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ALBÉA GROUP
S.A.S
CONSOLIDATED MANAGEMENT REPORT
YEAR ENDED DECEMBER 31, 2018
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Albéa Group S.A.S. Consolidated Management Report for period ended December 31, 2018
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Albéa at a glance
(*)Sales in 2018 proforma for 12 month of Albéa group operating activities (non audited)
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Albéa Group S.A.S. Consolidated Management Report for period ended December 31, 2018
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GENERAL INFORMATION AND PRESENTATION OF FINANCIAL
STATEMENTS
General information :
Albéa Group S.A.S. previously Hercule Holding
S.A.S. (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 B221112
and is an affiliate of PAI Partners. Albéa Group and
the subsidiaries included in the scope of
consolidation constitute the Albéa Group (“Albéa”
or “the Group”).
The company was created January 12th, 2018 with
no activity. The Company held by PAI Partners
completed the acquisition of Albéa group on March
23th 2018.
The standards and interpretations applied to
prepare Consolidated financial statements as on
December 31, 2018 are those published by the
Official Journal of the European Union applicable as
on December 31, 2018.
Non-IFRS Financial and Operating Information
While considering the financial performance of our
business and use it as a management tool in
decision making, our management analyzes the
financial performance measures of EBITDA and
Adjusted EBITDA at a company and operating
segment level. We believe EBITDA and Adjusted
EBITDA are useful metrics for investors to
understand our results of operations and
profitability because they permit investors to
evaluate our recurring profitability from
underlying operating activities.
We also use these measures internally to establish
forecasts, budgets and operational goals to manage
and monitor our business, as well as evaluating our
underlying historical performance.
We believe EBITDA facilitates operating
performance comparisons between periods and
among other companies in industries similar to
ours because it removes the effect of variation in
capital structures, taxation, and non-cash
depreciation, amortization and impairment
charges, which may differ between companies for
reasons unrelated to operating performance.
We believe Adjusted EBITDA better reflects our
underlying operating performance because it
excludes the impact of items which are not related
to our core results of operations. EBITDA and
Adjusted EBITDA measures are frequently used by
securities analysts, investors and other interested
parties in their evaluation of companies
comparable to us, many of which present EBITDA
related performance measures when reporting
their results.
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EBITDA (Non-IFRS Financial Measure)
We define EBITDA as profit / (loss) from continuing
operations before financial result, income taxes,
share of income from associates and depreciation
and amortization.
Adjusted EBITDA (Non-IFRS Financial Measure)
We define Adjusted EBITDA as EBITDA adjusted to
exclude restructuring costs and severance costs,
non-recurring fees, separation costs, acquisitions
costs, integration and transformation costs, other
compensation and termination benefits, unrealized
foreign exchange gains (losses), gains (losses) on
disposals, impairment, bargain purchase gain.
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ALBEA GROUP BUSINESS OVERVIEW
Albéa activity presentation
We have long-standing relationships with a number
of blue-chip beauty packaging companies such as
Avon, Chanel, Coty, Estee Lauder, GlaxoSmithKline,
L’Oréal, LVMH, Natura, Procter & Gamble and
Unilever, and we estimate that these relationships
average more than 20 years. Our customers also
include more than 2,000 regional and local beauty
and personal care companies. We have been able to
grow and maintain long-term relationships with
our customers due to the strength and global
footprint of our manufacturing operations, our
strong customer focus, new product development
capabilities and the critical position that our
packaging occupies within our customers’ supply
chain. New product development is at the core of
our and our customers’ success. Our new product
development teams collaborate with our customers
to develop packaging, enabling them to successfully
market their products to consumers.
This collaboration also enables us to retain
customers by efficiently addressing requests from
existing customers for new packaging, particularly
for products with high renewal rates (such as rigid
packaging).
Furthermore, we have advanced integrated
printing, decorating, surface treatment (such as
anodizing and electro-plating) and metallization
capabilities. The design and presentation of our
packaging communicates our customers’ distinct
values and style, which are of particular
importance in the end-markets that we serve. Many
are specialty items designed to provide a
convenient and often unique means of storing,
dispensing and applying our customers’ products.
Although our packaging often constitutes only a
small portion of our customers’ cost of production,
it is an integral part of our customers’ successful
marketing strategy and, ultimately, an element of
consumers’ satisfaction.
We have a global manufacturing platform of 40
plants, operating in 17 countries across Europe, the
Americas and Asia. Our global manufacturing
network is closely aligned with our customers’
plants. We serve both large, developed markets
such as Europe and North America and faster-
growing, developing markets such as Brazil,
Mexico, China, Indonesia, Russia India and South
Africa. We believe that we are well positioned
relative to our largely regional peers to take
advantage of anticipated growth in those emerging
markets, in particular for affordable beauty and
personal care products, since our global footprint
and broad product offering enables us to serve our
developed market customers as they expand
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globally as well as penetrate new regional and local
customers in developing markets.
Our global exposure is enhanced by the use of our
packaging for high-end beauty and personal care
products which are sold around the world. For
example, several luxury brands we serve have their
primary filling locations in France, but sell their
products globally. The global distribution of our
customers’ products allows us to more efficiently
utilize our developed market manufacturing
footprint while participating in global growth
trends.Wider range of services and decoration
expertise
Albéa serves the complete value chain, from new
products development to conversion of raw
materials, decoration, assembly, and logistics, as
reflected by the chart below. In some instances,
through our beauty solutions business, Albéa
organizes a full service solutions with filling
through subcontracting.
Albéa Group products and segments
Albéa has two product segments:
(i) our “tubes” segment, which encompasses
laminate and plastic tubes for the oral care
and cosmetics industry; and
(ii) our “cosmetic rigid packaging” segment,
through which we manufacture products
for color make-up, skincare and fragrance
caps, dispensing systems and beauty
solutions. We believe we have one of the
broadest product portfolios in our industry,
which allows us to provide comprehensive
product solutions, serve as a
“one-stop-shop” for our customers and
cross-sell a total packaging solution to our
customers, giving us the potential to
increase our share of our existing
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customers’ packaging spend and to attract
new customers.
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Albéa ranks best in Plastic and Laminated Tubes as
well, being top of class in global footprint and
breadth of product offer, with a continuous
improving potential on reliability. Albéa Tubes
business combines a global reach with local
presence through 20 sites and operates on regional
basis with presence mainly in Europe, North and
South America and to a lesser extent in Asia. Our
sites are located less than 1,000 km from filling
sites of customers.
Our principal tubes product categories are:
Laminate tubes.
Laminate tubes are made from several film layers
assembled by heat, pressure or adhesives, in order for the
composite material to achieve improved oxygen, water or
light resistance, or a better appearance. Albéa
manufactures laminate tubes with plastic and aluminum
layers. Albéa carefully selects the combination of layers to
minimize costs and maximize the qualities of the film. A
large portion of our laminate tubes are produced for the
high volume toothpaste market, which requires long run,
economical packaging. Albéa sells its laminate tubes to
most major toothpaste manufacturers, including Procter
& Gamble Unilever and Arm & Hamme
Albéa has engaged in a major development project with
our main customer to start producing the first laminate
tubes for hair coloration: the Hair Dye project. Albéa
innovative patented technology offers an effective
alternative to aluminium tubes preserving formulation
from reaction with oxygen as well as the environment.
Tubes has launched a digital printing process in order to
answer very specific and value added customer request
with very short delivery time and small order size.
