TIDMCTEC

RNS Number : 8511U

ConvaTec Group PLC

04 August 2022

LEI: 213800LS272L4FIDOH92

4 August 2022

Convatec Group Plc

Interim Results for the six months ended 30 June 2022

Strong revenue growth, stable adjusted operating profit

and continued strategic progress

-- Good financial performance in H1 2022 notwithstanding the challenging inflationary backdrop and continued investment in Innovation, Sales & Marketing

-- Continued execution of FISBE (Focus, Innovate, Simplify, Build, Execute) strategy in H1, notably:

o Entry into Wound Biologics(1) segment; exit from non-core hospital care and related industrial sales activities

o Further progress with our new product pipeline; launch of GentleCath Air Male in France and InnovaMatrix in US; acquired a minority stake in BlueWind Medical

o Simplification and efficiency initiatives supporting reduction in adjusted G&A to 9.7% of sales (H1 2021: 11.1%)

o Positive pricing performance and new Convatec masterbrand launched

o Progress embedding 'Convatec Cares', our new Environmental, Social & Governance (ESG) framework

-- On track to deliver full year guidance - further demonstration Convatec is pivoting to sustainable and profitable growth

Key financial highlights

 
                                    Reported results                        Adjusted(2) results 
=========================  =================================  =============================================== 
                             H1 2022     H1 2021     Change     H1 2022     H1 2021    Change    CC Change(3) 
 Revenue                     $1045m      $1008m       3.6%      $1045m      $1008m      3.6%         8.0% 
                                                                 $ 204 
 Operating profit             $87m        $136m     (36.0)%        m         $204m      0.0%        1.1 % 
                                                                 19.6                   ( 70 
 Operating profit margin      8.3%        13.4%     (510)bps       %         20.3%       )bps     ( 130 )bps 
 Diluted earnings per 
  share                     2.4 cents   4.2 cents   (43.9)%    6.5 cents   7.2 cents   (10.0)%        - 
                              1.717       1.717 
 Dividend per share           cents       cents       0.0% 
 

-- Strong revenue growth: Reported +3.6% although significant FX headwind. +8.0% on a constant currency(4) basis and +6.4% on an organic(4) basis with positive performances across all divisions

   --    Reported operating profit 35.7% lower primarily reflecting hospital care exit costs 

-- Stable adjusted(2) operating profit: +0.0% and +1.1% on a constant currency(3) basis despite significant COGS inflation of c.7% and investments in Sales & Marketing and R&D operating expense of 15% on a constant currency basis

-- Adjusted(2) operating profit margin was 19.6% (H1 2021: 20.3%) with price/mix, productivity improvement, G&A reduction and FX tailwind more than offset by inflation and the operating expense investments. Operating costs will be more evenly phased across the year in 2022 than in 2021.

-- Reported diluted EPS down 43.9% principally owing to the hospital care exit cost. Adjusted(2) diluted EPS down 10.0% primarily owing to treatment of US deferred tax; excluding the recognition of deferred tax assets post the acquisitions, the adjusted EPS would have been down 2.7%

-- Net debt(2) increased by $196 million largely owing to strategic M&A investments: leverage of 2.3x net debt(2) /adjusted EBITDA(2) (FY 2021: 1.9x)

   --    Interim dividend of 1.717 cents declared (H1 2021: 1.717) 

2022 outlook confirmed

Convatec is on track to deliver organic(4) revenue growth of 4.0-5.5% and constant currency adjusted operating profit(3) margin of at least 18%, as indicated in March 2022, notwithstanding the current inflationary backdrop.

Karim Bitar, Chief Executive Officer, commented:

"This performance demonstrates that Convatec is continuing to pivot to sustainable and profitable growth. Our competitive position and financial performance are strengthening as we successfully execute our FISBE strategy. Convatec has achieved strong sales growth and, despite the significant inflationary back drop, a robust profit performance. We are confirming our guidance for the full year."

"We remain focused on executing our strategy and are confident in Convatec's ability to grow in line or faster than its markets and to improve its operating margin to mid-20% over time."

--------------------------------------------------------------------------------------------------------------------------------------

(1) Wound Biologics segment as defined by SmartTRAK. Includes skin substitutes, active collagen dressings and topical drug delivery.

(2) Certain financial measures in this document, including adjusted results above, are not prepared in accordance with International Financial Reporting Standards ("IFRS"). All adjusted measures are reconciled to the most directly comparable measure prepared in accordance with IFRS in the Non-IFRS Financial Information below (pages 36 to 42).

(3) Constant currency growth is calculated by applying the applicable prior period average exchange rates to the Group's actual performance in the respective period.

(4) Organic growth presents period over period growth at constant currency, adjusted for: Triad Life Sciences (Mar'22), Cure Medical (Mar'21) and Patient Care Medical (Dec'21) acquisitions; Incontinence divestment (Dec'21) and, from 31(st) May, the discontinuation of Hospital care and related industrial sales and the reconfigured business in Russia.

Contacts

 
 Analysts & Investors    Kate Postans, Vice President of     +44 (0) 7826 447807 
                          Investor Relations & Corporate      ir@convatec.com 
                          Communications 
                         Buchanan: Charles Ryland / Chris 
 Media                    Lane                               +44 (0)207 466 5000 
 

Investor and analyst presentation

The results presentation will be held in person at UBS, 5 Broadgate Circle, London, EC2M 2QS at 9am (UK time). The event will be simultaneously webcast and the link can be found here .

If you would like to ask a question please use the following dial-in details:

United Kingdom - 0330 165 4012

United States - 800-289-0720

Access code: 9879873

The full text of this announcement and the presentation for the analyst and investors meeting can be found on the 'Results, Reports & Presentations' page of the Convatec website www.convatecgroup.com/investors/reports .

Forthcoming Events

 
 Trading update (for 10 months)         10 November 2022 
 Capital Markets Event - to be hosted   17 November 2022 
  in London 
 

As highlighted in FY results in order to more evenly space the cadence of financial communication and better represent management's focus on long-term sustainable growth, the Group have replaced quarterly reporting with trading updates.

About Convatec

Pioneering trusted medical solutions to improve the lives we touch : Convatec is a FTSE 250 global medical products and technologies company, focused on solutions for the management of chronic conditions, with leading positions in advanced wound care, ostomy care, continence and critical care, and infusion care. Group revenues in 2021 were over $2 billion. With around 10,000 colleagues, we provide our products and services in over 100 countries, united by a promise to be forever caring. Our products provide a range of benefits, from infection prevention and protection of at-risk skin, to improved patient outcomes and reduced care costs. To learn more about Convatec, please visit http://www.convatecgroup.com

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 t hat are difficult to predict and many of which are outside the Group's control . As such, no assurance can be given that such future results, including guidance provided by the Group, will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed, or implied in such forward-looking statements. Forward-looking statements are not guarantees of future performance and the actual results of operations, financial condition and liquidity, and the development of the industry in which the Group operates, may differ materially from those made in or suggested by the forward-looking statements set out in this document. Past performance of

the Group cannot be relied on as a guide to future performance. Forward-looking statements are based only on information currently available to the Group and speak only as at the date of this document and the Group and its directors, officers, employees, agents, affiliates and advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this document.

Operating Review for the six months ended 30 June 2022

Revenue

Total Group revenue increased by 3.6 % on a reported basis to $1,045 million. There was a significant FX headwind during the period and on a constant currency basis revenue rose 8.0% . Adjusting for M&A and business restructuring (see footnote 4 above) Group revenue rose 6.4% on an organic basis.

 
                                                Six months ended 30 June 
                             H1 2022     H1      Reported      Foreign          Constant         Organic(4) 
                                        2021      growth       Exchange       Currency(2)          growth 
                                                / (decline)     impact     growth / (decline)    / (decline) 
                                $m       $m 
 Revenue by Category 
 Advanced Wound Care          307       294       4.4 %        (6.2)%           10.6 %              7.3% 
                                                  (3.1) 
 Ostomy Care                  265       273          %         (5.8)%            2.7 %             3.0 % 
 Continence and Critical                                        (2.0) 
  Care                        277       266        4.1%           %              6.1 %             3. 6 % 
                                                                (2.3) 
 Infusion Care                196       175       12.2 %          %             14.5 %             14.4 % 
                                                                (4.4) 
 Total                        1045     1008       3.6 %           %              8.0 %             6.4 % 
=========================  =========  ======  =============  ==========  ====================  ============= 
 
 

Advanced Wound Care revenue of $307 million increased 4.4% on a reported basis or 10.6% on a constant currency basis. This performance was enhanced by the acquisition of Triad Life Sciences on 14 March and on an organic basis revenue rose by 7.3%.

The business achieved strong growth in Global Emerging Markets and Europe. This more than offset a decline in North America where shortages of healthcare practitioners impacted procedure volumes and our limited position in the foam segment continued to weigh on performance. Convatec will be launching ConvaFoam in the US in Q4, which we anticipate will have strong exudate and adhesion properties.

Ostomy Care revenue of $265 million declined 3.1% on a reported basis but increased 2.7% on a constant currency basis and 3.0% on an organic basis.

During the period the business achieved continued strong growth in Global Emerging Markets while Europe achieved a robust performance, notwithstanding further rationalisation of less profitable activities within Amcare UK. In North America, HSG continued to grow referrals with new Ostomy patients although the impact of planned SKU rationalisation continued to reduce reported performance. Overall we are improving the mix and consequently the margins. Across all geographies revenue from Convatec ostomy products grew 4.3% on a constant currency basis.

Continence & Critical Care revenue of $277 million rose 4.1% on a reported basis, 6.1% on a constant currency basis and 3.6% on an organic basis. A strong operating performance was supported by contributions from the Cure Medical and Patient Care Medical acquisitions partially offset by the non-core incontinence disposal and adjustments for the hospital care exit from 31(st) May, when the Belarus factory closed.

Continence Care achieved revenue of $197 million, up 4.3% on an organic basis with good levels of new patient starts. Critical Care revenue rose 1.8% on an organic basis to $80 million during the period with Flexi-Seal(TM) declining, as expected following strong growth during COVID-19, whilst the hospital care products saw a temporary increase in sales immediately following the announcement of Convatec's decision to exit this product range.

Infusion Care revenue of $196 million increased 12.2% on a reported basis, 14.5% on a constant currency basis and 14.4% on an organic basis after adjusting for the exit of industrial sales from 31(st) May. This growth was primarily driven by continued strong demand from diabetic customers for our innovative infusion sets supported by favourable order phasing from key customers.

Historic revenue data

 
 Reported Revenue              H1 2020   H2 2020   H1 2021   H2 2021   H1 2022 
  $m 
-------------------  -----------------  --------  --------            -------- 
 Advanced Wound Care               251       296       294       298       307 
 Ostomy Care                       252       274       273       273       265 
 Continence and Critical 
  Care                             244       254       266       277       277 
 Infusion Care                     161       162       175       182       196 
----------------------------  --------  --------  --------  --------  -------- 
 Group                             908       986      1008      1030      1045 
----------------------------  --------  --------  --------  --------  -------- 
 
 
 
 Organic(4) growth/(decline)      H1 2020   H2 2020   H1 2021   H2 2021   H1 2022 
  % 
-------------------------------  --------  --------  --------            -------- 
 Advanced Wound Care                -4.8%     -0.8%     16.3%      3.4%      7.3% 
 Ostomy Care                         3.1%     -0.5%      3.7%     -0.1%     3.0 % 
 Continence and Critical 
  Care                              10.6%      6.9%      3.0%      1.2%     3.6 % 
 Infusion Care                      12.6%     21.2%      6.5%     12.5%    14.4 % 
---------------------------  ------------  --------  --------  --------  -------- 
 Group                               4.1%      4.3%      7.4%      3.4%     6.4 % 
---------------------------  ------------  --------  --------  --------  -------- 
 
 

Pivoting to sustainable and profitable growth

The execution of our FISBE (Focus, Innovate, Simplify, Build, Execute) strategy is progressing well.

Focus

- We have continued to invest in our top 12 markets, particularly in Sales and Marketing, and achieved faster growth in these countries.

- We entered the large and rapidly growing wound biologics segment(1) through the acquisition of Triad Life Sciences - strengthening our Advanced Wound Care position in the US and securing access to a complementary and innovative technology platform. The integration is progressing well and we have now renamed the business Advanced Tissue Technologies ('ATT'). We are optimistic about the prospects in the biologics space and the potential for our ATT business.

- In May, we announced the decision to withdraw from non-core hospital care activities and related industrial sales during the remainder of 2022. Following the exit of these products, which last year generated approximately $100 million of revenue, the Group will be almost entirely focused on higher-growth and more profitable chronic care markets.

Innovate

- We have continued to invest to strengthen our Technology & Innovation capabilities and advance our pipeline; we increased R&D expenditure by 15% to $47 million in H1 (H1 2021: $41 million).

   -      During H1 we started launching two new products: 

o InnovaMatrix(TM) , our new ATT product, in the US. The take up by healthcare providers has been promising.

o GentleCath(TM) Air Male , our new hydrophyllic (proprietary FeelClean(TM) Technology) compact male catheter, in France. It is early days, but the initial feedback from users has been positive and we are now building out our commercial infrastructure in Europe, expanding to the UK in the second half of the year. During H2 we shall also be launching GC Air Male in the US.

- We acquired a minority stake in BlueWind Medical Ltd, the developer of an innovative implantable tibial neuromodulation device for the over-active bladder segment, securing a relationship with a company developing a proprietary and differentiated solution to treat over-active bladders in the US Continence space.

Simplify

- During H1 our adjusted G&A expenditure reduced by 5.1% on a constant currency basis to 9.7% of sales.

