MANAGEMENT REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS. Principal activities and background

Transcription

1 Consolidated Financial Statements For the year ended December 31,

2 Twist Beauty S.à r.l. & Partners S.C.A. Société en Commandite par Actions Registered office: 5, rue Guillaume Kroll L-1882 Luxembourg, Grand Duchy of Luxembourg Share capital: EUR RCS Luxembourg B MANAGEMENT REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS Principal activities and background Twist Beauty S.à r.l. & Partners S.C.A. (the Company ) is a Luxembourg company. The Company and the subsidiaries included in the scope of consolidation constitute Albéa Group ( Albéa ). The Company was originally formed from the acquisition of Pechiney by Alcan in 2004 and further consolidated from 5 distinct business units to form Alcan Packaging Beauty in The Company was acquired with the takeover of Alcan by Rio Tinto in The Company was then acquired by Sun Capital Partners in July 2010, and later renamed to Albéa. On February 2, 2011, Albea acquired the Betts group, producer of laminate Tubes, which operated six plants in the UK, Poland, Mexico, India and Indonesia. On November 2011, Albéa acquired Eyelematic Manufacturing Company Inc. (Albea Metal). Then, Albéa acquired Tex China in April 2012, and then completed the acquisition of the Personal Care division of Rexam on December 31 st With this large acquisition, the Company becomes a worldwide leader in the design, manufacture and sale of packaging products and dispensing systems for the beauty and cosmetics industry. The Company primary products include plastic tubes, laminate tubes, dispensing systems, mascaras, lipsticks, jars and fragrance caps. These products are mainly manufactured from plastic in the Company s plants and sold through the Company sales organization. The Company holds strong market positions (#1 in plastic tubes in Europe, #1 in laminated tubes in US, Global #1 in lip gloss and mascara, #3 in dispensing), with a blue-chip customer base and strong long-term customer relationships (more than 20 years for many of top clients; including L Oréal, P&G, LVMH, GSK, Estée Lauder, Avon and Unilever). The worldwide footprint enables the Company to serve customers in their home markets and to follow them in emerging areas. No one single customer represents more than 16% of total. 1

3 The Company s markets are highly competitive. They are based on price, quality, service, innovation and performance. The Company competes with other packaging manufacturers as well as with some customers who manufacture their own packaging. Main competitors include, but the list is not limitative, Tupack, Essel, Aptar, MWV, Qualipac, Ileos or HCP. The Company s main focus is to increase customer satisfaction while improving profitability to reach the level of the main competitors. The Company s values integrity, trust and transparency, accountability, teamwork - underpin its strategy and daily behavior. Acquisitions made in 2013 On January 8th 2013, Albéa acquired HPC Poland from Sun Capital for USD 3 million. The price has been deducted from the USD 18,4 million, promissory note made by Albéa to Rose HPC Bidco L.L.C. Business sold in 2013 As part of the Rexam PC acquisition, Albéa terminated by mutual consent a non-strategic subcontracting agreement with the North American supplier Sussex IM, Inc (WI), in cosmetic compact. This agreement was entered into back in 2009 by Rexam Beauty & Closures Inc. (now known as Albéa Thomaston Inc.). Sussex agreed to buy equipment from Albéa Thomaston for a purchase price of about USD 1.9 million. The purchase price was offset by accounts payable owed by Albéa Thomaston to Sussex. On October 1st, 2013 Albéa completed the transfer of its subsidiary Albéa Annecy SAS which used to belong to the Personal Care division of Rexam to Vacheron Industries for one euro generating a USD (5.4) million non-cash loss recognized in 2013 financial statements. In addition, Albéa awarded grants for a total of USD (7.9) million to assist the buyer in the recovery of this business. These grants will generate cash-out from now to The P&L impact of this operation was a USD (13.3) million loss. Post closing events On February 18 th, 2014, Albea announced the divestment of its wholly-owned subsidiary Cotuplas to AISA Automation Industrielle SA. Cotuplas is an Albéa subsidiary, based in Sainte Ménehould (France) and employing 30 people. It is specialized in the design and manufacturing of machinery equipment for Albéa s cosmetics and personal care laminate and plastic tube business. As required by IFRS applied by Albea, the impact of the sale has been recorded in 2013 (USD (1.3) million non cash). The entity has not been classified as discontinued. 2

