Condensed unaudited interim consolidated financial statements for the periods ended June 30, 2015 and June 30, 2014
CONSOLIDATED INCOME STATEMENTS The notes are an integral part of these condensed interim consolidated financial statements 1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME The notes are an integral part of these condensed interim consolidated financial statements. 2
CONSOLIDATED BALANCE SHEETS - ASSETS The notes are an integral part of these condensed interim consolidated financial statements. 3
CONSOLIDATED BALANCE SHEETS - EQUITY AND LIABILITIES The notes are an integral part of these condensed interim consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (1) Use of government grant is related to the Chinese government grant and reflects the portion recorded through the income statement as an income to offset expenses incurred during the period. This non-cash income is excluded from the cash flows from operating activities. (2) Movement in working capital is positively impacted by working capital initiatives (see note 6.8) (3) On February 11, 2015, Albéa issued a fungible add-on to the existing bond in one tranche of euros 45 million maturing on November 1, 2019 (same guarantors and security as for the initial issuance). The notes are an integral part of the condensed interim consolidated financial statements. 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Free cash flow vs Cash flow from operating and investing activities 6
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY The notes are an integral part of the condensed interim consolidated financial statements. 7
Notes to the condensed interim consolidated financial statements Condensed interim consolidated financial statements Consolidated Balance Sheet Consolidated income statements Note 6 Notes to the balance sheet Consolidated statements of comprehensive income Note 6.1 Goodwill Consolidated balance sheets - assets Note 6.2 Intangible assets and Property, plant Consolidated balance sheets - equity and liabilities and equipment Consolidated statements of cash flows Note 6.3 Other financial assets Consolidated statements of changes in equity Note 6.4 Inventories Note 6.5 Trade and other receivables Note 6.6 Cash and cash equivalents General information Note 6.7 Capital stock Note 6.8 Borrowings Note 1 General information Note 6.9 Pensions and other LT benefits obligations Note 2 Accounting policies Note 6.10 Provisions Note 3 Other information Note 6.11 Other financial liabilities Note 4 Segment reporting Note 6.12 Trade and other payables Consolidated Income Statement Additional disclosures Note 5 Notes to the income statement Note 7 Related parties Note 5.1 Revenue Note 8 Subsequent events Note 5.2 Note 5.3 Note 5.4 Note 5.5 Note 5.6 Note 5.7 Cost of sales Selling and administrative expenses Restructuring and project costs Other income/(expense) Net finance costs Earnings per share 8
NOTE 1 GENERAL INFORMATION 1.1. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS These notes are an integral part of the condensed interim consolidated financial statements for the six-month periods ended June 30, 2015 and June 30, 2014. 1.2. GENERAL INFORMATION Albéa Beauty Holdings S.A. (the Company ) is domiciled in Luxembourg and registered in the Luxembourg Trade and Companies Registry (Registre du Commerce et des Sociétés de Luxembourg) under number B 162 078 and is an affiliate of Sun Capital Partners V LP. The Company and the subsidiaries included in the scope of consolidation 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, 2010. The Group was created by Sun Capital after the acquisition of the Beauty Packaging business from Rio Tinto Alcan on July 2, 2010. On December 31, 2012, Albéa completed the acquisition 100% of Rexam Personal Care, a leading producer of dispensing systems and make-up packaging for the Cosmetics and Personal Care markets. Albéa Beauty Holdings S.A., the bond issuer, is held by Albéa S.A. via another holding company. These three entities except financing and holding activities did not carry out any operating activities in the period ended June 30, 2015. 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 16 000 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. 9
NOTE 2 ACCOUNTING POLICIES The accounting policies and practices applied are the same as those applied for the consolidated financial statements for the year ended December 31, 2014. 2.1. STATEMENT OF COMPLIANCE Albéa s condensed interim consolidated financial statements are prepared in accordance with IAS 34 Interim Financial Reporting. They do not contain all the disclosures required for annual consolidated financial statements and should therefore be read in conjunction with the Group s annual consolidated financial statements for the year ended December 31, 2014, prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted for use in the European Union. 2.2. BASIS OF PREPARATION 2.2.1. General principle The preparation of condensed interim financial statements 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 condensed interim consolidated financial statements are disclosed in Note 2.2.4. The condensed interim 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. 2.2.2. Accounting standards and interpretations issued by the IASB and applicable for financial years beginning on January 1, 2015 or future periods A) Amendment to IAS 19 Defined Benefits Plans: Employee Contributions The narrow scope amendments apply to contributions from employees or third parties to defined benefit plans. The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. This amendment is applicable for annual statements beginning on or after February 1, 2015. 10
