REG - Convatec Group PLC - Interim Results
30/07/2024 07:00
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RNS Number : 2911Y Convatec Group PLC 30 July 2024
30 July 2024
Interim Results for the six months ended 30 June 2024
Strong broad-based revenue growth and further strategic progress
Confirming full year and medium-term guidance
Strong broad-based organic revenue growth of 6.6%(1):
· AWC(2): 6.7%(1) with very good growth in Aquacel Ag+ Extra(TM) and
InnovaMatrix(®), continued challenges in China
· OC(2): 4.9%(1) with good growth in Convatec products driven by
double-digit growth in soft convex portfolio
· CC(2): 8.2%(1) with strong volume growth and price increases in the
USA supported by international growth
· IC(2): 7.3%(1) with ongoing strong demand for our innovative infusion
sets as we diversify our customer base
· Reported revenue growth was 5.5% and constant currency(3) revenue
growth was 5.9%
Further strategic progress
· Innovation pipeline is delivering with new launches starting to grow
segment shares:
o InnovaMatrix(®) grew strongly and recent Real-World Evidence demonstrates
efficacy of the product
o ConvaFoam(TM) continued to win more than 50% of customer product
evaluations in the USA
o Esteem Body(TM) launch is progressing well with a significant step up in
new patient starts
o GentleCath(TM) Air for Women, which launched in France, is growing share
in the female compact segment
o Strong demand for Extended Wear Infusion sets for Medtronic's 780G pump
and our other innovative infusion sets for Tandem's Mobi pump, Beta Bionic's
iLet pump, Ypsomed's YpsoPump and AbbVie's Produodopa Parkinson's therapy in
Japan and Europe
· Simplification and Productivity is progressing well:
o Operations automation, plant network optimisation and continuous
improvement projects added 50bps to adjusted operating margin
o G&A expenses reduced to 7.5% of sales (H1'23: 8.2%), due to expanded
scope of Global Business Services and further standardisation of processes
Improving profitability and cash
· Adjusted operating profit was $222.8m (H1'23: $214.1m) up 8.2% on a
constant currency basis. Reported operating profit was $149.2m (H1'23:
$123.4m)
· Adjusted operating margin was 20.0% (H1'23: 20.3%) and 20.7% on a
constant currency basis. Price, mix and cost efficiencies more than offset
inflation
· Free cash flow to equity was $57m (H1'23: $10m), up $47m, following
improvements in working capital efficiency and capex investments to drive
growth
Confirming 2024 and medium-term guidance
· 2024: organic revenue growth of 5-7%, now expected to be in the upper
half of the range, adjusted operating profit margin of at least 21.0% on
constant currency basis and double-digit growth in adjusted EPS and free cash
flow to equity
· Medium-term: expect 5-7% organic revenue growth p.a., margin
expansion to mid-20s in 2026 or 2027 and to achieve double-digit compound
annual growth in adjusted EPS and free cash flow to equity
Karim Bitar, Chief Executive Officer, commented:
"The Group's performance during the first half demonstrated the improving
strength of our business - showing broad-based growth across all four
categories. Our pipeline of innovative new products is beginning to deliver
growth in segment share and we made further progress improving our
profitability. We are pleased with this performance and are confident of
delivering another year of strong revenue growth and further progress on
profit and cashflow.
"We are focused on further strengthening the business as we continue to
execute our FISBE 2.0 strategy. We remain confident of delivering our
medium-term targets of 5-7% organic revenue growth p.a., expansion of the
operating margin to the mid-20s in 2026 or 2027 and double-digit compound
annual growth in adjusted EPS and free cash flow to equity."
Key financial highlights
Reported results Adjusted(3) results
H1 2024 H1 2023 Change H1 2024 H1 2023 Change CC Change(3)
Revenue $1113m $1055m 5.5% $1113m $1055m 5.5% 5.9%
Operating profit $149.2m $123.4 20.9% $222.8m $214.1m 4.1% 8.2%
Operating profit margin 13.4% 11.7% 170bps 20.0% 20.3% (30)bps 40bps
Diluted earnings per share 3.8 cents 2.7 cents 40.7% 6.8 cents 6.8 cents (0.2)% 4.5%
Dividend per share 1.822 1.769 3.0%
· Adjusted(3) diluted EPS 6.8 cents was broadly flat, up 4.5% on a
constant currency basis, with operating profit growth offset by the higher
adjusted net finance expenses. Reported diluted EPS rose 40.7% to 3.8 cents.
· Net debt(3) of $1,234 million, leverage was 2.3x net debt(3)/adjusted
EBITDA(3) (H1'23: 2.5x and FY'23: 2.1x)
· Interim dividend of 1.822 cents declared - a 3% increase (H1'23:
1.769 cents)
Update on InnovaMatrix
InnovaMatrix is our innovative and proprietary mammalian placental extra
cellular matrix for the treatment of chronic, surgical and trauma wounds.
InnovaMatrix saw strong double-digit growth during the first half and
accounted for 4% of Group revenue.
InnovaMatrix has a strong scientific and clinical profile therefore we expect
to achieve broad reimbursement coverage with both Medicare and private payors
in the future. This is based on positive feedback from many of the c.2000
physicians and nurses using the product and the strong clinical performance
demonstrated in the recent Real-World Evidence (RWE) study (see page 4).
As highlighted at the trading update in May, the Medicare Administrative
Contractors published a draft Local Coverage Determination (LCD) proposal,
which is currently under consideration following a consultation period.
The outcome is uncertain but as currently drafted it could, for a period of
time, lead to a curtailment of Medicare coverage of InnovaMatrix for diabetic
foot ulcers (DFU) and venous leg ulcers (VLU). Year to date we have seen no
impact from the publication and there is a reasonable probability that the
draft LCD proposal will be modified and/or delayed.
In H1'24, approximately 20% of InnovaMatrix's revenue was in indications or
points of care not impacted by the draft LCD proposal. In H2'24 we will grow
sales further in these other indications, we will start launching InnovaMatrix
outside of the USA, and we have recently initiated randomised control trials
(RCTs) in VLU and DFU.
We remain confident of the quality, safety and efficacy of InnovaMatrix, the
positive impact on the lives of patients and the strong contribution it will
make to Convatec's growth going forward.
(1) Organic growth presents period over period growth at constant currency,
adjusted for the acquisitions in Continence Care in 2023 and residual revenue
following the exit of hospital care and related industrial sales
(2) AWC is Advanced Wound Care; OC is Ostomy Care; CC is Continence Care and
IC is Infusion Care
(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 14 to 18)
(4) Biologics segment as defined and calculated by SmartTRAK
Contacts
Analysts & Investors Sheebani Chothani, Director, Investor Relations +44 (0)7805 011046
ir@convatec.com (mailto:ir@convatec.com)
Media Buchanan: Charles Ryland / Chris Lane +44 (0)207 466 5000
mediarelations@convatec.com
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://www.investis-live.com/convatec/66798842f95b7a0d002f1fe4/ebeewit) .
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. Convatec revenue in 2023
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 2024
Further progress executing on our FISBE (Focus, Innovate, Simplify, Build,
Execute) 2.0 strategy
We are focused on growing our customer base and loyalty across our four
chronic care categories. By leveraging customer insights we are executing
better and increasing our segment shares. We are building a strong technology
stack to deliver seamless integration between our digital channels (e.g.
websites, apps, social media), our customer interaction centres (e.g. Me+) and
our sales teams. This will enable us to further improve customer engagement
and loyalty whilst growing sales.
Our innovation capability is beginning to deliver and we are currently
launching eight new products. The market reaction to these new launches is
encouraging (see category reviews on page 4) and we intend to launch these
products in more key FISBE markets during H2'24. Furthermore, seven
additional new products are progressing well for launch in 2025 and 2026.
Our simplification and productivity initiatives are progressing well as we
continued to expand our operating margin, on a constant currency basis. We
made strong progress in Operations, optimising our plant network as we
completed the closure of the EuroTec facility and transferred production to
our larger more efficient Slovakia site. We are executing on numerous
continuous improvement initiatives to drive productivity, for example a global
packaging sourcing project resulted in both cost savings and improved payment
terms. In addition, we delivered more efficiencies in G&A, by expanding
the scope of our Global Business Services (GBS) function and by further
standardisation of processes. Adjusted G&A reduced to 7.5% of sales
(H1'23: 8.2%).