- We continued to transition more finance and IT activities to our Global Business Services ('GBS') centre in Lisbon and made good progress with simplification of processes.

- We also continued to simplify our product portfolio. The rationalisation of SKUs reduced growth in Ostomy Care by approximately 80bps. This is expected to be more impactful in the second half given the phasing of the rationalisation.

Build

- Our Pricing Centre of Excellence ('CoE'), in collaboration with our business units, achieved 60bps of pricing improvement.

- We launched the refreshed Convatec brand and our new company promise of 'forever caring' which have been well received by customers.

- The Convatec Executive Leadership Team was strengthened in April. Anne Belcher joined the Group from GSK to lead our Global Emerging Markets business and Bruno Pinheiro, who led our successful LATAM business before acting as Interim President for GEM last year, has taken over Ostomy Care. John Haller joined us as EVP, Chief Quality and Operations Officer, having previously been at Stryker Corporation.

- Our Salesforce CoE has now established a single CRM platform in N.America and Europe and is driving enhanced salesforce productivity by increasing call rates and improving targeting.

Execution

- We delivered positive manufacturing productivity improvements in the face of significant COGS inflation and continue to improve the resilience of the supply chain.

   -      We made further progress with our Environmental, Social & Governance (ESG) agenda: 

o Embedding 'Convatec Cares' , our new ESG framework; elevating ESG through our strategic planning process and engaging all business units and functional areas on priorities, targets and commitments.

o Launched a new Diversity, Equity & Inclusion (DE&I) and Wellbeing approach including strengthening our Employee Resource Groups with executive level sponsors and creating programmes such as our Black Education Leadership Programme (BELP).

o In line with our commitment to reduce emissions and set Science Based Targets (SBTs), we completed our Scope 3 materiality assessment during the period and are on track to set our Scope 1 and 2 SBTs this year.

o Consistent with our commitment to support our communities, we provided a humanitarian relief response for Ukraine valued at over $1.1 million.

Operating profit

Adjusted gross profit rose 2.9% to $628 million (H1 2021: $611 million). Adjusted gross profit margin of 60.1% was 50bps lower than the prior year with significant COGS inflation (of approximately 7%) more than offsetting foreign exchange benefit of 50bps, pricing, mix and productivity benefits. Reported gross profit was $555 million (H1 2021: $555 million).

Operational expenditure increased $18 million, or 4.4% year on year on a reported basis or 9.2% on a constant currency basis, driven by additional investment in growth initiatives across the business partially offset by the reduction in G&A.

Total adjusted operating profit was unchanged at $204 million (H1 2021: $204 million). The adjusted operating profit margin was 19.6% in the first half, a decrease of 70 bps versus prior year or 130bps on a constant currency basis. Reported operating profit was $87 million (H1 2021: $136 million) primarily driven by the closure costs and impairments relating to the exit of hospital care and industrial sales activities.

Dividend

The Board is declaring an unchanged interim dividend of 1.717 cents per share (H1 2021: 1.717) reflecting continued confidence in the future performance of the Group and cash generation.

Cash flow and leverage

Adjusted free cash flow post tax was $80 million (H1 2021: $113m) during the first half with the decrease principally reflecting higher working capital in the first half as well as increased investment in capital expenditure.

The Group was also strengthened through inorganic investment - spending $148 million on the Triad Life Sciences acquisition and investing $31 million in the preference shares of BlueWind Medical. A further $10 million of cash was used for lease payments and $59 million for dividends to shareholders.

The Group ended the period with total interest-bearing liabilities, including IFRS 16 lease liabilities, of $1,438 million (31 December 2021: $1,435 million). Offsetting cash of $272 million (31 December 2021: $463 million) and excluding lease liabilities, net debt was $1,077 million (31 December 2021: $881 million), equivalent to 2.3x adjusted EBITDA (31 December 2021: 1.9x adjusted EBITDA).

Group 2022 outlook

We are pleased with the growth we have achieved in 2022 and we confirm our full year guidance.

We continue to expect full year organic revenue growth of 4.0-5.5% as growth in the second half is anticipated to be slower. This is primarily owing to order phasing in Infusion Care coupled with other light headwinds such as increased SKU and customer rationalisation, US sequestration and French reimbursement cut.

We are on track to achieve our full year targeted constant currency adjusted(2) operating profit margin of at least 18%, n otwithstanding the inflationary backdrop (estimated 8-9% COGS increase for Convatec for the full year, as previously guided) . The margin in the second half is expected to be lower than H1 driven by the lagging impact of COGS inflation. Operating expenses are expected to be more evenly phased than last year. The currency tailwind on the margin is currently c.60 bps.

We continue to expect adjusted net finance expense for the full year to be $50-55 million. The cash tax rate for the year is still expected to be 18-19%, however the adjusted book tax rate for the year is expected to be approximately 25%, following accounting adjustments on the acquisition of Triad. Capex guidance is unchanged at $100-120 million for the full year. We expect leverage to trend down towards our target of around 2x over time.

We are confident about the future prospects for the Group as we continue to pivot to sustainable and profitable growth.

Principal risks

The Board reviews and agrees our principal risks on a bi -- annual basis, taking account of our risk appetite together with our evolving strategy, current business environment and any emerging risks that could impact the business. Our framework and system of risk management and internal control continue to develop and updates to the principal risks and mitigation plans are made as required in response to changes in our risk landscape. Details of our enterprise risk management framework are set out in the Group's 2021 Annual Report and Accounts on pages 64 to 73.

The Board has reviewed the principal risks as at 30 June 2022, taking into consideration the risks that existed during the first six months of 2022 and those that it believes will have an impact on the business over the remaining six months of the current financial year. The principal risks have been assessed against the context of the global inflationary pressures and volatile political environment that are impacting all businesses at present. The overall profile for the risks set out below remains largely unchanged over the financial year in terms of their potential impact on our ability to successfully deliver on our strategy:

   --    Operational Resilience and Quality; 
   --    Innovation and Regulatory; 
   --    Information Systems, Security and Privacy; 
   --    Customer and Markets; 
   --    Legal and Compliance; 
   --    People; 
   --    Strategy and Change Management; 
   --    Environment and Communities; and, 
   --    Tax and Treasury. 

However, as indicated in our May 2022 trading update the risk landscape has changed in respect of our Political and Economic Environment risk and People risk since the Annual Report was published in March. The Political and Economic risk has been elevated reflecting the continuing harshening environment created by global inflationary pressures on all aspects of our business, specifically our supply chain and cost of goods. In addition, we are experiencing increased pressures on our ability to attract, retain and maintain competitive remuneration for talent and skills in light of the continuing squeeze on the cost of living for our workforce.

We responded quickly to the evolving situation in Ukraine and the surrounding region when it first emerged at the beginning of the year. We reported the closure of our manufacturing plant in Belarus that supplied products for our Critical Care and Ostomy portfolios. We continue to assess any potential impacts on our business with appropriate mitigation plans. We are fully committed to continuing to comply with all applicable laws and regulations, including any impacts of new sanctions relating to the ongoing situation.

The Board assesses the overall risk profile of the Group to ensure it is within our risk appetite. Principal risks continue to be appropriately mitigated and work continues to reduce the net exposure to the business to ensure that each risk remains within our risk appetite.

Financial Review for six months ended 30 June 2022

The following table sets forth the Group's revenue and expense items for the six months ended 30 June 2022 and 2021:

 
                                            Six months ended 30 June 
                                     -------------------------------------- 
                                     Reported  Reported  Adjusted  Adjusted 
                                         2022      2021      2022      2021 
                                           $m        $m        $m        $m 
-----------------------------------  --------  --------  --------  -------- 
Revenue                               1,044.5   1,008.0   1,044.5   1,008.0 
Cost of sales                         (489.6)   (452.7)   (416.4)   (397.5) 
-----------------------------------  --------  --------  --------  -------- 
Gross profit                            554.9     555.3     628.1     610.5 
-----------------------------------  --------  --------  --------  -------- 
Gross margin %                          53.1%     55.1%     60.1%     60.6% 
Operating expenses                    (467.8)   (419.8)   (423.8)   (406.1) 
-----------------------------------  --------  --------  --------  -------- 
Operating profit                         87.1     135.5     204.3     204.4 
-----------------------------------  --------  --------  --------  -------- 
Operating margin %                       8.3%     13.4%     19.6%     20.3% 
Net finance expense                    (28.2)    (19.8)    (23.0)    (19.8) 
Non-operating expense, net             (12.8)     (3.6)     (7.0)     (3.6) 
-----------------------------------  --------  --------  --------  -------- 
Profit before income taxes               46.1     112.1     174.3     181.0 
Income tax benefit/(expense)              2.2    (26.3)    (43.2)    (35.8) 
Effective tax rate %                   (4.8%)     23.5%     24.8%     19.8% 
-----------------------------------  --------  --------  --------  -------- 
Profit for the period (net profit)       48.3      85.8     131.1     145.2 
-----------------------------------  --------  --------  --------  -------- 
Net profit %                             4.6%      8.5%     12.6%     14.4% 
Basic earnings per share (cents 
 per share)                               2.4       4.3       6.5       7.2 
Diluted earnings per share (cents 
 per share)                               2.4       4.2       6.5       7.2 
Dividend per share (cents)              1.717     1.717 
-----------------------------------  --------  --------  --------  -------- 
 

Reported and Adjusted results

The Group's financial performance measured in accordance with IFRS (IAS 34 Interim Financial Reporting as adopted by the United Kingdom) is set out in the Condensed Consolidated Interim Financial Statements and Notes and is referred to in this review as "reported".

The commentary in this review includes discussion of the Group's reported results and alternative performance measures (or adjusted measures) ('APMs'). Management and the Board use APMs as meaningful supplemental measures in monitoring the performance of the business. These measures are disclosed in accordance with the ESMA guidelines and are explained and reconciled to the most directly comparable reported measure prepared in accordance with IFRS in the Non-IFRS financial information section.

The commentary includes discussion on revenue on a constant currency basis. Constant currency removes the effect of fluctuations in exchange rates to focus on underlying revenue performance. Constant currency information is calculated by applying the applicable prior period average exchange rates to the Group's performance in the respective period. Revenue and revenue growth on a constant currency basis are non-IFRS financial measures and should not be viewed as a replacement of IFRS reported revenue. Organic growth represents period-on-period growth at constant currency, excluding acquisition and divestiture activities.

Revenue

Group reported revenue for the six months ended 30 June 2022 of $1,044.5 million (H1 2021: $1,008.0 million) increased 3.6% year-on-year or 8.0% on a constant currency basis . Group revenue grew by 6.4% on an organic basis, driven by strong growth in Advanced Wound Care and Infusion Care, good growth in Continence & Critical Care and robust growth in Ostomy Care. For more details about the category revenue performance, refer to the Operating Review.

 
                                          Six months ended 30 June 
                        ------------------------------------------------------------ 
                                                      Foreign   Constant 
                                          Reported   exchange   currency     Organic 
                           2022  2021(b)    growth     impact     growth   growth(a) 
                             $m       $m         %          %          %           % 
----------------------  -------  -------  --------  ---------  ---------  ---------- 
North America             527.0    495.3      6.4%     (0.1)%       6.5%        3.5% 
Europe                    363.7    374.8    (3.0)%     (9.1)%       6.1%        6.0% 
Rest of World ("RoW")     153.8    137.9     11.6%     (6.9)%      18.5%       18.3% 
----------------------  -------  -------  --------  ---------  ---------  ---------- 
Total                   1,044.5  1,008.0      3.6%     (4.4)%       8.0%        6.4% 
----------------------  -------  -------  --------  ---------  ---------  ---------- 
 

(a) Adjusted for the acquisition of Triad Life Sciences ("Triad"), Cure Medical and Patient Care Medical, as well as the divestment of the incontinence activities in 2021, and the exit from hospital care and industrial sales, and restructuring of activities in Russia during H1 2022.

(b) During the year ended 31 December 2021, the geographical revenue information provided to the Group's CEO was changed to better reflect the way in which the Group managed its operations. The change was driven by the ongoing transformation initiatives and aligns with the current management and reporting structure. The six months to 30 June 2021 comparative revenue information has been re-presented to reflect this change. Europe includes Russia, North America comprises United States and Canada, and Rest of World ("RoW") comprises all countries in Asia Pacific, Latin America (including Mexico and the Caribbean), South America, the Middle East (including Turkey) and Africa.

North America revenue grew by 6.4% on a reported basis and 6.5% on a constant currency basis. This primarily reflected the strong revenue performance in Infusion Care and includes the acquisitions of Triad, Cure Medical and Patient Care Medical, as well as the impact of divestment of incontinence activities in 2021.

Europe revenue decreased by 3.0% on a reported basis which was primarily driven by currency headwinds. The growth was 6.1% on a constant currency basis, reflecting the strong revenue performance in Advanced Wound Care and supported by positive growth in all other categories.

Rest of World ("RoW") reported revenue grew by 11.6% and 18.5% on a constant currency basis, driven by strong growth in both Advanced Wound Care and Ostomy Care in Asia and Latin America.

Reported net profit

Reported operating profit was $87.1 million, a decrease of $48.4 million as compared to the prior year. This reflects the 200bps decrease in gross margin, which more than offset the 3.6% growth in revenue. The decrease in gross margin was driven by 120bps of divestiture and termination costs primarily relating to the exit from hospital care and industrial sales activities, with the remaining 80bps owing to significant inflationary pressures on both raw material and freight costs, partially offset by productivity/pricing/mix benefits.

Operating expenses increased $48.0 million to $467.8 million (H1 2021: $419.8 million) primarily reflecting $25.7 million of closure costs and impairments for hospital care and industrial sales activities, $22.0 million increase in selling and distribution costs associated with higher revenues, the inclusion of acquired businesses and higher labour costs in some areas. In addition, there was a $6.3 million increased investment in research and development to continue to develop the future pipeline of new products, offset by $6.9 million decrease in general and administrative expenses.