2.2. BASIS OF PREPARATION (CONTINUED) B) IFRS 9 Financial Instruments On July 24, 2014, the International Accounting Standards Board (IASB) completed the final element of its comprehensive response to the financial crisis by issuing IFRS 9 Financial Instruments. The package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a single, forward-looking expected loss impairment model and a substantially-reformed approach to hedge accounting. The new Standard will come into effect as of January 1, 2018 with early application permitted. C) IFRS 15 Revenue from Contracts with Customers This new standard supersedes IAS 11 Construction contracts and IAS 18 Revenues on revenue recognition. Revenue will be recognized to depict the transfer of goods or services to customers in amounts that reflect the payment to which the company expects to be entitled in exchange for those goods or services. The new Standard will come into effect as of January 1, 2017 with early application permitted. These improvements or new standards are not expected to have any material impact on the Group s financial statements. 2.2.3. Accounting estimates and judgments The preparation of condensed interim consolidated financial statements requires management to exercise its judgment and make estimates and assumptions. These estimates and underlying assumptions are based on past experience and other factors considered reasonable under the circumstances. They serve as the basis for any judgment required for determining the carrying amounts of assets and liabilities when such amounts cannot be obtained directly from other sources. Actual amounts may differ from these estimates. The main sources of uncertainty relating to estimates used to prepare the condensed interim consolidated financial statements were the same as those described in the full year annual consolidated financial statements for the year ended December 31, 2014, with the exception of changes in estimates that are required in determining the provision for income taxes. 11
2.2. BASIS OF PREPARATION (CONTINUED) 2.2.4. Specific items concerning the preparation of interim financial statements For the purposes of preparing the Group s condensed interim consolidated financial statements, the following calculations and estimates are applied in addition to the recognition, measurement and presentation rules described in Note 2.2.1. - The current and deferred tax expense for the period is calculated by applying the estimated average annual tax rate for the current fiscal year to pre-tax income for the first six months of the year. The estimate average annual tax rate results from taxes on income accrued at the level of each entity of the group, using the tax rate that would be applicable to expected total annual profit or loss. - Expenses relating to pensions and other post-employment benefit obligations are estimated based on the prorata amount expected for the full year, except where specific events (such as a significant change in the discount rate) occur having a material impact on the consolidated financial statements, in which case adjustments are made. During the six-month period ended June 30, 2015, the discount rate increased from 1.55% to 2.07% with a positive impact of USD 5 million in other comprehensive income and USD 0.3 million in profit and loss. 2.2.5. Seasonality The Group s performance is not affected by significant cyclical factors. 12
NOTE 3 OTHER INFORMATION TAP ISSUE On February 11, 2015, Albéa issued a fungible add-on to the existing bond in one tranche of euros 45 million maturing on November 1, 2019 (same guarantors and security as for the initial issuance). 13
NOTE 4 SEGMENT REPORTING As described below, Albéa has two operating segments, and reports the corporate costs not allocated to either of these two segments in the Corporate category: Tubes: laminate and plastic tubes for the oral care and cosmetics industry and dispensing system for Tubes Cosmetic Rigid Plastic (CRP): skincare caps, lipstick, compacts, mascara, trading activities and dispending system for Fragrance and cosmetic Corporate: Holding & Corporate costs not allocated to the two operating segments Albéa also presents data based on three geographical market, consisting of its three main geographic markets: Europe, Americas (of which North America - includes US and Mexican activities - and South America) and Asian countries (of which China and South Asia). The Adjusted EBITDA is defined as operating profit before depreciation & amortization, restructuring costs and severance costs, non-recurring fees, shareholders management fees, separation costs from Rexam, acquisitions and integration costs, other compensation and termination benefits, unrealized foreign exchange gains [losses], gains [losses] on disposals, impairment, bargain purchase gain. Operating segments are reported in a manner which is consistent with the internal reporting provided to Chief Operating Decision Maker. The Chief Operating Decision Maker, who is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the executive committee that assess performance and allocates resources. 14
ADJUSTED EBITDA BRIDGE The detail of the other is the following : 15
4.1. SEGMENT REPORTING As at June 30, 2015 (1) See Adjusted EBITDA Bridge. The Other for the corporate includes mainly management fees recharged to the other segments. (2) Segment assets are reconciled with the balance sheet as follows : (*) Intangibles & tangibles assets, net and goodwill 16
4.1. SEGMENT REPORTING (CONTINUED) As at June 30, 2014 (1) See Adjusted EBITDA Bridge. The Other for the corporate includes mainly management fees recharged to the other segments. (2) Segment assets are reconciled with the balance sheet as follows: (*) Intangibles & tangibles assets, net and goodwill 17
4.2. GEOGRAPHICAL INFORMATION As at June 30, 2015 Of which : (1) See Adjusted EBITDA Bridge. (2) Geographical assets are reconciled with the balance sheet as follows: (*) Intangibles & tangibles assets, net and goodwill 18
