 11.9
2,722.3 2,563.2
Current assets
Inventories 319.7 308.8
Trade and other receivables 348.3 323.5
Derivative financial assets 11 23.7 15.1
Cash and cash equivalents 271.6 463.4
963.3 1,110.8
Total assets 3,685.6 3,674.0
Equity and liabilities
Current liabilities
Trade and other payables 301.7 342.5
Borrowings 10 142.5 144.8
Lease liabilities 19.5 19.7
Current tax payable 42.8 45.5
Derivative financial liabilities 11 21.9 11.7
Provisions 12 119.3 5.0
647.7 569.2
Non-current liabilities
Borrowings 10 1,206.3 1,199.8
Lease liabilities 69.5 70.8
Deferred tax liabilities 97.2 87.2
Provisions 12 31.7 1.7
Derivative financial liabilities 11 - 2.9
Other non-current payables 49.8 47.6
1,454.5 1,410.0
Total liabilities 2,102.2 1,979.2
Net assets 1,583.4 1,694.8
Equity
Share capital 250.5 247.0
Share premium 160.3 142.3
Own shares (2.2) (2.2)
Retained deficit (871.5) (842.0)
Merger reserve 2,098.9 2,098.9
Cumulative translation reserve (186.5) (75.7)
Other reserves 133.9 126.5
Total equity 1,583.4 1,694.8
Total equity and liabilities 3,685.6 3,674.0
Condensed Consolidated Statement of Changes in Equity
Share capital Share premium Own shares Retained deficit Merger reserve Cumulative translation reserve Other reserves Total
Notes $m $m $m $m $m $m $m $m
At 1 January 2022 (audited) 247.0 142.3 (2.2) (842.0) 2,098.9 (75.7) 126.5 1,694.8
Profit for the period - - - 48.3 - - - 48.3
Other comprehensive loss:
Foreign currency translation adjustment, net of tax - - - - - (110.8) - (110.8)
Effective portion of changes in fair value of cash flow hedges, net of tax - - - - - - 1.8 1.8
Other comprehensive loss - - - - - (110.8) 1.8 (109.0)
Total comprehensive loss - - - 48.3 - (110.8) 1.8 (60.7)
Dividends paid 6 - - - (58.9) - - - (58.9)
Scrip dividend 6 0.9 18.0 - (18.9) - - - -
Issue of shares to employee benefit trust 2.6 - (2.6) - - - - -
Share-based payments - - - - - - 8.1 8.1
Share awards vested - - 2.6 - - - (2.5) 0.1
At 30 June 2022 (unaudited) 250.5 160.3 (2.2) (871.5) 2,098.9 (186.5) 133.9 1,583.4
Share capital Share premium Own shares Retained deficit Merger reserve Cumulative translation reserve Other reserves Total
Notes $m $m $m $m $m $m $m $m
At 1 January 2021 (audited) 245.5 115.3 (6.7) (845.3) 2,098.9 (46.1) 109.1 1,670.7
Profit for the period - - - 85.8 - - - 85.8
Other comprehensive income:
Foreign currency translation adjustment, net of tax - - - - - 3.4 - 3.4
Remeasurement of defined benefit pension plans, net of tax - - - - - - (0.1) (0.1)
Change in pension asset restriction - - - - - - 0.1 0.1
Effective portion of changes in fair value of cash flow hedges, net of tax - - - - - - (2.0) (2.0)
Other comprehensive income - - - - - 3.4 (2.0) 1.4
Total comprehensive income - - - 85.8 - 3.4 (2.0) 87.2
Dividends paid 6 - - - (53.6) - - - (53.6)
Scrip dividend 6 1.3 24.8 - (26.1) - - - -
Share-based payments - - - - - - 7.0 7.0
Share awards vested - - 1.7 - - - (1.7) -
At 30 June 2021 (unaudited) 246.8 140.1 (5.0) (839.2) 2,098.9 (42.7) 112.4 1,711.3
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June
2022 2021
Notes $m $m
Cash flows from operating activities (unaudited) (unaudited)
Profit for the period 48.3 85.8
Adjustments for
Depreciation of property, plant and equipment 20.0 19.8
Depreciation of right-of-use assets 11.0 11.7
Amortisation of intangible assets 75.6 73.7
Income tax (benefit)/expense 5 (2.2) 26.3
Non-operating expense, net 16.2 2.7
Finance costs, net 28.2 19.8
Share-based payments 8.2 7.1
Impairment/write-off of intangible assets 3 5.6 -
Impairment/write-off of property, plant and equipment 3 8.6 1.7
Change in assets and liabilities:
Inventories (21.6) 6.9
Trade and other receivables (39.1) (21.8)
Other non-current receivables 3.3 (1.7)
Restricted cash (13.5) (2.3)
Trade and other payables (0.2) (51.4)
Other non-current payables 5.1 0.5
Net cash generated from operations 153.5 178.8
Interest received 0.7 0.5
Interest paid (22.6) (19.3)
Income taxes paid (19.1) (29.0)
Net cash generated from operating activities 112.5 131.0
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (64.1) (43.6)
Acquisitions, net of cash acquired 7 (123.2) (85.1)
Payment of contingent consideration from acquisitions 7 (25.0) -
Investment in financial assets 9 (30.7) -
Net cash used in investing activities (243.0) (128.7)
Cash flows from financing activities
Proceeds from borrowings 10 15.5 -
Payment of lease liabilities (10.4) (10.9)
Dividends paid 6 (58.9) (53.6)
Net cash used in financing activities (53.8) (64.5)
Net change in cash and cash equivalents (184.3) (62.2)
Cash and cash equivalents at beginning of the period 463.4 565.4
Effect of exchange rate changes on cash and cash equivalents (7.5) (2.1)
Cash and cash equivalents at end of the period 271.6 501.1
1. Basis of preparation and accounting standards
Convatec Group Plc (the "Company") is a company incorporated in the United
Kingdom. The accompanying unaudited Condensed Consolidated Interim Financial
Statements of the Company and its subsidiaries (the "Group") for the six
months ended 30 June 2022 have been prepared in accordance with the Disclosure
and Transparency Rules of the Financial Conduct Authority and with IAS 34,
Interim Financial Reporting as adopted by the United Kingdom.
The Condensed Consolidated Interim Financial Statements should be read in
conjunction with the 2021 Convatec Group Plc Annual Report and Accounts, which
were prepared in accordance with the United Kingdom adopted international
accounting standards. The accounting policies adopted by the Group in
preparation of these Condensed Consolidated Interim Financial Statements are
consistent with those set out in the 2021 Annual Report and Accounts, except
for those described below as new standards and interpretations applied for the
first time, as well as the new Group policy on equity investments (Note 9 -
Investment in financial assets).
