ConvaTec Regulatory News (CTEC)

28 February 2020

ConvaTec Group Plc

Audited Annual Results for the twelve months ended 31 December 2019

Results on track and making strategic progress

Financial results in line with guidance, FY 2019 key points:

·; Group reported revenue of $1,827 million declined 0.3% year on year but grew 2.3%3 organically.

·; Reported EBIT4 of $97million, declined 63.8% year on year due to the impairment of acquired intangible assets, transformation investments including MDR and the impact of adverse FX movements.

·; As expected, adjusted1 EBIT4 of $354 million was down 17.5% (2018: $429 million), primarily due to the investment in transformation ($40 million) and Medical Device Regulation ("MDR", $5 million), and the impact of adverse FX movements ($14 million); with adjusted1 EBIT margin of 19.4% (2018: 23.4%).

Strategic progress:

·; New vision, strategy, operating model and values announced today, based on:

o Five pillars of our corporate strategy: Focus, Innovate, Simplify, Build and Execute.

o Simplified operating model: more customer-centric, agile and innovation led with clear accountability.

·; Transformation progressing well; increasing future investment. FY 2019 achievements:

§ Implementation of more than 100 initiatives underway.

§ More than 150 people trained on execution excellence and over 500 people directly involved in transformation.

§ Transformation cost investment of $40 million and capex investment of $20m.

o Increasing transformation investment to c.$210 million over 2019 to 2021 (previously c.$150 million5 over 2019 to 2021). For further details see page 3.

o Recurring transformation costs related to commercial and R&D investment expected to between $60 million and $65 million in 2020, increasing to c.$75 million by 2021 (previously $50 million5 by 2021). This was $13 million in 2019. For further details see page 3.

o Anticipated annual gross benefits in 2021 increased to between $150 million and $170 million (previously between $130 million and $150 million5).

Financial outlook, FY 2020

o Constant currency revenue growth expected to be 2.0% to 3.5%6.

o Constant currency adjusted EBIT margin 16.0% to 18.0%6, including c.$50 million of cost investment associated with the transformation and c.$18 million of costs related to MDR.

Karim Bitar, Chief Executive Officer, commented:

"One of the key reasons that attracted me to ConvaTec was the significant opportunity ahead of us. We operate in structurally growing markets; however, our performance in different product categories and markets varies markedly. With clear direction, an emphasis on innovation and an execution excellence culture, ConvaTec will focus on pivoting to sustainable and profitable growth.

Since I joined ConvaTec, the ConvaTec Executive Leadership Team ("CELT") and I have undertaken a strategic assessment and concluded that we need to move to a new operating model. The new model is customer-centric, more agile, focuses on innovation and ensures clear accountability. Our transformation goal and strategic intent is to pivot to sustainable and profitable growth."

Franchise Summary

Advanced Wound Care revenue declined 3.0% on a reported basis but grew 0.5%3 organically. Overall our performance was in line with internal expectations, but the franchise's US business continued to be challenged, impacted by moving to a more specialised salesforce, which should start to yield benefits in 2020.

Our AQUACEL™ Ag+/Advantage silver products performed strongly, partly offset by our legacy base AQUACEL™ dressings and continued declines in skin care. We saw strong momentum in Latin America, APAC and most EMEA markets. The UK market has stabilised; however, it remains challenging. French reimbursement cuts were in line with our expectations.

Ostomy Care revenue declined 1.6% on a reported basis but grew 1.9%3 year on year on an organic basis. Against a weak prior year, we continued to execute on our strategy to return the franchise to consistent and improved levels of growth, with solid performances in Latin America and EMEA offsetting weakness in the US.

We continue to invest in and see traction with our more recent Convex product launches such as Esteem+™ Flex and Natura™ Accordion and grow our me+™ direct-to-consumer programme.

Continence & Critical Care revenue grew 3.1% on a reported basis and 4.1%3 organically, with a strong performance from our Home Services Group ("HSG", formerly Home Distribution Group) in the US, which continued to outgrow the overall US continence market. Growth also benefited from the impact of a product recall in the prior year. This was partially offset by the franchise's Hospital & Critical Care businesses, which continued to decline.

Infusion Care revenue grew 2.7% on a reported basis, and 4.1%3 on an organic basis. We saw strong orders from customers through the year, and as expected, growth was towards the lower end of historical market growth levels due to the exit of Animas from the durable pump market in late 2018.

 * The reduction in reported EPS from FY18 to FY19 includes an impairment charge of $105.5 million relating to acquired intangible assets. The charge, which is non-cash, reduced reported EPS by $0.05 per share. For further information see note 5 of the Financial Statements.

Transformation Initiative investments and benefits

We see a significant opportunity for sustainable and profitable growth ahead of us by becoming more customer-centric and innovation led, therefore we are investing more than was previously announced, including costs related to the change in the operating model. This increased investment will deliver a higher level of benefit than previously announced.

Transformation investment 

·; Transformation investment of c.$210 million over 2019 to 2021 (previously c.$150 million over 2019 to 2021). This consists of:

o $140 million to $150 million of cost investment, of which between $35 million and $40 million will be excluded from adjusted EBIT, in line with our policy, and between $60 million and $65 million of capex investment

§ FY 2019: $64 million of investment:

·; $40 million of operational costs (largely opex)

·; $20 million of capex

·; $4 million of cost items excluded from adjusted EBIT, in line with our policy

§ FY 2020: $105 million to $110 million of investment:

·; c.$50 million of operational costs (largely opex)

·; c.$30 million capex

·; Between $25 million and $30 million of cost items to be excluded from adjusted EBIT, in line with our policy

Recurring transformation investment

·; Recurring transformation costs related to commercial and R&D investment increasing to c.$75 million by 2021 (previously $50 million by 2021)

o FY 2019: $13 million in 2019

o FY 2020: Between $60 million and $65 million in 2020

Annual gross benefits

·; Anticipated annual gross benefits in 2021 increased to between $150 million and $170 million (previously between $130 million and $150 million)

Investor and analyst presentation and webcast

There will be a management presentation for investors and analysts at 9.00am GMT at The Auditorium, UBS, 5 Broadgate Street, London. There will be a webcast of the presentation, details of which can be found on the ConvaTec website, www.convatecgroup.com/investors/reports.

