Half-yearly Report 2016

Transcription

1 Half-yearly Report 2016

2 Contents 03 Half-yearly business report 10 Condensed interim consolidated financial statements Interim consolidated statement of financial position Interim consolidated income statement Interim consolidated statement of comprehensive income Interim statement of changes in consolidated equity Interim consolidated statement of cash flows 14 Notes to the condensed interim consolidated financial statements Sequana I Half-Yearly Report 2016 I 2

3 Half-yearly business report Foreword Arjowiggins' scope of consolidation has undergone huge changes over the past year. In H1 2015, Arjo Wiggins Ltda (the Brazilian banknote business) was sold to the Fedrigoni Group and 85% of Arjo Systems and Arjo Solutions (security solutions) was sold to the Impala Group; the remaining 15% was sold to Impala for an amount of 7 million in June The Healthcare business was also sold in June 2016 to Meeschaert Private Equity, in partnership with the company's executive management team, for an enterprise value of 33 million. The following report presents "pro forma" data that restates the impact of these divestments on Arjowiggins' and the Group's consolidated sales, EBITDA and recurring operating income in both 2015 and H "Reported" figures include the contribution of each of the businesses sold up to the date of their disposal. The restatement of this contribution can be broken down in pro forma data as follows: Businesses sold in 2016 (1) Businesses sold in 2016 (1) Businesses sold in 2015 (2) ( millions) H reported H pro forma H reported H pro forma Sales 1,539 (38) 1,501 1,662 (40) (59) 1,563 EBITDA 55 (2) (4) (13) 46 Recurring operating income 34 (2) (2) (13) 21 (1) Arjowiggins Healthcare business (Arjowiggins Graphic division). (2) Arjo Wiggins Ltda and Security Solutions businesses (Arjowiggins Security division). Group activity in first-half 2016 The Graphic and Creative Papers divisions benefited from restructuring measures implemented in 2015 and from the decision to refocus on the speciality businesses. The Security division had to contend with a sharp downturn in activity coupled with strong downward pressure on selling prices as a result of overcapacity in the sector. During the first-half of 2016, Antalis' activity was hit by a higher-than-expected decline in printing volumes. However, it benefited from good organic growth in its Packaging and Visual Communication businesses and the companies acquired in 2015 made a positive 50 million contribution to the increase in H sales. On 11 July 2016, the High Court of Justice in London handed down its decision in the legal dispute involving British American Tobacco (BAT) and Sequana since the end of A detailed explanation of this decision will be provided in the Claims and litigation section. Consolidated financial statements at 30 June 2016 Condensed analytical income statement millions, except for per share data H pro forma (1) H pro forma (2) % change* H pro forma (1) /H pro forma (2) H reported H reported % change* H1 2016/H (reported) Sales 1,501 1,563 (4.0%) 1,539 1,662 (7.4%) EBITDA EBITDA margin (as % of sales)* % % % +0.6 points % % (13.0%) -0.2 points Recurring operating income Operating margin (as % of sales)* Net income (loss) attributable to owners Diluted earnings (loss) per share ( ) % % % +0.8 points % (28) (0.44) % (11) (0.17) (5.3%) - Weighted average shares outstanding, after dilution 64,965,141 65,044,667 (1) H pro forma sales, EBITDA and recurring operating income exclude the contribution of the Arjowiggins Healthcare businesses sold in June (2) H pro forma sales, EBITDA and recurring operating income presented in 2016 exclude the contribution of the Arjowiggins businesses sold in H (i.e., the Brazilian banknote and Security Solutions businesses) and in H (i.e., Arjowiggins Healthcare). (*) Percentage changes and margins are based on figures rounded out to one decimal place. Sequana I Half-Yearly Report 2016 I 3

4 Pro forma consolidated sales for the first six months of 2016 were 1,501 million, down 4.0% on H on a like-for like basis, i.e., a constant reporting structure for Arjowiggins (down 1.1% at constant exchange rates). Pro forma EBITDA totalled 53 million (up 15% like-for-like, i.e., a constant reporting structure for Arjowiggins) versus 46 million in first-half This improvement mainly reflects the positive impacts of Arjowiggins' industrial restructuring plan. Sequana also benefited from lower input costs (i.e., for pulp and energy) and an enhanced product mix. The pro forma EBITDA margin grew by 0.6 points to 3.5 % of sales. Pro forma recurring operating income was 32 million, compared with 21 million for H (a 55.6% likefor-like increase, i.e., a constant reporting structure for Arjowiggins). The pro forma operating margin came in 0.8 points higher at 2.1 % of sales. Sequana booked net non-recurring expenses totalling 45 million in the first six months of the year. This amount consisted mainly of 11 million in legal fees related to the litigation with BAT, asset write-downs for an amount of 10 million (mainly for the Security division), 11 million in operating losses arising from both a quality-related legal dispute in the Security division and flooding at the Stoneywood mill in Scotland (Creative Papers division) in early January, and additional costs of 9 million relating to ongoing restructuring measures. Consequently, net loss attributable to owners was 28 million for the period compared with a net loss of 11 million for H Consolidated net debt stood at 348 million at 30 June 2016, compared to 235 million at 31 December 2015 and 273 million at 30 June Disposals had a positive 25 million impact on consolidated net debt. However, seasonal fluctuations in the Group's business increased working capital requirements by an amount of 94 million over the first six months of the year. Disbursements related to restructuring costs and non-recurring items amounted to 49 million. Reconciliation of EBITDA ( millions) H pro forma (1) H pro forma (2) H reported H reported Recurring operating income Less depreciation and amortisation (18) (22) (18) (24) Less movements in provisions (3) (3) (3) (3) EBITDA (1) H pro forma sales, EBITDA and recurring operating income exclude the contribution of the Arjowiggins Healthcare businesses sold in June (2) H pro forma sales, EBITDA and recurring operating income presented in 2016 exclude the contribution of the Arjowiggins businesses sold in H (i.e., the Brazilian banknote and Security Solutions businesses) and in H (i.e., Arjowiggins Healthcare). Antalis Demand for printing paper especially in the Office segment continued to decline (by 6% year on year) although there were discrepancies between countries. In this context, Antalis continued to pursue its policy of raising selling prices and protecting its gross margins. The favourable prior-period comparable basis attributable to the demise of Antalis main competitor PaperlinX in Europe subsided in Q as PaperlinX went out of business in April Antalis enjoyed good organic growth in its Packaging and Visual Communication businesses, thanks in particular to the development of cross selling. The businesses acquired in 2015 in these market segments contributed 50 million to the increase in H sales. Packaging and Visual Communication businesses continued to increase their contribution to Antalis overall earnings and they now account for 39% of gross margin, up from 35% in H Antalis delivered sales of 1,256 million in first-half 2016, up 1.1% year-on-year at constant exchange rates (down 2.4% on a reported basis). The unfavourable FX impact amounted to 44 million and mainly related to sterling and the South African rand. EBITDA was stable year on year at 42 million. An enhanced product mix and lower overheads partially offset the negative impacts of lower printing paper volumes and unfavourable FX fluctuations. EBITDA margin was also stable and represented 3.3% of sales. Recurring operating income was 30 million, compared with 29 million in H Operating margin came in 0.1 points higher at 2.4% of sales. Sequana I Half-Yearly Report 2016 I 4