4.2. GEOGRAPHICAL INFORMATION (CONTINUED) As at June 30, 2014 Of which : (1) See Adjusted EBITDA Bridge. (2) Geographical assets are reconciled with the balance sheet as follows: (*) Intangibles & tangibles assets, net and goodwill 19
NOTE 5 NOTES TO THE INCOME STATEMENT 5.1. REVENUE Revenue represents sales of goods deriving from Albéa s main activities, net of value added tax (VAT). The breakdown of revenue by segment and by geography is presented in Note 4. 5.2. COST OF SALES Other expenses can be broken down as follows: 5.3 SELLING AND ADMINISTRATIVE EXPENSES Other expenses for the period ended June 30, 2015 include mainly : - external costs (mainly operational consulting and advisory fees) : IT (USD 4.3 million), Finance (USD 3.6 million) and Human Resources (USD 2.2 million) - Selling cost for USD 3.6 million - Rental costs for USD 1.8 million 20
5.4. RESTRUCTURING AND PROJECT COSTS For the period ended June 30, 2015, the main components of restructuring and projects net costs were as follows: - USD (3.9) million, severance costs - USD (2.2) million, non-recurring and non-core business fees - USD (2.1) million, other At 30 June 2014, the main components of restructuring and projects net costs are as follows: - USD (3.7) million, project costs linked to footprint optimization (France, Italy, China) - USD (0.8) million, severance costs - USD (3.5) million, integration/separation costs from Rexam - USD (2.4) million, capital structure change costs (mainly fees) - USD (3.3) million, other non-operational costs 5.5. OTHER INCOME (EXPENSE) (*) See note 3.1 in the Group s annual consolidated financial statements for the year ended December 31, 2014 21
5.6. NET FINANCE COSTS Interest costs on net debt are mainly due to the Bonds USD (27.7) million. The unrealized foreign exchange losses on the net debt as at 30 June 2015 are also linked to the Bonds USD (33.9) million. This is a non-cash item linked to the translation of USD bonds held by a subsidiary whose functional and reporting currency is euro. 5.7. EARNINGS PER SHARE 22
NOTE 6 NOTES TO THE BALANCE SHEET 6.1. GOODWILL (1) The change in the Betts goodwill amount is entirely due to an exchange rate variation 6.2. INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT 6.3. OTHER FINANCIAL ASSETS It includes mainly deposits, employee loans and non-consolidated investments. 23
6.4. INVENTORIES 6.5. TRADE AND OTHER RECEIVABLES 6.6. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash in bank accounts and on hand, short-term deposits held on call with banks and highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value, less bank overdrafts that are repayable on demand. Bank overdrafts are included in current borrowings. 24
6.7. CAPITAL STOCK The capital of Albéa Beauty Holdings S.A. amounts to EUR 284 161. 6.8. BORROWINGS Changes in borrowings during the period: (1) On February 11, 2015, Albéa issued a fungible add-on to the existing bond in one tranche of euros 45 million maturing on November 1, 2019 (same guarantors and security as for the initial issuance). Asset Based Lending / Factoring : Transferred assets under these factoring arrangements are Trade receivables for the Credit Agricole Leasing Factoring / Eurofactor European arrangement and Hong-Kong arrangement, and Trade receivables and Inventories for the ABL US arrangement. In accordance with IAS 39.30, these transferred assets are not derecognized in the financial statements as Albéa is still considered as "continuing involved" in the recoverability of these assets. When risk and rewards attached to receivables are transferred, the assets are not anymore recognized (USD 60.4 million as at June 30, 2015). In the six-month period ended June 30, 2015, Preferred Equity Certificate were redeemed for USD 0.9 million. 25
6.8. BORROWINGS (CONTINUED) Net debt The maturity of the borrowings is the following: 6.9. PENSIONS AND OTHER LONG-TERM EMPLOYEE BENEFITS OBLIGATIONS 26
6.10. PROVISIONS The provision for restructuring mainly includes restructuring plan launches in several sites. Provisions for litigation and claims were recognized for all litigations (commercial, employee, and tax-related) identified at June 30, 2015. 6.11. OTHER FINANCIAL LIABILITIES At June 30, 2015, the main components of the current liabilities are : - USD 2.1 million, remaining deferred revenue related to the Chinese government grant. USD 19.0 million have been reversed in profit and loss as a proceed on the buildings and USD 27.9 million have been used by Albéa to compensate the relocation expenditures incurred since 2013. USD 0.8 million of this remaining deferred revenue should be used in 2015, and USD 1.3 million in 2016. - USD 0.3 million, Annecy liabilities Albéa sold Annecy business as at 1st October 2013 for one euro. In addition, Albéa agreed to pay a total of USD 7.9 million through 2015 to help the buyer to succeed in the recovery of this business. USD 7.6 million have already been paid in 2013 and 2014. The balance of USD 0.3 million will be paid in July 2015. 6.12. TRADE AND OTHER PAYABLES 27
NOTE 7 RELATED PARTIES Related parties transactions include : - The PEC and CPEC Debt component issued in 2010 and 2012 and associated interest cost with entities controlled by Sun Capital (see note 6.10 borrowings and other financial liabilities in the Group s annual consolidated financial statements for the year ended December 31, 2014); - Management fees invoiced by Sun Capital Partners Management V, LLC for an amount of USD 2.1 million. NOTE 8 SUBSEQUENT EVENTS To the best of management s knowledge, there is no significant event that occurred since June 30, 2015, which would materially impact the interim condensed consolidated financial statements. 28