A dial-in is also available for the meeting:

United Kingdom - 020 3936 2999United States - 1 845 709 8568All other locations - +44 20 3936 2999

Access code - 673349

The full text of this announcement and the presentation for the analyst and investors meeting can also be downloaded from the website above.

Next announcement

The Group will publish its Q1 2020 trading update on the 30 April 2020.

Analysts and Investors

Mark Reynolds, Director Investor Relations +44 (0)7551 036 625

ir@convatec.com

Media

Buchanan: Charles Ryland / Chris Lane / Vicky Haynes +44 (0)207 466 5000

Financial Calendar

Ex-dividend date* 2 April 2020

Dividend record date* 3 April 2020

Scrip dividend election date* 21 April 2020

Q1 trading update 30 April 2020

Annual General Meeting 7 May 2020

Dividend payment date* 14 May 2020

* subject to approval at AGM.

About ConvaTec

ConvaTec is a global medical products and technologies company focused on therapies for the management of chronic conditions, with leading market positions in advanced wound care, ostomy care, continence and critical care, and infusion care. Our products provide a range of clinical and economic benefits including infection prevention, protection of at-risk skin, improved patient outcomes and reduced total cost of care. To learn more about ConvaTec, please visit www.convatecgroup.com

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

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

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

(3) Organic growth presents period over period growth at constant currency, excluding M&A activities.

(4) Adjusted EBIT is equivalent to adjusted operating profit and reported EBIT is equivalent to reported operating profit.

(5) Previous guidance: recurring opex increase of $15 million in 2019 growing to $50 million in 2021, total Transformation Initiative costs of c.$150 million over 2019 to 2021, anticipated annual gross benefits previously between $130 million and $150 million.

(6) Our intention is to drive absolute revenue and earnings growth, both organic and inorganic, therefore a constant currency measure is more appropriate moving forward.

Chief Executive's Review

I am pleased to have joined ConvaTec as Chief Executive Officer last September. I accepted the role for a number of reasons. I am passionate about improving patient care by leveraging innovation, technology and services. Serving patients and the people we touch will be at the core of ConvaTec's culture. There is significant potential for us to be more customer-centric and do more to support and help the people who use and benefit from our products and services.

ConvaTec operates in attractive, structurally growing chronic care markets where there is long-term demand for our products and services and market growth rates are expected to remain at current levels (c.4% pa) in the medium term. However, our past performance has been mixed. Whilst we have leadership positions in some markets due to strong customer relationships and some innovative products, in other areas our ability to perform to our full potential is impeded by organisational complexity and limited capabilities.

The trends that are impacting the wider healthcare industry also create challenges and opportunities for our organisation. These trends include the increasing cost pressures on health systems; the rising influence of the patient or consumer; an increasing shift towards the importance of homecare; technological advancements; the entrance of new competitors; and the growth in emerging markets. We need to understand these trends and effectively differentiate our offering as we strive to seize the opportunities created.

Since I joined ConvaTec, the CELT has undertaken an assessment of our organisation, including the Transformation Initiative commenced in 2019. This assessment has led to the wider strategic changes detailed below. We launched the Transformation Office last year to improve execution across key parts of our business and ensure more effective delivery of our strategy. Improving the execution capabilities of our commercial teams, operations and business support services is fundamental to ConvaTec's success. We are continuing to strengthen our execution excellence discipline via our Transformation Office, which focuses on supporting improved execution across the entire organisation. We are pleased that this is already delivering some benefits, although there is still much to be achieved.

Transforming by pivoting to sustainable and profitable growth

To achieve our transformation goal of pivoting to sustainable and profitable growth, more significant and fundamental change is required; we are already taking action to achieve this.

We now have a clear new vision, which encompasses our purpose: Pioneering trusted medical solutions to improve the lives we touch. We will realise this through our five strategic pillars: Focus, Innovate, Simplify, Build and Execute.

Our success will be underpinned by a new operating model that is more customer-centric, agile, innovation led and with clear accountability, supported by our refreshed Group values that are consistent with our vision, strategy and operating model, and these will guide the way we work. Further details on our vision and values will be available in the 2019 Annual Report and Accounts.

Our five strategic pillars:

Focus

We will focus on our 'must-win' markets and categories.

Innovate

We will innovate by investing in our R&D capabilities to develop trusted medical solutions that customers need most. Our innovation will focus on providing differentiated patient-centric solutions, delivered across three frontiers: products, services, and digital.

Simplify

We will simplify and strengthen the organisation by having a customer-centric and agile operating model with clear accountability. We will establish six integrated global business units, create a new technology and innovation function and optimise organisational layers.

Build

We will build critical core capabilities across the value chain via centres of excellence focusing in areas such as salesforce effectiveness and quality.

Execute

We will instil a culture of execution excellence across the organisation via the Transformation Office. We will implement transformation initiatives with measurable outcomes and clear, accountable owners.

New operating model

As noted above, our organisational complexity and limited capabilities have been key drivers of our past mixed performance; therefore, we have started to simplify and strengthen our operating model to make it more customer-centric, agile and accountable.

During 2020 we will transition to an organisation that will operate with six integrated global business units: Advanced Wound Care, Ostomy Care, Continence Care, Infusion Care (formerly Infusion Devices), Emerging Markets and Home Services Group (formerly Home Distribution Group). These six global business units will be supported by: a new technology and innovation function, an enhanced quality, operations and regulatory function, customer support functions (Finance, IT, HR & Legal), and the Transformation Office.

In the coming years, we plan to significantly increase our investment in R&D as we strengthen our innovation capabilities and improve our product development pipeline. We need to get closer to the patients and people we serve, increase innovation and drive execution excellence. To achieve this, R&D needs to be an integral part of our organisation.