4 Business Review Net Sales amounted to USD 1,562 million (including Cosmetech Strong organic sales growth +5.2% International (HK) Ltd flows see note of the FY13 consolidated financial statements) over 12 months. Revenues were up +5.8% compared to prior year. At same foreign exchange rates, growth was and +5.2%, with positive EUR/USD effect compensating for weakened fluctuations in Brazilian real, Indian rupee and Indonesian rupiah. Small and Medium accounts 22% CRP 61% Tubes 39% Key Accounts 27% Global accounts 51% Proforma figures unaudited Proforma figures unaudited CRP Tubes CRP 949 Tubes Proforma figures unaudited Top 10 customers among which major Beauty leaders like L Oréal, P&G, LVMH, GSK, Estée Lauder, Avon and Unilever - accounted for 51% of the net sales. The performance of the Group through 2013 was achieved despite challenging operating and economic conditions (adverse currency fluctuations in emerging countries, sluggish growth in Europe and North America, slowdown in emerging countries), and thanks to the diverse product offering. The start of the year was pretty slow following Rexam PC acquisition, and sales growth accelerated to reach 10.3% in the last 3 months of

5 For the Tubes segment, total Sales amounted to USD million, which represented an increase of 9.4% compared to the full year The impact of currency translation was approximately 0.6%. The strong uplift of the tubes division was achieved on the back of sustained volume expansion in all regions with emerging countries growing 12.1% versus prior year. For the CRP segment, total sales stood at USD million which represented an increase of 3.6% compared to the full year The impact of currency translation was approximately 0.8%. CRP delivered an encouraging performance despite delays in new launches from some customer and intense competitive pressure. We are very pleased with the progress realised to date on the integration of Rexam PC, both operationally and financially. Not only have we successfully addressed the initial operational challenges but more importantly the synergy realisation schedule remains in line with the original business plan and we are seeing positive market reactions to our combined offering. Our focus in 2013 has been on establishing the optimal operational structure to capture growth and business opportunities through our wide product offering and within the various geographies that our clients are expanding into. We have made solid progress in this area and this remains a priority for us in 2014 to ensure that we are best positioned to pursue growth in an economic environment that continues to remain challenging. Francois Luscan President & CEO Albéa Group 4

6 Selected financial data, in millions of dollars Years Ended December 31, 2013 (*) 2012 (*) (**) Unaudited Statement of Income Data: Net Sales 1 562, ,0 Cost of sales (excl. depreciation and amortization) 1 226, ,9 % of Net sales 78,5% 78,0% Selling, research and development, administartive expenses (exc. depreciation and amortization) 182,0 196,2 % of Net sales 11,7% 13,3% Depreciation and amortization 70,6 62,3 % of Net sales 4,5% 4,2% Restructuring initiatives 6,1 1,2 % of Net sales 0,4% 0,1% M&A, separation and integration costs 46,5 66,0 % of Net sales 3,0% 4,5% Operating Income 17,6 6,4 % of Net sales 1,1% 0,4% Adjusted Ebitda 155,9 133,2 % of Net sales 10,0% 9,0% Net Income - 40,8-79,1 % of Net sales -2,6% -5,4% (*) including Cosmetech International (HK) Ltd flows consolidated by equity method in the consolidated financial statement (**) 2012 proforma assuming Rexam PC and HPC Poland acquisition done on January 1, 2012 Due to the acquisition date of Rexam PC business (December 31, 2012) and in accordance with the IFRS accounting principles, Rexam entities were only recognized in Albéa s balance sheet as at December 31, 2012 in the consolidated financial stataments. The 2012 income statement and the cash flow statement did not include Rexam entities operations and only included historical Albéa entities operations and cash flows. Numbers presented in this management report are proforma numbers restated in order to ease comparisons. 5

7 Adjusted Ebitda +17% Adjusted Ebitda, a non GAAP measure defined by the Company (see note 4 of the consolidated financial statements), was USD million (including Cosmetech International (HK) Ltd flows see note ) or 10% of sales. Ebitda growth was driven by our continuous focus on efficiency and operational excellence, healthy volume growth providing greater cost absorption, and acquisition synergies achieved ahead of plan. It translated into a marginal 100bps improvement in the Group s adjusted EBITDA for Our 2013 full year results demonstrate financial discipline as we met our target despite a difficult start in the underlying performance of the acquired business. Focus on integration and synergies has helped to bridge the gap while more structural changes and investments were made to support our 2014/2015 growth agenda and meet customer demands. We have managed to significantly reduce implementation costs by accelerating synergies on stand-alone costs savings and reduce dual run costs. Xavier Leclerc de Hauteclocque Executive Vice-President & CFO Albéa Group Our cost of sales as a percentage of sales slightly increased at 78.5% in 2013 compared to 78.0% in 2012 due to increased input costs (energy, raw material, direct labor and weakening of local currencies). It is worthwhile noting that we managed to extend the pass through mechanisms to foreign exchange and direct labor for some customers in emerging markets; where critical. Selling and Administrative expenses decreased approximately by 7% or USD 14 million mainly as a result of the synergy program, but without impacting Innovation development plan. Restructuring and projects expenses amounted to USD 46.5 million: - USD (14.8) million, Rexam PC integration costs - USD (8) million, Rexam PC Separation costs - USD (6.1) million, restructuring expenses (severance cost) - USD (7.8) million, project costs linked to footprint optimization (France, Italy) - USD (8) million, non-recurring fees (mainly fees linked to PIK issuance project, additionals fees linked to rexam acquisition, other non-recurring consulting and advisory fees) - USD (1.5) million, relocation costs (China, France) - USD 3.2 million, release of provision - USD (3.5) million, other. We have substantially completed the integration of Rexam PC division acquired on December 31 st We estimate that synergies realized are in the range of USD 18.4 million for the year 2013 and USD 22.1 million if we include the impact of Annecy. 6