These Condensed Consolidated Interim Financial Statements and the comparatives
are unaudited, except where otherwise indicated, and do not constitute
statutory financial statements. The statutory financial statements for the
Group in respect of the year ended 31 December 2021 have been reported on by
the Group's auditor and delivered to the Registrar of Companies. The audit
report on those accounts was (i) unqualified, (ii) did not include a reference
to any matters to which the auditor drew attention by way of emphasis without
qualifying their report, and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The auditors have carried out a review of the financial information in
accordance with the guidance contained in ISRE (UK and Ireland) 2410 'Review
of Interim Financial Information Performance by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the United
Kingdom.
The Condensed Consolidated Interim Financial Statements are presented in US
dollars ("USD"), reflecting the profile of the Group's revenue and operating
profit, which are primarily generated in US dollars and US dollar-linked
currencies. All values are rounded to the nearest $0.1 million except where
otherwise indicated.
The Condensed Consolidated Interim Financial Statements for the six months
ended 30 June 2022 were approved by the Board on 3 August 2022.
New standards and interpretations applied for the first time
On 1 January 2022, the Group adopted the three mandatory pronouncements,
Reference to the Conceptual Framework - Amendments to IFRS 3, Property, Plant
and Equipment: Proceeds before Intended Use - Amendments to IAS 16, and
Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37, and
the annual improvements to the IFRS standards 2018-2020. The adoptions have
not had a material impact on the Condensed Consolidated Interim Financial
Statements. Apart from these changes, the accounting policies set out in the
2021 Annual Report and Accounts have been applied consistently to both periods
presented in these Condensed Consolidated Interim Financial Statements.
New standards and interpretations not yet applied
There were no new or revised IFRSs, amendments or interpretations in issue but
not yet effective that are potentially material for the Group and which have
not yet been applied.
Going concern
The overall financial performance of the business remains robust with a strong
liquidity position maintained throughout the period.
As at 30 June 2022, the Group held cash and cash equivalents of $271.6 million
(31 December 2021: $463.4 million), unsecured senior notes of $500.0 million
repayable in 2029, and two multicurrency term loans totalling $860.1 million,
of which $397.8 million is due to be repaid in October 2024 and the remainder
is amortising and requires a capital repayment of $149.2 million within the
next 12 months. The Group also has access to a $200.0 million multicurrency
revolving credit facility, which remains undrawn and is available until
October 2024.
In preparing their assessment of going concern, the Directors have considered
available cash resources, financial performance and forecast performance,
including continued implementation of the FISBE strategy, together with the
Group's financial covenant compliance requirements and principal risks and
uncertainties. The Directors have used cash flow forecasts derived from actual
performance year to date, the Board approved 2022 budget and longer-term
strategic plan as foundations, which reflected the funding requirements in
relation to the remaining contingent consideration for the Triad Life Sciences
Inc ("Triad") acquisition, which is dependent on short-term milestones and
performance over two years post completion. The cash flow forecasts also
include the impact of the exit from the low margin hospital care and
industrial sales portfolio.
In accordance with FRC guidance, management applied severe but plausible
downside scenarios linked to the Group's principal and emerging risks,
including supply chain disruption, cyber security disruption, delivery of
transformation initiatives, regulatory breaches and geopolitical events
leading to reduced revenues and increased costs from inflationary pressures.
Further details of the specific scenarios are provided on pages 74 to 76 of
the 2021 Annual Report and Accounts. The Board has reviewed these scenarios in
the preparation of the interim results and as part of the going concern review
and has concluded that these scenarios remain in line with the Group's
principal emerging risks and continue to reflect the financial risk of
downside events and circumstances during the going concern period. Under each
scenario the Group retains significant liquidity and covenant headroom
throughout the going concern period. A reverse stress test, before mitigation,
was also considered which demonstrated that a reduction of >$182.0 million
in EBITDA would be required in the next 12 months to create conditions which
may lead to a potential covenant breach. This is considered to be implausible
given the Group's strong market position and diversified portfolio of
products. There are no key sources of estimation uncertainty in arriving at
the going concern conclusion and no significant judgements have been required.
Accordingly, at the time of approving these Condensed Consolidated Interim
Financial Statements, the Directors have a reasonable expectation that the
Group will have adequate liquid resources to meet their respective liabilities
as they become due and will be able to sustain its business model, strategy
and operations and remain solvent for a period of at least 12 months from 3
August 2022.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Condensed Consolidated Interim Financial Statements, in
conformity with adopted IFRS, requires management to make judgements,
estimates and assumptions that affect the application of accounting policies
and the reported value of assets and liabilities, income and expense. Actual
results may differ from these estimates or judgements of likely outcome.
Management regularly reviews, and revises as necessary, the accounting
judgements that significantly impact the amounts recognised in the Condensed
Consolidated Interim Financial Statements and the sources of estimation
uncertainty that are considered to be "key estimates" due to their potential
to give rise to material adjustments in the Group's Consolidated Financial
Statements within the next financial year.
In preparing the Condensed Consolidated Interim Financial Statements, no
critical accounting judgements have been identified, which is consistent with
the Consolidated Financial Statements for the year ended 31 December 2021. A
key estimate has been identified in relation to the valuation of the
contingent consideration in relation to the acquisition of Triad.
Valuation of the contingent consideration in relation to the acquisition of
Triad
The contingent consideration is based on both specified post-acquisition
financial and non-financial performance targets as defined by the Merger
Agreement. The contingent consideration is fair valued at the date of
acquisition with key inputs including a weighted probability of different
scenarios and revenue projections based on internal forecasts, discounted
using appropriate discount rates.
Actual revenue results may differ from estimates, leading to a change in the
fair value of the contingent consideration. Management have identified that
reasonably possible changes in certain key assumptions and forecasts may cause
the calculated fair value of the contingent consideration to vary materially
within the next financial year. Management have determined that the potential
range of discounted outcomes within the next financial year is between $66.7
million and $213.1million, from a maximum undiscounted contingent
consideration of $325.0 million. Management recorded $141.8 million as the
discounted fair value consideration, of which $25.0 million has been paid
during the year.
The timing and amount of future contingent elements of consideration is
therefore considered a key source of estimation uncertainty. Refer to Note 7 -
Acquisitions for more information.
2. Segment information
The Board considers the Group's business to be a single segment entity engaged
in the development, manufacture and sale of medical products and technologies.
R&D, manufacturing and central support functions are managed globally for
the Group. Revenues are managed both on a category and geographic basis. This
note presents the performance and activities of the Group as a single segment.
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 evaluates
profitability and associated investment on an enterprise-wide basis due to
shared infrastructures and support functions between the categories. Financial
information in respect of revenues provided to the CEO for decision-making
purposes is made on both a category and geographic basis. Resources are
allocated on a Group-wide basis, with a focus on both category and the key
markets but primarily based on the merits of individual proposals.