To lead our innovation strategy, strengthen the capability and drive execution we have appointed Dr. Divakar Ramakrishnan, our first Chief Technology Officer, who joined ConvaTec and the CELT on 21 January 2020. Divakar has significant experience, most recently at Eli Lilly, in leading global R&D teams focused on developing innovative and digitally-enabled devices to improve patient care. He has deep competencies in product, process and clinical development.

Supratim Bose, previously Executive Vice President of APAC, will lead Global Emerging Markets and Seth Segel will lead our Home Services Group. Seth was previously President of Home Distribution Group having joined ConvaTec in September 2017 following the acquisition of Woodbury Health Products, where he served as CEO for five years. Seth became a member of the CELT on 1 January 2020.

Mani Gopal joined ConvaTec and the CELT on 13 January 2020 as President of our Global Ostomy Care business unit. He was previously with Cooper Vision and Abbott Laboratories and has extensive experience of running and improving the performance of integrated healthcare businesses.

We are pleased that Kjersti Grimsrud, formerly President of EMEA, has agreed to lead the Global Continence Care business unit, whilst David Shepherd will continue to lead our Global Advanced Wound Care business unit.

Finally, in keeping with the new values of the Group, in particular improving care, we are aligning the name of our infusion set business, formerly Infusion Devices, to our other global business units, and renaming it Infusion Care. John Lindskog will continue to lead this business unit.

Following the above changes Frank Gehres and Stephan Bonnelycke have left ConvaTec. They played important roles as members of the leadership team and we would like to thank them for their contributions and wish them well for the future.

Our new vision, strategy, operating model and values combined with our strengthened leadership team, will bring greater focus and stronger execution. Further information on all members of the CELT is available on our website (www.convatecgroup.com).

I have had the pleasure of visiting a great many of our sites since joining the organisation and taken the opportunity to meet many colleagues and customers. I want to thank my colleagues for a very warm welcome and their commitment to transforming ConvaTec.

2019 Financial performance

It is encouraging that the full year results are in line with the guidance we provided in February 2019. However, this is only a first step and much hard work needs to be undertaken to achieve our strategic intent of pivoting to sustainable and profitable growth.

Group reported revenue of $1,827 million (2018: $1,832 million) declined 0.3% year-on-year but grew 2.4%2 on a constant currency basis and 2.3%3 organically, towards the top of the guidance range provided in February 2019. The performance reflects solid growth in Continence & Critical Care and Infusion Care, although both benefited from weaker 2018 performances. Advanced Wound Care continued to underperform the market, largely due to transition in the franchise's US business. Ostomy Care, against a declining prior year, also remained soft as good performances in Latin America and some EMEA markets were partly offset by underperformance in the US.

Reported EBIT margin was 5.3% (2018: 14.6%), a result of impairment related to acquired intangible assets, investment in transformation, and adverse FX movements.

Adjusted EBIT margin at 19.4% (2018: 23.4%) was above the mid-range of guidance provided. Investment in transformation ($40 million) and MDR ($5 million) were the main drivers of lower adjusted EBIT margin, in addition to the impact of adverse FX movements ($14 million). A net positive productivity contribution was more than offset by price pressures and negative sales mix. Cash flow remained robust with adjusted cash conversion at 98% (2018: 81%), driven by improved working capital. See the Financial Review for further information on costs and margin.

Franchise revenue performance

Advanced Wound Care ("AWC")

Organic growth in 2019 remained subdued as it was impacted by disruption and transition in the franchise's US business moving to a more specialised salesforce. We continued to see improved call rates and customer targeting, the benefits of this in terms of revenue growth should be seen in 2020 and beyond.

Throughout the year, we remained focused on three priorities to drive growth in AWC:

- Transitioning to a new specialised salesforce in the US.

- Expanding our AQUACELTM dressings offering through the extension of AQUACELTM Ag+/Advantage dressing with anti-biofilm technology and the expansion of the AQUACELTM Surgical product portfolio into new surgical areas.

- Continuing to grow in the foam market and expanding our portfolio of dressings, targeting the fast-growing protection and prevention foam segments.

AWC 2019 revenue performance

In 2019 reported revenue of $570 million declined 3.0% compared to the prior year, but on an organic basis revenue grew 0.5%. In the fourth quarter, revenue grew 1.8% on an organic basis, driven by growth in Latin America, APAC and some EMEA markets, partly offset by the US.

Sales of our AQUACELTM brand remain strong. We are leaders in market share in several categories, including silver, and we continue to build our position in foam, growing in line with the market. Our AQUACELTM Ag+/Advantage dressing, launched just over a year ago in the US, has been positively received by clinicians. In Q4 2019, we also launched ConvaMaxTM, our first entry into the super absorber segment within Europe and will launch in the US in Q1 2020. Growth in AQUACELTM surgical cover dressing remained low, impacted by the changes to the US salesforce.

The franchise's legacy DuoDERMTM and base AQUACELTM HydrofiberTM products, together with its skin care business, make up a little under 40% of AWC revenues and, as a whole, were a significant drag on revenue growth in 2019. However, DuoDERMTM made some progress and delivered modest growth in the year. AQUACELTM HydrofiberTM was negatively impacted by the challenging UK market dynamics, although performance did improve in the second half of the year. We expect these UK market pressures to remain in 2020. 

We saw strong growth in our emerging markets in APAC and Latin America as well as some EMEA markets. As noted above, we continued to underperform in the US, however this has been impacted by the planned restructure of the salesforce that led to some disruption in 2019. Whilst in France we experienced the impact of the reimbursement cuts.

Ostomy Care ("OC")

As expected, performance in Ostomy Care also remained subdued as a result of underperformance in the US. However, we saw solid performances in Latin America, EMEA and in certain markets in APAC driven by good traction with our recent product launches such as EsteemTM + Flex and NaturaTM Accordion as well as good growth in accessories.

During the year we focused on three priorities to drive our growth in OC:

- Continuing to strengthen relationships with ostomy nurses in hospitals to increase familiarity with our products and to provide them with the tools to make ostomy care simple, easy and accessible.

- Expanding our me+™ direct-to-consumer programmes to engage directly and frequently with patients to build strong and long-term customer relationships.

