TIDMCTEC
RNS Number : 9948P
ConvaTec Group PLC
14 February 2019
14 February 2019
This announcement contains inside information for the purposes
of article 7 of the Market Abuse Regulation (EU) 596/2014
ConvaTec Group Plc Fourth Quarter and Annual Results 2018
ConvaTec Group Plc and its subsidiaries ("ConvaTec" or the
"Group"), a leading global medical products and technologies
company focused on therapies for the management of chronic
conditions, today reports audited Annual Results for the twelve
months ended 31 December 2018 in line with the revised guidance
provided in October 2018.
FY2018 key points:
-- Group reported revenue of $1,832.1 million grew 3.8% year on
year, 2.7%(2) CER or 0.2%(3) organically;
-- Reported EBIT(5) of $267.7 million, grew 8.0% year on year
due to lower restructuring and pre-IPO share-based payments;
-- Adjusted(1) EBIT(5) of $429.4 million was down 6.0% year on
year primarily due to increased levels of investment in commercial
activities and negative mix, more than offsetting increased
revenue; adjusted(1) EBIT margin 23.4% (2017: 25.9%);
Actions to address strategy execution issues:
-- Transformation Initiative established to implement a
refreshed execution model "Pivot to Growth" to deliver strategy
more effectively and drive higher revenue growth and
profitability;
o Investment: total of around $150 million over three years,
with a two to three year payback expected. Around 30% of this total
will be capex investment, with the remaining 70% being operational
spend related to restructuring, project management and other
transformation costs which will cease at the end of the three year
period;
o By year three of the Transformation Initiative we also expect
to incur $50 million of ongoing annual costs related to commercial
spend and R&D, building from $15 million in 2019;
o Benefits: higher revenue growth, $80 million gross annual cost
savings by year three, (increasing to $120 million gross annual
savings by 2023), and improved profit margin;
Guidance:
-- Guidance for FY2019: organic revenue growth expected to be 1%
to 2.5%, adjusted EBIT margin 18% to 20%, including $50 million of
operational spend associated with the Transformation Initiative and
costs related to MDR (Medical Device Regulation). Excluding these
transformation costs and MDR, the adjusted EBIT margin would be 21%
to 22.5%;
-- Medium to long term(4) , targeting revenue growth in line
with or above market and adjusted EBIT margin expansion.
Rick Anderson, Group Chief Executive Officer, commented
"These are disappointing results, in light of our revenue and
margin guidance at the beginning of 2018. With the Executive
Committee, I have undertaken an extensive review of the business
since my appointment as CEO and it is clear that swift and strong
action is required to address the failures in execution which have
caused the Company to underperform.
"Following Board approval, we are now implementing a refreshed
execution model to support our strategy and deliver sustainable and
profitable growth. We will achieve this by concentrating on those
product and market segments which offer the best returns,
developing a strong and innovative pipeline of new products,
simplifying our business to run it more efficiently and investing
to strengthen our commercial and operational execution. This model
can be leveraged by an incoming CEO, without constraining any
potential strategic changes they may wish to implement.
"We have solid fundamentals, robust cash flows and we have
reduced our leverage, but need to invest in the business over the
next three years. I fully believe the changes we are making to our
execution model will deliver the returns that our shareholders and
other stakeholders rightly expect in the future.
"The search for a permanent CEO has made significant progress
since October, with a very strong short-list of candidates. The
Board is moving quickly on this key appointment."
Franchise Summary:
Group reported revenue in 2018 grew 3.8%, 2.7%(2) CER or 0.2%(3)
organically and in the fourth quarter declined by 6.0% on a
reported basis, 3.8% CER(2) or 4.0%(3) organically.
-- Advanced Wound Care ("AWC") revenue grew 1.7% on a reported
basis, or 0.2%(3) organically in 2018. Our AQUACEL(TM) Foam and
anti-biofilm silver dressings performed well, offset by challenges
in our older DuoDERM(TM) and base AQUACEL(TM) dressings, as a
result of the supply constraints of 2017 and challenging market
dynamics, most notably in the UK. Performance in the US continued
to be below expectations, driven primarily by weak sales of
surgical cover dressing and disappointing progress on the wound
acceleration plan. Revenue declined 4.5% on a reported basis and
1.8%(3) organically in the fourth quarter.
-- Ostomy Care ("OC") revenue grew 0.8% on a reported basis, but
fell 0.5%(3) year on year on an organic basis. This was primarily
driven by lost patients, a result of the supply constraints in the
second half of 2017. We also saw some weakness in the US retail
channel and the recent trend in new patient capture rates in US
hospitals. However, we delivered good results in both Latin America
and certain markets in Asia Pacific and Europe. There were
encouraging results from our recent product launches such as
Esteem(TM) + Flex Convex. Revenue in the fourth quarter declined
4.4% on a reported basis or 1.5%(3) organically.
-- Continence and Critical Care ("CCC") revenue grew 15.7% on a
reported basis, 15.2%(2) CER or 4.1%(3) organically in 2018, with a
strong performance from our Home Distribution Group ("HDG") in the
US being partially offset by continuing planned product
rationalisation and the impact of a packaging recall in the second
half of 2018, which together negatively impacted revenue by c. $6
million. Reported revenue grew by 15.7% primarily as a result of
the inclusion of Woodbury Holdings, which was acquired on 1
September 2017, and J&R Medical, which was acquired on 1 March
2018 net of the Symbius Medical divestiture on 1 March 2018. In the
fourth quarter revenue grew by 3.3% on a reported basis, 4.6%(2)
CER or 3.9%(3) organically.
-- Infusion Devices ("ID") revenue fell by 2.4% on a reported
basis, and 3.5%(3) on an organic basis in 2018, and in the fourth
quarter declined 25.6% on a reported basis and 24.9%(3)
organically, with good underlying growth offset by significantly
reduced orders in the fourth quarter, due to an unexpected change
in inventory policy by our largest customer.
Twelve months ended
31 December
------------------------
2018 2017 Growth
Reported results $m (unless stated) Reported Organic(3)
--------------------- ------------------------ ---------- -----------
Revenue 1,832.1 1,764.6 3.8% 0.2%
Gross margin 53.2% 52.5% 80 bps
EBIT 267.7 247.8 8.0% 4.9%
EBIT margin 14.6% 14.0% 60bps
Earnings per share
($ per share) 0.11 0.08
Dividend per share 5.7 cents 5.7 cents
(cents)
Twelve months ended
31 December
------------------------
2018 2017 Growth
Adjusted results(1) $m (unless stated) Reported Organic(3)
--------------------- ------------------------ ---------- -----------
Revenue 1,832.1 1,764.6 3.8% 0.2%
Gross margin 60.2% 61.0% (80) bps
EBIT 429.4 456.8 (6.0)% (9.0)%
EBIT margin 23.4% 25.9% (250) bps
Earnings per share
($ per share) 0.16 0.16
There will be an analyst and investor meeting today at 9.00am
GMT at The Auditorium, UBS, 5 Broadgate Street, London, which can
be viewed live through the ConvaTec website
www.convatecgroup.com/investors/reports. A recording will be
available on the site shortly afterwards. A dial-in is also
available for the meeting:
United Kingdom: 020 3936 2999
United States: 1 845 709 8568
All other locations: +44 20 3936 2999
Access code: 047595
The full text of this announcement and the presentation for the
analyst and investors meeting can also be downloaded from the
website above.
--------------------------------------------------------------------------------------------------------------------------------------
(1) 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 29 to 35).
(2) Constant exchange rates ("CER") growth is calculated by
applying the applicable prior period average exchange rates to the
Group's actual performance in the respective period.
(3) Organic growth presents period over period growth at CER,
excluding M&A activities.
(4) Medium to long term is 3 to 5 years.
(5) Adjusted EBIT is equivalent to adjusted operating profit and
reported EBIT is equivalent to reported operating profit.
Analysts and Investors
John Crosse, VP Investor Relations +44 (0)7500 141435
Mark Reynolds, Director Investor Relations +44 (0)7551
036625
Kirsty Law, Director Investor Relations +44(0)7470 909582
investorrelations@convatec.com
Media
Bobby Leach, VP Group Corporate Affairs +44 (0)7770 842226
Finsbury +44 (0)207 2513801
Financial Calendar
Ex-dividend date* 4 April 2019
Dividend record date* 5 April 2019
Scrip dividend election date* 23 April 2019
Q1 trading update 3 May 2019
Annual General Meeting 9 May 2019
Dividend payment date* 16 May 2019
* subject to approval at AGM.
About ConvaTec
ConvaTec is a global medical products and technologies company
focused on therapies for the management of chronic conditions, with
leading market positions in advanced wound care, ostomy care,
continence and critical care, and infusion devices. Our products
provide a range of clinical and economic benefits including
infection prevention, protection of at-risk skin, improved patient
outcomes and reduced total cost of care. To learn more about
ConvaTec, please visit www.convatecgroup.com
Chief Executive's Review
For the twelve months ended 31 December 2018
We did not deliver our original targets for revenue growth and
operational improvements in 2018 due to poor execution. The Board
and the Executive Committee were disappointed with the Group's
performance and we are addressing these failures with a series of
immediate actions.
Following the departure of Paul Moraviec in October 2018, the
Board immediately initiated the search for a new CEO. To ensure
that we address the Group's poor performance without delay, I was
appointed Interim CEO. The fundamental opportunities of our
markets, products and brands remain sound. Our strategy to leverage
our product portfolio for growth in attractive segments and
geographies, develop and commercialise new technologies and
services, and reduce complexity while increasing efficiency is also
sound. However, our execution failures need to be urgently
addressed. Accordingly the Board gave me a mandate to develop a
plan to improve, on a sustainable basis, the Group's commercial and
operational performance, in order to deliver better financial
results for shareholders over the medium to long term(4) and to
develop an execution model that our new CEO, once appointed, can
immediately leverage without constraining any potential strategic
changes they may wish to implement.
Over the past four months, along with the Executive Committee, I
have undertaken an extensive review of all aspects of our business
and, following Board approval, we are now implementing a refreshed
execution model to support our strategy. We will focus on
delivering sustainable and profitable growth by concentrating on
those geographies, products and market segments that offer the best
returns, simplifying our business and running it more effectively
and efficiently whilst increasing our investment to drive growth
and substantially improve the performance of the business.
Increased investment to drive growth will be needed over the
next three years whilst we transform the business and ensure all
elements of the Group are operating at an optimal level, enabling
the company to deliver the returns that our shareholders and other
stakeholders rightly expect. This is expected to be funded by
reinvestment of anticipated cost savings from our cost out and
efficiency programmes, detailed below.
We have a values-led culture and this is a core strength of our
business. However, we also need to implement a high-performance
culture, focused on continuous improvement in both operational and
commercial excellence, with significantly better execution and
delivery of profitable growth. This will require improved
performance management, with personal performance targets focused
on each individual's contribution to the delivery of our strategy.
People will be held personally accountable for the delivery of
their targets.
Group reported revenue in 2018 of $1,832.1 million grew 3.8%
year on year, 2.7%(2) CER or 0.2%(3) organically, in-line with the
revised guidance provided in October but below our initial
expectations given in February 2018. Significantly reduced orders
in Infusion Devices, due to an unexpected change in inventory
policy in the fourth quarter by our largest customer, was the main
driver of reduced guidance. Continued underperformance in our US
AWC business, challenging market dynamics for AWC in the UK and, to
a lesser extent, weakness in OC also contributed to this
result.
Reported EBIT margin was 14.6% (2017: 14.0%), a result of higher
revenues, lower costs related to manufacturing plant consolidation,
a reduction in costs from pre-IPO share-based payments and the
absence of any further costs related to the compliance and control
remediation programme resulting from the IPO.
Adjusted(1) EBIT margin was 23.4%, (2017: 25.9%), again in-line
with the revised guidance given in October 2018 but below our
initial expectations. Increased investment in commercial
initiatives, the internal infrastructure and capability of the
business and negative sales mix were the main drivers of lower
adjusted(1) EBIT margin, along with lower than expected revenues.
Despite this, cashflow remained robust, with adjusted cash
conversion at 81%(1) (2017: 77%).
Franchise revenue performance
Twelve months ended
31 December
----------------------
2018 2017 Growth Q4
$m $m Reported Organic(3) Organic growth(3)
Revenue by Franchise
------------------------- ---------- ---------- --------- ----------- ------------------
Advanced Wound Care 587.5 577.8 1.7% 0.2% (1.8)%
Ostomy Care 533.3 528.9 0.8% (0.5)% (1.5)%
Continence and Critical
Care 443.0 382.9 15.7% 4.1% 3.9%
Infusion Devices 268.3 275.0 (2.4)% (3.5)% (24.9)%
------------------------- ---------- ---------- --------- ----------- ------------------
Total 1,832.1 1,764.6 3.8% 0.2% (4.0)%
------------------------- ---------- ---------- --------- ----------- ------------------
Advanced Wound Care ("AWC")
2018 was a very disappointing year in terms of revenue growth.
Our AQUACEL(TM) brand remains strong. We are the leaders in market
share in a number of categories, including silver, and we continue
to build our position and grow our market share in foam. We also
saw good growth in our emerging markets in APAC and Latin America.
However, in the UK competitive dynamics have increased, impacting
2018 performance, with local competition and pricing pressure. We
also significantly underperformed in the US due to the recovery
from supply constraints in 2017 taking much longer than anticipated
and our acceleration programme not performing as expected, taking
longer to implement and translate into improved financial
performance.
AWC 2018 revenue performance
In 2018 we remained focused on three priorities to drive our
growth in AWC:
- Expand our AQUACEL(TM) dressings offering through the
extension of AQUACEL(TM) Ag+ dressing with anti-biofilm technology
and the expansion of the AQUACEL(TM) Surgical product portfolio
into new surgical areas.
- Continue to accelerate growth in the foam market and expand
our portfolio of dressings, targeting the fast-growing protection
and prevention foam segments.
- Build on our initial entry into the fast-growing disposable
segment of the Negative Pressure Wound Therapy ("NPWT") market.
Reported revenue of $587.5 million grew 1.7% compared to the
prior year. On an organic basis revenue grew 0.2%.
The franchise's older DuoDERM(TM) and base AQUACEL(TM)
Hydrofiber(TM) products, together with its skin care business, make
up around 40% of AWC revenues and were a significant drag on
revenue growth in 2018. DuoDERM(TM) made slow progress in
recovering from the 2017 supply issues and, whilst we saw some
improvement during the year, in the fourth quarter its performance
was still below historic growth rates. AQUACEL(TM) Hydrofiber(TM)
was particularly impacted by ongoing and challenging UK market
dynamics, including NHS supply chain tendering activity and new
market entrants, and although performance did improve in the third
quarter following a weak first half, in the fourth quarter negative
channel inventory movements along with further pricing pressure
impacted growth. We expect these pressures to remain in 2019. Skin
care performance was adversely impacted by competitor activity in
the US, which particularly weighed on franchise performance in the
second half, which we anticipate will also continue in 2019.
Growth in AQUACEL(TM) surgical cover dressing was significantly
below prior years and this was a material contributing factor to
our ongoing weak US performance. Recovery from the supply
constraints of 2017 was much slower than anticipated and the entry
of alternative treatment protocols, such as glues and NPWT, has
made the competitive landscape in this segment more
challenging.
During the year we rolled-out our wound acceleration plan across
the US. The plan aimed to address performance issues and focused on
account conversion, re-positioning our foam offering, addressing
salesforce effectiveness and expanding our reach into the
post-acute channel. Although the plan delivered benefits during the
year, overall it was a disappointing outcome, as the nationwide
rollout took longer than initially planned. We expect further
benefits in 2019, in particular as a result of better targeting and
training for a specialist salesforce focused around AQUACEL(TM) Ag
Advantage, Avelle(TM) and surgical cover dressing, which should
deliver an improved performance.
