REG - ConvaTec Group PLC - Interim Results
02/08/2023 07:00
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RNS Number : 9869H ConvaTec Group PLC 02 August 2023
2 August 2023
Convatec Group Plc
Interim Results for the six months ended 30 June 2023
Accelerating revenue growth and expanding operating margin
Raising full year guidance
Accelerating organic revenue growth of 6.6%(1), broad-based across all four
categories:
· AWC: 8.7%(1) with significant growth in ATT(2) and strong performance
in Global Emerging Markets
· OC: 3.1%(1) driven by 6.5%(1) growth in Convatec ostomy products,
moderated by Flexi-Seal(TM) phasing
· CC: 7.6%(1) good operating performance supported by higher
reimbursement pricing in the US
· IC: 7.5%(1) ongoing strong demand for our innovative infusion sets,
as expected
Reported revenue growth was 1.1% and 2.7% on a constant currency(4) basis
reduced by the strategic exit of the hospital care activities and related
industrial sales in 2022
Further expansion of the adjusted operating margin by 70 bps to 20.3%:
· Improved mix of profitability across and within categories, stronger
pricing and increased productivity more than offset COGS inflation, resulting
in 220bps of gross margin expansion
· Continued good progress in simplification and productivity,
particularly in G&A, was more than offset by targeted investments for
future growth and inflationary headwinds
Adjusted operating profit was $214.1m (H1 2022: $204.3m). Reported operating
profit was $123.4m (H1 2022: $87.1m)
Further strengthening of competitive position
· Successfully launching Innovamatrix® and ConvaFoam(TM) in the US -
positive clinical feedback
· Acquired innovative anti-infective nitric oxide technology platform -
potential applications across categories
· Broadening customers and applications in IC - partnerships with Beta
Bionics (iLet insulin pump in the US), AbbVie and Mitsubishi Tanabe
(Parkinson's), Medtronic (780G in the US) and Tandem (Mobi in the US)
Raising 2023 guidance to reflect growth across all categories and acceleration
in AWC
· Expect organic revenue growth to be between 6.0-7.5% (previously
5.0-6.5%) and;
· Adjusted operating profit margin of at least 20.5% on a constant
currency basis (previously at least 19.7%)
Karim Bitar, Chief Executive Officer, commented:
"This performance demonstrates the momentum Convatec is building - revenue
growth is accelerating and we are expanding our operating margin, despite
ongoing investments to drive future growth and the challenging inflationary
back drop. Given the strength of performance and the encouraging outlook,
particularly in AWC, we are increasing our guidance for the full year.
"We remain focused on further strengthening the business as we execute our
FISBE 2.0 strategy. We have now pivoted to sustainable revenue growth and are
expanding our operating margin. We are increasingly confident of delivering
sustainable future growth and an operating margin in the mid-20s."
Key financial highlights
Reported results Adjusted(3) results
H1 2023 H1 2022 Change H1 2023 H1 2022 Change CC Change(4)
Revenue $1055m $1045m 1.1% $1055m $1045m 1.1% 2.7%
Operating profit $123.4 $87.1 41.7% $214.1m $204.3m 4.8% 7.0%
Operating profit margin 11.7% 8.3% 3.4%pts 20.3% 19.6% 0.7%pts
Diluted earnings per share 2.7 cents 2.4 cents 12.5% 6.8 cents 6.5 cents 4.6%
Dividend per share 1.769 1.717 3.0%
· Reported diluted EPS 2.7 cents. Adjusted(3) diluted EPS 6.8 cents
up 4.6% with higher adjusted net finance expense(3) offset by lower
non-operating and tax expenses
· Net debt(3) increased by $229 million following strategic M&A
investments, capex and working capital. Leverage was 2.5x net
debt(3)/adjusted EBITDA(3) (FY 2022: 2.1x)
· Interim dividend of 1.769 cents declared - a 3% increase (H1
2022: 1.717 cents)
(1) Organic growth presents period over period growth at constant currency,
adjusted for: Triad Life Sciences acquisition (Mar'22) the exit of hospital
care and related industrial sales and the reconfigured business in Russia
(May'22)
(2) Triad Life Sciences was renamed Advanced Tissue Technologies (ATT)
following its acquisition in mid-March 2022. It produces products in the
Wound Biologics segment, as defined by SmartTRAK. This segment includes skin
substitutes, active collagen dressings and topical drug delivery. ATT began
to contribute to the organic growth rate following the anniversary of the deal
completion. ATT accounted for 29% of AWC's organic growth during the first
half
(3) 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 33 to 38)
(4) Constant currency growth is calculated by applying the applicable prior
period average exchange rates to the Group's actual performance in the
respective period.
Contacts
Analysts & Investors Kate Postans, Vice President of Investor Relations & Corporate +44 (0) 7826 447807
Communications
+44 (0) 7805 011046
Sheebani Chothani, Investor Relations & Corporate Communications Manager
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://stream.buchanan.uk.com/broadcast/64a6c743e0c55f3eadfaad11) .
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) .
About Convatec
Pioneering trusted medical solutions to improve the lives we touch: Convatec
is a 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 care and infusion care. With around 10,000
colleagues, we provide our products and services in almost 100 countries,
united by a promise to be forever caring. Our solutions provide a range of
benefits, from infection prevention and protection of at-risk skin, to
improved patient outcomes and reduced care costs. Group revenues in 2022 were
over $2 billion. The company is a constituent of the FTSE 100 Index
(LSE:CTEC). To learn more about Convatec, please visit
http://www.convatecgroup.com (http://www.convatecgroup.com)
Forward Looking Statements
This document includes certain forward-looking statements with respect to the
operations, performance and financial condition of the Group.
Forward-looking statements are generally identified by the use of terms such
as "believes", "estimates", "aims", "anticipates", "expects", "intends",
"plans", "predicts", "may", "will", "could", "targets", continues", or their
negatives or other similar expressions. These forward-looking statements
include all matters that are not historical facts.
Forward-looking 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. Forward-looking statements are not guarantees of future performance
and such uncertainties and contingencies, including the factors set out in the
"Principal Risks" section of the Strategic Report in our Annual Report and
Accounts, could cause the actual results of operations, financial condition
and liquidity, and the development of the industry in which the Group
operates, to differ materially from the position expressed or implied in 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 knowledge and information
available to the Group at the date of preparation of this document and speak
only as at the date of this document. The Group and its directors, officers,
employees, agents, affiliates and advisers expressly disclaim any obligations
to update any forward-looking statements (except to the extent required by
applicable law or regulation).
Operating Review for the six months ended 30 June 2023
Revenue
Total Group revenue for the period was $1,055 million. Revenue increased by
1.1% on a reported basis following the exit of the hospital care activities
and related industrial sales in 2022. On a constant currency basis revenue
rose 2.7%. Adjusting for M&A and business exits (see footnote 1 above)
Group revenue rose 6.6% on an organic basis.
Six months ended 30 June
H1 2023 H1 2022 Reported growth / (decline) Foreign Exchange impact Constant Currency(2) growth / (decline) Organic(4) growth
$m $m
Revenue by Category
Advanced Wound Care 338 307 10.4% (2.6)% 13.0% 8.7%
Ostomy Care 300 298 0.7% (2.4)% 3.1% 3.1%
Continence Care 221 206 7.3% (0.3)% 7.6% 7.6%
Infusion Care 186 174 7.2% (0.3)% 7.5% 7.5%
Revenue excluding hospital care exit 1,045 985 6.2% (1.7)% 7.9% 6.6%
Exit of hospital care and related industrial sales 10(5) 60 (83.5)% n/a n/a n/a
Total 1,055 1,045 1.1% (1.6)% 2.7% 6.6%
(5) Relates to residual stock being sold during H1 2023
Advanced Wound Care revenue of $338 million increased 10.4% on a reported
basis or 13.0% on a constant currency basis. On an organic basis revenue
rose by 8.7%. This performance was enhanced by Advanced Tissue Technologies
(ATT), which contributed to organic growth from April.
The business achieved strong growth in Europe and Global Emerging Markets,
especially China, where we continued to win market share as we broadened our
presence and developed robust relationships with the hospitals. Good growth in
North America was supported by ATT in the US. InnovaMatrix(®) continued to
deliver strong momentum in the large and rapidly growing wound biologics
segment(2). Feedback from clinicians has been positive, including for the
new InnovaBurn(®) product. ConvaFoam(TM) launched in the US in January and
the reaction from healthcare professionals has been encouraging.
Given the strong growth year to date, significant momentum in ATT and the
positive response to ConvaFoam(TM) we now expect double digit organic revenue
growth for AWC for 2023, and expect the category to deliver high single digit
growth on an ongoing basis.
Ostomy Care revenue of $300 million was up 0.7% on a reported basis and
increased 3.1% on a constant currency basis and organic basis.
Sales of Convatec ostomy products grew 6.5%. The business achieved
double-digit growth in Global Emerging Markets as it continued to win share in
key markets such as China and Colombia, supported by its Direct to Consumer
and high touch service propositions. There was a good performance in Europe
although, as expected, further planned declines in non-Convatec product sales
via HSG/Amcare(TM) UK masked this positive performance. In North America, new
patient starts remained stable and HSG continued to grow referrals with new
ostomy patients. Overall, we improved the mix and consequently the margins.
Growth for the overall category was moderated by the inclusion of
Flexi-Seal(TM) this year, our innovative faecal management system, which
declined 9.3% as it lapped tough Covid comparatives. We expect a recovery in
Flexi-Seal(TM) during the remainder of the year given easing comparatives and
the recent sole supplier contract win of the HealthTrust GPO.
Given this expected improvement in Flexi-Seal(TM) coupled with good growth in
Convatec ostomy products we continue to expect mid-single digit growth for
this combined category in 2023.
Continence Care revenue of $221 million rose 7.3% on a reported basis and 7.6%
on a constant currency and organic basis.
A strong operating performance was supported by higher reimbursement pricing
in the US this year and increasing share of Convatec (Cure Medical and
GentleCath(TM)) products. We made further progress building the commercial
teams in Europe and are beginning to develop a presence in the Global Emerging
Markets. From an innovation perspective we are on track to launch our new and
improved GentleCath(TM) Air for Women 2.0 in Q4 2023 in France.