- Continuing to enhance our portfolio of offerings by leveraging our technology and investing in consumer-led solutions.

OC 2019 revenue performance

Reported revenue of $525 million for 2019 declined 1.6% against the prior year, but on an organic basis revenue grew 1.9%. In the fourth quarter revenue grew 5.2% on an organic basis, driven by broad-based growth across the business albeit against a weak prior year.

We continued to see good traction with our recent product launches including EsteemTM + Flex Convex, NaturaTM Convex Accordion Flange and Varimate strips and ongoing investment in our me+TM platform is leading to a continued increase in the number of enrolled patients.

We saw solid performances and market share gains in Latin America and in certain markets in APAC and Europe. We continued to see underperformance in the US.

To address the underperformance, we have been implementing changes to our commercial approach to improve salesforce effectiveness, including flattening our organisational structure to get closer to the customer, improved segmentation and revised sales incentive programmes. We are also increasingly leveraging our HSG service offering and integrating our product and me+ TM programme into selected accounts.

In January 2020 we were pleased to agree a three-year extension to the Premier GPO (General Purchasing Organisation) contract for Ostomy Care in the US, commencing April 2020. This is the second largest GPO contract in the US covering around 25% of hospitals and our contract now runs until March 2023.

Continence & Critical Care ("CCC")

Growth in CCC was driven by HSG, which continues to outgrow the overall US continence market, partly offset by the drag from our Hospital and Critical Care businesses. The growth also benefited from the impact of a product recall in the prior year.

Growth in 2019 was focused on two priorities:

- Leveraging the reach of HSG, the largest supplier of intermittent catheters in the US.

- Continuing to innovate and expand the GentleCath™ intermittent catheter portfolio to cover a wider range of needs together with expanding our me+™ platform for intermittent catheter users.

CCC 2019 revenue performance

2019 Reported revenue of $457 million grew 3.1% against the prior year, including a small net revenue contribution of $1.3 million from J&R Medical, which was acquired by HSG on 1 March 2018 and Southlake Medical Supplies, which was acquired by HSG on 1 October 2019, net of the Symbius divestment in 2018. Revenue grew 4.1% year on year on an organic basis. In the fourth quarter revenue grew by 3.8% on an organic basis, again driven by strong growth in HSG.

HSG, driven by its high-touch patient care model, continues to be the driver of growth in the franchise. It aims to deliver superior patient experiences by providing direct support, advice and liaison with clinicians, insurance companies and state funded health coverage programmes on reimbursement.

Infusion Care ("IC")

2019 performance was in line with expectations with good underlying revenue growth, driven by strong customer orders and the continued growth of MiniMedTM MioTM Advance with our partner Medtronic. However, the organic growth was towards the lower end of the historical market growth of 4% to 5% per annum due to the exit of Animas from the market in late 2018.

During 2019 we focused on three priorities to drive our growth:

- Maintaining our strong and long-term partnerships with insulin pump manufacturers to secure long-term business.

- Continuing to develop innovative products for both insulin and other drug delivery.

- Leveraging our leading industry position to ensure that we were the supplier of choice for new entrants into the insulin market and delivery of other sub-cutaneous drugs.

IC 2019 revenue performance

Revenue in 2019 of $275 million grew 2.7% year on year on a reported basis and 4.1% on an organic basis driven by strong customer orders. In the fourth quarter revenue grew by 12.4% on an organic basis, largely driven by materially lower revenue in the prior year, following a change in inventory policy at our biggest customer in Q4 2018.

UK withdrawal from the European Union ("Brexit")

We continue to monitor the Brexit negotiations, assessing the potential effects on our organisation, and preparing contingency plans to address the potential outcomes. Our Brexit taskforce is actively preparing for a "No-Deal" scenario with external advisory support as required. Management considers there will be no material financial effect on our business, or significant operational issues which could arise, as a result of Brexit. However, it remains unclear what the position will be for the UK after the transition period ends on 31 December 2020 and our planning will continue to evolve and adapt with the political developments.

COVID-19 ("Coronavirus")

We are closely monitoring the Coronavirus outbreak, with particular regard to the wellbeing of all our colleagues, our production processes and our supply chain. In 2019, sales in China accounted for less than 1% of Group revenues and within our supply chain there are a small number of component parts and accessories that are manufactured by third-parties in affected areas of APAC. At this stage, assuming that the situation normalises in Q2 and that the outbreak is contained, we do not anticipate any significant business interruption, however we are continuing to assess potential impacts, and the subsequent mitigating actions. We have a number of employees in affected areas and we aim to ensure that they are in an environment which is safe and secure.

Dividend

The Board is proposing to maintain our 2019 full year dividend at 5.7 cents per share, in line with the interim dividend for 2019. Whilst this is outside our stated policy of 35% to 45% of adjusted net profit, resulting from our investment in transformation, it is a reflection of the Board's confidence in the future performance of the Group and its underlying financial strength, distributable reserves position and cash generation of the Group.

Group 2020 outlook

In 2020 we expect constant currency revenue growth of 2.0% to 3.5%2,6, with an improved performance year on year driven by AWC and Infusion Care, we expect a similar year in Continence Care, whilst Ostomy Care will deliver very low single-digit growth due to the impact of product portfolio and market rationalisation. Constant currency adjusted EBIT margin in 2020 is expected to be 16.0% to 18.0% 4,6, including c.$50 million of cost investment associated with the transformation and c.$18 million of costs related to the implementation of the Medical Devices Regulation.

Whilst we have made some progress, driving forward with the transformation and laying the foundations of organisational change through the new Group vision, strategy, operating model and values, there is much more to do as we pivot to sustainable and profitable growth. Our opportunity over the medium term is to drive improved revenue and EBIT growth. I look forward to updating you further later in the year.

Principal risks

The Group's risk management process is in place to identify, assess and prioritise risks that could impact the Group's performance. For 2019, the Group has reconfirmed and reprioritised the eleven principal risks as disclosed in the Group's 2018 Annual Report and Accounts on pages 34 to 43, and listed below:

·; Change and transformation;

·; Failure to attract, engage and retain leadership talent;

·; Legal and compliance;

·; Product innovation and intellectual property;

·; Information security;

·; Quality and regulatory;

·; Brexit;

·; Global operational and supply chain;

·; Pricing and reimbursement;

·; Forecasting process;

·; Macroeconomic and foreign exchange.