Our foam range of dressings and AQUACEL(TM) anti-biofilm silver
delivered good growth. In October we launched AQUACEL(TM) Ag
Advantage in the US, with an initial positive response in line with
our expectations.
Avelle(TM), our disposable NPWT product, is now selling in 30
markets around the world. Whilst Avelle(TM) revenues are currently
modest, they continue to grow and represent an attractive
opportunity over the medium to longer-term. In October we received
510(k) approval for the US. While the global rollout of Avelle(TM)
to date has taken longer than anticipated and not been as
successful as planned, we have refined our take-to-market approach
and have now commenced its rollout in the US, the largest market
for NPWT.
In the fourth quarter revenue declined by 1.8% on an organic
basis, driven primarily by negative channel inventory movements in
the UK. Performance in the US also continued to be weak.
AWC revenue outlook
Addressing the underperformance in the US is a key priority of
the Board and Executive team. George Poole has recently been
appointed President Americas, following his success in APAC, and
the US will also be a key focus for David Shepherd, AWC President
since November 2018. We anticipate an improved AWC performance in
2019 and a higher level of revenue growth, driven by the US
launches of Avelle(TM) and AQUACEL(TM) Ag Advantage, albeit we
expect some level of cannibalisation of existing silver products by
the latter. We expect an improved surgical cover dressing
performance, as noted above. However, we also anticipate that the
channel inventory movements in the UK, which negatively impacted
growth in the fourth quarter, could continue into the first quarter
of 2019.
Ostomy Care ("OC")
Performance was impacted, as expected, by the supply constraints
that occurred in the second half of 2017 and resulting lost
patients. Underperformance in the US retail channel also
contributed to a disappointing performance in 2018. Recent trends
in the level of new patient capture in the US also showed some
signs of weakness.
We saw good performances in Latin America and in certain markets
in Asia Pacific and Europe. We continue to see good traction with
our recent product launches such as Esteem(TM) + Flex Convex.
OC 2018 revenue performance
During the year we focused on three priorities to drive our
growth:
- Continue to strengthen relationships with ostomy nurses in
hospitals to increase familiarity with our products and to provide
them with the tools to make ostomy care simple, easy and
accessible.
- Expand our me+(TM) direct-to-consumer programmes to engage
directly and frequently with ostomates to build strong and long
term customer relationships.
- Continue to enhance our product portfolio by leveraging our
adhesive technology and investing in consumer-led design and
enhancements.
Revenue of $533.3 million grew 0.8% against the prior year on a
reported basis, due to favorable foreign exchange rate movements,
but on an organic basis revenue declined 0.5%
We worked hard with distributors, hospitals, clinicians and
patients to mitigate the disruption caused by the 2017 supply
issues. However, the negative impact on 2018 growth of these supply
constraints and associated patient losses was towards the upper end
of our expectations. We also saw underperformance in the US retail
channel, due to patient switching, and the trend in our level of
new patient capture in the US also saw some weakness, based on most
recent data. To address this, we are implementing changes to our
commercial approach, including flattening our organisational
structure to get closer to the customer, improved segmentation and
revised sales incentive programmes.
We were pleased to agree a two-year extension to the Vizient GPO
(General Purchasing Organisation) contract for Ostomy Care in the
US in September. This is the largest GPO contract in the US
covering around 50% of hospitals and our contract now runs until
June 2021.
We saw good performances in Latin America and in certain markets
in Asia Pacific and Europe. Ongoing investment in our me+(TM)
platform is leading to a continued increase in the number of
enrolled patients and we continue to see good traction with our
recent product launches including Esteem(TM) + Flex Convex,
Natura(TM) Convex Accordion Flange and Varimate strips.
In the fourth quarter revenue declined by 1.5% on an organic
basis, driven primarily by strong orders from Japan in the same
period of 2017 and weaker US performance.
OC revenue outlook
We continue to focus on delivering year on year improvements in
revenue performance. We anticipate an improved performance in 2019
as we move further away from the 2017 supply issues. We expect
continuing momentum in me+(TM) enrolments, as we continue to invest
in our direct-to-consumer platform. We will focus on driving sales
of newer products, such as Esteem+ Flex Convex, and implementing
the changes to our commercial approach as detailed above. We will
look to further leverage our GPO contracts in the US. The Premier
GPO contract, covering c. 30% of US hospitals is up for renewal in
December 2019.
Continence & Critical Care ("CCC")
We delivered another year of good growth, driven by HDG in the
US. However, our overall performance during the year was negatively
impacted by a packaging recall, which reduced revenue by c. $4
million. J & R Medical, which we acquired in March, has
performed well and we are now beginning launch activity for our
next generation catheter in Europe.
CCC 2018 revenue performance
Growth was focused on three priorities:
- Continue to innovate and expand the GentleCath(TM)
intermittent catheter portfolio to cover a wider range of needs
together with expanding our me+(TM) platform for intermittent
catheter users.
- Leverage the reach of HDG, the largest medical equipment
distributor of intermittent catheters in the US.
- Build on the success of GentleCath(TM) through launching in other markets.
On a reported basis revenue of $443.0 million grew 15.7%; this
includes a combined year-on-year revenue contribution of
$43.5million from Woodbury Holdings, which was acquired on 1
September 2017, and J&R Medical, which was acquired on 1 March
2018, net of the Symbius Medical respiratory business which the
Group divested on 1 March 2018; revenue for this business in 2017
was $5.0 million. Revenue grew 4.1% year on year on an organic
basis.
HDG continues to be the principal driver of growth in the
franchise. It aims to deliver better patient experiences by
providing direct support and advice and liaison with clinicians,
insurance companies and state funded health coverage programmes on
reimbursement. This high-touch patient care model continues to
drive organic growth. We will seek to supplement this organic
growth by extending our reach and patient offering through
value-adding targeted bolt-on acquisitions like J&R
Medical.
While undertaking scheduled testing of certain hospital care
products in the second quarter we found an issue with some product
packaging. To uphold our high standards of patient care, we
withdrew the affected products and changed the packaging. To date
85% of the affected products have been repackaged and released to
market. We expect the majority of the remaining 15% will be
completed in the first quarter of 2019. The impact on revenue of
the packaging recall was c. $4 million.
Ongoing product rationalisation also impacted revenue in the
year by c. $2 million.
In the fourth quarter revenue grew by 3.9% on an organic basis,
driven primarily by strong growth in HDG, partially offset by a
reduced impact from the packaging recall.
CCC revenue outlook
We were pleased that the female version of our next generation
catheter recently won an iF Design award. It is already CE marked
and launch activity in Europe will be ramped up in the coming
months. This will be our first entry into the c. $800 million
European market. Feedback from patients has been strong, and whilst
we do not expect material revenues in the first year, this
represents a significant growth opportunity for us over the medium
to long term(4) .
We anticipate HDG will continue to perform well in the US.
Infusion Devices ("ID")
Underlying performance in 2018 was good, driven by the
successful launch of MiniMed(TM) Mio(TM) Advance with our partner
Medtronic and growth in the durable insulin pump market. However,
an unexpected change to the ordering patterns of our largest
customer late in the year had a material negative impact on revenue
growth.
ID 2018 revenue performance
We focused on three priorities to drive our growth:
- Maintain our strong and long term partnerships with insulin
pump manufacturers to secure long term business.
- Continue to develop innovative products for both insulin and other drug delivery.
- Leverage our leading industry position to ensure that we are
the supplier of choice for new entrants into the insulin market and
delivery of other sub-cutaneous drugs.
Revenue of $268.3 million declined 2.4% year on year on a
reported basis and 3.5% on an organic basis.
The first six months of the year were boosted by tailwinds of
positive customer inventory movements and, to a lesser extent, the
completion of a customer voluntary product recall for which we
supplied replacement product. This led to growth of 9.2% on an
organic basis in the first half of 2018. However, growth was weaker
in the second half due to a strong prior year comparator in the
third quarter. Furthermore, in early October we were advised of a
change to the expected ordering patterns of our largest customer,
due to a change in its inventory policy, which had a material
negative impact on revenue growth in the fourth quarter and for the
year overall.
Our MiniMed(TM) Mio(TM) Advance infusion set, launched by our
partner Medtronic, has delivered a very successful first year with
positive patient feedback and good levels of demand.
In the fourth quarter revenue declined by 24.9 % on an organic
basis, driven by the reduced orders from our largest customer's
change in its inventory policy. The negative impact in the quarter
was c. $20 million, around the mid-point of our estimate of $18
million to $24 million. We expect a more normal ordering pattern
going forward, although the exit of Animas from the insulin durable
pump market will impact 2019, as outlined below.
ID revenue outlook
Infusion Devices has historically grown around 4% to 5% per
annum, which is in line with the durable insulin pump market. Due
to the exit of Animas, one of our key customers, from the durable
pump market and the resulting termination of support for existing
Animas customers in 2019, we expect a lower level of growth in
2019, albeit above the level seen in 2018. At this stage, it is not
possible to quantify the scale of the impact of the Animas
withdrawal from the market. We believe that the change in inventory
policy at our biggest customer was a one-off event, with the impact
being predominantly in the final quarter of 2018.
Regional Revenue
Twelve months ended
31 December
----------------------
2018 2017 Growth Q4
$m $m Reported Organic(3) Organic(3)
growth
Geographic markets
-------------------- ---------- ---------- --------- ----------- -----------
EMEA 747.4 733.0 2.0% (1.3)% (3.5)%
Americas 945.3 898.1 5.3% 1.0% (6.0)%
APAC 139.4 133.5 4.4% 3.8% 7.3%
-------------------- ---------- ---------- --------- ----------- -----------
Total 1,832.1 1,764.6 3.8% 0.2% (4.0)%
-------------------- ---------- ---------- --------- ----------- -----------
Revenue in Europe, Middle East and Africa ("EMEA") in 2018 grew
2.0% on a reported basis due to favourable foreign exchange, more
than offsetting a decline of 1.3% on an organic basis. Weakness in
CCC, due to product rationalisation and the packaging recall and,
to a lesser extent, in OC was partially offset by ID performance,
driven by our neria(TM) guard insertion set. In the fourth quarter
EMEA organic revenue declined by 3.5% driven by channel movements
in AWC and timing of orders in OC.
Revenue in Americas in 2018 grew 5.3% on a reported basis, but
only 1.0% on an organic basis. Reported revenue growth reflects
primarily the acquisitions of Woodbury in September 2017 and
J&R Medical in March 2018. Organic growth of 1.0% was the
result of underperformance in AWC and lower ID revenues, due to the
change in customer ordering patterns outlined above, offset by a
strong HDG performance. In the fourth quarter revenue declined by
6.0% on an organic basis, driven primarily by the lower ID revenues
outlined above.
Revenue in Asia Pacific ("APAC") in 2018 grew 4.4% on a reported
basis and 3.8% on an organic basis driven by growth in AWC and to a
lesser extent OC, partially offset by CCC due to product
rationalisation and the packaging recall. In the fourth quarter,
APAC revenue grew by 7.3% organically driven by a strong
performance in AWC.
Adjusted Costs and EBIT
Following the supply issues in Haina in the second half of 2017,
stability in our manufacturing lines improved during 2018 and we
delivered $20 million in gross cost benefits. However, we are still
experiencing cost headwinds such as higher depreciation, excess
freight, inflation and negative mix, coupled with costs related to
the CCC packaging recall and some additional inventory write-downs.
These headwinds more than offset cost benefits and resulted in a
lower adjusted gross margin year on year.
As we had previously indicated, adjusted opex as a percentage of
sales increased to 36.7% of revenue (2017: 35.1%), while on a
reported basis it was flat at 38.5%. This increase in adjusted opex
was driven primarily by the inclusion of Woodbury and J&R
Medical and commercial investments in US wound, HDG, and China, as
well as increased R&D in part to support new product
development, particularly our next generation of Ostomy products.
We also saw increased freight costs as we dealt with back orders
built up due to the 2017 supply issues and the packaging
recall.
As a result, adjusted(1) EBIT margin was 23.4%, compared to
25.9% in the prior year.
A refreshed execution model to deliver our strategy
As highlighted above, the Board gave me a mandate to develop a
plan to improve, on a sustainable basis, the Group's commercial and
operational performance, to deliver better financial results for
shareholders over the medium to long term(4) . In the past four
months, along with the Executive Committee, I have undertaken an
extensive review of all aspects of our business and, following
Board approval, we are now implementing a refreshed execution model
called "Pivot to Growth".
Our strategy and the fundamentals of our markets, our products
and brands remain sound. Our CCC and ID franchises are
fundamentally performing well, although AWC and OC are clearly not.
A number of execution issues need to be urgently addressed, such as
delayed product launches, a focus on topline growth at the expense
of margin, inefficiencies and cost headwinds in our manufacturing
facilities, and our commercial and go-to-market approach including
price and segmentation. These have all negatively impacted our
business, not only in terms of sales and margin, but also in
management time, reputation and credibility with our
stakeholders.
Consequently, the objective of Pivot to Growth is to deliver
sustainable profitable growth and long term value for all
stakeholders by better capitalising on ConvaTec's core strengths:
leading positions in large, structurally growing markets; strong
brands and a range of differentiated products; a well-diversified
business platform across a range of market segments and
geographies; and robust cash generation capabilities. The core
principles of Pivot to Growth, which will improve our execution
capabilities and ensure we deliver on our strategy, are:
- Simplify: we produce a large number of products that deliver
little revenue and/or profit. We have made some progress in product
rationalisation in CCC but further opportunities remain across the
Group. We will simplify our business across a number of areas,
including product range, packaging and supply chain. We have
duplicate back office functions across our regions and geographies.
We are making improvements to both our management information
processes and forecasting capability, and we will take a more
centralised approach through our Businesses Services transformation
project. This project which will deliver a more efficient use of
our spend through higher quality, more responsive and lower cost
support functions. We will also seek to optimise our structure to
ensure we are closer to our customers, more responsive and able to
make faster decisions. Our goal is focused franchises with leading
market positions; a simpler and flatter management structure; a
business services approach to support functions and high quality
information for decision-making and more reliable forecasting; and
a clear "ConvaTec way" of doing business, to ensure operational
excellence and consistency.
- Innovate: we have been late to market with a number of recent
products, such as Avelle(TM) and our next generation catheters,
with the success of in-country market launches varying from market
to market. We have focused too heavily on internal product
pipelines developed in-house and our new product pipeline is lower
than in 2017. Going forward, we will build on our R&D
capabilities to ensure that we are the leading technologies and
product developer in our chosen markets. We will supplement our own
pipelines with acquired or licensed products and technologies. A
strong, innovative pipeline will make the business more resilient
to pricing pressure or generic incursion, and will also enhance the
value of the ConvaTec brand. We will upgrade our new product launch
capabilities and methodology by establishing a center of excellence
that will create a template across the Group for product launches
based on best practice and we will increase our investment in
R&D.
- Segment: we have not approached markets in a targeted way, and
not effectively sold the differentiated nature of our products to
command a price premium. We have too often focused on topline
growth at the expense of price and margin. In future, we will focus
on premium markets, segments and geographies that have the
potential to deliver the most profitable growth on a sustainable
basis. We will invest in higher growth, higher margin
opportunities, rather than being distracted by smaller or less
valuable ones. This will help support pricing power longer term by
reducing our exposure to commoditisation, and develop more of an
end customer "pull" than channel "push". We will also be more
disciplined on price. We will invest in value-based clinical
evidence and manage our portfolio more actively.
