Convatec Group PLC

Convatec Group Plc

Annual Report and Accounts 2022

Pioneering

trusted medical solutions

to improve the lives we touch

Welcome

We are Convatec

Pioneering

trusted medical solutions

to improve the lives we touch

Overview

Our 2022 highlights

About us

Strategic report

Who we are

Our business model

Chair’s statement

Investment case

Chief Executive Officer’s review

Key performance indicators

Operational review

Financial review

Non-financial information

statement

Responsible business review

The Task Force on Climate-related

Financial Disclosures

Risk management

Principal risks

Viability statement

Governance

102

Governance at a glance

103

Board statements

104

Chair’s governance letter

107

How we have applied the Code’s

core principles

110

Board of Directors

112

Convatec Executive

Leadership Team

114

How we are governed

116

Board activity and actions

123

Nomination Committee report

126

Audit and Risk Committee report

139

Directors’ Remuneration report

162

Directors’ report

165

Directors’ responsibilities statement

Financial statements

168

Consolidated financial statements

218

Company financial statements

224

Non-IFRS financial information

232

Independent auditor’s report

Additional information

241

ESG target definitions

243

Shareholder information

244

Glossary

In 2022 we have

continued to make

good progress

pivoting the

business to

sustainable and

profitable growth

Read more about our

progress on our FISBE

strategy on pages 14 to 19

We also made considerable

progress embedding our

ESG framework, Convatec

Cares. See pages 40 to 74

Certain financial measures in this Annual Report and Accounts, including

adjusted performance measures above, are not prepared in accordance

with IFRS. All adjusted performance measures are reconciled to the most

directly comparable measure prepared in accordance with IFRS on pages

224 to 228.

2. In constant currency.

Strategic report

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Overview

OUR PROMISE: FOREVER CARING

Convatec at a glance

Overview

About us

Convatec is a global

medical solutions and

technologies company,

committed to the people

we serve – patients living

with chronic conditions,

their care givers and the

healthcare professionals

who support them.

Since 1964 we have

supported patients

in managing long-term

conditions, with leading

market positions in

Advanced Wound Care,

Ostomy Care, Continence

and Critical Care

and Infusion Care.

THE SCALE OF OUR BUSINESS

KEY FACTS

~850m

finished products

~10,000

colleagues

key markets

manufacturing locations

Advanced Wound Care: 30% $621m

Ostomy Care: 25% $522m

Continence & Critical Care: 26% $546m

Infusion Care: 19% $384m

Europe: 33% $689m

North America: 53% $1,090m

Rest of world: 14% $294m

Group-reported revenue

by category

Group-reported revenue

by geography

$2,073m

We are passionate

about serving and

supporting people

with deeply personal

and challenging

medical conditions.

We consistently

deliver excellent

work, say what we do

and do what we say.

We respect each

other. We help

colleagues around

us grow, develop and

thrive, so we can all

fulfil our potential.

We take personal

ownership of all our

work: taking the

initiative, innovating,

taking smart risks

and never settling

for second best.

We behave ethically,

are honest and

trustworthy, operate

with the highest

standards of integrity,

uphold policies and

make a positive

difference.

OUR VALUES

Improve

care

Deliver

results

Grow

together

Own it

Do what’s

right

Convatec Group Plc Annual Report and Accounts 2022

Advanced Wound Care (AWC)

Advanced dressings for the management

of acute and chronic wounds resulting from

ongoing conditions, such as diabetes, and

acute conditions resulting from traumatic

injury and burns.

Read more about this category on page 22

Continence & Critical Care (CCC)

Products and services for people with

urinary continence issues related to spinal

cord injuries, multiple sclerosis, spina bifida

and other causes, and products used in intensive

care units and hospital settings.

Read more about this category on page 26

Ostomy Care (OC)

Devices, accessories and services for people with

a stoma (a surgically created opening where bodily

waste is discharged), commonly resulting from

causes such as colorectal cancer, inflammatory

bowel disease and bladder cancer.

Read more about this category on page 24

Infusion Care (IC)

Disposable infusion sets for diabetes insulin

pumps, or for pumps used in continuous

subcutaneous infusion treatments for

conditions such as Parkinson’s disease.

Read more about this category on page 28

OUR CATEGORIES

Strategic report

Governance

Financial statements

Additional information

Overview

Convatec Group Plc Annual Report and Accounts 2022

What’s inside

Strategic report

We are determined to help address the

growing ‘care gap’ between the support

patients want and what healthcare

professionals can provide.

