TIDMCTEC
RNS Number : 9923G
ConvaTec Group PLC
30 July 2021
30 July 2021
ConvaTec Group Plc
Interim Results for the six months ended 30 June 2021
Strong growth & continued strategic progress
Statutory results Adjusted(1) results
H1 2021 H1 2020 Change H1 2021 H1 2020 Change
Revenue $1,008m $908m 11.0% $1,008m $908m 7.0%(2)
Operating profit/EBIT(3) $136m $113m 19.9% $204m $182m 17.0%(2)
Operating margin/EBIT
margin 13.4% 12.4% +100 bps 20.3% 20.0% +30 bps
Diluted earnings
per share 4.2 cents 3.0 cents 40.0% 7.2 cents 6.1 cents 18.0%
Interim dividend 1.717 cents 1.717 cents -
per share
============ ============ ========= ========== ========== =========
(1) All adjusted measures are reconciled to the most directly
comparable measure prepared in accordance with IFRS (see Non-IFRS
financial information section).
(2) Constant currency growth is calculated by applying the prior
period average exchange rates to the Group's actual performance in
the respective period.
(3 ) Adjusted EBIT is equivalent to adjusted operating profit
and reported EBIT is equivalent to statutory operating profit.
(4) Organic growth presents period over period growth at
constant currency, excluding acquisitions and disposals.
(5) Items referred to as reported measures are equivalent to
statutory measures.
H1 2021 key highlights:
-- Strong revenue growth ahead of our expectations: +7.4%
organic(4) growth, +7.0% on a constant currency(2) and +11.0% on a
reported basis
o H1 2021 performance was driven by particularly strong growth
in Advanced Wound Care, against the weak COVID-depressed
comparative, coupled with good growth in Infusion Care and solid
performances in Continence & Critical Care and Ostomy Care
-- Continued progress with our transformation by executing on
our FISBE (Focus, Innovate, Simplify, Build, Execute) strategy:
o Strengthened Continence Care with acquisition of Cure
Medical
o Launched innovative and differentiated extended wear infusion
set
o Establishing Marketing and Quality Centres of Excellence
-- Reported operating profit of $136m, 19.9% higher year on
year, with adjusted EBIT of $204m, 17.0% higher on a constant
currency basis, reflecting the strong revenue growth together with
gross margin improvement and beneficial opex phasing.
-- Reported Free Cash Flow ('FCF') of $106m (H1 2020: $145m)
with adjusted FCF(1) of $114m (H1 2020: $148m). Adjusted cash
conversion(1) of 56.6% (H1 2020: 72.9%) primarily reflecting
working capital movements during the period and increased capital
investment.
-- Strong balance sheet: leverage of 2.0x Net Debt/Adjusted
EBITDA(1) (H1 2020: 2.2x; FY 2020: 2.0x).
-- Interim dividend of 1.717 cents declared, in line with prior year.
-- 2021 full year outlook is updated: organic(4) revenue growth
of between 3.5-5% (previously: 3-4.5%) and a constant currency
adjusted EBIT margin of 18-19% (previously: 18-19.5%). Based on
current FX this would equate to guidance of between 17.1-18.1% for
the published adjusted EBIT margin.
Karim Bitar, Chief Executive Officer, commented:
"I am pleased with our continued strategic progress, on
delivering another semester of good growth and on the underlying
performance of the Group, notwithstanding that the financial
performance was helped by the COVID impacted Q2 comparative. Our
ongoing strategic transformation remains on track, and we have made
progress during the period.
"Whilst we are mindful of relatively tougher comparatives in the
second half and the continuing COVID uncertainty, particularly in
Asia Pacific and Latin America, we are updating our full year
organic revenue growth expectations. Our constant currency margin
guidance has been tightened against a backdrop of higher than
anticipated cost inflation and a planned increase in transformation
investments, primarily in R&D and sales and marketing, given
our confidence in our strategy.
"We will continue to strengthen our foundations as we pivot to
sustainable and profitable growth, and I am confident in the
inherent attractiveness of the markets we serve and in ConvaTec's
growth prospects."
***
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 document. 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.
Investor and analyst presentation
A pre-recorded webcast of the results presentation will be
available on the website from 7.05am or can be found here . We
shall host a separate Q&A session at 11am. Please find below
the dial-in details to participate in
the Q&A United Kingdom: +44 (0)330 336 9434
United States: +1 929 477 0324
Access code: 6926530
The full text of this announcement and the presentation for the
analyst and investors meeting can be found on the 'Results, Reports
& Presentations' page of the ConvaTec website
www.convatecgroup.com/investors/reports.
Analysts and Investors
Kate Postans, VP of IR & Corporate Communications +44(0)782 644 7807 ir@convatec.com
Media
Buchanan: Charles Ryland / Chris Lane / Vicky Haynes +44 (0)207 466 5000
Financial Calendar
Ex-dividend date 2 September 2021
Dividend record date 3 September 2021
Scrip dividend election date 21 September 2021
Dividend payment date 14 October 2021
Q3 trading update 29 October 2021
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 care. 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
Operating Review for the six months ended 30 June 2021
Revenue
Total Group revenue increased by 11.0% on a reported basis to
$1,008m. This was helped by an FX tailwind and on a constant
currency basis revenue rose 7.0%. Adjusting for the disposal of US
Skincare products in September 2020 and the acquisition of Cure
Medical in March 2021, Group revenue rose 7.4% on an organic basis.
The primary driver of this performance was the rebound in Advanced
Wound Care compared with H1 2020 when the arrival of the pandemic
had significantly reduced elective procedures and restricted access
to healthcare settings, supported by good growth in Infusion Care
and solid performances in the other categories.
Six months ended 30 June
H1 2021 H1 2020 Reported Foreign Constant Organic(4)
Exchange Currency(2) growth /
impact growth / (decline)
(decline)
$m $m growth
/ (decline)
Revenue by Category
Advanced Wound
Care 294 251 17.1% 6.4% 10.7% 16.3%
Ostomy Care 273 252 8.6% 4.9% 3.7% 3.7%
Continence and
Critical Care 266 244 8.9% 2.1% 6.8% 3.0%
Infusion Care 175 161 8.6% 2.1% 6.5% 6.5%
--------------------- -------- -------- -------------- ---------- ------------- -----------
Total 1,008 908 11.0% 4.0% 7.0% 7.4%
--------------------- -------- -------- -------------- ---------- ------------- -----------
Advanced Wound Care r evenue of $294m increased 17.1% on a
reported basis. The business experienced a currency tailwind and on
a constant currency basis revenue rose 10.7%. Adjusting for the
disposal of the US Skincare products, which had contributed $12m of
revenue in H1 2020, organic growth was 16.3% reflecting good growth
against a COVID-depressed prior year comparative coupled with
further improvement in commercial execution.
In the second quarter, when comparatives were at their weakest,
the AWC business delivered growth of 23.8% on an organic basis. We
saw strong growth throughout the period in Latin America and Asia
Pacific supported by high levels of government spending. In Europe
the performance rebounded well following slightly softer
comparatives throughout H1 last year. In North America the notable
step up to growth occurred in the second quarter given relatively
stronger Q1 prior year comparatives, and as elective procedures
gradually returned to pre-COVID levels and access began to
normalise.
Ostomy Care revenue of $273m increased 8.6% on a reported basis
and 3.7% on constant currency and organic bases. During the period
we achieved continued strong growth in Latin America and Asia
Pacific, supported by elevated government healthcare spending, with
growth in North America gradually improving during the period as
the comparatives eased. These positive performances were partially
offset by declines in certain markets in Europe coupled with the
impact of the planned strategic rationalisation programme.
Continence & Critical Care revenue of $266m increased 8.9%
on a reported basis and 6.8% in constant currency. This performance
was enhanced by the Cure Medical acquisition, which contributed
$10m of incremental revenue during the period. Adjusting for Cure
Medical, revenue rose 3.0% on an organic basis.
Continence Care grew 3.3% on an organic basis during the period,
showing a small improvement as the period progressed and New
Patient Starts normalised. The Critical Care business moved from
strong growth at the beginning of the year into decline from April
onwards, as anticipated. Key geographies, such as North America and
Europe, made progress with their vaccine programmes and
consequently ICU rates and demand for our Critical Care products
began to reduce against very strong comparatives.
Infusion Care revenue of $175m increased 8.6% on a reported
basis or 6.5% on constant currency and organic bases. This was
primarily driven by continued strong demand from diabetes customers
for our innovative infusion sets supported by growth in
non-diabetes applications, albeit off a small base.
Following a very strong Q1 performance, coupled with already
well stocked customers, in the second quarter organic growth slowed
significantly to bring the H1 performance in line with the broader
market.
Pivoting to sustainable and profitable growth
The execution of our FISBE (Focus, Innovate, Simplify, Build,
Execute) strategy is progressing well.
Consistent with the Focus pillar of our strategy, in March we
strengthened our Continence Care business through the acquisition
of Cure Medical for an initial consideration of $85m. B ased in
California the business develops, manufactures and distributes
intermittent catheters. Bringing together Cure Medical and
ConvaTec's Continence Care business enables us to better serve
continence customers. We are pleased with how the integration is
progressing as we strengthen our position in the US, which accounts
for the largest demand for such products in the world.
In June we enhanced our Advance Wound Care product portfolio by
signing a collaboration with RLS Global to commercialize ChloraSolv
(R) . The debrider product is a complementary offering and will be
marketed as part of ConvaTec's Wound Hygiene(TM) Protocol for the
care of hard-to-heal wounds. Initially the focus will be on Europe
while RLS seeks approval in key markets such as the US.
The Innovate pillar of our strategy is crucial for delivering
sustainable long term growth. We have increased our spend on
R&D by 14.9% to $41m (H1 2020: $36m) or 4.1% of revenue. Our
focus during the period has been to embed our new leadership and
further strengthen our capabilities. During the period we launched
the extended wear infusion sets, in two countries in Europe, and
recently received approval for the US. We are focused on scaling up
production.
Under our Simplify pillar, during the period we have continued
to embed our new operating model and to transition selected finance
and IT activities to our Global Business Services ('GBS') centre in
Lisbon. At the GBS we have started to build our capabilities in
financial planning to deepen our support of the business, while
further streamlining our finance processes and enabling more
automation.
We have also made further progress with simplifying our Ostomy
Care portfolio and the rationalisation of more SKUs during 2021 is
on track.
We are Building core capabilities across the value chain. During
the period we have focused on embedding the new leadership teams in
quality, regulatory, marketing, medical and product development.
Our Salesforce Centre of Excellence ('CoE') has expanded the single
CRM platform roll out to the US, Canada, Poland and Italy during
the first half and is now providing enhanced tools to improve
insight for the sales teams and enhance their productivity.
Our newly established Quality CoE has clarified responsibilities
within the Group and re-orientated the programme around patient
centricity, including combining complaint handling and post market
surveillance across the Group.
Our Transformation Execution Office is well established and is
ensuring that deliverables are on track and having a strong
impact.