Based on the favourable pricing development, we expect mid to high-single
digit growth for Continence Care this year.
Infusion Care revenue of $186 million increased 7.2% on a reported basis and
7.5% on a constant currency basis and organic basis. This growth was primarily
driven by sustained strong demand for our innovative infusion sets for people
with diabetes. It was supported by double digit growth of our neria(TM)
brand infusion sets, for non-insulin therapies such as subcutaneous infusion
of immunoglobulins (linked to cancer and autoimmune diseases) and pain
management medications. We continue to expect Infusion Care to grow high
single digits in 2023 with further progress in H2 given Medtronic's 780G
insulin pump approval in the US, Beta Bionics iLet bionic pancreas system
launch in the US, AbbVie's Parkinson's launch in Japan and preparations for
Tandem's Mobi commercial launch.
We remain confident our Infusion Care business can continue to grow at high
single digits on an ongoing basis. This is driven by underlying growth in
diabetes (~3% p.a.) coupled with the expectation of increased world-wide
insulin pump penetration (currently only ~5% penetration) as more
insulin-intensive patients choose automated insulin delivery over multiple
daily injections. Recent data from Seagrove, an expert diabetes market
research firm, expects durable pumps to grow approximately 8% CAGR between
2023-2028 while patch & hybrid pumps are expected to grow approximately
16% CAGR over the same period. This reflects the importance of choice for
varying patient needs across the globe such as glycemic control, discretion,
convenience and cost. Our confidence is further underpinned by our
innovation pipeline with extended wear infusion sets, new durable pumps, such
as Tandem's discrete Mobi pump and Beta Bionic's new iLet pump, and the
potential to contribute to patch & hybrid pumps. In addition, we expect
double digit growth in areas such as Parkinson's disease and immunoglobulin
deficiency.
Historic revenue data*
* Provided to reflect revised category definitions announced in March'23 ,
following the exit of hospital care.
Reported Revenue $m H1 2021 H2 2021 H1 2022 H2 2022 H1 2023
Advanced Wound Care 294 298 307 314 338
Ostomy Care 311 304 298 285 300
Continence Care 193 211 206 220 221
Infusion Care 155 162 174 167 186
Group 953 975 985 986 1045
Revenue from exit of hospital and industrial sales 55 55 60 42 10
Total Reported Group 1008 1030 1045 1028 1055
Organic(4) growth/(decline) % H1 2021 H2 2021 H1 2022 H2 2022 H1 2023
Advanced Wound Care 16.3% 3.4% 7.3% 6.3% 8.7%
Ostomy Care 5.0% (0.8)% 1.2% 2.3% 3.1%
Continence Care 3.0% 3.1% 4.5% 5.7% 7.6%
Infusion Care 9.7% 13.3% 13.2% 3.6% 7.5%
Group 7.4% 3.4% 6.4% 4.7% 6.6%
Executing on our FISBE strategy
The execution of our FISBE (Focus, Innovate, Simplify, Build, Execute)
strategy is progressing well.
Focus
- We continued to focus on our top 12 markets, achieving revenue
growth of 6.4% on a constant currency basis compared to 2.7% globally. The US
continues to be our largest market and grew strongly, supported by the
contribution from ATT. China, whilst still a small part of the overall
group, is a key strategic market where we continue to strengthen our position,
grow double digit and win market share
- In July we further strengthened our Home Services Group through
the acquisition of A Better Choice Medical Supply for $27 million. The US home
supplier of urinary catheters, based in Waterford, Michigan (near Detroit)
will be integrated into our HSG business in the coming months.
Innovate
- We continued to invest to strengthen our Technology &
Innovation capabilities and advance our pipeline; we increased adjusted
R&D expenditure by 9.3% to $52 million in H1 (H1 2022: $47 million),
equivalent to 4.9% of sales
- During H1 we started launching ConvaFoam(TM) in the US, which is
strengthening our competitive position in the very large and growing foam
segment. Feedback from evaluations has been encouraging, with HCPs
particularly positive about its exudate and adhesion properties
- In April, we acquired a highly innovative anti-infective nitric
oxide technology platform with a unique natural antimicrobial mode of action,
backed by compelling scientific and clinical data. Convatec is well positioned
to commercialise this technology across a variety of medtech device
applications starting with Advanced Wound Care, with the first product
expected to be launched in 2025
- During the period Beta Bionics launched their new iLet bionic
pancreas system and we are partnering as sole supplier of the infusion sets
- We also have four further launches scheduled for H2:
o Extended Wear Infusion Set in US with Medtronic 780G which has received
FDA clearance
o Infusion set for new Tandem Mobi pump, cleared by the FDA in July
o AbbVie in Japan, with Europe later this year subject to regulatory
approval
o GentleCath(TM) Air for Women 2.0 in Q4 in France
Simplify
- As part of our Plant Network Optimisation initiative, we
announced our plan to move manufacturing operations from the EuroTec facility
in Roosendaal, the Netherlands, to our larger and more efficient site in
Michalovce, Slovakia, which already manufactures similar Ostomy products. The
intended move will take place in H2'23 and is expected to deliver savings and
improved productivity given the more integrated position of Slovakia within
the network
- Adjusted G&A reduced to 8.2% of sales (H1 2022: 9.7%),
declining 14.9% to $87 million (H1 2022: $102 million) as we continued to
transition activities to our Global Business Services centres; improve,
standardise and automate processes, build internal expertise and consolidate
our corporate office facilities
Build
- Our Pricing Centre of Excellence (CoE), in collaboration with
our business units, achieved 110 bps of pricing improvement
- Our Salesforce CoE has continued to roll out the single CRM
platform to Global Emerging Markets and is driving enhanced salesforce
productivity by increasing call rates by 10% and improving targeting
Execution
- Through excellent commercial execution we are winning share in
the Global Emerging Markets in both AWC and OC. Our sales in GEM continue to
grow double digit
- We made further progress with our Environmental, Social &
Governance (ESG) agenda particularly with respect to building a business where
our people can thrive. We rolled out an executive education series to engage
our senior leaders in diversity, equity and inclusion practices. In addition,
we are on track for 100% renewable energy across all our manufacturing sites
by the end of the year
Strong financial performance
Group revenue for the period was $1,055 million. Revenue increased by 1.1% on
a reported basis, following the exit of the hospital care activities and
related industrial sales in 2022. On a constant currency basis revenue rose
2.7%.
Adjusted gross profit rose 4.7% to $657 million (H1 2022: $628 million).
Adjusted gross profit margin increased by 220bps over the prior year with
pricing, mix and productivity benefits more than offsetting the ongoing COGS
inflation. Reported gross profit was $592 million (H1 2022: $555 million).
Adjusted operating expenses increased 4.6% year on year on a reported basis.
Higher labour cost inflation and additional investment in growth initiatives,
such as ATT sales force expansion and R&D investment, was partially offset
by a 150 bps reduction in G&A.
Total adjusted operating profit increased by 4.8% to $214 million (H1 2022:
$204 million) or 7.0% on a constant currency basis. The adjusted operating
profit margin was 20.3% in the first half, an increase of 70 bps versus prior
year. Reported operating profit was $123 million (H1 2022: $87 million).
Adjusted diluted EPS was up 4.6% with operating profit growth and a lower
adjusted tax and non-operating expenses partially offset by higher finance
expenses, given market interest rate rises and higher gross debt.
Reported EPS was up 12.5% reflecting higher reported net profit.
Cash flow and leverage
Free cash flow (pre-tax) was $70 million (H1 2022: $89 million) during the
period. The $10 million increase in adjusted EBITDA to $262 million (H1
2022: $252 million), $3 million reduction in one-time expenses and $5 million
lower capital expenditure was largely offset by additional investment in
working capital of $124 million (H1 2022: $92 million). The increase in
working capital principally reflected higher inventory, to build resilience
and some operational stocking ahead of the EuroTec closure, summer holidays
and the new FlexiSeal(TM) GPO contract. In addition, there was an increase in
receivables due to timing of receipts, particularly in ATT, and sales phasing.
Adjusted cash conversion (calculated by dividing free cash flow (pre-tax) by
adjusted EBITDA) was 26.8% (H1 2022: 35.5%.) The decline in the ratio
primarily reflected the decision to build inventory and the increase in
receivables.
Free cash to equity was $10 million (H1 2022: $42 million). The $32 million
decline from the prior year period principally reflected the lower free cash
flow (pre-tax) coupled with higher interest, lease and other expenses.
The Group continued to invest inorganically - spending $57 million on the
acquisition of the innovative nitric oxide platform. A further $95 million was
paid for the first year performance related earn-out for ATT. After
dividends of $88 million, net debt increased by $229m.
The Group ended the period with gross debt, including IFRS 16 lease
liabilities, of $1,465 million (31 December 2022: $1,300 million). Offsetting
cash of $77 million (31 December 2022: $144 million) and excluding lease
liabilities, net debt was $1,298 million (31 December 2022: $1,068 million),
equivalent to 2.5x adjusted EBITDA (31 December 2022: 2.1x adjusted EBITDA).
Dividend
The Board is declaring a 3% increase in the interim dividend to 1.769 cents
per share (H1 2022: 1.717) reflecting continued confidence in the future
performance of the Group and cash generation.
Group 2023 outlook
We are pleased with the performance we have achieved so far in 2023 and are
increasing our full year guidance.
We now expect full year organic revenue growth to be 6.0-7.5%, given the
broad- based growth across all categories and acceleration in AWC, primarily
driven by ATT.
Given the strong start to the year with mix, pricing and simplification and
productivity benefits , we now expect operating margin in 2023 to expand to at
least 20.5% on a constant currency basis.
If current spot rates were to hold for the remainder of the year, the
estimated tailwind for FY 2023 revenue would be approximately 90bps and the
impact on full year adjusted operating margin would be approximately 60 bps of
FX headwind.
We expect adjusted net finance expense for the full year to be towards the
upper end of the $70-80 million range previously provided, given the higher
debt following M&A investment and the higher market interest rates. The
adjusted book tax rate is expected to be approximately 24%. We still expect
Capex of around $120-140 million for the full year reflecting the continued
growth and automation investments we are making across the Group. We expect
leverage at year end to be approximately 2.3x, absent any further M&A and
taking into account the anticipated inventory reduction in the second half.