We have been building our clinical capability and have started to generate and
to disseminate more strong clinical evidence in support of our current
products and new launches. Notable results during the period included
Randomised Control Trial (RCT) for Aquacel Ag+ Extra, Real-World Evidence
(RWE) study for InnovaMatrix, clinical paper on GentleCath(TM) FeelClean
Technology(TM) and medical education relating to soft convexity, which all
demonstrated the quality and efficacy of our products. As planned, during the
period we established our Market Access Centre of Excellence (CoE). This
team supports access and reimbursement for our existing brands and new product
pipeline, such as the innovative nitric oxide wound dressing. Other, more
established, CoEs continued to strengthen Convatec. Our Pricing CoE, in
collaboration with our business units, achieved 50bps of pricing improvement
while our Salesforce CoE further improved targeting, with c.65% of all calls
made to key accounts (FY23: c.59%)
Our execution excellence focus across the organisation continues. For
example, packaging automation of our largest AWC production facility is
nearing completion while Home Services Group (HSG) introduced a new AI enabled
technology platform which delivers an improved customer service experience
while enhancing productivity for our employees.
Implementation of our FISBE strategy has continued to strengthen the Group and
we are confident of delivering on our 2024 and medium-term guidance (see
outlook section below).
Category reviews
Group revenue for the period was $1,113 million, up 5.5% on a reported basis
and 5.9% on a constant currency basis. Adjusting for the acquisitions in
Continence Care in 2023 and residual revenue following the exit of hospital
care and related industrial sales in 2022, revenue rose 6.6% on an organic
basis.
Six months ended 30 June
H1 2024 H1 2023 Reported growth Foreign Exchange impact Constant Currency(3) growth Organic(3) growth
$m $m
Revenue by Category
Advanced Wound Care 360 338 6.4% (0.3)% 6.7% 6.7%
Ostomy Care 311 300 3.7% (1.2)% 4.9% 4.9%
Continence Care 243 221 9.9% 0.0% 9.9% 8.2%
Infusion Care 199 186 7.1% (0.2)% 7.3% 7.3%
Revenue excluding hospital care exit 1,113 1,045 6.5% (0.4)% 6.9% 6.6%
Exit of hospital care and related industrial sales - 10(5) n/m n/m n/m n/m
Total 1,113 1,055 5.5% (0.4)% 5.9% 6.6%
(5) Relates to residual stock being sold during H1 2023
Advanced Wound Care revenue of $360 million increased 6.4% on a reported basis
or 6.7% on a constant currency and organic basis.
The business achieved solid growth in Europe and Global Emerging Markets
despite the ongoing impact of the market-wide Anti-Bribery and Corruption
Campaign ('ABAC') in China and some healthcare reforms in LATAM. In both
regions we expect improvement in growth during H2'24, as previously guided,
given easing comparatives and as we continue to build momentum. Growth in
North America was double-digit with continued strong growth of InnovaMatrix
supported by good growth in the antimicrobial and foam segments.
In the first half we saw attractive mid single-digit growth in the
antimicrobial segment. Our leading AQUACEL(®) Ag+ Extra™ products grew
double-digit as we demonstrated in preliminary RCT results the product's
superiority vs the standard of care. We also presented a RWE study which
showed that management using Convatec's Wound hygiene protocol with
AQUACEL(®) Ag+ Extra™ resulted in 94% healing or improvement in
hard-to-heal infected wounds, with a statistically significant decrease in
wound volume, exudate level and local infection.
We saw single-digit growth in foam during the period with good performances in
North America and GEM partially offset in certain European markets.
ConvaFoam(TM) made progress in the US, with an increase in evaluations
initiated during H1 and continuation of its strong win-rate of completed
evaluations. We recently received regulatory approval for ConvaFoam(TM) with
the CE Mark (for products in the European Economic Area) and will start to
launch in additional key European markets in H2'24 as planned.
In the biologics(4) segment demand for InnovaMatrix remained high, growing
strong double-digit, illustrating the popularity with HCPs given its efficacy
and safety. We saw no impact from the draft LCD proposal. We also saw
increasing revenue from new indications and new points of care, which now
accounts for approximately 20% of revenue. During H1, Intellicure Analytics,
renowned for its unique wound care app and powerful real world data insights,
completed a RWE study on InnovaMatrix by leveraging data from 502 US wound
centres and practices. The data, which is to be presented at US national
wound conferences later this year, shows total healing in 53% of wounds
amongst a diverse at-risk population, where 44% of the wounds treated were
life or limb-threatening. These are strong results for healing of wounds which
are more challenging than those typically treated in RCTs.
We also made progress developing the next wave of new products. Our nitric
oxide wound dressing, new enhanced hydrofibre and new single-use negative
pressure pump with dressing, are all on track to launch in 2025/2026.
Our guidance for AWC is unchanged from May, when we reduced it to mid to high
single-digit growth, to reflect the potential uncertainty associated with the
draft LCD proposal.
Ostomy Care revenue of $311 million was up 3.7% on a reported basis and 4.9%
on a constant currency and organic basis.
This growth was backed by our patient support program Me+ and best-in-class
professional education programs. The business continued to achieve
double-digit growth in Global Emerging Markets with strong performances in
China and Brazil. There was good growth in Europe with notably strong
performances in Italy and Poland, where Esteem Body(TM) has now launched. In
North America we continued to grow our community sales via 180 Medical, and
increased our category share supported by our strength in accessories.
We made good strategic progress during the period. Esteem Body(TM) launched
in Italy at the beginning of the year and more recently in the US, Czech
Republic and Poland. The market reaction has been strong with the overall
soft convexity segment growing double-digit. In H2'24 we shall launch in
further key European and GEM markets. In addition, we are developing a
2-piece soft convex NaturaBody(TM) offering which we plan to launch in 2026.
Commercial execution continued to strengthen as we enhanced our offering
across the continuum of care. During the period we further strengthened our
professional education support for HCPs including launching accredited
education modules, a Convexity Summit which attracted over 12,000 attendees
world-wide, and participation in various WOCNEXT (Wound, Ostomy, Continence
Nursing Society) events. Meanwhile our Me+ offering is driving conversions
in core products and accessories.
Flexi-Seal(TM), our innovative faecal management system, grew well, supported
by strong demand from the exclusive HealthTrust GPO won last year.
We continue to expect mid-single-digit growth for Ostomy Care during 2024.
Continence Care revenue of $243 million rose 9.9% on a reported and constant
currency basis. Adjusting for the two small US acquisitions made in H2'23
organic revenue rose 8.2%.
The growth was predominantly driven by strong new patient volumes and high
customer retention. Growth was aided by c.2.5% US reimbursement price
increase from the US Government's Centres for Medicare and Medicaid Services
(CMS).
During the period CMS made a preliminary recommendation to expand
reimbursement codes relating to intermittent catheters in January 2026. As a
leading home service provider in the US we are fully engaged with CMS and
industry bodies on this potential development. In H1, 60% of our US
Continence revenue was for hydrophilic catheters and Convatec's future product
portfolio is being built around our innovative hydrophilic FeelClean
Technology(TM). If implemented in 2026, we anticipate a neutral to
potentially positive impact from this change.
The contribution from Europe and GEM continued to develop. Our commercial
teams in the UK, France and Italy are now established and we are beginning to
leverage our presence in some of the Global Emerging Markets. The response to
GentleCath(TM) Air for Women, which launched in France in Q4'23, is
encouraging and we grew share in the female compact catheter segment. In
June we started launching in the UK and Italy. We expect to launch in the US
during the second half.
Based on the recent trends in the US, coupled with momentum building
internationally, we are increasing expectations for Continence Care sales
growth this year to high single-digit.
Infusion Care revenue of $199 million increased 7.1% on a reported basis and
7.3% on a constant currency basis and organic basis.
This growth was primarily driven by high demand for our innovative infusion
sets for people with diabetes. In H1 we saw strong orders associated with
the latest pump launches such as our Extended Wear Infusion Sets with
Medtronic's 780G pump, or our other innovative infusion sets for use with Beta
Bionic's iLet pump, Ypsomed's YpsoPump and Tandem's Mobi pump.
The performance was also supported by strong double-digit growth of our
Neria(TM ) brand infusion sets, for non-insulin therapies. We experienced
strong demand for our sets for AbbVie's Produodopa Parkinson's therapy in
Japan and certain European countries.
As well as continuing to grow our diabetes business and diversify our patient
base, we are investing to increase our manufacturing capacity.
We remain confident our Infusion Care business will grow at high single-digits
in 2024.
Historic revenue data
Reported Revenue $m H1 2022 H2 2022 H1 2023 H2 2023 H1 2024
Advanced Wound Care 307 314 338 357 360
Ostomy Care 298 285 300 308 311
Continence Care 206 220 221 236 243
Infusion Care 174 167 186 185 199
Group 985 986 1045 1086 1,113
Revenue from exit of hospital and industrial sales 60 42 10 1 -
Total Reported Group 1045 1028 1055 1087 1,113
Organic(3) growth % H1 2022 H2 2022 H1 2023 H2 2023 H1 2024
Advanced Wound Care 7.3% 6.3% 8.7% 10.3% 6.7%
Ostomy Care 1.2% 2.3% 3.1% 5.4% 4.9%
Continence Care 4.5% 5.7% 7.6% 5.5% 8.2%
Infusion Care 13.2% 3.6% 7.5% 9.9% 7.3%
Group 6.4% 4.7% 6.6% 7.8% 6.6%
(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 14 to 18)
Strong financial performance
Group revenue for the period was $1,113 million, up 5.5% on a reported basis
and 5.9% on a constant currency basis. Adjusting for the residual hospital
care and industrial sales last year and the Continence Care acquisitions in
H2'23, revenue increased 6.6% on an organic basis.