During the period we invested $75m in our strategic
transformation, comprising of:
-- $23m of non-recurring operational investment (H1 2020: $25m)
-- $33m of recurring operational investment (H1 2020: $16m)
-- An additional $2m of costs to be excluded from adjusted EBIT (H1 2020: $6m)
-- $17m of capex (H1 20: $12m)
As well as delivering cost savings and productivity
improvements, previously highlighted at our 2020 full year results,
our strategic initiatives are beginning to yield commercial
benefits as we succeed in capturing more of the growth available in
the markets we serve.
Adjusted EBIT(3)
Adjusted gross profit rose 12.0% to $611m (H1 2020: $545m).
Adjusted gross profit margin of 60.6% was 60bps higher than the
prior year with pricing/mix benefits and delivery of productivity
projects more than offsetting COGS inflation and higher
depreciation.
Operational expenditure increased $43m, or 11.8% year on year,
of which $21m related to adverse foreign exchange rate movements.
Operational expenditure increased $22m on a constant currency basis
driven by the additional transformation investment into R&D and
selling and distribution, coupled with some increases as access in
developed markets begins to normalise.
As a consequence, total adjusted EBIT rose 12.4% to $204m (H1
2020: $182m). The adjusted EBIT margin was 20.3% in the first half,
an increase of 30 bps versus prior year and 188bps on a constant
currency basis.
Dividend
The Board is declaring an interim dividend of 1.717 cents per
share, in line with the 2020 interim dividend. The Board maintains
its stated policy of 35% to 45% of adjusted net profit for full
year dividends.
Cash flow and leverage
Adjusted free cash flow was $114m (H1 20: $148m) during the
first half. An adjusted EBITDA increase of $30m was more than
offset by an increase in working capital during the period,
investment in capital programmes and a step up in cash tax paid in
the six months to 30 June 2021.
The Group ended the period with total interest-bearing
liabilities, including IFRS 16 lease liabilities, of $1,532m (31
December 2020: $1,549m). Offsetting cash of $501m (31 December
2020: $565m) and excluding lease liabilities, net debt was $944m
(31 December 2020: $891m), equivalent to 2.0x adjusted EBITDA (31
December 2020: 2.0x adjusted EBITDA).
The Group has a $200m revolving credit facility which was
unutilised throughout the six months to 30 June 2021 and was
undrawn as at 30 June 2021, which, with cash of $501.1m, provided
the Group with total liquidity of $701.1m at that date.
Group 2021 outlook
Following the H1 performance, which was ahead of our
expectations, we are updating our guidance. We are pleased with the
growth we have already achieved in 2021 but are mindful of the
relatively tougher comparatives in the second half, particularly in
Infusion Care and Advanced Wound Care, and of the declining trends
in Critical Care. We are also aware of the continuing COVID
uncertainty particularly in Asia Pacific and Latin America. We now
expect full year organic revenue growth of between 3.5-5.0%. Given
the second half comparatives, expected phasing and identified
headwinds, growth in the second half is expected to be back-end
weighted.
We achieved a strong H1 margin performance; however during the
second half we expect notably higher raw material prices and
freight costs coupled with increases in operational expenditures
given planned transformation investments into R&D and selling
and distribution. Constant currency adjusted EBIT margin in 2021 is
now expected to be between 18% and 19%. The currency headwind on
the margin is currently c.90 bps which therefore equates to
guidance of 17.1-18.1% for the published margin.
We are excited about the opportunities available to the Group
and remain committed to our transformation to pivot to sustainable
and profitable growth.
Quarterly revenue data
$m Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
Advanced Wound Care 132 119 149 147 143 151
Ostomy Care 127 125 132 142 136 137
Continence and Critical
Care 119 125 124 130 128 138
Infusion Care 82 79 88 74 93 82
-------------------------- -------- -------- -------- -------- -------- --------
Group 460 448 493 493 500 508
-------------------------- -------- -------- -------- -------- -------- --------
Organic(4) growth/(decline) Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
%
Advanced Wound Care 4.5 (13.2) (0.6) (1.1) 9.4 23.8
Ostomy Care 9.5 (2.7) 0.1 (1.1) 3.0 4.4
Continence and Critical
Care 10.0 11.2 6.4 7.4 4.5 1.5
Infusion Care 12.6 12.6 26.7 15.3 11.7 1.2
----------------------------- -------- -------- -------- -------- -------- --------
Group 8.7 (0.2) 5.4 3.3 6.7 8.0
----------------------------- -------- -------- -------- -------- -------- --------
Principal risks
The Board reviews and agrees our principal risks on a bi-annual
basis taking account of our risk appetite together with our
evolving strategy, current business environment and any emerging
risks that could impact the business. Details of our enterprise
risk management framework are set out in the Group's 2020 Annual
Report and Accounts on pages 72 to 79. Our system of risk
management and internal control continues to develop and updates to
the principal risks and mitigation plans are made as required in
response to changes in our risk landscape.
The Board has reviewed the principal risks as at 30 June 2021,
taking into consideration the risks that existed during the first
six months of 2021 and those that it believes will have an impact
on the business over the remaining six months of the current
financial year. The principal risks set out below, including the
impact of COVID-19 on the Group's risk profile, remain largely
unchanged as at 30 June 2021 in terms of their potential impact on
our ability to successfully deliver our strategy:
-- Global Operations and Supply Chain;
-- Information Security;
-- People;
-- Pricing and Reimbursement;
-- Legal and Compliance;
-- Tax and Treasury;
-- Geopolitical; and
-- Forecasting and Market Conditions.
The risk landscape, however, has changed for the following
principal risks, since the publication of the 2020 Annual Report
and Accounts:
-- Product Innovation and Intellectual Property - the risk has
been elevated reflecting the Group's focus on delivering the
short-term development portfolio and mid to long-term refresh of
the core portfolio;
-- Quality and Regulatory - the overall risk exposure remains
unchanged, but the risk has been elevated higher in the list to
reflect the continued focus on finalising MDR compliance activity;
and
-- Change and Transformation Execution - has reduced in exposure
as a result of delivering the expected strategic transformation
plan in 2020 and the gradual shift from strategic transformation to
continual business transformation execution initiatives.
The Board has considered the continued presence of COVID-19 on
the business environment and any continued or additional impact on
the Group's business and principal risks, the controls and
mitigations in place to address these challenges and believes that
the risk profile has not increased since the 2020 Annual Report and
Accounts.
Principal risks continue to be appropriately mitigated and work
continues to reduce the net exposure to the business to ensure that
each risk remains within our risk appetite.
Financial Review for six months ended 30 June 2021
The following table sets forth the Group's revenue and expense
items for the six months ended 30 June 2021 and 2020:
Six months ended 30 June
------------------------------------------
Reported Reported Adjusted Adjusted
2021 2020 2021 2020
$m $m $m $m
------------------------------------- --------- --------- --------- ---------
Revenue 1,008.0 908.0 1,008.0 908.0
Cost of sales (452.7) (416.4) (397.5) (363.1)
------------------------------------- --------- --------- --------- ---------
Gross profit 555.3 491.6 610.5 544.9
------------------------------------- --------- --------- --------- ---------
Gross margin % 55.1% 54.1% 60.6% 60.0%
Selling and distribution expenses (252.9) (218.2) (252.9) (218.2)
General and administrative expenses (126.0) (124.8) (112.3) (109.3)
Research and development expenses (40.9) (35.6) (40.9) (35.6)
------------------------------------- --------- --------- --------- ---------
Operating profit 135.5 113.0 204.4 181.8
------------------------------------- --------- --------- --------- ---------
Operating margin % 13.4% 12.4% 20.3% 20.0%
Finance income 0.5 1.5 0.5 1.5
Finance expense (20.3) (27.8) (20.3) (27.8)
Non-operating expense, net (3.6) (5.2) (3.6) (5.2)
------------------------------------- --------- --------- --------- ---------
Profit before income taxes 112.1 81.5 181.0 150.3
Income tax expense (26.3) (22.4) (35.8) (28.5)
Effective tax rate % 23.5% 27.5% 19.8% 19.0%
------------------------------------- --------- --------- --------- ---------
Profit for the period (net profit) 85.8 59.1 145.2 121.8
------------------------------------- --------- --------- --------- ---------
Net profit % 8.5% 6.5% 14.4% 13.4%
Basic earnings per share (cents
per share) 4.3c 3.0c 7.2c 6.1c
Diluted earnings per share (cents
per share) 4.2c 3.0c 7.2c 6.1c
Dividend per share (cents) 1.717 1.717
------------------------------------- --------- --------- --------- ---------
Reported and Adjusted results
The commentary in this review includes discussion of reported
and alternative performance measures ('APMs'). Management uses APMs
as a meaningful supplement to reported measures. These measures are
disclosed in accordance with the ESMA guidelines and are explained
and reconciled to the most directly comparable measure prepared in
accordance with IFRS in the Non-IFRS financial information section.
Further detail on the Group's reported financial performance,
measured in accordance with IAS 34, Interim Financial Reporting as
adopted by the United Kingdom, is set out in the Condensed
Consolidated Financial Statements and Notes thereto.
The commentary includes discussion on revenue on a constant
currency basis. Constant currency removes the effect of
fluctuations in exchange rates to focus on underlying revenue
performance. Constant currency information is calculated by
applying the applicable prior period average exchange rates to the
Group's revenue performance in the respective period. Revenue
growth on a constant currency basis is a non-IFRS financial measure
and should not be viewed as a replacement of IFRS reported
revenue.
The commentary includes discussion of net profit, which is
equivalent to profit for the period as defined in the Condensed
Consolidated Income Statement, and reported measures, which are the
equivalent to statutory measures.
Revenue
Group reported revenue for the six months ended 30 June 2021 of
$1,008.0m (H1 2020: $908.0m) increased 11.0% year-on-year or 7.0%
on a constant currency basis. Adjusting for the prior year disposal
of US Skincare products (which had contributed $12.0m in the six
months ended 30 June 2020) and the acquisition of Cure Medical in
March 2021 (which contributed $9.5m in the six months ended 30 June
2021) the Group revenue rose 7.4% on an organic basis. The primary
driver of this performance was the rebound in Advanced Wound Care
compared to H1 2020 when the arrival of the pandemic had
significantly reduced elective procedures and restricted access to
healthcare settings. For more detail about the category
performance, refer to the Operating Review.
Six months ended 30 June
--------------------------------------------------- --------
Foreign Constant Organic
Reported exchange currency growth
2021 2020 growth impact growth
$m $m % % % %
---------- -------- ------ --------- ---------- ---------- --------
Americas 539.5 493.5 9.3% 0.1% 9.2% 8.4%
EMEA 385.8 346.8 11.2% 8.8% 2.4% 2.4%
APAC 82.7 67.7 22.2% 7.8% 14.4% 14.4%
---------- -------- ------ --------- ---------- ---------- --------
Total 1,008.0 908.0 11.0% 4.0% 7.0% 7.4%
---------- -------- ------ --------- ---------- ---------- --------
Americas revenue grew by 9.3% on a reported basis and 9.2% on a
constant currency basis. This reflected the strong revenue
performance in Infusion Care, as well as growth in all categories,
and includes both the acquisition of Cure Medical and the impact of
the prior year disposal of the US Skincare product line.