Overall, at the full year, inventory is expected to be $20-40 million higher
than December 2022.
We have now pivoted to sustainable revenue growth and are focused on driving
margin expansion. We are increasingly confident of delivering sustainable
future growth and an operating margin in the mid-20s.
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 system of risk management and internal control continues 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 2022 Annual Report and
Accounts on pages 88 to 97.
The Board has reviewed the principal risks as of 30 June 2023, taking into
consideration the risks that existed during the first six months of 2023 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 that are
impacting all businesses at present. The overall profile of our risks remains
consistent with the position presented in the Group's 2022 Annual Report and
Accounts. Our principal risks are set out below and listed in order of their
potential impact on our ability to successfully deliver on our strategy:
· Operational Resilience and Quality;
· Information Systems, Security and Privacy;
· Innovation and Regulatory;
· Customer and Markets;
· Political and Economic Environment;
· People;
· Legal and Compliance;
· Strategy and change management;
· Environment and Communities; and,
· Tax and Treasury.
The Board assesses the overall risk profile of the Group to ensure it is
within our risk appetite. In making this assessment the Board considered the
continued upward pressure from the macro-economic environment and broader risk
landscape (including the high levels of inflation, increasing interest rates,
ongoing supply chain challenges and the continuing impacts of the war in
Ukraine) on the business environment and any continued or additional impact on
the Group's business and principal risks, coupled with the controls and
mitigations in place to address these challenges. In the main, as our
processes and risk mitigations further develop and mature, we have continued
to manage the challenges facing the wider business landscape and build further
resilience into our operations. Principal risks continue to be appropriately
mitigated and we work to ensure that each risk remains within our risk
appetite.
Financial Review for six months ended 30 June 2023
Group financial performance
Six months ended 30 June
Reported Reported Adjusted(1) Adjusted(1)
2023 2022 2023 2022
$m $m $m $m
Revenue 1,055.5 1,044.5 1,055.5 1,044.5
Gross profit 592.4 554.9 657.4 628.1
Operating profit 123.4 87.1 214.1 204.3
Net finance expense (45.5) (28.2) (33.9) (23.0)
Profit before income taxes 76.0 46.1 180.4 174.3
Income tax (expense)/benefit (20.3) 2.2 (41.5) (43.2)
Net profit for the period 55.7 48.3 138.9 131.1
Basic earnings per share (cents per share) 2.7 2.4 6.8 6.5
Diluted earnings per share (cents per share) 2.7 2.4 6.8 6.5
Dividend per share (cents) 1.769 1.717
1. These non-IFRS financial measures are explained and
reconciled to the most directly comparable financial measures prepared in
accordance with IFRS in the Non-IFRS financial information section on pages 33
to 38.
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 results) ('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 on pages 33 to 38.
The commentary includes discussion of 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 revenue 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 2023 of $1,055.5
million (H1 2022: $1,044.5 million) increased 1.1% year-on-year on a reported
basis, following the exit of the hospital care activities and related
industrial sales in 2022. Revenue increased 2.7% on a constant currency basis.
Group revenue grew by 6.6% on an organic basis, driven by strong growth in
Advanced Wound Care, Infusion Care and Continence Care and good growth in
Ostomy Care.
For more details about the category revenue performance, refer to the
Operating Review.
Reported net profit
Reported gross margin increased year-on-year from 53.1% to 56.1%, including a
change in mix, following the exit of hospital care and the growing
contribution from Advanced Tissue Technologies ("ATT"). This was supported by
an improvement in pricing and the easier prior year comparators, which
included higher divestiture-related costs associated with the exit from
hospital care and industrial sales activities.
Reported operating profit was $123.4 million, an increase of $36.3 million on
the prior period. Reported operating expenses increased slightly by $1.2
million to $469.0 million (H1 2022: $467.8 million), with increases in selling
and distribution expenses of $17.4 million and R&D of $6.4million offset
by reductions in G&A of $8.4 million and other operating expenses of $14.2
million.
The increase in selling and distribution costs, including higher headcount
associated with growing the business, expansion in the acquired ATT business
and higher labour inflation, was only partially offset by the exit of hospital
care. The increase in R&D reflected the continued investment in our future
pipeline of new products and new R&D talent joining the business through
the recently acquired businesses of ATT and 30 Technology's nitric oxide
platform.
The improvement in G&A continued to reflect the Group's focus on
simplification and productivity, notably as we continued to build internal
expertise and reduce external consultancy spend whilst also seeing the
benefits of transitioning more finance and IT activities to our Global
Business Services ("GBS") centres in Lisbon and Bogota.
Other operating expenses were nil during the period (H1 2022: $14.2 million),
with the prior period costs primarily relating to the exit from hospital care
and related industrial sales activities.
Reported net finance expenses increased by $17.3 million to $45.5 million in
the six months to 30 June 2023 (H1 2022: $28.2 million), reflecting an
additional $10.9 million of net finance expenses due to a combination of
higher market interest rates and increase in average net debt, and $6.4
million for the unwind of discount relating to the contingent consideration
arising from the acquisitions of Cure Medical in 2021, Triad Life Sciences in
2022 and 30 Technology's nitric oxide platform in 2023.
Reported non-operating expenses decreased by $10.9 million to $1.9 million (H1
2022: $12.8 million) and principally consisted of a remeasurement charge of
$2.1 million (H1 2022: $5.8 million) in the period relating to the contingent
consideration payable in respect of the Group's acquisitions, plus foreign
exchange gains of $0.1 million (H1 2022: $7.0 million loss).
The reported income tax expense for the six months ended 30 June 2023 was
$20.3 million (H1 2022: $2.2 million benefit) and this is explained further in
the Taxation and Tax strategy section below. After income tax expense of $20.3
million (H1 2022: $2.2 million benefit), the reported net profit was $55.7
million (H1 2022: $48.3 million). The basic reported earnings per share rose
12.5% to 2.7 cents (H1 2022: 2.4 cents), reflecting the reported net profit
divided by 2,036,308,534 ordinary shares (H1 2022: 2,018,377,510 ordinary
shares).
Adjusted net profit
Adjusted gross profit increased by 4.7% to $657.4 million (H1 2022: $628.1
million). The adjusted gross margin increased year-on-year from 60.1% to
62.3%, driven by mix, pricing and productivity benefits, partially offset by
cost inflation.
The Group achieved adjusted operating profit of $214.1 million (H1 2022:
$204.3 million), delivering a further adjusted operating margin expansion to
20.3% (H1 2022: 19.6%), despite ongoing inflationary headwinds and continued
investments for growth. Increases in adjusted selling and distribution
expenses of $30.3 million, primarily driven by higher headcount, and adjusted
R&D of $4.4million, were partially offset by reductions in adjusted
G&A of $15.2 million, resulting in a net increase of $19.5 million in
adjusted operating expenses. A reconciliation between reported and adjusted
operating expenses is provided in the Non-IFRS financial information section.
Adjusted G&A as a percentage of revenue was 8.2% (H1 2022: 9.7%).
Adjusted net profit increased 5.9% to $138.9 million (H1 2022: $131.1
million). The increases in operating expenses (as explained in the reported
net profit section) and finance costs due to higher market interest rates,
were more than offset by strong gross margin improvements, a reduction in
non-operating expenses and a $1.7 million decrease in adjusted income tax
expense (which is explained below).
Adjusted basic and diluted adjusted EPS at 30 June 2023 increased by 4.6% to
6.8 cents and 6.8 cents respectively (H1 2022: 6.5 cents and 6.5 cents),
reflecting the higher adjusted net profit of $138.9 million (H1 2022:
$131.1million) divided by 2,036,308,534 basic ordinary shares and
2,049,996,858 diluted ordinary shares respectively (H1 2022: 2,018,377,510
basic ordinary shares and 2,031,279,646 diluted ordinary shares).
Taxation and tax strategy
Six months ended 30 June
2023 2022
$m Effective $m Effective
tax rate tax rate
Reported income tax (expense)/benefit (20.3) 26.7% 2.2 (4.8%)
Tax effect of adjustments (21.2) (25.7)
Other discrete tax items - (19.7)
Adjusted income tax expense (41.5) 23.0% (43.2) 24.8%
The Group's reported income tax expense for the six months ended 30 June 2023
was $20.3 million (H1 2022: $2.2 million benefit). The increase in the
reported effective tax rate is mainly driven by the decrease in tax benefit on
deferred tax recognition in 2022 on previously unrecognised US losses,
partially offset by lower tax expense due to profit mix between jurisdictions
with different tax rates.
The adjusted effective rate of 23.0% for the six months ended 30 June 2023 (H1
2022: 24.8%) is after reflecting the tax impact of items treated as adjusting
items (further details can be found in the Reconciliation of reported earnings
to adjusted earnings table in the Non-IFRS financial information section on
page 35). The decrease in adjusted effective tax rate was principally driven
by deferred tax benefit on previously unrecognised tax losses and the profit
mix between jurisdictions with different tax rates.
Alternative performance measures (APMs)
In line with the Group's APM policy, the following adjustments were made to
derive adjusted operating profit and adjusted profit before tax.
Six months ended 30 June
Operating profit Finance expense Non-operating expense
2023 2022 2023 2022 2023 2022
$m $m $m $m $m $m
Reported 123.4 87.1 (45.5) (28.2) (1.9) (12.8)
Amortisation of acquired intangibles 67.0 67.4 - - - -
Acquisitions and divestitures 9.9 41.7 11.6 5.2 2.1 5.8
Termination benefits and related costs 3.5 6.7 - - - -
Other adjusting items 10.3 - - - - -
Impairment of assets - 1.4 - - - -
Adjusted 214.1 204.3 (33.9) (23.0) 0.2 (7.0)
In line with Group's APM policy, adjustments made to derive adjusted operating
profit for the six months ended 30 June 2023 included the amortisation of
acquired intangibles of $67.0 million (H1 2022: $67.4 million), of which $46.4
million (H1 2022: $47.3 million) resulted from intangible assets arising from
the spin-out from Bristol-Myers Squibb in 2008 and will be fully amortised by
December 2026.