- Invest: over the next three years we will invest in our
Transformation Initiative, as detailed below, to enhance our
capability to deliver short and long term improvements to operating
performance. Over the medium to long term(4) we are targeting
increased investment as a proportion of sales in key areas such as
Sales and Distribution and Research and Development. This is
intended to drive higher revenue growth over time and make us more
efficient, with General and Administrative costs falling as a
proportion of sales. We will partially fund these investments
through cost out and efficiency programmes as part of our
Transformation Initiative, detailed below.
Our Transformation Initiative, which is CEO led, will implement
the core principles of Pivot to Growth through four
workstreams:
-- Commercial excellence, led by David Shepherd, President AWC,
and Kjersti Grimsrud, President EMEA, to drive more effective
product launches, improve pricing strategy and to ensure that we
are more focused on our customers
-- Operational Excellence, led by Donal Balfe, Vice President
Global Operations, which includes our cost out and efficiency
programmes as detailed below;
-- Business Services Transformation, led by Frank Schulkes, CFO,
which aims to deliver savings in the back office;
-- Portfolio Optimisation, led by Stephan Bonnelycke, President
Ostomy, to move our focus to high growth, high margin segments and
geographies.
The investment required for our Transformation Initiative will
be around $150 million over three years, with a two to three year
payback expected. We expect around 30% of this total will be capex
investment, with the remaining 70% being operational spend related
to restructuring, project management and other transformation costs
which will cease at the end of the three year period.
By year three of the Transformation Initiative we will also
expect to incur $50 million of ongoing annual costs related to
commercial spend and R&D, building from $15 million in
2019.
Benefits will be higher revenue growth, $80 million in gross
annual cost savings by year three, (increasing to $120 million
gross annual cost savings by 2023) and improved profit margin. The
gross cost benefits will be partially offset by headwinds including
inflation, higher depreciation and price/mix, but will also lead to
improved margins. We will provide regular updates on our progress
in delivering against our target for gross cost savings.
People
To deliver improved performance and better execution we need the
right people in the right positions. Over the past 18 months our
Executive Committee has been greatly strengthened. David Shepherd
was appointed Group President of AWC in November. David joins from
Johnson & Johnson, where he worked for 26 years in a variety of
sales, marketing, strategic and operations roles. Most recently he
was the Area Vice President, Southern EMEA with responsibility for
15 businesses. David will lead the development and delivery of our
AWC strategy, working closely with the other Franchise and Regional
Presidents and other key functional areas.
In January 2019 George Poole, previously President, APAC, became
President, Americas. George joined ConvaTec in 2015 from Medtronic,
where he spent nearly 16 years in leadership roles in commercial,
marketing, operations and general management. He has implemented a
successful commercial strategy in our APAC region over the past
three years.
Supratim Bose joined the Group in December as Executive Vice
President and President, APAC, from Boston Scientific Corporation,
where he served as Executive Vice President & President of Asia
Pacific, Japan, Middle East and Africa. Prior to Boston Scientific,
Supratim spent 29 years with Johnson & Johnson.
I am impressed with the quality of the Executive Committee. The
additions over the last 18 months bring significantly improved
capability and experience. Working alongside myself and Frank
Schulkes, our CFO, I am confident that we will be able to drive
improved performance through our refreshed execution model, which
provides much greater clarity and direction to our strengthened
management team.
Further biographical information on all members of the Executive
Committee is available on our website (www.convatecgroup.com).
During my short time as CEO I have visited many parts of the
business and met with local management. I have been consistently
impressed by the passion and commitment of our people to our core
Purpose, to improve the lives of the people we touch, and their
absolute desire to do the right thing.
Corporate responsibility
Since my appointment as an independent non-executive director in
2016, I have been a member of the Board's CR Committee. As CEO I
now have an executive role in guiding and driving our CR
performance to achieve our medium-term objectives namely:
-- To strengthen our management of CR-related risk;
-- To improve our transparency;
-- To develop our employee and community engagement; and
-- To improve the sustainability performance of our products.
It has been a very positive year in respect of the advancements
we have made as we continue to drive our CR programme forward. We
have made good progress in our management of health and safety. Our
approach to respecting the labour rights of our employees and those
who work in our supply chains has been recognised in an independent
assessment conducted by one of our key customers. We are now
increasing our efforts to reduce our impact on the environment, and
I was delighted with our move to procure renewable energy for all
our UK operations.
One of the highlights of the year has been the successful launch
of our global community programme, 'LIFE+ by ConvaTec' and you can
read more about this on page 25 of the 2018 Annual Report and
Accounts, and in more detail in the 2018 Corporate Responsibility
Report, which will shortly be available on our website.
Acquisitions
On 1 March 2018 the Group acquired J&R Medical, a
Texas-based independent distributor of catheter-related supplies.
The addition of J&R Medical strengthens our presence in the
substantial and important US market. Concurrently, the Group
divested its Symbius Medical respiratory business.
UK withdrawal from the European Union ("Brexit")
For some time we have been monitoring the potential outcomes of
the Brexit negotiations, assessing the potential effects on our
business, whatever the circumstances under which the UK will cease
to be a member of the EU, and preparing contingency plans to
address the potential outcomes. Our Brexit taskforce is actively
preparing for a "No-Deal" scenario with external advisory support
as required. However, it remains unclear what will be the position
for the UK on 29 March 2019 and our planning will continue to
evolve and adapt in light of political developments.
Our Brexit risk assessment process identified several key areas
of focus for potential impact, including:
-- Regulatory frameworks and compliance
-- Customs duties and tariffs
-- Supply chain
-- Employees and mobility
-- Tax and treasury
Our products are CE marked for sale through a Notified Body. Our
Notified Body at present is BSI UK, which has set up a sister
company in the Netherlands, BSI NL, which has completed the process
to be a designated EU Notified Body, and a migration process with
the respective National Competent Authorities has been agreed for
CE certifications. This is an administrative process, which has
recently been put in motion by BSI on the advice of the MHRA
(Medicines and Healthcare products Regulatory Agency). This means,
for our products that are sold in the EU, that CE certification
would be migrated to BSI NL and existing certificate numbers would
be retained. BSI have also confirmed that a protracted period will
be allowed in which to make associated labelling and packaging
changes. In addition, a ConvaTec Group company located within the
EEA/EU will be designated as the Authorised Representative in the
EU for those products where ConvaTec Limited is the legal
manufacturer.
The UK authorities have recently made arrangements to allow
continued sales in the UK of existing medical products manufactured
in the EU. EU standards and regulations will continue to be
accepted and thus we expect our products manufactured within the EU
and exported to the UK will be not be impacted from a regulatory
and compliance perspective.
ConvaTec has undertaken an indirect tax assessment in
conjunction with external advisors to establish the potential duty
impact on the flow of its products that move in and out of the UK.
We manufacture our products in eight countries around the world,
with the UK being one of those locations. This means that the
potential duty impact only affects a modest proportion of our
imports and exports.
We do buy raw materials in the EU that are shipped to the UK,
for use in the manufacture of our Advanced Wound Care products.
However, the final duty costs will not be known until the mechanism
for effecting Brexit has been confirmed. The inventory levels
required during a "No-Deal" Brexit transition have been assessed
and we are working to have these in place at the appropriate
time.
It is reasonable to expect that there shall be delays at the
custom borders into and out of the UK on and after 29 March 2019
for a limited period. We have assessed the potential impact of such
delays on our supply chain and have put in place mitigation plans,
including reviewing inventory and appropriate stock
positioning.
We recognise that there remains significant uncertainty around
the eventual Brexit outcome. However, based on our understanding
today we do not believe that Brexit will generate unmanageable
risks for our business.
Group Outlook and 2019 Guidance
As mentioned previously, our strategy and the fundamentals of
our markets, products and brands remain sound.
Whilst CCC and ID are fundamentally performing well, AWC and OC
are not. A number of execution issues across the Group need to be
addressed. We have developed a refreshed execution model Pivot to
Growth, which will focus on four principles: Simplify, Innovate,
Segment and Invest, to deliver sustainable and profitable growth
through concentrating on those product and market segments that
offer the best returns, simplifying our business and running it
more effectively and efficiently, whilst continuing to invest to
drive growth.
Our Transformation Initiative set out above contain four
workstreams which will improve our operational and commercial
execution. However, we will need to invest in the business over
three years whilst we address performance issues, enabling the
company to deliver the returns that our shareholders and other
stakeholders rightly expect.
In 2019 we expect organic revenue growth of 1% to 2.5%, with an
improved performance year on year in AWC, OC and CCC. Whilst ID
will be impacted by the exit of Animas, we expect growth to be
above the level seen in 2018. Adjusted EBIT margin is expected to
be 18% to 20%, including $50 million of operational spend
associated with the Transformation Initiative and costs related to
MDR. Excluding these transformation costs and MDR, the adjusted
EBIT margin would be 21% to 22.5%, reflecting a positive
contribution from cost out initiatives, partially offset by price
and increased negative mix and ongoing commercial investments and
other cost increases.
Our opportunity over the medium to long term is to drive organic
revenue growth in line with or higher than market growth rates and
we continue to see adjusted EBIT margin expansion potential.
There is a lot to do to execute our strategy more effectively
but I am confident that the energy and commitment of all our
people, allied to a refreshed execution model, will help us to
deliver an improved performance and move us to a position where we
can deliver the sustainable returns that shareholders and other
stakeholders deserve. In doing so we will continue to do the right
thing for our business and all our stakeholders. I am confident we
are now set on that course.
Principal risks and uncertainties
The Group's risk management process is in place to identify,
evaluate and manage the identified risks that could impact the
Group's performance. Principal risks and uncertainties, together
with an explanation of the impact and mitigation actions, are
included in the Group's 2017 Annual Report and Accounts on pages 30
to 36 (www.convatecgroup.com/ investors/reports), and they will be
disclosed in the 2018 Annual Report and Accounts on pages 34 to 43
and are summarised below.
The principal risks and uncertainties which will be disclosed in
the 2018 Annual Report and Accounts are listed below. In line with
the development of our refreshed execution model, we have reviewed
the risks that could impact our four strategic drivers. As a result
of this review, although the nature of the key risks have not
altered, the substance and management of certain risks has
changed.
-- Change and transformation;
-- Attract, engage and retain leadership talent;
-- Brexit;
-- Legal and Compliance;
-- Global Operational and Supply Chain;
-- Product Innovation and Intellectual Property;
-- Pricing and reimbursement;
-- Forecasting and Process;
-- Information security;
-- Macroeconomic and foreign exchange;
-- Quality and Regulatory.
There are 11 principal risks and uncertainties for 2018
including three new risks, these are discussed in further detail
below.
-- Change and transformation - the large and significant change
and transformation programmes being implemented across the Group do
not deliver the required impact and results within our planned
timescale and budget.
The potential impact of this risk is: failure to deliver our
strategy, growth targets and market expectations; failure to fully
integrate new acquisitions could result in inconsistent policies
and management and costly operations, which could impede our
ability to fully realise the benefits of the acquisition; failure
to deliver our efficiency programme could adversely impact our
ability to invest in our infrastructure and the capabilities
required to improve our execution and delivery of our strategy and
our ability to meet shareholders' expectations.
Our risk mitigation is: we have established Franchise Councils
and steering committees to enhance governance and review
performance; we have recruited additional resources to support key
functions to proactively manage risk, enable timely communications
and activate contingency planning where needed; senior management
are focused on driving a cultural change in relation to strategic
decision-making, planning, execution and review of key deliverables
to ensure alignment against timelines, expectations and contingency
planning; we have established a Transformation Initiative to
oversee the execution of a number of key strategic projects. We are
also increasing our project management capabilities through the
recruitment of additional employees who are skilled in this area,
and the engagement of specialist third-party project managers.
-- Attract, engage and retain leadership talent - failing to
attract, retain and align the right leadership talent to the value
we seek to create in the business.
The potential impact of this risk is: lack of appropriately
skilled and experienced leaders, due to inability to attract and
retain talented leadership could adversely impact our performance
and delay delivery of our strategy; loss of corporate knowledge due
to poor retention of talented employees; lack of top talent could
impact the ability to develop effective succession plans for the
future.
Our risk mitigation is: we are implementing a new people
strategy; talent management reviews are completed annually in May
and are updated in October. Key findings from both reviews are
reported to the Board; we undertake employee surveys to monitor
employee engagement. Any issues are assessed and addressed by the
People Leadership Committee which has a global membership;
Executive Committee members have scorecards which include three
people related KPIs covering employee engagement, diversity and
inclusion, and talent succession and retention; we seek to offer
market competitive terms to ensure leadership talent is attracted,
retained and remains engaged; we undertake workforce planning;
performance, talent and succession initiatives; learning and
development programmes; and we promote our culture and core values;
we assess and update our people processes regularly to ensure there
is strong linkage between our talent and the value we seek to
create, underpinned with robust performance management
processes.
-- Brexit - Brexit introduces a high level of uncertainty
regarding trading conditions which will impact our EU and UK
production plants and potentially our logistics hub based in the
Netherlands and our sales in all EU countries. Brexit may cause
some key customers to significantly change and increase their
purchasing demands in the short term to build their own safety
stock piles to ensure supply continuity after 29 March 2019.
The potential impact of this risk is: border controls and tariff
changes could cause supply chain delays and delivery of products to
customers could be delayed; trading performance could be adversely
impacted by increases in tariffs on products and delays in their
global movement; delay may be caused in the processing of product
changes by our Notified Body whilst migration of CE certifications
is undertaken which, if not addressed by increased supply and
production, could cause back orders and disruption to supply to
customers; product labelling requirements could be required as a
result of regulatory changes; trading performance could be
adversely impacted by the potential instability of the global
currency market and changes in foreign exchange rates; stockpiling
by key customers could result in a reduction of our inventory
levels which, if not addressed by increased supply and production,
could cause back orders and disruption to supply to customers; our
employees may encounter delays or restrictions on their movements
in Europe and the UK.
Our risk mitigation is: our Brexit Steering Committee, which
includes representatives from all key functions, has developed a
plan to prepare for Brexit based on the assessment of potential
impacts and possible mitigating actions. The plan identified a
number of actions which we are now implementing; progress reports
are regularly provided to the Brexit Steering Committee which
monitors the progress of the different workstreams across the
business and assesses our preparedness for post-Brexit trade; the
Brexit Steering Committee is monitoring the status of the
Government's negotiations and amending our approach where required;
Quality and Regulatory Affairs are continuing to monitor the
potential regulatory impact. We have commenced the process with BSI
UK to migrate our CE certifications for sales of products in the EU
to its sister company based in the Netherlands and expect the
migration to be completed before 29 March 2019. The associated
product labelling changes are being made to products that will not
be placed on the market by 29 March 2019. Further, a
Group company located within the EEA/EU will be designated as
the Authorised Representative in the EU for those products where
ConvaTec Limited is the legal manufacturer; we have undertaken an
indirect tax assessment in conjunction with an external advisor to
establish the potential duty impact on the flow of our raw
materials and products that move in and out of the UK, and are
taking actions to mitigate the tariff and custom charges; we are
working with the NHS supply chain and the Department of Health
supply chain to assist with their contingency planning and
understand their projected product demands; the global supply chain
and manufacturing team have modelled various possible scenarios of
product demand to address border delays and regulatory delays and
created contingency plans to manage projected impacts including
appropriate stock positioning; we have undertaken an initial review
of the impact on our people and taking account of our skilled
workforce and low levels of mobility between countries, we consider
the impact to be limited.