Europe, Middle East and Africa ("EMEA") revenue grew by 11.2% on
a reported basis and 2.4% on a constant currency basis, reflecting
the strong revenue performance in AWC.
Asia Pacific ("APAC") reported revenue grew by 22.2% and 14.4%
on a constant currency basis, driven by growth in AWC and OC.
Reported net profit
Reported operating profit was $135.5m, an increase of $22.5m
reflecting 11.0% growth in revenue (of which 4.0% was a foreign
exchange tailwind), 100bps increase in gross margin, partially
offset by an increase of $34.7m in selling and distribution due to
sales force investment and increased research and development
expenses of $5.3m driven by the Group's continued focus on
increasing our technology and innovation capabilities.
Reported net finance expenses and non-operating expenses were
$23.4m in the six months to 30 June 2021 (H1 2020: $31.5m). Finance
expenses reduced by $7.5m to $20.3m, reflecting lower interest
rates and a reduction in principal balances on the Group's
borrowings following scheduled repayments in 2020.
After the income tax expense for the six months to 30 June 2021
of $26.3m (H1 2020: $22.4m), reported net profit increase to $85.8m
(H1 2020: $59.1m) generating basic reported earnings per share of
4.3 cents (H1 2020: 3.0 cents).
Adjusted net profit
Group adjusted gross profit was $610.5m (H1 2020: $544.9m) and
the gross margin was 60.6%, resulting from pricing/mix benefits and
productivity gains partially offset by cost of sales inflation and
FX headwind.
The Group delivered adjusted operating profit of $ 204.4m, an
increase of $22.6m on the prior year (H1 2020: $181.8m) with an
adjusted operating margin of 20.3% (H1 2020: 20.0%). The 11.0%
growth in revenue (of which 4.0% was a foreign exchange tailwind)
and the 60 bps increase in gross margin was partially offset by
increases of $34.7m and $5.3m in selling and distribution and
research and development expenses respectively.
Adjusted net profit rose 19.2% to $145.2m (H1 2020: $121.8m),
driven by the increase in adjusted operating profit, $7.5m
reduction in net finance expense and $7.3m increase in adjusted
income tax expense. The adjusted effective tax rate ("ETR") rose
from 19.0% to 19.8% due to the profit mix between jurisdictions
with different tax rates.
Basic and diluted adjusted EPS at 30 June 2021 was 7.2 cents (H1
2020: 6.1 cents).
IBOR Reform
The transition away from LIBOR, and other IBORs (together "IBOR
Reform") will remove certain IBOR as an interest rate benchmark for
financial instruments. In preparation for this change and after
consultation with our banking group and legal counsel, in May 2021,
the Group amended its Credit Facility, removing GBP as an optional
currency for drawings and removing 1 week and 2 month draw periods
for USD. This change has not resulted in any impact on the Group's
financial statements for the six months ended 30 June 2021. Given
that the Group is not forecasting a material requirement for GBP,
the agreed changes do not affect the Group's ability to draw under
the facility in our required principal currencies
Taxation
Six months ended
30 June
-------------------
2021 2020
$m $m
----------------------------- --------- --------
Reported income tax expense (26.3) (22.4)
Tax effect of adjustments (7.5) (6.1)
Other discrete tax items (2.0) -
----------------------------- --------- --------
Adjusted income tax expense (35.8) (28.5)
------------------------------- --------- --------
The Group's reported income tax expense for the six months ended
30 June 2021 was $ 26.3m (H1 2020: $22.4m) and the Group's reported
effective tax rate of 23.5% for the period was lower than the prior
year (H1 2020: 27.5%) due to recognition of deferred tax following
the acquisition of Cure Medical in respect of previously
unrecognised tax losses in the US, partially offset by an increase
in deferred tax liabilities arising from an increase in the UK
corporation tax rate from 19% to 25% from 1 April 2023.
After adjusting for certain financial measures that the Group
believes are useful supplemental indicators of future operating
performance, the adjusted effective tax rate on continuing
operations was 19.8% for the six months ended 30 June 2021 (H1
2020: 19.0%). The increase in adjusted effective tax rate is
principally driven by the profit mix between jurisdictions with
different tax rates.
Acquisition
Cure Medical LLC ("Cure Medical"), a California-based
manufacturer and distributer of catheter-related supplies, was
acquired on 15 March 2021 for initial consideration of $85.1m. The
sellers may earn an additional consideration of up to $10.0m which
is contingent on post-acquisition performance targets and is
payable within three years of the acquisition date. The acquisition
of Cure Medical allows the Group to better serve the US
intermittent catheter market, improving and expanding relationships
with patients, care givers and partners. Refer to Note 6 in the
Condensed Consolidated Financial Statements for further
details.
Dividends
The capacity of the Group to make dividend payments is derived
from distributable reserves of the parent company ("the Company"),
primarily arising from dividends received from subsidiary
companies. The distributable reserves of the Company at 30 June
2021 were $1,552.9m (31 December 2020: $1,653.1m). Dividends are
distributed based on the realised distributable reserves (within
retained earnings) of ConvaTec Group Plc (the Company) and not
based on the Group's retained earnings.
We are maintaining our interim 2021 dividend at 1.717 cents per
share, in line with the interim dividend for 2020. This is
consistent with our stated policy of 35% to 45% of adjusted net
profit. The decision to maintain the dividend reflects the
distributable reserves position, as well as the underlying
financial strength and cash generation of the Group such that the
dividend will not impact the solvency of the Group in the next two
years.
Sources and uses of cash
Sources of cash
The Group's primary source of liquidity is net cash generated
from operations. We operate in the chronic care market for which
the nature of the Group's product offerings has resulted in
consistent and robust recurring cash inflows.
Net cash generated from operations
Six months ended
30 June
--------------------
Reported Reported
2021 2020
$m $m
---------------------------------------------- --------- ---------
EBITDA(a) 242.4 209.8
---------------------------------------------- --------- ---------
Net cash generated from operations 178.8 196.6
Net interest paid (18.8) (27.0)
Tax paid (29.0) (14.5)
---------------------------------------------- --------- ---------
Net cash generated from operating activities 131.0 155.1
---------------------------------------------- --------- ---------
(a) EBITDA is explained and reconciled to the most directly
comparable financial measure prepared in accordance with IFRS in
the cash conversion table in the Non-IFRS financial information
section.
Net cash generated from operating activities was $ 131.0m (H1
2020: $155.1m). The decrease of $24.1m primarily reflects a
decrease in net cash generated from operations of $17.8m. The
increase in EBITDA of $32.6m was offset by an increase in working
capital in the six months to 30 June 2021, which includes growth in
revenue and the associated increase in the receivables position,
payments in relation to year-end capital expenditure and strategic
project accruals and payments under the Group's employee incentive
plan. Net interest paid decreased by $8.2m to $18.8m, reflecting
lower interest costs on the Group's borrowings, which was offset by
an increase in tax paid of $14.5m due to the timing of payments on
account and an increase in tax payments in the US.
Uses of cash
Cash and cash equivalents have decreased by $62.2 million to
$501.1 million at 30 June 2021 (31 December 2020: $565.4 million).
The $131.0m of net cash generated from operations was used to
acquire Cure Medical for $85.1m, invest $43.6m of capital
expenditure in our manufacturing lines and digital technologies,
pay $10.9m in lease payments and $53.6m in dividends to
shareholders. The year-on-year increase of $15.6m in the cash
dividend payment reflects the uptake of the scrip alternative as
compared to the prior year.
Cash conversion
Cash conversion is a measure used by the Group to ensure we
derive value from our operations and supports our decision making
for potential future investments.
Our reported cash conversion was 55.8% ( H1 2020: 76.2%) and
adjusted cash conversion was 56.6% (H1 2020: 72.9%).
Six months ended 30 June
------------------------------------------------
Reported Reported Adjusted(a) Adjusted(a)
2021 2020 2021 2020
$m $m $m $m
-------------------------------------- --------- --------- ------------ ------------
EBITDA 242.4 209.8 252.9 223.4
Add: non-cash items 7.1 7.2 - -
Working capital (69.8) (20.4) (66.2) (23.8)
Loss on foreign exchange derivatives (0.9) - - -
Capital expenditure (43.6) (36.7) (43.6) (36.7)
-------------------------------------- --------- --------- ------------ ------------
Net cash generated from operations,
net of capital expenditure 135.2 159.9 143.1 162.9
-------------------------------------- --------- --------- ------------ ------------
Cash conversion 55.8% 76.2% 56.6% 72.9%
-------------------------------------- --------- --------- ------------ ------------
Tax paid (29.0) (14.5) (29.0) (14.5)
-------------------------------------- --------- --------- ------------ ------------
Free cash flow 106.2 145.4 114.1 148.4
-------------------------------------- --------- --------- ------------ ------------
(a) Adjusted EBITDA, adjusted working capital and adjusted
non-cash items are explained and reconciled to the most directly
comparable financial measure prepared in accordance with IFRS in
the cash conversion table in the Non-IFRS financial information
section.
Adjusted free cash flow is one of the four key performance
indicators we use to monitor the delivery of our strategy. Adjusted
free cash flow was $114.1m (H1 2020: $148.4m), with the decrease of
$34.3m principally reflecting the increase in working capital,
increase in investment in capital programmes and tax paid in the
six months to 30 June 2021.
Liquidity and net debt
Borrowings and net debt
As at 30 June 2021, the Group's cash and cash equivalents were
$501.1m (31 December 2020: $565.4m) and the debt outstanding on our
borrowings was $1,445.3m (31 December 2020: $1,456.4m). Borrowings
reflect two five-year multi-currency committed loan facilities
which expire in October 2024, including a $900m non-amortising debt
facility and a $600m amortising debt facility. The Group has a
$200m revolving credit facility which was unutilised throughout the
six months to 30 June 2021 and was undrawn as at 30 June 2021,
which, with cash of $501.1m, provided the Group with total
liquidity of $701.1m at that date. This includes $43.8m which is in
held in territories where there are restrictions related to
repatriation (31 December 2020: $42.2m). From time to time we
review our balance sheet structure including debt maturity profile,
cost of capital and liquidity needs, and to the extent we deem
appropriate may consider various financing alternatives, including
opportunistically accessing the loan and debt capital markets.
At 30 June 2021, the Group was in compliance with all financial
and non-financial covenants associated with the Group's outstanding
debt.
The Group ended the period with total interest-bearing
liabilities, including IFRS 16 lease liabilities, of $1,532.2m (31
December 2020: $1,548.5m). Offsetting cash of $501.1m (31 December
2020: $565.4m) and excluding lease liabilities, net debt was
$944.2m (31 December 2020: $891.0m), equivalent to 2.0x adjusted
EBITDA (31 December 2020: 2.0x adjusted EBITDA).