5 Arjowiggins Arjowiggins reported pro forma sales of 348 million for the first six months of the year, down 12.8% at constant exchange rates (down 13.4% on a pro forma basis). This drop reflects the continuing decline of printing paper volumes, accentuated by significantly lower volumes of standard coated paper as a result of the closure of the Wizernes mill. In banknote paper, the Security division was badly hit by a weak order book in a context of overcapacity and downward pressure on selling prices. Most of the specialty businesses held up well. For the period as a whole, reduced overheads arising from the closure of the Wizernes and Charavines mills, coupled with lower raw material (mainly pulp) and energy costs, more than offset the negative impact of lower volumes of printing and banknote papers. Despite a marked improvement in its operating performance, the Creative Papers division was penalised by sub-contracting costs related to inventory rebuilding in the wake of the production difficulties encountered in the second-half of Pro forma EBITDA came in at 18 million (up 62.2%) versus 11 million in first-half 2015 on a like-for-like basis. The pro forma EBITDA margin represented 5.2% of sales (an increase of 2.5 points). Pro forma recurring operating income was 10 million compared to a breakeven situation in first-half 2015 (on a like-for-like basis). Pro forma operating margin was 2.8% of sales. In late June 2016, Arjowiggins sold Arjowiggins Healthcare to Meeschaert Private Equity, in partnership with the company's executive management team, for an enterprise value of 33 million, as well as its 15% stake in Arjo Systems and Arjowiggins Solutions to the Impala Group for 7 million. Faced with overcapacity in the market and downward pressure on selling prices, Arjowiggins initiated a programme of investments in the banknote business in H with a view to entering higher value-added markets such as the Euro 2 banknote series from 2017 on. The Group also initiated a strategic review of the business in H Share capital Changes in share capital There were no significant changes in the Company s share capital between 31 December 2015 and the date on which this report was prepared. At 30 June 2016, Sequana's share capital still stands at 65,183,351, divided into 65,183,351 shares, each with a par value of 1. Ownership structure The following table provides a breakdown of the Company s ownership structure and voting rights at 30 June 2016: Impala Group Bpifrance Participations Pascal Lebard Numbers of shares 13,036,670 10,049, ,720 % capital (1) Theoretical number of voting rights 13,036,670 10,049, ,081 % of theoretical voting rights Free float 41,691, Treasury shares 277, , TOTAL 65,183, ,678, (1) Impala Security Solutions BV holds % of the Company's capital, rounded up to 20% There has not been any change in the Company's ownership structure since this report was prepared. To the Company s knowledge, no other shareholder owns directly or indirectly, alone or in concert, more than 5% of the Company s capital or voting rights. Sequana carried out a survey of shareholders who held Sequana shares in registered or bearer form at 1 April 2016 and nearly 14,000 shareholders were identified, accounting for 99.4% of the Company s share capital. The survey revealed inter alia that, within the free float, the proportion of shares held by individual investors, institutional investors and brokers was 43.6%, 42.1% and 13.4%, respectively. A geographical analysis of investors within the free float shows that French investors account for 59% of the total (UK 18.6%, continental Europe 11.3% and North America 10.8%). Sequana I Half-Yearly Report 2016 I 5

6 Mandatory disclosure of changes in holdings During the first-half of 2016 and up until the date on which this report was prepared, Sequana received the following legal disclosures of changes in holdings: Date of disclosure Increase/ decrease Legal threshold crossed (% of the capital) % capital owned Sycomore Asset Management 22 January 2016 Decrease 2.00% 1.91% Tocqueville Finance 21 January 2016 Decrease 0.50% 0.46% Ledbury Capital Partners LLP 19 February 2016 Increase 4.50% 4.81% La Financière Tiépolo 3 March 2016 Increase 0.50% 0.60% Talence Gestion 6 April 2016 Decrease 1.50% 1.44% Corporate governance Composition of the Board of Directors The Annual General Meeting of 12 May 2016 renewed the terms of office of Jean-Yves Durance, Christine Bénard and Bpifrance Participations as directors. It also ratified the nomination of Isabelle Boccon-Gibod and Cécile Helme-Guizon as directors, and of Amélie Finaz de Villaine as a non-voting observer. Éric Lefebvre resigned as a non-voting observer with effect from the Annual General Meeting held on 12 May On the same date, Bpifrance Participations informed the Board of Directors that its permanent representative, Bertrand Finet, would be replaced by Éric Lefebvre. Since 12 May 2016, and at the date this report was prepared, the composition of the Board of Directors is as follows: Expiry of term of office Pascal Lebard Chairman and Chief Executive Officer 2017 Jean-Pascal Beaufret Vice-Chairman Independent director 2018 Luc Argand Independent director 2018 Christine Bénard Independent director 2018 Isabelle Boccon-Gibod Director 2019 Jean-Yves Durance Independent director 2017 Michel Giannuzzi Independent director 2017 Cécile Helme-Guizon Independent director 2019 Marie Lloberes Independent director 2017 Bpifrance Participations represented by Éric Lefebvre Director 2020 Amélie Finaz de Villaine Non-voting observer 2018 Seven of the Board's ten directors are now independent, and the Board complies with the AFEP-MEDEF corporate governance code in terms of both director independence and gender equality (40% of directors are women). The Board met on nine occasions during the first six months of 2016, with an attendance rate of 93%. Sequana I Half-Yearly Report 2016 I 6

7 Composition of Board committees In view of the changes in its own composition, the Board of Directors decided to reshuffle its committees as follows at its meeting of 12 May 2016, held after the Annual General Meeting of the same day. Nominations and Compensation Committee M. Jean-Yves Durance Chairman Isabelle Boccon-Gibod Marie Lloberes The Nominations and Compensation Committee therefore has three members, two of whom are independent (Jean-Yves Durance and Marie Lloberes) and none of whom are executive corporate officers, thereby complying with the AFEP-MEDEF corporate governance code. The Chairman and Chief Executive Officer and the Vice- Chairman may attend the committee unless the committee deliberates on a matter that directly concerns them. Audit Committee Jean-Pascal Beaufret Chairman Christine Bénard Michel Giannuzzi Bpifrance Participations represented by Éric Lefebvre The Audit Committee therefore has four members, three of whom are independent (Jean-Pascal Beaufret, Michel Giannuzzi and Christine Bénard) and none of whom are executive corporate officers. The Audit Committee's members have the requisite accounting and financial expertise and the committee therefore complies with the AFEP-MEDEF code on corporate governance. Strategy Committee Jean-Pascal Beaufret Chairman Pascal Lebard Jean-Yves Durance Cécile Helme-Guizon Bpifrance Participations represented by Éric Lefebvre Jacques Veyrat The Strategy Committee is composed of six members, recognised for their knowledge of the Group and/or the distribution sector and as provided for under the Board of Directors internal rules a person who is not a director but a representative of the Company's main shareholder (Jacques Veyrat). Three of its members are independent (Jean-Pascal Beaufret, Jean-Yves Durance and Cécile Helme-Guizon). Sequana I Half-Yearly Report 2016 I 7