Forward Looking Statements
This document includes statements that are, or may be deemed to
be, "forward-looking statements". These forward-looking statements
involve known and unknown risks and uncertainties, many of which
are beyond the Group's control. "Forward-looking statements" are
sometimes identified by the use of forward-looking terminology,
including the terms "believes", "estimates", "aims", "anticipates",
"expects", "intends", "plans", "predicts", "may", "will", "could",
"shall", "risk", "targets", "forecasts", "should", "guidance",
"continues", "assumes" or "positioned" or, in each case, their
negative or other variations or comparable terminology. These
forward-looking statements include all matters that are not
historical facts. They appear in a number of places and include,
but are not limited to, statements regarding the Group's
intentions, beliefs or current expectations concerning, amongst
other things, results of operations, financial condition,
liquidity, prospects, growth, strategies and dividend policy of the
Group and the industry in which it operates.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. These
statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable by the Company, are
inherently subject to significant business, economic and
competitive uncertainties and contingencies. As such, no assurance
can be given that such future results, including guidance provided
by the Group, will be achieved; actual events or results may differ
materially as a result of risks and uncertainties facing the Group.
Such risks and uncertainties could cause actual results to vary
materially from the future results indicated, expressed, or implied
in such forward-looking statements. Forward-looking statements are
not guarantees of future performance and the actual results of
operations, financial condition and liquidity, and the development
of the industry in which the Group operates, may differ materially
from those made in or suggested by the forward-looking statements
set out in this Presentation. Past performance of the Group cannot
be relied on as a guide to future performance. Forward-looking
statements speak only as at the date of this document and the Group
and its directors, officers, employees, agents, affiliates and
advisers expressly disclaim any obligations or undertaking to
release any update of, or revisions to, any forward-looking
statements in this document.
Finance Review
For the 12 months ended 31 December 2018
The Finance Review includes discussion of reported and
alternative performance measures. Management uses alternative
performance measures as a meaningful supplement to reported
measures. These measures are disclosed in accordance with the
European Securities and Markets Authority guidelines and are
explained and reconciled to the most directly comparable measure
prepared in accordance with IFRS on pages 29 to 35 Further detail
on the Group's financial performance, measured in accordance with
IFRS, is set out in the Financial Statements and Notes thereto on
pages 36 to 52.
In addition, the discussion below includes commentary on revenue
on a constant currency basis and on an organic basis. Constant
currency removes the effect of fluctuations in exchange rates.
Organic removes the effect of fluctuations in exchange rate and the
impact of acquisitions and disposals. Both measures enable the
Group to focus on the 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 growth on an organic basis is a
non-IFRS financial measure and should not be viewed as a
replacement of IFRS reported revenue.
Results of operations
The following table summarises the Group's performance for each
of the last two years on a reported and adjusted basis.
Reported Reported Adjusted Adjusted(1)
(1)
2018 2017 2018 2017
$m $m $m $m
---------------------------- --------- --------- --------- ------------
Revenue 1,832.1 1,764.6 1,832.1 1,764.6
Cost of goods sold (858.3) (838.3) (729.9) (688.3)
Gross profit 973.8 926.3 1,102.2 1,076.3
Gross margin % 53.2% 52.5% 60.2% 61.0%
Selling and distribution
expenses (418.0) (377.5) (415.3) (377.2)
General and administration
expenses (238.2) (259.8) (208.3) (202.0)
Research and development
expenses (49.9) (41.2) (49.2) (40.3)
Operating profit 267.7 247.8 429.4 456.8
Operating margin % 14.6% 14.0% 23.4% 25.9%
Finance costs (65.2) (62.1) (65.2) (62.1)
Other expenses, net (1.3) (21.7) (3.2) (24.3)
Profit before tax 201.2 164.0 361.0 370.4
Taxation 20.4 (5.6) (56.5) (54.4)
Net profit 221.6 158.4 304.5 316.0
Net profit % 12.1% 9.0% 16.6% 17.9%
Basic and diluted Earnings
per Share ($ per share) 0.11 0.08 0.16 0.16
Dividend per share (cents) 5.7 5.7
---------------------------- --------- --------- --------- ------------
(1 These non-IFRS financial measures are explained and
reconciled to the most directly comparable financial measure
prepared in accordance with IFRS on pages 29 to 35)
Revenue
On a reported basis revenue increased by 3.8% to $1,832.1
million (2017: $1,764.6 million). On a constant exchange basis
revenue increased by 2.7% and 0.2% on an organic basis. Reported
revenue included a year on year increase of $43.5 million in the
contribution from the acquisitions of Woodbury and J&R Medical
and benefited from $20.5 million favourable foreign exchange
movements in 2018.
Revenue by franchise
The following table summarises the Group's revenue by franchise
for 2018 and 2017 and the percentage change on a reported, constant
exchange rate and organic basis.
2018 2017
$m $m Organic M&A Exchange Reported
growth rates growth
--------------- -------- -------- -------- ------ --------- ---------
Advanced
Wound Care 587.5 577.8 0.2% 0.0% 1.5% 1.7%
--------------- -------- -------- -------- ------ --------- ---------
Ostomy Care 533.3 528.9 (0.5)% 0.0% 1.3% 0.8%
--------------- -------- -------- -------- ------ --------- ---------
Continence
& Critical
Care 443.0 382.9 4.1% 11.1% 0.5% 15.7%
--------------- -------- -------- -------- ------ --------- ---------
Infusion
Devices 268.3 275.0 (3.5)% 0.0% 1.1% (2.4)%
--------------- -------- -------- -------- ------ --------- ---------
Total revenue 1,832.1 1,764.6 0.2% 2.5% 1.1% 3.8%
--------------- -------- -------- -------- ------ --------- ---------
Cost of goods sold
Reported
Reported cost of goods sold increased 2.4% or $20.0 million to
$858.3 million (2017: $838.3 million). Performance benefits from
our cost out programmes have been more than offset by headwinds and
cost increases. These include negative product mix effects,
inflation, higher depreciation and higher costs related to our
recovery from the supply constraints of 2017, including increased
freight as we fulfilled back orders, coupled with costs related to
the CCC packaging recall and some additional inventory write-downs.
These increases were offset by favourable foreign exchange.
On a reported basis, gross profit increased by $47.5 million,
5.1%, and gross profit margin improved to 53.2% (2017: 52.5%) due
primarily to lower restructuring costs in relation to our pre-IPO
MIP programme.
Adjusted
Adjusted cost of goods sold of $729.9 million in 2018 increased
6.0% or $41.6 million compared to 2017, driven by headwinds and
cost increases outlined above offset by favourable foreign
exchange.
This led to adjusted gross margin for 2018 of 60.2%, compared
with 61.0% for the prior year. Overall, there was a net negative
impact on adjusted gross margin of 100 bps of headwinds and cost
increases, offset by a 20 bps foreign exchange benefit.
Operating costs and expenses
The following is a summary of operating costs and expenses for
2018 and 2017 and the percentage of each category compared with
total revenue in the respective period.
Reported Reported Adjusted Adjusted
2018 2017 2018 2017
$m $m $m $m
-------------------------- --------- --------- --------- ---------
Selling & distribution 418.0 377.5 415.3 377.2
% revenue 22.8% 21.4% 22.7% 21.4%
General & administration 238.2 259.8 208.3 202.0
% revenue 13.0% 14.7% 11.4% 11.4%
Research & development 49.9 41.2 49.2 40.3
% revenue 2.7% 2.3% 2.7% 2.3%
Total operating
costs 706.1 678.5 672.8 619.5
% revenue 38.5% 38.5% 36.7% 35.1%
-------------------------- --------- --------- --------- ---------
(1 These non-IFRS financial measures are explained and
reconciled to the most directly comparable financial measure
prepared in accordance with IFRS on pages 29 to 35)
Reported
Selling & distribution
On a reported basis, selling and distribution expenses increased
by $40.5 million to $418.0 million (2017: $377.5 million). This
increase was driven by continued investments in our commercial
infrastructure to drive revenue growth in EMEA, the Americas and
China as well as the inclusion of the cost base of Woodbury and
J&R Medical. We also increased freight spend as we both
increased volume and fulfilled back orders.
General & administration
On a reported basis, general and administrative expenses reduced
by $21.6 million to $238.2 million (2017: $259.8 million)
principally reflecting the fall in the pre-IPO share-based payment
charge ($23.1 million) partially offset by an increase in the cost
base reflecting the inclusion of the Woodbury and J&R Medical
acquisitions.
Research and development ("R&D")
R&D costs increased by $8.7 million to $49.9 million (2017:
$41.2 million).
R&D expenses increased to support new product development,
in particular the development of our next generation Ostomy
products, and project write-offs as part of our more focused
approach to products, segments and markets.
Adjusted
Selling & distribution
Adjusted selling and distribution expenses increased $38.1
million or 10.1% in 2018 to $415.3 million. As a percentage of
revenue, adjusted selling and distribution expenses were 22.7% and
21.4% for the years 2018 and 2017 respectively due to increased
commercial investment and higher freight costs, as outlined
above.
General & administration
Adjusted general and administration expenses (which exclude the
pre-IPO share-based payment charges) increased $6.3 million, or
3.1%, in 2018 to $208.3 million. The increase in adjusted costs
reflects the inclusion of the cost base of Woodbury and J&R
Medical. Excluding these costs, general and administrative expenses
declined as IT and strategic project investments to support growth
and productivity were more than offset by tight cost control across
the Group and a reduction in employee bonuses. As a percentage of
revenue, adjusted general and administration expenses were flat
year on year at 11.4%.
Research & development ("R&D")
On an adjusted basis, research and development expenses
increased $8.9 million, or 22.1%, in 2018 to $49.2 million. As a
percentage of revenue, adjusted research and development expenses
were 2.7% and 2.3% for the years 2018 and 2017 respectively.
Operating profit
Reported
On a reported basis, operating profit was $267.7 million, an
increase of $19.9 million (2017: $247.8 million) reflecting the
increase in gross margin being partially offset by an increase in
the Group's operating cost base. The comparator in 2017 included
restructuring costs in relation to the Group's MIP programme and
pre-IPO share-based payment charges. Reported operating profit in
2018 includes only $2.5 million in respect of costs in relation to
the Group's MIP programme (no further costs for this programme have
been incurred since June 2018).
Adjusted
Adjusted operating profit was $429.4 million, a reduction of
$27.4 million (2017: $456.8 million). This reflects the very small
increase in revenue offset by the headwinds in gross margin
previously discussed and an increase in the operating cost
base.
Finance and other expenses
The table below presents a summary of finance and other
expenses, net on a reported and adjusted basis.
Reported Reported Adjusted Adjusted
2018 2017 2018 2017
$m $m $m $m
----------------- --------- --------- --------- ---------
Finance costs (65.2) (62.1) (65.2) (62.1)
Other expenses,
net (1.3) (21.7) (3.2) (24.3)
Total (66.5) (83.8) (68.4) (86.4)
----------------- --------- --------- --------- ---------
(1 These non-IFRS financial measures are explained and
reconciled to the most directly comparable financial measure
prepared in accordance with IFRS on pages 29 to 35)
Finance costs
Finance costs consist of interest costs on bank and other
finance debt, non-utilisation of finance facility fees and the
interest cost on derivative financial instruments.
Reported
Finance costs increased $3.1 million to $65.2 million in 2018
from $62.1 million in 2017. This reflects an increase of 40 bps to
3.5% (2017: 3.1%) in the weighted average borrowing cost for the
year offset by the benefit of the interest rate swap and lower
borrowings resulting from both scheduled and voluntary loan
repayments.
Other Expenses, net
Other expenses, net primarily consists of net gains and losses
resulting from:
-- The re-measurement or settlement of transactions that are
denominated in a currency that is not the functional currency of a
transacting subsidiary; and
-- Gains and losses on disposal of assets.
Reported
Other expenses, net on a reported basis decreased $20.4 million
to $1.3 million in 2018 primarily due to a reduction in foreign
exchange losses related to intercompany transactions, reflecting
our improving management of such balances. Offsetting the foreign
exchange loss in 2018 is a net gain of $1.9 million which
represents the profit on the sale of equipment at our Greensboro
site and the loss on disposal of Symbius.
Adjusted
On an adjusted basis, other expenses, net of $3.2 million (2017:
$24.3 million), principally represent foreign exchange losses.
Taxation
Reported Reported Adjusted Adjusted
2018 2017 2018 2017
$m $m $m $m
------------------------------ --------- --------- --------- ---------
Profit before taxation 201.2 164.0 361.0 370.4
Income tax benefit/(expense) 20.4 (5.6) (56.5) (54.4)
Effective tax rate (10.1)% 3.4% 15.7% 14.7%
------------------------------ --------- --------- --------- ---------
Reconciliation of reported income tax benefit/(expense) to
adjusted tax charge
2018 2017
$m $m
------------------------------ --------- ---------
Reported income
tax benefit/(expense) 20.4 (5.6)
Tax effect of adjustments(1) (11.2) (12.2)
Other discrete
tax items(2) (65.7) (36.6)
Adjusted income
tax expense (56.5) (54.4)
------------------------------ --------- ---------
1. The tax effects of the adjustments relating to non-IFRS
financial measures are explained and reconciled on pages 29 to
35
2. Other discrete items in 2018 includes income tax benefits of
$30.4 million and $35.0 million respectively arising from the
reassessment of deferred tax liabilities in respect of unremitted
earnings and recognition of additional deferred tax assets
resulting from the US tax reform respectively. In 2017, other
discrete items includes the tax effect of the benefits arising from
US tax reform. Refer to Note 4 of the Financial Statements for
further information.
For 2018, on a reported basis, the Group recorded an income tax
benefit of $20.4 million (2017: expense of $5.6 million) and an
adjusted income tax expense of $56.5 million (2017: $54.4 million)
on adjusted profits. Further details on reported income tax are
contained in Note 4 of the Financial Statements.
Reported income tax benefit/(expense)
The reported income tax benefit for 2018 of $20.4 million (2017:
expense of $5.6 million) is based on tax rates applicable in
various jurisdictions across the world in which the Group operates.
The lower tax rates in Switzerland drive the overall tax expense
down, partially offset by higher tax rates in other jurisdictions
(e.g. Denmark). The reported income tax benefit for 2018 is also
impacted by permanent disallowances and temporary adjustments, such
as tax depreciation versus IFRS accounting depreciation.
The reported income tax also includes other discrete tax items
that are not a direct result of the profits for the year. In 2018
there were two discrete tax items totalling $65.7 million. These
were principally previously unrecognised deferred tax assets of
$35.0 million in the US following the enactment of the US Tax Cuts
and Jobs Act on 22 December 2017, and released deferred tax
liabilities of $30.4 million on unremitted earnings. Excluding
these two discrete tax items noted above, the reported income tax
would be an expense of $45.3 million.
In 2017 there were also two significant discrete tax items,
totalling $34.9 million, included within the reported tax expense
of $5.6 million. These were $25.0 million benefit from US Tax
Reform and the recognition of a deferred tax asset of $9.9 million
in respect of the Woodbury group acquisition. Excluding other
discrete tax items, the reported income tax would be an expense of
$42.2 million.
The difference between the income tax benefit of $20.4 million
in 2018 compared to the income tax expense of $5.6 million in 2017
is therefore mainly attributable to these other discrete tax
items.
Adjusted income tax expense
The adjusted income tax expense for 2018 of $56.5 million (2017:
$54.4 million) excludes the discrete tax items noted above which
total $65.7 million (2017: $36.6 million) and a further annual tax
credit of $11.2 million (2017: $12.2 million) arising from deferred
tax liabilities in relation to the amortisation of pre-2018
acquisition intangibles and restructuring costs. All of these
adjusted items generated a non-cash benefit to the Group.
The adjusted tax rate for 2018 is 15.7% (2017: 14.7%).
Net profit
Reported
Reported net profit for 2018 was $221.6 million (2017: $158.4
million), an increase of $63.2 million, reflecting an increase of
$37.4 million in reported profit before tax and the impact on the
reported tax expense for the year of significant deferred tax asset
and liability credits.