2021
-------------------------------------------
Cash and
Borrowings cash equivalents Net debt
$m $m $m
----------------------------- ----------- ------------------ ----------
At 1 January (1,456.4) 565.4 (891.0)
Net cash outflow - (62.2) (62.2)
Foreign exchange 13.2 (2.1) 11.1
Non-cash movement (2.1) - (2.1)
----------------------------- ----------- ------------------ ----------
At 30 June (1,445.3) 501.1 (944.2)
----------------------------- ----------- ------------------ ----------
Lease liabilities (86.9)
----------------------------- ----------- ------------------ ----------
At 30 June (1,031.1)
----------------------------- ----------- ------------------ ----------
Net debt/adjusted EBITDA(a) 2.0x
----------------------------- ----------- ------------------ ----------
(a) Based on net debt, excluding lease liabilities, and the last 12 months adjusted EBITDA
2021 Condensed Consolidated Interim Financial Statements
Condensed Consolidated Income Statement
Six months ended
30 June
--------------------------
2021 2020
Notes $m $m
-------------------------------------------- ------ ------------ ------------
(unaudited) (unaudited)
Revenue 2 1,008.0 908.0
Cost of sales (452.7) (416.4)
-------------------------------------------- ------ ------------ ------------
Gross profit 555.3 491.6
-------------------------------------------- ------ ------------ ------------
Selling and distribution expenses (252.9) (218.2)
General and administrative expenses (126.0) (124.8)
Research and development expenses (40.9) (35.6)
-------------------------------------------- ------ ------------ ------------
Operating profit 135.5 113.0
-------------------------------------------- ------ ------------ ------------
Finance income 0.5 1.5
Finance expense (20.3) (27.8)
Non-operating expense, net 3 (3.6) (5.2)
-------------------------------------------- ------ ------------ ------------
Profit before income taxes 112.1 81.5
Income tax expense 4 (26.3) (22.4)
-------------------------------------------- ------ ------------ ------------
Profit for the period 85.8 59.1
-------------------------------------------- ------ ------------ ------------
Earnings per share
Basic earnings per share (cents per share) 4.3c 3.0c
Diluted earnings per share (cents per
share) 4.2c 3.0c
-------------------------------------------- ------ ------------ ------------
All amounts are attributable to shareholders of the Group and
wholly derived from continuing operations.
Condensed Consolidated Statement of Comprehensive Income
Six months ended
30 June
--------------------------
2021 2020
Notes $m $m
-------------------------------------------------- ------- ------------ ------------
(unaudited) (unaudited)
Profit for the period 85.8 59.1
Other comprehensive income/(loss)
Items that will not be reclassified subsequently
to the Consolidated Income Statement
Remeasurement of defined benefit pension
plans (0.1) (2.1)
Change in pension asset restriction 0.1 4.7
Items that may be reclassified subsequently
to the Consolidated Income Statement
Exchange differences on translation of
foreign operations 3.4 (58.5)
Effective portion of changes in fair
value of cash flow hedges (2.0) (10.4)
Costs of hedging (0.2) -
Changes in fair value of cash flow hedges 0.7 -
reclassified to the Consolidated Income
Statement
Income tax relating to items that may
be reclassified (0.5) 2.0
----------------------------------------------------------- ------------ ------------
Other comprehensive income/(loss) 1.4 (64.3)
----------------------------------------------------------- ------------ ------------
Total comprehensive income/(loss) 87.2 (5.2)
----------------------------------------------------------- ------------ ------------
All amounts are attributable to shareholders of the Group and
wholly derived from continuing operations.
Condensed Consolidated Statement of Financial Position
30 June 31 December
2021 2020
Notes $m $m
---------------------------------- ------ ------------ ------------
(unaudited) (audited)
Assets
Non-current assets
Property, plant and equipment 351.6 352.2
Right-of-use assets 80.1 85.8
Intangible assets and goodwill 2,118.4 2,089.6
Deferred tax assets 41.2 41.4
Restricted cash 7.9 5.7
Other non-current receivables 15.0 13.3
---------------------------------- ------ ------------ ------------
2,614.2 2,588.0
---------------------------------- ------ ------------ ------------
Current assets
Inventories 293.0 297.1
Trade and other receivables 332.1 307.9
Derivative financial assets 8 2.6 8.1
Cash and cash equivalents 501.1 565.4
---------------------------------- ------ ------------ ------------
1,128.8 1,178.5
---------------------------------- ------ ------------ ------------
Total assets 3,743.0 3,766.5
---------------------------------- ------ ------------ ------------
Equity and liabilities
Current liabilities
Trade and other payables 274.9 334.1
Borrowings 7 85.8 86.6
Lease liabilities 18.6 19.8
Current tax payable 59.5 55.6
Derivative financial liabilities 8 11.4 7.7
Provisions 5.3 9.4
---------------------------------- ------ ------------ ------------
455.5 513.2
---------------------------------- ------ ------------ ------------
Non-current liabilities
Borrowings 7 1,359.5 1,369.8
Lease liabilities 68.3 72.3
Deferred tax liabilities 104.3 101.4
Provisions 1.2 1.5
Derivative financial liabilities 8 5.7 7.7
Other non-current payables 37.2 29.9
---------------------------------- ------ ------------ ------------
1,576.2 1,582.6
---------------------------------- ------ ------------ ------------
Total liabilities 2,031.7 2,095.8
---------------------------------- ------ ------------ ------------
Net assets 1,711.3 1,670.7
---------------------------------- ------ ------------ ------------
Equity
Share capital 246.8 245.5
Share premium 140.1 115.3
Own shares (5.0) (6.7)
Retained deficit (839.2) (845.3)
Merger reserve 2,098.9 2,098.9
Cumulative translation reserve (42.7) (46.1)
Other reserves 112.4 109.1
---------------------------------- ------ ------------ ------------
Total equity 1,711.3 1,670.7
---------------------------------- ------ ------------ ------------
Total equity and liabilities 3,743.0 3,766.5
---------------------------------- ------ ------------ ------------
Condensed Consolidated Statement of Changes in Equity
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 2021
(audited) 245.5 115.3 (6.7) (845.3) 2,098.9 (46.1) 109.1 1,670.7
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Profit for the
period - - - 85.8 - - - 85.8
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Other
comprehensive
income:
Foreign currency
translation
adjustment,
net of tax - - - - - 3.4 - 3.4
Remeasurement of
defined benefit
pension plans,
net
of tax - - - - - - (0.1) (0.1)
Change in pension
asset restriction - - - - - - 0.1 0.1
Effective portion
of changes in
fair
value of cash
flow
hedges, net of
tax - - - - - - (2.0) (2.0)
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Other
comprehensive
income - - - - - 3.4 (2.0) 1.4
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Total
comprehensive
income - - - 85.8 - 3.4 (2.0) 87.2
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Dividends paid 5 - - - (53.6) - - - (53.6)
Scrip dividend 5 1.3 24.8 - (26.1) - - - -
Share-based
payments - - - - - - 7.0 7.0
Share awards
vested - - 1.7 - - - (1.7) -
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
At 30 June 2021
(unaudited) 246.8 140.1 (5.0) (839.2) 2,098.9 (42.7) 112.4 1,711.3
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
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 2020
(audited) 242.9 70.7 (10.8) (847.7) 2,098.9 (99.1) 106.1 1,561.0
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Profit for the
period - - - 59.1 - - - 59.1
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Other
comprehensive
loss:
Foreign currency
translation
adjustment,
net of tax - - - - - (58.5) - (58.5)
Remeasurement of
defined benefit
pension plans,
net
of tax - - - - - - (2.1) (2.1)
Change in pension
asset restriction - - - - - - 4.7 4.7
Effective portion
of changes in
fair
value of cash
flow
hedges, net of
tax - - - - - - (8.4) (8.4)
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Other
comprehensive
loss - - - - - (58.5) (5.8) (64.3)
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Total
comprehensive
loss - - - 59.1 - (58.5) (5.8) (5.2)
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Dividends paid 5 - - - (38.0) - - - (38.0)
Scrip dividend 5 2.1 35.7 - (37.8) - - - -
Share-based
payments - - - - - - 7.2 7.2
Share awards
vested - - 2.4 - - - (2.4) -
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
At 30 June 2020
(unaudited) 245.0 106.4 (8.4) (864.4) 2,098.9 (157.6) 105.1 1,525.0
------------------- ------ --------- --------- -------- --------- --------- ------------- ---------- --------
Condensed Consolidated Statement of Cash Flows
Six months ended
30 June
--------------------------
2021 2020
Notes $m $m
----------------------------------------------- ------ ------------ ------------
Cash flows from operating activities (unaudited) (unaudited)
Profit for the period 85.8 59.1
Adjustments for
Depreciation of property, plant and equipment 19.8 18.3
Depreciation of right-of-use assets 11.7 10.9
Amortisation 73.7 67.3
Income tax expense 4 26.3 22.4
Non-operating expense, net 2.7 5.2
Finance costs, net 19.8 26.3
Share-based payments 7.1 7.2
Impairment/write-off of property, plant
and equipment 1.7 0.3
Change in assets and liabilities:
Inventories 6.9 (14.4)
Trade and other receivables (21.8) (6.1)
Other non-current receivables (1.7) (3.6)
Restricted cash (2.3) (0.8)
Trade and other payables (51.4) 0.4
Other non-current payables 0.5 4.1
----------------------------------------------- ------ ------------ ------------
Net cash generated from operations 178.8 196.6
Interest received 0.5 1.5
Interest paid (19.3) (28.5)
Income taxes paid (29.0) (14.5)
----------------------------------------------- ------ ------------ ------------
Net cash generated from operating activities 131.0 155.1
Cash flows from investing activities
Acquisition of property, plant and equipment
and intangible assets (43.6) (36.7)
Acquisitions, net of cash acquired 6 (85.1) -
----------------------------------------------- ------ ------------ ------------
Net cash used in investing activities (128.7) (36.7)
Cash flows from financing activities
Payment of lease liabilities (10.9) (10.3)
Dividend paid 5 (53.6) (38.0)
----------------------------------------------- ------ ------------ ------------
Net cash used in financing activities (64.5) (48.3)
----------------------------------------------- ------ ------------ ------------
Net change in cash and cash equivalents (62.2) 70.1
Cash and cash equivalents at beginning of
the period 565.4 385.8
Effect of exchange rate changes on cash
and cash equivalents (2.1) (4.6)
----------------------------------------------- ------ ------------ ------------
Cash and cash equivalents at end of the
period 501.1 451.3
----------------------------------------------- ------ ------------ ------------
1. Basis of preparation and accounting standards
ConvaTec Group Plc (the "Company") is a company incorporated in
the United Kingdom. The accompanying unaudited Condensed
Consolidated Interim Financial Statements of the Company and its
subsidiaries (the "Group") for the six months ended 30 June 2021
have been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and with IAS
34, Interim Financial Reporting as adopted by the United
Kingdom.
The Condensed Consolidated Interim Financial Statements should
be read in conjunction with the 2020 ConvaTec Group Plc Annual
Report and Accounts, which were prepared in accordance with IFRS as
adopted by the European Union. The accounting policies adopted by
the Group in preparation of these Condensed Consolidated Interim
Financial Statements are consistent with those set out in the 2020
Annual Report and Accounts, except for those described below as new
standards and interpretations applied for the first time.