8 Net financial result of USD (52) million was impacted by the interest costs of the bond and by a positive foreign exchange gain on our indebtness of USD 15.7 million (non cash). Operating Profit was USD 17 million or 1.1% of sales. Performance was impacted by restructuring and projects costs (USD 46.5 million) We reported a net loss after tax and financing costs of USD 41 million. Selected financial data, in millions of dollars Total free cash flow for the 12 months period ending December 31 st resulted in an outflow of USD million, driven by payment of remaining Rexam PC acquisition related costs (USD 96.9 million), significant capital expenditures largely selffinanced for USD million (excluding USD 23.9 million under finance lease). Tax payouts amounted to USD 19.4 million (excluding tax cash out linked to Rexam acquisition). Interest payouts amounted to USD 59.4 million (and USD 50 million excluding 2012 intercalary interest due to Rexam acquisition delay for USD 9.2 million). Significant investments Capital expenditures amounted to USD million (including implementation and separation costs and excluding USD 23.9 million under finance lease) for the period ending December However, excluding St Menehould building financing lease and implementation/separation costs, the amount of the operating capex is USD 90 million, 5.7% of the sales. Projects included capacity increase expenditures, footprint optimization and relocation expenses, technology upgrade, maintenance and growth related expenditures. The Company spent USD 16 million in R&D projects, excluding shared developments partly or fully funded by customers. Net debt was as of December 31 st 2013, USD million. The Company funds its operations with cash flow from operations, borrowings under the revolving factoring facilities available in Europe and North America. Total availability as of December 31 st 2013 was USD 168 million representing the cash available plus the undrawn facilities (mainly Asset Based Lending and Factoring). Albéa complied with all of the covenants in its existing financing arrangements as at December 31, Equity The current low level of net equity is first due the low level of the equity at the date of the acquisition of Albea in 2010 and also due to the historical accounting treatment in 2010 of the CPEC (Convertible Preferred Equity Certificates) which are accounted at their nominal value and not fair value. As of 31 December 2013, the fair value of the CPEC is largely above their nominal value considering an equity value derived by the performance of the group using the EBITDA multiple method. 7

9 Personnel and social context During 2013, total number of employees was around The Company operates in emerging countries where environment, health and safety standards are progressively brought to Western levels. They are now close to standards of European plants, and comply with our customer requirements Outlook We will continue to execute on our strategies to reduce our debt leverage, reinforce operational excellence without new investments, accelerate organic growth opportunities, and take actions to maintain significant liquidity and ensure operating cash flow will be positive. Free cash flow will be still negative in this is mainly due to the Chjna project in 2014 while 35.6 million of the compensation has been received in but is expected to be positive in Risks Customer concentration: The Company top 10 customers represent more than 51% of our sales. Losing one of them would deeply impact its profitability. Environmental and regulation: Changes in regulation (employment, health, safety, sustainability, tax) carry risk factors for the Company. Mitigation The Company has developed relationships and partnerships with those customers for years. While the Company does not have long term contract with them, interdependency is both ways; which helps retention as long as we keep answering their needs, in terms of quality, innovation and supply. Managing carefully those relations with Global Account Management structure is a main mitigation factor. No single customer represents more than 16% of total sales. The Company global operations allow to answer from various locations and take advantage of low cost platforms. The Company monitors carefully all legislation around the world, and makes sure business comply with legislation. The Company has engaged into sustainability programs (with universities, consultants and customers) whereby it studies opportunities for reducing carbon footprint, raw material, water and energy consumption. Tax matters are being looked out with the help of experts; tax planning is defined to serve business needs. Financial risks: Risks concern the Company s ability to access financing for future development, as well as customer access to financing, and also foreign currency risks. The Company has put in place funding facility to support its current operations until free cash flow is positive. Customer credit rating is carefully monitored by the credit management organization. Credit insurance is put in place where need is identified. Increasing pressure on extension of customer payment term. Other risks are monitored and addressed carefully by the Finance department. The Company is exposed to fluctuations in foreign 8