We continually review our risk profiles and risk mitigation activities to respond to current and future drivers, opportunities and vulnerabilities. Whilst COVID-19 is not a principal risk as we do not anticipate any significant business interruption, we continue to assess potential impacts and the subsequent mitigating actions.

Forward Looking Statements

This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the Group's control. "Forward-looking statements" are sometimes identified by the use of forward-looking terminology, including the terms "believes", "estimates", "aims", "anticipates", "expects", "intends", "plans", "predicts", "may", "will", "could", "shall", "risk", "targets", "forecasts", "should", "guidance", "continues", "assumes" or "positioned" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, amongst other things, results of operations, financial condition, liquidity, prospects, growth, strategies and dividend policy of the Group and the industry in which it operates.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies. As such, no assurance can be given that such future results, including guidance provided by the Group, will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed, or implied in such forward-looking statements. Forward-looking statements are not guarantees of future performance and the actual results of operations, financial condition and liquidity, and the development of the industry in which the Group operates, may differ materially from those made in or suggested by the forward-looking statements set out in this Presentation. Past performance of the Group cannot be relied on as a guide to future performance. Forward-looking statements speak only as at the date of this document and the Group and its directors, officers, employees, agents, affiliates and advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this document.

Financial review

The Financial review includes discussion of reported and alternative performance measures. Management uses alternative performance measures as a meaningful supplement to reported measures. These measures are disclosed in accordance with the ESMA guidelines and are explained and reconciled to the most directly comparable measure prepared in accordance with IFRS on pages 36 to 42. Further detail on the Group's financial performance, measured in accordance with IFRS, is set out in the Financial Statements and selected Notes thereto on pages 26 to 36.

The commentary includes discussion of revenue on both a constant currency basis and an organic basis. Constant currency removes the effect of fluctuations in exchange rates. Organic removes the effect of fluctuations in exchange rates and the impact of acquisitions and disposals in the year and prior year. Both measures enable the Group to focus on the underlying revenue performance. Constant currency information is calculated by applying the applicable prior period average exchange rates to the Group's revenue performance in the respective period. Revenue growth on a constant currency basis and an organic basis are non-IFRS financial measures and should not be viewed as replacements of IFRS reported revenue.

Results of operations

The following table sets forth the Group's revenue and expense items from continuing operations for each of the last two years:

(a) These non-IFRS financial measures are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS

on pages 36 to 42.

Revenue

The Group's revenue performance for the year ended 31 December 2019 is discussed on page 3.

Cost of goods sold and gross profit

Reported

Reported cost of goods sold increased by 1.5% to $871.6 million (2018: $858.3 million). The increase was a result of negative mix and pricing pressures offset by favourable foreign exchange gains.

Reported gross profit decreased by $18.2 million to $955.6 million (2018: $973.8 million) and gross profit margin decreased to 52.3% (2018: 53.2%) reflecting net unfavourable foreign exchange of $33.0 million, and offset by a net $14.8 million increase from sales growth across the franchises net of changes in mix and pricing.

Adjusted

Adjusted cost of goods sold for the year ended 31 December 2019 was $749.0 million (2018: $729.9 million), a 2.6% increase. Adjusted gross profit decreased by $24.0 million to $1,078.2 million (2018: $1,102.2 million) with the respective gross profit margin decreasing to 59.0% from 60.2%. The changes are consistent with the drivers of the reported reduction.

Operating costs and expenses

The following is a summary of operating costs and expenses for the year ended 31 December 2019 and 2018, and the cost  in each category is compared with the total revenue in the respective period:

Reported

Selling and distribution expenses

On a reported basis, selling and distribution expenses increased $15.0 million to $433.0 million (2018: $418.0 million). This increase was driven by the continued strengthening of our commercial resources, primarily in the US AWC franchise and across EMEA.

General and administrative expenses

Reported general and administrative expenses increased $28.2 million to $266.4 million (2018: $238.2 million). The increase reflects the costs incurred in the implementation of the Transformation Initiative and increases in employee incentives, including stock compensation costs resulting from the CEO buy-out.

Research and development expenses ("R&D")

Reported R&D expenses increased $3.9 million to $53.8 million (2018: $49.9 million). The principal increase in spend in the year included compliance costs incurred in relation to the implementation of MDR of $5.2 million.

Other operating expenses

As part of the Transformation Initiative a product portfolio review has been undertaken which has resulted in the identification of impairment triggers in relation to a number of the Group's intangible assets resulting in $105.5 million impairment of certain intangible assets.

Adjusted

Selling and distribution expenses

Adjusted selling and distribution expenses increased $16.0 million or 3.9% to $431.3 million. The increase is a result of investment in commercial resources as outlined in reported.

General and administrative expenses

Adjusted general and administrative expenses increased $30.2 million or 14.5% to $238.5 million. The increase, as discussed in reported, relates to increases in employee incentives and the Group's Transformation Initiative.

R&D

Adjusted R&D expenses increased $4.6 million or 9.3% to $53.8 million. The increase is in line with reported R&D, resulting from compliance costs incurred in relation to MDR.

Other operating expenses

Other operating expenses includes $0.3 million relating to the impairment of certain intangible assets as outlined above. Further details on adjusting items are outlined on pages 36 to 42.

Operating profit

Reported

On a reported basis, operating profit was $96.9 million, a decrease of $170.8 million (2018: $267.7 million) reflecting primarily the impairment of certain assets of $105.5 million, operating cost increases of $69.1 million resulting from Transformation Initiative costs including MDR, employee incentives and net negative foreign exchange movements of $11.0 million offset by the $14.8 million increase in gross margin.

Adjusted

Adjusted operating profit was $354.3 million, a decrease of $75.1 million (2018: $429.4 million). The movement reflects the cost of the Transformation Initiative ($39.4 million), MDR costs ($5.2 million) and negative foreign exchange movements, as previously discussed, but excludes $105.2 million of impairment charges on certain intangible assets.