These Condensed Consolidated Interim Financial Statements and
the comparatives are unaudited, except where otherwise indicated,
and do not constitute statutory financial statements. The statutory
financial statements for the Group in respect of the year ended 31
December 2020 have been reported on by the Group's auditor and
delivered to the Registrar of Companies. The audit report on those
accounts was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
The auditors have carried out a review of the financial
information in accordance with the guidance contained in ISRE (UK
and Ireland) 2410 'Review of Interim Financial Information
Performance by the Independent Auditor of the Entity' issued by the
Financial Reporting Council for use in the United Kingdom.
The Condensed Consolidated Interim Financial Statements are
presented in US dollars ("USD"), reflecting the profile of the
Group's revenue and operating profit, which are primarily generated
in US dollars and US dollar-linked currencies. All values are
rounded to the nearest $0.1 million except where otherwise
indicated.
The Condensed Consolidated Interim Financial Statements for the
six months ended 30 June 2021 were approved by the Board on 29 July
2021.
New standards and interpretations applied for the first time
On 1 January 2021, the Group adopted Interest Rate Benchmark
Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16) as issued by the IASB. The adoption has not had a material
impact on the Condensed Consolidated Interim Financial Statements.
Apart from this change, the accounting policies set out in the 2020
Annual Report and Accounts have been applied consistently to both
periods presented in these Condensed Consolidated Financial
Statements.
New standards and interpretations not yet applied
There were no new or revised IFRSs, amendments or
interpretations in issue but not yet effective that are potentially
material for the Group and which have not yet been applied.
Going concern
In preparing their assessment of going concern, the Directors
have considered available cash resources, financial performance and
forecast performance, including continued implementation of the
strategy and transformation, together with the Group's financial
covenant compliance requirements (as embedded in the term loans)
and principal risks and uncertainties.
The overall financial performance of the business remains robust
with a strong liquidity position maintained throughout the year. As
at 30 June 2021, the Group held cash and cash equivalents of $501.1
million (31 December 2020: $565.4 million) and two multicurrency
term loans totalling $1.5 billion, of which $900.0 million is
available until October 2024 and the remainder is amortising and
requires a capital repayment of $90.0 million within the next 12
months. The Group also has access to a $200.0 million multicurrency
revolving credit facility, which remains undrawn and is available
until October 2024.
In assessing going concern, management used cash flow forecasts
derived from actual performance year to date, the Board approved
2021 budget and longer-term strategic plan as foundations, which
also reflect the expected impact of the ongoing COVID-19 pandemic
on the business.
In addition, as part of the 2020 Annual Report and Accounts and
in accordance with FRC guidance, management applied severe but
plausible downside scenarios linked to the Group's principal and
emerging risks, including supply chain disruption (incorporating
the effect of climate change), COVID-19, delivery of transformation
initiatives, pricing and reimbursement and foreign exchange
sensitivity. Further details of the specific scenarios are provided
on pages 80 and 81 of the 2020 Annual Report and Accounts. The
Board has reviewed these scenarios in the preparation of the
interim results and as part of the going concern review and has
concluded that these scenarios remain in line with the Group's
principal emerging risks and continue to reflect the financial risk
of downside events and circumstances, with the exception of
delivery of transformation initiatives which has reduced in
exposure as a result of delivering the expected strategic
transformation plan in 2020 and the gradual shift from strategic
transformation to continual business transformation execution
initiatives. Under each scenario the Group retains significant
liquidity and covenant headroom throughout the going concern
period. A reverse stress test, before mitigation, was also
considered but the conditions of the reverse stress test were
considered implausible.
There are no key sources of estimation uncertainty in arriving
at the going concern conclusion and no significant judgements have
been required.
Accordingly, at the time of approving these Condensed
Consolidated Interim Financial Statements, the Directors have a
reasonable expectation that the Group and the Company will have
adequate liquid resources to meet their respective liabilities as
they become due and will be able to sustain its business model,
strategy and operations and remain solvent for a period of at least
12 months from 29 July 2021.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the Condensed Consolidated Interim Financial
Statements, in conformity with adopted IFRS, requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported value of assets
and liabilities, income and expense. Actual results may differ from
these estimates or judgements of likely outcome. Management
regularly reviews, and revises as necessary, the accounting
judgements that significantly impact the amounts recognised in the
Condensed Consolidated Interim Financial Statements and the sources
of estimation uncertainty that are considered to be "key estimates"
due to their potential to give rise to material adjustments in the
Group's Consolidated Financial Statements within the next financial
year. As part of this assessment, the financial reporting impact of
risks associated with our identified principal risks, including
actual and proposed mitigations, are considered, which includes the
effects of COVID-19 and climate change.
In preparing the Condensed Consolidated Interim Financial
Statements, no critical judgements have been identified, which is
consistent with the Consolidated Financial Statements for the year
ended 31 December 2020. A key estimate has been identified in
relation to recognition of deferred tax assets in relation to
unutilised US tax losses.
IAS 12, Income taxes states that when an entity has a history of
recent losses, the entity recognises a deferred tax asset arising
from unused tax losses only to the extent that the entity has
sufficient taxable temporary differences or there is convincing
other evidence that sufficient taxable profit will be available
against which the unused tax losses can be utilised by the entity.
The Group had unutilised US tax losses at 30 June 2021 which were
not recognised as deferred tax assets. Given the history of US tax
losses, management assessed that there is not convincing other
evidence that there will be probable future taxable profit in the
US against which these losses can be utilised. Therefore, the
related deferred tax assets have only been recognised at 30 June
2021 to the extent that there are suitable offsetting temporary
differences.
Management has identified that there is uncertainty in respect
to the probability of the timing and extent of future taxable
profits in the US given the continuing transformative changes in
the Group. It is reasonably possible that the deferred tax
recognition criteria may be met within the next 12 months, which
could result in a deferred tax asset of up to ca. $31 million.
Therefore, the recognition of deferred tax assets in relation to
unutilised US tax losses has been identified as a key source of
estimation uncertainty. Management will continue to assess the
recoverability of the deferred tax assets as the transformation
progresses and the financial impact on the US is further
determined.
2. Segment information
The Board considers the Group's business to be a single segment entity
engaged in the development, manufacture and sale of medical products
and technologies. R&D, manufacturing and central support functions
are managed globally for the Group. Revenues are managed both on
a category and regional basis. This note presents the performance
and activities of the Group as a single segment.
The Group's CEO, who is the Group's Chief Operating Decision
Maker, evaluates the Group's global product portfolios on a revenue
basis and evaluates profitability and associated investment on an
enterprise-wide basis due to shared geographic infrastructures and
support functions between the categories. Financial information
relating to revenues provided to the CEO for decision-making
purposes is made on both a category and regional basis, however,
profitability measures are presented and resources allocated on a
Group-wide basis.
Revenue by category
The following table sets out the Group's revenue by
category:
Six months ended
30 June
-------------------
2021 2020
$m $m
------------------------------ ---------- -------
Advanced Wound Care 293.8 250.9
Ostomy Care 273.4 251.8
Continence and Critical Care 266.0 244.3
Infusion Care 174.8 161.0
------------------------------ ---------- -------
Total 1,008.0 908.0
------------------------------ ---------- -------
Geographic information
The following table sets out the Group's revenue in each
regional geographic market in which customers are located:
Six months ended
30 June
-------------------
2021 2020
$m $m
---------- ---------- -------
EMEA 385.8 346.8
Americas 539.5 493.5
APAC 82.7 67.7
---------- ---------- -------
Total 1,008.0 908.0
---------- ---------- -------
Details on revenue performance are discussed in the Financial
Review.
3. Non-operating expense, net
Non-operating expense, net was as follows:
Six months ended
30 June
-------------------
2021 2020
$m $m
------------------------------------------------------ --------- --------
Net foreign exchange losses(a) (2.0) (8.2)
(Loss)/gain on foreign exchange forward contracts(a) (0.9) 3.1
Loss on foreign exchange cash flow hedges (0.7) -
Other expense - (0.1)
------------------------------------------------------ --------- --------
Non-operating expense, net (3.6) (5.2)
------------------------------------------------------ --------- --------
(a) Net foreign exchange losses primarily relate to the foreign
exchange impact on intercompany transactions, including loans
transacted in non-functional currencies. The Group uses foreign
exchange forward contracts to manage these exposures in accordance
with the Group's foreign exchange risk management policy.
4. Income taxes
The Group's income tax expense is accrued using the tax rate that
would be applicable to expected annual total earnings (i.e. the estimated
average annual effective income tax rate applied to the profit before
tax).
The tax charge for the six months ended 30 June 2021 has been
calculated by applying the effective rate of tax which is expected
to apply to the Group for the year ended 31 December 2021 using
rates substantively enacted as at 30 June 2021.
For the six months ended 30 June 2021, the Group recorded an
income tax expense of $26.3 million (2020: $22.4 million). The
Group's reported effective tax rate of 23.5% is lower than the
prior year (2020: 27.5%), as the current period's tax expense
included a net tax benefit as a result of a deferred tax asset
recognition in the US which is offset by the tax expense on the
revaluation of the net deferred tax liability (see below for
further details). The prior year expense included a tax expense for
the revaluation of the net deferred tax liability in the UK from
17% to 19% corporation tax rate.
For the six months ended 30 June 2021, the following items have
impacted the Group's income tax expense:
-- A tax benefit of $9.3 million has been recognised is in
respect of previously unrecognised tax losses in the US, where
recognition of the deferred tax asset relating to US tax losses on
the Group's Statement of Financial Position is restricted to the
extent of there being probable future taxable profit to be
available to utilise the tax losses. Upon acquisition of Cure
Medical, a deferred tax liability of $9.3 million was recognised in
relation to acquisition intangible assets - refer to Note 6 for
further details. This can be offset by the Group's US tax losses
and therefore the deferred tax recognition criteria were met,
resulting in a tax benefit being recognised in respect of the US
tax losses. The effective tax rate includes the impact of
accumulated taxable losses in prior years in the US on which a
deferred tax asset is not recognised.
-- The Group's net deferred tax liabilities in the UK have been
revalued in 2021 following the enactment on 10 June 2021 of Finance
Act 2021, which increases the UK corporation tax rate from 19% to
25% as from 1 April 2023. This has resulted in a tax expense of
$8.3 million, primarily relating to revaluation of deferred tax
liabilities for acquisition intangibles.
-- A tax expense of $0.4 million due to revaluation of the
deferred tax asset related to the Swiss tax reform which was
substantively enacted on 4 October 2019 and was effective on 31
December 2019. The final assessment of the deferred tax asset
valuation was made in 2021 following formal agreement with the
Swiss Tax Authorities.
The recognition of deferred tax assets on unutilised tax losses
in the US is a key source of estimation uncertainty which could
materially impact the Group's tax charge and the Statement of
Financial Position in the next 12 months. Refer to Note 1 for
further details.
5. Dividends
The Group ensures that adequate realised distributable reserves are
available in the Company in order to meet proposed shareholder dividends,
and the purchase of shares for employee share scheme incentives.
The Company principally derives distributable reserves from dividends
paid by subsidiary companies.