Adjusted gross profit rose 3.1% to $678 million (H1'23: $657 million) and
adjusted gross profit margin reduced by 140bps to 60.9% (H1'23 62.3%).
Reported gross profit was $623 million (H1'23: $592 million). Adjusted
operating expenses increased 2.7% year on year, reducing as a ratio to
sales. Adjusted operating profit increased by 4.1% to $223 million (H1'23:
$214 million) or 8.2% on a constant currency basis. Reported operating
profit was $149 million (H1'23: $123 million).
The adjusted operating profit margin was 20.0% in the first half (H1'23:
20.3%). On a constant currency basis the adjusted operating margin was 20.7%,
an increase of 40 bps from last year. Price, mix and cost efficiencies in
operations each contributed 50bps to margin. Improved productivity in
commercial and other opex added 40bps despite investment in sales and
marketing, given elevated launch activity and sales growth. There was a
further reduction in G&A of 70bps. Together these improvements more than
offset COGS inflation of c.6% which was a headwind of 220bps. Inflation in
the second half is expected to be lower leading to an unchanged expected range
for the full year of 3-5%.
Adjusted diluted EPS was close to flat with operating profit growth offset by
higher finance expenses and a higher adjusted tax charge. The increase in
finance expenses reflected higher market base rates than in H1'23. There is
not expected to be any material growth in finance expenses in the second half
which supports our confidence in achieving double-digit EPS growth in 2024.
Reported diluted EPS rose 40.7% reflecting higher reported net profit.
Cash flow and leverage
Free cash flow to capital increased by $60 million to $114 million (H1'23: $54
million), principally driven by significantly lower working capital outflows
(an improvement year-on-year of $37 million) and the increase in adjusted
EBITDA. Capital expenditure was $51m (H1'23: $59m) as we continued to
strengthen our manufacturing lines and digital technologies. The increase in
working capital last year was to build inventory for resilience in the supply
chain. Going forward, working capital is expected to grow no faster than
sales.
Free cash flow to equity increased by $47 million to $57 million (H1'23: $10
million) with the increase in free cash flow to capital partially offset by
higher finance cost payments, as described above.
Equity cash conversion improved to 41.2% (H1'23: 7.0%) and is expected to be
over 80% at full year, given the seasonality of cash flows.
Net debt increased slightly to $1,234 million (31 Dec 2023: $1,129m) after $71
million of final contingent consideration payments associated with Cure
Medical and Triad Life Sciences and after a dividend payment of $92 million,
higher than last year because of the 3% increase and the removal of the scrip.
The Group ended the period with total borrowings, including IFRS 16 lease
liabilities, of $1,412 million (31 Dec 2023: $1,312 million). Offsetting cash
of $97 million (31 Dec 2023: $97 million) and excluding lease liabilities, net
debt was $1,234 million (31 Dec 2023: $1,129 million), equivalent to 2.3x
adjusted EBITDA (31 Dec 2023: 2.1x adjusted EBITDA). It is worth noting that
leverage is usually higher at 30 June than 31 December given the payout of
dividend, bonuses and recent timing of earnouts (H1'23: 2.5x adjusted EBITDA).
Dividend
The Board is declaring a 3.0% increase in the interim dividend to 1.822 cents
per share (H1'23: 1.769) reflecting confidence in the future performance and
cash generation of the Group.
Group outlook
We are pleased with the performance we have achieved so far in 2024 and are
confirming our full year guidance.
Guidance for organic revenue growth is 5-7% and we expect to be in the upper
half of the range in 2024. We also expect the adjusted operating margin for
2024 to expand to at least 21.0% on a constant currency basis, with more of
the increase in H2'24 because of lower inflation.
If current spot rates were to hold for the remainder of the year, the
estimated headwinds for FY 2024 revenue growth would be approximately 20bps
and for adjusted operating margin would be approximately 60bps.
We expect adjusted net finance expense for the full year to be in the upper
half of the $75-85 million range previously provided, given the persistence of
higher interest rates. The adjusted book tax rate is expected to be
approximately 24%. We still expect capital expenditure of around $120-140
million for the full year reflecting the investment in growing production
capacity, increasing automation and investing in digital solutions. We expect
leverage at year end to be approximately 2x, absent any further M&A.
For the medium-term, we remain confident of delivering our targets of 5-7%
organic growth p.a., expansion of the operating margin to the mid-20s by 2026
or 2027 and double-digit compound annual growth in adjusted EPS and free cash
flow to equity.
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 2023 Annual
Report and Accounts on pages 76 to 84.
The Board has reviewed the principal risks as of 30 June 2024, taking into
consideration the risks that existed during the first six months of 2024 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 economic pressures that are
impacting all businesses at present and the wider uncertain geopolitical
climate. The overall profile of our risks remains consistent with the position
presented in the Group's 2023 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;
· Customer and Markets;
· Information Systems, Security and Privacy;
· Political and Economic Environment;
· Innovation and Regulatory;
· People;
· Legal and Compliance;
· 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
broader risk landscape (including the sustained levels of inflation and
interest rates, ongoing supply chain challenges and the continuing impacts of
the wars in Ukraine and the Middle East) 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 2024
Group financial performance
Six months ended 30 June
Adjusted
Reported Reported Adjusted(1) Adjusted(1) @ CC(2)
2024 2023 2024 2023 2024 Change
$m $m $m $m $m %
Revenue 1,113.4 1,055.5 1,113.4 1,055.5 1,118.0 5.9%
Gross profit 623.1 592.4 677.9 657.4
Operating profit 149.2 123.4 222.8 214.1 231.5 8.2%
Profit before income taxes 104.0 76.0 182.3 180.4
Net profit for the period 78.6 55.7 139.1 138.9
Basic earnings per share (cents per share) 3.8 2.7 6.8 6.8
Diluted earnings per share (cents per share) 3.8 2.7 6.8 6.8 7.1 4.5%
Dividend per share (cents) 1.822 1.769
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 14
to 18.
2. Adjusted 2024 at CC (constant currency) is calculated as 2024
adjusted results translated at 2023 actual FX rates.
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 underlying 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 14
to 18.
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. Percentage movements throughout this
report are calculated on actual unrounded numbers.
Revenue
Group reported revenue for the six months ended 30 June 2024 of $1,113.4
million (H1 2023: $1,055.5 million) increased 5.5% year-on-year on a reported
basis and 5.9% on a constant currency basis.
Adjusting for foreign exchange and acquisition and divestiture-related
activities(,) Group revenue grew by 6.6% on an organic basis. This was driven
by strong growth in Advanced Wound Care, Continence Care and Infusion 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 remained consistent at 56.0% (H1 2023: 56.1%), with
pricing and mix benefits offset by inflationary pressures and foreign exchange
headwinds.
Reported operating profit increased by 20.9% to $149.2 million (H1 2023:
$123.4 million). Whilst operating expenses increased by $4.9 million to $473.9
million, operating expenses as a percentage of revenue reduced to 42.6% (H1
2023: 44.4%).
Reported net finance expenses increased by $6.3 million to $40.2 million, with
an additional $4.8 million of interest expense on borrowings primarily due to
higher market interest rates.
In the six months to 30 June 2024, the fair value movement of contingent
consideration arising on acquisitions resulted in a charge of $4.7 million (H1
2023: $13.7 million charge).
The reported income tax expense for the six months ended 30 June 2024 was
$25.4 million (H1 2023: $20.3 million) and this is explained further in the
Taxation section below. The reported net profit increased by 41.1% to $78.6
million (H1 2023: $55.7 million).
Basic reported earnings per share rose 40.3% to 3.8 cents (H1 2023: 2.7
cents).
Adjusted net profit
Adjusted gross profit increased by 3.1% to $677.9 million (H1 2023: $ 657.4
million) and the adjusted gross margin decreased from 62.3% to 60.9%.
Whilst adjusted operating expenses saw a net increase of $11.8 million to
$455.1 million, adjusted operating expenses as a percentage of revenue
improved to 40.9% (H1 2023: 42.0%). The Group achieved an adjusted operating
profit of $222.8 million (H1 2023: $ 214.1 million), delivering an adjusted
operating margin of 20.0% (H1 2023: 20.3%). This was equivalent to 20.7% on a
constant currency basis, an increase of 40bps from last year.
Price, mix and cost efficiencies in operations each contributed 50bps to
margin. Improved productivity in commercial and other opex added 40bps despite
investment in sales and marketing, given elevated launch activity and sales
growth. There was a further reduction in adjusted G&A of 70bps, with
adjusted G&A as a percentage of revenue falling to 7.5% (H1 2023: 8.2%).