Plastic tubes.
Plastic tubes are made from plastic resin colored and
shaped into the desired form. The tube is then printed,
decorated and fitted with an injected tube head. Printing
change overs are relatively short, which allows us to
customize printing and appearance for comparatively
small production batches.The extrusion process produces
a seamless tube allowing 360° printing and high quality
decoration. Plastic tubes are as a result more versatile and
more refined than laminate tubes. Compared to laminate
tubes, plastic tubes are less oxygen , water and light
resistant and not suitable for certain products. A large
portion of our plastic tubes are produced for the skincare
and personal care markets, which require distinctive and
branded packaging. Our plastic tubes come in a variety of
shapes and sizes, and can be fitted with various
applicators, providing our customers with a range of
products to fit their brand’s needs.
Tube caps.
Albéa produces a variety of screw caps and flip top caps for
plastic tubes with various diameters .Albéa sells most of its
tubes fitted with cap produced internally, including certain
caps with our proprietary designs such as our “slender
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caps” and our tamper resistant “access denied” lines. Albéa
also buys plastic caps from suppliers.
Our cosmetic rigid packaging segment encompasses
the following sub-groups:
• Rigid packaging. These are products we
manufacture through injection-molding,
assembly and decoration such as lipstick
containers, mascara packs, fragrance and
skincare caps and other similar packaging for
color make-up, skincare and fragrance
products.
• Dispensing system. These products include
spray pump engines and decorating parts we
manufacture through injection molding, high
speed assembly and decoration, and which are
typically used to spray fragrance (“fine mist”),
skin cream (“lotion”) , soap or conditioning
products (“foam”) , spray product samples
(“samplers”) and Mini fragrance and facial care
pumps.
• Beauty solutions. These are full service
solutions where we design, develop & deliver
tailor-made turnkey projects, leveraging a
global ecosystem with reliable partners and
Albéa’s resources. We go far beyond pack &
formulas. We draw our inspiration from a deep
understanding of market trends, leveraging
social network and data analytics, then we
build a customized offering, with our full
service approach and our expertise in
combining packs, formulas and accessories for
an optimal time to market with innovations and
a wide library of stock items to be customized.
Albéa principal cosmetic rigid packaging products are:
Mascara and lip gloss.
Albéa sells a complete range of mascara bottles and
brushes. Our products include an innovative set of high
volume brushes and combing brushes that we developed,
including our two in one applicator for loading formula
and combing lashes. Albéa’s customers work with us to
design products which meet their appearance and
functional requirements. Albéa uses packaging materials
that adequately store our customers’ product and provides
spill free and accurate dosage through brushes and wipers
designed to obtain the desired lash effect and emphasizes
the visual impact of the product.
Fragrance and skincare caps.
Fragrance and skincare caps are closures that fit on the
ends of fragrance bottles and skincare jars. They are
designed to emphasize the status of the consumer and the
exclusivity of the product. They are comparatively thick
pieces demanding a deep knowledge of mold design and
injection molding techniques. The challenges they
present, range from delivering a strong visual impact at
minimal cost to achieve a unique appearance for exclusive
brands through a combination of highly skilled injection
and decoration techniques. Albéa primarily sells our caps
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and jars in Brazil and in Europe, where a large portion of
worldwide production of exclusive fragrances is
concentrated.
Lipstick containers.
Albéa offers lipstick packaging in various styles and
fashions to address all packaging needs. The core of a
lipstick container is the injected, assembled components
which together help to raise and retract the lipstick paste.
Albéa offers customers a choice of mechanism with
different value-propositions, including a lubricant-free
mechanism often considered by exclusive brands as one of
the best options for sensitive formulas and for ease of use.
We also offer a wide array of decoration options.
Compact powder-cases.
Compact powder-cases are designed to convey the status
of the consumer and the exclusivity of the brand and
product. They also offer long-lasting use, shock resistance
and, most of the time, an applicator for the product and a
mirror for convenience. Compact powder-cases are made
from injected pieces and then are decorated and
assembled. Albéa’s compact powder-cases production
center in Indonesia has specialized in developing
distinctive, high-end compact powder-cases. Albéa’s
product development teams in Europe and the United
States work together with both our Indonesian and
customers’ product development teams to design the best
product possible.
Dispensing systems.
Albéa’s dispensing systems include fragrance, lotion, foam
and sampler pumps. Pumps are a highly technical business
given the miniaturization of the engines. Manufacturing
the small components and the valves requires
sophisticated design, precise injection-molding and
high-speed assembly. Albéa offers a broad variety of pump
engines and decoration for our fragrance pumps. In lotion
pumps, Albéa proposes both neutral and airless pumps
which can dispense a variety of viscosities and may
include a lockable design or a protective cap. Albéa lotion
pump business line includes our Nea platform which
offers high suction power suited for high viscosity
products. Albéa also produces foam pumps to dispense
foam from a liquid solution without using propellants or
chemicals. Albéa adapts its pumps to specific formulations
and offers a wide choice of bottle customization, dosage
and foam quality options. Albéa produce also a foam
dispenser, its EZ’R line, which is used by inverting the
bottle and squeezing it with one hand, thereby providing
high quality foam and convenience.
Beauty solutions.
These are full service solutions were we design, develop &
deliver tailor-made turnkey projects, leveraging a global
ecosystem with reliable partners and Albéa’s resources.
We go far beyond pack & formulas. We draw our
inspiration from a deep understanding of market trends,
leveraging social network and data analytics, then we
build a customized offering to (i) “reveal your formulas”
with a wide range of applicators and dispensing solutions
(ii) “boost your sales” and transform the customer
experience with promotional items and pouches (iii) “ease
your life” with our full service approach and our expertise
in combining packs, formulas and accessories for an
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optimal time to market with innovations and a wide
library of stock items to be customized. In addition, we
also develop business verticals as with Travel Designer
brand supplying business and first class travel kits to
major airlines.
Albéa Group Geographical footprint
Our business is diversified among numerous
regions around the world, with a broad
manufacturing footprint in 17 different countries
across Europe, North America, South America and
Asia, allowing us to provide customer satisfaction
in a variety of major markets. Our customers are
increasingly expanding their global presence and
rely on us to provide regional or local supply
solutions, allowing us to reinforce our position as a
key global supplier to them. Our ability to
manufacture products in various regions allows us
to serve markets where delivery times and
transportation and other costs such as import
duties may be prohibitive.
We have leading positions and a strong
manufacturing base in both mature and stable
markets such as Europe and North America, as well
as developing and faster growing markets such as
Brazil, Mexico, China, Indonesia, Russia and India.
We mostly produce high volume and affordable
beauty and personal care products for the emerging
markets, whereas we have a higher proportion of
both higher value added and high end beauty and
personal care products for the mature markets.
Our geographic diversification allows us to take
advantage of regions with historically stable
growth rates of the beauty and personal care end
market, such as Western Europe and North
America, while building our positions in faster
growing emerging markets, such as Latin America,
Asia Pacific and Eastern Europe. Its important to
underline that we sell to filling locations that might
differ from the end market consumption.
Sales by geographic area From March 23 2018 to December 31,2018
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Manufacturing footprint
We have a global manufacturing platform of 40
plants, operating with a global footprint which
allows us to be closely aligned with our customers’
plants and to serve them as they expand globally.