10 currencies as a significant share of its sales and costs, assets and liabilities are denominated in other currencies than USD. The risk exists when a significant risk is not hedged by the Company. Spot hedging occurs occasionally for non-significant amounts. The financial result is also exposed to euro/usd variance on the US part of the Bond (USD 385 million) non cash effect. Foreign currency exposure is managed at the operating unit level. Country risk: International operations are exposed to trade regulations, exchange controls, restrictive cash repatriation policies, difficulties in enforcing group rules, customer concerns with regards to some regions of the world, natural disaster or civil instability. Competition Raw material: continuous rises in raw material costs may impact the Company s customer choices for packaging. Fraud Legal proceedings Quality of supply Emerging countries where the Company operates are assessed as acceptable in terms of risks. The Company tries to enhance its long term relationships with its customers by fostering logistics agreements and sharing cost reduction initiatives, in order to be their first choice of supply. The Company is a converter of plastic raw material. Supply contract terms vary, and are generally one year long. At the end of year 2013, a large part of our sales are indexed on raw material prices with escalation/de-escalation mechanisms. The Company may be unable to pass through all of the input cost increases. There exists within the Company internal procedures, a fraud policy and a code of conduct have been implemented. The Company maintains an effective system of internal control to mitigate risks. Liabilities are monitored on a quarterly basis. They are assessed by management and reserved for based on the likelihood of occurrence. Quality audits at our supplier premises are part of The Company EHS and quality policies that seek to maintain safety and quality of our products. 9

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14 CONSOLIDATED INCOME STATEMENT Continuing operations: Note Year ended December 31, Year ended December 31, (*) Revenue Cost of sales 5.2 ( ) ( ) Gross profit Selling and administrative expenses 5.3 ( ) ( ) Restructuring and project costs 5,4 (46 515) (49 808) Impairment charges 5,5 (4 673) (1 379) Negative goodwill Other income/(expense) 5,6 (26 383) (2 067) Operating profit Financial income Financial expense 5.7 (66 883) (27 541) Financial result (51 563) (19 820) Share of profit of associates 5,8 344 (94) Profit (loss) from continuing operations before income taxes (34 033) (17 137) Income tax expense 5.9 (6 776) (9 126) Profit from continuing operations (40 808) (26 263) Attributable to: Owners of the parent (40 808) (26 161) Non-controlling interests (0) (102) Earning per share (in USD) 7,5 (187,66) (120,95) (*) Including Cosmetech International (HK) Ltd restatement (See Note 2.2.2). The notes are an integral part of the consolidated financial statements. 11

15 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended December 31, Year ended December 31, (*) Profit for the year (40 808) (26 263) Other comprehensive income: Items that will not be reclassified to profit or loss Actuarial gains/(losses) on post-employment benefit plans (6 164) Tax effects (208) Items that will not be reclassified to profit or loss (4 930) Items that will may be reclassified subsequently to profit or loss Change in value of available for sale financial assets Net change in foreign currency translation adjustments (26 959) Items that will may be reclassified to profit or loss (26 959) Total other comprehensive income for the period, net tax (25 557) (1 704) Total comprehensive income / (expense) (66 365) (27 967) Attribuate to: i) Ow ners of the parent (66 366) (27 865) ii) Non-controlling interests 1 (102) (*) Including Cosmetech International (HK) Ltd restatement (See Note 2.2.2). The notes are an integral part of the consolidated financial statements. 12

16 CONSOLIDATED BALANCE SHEET - ASSETS Note (*) Non-current assets Goodwill Intangible assets Property, plant and equipment Deferred tax assets 5, Investments in associates 8, Other financial assets 6, Total non-current assets Current assets Other financial receivables 6, Inventories 6, Trade and other receivables Cash and cash equivalents Assets held for sale 6, Total current assets Total assets (*) Including fair value adjustments in respect of Rexam PC/HPC Poland (See Note 3.1) and Cosmetech International (HK) Ltd restatement (See Note 2.2.2). The notes are an integral part of the consolidated financial statements. 13

17 CONSOLIDATED BALANCE SHEET - EQUITY AND LIABILITIES Year ended December 31, Year ended December 31, Note (*) Equity Capital stock 6, Additional paid-in capital Retained earnings and other components of equity Other comprehensive income (43 443) (17 886) Equity excluding non-controlling interests Non-controlling interests Total equity Non-current liabilities Borrowings Deferred tax liabilities 5, Pensions and other post-employment benefit obligations 6, Other long-term employee benefit obligations 6, Termination benefits 6, Non-current provisions 6, Other financial payables Total non-current liabilities Current liabilities Borrowings Other financial payables 6, Trade and other payables 6, Income taxes payable Current provisions 6, Liabilities held for sale 6, Total current liabilities Total liabilities Total equity and liabilities (*) Including fair value adjustments in respect of Rexam PC/HPC Poland (See Note 3.1) and Cosmetech International (HK) Ltd restatement (See Note 2.2.2). The notes are an integral part of the consolidated financial statements. 14