Together, these improvements more than offset COGS inflation of c.6%, which
was a headwind of 220bps.
Adjusted net profit increased slightly by 0.1% to $139.1 million (H1 2023: $
138.9 million), with the increased operating profit being largely offset by
higher finance expenses and a higher adjusted tax charge. Adjusted basic and
diluted EPS at 30 June 2024 were 6.8 cents and 6.8 cents respectively (H1
2023: 6.8 cents and 6.8 cents).
A reconciliation between reported and adjusted numbers discussed above is
provided in the Non-IFRS financial information section on pages 14 to 18.
Taxation
Six months ended 30 June
2024 2023
$m Effective $m Effective
tax rate tax rate
Reported income tax (expense) (25.4) 24.4% (20.3) 26.7%
Tax effect of adjustments (17.8) (21.2)
Adjusted income tax (expense) (43.2) 23.7% (41.5) 23.0%
The Group's reported income tax expense for the six months ended 30 June 2024
was $25.4 million (H1 2023: $20.3 million). The decrease in the reported
effective tax rate was principally driven by the prior period including
non-deductible acquisition costs.
The Group's adjusted effective rate of 23.7% for the six months ended 30 June
2024 (H1 2023: 23.0%) was 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 16).
The increase in the adjusted effective tax rate was principally driven by the
increase in tax rates in Switzerland and the prior period including prior year
adjustment tax benefits for US state taxes and other jurisdictions.
Adjusting items
Management and the Board make adjustments to the reported figures, where
appropriate, to produce more meaningful measures to monitor the underlying
performance of the business - Alternative performance measures (APMs). The
Group's APM policy can be found in the Non-IFRS financial information section
on pages 14 to 15 and in line with this, the following adjustments were made
to derive adjusted operating profit and adjusted net profit.
Six months ended 30 June
Operating profit Fair value movement of contingent consideration Income tax
2024 2023 2024 2023 2024 2023
$m $m $m $m $m $m
Reported 149.2 123.4 (4.7) (13.7) (25.4) (20.3)
Amortisation of acquired intangibles 67.3 67.0 - - (16.6) (16.0)
Acquisitions and divestitures 0.3 9.9 4.7 13.7 0.2 (1.7)
Termination benefits and related costs 1.4 3.5 - - (0.3) (0.9)
Other adjusting items 4.6 10.3 - - (1.1) (2.6)
Adjusted 222.8 214.1 - - (43.2) (41.5)
Adjustments made to derive adjusted operating profit for the six months ended
30 June 2024 included the amortisation of acquired intangibles of $67.3
million (H1 2023: $67.0 million), of which $46.9 million (H1 2023: $46.4
million) resulted from intangible assets arising from the spin-out from
Bristol-Myers Squibb in 2008, which will be fully amortised by December 2026.
Terminations costs of $1.4 million (H1 2023: $3.5 million) were in respect of
one-off, fundamental transformation projects that have spanned over more than
one year. Other adjusting items of $4.6 million (H1 2023: $10.3 million)
consisted primarily of legal and professional fees associated with these
transformation projects in addition to charges related to the office footprint
optimisation programme previously announced.
During the year, the fair value movement of contingent consideration resulted
in a $4.7 million charge (H1 2023: $13.7 million charge).
Of the total of $73.6 million of adjusting items recognised within operating
profit, $4.2 million was cash impacting in H1 2024. There was also a cash
outflow of $7.1 million in respect of adjusting items recorded as accruals in
the prior year. For further information on Non-IFRS financial information, see
pages 14 to 18.
The Board, through the Audit and Risk Committee, continuously reviews the
Group's APM policy and its application to ensure that it remains appropriate,
aligns with the regulatory guidance and represents the way in which the
performance of the Group is managed.
Contingent consideration arising on acquisitions
During the period, the Group paid $70.9 million in respect of the final
contingent consideration amounts associated with the acquisitions of Cure
Medical in 2021 and Triad Life Sciences in 2022 (of which $69.7 million had
been provided at 31 December 2023). As at 30 June 2024, the discounted fair
value of contingent consideration arising on acquisitions was $71.3 million
(31 December 2023: $138.0 million).
Dividends
Dividends are distributed based on the realised distributable reserves of the
Company, which are primarily derived from dividends received from subsidiary
companies and are not based directly on the Group's consolidated retained
earnings. The distributable reserves of the Company at 30 June 2024 were
$1,516.0 million (31 December 2023: $1,539.4 million).
The Board has decided to increase the interim 2024 dividend by 3.0% to 1.822
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 delivering sustainable and profitable growth and
the Board's confidence in the future prospects of the Group.
Cash Flow and Net Debt
Six months ended 30 June
Adjusted Adjusted
2024 2023
$m $m
EBITDA(1) 274.9 261.5
Working capital movement(1) (87.0) (124.2)
Gain/(loss) on foreign exchange derivatives 11.9 (1.9)
Adjusting items(2) (11.3) (6.7)
Capital expenditure (50.6) (58.7)
Operating cash flow(1,3) 137.9 70.0
Tax paid (24.4) (16.2)
Free cash flow to capital(1) 113.5 53.8
Net interest paid (42.5) (28.4)
Payment of lease liabilities (12.1) (11.2)
Other(4) (1.6) (4.5)
Free cash flow to equity(1) 57.3 9.7
Dividends(5) (91.5) (87.7)
Acquisitions(6) (70.9) (151.4)
Movement in net debt (105.1) (229.4)
Net debt(1) at 1 January (excluding lease liabilities) (1,129.3) (1,068.1)
Net debt(1) at 30 June (excluding lease liabilities) (1,234.4) (1,297.5)
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.
2. Details of adjusting items are provided in the adjusting
items cash movement table in the Non-IFRS financial information section. Of
the total cash outflow of $11.3 million during the year, $7.1 million related
to accruals recorded in the prior year.
3. Compared with 2023, 'Free cash flow (pre-tax) has been
renamed 'Operating cash flow'. The Directors consider that this change results
in improved definition, clarity and insight.
4. Other consisted of financing fees amortisation $1.6 million
(H1 2023: $1.4 million), net FX loss on cash and borrowings of $0.3 million
(H1 2023: $3.6 million gain) and proceeds from PPE sales of $0.3 million (H1
2023: $0.5 million).
5. Dividend cash payments of $91.5 million were made to
shareholders in the period in respect of the 2023 final dividend.
6. Payments of $70.9 million were in respect of the final earn
outs associated with the acquisitions of Cure Medical and Triad Life Sciences
in 2021 and 2022 respectively.
EBITDA
Adjusted EBITDA increased by $13.4 million to $274.9 million (H1 2023: $ 261.5
million), driven primarily from adjusting operating profit increasing by $8.7
million (as explained in the adjusted net profit commentary section).
A reconciliation of adjusted EBITDA to the closest IFRS measure is provided in
the Non-IFRS financial information section on page 16.
Free cash flow to capital
Free cash flow to capital increased by $59.7 million to $113.5 million (H1
2023: $53.8 million), driven by significantly lower working capital outflows
(resulting in an improvement year-on-year of $37.2 million), the increase in
adjusted EBITDA of $13.4 million, favourable foreign exchange movements on
derivatives of $13.8 million and a reduction in capital expenditure spend of
$8.1 million. These were partially offset by increases in cash outflows
arising from adjusting items of $4.6 million (of which details are provided in
the Non-IFRS financial information section on page 18 and cash tax paid of
$8.2million.
Adjusted working capital movements of $87.0 million improved $37.2 million
year-on-year, primarily driven by significantly lower investment in inventory
being partially offset by a decrease in trade and other payables. Trade and
other payables saw a decrease largely due to a reduction in inventory
purchases and timing of payments. The Group invested $50.6 million (H1 2023:
$58.7 million) in capital expenditure to further strengthen our manufacturing
lines and digital technologies.
Operating cash conversion improved to 61.9% (H1 2023: 32.7%). The improvement
in the ratio primarily reflected the improvement in working capital as
explained above.
Free cash flow to equity
Free cash flow to equity increased by $47.6 million to $57.3 million (H1 2023:
$9.7 million). This was largely driven by an increase in free cash flow to
capital of $59.7 million as explained above, partially offset by higher
finance cost payments of $14.1 million primarily due to the timing of interest
payments associated with the revolving credit facility.
Equity cash conversion improved to 41.2% (H1 2023: 7.0%).
Borrowings and net debt
30 June 2024 31 December 2023
$m $m
Borrowings 1,331.3 1,226.9
Lease liabilities 80.6 85.5
Total borrowings including lease liabilities 1,411.9 1,312.4
Cash and cash equivalents (96.9) (97.6)
Total borrowings including lease liabilities, net of cash 1,315.0 1,214.8
Net debt (excluding lease liabilities) 1,234.4 1,129.3
Net debt (excluding lease liabilities)/adjusted EBITDA(1) 2.3 2.1
1. Adjusted EBITDA for the twelve months to 30 June 2024 has
been used in this calculation.