8 Risk management Financial risks As indicated previously, the redundancy plan currently being implemented following the closure of two mills represents a considerable drain on the company's cash resources and payments will continue to put pressure on Arjowiggins' cash position throughout 2016, and to a lesser extent in Consequently, two factors remain key: firstly, continuing to generate forecast operating cash flows at the sites to which the discontinued operations have been transferred. In the wake of temporary problems which have now been resolved, production has been stabilised in the Graphic division. The situation is more complicated in the Creative Papers division, notably due to the impact of flooding at the Stoneywood mill in early January which shut down production for four days. The improvement in the division's industrial performance over the first six months of the year should mean that both inventories and customer service return to normal in Q Nevertheless, the Group continues to be exposed to the risk of a deterioration in its cash position or a sharp decline in volumes; this risk mainly arises from possible readjustments in production capacity to reflect market demand or one-off problems such as quality-related issues recently encountered at certain mills. The Group will continue to do all it can to mitigate these risks insofar as possible; following the extinction of its syndicated credit facility as a result of the financial restructuring programme, Arjowiggins needs to raise secure additional sources of funding to cover the period in which it will have to pay out significant amounts for the employment protection plan, as existing available sources consisting mainly of financing raised under the factoring programmes are insufficient. In late 2015, the Group set up sale and leaseback arrangements based on a number of the Group's industrial assets and in H it sold its Healthcare business and used the proceeds to refinance all of Arjowiggins' temporary overdraft facilities which the company had been using on an as-needed basis. Other additional sources of financing are required. Negotiations are currently in progress and should bear fruit before the end of the year although they are being conducted in a context of uncertainty relating to the completion of the Group s restructuring process and the outcome of the legal dispute with BAT. Claims and litigation The Group is involved in a number of legal proceedings in connection with the normal course of business that are not expected to result in significant costs. Excluding these claims however, other disputes exist for which the Group cannot totally rule out the possibility of them having a significant impact on the financial statements at some date in the future. A list of these disputes was provided in the registration document for 2015 filed with the French financial markets authority (Autorité des marchés financiers AMF) on 15 April 2016 under No. D Aside from the legal dispute with BAT Industries plc and its subsidiary, BTI 2014 LLC (referred to collectively as BAT) which is described in detail below, there have not been any major developments in these other disputes and no significant new disputes have come to light. Since late 2013, Sequana has been involved in legal proceedings with BAT Industries plc and one of its subsidiaries, BTI 2014 LLC (referred to collectively as BAT), before the High Court of Justice in London concerning the legality of two dividends distributed to Sequana in December 2008 and May 2009 by its former subsidiary, Windward Prospects Ltd (formerly Arjo Wiggins Appleton Ltd), which was sold on 18 May 2009 to a third party. BAT is disputing the payment of dividends totalling 578 million and seeking an order requiring Sequana to pay this amount to it. BAT's claim is based around the following legal arguments: (1) seeking to base the disputed payments on section 423 of the 1986 UK Insolvency Act on the grounds that the payments tended to deplete the assets of Windward Prospects Ltd and to put monies beyond the reach of its creditors, particularly BAT; and (2) seeking to demonstrate that, under the UK Companies Act 2006, the disputed payments were illegally and incorrectly decided by the Board of Directors of this Company in view of the amount of distributable reserves available at the dates on which the dividends were paid. BAT contends that these amounts were incorrectly calculated given the amount of the provisions that should have been set aside to cover risks relating to the costs of cleaning up the Fox River and other facilities located in the US. Sequana I Half-Yearly Report 2016 I 8

9 In its decision handed down on 11 July 2016, the High Court of Justice in London: dismissed all of BTI 2014 LLC's claims against Sequana and the former directors of Windward Prospects Ltd under the UK Companies Act 2006 in relation to the illegality of both dividends. The Court specifically recognised the validity of a reduction in capital carried out in December 2008, the reasonable nature and appropriateness of the amounts of provisions set aside and the validity of the financial statements of Windward Prospects Ltd for 2007 and The Court also exonerated the former directors of Windward Prospects Ltd from any possible liability and recognised that they had acted honestly and reasonably; accepted BAT s claims based on section 423 of the 1986 Insolvency Act in respect of the second dividend only (for an amount of 135 million). The Court deemed that dividends are covered by the provisions of the Act and that this distribution was influenced by the sale of Windward Prospects Ltd and was decided with the intention of putting monies beyond the reach of its creditors, particularly BAT; did not rule on the amount of damages or any relief to be paid by Sequana, however, the Judge indicated that simply ordering the restitution of the second dividend was not the sanction he was considering at present. Unless an amicable settlement can be negotiated between the parties, new hearings will be held before the High Court of Justice of London in the second-half of 2016 to decide on the damages suffered by BAT and the amount of any relief to be paid by Sequana and to settle costs and rule on any appeals that may be made by the parties. Sequana plans to appeal and considers that it has solid arguments that it can raise for this purpose. In light of the previous information, the uncertainty prevailing in the wake of the Court decision handed down on 11 July 2016, and the absence of any indication of the amount of any remedy that Sequana may be ordered to pay, the risk incurred by Sequana cannot be estimated reliably at present and consequently, no provision has been set aside for this legal dispute in the accounts for the first-half of Outlook for full-year 2016 In an uncertain business environment with poor short-term visibility, the second-half of the year is set to prove challenging with a number of question marks regarding the business-related impact of Brexit. This trend was clearly felt in the second quarter following a satisfactory Q1. Antalis should continue the overhaul and diversification of its product mix towards Packaging and Visual Communications, both of which delivered strong first-half growth. In a context where demand for printing papers remains weak, Antalis should demonstrate good resilience in its historical markets even if uncertainty continues to affect sterling and future demand in the UK, the Group's largest market in terms of sales and maintain its strong competitive positions. Arjowiggins should continue to reap the benefits of refocusing on its specialty businesses and the positive impacts of its industrial restructuring plan. However, it will not be possible to offset the shortfall suffered in the banknote paper business in H1 during the second-half of the year. Faced with overcapacity and downward pressure on selling prices, Arjowiggins initiated a series of investments in the banknote business in H with a view to entering higher value-added markets such as the Euro 2 banknote series as early as The Group also initiated a strategic review of the business in H In this context, and given the poor short-term visibility in its markets, Sequana expects reported 2016 full-year EBITDA to be down on its 2015 reported EBITDA, with its net debt/ebitda (leverage) ratio standing between 2.5x and 3.0x at 31 December Sequana intends to continue refocusing on distribution, notably through acquisitions in the packaging sector, and it will review its strategic options on the production side of the business. Sequana I Half-Yearly Report 2016 I 9