Reported net finance expenses increased by $8.4 million to $28.2 million in the six months to 30 June 2022 (H1 2021: $19.8 million), reflecting increased interest rates and $5.2 million for the unwind of discount relating to the contingent consideration for Triad. Non-operating expenses increased by $9.2 million to $12.8 million (H1 2021: $3.6 million) driven by $3.4 million of FX losses and a $5.8 million increase in contingent consideration relating to the 2021 acquisition of Cure Medical.

The income tax benefit for the six months to 30 June 2022 was $2.2 million (H1 2021: $26.3 million expense), resulting in reported net profit of $48.3 million (H1 2021: $85.8 million) and basic reported earnings per share of 2.4 cents (H1 2021: 4.3 cents).

Adjusted net profit

Adjusted gross profit was $628.1 million (H1 2021: $610.5 million) and the adjusted gross margin was 60.1% (H1 2021: 60.6%), resulting from significant inflationary pressures on both raw material and freight costs which more than offset productivity/pricing/mix benefits and FX tailwinds.

The Group achieved adjusted operating profit of $204.3 million (H1 2021: $204.4 million) with an adjusted operating margin of 19.6% (H1 2021: 20.3%). The 3.6% growth in revenue was offset by the 50bps decrease in adjusted gross margin and increases of $22.0 million and $6.3 million in selling and distribution and research and development expenses respectively.

Adjusted net profit fell 9.7% to $131.1 million (H1 2021: $145.2 million), driven by a $7.4 million increase in adjusted income tax expense and a $3.2 million increase in the net finance expense. The adjusted effective tax rate ("ETR") increased from 19.8% to 24.8% principally due to the increase in US deferred tax expense (non-cash) for the utilisation of federal tax losses that were fully recognised as deferred tax assets following the acquisition of Triad and profit mix between jurisdictions with different tax rates.

Adjusted basic and diluted EPS at 30 June 2022 was 6.5 cents (H1 2021: 7.2 cents).

Taxation

 
                                              Six months ended 30 June 
                                        ------------------------------------ 
                                              2022               2021 
                                                Effective          Effective 
                                            $m   tax rate      $m   tax rate 
--------------------------------------  ------  ---------  ------  --------- 
Reported income tax benefit/(expense)      2.2   (4.8%)    (26.3)    23.5% 
Tax effect of adjustments               (25.7)              (7.5) 
Other discrete tax items                (19.7)              (2.0) 
--------------------------------------  ------             ------ 
Adjusted income tax expense             (43.2)    24.8%    (35.8)    19.8% 
--------------------------------------  ------             ------ 
 

The Group's reported income tax benefit for the six months ended 30 June 2022 was $2.2 million (H1 2021: $26.3 million expense) driven by recognition of deferred tax assets in respect of previously unrecognised tax losses in the US, partially offset by the increase in US tax expenses following the acquisition of Triad.

After adjusting for certain financial measures that the Group believes are useful supplemental indicators of future operating performance, the adjusted effective tax rate was 24.8% for the six months ended 30 June 2022 (H1 2021: 19.8%). The increase in adjusted effective tax rate was principally driven by the non-cash deferred tax expenses due to the utilisation of US Federal tax losses which are now fully recognised as deferred tax assets following the acquisition of Triad, and the profit mix between jurisdictions with different tax rates.

Acquisitions and investments

Triad Life Sciences Inc ("Triad"), a US-based medical device company, was acquired on 14 March 2022 for an initial consideration of $125.3 million. The acquisition of Triad strengthens the Group's Advanced Wound Care position in the US, securing access to a complementary and innovative technology platform that enhances advanced wound management and patient outcomes. In addition to the initial consideration, there could be further contingent consideration of up to $325.0 million based on two short-term milestones and the performance during the first two years post-completion, of which $25.0 million was paid in April 2022. Refer to Note 7 - Acquisitions in the Condensed Consolidated Finance Statements for further details.

The Group has contingent consideration of up to $10.0 million in respect of Cure Medical, which is based upon post-acquisition performance targets and to be paid by 2024. The contingent consideration was increased by $5.8 million to $8.9 million (discounted) in the period to 30 June 2022 (31 December 2021: $3.1 million), as a result of strong performance and forecast financials which are expected to exceed previous expectations.

On 9 May 2022, the Group invested $30.7 million in preference shares of BlueWind Medical Limited ("BlueWind Medical"). This represents an investment into an innovative technology in the large and growing over-active bladder market and strengthening of the Group's Continence & Critical Care category. The investment is held at fair value in the Condensed Consolidated Financial Statements, which has not changed since the date of the investment.

Strategic decision to exit from hospital care and industrial sales

On 12 May 2022, it was announced that the Group would be withdrawing from its hospital care activities and related industrial sales during the remainder of 2022. The withdrawal from these low margin activities is consistent with the Group's FISBE strategy, with the Group focusing on higher-growth chronic care markets with improved margins and higher levels of recurring revenue.

Given the geopolitical situation in the region, the manufacturing plant in Belarus which produces hospital care goods ceased manufacturing on 31 May 2022 alongside a significant restructuring of all operations in Russia. The remainder of the hospital care and industrial sales activities will be mostly phased out in the second half of 2022. Given this phased exit of the hospital care and related industrial sales products, reported revenue in 2022 is expected to be approximately $10 million to $20 million lower as a result of the exit, with the adjusted operating profit impact of the exit being a decrease of $3 million to $5 million in 2022. At 30 June 2022, $38.4 million of closure costs had been recognised, primarily related to asset impairments and restructuring provisions.

Dividends

We are maintaining our interim 2022 dividend at 1.717 cents per share, in line with the interim dividend for 2021. The decision to maintain the dividend reflects the underlying financial strength and cash generation of the Group, as well as the progress on pivoting to sustainable and profitable growth and confidence in the future prospects of the Group.

Free cash flow

Adjusted free cash flow, post tax, is one of the four key performance indicators we use to monitor the delivery of our strategy.

 
                                                        Six months ended 30 June 
                                              -------------------------------------------- 
                                              Reported  Reported  Adjusted(a)  Adjusted(a) 
                                                  2022      2021         2022         2021 
                                                    $m        $m           $m           $m 
--------------------------------------------  --------  --------  -----------  ----------- 
EBITDA                                           207.9     242.4        251.7        252.9 
Share based payments                               8.2       7.1            -            - 
Working capital movement                        (66.0)    (69.8)       (92.4)       (66.2) 
Gain/(loss) on foreign exchange derivatives        3.4     (0.9)          3.4        (0.9) 
Capital expenditure                             (64.1)    (43.6)       (64.1)       (43.6) 
--------------------------------------------  --------  --------  -----------  ----------- 
Net cash generated from operations, 
 net of capital expenditure                       89.4     135.2         98.6        142.2 
--------------------------------------------  --------  --------  -----------  ----------- 
Cash conversion                                  43.0%     55.8%        39.2%        56.2% 
--------------------------------------------  --------  --------  -----------  ----------- 
Tax paid                                        (19.1)    (29.0)       (19.1)       (29.0) 
--------------------------------------------  --------  --------  -----------  ----------- 
Free cash flow, post tax                          70.3     106.2         79.5        113.2 
--------------------------------------------  --------  --------  -----------  ----------- 
 

(a) Adjusted EBITDA, adjusted working capital and adjusted non-cash items are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS in the cash conversion table in the Non-IFRS financial information section.

Adjusted free cash flow, post tax, was $79.5 million (H1 2021: $113.2million), with the decrease of $33.7 million principally driven by the increase in investment in capital programmes, as well as increase in working capital primarily reflecting the build of inventory to improve resilience.

Sources and uses of cash

Sources of cash

The Group's primary source of liquidity is net cash generated from operations.

Net cash generated from operations

 
                                            Six months ended 30 June 
                                     -------------------------------------- 
                                     Reported  Reported  Adjusted  Adjusted 
                                         2022      2021      2022      2021 
                                           $m        $m        $m        $m 
-----------------------------------  --------  --------  --------  -------- 
EBITDA(a)                               207.9     242.4     251.7     252.9 
Share based payments                      8.2       7.1         -         - 
Working capital movement               (66.0)    (69.8)    (92.4)    (66.2) 
Gain/(loss) on foreign exchange 
 derivatives                              3.4     (0.9)       3.4     (0.9) 
-----------------------------------  --------  --------  --------  -------- 
Net cash generated from operations      153.5     178.8     162.7     185.8 
Net interest paid                      (21.9)    (18.8)    (21.9)    (18.8) 
Tax paid                               (19.1)    (29.0)    (19.1)    (29.0) 
-----------------------------------  --------  --------  --------  -------- 
Net cash generated from operating 
 activities                             112.5     131.0     121.7     138.0 
-----------------------------------  --------  --------  --------  -------- 
 

(a) EBITDA is explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS in the cash conversion table in the Non-IFRS financial information section.

Reported net cash generated from operating activities was $112.5 million (H1 2021: $131.0 million). The decrease of $18.5 million primarily reflects a decrease in net cash generated from operations of $25.3 million. The decrease in EBITDA of $34.5 million was partially offset by $4.3 million of additional cash inflows from foreign exchange derivatives in the six months to 30 June 2022 as compared to the prior year, as well as $3.8 million of more favourable working capital movements resulting from increases in liabilities relating to strategic projects such as the exit from hospital care and industrial sales activities, partially offset by increases in inventory to improve resilience. Tax paid decreased by $9.9 million to $19.1 million as a result of the timing of payments on account and decrease in tax payments in the US, which is partially offset by net interest paid which increased by $3.1 million, reflecting higher interest costs on the Group's borrowings.

On an adjusted basis, the net cash generated from operating activities decreased by $16.3 million to $121.7 million (H1 2021: $138.0 million), primarily reflecting the $1.2 million decrease in adjusted EBITDA and $26.2 million increase in working capital, offset by $9.9 million decrease in tax paid.

Uses of cash

Cash and cash equivalents have decreased by $191.8 million to $271.6 million at 30 June 2022 (31 December 2021: $463.4 million). The $112.5 million of net cash generated from operations, together with the decrease in cash and cash equivalents, was used to acquire Triad for $123.2 million, pay the first $25.0 million milestone in relation to Triad, invest in preference shares of BlueWind Medical for $30.7 million, invest $64.1 million of capital expenditure in our manufacturing lines and digital technologies, pay $10.4 million in lease payments and $58.9 million in dividends to shareholders. The year-on-year increase of $5.3 million in the cash dividend payment reflects the increase in the 2021 final dividend and the level of uptake of the scrip alternative as compared to the prior year.

Liquidity and net debt

As at 30 June 2022, the Group's cash and cash equivalents were $271.6 million (31 December 2021: $463.4 million) and the debt outstanding on our borrowings was $1,348.8 million (31 December 2021: $1,344.6 million). Borrowings reflect a $500 million unsecured senior note maturing in October 2029 and two five-year multi-currency committed loan facilities which expire in October 2024. The Group has a $200 million revolving credit facility which remained undrawn as at 30 June 2022 and also expires in October 2024. This, combined with cash of $271.6 million, provided the Group with total liquidity of $471.6 million at that date. Of this, $29.3 million is held in territories where there are restrictions related to repatriation (31 December 2021: $37.5 million). From time to time we review our balance sheet structure including debt maturity profile, cost of capital and liquidity needs, and to the extent we deem appropriate may consider various financing alternatives, including opportunistically accessing the loan and debt capital markets.

At 30 June 2022, the Group was in compliance with all financial and non-financial covenants associated with the Group's outstanding debt.

The Group ended the period with total interest-bearing liabilities, including IFRS 16 lease liabilities, of $1,437.8 million (31 December 2021: $1,435.1 million). Offsetting cash of $271.6 million (31 December 2021: $463.4 million) and excluding lease liabilities, net debt was $1,077.2 million (31 December 2021: $881.2 million), equivalent to 2.3x adjusted EBITDA (31 December 2021: 1.9x adjusted EBITDA), with the increase being driven by strategic investments such as the acquisition of Triad, purchase of preference shares in BlueWind Medical and increased investment in capital expenditure.

 
                                                          2022 
                                        ---------------------------------------- 
                                                             Cash and 
                                        Borrowings   cash equivalents   Net debt 
                                                $m                 $m         $m 
--------------------------------------  ----------  -----------------  --------- 
At 1 January                             (1,344.6)              463.4    (881.2) 
Net cash outflow                            (15.5)            (184.3)    (199.8) 
Foreign exchange                              13.3              (7.5)        5.8 
Non-cash movement                            (2.0)                  -      (2.0) 
--------------------------------------  ----------  -----------------  --------- 
At 30 June                               (1,348.8)              271.6  (1,077.2) 
--------------------------------------  ----------  -----------------  --------- 
Lease liabilities                           (89.0) 
--------------------------------------  ----------  -----------------  --------- 
Total interest-bearing liabilities at 
 30 June                                 (1,437.8) 
--------------------------------------  ----------  -----------------  --------- 
Net debt/adjusted EBITDA(a)                                                 2.3x 
--------------------------------------  ----------  -----------------  --------- 
 
   (a)     Based on net debt, excluding lease liabilities, and the last 12 months adjusted EBITDA. 