The Group's banking facilities comprise of a multicurrency revolving credit
facility of $950.0 million and a term loan of $250.0 million, maturing in 2028
and 2027 respectively. 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 2024, $356.4 million of the multicurrency revolving credit
facility remained undrawn (31 December 2023: $459.4 million). This, combined
with cash of $96.9 million (31 December 2023: $97.6 million), provided the
Group with total liquidity of $453.3 million at 30 June 2024 (31 December
2023: $557.0 million). Of this, $22.1 million was held in territories where
there are restrictions related to repatriation (31 December 2023: $21.1
million).
Covenants
At 30 June 2024, the Group was in compliance with all financial and
non-financial covenants associated with the Group's outstanding debt.
Non-IFRS financial information
Non-IFRS financial information or alternative performance measures (APMs) are
those measures used by the Board and 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 of 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 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, particularly in respect of the amortisation of acquisition-related
intangibles assets. 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 adjustment to IFRS performance
measures.
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.
Amortisation of acquisition-related intangible assets
The Group's strategy is to grow both organically and through acquisition, with
acquisitions being targeted to strengthen our position in key geographies and/
or business categories or which provide access to new technology. The nature
of the businesses acquired may include 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 are deemed adjusting items.
Acquisition-related costs relate to deal costs, integration costs and earn-out
adjustments (including the 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
Divestiture-related activities comprise the gains or losses resulting from
disposal or divestment of a 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 divestitures 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 material, one-time
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 relate to material, one-time initiatives which are part
of the Group's strategy to improve productivity in the business and optimise
cash flows. The Board considers each project individually to determine whether
its size and nature warrants separate disclosure. Qualifying costs 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.
Organic revenue growth
Organic revenue growth represents the change in organic revenue year on year.
Organic revenue represents reported revenue, as determined under IFRS, and
excludes the impact of acquisitions, divestitures and currency exchange
movements.
Cash flow measures
Operating cash flow is the net cash generated from operations, as determined
under IFRS, less capital expenditure. Free cash flow to capital is defined as
operating cash flow less tax paid.
Free cash flow to equity reflects how effectively we are converting the profit
we generate into cash (after accounting for working capital, capital
investments, adjusting items, tax and interest). Refer to page 18 for details
on how these measures are calculated.
Reconciliation of reported earnings to adjusted earnings for the six months
ended 30 June 2024 and 2023
Revenue Gross profit Operating costs Operating profit Finance expense, net Fair value movement of contingent consideration Non-operating expense PBT Taxation Net profit
Six months ended $m $m $m $m $m $m $m $m $m $m
30 June 2024
As reported 1,113.4 623.1 (473.9) 149.2 (40.2) (4.7) (0.3) 104.0 (25.4) 78.6
Amortisation of acquired intangibles - 53.7 13.6 67.3 - - - 67.3 (16.6) 50.7
Acquisition-related costs(1) - - 0.9 0.9 - 4.7 - 5.6 - 5.6
Divestiture-related costs - - (0.6) (0.6) - - - (0.6) 0.2 (0.4)
Termination benefits - - 1.4 1.4 - - - 1.4 (0.3) 1.1
and related costs
Other adjusting items - 1.1 3.5 4.6 - - - 4.6 (1.1) 3.5
Total adjustments including tax effect - 54.8 18.8 73.6 - 4.7 - 78.3 (17.8) 60.5
Other discrete tax items - - - - - - - - - -
Adjusted 1,113.4 677.9 (455.1) 222.8 (40.2) - (0.3) 182.3 (43.2) 139.1
Amortisation 11.0
Impairment/write-off of assets 0.4
Depreciation 31.4
Share-based payments 9.3
Adjusted EBITDA 274.9
1. The comparatives have been re-presented as outlined in Note 1
to the Condensed Consolidated Financial Statements.
Revenue Gross profit Operating costs Operating profit Finance expense, net Fair value movement of contingent consideration Non-operating income PBT Taxation Net profit
Six months ended $m $m $m $m $m $m $m $m $m $m
30 June 2023
As reported 1,055.5 592.4 (469.0) 123.4 (33.9) (13.7) 0.2 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 - 13.7 - 21.4 (1.2) 20.2
Divestiture-related costs 2.7 (0.5) 2.2 - - - 2.2 (0.5) 1.7
Termination benefits and - 2.2 1.3 3.5 - - - 3.5 (0.9) 2.6
other related costs
Other adjusting items - 2.5 7.8 10.3 10.3 (2.6) 7.7
Total adjustments including tax effect - 65.0 25.7 90.7 - 13.7 - 104.4 (21.2) 83.2
Other discrete tax items - - - - - - - - - -
Adjusted 1,055.5 657.4 (443.3) 214.1 (33.9) - 0.2 180.4 (41.5) 138.9
Amortisation 9.4
Impairment/write-off of assets 0.8
Depreciation 29.7
Share-based payments 7.5
Adjusted EBITDA 261.5
Adjusted operating profit margin of 20.0% (H1 2023: 20.3%) is calculated as
adjusted operating profit of $222.8 million (H1 2023: $ 214.1 million) divided
by revenue of $1,113.4 million (H1 2023: $1,055.5 million). A reconciliation
of adjusted operating profit to its closest IFRS measure is shown in the
tables above.
Reconciliation of operating costs to adjusted operating costs for the six
months ended 30 June 2024 and 2023
Six months ended 30 June
2024 2023
S&D G&A R&D Operating costs S&D G&A R&D Operating costs
$m $m $m $m $m $m $m $m
As reported (322.1) (97.8) (54.0) (473.9) (304.7) (110.7) (53.6) (469.0)
Amortisation of acquired intangibles 0.3 9.5 3.8 13.6 - 9.0 1.9 10.9
Acquisition-related costs - 0.9 - 0.9 - 6.3 - 6.3
Divestiture-related costs (0.6) - - (0.6) (0.5) - - (0.5)
Impairment of assets - - - - - - - -
Termination benefits and related costs 0.2 1.2 - 1.4 - 1.2 0.1 1.3
Other adjusting items 0.3 3.2 - 3.5 - 7.7 - 7.7
Adjusted (321.9) (83.0) (50.2) (455.1) (305.2) (86.5) (51.6) (443.3)
Reconciliation of basic and diluted earnings per share to adjusted earnings
per share for the six months ended 30 June 2024 and 2023
Six months ended 30 June
2024 Adjusted 2024 2023 Adjusted 2023
$m $m $m $m
Net profit for the period attributable to the shareholders of the Group 78.6 139.1 55.7 138.9
Number Number
Basic weighted average ordinary shares in issue 2,047,599,499 2,036,308,534
Diluted weighted average ordinary shares in issue 2,055,953,301 2,049,996,858
cents per share cents per share cents per share cents per share
Basic earnings per share 3.8 6.8 2.7 6.8
Diluted earnings per share 3.8 6.8 2.7 6.8
Cash flow conversion Six months ended 30 June
2024 2023
$m $m
Operating cash conversion(1) 61.9% 32.7%
Equity cash conversion(1) 41.2% 7.0%
1. 'Adjusted cash conversion',
previously calculated as Operating cash flow/Adjusted EBITDA, has been
replaced by 'Operating cash conversion' and is calculated as Operating cash
flow/Adjusted operating profit. 'Equity cash conversion' is calculated as Free
cash flow to equity/Adjusted net profit. The Directors consider that these
changes result in consistency of cash flow measures and provide improved
definition, clarity and insight.
Reconciliation of Operating cash flow, free cash flow to capital and free cash
flow to equity
Six months ended 30 June
2024 2023
$m $m
Net cash generated from operations 188.5 128.7
Less: Acquisitions of property, plant and equipment and intangible assets (50.6) (58.7)
Operating cash flow(1) 137.9 70.0
Tax paid (24.4) (16.2)
Free cash flow to capital 113.5 53.8
Net interest paid (42.5) (28.4)
Payment of lease liabilities (12.1) (11.2)
Financing fee amortisation (1.6) (1.4)
Foreign exchange (loss) on cash (2.8) (1.6)
Foreign exchange gain/(loss) on borrowings 2.5 (2.0)
Proceeds on sale of property, plant and equipment 0.3 0.5
Free cash flow to equity 57.3 9.7
1. 'Free cash flow (pre-tax)' has been renamed 'Operating cash
flow'. The Directors consider that this change results in consistency of cash
flow measures and provide improved definition, clarity and insight.
Free cash flow to equity has increased by 490.7% to $57.3 million (H1 2023:
$9.7 million). The increase is calculated as the movement in free cash flow to
equity year-on-year divided by the free cash flow to equity in the prior year.
A reconciliation of free cash flow to equity to its closest IFRS measure is
shown in the table above.