Adjusted
Adjusted net profit decreased $11.5 million to $304.5 million in
2018. As a percentage of revenue, adjusted net profit was 16.6% and
17.9% for the years 2018 and 2017 respectively. The decrease
reflects the increase in revenue offset by the headwinds in gross
margin and increase in operating costs described above.
Foreign exchange
The table below summarises the exchange rates used for the
translation of currencies (that have the most significant impact on
the Group results) into USD:
Currency Average rate/Closing 2018 2017
rate
---------- ---------------------- ----- -----
EUR/USD Average 1.18 1.13
Closing 1.15 1.20
--------------------------------- ----- -----
GBP/USD Average 1.34 1.29
Closing 1.28 1.35
--------------------------------- ----- -----
DKK/USD Average 0.16 0.15
Closing 0.15 0.16
--------------------------------- ----- -----
Financial Position
The following table presents a summary of the Group's Financial
Position at 31 December 2018 and 2017.
2018 2017 Change Change
$m $m $m %
---------------------------- ---------- ---------- -------- -------
Goodwill and intangibles 2,377.5 2,559.5 (182.0) -7.1%
Other non-current assets 379.7 366.3 13.4 3.7%
Cash and cash equivalents 315.6 289.3 26.3 9.1%
Current assets excluding
cash and cash equivalents 587.6 585.8 1.8 0.3%
---------------------------- ---------- ---------- -------- -------
Total assets 3,660.4 3,800.9 (140.5) -3.7%
---------------------------- ---------- ---------- -------- -------
Current liabilities (330.9) (338.5) 7.6 2.2%
Non-current liabilities (1,712.3) (1,938.6) 226.3 11.7%
Total equity (1,617.2) (1,523.8) (93.4) -6.1%
---------------------------- ---------- ---------- -------- -------
Net equity & liabilities (3,660.4) (3,800.9) 140.5 3.7%
---------------------------- ---------- ---------- -------- -------
Goodwill and intangibles
Goodwill and intangibles reduced by $182.0 million to $2,377.5
million (2017: $2,559.5 million). This reflects decreases arising
from both the in-year amortisation of intangible assets of $152.6
million and the net effect of foreign exchange of $56.4 million,
partially offset by increases relating to the acquisition of
intangible assets and goodwill in relation to J&R Medical of
$14.9 million and other additions of $13.4 million, including
investment in data warehousing, as part of our financial and
management reporting improvement plan, and continued roll out of
our SAP platform.
Other non-current assets
Other non-current assets, including property, plant and
equipment, deferred tax assets, restricted cash, pension and other
assets increased by $13.4 million to $379.7 million (2017: $366.3
million). An increase in the deferred tax assets balance of $13.3
million to $22.9 million, together with an increase in the value of
the interest rate swap of $3.9 million, are offset by a small
reduction in the value of property, plant and equipment of $3.3
million due to depreciation being higher than our ongoing
investment in our manufacturing lines.
Cash and cash equivalents
Cash and cash equivalents as at 31 December 2018 was $315.6
million (2017: $289.3 million). The improvement of $26.3 million
reflects good cash conversion (see page 29), offset by the
principal cash outgoings of tax payments of $35.8 million (2017:
$46.9 million), $14.4 million investment in the J&R Medical
acquisition, dividend payment of $74.9 million and $153.7 million
of borrowing repayments, including the voluntary debt repayment on
our Euro term loan.
Current assets excluding cash and cash equivalents
Other current assets excluding cash and cash equivalents
increased by $1.8 million to $587.6 million (2017: $585.8 million).
Excluding the effects of foreign exchange, the underlying increase
was $28.8 million. The key component of this movement is an
increase in inventory of $18.8 million which represents an
underlying increase of $32.7 million offset by foreign exchange
movements of $13.9 million. The increase in inventory held reflects
changes in working capital policy by a key supplier in the fourth
quarter of 2018 and a return to normal inventory levels following
the back orders at the end of 2017. During the year inventory
write-offs increased to $22.8 million (2017: $11.8 million),
principally reflecting inventory associated with the packaging
recall in September 2018 and a review of inventory following the
transition of manufacturing to Haina in 2017.
Current liabilities
Current liabilities reduced by $7.6 million to $330.9 million
(2017: $338.5 million). A reduction in current borrowings of $15.2
million is offset by a net increase of $7.9 million across other
current liabilities. The decrease in current borrowings is
disclosed further in Note 7 in the Financial Statements. The
decrease in other current liabilities and accruals is principally
driven by foreign exchange movements of $8.5 million.
Non-current liabilities
Non-current liabilities have reduced by $226.3 million to
$1,712.3 million (2017: $1,938.6 million). This principally
reflects a reduction in non-current borrowings of $163.2 million
and a net reduction of $65.1 million in deferred tax liabilities.
The movement in non-current borrowings is disclosed further in Note
20 in the Financial Statements. The reduction of $65.1 million in
the net deferred tax liabilities is in respect of $35.0 million of
tax losses now recognised following the enactment of the US Tax
Cuts and Jobs Act on 22 December 2017 and the release of a $30.4
million deferred tax liability in respect of unremitted earnings.
The $35.0 million movement has been accounted for as a reduction in
deferred tax liabilities (which are in respect of indefinite life
liabilities), rather than as an increase in deferred tax assets, as
we offset deferred tax assets against deferred tax liabilities that
relate to the same tax authority.
Equity
Total equity has increased by $93.4 million to $1,617.2 million
(2017: $1,523.8 million). As disclosed on page 39, this is
primarily a result of the net profit for the year of $221.6 million
and $11.2 million shares issued under share-based payment awards,
offset by dividends paid of $74.9 million and foreign currency
translation adjustments of $66.6 million arising from the
retranslation of Euro, GBP and DKK balances into USD.
Liquidity and capital resources
Overview
At 31 December 2018, the Group's cash and cash equivalents were
$315.6 million (2017: $289.3 million). Additionally, at 31 December
2018, the Group had $193.8 million (2017: $192.9 million) of
availability under the revolving credit facility. Restricted cash
was $4.4 million at (2017: $5.7 million).
The Group's primary source of liquidity is cash flow generated
from operations. Historically, the non-elective nature of the
Group's product offerings has resulted in recurring cash inflows.
In 2018, the Group generated $352.0 million of cash from operating
activities. Significant cash uses in 2018 included (i) $14.4
million paid in connection with the J&R Medical acquisition
(net of cash acquired), (ii) property, plant and equipment
expenditure of $70.9 million, (iii) interest payments of $61.3
million, (iv) income tax payments of $35.8 million, (v) scheduled
2018 loan amortisation payments of $56.3 million, (vi) $2.4 million
mandatory loan repayments, (vii) $95.0 million voluntary prepayment
on the Euro Term A loan and (viii) dividend payment of $74.9
million.
Cash flows
The following table displays cash flow information for each of
the last two years:
2018 2017
$m $m
Net cash generated from operating activities 352.0 306.6
Net cash used in investing activities (80.9) (182.6)
Net cash used in financing activities (229.4) (119.3)
Net change in cash and cash equivalents 41.7 4.7
Cash and cash equivalents at the beginning of
the period 289.3 264.1
Effect of exchange rate changes on cash and cash
equivalents (15.4) 20.5
-------- --------
Cash and cash equivalents at the end of the year 315.6 289.3
-------- --------
Cash flows from operating activities
Net cash generated from operating activities was $352.0 million
and $306.6 million in 2018 and 2017, respectively. The increase of
$45.4 million, principally reflects the reduction in payments
relating to adjusted items "other payments" of $41.5 million. The
following summarises the components of net cash generated from
operating activities for each of the last two years:
Reported Reported Adjusted Adjusted
2018 2017 2018 2017
$m $m $m $m
EBITDA 457.7 427.2 482.4 505.0
Cash interest payments (61.3) (66.5) (61.3) (66.5)
Cash tax payment (35.8) (46.9) (35.8) (46.9)
Other payments (11.6) (53.1)
Non-cash items 14.6 41.0 2.9 2.0
Working capital increase (23.2) (48.2) (24.6) (33.9)
--------- --------- --------- ---------
Net cash generated from operating
activities 352.0 306.6 352.0 306.6
--------- --------- --------- ---------
(Adjusted EBITDA, Adjusted working capital and Adjusted Non-Cash
items are explained and reconciled to the most directly comparable
financial measure prepared in accordance with IFRS in the Cash
Conversion reconciliation on page 35)
Cash interest payments
On a reported and an adjusted basis, cash interest payments
decreased $5.2 million, to $61.3 million in 2018 (2017: $66.5
million). This reflects an increase in the weighted average
borrowing cost for the year to 3.5% (2017: 3.1%) offset by the
benefit of the interest rate swap and lower borrowings resulting
from both scheduled and voluntary loan repayments.
Other payments
Other payments, which reflect cash outflows in relation to
adjusted items, decreased $41.5 million, to $11.6 million (2017:
$53.1 million). This reflects a reduction in restructuring cash
payments of $29.6 million, principally reflecting the reduction in
MIP programme activity in 2018, $5.0 million payment in 2017 in
relation to IPO-related costs and a reduction in remediation of
controls and compliance costs as a result of IPO of $4.8
million.
Non-cash items
Reported
Non-cash items decreased by $26.4 million to $14.6 million
(2017: $41.0 million). This principally reflects the reduction in
the share-based payment charge from $36.9 million in 2017 to $11.2
million in 2018. For further information see page 35.
Adjusted
Adjusted non-cash items increased by $0.9 million to $2.9
million (2017: $2.0 million) and reflects the net adjustment for
impairment and write-offs. For further information see page 35.
Working capital
Reported
The reported working capital increase of $23.2 million (2017:
$48.2 million) principally reflects an increase in inventory held
in the US as inventory levels return to normal following back
orders at the end of 2017, together with an increase in inventory
held by ID resulting from a change in working capital policy by one
of our key suppliers. In addition, other current liabilities and
accruals decreased as a result of the reduction in bonus payments
and the disposal of Symbius.
Adjusted
On an adjusted basis, the working capital increase also includes
an increase in the severance provision in relation to the
transition of Group finance functions from the US to the UK and
restructuring geographical sales teams partially offset by a
reduction in accruals in relation to IPO related activity. For
further information see page [35].
Cash flows from investing activities
Net cash used in investing activities decreased $101.7 million,
to $80.9 million, in 2018 (2017: $182.6 million). This reflects a
comparatively lower investment in the J&R Medical acquisition
of $14.4 million versus $105.5 million for Woodbury and EuroTec in
2017 and a return to normalised levels of investment in property,
plant and equipment of $70.9 million (2017: $82.7 million)
following the investment in MIP in 2017.
Cash flows from financing activities
Net cash applied in financing activities was $229.4 million
(2017: $119.3 million) in 2018, an increase of $110.1 million
primarily due to (i) an increase of $48.6 million to $74.9 million
in the dividend paid in the year (2017: $26.3 million), 2018 being
the first full year of payment under our dividend policy (ii) an
increase in the repayment of borrowings of $82.8 million,
principally reflecting the voluntary debt repayment on our Euro
borrowings offset by (iii) in 2017, the Company purchased own
shares of $9.6 million and settled $10.5 million of accrued share
capital costs. These transactions were not repeated in 2018.
Cash conversion
Reported Reported Adjusted Adjusted
2018 2017 2018 2017
$m $m $m $m
--------------------- --------- --------- --------- ---------
EBITDA 457.7 427.2 482.4 505.0
Add: non-cash items 14.6 41.0 2.9 2.0
Working capital (23.2) (48.2) (24.6) (33.9)
PP&E (70.9) (82.7) (70.9) (82.7)
--------------------- --------- --------- --------- ---------
Cash generated
from operations,
net of PP&E 378.2 337.3 389.8 390.4
Cash conversion 82.6% 79.0% 80.8% 77.3%
--------------------- --------- --------- --------- ---------
(1 These non-IFRS financial measures in relation to cash
conversion are explained and reconciled to the most directly
comparable financial measure prepared in accordance with IFRS on
page 35)
Reported
The effect of the cash flows described above generates a
reported cash conversion of 82.6%, an improvement on the prior year
(2017: 79.0%).
Adjusted
Adjusted cash conversion improved to 80.8% in 2018 (2017:
77.3%).
Non-IFRS Financial Information
Non-IFRS financial information or alternative performance
measures ("APMs") are used as supplemental measures in monitoring
the performance of our business. These measures include adjusted
cost of goods sold, adjusted gross margin, adjusted selling and
distribution costs, adjusted general and administrative expenses,
adjusted research and development costs, adjusted operating profit
("adjusted EBIT"), adjusted EBITDA, adjusted profit before tax,
adjusted finance costs, adjusted other expenses, net, adjusted net
profit, adjusted earnings per share, adjusted working capital and
adjusted cash conversion and net debt. The adjustments applied to
IFRS measures reflect the effect of certain cash and non-cash items
that Group management believe are not related to the underlying
performance of the Group. Reconciliations for these adjusted
measures to measures determined under IFRS are shown on pages 32 to
35. The definitions of the various adjusted measures (or APMs) used
are as calculated within the reconciliation tables.
In management's view, the APMs reflect the underlying
performance of the business and provide a meaningful supplement to
the reported numbers to support how the business is managed and
measured on a day-to-day basis. Adjusted results exclude certain
items because, if included, these items could distort the
understanding of our performance for the year and the comparability
between periods. Adjusted measures also form the basis for
performance measures for remuneration e.g. adjusted EBIT. For
further information see pages 32 to 33.
In determining whether an item should be presented as an
allowable adjustment to IFRS measures, the Group considers items
which are significant, either because of their size or their
nature. For an item to be considered as an allowable adjustment to
IFRS measures, it must initially meet at least one of the following
criteria:
- It is a significant item, which may cross more than one accounting period;
- It has been directly incurred as a result of either an
acquisition, divestiture, or arises from termination benefits
without condition of continuing employment related to a major
business change or restructuring programme; or
- It is unusual in nature e.g., outside the normal course of business.
If an item meets at least one of the criteria, the Group then
exercises judgement as to whether the item should be classified as
an allowable adjustment to IFRS measures.
Key adjustments for adjusted EBIT (also known as adjusted
operating profit) are pre-IPO costs, IPO related costs and the
post-IPO improvement programme together with restructuring and
related costs. Further adjustments, which include amortisation of
pre-2018 acquisition intangibles and adjustments to intangible and
fixed assets are also made in arriving at adjusted EBIT. The tax
effect of the adjustments is reflected in the adjusted tax expense
to remove their effect from adjusted net pro t and EPS.
Adjusted EBITDA, which is used to calculate our metric of
adjusted cash conversion and the effective use of our working
capital, is calculated by adding back pre-IPO costs, IPO related
costs and the post- IPO improvement programme together with
restructuring and related costs to our reported EBITDA.
Net debt, which is used to monitor the leverage of the business,
is calculated as the carrying value of current and non-current
borrowings on the face of the Consolidated Statement of Financial
Position, less the carrying value of finance leases net of cash and
cash equivalents.
These adjustments are detailed below.
Adjusted items
These include the following credits or costs that are reflected
in the reported measures:
-- acquisition-related amortisation of intangible assets
relating to acquisitions pre-1 January 2018;
-- share-based compensation expense arising from pre-IPO employee equity grants;
-- change and restructuring programme related costs;
-- costs in relation to a control and compliance remediation
programme required as a direct result of the IPO; and
-- gains/losses in relation to the sale, impairment or write-off
of intangible and fixed assets, the sale, write-off or impairment
arising as a result of a major change or restructuring programme or
an unusual circumstance.
These items are excluded, from the adjusted measures, to reflect
performance in a consistent manner and are in line with how the
business is managed and measured on a day-to-day basis. They are
typically gains or losses/costs arising from events that are not
considered part of the core operations of the business or are
considered to be significant in nature and may cross several
accounting periods. We also adjust for the tax effect of these
items.