18 CONSOLIDATED CASH FLOW STATEMENT Year ended December 31, Year ended December 31, (*) Profit (loss) from the period (40 808) (26 263) Adjustments for : Share of profit of associates (344) 94 Income tax expense recognized in profit or loss Net finance costs 5, Depreciation and amortization Grant reversal (non cash) (8 346) Badwill Tex China 0 (2 392) Net gain/(loss) on disposal of assets (622) Movements in working capital (1) 6.6 / 6.13 (44 867) Movements in working capital - inventories (20 762) (2 646) Movements in working capital - receivables (23 710) (12 321) Movements in working capital - payables (395) Change in provisions 6, (8 447) Income taxes paid (29 523) (10 000) Cash flow from operating activities Acquisitions of assets (2) ( ) (76 094) Loans advances/repayments (third and related parties) (0) (17 573) Disposal of assets Impact of change in scope (3) (26 073) ( ) Dividend received from associates Other (4) Cash flow used in investing activities (90 379) ( ) Loans issued Factoring 6.10 (12 835) (2 185) Repayment of loans 6.10 (5 622) (1 057) Interest paid 5,7 (59 455) (4 585) CPEC redemption 0 (27 299) Increase/(decrease) in capital Cash flow from (used in) financing activities (63 855) Net increase / (decrease) in cash and cash equivalents ( ) Cash and cash equivalents at beginning of the period Effects of exchange rate variations on the cash balance held in foreign currencies Cash and cash equivalents at end of the period 6, (*) restated with Cosmetech International (HK) Ltd restatement (See Note 2.2.2) figures do not include Rexam PC and HPC Poland acquired as at december 31, (1) Of which USD 56 million in acquisition/financing fees paid. (2) Excluding finance lease for USD 23.9 million, of which USD 12,9 million for new plant in Ste Menehould (Tubes France). (3) Includes USD 15 million corresponding to the outstanding balance at December 31, 2013 of the Rexam acquisition (Brazil) paid in 2013 ; USD 2.6 million Rexam Price Adjustment received in the second quarter, 2013 ; USD 11 million related to Annecy disposal and Cotuplas cash balance excludes from Albea one as it s reclassified in assets held for sale for USD 2.6 million. (4) Of which China compensation (USD 35.5 million) : cash collected from Chinese Government for the move from Shanghai to Suzhou (see note 6.15). The notes are an integral part of the consolidated financial statements. 15

19 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY In thousands $ Capital stock Additional paidin capital Consolidated reserves and retained earnings Unrealized gains (losses) (*) Including Cosmetech International (HK) Ltd restatement (See Note 2.2.2). Cumulative translation adjustments Equity attribuable to owners of the group Non controlling interest Total equity December 31, (1 504) (14 679) Net income (26 161) (26 161) (102) (26 263) Other comprehensive income (4 929) (1 703) 0 (1 703) Total comprehensive income 0 0 (26 161) (4 929) (27 864) (102) (27 966) Dividend paid Capital increases CPEC redemption (see 6.10) (1 792) (24 844) (26 636) (26 636) 0 December 31, 2012 (*) (6 433) (11 453) Net income (40 808) (40 808) 1 (40 807) Other comprehensive income (26 959) (25 557) 0 (25 557) Total comprehensive income 0 0 (40 808) (26 959) (66 366) 1 (66 365) Dividend paid Capital increase Other 0 0 December 31, (5 031) (38 412)

20 Notes to the consolidated financial statements Consolidated financial statements Consolidated balance sheet Consolidated income statement Note 6 Notes to the balance sheet Consolidated statement of comprehensive income Note 6.1 Goodwill Consolidated balance sheet assets Note 6.2 Property, plant and equipment and Consolidated balance sheet equity and liabilities Intangible assets Consolidated cash flows statement Note 6.3 Other financial receivables Consolidated statement of change in equity Note 6.4 Other financial assets Note 6.5 Inventories Note 6.6 Trade receivables and other Note 6.7 Cash and cash equivalents Consolidated general information Note 6.8 Assets / Liabilities held for sale Note 6.9 Capital stock Note 1 General information Note 6.10 Borrowings and other financial liabilities Note 2 Accounting Policies Note 6.11 Pension and post-employment benefits and other long-term benefit obligations Note 3 Scope of consolidation and Note 6.12 Provisions Significant events Note 4 Segment reporting Note 6.13 Trade payables and other Note 6.14 Financial instruments Note 6.15 Other financial payables Consolidated income statement Additional Disclosures Note 5 Notes to the income statement Note 7 Additional information Note 5.1 Revenue Note 7.1 Financial risks management Note 5.2 Cost of sales Note 7.2 Commercial risks Note 5.3 Selling and Administrative expenses Note 7.3 Contingencies and commitments Note 5.4 Restructuring and project costs Note 7.4 Lease commitments Note 5.5 Impairment charges Note 7.5 Earnings per share Note 5.6 Other income / expense Note 7.6 Related parties Note 5.7 Net finance costs Note 7.7 Executive Committee Total Remuneration Note 5.8 Share of profit associate Note 7.8 Subsequent Events Note 5.9 Income tax Note 8 Companies included in the consolidation scope Note 5.10 Employee Benefit Expenses and personnel expenses 17