2022 Condensed Consolidated Interim Financial Statements

Condensed Consolidated Income Statement

 
                                                        Six months ended 
                                                             30 June 
                                                    ------------------------ 
                                                           2022         2021 
                                             Notes           $m           $m 
-------------------------------------------  -----  -----------  ----------- 
                                                    (unaudited)  (unaudited) 
Revenue                                        2        1,044.5      1,008.0 
Cost of sales                                           (489.6)      (452.7) 
-------------------------------------------  -----  -----------  ----------- 
Gross profit                                              554.9        555.3 
-------------------------------------------  -----  -----------  ----------- 
 
Selling and distribution expenses                       (287.3)      (252.9) 
General and administrative expenses                     (119.1)      (126.0) 
Research and development expenses                        (47.2)       (40.9) 
Other operating expenses                       3         (14.2)            - 
-------------------------------------------  -----  -----------  ----------- 
Operating profit                                           87.1        135.5 
-------------------------------------------  -----  -----------  ----------- 
 
Finance income                                              0.7          0.5 
Finance expense                                          (28.9)       (20.3) 
Non-operating expense, net                     4         (12.8)        (3.6) 
-------------------------------------------  -----  -----------  ----------- 
Profit before income taxes                                 46.1        112.1 
Income tax benefit/(expense)                   5            2.2       (26.3) 
-------------------------------------------  -----  -----------  ----------- 
Profit for the period                                      48.3         85.8 
-------------------------------------------  -----  -----------  ----------- 
 
Earnings per share 
Basic earnings per share (cents per share)                 2.4c         4.3c 
Diluted earnings per share (cents per 
 share)                                                    2.4c         4.2c 
-------------------------------------------  -----  -----------  ----------- 
 

All amounts are attributable to shareholders of the Group and wholly derived from continuing operations.

Condensed Consolidated Statement of Comprehensive Income

 
                                                               Six months ended 
                                                                    30 June 
                                                           ------------------------ 
                                                                  2022         2021 
                                                   Notes            $m           $m 
-------------------------------------------------  ------  -----------  ----------- 
                                                           (unaudited)  (unaudited) 
Profit for the period                                             48.3         85.8 
Other comprehensive (loss)/income 
Items that will not be reclassified subsequently 
 to the Consolidated Income Statement: 
Remeasurement of defined benefit pension 
 plans                                                               -        (0.1) 
Change in pension asset restriction                                  -          0.1 
Items that may be reclassified subsequently 
 to the Consolidated Income Statement: 
Exchange differences on translation of 
 foreign operations                                            (110.8)          3.4 
Effective portion of changes in fair value 
 of cash flow hedges                                             (7.7)        (2.0) 
Costs of hedging                                                   0.2        (0.2) 
Changes in fair value of cash flow hedges 
 reclassified to the Consolidated Income 
 Statement                                                        10.2          0.7 
Income tax relating to items that may 
 be reclassified                                                 (0.9)        (0.5) 
---------------------------------------------------------  -----------  ----------- 
Other comprehensive (loss)/income                              (109.0)          1.4 
---------------------------------------------------------  -----------  ----------- 
Total comprehensive (loss)/income                               (60.7)         87.2 
---------------------------------------------------------  -----------  ----------- 
 

All amounts are attributable to shareholders of the Group and wholly derived from continuing operations.

Condensed Consolidated Statement of Financial Position

 
                                              30 June  31 December 
                                                 2022         2021 
                                   Notes           $m           $m 
---------------------------------  -----  -----------  ----------- 
                                          (unaudited)    (audited) 
Assets 
Non-current assets 
Property, plant and equipment                   360.1        366.7 
Right-of-use assets                              81.0         83.6 
Intangible assets and goodwill                2,195.5      2,058.5 
Investment in financial assets       9           30.7            - 
Deferred tax assets                              26.5         28.9 
Restricted cash                                  20.2         13.6 
Other non-current receivables                     8.3         11.9 
---------------------------------  -----  -----------  ----------- 
                                              2,722.3      2,563.2 
---------------------------------  -----  -----------  ----------- 
Current assets 
Inventories                                     319.7        308.8 
Trade and other receivables                     348.3        323.5 
Derivative financial assets         11           23.7         15.1 
Cash and cash equivalents                       271.6        463.4 
---------------------------------  -----  -----------  ----------- 
                                                963.3      1,110.8 
---------------------------------  -----  -----------  ----------- 
Total assets                                  3,685.6      3,674.0 
---------------------------------  -----  -----------  ----------- 
Equity and liabilities 
Current liabilities 
Trade and other payables                        301.7        342.5 
Borrowings                          10          142.5        144.8 
Lease liabilities                                19.5         19.7 
Current tax payable                              42.8         45.5 
Derivative financial liabilities    11           21.9         11.7 
Provisions                          12          119.3          5.0 
---------------------------------  -----  -----------  ----------- 
                                                647.7        569.2 
---------------------------------  -----  -----------  ----------- 
Non-current liabilities 
Borrowings                          10        1,206.3      1,199.8 
Lease liabilities                                69.5         70.8 
Deferred tax liabilities                         97.2         87.2 
Provisions                          12           31.7          1.7 
Derivative financial liabilities    11              -          2.9 
Other non-current payables                       49.8         47.6 
---------------------------------  -----  -----------  ----------- 
                                              1,454.5      1,410.0 
---------------------------------  -----  -----------  ----------- 
Total liabilities                             2,102.2      1,979.2 
---------------------------------  -----  -----------  ----------- 
Net assets                                    1,583.4      1,694.8 
---------------------------------  -----  -----------  ----------- 
Equity 
Share capital                                   250.5        247.0 
Share premium                                   160.3        142.3 
Own shares                                      (2.2)        (2.2) 
Retained deficit                              (871.5)      (842.0) 
Merger reserve                                2,098.9      2,098.9 
Cumulative translation reserve                (186.5)       (75.7) 
Other reserves                                  133.9        126.5 
---------------------------------  -----  -----------  ----------- 
Total equity                                  1,583.4      1,694.8 
---------------------------------  -----  -----------  ----------- 
 
Total equity and liabilities                  3,685.6      3,674.0 
---------------------------------  -----  -----------  ----------- 
 

Condensed Consolidated Statement of Changes in Equity

 
                                                                                        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 2022 
 (audited)                              247.0     142.3    (2.2)   (842.0)   2,098.9        (75.7)      126.5  1,694.8 
----------------------------  -----  --------  --------  -------  --------  --------  ------------  ---------  ------- 
Profit for the period                       -         -        -      48.3         -             -          -     48.3 
----------------------------  -----  --------  --------  -------  --------  --------  ------------  ---------  ------- 
Other comprehensive 
 loss: 
Foreign currency 
 translation adjustment, 
 net of tax                                 -         -        -         -         -       (110.8)          -  (110.8) 
Effective portion 
 of changes in fair 
 value of cash flow 
 hedges, net of tax                         -         -        -         -         -             -        1.8      1.8 
----------------------------  -----  --------  --------  -------  --------  --------  ------------  ---------  ------- 
Other comprehensive 
 loss                                       -         -        -         -         -       (110.8)        1.8  (109.0) 
----------------------------  -----  --------  --------  -------  --------  --------  ------------  ---------  ------- 
Total comprehensive 
 loss                                       -         -        -      48.3         -       (110.8)        1.8   (60.7) 
----------------------------  -----  --------  --------  -------  --------  --------  ------------  ---------  ------- 
Dividends paid                  6           -         -        -    (58.9)         -             -          -   (58.9) 
Scrip dividend                  6         0.9      18.0        -    (18.9)         -             -          -        - 
Issue of shares to 
 employee benefit 
 trust                                    2.6         -    (2.6)         -         -             -          -        - 
Share-based payments                        -         -        -         -         -             -        8.1      8.1 
Share awards vested                         -         -      2.6         -         -             -      (2.5)      0.1 
----------------------------  -----  --------  --------  -------  --------  --------  ------------  ---------  ------- 
At 30 June 2022 
 (unaudited)                            250.5     160.3    (2.2)   (871.5)   2,098.9       (186.5)      133.9  1,583.4 
----------------------------  -----  --------  --------  -------  --------  --------  ------------  ---------  ------- 
 
                                                                                        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                  6           -         -        -    (53.6)         -             -          -   (53.6) 
Scrip dividend                  6         1.3      24.8        -    (26.1)         -             -          -        - 
Share-based payments                        -         -        -         -         -             -        7.0      7.0 
Share awards vested                         -         -      1.7         -         -             -      (1.7)        - 
----------------------------  -----  --------  --------  -------  --------  --------  ------------  ---------  ------- 
At 30 June 2021 (unaudited)             246.8     140.1    (5.0)   (839.2)   2,098.9        (42.7)      112.4  1,711.3 
----------------------------  -----  --------  --------  -------  --------  --------  ------------  ---------  ------- 
 

Condensed Consolidated Statement of Cash Flows

 
                                                                                Six months ended 
                                                                                     30 June 
                                                                            ------------------------ 
                                                                                   2022         2021 
                                                                     Notes           $m           $m 
-------------------------------------------------------------------  -----  -----------  ----------- 
Cash flows from operating activities                                        (unaudited)  (unaudited) 
Profit for the period                                                              48.3         85.8 
Adjustments for 
Depreciation of property, plant and equipment                                      20.0         19.8 
Depreciation of right-of-use assets                                                11.0         11.7 
Amortisation of intangible assets                                                  75.6         73.7 
Income tax (benefit)/expense                                           5          (2.2)         26.3 
Non-operating expense, net                                                         16.2          2.7 
Finance costs, net                                                                 28.2         19.8 
Share-based payments                                                                8.2          7.1 
Impairment/write-off of intangible assets                              3            5.6            - 
Impairment/write-off of property, plant and equipment                  3            8.6          1.7 
 
Change in assets and liabilities: 
   Inventories                                                                   (21.6)          6.9 
   Trade and other receivables                                                   (39.1)       (21.8) 
   Other non-current receivables                                                    3.3        (1.7) 
   Restricted cash                                                               (13.5)        (2.3) 
   Trade and other payables                                                       (0.2)       (51.4) 
   Other non-current payables                                                       5.1          0.5 
-------------------------------------------------------------------  -----  -----------  ----------- 
Net cash generated from operations                                                153.5        178.8 
Interest received                                                                   0.7          0.5 
Interest paid                                                                    (22.6)       (19.3) 
Income taxes paid                                                                (19.1)       (29.0) 
-------------------------------------------------------------------  -----  -----------  ----------- 
Net cash generated from operating activities                                      112.5        131.0 
 
Cash flows from investing activities 
Acquisition of property, plant and equipment and intangible assets               (64.1)       (43.6) 
Acquisitions, net of cash acquired                                     7        (123.2)       (85.1) 
Payment of contingent consideration from acquisitions                  7         (25.0)            - 
Investment in financial assets                                         9         (30.7)            - 
-------------------------------------------------------------------  -----  -----------  ----------- 
Net cash used in investing activities                                           (243.0)      (128.7) 
 
Cash flows from financing activities 
Proceeds from borrowings                                              10           15.5            - 
Payment of lease liabilities                                                     (10.4)       (10.9) 
Dividends paid                                                         6         (58.9)       (53.6) 
-------------------------------------------------------------------  -----  -----------  ----------- 
Net cash used in financing activities                                            (53.8)       (64.5) 
-------------------------------------------------------------------  -----  -----------  ----------- 
Net change in cash and cash equivalents                                         (184.3)       (62.2) 
Cash and cash equivalents at beginning of the period                              463.4        565.4 
Effect of exchange rate changes on cash and cash equivalents                      (7.5)        (2.1) 
-------------------------------------------------------------------  -----  -----------  ----------- 
Cash and cash equivalents at end of the period                                    271.6        501.1 
-------------------------------------------------------------------  -----  -----------  ----------- 
 

1. Basis of preparation and accounting standards

Convatec Group Plc (the "Company") is a company incorporated in the United Kingdom. The accompanying unaudited Condensed Consolidated Interim Financial Statements of the Company and its subsidiaries (the "Group") for the six months ended 30 June 2022 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, Interim Financial Reporting as adopted by the United Kingdom.

The Condensed Consolidated Interim Financial Statements should be read in conjunction with the 2021 Convatec Group Plc Annual Report and Accounts, which were prepared in accordance with the United Kingdom adopted international accounting standards. The accounting policies adopted by the Group in preparation of these Condensed Consolidated Interim Financial Statements are consistent with those set out in the 2021 Annual Report and Accounts, except for those described below as new standards and interpretations applied for the first time, as well as the new Group policy on equity investments (Note 9 - Investment in financial assets).

These Condensed Consolidated Interim Financial Statements and the comparatives are unaudited, except where otherwise indicated, and do not constitute statutory financial statements. The statutory financial statements for the Group in respect of the year ended 31 December 2021 have been reported on by the Group's auditor and delivered to the Registrar of Companies. The audit report on those accounts was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The auditors have carried out a review of the financial information in accordance with the guidance contained in ISRE (UK and Ireland) 2410 'Review of Interim Financial Information Performance by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom.

The Condensed Consolidated Interim Financial Statements are presented in US dollars ("USD"), reflecting the profile of the Group's revenue and operating profit, which are primarily generated in US dollars and US dollar-linked currencies. All values are rounded to the nearest $0.1 million except where otherwise indicated.

The Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2022 were approved by the Board on 3 August 2022.

New standards and interpretations applied for the first time

On 1 January 2022, the Group adopted the three mandatory pronouncements, Reference to the Conceptual Framework - Amendments to IFRS 3, Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16, and Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37, and the annual improvements to the IFRS standards 2018-2020. The adoptions have not had a material impact on the Condensed Consolidated Interim Financial Statements. Apart from these changes, the accounting policies set out in the 2021 Annual Report and Accounts have been applied consistently to both periods presented in these Condensed Consolidated Interim Financial Statements.

New standards and interpretations not yet applied

There were no new or revised IFRSs, amendments or interpretations in issue but not yet effective that are potentially material for the Group and which have not yet been applied.

Going concern

The overall financial performance of the business remains robust with a strong liquidity position maintained throughout the period.