Acquisition related amortisation of intangible assets
Our adjusted measures exclude the amortisation of acquisition
intangibles arising from acquisitions made before 1 January 2018.
After 1 January 2018, amortisation in relation to incremental
"bolt-on" acquisitions is not excluded as smaller acquisitions are
part of our Group strategy and should be included in our reported
and adjusted measures. We will review significant acquisitions on a
case by case basis to determine whether the exclusion of the
amortisation of acquired intangibles would provide a more
meaningful comparison of our results.
Adjustments to intangible and fixed assets
Gains and losses from the disposal of fixed assets, together
with accelerated depreciation and impairment and write-offs in
relation to intangible and fixed assets, are adjusted when
management consider the circumstances surrounding the adjustment
unusual and not reflective of our core business.
Change and restructuring programme related costs
These arise from Group-wide initiatives to reduce the ongoing
cost base and improve ef ciency in the business. We consider each
project individually to determine whether its size and nature
warrants separate disclosure. Where there has been a significant
change in the organisational structure of a business area or a
material Group-wide initiative, these costs are highlighted and are
excluded from our adjusted measures.
Pre-IPO, IPO related costs and post-IPO remediation
programmes
In order to provide greater comparability and reflecting the
changes within the Group as a result of the IPO (October 2016),
certain IPO related costs have been excluded from adjusted
measures. These are:
-- Expenses directly related to the IPO;
-- Pre-IPO shared based payment expense;
-- Pre-IPO margin improvement programme ("MIP"); and
-- Post-IPO control and compliance remediation programme, which
included regulatory compliance costs in relation to FDA activities,
IT enhancement costs and professional service fees associated with
activities that were undertaken in respect of the Group's
compliance function and to strengthen the control environment
within the finance function. These costs were incurred as a direct
result of the standards required by the IPO.
These costs were incurred and concluded in the years ended 31
December 2016 and 31 December 2017 with the exception of the
pre-IPO share-based payment expense which concluded in 2018. There
will be no adjustments in future years in relation to IPO related
costs.
Reconciliation of reported earnings to adjusted earnings for the
years ended 31 December 2018 and 2017
Year ended 31 Revenue Gross Operating Operating Finance Other PBT Taxation Net
December 2018 margin costs profit costs expenses, profit
net
$m $m $m $m $m $m $m $m $m
------------------------- ------- ------- --------- --------- ------- ---------- ----- -------- -------
Reported 1,832.1 973.8 (706.1) 267.7 (65.2) (1.3) 201.2 20.4 221.6
Amortisation
of pre-2018 acquisition
intangibles 125.1 17.3 142.4 142.4 (10.3) 132.1
Impairments/write-offs 0.4 0.1 0.5 0.5 0.5
Gain/loss on
disposal of fixed
assets - (1.9) (1.9) (1.9)
Restructuring
and other related
costs 2.9 9.7 12.6 12.6 (0.9) 11.7
Pre IPO share
based payment
expense and related
costs 6.2 6.2 6.2 6.2
------------------------- ------- ------- --------- --------- ------- ---------- ----- -------- -------
Total adjustments
and their tax
effect - 128.4 33.3 161.7 - (1.9) 159.8 (11.2) 148.6
Other discrete
tax items - - (65.7) (65.7)
------------------------- ------- ------- --------- --------- ------- ---------- ----- -------- -------
Adjusted 1,832.1 1,102.2 (672.8) 429.4 (65.2) (3.2) 361.0 (56.5) 304.5
Software and
R&D amortisation 9.3
Post-2018 acquisition
amortisation 0.9
Depreciation 37.4
Post-IPO share
based-payment
compensation 5.4
------------------------- ------- ------- --------- ---------
Adjusted EBITDA 482.4
------------------------- ------- ------- --------- ---------
Restructuring and other related costs were $12.6 million,
pre-tax, in 2018 and related to three significant restructuring
programmes:
-- $2.5 million in relation to the completion of the pre-IPO MIP
programme, incurred pre-June 2018, giving total costs incurred in
relation to this programme of $25.6 million from 2015 to 2018;
-- $4.7 million in relation to the transition of head office
support functions from the US to the UK. The programme is expected
to complete in 2019 with a total cost of c. $5.8 million; and
-- $5.4 million in relation to restructuring geographical sales
teams. The programme is expected to complete in 2019 with a total
cost of $6.9 million.
The impairment/write-off charge of $0.5 million relates to the
final write-off of certain manufacturing fixed assets following the
closure of the Greensboro site in 2017.
Other discrete tax items principally represent tax benefits of
$30.4 million and $35.0 million respectively arising from the
reassessment of deferred tax liabilities in relation to unremitted
earnings and recognition of additional deferred tax assets
resulting from the December 2017 US tax reform respectively. Refer
to Note 4 of the Financial Statements for further information.
Accelerated depreciation of $1.3 million relates to the closure
of certain manufacturing facilities.
The gain on disposal of assets of $2.6 million represents the
sale of fully depreciated assets in Malaysia.
Restructuring and other related costs were $29.9 million in 2017
of which $23.1 million related to costs incurred in connection with
the pre-IPO MIP and $6.8 million relating to restructuring and
other related costs. The pre-IPO MIP programme commenced in the
fourth quarter of 2015 and completed by June 2018.
Post-IPO compliance and control remediation costs were $7.7
million in 2017. The nature of these costs is described above.
The acquisition accounting adjustment of $1.6 million relates to
acquired inventories that were sold in 2017.
Other discrete tax items principally represent tax benefits of
$25.0 million and $9.9 million, respectively, arising from the US
Tax Reform and Jobs Act and the recognition of a deferred tax asset
in respect of the Woodbury group acquisition.
Year ended 31 Revenue Gross Operating Operating Finance Other PBT Taxation Net
December 2017 margin costs profit costs expenses, profit
net
$m $m $m $m $m $m $m $m $m
------------------------- ------- ------- --------- --------- ------- ---------- ----- -------- -------
Reported 1,764.6 926.3 (678.5) 247.8 (62.1) (21.7) 164.0 (5.6) 158.4
Amortisation
of pre-2018 acquisition
intangibles 123.7 13.8 137.5 137.5 (10.5) 127.0
Accelerated depreciation 1.3 1.3 1.3 1.3
Impairment/write-offs 0.5 0.5 0.5 0.5
Gain/loss on
disposal of fixed
assets - (2.6) (2.6) (2.6)
Restructuring
and other related
costs 6.8 6.8 6.8 (0.3) 6.5
------------------------- ------- ------- --------- --------- ------- ---------- ----- -------- -------
125.0 21.1 146.1 (2.6) 143.5 (10.8) 132.7
IPO related costs
Pre-IPO MIP programme 22.7 0.4 23.1 23.1 (0.9) 22.2
Compliance and
control improvement 0.7 7.0 7.7 7.7 (0.2) 7.5
Acquisition accounting
adjustment 1.6 1.6 1.6 1.6
Pre-IPO share-based
payment expense 29.3 29.3 29.3 29.3
IPO costs 1.2 1.2 1.2 (0.3) 0.9
------------------------- ------- ------- --------- --------- ------- ---------- ----- -------- -------
Total in relation
to IPO 25.0 37.9 62.9 62.9 (1.4) 61.5
Total adjustments
and their tax
effect - 150.0 59.0 209.0 - (2.6) 206.4 (12.2) 194.2
Other discrete
tax items (36.6) (36.6)
------------------------- ------- ------- --------- --------- ------- ---------- ----- -------- -------
Adjusted 1,764.6 1076.3 (619.5) 456.8 (62.1) (24.3) 370.4 (54.4) 316.0
Software and
R&D amortisation 7.3
Post-2017 acquisition -
amortisation
Depreciation 33.3
Post-IPO share
based-payment
compensation 7.6
------------------------- ------- ------- --------- ---------
Adjusted EBITDA 505.0
------------------------- ------- ------- --------- ---------
Reconciliation of basic and diluted reported earnings per share
to adjusted earnings per share for the years ended 31 December 2018
and 31 December 2017
Diluted and Basic Earnings Per Reported Adjusted Reported Adjusted
Share
2018 2018 2017 2017
$m $m $m $m
----------------------------------- -------------- --------- -------------- ---------
Net profit 221.6 304.5 158.4 316.0
----------------------------------- -------------- --------- -------------- ---------
Basic weighted average ordinary
shares in issue 1,956,085,112 1,951,006,350
Diluted weighted average ordinary
shares in issue 1,958,078,762 1,953,941,810
$/share $/share $/share $/share
Basic earnings per share 0.11 0.16 0.08 0.16
----------------------------------- -------------- --------- -------------- ---------
Diluted earnings per share 0.11 0.16 0.08 0.16
----------------------------------- -------------- --------- -------------- ---------
Reconciliation of reported operating costs to adjusted operating
costs for the years ended 31 December 2018 and 31 December 2017
2018 2017
Selling General Research Operating Selling General Research Operating
& and and costs & and and costs
distribution administration development distribution administration development
$m $m $m $m $m $m $m $m
------------------------ ------------- --------------- ------------ ---------- ------------- --------------- ------------ ----------
Reported (418.0) (238.2) (49.9) (706.1) (377.5) (259.8) (41.2) (678.5)
Amortisation
of pre-2018
acquisition
intangibles 17.2 0.1 17.3 13.8 13.8
Impairments/write-offs 0.1 0.1 0.5 0.5
Restructuring
and other related
costs 2.7 6.4 0.6 9.7 0.3 5.6 0.9 6.8
------------------------ ------------- --------------- ------------ ---------- ------------- --------------- ------------ ----------
2.7 23.7 0.7 77.1 0.3 19.9 0.9 21.1
IPO related
costs
Pre-IPO MIP
programme 0.4 0.4
Compliance
and control
improvement - 7.0 7.0
Pre-IPO share-based
payment expense 6.2 6.2 29.3 29.3
IPO costs - 1.2 1.2
------------------------ ------------- --------------- ------------ ---------- ------------- --------------- ------------ ----------
Total in relation
to IPO - 6.2 - 6.2 - 37.9 - 37.9
------------------------ ------------- --------------- ------------ ---------- ------------- --------------- ------------ ----------
Adjusted (415.3) (208.3) (49.2) (672.8) (377.2) (202.0) (40.3) (619.5)
------------------------ ------------- --------------- ------------ ---------- ------------- --------------- ------------ ----------
Cash conversion for the years ended 31 December 2018 and 31
December 2017
2018 2017
$m $m
----------------------------------------------------- ------- -------
Reported Operating profit/EBIT 267.7 247.8
Depreciation 37.4 34.6
Amortisation 152.6 144.8
----------------------------------------------------- ------- -------
Reported EBITDA 457.7 427.2
Non-cash items in EBITDA
Share-based compensation 11.2 36.9
Write-off/disposal of property, plant and equipment 3.4 2.5
Acquisition accounting adjustment - 1.6
----------------------------------------------------- ------- -------
14.6 41.0
Working capital movement (23.2) (48.2)
Capital expenditure (70.9) (82.7)
----------------------------------------------------- ------- -------
Reported net cash for cash conversion 378.2 337.3
----------------------------------------------------- ------- -------
Reconciliation of Adjusted EBITDA, Adjusted
Non-Cash Items, Adjusted Working Capital and
Adjusted Net Cash for Cash Conversion
Reported EBITDA 457.7 427.2
Pre-IPO share-based payment expense 11.2 36.9
Pre-IPO share-based payment associated costs 0.4 -
Acquisition accounting adjustment - 1.6
Impairment/write-offs 0.5 0.5
Restructuring and other related costs 12.6 29.9
Compliance and control improvements - 7.7
IPO-related costs - 1.2
----------------------------------------------------- ------- -------
Total adjustments 24.7 77.8
----------------------------------------------------- ------- -------
Adjusted EBITDA 482.4 505.0
----------------------------------------------------- ------- -------
Reported Non-cash Items 14.6 41.0
Share-based compensation (11.2) (36.9)
Impairment/write-offs (0.5) (0.5)
Acquisition accounting adjustment - (1.6)
----------------------------------------------------- ------- -------
Total adjustments (b) (11.7) (39.0)
----------------------------------------------------- ------- -------
Adjusted Non-cash items 2.9 2.0
----------------------------------------------------- ------- -------
Reported Working Capital (23.2) (48.2)
(Increase)/decrease in severance provision (3.6) 7.8
Decrease in accruals for remediation costs,
corporate development and IPO-related costs 2.3 3.5
(Increase) in accruals for share based payment (0.4) -
associated costs
Decrease in liability for pre-IPO MIP 0.3 3.0
----------------------------------------------------- ------- -------
Total adjustments (c) (1.4) 14.3
----------------------------------------------------- ------- -------
Adjusted Working Capital (24.6) (33.9)
----------------------------------------------------- ------- -------
Reported net cash for cash conversion 378.2 337.3
Total adjustments above (a), (b), (c) 11.6 53.1
----------------------------------------------------- ------- -------
Adjusted net cash for cash conversion 389.8 390.4
----------------------------------------------------- ------- -------
Reported cash conversion 82.6% 79.0%
Adjusted cash conversion 80.8% 77.3%
----------------------------------------------------- ------- -------
FINANCIAL INFORMATION
Consolidated Statement of Profit or Loss
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Selected Notes to the Consolidated Financial Statements
1. General Information
2. New Accounting Standards
3. Segment Information
4. Income Taxes
5. Dividends
6. Acquisition of Subsidiaries
7. Borrowings
8. Financial Instruments
9. Related Parties Transactions
10. Subsequent Events
Audited Consolidated Statement of Profit or Loss
For the year ended 31 December 2018
2018 2017
Notes $m $m
-------------------------------------- ----- -------- ----------
Revenue 3 1,832.1 1,764.6
Cost of sales (858.3) (838.3)
-------------------------------------- ----- ------- -------
Gross profit 973.8 926.3
-------------------------------------- ----- ------- -------
Selling and distribution expenses (418.0) (377.5)
General and administrative expenses (238.2) (259.8)
Research and development expenses (49.9) (41.2)
-------------------------------------- ----- ------- -------
Operating profit 267.7 247.8
-------------------------------------- ----- ------- -------
Finance costs (65.2) (62.1)
Other expense, net (1.3) (21.7)
-------------------------------------- ----- ------- -------
Profit before income taxes 201.2 164.0
Income tax benefit/(expense) 4 20.4 (5.6)
-------------------------------------- ----- ------- -------
Net profit 221.6 158.4
-------------------------------------- ----- ------- -------
Earnings Per Share
Basic and diluted earnings per share
($ per share) 5 0.11 0.08
-------------------------------------- ----- ------- -------
All results are attributable to equity holders of the Group and
wholly derived from continuing operations.
Audited Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
Notes $m $m
-------------------------------------------------- ------- ------ --------
Net profit 221.6 158.4
Other comprehensive (loss)/income
Items that will not be reclassified subsequently
to Consolidated Statement of Profit or
Loss
Remeasurement of defined benefit obligation,
net of tax (1.0) 2.4
Recognition of the pension assets restriction 0.4 0.2
Items that may be reclassified subsequently
to Consolidated Statement of Profit or
Loss
Exchange differences on translation of
foreign operations (66.6) 109.7
Effective portion of changes in fair
value of cash flow hedges 3.9 7.4
Income tax relating to items that may
be reclassified (1.3) (1.7)
------------------------------------------------------------ ----- -----
Other comprehensive (loss)/income (64.6) 118.0
------------------------------------------------------------ ----- -----
Total comprehensive income 157.0 276.4
------------------------------------------------------------ ----- -----
All amounts are attributable to equity holders of the Group and
wholly derived from continuing operations.