Acquisition and divestiture costs were $9.9 million (H1 2022: $41.7 million),
of which $2.2 million principally related to the exit from the hospital care
and industrial sales activities and $7.7 million primarily related to the
acquisition of 30 Technology's nitric oxide platform and the remaining
inventory fair value release in respect of the Triad acquisition.
Terminations costs of $3.5 million were in respect of transformation projects
and primarily due to the planned closure of the EuroTec factory in the
Netherlands. Other adjusting items of $10.3 million were in respect of two
ongoing programmes; our plant network optimisation as announced in the May
Trading Update and the facilities optimisation programme.
The adjustment of $11.6 million made to derive adjusted finance expenses for
the six months ended 30 June 2023 wholly related to the discount unwind in
respect of contingent consideration payable on the Starlight, Triad Life
Sciences and Cure Medical acquisitions.
Adjustments made to derive adjusted non-operating expenses for the six months
ended 30 June 2023 related to remeasurement charges of $2.1 million in respect
of the contingent consideration payable on the Triad Life Sciences
acquisition.
Of the total of $104.4 million of adjusting items, $88.0 million were non-cash
items. For further information on Non-IFRS financial information, see pages 33
to 38.
The Board, through the Audit and Risk Committee, continuously reviews the
Group's APM policy to ensure that it remains appropriate and represents the
way in which the performance of the Group is managed.
Strategic progress
The Group continued to explore and execute opportunities to strengthen its
competitive position in its four key categories and top markets. During 2023,
this included the acquisition of a highly innovative nitric oxide technology
platform and our plant network optimisation to move manufacturing operations
from the EuroTec facility in Roosendaal, the Netherlands, to our larger site
in Michalovce, Slovakia.
The Group continued to strengthen its product pipeline, with ConvaFoam(TM)
launching in the US in January. Initial feedback from clinical evaluations has
been strong.
We are on track for further new product and customer launches in 2023 and
2024, including:
· The Group is the sole supplier to Beta Bionics for the iLet
Bionic Pancreas which received FDA 510(k) clearance in May and is set for
commercial launch in the US in H2 2023
· Extended Wear Infusion Set in US with Medtronic 780G which
received FDA clearance in June
· Tailored infusion set for Tandem's new Mobi pump in the US which
received FDA clearance in July
· neria(TM) guard infusion set for AbbVie's ABBV-951 Parkinson's
disease therapy, which launched in Japan in H2, with Europe later this year
subject to regulatory approval
· GentleCath(TM) Air for Women 2.0 in Q4 2023
· Esteem Body(TM) to be launched by Q1 2024 in the US
Acquisitions
On 18 April 2023, the Group completed its acquisition of Starlight Science
Limited (Starlight), a UK-based R&D company. The acquisition of Starlight
included the highly innovative anti-infective nitric-oxide technology
platform, which complements the Group's Advanced Wound Care portfolio and has
potential applications across the Group's other categories. In addition to the
initial consideration of $56.7 million (£45.3 million), the sellers may earn
contingent consideration up to a maximum of $163.9 million (£131.0 million),
in the form of (i) milestone payment of $58.8 million (£47.0 million) due
upon regulatory clearances in the US and Europe; and (ii) earnout payments
based on sales of products over the lifetime of the acquired patents, with the
maximum earnout capped at $105.1 million (£84.0 million). Refer to Note 5 -
Acquisitions in the Condensed Consolidated Finance Statements for further
details.
During the period, the Group paid $94.7 million in respect of contingent
consideration associated with sales performance during the first-year
post-completion of the Triad Life Sciences acquisition. Based on the latest
available information, the discounted fair value of the remaining contingent
consideration as at 30 June 2023 was $47.5 million (31 December 2022: $130.8
million). This is due to be paid by 2024, subject to achieving specified
measures under the Merger Agreement. Refer to Note 5 - Acquisitions in the
Condensed Consolidated Finance Statements for further details.
The Group has contingent consideration of up to $10.0 million in respect of
the Cure Medical acquisition in 2021, which is based upon post-acquisition
performance targets and due to be paid by 2024. The discounted fair value of
the contingent consideration as at 30 June 2023 was $9.5 million (31 December
2022: $9.2 million).
Dividends
Dividends are distributed based on the realised distributable reserves of the
parent company, Convatec Group Plc ("the Company"), which are primarily
derived from dividends received from subsidiary companies and are not based
directly on the Group's retained earnings. The realised distributable reserves
of the Company at 30 June 2023 were $1,455.1 million (31 December 2022:
$1,562.9 million). The factors considered by the Board that may influence the
proposed dividend are disclosed in Note 4 - Dividends in the Condensed
Consolidated Financial Statements.
The Board has decided to increase the interim 2023 dividend by 3% to 1.769
cents per share. Our stated policy is a pay-out ratio of 35% to 45% of
adjusted net profit but this is interpreted flexibly over time to reflect the
underlying performance of the business. The decision to increase the dividend
reflects the good progress on pivoting to sustainable and profitable growth
and confidence in the Group's future prospects.
Cash Flow and Net Debt
Adjusted Adjusted
2023 2022
$m $m
EBITDA(1) 261.5 251.7
Working capital movement(1) (124.2) (92.4)
(Loss)/gain on foreign exchange derivatives (1.9) 3.4
Adjusting items(2) (6.7) (9.2)
Capital expenditure (58.7) (64.1)
Free cash flow (pre-tax)(1,3) 70.0 89.4
Tax paid (16.2) (19.1)
Free cash to capital(1,3) 53.8 70.3
Net interest paid (28.4) (21.9)
Payment of lease liabilities (11.2) (10.4)
Other(4) (4.5) 3.8
Free cash to equity(1,3) 9.7 41.8
Dividends(5) (87.7) (58.9)
Acquisitions(6) (151.4) (178.9)
Movement in net debt (229.4) (196.0)
Net debt(1) at 1 January (excluding lease liabilities) (1,068.1) (881.2)
Net debt(1) at 30 June (excluding lease liabilities) (1,297.5) (1,077.2)
1. These non-IFRS financial measures are explained and
reconciled to the most directly comparable financial measure prepared in
accordance with IFRS in the Non-IFRS financial information section on pages 33
to 38.
2. Details of adjusting items are provided in the adjusting
items cash movement table in the Non-IFRS financial information section.
3. The cash flow measures have also been simplified. 'Net cash
for cash conversion' has been renamed 'Free cash flow (pre-tax)' and 'Free
cash flow (post-tax)' has been renamed 'Free cash to capital'. In addition, a
new measure has been introduced, 'Free cash to equity' (as defined in the
table above). The Directors consider that these changes result in consistency
of cash flow measures and provide improved definition, clarity and insight
4. Other consisted of financing fees amortisation $1.4 million
(H1 2022: $2.0 million), net FX loss on cash and borrowings of $3.6 million
(H1 2022: $5.8 million gain) and proceeds from PPE sales of $0.5 million (H1
2022: nil).
5. Dividend cash payments of $87.7 million were made to
shareholders in the period in respect of the 2022 final dividend. This
represented 94.9% of total dividends declared in the period, with the
remaining 5.1% electing to settle via scrip dividends.
6. Acquisition payments of $151.4 million consisted of the
initial consideration payment of $56.7 million in respect of the acquisition
of Starlight and $94.7 million in respect of the Year 1 earn out associated
with the 2022 acquisition of Triad Life Sciences.
EBITDA
Adjusted EBITDA increased by $9.8 million, largely driven by the increase in
reported operating profit of $36.3 million (as explained in the net profit
commentary) and a $10.4 million reduction in impairment charges (which was
higher in the prior period due to the hospital care exit), being offset by
reductions in adjusting items of $14.9 million. A reconciliation of EBITDA to
adjusted EBITDA is provided in the Non-IFRS financial information section.
Free cash flow (pre-tax)
Free cash flow (pre-tax) decreased by $19.4 million, with the increase in
EBITDA and reduction in capital expenditure being more than offset by the
increase in working capital.
The Group invested $58.7 million in capital expenditure to further strengthen
our manufacturing lines and digital technologies.
The increase in adjusted working capital in the period ended 30 June 2023 was
primarily driven by increased inventory levels of $67.8 million and increases
in trade and other receivables of $35.1 million. Increased inventory levels
reflected strategic decisions to build resilience of raw materials across the
Group and the planned stocking of finished goods for expected facility
shutdowns, new contract wins and the launch of ConvaFoam(TM). Increases in
trade and other receivables reflected sales phasing and the timing of
receipts.
Cash conversion was 29.1% (H1 2022: 41.4%) and adjusted cash conversion was
26.8% (H1 2022: 35.5%). Further details are provided in the Non-IFRS financial
information section. The decline in the ratio primarily reflected the
strategic decision to build inventory for resilience, coupled with sales
phasing and timing of receipts from customers.
Free cash to equity
Free cash to equity reduced by $32.1 million. This was driven by a reduction
in free cash flow (pre-tax) of $19.4 million as explained above, higher
finance cost payments of $6.5 million due to a combination of higher market
interest rates and increase in average net debt and a $8.3 million movement in
other, primarily due to net adverse foreign exchange movements on cash and
cash equivalents and borrowings.
Borrowings and net debt
30 June 2023 31 December 2022
$m $m
Borrowings 1,374.0 1,211.9
Lease liabilities 91.1 88.3
Total borrowings including lease liabilities 1,465.1 1,300.2
Cash and cash equivalents (76.5) (143.8)
Total borrowings including lease liabilities, net of cash 1,388.6 1,156.4
Net debt (excluding lease liabilities) 1,297.5 1,068.1
Net debt (excluding lease liabilities)/adjusted EBITDA(1) 2.5 2.1
1. Net debt excludes lease liabilities and adjusted EBITDA for
the twelve months to 30 June 2023 has been used in this calculation.
As at 30 June 2023, the Group's cash and cash equivalents were $76.5 million
(31 December 2022: $143.8 million) and the debt outstanding on borrowings was
$1,374.0 million (31 December 2022: $1,211.9 million).
The Group's banking facilities comprise of a multicurrency revolving credit
facility of $950.0 million and a term loan of $250.0 million, both with
maturity in November 2027. The Group's $500.0 million senior unsecured notes,
issued in October 2021, remain in place with maturity in October 2029.
As at 30 June 2023, $312.0 million of the multicurrency revolving credit
facility remained undrawn (31 December 2022: $472.8 million). This, combined
with cash of $76.5 million (31 December 2022: $143.8 million), provided the
Group with total liquidity of $388.5 million at 30 June 2023 (31 December
2022: $616.6 million). Of this, $20.8 million was held in territories where
there are restrictions related to repatriation (31 December 2022: $19.2
million).
The Group ended the period with total borrowings, including IFRS 16 lease
liabilities, of $1,465.1 million (31 December 2022: $1,300.2 million).
Offsetting cash of $76.5 million (31 December 2022: $143.8 million) and
excluding lease liabilities, net debt was $1,297.5 million (31 December 2022:
$1,068.1 million), equivalent to 2.5x adjusted EBITDA (31 December 2022: 2.1x
adjusted EBITDA), with the increase being driven by strategic investments such
as the acquisition of Starlight, the Triad earn out payment and continued
investment in inventory and capital expenditure.
Covenants
At 30 June 2023, the Group was in compliance with all financial and
non-financial covenants associated with the Group's outstanding debt.
Condensed Consolidated Interim Financial Statements
Condensed Consolidated Income Statement
Six months ended 30 June
2023 2022
Notes $m $m
(unaudited) (unaudited)
Revenue 2 1,055.5 1,044.5
Cost of sales (463.1) (489.6)
Gross profit 592.4 554.9
Selling and distribution expenses (304.7) (287.3)
General and administrative expenses (110.7) (119.1)
Research and development expenses (53.6) (47.2)
Other operating expenses - (14.2)
Operating profit 123.4 87.1
Finance income 2.2 0.7
Finance expense (47.7) (28.9)
Non-operating expense, net (1.9) (12.8)
Profit before income taxes 76.0 46.1
Income tax (expense)/benefit 3 (20.3) 2.2
Net profit for the period 55.7 48.3
Earnings per share
Basic earnings per share (cents per share) 2.7¢ 2.4¢
Diluted earnings per share (cents per share) 2.7¢ 2.4¢
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
2023 2022
Notes $m $m
(unaudited) (unaudited)
Profit for the period 55.7 48.3
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to the Consolidated Income
Statement:
Fair value movements on equity investments (8.7) -
Items that may be reclassified subsequently to the Consolidated Income
Statement:
Foreign currency translation, net of tax 49.6 (110.8)
Effective portion of changes in fair value of cash flow hedges - (7.7)
Costs of hedging - 0.2
Changes in fair value of cash flow hedges reclassified to the Consolidated (1.1) 10.2
Income Statement
Income tax relating to items that may be reclassified (0.1) (0.9)
Other comprehensive income/(expense) 39.7 (109.0)
Total comprehensive income/(expense) 95.4 (60.7)
All amounts are attributable to shareholders of the Group and wholly derived
from continuing operations.
Condensed Consolidated Statement of Financial Position
30 June 2023 31 December 2022
Notes $m $m
(unaudited) (audited)
Assets
Non-current assets
Property, plant and equipment 432.8 400.4
Right-of-use assets 80.2 79.4
Intangible assets and goodwill 2,260.1 2,149.5
Investment in financial assets 22.0 30.7
Deferred tax assets 27.7 26.6
Derivative financial assets 7 0.5 0.2
Restricted cash 6.8 7.3
Other non-current receivables 9.9 8.6
2,840.0 2,702.7
Current assets
Inventories 407.5 336.9
Trade and other receivables 404.0 364.0
Derivative financial assets 7 11.0 26.4
Restricted cash 13.7 18.2
Cash and cash equivalents 76.5 143.8
912.7 889.3
Total assets 3,752.7 3,592.0
Equity and liabilities
Current liabilities
Trade and other payables 342.3 346.6
Lease liabilities 20.6 20.3
Current tax payable 36.7 33.5
Derivative financial liabilities 7 9.6 32.5
Provisions 8 128.3 100.2
537.5 533.1
Non-current liabilities
Borrowings 6 1,374.0 1,211.9
Lease liabilities 70.5 68.0
Deferred tax liabilities 97.9 83.2
Provisions 8 15.7 53.1
Derivative financial liabilities 7 - 0.3
Other non-current liabilities 31.4 32.7
1,589.5 1,449.2
Total liabilities 2,127.0 1,982.3
Net assets 1,625.7 1,609.7
Equity
Share capital 250.9 250.7
Share premium 170.2 165.7
Own shares (0.7) (1.5)
Retained deficit (928.9) (892.2)
Merger reserve 2,098.9 2,098.9
Cumulative translation reserve (127.5) (177.1)
Other reserves 162.8 165.2
Total equity 1,625.7 1,609.7
Total equity and liabilities 3,752.7 3,592.0
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 2023 (audited) 250.7 165.7 (1.5) (892.2) 2,098.9 (177.1) 165.2 1,609.7
Profit for the period - - - 55.7 - - - 55.7
Other comprehensive income/(expense):
Foreign currency translation adjustment, net of tax - - - - - 49.6 - 49.6
Changes in fair value of cash flow hedges, net of tax - - - - - - (1.2) (1.2)
Change in fair value of equity investments - - - - - - (8.7) (8.7)
Other comprehensive income/(expense) - - - - - 49.6 (9.9) 39.7
Total comprehensive income/ (expense) - - - 55.7 - 49.6 (9.9) 95.4
Dividends paid 4 - - - (87.7) - - - (87.7)
Scrip dividend 4 0.2 4.5 - (4.7) - - - -
Share-based payments - - - - - - 7.4 7.4
Share awards vested - - 0.8 - - - 0.1 0.9
At 30 June 2023 (unaudited) 250.9 170.2 (0.7) (928.9) 2,098.9 (127.5) 162.8 1,625.7
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 (expense)/income:
Foreign currency translation adjustment, net of tax - - - - - (110.8) - (110.8)
Changes in fair value of cash flow hedges, net of tax - - - - - - 1.8 1.8
Other comprehensive (expense)/income - - - - - (110.8) 1.8 (109.0)
Total comprehensive (expense)/income - - - 48.3 - (110.8) 1.8 (60.7)
Dividends paid 4 - - - (58.9) - - - (58.9)
Scrip dividend 4 0.9 18.0 - (18.9) - - - -
Allotment 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
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June
2023 2022
Notes $m $m
Cash flows from operating activities (unaudited) (unaudited)
Profit for the period 55.7 48.3
Adjustments for
Depreciation of property, plant and equipment 18.3 20.0
Depreciation of right-of-use assets 11.4 11.0
Amortisation of intangible assets 76.4 75.6
Income tax expense/(benefit) 3 20.3 (2.2)
Non-operating expense, net - 16.2
Finance costs, net 45.5 28.2
Share-based payments 7.5 8.2
Impairment/write-off of intangible assets - 5.6
Impairment/write-off of right-of-use assets 1.9 -
Impairment/write-off of property, plant and equipment 1.9 8.6
Change in assets and liabilities:
Inventories (63.5) (21.6)
Trade and other receivables (35.1) (32.3)
Derivative financial assets 13.9 (6.8)
Other non-current receivables (0.3) 3.3
Restricted cash 5.0 (13.5)
Trade and other payables (5.1) (10.4)
Derivative financial liabilities (22.9) 10.2
Other non-current payables (2.2) 5.1
Net cash generated from operations 128.7 153.5
Interest received 2.2 0.7
Interest paid (30.6) (22.6)
Income taxes paid (16.2) (19.1)
Net cash generated from operating activities 84.1 112.5
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (58.7) (64.1)
Acquisitions, net of cash acquired 5 (56.7) (123.2)
Proceeds from sale of property, plant and equipment and other assets 0.5 -
Payment of contingent consideration arising from acquisitions 5 (94.7) (25.0)
Investment in financial assets - (30.7)
Net cash used in investing activities (209.6) (243.0)
Cash flows from financing activities
Proceeds from borrowings 6 158.7 15.5
Payment of lease liabilities (11.2) (10.4)
Dividends paid 4 (87.7) (58.9)
Net cash generated from/(used in) financing activities 59.8 (53.8)
Net change in cash and cash equivalents (65.7) (184.3)
Cash and cash equivalents at beginning of the period 143.8 463.4
Effect of exchange rate changes on cash and cash equivalents (1.6) (7.5)
Cash and cash equivalents at end of the period 76.5 271.6
1. Basis of preparation and accounting standards
Convatec Group Plc (the "Company") is a public limited 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 2023 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 Group
has prepared the financial statements on the basis that it will continue to
operate as a going concern. The Directors consider that there are no material
uncertainties that may cast significant doubt over this assumption. They have
formed a judgement that there is a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future, and not less than 12 months from the end of the reporting period.
The Condensed Consolidated Interim Financial Statements should be read in
conjunction with the 2022 Convatec Group Plc Annual Report and Accounts, which
were prepared in accordance with the United Kingdom adopted international
accounting standards.
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 2022 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 Condensed Consolidated Interim
Financial Statements 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 2023 were approved by the Board on 1 August 2023.
New standards and interpretations applied for the first time
The accounting policies adopted by the Group in preparation of these Condensed
Consolidated Interim Financial Statements are consistent with those set out in
the 2022 Annual Report and Accounts, except for the adoption of new standards
effective as of 1 January 2023. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective.
On 1 January 2023, the Group adopted the new IFRS 17 Insurance Contracts
standard and the four amendments, Definition of Accounting Estimates -
Amendments to IAS 8, Disclosure of Accounting Policies - Amendments to IAS 1,
IFRS Practice Statement 2, Deferred Tax related to Assets and Liabilities
arising from a Single Transaction - Amendments to IAS 12, and International
Tax Reform - Pillar Two Model Rules - Amendments to IAS 12, and the annual
improvements to the IFRS standards 2018-2020. The adoptions had no material
impact on the Group's 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
In preparing their assessment of going concern, the Directors have considered
available cash resources, financial actual and forecast performance, including
strategy delivery, together with the Group's financial covenant compliance
requirements and principal risks and uncertainties. The Group's liquidity
remained strong as management continues to monitor its liquidity requirements
to ensure there is sufficient cash to meet operational needs and maintain
adequate headroom.