Reconciliation of reported and adjusted working capital movement
Six months ended 30 June
2024 2023
$m $m
Reported working capital movement (92.0) (110.2)
Increase/(decrease) in respect of acquisitions and divestitures 1.1 (4.6)
Increase/(decrease) in termination benefits 4.4 (2.4)
(Decrease) in respect of other adjusting items (0.5) (7.0)
Adjusted working capital movement (87.0) (124.2)
Cash outflows from adjusting items
Six months ended 30 June
2024 2023
$m $m
Acquisition and divestitures adjustments (1.4) (5.3)
Termination benefits and related costs adjustments (5.8) (1.1)
Other adjusting items (4.1) (0.3)
Total adjusting items (11.3) (6.7)
Condensed Consolidated Interim Financial Statements
Condensed Consolidated Income Statement
Six months ended 30 June
2024 2023
Notes $m $m
(unaudited) (unaudited)
Revenue 2 1,113.4 1,055.5
Cost of sales (490.3) (463.1)
Gross profit 623.1 592.4
Selling and distribution expenses (322.1) (304.7)
General and administrative expenses (97.8) (110.7)
Research and development expenses (54.0) (53.6)
Operating profit 149.2 123.4
Finance income 3 2.6 2.2
Finance expense(1) 3 (42.8) (36.1)
Fair value movement of contingent consideration(1) 9 (4.7) (13.7)
Non-operating (expense)/income, net(1) (0.3) 0.2
Profit before income taxes 104.0 76.0
Income tax expense 4 (25.4) (20.3)
Net profit 78.6 55.7
Earnings per share
Basic earnings per share (cents per share) 6 3.8¢ 2.7¢
Diluted earnings per share (cents per share) 6 3.8¢ 2.7¢
1. The comparatives have been re-presented as outlined in Note 1
to the Condensed Consolidated Interim Financial Statements.
All amounts are attributable to shareholders of the Group and wholly derived
from continuing operations (see Note 2 for details).
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June
2024 2023
Notes $m $m
(unaudited) (unaudited)
Net profit 78.6 55.7
Items that will not be reclassified subsequently to the Consolidated Income
Statement:
Fair value movement on equity investments (3.1) (8.7)
Items that may be reclassified subsequently to the Consolidated Income
Statement:
Foreign currency translation (22.1) 49.6
Effective portion of changes in fair value of cash flow hedges (3.1) -
Costs of hedging (1.8) -
Changes in fair value of cash flow hedges reclassified to the Consolidated 2.9 (1.1)
Income Statement
Income tax relating to items that may be reclassified (0.4) (0.1)
Other comprehensive (expense)/income (27.6) 39.7
Total comprehensive income 51.0 95.4
All amounts are attributable to shareholders of the Group and wholly derived
from continuing operations.
Condensed Consolidated Statement of Financial Position
30 June 2024 31 December 2023
Notes $m $m
(unaudited) (audited)
Assets
Non-current assets
Property, plant and equipment 474.3 473.8
Right-of-use assets 70.5 74.7
Intangible assets 868.1 935.3
Goodwill 1,290.2 1,298.8
Investment in financial assets 19.8 22.9
Deferred tax assets 20.7 21.2
Restricted cash 5.1 5.3
Other non-current receivables 11.7 11.7
2,760.4 2,843.7
Current assets
Inventories 378.5 396.1
Trade and other receivables 343.7 333.7
Current tax receivable 19.5 16.5
Derivative financial assets 8 11.0 13.6
Restricted cash 11.8 12.5
Asset held for sale 1 2.5 -
Cash and cash equivalents 96.9 97.6
863.9 870.0
Total assets 3,624.3 3,713.7
Equity and liabilities
Current liabilities
Trade and other payables 319.1 388.7
Lease liabilities 20.9 20.7
Current tax payable 25.8 26.6
Derivative financial liabilities 8 7.9 16.7
Provisions 9 7.9 83.7
381.6 536.4
Non-current liabilities
Borrowings 7 1,331.3 1,226.9
Lease liabilities 59.7 64.8
Deferred tax liabilities 88.8 88.2
Provisions 9 74.6 71.3
Derivative financial liabilities 8 - 0.9
Other non-current liabilities 33.4 32.5
1,587.8 1,484.6
Total liabilities 1,969.4 2,021.0
Net assets 1,654.9 1,692.7
Equity
Share capital 251.5 251.5
Share premium 181.0 181.0
Own shares (2.2) (0.6)
Retained deficit (901.6) (888.7)
Merger reserve 2,098.9 2,098.9
Cumulative translation reserve (144.3) (122.2)
Other reserves 171.6 172.8
Total equity 1,654.9 1,692.7
Total equity and liabilities 3,624.3 3,713.7
Condensed Consolidated Statement of Changes in Equity
Share capital Share premium Own shares Retained Merger reserve Cumulative translation reserve Other reserves Total
deficit
Notes $m $m $m $m $m $m $m $m
At 1 January 2024 (audited) 251.5 181.0 (0.6) (888.7) 2,098.9 (122.2) 172.8 1,692.7
Net profit - - - 78.6 - - - 78.6
Other comprehensive expense:
Foreign currency translation adjustment, net of tax - - - - - (22.1) - (22.1)
Changes in fair value of cash flow hedges, net of tax - - - - - - (2.4) (2.4)
Change in fair value of equity investments - - - - - - (3.1) (3.1)
Other comprehensive expense - - - - - (22.1) (5.5) (27.6)
Total comprehensive income/(expense) - - - 78.6 - (22.1) (5.5) 51.0
Dividends paid 5 - - - (91.5) - - - (91.5)
Purchase of shares by Employee Benefit Trust - - (6.9) - - - - (6.9)
Share-based payments - - - - - - 9.1 9.1
Share awards vested - - 5.3 - - - (4.8) 0.5
At 30 June 2024 (unaudited) 251.5 181.0 (2.2) (901.6) 2,098.9 (144.3) 171.6 1,654.9
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
Net profit - - - 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 5 - - - (87.7) - - - (87.7)
Scrip dividend 5 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
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June
2024 2023
Notes $m $m
Cash flows from operating activities (unaudited) (unaudited)
Net profit 78.6 55.7
Adjustments for
Depreciation of property, plant and equipment 20.0 18.3
Depreciation of right-of-use assets 11.4 11.4
Amortisation of intangible assets 78.3 76.4
Income tax 4 25.4 20.3
Non-operating expense/(income), net(1) 12.2 (2.1)
Fair value movement of contingent consideration 4.7 13.7
Finance expense, net(1) 40.2 33.9
Share-based payments 9.3 7.5
Impairment/write-off of intangible assets 0.2 -
Impairment/write-off of right-of-use assets - 1.9
Impairment/write-off of property, plant and equipment 0.2 1.9
Change in assets and liabilities:
Inventories 6.7 (63.5)
Trade and other receivables (29.0) (35.1)
Derivative financial assets 4.8 13.9
Other non-current receivables (0.2) (0.3)
Restricted cash 0.8 5.0
Trade and other payables(1) (56.5) (10.5)
Provisions (4.9) 5.2
Derivative financial liabilities (15.2) (22.9)
Other non-current payables(1) 1.5 (2.0)
Net cash generated from operations 188.5 128.7
Interest received 2.6 2.2
Interest paid (45.1) (30.6)
Payment of contingent consideration arising from acquisitions(1) 9 (48.1) (21.7)
Income taxes paid (24.4) (16.2)
Net cash generated from operating activities 73.5 62.4
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (50.6) (58.7)
Acquisitions, net of cash acquired - (56.7)
Proceeds from sale of property, plant and equipment and other assets 0.3 0.5
Payment of contingent consideration arising from acquisitions(1) 9 (22.8) (73.0)
Net cash used in investing activities (73.1) (187.9)
Cash flows from financing activities
Proceeds from borrowings 7 105.3 158.7
Payment of lease liabilities (12.1) (11.2)
Dividends paid 5 (91.5) (87.7)
Net cash generated from financing activities 1.7 59.8
Net change in cash and cash equivalents 2.1 (65.7)
Cash and cash equivalents at beginning of the period 97.6 143.8
Effect of exchange rate changes on cash and cash equivalents (2.8) (1.6)
Cash and cash equivalents at end of the period 96.9 76.5
1. The comparatives have been re-presented as outlined in Note 1
to the Condensed Consolidated Financial Statements.
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 2024 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 as described further below.
The Condensed Consolidated Interim Financial Statements should be read in
conjunction with the 2023 Convatec Group Plc Annual Report and Accounts, which
were prepared in accordance with the United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB).
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 2023 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 Condensed Consolidated Interim Financial Statements for the six months
ended 30 June 2024 were approved by the Board on 29 July 2024.
Going concern
As at 30 June 2024, the Group held cash and cash equivalents of $96.9 million
(31 December 2023: $97.6 million) and had borrowings of $1,331.3 million (31
December 2023: $1,226.9 million). The borrowings as at 30 June 2024 comprised
of senior notes of $500.0 million, term loan of $250.0 million and drawn
multicurrency revolving credit facilities of $593.6 million, net of
unamortised financing fees of $12.3 million. The Group's multicurrency
revolving credit facility of $950.0 million is committed until November 2028.