Revenue by category
The following table sets out the Group's revenue by category:
Six months ended 30 June
2022 2021
$m $m
Advanced Wound Care 306.7 293.8
Ostomy Care 264.9 273.4
Continence and Critical Care 276.8 266.0
Infusion Care 196.1 174.8
Total 1,044.5 1,008.0
Revenue by geography ((a))
The following table sets out the Group's revenue by regional geographic market
in which third-party customers are located:
Six months ended 30 June
2022 2021
$m $m
North America 527.0 495.3
Europe 363.7 374.8
Rest of World ("RoW") 153.8 137.9
Total 1,044.5 1,008.0
(a) During the year ended 31 December 2021, the geographical revenue
information provided to the Group's CEO was changed to better reflect the way
in which the Group managed its operations. The change was driven by the
ongoing transformation initiatives and aligns with the current management and
reporting structure. The six months to 30 June 2021 comparative revenue
information has been re-presented to reflect this change. Europe includes
Russia, North America comprises United States and Canada, and Rest of World
("RoW") comprises all countries in Asia Pacific, Latin America (including
Mexico and the Caribbean), South America, the Middle East (including Turkey)
and Africa.
Details on revenue performance are discussed in the Financial Review.
3. Other operating expenses
Other operating expenses were as follows:
Six months ended 30 June
2022 2021
$m $m
Divestiture related activities 12.8 -
Impairment of other intangible assets 1.4 -
Other operating expenses 14.2 -
As a result of the exit from hospital care and industrial sales related
activities, impairments of $8.6 million to property, plant and equipment and
$4.2 million to intangible assets have been recognised during the period. See
Note 8 - Divestiture for further details.
4. Non-operating expense, net
Non-operating expense, net was as follows:
Six months ended 30 June
2022 2021
$m $m
Net foreign exchange losses((a)) (8.6) (2.0)
Gain/(loss) on foreign exchange forward contracts((a)) 11.7 (0.9)
Loss on foreign exchange cash flow hedges (10.1) (0.7)
Change in contingent consideration((b)) (5.8) -
Non-operating expense, net (12.8) (3.6)
(a) Net foreign exchange losses primarily relate to the foreign
exchange impact on intercompany transactions, including loans transacted in
non-functional currencies. The Group uses foreign exchange forward contracts
to manage these exposures in accordance with the Group's foreign exchange risk
management policy.
(b) The $5.8 million expense relates to the change in fair value of
the contingent consideration for the Cure Medical acquisition, as described in
Note 7 - Acquisitions.
5. Income taxes
The Group's income tax expense is accrued using the tax rate that would be
applicable to expected annual total earnings (i.e. the estimated average
annual effective income tax rate applied to the profit before tax).
The tax charge for the six months ended 30 June 2022 has been calculated by
applying the effective rate of tax which is expected to apply to the Group for
the year ended 31 December 2022 using rates substantively enacted as at 30
June 2022.
For the six months ended 30 June 2022, the Group recorded an income tax
benefit of $2.2 million (2021: $26.3 million expense). The Group's reported
effective tax rate for the period ended 30 June 2022 was a benefit of 4.8% as
compared with an expense of 23.5% for the period ended 30 June 2021, as the
current period's tax benefit includes recognition of $19.7 million of deferred
tax in respect of previously unrecognised tax losses in the US, which is
offset by the tax expense on the current period's utilisation of US Federal
tax losses that are fully recognised as deferred tax asset following the
acquisition of Triad. The prior year expense included a net tax benefit for a
deferred tax asset recognition in the US upon the acquisition of Cure Medical,
which was offset by the tax expense on the revaluation of net deferred tax
liability for the increase in UK corporation tax rate from 19% to 25%
(effective 1 April 2023).
The Group continues to believe it has made adequate provision for uncertain
tax positions on open issues in accordance with IFRIC 23 Uncertainty over
Income Tax Treatments. The ultimate liability for such matters may vary from
the amounts provided and is dependent upon the outcome of discussions with
relevant tax authorities or, where applicable, appeal proceedings.
The Group continues to monitor tax reforms driven by the OECD's BEPS Pillar 1
and 2 project to reform international taxation rules. The Group has performed
an initial analysis of the potential tax impact of the proposed tax rules to
the Group but is awaiting expected new legislation in the jurisdictions in
which the Group operates to finalise the analysis. This has no impact on the
Group's result for the six months ended 30 June 2022.
6. Dividends
The Group ensures that adequate realised distributable reserves are available
in the Company in order to meet proposed shareholder dividends, and the
purchase of shares for employee share scheme incentives. The Company
principally derives distributable reserves from dividends received from
subsidiary companies.
In determining the level of dividend in the year, the Board considers the
following factors and risks that may influence the proposed dividend:
- Availability of realised distributable reserves;
- Available cash resources and commitments;
- Strategic opportunities and investments, in line with the Group's strategic
plan; and
- Principal risks of the Group.
The Board paid the 2021 final dividend in May 2022 and declared an interim
dividend to be paid in October 2022. The Board has taken into consideration
balancing the return to shareholders, the potential impact on other
stakeholders and the additional investment in transformation in the period.
The Board reviewed the financial strength the Group, the Group's dividend
policy together with s172 considerations and has reviewed the realised
distributable reserves position of the Company and the forecast cash
generation of the Group for the next two years from the date of the dividend
payment.
Dividends paid and proposed were as follows:
pence per share cents per share Total Settled in Settled via scrip No of scrip shares issued
cash
$m $m $m
Final dividend 2020 2.845 3.983 79.7 53.6 26.1 9,475,532
Interim dividend 2021 1.229 1.717 34.6 32.2 2.4 750,265
Paid in 2021 4.074 5.700 114.3 85.8 28.5 10,225,797
Final dividend 2021 3.161 4.154 77.8 58.9 18.9 7,192,010
Paid in 2022 to date 3.161 4.154 77.8 58.9 18.9 7,192,010
Interim dividend 2022 1.410 1.717 35.1
The Company operates a scrip dividend scheme allowing shareholders to elect to
receive their dividend in the form of new fully paid ordinary shares. For any
particular dividend, the Directors may decide whether or not to make the scrip
offer available.
The proposed interim dividend for 2022, to be distributed on 6 October 2022 to
shareholders registered at the close of business on 26 August 2022, is based
upon the issued and fully paid share capital as at 30 June 2022. The dividend
will be declared in US dollars and will be paid in Sterling at the chosen
exchange rate of $1.218/£1.00 determined on 3 August 2022. A scrip dividend
alternative will be offered allowing shareholders to elect by 13 September
2022 to receive their dividend in the form of new ordinary shares.
Distributable reserves
Realised distributable reserves equate to the retained surplus of the Company,
Convatec Group Plc. The capacity of the Company to make dividend payments is
primarily determined by the availability of these distributable reserves
(which are fully realised) and cash resources. The Company principally derives
distributable reserves from dividends paid by subsidiary companies, with the
dividends being paid out of the realised distributable reserves of the
subsidiary companies.
At 30 June 2022, the retained surplus of Convatec Group Plc (the Company) was
$1,494.8 million (31 December 2021: $1,590.3 million). The movements in
distributable reserves were as follows:
$m
At 1 January 2022 1,590.3
Total comprehensive loss for the period (17.7)
Dividends paid (58.9)
Scrip dividend (18.9)
Retained surplus at 30 June 2022 1,494.8
7. Acquisitions
Triad Life Sciences Inc ("Triad")
Description of the transaction
On 14 March 2022, the Group completed its acquisition of 100% of the share
capital of Triad Life Sciences Inc ("Triad"). The acquisition of Triad
strengthens the Group's Advanced Wound Care position in the US, securing
access to a complementary and innovative technology platform that enhances
advanced wound management and patient outcomes.