Finance and non-operating expenses

The table below presents a summary of finance and non-operating expense, net, on a reported and adjusted basis.

Finance costs

Finance costs consist of interest costs on bank and other finance debt, non-utilisation of finance facility fees and the interest cost on derivative financial instruments.

Finance costs increased $8.4 million, or 12.9%, to $73.6 million (2018: $65.2 million). The increase primarily results from $11.2 million of deferred financing fees recognised upon early termination of the Group's previous credit agreement (further details can be found in Note 6 - Borrowings) and $1.8 million increase in interest on leases predominently upon the adoption of IFRS 16, Leases, offset by a $4.6 million net reduction in interest charges and increased interest income recognised.

The are no adjusted measures reported in finance costs.

Taxation

1. The tax effects of the adjustments relating to non-IFRS financial measures are explained and reconciled on pages 36 to 42.

2. In 2019, other discrete items include the recognition of a deferred tax asset, $23.0 million, in respect of the Swiss tax reform. In 2018 tax benefits of

$30.4 million arose from the reassessment of deferred tax liabilities in respect of unremitted earnings and $35.0 million recognition of additional deferred tax assets resulting from the US tax reform in December 2017. Refer to Note 3 of the Financial Statements, for further information.

The reported tax expense for 2019 was $9.1 million (2018: tax benefit of $20.4 million) and the adjusted tax expense was $44.3 million (2018: $56.5 million), representing an increase in the effective tax rate to 16.0% (2018: 15.7%) on adjusted profit before taxation. Further details on the reported tax expense are contained in Note 3 of the Financial Statements.

Reported

The Group's tax expense of $9.1 million (2018: $20.4 million benefit) is based on tax rates applicable in various jurisdictions across the world in which the Group operates. The tax expense in 2019 has been influenced by a deferred tax benefit of $23.0 million arising from the Swiss tax reform, $17.7 million relating to tax losses where no deferred tax asset has been recognised and a tax expense of $24.6 million relating to the impairment of certain intangible assets in the Group where no tax relief for the costs has been taken (refer to Note 5 of the Financial Statements).

In 2018, there were two discrete tax items totalling $65.7 million. These principally related to a deferred tax benefit of $35.0 million in the US following the enactment of the US Tax Cuts and Jobs Act on 22 December 2017, and released deferred tax liabilities of $30.4 million in respect of unremitted earnings related to the Dominican Republic.

Adjusted

The adjusted income tax expense for 2019 was $44.3 million (2018: $56.5 million), reflecting a 0.3% increase in the adjusted effective tax rate to 16.0% (2018: 15.7%). The adjusted income tax expense of $44.3 million excludes the deferred tax benefit of $23.0 million (as noted above) and a tax benefit of $12.2 million (2018: $11.2 million) pertaining to the tax effect of amortisation on pre-2018 intangible assets, the cost of termination benefits relating to specific Group-wide initiatives and certain components of the CEO buy-out costs.

Net profit

Reported

Reported net profit for 2019 was $9.8 million (2018: $221.6 million), a decrease of $211.8 million, reflecting a decrease of $182.3 million in reported profit before taxation (see above for explanation) and the $29.5 million increase in the reported tax charge for the year, principally driven by discrete tax adjustments including the effect of the Swiss tax reform in 2019 ($23.0 million) and the US tax reform and changes in unremitted earnings in 2018.

Adjusted

Adjusted net profit decreased $72.5 million, to $232.0 million in 2019. The decrease primarily reflects the effects of foreign exchange, headwinds in gross margin and the planned increase in operating costs arising from the Group's Transformation Initiative.

Foreign exchange

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

Financial position

Selected measures of financial position

The following table presents a summary of the Group's financial position at 31 December:

Intangible assets and goodwill

Intangible assets and goodwill reduced by $210.6 million to $2,166.9 million (2018: $2,377.5 million). This reflects decreases arising from the in-year amortisation of intangible assets of $151.9 million, impairment charges of $105.5 million, realised as a result of the Group's Transformation Initiative. This was partially offset by increases relating to the acquisition of intangible assets and goodwill in relation to Southlake Medical Supplies of $12.3 million, the net effect of foreign exchange of $21.2 million and other additions of $13.3 million. Other additions include the investment in technology-enabling tools and platforms which supports the business services transformation.

Other non-current assets

Other non-current assets, including property, plant and equipment, right-of-use assets, deferred tax assets, restricted cash, pension and other assets increased by $94.9 million to $474.6 million (2018: $379.7 million). This reflects a $75.4 million increase in the value of property, plant and equipment and right-of-use assets, of which $65.8 million was recognised upon adoption of IFRS 16, Leases on 1 January 2019. The residual increase of $9.6 million is principally due to our ongoing investment in our manufacturing lines. Deferred tax assets increased by $32.1 million to $55.0 million, as a result of the $23.0 million asset recognised in respect of the Swiss tax reform. Interest rate swaps decreased by $10.3 million following the close out of the previous agreements as part of the refinancing and subsequent replacement with a new US dollar interest rate swap agreement on 5 December 2019.

Cash and cash equivalents

Cash and cash equivalents as at 31 December 2019 was $385.8 million (2018: $315.6 million). Further details are presented in Sources and uses of cash on page 19.

Current assets excluding cash and cash equivalents

Current assets excluding cash and cash equivalents decreased by $5.1 million to $582.5 million (2018: $587.6 million). The decrease is driven by a reduction in inventory levels of $21.5 million as a result of a coordinated rationalisation of inventory across the Group and the normalisation of 2018 year-end inventory levels following working capital changes at a key supplier. This was offset by a $16.4 million increase in trade and other receivables, primarily driven by sales phasing.

Liabilities

The Group adopted IFRS 16 on 1 January 2019, which introduced changes to lessee accounting by removing the distinction between operating and finance leases and required the recognition of a right-of-use asset and a lease liability at the commencement for all leases.