We are permanently improving our global
footprint. Since 2010, we have closed several plants
(France, Mexico, Brazil, China and Italy). We have
completed the Rexam footprint integration.
We are now working on leveraging huge
investments, restructuring and project cost done to
develop further operational excellence.
52%
34%
14%
Europe America Asia
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ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Profit and Loss statement December 31, 2018 (nine month operating activities for Albéa Group)
Albéa Group SAS is new head of consolidation since
the PAI acquisition, this entity has been created on
January 12th, 2018 with no activity. On March 23th
2018, one of its subsidiaries completes the Albéa SA
acquisition. In accordance to International
accounting rules (IAS 1), Albéa Group consolidated
financial statements includes only the consolidated
statement of financial position as at 31 December
2018, and the related consolidated statements of
income, comprehensive income, changes in equity
and cash flows for the period from 23 March 2018
to 31 December 2018 for Albéa Group S.A.S (only
nine month of operating activities). There is no
comparative for balance sheet and income
statement in accordance to this new group
constitution.
Revenue
Net sales for the period from March 23th to
December 2018 amount to $1 197 million.
Albea group Sales for 12-month period for year
ended 2018, at constant rates and perimeter,
growth by 3.0% from $1 512.4 million to $ 1 557.5
million in line with commercial ambitions.
Albéa’s sales growth is driven in 2018 by Global
Accounts with a performance of +8.4%.
Period Ended
December 31,
2018
Continuing operat ions:
Revenue 1 197 385
Cost of sales (969 863)
Gross profit 227 522
Selling and adm inist rat ive expenses (145 974)
Rest ruct uring and pro ject cost s (35 870)
Ot her incom e / (expense) (55 007)
Operat ing profit (9 329)
Financial incom e 21 487
Financial expense (89 614)
Financial result (68 127)
Share of prof it (loss) of associat es (428)
Profit (loss) from continuing operat ions before income taxes (77 884)
Incom e t ax expense (1 962)
Profit (loss) from continuing operat ions (79 846)
Profit (loss) for the period attributable to owners of the parent (79 846)
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Seasonality
Our business, on a consolidated basis, is generally
not subject to seasonal fluctuations. However, each
product segment and geographical region,
experiences seasonality independently, as a result
of consumer buying patterns, as well as local
holidays and their impact on our customers’
manufacturing activity. In Europe, some of our
customers reduce manufacturing activity during
August and December. This, in some cases, can be
the reason of lower sales in August and December
EBITDA / Adjusted EBITDA
The following table reconciles our profit / (loss)
from continuing operations, our most directly
comparable measure under IFRS, to EBITDA and
Adjusted EBITDA :
Adjusted EBITDA
The adjusted EBITDA for the period from March
23th to December 2018 amount to $153.3 million,
Adjusted EBITDA margin ratio amounts to 12.8%.
Adjusted EBITDA proforma for Albéa group for 12
month period for year ended 2018 amounts to
$198.1 million including Covit, acquired at the end
of February 2018. It increased at constant rates and
same perimeter by 2.1% from $191.9 million for
2017 to $196.0 million for 2018 (excluding
perimeter effects).
Cost of Sales
Cost of sales amount to $969.9 million for period
ended December 2018 and the cost of sales to
revenue ratio represent 81,0% and 75.25%
excluding depreciation.
Employee benefit expenses related to cost of sales
(including temporary staff) for the nine months
ended December 31, 2018, represent 21.3% of our
revenue.
Selling and Administrative Expenses
Selling and administrative expenses amount to $146
million for nine-month period or 13.0% on sales.
R&D
Albéa spent $9.9 million in research and
development projects for the nine months ended
December 31, 2018. Albéa is the top 50 patent fillers
in France and has around 150 people dedicated to
Innovation, Development and Designing.
Restructuring and Project Costs
At December 31, 2018, the main components of
restructuring and projects costs are as follows:
- $20.3 million Transaction cost linked to
Albéa SA acquisition (Merger and
acquisition cost, legal and tax advisory cost
in accordance to the restructuring plan post
acquisition)
- $4.7 million, severance costs and
restructuring expenses
- $6.3 million, transformation project cost
(industrial and administrative
transformation projects …)
- $1.9 million corporate structure
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- $0.8 million integration cost linked merger
acquisitions project costs (Creative and
LTI)
- $1.7 million, other
Other Income / (Expense)
Other expenses amount to $55,0 million for period
ended December 2018. The other expenses include
mainly the depreciation of intangible assets (Albéa
customer relationship amortization and Albéa
Tradename recognized for the purchase price
allocation) for $31.5 million, the impact of the
reversal of the inventory step-up recorded in the
opening balance sheet for the purchase price
allocation for $19.5 million and $3.5 milion of
equity base compensation expense (free share plan
implemented in April 2018).
Financial Result
Financial result amounts to a loss of $68.1 million
at period ended December 2018, and includes:
- Interest costs on net debt : $14.8 million for
YBPEC instrument , $28.3 million for Term
loan B interest and S$10.4 million Senior
notes interest
- net realized foreign exchange gain of $4.7
million mainly due to Term loan B novation
operation (Term Loan B debt push down
from Luxembourg entity to our American
Organization)
- And Unrealized foreign exchange losses on
the net debt is mainly due conversion
impact of the Term Loan B for USD (8.6)
million. This is a non-cash item, a result of
the translation of Term loan USD held by
the company whose functional and
reporting currency is euro
Income Tax Expense
For income tax expense amount to $1.9 million, for
period ended December 2018. This tax expense can
be rationalized as follow : current tax expenses in
several regions (Germany, Mexico, Poland, US and
Indonesia) due to our profitability as per Local
regulation addition, others taxes like French CVAE
for $(3.4) million, withholding tax for $(1.5) million
mainly in Brazil, which are classified in income tax
in accordance with IFRS but are not calculated on
the net income before taxes compensate by deferred
tax income linked to customer relationship and
tradename amortization in accordance to Purchase
price allocation of Albéa acquisition.
Profit/(loss) from Continuing Operations
The result from continuing operations is a loss of
$(79.8) million at period ended December 2018
including several non recurring impacts linked to
Albéa SA acquisition of which reversal of inventory
step up of $(19.5) million and $(20.3) million of
acquisition cost .
Cash flow
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Cash flow from operating activities is positive for
period ended December 2018 at $103.6 million.
Capital expenditure net of disposal amounts to
$(76.3) million including assets deal with SAVCOR
and CEP for $(5.5) million.
Balance sheet for the year ended December 31, 2018
Net debt (non gaap mesure)
At December 31, 2018, net debt amount to $ 1 200.5 million including mainly Term loan B for $842.5 million,
Senior note for $163.8 million and YBPEC for $188.8 million
Liquidity and Capital Resources
Our principal uses of cash have been to finance
working capital, capital expenditures,
restructuring expenses, debt service and
repayments. Our principal sources of liquidity have
been provided by operating activities and
borrowings under our European Receivables
Facility and our North American ABL Facility. We
have also entered into local working capital
In $ million At December 31,
2018
Total assets 2 061,7
Cash and cash equivalent s 107,1
Invent ories 179,1
Trade and ot her receivables 186,7
Propert y, p lant and equipm ent 523,6
Int angib le asset s 434,2
Goodw ill 594,0
Ot her asset s 37,1
Total liabilit ies 1 852,8
Trade and ot her payables 328,2
Pensions and ot her post - em ploym ent benef it ob ligat ions 75,4
Ot her liab ilit ies 8,5
Def fered t ax liab ilit ies 124,4
Borrow ings 1 316,3
Total Equity 208,9
Share capit al 1,8
Addit ional paid- in capit al 263,9
Ret ained earn ings and ot her com ponent s of equit y (56,8)
Total Equity and liabilit ies 2 061,7
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facilities in some of the jurisdictions in which we
operate. After taking into account our current cash
and cash equivalents and our anticipated cash flow
from operating and financing activities, we believe
that we have have sufficient liquidity for our
present requirement.