10 2016 INTERIM CONSOLIDATED FINANCIAL STATEMENTS Interim consolidated statement of financial position Assets ( millions) Notes 30/06/ /12/2015 Non-current assets Goodwill Other intangible assets Property, plant and equipment Non-current financial assets 7 10 Deferred tax assets Other non-current assets Total non-current assets Current assets Inventories Trade receivables Other receivables Current financial assets 6 7 Cash and cash equivalents Total current assets 1,039 1,170 Assets held for sale TOTAL ASSETS 1,751 1,928 Equity and liabilities ( millions) Notes 30/06/ /12/2015 Equity Share capital Additional paid-in capital Cumulative translation adjustment (92) (64) Bonds redeemable in shares Retained earnings and other consolidated reserves Shareholders' equity Non-controlling interests TOTAL EQUITY Non-current liabilities Provisions Borrowings and debt Deferred tax liabilities 2 Other non-current liabilities Total non-current liabilities Current liabilities Provisions Borrowings and debt Trade payables Other payables Total current liabilities 905 1,050 Liabilities related to assets held for sale 3 22 TOTAL EQUITY AND LIABILITIES 1,751 1,928 The notes are an integral part of the financial statements. Sequana I Half-Yearly Report 2016 I 10

11 Interim consolidated income statement For the six months ended, 30 June ( millions) Notes Sales 1,539 1,662 Purchases consumed and change in inventories (1,068) (1,134) Personnel expenses (251) (275) External expenses (179) (192) Taxes other than income taxes (9) (10) Depreciation and amortisation (18) (24) Net (additions to) reversals of provisions (3) (3) Other recurring income (expense) from operations Recurring operating income Other operating income 2 95 Other operating expenses (47) (107) Other operating income and expenses, net 10 (45) (12) Operating income (loss) (11) 24 Cost of net debt (12) (11) Other financial income and expenses, net (6) (12) Net financial income (loss) (18) (23) Income tax benefit (expense) 11 1 (12) NET INCOME (LOSS) (28) (11) Attributable to: - Sequana shareholders (28) (11) Earnings per share - Weighted average number of shares outstanding 64,965,141 65,044,667 - Diluted number of shares 64,965,141 65,044,667 Basic earnings (loss) per share (in ) - Earnings (loss) per share from continuing operations (0.44) (0.17) - Earnings (loss) per share from discontinued operations - Consolidated earnings (loss) per share (0.44) (0.17) Diluted earnings (loss) per share (in ) - Diluted earnings (loss) per share from continuing operations (0.44) (0.17) - Diluted earnings (loss) per share from discontinued operations - Consolidated diluted earnings (loss) per share (0.44) (0.17) The notes are an integral part of the financial statements. Sequana I Half-Yearly Report 2016 I 11

12 Interim consolidated statement of comprehensive income For the six months ended, 30 June ( millions) Notes Net income (loss) (28) (11) Items that may be recycled to profit or loss (28) 37 Translation adjustments (28) 37 Items that may not be recycled to profit or loss 6 (16) Actuarial gains and losses related to pension and other post-employment benefit obligations 10 (21) Tax impact of gains and losses related to pension and other post-employment benefit obligations (4) 5 Total other comprehensive income (loss) (22) 21 TOTAL COMPREHENSIVE INCOME (LOSS) (50) 10 Of which: - Attributable to Sequana shareholders (50) 10 - Attributable to non-controlling interests Interim statement of changes in consolidated equity ( millions) Number of shares issued Share capital Additional paid-in capital Cumulative translation adjustment Bonds redeemable in shares Retained earnings and other consolidated reserves Shareholders' equity Noncontrolling interests Total equity Equity at 1 January ,060, (72) Net income (loss) (11) (11) (11) Capital increase (1) 14,123, (132) 90 Other comprehensive income (loss) 37 (16) Changes in scope of consolidation (2) Equity at 30 June ,183, (35) Net income (loss) (56) (56) (56) Other comprehensive income (loss) (29) (49) (78) (78) Equity at 31 December ,183, (64) Net income (loss) (28) (28) (28) Other comprehensive income (loss) (28) 6 (22) (22) Equity at 30 June ,183, (92) (1) Share capital operations and changes in share capital are disclosed in note 9. (2) This amount comprises the cumulative amount of translation adjustments recognised in Other comprehensive income for Arjo Wiggins Ltda up to the disposal date in The notes are an integral part of the financial statements. Sequana I Half-Yearly Report 2016 I 12

13 Interim consolidated statement of cash flows For the six months ended, 30 June ( millions) Notes Cash flows from operating activities Operating income (loss) (11) 24 Elimination of non-cash and non-operating income and expenses: Depreciation, amortisation and provisions (except on current assets), net Disposal (gains) and losses 12 (2) (6) Other non-cash operating income and expenses 12 (5) Income taxes paid (4) (6) Change in operating working capital 12 (102) (96) Net interest paid (16) (17) Change in loans and guarantee deposits (1) Net cash used in operating activities (i) (117) (95) Cash flows from investing activities Expenditure on acquisitions of property, plant and equipment and intangible assets (18) (23) Proceeds from disposals of property, plant and equipment and intangible assets 2 10 Proceeds from disposals of financial assets 1 Impact of changes in scope of consolidation Net cash generated from investing activities (ii) Cash flows from financing activities Net change in borrowings and debt Change in marketable securities with maturities greater than three months - (4) Other cash flows from financing activities (1) Net cash generated from financing activities (iii) Effects of fluctuations in foreign exchange rates (iv) (4) 3 CHANGE IN CASH AND CASH EQUIVALENTS (i+ii+iii+iv) (89) (18) Net cash and cash equivalents at start of period Net cash and cash equivalents at end of period INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (89) (18) Breakdown of net cash and cash equivalents at end of period Cash and cash equivalents Short-term bank borrowings and bank overdrafts (5) (1) Net cash and cash equivalents at end of period The notes are an integral part of the financial statements. Sequana I Half-Yearly Report 2016 I 13