In determining the level of dividend in the year, the Board considers
the following factors and risks that may influence the proposed dividend:
- Availability of realised distributable reserves;
- Available cash resources and commitments;
- Strategic opportunities and investments, in line with the Group's
strategic plan; and
- Principal risks of the Group including the risks associated with
the COVID-19 pandemic (
The Board paid the 2020 final dividend in May 2021 and proposes an
interim dividend to be paid in October 2021. In determining the dividend,
the Board has reviewed the financial strength the Group, the Group's
dividend policy together with s172 considerations and has reviewed
the distributable reserves position of the Company and the forecast
cash generation of the Group for the next two years from the date
of the dividend payment.
Dividends paid and proposed were as follows:
Settled
in Settled
Total cash via scrip
----------- ----------- ------------
No of scrip
pence cents shares
per share per share $m $m $m issued
----------------------- ----------- ----------- ------ -------- ----------- ------------
Final dividend 2019 3.095 3.983 75.8 38.0 37.8 16,991,621
Interim dividend 2020 1.306 1.717 34.3 24.9 9.4 3,841,666
----------------------- ----------- ----------- ------ -------- ----------- ------------
Paid in 2020 4.401 5.700 110.1 62.9 47.2 20,833,287
----------------------- ----------- ----------- ------ -------- ----------- ------------
Final dividend 2020 2.845 3.983 79.7 53.6 26.1 9,475,532
----------------------- ----------- ----------- ------ -------- ----------- ------------
Paid in 2021 to date 2.845 3.983 79.7 53.6 26.1 9,475,532
----------------------- ----------- ----------- ------ -------- ----------- ------------
Interim dividend 2021
proposed 1.229 1.717 34.6
----------------------- ----------- ----------- ------ -------- ----------- ------------
The Company operates a scrip dividend scheme allowing
shareholders to elect to receive their dividend in the form of new
fully paid ordinary shares. For any particular dividend, the
Directors may decide whether or not to make the scrip offer
available.
The proposed interim dividend for 2021, to be distributed on 14
October 2021 to shareholders registered at the close of business on
3 September 2021, is based upon the issued and fully paid share
capital as at 30 June 2021. The dividend will be declared in US
dollars and will be paid in Sterling at the chosen exchange rate of
$1.397/GBP1.00 determined on 29 July 2021. A scrip dividend
alternative will be offered allowing shareholders to elect by 21
September 2021 to receive their dividend in the form of new
ordinary shares.
Distributable reserves
Distributable reserves equate to the retained surplus of the
Company, ConvaTec Group Plc. The capacity of the Company to make
dividend payments is primarily determined by the availability of
these distributable reserves (which are fully realised) and cash
resources. The Company principally derives distributable reserves
from dividends paid by subsidiary companies, with the dividends
being paid out of the realised distributable reserves of the
subsidiary companies.
At 30 June 2021, the retained surplus of ConvaTec Group Plc (the
Company) was $1,552.9 million (31 December 2020: $1,653.1 million).
The movements in distributable reserves were as follows:
$m
----------------------------------------- --------
At 1 January 2021 1,653.1
Total comprehensive loss for the period (20.5)
Dividends paid (53.6)
Scrip dividend (26.1)
----------------------------------------- --------
Retained surplus at 30 June 2021 1,552.9
----------------------------------------- --------
6. Acquisition
Cure Medical LLC ("Cure Medical")
Description of the transaction
On 15 March 2021, the Group acquired 100% of the share capital
of Cure Medical for initial cash of $85.1 million (net of cash
acquired), which included $4.9 million of deferred consideration
paid into escrow. Cure Medical, based in California, manufactures
and distributes intermittent catheters, and operates within the
Continence category. The acquisition of Cure Medical allows the
Group to better serve the US intermittent catheter market,
improving and expanding relationships with patients, caregivers and
partners.
In addition to the initial consideration the sellers may earn
contingent consideration of up to $10.0 million based upon
post-acquisition performance targets included in the Share Purchase
Agreement. The fair value of contingent consideration at the date
of acquisition was $3.1 million, which is due to be paid within
three years of the acquisition date. Following completion of
acquisition accounting, any changes in the fair value of contingent
consideration will be recorded in the Consolidated Income Statement
in accordance with the Group's accounting policies.
Assets acquired and liabilities assumed
The transaction meets the definition of a business combination
and has been accounted for under the acquisition method of
accounting. The following table summarises the provisional fair
values of the assets acquired and liabilities assumed as of the
acquisition date:
$m
Provisional
------------------------------------------------------------ -------------
Non-current assets
Intangible assets - customer relationships and non-compete
agreements 28.9
Intangible assets - trade names 4.2
Intangible assets - product-related 4.9
Current assets
Trade and other receivables 2.1
Inventories 8.0
Cash and cash equivalents 0.7
------------------------------------------------------------ -------------
Total assets acquired 48.8
Non-current liabilities
Deferred tax liabilities (9.3)
Current liabilities
Trade and other payables (5.6)
------------------------------------------------------------ -------------
Total liabilities assumed (14.9)
------------------------------------------------------------ -------------
Net assets acquired 33.9
------------------------------------------------------------ -------------
Goodwill 54.6
------------------------------------------------------------ -------------
Total 88.5
------------------------------------------------------------ -------------
Initial cash consideration 80.9
Working capital adjustment(b) (0.4)
Deferred purchase consideration paid into escrow(a) 4.9
Contingent consideration 3.1
------------------------------------------------------------ -------------
Total consideration 88.5
------------------------------------------------------------ -------------
Analysis of cash outflow in the Condensed Consolidated $m
Cash Flow Statement
------------------------------------------------------------ -------------
Initial cash consideration 80.9
Deferred purchase consideration paid into escrow(a) 4.9
Cash and cash equivalents acquired (0.7)
------------------------------------------------------------ -------------
Net cash outflow from acquisitions, net of cash acquired 85.1
------------------------------------------------------------ -------------
(a) $4.9 million was paid on closing into escrow as security for
due and punctual fulfilment by the seller of its obligations under
the Share Purchase Agreement. The escrow account will be maintained
for three years, of which (i) $0.8 million has been released in
July 2021, (ii) $0.4 million will be released after 12 months,
(iii) $2.8 million will be released after two years, and (iv) the
remaining amount will be released after three years.
(b) The working capital adjustment forms part of the initial
consideration and was settled on 13 July 2021.
The fair values of the assets acquired and liabilities assumed
remain provisional due to the proximity of the acquisition to the
date of approval of the Condensed Consolidated Interim Financial
Statements. The Group will finalise these amounts as it obtains the
information necessary to complete the measurement process. Any
changes resulting from facts and circumstances that existed as of
the acquisition date may result in retrospective adjustments to the
provisional amounts recognised at the acquisition date. The Group
will finalise these amounts no later than one year from the
acquisition date.
The goodwill recorded, which is not deductible for tax purposes,
represents the cost savings, operating synergies and future growth
opportunities expected to result from combining the operations of
Cure Medical with those of the Group, as well as intangible assets
that do not qualify for separate recognition.
The carrying value of the Group's goodwill increased to $1,151.4
million at 30 June 2021 (31 December 2020: $1,097.2 million) as a
result of the acquisition of Cure Medical ($54.6 million) and
foreign exchange movements ($0.4 million).
Acquisition-related costs
The Group incurred $1.7 million of acquisition-related costs
directly related to the Cure Medical acquisition in the period to
30 June 2021, primarily related to legal and due diligence
expenses. These acquisition-related costs have been recognised in
general and administrative expenses in the Condensed Consolidated
Income Statement.
Revenue and profit
The revenue of Cure Medical for the period from the acquisition
date to 30 June 2021 was $9.5 million and profit for the period was
$1.2 million, after recognising acquisition-related intangible
asset amortisation of $1.2 million. If the acquisition had been
completed at 1 January 2021, reported Group revenue would have been
$6.7 million higher and profit for the period would have been $0.6
million higher for the six months to 30 June 2021.
7. Borrowings
The Group's sources of borrowing for funding and liquidity purposes
derive from a credit agreement comprising two bank term loans together
with a committed revolving credit facility. The Group's credit agreement
matures in October 2024.
The Group's consolidated borrowings were as follows:
30 June 31 December
2021 2020
Year
of maturity Face value Face value
--------------
Currency $m $m
------------------------------------- --------------- -------------- ----------- ------------
Revolving Credit Facilities Multicurrency 2024 - -
Term Loan Facility A(a) USD/Euro 2024 555.0 560.1
Term Loan Facility B(b) USD/Euro 2024 900.0 908.2
------------------------------------- --------------- -------------- ----------- ------------
Total interest-bearing borrowings 1,455.0 1,468.3
Financing fees (9.7) (11.9)
---------------------------------------------------------------------- ----------- ------------
Total carrying value of borrowings
from credit facilities 1,445.3 1,456.4
Less: current portion of borrowings 85.8 86.6
---------------------------------------------------------------------- ----------- ------------
Total non-current borrowings 1,359.5 1,369.8
---------------------------------------------------------------------- ----------- ------------
(a) Included within Term Loan Facility A is EUR140.4 million
($166.5 million) and EUR140.4 million ($171.6 million) at 30 June
2021 and 31 December 2020 respectively, denominated in Euros. This
represents 30% (2020: 31%) denominated in Euros and 70% (2020: 69%)
denominated in US dollars.
(b) Included within Term Loan Facility B is EUR227.8 million
($270.0 million) and EUR227.8 million ($278.2 million) at 30 June
2021 and 31 December 2020 respectively, denominated in Euros. This
represents 30% (2020: 31%) denominated in Euros and 70% (2020: 69%)
denominated in US dollars.
The principal financial covenants are based on a permitted net
debt to adjusted EBITDA ratio and interest cover test as defined in
the credit agreement. Testing is required on a semi-annual basis,
at June and December, based on the last 12 months' financial
performance. At 30 June 2021, the permitted net debt to adjusted
EBITDA ratio was a maximum of 3.75 times (reducing to 3.50 times
for testing periods from 31 December 2021 inclusive) and the
interest cover a minimum of 3.50 times (no change in 2021), terms
as defined by the credit agreement. The Group was in compliance
with all financial and non-financial covenants in the credit
agreement at 30 June 2021 and 31 December 2020, with significant
available headroom on the financial covenants ($877.5 million debt
headroom on the net debt to adjusted EBITDA ratio (48%) as at 30
June 2021).
Borrowings not measured at fair value
At 30 June 2021, the estimated fair value of the Group's
borrowings is $1,450.8 million (31 December 2020: $1,473.7
million). The fair value of the Group's borrowings is based on
discounted cash flows using a current borrowing rate and are
categorised as a Level 2 measurement in the fair value hierarchy
under IFRS 13, Fair Value Measurements.
8. Financial instruments
A derivative financial instrument is a contract that derives its
value from the performance of an underlying variable, such as foreign
exchange rates or interest rates. The Group uses derivative financial
instruments to manage foreign exchange and interest rate risk arising
from its operations and financing. Derivative financial instruments
used by the Group are foreign exchange forwards and swaps and interest
rate swaps.