As at 30 June 2022, the Group held cash and cash equivalents of $271.6 million (31 December 2021: $463.4 million), unsecured senior notes of $500.0 million repayable in 2029, and two multicurrency term loans totalling $860.1 million, of which $397.8 million is due to be repaid in October 2024 and the remainder is amortising and requires a capital repayment of $149.2 million within the next 12 months. The Group also has access to a $200.0 million multicurrency revolving credit facility, which remains undrawn and is available until October 2024.

In preparing their assessment of going concern, the Directors have considered available cash resources, financial performance and forecast performance, including continued implementation of the FISBE strategy, together with the Group's financial covenant compliance requirements and principal risks and uncertainties. The Directors have used cash flow forecasts derived from actual performance year to date, the Board approved 2022 budget and longer-term strategic plan as foundations, which reflected the funding requirements in relation to the remaining contingent consideration for the Triad Life Sciences Inc ("Triad") acquisition, which is dependent on short-term milestones and performance over two years post completion. The cash flow forecasts also include the impact of the exit from the low margin hospital care and industrial sales portfolio.

In accordance with FRC guidance, management applied severe but plausible downside scenarios linked to the Group's principal and emerging risks, including supply chain disruption, cyber security disruption, delivery of transformation initiatives, regulatory breaches and geopolitical events leading to reduced revenues and increased costs from inflationary pressures. Further details of the specific scenarios are provided on pages 74 to 76 of the 2021 Annual Report and Accounts. The Board has reviewed these scenarios in the preparation of the interim results and as part of the going concern review and has concluded that these scenarios remain in line with the Group's principal emerging risks and continue to reflect the financial risk of downside events and circumstances during the going concern period. Under each scenario the Group retains significant liquidity and covenant headroom throughout the going concern period. A reverse stress test, before mitigation, was also considered which demonstrated that a reduction of >$182.0 million in EBITDA would be required in the next 12 months to create conditions which may lead to a potential covenant breach. This is considered to be implausible given the Group's strong market position and diversified portfolio of products. There are no key sources of estimation uncertainty in arriving at the going concern conclusion and no

significant judgements have been required.

Accordingly, at the time of approving these Condensed Consolidated Interim Financial Statements, the Directors have a reasonable expectation that the Group will have adequate liquid resources to meet their respective liabilities as they become due and will be able to sustain its business model, strategy and operations and remain solvent for a period of at least 12 months from 3 August 2022.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Condensed Consolidated Interim Financial Statements, in conformity with adopted IFRS, requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported value of assets and liabilities, income and expense. Actual results may differ from these estimates or judgements of likely outcome. Management regularly reviews, and revises as necessary, the accounting judgements that significantly impact the amounts recognised in the Condensed Consolidated Interim Financial Statements and the sources of estimation uncertainty that are considered to be "key estimates" due to their potential to give rise to material adjustments in the Group's Consolidated Financial Statements within the next financial year.

In preparing the Condensed Consolidated Interim Financial Statements, no critical accounting judgements have been identified, which is consistent with the Consolidated Financial Statements for the year ended 31 December 2021. A key estimate has been identified in relation to the valuation of the contingent consideration in relation to the acquisition of Triad.

Valuation of the contingent consideration in relation to the acquisition of Triad

The contingent consideration is based on both specified post-acquisition financial and non-financial performance targets as defined by the Merger Agreement. The contingent consideration is fair valued at the date of acquisition with key inputs including a weighted probability of different scenarios and revenue projections based on internal forecasts, discounted using appropriate discount rates.

Actual revenue results may differ from estimates, leading to a change in the fair value of the contingent consideration. Management have identified that reasonably possible changes in certain key assumptions and forecasts may cause the calculated fair value of the contingent consideration to vary materially within the next financial year. Management have determined that the potential range of discounted outcomes within the next financial year is between $66.7 million and $213.1million, from a maximum undiscounted contingent consideration of $325.0 million. Management recorded $141.8 million as the discounted fair value consideration, of which $25.0 million has been paid during the year.

The timing and amount of future contingent elements of consideration is therefore considered a key source of estimation uncertainty. Refer to Note 7 - Acquisitions for more information.

2. Segment information

 
 The Board considers the Group's business to be a single segment entity 
  engaged in the development, manufacture and sale of medical products 
  and technologies. R&D, manufacturing and central support functions 
  are managed globally for the Group. Revenues are managed both on 
  a category and geographic basis. This note presents the performance 
  and activities of the Group as a single segment. 
 

The Group's CEO, who is the Group's Chief Operating Decision Maker, evaluates the Group's global product portfolios on a revenue basis and evaluates profitability and associated investment on an enterprise-wide basis due to shared infrastructures and support functions between the categories. Financial information in respect of revenues provided to the CEO for decision-making purposes is made on both a category and geographic basis. Resources are allocated on a Group-wide basis, with a focus on both category and the key markets but primarily based on the merits of individual proposals.

Revenue by category

The following table sets out the Group's revenue by category:

 
                                Six months ended 
                                     30 June 
                               ------------------ 
                                   2022      2021 
                                     $m        $m 
-----------------------------  --------  -------- 
Advanced Wound Care               306.7     293.8 
Ostomy Care                       264.9     273.4 
Continence and Critical Care      276.8     266.0 
Infusion Care                     196.1     174.8 
-----------------------------  --------  -------- 
Total                           1,044.5   1,008.0 
-----------------------------  --------  -------- 
 

Revenue by geography (a)

The following table sets out the Group's revenue by regional geographic market in which third-party customers are located:

 
                         Six months ended 
                              30 June 
                        ------------------ 
                            2022      2021 
                              $m        $m 
----------------------  --------  -------- 
North America              527.0     495.3 
Europe                     363.7     374.8 
Rest of World ("RoW")      153.8     137.9 
----------------------  --------  -------- 
Total                    1,044.5   1,008.0 
----------------------  --------  -------- 
 

(a) During the year ended 31 December 2021, the geographical revenue information provided to the Group's CEO was changed to better reflect the way in which the Group managed its operations. The change was driven by the ongoing transformation initiatives and aligns with the current management and reporting structure. The six months to 30 June 2021 comparative revenue information has been re-presented to reflect this change. Europe includes Russia, North America comprises United States and Canada, and Rest of World ("RoW") comprises all countries in Asia Pacific, Latin America (including Mexico and the Caribbean), South America, the Middle East (including Turkey) and Africa.

Details on revenue performance are discussed in the Financial Review.

3. Other operating expenses

Other operating expenses were as follows:

 
                                         Six months ended 
                                              30 June 
                                        ------------------ 
                                            2022      2021 
                                              $m        $m 
--------------------------------------  --------  -------- 
Divestiture related activities              12.8         - 
Impairment of other intangible assets        1.4         - 
--------------------------------------  --------  -------- 
Other operating expenses                    14.2         - 
--------------------------------------  --------  -------- 
 

As a result of the exit from hospital care and industrial sales related activities, impairments of $8.6 million to property, plant and equipment and $4.2 million to intangible assets have been recognised during the period. See Note 8 - Divestiture for further details.

4. Non-operating expense, net

Non-operating expense, net was as follows:

 
                                                        Six months ended 
                                                             30 June 
                                                       ------------------ 
                                                            2022     2021 
                                                              $m       $m 
-----------------------------------------------------  ---------  ------- 
Net foreign exchange losses(a)                             (8.6)    (2.0) 
Gain/(loss) on foreign exchange forward contracts(a)        11.7    (0.9) 
Loss on foreign exchange cash flow hedges                 (10.1)    (0.7) 
Change in contingent consideration(b)                      (5.8)        - 
-----------------------------------------------------  ---------  ------- 
Non-operating expense, net                                (12.8)    (3.6) 
-----------------------------------------------------  ---------  ------- 
 

(a) Net foreign exchange losses primarily relate to the foreign exchange impact on intercompany transactions, including loans transacted in non-functional currencies. The Group uses foreign exchange forward contracts to manage these exposures in accordance with the Group's foreign exchange risk management policy.

(b) The $5.8 million expense relates to the change in fair value of the contingent consideration for the Cure Medical acquisition, as described in Note 7 - Acquisitions.

5. Income taxes

 
 The Group's income tax expense is accrued using the tax rate that 
  would be applicable to expected annual total earnings (i.e. the estimated 
  average annual effective income tax rate applied to the profit before 
  tax). 
 

The tax charge for the six months ended 30 June 2022 has been calculated by applying the effective rate of tax which is expected to apply to the Group for the year ended 31 December 2022 using rates substantively enacted as at 30 June 2022.

For the six months ended 30 June 2022, the Group recorded an income tax benefit of $2.2 million (2021: $26.3 million expense). The Group's reported effective tax rate for the period ended 30 June 2022 was a benefit of 4.8% as compared with an expense of 23.5% for the period ended 30 June 2021, as the current period's tax benefit includes recognition of $19.7 million of deferred tax in respect of previously unrecognised tax losses in the US, which is offset by the tax expense on the current period's utilisation of US Federal tax losses that are fully recognised as deferred tax asset following the acquisition of Triad. The prior year expense included a net tax benefit for a deferred tax asset recognition in the US upon the acquisition of Cure Medical, which was offset by the tax expense on the revaluation of net deferred tax liability for the increase in UK corporation tax rate from 19% to 25% (effective 1 April 2023).

The Group continues to believe it has made adequate provision for uncertain tax positions on open issues in accordance with IFRIC 23 Uncertainty over Income Tax Treatments. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of discussions with relevant tax authorities or, where applicable, appeal proceedings.

The Group continues to monitor tax reforms driven by the OECD's BEPS Pillar 1 and 2 project to reform international taxation rules. The Group has performed an initial analysis of the potential tax impact of the proposed tax rules to the Group but is awaiting expected new legislation in the jurisdictions in which the Group operates to finalise the analysis. This has no impact on the Group's result for the six months ended 30 June 2022.

6. Dividends

 
 The Group ensures that adequate realised distributable reserves are 
  available in the Company in order to meet proposed shareholder dividends, 
  and the purchase of shares for employee share scheme incentives. 
  The Company principally derives distributable reserves from dividends 
  received from subsidiary companies. 
  In determining the level of dividend in the year, the Board considers 
  the following factors and risks that may influence the proposed dividend: 
  - Availability of realised distributable reserves; 
  - Available cash resources and commitments; 
  - Strategic opportunities and investments, in line with the Group's 
  strategic plan; and 
  - Principal risks of the Group. 
  The Board paid the 2021 final dividend in May 2022 and declared an 
  interim dividend to be paid in October 2022. The Board has taken 
  into consideration balancing the return to shareholders, the potential 
  impact on other stakeholders and the additional investment in transformation 
  in the period. The Board reviewed the financial strength the Group, 
  the Group's dividend policy together with s172 considerations and 
  has reviewed the realised distributable reserves position of the 
  Company and the forecast cash generation of the Group for the next 
  two years from the date of the dividend payment. 
 

Dividends paid and proposed were as follows :

 
                                                       Settled 
                                                            in     Settled 
                                                Total     cash   via scrip 
                        ----------  ----------                              -------------- 
                             pence       cents                                 No of scrip 
                         per share   per share     $m       $m          $m   shares issued 
----------------------  ----------  ----------  -----  -------  ----------  -------------- 
Final dividend 2020          2.845       3.983   79.7     53.6        26.1       9,475,532 
Interim dividend 2021        1.229       1.717   34.6     32.2         2.4         750,265 
----------------------  ----------  ----------  -----  -------  ----------  -------------- 
Paid in 2021                 4.074       5.700  114.3     85.8        28.5      10,225,797 
----------------------  ----------  ----------  -----  -------  ----------  -------------- 
Final dividend 2021          3.161       4.154   77.8     58.9        18.9       7,192,010 
----------------------  ----------  ----------  -----  -------  ----------  -------------- 
Paid in 2022 to date         3.161       4.154   77.8     58.9        18.9       7,192,010 
----------------------  ----------  ----------  -----  -------  ----------  -------------- 
Interim dividend 2022        1.410       1.717   35.1 
----------------------  ----------  ----------  -----  -------  ----------  -------------- 
 

The Company operates a scrip dividend scheme allowing shareholders to elect to receive their dividend in the form of new fully paid ordinary shares. For any particular dividend, the Directors may decide whether or not to make the scrip offer available.

The proposed interim dividend for 2022, to be distributed on 6 October 2022 to shareholders registered at the close of business on 26 August 2022, is based upon the issued and fully paid share capital as at 30 June 2022. The dividend will be declared in US dollars and will be paid in Sterling at the chosen exchange rate of $1.218/GBP1.00 determined on 3 August 2022. A scrip dividend alternative will be offered allowing shareholders to elect by 13 September 2022 to receive their dividend in the form of new ordinary shares.

Distributable reserves

Realised distributable reserves equate to the retained surplus of the Company, Convatec Group Plc. The capacity of the Company to make dividend payments is primarily determined by the availability of these distributable reserves (which are fully realised) and cash resources. The Company principally derives distributable reserves from dividends paid by subsidiary companies, with the dividends being paid out of the realised distributable reserves of the subsidiary companies.

At 30 June 2022, the retained surplus of Convatec Group Plc (the Company) was $1,494.8 million (31 December 2021: $1,590.3 million). The movements in distributable reserves were as follows:

 
                                               $m 
----------------------------------------  ------- 
At 1 January 2022                         1,590.3 
Total comprehensive loss for the period    (17.7) 
Dividends paid                             (58.9) 
Scrip dividend                             (18.9) 
----------------------------------------  ------- 
Retained surplus at 30 June 2022          1,494.8 
----------------------------------------  ------- 
 

7. Acquisitions

Triad Life Sciences Inc ("Triad")

Description of the transaction

On 14 March 2022, the Group completed its acquisition of 100% of the share capital of Triad Life Sciences Inc ("Triad"). The acquisition of Triad strengthens the Group's Advanced Wound Care position in the US, securing access to a complementary and innovative technology platform that enhances advanced wound management and patient outcomes.