21 NOTE 1 GENERAL INFORMATION General information Twist Beauty S.à r.l. & Partners S.C.A. (the Company ) domiciled in Luxembourg and registered in the Luxembourg Trade and Companies Registry (Registre du Commerce et des Sociétés de Luxembourg) under number B is an affiliate of Sun Capital Partners V LP. The Company and the subsidiaries included in the scope of consolidation (see Note 8 to the 2013 consolidated financial statements) constitute Albéa Group ( Albéa ). The Group was created by Sun Capital after the acquisition of the Beauty Packaging business from Rio Tinto Alcan on July 2, The scope of consolidation was impacted by the acquisition of HPC Poland in 2013 (see Note 3). Albéa Beauty Holdings S.A., the bond issuer, is held by Twist Beauty S.à r.l. & Partners S.C.A. via two other holding companies. These four entities except financing and holding activities did not carry out any operating activities in the year ended December 31, Albéa is one of the world s leading producers of plastic packaging products for the beauty and cosmetics industry, providing a wide range of solutions for the make-up, fragrance, skincare, personal and oral care markets. The operational headquarters of Albéa are located in Gennevilliers, France. Albéa employs about people and operates 38 manufacturing facilities in 14 different countries across Europe, the Americas and Asia. The consolidated financial statements are presented in thousands of US dollars and all values are rounded to the nearest thousand ( 000) except where otherwise indicated. Note Due to the acquisition date of Rexam PC business (December 31, 2012) and in accordance with the IFRS accounting principles, Rexam entities were only recognized in Albéa s balance sheet as at December 31, The 2012 income statement and the cash flow statement did not include Rexam entities operations and only included historical Albéa entities operations and cash flows. 18

22 NOTE 2 ACCOUNTING POLICIES 2.1. STATEMENT OF COMPLIANCE Albéa s consolidated financial statements for the year ended December 31, 2013 were prepared in accordance with the international accounting standards as adopted by IASB. These international accounting standards include International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) and the related interpretations as prepared by the International Financial Reporting Interpretations Committee (IFRIC). In 2012, Albéa s consolidated financial statements were prepared in accordance with the IFRS as adopted for use in the European Union. The main differences for Albea with the IFRS adopted by IASB are linked to IFRS 10, IFRS 11, IFRS 12 (see Note 2.2.2) accounts have been restated in accordance with these rules applicable as at 1 st january 2013 for the international accounting standards as adopted by IASB. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods and balances presented, unless otherwise stated. The standards and interpretations applied to prepare the December 31, 2013 consolidated financial statements are those published by the IASB at December 31, 2013, and applicable as of that date BASIS OF PREPARATION General principle The preparation of financial statements in compliance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying Albéa s accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note The consolidated financial statements have been prepared under the historical cost convention as modified by revaluation at fair value of the underlying assets and liabilities of acquired subsidiaries at the date when the control was achieved. 19

23 New accounting principles Since January 1, 2013, the Group has applied the following new amendments, standards and interpretations as issued by the IASB. Their application had no material effect on the Group s financial statements. A) IAS 19 R In June 2011, the IASB published amendments to IAS 19 Employee Benefits regarding the recognition of defined benefit plans. The main amendments of the standard are : - IAS 19 revised requires immediate recognition of actuarial gains and losses in OCI and eliminates corridor or other deferred recognition approaches. - IAS 19 revised requires immediate recognition of prior service costs in income statement. Therefore, it is no longer possible to amortize prior service costs resulting from amendments over the remaining work life of the employee concerned. - IAS 19 revised replaces the interest cost on the defined benefit obligation and the expected return on plan assets with a net interest cost based on the net defined benefit asset or liability applying the discount rate. - No impact on the recognition of actuarial gains and losses since Albéa was applying the SORIE approach before January 1st, Unamortized prior service costs as at January 1st, 2013 have to be accounted for in OCI. The impact is not material and amounts to circa 90K$. - The expected return on plan assets is different from the implicit return on plan asset based on discount rate. The impact is not material and amounts to circa 40 K$. The revised standard which applied retrospectively has no material effects on the consolidated financial statements as at December 31, B) IAS 1 amendment This amendment improves the consistency and clarity of the presentation of items of other comprehensive income (OCI). It requires presenting separately the items that have to be reclassified to profit and loss. When items of OCI are presented before tax, tax effect must split on the same basis (see. Consolidated statement of comprehensive income) C) IAS 16 amendment Amendment to IAS 16 clarifies the classification of spare parts and servicing equipment. The impact of this amendment is not material. 20