The Group utilises interest rate swap agreements, designated as cash
flow hedges, to manage its exposure to variability in expected future
cash outflows attributable to the changes in interest rates on the
Group's borrowing facilities.
The Group designates certain foreign currency pairings of forecast
third-party transactions as cash flow hedges in accordance with its
risk management policy.
Financial instruments are classified as Level 2 in the fair
value hierarchy in accordance with IFRS 13, Fair Value
Measurements, based upon the degree to which the fair value
movements are observable. Level 2 fair value measurements are
defined as those derived from inputs other than quoted prices that
are observable for the asset or liability, either directly (prices
from third parties) or indirectly (derived from third-party
prices).
The Group holds interest rate swap agreements to fix a
proportion of variable interest on US dollar denominated debt, in
accordance with the Group's risk management policy. The interest
rate swaps are designated as hedging instruments in a cash flow
hedging relationship.
In accordance with Group policy, the Group uses forward foreign
exchange contracts, designated as cash flow hedges, to hedge
certain forecast third-party foreign currency transactions for up
to one year. When a commitment is entered into a layered approach
is taken when hedging the currency exposure, ensuring that no more
than 100% of the transaction exposure is covered. The principal
currencies hedged by forward foreign exchange contracts are US
dollars, GBP, Euro and Danish Krone.
The Group further utilises foreign exchange contracts and swaps
classified as fair value through profit or loss ("FVTPL") to manage
short-term foreign exchange exposure.
The fair values are based on market values of equivalent
instruments. The following table presents the Group's outstanding
interest rate swaps, which are designated as cash flow hedges, at
30 June 2021 and 31 December 2020 respectively:
31 December
30 June 2021 2020
---------------------------- ----------------------------
Fair value(a) Fair value(a)
Notional assets Notional assets
amount / (liabilities) amount / (liabilities)
----------- ----------
Effective Maturity
date date $m $m $m $m
--------------------------- ----------- ---------- --------- ----------------- --------- -----------------
3 Month LIBOR Float to 24 Jan 24 Jan
Fixed Interest Rate Swap 2020 2023 275.0 (5.7) 275.0 (7.7)
--------------------------- ----------- ---------- --------- ----------------- --------- -----------------
(a) The fair values of the interest rate swaps are shown in
non-current derivative financial liabilities in the Condensed
Consolidated Statement of Financial Position. Finance expenses in
the Condensed Consolidated Income Statement includes the negligible
ineffective impact of the interest rate swaps.
The following table presents the Group's outstanding foreign
exchange forward contracts valued at FVTPL and foreign currency
forward contracts designated as cash flow hedges, which form part
of current derivative financial assets and current derivative
financial liabilities:
31 December
30 June 2021 2020
---------------------------- ----------------------------
Fair Fair
value value
Notional assets Notional assets
amount / (liabilities) amount / (liabilities)
-----------
Term $m $m $m $m
--------------------------------------- ----------- --------- ----------------- --------- -----------------
Foreign exchange contracts designated
as FVTPL 28 days 196.6 2.4 512.5 6.4
Foreign currency forward exchange
contracts designated as cash flow
hedges 12 months 22.1 0.2 98.3 1.7
--------------------------------------- ----------- --------- ----------------- --------- -----------------
Derivative financial assets 218.7 2.6 610.8 8.1
---------------------------------------------------- --------- ----------------- --------- -----------------
Foreign exchange contracts designated
as FVTPL 28 days 352.7 (8.7) 355.3 (7.7)
Foreign currency forward exchange
contracts designated as cash flow
hedges 12 months 117.5 (2.7) - -
--------------------------------------- ----------- --------- ----------------- --------- -----------------
Derivative financial liabilities 470.2 (11.4) 355.3 (7.7)
---------------------------------------------------- --------- ----------------- --------- -----------------
9. Foreign exchange
The following table summarises the exchange rates used for the
translation of currencies into US dollars that have the most
significant impact on the Group results:
Six months ended Year ended
30 June 31 December
---------------- ------------------- -------------
Average
rate/ Closing
Currency rate 2021 2020 2020
---------- ---------------- --------- -------- -------------
EUR/USD Average 1.21 1.10 1.14
Closing 1.19 1.12 1.22
--------------------------- --------- -------- -------------
GBP/USD Average 1.39 1.26 1.28
Closing 1.38 1.24 1.37
--------------------------- --------- -------- -------------
DKK/USD Average 0.16 0.15 0.15
Closing 0.16 0.15 0.16
--------------------------- --------- -------- -------------
10. Commitments and contingencies
Capital commitments
At 30 June 2021, the Group had non-cancellable commitments for
the purchase of property, plant and equipment, capitalised software
and development of $34.9 million (31 December 2020: $29.6
million).
Contingent liabilities
Liability claims
On 31 May 2019, ConvaTec Inc. filed a lawsuit against Scapa
Group plc (trading as Scapa Tapes North America LLC) and Webtec
Converting LLC seeking a declaration that the company was within
its rights to terminate a contract between the parties. On 10 July
2019, the defendants filed a motion seeking dismissal of the
declaratory judgement action, and Scapa Tapes North America LLC
filed a separate complaint seeking damages of $83.8 million against
ConvaTec Inc. in relation to the contract cancellation. ConvaTec
Inc., in turn, has asserted two separate claims for damages against
Scapa Tapes North America LLC and Scapa Group plc. All claims are
being litigated before the Connecticut state court in the United
States, discovery in the case is progressing, and the trial is
presently scheduled for July 2022. The Group's Board, in
conjunction with its legal advisors, do not believe the claim has
merit and no provision is recognised as at 30 June 2021.
11. Subsequent events
The Group has evaluated subsequent events through to 29 July
2021, the date the Condensed Consolidated Interim Financial
Statements were approved by the Board of Directors.
On 29 July 2021, the Board declared the interim dividend to be
distributed on 14 October 2021. Refer to Note 5 - Dividends for
further details.
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. 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 and provide a meaningful supplement to the
reported numbers to provide meaningful insight on how the business
is managed and measured on a day-to-day basis. Reconciliations for
these adjusted measures determined under IFRS are shown on herein.
The definitions of adjusted measures are provided within the
reconciliation tables.
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. The items include
adjustments for the tax effect and may cross several accounting
periods. The APMs are consistent with those disclosed in the 2020
Annual Report and Accounts, with no adjustments being made to the
Group's reported results in relation to COVID-19.
Adjusted profit items, excluding the impact of tax, for the six
months ended 30 June 2021 and 2020 comprise the following credits
or costs that are reflected in the reported measures:
- Amortisation of intangible assets relating to acquisitions
(ongoing) ($65.5 million and $62.4 million respectively).
- Deal and integration costs relating to acquisitions ($1.7 million and $nil respectively).
- Termination benefits in relation to major change programmes
($1.7 million and $6.4 million respectively).
Acquisition-related amortisation of intangible assets
The Group's strategy is to grow both organically and through
acquisition, with larger acquisitions being targeted to strengthen
our position in key geographies and/or business categories or which
provide access to new technology. As a result, the Group has
treated the amortisation of intangible assets in relation to
acquisitions which took place after 1 January 2021 as an adjusted
measure, together with associated acquisition-related expenses
(refer to section below). The treatment of these costs as adjusted
measures reflects the underlying performance of the business and
aids year-on-year comparability. In addition, acquisition
intangible assets from pre-2018 are included as adjusted measures,
principally relating to assets recognised as a result of the BMS
spin-out in 2008. Between 2018 and 2021, the Group made two small
acquisitions, each for a consideration of less than $15 million,
for which the amortisation charge on acquisition intangibles is
immaterial and continues to be treated as a non-adjusted
measure.
Acquisition-related costs
Acquisition-related costs relate to deal costs, integration
costs and earn-out adjustments which are incurred directly as a
result of the Group undertaking an acquisition. Deal costs are
wholly attributable to the deal, including legal fees, due
diligence fees, bankers' fees/commissions and other direct costs
incurred as a result of the transaction. Integration costs are
wholly attributable to the integration of the target and based on
integration plans presented at the point of acquisition, including
retention of key people where in excess of normal compensation,
redundancy of target staff and early lease termination payments.
The treatment of these costs as adjusted measures reflects the
underlying performance of the business and aids year-on-year
comparability.
Termination benefits and related costs
Termination benefits and related costs arise from major
Group-wide initiatives to reduce the ongoing cost base and improve
efficiency in the business. The Board considers each project
individually to determine whether its size and nature warrants
separate disclosure. Qualifying items are limited to termination
benefits (including retention) without condition of continuing
employment in respect of major Group-wide change programmes. Where
discrete qualifying items are identified these costs are
highlighted and excluded from the calculation of our adjusted
measures. Restructuring-related costs not related to termination
benefits are reported in the normal course of business. No
termination benefits or related costs have arisen related to
COVID-19.
Other discrete tax items
Other discrete tax items in the six months ended 30 June 2021
are in respect of:
- Tax benefit of $9.3 million relating to recognition of
deferred tax following the acquisition of Cure Medical in respect
of previously unrecognised tax losses in the US. Recognition of the
deferred tax asset relating to US tax losses on the Group's
Statement of Financial Position is restricted to the extent of
there being probable future taxable profit to be available to
utilise the tax losses. Upon acquisition of Cure Medical, a
deferred tax liability of $9.3 million was recognised in relation
to acquisition intangible assets which can be offset by the Group's
US tax losses and therefore the deferred tax recognition criteria
was met and a tax benefit has been recognised in respect of the US
tax losses.
- Tax expense of $6.9 million relating to revaluation of
deferred tax liabilities for acquisition intangibles in the UK
following the enactment of the Finance Act 2021 on 10 June 2021
which increases the rate of UK corporation tax from 19% to 25% from
1 April 2023.
- Tax expense of $0.4 million. Following formal agreement with
the Swiss Tax Authorities of the effect of the Swiss tax reform,
which was substantively enacted on 4 October 2019, a final
assessment of the associated deferred tax asset has resulted in an
income tax expense of $0.4 million.
The deferred tax associated with the Cure Medical acquisition,
revaluation of acquisition intangibles in the UK and Swiss tax
reform have been classified as adjusted as they relate to
significant tax items which do not reflect the underlying
performance of the business.