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ALBEA GROUP EMPLOYEES
For the year ended December 31, 2018 our year-end
number of employees were 15 348 (including
temporary staff). Of our total employees,
approximately 70% and 30% of our employees
work in production and non-production functions,
respectively. The following table sets forth the
number of employees (excluding internships) we
have on a geographical basis.
We have good relationships with our employees and
union representatives. In Europe, our employees in
France, Germany, Italy and the Netherlands are
represented by trade unions or works councils. Our
employees in the United States are not unionized.
In Mexico, Brazil and Canada, our employees are
represented by trade unions. Our Asian employees
are represented by mandatory trade unions in
China, Indonesia and India. We take a constructive
approach to union relationships where there are
unionized plants and have been able to secure the
cooperation of our unions and our workforce with
regard to significant changes and those plants. We
experienced several brief work stoppages but other
than that there have been no major work stoppages
or strikes at any of our plants during the past five
years.
Our remuneration and benefits policy is designed to
reward employees in line with good market
practice. Accordingly, our salary system for certain
employees includes a variable bonus component in
the form of incentives directly related to efficiency,
which are determined on a local basis.
3 266
945
2 664
3 572
4 901
Global Headcount 20 18(Total 15 348)
North America South America
China South Asia
Europe
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ALBEA GROUP RISK FACTORS
Below is an overview of what we believe to be the principal risks to Albéa
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Group internal control profile
Our management is responsible for establishing and
maintain adequate internal control over financial
reporting and business processes to mitigate our
risks.
Our internal control program covers not only the
financial reporting but also the key business
processes. Albea Internal control is organized
around :
The Enterprise Risk Management framework
(ERM). The framework of controls, defined by
Albea management, covers our core processes
(selling/marketing, production, procurement,
logistic, development), support processes (IT,
RH, Finance) and management processes
(performance evaluation, capex, budget).
We defined around 450 controls of which about
150 are keys controls. Each year, each site has
to do a self-evaluation of its internal control in
“BWISE” which is a specific tool used to
monitor all the ERM program. The self-
assessment is validated by the head of each site.
Based on a dashboard, each site can set-up
appropriate action plans to improve the level of
controls on the key processes and mitigate
major risks.
- A program of internal audits performed by a
dedicated team : the team audits about 15 sites
per year to review the sincerity of the internal-
control self-assessment and to review specific
risks.
- A Code of Conduct including ethics rules, anti-
bribery policies, gift policy,…which is
communicated and applicable to all employees.
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Albéa Group S.A.S. Consolidated Management Report for period ended December 31, 2018
24
CORPORATE SOCIAL RESPONSIBILITY
Albéa has been committed to Corporate Social
Responsibility (CSR) since 2004. Regardless of how
our business has evolved over the past 15 years, our
convictions have always remained the same: CSR is
a lever for growth, reputation, commitment, and
attractiveness in the short and long term.
Our approach is meant to be inclusive. All our
employees and offices are involved, and we seek to
develop partnerships with our customers,
suppliers, and communities.
Our approach is structured around four pillars:
people, products, operations, and partners. For
each pillar, we set quantitative or qualitative
targets, supported by local or global programs, and
we track our progress each year!
In a global context marked by our clients’ firm CSR
commitments, the motivation of governments and
international associations, increasing expectations
of our employees and future talents, and regulatory
evolution, we affirm our ambition: We want to
improve the environmental, social and economic
footprint of our business, while actively
contributing to the development of an efficient
circular economy in the beauty and personal care
industry.
That’s why we target Ecovadis Gold and Carbon
Disclosure Project A/A- status.
In 2018, Albéa signs Ellen McArthur’s New Plastic Economy Global Commitment.
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Albéa Group S.A.S. Consolidated Management Report for period ended December 31, 2018
25
ALBEA GROUP VISION
We share a vision: we want to be the best company for all our stakeholders
Our strategy is to accompany our clients in all their
ambitions, thanks to six pillars:
- Guarantee the complete satisfaction of our
customers. We closely monitor all indicators of
quality, service, reliability of new product
development, and more. Each year we measure
our customers' satisfaction and our internal
progress via a large-scale global survey.
- Ensure operational excellence. This includes
safety first and foremost, but also quality,
service, reliability of our new product
developments, efficiency of our lines,
competitiveness of our products, and more. In a
competitive, innovative and fast-paced market,
optimal operational performance is a
prerequisite, every day and everywhere.
- Create and produce innovative packaging and
solutions. We focus our innovations on three key
areas:
o Product: We manufacture or buy innovative
items that offer better ergonomics, visual
differentiation, new uses, affordable prices,
and stylish design.
o Process: We develop innovative technologies
and new processes so that our packaging is
increasingly distinctive, efficient,
competitive, and eco-friendly.
o Development: We create the packaging that
our customers imagine, overcoming technical
challenges and ensuring the end product is
cost effective.
- Build highly skilled teams. We want to build the
team that will help Albéa succeed, made up of
committed, passionate, motivated, and
competent women and men. We want to offer
them opportunities for professional growth, to
strengthen their skills, and to develop new ones.
- Invest to back our projects and strategy. Each
year, we invest to support our customers'
projects (new molds, lines, technologies,
installations, etc.), modernize our equipment
and factories, increase our operational
efficiency and competitiveness, train our
employees, and deploy new systems across
operations.
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Albéa Group S.A.S. Consolidated Management Report for period ended December 31, 2018
26
- Act responsibly towards all. For 15 years, we
have been committed to improving our
operations’ environmental, social, and economic
footprints worldwide, for all our employees and
stakeholders, in all communities in which we
operate.
SUBSEQUENTS EVENTS
In March 2019, Albéa has completed the acquisition
of 100% of the share capital of Orchard Custom
Beauty, a recognized specialist of full-service
turnkey solutions headquartered in Toronto,
Canada.
Orchard employs 100 people and operates through
offices in Canada, California and China. It generates
a turnover in excess of USD 50 million and serves
primarily private label retailers as well as beauty
brands and distributors – managing everything
from concept to delivery.
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Albéa Group S.A.S. Consolidated Financial Statements For Year End December 31, 2018
-
Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
1
Contents CONSOLIDATED INCOME STATEMENT ........................................................................................................................... 3
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME ................................................................... 4
CONSOLIDATED BALANCE SHEET .................................................................................................................................... 5
CONSOLIDATED CASH FLOW STATEMENT .................................................................................................................... 6
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ............................................................................................. 7
NOTE 1 GENERAL INFORMATION ................................................................................................................................. 9
NOTE 2 ACCOUNTING POLICIES.................................................................................................................................. 10
2.1. STATEMENT OF COMPLIANCE .......................................................................................................................... 10
2.2. BASIS OF PREPARATION ................................................................................................................................ 10
2.3. SIGNIFICANT ACCOUNTING POLICIES ....................................................................................................... 13
NOTE 3 SIGNIFICANT EVENTS ...................................................................................................................................... 16
3.1. CHANGE IN CONSOLIDATION SCOPE: ALBEA ACQUISITION ................................................................... 16
3.2. SENIOR NOTES .................................................................................................................................................. 17
3.3. REFINANCING PROCESS ................................................................................................................................ 17
3.4. LTI ACQUISITION ............................................................................................................................................... 18
NOTE 4 SEGMENT REPORTING .................................................................................................................................... 19
4.1. SEGMENT REPORTING ....................................................................................................................................... 20
4.2. GEOGRAPHICAL INFORMATION ................................................................................................................. 20
NOTE 5 NOTES TO THE INCOME STATEMENT .........................................................................................................22
5.1. REVENUE .................................................................................................................................................................22
5.2. COST OF SALES .................................................................................................................................................22
5.3. SELLING AND ADMINISTRATIVE EXPENSES .............................................................................................23
5.4. RESTRUCTURING AND PROJECT COSTS ...................................................................................................23
5.5. OTHER INCOME (EXPENSE) ........................................................................................................................... 24
5.6. NET FINANCIAL RESULT .................................................................................................................................25
5.7. SHARE OF PROFIT ASSOCIATES .................................................................................................................. 26
5.8. INCOME TAX ..................................................................................................................................................... 26
5.9. EMPLOYEE BENEFIT EXPENSES AND PERSONNEL EXPENSES .......................................................... 29
NOTE 6 NOTES TO THE BALANCE SHEET ............................................................................................................ 30
6.1. GOODWILL ............................................................................................................................................................. 30
6.2. INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT....................................................... 31
6.3. OTHER FINANCIAL ASSETS ............................................................................................................................ 33
6.4. INVENTORIES..................................................................................................................................................... 34
6.5. TRADE AND OTHER RECEIVABLES .............................................................................................................. 35
6.6. CASH AND CASH EQUIVALENTS ................................................................................................................. 36
6.7. ASSETS AND LIABILITIES HELD FOR SALE ................................................................................................ 36
6.8. SHAREHOLDERS’ EQUITY .............................................................................................................................. 36
6.9. BORROWINGS AND OTHER FINANCIAL LIABILITIES .............................................................................. 37
6.10. PENSIONS AND OTHER LONG-TERM EMPLOYEE BENEFITS OBLIGATIONS .................................. 39
6.11. PROVISIONS ....................................................................................................................................................... 42
6.12. TRADE AND OTHER PAYABLES .................................................................................................................... 43
-
Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
2
6.13. FINANCIAL INSTRUMENTS ............................................................................................................................ 43
NOTE 7- ADDITIONAL INFORMATION ........................................................................................................................... 45
7.1. FINANCIAL RISK MANAGEMENT ...................................................................................................................... 45
7.2. COMMERCIAL RISKS ....................................................................................................................................... 49
7.3. CONTINGENCIES AND COMMITMENTS .................................................................................................... 49
7.4. LEASE COMMITMENTS ................................................................................................................................... 51
7.5. RELATED PARTIES ............................................................................................................................................52
7.6. EXECUTIVE COMMITTEE TOTAL REMUNERATION .................................................................................52
7.7. AUDITORS’ FEES................................................................................................................................................52
7.8. SUBSEQUENT EVENTS .................................................................................................................................... 53
NOTE 8 COMPANIES INCLUDED IN THE CONSOLIDATION SCOPE AS OF DECEMBER 31, 2018 ........... 54
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Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
3
CONSOLIDATED INCOME STATEMENT
Period from January 12, 2018 to December 31, 2018
The notes are an integral part of the consolidated financial statements.
Period Ended December 31,
Note 2018
Continuing operations:
Revenue 5.1 1 197 385
Cost of sales 5.2 (969 863)
Gross profit 227 522
Selling and administrative expenses 5.3 (145 974)
Restructuring and project costs 5.4 (35 870)
Other income / (expense) 5.5 (55 007)
Operating profit (9 329)
Financial income 21 487
Financial expense (89 614)
Financial result 5.6 (68 127)
Share of profit (loss) of associates 5.7 (428)
Profit (loss) from continuing operations before income taxes (77 884)
Income tax expense 5.8 (1 962)
Profit (loss) from continuing operations (79 846)
Profit (loss) for the period attributable to owners of the parent (79 846)
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Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
4
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Period from January 12, 2018 to December 31, 2018
The notes are an integral part of the consolidated financial statements.
NotePeriod Ended December 31,
2018
Profit/(Loss) for the period (79 846)
Other comprehensive income:
Items that will not be reclassified to profit or loss 6.10 4 472Actuarial gains/(losses) on post-employment benefit plans 4 818Tax effects (346)Items that may be reclassified to profit or loss 18 534
Net change in foreign currency translation adjustments 21 087Cash Flow Hedge (2 553)Total other comprehensive income for the period, net of tax 23 006
Total comprehensive income for the period (56 840)
Attributable to:
i) Owners of the parent (56 840)
ii) Non-controlling interests -
-
Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
5
CONSOLIDATED BALANCE SHEET
The notes are an integral part of the consolidated financial statements.
At December 31,
2018Non-current assetsGoodwill 6.1 593 956 Intangible assets 6.2 434 184 Property, plant and equipment 6.2 523 574 Deferred tax assets 5.8 13 392 Investments in associates 1 809 Other financial assets 6.3 18 387 Total non-current assets 1 585 302
Current assetsInventories 6.4 179 069 Trade and other receivables 6.5 186 680 Other financial assets 6.3 3 251 Cash and cash equivalents 6.6 107 104 Assets held for sale 6.7 291 Total current assets 476 395
Total assets 2 061 697
Note
At December 31,
2018
EquityShare capital 6.8 1 833 Additional paid-in capital 263 934 Retained earnings and other components of equity (79 846)Other comprehensive income 23 006
Equity excluding non-controlling interests 208 927
Non-current liabilitiesBorrowings 6.9 1 240 350 Deferred tax liabilities 5.8 124 413 Pensions and other post-employment benefit obligations
6.10 75 375
Non-current provisions 6.11 3 204 Total non-current liabilities 1 443 342
Current liabilitiesBorrowings 6.9 75 905 Trade and other payables 6.12 328 237 Current provisions 6.11 5 286 Total current liabilities 409 428
Total liabilities 1 852 770
Total equity and liabilities 2 061 697
Note
-
Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
6
CONSOLIDATED CASH FLOW STATEMENT
Period from January 12, 2018 to December 31, 2018
(1) Includes mainly Albéa SA acquistion (see note 3.1) and Laminate Tubes Industries SA Proprietary Ltd (LTI) acquisition (see note .4)
(2) Loan issued include mainly February 2018 Senior Notes issurance (see note 3.2), part of YBPEC classifed in net financial debt and Term Loan B issuance (for the same amount as the repayment) linked to the repricing (see note 3.3)
(3) Loan repayment includes Term Loan B repayment linked to the repricing (see note 3.3).