In addition to the initial consideration of $125.3 million, the sellers may earn contingent consideration up to a maximum of $325.0 million, in the form of (i) two additional payments of $25.0 million each relating to short-term milestones; and (ii) two earnout payments conditional on performance during year 1 and year 2 post completion, with the maximum earnout of $275.0 million based on stretching financial performance over the period.

The discounted fair value of the contingent consideration at the date of acquisition was $141.8 million, of which $25.0 million was paid in April 2022 following attainment of the first short-term milestone. Any additional contingent consideration is due to be paid within three years of the acquisition date, subject to achieving the specified targets.

Following completion of acquisition accounting, any changes in the fair value of the contingent consideration will be recorded in the Consolidated Income Statement in accordance with the Group's accounting policies.

Assets acquired and liabilities assumed

The transaction meets the definition of a business combination and has been accounted for under the acquisition method of accounting. The following table summarises the provisional fair values of the assets acquired and liabilities assumed as of the acquisition date:

 
                                                                    $m 
                                                           Provisional 
---------------------------------------------------------  ----------- 
Non-current assets 
Property, plant and equipment                                      0.5 
Right-of-use assets                                                2.2 
Intangible assets - product related                              154.8 
Current assets 
Trade and other receivables                                        4.1 
Inventories                                                       10.8 
Cash and cash equivalents                                         15.9 
---------------------------------------------------------  ----------- 
Total assets acquired                                            188.3 
Current liabilities 
Trade and other payables                                         (2.9) 
Lease liabilities                                                (0.2) 
Non-current liabilities 
Lease liabilities                                                (2.7) 
Deferred tax liabilities                                        (34.8) 
---------------------------------------------------------  ----------- 
Total liabilities assumed                                       (40.6) 
---------------------------------------------------------  ----------- 
Net assets acquired                                              147.7 
---------------------------------------------------------  ----------- 
Goodwill                                                         132.3 
---------------------------------------------------------  ----------- 
Total                                                            280.0 
---------------------------------------------------------  ----------- 
 
Initial cash consideration                                       125.3 
Deferred purchase consideration paid into escrow(a)               13.8 
Working capital adjustment(b)                                    (0.9) 
Contingent consideration                                         141.8 
---------------------------------------------------------  ----------- 
Total consideration                                              280.0 
---------------------------------------------------------  ----------- 
 
Analysis of cash outflow in the Condensed Consolidated              $m 
 Statement of Cash Flows 
---------------------------------------------------------  ----------- 
Initial cash consideration                                       125.3 
Deferred purchase consideration paid into escrow(a)               13.8 
Cash and cash equivalents acquired                              (15.9) 
---------------------------------------------------------  ----------- 
Net cash outflow from acquisitions, net of cash acquired         123.2 
---------------------------------------------------------  ----------- 
 

(a) $13.8 million was paid on closing into escrow as security and indemnity by the seller for its obligations under the Merger Agreement. It is expected that $1.3 million will be released within the next 12 months once the closing statement is agreed and the remaining balance will be released thereafter in accordance with the terms of the Merger Agreement.

(b) This is the Group's calculation of the working capital adjustment and forms part of the initial consideration. The final amount will be determined in accordance with the terms of the Merger Agreement and this has not yet been finalised at the reporting date.

The fair values of the assets acquired and liabilities assumed remain provisional due to the proximity of the acquisition to the date of approval of the Condensed Consolidated Financial Statements. The Group will finalise these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recognised at the acquisition date. The Group will finalise these amounts no later than one year from the acquisition date.

The goodwill recorded, which is not deductible for tax purposes, represents the cost savings, operating synergies and future growth opportunities expected to result from combining the operations of Triad with those of the Group.

The carrying value of the Group's goodwill increased to $1,226.7 million at 30 June 2022 (31 December 2021: $1,156.3 million) as a result of the acquisition of Triad ($132.3 million), offset by foreign exchange movements ($61.9 million).

Acquisition-related costs

The Group incurred $2.8 million of acquisition-related costs directly related to the Triad acquisition in the period to 30 June 2022, primarily related to advisors' fees. These acquisition-related costs have been recognised in general and administrative expenses in the Condensed Consolidated Income Statement.

As part of the acquisition accounting, a $10.2 million increase to the carrying value of inventories was required to reflect the fair value of $10.8 million at acquisition, of which $4.0 million was expensed to cost of sales in the Condensed Consolidated Income Statement in the period to 30 June 2022 as the inventories were sold.

Revenue and profit

The revenue of Triad for the period from the acquisition date to 30 June 2022 was $9.6 million and net profit for the period was $1.2 million, before recognising acquisition-related intangible asset amortisation charge of $4.0 million and the inventory fair value uplift release of $4.0 million. If the acquisition had been completed at 1 January 2022, reported Group revenue would have been $4.4 million higher and the Group profit for the period would have been $0.9 million lower for the six month period to 30 June 2022, before recognising acquisition-related intangible asset amortisation additional charge of $2.0 million.

Contingent consideration for Cure Medical LLC ("Cure Medical")

On 15 March 2021, the Group acquired 100% of the share capital of Cure Medical.

In addition to the initial consideration, the sellers may earn contingent consideration of up to $10.0 million based upon post-acquisition performance targets included in the Share Purchase Agreement. The fair value of contingent consideration at the date of acquisition and at 31 December 2021 was $3.1 million, which is due to be paid within three years of the acquisition date.

As at 30 June 2022, management reviewed the expectation of the contingent consideration based on the most recent Board approved strategic plan and forecast information. The Cure Medical business has outperformed its performance targets to date and the forecast financials are expected to exceed the original expectations. The discounted fair value of the contingent consideration has been revised to $8.9 million and the remeasurement charge of $5.8 million has been recognised in non-operating expenses in the Condensed Consolidated Income Statement.

8. Divestiture

Exit from hospital care and industrial sales activities

On 12 May 2022, following a strategic review, it was announced that the Group would be withdrawing from its hospital care activities and related industrial sales during the remainder of 2022. These low margin activities generated $101.4 million of revenue in the year ended 31 December 2021 and do not represent a separate major line of business or component of the Group.

As a result of the exit from the hospital care and industrial sales activities, the Group recognised impairment losses in the period ended 30 June 2022 in relation to the following:

- $8.6 million was recognised, within other operating expenses, as an impairment to property, plant and equipment, primarily in relation to manufacturing equipment in Belarus and Slovakia.

- $4.2 million was recognised, within other operating expenses, as an impairment to product-related intangible assets.

- $7.5 million was recognised, within cost of sales, in relation to the write-off of inventories which are not expected to be sold.

In addition, the Group recognised $17.0 million of provisions in relation to severance and contract exit costs in the period ended 30 June 2022. In the period to 30 June 2022, the Group has incurred $1.1 million of divestiture-related costs in relation to legal fees and administrative closing down costs.

Upon completion of the exit from all hospital care and related industrial sales activities, the cumulative amount of exchange differences recognised in other comprehensive income relating to those operations will be recognised in the consolidated income statement as a non-operating expense. The balance as at 30 June 2022 would have been a $15.8 million expense to the income statement. The actual balance transferred will be calculated on completion of the exit and will be classified as an adjusted item in accordance with our APM policy.

9. Investment in financial assets

 
 Accounting policy 
  The Group has made an irrevocable election to designate its 
  equity investment in BlueWind Medical at fair value through 
  other comprehensive income (FVOCI). It has been initially recorded 
  at fair value plus transaction costs and will be remeasured 
  at subsequent reporting dates to fair value. 
  Unrealised gains and losses are recognised in other comprehensive 
  income. 
  On disposal of the equity investment, any gains and losses that 
  have been deferred in other comprehensive income are transferred 
  directly to retained earnings. 
  Dividends on equity investments are recognised in the income 
  statement when the Group's right to receive payment is established, 
  it is probable the economic benefits will flow to the entity 
  and the amount can be measured reliably. 
 

On 9 May 2022, the Group invested $30.0 million in preference shares of BlueWind Medical Limited ("BlueWind Medical"). BlueWind Medical is developing an implantable tibial neuromodulation device, for the treatment of urge incontinence and urinary urgency. This represents an investment into an innovative technology in the large and growing over-active bladder market and strengthening of the Group's Continence and Critical Care category.

In line with IFRS 9 Financial Instruments, the investment met the definition of an equity instrument and the Group has made an irrevocable election on initial recognition to measure the investment at FVOCI. The Group considers this investment to be strategic in nature and it is not held for trading.

In line with IFRS 13 Fair value measurement, this investment has been classified as Level 3. As at the date of the transaction, the equity investment was recorded at its cost of investment which approximates to fair value plus transaction costs of $0.7 million. Due to the proximity of the date of transaction to 30 June 2022, the Group has considered applicable criteria for impairment triggers for the investment and concluded that the fair value of the investment approximates the cost of the investment.

10. Borrowings

 
 The Group's sources of borrowing for funding and liquidity purposes 
  derive from senior notes and drawn credit facilities including an 
  undrawn committed revolving credit facility. 
 

The Group's consolidated borrowings were as follows:

 
 
                                                 Year of                  31 December 
                                                 maturity   30 June 2022         2021 
                                                ---------- 
                                   Currency                           $m           $m 
------------------------------  --------------  ----------  ------------  ----------- 
Revolving Credit Facility       Multicurrency      2024                -            - 
------------------------------  --------------  ----------  ------------  ----------- 
Senior Notes                         USD           2029            500.0        500.0 
Term Loan Facility A(a)            USD/Euro        2024            462.4        461.2 
Term Loan Facility B(b)            USD/Euro        2024            397.7        396.7 
------------------------------  --------------  ----------  ------------  ----------- 
Interest-bearing borrowings                                      1,360.1      1,357.9 
Financing fees                                                    (11.3)       (13.3) 
----------------------------------------------------------  ------------  ----------- 
Carrying value of borrowings                                     1,348.8      1,344.6 
----------------------------------------------------------  ------------  ----------- 
Current portion of borrowings                                      142.5        144.8 
Non-current borrowings                                           1,206.3      1,199.8 
----------------------------------------------------------  ------------  ----------- 
 

(a) Included within Term Loan Facility A is EUR86.2 million ($90.4 million) and EUR78.4 million ($89.2 million) at 30 June 2022 and 31 December 2021 respectively, denominated in Euros. This represents 20% (2021: 19%) denominated in Euros and 80% (2021: 81%) denominated in US dollars.

(b) Included within Term Loan Facility B is EUR74.2 million ($77.8 million) and EUR67.5 million ($76.7 million) at 30 June 2022 and 31 December 2021 respectively, denominated in Euros. This represents 20% (2021: 19%) denominated in Euros and 80% (2021: 81%) denominated in US dollars.

Senior notes

Unsecured senior notes of $500.0 million are subject to an interest cover financial covenant as defined in the indentures which is a minimum of 2.0 times, with testing required annually at 31 December on the last 12 calendar months' financial performances.

Credit facilities

The two term loan credit facilities are subject to financial covenants based on a permitted net debt to adjusted EBITDA ratio and interest cover test as defined in the credit facilities agreement. Testing is required on a semi-annual basis, at June and December, based on the last 12 months' financial performance. At 30 June 2022, the permitted net debt to adjusted EBITDA ratio was a maximum of 3.5 times and the interest cover a minimum of 3.5 times, terms as defined by the credit facilities agreement.

The Group was in compliance with all financial and non-financial covenants at 30 June 2022 and 31 December 2021, with significant available headroom on the financial covenants ($470.0 million debt headroom on the net debt to adjusted EBITDA ratio (30%) as at 30 June 2022).

In the six months period to 30 June 2022, $15.5 million of proceeds from borrowings was received in respect of the Euro-denominated facilities relating to foreign exchange restatement triggered by the movement on the USD to EUR exchange rate.

Borrowings measured at fair value

The senior notes are listed and their fair value of $434.0 million at 30 June 2022 (31 December 2021: $507.7 million) has been obtained from quoted market data and therefore categorised as a Level 1 measurement in the fair value hierarchy under IFRS 13 Fair Value Measurements.

For the Group's other borrowings, the estimated fair value at 30 June 2022 is $840.8 million (31 December 2021: $847.3 million). The fair value of the Group's other borrowings is based on discounted cash flows using a current borrowing rate and are categorised as a Level 2 measurement in the fair value hierarchy under IFRS 13 Fair Value Measurements.

11. Financial instruments

 
 A derivative financial instrument is a contract that derives its 
  value from the performance of an underlying variable, such as foreign 
  exchange rates or interest rates. The Group uses derivative financial 
  instruments to manage foreign exchange and interest rate risk arising 
  from its operations and financing. Derivative financial instruments 
  used by the Group are foreign exchange forwards and swaps and interest 
  rate swaps. 
  The Group utilises interest rate swap agreements, designated as cash 
  flow hedges, to manage its exposure to variability in expected future 
  cash outflows attributable to the changes in interest rates on the 
  Group's borrowing facilities. 
 

Financial instruments are classified as Level 1, Level 2, or Level 3 in the fair value hierarchy in accordance with IFRS 13 Fair Value Measurements, based upon the degree to which the fair value movements are observable. Level 1 fair value measures are defined as those with quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 fair value measurements are defined as those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (prices from third parties) or indirectly (derived from third-party prices). Level 3 fair value measurements are defined as those derived from significant unobservable inputs. The only instrument classified as Level 1 are the senior notes, given the availability of quoted market price (Note 10 - Borrowings). The Group's derivative financial instruments, discussed below, are classified as Level 2, and the Group's equity investment in preference shares is classified as Level 3 (Note 9 - Investment in financial assets).