In addition to the initial consideration of $125.3 million, the sellers may
earn contingent consideration up to a maximum of $325.0 million, in the form
of (i) two additional payments of $25.0 million each relating to short-term
milestones; and (ii) two earnout payments conditional on performance during
year 1 and year 2 post completion, with the maximum earnout of $275.0 million
based on stretching financial performance over the period.
The discounted fair value of the contingent consideration at the date of
acquisition was $141.8 million, of which $25.0 million was paid in April 2022
following attainment of the first short-term milestone. Any additional
contingent consideration is due to be paid within three years of the
acquisition date, subject to achieving the specified targets.
Following completion of acquisition accounting, any changes in the fair value
of the contingent consideration will be recorded in the Consolidated Income
Statement in accordance with the Group's accounting policies.
Assets acquired and liabilities assumed
The transaction meets the definition of a business combination and has been
accounted for under the acquisition method of accounting. The following table
summarises the provisional fair values of the assets acquired and liabilities
assumed as of the acquisition date:
$m
Provisional
Non-current assets
Property, plant and equipment 0.5
Right-of-use assets 2.2
Intangible assets - product related 154.8
Current assets
Trade and other receivables 4.1
Inventories 10.8
Cash and cash equivalents 15.9
Total assets acquired 188.3
Current liabilities
Trade and other payables (2.9)
Lease liabilities (0.2)
Non-current liabilities
Lease liabilities (2.7)
Deferred tax liabilities (34.8)
Total liabilities assumed (40.6)
Net assets acquired 147.7
Goodwill 132.3
Total 280.0
Initial cash consideration 125.3
Deferred purchase consideration paid into escrow((a)) 13.8
Working capital adjustment((b)) (0.9)
Contingent consideration 141.8
Total consideration 280.0
Analysis of cash outflow in the Condensed Consolidated Statement of Cash Flows $m
Initial cash consideration 125.3
Deferred purchase consideration paid into escrow((a)) 13.8
Cash and cash equivalents acquired (15.9)
Net cash outflow from acquisitions, net of cash acquired 123.2
(a) $13.8 million was paid on closing into escrow as security and
indemnity by the seller for its obligations under the Merger Agreement. It is
expected that $1.3 million will be released within the next 12 months once the
closing statement is agreed and the remaining balance will be released
thereafter in accordance with the terms of the Merger Agreement.
(b) This is the Group's calculation of the working capital
adjustment and forms part of the initial consideration. The final amount will
be determined in accordance with the terms of the Merger Agreement and this
has not yet been finalised at the reporting date.
The fair values of the assets acquired and liabilities assumed remain
provisional due to the proximity of the acquisition to the date of approval of
the Condensed Consolidated Financial Statements. 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.
The goodwill recorded, which is not deductible for tax purposes, represents
the cost savings, operating synergies and future growth opportunities expected
to result from combining the operations of Triad with those of the Group.
The carrying value of the Group's goodwill increased to $1,226.7 million at 30
June 2022 (31 December 2021: $1,156.3 million) as a result of the acquisition
of Triad ($132.3 million), offset by foreign exchange movements ($61.9
million).
Acquisition-related costs
The Group incurred $2.8 million of acquisition-related costs directly related
to the Triad acquisition in the period to 30 June 2022, primarily related to
advisors' fees. These acquisition-related costs have been recognised in
general and administrative expenses in the Condensed Consolidated Income
Statement.
As part of the acquisition accounting, a $10.2 million increase to the
carrying value of inventories was required to reflect the fair value of $10.8
million at acquisition, of which $4.0 million was expensed to cost of sales in
the Condensed Consolidated Income Statement in the period to 30 June 2022 as
the inventories were sold.
Revenue and profit
The revenue of Triad for the period from the acquisition date to 30 June 2022
was $9.6 million and net profit for the period was $1.2 million, before
recognising acquisition-related intangible asset amortisation charge of $4.0
million and the inventory fair value uplift release of $4.0 million. If the
acquisition had been completed at 1 January 2022, reported Group revenue would
have been $4.4 million higher and the Group profit for the period would have
been $0.9 million lower for the six month period to 30 June 2022, before
recognising acquisition-related intangible asset amortisation additional
charge of $2.0 million.
Contingent consideration for Cure Medical LLC ("Cure Medical")
On 15 March 2021, the Group acquired 100% of the share capital of Cure
Medical.
In addition to the initial consideration, the sellers may earn contingent
consideration of up to $10.0 million based upon post-acquisition performance
targets included in the Share Purchase Agreement. The fair value of contingent
consideration at the date of acquisition and at 31 December 2021 was $3.1
million, which is due to be paid within three years of the acquisition date.
As at 30 June 2022, management reviewed the expectation of the contingent
consideration based on the most recent Board approved strategic plan and
forecast information. The Cure Medical business has outperformed its
performance targets to date and the forecast financials are expected to exceed
the original expectations. The discounted fair value of the contingent
consideration has been revised to $8.9 million and the remeasurement charge of
$5.8 million has been recognised in non-operating expenses in the Condensed
Consolidated Income Statement.
8. Divestiture
Exit from hospital care and industrial sales activities
On 12 May 2022, following a strategic review, it was announced that the Group
would be withdrawing from its hospital care activities and related industrial
sales during the remainder of 2022. These low margin activities generated
$101.4 million of revenue in the year ended 31 December 2021 and do not
represent a separate major line of business or component of the Group.
As a result of the exit from the hospital care and industrial sales
activities, the Group recognised impairment losses in the period ended 30 June
2022 in relation to the following:
- $8.6 million was recognised, within other operating expenses, as
an impairment to property, plant and equipment, primarily in relation to
manufacturing equipment in Belarus and Slovakia.
- $4.2 million was recognised, within other operating expenses, as
an impairment to product-related intangible assets.
- $7.5 million was recognised, within cost of sales, in relation
to the write-off of inventories which are not expected to be sold.
In addition, the Group recognised $17.0 million of provisions in relation to
severance and contract exit costs in the period ended 30 June 2022. In the
period to 30 June 2022, the Group has incurred $1.1 million of
divestiture-related costs in relation to legal fees and administrative closing
down costs.
Upon completion of the exit from all hospital care and related industrial
sales activities, the cumulative amount of exchange differences recognised in
other comprehensive income relating to those operations will be recognised in
the consolidated income statement as a non-operating expense. The balance as
at 30 June 2022 would have been a $15.8 million expense to the income
statement. The actual balance transferred will be calculated on completion of
the exit and will be classified as an adjusted item in accordance with our APM
policy.
9. Investment in financial assets
Accounting policy
The Group has made an irrevocable election to designate its equity investment
in BlueWind Medical at fair value through other comprehensive income (FVOCI).