Audited Consolidated Statement of Financial Position
As at 31 December 2018
2018 2017 2016
restated(a) restated(a)
Notes $m $m $m
---------------------------------- ----- --------- ----------- -------------
Assets
Non-current assets
Property, plant and equipment 330.7 334.0 264.8
Intangible assets 1,334.5 1,487.3 1,521.4
Goodwill 1,043.0 1,072.2 921.0
Deferred tax assets 22.9 9.6 22.0
Derivative financial assets 11.3 7.4 -
Restricted cash 2.4 3.8 2.5
Other assets 12.4 11.5 11.4
-------- ---------- ----------
2,757.2 2,925.8 2,743.1
---------------------------------- ----- -------- ---------- ----------
Current assets
Inventories 303.3 284.5 247.5
Trade and other receivables 253.7 269.0 233.7
Prepaid expenses and other
current assets 30.6 32.3 19.9
Cash and cash equivalents 315.6 289.3 264.1
Assets held for sale - - 5.6
-------- ---------- ----------
903.2 875.1 770.8
---------------------------------- ----- -------- ---------- ----------
Total Assets 3,660.4 3,800.9 3,513.9
---------------------------------- ----- -------- ---------- ----------
Equity and Liabilities
Current liabilities
Trade and other payables 116.0 122.0 111.6
Borrowings 7 63.0 78.2 38.5
Other current liabilities
and accruals 105.5 114.2 134.9
Current tax payable(a) 41.9 21.9 24.7
Provisions 4.5 2.2 9.4
330.9 338.5 319.1
---------------------------------- ----- -------- ---------- ----------
Non-current liabilities
Borrowings 7 1,581.5 1,744.7 1,737.1
Deferred tax liabilities 107.1 172.2 192.2
Provisions 1.5 1.6 1.1
Other non-current liabilities(a) 22.2 20.1 18.2
-------- ---------- ----------
1,712.3 1,938.6 1,948.6
Total Liabilities 2,043.2 2,277.1 2,267.7
---------------------------------- ----- -------- ---------- ----------
Equity
Share capital 240.7 238.8 238.8
Share premium 39.8 1.3 1,674.1
Own shares (6.8) (8.1) -
Retained deficit (744.5) (850.0) (2,650.2)
Merger reserve 2,098.9 2,098.9 2,098.9
Cumulative translation reserve (124.2) (58.4) (172.8)
Other reserves 113.3 101.3 57.4
-------- ---------- ----------
Total Equity 1,617.2 1,523.8 1,246.2
---------------------------------- ----- -------- ---------- ----------
Total Equity and Liabilities 3,660.4 3,800.9 3,513.9
---------------------------------- ----- -------- ---------- ----------
(a) 2017 and 2016 have been restated to aid comparability
Audited Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Cumulative
Share Share Own Retained Merger translation Other
capital premium shares deficit reserve reserve reserves Total
Notes $m $m $m $m $m $m $m $m
-------
At 1 January
2017 238.8 1,674.1 - (2,650.2) 2,098.9 (172.8) 57.4 1,246.2
----------------- ----- ------- -------- ------ -------- ------- -------- ------- -------
Net profit - - - 158.4 - - - 158.4
----------------- ----- ------- -------- ------ -------- ------- -------- --- ------- -------
Other
comprehensive
income:
Foreign currency
translation
adjustment, net
of
tax - - - (4.7) - 114.4 - 109.7
Remeasurement of
defined
benefit
obligation,
net of tax - - - - - - 2.4 2.4
Recognition of
pension
assets
restriction - - - - - - 0.2 0.2
Effective
portion
of changes in
fair
value of cash
flow
hedges, net of
tax 8 - - - - - - 5.7 5.7
-----
Total other
comprehensive
income - - - (4.7) - 114.4 8.3 118.0
Total
comprehensive
income - - - 153.7 - 114.4 8.3 276.4
----------------- ----- ------- -------- ------ -------- ------- -------- --- ------- -------
Capital
reduction
of share
premium - (1,674.1) - 1,674.1 - - - -
Dividends paid 5 - - - (26.3) - - - (26.3)
Scrip dividend 5 - 1.3 - (1.3) - - - -
Share-based
payments - - - - - - 36.9 36.9
Share awards
vested - - 1.5 - - - (1.5) -
Excess tax
benefits
from
share-based
compensation - - - - - - 0.2 0.2
Purchase of own
shares - - (9.6) - - - - (9.6)
----------------- -----
At 31 December
2017 238.8 1.3 (8.1) (850.0) 2,098.9 (58.4) 101.3 1,523.8
----------------- ----- ------- -------- ------ -------- ------- -------- ------- -------
Net profit - - - 221.6 - - - 221.6
----------------- ----- ------- -------- ------ -------- ------- -------- --- ------- -------
Other
comprehensive
loss:
Foreign currency
translation
adjustment, net
of
tax - - - (0.8) - (65.8) - (66.6)
Remeasurement of
defined
benefit
obligation,
net of tax - - - - - - (1.0) (1.0)
Recognition of
pension
assets
restriction - - - - - - 0.4 0.4
Effective
portion
of changes in
fair
value of cash
flow
hedges, net of
tax 8 - - - - - - 2.6 2.6
-----
Total other
comprehensive
loss - - - (0.8) - (65.8) 2.0 (64.6)
Total
comprehensive
income - - - 220.8 - (65.8) 2.0 157.0
----------------- ----- ------- -------- ------ -------- ------- -------- ------- -------
Dividends paid 5 - - - (74.9) - - - (74.9)
Scrip dividend 5 1.9 38.5 - (40.4) - - - -
Share-based
payments - - - - - - 11.2 11.2
Share awards
vested - - 1.3 - - - (1.3) -
Excess tax
benefits
from
share-based
compensation - - - - - - 0.1 0.1
At 31 December
2018 240.7 39.8 (6.8) (744.5) 2,098.9 (124.2) 113.3 1,617.2
----------------- ----- ------- -------- ------ -------- ------- -------- ------- -------
Audited Consolidated Statement of Cash Flows
For the year ended 31 December 2018
2018 2017
Notes $m $m
------------------------------------------------ ------ ------- ---------
Cash flows from operating activities
Net profit 221.6 158.4
Adjustments for
Depreciation 37.4 34.6
Amortisation 152.6 144.8
Acquisition accounting adjustment on inventory
sold - 1.6
Income tax (benefit)/expense 4 (20.4) 5.6
Other expense, net 1.3 21.7
Finance costs 65.2 62.1
Share-based compensation 11.2 36.9
Write-off/disposal of assets 3.4 2.5
Changes in assets and liabilities:
Inventories (33.1) (10.9)
Trade and other receivables 3.7 (6.2)
Prepaid expenses and other current assets 3.0 (5.3)
Other non-current assets (1.6) (1.0)
Trade and other payables 4.1 (1.9)
Other current liabilities and accruals (1.8) (24.5)
Other non-current liabilities 2.5 1.6
------------------------------------------------- ------ ------ ------
Cash generated from operations 449.1 420.0
Interest paid (61.3) (66.5)
Income taxes paid (35.8) (46.9)
------------------------------------------------- ------ ------ ------
Net cash generated from operating activities 352.0 306.6
Cash flows from investing activities
Acquisition of property, plant and equipment
and capitalised software (70.9) (82.7)
Proceeds from sale of property, plant and
equipment and other assets 4.3 2.6
Acquisitions, net of cash acquired 6 (14.4) (105.5)
Proceeds from assets held for sale - 5.7
Change in restricted cash 1.3 (0.6)
Capitalised development expenditure (1.2) (2.1)
Net cash used in investing activities (80.9) (182.6)
Cash flows from financing activities
Repayment of borrowings 7 (153.7) (70.9)
Payment of accrued share capital issue costs - (10.5)
Payment of finance lease liabilities (0.8) (0.6)
Payments of deferred financing fees - (1.4)
Dividend paid 5 (74.9) (26.3)
Purchase of own shares - (9.6)
------------------------------------------------- ------ ------ ------
Net cash used in financing activities (229.4) (119.3)
Net change in cash and cash equivalents 41.7 4.7
Cash and cash equivalents at beginning of
the year 289.3 264.1
Effect of exchange rate changes on cash
and cash equivalents (15.4) 20.5
Cash and cash equivalents at end of the
year 315.6 289.3
------------------------------------------------- ------ ------ ------
Selected Notes to the Consolidated Financial Statements
1. General Information
ConvaTec Group Plc (the "Company") is a company incorporated in
the United Kingdom under the Companies Act of 2006 with its
registered office situated in England and Wales. The Company's
registered office and principal place of business is at 3 Forbury
Place, 23 Forbury Road, Reading, RG1 3JH, United Kingdom.
The Company and its subsidiaries (collectively, the "Group") are
a global medical products and technologies group focused on
therapies for the management of chronic conditions, including
products used for advanced chronic and acute wound care, ostomy
care, continence and critical care and infusion devices used in the
treatment of diabetes and other conditions.
The Consolidated Financial Statements are presented in US
dollars ("USD"), being the functional currency of the primary
economic environment in which the Group operates. All values are
rounded to $0.1 million except where otherwise indicated.
This announcement is based on the Group's financial statements
which are prepared in accordance with IFRS as adopted by EU and
therefore comply with Article 4 of the EU IAS Regulations. IFRS
includes the standards and interpretations approved by the IASB
including International Accounting Standards ("IAS") and
interpretations issued by the IFRS Interpretations Committee
("IFRIC"). With the exception of the new standards adopted in the
year, as discussed in Note 2, there have been no significant
changes in accounting policies from those set out in ConvaTec's
Annual Report and Accounts 2017.
The financial information set out in this announcement does not
constitute the Group's statutory accounts for the years ended 31
December 2018 or 2017 but is derived from those accounts. Statutory
accounts for 2017 have been delivered to the Registrar of Companies
and those for 2018 will be delivered following the Company's Annual
General Meeting. The auditor's report on the 2018 and 2017 accounts
were unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
2. New Accounting Standards
New standards and interpretations applied for the first time
In the current year the Group adopted the following new or
amended International Financial Reporting Standards ("IFRS" or
"IFRSs") and interpretations issued by the International Accounting
Standards Board ("IASB"):
- IFRS 2, Classification and Measurement of Share-based Payment
Transactions (Amendments to IFRS 2)
- IFRS 9, Financial Instruments: Classification and
measurement
- IFRS 15, Revenue from Contracts with Customers
- IFRIC 22, Foreign Currency Transactions and Advance
Consideration
Other than changes for new standards and interpretations applied
for the first time, the accounting policies have been applied
consistently to both years presented in the Consolidated Financial
Statements.
IFRS 2, Classification and Measurement of Share-based Payment
Transactions (Amendments to IFRS 2)
The Group applied Classification and Measurement of Share-based
Payment Transactions (Amendments to IFRS 2), from 1 January 2018.
The amendments related to the following areas:
- The accounting for the effects of vesting conditions on
cash-settled share-based payment transactions;
- The classification of share-based payment transactions with
net settlement features for withholding tax obligations; and
- The accounting for a modification to the terms and conditions
of a share-based payment that changes the transaction from
cash-settled to equity-settled.
The adoption of these amendments did not have any impact on the
Consolidated Financial Statements.
IFRS 9, Financial Instruments: Classification and
measurement
The Group applied IFRS 9, Financial Instruments, from 1 January
2018. The adoption of IFRS 9, based on the financial instruments
and hedging relationships as at the date of initial application of
IFRS 9 (1 January 2018) and at 31 December 2018, did not have a
material impact on the Consolidated Financial Statements.
IFRS 15, Revenue from Contracts with Customers
The Group applied IFRS 15, Revenue from Contracts with
Customers, from 1 January 2018.
Upon application of IFRS 15, the Group's revenue recognition
policy has been expanded to include the accounting for material
rights and contract costs. The Group applied IFRS 15 using the
cumulative effect method, however an adjustment to the opening
balance of equity at 1 January 2018 was not made as the Group
determined that this adjustment was immaterial.
The details of the changes in accounting policies are disclosed
below:
-- Material rights (volume discounts) - The Group has determined
that the option to purchase additional products with a volume
discount represents a material right and a separate performance
obligation. The Group allocates the transaction price to the
performance obligations on a relative stand-alone selling price
basis.
-- Contract costs (commission fees payable) - The Group
previously recognised commission fees payable as selling expenses
when they were incurred. Under IFRS 15, the Group capitalises those
commission fees as costs of obtaining a contract when they are
incremental, and - if they are expected to be recovered - it
amortises them consistently with the pattern of revenue for the
related contract. If the expected amortisation period is one year
or less, then the commission fee is expensed when incurred.
IFRIC 22, Foreign Currency Transactions and Advance
Consideration
The Group applied IFRIC 22, Foreign Currency Transactions and
Advance Consideration, from 1 January 2018. The interpretation
covers foreign currency transactions when an entity recognises a
non-monetary asset or non-monetary liability arising from the
payment or receipt of advance consideration before the entity
recognises the related asset, expense or income.
The adoption of this interpretation did not have any impact on
the Consolidated Financial Statements.
New standards and interpretations not yet applied
At the date of authorisation of these Consolidated Financial
Statements, the following new and revised IFRSs, amendments and
interpretations that are potentially relevant to the Group, and
which have not been applied in these Consolidated Financial
Statements, were in issue but not yet effective. All are effective
for accounting periods beginning on or after 1 January 2019:
- IFRS 16, Leases.
- IAS 19, Plan Amendments, Curtailment or Settlement (Amendments
to IAS 19).
- IFRIC 23, Uncertainty over Income Tax Treatments.
- Annual Improvements of IFRS Standards 2015-2017 Cycle (IFRS 3,
IFRS 11, IAS 12, IAS 23).
The Directors anticipate that the adoption of these in 2019 will
have no material impact on the Consolidated Financial Statements of
the Group except for IFRS 16, Leases.
IFRS 16, Leases
IFRS 16, Leases, will be effective for accounting periods
beginning on or after 1 January 2019, and will introduce changes to
lessee accounting by removing the distinction between operating and
finance leases, requiring the recognition of a right-of-use asset
and a lease liability at the lease commencement for all leases.
The Group's operating leases impacted by IFRS 16 principally
include real estate and vehicles.
Existing finance leases continue to be treated as finance
leases. For existing operating leases, the Group will apply the
modified retrospective approach by measuring the right-of-use asset
at an amount equal to the lease liability at the date of transition
and therefore comparative information will not be restated. Upon
transition the Group will also apply the following practical
expedients:
-- Application of a single discount rate to a portfolio of
leases with similar characteristics;
-- Exclude initial direct costs from the right-of-use assets;
-- Use hindsight when assessing the lease term; and
-- Not to reassess whether a contract is or contains a lease.
The Group estimates that the financial impact of adopting IFRS
16 will be to:
-- Recognise a $71.4 million right-of-use asset and a $71.4
million additional lease liability on adoption;
-- Recognise a related deferred tax liability and deferred tax
asset of $16.3 million on adoption. The net deferred tax impact on
adoption will therefore be nil;
-- Increase FY2019 Operating profit by $1.3 million net; and
-- Increase FY2019 Finance costs by $1.9 million.
The estimated deferred tax movement in 2019 in respect of the
transitional amounts of deferred tax is expected to be
immaterial.
3. Segment Information
The Group's management considers its business to be a single
segment entity engaged in the development, manufacture and sale of
medical products and technologies. The CEO evaluates the financial
information on a Group-wide basis to determine the most appropriate
allocation of resources. This financial information relating to
revenues provided to the CEO for decision making purposes is made
on both a franchise and regional basis, however profitability
measures are presented on a global basis.