The Group holds interest rate swap agreements to fix a proportion of variable interest on US dollar denominated debt, in accordance with the Group's risk management policy. The interest rate swaps are designated as hedging instruments in a cash flow hedging relationship.

In accordance with Group policy, the Group uses forward foreign exchange contracts, designated as cash flow hedges, to hedge certain forecast third-party foreign currency transactions for up to one year. When a commitment is entered into, a layered approach is taken when hedging the currency exposure, ensuring that no more than 100% of the transaction exposure is covered. The currencies hedged by forward foreign exchange contracts are US dollars, Swiss Francs and Japanese Yen.

The Group further utilises foreign exchange contracts and swaps classified as fair value through profit or loss ("FVTPL") to manage short-term foreign exchange exposure.

The fair values are based on market values of equivalent instruments. The following table presents the Group's outstanding interest rate swaps, which are designated as cash flow hedges, at 30 June 2022 and 31 December 2021 respectively:

 
                                                          30 June 2022              31 December 2021 
                                                   --------------------------  -------------------------- 
                                                                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               1.8     275.0             (2.9) 
--------------------------  ----------  ---------  --------  ----------------  --------  ---------------- 
 

(a) The fair values of the interest rate swaps are shown in current derivative financial liabilities in the Condensed Consolidated Statement of Financial Position. There is no ineffectiveness recognised in the Condensed Consolidated Income Statement.

The following table presents the Group's outstanding foreign exchange forward contracts valued at FVTPL and foreign currency forward contracts designated as cash flow hedges, which form part of current derivative financial assets and current derivative financial liabilities:

 
                                                             30 June 2022              31 December 2021 
                                                      --------------------------  -------------------------- 
                                                                            Fair 
                                                                           value                  Fair value 
                                                      Notional            assets  Notional            assets 
                                                        amount   / (liabilities)    amount   / (liabilities) 
                                        ------------ 
                                            Term            $m                $m        $m                $m 
--------------------------------------  ------------  --------  ----------------  --------  ---------------- 
Foreign exchange contracts designated 
 as FVTPL                               <= 3 months      706.0              20.8     864.6              14.5 
Foreign currency forward exchange 
 contracts designated as cash flow         <= 12 
 hedges                                    months         18.5               1.1      40.8               0.6 
--------------------------------------  ------------  --------  ----------------  --------  ---------------- 
Derivative financial assets                              724.5              21.9     905.4              15.1 
----------------------------------------------------  --------  ----------------  --------  ---------------- 
Foreign exchange contracts designated 
 as FVTPL                               <= 3 months      539.7            (12.3)     695.9             (6.5) 
Foreign currency forward exchange 
 contracts designated as cash flow         <= 12 
 hedges                                    months        168.8             (9.6)     130.2             (5.2) 
--------------------------------------  ------------  --------  ----------------  --------  ---------------- 
Derivative financial liabilities                         708.5            (21.9)     826.1            (11.7) 
----------------------------------------------------  --------  ----------------  --------  ---------------- 
 

12. Provisions

 
 A provision is an obligation recognised when there is uncertainty 
  over the timing or amount that will be paid. Provisions held by 
  the Group are primarily in respect of restructuring, onerous contracts, 
  decommissioning, dilapidations, legal liabilities and contingent 
  consideration relating to acquisitions. 
 

The movements in provisions are as follows:

 
                                  Decommissioning                            Contingent 
                                and dilapidations  Restructuring  Legal   consideration   Total 
                                               $m             $m     $m              $m      $m 
-----------------------------  ------------------  -------------  -----  --------------  ------ 
31 December 2021                              1.2            5.0    0.5               -     6.7 
Contingent consideration 
 from acquisitions                              -              -      -           141.8   141.8 
Charged to the income 
 statement                                    0.5           19.7      -             5.8    26.0 
Utilised                                        -          (6.6)      -          (25.0)  (31.6) 
Discount unwind                                 -              -      -             5.2     5.2 
Reclassification from 
 trade and other payables(a)                    -              -      -             3.1     3.1 
Foreign exchange                            (0.1)          (0.1)      -               -   (0.2) 
-----------------------------  ------------------  -------------  -----  --------------  ------ 
30 June 2022                                  1.6           18.0    0.5           130.9   151.0 
-----------------------------  ------------------  -------------  -----  --------------  ------ 
 
Current provision                               -           18.0      -           101.3   119.3 
Non-current provision                         1.6              -    0.5            29.6    31.7 
-----------------------------  ------------------  -------------  -----  --------------  ------ 
 

(a) During the period ended 30 June 2022, $3.1 million has been reclassified from trade and other payables in relation to the Cure Medical acquisition to better reflect the estimation uncertainty of the contingent consideration.

Decommissioning and dilapidation provisions

Decommissioning provisions are recognised when an item is purchased to represent the estimated costs of dismantling and removing PP&E and restoring the site on which it was located. Dilapidation provisions are in respect of legal obligations, on the expiry of a lease, to return leased properties in the condition which is specified in the individual leases.

Restructuring provisions

Restructuring provisions are in respect of two restructuring programmes in place during the period: the Group's Transformation Initiative which is a global multi-year transformation programme that commenced in 2019, and the exit from the low margin hospital care and industrial sales portfolio. Further details in Note 8 - Divestiture. All restructuring provisions are supported by detailed plans and a valid expectation has been raised in those affected as required by the Group's accounting policy.

Legal provision

Legal provision of $0.5 million is in respect of an ongoing case. Legal issues are often subject to uncertainties over the timing and the final amounts of any settlement.

Contingent consideration

Contingent consideration arising from business combinations are fair valued on acquisition and at each reporting period. As a result of the acquisition of Triad on 14 March 2022, the sellers may earn contingent consideration as described in Note 7 - Acquisitions.

During the period ended 30 June 2022, the contingent consideration for the Cure Medical acquisition has been fair valued to $8.9 million (discounted), resulting in an increase of $5.8 million to the previously recognised amount of $3.1 million. This has been charged to the Condensed Consolidated Income Statement. Refer to Note 7 - Acquisitions for further details.

13. Foreign exchange

The following table summarises the exchange rates used for the translation of currencies into US dollars that have the most significant impact on the Group results:

 
                             Six months ended     Year ended 
                                  30 June        31 December 
           ---------------  ------------------  ------------ 
               Average 
            rate/ Closing 
Currency         rate           2022      2021          2021 
---------  ---------------  --------  --------  ------------ 
USD/EUR            Average      1.09      1.21          1.18 
                   Closing      1.05      1.19          1.14 
 -------------------------  --------  --------  ------------ 
USD/GBP            Average      1.30      1.39          1.38 
                   Closing      1.22      1.38          1.35 
 -------------------------  --------  --------  ------------ 
USD/DKK            Average      0.15      0.16          0.16 
                   Closing      0.14      0.16          0.15 
 -------------------------  --------  --------  ------------ 
 

14. Commitments and contingencies

Capital commitments

At 30 June 2022, the Group had non-cancellable commitments for the purchase of property, plant and equipment, capitalised software and development of $19.5 million (31 December 2021: $32.1 million).

Contingent liabilities

There are no contingent liabilities recognised as at 30 June 2022.

15. Subsequent events

The Group has evaluated subsequent events through to 3 August 2022, the date the Condensed Consolidated Interim Financial Statements were approved by the Board of Directors.

On 3 August 2022, the Board declared the interim dividend to be distributed on 6 October 2022. Refer to Note 6 - Dividends for further details.

Non-IFRS financial information

Non-IFRS financial information or alternative performance measures ("APMs") are those measures used by management on a day-to-day basis in their assessment of profit and performance and comparison between periods. The adjustments applied to IFRS measures reflect the effect of certain cash and non-cash items that the Board believes distort the understanding of the quality of earnings and cashflows as, by their size or nature, they are not considered part of the core operations of the business. Adjusted measures also form the basis for performance measures for remuneration, e.g. adjusted operating profit. Reconciliations for these adjusted measures determined under IFRS are shown on pages 40 to 42. The definitions of adjusted measures are as calculated within the reconciliation tables.

It should be noted that the Group's APMs may not be comparable to other similarly titled measures used by other companies and should not be considered in isolation or as a substitute for the equivalent measures calculated and presented in accordance with IFRS.

In determining whether an item should be presented as an allowable adjustment to IFRS measures, the Group considers items which are significant either because of their size or their nature and arise from events that are not considered part of the core operations of the business. These tend to be one-off events but may still cross more than one accounting period. Recurring items may be considered in respect of the amortisation of acquisition related intangibles assets in order to provide comparability between peer groups where such assets may have been internally generated and therefore, are not reflected on that company's balance sheet with a resulting amortisation charge. If an item meets at least one of these criteria, the Board, through the Audit and Risk Committee, then exercises judgement as to whether the item should be classified as an allowable adjustment to IFRS performance measures.

The APMs are consistent with those disclosed in the 2021 Annual Report and Accounts.

Adjustments to derive adjusted operating profit for the six months ended 30 June 2022 and 2021 comprise the following credits or costs:

- Amortisation of intangible assets in respect of material acquisitions ($67.4 million and $65.5 million respectively).

- Costs incurred in respect of acquisition activities ($21.2 million and $1.7 million respectively).

- Costs incurred in respect of divestiture activities in respect of the exit from hospital care business and related industrial sales activities ($31.5 million and nil respectively).

- Termination benefits in respect of the Group's transformation programme and exit from hospital care and related industrial sales activities ($6.7 million and $1.7 million respectively).

   -      Impairment of assets ($1.4 million and nil respectively). 

The tax effect of the adjustments is reflected in the adjusted tax expense to remove the tax impact from adjusted net profit and adjusted earnings per share.

Adjusted EBITDA, which is used to calculate the metric of adjusted cash conversion and adjusted working capital, is calculated by adding back share-based payments to adjusted operating profit, together with the annual depreciation and amortisation charge.

Amortisation of acquisition-related intangible assets

The Group's strategy is to grow both organically and through acquisition, with larger acquisitions being targeted to strengthen our position in key geographies and/or business categories or which provide access to new technology. The nature of the businesses acquired includes the acquisition of significant intangible assets, which are required to be amortised. The Board and management regard the amortisation as a distortion to the quality of earnings and it has no cash implications in the year. The amortisation also distorts comparability with peer groups where such assets may have been internally generated and, therefore, not reflected on their balance sheet. Amortisation of acquisition-related intangible assets is, by its nature, a recurring adjustment.

Acquisitions related activities

Costs directly related to potential and actual strategic transactions which have been executed, aborted or are in-flight and which would improve the strategic positioning of the Group are deemed adjusting items.

Acquisition-related costs relate to deal costs, integration costs and earn-out adjustments which are incurred directly as a result of the Group undertaking or pursuing an acquisition. Deal costs are wholly attributable to the deal, including legal fees, due diligence fees, bankers' fees/commissions and other direct costs incurred as a result of the actual or potential transaction. Integration costs are wholly attributable to the integration of the target and based on integration plans presented at the point of acquisition, including the cost of retention of key people where this is in excess of normal compensation, redundancy of target staff and early lease termination payments.

Divestiture related activities

Divesture related activities comprise of any gains or losses made on disposal, impairment of directly related assets, contract exit costs/penalties and any directly attributable transaction costs resulting from the in-flight, aborted or completion of disposal or exit of a business or market during the year. Directly attributable transactions costs incurred as a result of divestitures include legal and professional fees which are directly related to the divestiture.

Impairment of assets

Impairments, write-offs and gains and losses from defined programmes and where the Group considers the circumstances of such event are not reflective of normal business trading performance or when transactions relate to acquisition-related intangible assets where the amortisation is already excluded from the calculation of adjusted measures.

Termination benefits and related costs

Termination benefits and other related costs arise from Group-wide initiatives to reduce the ongoing cost base and improve efficiency in the business, including divestitures from non-strategic activities. The Board considers each project individually to determine whether its size and nature warrants separate disclosure. Qualifying items are limited to termination benefits (including retention) without condition of continuing employment in respect of major Group-wide change programmes. Where discrete qualifying items are identified these costs are highlighted and excluded from the calculation of adjusted measures. Due to their nature, these adjusted costs may span more than one year. Restructuring costs not related to termination benefits are reported in the normal course of business and are not adjusted.