24 D) IAS 32 amendment Amendment to IAS 32 clarifies the accounting for the tax effect of distributions to holders of equity instruments. Income tax related to distributions is recognized in the income statement, and income tax related to the costs of equity transactions is recognized in equity. E) IFRS 10, IFRS 11, IFRS 12 IFRS 10 "Consolidated Financial Statements" provides a single consolidation model that identifies control as the basis for consolidation for all types of entities. IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation Special Purpose Entities. IFRS 11 "Joint Arrangements" provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form (as currently the case). The standard addresses inconsistencies in the reporting of joint arrangements by requiring a single method to account for interests in jointly controlled entities that meet definition of a joint venture. IFRS 12 "Disclosures of Interests in Other Entities" combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. None of these disclosures requirements are applicable for interim condensed consolidated financial statements, unless significant events and transactions in the interim period require that they are provided. Accordingly, the Group has not made such disclosures. The entity Cosmetech International (HK) Ltd was previously proportionately consolidated and is now consolidated by the equity method has been restated in accordance with IFRS rules. The impact on the profit and loss are the following: At 31 December 2013 At 31 December 2012 Revenue (9 058) (7 575) Cost of sales Gross profit (1 915) (1 456) Selling and administative expenses Operating profit (406) 68 Financial expense 7 21 Share of profit of associates 344 (94) Income tax expense 55 5 Loss from continuing operations 0 0 Loss for the year

25 The impact on the balance sheet are the following : At 31 December 2013 At 31 December 2012 Non-current assets Property, plant and equipment (20) (16) Investments in associates Other financial assets Total non-current assets Current assets Inventories (839) (759) Trade and other receivables (2 546) (1 731) Total current assets (3 385) (2 490) Total assets (1 745) (1 505) Current liabilities Trade and other payables (1 745) (1 505) Total current liabilities (1 745) (1 505) F) IFRS 13 IFRS 13 Fair Value Measurement defines fair value, sets out in a single IFRS framework for measuring fair value and requires disclosures about its measurements. IFRS 13 applies when other IFRSs require or permit fair value measurements. It does not introduce any new requirements to measure an asset or a liability at fair value, change what is measured at fair value in IFRSs or address how to present changes in fair value. The impact of this amendment is not material Accounting standards and interpretations issued by the IASB and applicable for financial years beginning on January 1, 2014 or January 1, 2015 : Other standards issued by the IASB applicable for year beginning on January 1, 2014 or January 1, 2015 : IFRIC 21 Levies clarifies what the obligating events are that give rise to a liability to pay a levy and when a liability should be recognized. This interpretation is applicable for financial years beginning on January 1, The potential impact is still under review. Amendments to IAS 39 "Novation of Derivatives and Continuation of Hedge Accounting" allow hedge accounting to continue when derivatives are novated to effect clearing with a central counterparty as a result of laws or regulations, if specific conditions are met. This amendment is applicable for financial years beginning on January 1, The potential impact is still under review. 22

26 IFRS 9 "Financial Instruments" aims at replacing IAS 39 "Financial Instruments - Recognition and Measurement". It is a 3-phase project where only phase 1, "Classification and Measurement" was issued. Phase 2, "Impairment Methodology", and phase 3 "Hedge Accounting", have not been issued yet. Amendment to IFRS 9 and IFRS 7 "Mandatory Effective Date and Transition Disclosures" postpones the mandatory application date of those standards to January 1, 2015 and modifies the requirements on transition disclosures SIGNIFICANT ACCOUNTING POLICIES Consolidation Basis of consolidation The consolidated financial statements include all of the assets, liabilities, revenue, expenses and cash flows of Twist Beauty S.à r.l. & Partners S.C.A. and its subsidiaries (collectively Albéa ). For majority-owned and controlled subsidiaries included in Albéa, equity and net earnings attributable to outside shareholders are presented under Non-controlling interests in the consolidated balance sheet and income statement, respectively. Subsidiaries Subsidiaries constitute all entities (including special purposes entities) over which Albéa has control, where control is defined as the power to govern the entities financial and operating policies in order to obtain benefits from their activities. Control is presumed to exist when Albéa owns more than fifty percent of the voting rights (which does not always equate to percentage ownership) unless it can be demonstrated that ownership does not constitute control. Generally, the Company has a shareholding of more than one half of the voting rights in its subsidiaries. The impact of potential voting rights that are currently exercisable is considered when assessing whether control exists. Subsidiaries are fully consolidated from the date control is transferred to the Company, and are de-consolidated from the date control ceases. 23