This gap is one that we can help bridge by providing layers of care to help

patients live fulfilling lives. A survey

conducted in 2022 found 87% of patients

with long-term conditions face stigma, while many nurses feel they lack the

time and resources to provide adequate support. Forever caring is our

promise to support healthcare teams and carers, as well as the patients they

care for. Health conditions can be unpredictable and unfair. We believe

healthcare should be the polar opposite.

Above all else, forever caring builds on our heritage as a business supporting

those with deeply personal and challenging medical conditions. As we bring

Convatec’s vision to life – pioneering trusted medical solutions to improve

the lives we touch – we know the needs of our patients and healthcare

providers continue to change, and we must continue to change with them.

www.convatecgroup.com/media/press-releases/2022/convatec-makes-forever-caring-promise/

OUR JOURNEY TO FOREVER CARING

Convatec Group Plc Annual Report and Accounts 2022

Strategic

report

Who we are

Our business model

Chair’s statement

Investment case

Chief Executive Officer’s review

Key performance indicators

Operational review

Financial review

Non-financial information statement

Responsible business review

Task Force on Climate-related

Financial Disclosures

Risk management

Principal risks

Viability statement

Overview

Governance

Financial statements

Additional information

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

OUR VISION

Pioneering

trusted medical solutions

to improve the lives we touch

OUR PROMISE

Forever caring

OUR VALUES

Focus

on strengthening

customer loyalty

in key markets and

Read more about our vision,

promise, strategy and values

on page 6

INPUTS

OUR BUSINESS MODEL

Convatec Group Plc Annual Report and Accounts 2022

Identify unmet

customer needs

or pain points

Human factor

design

Reinvest

and

distribute

Process and

solution

development

Generate

profit

Clinical

development

Regulatory

submission

Manufacture

with quality

and at scale

Commercialise

globally

Customer

support across

the continuum

of care

Measure and

learn

Our promise

Our vision

Our strategy

Our values

Our ESG framework

1. Identify unmet customer

needs or pain points

Consistently and

systematically map

customer journeys, to better

understand the needs of

patients and healthcare

providers

2. Human factor design

Design products and services

to improve the customer

experience or to meet an

unmet need

3. Process and solution

development

Leverage common R&D

technologies and design for

manufacturing expertise to

deliver optimum solutions

at scale and with attractive

cost profiles

4. Clinical development

Focus on medical strategy

and clinical development

to generate evidence of

improved patient outcomes,

health economic efficiency

and better patient access

5. Regulatory submission

Understand the regulatory

backdrop and work with

regulatory bodies to enable

access for patients

6. Manufacture with quality

and at scale

Leverage common

technologies and capabilities

to manufacture high-volume,

high-quality consumables at

the right price

7. Commercialise globally

Leverage global commercial

infrastructure to enhance

access for patients and

customers. Where feasible,

adopt a global approach to

brand launches

8. Customer support across

the continuum of care

Offer high-quality services

and tools which support the

patient across their

continuum of care

9. Measure and learn

Focus on measuring Net

Promoter Score and reviewing

complaints to ensure we are

delivering for patients – taking

any feedback into account as

we consider future innovations

10. Generate profit

Constantly explore ways to

improve productivity and

efficiency of how we operate

to deliver sustainable and

profitable growth

11. Reinvest and distribute

Utilise strong free cash flow

to reinvest in the business

(either organically or

inorganically) or return

capital to shareholders

Patients

Solutions to improve the

lives we touch

~850m

finished products

Healthcare professionals

(HCPs)

Providing value-added

solutions, support and

advice

230k

HCPs engaged in

medical education

Health plan contracts

Enabling healthcare

systems to reduce costs

and increase efficiency

>1,700

health plan contracts

Employees

Providing employment

and development

opportunities

~10,000

employees

Shareholders

Generating returns

for investors

$88.1m

cash dividends paid to

shareholders

Society

Making a positive

contribution through

community engagement

and paying tax

$52.9m

corporate tax paid

THE VALUE WE CREATE

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Chair’s statement

A word from

the Chair

Dear Shareholder

Despite the global macroeconomic

challenges in 2022, Convatec has once

again delivered strong financial results

this year. Fundamental to this has been

the continued execution of our FISBE

strategy which has been key to

Convatec’s progress as it pivots to

sustainable and profitable growth.

Execution of our strategy

During 2022 we have further refined

our focus on the attractive chronic

care markets through the strategic

entry into the wound biologics

segment

via the acquisition of Triad

Life Sciences coupled with the decision

to withdraw from lower-growth,

lower-margin hospital care activities

and related industrial sales.

We have continued to strengthen our

competitive position. Our innovation

and technology agenda is gathering

momentum; as well as entering the

exciting wound biologics segment

we launched three new products

during the year and made a strategic

investment in BlueWind Medical Ltd,

a company developing an innovative

solution for the continence market.