To more readily understand the year-on-year movement the table below outlines the effects on movements in current and non-current liabilities in relation to IFRS 16. The table presents 31 December 2018 on a reported basis and including the impact of the IFRS 16 opening lease liabilities.

Current liabilities

Current liabilities increased by $66.4 million to $397.3 million (2018: $330.9 million), reflecting trade and other payables increasing by $67.8 million, principally driven from changes in accruals relating to interest payment terms on the new credit facility and increases in the accrual for employee incentives, and lease liabilities recognised as at 31 December 2019 of $18.4 million following adoption of IFRS 16, offset by a reduction in current borrowings of $21.2 million as a result of the refinancing.

Non-current liabilities

Non-current liabilities have reduced by $60.8 million to $1,651.5 million (2018: $1,712.3 million). This principally reflects a reduction in non-current borrowings of $113.5 million after the refinancing and includes a change in scheduled loan repayments. The reduction was offset by an increase in deferred tax liabilities of $0.7 million and the additional non-current lease liabilities recognised upon adoption of IFRS 16 of $51.0 million.

At 31 December 2019, the Group's cash and cash equivalents were $385.8 million (2018: $315.6 million). Additionally, at 31 December 2019, the Group's revolving credit facility of $200.0 million was undrawn and available (2018: $193.8 million). Restricted cash was $3.6 million (2018: $4.4 million).

Net cash generated from operating activities was $401.8 million and $352.0 million in 2019 and 2018, respectively. The increase of $49.8 million primarily reflects a decrease in working capital of $51.6 million (2018: increase of $23.2 million), offset by a net decrease in EBITDA of $39.3 million after non-cash items are added back.

The increase in cash and cash equivalents of $70.2 million is primarily driven from increased cash generated from operating activities of $49.8 million, a decrease in PP&E of $10.7 million and a reduction in realised foreign exchange movements of $9.1 million. During 2019, the Group utilised c.$100 million cash to reduce its net borrowings in the refinancing of the credit facility, which is comparable to the 2018 voluntary prepayment of $95.0 million on the previous Euro Term Loan A and $2.4 million of mandatory prepayments.

The following table summarises the components of net cash generated from operating activities for each of the last two years:

(a)  EBITDA is explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS in the cash conversion table on page 41.

Cash conversion

Cash conversion is a measure we use to ensure we derive value from our operations and supports our decision making for potential future investments.

Our reported cash conversion was 101.0% (2018: 82.4%), which reflects our focus on reducing inventory levels during the year, increases in accruals including employee incentives, reclassification of interest payments on lease liabilities upon adoption of IFRS 16, Leases and reduced capital spend resulting from phasing on certain projects.

Adjusted cash conversion was 97.9% (2018: 80.6%) in line with adjusted EBITDA.

(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 on page 41.

Uses of cash

The Group ensures that all entities within the Group have sufficient funding to deliver the Group's strategy while maximising the return to shareholders through the debt and equity balance. The following table presents the Group's primary uses of cash:

Cash flows from debt servicing includes net repayments on borrowings of $137.7 million (2018: $153.7 million), lease payments recognised upon the adoption of IFRS 16 of $20.9 million (2018: finance leases of $0.8 million), and net interest payments of $48.0 million (2018: $61.3 million). The reduction in net cash on borrowings and interest reflects the timing of loan and interest repayments under the new credit agreement.

The Group's strategic investments in the year included Southlake Medical Supplies, a Texas-based independent provider of catheter-related supplies, whose trade and assets were acquired on 1 October 2019 for cash consideration of $12.3 million in comparison to the acquisition of J&R Medical in 2018 for $14.4 million.

Investments in PP&E decreased by $10.7 million to $61.4 million (2018: $72.1 million) resulting from phasing on certain projects, partially offset by proceeds from the sale of PP&E in 2018 (the Group's manufacturing plant in Greensboro was sold).

The Employee Benefit Trust purchased shares of $14.0 million to satisfy anticipated future obligations under the Group's employee share ownership programmes.

Audited Consolidated Income Statement

For the year ended 31 December 2019

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

Audited Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

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

Audited Consolidated Statement of Financial Position

As at 31 December 2019

Audited Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

Audited Consolidated Statement of Cash Flows

For the year ended 31 December 2019

(a) Payment of lease liabilities for the year ended 31 December 2019 includes $20.1 million of payments in respect of new leases recognised upon adoption of IFRS 16, Leases. In the year ended 31 December 2018, these payments were classified as operating leases and included in cash flows from operating activities. Payment of lease liabilities for the year ended 31 December 2018 relates to amounts previously classified as finance leases. Refer to Note 8 - Leases for further details.

1. Basis of preparation

1.1 General information

ConvaTec Group Plc (the "Company") is a company incorporated in the United Kingdom under the Companies Act of 2006 with its registered office situated in England and Wales. The Company's registered office is 3 Forbury Place, 23 Forbury Road, Reading, RG1 3JH, United Kingdom.

The Company and its subsidiaries (collectively, the "Group") are a global medical products and technologies group focused on therapies for the management of chronic conditions, including products used for advanced chronic and acute wound care, ostomy care, continence and critical care and infusion devices used in the treatment of diabetes and other conditions.

The announcement is based on the Group's Financial Statements which are prepared in accordance with IFRS as adopted by the EU and therefore comply with Article 4 of the EU International Accounting Standards ("IAS") Regulations.

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

The financial information set out in this announcement does not constitute the Group's statutory accounts for the years ended 31 December 2019 and 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's Annual General Meeting. The auditor's report on the 2019 and 2018 accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

1.2 Critical accounting judgements and key sources of estimation uncertainty

The preparation of 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. In preparing these Consolidated Financial Statements, two key sources of estimation uncertainty have been identified that could potentially have a material adjustment to the carrying amounts of assets and liabilities within the next financial year. No critical accounting judgements have been identified.

Impairment of finite-lived assets

As part of the Transformation Initiative, a product portfolio review has been undertaken which has resulted in the identification of impairment triggers in 2019 in relation to certain of the Group's intangible assets. As a result of these activities, an impairment review was performed in accordance with IAS 36, Impairment of Assets. This resulted in the Group recognising an impairment of $103.6 million for product-related intangible assets.