The following table sets out the Group's revenue for the years
ended 31 December 2018 and 2017 by market franchise:
2018 2017
$m $m
------------------------------ ------- ---------
Revenue by franchise
Advanced Wound Care 587.5 577.8
Ostomy Care 533.3 528.9
Continence and Critical Care 443.0 382.9
Infusion Devices 268.3 275.0
Total 1,832.1 1,764.6
------------------------------- ------- -------
The following table sets out the Group's revenue in each
geographic market in which customers are located:
2018 2017
$m $m
-------------------- ------- ---------
Geographic markets
EMEA 747.4 733.0
Americas 945.3 898.1
APAC 139.4 133.5
1,832.1 1,764.6
-------------------- ------- -------
Geographic regions
The following table sets out the Group's revenue on the basis of
geographic regions where the legal entity resides and from which
those revenues were made, and separately shows countries
representing over 10% of Group revenue:
2018 2017
$m $m
-------------------- ------- ---------
Geographic regions
US 643.4 591.1
Denmark 270.0 298.0
Other(a) 918.7 875.5
---------------------
1,832.1 1,764.6
-------------------- ------- -------
(a) Other consists primarily of countries in Europe,
Asia-Pacific ("APAC"), Latin America and Canada.
4. Income Taxes
A. Tax on profit for the year
Current tax on profit before income taxes in 2018 and 2017 is
recognised in the Consolidated Statement of Profit or Loss, along
with any change in the provision for deferred tax, and is inclusive
of provision for uncertain tax positions:
2018 2017
$m $m
--------------------------------------------------- ------ --------
Current
UK current year charge - 2.3
Overseas taxation 56.2 35.7
Adjustment for prior years (1.4) 0.1
Total current tax expense 54.8 38.1
Deferred
Origination and reversal of temporary differences (44.8) (9.1)
Change in tax rate (1.1) (22.8)
Adjustment for prior years (29.3) (0.6)
Total deferred tax benefit (75.2) (32.5)
---------------------------------------------------- ----- -----
Income tax (benefit)/expense (20.4) 5.6
---------------------------------------------------- ----- -----
B. Reconciliation of effective tax rate
The effective tax rate for the year ended 31 December 2018 was a
benefit of 10.1%, as compared with an expense of 3.4% for the year
ended 31 December 2017.
Included within the current tax expense for the year is a
provision for uncertain tax positions of $10.5 million. The
majority of the remainder of the current tax expense is in respect
of the current tax charge on taxable profits for the year in the
various jurisdictions in which the Group is required to account for
tax. The current tax charge for the year is reduced by the impact
of government tax incentives such as substance-based tax
concessions, tax depreciation and the use of tax losses to reduce
taxable profits. These elements also reduce the overall effective
tax rate of the Group to the extent that they do not have a
corresponding deferred tax effect.
The most material deferred tax movements are the $44.8 million
benefit included in origination and reversal of temporary
differences and the $29.3 million adjustment for prior years, which
drive the variance in the effective tax rate in 2018 when compared
to 2017. These consist of the recognition of previously
unrecognised deferred tax assets in the US of $35.0 million (of
which $30.6 million relates to an adjustment for prior years) now
recognised following the enactment of the US Tax Cuts and Jobs Act
on 22 December 2017. The asset is offset against the deferred tax
liability and arises because net operating losses carried forward
became indefinite but limited to 80% of taxable income in any year
and since deferred tax liabilities related to indefinite life
assets can be used as a source of income when assessing indefinite
loss carry forwards. In addition, there was a release of a $30.4
million deferred tax liability primarily in respect of unremitted
earnings related to the Dominican Republic. This arises as
management reviewed the current overseas unremitted earnings
position and has concluded that it is unlikely that dividends will
be paid in the foreseeable future in relation to the Dominican
Republic unremitted earnings, which has resulted in the
derecognition of the associated deferred tax liability. The
remaining $10.2 million benefit is primarily in relation to the
amortisation of pre-2018 acquisition intangibles. All these items
generated a non-cash benefit to the group in 2018.
Details of key items that affect the overall tax benefit for the
year and the effective tax rate for the Group are shown in the note
on the following page.
2018 2017
$m $m
----------------------------------------- -------- ---------- -------- ----------
Profit before income taxes 201.2 164.0
Profit before tax multiplied by
rate of corporation tax in the
UK of 19.00% (2017: 19.25%) 38.2 31.5
Difference between UK and rest
of world tax rates (6.8) (10.4)
Non-deductible/non-taxable items 5.1 4.1
Previously unrecognised losses
and other assets(a) (39.7) 5.0
Amortisation of indefinite life
intangibles 5.2 8.1
Taxes on unremitted earnings benefit(b) (30.4) (2.4)
Deferred impact of tax rate changes - (22.8)
Uncertain tax expense/(benefit)(c) 10.5 (4.2)
Other (2.5) (3.3)
------------------------------------------ ------- ---------- ------- ----------
Income tax (benefit)/expense reported
in the Consolidated Statement of
Profit or Loss at the effective
tax rate (20.4) (10.1)% 5.6 3.4%
------------------------------------------ ------- ------ ------- ------
(a) Previously unrecognised US deferred tax assets of $35.0
million, of which $30.6 million relates to an adjustment for the
prior year.
(b) Includes the deferred tax liability release in respect of the Dominican Republic.
(c) Uncertain tax provisions are included in current tax
liabilities. The movement in uncertain tax provisions is included
in the calculation of current tax liabilities and relates
predominantly to transfer pricing positions and withholding tax
liabilities.
The Group's tax rate is sensitive to the geographic mix of
profits and its ability to utilise tax losses in the year in
countries such as the US, UK, China and India. Other key factors
that influence the effective tax rate include tax incentives around
the world (such as substance-based tax concessions that the Group
benefits from), changes in tax legislation and regulations in
jurisdictions where the Group operates (such as US Tax Reform
following the enactment of the US Tax Cuts and Jobs Act on 22
December 2017, and reduction of UK tax rates to 17%), evolving
developments and implementation of the Organisation for Economic
Co-operation and Development's Base Erosion and Profit Shifting
("OECD's BEPS") actions by various jurisdictions (impact on
transfer pricing methodologies), unfavourable tax disputes and
provision for uncertain tax positions.
5. Dividends
No of scrip
pence cents per Settled Settled shares
per share share Total in cash via scrip issued
$m $m $m
------------------ ---------- --------- ----- -------- ---------- -------------
Interim dividend
2017 1.061 1.400 27.6 26.3 1.3 377,948
Paid in 2017 1.061 1.400 27.6 26.3 1.3 377,948
------------------- ---------- --------- ----- -------- ---------- -----------
Final dividend
2017 3.094 4.300 81.7 55.3 26.4 9,623,305
Interim dividend
2018 1.309 1.717 33.6 19.6 14.0 4,681,820
-----------
Paid in 2018 4.403 6.017 115.3 74.9 40.4 14,305,125
------------------- ---------- --------- ----- -------- ---------- -----------
Final dividend
2018 proposed 3.097 3.983 78.3
------------------- ---------- --------- ----- -------- ---------- -------------
The Company operates a scrip dividend scheme allowing
shareholders to elect to receive their dividend in the form of new
fully paid ordinary shares. For any particular dividend, the
Directors may decide whether or not to make the scrip offer
available.
The proposed final dividend for 2018 is subject to shareholder
approval at our Annual General Meeting on 9 May 2019. The dividend
will be declared in US dollar and will be paid in Sterling at the
chosen exchange rate of $1.286/GBP1.00 determined on 13 February
2019. A scrip dividend alternative will be offered allowing
shareholders to elect by 23 April 2019 to receive their dividend in
the form of new ordinary shares.
The interim and final dividends for 2018 give a total dividend
for the year of 5.700 cents per share (2017: 5.700 cents per
share).
Distributable reserves
Retained distributable reserves equates to the retained surplus
of ConvaTec Group Plc. At 31 December 2018, the retained surplus of
ConvaTec Group Plc was $1,574.7 million (2017: $1,622.7 million).
The capacity of the Company to make dividend payments is primarily
determined by the availability of these retained distributable
reserves and cash resources.
Earnings Per Share
Basic and diluted earnings per ordinary share were calculated as
follows:
2018 2017
$m $m
---------------
Net profit attributable to the equity holders
of the Group 221.6 158.4
---------------------------------------------------- ------------- -------------
Number Number
--------------------------------------------------- ------------- ---------------
Basic weighted average ordinary shares in issue
(net of shares purchased by the Company and held
as Own shares) 1,956,085,112 1,951,006,350
Dilutive impact of share awards 1,993,650 2,935,460
Diluted weighted average ordinary shares in issue 1,958,078,762 1,953,941,810
---------------------------------------------------- ------------- -------------
$ per share $ per share
--------------------------------------------------- ------------- ---------------
Basic earnings per share 0.11 0.08
Diluted earnings per share 0.11 0.08
---------------------------------------------------- ------------- -------------
The calculation of diluted earnings per share excludes
11,407,025 (2017: 5,231,000) share options that were non-dilutive
for the year because the exercise price exceeded the average market
price of the Group's ordinary shares during the year.
6. Acquisition of Subsidiaries
J&R Medical LLC ("J&R Medical")
Description of the transaction
On 1 March 2018, the Group acquired the entire share capital of
J&R Medical for a total cash consideration of $14.6 million,
including $0.2 million of the cash and cash equivalents acquired.
J&R Medical is an independent distributor of catheter-related
supplies based in Texas. The addition of J&R Medical to the
Group's US Home Distribution Group strengthens our home delivery
presence in the substantial and important market of Texas. The
acquisition of J&R Medical further reinforces the Group's
position as a leading home distributor of urinary catheters and
continence-related supplies in the large US market.
Assets acquired and liabilities assumed
The transaction has been accounted for as a business combination
under the acquisition method of accounting. The following table
summarises the fair values of the assets acquired and liabilities
assumed as of the acquisition date:
Fair values
acquired
$m
-------------------------------------------------- --------------
Non-current assets
Intangible assets 7.8
Current assets
Trade and other receivables 1.2
Cash and cash equivalents 0.2
--------------------------------------------------- ----------
Total assets 9.2
Current liabilities
Trade and other payables (0.6)
Accrued expenses and other current liabilities (1.1)
Total liabilities (1.7)
--------------------------------------------------- ----------
Net assets acquired 7.5
--------------------------------------------------- --------------
Initial cash consideration 12.3
Deferred purchase consideration paid into escrow 2.3
Total consideration 14.6
--------------------------------------------------- --------------
Goodwill arising on acquisition 7.1
--------------------------------------------------- --------------
2018
------------------------------------------------------------- -----
Analysis of cash outflow in the Consolidated Statement
of Cash Flow $m
------------------------------------------------------------- -----
Initial cash consideration 12.3
Cash acquired on acquisition (0.2)
Deferred purchase consideration paid into escrow 2.3
-------------------------------------------------------------- ----
Net cash outflow on acquisition (per Consolidated Statement
of Cash Flow) 14.4
-------------------------------------------------------------- ----
7. Borrowings
A summary of the Group's consolidated borrowings at 31 December
2018 and 2017 is outlined in the table below:
2018 2017
$m $m
----------------------------------------- ------- ---------
Credit Facilities Agreement:
Revolving Credit Facility - -
US Dollar Term A Loan Facility 706.7 743.3
Euro Term A Loan Facility 496.5 632.9
US Dollar Term B Loan Facility 417.6 421.1
------------------------------------------ ------- -------
Total borrowings from Credit Facilities 1,620.8 1,797.3
Finance Lease Obligations 23.7 25.6
------------------------------------------ ------- -------
Total borrowings 1,644.5 1,822.9
Less: Current portion of borrowings 63.0 78.2
Total non-current borrowings 1,581.5 1,744.7
------------------------------------------ ------- -------
At 31 December 2018 and 2017, the Group was in compliance with
all financial and non-financial covenants associated with the
Group's outstanding debt.
Subject to certain conditions, the Group may voluntarily prepay
their utilisations under the Credit Facilities in a minimum amount
of $1.0 million (or its equivalent) for term loans or revolving
facilities. Amounts repaid under the Term Loan Facilities may not
be re-borrowed. In 2018, the Group made voluntary prepayments of
$95.0 million on the euro Term A Loan (2017: nil). In addition to
voluntary prepayments, the Credit Agreement requires mandatory
prepayment in full or in part in certain circumstances including,
in relation to the Term Loan Facilities and subject to certain
criteria, from the proceeds of asset sales in excess of $20.0
million and the issuance or incurrence of debt and from excess cash
flow. In 2018, the Group made mandatory prepayments of $2.4 million
(2017: nil). In 2018, the Group made scheduled loan amortisation
payments related to the Credit Facilities of $56.3 million (2017:
$39.6 million).
8. Financial Instruments
Policy
The Group's treasury policies seek to minimise financial risks
and to ensure sufficient liquidity for the Group's operations and
strategic plans. No complex derivative financial instruments are
used, and no trading or speculative transactions in financial
instruments are undertaken. Where the Group does use financial
instruments these are mainly to manage the currency risks arising
from normal operations and its financing. Operations are financed
mainly through term loans and retained profits. The Group's
policies have remained unchanged since the beginning of the
year.
Derivative financial assets
Derivative financial assets consist of interest rate swaps. The
Group has variable rate debt instruments and is exposed to market
risks resulting from interest rate fluctuations. In order to manage
its exposure to variability in expected future cash outflows
attributable to the changes in LIBOR rates on the US Dollar Term A
and Term B Loan Facility, in May 2017, the Group entered into
interest rate swap agreements. At 31 December 2018, the notional
amount of the interest rate swap agreements was $833.8 million
(2017: $882.0 million).
Fair values of financial assets and financial liabilities
The carrying amounts reflected in the Consolidated Statement of
Financial Position at 31 December 2018 and 2017 for cash and cash
equivalents, trade and other receivables, restricted cash, and
trade and other payables approximate fair value due to their
short-term maturities. There are no other assets or liabilities
measured at fair value on a recurring or non-recurring basis.
Liabilities not Measured at Fair Value
The borrowings are initially carried at fair value less any
directly attributable transaction costs and subsequently at
amortised cost. At 31 December 2018, the estimated fair value of
the Group's borrowings, excluding finance leases approximated
$1,586.6 million (2017: $1,819.5 million). The fair values were
estimated using the quoted market prices and current interest rates
offered for similar debt issuances. Borrowings are categorised as
Level 2 measurement in the fair value hierarchy under IFRS 13 Fair
Value Measurements.
9. Related Party Transactions
In 2017, Nordic Capital, a shareholder and former equity sponsor
of the Group, was considered to be a related party. In 2017, Group
revenue included $8.6 million and purchases of inventory included
$6.3 million with companies affiliated to Nordic Capital. The
Consolidated Statement of Financial Position at 31 December 2017
included trade receivables of $2.1 million and trade payables of
$0.1 million in relation to these transactions. As at 31 December
2018, Nordic Capital is no longer considered to be a related party
under IAS 24.
Key management personnel compensation
Key management personnel are those persons who have the
authority and responsibility for planning, directing and
controlling the activities of the Group. The definition of key
management personnel includes Directors (both executive and
non-executive) and other executives from the management team with
significant authority and responsibility for planning, directing
and controlling the Group's activities.
Key management personnel compensation for the years ended 31
December 2018 and 2017 comprised the following:
2018 2017
$m $m
------------------------------ ---- ------
Short-term employee benefits 7.8 9.7
Share-based expense 4.4 26.2
Post-employment benefits 0.6 0.5
Termination benefits - 2.6
Total 12.8 39.0
------------------------------- ---- ----
10. Subsequent Events
The Group has evaluated subsequent events through to 14 February
2019, the date the Consolidated Financial Statements were approved
by the Board of Directors.
On 12 February 2019, the Board proposed the final dividend in
respect of 2018 subject to shareholder approval at our Annual
General Meeting on 9 May 2019, to be distributed on 16 May 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GLGDDLXBBGCS
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