It has been initially recorded at fair value plus transaction costs and will
be remeasured at subsequent reporting dates to fair value.
Unrealised gains and losses are recognised in other comprehensive income.
On disposal of the equity investment, any gains and losses that have been
deferred in other comprehensive income are transferred directly to retained
earnings.
Dividends on equity investments are recognised in the income statement when
the Group's right to receive payment is established, it is probable the
economic benefits will flow to the entity and the amount can be measured
reliably.
On 9 May 2022, the Group invested $30.0 million in preference shares of
BlueWind Medical Limited ("BlueWind Medical"). BlueWind Medical is developing
an implantable tibial neuromodulation device, for the treatment of urge
incontinence and urinary urgency. This represents an investment into an
innovative technology in the large and growing over-active bladder market and
strengthening of the Group's Continence and Critical Care category.
In line with IFRS 9 Financial Instruments, the investment met the definition
of an equity instrument and the Group has made an irrevocable election on
initial recognition to measure the investment at FVOCI. The Group considers
this investment to be strategic in nature and it is not held for trading.
In line with IFRS 13 Fair value measurement, this investment has been
classified as Level 3. As at the date of the transaction, the equity
investment was recorded at its cost of investment which approximates to fair
value plus transaction costs of $0.7 million. Due to the proximity of the date
of transaction to 30 June 2022, the Group has considered applicable criteria
for impairment triggers for the investment and concluded that the fair value
of the investment approximates the cost of the investment.
10. Borrowings
The Group's sources of borrowing for funding and liquidity purposes derive
from senior notes and drawn credit facilities including an undrawn committed
revolving credit facility.
The Group's consolidated borrowings were as follows:
Year of maturity 30 June 2022 31 December 2021
Currency $m $m
Revolving Credit Facility Multicurrency 2024 - -
Senior Notes USD 2029 500.0 500.0
Term Loan Facility A((a)) USD/Euro 2024 462.4 461.2
Term Loan Facility B((b)) USD/Euro 2024 397.7 396.7
Interest-bearing borrowings 1,360.1 1,357.9
Financing fees (11.3) (13.3)
Carrying value of borrowings 1,348.8 1,344.6
Current portion of borrowings 142.5 144.8
Non-current borrowings 1,206.3 1,199.8
(a) Included within Term Loan Facility A is €86.2 million ($90.4
million) and €78.4 million ($89.2 million) at 30 June 2022 and 31 December
2021 respectively, denominated in Euros. This represents 20% (2021: 19%)
denominated in Euros and 80% (2021: 81%) denominated in US dollars.
(b) Included within Term Loan Facility B is €74.2 million ($77.8
million) and €67.5 million ($76.7 million) at 30 June 2022 and 31 December
2021 respectively, denominated in Euros. This represents 20% (2021: 19%)
denominated in Euros and 80% (2021: 81%) denominated in US dollars.
Senior notes
Unsecured senior notes of $500.0 million are subject to an interest cover
financial covenant as defined in the indentures which is a minimum of 2.0
times, with testing required annually at 31 December on the last 12 calendar
months' financial performances.
Credit facilities
The two term loan credit facilities are subject to financial covenants based
on a permitted net debt to adjusted EBITDA ratio and interest cover test as
defined in the credit facilities agreement. Testing is required on a
semi-annual basis, at June and December, based on the last 12 months'
financial performance. At 30 June 2022, the permitted net debt to adjusted
EBITDA ratio was a maximum of 3.5 times and the interest cover a minimum of
3.5 times, terms as defined by the credit facilities agreement.
The Group was in compliance with all financial and non-financial covenants at
30 June 2022 and 31 December 2021, with significant available headroom on the
financial covenants ($470.0 million debt headroom on the net debt to adjusted
EBITDA ratio (30%) as at 30 June 2022).
In the six months period to 30 June 2022, $15.5 million of proceeds from
borrowings was received in respect of the Euro-denominated facilities relating
to foreign exchange restatement triggered by the movement on the USD to EUR
exchange rate.
Borrowings measured at fair value
The senior notes are listed and their fair value of $434.0 million at 30 June
2022 (31 December 2021: $507.7 million) has been obtained from quoted market
data and therefore categorised as a Level 1 measurement in the fair value
hierarchy under IFRS 13 Fair Value Measurements.
For the Group's other borrowings, the estimated fair value at 30 June 2022 is
$840.8 million (31 December 2021: $847.3 million). The fair value of the
Group's other borrowings is based on discounted cash flows using a current
borrowing rate and are categorised as a Level 2 measurement in the fair value
hierarchy under IFRS 13 Fair Value Measurements.
11. Financial instruments
A derivative financial instrument is a contract that derives its value from
the performance of an underlying variable, such as foreign exchange rates or
interest rates. The Group uses derivative financial instruments to manage
foreign exchange and interest rate risk arising from its operations and
financing. Derivative financial instruments used by the Group are foreign
exchange forwards and swaps and interest rate swaps.
The Group utilises interest rate swap agreements, designated as cash flow
hedges, to manage its exposure to variability in expected future cash outflows
attributable to the changes in interest rates on the Group's borrowing
facilities.
Financial instruments are classified as Level 1, Level 2, or Level 3 in the
fair value hierarchy in accordance with IFRS 13 Fair Value Measurements, based
upon the degree to which the fair value movements are observable. Level 1 fair
value measures are defined as those with quoted (unadjusted) market prices in
active markets for identical assets or liabilities. 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). Level 3 fair
value measurements are defined as those derived from significant unobservable
inputs. The only instrument classified as Level 1 are the senior notes, given
the availability of quoted market price (Note 10 - Borrowings). The Group's
derivative financial instruments, discussed below, are classified as Level 2,
and the Group's equity investment in preference shares is classified as Level
3 (Note 9 - Investment in financial assets).
The Group holds interest rate swap agreements to fix a proportion of variable
interest on US dollar denominated debt, in accordance with the Group's risk
management policy. The interest rate swaps are designated as hedging
instruments in a cash flow hedging relationship.
In accordance with Group policy, the Group uses forward foreign exchange
contracts, designated as cash flow hedges, to hedge certain forecast
third-party foreign currency transactions for up to one year. When a
commitment is entered into, a layered approach is taken when hedging the
currency exposure, ensuring that no more than 100% of the transaction exposure
is covered. The currencies hedged by forward foreign exchange contracts are US
dollars, Swiss Francs and Japanese Yen.
The Group further utilises foreign exchange contracts and swaps classified as
fair value through profit or loss ("FVTPL") to manage short-term foreign
exchange exposure.
The fair values are based on market values of equivalent instruments. The
following table presents the Group's outstanding interest rate swaps, which
are designated as cash flow hedges, at 30 June 2022 and 31 December 2021
respectively:
30 June 2022 31 December 2021
Effective date Maturity date Notional amount Fair value((a)) Notional amount Fair value((a))
assets / (liabilities) assets / (liabilities)
$m $m $m $m
3 Month LIBOR Float to Fixed Interest Rate Swap 24 Jan 2020 24 Jan 2023 275.0 1.8 275.0 (2.9)
(a) The fair values of the interest rate swaps are shown in
current derivative financial liabilities in the Condensed Consolidated
Statement of Financial Position. There is no ineffectiveness recognised in the
Condensed Consolidated Income Statement.
The following table presents the Group's outstanding foreign exchange forward
contracts valued at FVTPL and foreign currency forward contracts designated as
cash flow hedges, which form part of current derivative financial assets and
current derivative financial liabilities:
30 June 2022 31 December 2021
Term Notional amount Fair value Notional amount Fair value
assets / (liabilities) assets / (liabilities)
$m $m $m $m
Foreign exchange contracts designated as FVTPL ≤ 3 months 706.0 20.8 864.6 14.5
Foreign currency forward exchange contracts designated as cash flow hedges ≤ 12 months 18.5 1.1 40.8 0.6
Derivative financial assets 724.5 21.9 905.4 15.1
Foreign exchange contracts designated as FVTPL ≤ 3 months 539.7 (12.3) 695.9 (6.5)
Foreign currency forward exchange contracts designated as cash flow hedges ≤ 12 months 168.8 (9.6) 130.2 (5.2)
Derivative financial liabilities 708.5 (21.9) 826.1 (11.7)
12. Provisions
A provision is an obligation recognised when there is uncertainty over the
timing or amount that will be paid. Provisions held by the Group are primarily
in respect of restructuring, onerous contracts, decommissioning,
dilapidations, legal liabilities and contingent consideration relating to
acquisitions.
The movements in provisions are as follows:
Decommissioning and dilapidations Restructuring Legal Contingent consideration Total
$m $m $m $m $m
31 December 2021 1.2 5.0 0.5 - 6.7
Contingent consideration from acquisitions - - - 141.8 141.8
Charged to the income statement 0.5 19.7 - 5.8 26.0
Utilised - (6.6) - (25.0) (31.6)
Discount unwind - - - 5.2 5.2
Reclassification from trade and other payables((a)) - - - 3.1 3.1
Foreign exchange (0.1) (0.1) - - (0.2)
30 June 2022 1.6 18.0 0.5 130.9 151.0
Current provision - 18.0 - 101.3 119.3
Non-current provision 1.6 - 0.5 29.6 31.7
(a) During the period ended 30 June 2022, $3.1 million has been
reclassified from trade and other payables in relation to the Cure Medical
acquisition to better reflect the estimation uncertainty of the contingent
consideration.
Decommissioning and dilapidation provisions
Decommissioning provisions are recognised when an item is purchased to
represent the estimated costs of dismantling and removing PP&E and
restoring the site on which it was located. Dilapidation provisions are in
respect of legal obligations, on the expiry of a lease, to return leased
properties in the condition which is specified in the individual leases.
Restructuring provisions
Restructuring provisions are in respect of two restructuring programmes in
place during the period: the Group's Transformation Initiative which is a
global multi-year transformation programme that commenced in 2019, and the
exit from the low margin hospital care and industrial sales portfolio. Further
details in Note 8 - Divestiture. All restructuring provisions are supported by
detailed plans and a valid expectation has been raised in those affected as
required by the Group's accounting policy.
Legal provision
Legal provision of $0.5 million is in respect of an ongoing case. Legal issues
are often subject to uncertainties over the timing and the final amounts of
any settlement.
Contingent consideration
Contingent consideration arising from business combinations are fair valued on
acquisition and at each reporting period. As a result of the acquisition of
Triad on 14 March 2022, the sellers may earn contingent consideration as
described in Note 7 - Acquisitions.
During the period ended 30 June 2022, the contingent consideration for the
Cure Medical acquisition has been fair valued to $8.9 million (discounted),
resulting in an increase of $5.8 million to the previously recognised amount
of $3.1 million. This has been charged to the Condensed Consolidated Income
Statement. Refer to Note 7 - Acquisitions for further details.
13. Foreign exchange
The following table summarises the exchange rates used for the translation of
currencies into US dollars that have the most significant impact on the Group
results:
Average rate/ Closing rate Six months ended 30 June Year ended 31 December
Currency 2022 2021 2021
USD/EUR Average 1.09 1.21 1.18
Closing 1.05 1.19 1.14
USD/GBP Average 1.30 1.39 1.38
Closing 1.22 1.38 1.35
USD/DKK Average 0.15 0.16 0.16
Closing 0.14 0.16 0.15
14. Commitments and contingencies
Capital commitments
At 30 June 2022, the Group had non-cancellable commitments for the purchase of
property, plant and equipment, capitalised software and development of $19.5
million (31 December 2021: $32.1 million).
Contingent liabilities
There are no contingent liabilities recognised as at 30 June 2022.
15. Subsequent events
The Group has evaluated subsequent events through to 3 August 2022, the date
the Condensed Consolidated Interim Financial Statements were approved by the
Board of Directors.
On 3 August 2022, the Board declared the interim dividend to be distributed on
6 October 2022. Refer to Note 6 - Dividends for further details.
Non-IFRS financial information
Non-IFRS financial information or alternative performance measures ("APMs")
are those measures used by management on a day-to-day basis in their
assessment of profit and performance and comparison between periods. The
adjustments applied to IFRS measures reflect the effect of certain cash and
non-cash items that the Board believes distort the understanding of the
quality of earnings and cashflows as, by their size or nature, they are not
considered part of the core operations of the business. Adjusted measures also
form the basis for performance measures for remuneration, e.g. adjusted
operating profit. Reconciliations for these adjusted measures determined under
IFRS are shown on pages 40 to 42. The definitions of adjusted measures are as
calculated within the reconciliation tables.
It should be noted that the Group's APMs may not be comparable to other
similarly titled measures used by other companies and should not be considered
in isolation or as a substitute for the equivalent measures calculated and
presented in accordance with IFRS.
In determining whether an item should be presented as an allowable adjustment
to IFRS measures, the Group considers items which are significant either
because of their size or their nature and arise from events that are not
considered part of the core operations of the business. These tend to be
one-off events but may still cross more than one accounting period. Recurring
items may be considered in respect of the amortisation of acquisition related
intangibles assets in order to provide comparability between peer groups where
such assets may have been internally generated and therefore, are not
reflected on that company's balance sheet with a resulting amortisation
charge. If an item meets at least one of these criteria, the Board, through
the Audit and Risk Committee, then exercises judgement as to whether the item
should be classified as an allowable adjustment to IFRS performance measures.
The APMs are consistent with those disclosed in the 2021 Annual Report and
Accounts.
Adjustments to derive adjusted operating profit for the six months ended 30
June 2022 and 2021 comprise the following credits or costs:
- Amortisation of intangible assets in respect of material
acquisitions ($67.4 million and $65.5 million respectively).
- Costs incurred in respect of acquisition activities ($21.2 million
and $1.7 million respectively).
- Costs incurred in respect of divestiture activities in respect of
the exit from hospital care business and related industrial sales activities
($31.5 million and nil respectively).
- Termination benefits in respect of the Group's transformation
programme and exit from hospital care and related industrial sales activities
($6.7 million and $1.7 million respectively).
- Impairment of assets ($1.4 million and nil respectively).
The tax effect of the adjustments is reflected in the adjusted tax expense to
remove the tax impact from adjusted net profit and adjusted earnings per
share.
Adjusted EBITDA, which is used to calculate the metric of adjusted cash
conversion and adjusted working capital, is calculated by adding back
share-based payments to adjusted operating profit, together with the annual
depreciation and amortisation charge.
Amortisation of acquisition-related intangible assets
The Group's strategy is to grow both organically and through acquisition,
with larger acquisitions being targeted to strengthen our position in
key geographies and/or business categories or which provide access to new
technology. The nature of the businesses acquired includes the acquisition of
significant intangible assets, which are required to be amortised. The Board
and management regard the amortisation as a distortion to the quality of
earnings and it has no cash implications in the year. The amortisation also
distorts comparability with peer groups where such assets may have been
internally generated and, therefore, not reflected on their balance sheet.
Amortisation of acquisition-related intangible assets is, by its nature, a
recurring adjustment.
Acquisitions related activities
Costs directly related to potential and actual strategic transactions which
have been executed, aborted or are in-flight and which would improve the
strategic positioning of the Group are deemed adjusting items.
Acquisition-related costs relate to deal costs, integration costs and earn-out
adjustments which are incurred directly as a result of the Group undertaking
or pursuing an acquisition. Deal costs are wholly attributable to the deal,
including legal fees, due diligence fees, bankers' fees/commissions and other
direct costs incurred as a result of the actual or potential transaction.
Integration costs are wholly attributable to the integration of the target and
based on integration plans presented at the point of acquisition, including
the cost of retention of key people where this is in excess of normal
compensation, redundancy of target staff and early lease termination payments.
Divestiture related activities
Divesture related activities comprise of any gains or losses made on disposal,
impairment of directly related assets, contract exit costs/penalties and any
directly attributable transaction costs resulting from the in-flight, aborted
or completion of disposal or exit of a business or market during the year.
Directly attributable transactions costs incurred as a result of divestitures
include legal and professional fees which are directly related to the
divestiture.
Impairment of assets
Impairments, write-offs and gains and losses from defined programmes and where
the Group considers the circumstances of such event are not reflective of
normal business trading performance or when transactions relate to
acquisition-related intangible assets where the amortisation is already
excluded from the calculation of adjusted measures.
Termination benefits and related costs
Termination benefits and other related costs arise from Group-wide initiatives
to reduce the ongoing cost base and improve efficiency in the business,
including divestitures from non-strategic activities. The Board considers each
project individually to determine whether its size and nature warrants
separate disclosure. Qualifying items are limited to termination benefits
(including retention) without condition of continuing employment in respect of
major Group-wide change programmes. Where discrete qualifying items are
identified these costs are highlighted and excluded from the calculation of
adjusted measures. Due to their nature, these adjusted costs may span more
than one year. Restructuring costs not related to termination benefits are
reported in the normal course of business and are not adjusted.
Reconciliation of reported earnings to adjusted earnings for the six months
ended 30 June 2022 and 2021
Revenue Gross profit Operating costs Operating profit Finance expense, net Non-operating expense, net PBT Taxation Profit for the period
Six months ended 30 June 2022 $m $m $m $m $m $m $m $m $m
As reported 1,044.5 554.9 (467.8) 87.1 (28.2) (12.8) 46.1 2.2 48.3
Amortisation of acquired intangibles - 56.9 10.5 67.4 - - 67.4 (15.0) 52.4
Acquisition related costs - 4.0 6.2 10.2 5.2 5.8 21.2 (1.6) 19.6
Divestiture related costs - 7.6 23.9 31.5 - - 31.5 (7.5) 24.0
Impairment of assets - - 1.4 1.4 - - 1.4 - 1.4
Termination benefits and related costs - 4.7 2.0 6.7 - - 6.7 (1.6) 5.1
Total adjustments including tax effect - 73.2 44.0 117.2 5.2 5.8 128.2 (25.7) 102.5
Other discrete tax items - - - - - - - (19.7) (19.7)
Adjusted 1,044.5 628.1 (423.8) 204.3 (23.0) (7.0) 174.3 (43.2) 131.1
Software and R&D amortisation 8.2
Depreciation 31.0
Share-based payments 8.2
Adjusted EBITDA 251.7
Revenue Gross profit Operating costs Operating profit Finance expense, net Non-operating expense, net PBT Taxation Profit for the period
Six months ended 30 June 2021 $m $m $m $m $m $m $m $m $m
As reported 1,008.0 555.3 (419.8) 135.5 (19.8) (3.6) 112.1 (26.3) 85.8
Amortisation of acquired intangibles - 55.0 10.5 65.5 - - 65.5 (7.1) 58.4
Acquisition related costs - - 1.7 1.7 - - 1.7 - 1.7
Termination benefits and other related costs - 0.2 1.5 1.7 - - 1.7 (0.4) 1.3
Total adjustments and their tax effect - 55.2 13.7 68.9 - - 68.9 (7.5) 61.4
Other discrete tax items - - - - - - - (2.0) (2.0)
Adjusted 1,008.0 610.5 (406.1) 204.4 (19.8) (3.6) 181.0 (35.8) 145.2
Software and R&D amortisation 8.2
Depreciation 31.5
Impairment/write-off of assets 1.7
Share-based payments 7.1
Adjusted EBITDA 252.9
Acquisition related costs of $21.2 million (six months to 30 June 2021: $1.7
million) are directly related to actual strategic transactions which have been
executed and which seek to improve the strategic positioning of the Group. The
majority of the costs are related to the deal and integration costs incurred
on the acquisition of Triad on 14 March 2022 and the discounting unwind of the
related contingent consideration. The impact on gross profit of $4.0 million
relates to the release of the acquisition fair value uplift on inventories in
relation to those which have been sold in the period to 30 June 2022.
Additionally, the fair value of the contingent consideration in respect of the
2021 Cure Medical acquisition has been increased by $5.8 million and has been
recognised as a non-operating expense and excluded in calculating adjusted
profit for the period. The net cash impact in relation to acquisition costs
was $2.5 million in the period. In the six months ended 30 June 2021, the
acquisition costs are in respect of the Cure Medical acquisition.
Divestiture related costs of $31.5 million are directly related to the phased
exit from the low margin hospital care business and industrial sales
portfolio, and includes the impairment of property, plant and equipment and
intangible assets, write-off of inventories, and contract exit costs (refer to
Note 8 - Divestiture). The exit will be completed over the remainder of the
year. The net cash impact in relation to this was $0.6 million in the period.
Impairment of assets of $1.4 million relates to a legacy acquisition related
customer relationship asset which was impaired as part of rationalisation
activities in the portfolio.
Termination benefits and other related costs of $6.7 million (six months to 30
June 2021: $1.7 million) are primarily in respect of the severance costs from
the Group's withdrawal from its hospital care and industrial sales portfolio.
The net cash impact of these costs was $6.0 million in the period.
Other discrete tax items relate to the tax benefit of $19.7 million from the
recognition of deferred tax upon the acquisition of Triad. In the six months
to 30 June 2021, other discrete tax items relate to the tax benefit of $9.3
million resulting from recognition of deferred tax following the acquisition
of Cure Medical, partially offset by a $6.9 million tax expense relating to
revaluation of deferred tax liabilities for acquisition intangibles in the UK
following the enactment of Finance Act 2021 on 10 June 2021 and $0.4 million
tax expense which arose as a result of adjustment to the Swiss deferred tax
asset following formal agreement with the Swiss Tax Authorities in 2021.
Reconciliation of operating costs to adjusted operating costs for the six
months ended 30 June 2022 and 2021
Six months ended 30 June
2022 2021
S&D((a)) G&A((b)) R&D((c)) Other((d)) Operating costs S&D((a)) G&A((b)) R&D((c)) Operating costs
$m $m $m $m $m $m $m $m $m
As reported (287.3) (119.1) (47.2) (14.2) (467.8) (252.9) (126.0) (40.9) (419.8)
Amortisation of acquired intangibles - 10.5 - - 10.5 - 10.5 - 10.5
Acquisition related costs - 6.2 - - 6.2 - 1.7 - 1.7
Divestiture related costs 10.7 0.4 - 12.8 23.9
Impairment of assets - - - 1.4 1.4 - - - -
Termination benefits and related costs 1.7 0.3 - - 2.0 - 1.5 - 1.5
Adjusted (274.9) (101.7) (47.2) 0.0 (423.8) (252.9) (112.3) (40.9) (406.1)
(a) "S&D" represents selling and distribution expenses.
(b) "G&A" represents general and administrative expenses.
(c) "R&D" represents research and development expenses.
(d) "Other" relates to the impairment of assets from the Group's
withdrawal from the hospital care and industrial sales portfolio.
Reconciliation of basic and diluted earnings per share to adjusted earnings
per share for the six months ended 30 June 2022 and 2021
Six months ended 30 June
2022 Adjusted 2022 2021 Adjusted 2021
$m $m $m $m
Net profit for the period attributable to the shareholders of the Group 48.3 131.1 85.8 145.2
Number Number
Basic weighted average ordinary shares in issue 2,018,377,510 2,004,985,601
Diluted weighted average ordinary shares in issue 2,031,279,646 2,024,506,676
cents per share cents per share cents per share cents per share
Basic earnings per share 2.4 6.5 4.3 7.2
Diluted earnings per share((a)) 2.4 6.5 4.2 7.2
(a) Excluding the deferred tax asset recognition following the Group's
acquisitions, adjusted diluted EPS decreased by 2.7% to 7.4¢ for the six
months ended 30 June 2022 (six months ended 30 June 2021: 7.6¢).
Cash conversion for the six months ended 30 June 2022 and 30 June 2021
Six months ended 30 June
2022 2021
$m $m
Operating profit 87.1 135.5
Depreciation of property, plant and equipment 20.0 19.8
Depreciation of right-of-use assets 11.0 11.7
Amortisation of intangible assets 75.6 73.7
Impairment/write-off of property, plant and equipment and intangible assets 14.2 1.7
EBITDA 207.9 242.4
Non-cash items
Share-based payments 8.2 7.1
Working capital movement (66.0) (69.8)
Gain/(loss) on foreign exchange derivatives 3.4 (0.9)
Net cash generated from operations 153.5 178.8
Acquisitions of property, plant and equipment and intangibles assets (64.1) (43.6)
Net cash for cash conversion 89.4 135.2
Income taxes paid (19.1) (29.0)
Free cash flow 70.3 106.2
Reconciliation of Adjusted net cash and Adjusted free cash flow (to calculate
Adjusted cash conversion)
Six months ended 30 June
2022 2021
$m $m
Net cash for cash conversion 89.4 135.2
Acquisition and divestitures adjustments 2.6 1.3
Termination benefits and related costs adjustments 6.6 5.7
Adjusted net cash for cash conversion 98.6 142.2
Income taxes paid (19.1) (29.0)
Adjusted free cash flow, post tax 79.5 113.2
EBITDA 207.9 242.4
Adjusted EBITDA 251.7 252.9
Cash conversion 43.0% 55.8%
Adjusted cash conversion 39.2% 56.2%
Reconciliation of Adjusted working capital
Six months ended 30 June
2022 2021
$m $m
Working capital movement((a)) (66.0) (69.8)
(Increase)/decrease in termination benefits((b)) (0.7) 4.0
Increase in respect of acquisitions and divestitures((b)) (25.7) (0.4)
Adjusted working capital movement (92.4) (66.2)
(a) Working capital movement is the change in assets and liabilities
total within the Condensed Consolidated Statement of Cash Flows on page 20.
(b) These are the cash flow impacts to the adjusted items shown in the
reconciliation of earnings to adjusted earnings tables on page 38.
Net debt
Net debt is calculated as the carrying value of current and non-current
borrowings, net of cash and cash equivalents and excluding lease liabilities.
30 June 2022 31 December 2021
$m $m
Borrowings 1,348.8 1,344.6
Lease liabilities 89.0 90.5
Total carrying value of borrowings 1,437.8 1,435.1
Cash and cash equivalents (271.6) (463.4)
Net debt (including lease liabilities) 1,166.2 971.7
Net debt 1,077.2 881.2
Net debt/adjusted EBITDA((a)) 2.3 1.9
(a) Net debt excludes lease liabilities, and adjusted EBITDA for the
12 months to 30 June 2022 has been used in this calculation.
Directors' Responsibilities Statement
The Directors confirm that to the best of their knowledge:
· The Condensed Consolidated Financial Statements have been
prepared in accordance with IAS 34 as adopted by the United Kingdom; and
· The interim management report includes a fair review of the
information required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the Condensed Consolidated Financial
Statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
The composition of the Board of Directors of Convatec Group plc has changed
since reported in the 2021 Annual Report and Accounts. A list of current
Directors is maintained on our corporate website (www.convatecgroup.com
(http://www.convatecgroup.com) ).
By order of the Board:
Karim
Bitar
Chief Executive
Officer
3 August 2022
Jonny Mason Chief
Financial Officer 3
August 2022
INDEPENDENT REVIEW REPORT TO CONVATEC GROUP PLC
We have been engaged by the Group to review the condensed consolidated set of
financial statements in the half-yearly financial report for the six months
ended 30 June 2022 which comprises the Condensed Consolidated Income
Statement, the Condensed Consolidated Statement of Comprehensive Income, the
Condensed Consolidated Statement of Financial Position, the Condensed
Consolidated Statement of Changes in Equity, the Condensed Consolidated
Statement of Cash Flows and related Notes 1 to 15.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
As disclosed in note 1, the annual financial statements of the Group will be
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE (UK), however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the Group a conclusion on the condensed set of financial
statement in the half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued by the
Financial Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions
we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
3 August 2022
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