14 Notes to the condensed interim consolidated financial statements The main activities of the Sequana Group are: manufacture of technical and creative paper through Arjowiggins, which is wholly owned; distribution of paper and packaging products through Antalis, which is wholly owned. Sequana, the Group holding company, is a French société anonyme whose head office is 8, rue de Seine, Boulogne-Billancourt. It is listed on Euronext Paris. The condensed interim consolidated financial statements for the six months ended 30 June 2016 are presented in euros and rounded to the nearest million unless otherwise specified. They were approved by the Board of Directors on 26 July Note 1 - Significant events of the period Decision concerning the legal dispute between Sequana and BAT The Court's decision, which was handed down in late July and is described in detail in Note 6, has not led to any change in the Group's position of not setting aside any provision for this contingency. Consequently, the decision has not had any impact on the interim accounts, with the exception of 11 million in legal fees booked in "Other operating expenses" (see Note 10). Sale of Arjowiggins' Healthcare business In late June 2016, Arjowiggins finalised the sale of its Healthcare business to Meeschaert Private Equity, in partnership with the investment fund's executive management team, for an enterprise value of 33 million and a price of 18 million. This operation did not have a material impact on the interim consolidated income statement. Arjowiggins Healthcare and its subsidiaries, whose main activity is the production and distribution of papers and substrates for medical use, contributed 38 million to first-half 2016 consolidated sales. The assets and liabilities of this business were reclassified as held for sale at 31 December 2015 in accordance with IFRS 5 (see Note 3). Sale of Arjowiggins Security's remaining stake in Arjo Solutions and Arjo Systems In June 2016, Arjowiggins sold the minority stake it had held onto after the transaction finalised in 2015 with Impala Group described in Note 3 for an amount of 7 million. Net proceeds on this disposal recognised in the interim accounts were not material. Proceeds from these two divestments together with additional financing currently being negotiated (see Note 8), should enable Arjowiggins to finance its transformation plan and particularly the costs associated with closing Wizernes and Charavines mills. Impairment losses Based on impairment tests carried out during the period, the Group recognised net non-recurring impairment losses totalling 10 million in "Other operating expenses" (see Note 10), mostly on property, plant and equipment carried on the books of the Arjowiggins Security division. Note 2 - Summary of significant accounting policies a) Standards applied The condensed interim consolidated financial statements for the six months ended 30 June 2016 were prepared in accordance with IAS 34 Interim Financial Reporting. As these are condensed financial statements, they do not contain all of the information required by IFRS for annual financial statements and must be read in conjunction with the consolidated financial statements for the year ended 31 December 2015, included in the registration document filed by Sequana with the French financial markets authority (AMF) on 15 April Sequana I Half-Yearly Report 2016 I 14

15 b) Basis of preparation The condensed interim consolidated financial statements for the six months ended 30 June 2016 were prepared using the same accounting principles as those used to prepare the consolidated financial statements for the year ended 31 December The standards, interpretations and amendments adopted by the European Union at 30 June 2016 and mandatory for reporting periods beginning on or after 1 January 2016 do not have a material impact on the condensed interim consolidated financial statements for the six-month periods ended 30 June 2016 or 30 June It should also be noted that: the tax expense is calculated using an estimated tax rate for 2016 based on the tax rates that will be effective for the period and the forecast pre-tax earnings of the Group's tax entities. This rate is then applied to the pretax earnings of each tax entity for the interim period. pension plans and other defined benefit obligations are prorated based on projected costs for the year, taken from actuarial calculations performed by independent experts at the end of the previous reporting period. For most plans, the net benefit obligations are measured based on the revised fair value of plan assets at 30 June 2016 and on any changes in actuarial assumptions during the period, in particular as a result of changes in market conditions. Only those events significantly impacting plan participants or the terms and conditions of the plans are taken into account in the calculations. The Group considers that other standards, interpretations and amendments already adopted by the European Union but not yet effective at the reporting date will not impact its consolidated financial statements. The Group has not chosen to early adopt any of the standards or interpretations published in the Official Journal of the European Union as of 30 June 2016, for which early adoption is permitted for accounting periods beginning on or after 1 January c) Estimates The preparation of financial statements involves the use of estimates and assumptions that affect the reported amounts of certain assets and liabilities and recognised income and expenses. These estimates and assumptions take into account the specific risks associated with the Group's businesses as well as more general risks to which companies operating in an international environment are exposed. In exercising its judgement, the Group refers to past experience and to available information it considers pertinent. Assumptions are revised on a regular basis and estimates adjusted as necessary. Due to the uncertainties inherent in assumptions used in any measurement process, the amounts shown in the Group's financial statements in future accounting periods may differ from those estimated and reported in the current period. Significant assumptions used by the Group to prepare its financial statements for the six months ended 30 June 2016 chiefly concern estimates of provisions (see Note 6). d) Seasonal fluctuations Although the Group's activities are not greatly exposed to fluctuations between the first and the second-halves of the year, working capital requirements in the distribution business do vary considerably from one quarter to another. Sequana I Half-Yearly Report 2016 I 15

16 Note 3 - Changes in scope of consolidation Acquisitions 2016 No material acquisitions affecting the Group's scope of consolidation were carried out during the reporting period In the second quarter of 2015, Antalis acquired three UK-based and two Scandinavian entities specialised in the distribution of packaging products that formerly belonged to its now defunct competitor PaperlinX. In Q3 2015, these operations were completed by the acquisition of an Estonian company in the same sector. The assets acquired by Antalis essentially comprise the working capital requirements of these new subsidiaries, representing annual sales in the order of 130 million. Based on their respective acquisition dates, these entities made a negligible contribution to first-half 2015 sales and they contributed 77 million for the year as a whole. Based on the conditions of the transactions, negative goodwill of 5 million was recorded in Other operating income for the Scandinavian entities in H and goodwill of 7 million in total was recorded for the other acquirees. In accordance with IFRS 3R, allocation of the purchase price was finalised within 12 months of the acquisition date and did not result in any adjustment to the initial allocation. Acquisitions completed in 2015 may be summarised as follows Denmark ( millions) United Kingdom /Sweden Estonia Acquisition date May 2015 June 2015 July 2015 Percentage holding 100% 100% 100% Accounting year-end 31 December 31 December 31 December Purchase price of equity investment (i) Consideration Cash Cash Cash Fixed assets 3 1 Working capital requirements Net debt (1) 1 Other assets (liabilities), net 1 Net assets acquired (ii) Calculation of net goodwill (i-ii) 4 (5) 3 Disposals 2016 H disposals are analysed in Note 1 and did not have a material impact on the interim consolidated income statement Sale of Brazil-based Arjo Wiggins Ltda In May 2015, Arjowiggins finalised the sale of its Security division subsidiary to the Italian Fedrigoni Group for an enterprise value of 83 million. The transaction included an earn-out provision subject to certain performance criteria based on full-year The earn-out was ultimately calculated at 1 million and booked in H In 2015, this sale generated a net loss for the year of 21 million, mainly due to taxes and transaction costs that could not be recognised when this activity was classified under assets and liabilities held for sale at 31 December Arjo Wiggins Ltda contributed 32 million to consolidated full-year 2015 sales through the disposal date. Sequana I Half-Yearly Report 2016 I 16

17 Other disposals within the Security division In late June 2015, Sequana sold 85% of Arjowiggins Solutions, Arjo Systems and their subsidiaries to Impala Group. After purchasing Arjowiggins' 125 million syndicated credit facility in full, Impala offered to acquire these two subsidiaries in exchange for waiving a receivable in an amount of 110 million and payment of the balance in cash. This transaction enabled Arjowiggins to settle its outstanding bank debt in full upon disposal of these assets. All of these combined transactions generated net income of 16 million for the year, with no tax impact, after inclusion of the debt waiver and impairment testing of the Security division required by the disposal. Following impairment testing, all remaining goodwill allocated to the Security division was written off in an amount of 82 million. Sale of the remaining 15% stake in June 2016 for an amount of 7 million (see Note 1) did not have a material impact on the interim consolidated income statement. Assets held for sale and liabilities related to assets held for sale These items break down as follows: ( millions) 30/06/ /12/2015 Assets held for sale Property, plant and equipment 3 26 Other non-current assets - 1 Inventories - 11 Trade receivables - 5 Other current assets - 4 TOTAL ASSETS HELD FOR SALE 3 47 Liabilities related to assets held for sale Provisions - 2 Borrowings and debt - 4 Deferred tax liabilities - 3 Trade payables - 6 Other current liabilities - 6 TOTAL LIABILITIES RELATED TO ASSETS HELD FOR SALE - 22 At 31 December 2015, assets held for sale together with related liabilities mainly concerned Arjowiggins Healthcare and its subsidiaries which were sold in June 2016 (see Note 1). Note 4 - Measurement of impairment losses Goodwill and intangible assets with indefinite useful lives are tested for impairment on an annual basis, or more frequently if there is an indication that they may be impaired. This applies to all fixed assets whether they are depreciated/amortised or not. As explained in Note 1, based on impairments tests carried out during H1 2016, the Group recognised net impairment losses totalling 10 million at 30 June 2016, mostly on property, plant and equipment carried on the books of the Arjowiggins Security division. As explained in Note 3, based on impairment tests conducted following the transaction concluded with the Impala group, all remaining goodwill allocated to the Security division was written off at 30 June 2015 in an amount of 82 million. Sequana I Half-Yearly Report 2016 I 17

18 Note 5 - Other assets Breakdown by type ( millions) 30/06/ /12/2015 OTHER NON-CURRENT ASSETS Defined benefit pension plans with a net surplus Other assets related to employee benefits 7 7 Valuation variance written off over the sale & leaseback term (1) Tax credits and current tax receivables TRADE RECEIVABLES Gross amount Provision for impairment in value (25) (25) OTHER RECEIVABLES Tax credits and current tax receivables 6 9 Indirect tax receivables Receivables on disposals of non-current assets 2 1 Advances to suppliers 3 3 Derivative instruments 1 Other current receivables (2) (1) This shortfall arose in 2015 as part of a financing arrangement involving one of the sites operated by the Arjowiggins Graphic division and is being expensed in the income statement over five years. (2) Most of this caption relates to accrued trade discounts receivable from Antalis' paper suppliers. Note 6 - Provisions Analysis by type of provision Current portion Non-current portion 30/06/ /12/ /06/ /12/2015 Restructuring costs Litigation and environmental contingencies Pensions and other post-employment benefits Other provisions CLOSING BALANCE Movements in provisions over the six months to 30 June 2016: ( millions) Opening balance Additions Reversals (utilised provisions) Reversals (surplus provisions) Changes in scope of consolidation Other movements Closing balance Restructuring costs 57 1 (15) 43 Litigation and environmental contingencies 8 1 (2) 7 Pensions and other postemployment benefits (5) Other provisions 21 5 (5) 21 TOTAL (27) Impact on income statement captions Additions to and reversals of provisions (recurring operating income) Other operating income and expenses, net Sequana I Half-Yearly Report 2016 I 18

19 Restructuring costs Arjowiggins' industrial restructuring plan Since 2014, Arjowiggins group has been implementing a comprehensive restructuring of its Graphic and Creative Papers divisions that involved stopping production at the two French mills located in Wizernes and Charavines in June Provisions were set aside for all of the estimated related costs and liabilities in the accounts for the year ended 31 December These provisions of approximately 65 million mainly covered severance pay and accompanying measures for the employees of the Wizernes and Charavines mills together with unavoidable expenditure related to the closure of the two sites (commercial contract terminations, site dismantling costs, etc.). The continued deployment of these measures during the first six months of the year used up nearly 12 million of the total provision ( 15 million was used up in 2015) and the Group plans to spend approximately 40 million more on the restructuring plan, including 25 million in H Claims and litigation Litigation with BAT Industries plc Since late 2013, Sequana has been involved in legal proceedings with BAT Industries plc and one of its subsidiaries, BTI 2014 LLC (referred to collectively as BAT), before the High Court of Justice in London concerning the legality of two dividends distributed to Sequana in December 2008 and May 2009 by its former subsidiary, Windward Prospects Ltd (formerly Arjo Wiggins Appleton Ltd), which was sold on 18 May 2009 to a third party. BAT is disputing the payment of dividends totalling 578 million and seeking an order requiring Sequana to pay this amount to it. BAT's claim is based around the following legal arguments: (i) seeking to base the disputed payments on section 423 of the 1986 UK Insolvency Act on the grounds that the payments tended to deplete the assets of Windward Prospects Ltd and to put monies beyond the reach of its creditors, particularly BAT; and (ii) seeking to demonstrate that, under the UK Companies Act 2006, the disputed payments were illegally and incorrectly decided by the Board of Directors of this Company in view of the amount of distributable reserves available at the dates on which the dividends were paid. BAT contends that these amounts were incorrectly calculated given the amount of the provisions that should have been set aside to cover risks relating to the costs of cleaning up the Fox River and other facilities located in the US. In its decision handed down on 11 July 2016, the High Court of Justice in London: dismissed all of BTI 2014 LLC's claims against Sequana and the former directors of Windward Prospects Ltd under the UK Companies Act 2006 in relation to the illegality of both dividends. The Court specifically recognised the validity of a reduction in capital carried out in December 2008, the reasonable nature and appropriateness of the amounts of provisions set aside and the validity of the financial statements of Windward Prospects Ltd for 2007 and The Court also exonerated the former directors of Windward Prospects Ltd from any possible liability and recognised that they had acted honestly and reasonably; accepted BAT s claims based on section 423 of the 1986 Insolvency Act in respect of the second dividend only (for an amount of 135 million). The Court deemed that dividends are covered by the provisions of the Act and that this distribution was influenced by the sale of Windward Prospects Ltd and was decided with the intention of putting monies beyond the reach of its creditors, particularly BAT; did not rule on the amount of damages or any relief to be paid by Sequana, however, the Judge indicated that simply ordering the restitution of the second dividend was not the sanction he was considering at present. Unless an amicable settlement can be negotiated between the parties, new hearings will be held before the High Court of Justice of London in the second-half of 2016 to decide on the damages suffered by BAT and the amount of any relief to be paid by Sequana and to settle costs and rule on any appeals that may be made by the parties. Sequana plans to appeal and considers that it has solid arguments that it can raise for this purpose. In light of the previous information, the uncertainty prevailing in the wake of the Court decision handed down on 11 July 2016, and the absence of any indication of the amount of any remedy that Sequana may be ordered to pay, the risk incurred by Sequana cannot be estimated reliably at present. Consequently, no provision has been set aside for this legal dispute in the accounts for the first-half of Sequana I Half-Yearly Report 2016 I 19

20 Note 7 - Employee benefits Reconciliation of the net amount recognised with the consolidated statement of financial position ( millions) 30/06/ /12/2015 Provision for pension and other employee benefit obligations (see Note 6) (121) (101) Defined benefit pension plans with a net surplus (see Note 5) Impact of reclassification of liabilities related to assets held for sale (see Note 3) (2) NET AMOUNT RECOGNISED Note 8 Borrowings and debt Breakdown of debt by maturity ( millions) Less than 1 year 1 to 5 years Over 5 years Total Short-term bank borrowings and overdrafts 5 5 Other bank borrowings Finance lease obligations (1) Factoring liabilities (2) Other AT 30 JUNE Short-term bank borrowings and overdrafts 2 2 Other bank borrowings Finance lease obligations (1) Factoring liabilities (2) Other AT 31 DECEMBER (1) Mostly relates to sale and leaseback arrangements negotiated by Arjowiggins in late (2) Most of the factoring programmes finalised in 2015 have maturities equal to or greater than the payment milestones under Antalis' credit facility' which expires on 31 December Despite the long-term nature of the lenders' commitment, the factored liabilities corresponding to the sale of receivables are recorded under current liabilities in accordance with the accounting policies applicable to this type of financing. Breakdown of the consolidated net debt ( millions) 30/06/ /12/2015 Borrowings and debt Cash and cash equivalents (120) (206) CONSOLIDATED NET DEBT Change in contractual terms of use applicable to credit and liquidity lines The Group's main financing lines were restructured as follows in 2015: extinction of all outstanding amounts on Arjowiggins' syndicated credit facility (including the repayment in cash of 15 million) as part of the transaction with the Impala Group. This facility had been reduced to 125 million in 2014 under the amend and extend agreement in the Group's financial restructuring programme; reduction in the authorised borrowing limit for Antalis' syndicated credit facility to 310 million following the payment of 200 million out of the proceeds of the factoring programme set up in the first quarter of 2015 and the contractual repayment of 5 million on 31 December 2015; extinction of Sequana's bank debt following early repayment of all outstanding amounts, i.e., 6 million, in March Sequana I Half-Yearly Report 2016 I 20

21 Deployment of the new factoring programmes has enabled Antalis to comply with the final condition of the 2014 refinancing agreements. This also provides Antalis with two distinct sources of secure funding over the next few years as the maturities of most of the factoring agreements have been aligned with the 31 December 2018 credit facility payment milestone. However, both the factoring agreements and the credit facilities still require Antalis to comply with a certain number of conditions and covenants, especially ratios that are tested on a regular basis. Under the terms of the main factoring agreement, the two key ratios and the testing schedule have been aligned with those applicable to the credit facility. Test date Leverage ratio (1) Interest coverage ratio (2) at 31 March at 30 June at 30 September at 31 December at 31 March at 30 June at 30 September at 31 December at 31 March at 30 June at 30 September (1) Consolidated net debt/ebitda (2) Consolidated recurring operating income/net interest expense Based on tests carried out in 2016, the Group complied with all of the covenants applicable to the different contracts. Moreover, it should be noted that the syndicated credit facility has been restructured as follows: Tranches A, B and C will be repayable in the form of bullet payments (i.e., in amounts of 60 million, 120 million and 130 million, respectively), The terms and conditions for drawing down Tranche C (including the swing line) remain unchanged, The number of financial covenants has been reduced to two. The revised ratios and testing schedules are shown in the previous table, Acquisitions will be authorised for the period based on the leverage ratio, All pre-existing pledges and sureties have been lifted and replaced by a guarantee that takes account of the terms and conditions of the factoring programme. The Group is continuing to deploy operations to boost its resources in order to fund its business transformation plan (particularly Arjowiggins' ongoing restructuring plan described in Note 6) and to refinance Arjowiggins' overdraft facilities (the company continued to avail of this facility during the first six months of the year for an authorised amount of 20 million). Following the sale and leaseback arrangements negotiated by Arjowiggins in 2015 for a total of 54 million, the Group generated a total of 25 million in H from the disposal of assets (see Note 1). Other financing operations for a total of around 20 million should be finalised in the second-half of the year, some of which have already been secured or are at an advanced stage of negotiation. Sequana I Half-Yearly Report 2016 I 21