Reconciliation of reported earnings to adjusted earnings for the six months ended 30 June 2022 and 2021

 
                                                                                                                Profit 
                                                                      Finance  Non-operating                       for 
                                       Gross  Operating  Operating   expense,       expense,                       the 
                            Revenue   profit      costs     profit        net            net    PBT  Taxation   period 
Six months ended                 $m       $m         $m         $m         $m             $m     $m        $m       $m 
 30 June 2022 
--------------------------  -------  -------  ---------  ---------  ---------  -------------  -----  --------  ------- 
As reported                 1,044.5    554.9    (467.8)       87.1     (28.2)         (12.8)   46.1       2.2     48.3 
Amortisation of acquired 
 intangibles                      -     56.9       10.5       67.4          -              -   67.4    (15.0)     52.4 
Acquisition related 
 costs                            -      4.0        6.2       10.2        5.2            5.8   21.2     (1.6)     19.6 
Divestiture related 
 costs                            -      7.6       23.9       31.5          -              -   31.5     (7.5)     24.0 
Impairment of assets              -        -        1.4        1.4          -              -    1.4         -      1.4 
Termination benefits 
 and related costs                -      4.7        2.0        6.7          -              -    6.7     (1.6)      5.1 
--------------------------  -------  -------  ---------  ---------  ---------  -------------  -----  --------  ------- 
Total adjustments 
 including tax effect             -     73.2       44.0      117.2        5.2            5.8  128.2    (25.7)    102.5 
Other discrete tax 
 items                            -        -          -          -          -              -      -    (19.7)   (19.7) 
--------------------------  -------  -------  ---------  ---------  ---------  -------------  -----  --------  ------- 
Adjusted                    1,044.5    628.1    (423.8)      204.3     (23.0)          (7.0)  174.3    (43.2)    131.1 
--------------------------  -------  -------  ---------  ---------  ---------  -------------  -----  --------  ------- 
 
Software and R&D 
 amortisation                                                  8.2 
Depreciation                                                  31.0 
Share-based payments                                           8.2 
--------------------------  -------  -------  ---------  --------- 
Adjusted EBITDA                                              251.7 
--------------------------  -------  -------  ---------  --------- 
                                                                                                                Profit 
                                                                      Finance  Non-operating                       for 
                                       Gross  Operating  Operating   expense,       expense,                       the 
                            Revenue   profit      costs     profit        net            net    PBT  Taxation   period 
Six months ended                 $m       $m         $m         $m         $m             $m     $m        $m       $m 
 30 June 2021 
--------------------------  -------  -------  ---------  ---------  ---------  -------------  -----  --------  ------- 
As reported                 1,008.0    555.3    (419.8)      135.5     (19.8)          (3.6)  112.1    (26.3)     85.8 
Amortisation of acquired 
 intangibles                      -     55.0       10.5       65.5          -              -   65.5     (7.1)     58.4 
Acquisition related 
 costs                            -        -        1.7        1.7          -              -    1.7         -      1.7 
Termination benefits 
 and other related 
 costs                            -      0.2        1.5        1.7          -              -    1.7     (0.4)      1.3 
--------------------------  -------  -------  ---------  ---------  ---------  -------------  -----  --------  ------- 
Total adjustments 
 and their tax effect             -     55.2       13.7       68.9          -              -   68.9     (7.5)     61.4 
Other discrete tax 
 items                            -        -          -          -          -              -      -     (2.0)    (2.0) 
--------------------------  -------  -------  ---------  ---------  ---------  -------------  -----  --------  ------- 
Adjusted                    1,008.0    610.5    (406.1)      204.4     (19.8)          (3.6)  181.0    (35.8)    145.2 
--------------------------  -------  -------  ---------  ---------  ---------  -------------  -----  --------  ------- 
 
Software and R&D 
 amortisation                                                  8.2 
Depreciation                                                  31.5 
Impairment/write-off 
 of assets                                                     1.7 
Share-based payments                                           7.1 
--------------------------  -------  -------  ---------  --------- 
Adjusted EBITDA                                              252.9 
-------------------------------------------------------  --------- 
 

Acquisition related costs of $21.2 million (six months to 30 June 2021: $1.7 million) are directly related to actual strategic transactions which have been executed and which seek to improve the strategic positioning of the Group. The majority of the costs are related to the deal and integration costs incurred on the acquisition of Triad on 14 March 2022 and the discounting unwind of the related contingent consideration. The impact on gross profit of $4.0 million relates to the release of the acquisition fair value uplift on inventories in relation to those which have been sold in the period to 30 June 2022. Additionally, the fair value of the contingent consideration in respect of the 2021 Cure Medical acquisition has been increased by $5.8 million and has been recognised as a non-operating expense and excluded in calculating adjusted profit for the period. The net cash impact in relation to acquisition costs was $2.5 million in the period. In the six months ended 30 June 2021, the acquisition costs are in respect of the Cure Medical acquisition.

Divestiture related costs of $31.5 million are directly related to the phased exit from the low margin hospital care business and industrial sales portfolio, and includes the impairment of property, plant and equipment and intangible assets, write-off of inventories, and contract exit costs (refer to Note 8 - Divestiture). The exit will be completed over the remainder of the year. The net cash impact in relation to this was $0.6 million in the period.

Impairment of assets of $1.4 million relates to a legacy acquisition related customer relationship asset which was impaired as part of rationalisation activities in the portfolio.

Termination benefits and other related costs of $6.7 million (six months to 30 June 2021: $1.7 million) are primarily in respect of the severance costs from the Group's withdrawal from its hospital care and industrial sales portfolio. The net cash impact of these costs was $6.0 million in the period.

Other discrete tax items relate to the tax benefit of $19.7 million from the recognition of deferred tax upon the acquisition of Triad. In the six months to 30 June 2021, other discrete tax items relate to the tax benefit of $9.3 million resulting from recognition of deferred tax following the acquisition of Cure Medical, partially offset by a $6.9 million tax expense relating to revaluation of deferred tax liabilities for acquisition intangibles in the UK following the enactment of Finance Act 2021 on 10 June 2021 and $0.4 million tax expense which arose as a result of adjustment to the Swiss deferred tax asset following formal agreement with the Swiss Tax Authorities in 2021.

Reconciliation of operating costs to adjusted operating costs for the six months ended 30 June 2022 and 2021

 
                                                        Six months ended 30 June 
                           ---------------------------------------------------------------------------------- 
                                               2022                                      2021 
                           ---------------------------------------------  ----------------------------------- 
                            S&D(a)   G&A(b)  R&D(c)  Other(d)  Operating   S&D(a)   G&A(b)  R&D(c)  Operating 
                                                                   costs                                costs 
                                $m       $m      $m        $m         $m       $m       $m      $m         $m 
-------------------------  -------  -------  ------  --------  ---------  -------  -------  ------  --------- 
As reported                (287.3)  (119.1)  (47.2)    (14.2)    (467.8)  (252.9)  (126.0)  (40.9)    (419.8) 
Amortisation of acquired 
 intangibles                     -     10.5       -         -       10.5        -     10.5       -       10.5 
Acquisition related 
 costs                           -      6.2       -         -        6.2        -      1.7       -        1.7 
Divestiture related 
 costs                        10.7      0.4       -      12.8       23.9 
Impairment of assets             -        -       -       1.4        1.4        -        -       -          - 
Termination benefits 
 and related costs             1.7      0.3       -         -        2.0        -      1.5       -        1.5 
-------------------------  -------  -------  ------  --------  ---------  -------  -------  ------  --------- 
Adjusted                   (274.9)  (101.7)  (47.2)       0.0    (423.8)  (252.9)  (112.3)  (40.9)    (406.1) 
-------------------------  -------  -------  ------  --------  ---------  -------  -------  ------  --------- 
 
   (a)     "S&D" represents selling and distribution expenses. 
   (b)    "G&A" represents general and administrative expenses. 
   (c)     "R&D" represents research and development expenses. 

(d) "Other" relates to the impairment of assets from the Group's withdrawal from the hospital care and industrial sales portfolio.

Reconciliation of basic and diluted earnings per share to adjusted earnings per share for the six months ended 30 June 2022 and 2021

 
                                                      Six months ended 30 June 
                                         -------------------------------------------------- 
                                                         Adjusted                  Adjusted 
                                              2022           2022       2021           2021 
                                                $m             $m         $m             $m 
---------------------------------------  ---------  -------------  ---------  ------------- 
Net profit for the period attributable 
 to the shareholders of the 
 Group                                        48.3          131.1       85.8          145.2 
---------------------------------------  ---------  -------------  ---------  ------------- 
                                                           Number                    Number 
---------------------------------------  ---------  -------------  ---------  ------------- 
Basic weighted average ordinary 
 shares in issue                                    2,018,377,510             2,004,985,601 
Diluted weighted average ordinary 
 shares in issue                                    2,031,279,646             2,024,506,676 
---------------------------------------  ---------  -------------  ---------  ------------- 
                                         cents per      cents per  cents per      cents per 
                                             share          share      share          share 
---------------------------------------  ---------  -------------  ---------  ------------- 
Basic earnings per share                       2.4            6.5        4.3            7.2 
Diluted earnings per share(a)                  2.4            6.5        4.2            7.2 
---------------------------------------  ---------  -------------  ---------  ------------- 
 

(a) Excluding the deferred tax asset recognition following the Group's acquisitions, adjusted diluted EPS decreased by 2.7% to 7.4c for the six months ended 30 June 2022 (six months ended 30 June 2021: 7.6c).

Cash conversion for the six months ended 30 June 2022 and 30 June 2021

 
                                                             Six months ended 30 
                                                                     June 
                                                            --------------------- 
                                                                  2022       2021 
                                                                    $m         $m 
----------------------------------------------------------  ----------  --------- 
Operating profit                                                  87.1      135.5 
Depreciation of property, plant and equipment                     20.0       19.8 
Depreciation of right-of-use assets                               11.0       11.7 
Amortisation of intangible assets                                 75.6       73.7 
Impairment/write-off of property, plant and equipment 
 and intangible assets                                            14.2        1.7 
----------------------------------------------------------  ----------  --------- 
EBITDA                                                           207.9      242.4 
Non-cash items 
Share-based payments                                               8.2        7.1 
Working capital movement                                        (66.0)     (69.8) 
Gain/(loss) on foreign exchange derivatives                        3.4      (0.9) 
----------------------------------------------------------  ----------  --------- 
Net cash generated from operations                               153.5      178.8 
Acquisitions of property, plant and equipment and 
 intangibles assets                                             (64.1)     (43.6) 
----------------------------------------------------------  ----------  --------- 
Net cash for cash conversion                                      89.4      135.2 
Income taxes paid                                               (19.1)     (29.0) 
----------------------------------------------------------  ----------  --------- 
Free cash flow                                                    70.3      106.2 
----------------------------------------------------------  ----------  --------- 
 
  Reconciliation of Adjusted net cash and Adjusted free cash flow (to 
  calculate Adjusted cash conversion) 
                                                             Six months ended 30 
                                                                     June 
                                                            --------------------- 
                                                                  2022       2021 
                                                                    $m         $m 
----------------------------------------------------------  ----------  --------- 
Net cash for cash conversion                                      89.4      135.2 
Acquisition and divestitures adjustments                           2.6        1.3 
Termination benefits and related costs adjustments                 6.6        5.7 
----------------------------------------------------------  ----------  --------- 
Adjusted net cash for cash conversion                             98.6      142.2 
Income taxes paid                                               (19.1)     (29.0) 
----------------------------------------------------------  ----------  --------- 
Adjusted free cash flow, post tax                                 79.5      113.2 
----------------------------------------------------------  ----------  --------- 
 
EBITDA                                                           207.9      242.4 
Adjusted EBITDA                                                  251.7      252.9 
----------------------------------------------------------  ----------  --------- 
Cash conversion                                                  43.0%      55.8% 
Adjusted cash conversion                                         39.2%      56.2% 
----------------------------------------------------------  ----------  --------- 
 
 
Reconciliation of Adjusted working capital 
                                                           Six months ended 
                                                                30 June 
                                                          ------------------ 
                                                              2022      2021 
                                                                $m        $m 
--------------------------------------------------------  --------  -------- 
Working capital movement(a)                                 (66.0)    (69.8) 
(Increase)/decrease in termination benefits(b)               (0.7)       4.0 
Increase in respect of acquisitions and divestitures(b)     (25.7)     (0.4) 
--------------------------------------------------------  --------  -------- 
Adjusted working capital movement                           (92.4)    (66.2) 
--------------------------------------------------------  --------  -------- 
 

(a) Working capital movement is the change in assets and liabilities total within the Condensed Consolidated Statement of Cash Flows on page 20.

(b) These are the cash flow impacts to the adjusted items shown in the reconciliation of earnings to adjusted earnings tables on page 38.

Net debt

Net debt is calculated as the carrying value of current and non-current borrowings, net of cash and cash equivalents and excluding lease liabilities.

 
                                         30 June  31 December 
                                            2022         2021 
                                              $m           $m 
---------------------------------------  -------  ----------- 
Borrowings                               1,348.8      1,344.6 
Lease liabilities                           89.0         90.5 
---------------------------------------  -------  ----------- 
Total carrying value of borrowings       1,437.8      1,435.1 
Cash and cash equivalents                (271.6)      (463.4) 
---------------------------------------  -------  ----------- 
Net debt (including lease liabilities)   1,166.2        971.7 
---------------------------------------  -------  ----------- 
Net debt                                 1,077.2        881.2 
---------------------------------------  -------  ----------- 
Net debt/adjusted EBITDA(a)                  2.3          1.9 
---------------------------------------  -------  ----------- 
 

(a) Net debt excludes lease liabilities, and adjusted EBITDA for the 12 months to 30 June 2022 has been used in this calculation.

Directors' Responsibilities Statement

The Directors confirm that to the best of their knowledge:

-- The Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34 as adopted by the United Kingdom; and

   --      The interim management report includes a fair review of the information required by: 

a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the Condensed Consolidated Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The composition of the Board of Directors of Convatec Group plc has changed since reported in the 2021 Annual Report and Accounts. A list of current Directors is maintained on our corporate website ( www.convatecgroup.com ).

By order of the Board:

Karim Bitar Chief Executive Officer 3 August 2022

   Jonny Mason                                         Chief Financial Officer   3 August 2022 

INDEPENT REVIEW REPORT TO CONVATEC GROUP PLC

We have been engaged by the Group to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and related Notes 1 to 15.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 1, the annual financial statements of the Group will be prepared in accordance with United Kingdom adopted international accounting standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with United Kingdom adopted International Accounting Standard 34, "Interim Financial Reporting".

Conclusion Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with this ISRE (UK), however future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of the directors

The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the half-yearly financial report, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the review of the financial information

In reviewing the half-yearly financial report, we are responsible for expressing to the Group a conclusion on the condensed set of financial statement in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the company in accordance with International Standard on Review Engagements (UK) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Deloitte LLP

Statutory Auditor

London, United Kingdom

3 August 2022

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