The term loan of $250.0 million and $500.0 million senior unsecured notes are
repayable in 2027 and 2029 respectively. $356.4 million of the multicurrency
revolving credit facilities remained undrawn as at 30 June 2024, which
together with cash and cash equivalents of $96.9 million, provided the Group
with total liquidity of $453.3 million as at that date (31 December 2023:
$557.0 million). The principal financial covenants remain unchanged and as at
30 June 2024, the Group was in compliance with its financial covenants.
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
remains 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 2023 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 is forecast to retain significant liquidity and
covenant headroom throughout the going concern period.
The Group has carried out a reverse stress test against the forecast base case
to determine the performance levels that would result in a breach of
covenants. For a breach of covenants to occur in the next 12 months, before
Board and management mitigation, the Group would need to experience a
sustained revenue reduction of at least 10% across all categories and markets.
This was considered 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 reducing expansionary capital
investment.
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 29
July 2024. Accordingly, they continue to adopt the going concern basis in
preparing the Condensed Consolidated Interim Financial Statements.
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.
One key source of estimation uncertainty has been identified in respect of the
provision for contingent consideration on acquisitions.
The underlying drivers of the contingent consideration are determined in
accordance with the contractual terms of the purchase agreements for each
relevant acquisition and may vary depending on the amounts or timing of
product revenues (including future revenues, which are inherently uncertain),
particularly when it relates to products which are relatively new to market or
not yet launched, the future achievement of regulatory clearance for new
products, or other uncertainties deriving from the purchase agreement. The
Group estimates provisions for contingent consideration based on information
available at the balance sheet date.
Actual results may differ from estimates or there may be delays to estimated
timetables for regulatory clearances which would lead to a change in estimate
of provisions for contingent consideration and may vary materially within the
next financial year. At 30 June 2024 the discounted estimate of provisions for
contingent consideration was $71.3 million (see Note 8 - Fair value
measurement). Management has determined that a reasonable possible range of
discounted outcomes within the next financial year is $15.9 million to $71.3
million.
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 2023 Annual Report and Accounts, except for the adoption of new standards
effective as of 1 January 2024. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective.
On 1 January 2024, the Group adopted the following amendments which are
mandatorily effective for the period beginning 1 January 2024:
- Liability in a Sale and Leaseback - Amendments to IFRS 16
- Classification of Liabilities as Current or Non-Current -
Amendments to IAS 1
- Non-current liabilities with Covenants - Amendments to IAS 1
The adoption during the year, of the amendments and interpretations, has not
had a material impact on the Condensed Consolidated Interim Financial
Statements.
Prior year re-presentation
Certain line items in the primary financial statements have been disaggregated
to provide greater clarity, and accordingly, the corresponding comparative
amounts have been re-presented for consistency and comparability between
periods.
Within the Condensed Consolidated Income Statement, the fair value movement of
contingent consideration has been presented separately. The 2023 comparative
amount includes $11.6 million that was previously included within finance
expense, and $2.1 million previously included within non-operating
(expense)/income, net.
Within the Condensed Consolidated Statement of Cash Flows, trade and other
payables and other non-current payables have been re-presented to separately
disclose the cash impact of movements in provisions of $5.2 million.
Within the Condensed Consolidated Statement of Cash Flows, payment of
contingent consideration arising from acquisitions has been re-presented to
separately disclose the settlement of the amount initially recognised upon
acquisition of $73.0 million within cash flows from investing activities, and
the subsequent remeasurement of $21.7 million within cash flows from operating
activities. Consequently, net cash generated from operating activities has
reduced from $84.1 million to $62.4 million, with a corresponding decrease in
net cash used in investing activities from $209.6 million to $187.9 million.
There is no impact on net profit, net assets and net change in cash and cash
equivalents presented previously.
Asset held for sale
As a result of closing a small factory in the Netherlands and migrating
production to Slovakia, the building in the Netherlands was classified as held
for sale in January 2024, at which point depreciation ceased. There is an
active programme to locate a buyer and the property is being actively marketed
for sale. The sale is expected to complete within one year from the date of
classification.
2. Revenue and 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.
Convatec's Executive Leadership Team (CELT), as the Group's Chief Operating
Decision Maker, 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 each individual proposal.
Revenue by category
The following table sets out the Group's revenue by category:
Six months ended 30 June
2024 2023
$m $m
Advanced Wound Care 360.0 338.5
Ostomy Care 311.1 300.0
Continence Care 242.6 220.7
Infusion Care 199.5 186.3
Revenue excluding hospital care exit 1,113.2 1,045.5
Revenue from hospital care exit 0.2 10.0
Total 1,113.4 1,055.5
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
2024 2023
$m $m
North America 622.2 572.5
Europe 327.4 327.8
Rest of World (RoW)(1) 163.8 155.2
Total 1,113.4 1,055.5
1. Rest of World (ROW) comprises all countries in Asia Pacific,
Latin America (including Mexico and the Caribbean), the Middle East (including
Turkey) and Africa.
3. Finance income and expenses
Finance expenses arise from interest on the Group's borrowings and lease
liabilities. Finance income arises from interest earned on investment of
surplus cash.
Finance costs, net for the six months ended 30 June were as follows:
Six months ended 30 June
2024 2023
$m $m
Finance income
Interest income on cash and cash equivalents 1.8 2.2
Interest income on interest rate derivatives 0.8 -
Total finance income 2.6 2.2
Finance expenses
Interest expense on borrowings (38.0) (33.2)
Other financing-related fees(1) (4.8) (3.5)
Interest expense on lease liabilities (1.7) (1.7)
Capitalised interest(2) 2.8 2.5
Other finance costs (1.1) (0.2)
Total finance expenses (42.8) (36.1)
Finance costs, net (40.2) (33.9)
1. Other financing-related fees include the amortisation of
deferred financing fees of associated with the multicurrency revolving credit
facilities, term loans facilities and senior notes and receivables financing
fees.
2. Capitalised interest was calculated using the Group's
weighted average interest rate over the period of 6.0% (2023: 5.5%) and will
be treated as tax deductible.
4. 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 2024 has been calculated by
applying the effective rate of tax which is expected to apply to the Group for
the year ending 31 December 2024 using rates substantively enacted as at 30
June 2024.
For the six months ended 30 June 2024, the Group recorded an income tax
expense of $25.4 million (30 June 2023: $20.3 million). The Group's reported
effective tax rate for the period ended 30 June 2024 was 24.4% (2023: 26.7%).
The decrease in the reported effective tax rate was principally driven by the
prior period including non-deductible acquisition costs and prior year
adjustments.
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 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 Two
income taxes.
5. 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:
- Availability of realised distributable reserves
- Available cash resources and commitments
- Strategic opportunities and investments, in line with the Group's strategic
plan
- Principal risks of the Group
The Board paid the 2023 final dividend in May 2024. The Board has taken into
consideration balancing the return to shareholders, and the additional
investment in transformation in the period. The decision to increase the
dividend for 2024 reflects the Board's confidence in the future performance of
the Group and the underlying financial strength, distributable reserves
position and cash generation of the Group when assessing cash flow forecasts
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 2022 3.657 4.330 92.4 87.7 4.7 1,717,549
Interim dividend 2023 1.380 1.769 34.4 23.0 11.4 4,199,962
Paid in 2023 5.037 6.099 126.8 110.7 16.1 5,917,511
Final dividend 2023 3.517 4.460 91.5 91.5 - -
Paid in 2024 to date 3.517 4.460 91.5 91.5 - -
Interim dividend 2024 proposed 1.422 1.822 37.3
The proposed interim dividend for 2024, to be distributed on 4 October 2024 to
shareholders registered at the close of business on 23 August 2024 is based
upon the issued and fully paid share capital as at 30 June 2024. The dividend
will be declared in US dollars and will be paid in Sterling at the exchange
rate of $1.281/£1.00 determined on 29 July 2024.
6. Earnings per share
Basic earnings per share is calculated based on the Group's net profit for the
year attributable to shareholders divided by the weighted average number of
ordinary shares in issue during the year. The weighted average number of
shares is net of shares purchased by the Group and held as own shares.
Diluted earnings per share take into account the dilutive effect of all
outstanding share options priced below the market price in arriving at the
number of shares used in its calculation.
Six months ended 30 June
2024 2023
Net profit attributable to the shareholders of the Group ($m) 78.6 55.7
Basic weighted average ordinary shares in issue (number) 2,047,599,499 2,036,308,534
Dilutive impact of share awards (number) 8,353,802 13,688,324
Diluted weighted average ordinary shares in issue (number) 2,055,953,301 2,049,996,858
Basic earnings per share (cents per share) 3.8¢ per share 2.7¢ per share
Diluted earnings per share (cents per share) 3.8¢ per share 2.7¢ per share
The calculation of diluted earnings per share does not contain any share
options that were non-dilutive for the year, because the average market price
of the Group's ordinary shares exceeded the exercise price.