Reconciliation of reported earnings to adjusted earnings for the
six months ended 30 June 2021 and 2020
Finance Profit
expense Non-operating for
Gross Operating Operating , expense, the
Revenue profit costs profit net net PBT Taxation period
Six months ended 30 $m $m $m $m $m $m $m $m $m
June 2021
---------------------- -------- ------- ---------- ---------- -------- -------------- ------ --------- -------
Reported 1,008.0 555.3 (419.8) 135.5 (19.8) (3.6) 112.1 (26.3) 85.8
Amortisation of
acquisition
intangibles - 55.0 10.5 65.5 - - 65.5 (7.1) 58.4
Acquisition-related
costs - - 1.7 1.7 - - 1.7 - 1.7
Termination benefits
and other related
costs - 0.2 1.5 1.7 - - 1.7 (0.4) 1.3
---------------------- -------- ------- ---------- ---------- -------- -------------- ------ --------- -------
Total adjustments and
their tax effect - 55.2 13.7 68.9 - - 68.9 (7.5) 61.4
Other discrete tax
items - - - - - - - (2.0) (2.0)
---------------------- -------- ------- ---------- ---------- -------- -------------- ------ --------- -------
Adjusted 1,008.0 610.5 (406.1) 204.4 (19.8) (3.6) 181.0 (35.8) 145.2
---------------------- -------- ------- ---------- ---------- -------- -------------- ------ --------- -------
Software, R&D and
other
amortisation 8.2
Depreciation 31.5
Impairment/write-off
of assets 1.7
Share-based payments 7.1
---------------------- -------- ------- ---------- ----------
Adjusted EBITDA 252.9
---------------------- -------- ------- ---------- ----------
Acquisition-related costs are deal and integration costs
incurred in relation to the acquisition of Cure Medical on 15 March
2021 - refer to Note 6 of the interim Condensed Consolidated
Financial Statements for further information. The costs are
primarily related to legal and due diligence expenses which were
incurred as a result of the transaction. We expect to incur c.$3-4
million of deal and integration costs in relation to Cure Medical
during 2021 and 2022.
Termination benefits and other related costs relate to the
Transformation Initiative and amounted to $1.7 million, pre-tax, in
the six months ended 30 June 2021. The Transformation Initiative is
a global multi-year transformation programme which commenced in
2019 and will simplify the way in which the business operates. We
expect to incur c$5-10 million of severance and associated
retention costs during 2021. No termination benefits or related
costs recognised by the Group are related to COVID-19.
Other discrete tax items relate to the tax benefit of $9.3
million resulting from recognition of deferred tax following the
acquisition of Cure Medical, partially offset by a $6.9 million tax
expense relating to revaluation of deferred tax liabilities for
acquisition intangibles in the UK following the enactment of
Finance Act 2021 on 10 June 2021 and $0.4 million tax expense which
arose as a result of adjustment to the Swiss deferred tax asset
following formal agreement with the Swiss Tax Authorities in
2021.
Finance Profit
expense Non-operating for
Gross Operating Operating , expense, the
Revenue profit costs profit net net PBT Taxation period
Six months ended 30 $m $m $m $m $m $m $m $m $m
June 2020
---------------------- -------- ------- ---------- ---------- -------- -------------- ------ --------- -------
Reported 908.0 491.6 (378.6) 113.0 (26.3) (5.2) 81.5 (22.4) 59.1
Amortisation of
acquisition
intangibles - 53.3 9.1 62.4 - - 62.4 (4.9) 57.5
Termination benefits
and other related
costs - - 6.4 6.4 - - 6.4 (1.2) 5.2
---------------------- -------- ------- ---------- ---------- -------- -------------- ------ --------- -------
Total adjustments and
their tax effect - 53.3 15.5 68.8 - - 68.8 (6.1) 62.7
---------------------- -------- ------- ---------- ---------- -------- -------------- ------ --------- -------
Adjusted 908.0 544.9 (363.1) 181.8 (26.3) (5.2) 150.3 (28.5) 121.8
---------------------- -------- ------- ---------- ---------- -------- -------------- ------ --------- -------
Software, R&D and
other
amortisation 4.9
Depreciation 29.2
Impairment/write-off
of assets 0.3
Share-based payments 7.2
---------------------- -------- ------- ---------- ----------
Adjusted EBITDA 223.4
----------------------------------------------------- ----------
Termination benefits and other related costs were $6.4 million,
pre-tax, in the six months ended 30 June 2020 and relate to the
Transformation Initiative as described above.
Reconciliation of reported and adjusted operating costs for the
six months ended 30 June 2021 and 2020
Six months ended 30 June
--------------------------------------------------------------------------------
2021 2020
--------------------------------------- ---------------------------------------
S&D(a) G&A(b) R&D(c) Operating S&D(a) G&A(b) R&D(c) Operating
costs costs
$m $m $m $m $m $m $m $m
-------------------------- -------- -------- ------- ---------- -------- -------- ------- ----------
Reported (252.9) (126.0) (40.9) (419.8) (218.2) (124.8) (35.6) (378.6)
Amortisation of
acquisition intangibles - 10.5 - 10.5 - 9.1 - 9.1
Acquisition-related
costs - 1.7 - 1.7 - - - -
Termination benefits
and other related
costs - 1.5 - 1.5 - 6.4 - 6.4
-------------------------- -------- -------- ------- ---------- -------- -------- ------- ----------
Adjusted (252.9) (112.3) (40.9) (406.1) (218.2) (109.3) (35.6) (363.1)
-------------------------- -------- -------- ------- ---------- -------- -------- ------- ----------
(a) "S&D" represents selling and distribution expenses.
(b) "G&A" represents general and administrative expenses.
(c) "R&D" represents research and development expenses.
Reconciliation of basic and diluted reported earnings per share
to adjusted earnings per share for the six months ended 30 June
2021 and 2020
Six months ended 30 June
------------------------------------------------------
Reported Adjusted Reported Adjusted
2021 2021 2020 2020
$m $m $m $m
------------------------------------ ---------- -------------- ---------- --------------
Profit for the period attributable
to the shareholders of the
Group 85.8 145.2 59.1 121.8
------------------------------------ ---------- -------------- ---------- --------------
Number Number
------------------------------------ ---------- -------------- ---------- --------------
Basic weighted average ordinary
shares in issue 2,004,985,601 1,983,903,773
Diluted weighted average ordinary
shares in issue 2,024,506,676 1,997,251,095
------------------------------------ ---------- -------------- ---------- --------------
cents per cents per cents per cents per
share share share share
------------------------------------ ---------- -------------- ---------- --------------
Basic earnings per share 4.3 7.2 3.0 6.1
Diluted earnings per share 4.2 7.2 3.0 6.1
------------------------------------ ---------- -------------- ---------- --------------
Cash conversion for the six months ended 30 June 2021 and 30
June 2020
Six months ended
30 June
-------------------
2021 2020
$m $m
------------------------------------------------------- --------- --------
Reported Operating profit/EBIT 135.5 113.0
Depreciation of property, plant and equipment 19.8 18.3
Depreciation of right-of-use assets 11.7 10.9
Amortisation 73.7 67.3
Impairment/write-off of property, plant and equipment 1.7 0.3
------------------------------------------------------- --------- --------
Reported EBITDA 242.4 209.8
Non-cash items in EBITDA
Share-based payment expense 7.1 7.2
------------------------------------------------------- --------- --------
7.1 7.2
Working capital movement (69.8) (20.4)
Loss on foreign exchange derivatives (0.9) -
Capital expenditure (43.6) (36.7)
------------------------------------------------------- --------- --------
Reported net cash for cash conversion 135.2 159.9
Less: tax paid (29.0) (14.5)
------------------------------------------------------- --------- --------
Reported free cash flow 106.2 145.4
------------------------------------------------------- --------- --------
Reconciliation of Adjusted EBITDA, Adjusted Non-Cash Items, Adjusted
Working Capital and Adjusted Net Cash (for Adjusted Cash Conversion
measurement)
Six months ended
30 June
-------------------
2021 2020
$m $m
---------------------------------------------------------- --------- --------
Reported EBITDA 242.4 209.8
Share-based payment expense 7.1 7.2
Acquisition-related activities 1.7 -
Termination benefits and other related costs 1.7 6.4
---------------------------------------------------------- --------- --------
Total adjustments (a) 10.5 13.6
---------------------------------------------------------- --------- --------
Adjusted EBITDA 252.9 223.4
---------------------------------------------------------- --------- --------
Reported non-cash items 7.1 7.2
Share-based payment expense (7.1) (7.2)
---------------------------------------------------------- --------- --------
Total adjustments (b) (7.1) (7.2)
---------------------------------------------------------- --------- --------
Adjusted non-cash items - -
---------------------------------------------------------- --------- --------
Reported working capital movement (69.8) (20.4)
Decrease/(increase) in severance provision 4.0 (3.4)
Increase in accruals for acquisition-related activities (0.4) -
---------------------------------------------------------- --------- --------
Total adjustments (c) 3.6 (3.4)
---------------------------------------------------------- --------- --------
Adjusted working capital movement (66.2) (23.8)
---------------------------------------------------------- --------- --------
Reported net cash for cash conversion 135.2 159.9
Non-operating loss on foreign exchange forward contracts 0.9 -
Total adjustments above (a), (b), (c) 7.0 3.0
---------------------------------------------------------- --------- --------
Adjusted net cash for cash conversion 143.1 162.9
Less: tax paid (29.0) (14.5)
---------------------------------------------------------- --------- --------
Adjusted free cash flow 114.1 148.4
---------------------------------------------------------- --------- --------
Reported cash conversion 55.8% 76.2%
Adjusted cash conversion 56.6% 72.9%
---------------------------------------------------------- --------- --------
Net debt
Net debt is calculated as the carrying value of current and
non-current borrowings on the face of the Consolidated Statement of
Financial Position, net of cash and cash equivalents and excluding
lease liabilities.
30 June 31 December
2021 2020
$m $m
---------------------------------------- -------- ------------
Borrowings 1,445.3 1,456.4
Lease liabilities 86.9 92.1
---------------------------------------- -------- ------------
Total interest-bearing borrowings 1,532.2 1,548.5
Cash and cash equivalents (501.1) (565.4)
---------------------------------------- -------- ------------
Net debt (including lease liabilities) 1,031.1 983.1
---------------------------------------- -------- ------------
Net debt 944.2 891.0
---------------------------------------- -------- ------------
Net debt/adjusted EBITDA(a) 2.0 2.0
---------------------------------------- -------- ------------
(a) Adjusted EBITDA represents the last 12 months adjusted EBITDA.
Directors' Responsibilities Statement
The Directors confirm that to the best of their knowledge:
-- The Condensed Consolidated Financial Statements have been
prepared in accordance with IAS 34 as adopted by the United
Kingdom; and
-- The interim management report includes a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the Condensed
Consolidated Financial Statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The Board of Directors of ConvaTec Group Plc on 29 July 2021 are
the same as those listed in the 2020 Annual Report.
By order of the Board:
Karim Bitar Chief Executive Officer 29 July 2021
Frank Schulkes Chief Financial Officer 29 July 2021
INDEPENDENT REVIEW REPORT TO CONVATEC GROUP PLC
We have been engaged by the Group to review the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of
Financial Position, the Condensed Consolidated Statement of Changes
in Equity, the Condensed Consolidated Statement of Cash Flows and
related Notes 1 to 11. We have read the other information contained
in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the
Group will be prepared in accordance with United Kingdom adopted
International Financial Reporting Standards. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Our responsibility
Our responsibility is to express to the Group a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the Group in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Group those matters we are required to state to it in
an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Group, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
29 July 2021
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.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR FFFSLDFIAFIL
(END) Dow Jones Newswires
July 30, 2021 02:00 ET (06:00 GMT)
Convatec (LSE:CTEC)
Historical Stock Chart
From Mar 2024 to Apr 2024
Convatec (LSE:CTEC)
Historical Stock Chart
From Apr 2023 to Apr 2024