27 Business combinations Albéa uses the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary corresponds to the fair value of the assets transferred, the liabilities incurred and the equity interests issued by Albéa. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the acquisition date. On an acquisition-by-acquisition basis, Albéa recognizes any non-controlling interests in the acquiree either at fair value or based on the non-controlling interest s proportionate share of the acquiree s net assets. Investments in subsidiaries are accounted for based on cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes directly attributable costs of investment. The excess of the consideration transferred corresponds to the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of Albéa s share of the identifiable net assets acquired, is recorded as goodwill. In the case of a bargain purchase, if this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement in negative goodwill. Inter-company transactions between subsidiaries Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated. Joint ventures Joint ventures are entities over which the Company has joint control with one or more unaffiliated entities. Albéa accounts for its joint ventures using the equity method (see Note E). Foreign currency translation Functional and presentation currency Items included in the financial statements of each of Albéa s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in US dollars, which is Albéa s presentation currency. 24

28 Transactions and balances The recognition and measurement of foreign currency transactions are defined by IAS 21 The Effects of Changes in Foreign Exchange Rates. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction or valuation in the case of items that are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within Financial income or Financial expense. All other foreign exchange gains and losses are presented in the income statement within Other income/(expense). Changes in the fair value of monetary securities denominated in foreign currencies classified as available for sale are allocate either to translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortized cost are recognized in profit or loss, and other changes in carrying amount are recognized in other comprehensive income. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income. As an exception to the rule described above, translation differences arising on long-term intra-group financing transactions that can be considered to form part of the net investment in a foreign subsidiary are recognized under transaction differences as a separate component of equity until the net investment is deconsolidated. Group companies The results and financial position of all Albéa entities (none of which has the currency of a hyper-inflationary economy) whose functional currency differs from the presentation currency are translated into the presentation currency as follows: (a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (c) all resulting exchange differences are recognized in other comprehensive income. On consolidation, exchange differences arising from the translation of net investments in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 25

29 Income statement items Revenue recognition Revenue from product sales comprises sales to third parties at invoiced amounts. Amounts billed to customers in respect of shipping and handling are classified as sales revenue where Albéa is responsible for carriage, insurance and freight. All shipping and handling costs incurred by Albéa are recognized as operating costs within cost of sales. If Albéa is acting solely as an agent, amounts billed to customers are offset against the relevant costs. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Revenue from product sales, net of trade discounts, allowances and volume-based incentives, is recognized once delivery has occurred provided that persuasive evidence exists that all of the following criteria are met: the significant risks and rewards of ownership of the product have been transferred to the buyer; neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, has been retained by Albéa; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the sale will flow to Albéa; and costs incurred or to be incurred in respect of the sale can be measured reliably. Cost of sales Cost of sales correspond to the amount paid for the direct costs of running the business including appropriate salaries and the amount due to external third parties for services directly related to revenue. Government Grant A government grant is recognized when there is reasonable assurance that the group will comply with the conditions attaching to it, and that the grant will be received. When government grants relate to capital expenditures in Property, Plant and Equipment, they are recognized as a reduction in the depreciation charge over the useful life of the depreciable asset. When they relate to operating expenditures, they are recognized in profit up to the related costs incurred for which the grant is intended to compensate. Restructuring and project costs Restructuring and project costs include non-recurring incomes and expenses as restructuring costs and severance costs, nonrecurring fees, acquisitions, integration and separation costs, moving costs. Interest income and expenses Financial expenses comprise mainly interest payable on borrowings and interest expense component of finance lease payments. These financial expenses are recognized in profit or loss using the effective interest rate method. Financial income comprises mainly interest on loans receivable from related parties and on the interest bearing components of its cash and cash equivalents. Interest income is recognized using the effective interest method. When loans and receivables are impaired, Albéa reduces the carrying amount to its recoverable amount, corresponding to the estimated future cash flow discounted at the original effective 26

30 interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans and receivables are recognized using the original effective interest rate. Dividends Income Albéa records dividend income from related parties as it is deemed to have been earned, i.e., when dividends are declared and payable. Dividend income is included in Financial income in Albéa s consolidated income statement. The distribution of dividends to the Company s shareholders is recognized as a liability in Albéa s financial statements in the period in which the dividends are approved by the Shareholders meeting. Declared and payable Dividends declared and payable by any of Albéa s subsidiaries to parties outside of the Group are recorded as a reduction of equity. Income tax Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly equity, in which case it is recognized in equity. The current income tax charge is the expected tax payable on the taxable income for the year and calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where Albéa subsidiaries and associates operate and generate taxable income Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes The impact on deferred tax assets and liabilities of a change in tax rates and laws is recognized in income in the period that the rate change is substantively enacted except to the extent that the tax arises from a transaction or event which is recognized, in the same or a different period, outside profit or loss (other comprehensive income or directly in equity) or a business combination. Deferred tax assets and liabilities are measured using tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on the tax rates and laws that have been enacted or substantively enacted at the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available to recover this asset. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized and reflected through a valuation allowance recognized against deferred tax assets. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when they relate to income tax levied by the same tax jurisdiction and the Group intends to settle its current tax assets and liabilities on a net basis. 27