Commercially we have been driving

improvements and developing the

resilience of our operations with

strategic infrastructure investments

and inventory building.

Towards the end of the year, the

Group also successfully concluded a

refinancing of our term and revolving

credit facilities, further reinforcing

Convatec’s financial strength into

the medium term.

2022 trading and dividend

Our reported revenue for the Group

was $2,073 million, up 1.7% against

2021 (6.9% higher on a constant

currency basis). Operating profit was

$207 million on a reported basis (2021:

$204 million) and $404 million on an

adjusted basis (2021: $362 million).

Despite the significant inflationary

headwinds during the year, we

improved our adjusted operating

profit margin to 19.5% (2021: 17.7%).

Strategic investments in M&A, higher

capex to support future growth and

inventory for resilience were key

drivers in an increase in net debt

although full year leverage

2.1x was in line with our guidance.

Given these results, Convatec’s

underlying financial strength and the

Board’s continuing confidence in the

Group’s future growth prospects, the

Board is pleased to recommend a final

dividend of 4.330 cents per share to be

paid on 25 May 2023 to shareholders

on the register at the close of business

on 11 April 2023. The final dividend will

be subject to shareholder approval at

our Annual General Meeting on 18 May

2023 and, if approved, will bring the

full year dividend to 6.047 cents per

share, an increase of 3% over 2021.

Board changes

There have been a number of changes

to the composition of the Board over

the last year. Jonny Mason joined

Convatec as Chief Financial Officer

Designate on 31 January 2022 and

became Chief Financial Officer and a

Director of the Company on 12 March

2022. Jonny replaced Frank Schulkes,

who stepped down as CFO and from

the Board on 11 March 2022. Jonny

has quickly settled into the role,

with Convatec benefiting from

his considerable experience

and knowledge.

Kim Lody and Sharon O’Keefe joined

the Board as independent Non-

Executive Directors on 1 February 2022

and 1 March 2022, respectively. Both

have brought considerable and

relevant healthcare experience and

insight, and have already contributed

a great deal to Board discussion

and debate.

Rick Anderson stepped down from

the Board on 3 March 2022, as did

Dr Regina Benjamin on 12 May 2022.

Sharon was also appointed in May

2022 as Convatec’s dedicated Non-

Executive Director workforce liaison

champion, meeting with colleagues

throughout the organisation since her

appointment, ensuring that the Board

is appropriately briefed and that

employee interests are considered

in decision-making.

Strategic report

Wound biologics segment as defined by SmartTRAK. Includes skin

substitutes, active collagen dressings and topical drug delivery.

2. Net debt (excluding lease liabilities)/adjusted EBITDA.

Convatec Group Plc Annual Report and Accounts 2022

The progress we have made on Board

diversity over the last few years is very

encouraging, not only meeting the

FTSE Women Leaders Review gender

and Parker Review ethnic and cultural

targets, but also already meeting the

new diversity targets in the Listing

Rules. While remaining focused on

recruiting on merit and on the best

candidate for the role, it is the Board’s

intention to maintain both gender and

ethnic diversity levels on the Board at

least in line with these targets. We

remain equally committed to drive

overall diversity, equity and inclusion

in Convatec’s senior management and

throughout the Company, and further

information on this can be found later,

in the Responsible business review.

Following these Board changes early

in 2022, the Board considers that it

has an appropriate mix of skills,

knowledge, experience and diversity

on the Board to fulfil its vision and

support the delivery of the

Company’s strategy.

Culture, values and behaviours

Our values guide our colleagues’

everyday behaviours. As a Board we

are determined to reinforce a culture

that is shaped by these values: this

is essential as we strive to deliver our

vision of pioneering trusted medical

solutions to improve the lives we

touch. Throughout this Annual Report

we set out the progress we have made

over the last year in reinforcing a

responsible, engaging, inclusive

and high-performing culture – one

which delivers against our forever

caring promise.

The continued execution of our FISBE

strategy has been key to Convatec’s

progress as it pivots to sustainable

and proﬁtable growth.

Convatec Cares

During the year we saw the launch

of Convatec Cares, our evolved

Environmental, Social and Governance

(ESG) framework, which supports our

aim of pivoting to sustainable and

profitable growth and underpins

our long-term success. The framework

is built around four pillars:

–

Delivering for our customers

–

Enabling our people

–

Behaving ethically and

transparently; and

–

Protecting the planet and

supporting communities

There is detailed commentary against

each of these pillars in the Responsible

business review (pages 40 to 74), as

well as further insight into the ESG

framework, governance, metrics and

targets, together with information

on our stakeholders and why it is

important for Convatec to actively

engage with them.

Convatec remains committed to

the highest standards of corporate

governance. The Governance report

on pages 100 to 165 provides further

detail on Convatec’s wider governance

framework as well as further detail

on the Board’s stakeholder

engagement activities.

Looking ahead

The considerable progress that

Convatec has made since I became

Chair in 2019 would not have been

possible without the hard work, drive

and unwavering commitment of our

employees and leadership team, for

which I would like to thank them on

behalf of the Board.

I would also like to thank our

shareholders for their support,

many of whom met with me or other

members of the Board over the last

year. Amongst other things, their

input and engagement as part of

a consultation process helped us as

we developed a new Remuneration

Policy which is set out in the Directors’

Remuneration report, and which will

be put forward for approval at the

Annual General Meeting in May 2023.

Finally, the Board remains focused on

execution of the Group’s strategy as it

evolves, maintaining a sharp focus on

strategic delivery. This includes

oversight of the innovation pipeline

and the launch of new products.

While the macroeconomic

environment remains uncertain,

I believe the Group is well placed not

only to maintain its market-leading

status but to successfully deliver

sustainable and profitable growth

into the medium term.

Dr John McAdam CBE

Chair

8 March 2023

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Investment case

Reasons

to invest

We believe that Convatec represents an attractive

defensive-growth opportunity for investors.

By pioneering trusted medical solutions to meet the

needs of patients suffering from chronic conditions

we generate attractive returns and strong free cash

flow which can be reinvested to benefit more patients,

our wider stakeholders and society as a whole.

We are focused on the

chronic care market:

>90%

of our revenues are from serving

chronic care patients. These

revenues are often recurring in

nature as patients rely on our

solutions

The chronic care market

is large:

$14bn

global market size

It is fast growing:

4-8% p.a.

2. Chronic conditions are rising

Approximately one in three adults

globally suffer from multiple chronic

conditions (e.g. diabetes, cancer).

There are three global trends driving

structural growth and increasing

demand for our solutions.

1. An ageing global population

Global population aged 60+

3. People are now living longer

Average life expectancy

in the world (years)

Chronic care

is a large and

growing market

The business is

now growing

sustainably in

4-6% range

Organic sales growth

Adjusted operating profit growth

We have leading

positions

Infusion Care

#1 globally

Ostomy Care

#3 globally

2050

2020

2.1bn

1.0bn

2020

1950

2022

2021

5.6

5.3

4.2

2019

2.3

2018

0.2

2020

2018

-7.8

2019

-14.3

2020

0.9

2022

2021

11.6

5.4

Continence Care

#1 in the US

Advanced Wound Care

#2 globally

Source: United Nations, World

Population Prospects.

Source: The global burden of multiple chronic

conditions, Cother Hajat and Emma Stein.

Source: United Nations Population

Divisions estimates.

Market size and growth based on

aggregate of category estimates,

internal analysis and publicly

available sources, including

SmartTRAK and Global Industry

Analysts Inc. reports. See pages

22 to 29 for detail.

Refer to operational reviews on

pages 22 to 29 for further detail.

2. APMs see pages 224 to 228.

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

Invest organically in opex and

capex

Progressive dividend

targeting payout ratio

of 35-45% of net profit

Bolt-on M&A

Any surplus capital

returned to shareholders

Target leverage³

~2x over time

This supports future

growth and serves

stakeholders

We expect to

expand our operating

proﬁt margin over

time by:

The business

generates strong

cash ﬂow

This results in attractive ﬁnancial outcomes

Sustainable

top-line

growth

MEDIUM-TERM TARGETS

OPPORTUNITY

4-6% organic

revenue

growth p.a.

Expanding

operating

profit

margin

2,4

Mid-20s

operating profit

margin

over time

Potential M&A

to enhance

growth

Strengthen

positions in

technology,

geography and

capability

Sustainable

and profitable

growth

Double digit

EPS

and FCF

2,4

CAGR

MEDIUM-TERM

OUTCOME

Simplification and

productivity

–

Reduce adjusted G&A spend

to 7% of sales

–

Improve commercial

productivity

–

Increase automation

ii. Improving mix

–

Exiting lower-margin,

lower-growth business and

acquiring higher-growth,

higher-margin businesses

–

Natural benefit given our

faster-growth categories are

higher margin

–

Improving the mix within our

categories

iii.

Increasing operating

leverage as revenue grows

Adjusted EBITDA²

$500m

Adjusted free cash flow

(post-tax)²

$202.6m

APMs see pages 224 to 228.

2. APMs see pages 224 to 228.

3. Net debt (excluding lease liabilities) / adjusted EBITDA

4. Adjusted.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Chief Executive Officer’s review

Pivoting to

sustainable and

profitable growth

Strategic report

“Over the course of the

year we continued to

make progress with our

FISBE strategy,

launching three new

products and improving

our competitive

position. The resulting

financial performance

is further proof that

Convatec is pivoting

to sustainable and

profitable growth”

Karim Bitar

Chief Executive Officer

Convatec continued to successfully

execute its FISBE strategy, strengthening

its competitive position and delivering

on our forever caring promise for

patients and customers. The various

strategic initiatives actioned during the

period have enhanced the quality of the

business and improved our financial

performance and prospects.

Attractive growth prospects

Convatec operates in the structurally-

growing, attractive chronic care

markets. We focus on four categories.

These have a combined market size¹

of $14 billion p.a. and market growth

rates¹ of between 4-8% p.a. We are

leaders in the categories in which we

operate and expect to grow revenue

in line with or faster than each market.

We serve a diverse set of chronic

care markets, producing high-volume,

high-quality consumables resulting

in attractive recurring revenues. This

diversity provides resilience and

synergies, notably in areas such as:

biomaterial sciences, product and

clinical development, automated

manufacturing and shared supply

chain capabilities. Consistent with our

FISBE strategy we have been investing

in our innovation pipeline, building

mission-critical capabilities, expanding

capacity and increasing our resilience.

A chronic care focused business

well positioned to deliver

sustainable and profitable growth

We continued to make progress

executing our FISBE strategy, thereby

strengthening our competitive position

and our ability to consistently deliver

sustainable and profitable growth.

Over the course of 2022, through

acquisitions and exits, we further

focused the Group on chronic care

categories – entering the fast-growing

wound biologics² segment while

exiting our hospital care business.

Our continued focus on innovation

has resulted in three new products

being launched (2021: one new launch),

and the R&D function has been

strengthened by an increased

emphasis on intellectual property.

We continue to invest in building core

capabilities. Our Centres of Excellence

(COE) (in Marketing, Pricing and Sales)

are having a positive impact which,

coupled with our simplification and

productivity agenda, are driving

better results.

The progress made under FISBE 1.0

has resulted in a stronger, higher-

quality business. Further details on

the progress made under each pillar

can be found on pages 16 to 19. We

hosted an Innovation Day on 17 May

2022 and then a Capital Markets Event

in November where we outlined our

refreshed strategy, FISBE 2.0.

Footnotes within the CEO review are defined as follows:

Market size and growth based on aggregate of category estimates, internal analysis and publicly available sources, including SmartTRAK and Global

Industry Analysts Inc. reports see pages 22 to 29 for detail.

2. Wound biologics segment as defined by SmartTRAK. Includes skin substitutes, active collagen dressings and topical drug delivery.

3. APM see pages 224 to 228.

Convatec Group Plc Annual Report and Accounts 2022

We delivered a strong financial

performance

Group reported revenue of $2,073

million rose 1.7% (2021: $2,038 million).

Adjusting for the significant FX

headwind, revenue grew 6.9% on a

constant currency basis and 5.6% on

an organic basis, slightly ahead of our

initial guidance.

Adjusted operating profit³ rose 11.6%

and 12.2% on a constant currency basis

despite significant COGS inflation of

8.6%. Adjusted operating profit³ margin

was 19.5% (2021: 17.7%) with mix / price,

operations productivity, significant G&A

spend reduction and 80bps of foreign

exchange tailwind more than offsetting

significant inflation and continued

investment in commercial capabilities.

Reported operating profit was broadly

flat over the previous year, as G&A

savings were partially offset by higher

operating expenses arising from selling

and distribution as well as costs related

to the exit of hospital care.

Adjusted diluted EPS³ was down 3.1%

with operating profit growth more than

offset by higher adjusted tax expenses

and finance expense from higher market

interest rates.

Reported diluted EPS was down 46.6%

impacted by higher adjusting items

mostly related to the exist of hospital

care and Triad Life Sciences acquisition.

Capital expenditure during 2022 was

$144.2 million as we continued to invest

for future growth, expanding our

manufacturing facilities in Infusion Care,

beginning to increase the automation at

our production facilities and developing

new digital technologies to deliver

enhanced customer experiences. We

were able to accelerate our plans,

making good progress on several

significant projects, notably the

expansion of capacity in Osted and

Reynosa for our Infusion Care business,

and beginning to increase automation

at our Deeside wound care facility. We

also invested in acquiring intellectual

property for our Ostomy Care

accessories portfolio.

Cash conversion was 55.6% (2021: 73.0%)

primarily reflecting increased capital

expenditure and the strategic decision

to build inventory for resilience, coupled

with the timing of receivables. We

expect phasing of some receivables to

reverse in H1 2023 while strategic capex

investment and inventory will remain

elevated in 2023.

Net debt⁴ increased by $187 million after

the acquisition of Triad Life Sciences

($173 million) and investment in

BlueWind Medical ($31 million).

Leverage⁵ was 2.1x (2021: 1.9x) in line with

our guidance. We continue to target

leverage⁵ of 2x over time but will be

comfortable going up to c.2.5x for

appropriate M&A opportunities.

Delivering continued

strategic progress

The execution of our FISBE strategy is

progressing well. We continue to make

progress in each of the five pillars as

we drive towards our vision of

pioneering trusted medical solutions

to improve the lives we touch. In

November, at our Capital Markets

Event, we announced that in 2023

our strategy will evolve to FISBE 2.0.

Focus

We further reshaped the business to

focus on our four chronic care categories

through bolt-on acquisitions, notably

the Triad Life Sciences acquisition which

gives us a foothold in the important

wound biologics² segment. This, coupled

with the withdrawal from non-core

hospital care activities and related

industrial sales, means that over 90% of

our revenue now comes from chronic

care markets.

We continued to focus and invest in our

12 key markets which cumulatively

delivered constant currency revenue

growth of 9.6%, ahead of the overall

Group growth.

Looking ahead to 2023, with FISBE 2.0,

we will become even more focused on

strengthening customer loyalty in our

key markets and categories, measuring

and tracking our net promoter scores.

We will continue to invest in the US and

China, our most important markets and

continue to evaluate appropriate bolt-on

M&A opportunities to further strengthen

the business in our core categories.

Net debt excludes lease liabilities

Net debt

2,4

/adjusted EBITDA

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Chief Executive Officer’s review

continued

Strategic report

Innovate

Innovation remains at the heart of our

business. We have made significant

progress advancing our pipeline and

strengthened our technology &

innovation capabilities. The R&D

expenditure for the year increased

3.7% on a constant currency basis.

On a reported basis R&D expenditure

was $92 million (2021: $95 million), and

additional capital expenditure of

$14 million was incurred over the period.

We invested a further $10 million in

Intellectual Property licences relating

to accessories products, accounted for

as capital expenditure.

We began launching three new products

during 2022, a step up from our

historical level:

–

Advanced Tissue Technologies’ (ATT)

porcine placenta-derived

extracellular matrix product,

InnovaMatrix

, in the US, which has

contributed meaningfully to the

growth in AWC during 2022

–

GentleCath™ Air for Men, our new

hydrophilic compact male catheter

(utilising our proprietary FeelClean™

Technology), began rolling-out in

France and the UK, with plans to roll

out in the US and other key markets

in 2023, and has been well received

–

The Extended Wear Infusion Set

(EWIS), our innovative seven-day wear

technology improving value and use

to customers whilst also reducing its

environmental impact, available in

Europe and now the US

It is by continually refreshing our

product portfolio and ensuring it is

differentiated that we can deliver

sustained and profitable growth

over time.

In addition, we acquired a minority stake

in BlueWind Medical Ltd, the developer

of an innovative implantable tibial

neuromodulation device for the

over-active bladder segment, securing a

relationship with a company developing

a proprietary and differentiated

solution to treat over-active bladders in

the continence space

We have also made progress on product

sustainability as it relates to technology

& innovation, part of our wider ESG

agenda. Green Design Guidelines are an

important part of our development

process, and we are systematically

examining the environmental footprint

of our solutions and considering ways

to reduce waste.

We are developing a much richer

longer-term pipeline, as mentioned

at the Capital Markets Event, and have

further visibility on product launches

– for example, we‘re already working

on the next generation hydrofiber

technology platform.

We continue to pursue our R&D without

walls approach; as well as driving

organic projects we will pursue

inorganic activity. We will continue

leveraging the IDEAL process, launched

in 2021, and are seeking to improve cycle

time. Our goal is to more frequently

refresh our portfolio to provide an

improved customer experience. This

deeper and broader innovation pipeline

will underpin our growth in the future.

To measure progress against this

ambition we are targeting that by the

end of 2025, 30% of our revenue will be

generated from new products launched

in the previous five years.

In 2023, we will continue to strengthen

our product pipeline, innovation

capabilities and improve our cycle

time. In AWC we began the US rollout

of ConvaFoam in January 2023, which

will strengthen our competitive position

in the large foam segment. We intend

to roll out ATT’s new products,

InnovaBurn

and InnovaMatrix

PD,

for which we have already received

clearance. In CCC, we will be preparing

for the launch of GentleCath™ Air for

Women in late 2023/early 2024, ahead

of schedule, whilst in IC, during 2023,

we expect to launch tailored infusion

sets for Tandem’s new Mobi hybrid

micro-pump and for AbbVie’s

Parkinson’s therapy, both of which

are subject to regulatory approval.

The other major new products are

progressing well. The Esteem 2.0

ostomy product and AWC’s ConvaVac

are expected to launch in 2024.

Simplify

We made significant progress on our

simplification and productivity agenda

in 2022. Adjusted G&A³ expenditure was

reduced by 22.2% to $185 million, down

16.4% on a constant currency basis, or

8.9% of sales (2021: 11.7%) as positive

progress with initiatives brought

forward benefits. We transitioned more

finance and IT activities to our Global

Business Services (GBS) centres in

Lisbon and Bogota. 2022 was the first

complete year of GBS activity and we

have started to see early benefits of

standardised processes and

automation, lowering finance and IT

costs. An increasing number of activities

are also now being resourced by internal

talent, thus reducing spend on external

consultants. The foundations are now

in place to build additional in-house

expertise to further streamline

processes and reduce additional spend.

During 2022 we also initiated a review

of our facilities footprint and are in the

process of closing some underutilised

offices, replacing them with flexible

working alternatives which will improve

our colleagues’ experience.

In 2023, as part of FISBE 2.0, we will look

to improve productivity further across

the organisation, reducing low value

activity and driving economies of scale.

On the commercial front we will

leverage the Salesforce CoE and our

CRM system more broadly across the

organisation. In quality and operations,

we will increase automation and drive

our continuous improvement agenda.

In G&A we will expand the scope of GBS

and build more end-to-end processes.

For example, we have started our HR

transformation, which will see us

leverage central processes such as

payroll, training and onboarding

transitioning to GBS.

Convatec Group Plc Annual Report and Accounts 2022

SIMPLIFY

We have established and invested in

a Global Business Services function

(GBS), which enables us to deliver

economies of scale by centralising

expertise, and drive productivity

by standardising, simplifying and

automating processes.

In 2022 we have started seeing

benefits from redesigned processes.

The volume of transactions processed

through GBS increased to a substantial

scale. We served over 12,000

customers in nine different languages,

paid over 200,000 invoices and

delivered management accounting

reports for 70 countries from a single

location. Additionally, by reducing

reliance on external consultants, and

developing in-house expertise, we

were able to reduce G&A spend,

bringing it below 9% of sales.

We understand there is significant

further opportunity to improve the

working experience of colleagues and

to save costs. On an ongoing basis, we

are leveraging our GBS platform,

increasing the scope of activities as

well as geographic coverage. We are

adding more digital tools and more

automation, such as self-service apps.

Improving our

margin by reducing

G&A spend

Overview

Governance

Financial statements

Additional information

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

Chief Executive Officer’s review

continued

Strategic report

INTRODUCING CONVATEC‘S EXECUTIVE LEADERSHIP TEAM

Seth Segel – President & Chief

Operating Officer, Continence

Care & Home Services Group

Karim Bitar – Chief Executive Officer

Dr Divakar Ramakrishnan – Executive

Vice President, Chief Technology Officer

and Head of Research & Development

Anne Belcher – President & Chief

Operating Officer, Global

Emerging Markets

Jonny Mason – Chief Financial Officer

John Haller – Executive Vice President,

Chief Quality & Operations Officer

Kjersti Grimsrud – President

& Chief Operating Officer,

Infusion Care

Natalia Kozmina – Executive Vice

President, Chief Human Resources

Officer & ESG Stewardship

David Shepherd – President & Chief

Operating Officer, Advanced

Wound Care

Bruno Pinheiro – President & Chief

Operating Officer, Ostomy Care

Evelyn Douglas – Executive Vice

President, Chief of Corporate Strategy &

Business Development, General Counsel

& Company Secretary

Read more about their skills on pages 112 and 113.

Build

We strengthened the Convatec

Executive Leadership Team (CELT) during

2022. Jonny Mason joined us as CFO of

the Group during Q1, while Kjersti

Grimsrud took over leadership of our

Infusion Care business and

consequently Seth Segel added

Continence & Critical Care to his existing

HSG responsibilities. Anne Belcher

joined the Group from GSK to lead our

Global Emerging Markets business and

Bruno Pinheiro, who led our successful

LATAM business before acting as Interim

President for GEM, took over Ostomy

Care. John Haller joined us as EVP, Chief

Quality & Operations Officer, having

previously been at Stryker Corporation.

We developed and embedded our

Pricing CoE, which in collaboration with

our business units, achieved 50 bps of

pricing improvement on gross margin

over the period.

Our refreshed brand and new Company

promise of forever caring was launched

in May. It has been well received by

customers and HCPs. In the second half

of the year we rolled out new websites

and social media digital interfaces

reflecting the refreshed brand across

all of our focus markets.