The Board has reviewed the downside scenarios as disclosed in the 2022 Annual
Report and Accounts and has concluded that these scenarios remain aligned to
the Group's principal risks and continue to adequately 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.
The Board has carried out reverse stress test against the forecast base case
to determine the performance levels that would result in a breach of covenants
and considered a breach to be implausible given the Group's strong global
market position and diversified portfolio of products and the mitigations
available to the Board and management, which include minimising capital
expenditure to critical requirements and reducing levels of discretionary
spend.
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 1
August 2023.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Condensed Consolidated Interim Financial Statements
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 2022.
Valuation of the contingent consideration in relation to the acquisition of
Triad
The valuation of the contingent consideration in relation to the acquisition
of Triad in 2022 has been identified as a key estimate. The contingent
consideration is based on both specified post-acquisition financial and
non-financial performance targets as defined by the purchase agreement.
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.
The contingent consideration is fair valued at each reporting period 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 determined
that the potential range of discounted outcomes within the next financial year
is between nil and $153.8 million, from a maximum undiscounted contingent
consideration of $180.3 million. The estimated discounted fair value of the
remaining contingent consideration payable as at 30 June 2023 was $47.5
million.
The timing and amount of future contingent elements of consideration is
therefore considered a key source of estimation uncertainty. Refer to Note 5 -
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.
During the period to 30 June 2023, management reassessed its Chief Operating
Decision Maker (CODM) and determined that the Chief Executive Officer is no
longer the Group's CODM and that Convatec's Executive Leadership Team (CELT)
is the function that allocates resources and 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 CELT 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. The change
in CODM does not impact the Group's single segment assessment.
Revenue by category
The following table sets out the Group's revenue by category:
Six months ended 30 June
2023 2022(1)
$m $m
Advanced Wound Care 338.5 306.7
Ostomy Care 300.0 298.0
Continence Care 220.7 205.7
Infusion Care 186.3 173.8
Revenue excluding hospital care exit 1,045.5 984.2
Revenue from hospital care exit 10.0 60.3
Total 1,055.5 1,044.5
1. Following the exit of hospital care in 2022, effective from 1
January 2023, Flexi-Seal(TM), our faecal management system, moved from
Continence & Critical Care to Ostomy Care. The remaining industrial sales,
predominantly continence-related supplies for B2B customers moved from
Infusion Care to Continence Care. Continence & Critical Care has been
renamed to Continence Care. The H1 2022 comparatives have been re-presented to
reflect these changes and to separately disclose revenue associated with the
hospital care exit.
Revenue by geography
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
2023 2022
$m $m
North America 572.5 527.0
Europe 327.8 363.7
Rest of World ("RoW") 155.2 153.8
Total 1,055.5 1,044.5
3. 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 2023 has been calculated by
applying the effective rate of tax which is expected to apply to the Group for
the year ending 31 December 2023 using rates substantively enacted as at 30
June 2023.
For the six months ended 30 June 2023, the Group recorded an income tax
expense of $20.3 million (30 June 2022: $2.2 million benefit). The Group's
reported effective tax rate for the period ended 30 June 2023 was an expense
of 26.7% as compared with a benefit of 4.8% for the period ended 30 June 2022.
The current year tax expense includes the effect of non-deductible
acquisition-related costs. The prior year benefit included a net tax benefit
in respect of previously unrecognised tax losses in the US, which was
partially offset by the tax expense on the utilisation of US Federal tax
losses that were fully recognised as a deferred tax asset following the
acquisition of Triad.
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's assessment
of the potential tax impact to the Group based on OECD model rules and draft
legislations available in jurisdictions which the Group operates in, remains
unchanged to the position as at 31 December 2022 (Refer to Note 6.2 within the
2022 Annual Report and Accounts). Since then, the UK has substantively enacted
the legislation to implement the Pillar 2 rules as from 1 January 2024. The
Group will reassess the tax impact once new legislation becomes available in
other jurisdictions which the Group operates in, particularly those expected
in the next six months. This has no impact on the Group's result for the six
months ended 30 June 2023. The Group has applied the temporary exception as
detailed in the IASB announcement "International Tax Reform-Pillar Two Model
Rules", which amended IAS 12 Income Taxes, and therefore has not recognised
nor disclosed information about deferred tax assets and liabilities related to
Pillar 2 income taxes.
4. Dividends
The Board 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:
- The underlying performance of the business;
- The Board's confidence in the Group's future growth prospects;
- 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 2022 final dividend in May 2023. In declaring the 2023
interim dividend, 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 of 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 2021 3.161 4.154 77.8 58.9 18.9 7,192,010
Interim dividend 2022 1.410 1.717 34.8 29.2 5.6 2,107,103
Paid in 2022 4.571 5.871 112.6 88.1 24.5 9,299,113
Final dividend 2022 3.657 4.330 92.4 87.7 4.7 1,717,549
Paid in 2023 to date 3.657 4.330 92.4 87.7 4.7 1,717,549
Interim dividend 2023 proposed 1.380 1.769 36.2
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 2023, to be distributed on 28 September 2023
to shareholders registered at the close of business on 18 August 2023 is based
upon the issued and fully paid share capital as at 30 June 2023. The dividend
will be declared in US dollars and will be paid in Sterling at the chosen
exchange rate of $1.282/£1.00 determined on 1 August 2023. A scrip dividend
alternative will be offered allowing shareholders to elect by 7 September 2023
to receive their dividend in the form of new ordinary shares.
5. Acquisitions
Starlight Science Limited (Starlight)
Description of the transaction
On 18 April 2023, the Group completed its acquisition of 100% of the share
capital of Starlight Science Limited (Starlight), a UK-based company that was
owned by 30 Technology Limited. The business acquisition of Starlight included
the anti-infective nitric-oxide technology platform and new product pipeline,
which complements the Group's Advanced Wound Care portfolio and strengthens
the Group's ability to provide best-in-class solutions for patients.
The total undiscounted maximum consideration is $220.6 million (£176.3
million). In addition to the initial consideration of $56.7 million (£45.3
million), the sellers may earn contingent consideration up to a maximum of
$163.9 million (£131.0 million), in the form of (i) milestone payment of
$58.8 million (£47.0 million) due upon regulatory clearances in the US and
Europe; and (ii) earnout payments based on sales of products over the lifetime
of the acquired patents, with the maximum earnout capped at $105.1 million
(£84.0 million).
The discounted fair value of the contingent consideration at the date of
acquisition was $66.3 million. Following completion of acquisition accounting,
any changes in the fair value of the contingent consideration will be recorded
in the Condensed 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 0.4
Right-of-use assets 1.3
Intangible assets - product related 113.3
Current assets
Trade and other receivables 0.1
Total assets acquired 115.1
Current liabilities
Trade and other payables (0.1)
Lease liabilities (0.2)
Non-current liabilities
Lease liabilities (1.1)
Deferred tax liabilities (12.5)
Total liabilities assumed (13.9)
Net assets acquired 101.2
Goodwill 21.8
Total 123.0
Initial cash consideration 56.7
Contingent consideration 66.3
Total consideration 123.0
Analysis of cash outflow in the Condensed Consolidated Statement of Cash Flows $m
Initial cash consideration 56.7
Net cash outflow from acquisitions, net of cash acquired 56.7
The fair values of the assets acquired and liabilities assumed remain
provisional as at 30 June 2023 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 partially deductible for tax purposes,
represents the cost savings, operating synergies and future growth
opportunities expected to result from combining the operations of Starlight
with those of the Group. The Starlight acquisition is included in the Advanced
Wound Care CGU group.
The carrying value of the Group's goodwill increased to $1,271.6 million at 30
June 2023 (31 December 2022: $1,224.6 million) as a result of the acquisition
of Starlight ($21.8 million) and foreign exchange movements ($25.2 million).
Acquisition-related costs
The Group incurred $5.0 million of acquisition-related costs directly related
to the Starlight acquisition in the period to 30 June 2023, primarily related
to advisors' fees. These acquisition-related costs have been recognised in
general and administrative expenses in the Condensed Consolidated Income
Statement.
Revenue and profit
As Starlight is in a pre-commercial state, there is no revenue to date. The
loss for the period from the acquisition date to 30 June 2023 was $0.5
million, before recognising acquisition-related intangible asset amortisation
charge of $1.9 million. If the acquisition had been completed at 1 January
2023, reported Group revenue would not have changed and the Group profit for
the period would have been $0.6 million lower for the six month period to 30
June 2023, before recognising acquisition-related intangible asset
amortisation additional charge of $1.9 million.
Triad Life Sciences
On 14 March 2022, the Group completed its acquisition of 100% of the share
capital of Triad Life Sciences.
Fair value of contingent consideration at reporting date
The discounted fair value of the remaining contingent consideration at 30 June
2023 was $47.5 million (31 December 2022: $130.8 million). During the period,
$94.7 million was paid in respect of the Year 1 Earn out, as calculated in
accordance with the terms of the Merger Agreement.
Management reviewed the fair value of the remaining contingent consideration,
based on the most recent Board approved strategic plan and forecast
information. Consequently, the discounted fair value of the remaining
contingent consideration in respect of the Year 2 Earn out was increased to
$47.5 million, with a remeasurement charge of $2.1 million being recognised in
non-operating expenses in the Condensed Consolidated Income Statement.
The amount of discount unwind recognised in the Condensed Consolidated Income
Statement during the period was $3.5 million and shown within finance
expenses. Refer to Note 8 - Provisions for the movement in the contingent
consideration during the period.
This is due to be paid within three years of the acquisition date, subject to
achieving the specified targets. Any changes in fair value at each reporting
date will be recorded in the Consolidated Income Statement in accordance with
the Group's accounting policy. Management have determined that the potential
range of discounted outcomes is between $nil and $153.8 million, from a
maximum undiscounted contingent consideration of $180.3 million.
Fair value inventory uplift
As part of the initial acquisition accounting, a $10.2 million fair value
uplift was applied to the carrying value of inventory held at the acquisition
date, of which $8.7 million was expensed in the year ended 31 December 2022.
The fair value adjustment related to work-in-progress and finished goods and
was calculated as the estimated selling price less costs to complete and sell
the inventory, associated margins on these activities, and holding costs.
During the period ended 30 June 2023, the remaining $1.5 million was expensed
to cost of goods sold in the Condensed Consolidated Income Statement.
Cure Medical
On 15 March 2021, the Group acquired 100% of the share capital of Cure
Medical.
Fair value of contingent consideration at reporting dates
As at 31 December 2022, the Group had provided for the maximum contingent
consideration of $10.0 million, which was discounted to $9.2 million.
Management have reviewed the expectation of the contingent consideration based
on the most recent Board-approved strategic plan and forecast information and
the forecast financial performance is expected to exceed original
expectations.
The discounted fair value of the contingent consideration as at 30 June 2023
was $9.5 million. The amount of discount unwind recognised within finance
expenses in the Condensed Consolidated Income Statement during the period was
$0.3 million.
6. Borrowings
The Group's sources of borrowing for funding and liquidity purposes derive
from senior notes and credit facilities, including a committee revolving
credit facility.
The Group's consolidated borrowings were as follows:
30 June 2023 31 December 2022
Year of maturity Face value Face value
Currency $m $m
Revolving Credit Facility(1) Multicurrency 2027 638.0 477.2
Term Loan USD 2027 250.0 250.0
Senior Notes USD 2029 500.0 500.0
Interest-bearing borrowings 1,388.0 1,227.2
Financing fees(2) (14.0) (15.3)
Carrying value of borrowings 1,374.0 1,211.9
Current portion of borrowings - -
Non-current portion of borrowings 1,374.0 1,211.9
1. Included within the Revolving Credit Facility as at 30 June 2023
was €105.0 million ($114.5 million), representing 18% of RCF debt
denominated in Euros and 82% denominated in US dollars. As at 31 December
2022, this was €145.0 million ($155.2million), representing 32.5% of RCF
debt denominated in Euros and 67.5% denominated in US dollars.
2. Financing fees of $14.0 million (31 December 2022: $15.3 million)
related to the remaining unamortised fees incurred on the credit facilities
and senior notes.
Credit facilities
The Group's credit facility for $1.2 billion comprises of a $250.0 million
term loan and a $950.0 million multicurrency revolving credit facility, both
committed for a five-year term. As at 30 June 2023, the term loan was fully
drawn and $638.0 million of the revolving credit facility was drawn, with
$312.0 million undrawn.
The principal financial covenants are based on a permitted net debt to
covenant-adjusted EBITDA(1) 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 2023, the permitted net debt to covenant-adjusted EBITDA(1) ratio was a
maximum of 3.50 times and the interest cover a minimum of 3.50 times, terms as
defined by the credit facilities agreement. In accordance with the credit
facilities agreement, the net debt to covenant-adjusted EBITDA(1) ratio can
increase to a maximum 4.00 times for permitted acquisitions or investments.
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.
Financial covenants
The Group was in compliance with all financial and non-financial covenants at
30 June 2023, with significant available headroom on the financial covenants
(in excess of $380.0 million debt headroom on the net debt to
covenant-adjusted EBITDA(1)).
Borrowings measured at fair value
The senior notes are listed and their fair value at 30 June 2023 of $437.6
million (31 December 2022: $430.8 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 fair value is based on discounted cash flows using a current
borrowing rate and is categorised as a Level 2 measurement. As at 30 June
2023, the estimated fair value of the Group's other borrowings was $926.9
million (31 December 2022: $762.4 million).
(1. ) Covenant-adjusted EBITDA is calculated based on terms as
defined in the credit facilities agreement. This is different to adjusted
EBITDA, which is an alternative performance measure (APM).
7. 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 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 committed
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 6 - Borrowings). The Group's
derivative financial instruments, discussed below, are classified as Level 2,
and the Group's equity investment in preference shares, together with
contingent consideration arising on business combinations (Note 5 -
Acquisitions), are classified as Level 3.
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, Pound sterling, Danish krone 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.
Cash flow hedges
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 2023 and 31 December 2022
respectively:
30 June 2023 31 December 2022
Effective date Maturity date Notional amount Fair value(1) Notional amount Fair value(1)
assets / (liabilities) assets / (liabilities)
$m $m $m $m
3 Month LIBOR Float 24 Jan 2020 24 Jan 2023 - - 275.0 2.0
to Fixed Interest Rate Swap
6 Month term SOFR Float 23 Jan 2023 23 Jan 2024 90.0 0.4 90.0 0.2
to Fixed Interest Rate Swap
6 Month term SOFR Float 23 Jan 2023 23 July 2024 40.0 0.3 40.0 -
to Fixed Interest Rate Swap
6 Month term SOFR Float 23 Jan 2023 23 Jan 2025 50.0 0.2 50.0 (0.3)
to Fixed Interest Rate Swap
Disclosed as:
Non-current derivative financial asset 0.5 0.2
Current derivative financial asset 0.4 2.0
Non-current derivative financial liability - (0.3)
Current derivative financial liability - -
1. 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.
Foreign exchange forward contracts
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 2023 31 December 2022
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 571.2 7.9 996.6 21.3
Foreign currency forward exchange contracts designated as cash flow hedges ≤ 12 months 119.7 2.7 72.7 3.1
Derivative financial assets 690.9 10.6 1,069.3 24.4
Foreign exchange contracts designated as FVTPL ≤ 3 months 468.7 (7.9) 703.7 (30.2)
Foreign currency forward exchange contracts designated as cash flow hedges ≤ 12 months 76.7 (1.7) 132.8 (2.3)
Derivative financial liabilities 545.4 (9.6) 836.5 (32.5)
8. 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, dilapidations, legal liabilities and contingent
consideration relating to acquisitions.
The movements in provisions are as follows:
Dilapidations Restructuring Legal Contingent consideration Total
$m $m $m $m $m
1 January 2023 2.8 10.3 0.2 140.0 153.3
Contingent consideration from acquisitions - - - 66.3 66.3
Charged/(released) to the income statement 0.6 8.3 0.1 2.1 11.1
Utilised (1.2) (3.6) - (94.7) (99.5)
Discount unwind - - - 11.6 11.6
Foreign exchange - 0.2 - 1.0 1.2
30 June 2023 2.2 15.2 0.3 126.3 144.0
Current provision - 15.2 - 113.1 128.3
Non-current provision(1) 2.2 - 0.3 13.2 15.7
1. The expected timings of the payment of contingence considerations
are disclosed in Note 5 - Acquisitions. The timing for other non-current
provisions is undefined.
Dilapidation provisions
Dilapidation provisions are in respect of contractual 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 related mainly to the exit from low-margin hospital
care and industrial sales activities announced in 2022, the move and
integration of the EuroTec facility in Netherlands to our Slovakia plant as
part of the transformation journey, and the facilities optimisation programme.
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 $0.3 million is in respect of ongoing cases. 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 is fair valued on
acquisition and at each reporting period.
As a result of the acquisition of Starlight on 18 April 2023, the sellers may
earn contingent consideration as described in Note 5 - Acquisitions. The
discounted fair value of the contingent consideration at the date of
acquisition was $66.3 million. During the period to 30 June 2023, $2.0 million
of discount unwind was recognised in the Condensed Consolidated Income
Statement.
As at 30 June 2023, the discounted fair value of the contingent consideration
payable in respect of the Triad Life Sciences acquisition was $47.5 million,
with an increase of $2.1 million arising from management's view that the
latest available financials are expected to exceed original expectations and
the unwind of discount of $9.3 million during the period, partly offset by the
payments of $94.7 million to the sellers following completion of the first
earnout period.
As at 30 June 2023, the discounted fair value of the contingent consideration
payable in respect of the Cure Medical acquisition was $9.5 million, and it
remained at the maximum amount payable based on latest available financials.
During the period to 30 June 2023, $0.3 million of discount unwind was
recognised in the Condensed Consolidated Income Statement. Refer to Note 5 -
Acquisitions for further details.
9. 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 2023 2022 2022
USD/EUR Average 1.08 1.09 1.05
Closing 1.09 1.05 1.07
USD/GBP Average 1.23 1.30 1.24
Closing 1.27 1.22 1.20
USD/DKK Average 0.15 0.15 0.14
Closing 0.15 0.14 0.14
10. Commitments and contingencies
Capital commitments
At 30 June 2023, the Group had non-cancellable commitments for the purchase of
property, plant and equipment, capitalised software and development of $21.7
million (31 December 2022: $39.3 million).
Contingent liabilities
There are no contingent liabilities recognised as at 30 June 2023 and 31
December 2022.
11. Subsequent events
The Group has evaluated subsequent events through to 1 August 2023, the date
the Condensed Consolidated Interim Financial Statements were approved by the
Board of Directors.
On 5 July 2023, the Group completed the acquisition of 100% of share capital
of A Better Choice Medical Supply LLC, a US-based intermittent catheter
provider, for upfront cash consideration of $26.5 million. Further disclosures
have not been provided as the initial accounting for the business combination
was incomplete due to the proximity of acquisition date to the date the
Condensed Consolidated Interim Financial Statements were authorised for issue.
On 1 August 2023, the Board declared an interim dividend to be distributed on
28 September 2023. Refer to Note 4 - 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.
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.
Adjustments to derive adjusted operating profit, excluding the impact of tax,
for the six months ended 30 June 2023 and 2022 include following costs:
· Amortisation of intangible assets in respect of material
acquisitions ($67.0 million and $67.4 million respectively).
· Costs incurred in respect of acquisition activities ($21.4
million and $21.2 million respectively).
· Costs incurred in respect of divestiture activities in respect of
the exit from hospital care business and related industrial sales activities
($2.2 million and $31.5 million respectively).
· Termination benefits in respect of the Group's restructuring
programme and exit from hospital care and related industrial sales activities
($3.5 million and $6.7 million respectively).
· Other adjusting items ($10.3 million and nil respectively).
· Impairment of assets (nil and $1.4 million 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 EBIT, 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 acquisitions 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.
Acquisition-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 including discounting impact 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.
Adjusted measures in relation to acquisitions also include aborted deal costs.
Divestiture-related activities
Divesture-related activities comprise of the gains or losses resulting from
disposal of assets or divestment of business as a result of a sale, major
business change or restructuring programme. These include write-down of
non-current assets, provisions to recognise inventories at realisable value,
provisions for costs of exiting contracts and associated legal fees, and any
other directly attributable costs. Any income from the ultimate disposal of a
business or subsidiary is included in the gain or loss. Adjusted measures in
relation to divestiture also include aborted deal costs.
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.
Other adjusting items
Other adjusting items costs relate to initiatives which are part of the
Group's strategy to improve productivity in the business and optimise cash
outflow. The Board considers each project individually to determine whether
its size and nature warrants separate disclosure. Qualifying items are limited
to directly attributable costs of the initiatives and any realignment costs.
Due to the nature of the initiatives, these adjusted costs may span more than
one year.
Reconciliation of reported earnings to adjusted earnings for the six months
ended 30 June 2023 and 2022
Revenue Gross profit Operating costs Operating profit Finance expense Non-operating expense PBT Taxation Profit for the period
Six months ended $m $m $m $m $m $m $m $m $m
30 June 2023
As reported 1,055.5 592.4 (469.0) 123.4 (45.5) (1.9) 76.0 (20.3) 55.7
Amortisation of acquired intangibles - 56.1 10.9 67.0 - - 67.0 (16.0) 51.0
Acquisition-related costs - 1.5 6.2 7.7 11.6 2.1 21.4 (1.2) 20.2
Divestiture-related costs - 2.7 (0.5) 2.2 - - 2.2 (0.5) 1.7
Termination benefits - 2.2 1.3 3.5 - - 3.5 (0.9) 2.6
and related costs
Other adjusting items - 2.5 7.8 10.3 - - 10.3 (2.6) 7.7
Total adjustments including - 65.0 25.7 90.7 11.6 2.1 104.4 (21.2) 83.2
tax effect
Adjusted 1,055.5 657.4 (443.3) 214.1 (33.9) 0.2 180.4 (41.5) 138.9
Software and R&D amortisation 9.4
Impairment/write-off of assets 0.8
Depreciation 29.7
Share-based payments 7.5
Adjusted EBITDA 261.5
Revenue Gross profit Operating costs Operating profit Finance expense Non-operating expense PBT Taxation Profit for the period
Six months ended $m $m $m $m $m $m $m $m $m
30 June 2022
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 - 4.7 2.0 6.7 - - 6.7 (1.6) 5.1
other related costs
Total adjustments and - 73.2 44.0 117.2 5.2 5.8 128.2 (25.7) 102.5
their tax effect
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
Within the amortisation of acquired intangibles for the six months period to
30 June 2023 of $67.0 million, $46.4 million related to intangible assets
arising from the spin-out from Bristol-Myers Squibb in 2008. The carrying
amount of these intangible assets at 30 June 2023 was $289.5 million, and will
be fully amortised by 31 December 2026.
Acquisition-related costs of $21.4 million are mainly related to actual
strategic transactions which have been executed and which seek to improve the
strategic positioning of the Group, and $0.4 million of aborted deal costs.
Deal and integration costs of $5.0 million were incurred during the period on
the acquisition of Starlight in April 2023. Also included in
acquisition-related costs are $2.1 million of remeasurement charge on
contingent consideration, $11.6 million of discounting unwind and $1.5 million
release of inventory fair value uplift in respect of the Triad acquisition.
The net cash impact in relation to acquisition-related costs was $5.1 million
in the period.
Divestiture-related costs of $2.2 million are directly related to the phased
exit from the low margin hospital care business and industrial sales portfolio
and included the write-off of inventories. The majority of the costs of the
exit were incurred in 2022, with minimal costs in 2023. The net cash impact in
relation to this was $0.2 million in the period.
Termination benefits and other related costs of $3.5 million are primarily in
respect of the severance costs from the Group's restructuring activities. The
net cash impact of these costs was $1.1 million in the period.
Other adjusting items of $10.3 million are in relation to the Group's
initiatives to improve productivity in the business and optimise cash outflow,
including the move and integration of the EuroTec facility in Netherlands to
our Slovakia plant and the facilities optimisation programme. The net cash
impact of these costs was $0.3 million in the period.
There are no discrete tax items during the period. In the six months to 30
June 2022, other discrete tax items relate to the tax benefit of $19.7 million
resulting from recognition of deferred tax following the acquisition of Triad.
Reconciliation of operating costs to adjusted operating costs for the six
months ended 30 June 2023 and 2022
Six months ended 30 June
2023 2022
S&D(1) G&A(2) R&D(3) Operating costs S&D(1) G&A(2) R&D(3) Other(4) Operating costs
$m $m $m $m $m $m $m $m $m
As reported (304.7) (110.7) (53.6) (469.0) (287.3) (119.1) (47.2) (14.2) (467.8)
Amortisation of acquired intangibles - 9.0 1.9 10.9 - 10.5 - - 10.5
Acquisition-related costs - 6.3 - 6.3 - 6.2 - - 6.2
Divestiture-related costs (0.5) - - (0.5) 10.7 0.4 - 12.8 23.9
Impairment of assets - - - - - - - 1.4 1.4
Termination benefits and related costs - 1.2 0.1 1.3 1.7 0.3 - - 2.0
Other adjusting items - 7.7 - 7.7 - - - - -
Adjusted (305.2) (86.5) (51.6) (443.3) (274.9) (101.7) (47.2) - (423.8)
1. "S&D" represents selling and
distribution expenses.
2. "G&A" represents general and
administrative expenses.
3. "R&D" represents research and
development expenses.
4. "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 2023 and 2022
Six months ended 30 June
2023 Adjusted 2023 2022 Adjusted 2022
$m $m $m $m
Net profit for the period attributable to the shareholders of the Group 55.7 138.9 48.3 131.1
Number Number
Basic weighted average ordinary shares in issue 2,036,308,534 2,018,377,510
Diluted weighted average ordinary shares in issue 2,049,996,858 2,031,279,646
cents per share cents per share cents per share cents per share
Basic earnings per share 2.7 6.8 2.4 6.5
Diluted earnings per share 2.7 6.8 2.4 6.5
Free cash flow (pre-tax), free cash to capital and free cash to equity
measures for the six months ended 30 June 2023 and 30 June 2022
Six months ended 30 June
2023 2022
$m $m
Operating profit 123.4 87.1
Depreciation of property, plant and equipment 18.3 20.0
Depreciation of right-of-use assets 11.4 11.0
Amortisation of intangible assets 76.4 75.6
Impairment/write-off of property, plant and equipment and intangible assets 3.8 14.2
Share-based payments 7.5 8.2
EBITDA(1) 240.8 216.1
Non-cash items
Working capital movement (110.2) (66.0)
(Loss)/gain on foreign exchange derivatives (1.9) 3.4
Net cash generated from operations 128.7 153.5
Acquisitions of property, plant and equipment and intangible assets (58.7) (64.1)
Free cash flow (pre-tax) 70.0 89.4
Tax paid (16.2) (19.1)
Free cash to capital 53.8 70.3
Net interest paid (28.4) (21.9)
Payment of lease liabilities (11.2) (10.4)
Financing fee amortisation (1.4) (2.0)
Foreign exchange impact on cash (1.6) (7.5)
Foreign exchange impact on borrowings (2.0) 13.3
Proceeds on sale of property, plant and equipment 0.5 -
Free cash to equity 9.7 41.8
1. During the period, EBITDA was
redefined to exclude share-based payment charges (non-cash item) of $7.5
million (H1 2022: $8.2 million) and bring it in line with adjusted EBITDA.
Consequently, the prior period comparative has been restated by $8.2 million.
Reconciliation of Adjusted EBITDA, Adjusted working capital movement and
Adjusting items cash movement (to calculate Adjusted cash conversion)
Six months ended 30 June
2023 2022
$m $m
EBITDA(1) 240.8 216.1
Acquisition & divestiture related activities 9.9 28.9
Termination benefits and other related costs 3.5 6.7
Other adjusting items 7.3 -
Adjusted EBITDA 261.5 251.7
Working capital movement (110.2) (66.0)
Increase in termination benefits (2.4) (0.7)
Increase in respect of acquisitions & divestitures (4.6) (25.7)
Increase in respect of other adjusting items (7.0) -
Adjusted working capital movement (124.2) (92.4)
Adjusting items cash movement:
Acquisition & divestitures adjustments (5.3) (2.6)
Termination benefits and related costs adjustments (1.1) (6.6)
Other adjusting items (0.3) -
Total adjusting items(2) (6.7) (9.2)
(Loss)/gain on foreign exchange derivatives (1.9) 3.4
Acquisitions of property, plant and equipment and intangible assets (58.7) (64.1)
Free cash flow (pre-tax) 70.0 89.4
Cash conversion (Free cash flow (pre-tax)/EBITDA) 29.1% 41.4%
Adjusted cash conversion (Free cash flow (pre-tax)/Adjusted EBITDA) 26.8% 35.5%
1. During the period, EBITDA was
redefined to exclude share-based payment charges (non-cash item) of $7.5
million (H1 2022: $8.2 million) and bring it in line with adjusted EBITDA.
2. These are the cash flow impacts to
the adjusted items shown in the reconciliation of earnings to adjusted
earnings tables on page 35.
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 31 December 2022
2023
$m $m
Borrowings 1,374.0 1,211.9
Lease liabilities 91.1 88.3
Total borrowings including lease liabilities 1,465.1 1,300.2
Cash and cash equivalents (76.5) (143.8)
Total borrowings including lease liabilities, net of cash 1,388.6 1,156.4
Net debt (excluding lease liabilities) 1,297.5 1,068.1
Net debt (excluding lease liabilities)/adjusted EBITDA(1) 2.5 2.1
1. Adjusted EBITDA for the 12 months to
30 June 2023 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 not
changed since reported in the 2022 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 1
August 2023
Jonny
Mason
Chief Financial Officer
1 August 2023 INDEPENDENT REVIEW REPORT TO CONVATEC GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 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 11.
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 2023, 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 (ISRE (UK) 2410). 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 are
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
ISRE (UK) 2410; 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 company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion 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 ISRE (UK) 2410.
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
1 August 2023
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