7. Borrowings
The Group's sources of borrowing for funding and liquidity purposes derive
from senior notes and credit facilities, including a committed revolving
credit facility.
The Group's consolidated borrowings were as follows:
30 June 2024 31 December 2023
Year of maturity Face value Face value
Currency $m $m
Revolving Credit Facility(1) Multicurrency 2028 593.6 490.6
Term Loan USD 2027 250.0 250.0
Senior Notes USD 2029 500.0 500.0
Interest-bearing borrowings 1,343.6 1,240.6
Financing fees(2) (12.3) (13.7)
Carrying value of borrowings 1,331.3 1,226.9
Current portion of borrowings - -
Non-current portion of borrowings 1,331.3 1,226.9
1. Included within the Revolving Credit Facility as at 30 June 2024
was €50.0 million ($54.6 million), representing 9.0% of RCF debt denominated
in Euros and 91.0% denominated in US dollars. As at 31 December 2023, this was
€100.0 million ($110.4 million) and £8.0 million ($8.2 million),
representing 22.5% of RCF debt denominated in Euros, 2.1% of the RCF debt
denominated in GBP and 75.4% denominated in US dollars.
2. Financing fees of $12.3 million (31 December 2023: $13.7 million)
related to the remaining unamortised fees incurred on the credit facilities
and senior notes.
Credit facilities
The credit facilities held by the Group are committed and available for the
refinancing of certain existing financial indebtedness and general corporate
purposes. The Group's bank credit facility of $1.2 billion comprises of a
$250.0 million term loan and a $950.0 million multicurrency revolving credit
facility. As at 30 June 2024, the term loan was fully drawn and $593.6 million
of the revolving credit facility was drawn, with $356.4 million undrawn.
Financial covenants
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 2024, 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.
The Group was in compliance with all financial and non-financial covenants at
30 June 2024, with significant available headroom on the financial covenants
(in excess of $539.2 million debt headroom on the net debt to
covenant-adjusted EBITDA(1)).
(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).
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.
8. Fair value measurement
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. The Group's derivative financial
instruments as well as the Group's other borrowings are classified as Level 2,
and the Group's equity investment in preference shares, together with
contingent consideration arising on business combinations, are classified as
Level 3. There were no transfers between levels during the year.
30 June 2024 31 December 2023
Carrying amount Fair value Carrying amount Fair value
$m $m $m $m
Financial instruments measured at fair value
Non-current
Equity investment 19.8 19.8 22.9 22.9
Derivative financial liabilities - - (0.9) (0.9)
Contingent consideration (71.3) (71.3) (68.3) (68.3)
Current
Derivative financial assets 11.0 11.0 13.6 13.6
Derivative financial liabilities (7.9) (7.9) (16.7) (16.7)
Contingent consideration - - (69.7) (69.7)
Financial instruments not measured at fair value
Non-current
Senior notes (500.0) (452.4) (500.0) (450.1)
Other borrowings (593.6) (864.6) (490.6) (774.9)
Senior notes and other borrowings
The Group's senior notes are listed and their fair value 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.
Derivative financial instruments
The Group holds interest rate swap agreements to fix a proportion of variable
interest on US dollar and EURO 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.
The fair values of the interest rate swap agreements are calculated by
discounting expected future principal and interest cashflow and translating at
the appropriate balance sheet rates and are therefore categorised as a Level 2
measurement in the fair value hierarchy under IFRS 13 Fair Value Measurements.
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.
The fair values of the forward foreign exchange contracts are calculated by
discounting the contracted forward values and translating at the appropriate
balance sheet rates and are therefore categorised as a Level 2 measurement in
the fair value hierarchy under IFRS 13 Fair Value Measurements.
Contingent consideration
Contingent consideration arising on business combinations is classified as a
recurring fair value measurement within Level 3 of the fair value hierarchy,
in line with IFRS 13, Fair Value Measurements. Key unobservable inputs in
respect of the Group's acquisitions include actual results, management
forecasts and an appropriate discount rate.
Management has determined that the potential range of undiscounted outcomes at
30 June 2024 is between nil and $163.9 million, from a maximum undiscounted
amount of $163.9 million.
The table below shows an indicative basis of the sensitivity to the income
statement and balance sheet at 30 June 2024.
Sales forecast Discount rate
+5% +10% -5% -10% +1.0% +2.0% -1.0% -2.0%
Increase/(decrease) in financial liability and loss/(gain) in income statement 0.5 1.0 (0.6) (1.1) (2.2) (4.2) 2.4 4.9
Equity investment
The investment is in relation to the Group's investment in BlueWind Medical
Limited in 2022. The Group considers this investment to be strategic in nature
and it is not held for trading. In line with IFRS 13 Fair Value Measurement,
this investment has been classified as Level 3 in the fair value hierarchy as
its measurement is derived from significant unobservable inputs by reference
to available information, including the current market value of similar
instruments, recent financing rounds and discounted cash flows of the
underlying net assets. The fair value of the investment has been determined by
using an average of three valuation methodologies, those being the precedent
transaction method, the income approach method and the probability-weighted
expected return model.
The Group made an irrevocable election at initial recognition to present
subsequent changes in the fair value of the investment in other comprehensive
income. It was initially recorded at fair value plus transaction costs and is
remeasured to fair value at subsequent reporting dates. The fair value of the
investment at 30 June 2024 was $19.8 million (31 December 2023: $22.9
million), with the movement of $3.1 million taken to the Condensed
Consolidated Statement of Other Comprehensive Income. No dividends were
recognised during the period.
9. 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. The contingent consideration provisions recognised by the Group
is in respect of acquisitions and includes amounts contingent on future events
such as development milestones and sales performance.
The movements in provisions are as follows:
Dilapidations Restructuring Legal Contingent consideration Total
$m $m $m $m $m
1 January 2024 2.4 14.0 0.6 138.0 155.0
Charged to the income statement 0.3 3.8 0.3 - 4.4
Fair value movement of contingent consideration - - - 4.7 4.7
Released to the income statement - (1.5) - - (1.5)
Utilised - (8.3) - (70.9) (79.2)
Foreign exchange - (0.4) - (0.5) (0.9)
30 June 2024 2.7 7.6 0.9 71.3 82.5
Current provision 7.9
Non-current provision 74.6
The expected payment profile of the discounted provisions at 30 June 2024 and
at 31 December 2023 was as follows:
30 June 2024 31 December 2023
$m $m
Within 1 year 7.9 83.7
2 to 5 years 59.0 58.8
More than 5 years 15.6 12.5
Total 82.5 155.0
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 are in respect of the Group's strategic
transformation activities. 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
The legal provision 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
As at 30 June 2024, the discounted fair value of the contingent consideration
payable in respect of the Group's acquisitions was $71.3 million (31 December
2023: $138.0 million). During the year, final earn out payments totalling
$70.9 million were made in respect of the Cure Medical and Triad Life Sciences
acquisitions ($22.8 million recognised within cash flows from investing
activities and $48.1 million recognised within cash flows from operating
activities in the Condensed Consolidated Statement of Cash Flows). The net
charge to the income statement in respect of the changes in fair value of
contingent consideration (based on the best estimates of the amounts payable
as at 30 June 2024) was $4.7 million. In addition, there was a foreign
exchange movement of $0.5 million from the re-translation of non-USD
denominated balances.
10. 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 2024 2023 2023
USD/EUR Average 1.08 1.08 1.08
Closing 1.07 1.09 1.10
USD/GBP Average 1.27 1.23 1.24
Closing 1.26 1.27 1.27
USD/DKK Average 0.15 0.15 0.15
Closing 0.14 0.15 0.15
11. Related Party Transactions
There were no changes in the related party transactions described in the 2023
Annual Report and Accounts that have had a material effect on the financial
position or performance of the Group during the six months to 30 June 2024.
12. Commitments and contingencies
Capital commitments
At 30 June 2024, the Group had non-cancellable commitments for the purchase of
property, plant and equipment, capitalised software and development of $19.3
million (31 December 2023: $22.3 million).
Contingent liabilities
Other than disclosed elsewhere in these financial statements, there were no
contingent liabilities recognised as at 30 June 2024 and 31 December 2023.
13. Subsequent events
The Group has evaluated subsequent events through to 29 July 2024, the date
the Condensed Consolidated Interim Financial Statements were approved by the
Board of Directors.
On 29 July 2024, the Board declared an interim dividend to be distributed on 4
October 2024. Refer to Note 5 - Dividends for further details.
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 2023 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 Jonny Mason
Chief Executive Officer Chief Financial Officer
29 July 2024 29 July 2024
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 2024 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 13.
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 2024, 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
29 July 2024
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