The impairment testing of finite-lived assets requires an assessment of the recoverable amount, which the Group determined to be fair value less costs to sell. The approach uses an excess earnings methodology where estimated future cash flows are discounted to their present value. A post-tax discount rate was based on the Group's weighted average cost of capital, adjusted to reflect the territory of the assets and risk and opportunity factors specific to the business model.

Management considers that the methodologies are robust and assumptions adopted in the valuation are supportable and reasonable. There are inherent sources of estimation uncertainty due to the inclusion of future cash flows in the valuation. IAS 1, Presentation of Financial Statements, requires disclosure of major sources of estimation uncertainty that have a significant risk of resulting in a material adjustment in the next financial year.

The cash flows within the fair value model include benefits from ongoing Transformation Initiative. Whilst management are confident in delivery of the transformation benefits, the fair value model includes an assessment of the value of Transformation Initiative to a theoretical market participant at the valuation date. Given the early stage of the transformation, there is a reasonably possible outcome that the impact on the fair value associated with transformation activities could change in the next twelve months leading to an increase in the impairment charge of $13.0 million.

The cash flows within the fair value model also include estimates of future trading of the products related to the intangible assets. Management has assessed that there are reasonably possible increases in margin headwinds, which could negatively impact the recoverable amount and could lead to an increase in the impairment charge of $9.0 million.

Recognition of deferred tax assets

At 31 December 2019 the Group has recognised a deferred tax asset of $23.0 million following the Swiss tax reform, which was substantively enacted on 4 October 2019. The value of the deferred tax asset of $23.0 million has been calculated on management's best estimate of the impact of the Swiss tax reform based on specific methodology that is permitted under Swiss law and the information currently available. Given the anticipated future transformative changes in the business, there is significant estimation uncertainty in the appropriate valuation method and underlying assumptions and estimates that should be applied to calculate the deferred tax asset. This remains subject to review as a key source of estimation uncertainty and, therefore, to revaluation once the impact to the Swiss operations, as a result of the Group's Transformation Initiative, has been determined. It is not possible to provide numerical sensitivity disclosures or quantify ranges of potential outcomes, however, it is reasonably possible that outcomes within the next financial year could be different from the assumptions made at 31 December 2019 and could require a material adjustment to the carrying value of the asset.

1.3 Accounting standards

New standards and interpretations applied for the first time

On 1 January 2019, the Group adopted the following new or amended IFRS and interpretations issued by the IASB:

- IFRS 16, Leases

- IAS 19, Plan Amendments, Curtailment or Settlement (Amendments to IAS 19)

- IFRIC 23, Uncertainty over Income Tax Treatments

- Annual Improvements of IFRS standards 2015-2017 Cycle (IFRS 3, IFRS 11, IAS 12, IAS 23)

Their adoption has not had a material impact on the Consolidated Financial Statements, with the exception of IFRS 16, Leases ("IFRS 16"). Apart from these changes, there have been no significant changes to the accounting policies set out in ConvaTec's Annual Report and Accounts 2018. Refer to Note 8 - Leases for the Group's IFRS 16 disclosures.

New standards and interpretations not yet applied

At the date of authorisation of these Consolidated Financial Statements, there were no new or revised IFRSs, amendments or interpretations in issue but not yet effective that are potentially relevant for the Group and which have not yet been applied.

2. Revenue and segmental information

The Group's CEO, who is the Group's Chief Operating Decision Maker, evaluates the Group's global product portfolios on a revenue basis and evaluates profitability and associated investment on an enterprise-wide basis due to shared geographic infrastructures and support functions between the franchises. Financial information relating to revenues provided to the CEO for decision-making purposes is made on both a franchise and regional basis, however profitability measures are presented and resources allocated on a Group-wide basis.

Revenue by franchise

The following table sets out the Group's revenue for the year ended 31 December by franchise:

Revenue by franchise

Geographic information

Geographic markets

The following table sets out the Group's revenue in each geographic market in which customers are located:

Geographic regions

The following table sets out the Group's revenue on the basis of geographic regions where the legal entity resides, including countries representing over 10% of Group revenue and the UK, where the Group is domiciled:

3. Income taxes

3.1 Taxation

The Group's income tax expense/(benefit) is the sum of the total current and deferred tax expense.

3.2 Reconciliation of effective tax rate

The effective tax rate for the year ended 31 December 2019 was an expense of 48.1%, as compared with a benefit of 10.1% for the year ended 31 December 2018.

Tax reconciliation to UK statutory rate

The table below reconciles the UK statutory tax expense to the Group's total income tax expense/(benefit):

(a)  Includes changes in tax rates based on substantively enacted legislation across various tax jurisdictions as of 31 December 2019.

(b)  The 2018 benefit relates predominately to the deferred tax liability release in respect of unremitted earnings related to the Dominican Republic.

The Group has worldwide operations and therefore is subject to several factors that may affect future tax charges, principally the levels and mix of profitability in different tax jurisdictions, transfer pricing regulations, tax rates imposed and tax regime reforms.

The calculation of the Group's tax expense therefore involves a degree of estimation in respect of certain items for which the tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process. In 2019, the Group provisions for uncertain tax positions relate mainly to transfer pricing positions and withholding tax liabilities. The net decrease in provisions during 2019 was driven by the reassessment of estimates and settlement of open tax issues with tax authorities in various jurisdictions.

The Group's effective tax rate in 2019 has also been influenced by a deferred tax benefit of $23.0 million arising from the Swiss tax reform, $17.7 million relating to tax losses where no deferred tax asset has been recognised and tax expense of $24.6 million relating to the impairment of certain intangibles in the Group where no tax relief for the costs has been taken (refer to Note 5 - Intangible assets). In 2018, the Group's effective tax rate was mainly driven by the deferred tax benefits of $35.0 million in the US and $30.4 million in respect of unremitted earnings related to the Dominican Republic, both of which were non-recurring items.

4. Dividends

Dividends paid and proposed were as follows: