Ideal Standard International S.A. Interim Financial Information for the three month period ended 31 March 2017

Transcription

1 Ideal Standard International S.A. Interim Financial Information for the three month period ended 31 March 2017

2 Ideal Standard International S.A. Financial Information 31 March 2017 Table of Contents Forward-Looking Statements... 2 Unaudited Interim Consolidated Statement of Income... 3 Unaudited Interim Consolidated Statement of Financial Position... 4 Unaudited Interim Consolidated Statement of Cash Flow... 5 Notes to the Unaudited Interim Financial Information General information Basis of preparation of the report Operating Segments Borrowings Finance income / (expense) Off balance sheet arrangements... 9 Management s Discussion and Analysis of Financial Condition and Results of Operations

3 Forward-Looking Statements This report includes forward-looking statements within the meaning of the securities laws of applicable jurisdictions. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this report, including, without limitation, those regarding our future financial position and results of operations, our strategy, plans, objectives, goals and targets and future developments in the markets where we participate or are seeking to participate. In some cases, you can identify forward-looking statements by terminology such as aim, anticipate, believe, continue, could, estimate, expect, forecast, intend, may, plan, potential, predict, project, should, or will or the negative of such terms or other comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we will operate in the future. We undertake no obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise. All subsequent written or oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in this report. As a result of the risks, uncertainties and assumptions underlying these forwardlooking statements, you should not place undue reliance on these forward-looking statements. 2

4 Unaudited Interim Consolidated Statement of Income For the three month period ended 31 March March 2016 Million euro Unaudited Unaudited Revenues Cost of sales (123.1) (127.0) Gross profit Gross profit % 34.1% 31.9% Sales & distribution expenses (39.3) (38.8) Administrative expenses (11.4) (10.8) Restructuring expenses (0.6) (0.4) Other operating income / (expenses) (7.6) (6.5) Operating profit/(loss) Finance (expense) (73.3) (65.2) Finance income Finance (expense)/ income, net (66.2) (43.7) Loss before income taxes (61.5) (40.8) Income tax (expense) / credit (1.1) (3.6) Loss for the period (62.6) (44.4) Attributable to: Owners of Ideal Standard International (65.1) (47.2) Non-controlling interests Adjusted EBITDA Of which: Europe MENA Eliminations (0.3) - 3

5 Unaudited Interim Consolidated Statement of Financial Position As at 31 March December 2016 Million euro Unaudited Audited Assets Non-current assets Property, plant and equipment Goodwill Intangible assets Interest-bearing loans granted to related parties Investments in associates Deferred tax assets Employee benefits Trade and other receivables Current assets Inventories Trade and other receivables Derivative financial instruments Cash and cash equivalents Assets held for sale Total assets Equity and Liabilities Equity attributable to equity holders of Ideal Standard Int. (2,320.1) (2,254.7) Non-controlling interests (2,297.8) (2,234.9) Non-current liabilities Preferred equity certificates 1, ,339.7 Interest-bearing loans and borrowings 1, ,345.7 Employee benefits Trade and other payables Provisions Deferred tax liabilities , ,860.0 Current liabilities Interest-bearing loans and borrowings Income tax payables Trade and other payables Provisions Total liabilities

6 Unaudited Interim Consolidated Statement of Cash Flow For the three month period ended 31 March March 2016 Million euro Unaudited Unaudited Operating activities Net loss (62.6) (44.4) Adjusted for: Depreciation and impairment on tangible fixed assets Amortization Restructuring expenses Unrealized foreign exchange losses / (gains) (6.8) (21.5) Net interest (income) / expense Income tax (credit) / expense Cash flow from operations before changes in working capital and provisions Decrease / (increase) in trade and other receivables (11.6) (13.9) Decrease / (increase) in inventories Increase / (decrease) in trade and other payables (7.7) (20.6) Increase / (decrease) in provisions and employee benefits (2.7) (4.4) Net cash generated from operations (7.4) (24.3) Interest paid (0.7) (0.4) Income tax paid (2.1) (2.5) Cash flow from operating activities (10.2) (27.2) Investing activities Acquisition of property, plant and equipment (5.3) (2.3) Acquisition of intangible assets (0.6) (0.3) Development expenditure (1.7) (1.5) Cash flow from investing activities (7.6) (4.1) Financing activities Proceeds from borrowings, net of fees paid Repayment of borrowings (30.6) (1.2) Cash flow from financing activities Net increase / (decrease) in cash and cash equivalents Exchange rate effects Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

7 Notes to the Unaudited Interim Financial Information 1. General information Ideal Standard International S.A. ( the Company ) was incorporated for an unlimited period of time under the laws of Luxembourg on 7 April 2011 as a holding company. Its registered office is located 5, rue Guillaume Kroll, L-1882 Luxemburg. The Company is the issuer of the original 275 million 11.75% Senior Secured Notes due 2018 (the Existing Notes ). On 4 June 2014, the Company announced the completion of an exchange offer of 100% of its Existing Notes for new securities (the Exchange Offer ). Transactions preparatory thereto included the incorporation of a new company in May 2014, Ideal Standard International Equity S.A., which became the new direct parent of the Group. As at 31 March 2017, the main shareholders of Ideal Standard International Equity S.A. are Ideal Standard International Acquisition S.à r.l., a company controlled by Bain Capital Partners, L.L.C., several entities that are managed by Anchorage Capital Group, L.L.C. and Third Avenue Focused Credit Fund. 2. Basis of preparation of the report The condensed consolidated unaudited Interim Financial Information for the three month period ended 31 March 2017 has been prepared in accordance with IAS 34 Interim Financial Reporting and includes the result of Ideal Standard International S.A. and its subsidiaries. This Interim Financial Information should be read in conjunction with the audited financial statements of Ideal Standard International S.A., for the year ended 31 December 2016, which have been prepared in accordance with IFRS as adopted by the European Union. 6

8 3. Operating Segments The following tables show the contribution of MENA and European Division to total consolidated Income Statement for the three month periods ended 31 March 2017 and 31 March 2016 respectively: For the three month period ended 31 March 2017 Million euro MENA Europe Eliminations Total Revenues (14.9) Third party Inter-company (14.9) - Cost of sales (24.2) (113.6) 14.7 (123.1) Gross profit (0.2) 63.6 Gross profit (%) 35.1% 30.9% 34.1% Sales and distribution expenses (3.0) (36.3) - (39.3) Administrative expenses (2.1) (9.3) - (11.4) Restructuring expenses - (0.6) - (0.6) Other operating income / (expenses) (0.4) (7.1) (0.1) (7.6) Operating income /(loss) 7.6 (2.6) (0.3) 4.7 For the three month period ended 31 March 2016 Million euro MENA Europe Eliminations Total Revenues (12.1) Third party Inter-company (12.1) - Cost of sales (23.9) (115.2) 12.1 (127.0) Gross profit Gross profit (%) 35.2% 28.7% 31.9% Sales and distribution expenses (3.5) (35.3) - (38.8) Administrative expenses (1.5) (9.3) - (10.8) Restructuring expenses - (0.4) - (0.4) Other operating income / (expenses) (0.9) (5.6) - (6.5) Operating income /(loss) 7.1 (4.2)

9 4. Borrowings As at 31 March 2017 Million euro Carrying amounts Fair value adjustments Amounts before fair value adjustments Preferred equity certificates (series 2-6) 1, ,363.2 Senior Secured Notes - Series AAA Senior Secured Notes - Series AA Senior Secured Notes - Series A Senior Secured Notes - Series B Senior Secured Notes - Series C Original Senior Secured Notes Senior Secured Notes Interest bearing loan from parent Interest bearing (subordinated) loan from parent Revolving Credit Facility Other borrowings , ,878.8 Current portion Non-current portion 2, ,830.8 Due: - in less than 12 months in 1 to 5 years 1, in more than 5 years 1, ,878.8 As at 31 December 2016 Million euro Carrying amounts Fair value adjustments Amounts before fair value adjustments Preferred equity certificates (series 2-6) 1, ,339.7 Senior Secured Notes - Series AA Senior Secured Notes - Series A Senior Secured Notes - Series B Senior Secured Notes - Series C Original Senior Secured Notes Senior Secured Notes Interest bearing loan from parent Interest bearing (subordinated) loan from parent Revolving Credit Facility Other borrowings , ,770.4 Current portion Non-current portion 2, ,693.6 Due: - in less than 12 months in 1 to 5 years 1, in more than 5 years 1, ,

10 The changes in borrowings, except other borrowings, are driven by (i) the issuance of 75.0 million in aggregate principal amount of Series AAA Notes, (ii) interests accruing on the various notes and loans and (iii) the revaluation of the debt held in currencies other than the euro. The Company announced on 22 February 2017 the completion of the issuance of 75.0 million in aggregate principal amount of Series AAA Notes. Debt was issued in the form of new AAA-tranche priority PIK senior secured notes due May 2018 (the Series AAA Notes ). The Series AAA Notes were purchased by certain holders of the Company s existing Series A and Series B Notes. The Series AAA Notes were issued pursuant to the Company s existing senior secured notes indenture, dated as of June 4, 2014, as amended (the Indenture ). With respect to proceeds of any enforcement of collateral, the Series AAA Notes will rank behind the obligations under the Senior Revolving Credit Facility Agreement and certain hedging obligations, but in priority to obligations under the other Notes. In addition, the Company also announced that the maturity of its 25.0 million Revolving Credit Facility had been extended to March 2018, in agreement with the Company s financial institutions Goldman Sachs and Deutsche Bank. Other borrowings as of 31 March 2017 mainly reflect the drawing of the Egyptian local credit line for a total of 17.5 million ( 18.5 million as of 31 December 2016), the Bulgarian local credit line for a total of 7.9 million ( 7.4 million as of 31 December 2016), the Italian factoring facility for 12.0 million ( 13.1 million as of 31 December 2016), French factoring facility for 0.6 million ( 0.1 million as of 31 December 2016), UK factoring facility for 6.1 million ( 8.4 million as of 31 December 2016) and amounts outstanding under certain finance lease arrangements amounting to 3.8 million following the sale and leaseback transactions in Bulgaria, Germany and UK. Our committed 25.0 million Revolving Credit Facility ( RCF ) was undrawn as of 31 March 2017 (drawn for 25.0 million as of 31 December 2016). 5. Finance income / (expense) For the three month period ended 31 March March 2016 Million euro Unaudited Unaudited Interest expense (72.7) (64.8) Net interest on net defined benefit liabilities (0.4) - Other financial costs (0.2) (0.4) Finance costs (73.3) (65.2) Interest income Net foreign exchange gains on financing activities Other financial income Finance income Net finance income / (expense) (66.2) (43.7) 6. Off balance sheet arrangements As of 31 March 2017, we had no off-balance sheet arrangements. 9

11 Management s Discussion and Analysis of Financial Condition and Results of Operations Result of operations We present below the consolidated financial information of Ideal Standard International S.A. The unaudited interim consolidated financial information for the three month periods ended 31 March 2017 and 31 March 2016 included in this report are prepared on the basis of International Financial Reporting Standard (IFRS). The following table presents certain information related to our income statement: For the three month period ended 31 March March 2016 Million euro Unaudited % Unaudited % Revenues Cost of sales (123.1) (65.9) (127.0) (68.1) Gross profit Gross profit % 34.1% 31.9% Sales & distribution expenses (39.3) (21.0) (38.8) (20.8) Administrative expenses (11.4) (6.1) (10.8) (5.8) Restructuring expenses (0.6) (0.3) (0.4) (0.2) Other operating income / (expenses) (7.6) (4.1) (6.5) (3.5) Operating profit/(loss) Finance (expense) (73.3) (39.3) (65.2) (35.0) Finance income Finance (expense)/ income, net (66.2) (35.5) (43.7) (23.4) Loss before income taxes (61.5) (32.9) (40.8) (21.9) Income tax (expense) / credit (1.1) (0.6) (3.6) (1.9) Loss for the period (62.6) (33.5) (44.4) (23.8) Adjusted EBITDA Of which: Europe MENA Eliminations (0.3) - 10

12 Revenue In local currencies, sales grew 9.1%. The sales improvement follows convincing developments in many markets as well as successful new product introductions. Total revenue increased by 0.3 million, or 0.2%, from million in the three month period ended 31 March 2016 to million in the three month period ended 31 March The total increase of 0.2% reflects a positive local currency performance of 9.1% and unfavourable exchange impact of 8.9%. Revenues overall reflect growth in volume across our main regions. That is despite foreign currency impacts in the United Kingdom and Egypt and slowdown in project completion in the Gulf region. Our four largest markets are the United Kingdom, Italy, Germany and France; representing 66.5% of total revenues in the three month period ended 31 March 2016 and 65.4% of total revenues in the three month period ended 31 March Cost of sales Cost of sales includes raw material costs, purchased parts and direct labour, research and development expenditure, manufacturing overheads and depreciation. The primary raw materials are clay, copper, zinc, brass and MMA for acrylic bathroom products. The primary components of purchased parts are brass and plastic materials. Cost of sales decreased by 3.9 million, or 3.1%, from million in the three month period ended 31 March 2016 to million in the three month period ended 31 March 2017 as a net consequence of higher volumes but at lower cost. Gross profit, expressed as a percentage of sales, increased from 31.9% to 34.1% driven by positive effects arising from (i) our purchasing strategy and (ii) manufacturing productivity. Sales and distribution expenses Sales and distribution expenses increased by 0.5 million, or 1.3%, from 38.8 million in the three month period ended 31 March 2016 to 39.3 million in the three month period ended 31 March 2017 driven by additional marketing investments to support the strategy of the Group. Administrative expenses Administrative expenses increased by 0.6 million, or 5.6%, from 10.8 million in the three month period ended 31 March 2016 to 11.4 million in the three month period ended 31 March Restructuring expenses Restructuring expenses increased by 0.2 million, from 0.4 million in the three month period ended 31 March 2016 to 0.6 million in the three month period ended 31 March These expenses reflect the running costs of closed plants. Other operating income / (expenses) Other operating expenses increased by 1.1 million, from 6.5 million in the three month period ended 31 March 2016 to 7.6 million in the three month period ended 31 March These expenses are largely related to intellectual property amortization charges and operational improvement programs. These expenses include in 2017 the costs of professional services associated with the issuance of the 75.0 million Series AAA Notes in February

13 Net finance expenses Net finance expenses increased by 22.5 million, from 43.7 million in the three month period ended 31 March 2016 to 66.2 million in the three month period ended 31 March 2017 mainly reflecting the (i) the less favourable impact of the revaluation of our debt held in other currencies than the euro ( 6.8 million unrealized gains in the three month period ended 31 March 2017 versus 21.5 million unrealized gains in the three month period ended 31 March 2016) and (ii) a 7.9 million increase of interest expenses due to a higher base driven by the capitalization of interests and by the issuance of 75.0 million Series AAA Notes. Income tax credit / (expense) In the three month period ended 31 March 2017, there is a net income tax expense of 1.1 million. The Effective Tax Rate used in the accounts reflects losses in specific tax jurisdictions which will no longer carry tax benefits. EBITDA and Adjusted EBITDA For the three month period ended 31 March March 2016 Million euro Unaudited Unaudited Loss for the period (62.6) (44.4) Depreciation Amortization Income tax (credit) / expense (Un)realized foreign exchange losses / (gains) (6.8) (21.5) Finance expense, net EBITDA Restructuring and related costs (a) * Operational improvement programs (b) Other (c) Adjusted EBITDA (a) Restructuring and related costs represent charges related to restructuring programs (excl. depreciation). (b) Operational improvement programs represent professional fees associated with strategic business and process initiatives. (c) Other adjustments include in 2017 the costs for professional services associated with the issuance of 75.0 million Series AAA Notes in February Liquidity and capital resources The following summarizes our cash flows in the periods presented: For the three month period ended 31 March March 2016 Million euro Unaudited Unaudited Cash flow from operating activities (10.2) (27.2) Cash flow from investing activities (7.6) (4.1) Cash flow from financing activities Net increase / (decrease) in cash and cash equivalents Exchange rate effects Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

14 Cash flows from operating activities For the three month period ended 31 March 2017, cash used by operating activities was 10.2 million driven by a cash outflow from operations of 7.4 million (including an increase in net working capital of 18.2 million) and tax and interest payments of 2.8 million. The increase in net working capital arises from our normal working capital cycle and the growth areas of our business. For the three month period ended 31 March 2016, cash used in operating activities was 27.2 million driven by a cash outflow from operations of 24.3 million (including an increase in net working capital of 31.6 million and restructuring cash outflows of 1.6 million) and tax and interest payments of 2.9 million. Cash flows from investing activities For the three month period ended 31 March 2017, cash used in investing activities was 7.6 million compared to 4.1 million for the three month period ended 31 March 2016 mainly reflecting acquisitions of equipment and capitalization of software and product development programs. Cash flows from financing activities For the three month period ended 31 March 2017, cash inflow from financing activities was 44.4 million vs million inflow in the three month period ended 31 March This reflects (i) the issuance of 75.0 million in aggregate principal amount of Series AAA Notes in February 2017 (versus 20.0 million additional Series AA Notes in February 2016), (ii) the level of drawing on our factoring facilities in the United Kingdom, Italy and France, (iii) the overdraft facility in Bulgaria and Egypt and (iv) our Revolving Credit Facility. Net cash flow As a result of the above, our net cash flow was a 26.6 million inflow compared to a 0.1 million inflow in the three month period ended 31 March Liquidity arrangements We seek to manage liquidity risk by maintaining sufficient cash, maintaining available funding through an adequate amount of committed credit facilities, factoring lines and use of trade supplier credit terms. As of 31 March 2017, we had cash and cash equivalents of 87.8 million, debtor factoring arrangements in each of UK, Italy and France whereby cash is made available to our Group in consideration for certain trade receivables generated by our business in these countries, overdraft facilities in Egypt and Bulgaria and committed RCF. As of 31 March 2017, our overdraft facilities in Egypt were drawn for 17.5 million; our overdraft facility in Bulgaria was drawn for 7.9 million; our recourse factoring facilities were drawn by 18.7 million and our 25.0 million RCF was undrawn. Contractual obligations and commercial commitments Financial arrangements We enter into long-term contractual obligations and commitments in the normal course of business, primarily debt obligations and non-cancellable operating leases. As of 31 March 2017, our contractual cash obligations and commercial commitments over the next several periods are unchanged from those set forth in our Financial Statements for the year ended 31 December 2016, except for the issuance of 75.0 million in aggregate principal amount of Series AAA Notes, the drawing on our overdraft facilities in Egypt and Bulgaria (of 17.5 million and 7.9 million respectively) and the drawing on our with recourse factoring facilities of 18.7 million. The variance in borrowings, except other borrowings and the Revolving Credit Facility, for the three month period ended 31 March 2017 is driven by the issuance of 75.0 million in aggregate principal amount of Series 13

15 AAA Notes, interests accruing on the various loans and the revaluation of the debt held in currencies other than the euro. Other borrowings as of 31 March 2017 mainly reflect the drawing of the Bulgarian local credit line for 7.9 million ( 7.4 million as of 31 December 2016), the drawing of the Egypt local credit line for a total of 17.5 million ( 18.5 million as of 31 December 2016); the UK factoring facility for 6.1 million ( 8.4 million as of 31 December 2016), Italian factoring facility for 12.0 million ( 13.1 million as of 31 December 2016), French factoring facility for 0.6 million ( 0.1 million as of 31 December 2016) and amounts outstanding under certain finance lease arrangements amounting to 3.8 million following the sale and leaseback transactions in Bulgaria, Germany and the UK ( 4.2 million as of 31 December 2016). Our committed RCF was undrawn as of 31 March 2017 (drawn down for 25.0 million as of 31 December 2016). Off-balance sheet arrangements As of 31 March 2017, we had no off-balance sheet arrangements. 14