22 Note 9 Share capital Recap of operations completed in 2015 At the time it acquired Arjowiggins' outstanding bank debt (see Note 3), Impala group also acquired all of the ORNANE bonds issued in 2014 as part of the restructuring of Arjowiggins' syndicated credit facility. At a meeting in April 2015, Sequana's Board of Directors submitted a proposal to shareholders and the holders of all of the ORA and ORNANE bonds issued in July 2014 to prepone the maturity dates of these bonds and to fix conditions for redeeming them in new shares with a lower dilutive impact. The Annual General Meeting of 23 June 2015 voted to amend the terms of the bonds redeemable, at Sequana's discretion, in cash or new and/or existing shares (ORNANE) and the bonds redeemable in Sequana shares (ORA) issued on 30 July Early redemption of ORA and ORNANE bonds on 29 June 2015 resulted in the creation of two batches of 13,036,670 and 1,086,377 new shares, each with a par value of 1, corresponding to a 14,123,047 increase in the Company's share capital. When they were issued in July 2014, these bonds were classified as equity instruments and recognised at their fair value, estimated at 42 million, in consolidated reserves. The difference between their carrying amount and par value, i.e., 90 million, had been recognised as income in 2014 in accordance with IFRIC 19. The total amount of 132 million was posted to a special account in consolidated equity. In 2015, the increase in capital resulting from the redemption of these instruments in new shares was accounted for by deducting the value of the newly-issued shares from the same account and transferring the balance to an issue premium account. Consequently, redemption of these bonds impacted neither consolidated equity nor consolidated debt. Since 29 June 2015, Sequana's share capital stands at 65,183,351, divided into 65,183,351 shares, each with a par value of 1. Note 10 - Other operating income and expenses For the six months ended, 30 June ( millions) Other operating income Transaction with the Impala group (1) 1 99 Disposal of Arjo Wiggins Ltda (1) 1 (14) Gains on disposal of intangible assets and property, plant and equipment 5 Negative goodwill (1) 5 Sub-total 2 95 Other operating expenses Transaction with the Impala group (1) (82) Disposal of Arjowiggins Healthcare (1) (2) Impairment losses on intangible assets and property, plant and equipment (2) (10) Losses on disposal of intangible assets and property, plant and equipment (2) Net restructuring expenses (9) (13) Legal fees in the legal dispute with BAT (3) (11) Other items, net (4) (15) (10) Sub-total (47) (107) TOTAL (45) (12) (1) See notes 1 and 3. (2) See notes 1 and 4. (3) See notes 1 and 6. (4) In 2016, this balance includes 11 million in operating losses arising from both a quality-related legal dispute in the Security division and flooding at the Stoneywood mill in Scotland (Creative Papers division) in early January. Sequana I Half-Yearly Report 2016 I 22

23 Note 11 Income tax Income tax benefit (expense) breaks down as follows: For the six months ended, 30 June ( millions) Current taxes (4) (16) Deferred taxes 5 4 INCOME TAX BENEFIT (EXPENSE) 1 (12) Tax expense for H included an amount of 11 million relating to the tax impact of the disposal of Arjo Wiggins Ltda in Brazil (see note 3). The tax proof breaks down as follows: For the six months ended, 30 June ( millions) Operating income (loss) (11) 24 Net financial income (loss) (18) (23) Pre-tax income (loss) from continuing operations (29) 1 Standard tax rate in France 38.0% 38.0% Effective tax rate for the Group n/a n/a Theoretical tax expense (i) 11 Actual tax expense (ii) 1 (12) DIFFERENCE (ii-i) (10) (12) This difference can be analysed as follows: Difference between the standard rate in France and the rates applicable in other tax jurisdictions 8 Permanent differences related to impairment losses recognised on goodwill (1) (31) Impact of non-taxation of asset disposals (5) Other permanent differences (2) (3) Recognition/(non-recognition) of deferred tax assets (19) (12) Tax saving on unrecognised prior-year tax losses (2) 9 31 Other items 2 DIFFERENCE (10) (12) (1) See notes 3 and 4. (2) The tax benefit recognised in 2015 for the debt write-off obtained (see Note 3) was largely offset by the use of tax loss carryforwards. Tax dispute between Boccafin and the French tax authorities In a decision handed down on 31 December 2015, the Administrative Court of Appeal of Versailles upheld the decision of the Montreuil Administrative Court of 16 May 2013 granting Boccafin a release from the additional income tax that it had been ordered to pay. By way of appeal, the French tax authorities referred this decision to the Conseil d État (French Council of State) on 3 March 2016 and the matter is currently subject to a preliminary admission procedure. This appeal does not affect the Group's assessment of this dispute and, consequently, no provision has been set aside in the financial statements. Sequana I Half-Yearly Report 2016 I 23

24 Note 12 - Analysis of consolidated cash flows from continuing operations For the Six months ended, 30 June ( millions) Depreciation, amortisation and provisions Depreciation and amortisation of property, plant and equipment and intangible assets, net Provisions for impairment of assets, net 6 Net additions to (reversals of) other provisions (16) (14) NET ADDITIONS TO DEPRECIATION, AMORTISATION AND PROVISIONS Disposal (gains) and losses Net proceeds on disposals of subsidiaries (2) Net impact of disposals of property, plant and equipment and intangible assets DISPOSAL (GAINS) AND LOSSES (2) Other non-cash operating income and expenses Negative goodwill (1) (5) OTHER OPERATING INCOME AND EXPENSES RECORDED (5) Change in operating working capital Inventories (9) (14) Trade receivables 1 (43) Trade payables (66) (63) Other receivables 6 (8) Other payables (34) 32 CHANGE IN OPERATING WORKING CAPITAL (102) (96) Net impact of changes in scope of consolidation (1) Antalis acquisitions (20) Transaction with the Impala group 7 (2) Disposal of Arjo Wiggins Ltda 68 Disposal of Arjowiggins Healthcare 18 NET IMPACT OF CHANGES IN SCOPE OF CONSOLIDATION (1) See Note 3 on changes in scope of consolidation. Note 13 - Segment information Business segment analysis of the income statement for the six months ended 30 June 2016 ( millions) Arjowiggins Antalis Sales Holding companies and eliminations External sales 287 1,252 1,539 Inter-segment sales 99 4 (103) TOTAL SALES 386 1,256 (103) 1,539 RECURRING OPERATING INCOME (LOSS) (8) 34 OPERATING INCOME (LOSS) (14) 22 (19) (11) Net financial income (loss) (18) Income tax benefit (expense) 1 NET INCOME (LOSS) (28) Attributable to owners (28) Non-controlling interests Total Sequana I Half-Yearly Report 2016 I 24

25 Business segment analysis of the income statement for the six months ended 30 June 2015 ( millions) Arjowiggins Antalis Sales Holding companies and eliminations External sales 378 1,284 1,662 Inter-segment sales (126) TOTAL SALES 501 1,287 (126) 1,662 RECURRING OPERATING INCOME (LOSS) (8) 36 OPERATING INCOME (LOSS) 2 33 (11) 24 Net financial income (loss) (23) Income tax benefit (expense) (12) NET INCOME (LOSS) (11) Attributable to owners (11) Non-controlling interests Total Note 14 - Related-party transactions Transactions with non-consolidated investees and associates are not material. However, when such transactions occur, they are generally based on arm s length terms. At 30 June 2016, the Group had not entered into any transactions with its principal shareholders (Bpifrance Participations, Impala) or with any of its subsidiaries or senior executives. However, as disclosed in Notes 1 and 3, in late June 2016, one of Arjowiggins' subsidiaries sold its remaining 15% stake in its former subsidiaries Arjo Solutions and Arjo Systems to Impala group. Note 15 - Subsequent events Decision concerning the legal dispute between Sequana and BAT This decision, handed down on 11 July 2016 and analysed in detail in Note 6, does not provide Sequana with enough specific information to be able to measure the potential impact of this legal dispute on the consolidated financial statements. Consequently, the Group has not changed its position of not setting aside any provision for this contingency. Sequana I Half-Yearly Report 2016 I 25

26 Sequana I Half-Yearly Report 2016 I 26