Period ended December 31,
2 018
Loss for the period (79 846)
Adjustments for :
Share of profit of associates 5.7 (428)
Income tax expense recognized in profit or loss 5.8 1 962
Net finance costs 5.6 68 127
Depreciation and amortization 6.2 104 315
Net (gain)/loss on disposal of assets 5.5 325
Unrealized foreing exchange gains (losses) on working capital 5.5 (517)
Movements in working capital 25 783
Change in provisions 4 601
Income taxes paid (20 752)
Cash flow from operating activities 103 569
Acquisitions of assets (80 147)
Loans (advances)/repayments -
Disposal of assets 6.2 3 786
Acquisition / Disposal of subsidiary, net of cash acquired (1) (497 520)
Other 1 953
Cash flow used in investing activities (571 928)
Cash flow from operating and investing activities (468 357)
Loans issued 6.9 (2) 1 249 988
Factoring 6.9 17 216
Repayment of loans 6.9 (3) (894 351)
Interest paid (53 240)
YBPEC inssurance Equity 79 650
Proceeds of share issue 183 281
Cash flow from (used in) financing activities 582 544
Net increase / (decrease) in cash and cash equivalents 114 185
Cash and cash equivalents at beginning of the period -
Exchange gains/(losses) (8 223)
Cash and cash equivalents at end of the period 6.6 105 965
Note
-
Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Period from January 12, 2018 to December 31, 2018
Share capital On January 12, 2018, the Company was incorporated with a share capital of EUR 12 000 represented by 1 200 000 shares with a nominal value of EUR 0.01 each. On February 23, 2018, it was decided to increase the share capital of the Company by an amount of EUR 18 000 by the issuance of 1 800 000 shares contributed in cash. In March 20, 2018, it was decided to: - reclassify all the 3 000 000 shares issued by the Company into 3 000 000 ordinary shares. - increase the share capital of the Company by an amount of EUR 1 515 080 by the issuance of 24 733 520 ordinary shares and 126 774 519 preference shares, each with a nominal value of EUR 0.01. The contribution was made in cash for an amount of EUR 151 508 039 and allocated to the share capital account of the Company for an amount of EUR 1 515 080 and to the share premium account of the Company for an amount of EUR 149 992 958. - decrease the share capital of the Company by an amount of EUR 29 700 by the cancellation of 2,970,000 ordinary shares for a total redemption price of EUR 29 700 allocated to the share premium account of the Company.
On March 23, 2018, it was decided to increase the share capital of the Company by the issuance of 1 094 748 ordinary shares and 943 338 preference shares. The shares have been subscribed at a total issue price of EUR 2 038 086 by way of a contribution in kind of 808 B0 shares, 165 B1 shares and 264 B2 shares of Albéa S.à r.l. out of which EUR 20 380 was allocated to the share capital account of the Company and EUR 2 017 705 to the share premium account of the Company. On the same date, it was decided to create an authorized share capital of EUR 33 599 consisting of 2 551 166 ordinary shares and 808 751 preferences shares. As at December 31, 2018, the subscribed capital amounting to EUR 1 535 761 is represented by 25,858,268 ordinary shares and 127 717 857 preference shares each with a nominal value of EUR 0.01, fully paid and the authorized share capital of EUR 33 599 represented by 2 551 166 ordinary shares and 808 751 preferences shares. As at December 31, 2018, the share premium account amounts to EUR 152 040 363.
Share capital
Additional paid-in capital
Retained earnings
Actuarial gains
(losses)
Cash Flow Hedge
Translation reserve
Total Non controlling
interest
Total equity
At January 2018 - - - - - - - - -
Profit (Loss) for the period - - (79 846) - - - (79 846) - (79 846)
Other comprehensive income - - - 4 472 (2 553) 21 087 23 006 - 23 006
Total comprehensive income - - (79 846) 4 472 (2 553) 21 087 (56 840) - (56 840)
Proceeds of share issue 1 833 - - - - - 1 833 - 1 833
Equity based compensation - 2 837 - - - 2 837 - 2 837
Share premium issuance - 181 448 - - - - 181 447 - 181 447
YBPEC - 79 650 - - - - 79 650 - 79 650
At December 31, 2018 1 833 263 935 (79 846) 4 472 (2 553) 21 087 208 927 - 208 927
Attributable to owners of the parent
-
Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
8
Yield Bearing Preferred Equity Certificates On March 20, 2018, Yield Bearing Preferred Equity Certificates (YBPECs) were issued by Albéa Group SAS and subscribed by Hercule PAI holding Sàrl for 231 615 124 with a part value of EUR 1 and an aggregate value of EUR 231 615 124. The YBPECs are interest bearing, with a coupon rate of 11.0% per year and carry no voting rights. Unless redeemed earlier, the YBPECs must be redeemed at value plus any accrued and unpaid interest on the later date of 10th anniversary of the date of issuance or the date falling 180 days following the final stated maturity of the Senior Notes. At redemption date, the Company may, instead of redeeming the YBPECs convert all or only some YBPECs into Preference Share. Considering the features of the instrument, YBPEC is a compound instrument which includes a financial liability component and an equity component. The financial liability components is equal to the discounted value of future cash payment, which are mainly interest due in 10 years. The difference between the nominal amount of the YBPECs and the financial liability component correspond to the equity component. As of December 31, 2018, the discounted carrying amount of the YBPECs is EUR 177.5 million (USD 143.9 million) and accrued interest EUR 12.9 million, (equivalent to USD 14.5 million) and is classified in borrowings (see note 6.9). The other portion was classified in equity for USD 79.6 million.
Equity Based compensation In 2018 the group implemented a free shares plan detailed as follows:
Free shares are granted to employees deemed to be key for the Group, subject to the grantees’ continued presence within the Group after a vesting period of one year, for the ordinary shares (OS); there is no vesting period for the preferred shares (PS). The free shares’ fair value corresponds to the nominal value of the Group shares at the date of the acquisition of the group by Hercule PAI Holdings S.à.r.l. (see note 5.5 and 5.9). Albea free shares plans is equity-settled. The fair value of instruments is recognized in “other income and expense”, for USD 3.4 million, on a straight-line basis over the period during which those rights vest, using the straight-line method, with the offsetting credit recognized directly in equity for USD 2.8 million at 2018 December closing these shares have not yet been issued cf. Note 6.8. Employees deemed to be key for the Group have invested in Albéa Group SAS at fair value and for the same price as the majority shareholder. Therefore, this investment has been recorded in equity and no charge has been recorded in the consolidated financial statements of the period. These individuals will be entitled to a potential capital gain following a liquidity event, subject to vesting conditions.
Grant Date Albéa - OS Albéa - PSApril 10, 2018 April 10, 2018
Number of shares granted 2 046 736 808 751 Share price at grant date (€) 1 1 Vesting date April 10, 2019 No vesting period Fair value of the instrument 1 1 2018 expense recognized (in $ thousands) 2 483 1 000
-
Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
9
NOTE 1 GENERAL INFORMATION
General information
Albéa Group S.A.S. previously Hercule Holding S.A.S. (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 B221112 and is an affiliate of one fund of PAI Partners group. Albéa Group and the subsidiaries included in the scope of consolidation constitute the Albéa Group (“Albéa” or “the Group”). The company was created January 12th, 2018 with no activity. The Company held by a fund of PAI Partners group completed the acquisition of Albéa SA on March 23th 2018. 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 15 000 people and operates 40 manufacturing facilities in 17 different countries across Europe, the Americas, Asia and South Africa.
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. According to IAS 1, Albéa's consolidated financial statements includes the consolidated statement of financial position as at 31 December 2018, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the period from January 12, 2018 to December31, 2018 for Albéa Group S.A.S, with operational activity of the group (Albéa SA) from March 23, 2018 to December 31, 2018. There is no comparative for balance sheet and income statement in accordance to this new group constitution. Albéa's consolidated financial statements for the period ended December 31, 2018 were authorized for issue by the Board of directors on March 28, 2019 and will submitted to the shareholder for approval before June 30, 2019
-
Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
10
NOTE 2 ACCOUNTING POLICIES
2.1. STATEMENT OF COMPLIANCE
Albéa’s consolidated financial statements for the year ended December 31, 2018 were prepared in accordance with the international accounting standards as adopted for use in the European Union. These international accounting standards include International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) and the related interpretations as prepared by the International Financial Reporting Interpretations Committee (IFRIC).
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods and balances presented, unless otherwise stated. The standards and interpretations applied to prepare the December 31, 2018 consolidated financial statements are those published by the Official Journal of the European Union at December 31, 2018, and applicable as of that date.
2.2. BASIS OF PREPARATION
2.2.1. General principle The preparation of financial statements in compliance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying Albéa’s accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions and
estimates are significant to the consolidated financial statements are disclosed in Note 2.3.2. The consolidated financial statements have been prepared under the historical cost convention as modified by revaluation at fair value of the underlying assets and liabilities of acquired subsidiaries at the date when the control was achieved.
2.2.2. Accounting standards and interpretations issued by the IASB and endorsed by the European Union and applicable for financial years beginning on or after January 2018 IFRS 9 “Financial Instruments”
In July 2014, the IASB published the complete version of IFRS 9 – Financial Instruments, which replaces most of the guidance in IAS 39 – Financial Instruments: Recognition and Measurement. The complete standard covers three main topics: classification and measurement, impairment and hedge accounting. IFRS 9 introduces a single model for determining whether financial assets should be measured at amortized cost or at fair value. This model supersedes the various models set out in IAS 39. IFRS 9 introduces a single impairment model that also includes a simplified approach for financial assets that fall within the scope of IFRS 15 – Revenue from Contracts with Customers. This model is based in particular on the notion of
expected credit losses, which applies regardless of the financial assets’ credit quality. In October 2017, the IASB issued an amendment to IFRS 9 clarifying the accounting for the modification of financial liabilities. The amendment provides that modifications of financial liabilities that do not result in derecognition give rise to an adjustment to the amortized cost of the financial liability on the date of modification. The adjustment must be recognized in full in the income statement.
-
Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
11
IFRS 15 “Revenue from Contracts with Customers”
This 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 Standard comes into effect as of January 2018 with early application permitted.
Amendment to IFRS 2 – Share-based Payment
In June 2016, the IASB issued an amendment to IFRS 2 – Share-based Payment. This amendment specifies in particular that, for cash-settled share-based payment plans, non-market performance conditions and service conditions must impact the number of granted shares expected to vest but not their fair value. In addition, the amendment outlines that, for equity-settled share-based payment plans, the IFRS 2 charge recognized in equity does not have to be reduced by any withholding tax to be paid by the entity to tax authorities on behalf of beneficiaries.
2.2.3. New standards, amendments and interpretations adopted by the European Union not applicable to the Group until future periods IFRS 16 “Leases”
IFRS 16 “Leases” deals with principles for the recognition, measurement, presentation and disclosures of leases. When entering into a lease involving fixed payments, this standard requires that a liability be recognized in the balance sheet, measured at the discounted present value of future lease payments and offset against a right- of- use asset amortized over the lease term. The lessor accounting approach remains unchanged. The standard will replace IAS 17, 'Lease' and will be effective for accounting periods beginning on or after January 1, 2019. In 2017, the subsidiaries of the group initiated the identification of their leases across segments and regions. The analyzes of these contracts with regards to the criteria of the new IFRS 16, as well as the estimation of the impacts on the consolidated financial statements, were finalized at the beginning of 2019. The amount of the liability depends on the assumptions used for the lease term and discount rate. The lease term used to calculate the liability
is the term of the initially negotiated lease, taking into account early termination or extension options if highly probable. The Group plans to apply exemptions allowed by IFRS 16.5 to not recognize short term leases (less than 12 months) and leases for which the underlying asset is of a low value. The discount rate is determined in the same way as the total of the risk- free rate for the lease currency, with respect to the lease term, and the Group’s credit risk for this same reference currency and maturity. IFRS 16, applicable to Albéa Group starting January 2019 is expected to have a material impact on the Group’s financial statements. The group will adopt the modified retrospective method. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January2019. The estimated impact on the balance sheet of the initial application of IFRS 16 will not exceed 15% of the total borrowings. Most leases are related to the Group’s production plants, machinery equipment, and warehouses.
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Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
12
IFRIC 23 - Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRIC 23 – Uncertainty over Income Tax Treatments. According to this interpretation, when it is not probable that the relevant tax authority will accept a given tax treatment, this uncertainty should be reflected in income tax calculations, while the risk of detection by the tax authority should be considered as certain. This
interpretation is effective for annual periods beginning on or after January 1, 2019. The Group reviewed this interpretation, to determine its possible impact on the consolidated financial statements and related disclosures. This interpretation should have no material impact on the Group.
2.2.4. New standards, amendments and interpretations not yet adopted by the European Union not applicable to the Group until future periods
Amendments to IAS 19 – Employee Benefits
In February 2018, the IASB issued limited amendments to IAS 19 – Employee Benefits. These amendments specify that, in case of amendment, curtailment or settlement of a defined benefit pension plan, the entity must use the updated actuarial assumptions to determine the service cost and the net interest cost for the period following the plan amendment. They also specify that the impact of such cases on any plan surpluses must be accounted for in the income statement even if these surpluses were not previously recognized. These amendments, which have been adopted by the European Union, should be effective for annual periods beginning on or after January 1, 2019.
Amendments to IAS 1 and IAS 8 – Definition of Materiality
In October 2018, the IASB issued amendments to IAS 1 – Presentation of Financial Statements and IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors. These amendments clarify that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of the financial statements make. These amendments, which have not yet been adopted by the European Union, should be effective for annual periods beginning on or after January 1, 2020. The Group reviewed these amendments, to determine their possible impact on the consolidated financial statements and related disclosures. These amendments should have no material impact on the Group.
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Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
13
2.3. SIGNIFICANT ACCOUNTING POLICIES
2.3.1. Consolidation Basis of consolidation
The consolidated financial statements include all of the assets, liabilities, revenue, expenses and cash flows of Albéa Group S.A.S. and its subsidiaries (collectively “Albéa”). For majority-owned and controlled subsidiaries included in Albéa, equity and net earnings attributable to outside shareholders are presented under Non-controlling interests in the consolidated balance sheet and income statement, respectively. As of December 31, 2018, there are no non-controlling interests. A complete list of these subsidiairies is presented in the note 8” Consolidation methods
Subsidiaries constitute all entities (including special purposes entities) over which Albéa has control, where control is defined as the power to govern the entities’ financial and operating policies in order to obtain benefits from their activities. Control is presumed to exist when Albéa owns more than fifty percent of the voting rights (which does not always equate to percentage ownership) unless it can be demonstrated that ownership does not constitute control. Generally, the Company has a shareholding of more than one half of the voting rights in its subsidiaries. The impact of potential voting rights that are currently exercisable is considered when assessing whether control exists. Subsidiaries are fully consolidated from the date control is transferred to the Company and are de-consolidated from the date control ceases. Inter-company transactions between subsidiaries
Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated. Joint ventures
Joint ventures are entities over which the Company has joint control with one or more unaffiliated entities. Albéa accounts for its joint ventures using the equity method.
Business combinations
Albéa uses the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary corresponds to the fair value of the assets transferred and the equity interests issued by Albéa. Acquisition-related costs are expensed as incurred. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the acquisition date. On an acquisition-by-acquisition basis, Albéa recognizes any non-controlling interests in the acquiree either at fair value or based on the non-controlling interest’s proportionate share of the acquiree’s net assets. Investments in subsidiaries are accounted for based on cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes directly attributable costs of investment. The excess of the consideration transferred corresponds to the amount of any non-controlling interest in the acquire and the acquisition-date fair value of any previous equity interest in the acquire over the fair value of Albéa’s share of the identifiable net assets acquired, is recorded as goodwill. In the case of a bargain purchase, if this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement. Foreign currency translation
Functional and presentation currency Items included in the financial statements of each of Albéa’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency are mainly EUR; GBP, BRL and CNY). The consolidated financial statements are presented in US dollars, which is Albéa’s presentation currency.
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Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
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Transactions and balances The recognition and measurement of foreign currency transactions are defined by IAS 21 – The Effects of Changes in Foreign Exchange Rates. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction or valuation in the case of items that are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within Financial income or Financial expense. All other foreign exchange gains and losses are presented in the income statement within Other income/(expense). Changes in the fair value of monetary securities denominated in foreign currencies classified as available for sale are allocate either to translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortized cost are recognized in profit or loss, and other changes in carrying amount are recognized in other comprehensive income. As an exception to the rule described above, translation differences arising on long-term intra-group financing transactions that can be
considered to form part of the net investment in a foreign subsidiary are recognized under transaction differences as a separate component of equity until the net investment is deconsolidated. Group companies The results and financial position of all Albéa entities (none of which has the currency of a hyper-inflationary economy) whose functional currency differs from the presentation currency are translated into the presentation currency as follows: - assets and liabilities for each balance sheet
presented are translated at the closing rate at the date of that balance sheet;
- income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
- all resulting exchange differences are recognized in other comprehensive income. On consolidation, exchange differences arising from the translation of net investments in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
2.3.2. Judgments in applying critical accounting estimates policies and key sources of estimation uncertainty Many of the amounts included in the consolidated financial statements involve the use of judgment and/or estimation. These judgments and estimates are based on management's best knowledge of the relevant facts and circumstances, taking into account previous experience, but actual results may differ from the
amounts included in the consolidated financial statements. The preparation of financial statements in compliance with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and the carrying amounts of assets and liabilities that are not
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Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
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readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors including expectations of future events that are considered to be reasonable and relevant under the circumstances. Actual results may differ from these estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below and directly disclosed in the notes of the financial statements (Deferred taxes (Note 5.8), goodwill (Note 6.1),
Intangible asset and Property plant and equipment (Note 6.2) and Provisions (Note 6.11)). Impairment of non-current assets
Assets are subject to impairment tests whenever changes in events or circumstances indicate that impairment may have occurred. Assets are written down to the higher of (a) fair value less costs to sell or (b) value in use. Value in use is calculated by discounting the expected cash flows from the asset at an appropriate discount rate which uses management’s assumptions and estimates of the future performance of the asset. Differences between expectations and actual cash flows could result in differences in the amount of impairment charges required.
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Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
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NOTE 3 SIGNIFICANT EVENTS
3.1. CHANGE IN CONSOLIDATION SCOPE: ALBEA ACQUISITION
Albéa Group S.A.S., top holding company of the Albéa Group, was created on January 2018 by a fund of PAI Partners group to structure the acquisition of Albea SA which was completed on March 23th, 2018. A fully own indirect subsidiary of Albéa Group SAS acquired Albéa SA for a net price of USD 603 million. This acquisition has been financed through capital injection of the owner and the issuance of a EUR 150 millions Senior Notes (Pay-if You-Can) issued by Hercule Debtco (fully own subsidiary of Albéa Group SAS). The assets and liabilities acquired were recognized based on book values at the acquisition date. All assets, liabilities and contingent liabilities will be measured at fair value in accordance with IFRS 3R – Business Combinations within 12 months following the
acquisition date. This business combination was recognized on a preliminary basis. In accordance with IFRS 3R, the purchase price allocation to identified assets and liabilities has been conducted with the help of an external independent valuation expert. As a result, the following assets and liabilities were identified on a preliminary basis ; the fair value adjustments relate mainly to intangible assets and the related deferred taxes.: - Albéa Corporate tradename for USD 55
million: The valuation method used was the relief-from-royalty method on a define useful life.
- Customer relationship for USD 282.1 million - Developed Technology for USD 112.5 million - Inventory step up for USD 19.5 million - Property plant and equipment step up for USD
53.6 million
In thousands of USDAt March 23, 2018
Fair value Assets Albéa Corporate Tradename 55 000 Customer relationships & technology 394 600 Net Intangible assets 15 452 Net tangible assets 556 514 Other non current assets 26 767 Deferred tax assets 13 733 Total non-current assets 1 062 066 Inventories 203 385 Trade receivables and other 227 142 Cash and cash equivalents 109 115 Total current assets 539 642 Total assets 1 601 708
LiabilitiesGross financial debt 995 039 Deferred tax liabilities 137 448 Provisions 93 818 Trade payables and other 366 043 Total Liabilities 1 592 348
Net attributable assets acquired A 9 360
Acquisition price B 603 180
Preliminary Goodwill B-A 593 820
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Albéa Group S.A.S. Consolidated financial statements for period ended December 31, 2018 In thousands of USD
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This preliminary residual goodwill of $593.8 million mainly refers to the following goodwill components: - The workforce mainly corresponding to
Production and back office employees team - The increase in revenues over the Business
Plan period, driven by the acquisition of new small and Medium clients and new products launches
- The revenues generated by the CRP product line especially Beauty Solutions activities
Acquisition expenses recognized in Albéa Group consolidated financial statements totalized USD (20.3) million (see note 5.4). Albéa SA contribution to the financial statement at December period: - Net Sales USD 1 197.3 million - Adjusted EBITDA USD 153.3 million Albéa SA figures for 12-month period ended December 2018 amount to: - Net sales USD 1 569 million - Adjusted EBITDA USD 198.1 million.
3.2. SENIOR NOTES
In February 2018, Hercule Debtco S.à.r.l, a Luxembourg private limited liability company is offered EUR 150.0 million in aggregate principal amount of its 6.750%/7.500% Senior HoldCo Pay-If-You-Can Notes (PIYC) due 2024 as part of the
financing for the proposed acquisition of Albéa S.A. The Notes were issued on February 2018. The Senior HoldCo Pay-If-You-Can Notes are measured at amortized costs. The financial interests are presented in Financial expenses starting from February 2018.
3.3. REFINANCING PROCESS
On March 28, 2018, Albéa Beauty Holding a subsidiary of Albéa Group SAS, has completed a debt repricing of its existing senior secured credit facilities issue in April 20, 2017 which include USD 818 million 7-year covenant-lite term loan B facility divided in two tranches: - the 406 million USD tranche at Libor US + 300
bps, with a 1% floor; repayment of 0.25% of the principal on a quarterly basis
- the 385 million EUR tranche at Euribor +
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