Our Salesforce CoE has now

established a single CRM platform in

North America and Europe, and we

have begun rolling it out across GEM.

This is driving enhanced salesforce

productivity by increasing call rates

and improving account targeting.

Going forward we will leverage the

Marketing CoE more broadly across

the Group and build new capabilities,

particularly focused on customer

experience and measurement of Net

Promoter Scores.

Culture is a critical element in building

high performing teams and creating a

motivating work environment. Results

from our latest Organisational Health

Index (OHI) survey were strong,

sustaining our top performance from

2020. We will continue to cultivate

talent, recognise colleagues and focus

on Diversity, Equity & Inclusion (DE&I)

and Wellbeing over the next year.

Execute

We continue to execute well on our

strategic initiatives, following a

consistent methodology that

identifies metrics and tracks

milestones regularly.

We delivered positive manufacturing

productivity improvements in the face

of significant COGS inflation and

continued to improve the resilience of

the supply chain. We are committed to

sustaining our strong safety record

while improving the quality of our

products and services for our

customers. Complaints per million

decreased by 13% over the period.

Convatec Group Plc Annual Report and Accounts 2022

One year on since launching Convatec

Cares, our refreshed Environmental,

Social & Governance (ESG) approach,

we have made good progress

integrating ESG practices across our

business and value chain:

–

Elevated ESG through our strategic

planning process and engaging all

business units and functional areas on

priorities, targets and commitments

–

Emissions reduction: In line with our

net zero commitment, we reduced

Scope 1 and Scope 2 greenhouse gas

emissions by 32% in 2022. We are on

track to validate our Scope 1, 2 and 3

(near term) Science Based Targets in

2023. Our manufacturing sites

increasingly use renewable electricity,

and we expect that to reach 100% by

the end of 2023

–

Progress in DE&I and Wellbeing

approach where now 36% of our CELT

are women, 40% of our Board are

women, and we are on track to ensure

40% of our senior management (CELT

member plus their direct reports) are

women by the end of 2024

–

Elevated our focus on supply chain

sustainability, improving the average

EcoVadis score of our suppliers by 6.5%

–

We committed more than $2 million in

both product and cash donations in

2022, including a humanitarian relief

response for Ukraine valued at over

$1.5 million. This year, we’ve also

committed more than $100,000

in response to the earthquakes in

Turkey and Syria in both product

and cash donations.

We announced today a new $2 million

health partnership with Partners In

Health (PIH), a leading international NGO

focused on building equitable health

systems globally. The innovative

partnership expands recruitment and

support of Community Health Workers

and improves their training on chronic

conditions. Living in the communities

where they work, Community Health

Workers are trusted neighbours who

are able to provide high-quality health

services. Over three years, Convatec’s

support – through cash, product

donation and training – will enable PIH to

reach over 250,000 children and adults,

with a particular focus on programmes

in Mexico, Peru and the United States.

Group 2023 outlook

We are pleased with the growth

we achieved in 2022 and are focused

on pivoting to sustainable and

profitable growth.

We expect organic revenue growth to

be between 4.5 – 6%, consistent with

our medium-term targets shared at our

Capital Markets Event in November.

Growth will be H2 weighted because of

stronger comparatives in H1 2022,

especially in Infusion Care, and because

ATT will contribute to organic growth

following the anniversary of the

acquisition.

The reported revenue will be impacted

by the exit of hospital care and related

sales, which generated $102 million

in 2022.

We remain focused on expanding our

operating margin³ by growing revenue,

improving our mix/price and delivering

on our simplification and productivity

agenda. Inflation is expected to remain

a significant headwind in 2023 with

COGS inflation of 5-7%. In addition we

anticipate labour inflation in opex of

5-7% which is approximately double

that of 2022. On this basis, we expect

modest improvement in the adjusted

operating margin³ in 2023 to at least

19.7% on a constant currency basis.

Furthermore, our medium-term

target of mid-20s operating margin³

remains unchanged.

Based on current interest rates, we

expect adjusted net finance expense

for the full year to be $70-80 million.

The cash tax rate for the year is

expected to be around 19%, while

the adjusted book tax rate³ is

expected to be approximately 25%.

Capex will remain elevated at around

$120-140 million for the full year

reflecting the continued growth

investments we are making across

the Group and we intend to increase

inventory by c.$20 million to further

strengthen supply chain resilience.

We are confident about the future

prospects for the Group as we

continue to pivot to sustainable

and profitable growth.

Karim Bitar

Chief Executive Officer

8 March 2023

OUR FISBE STRATEGY IS EVOLVING

FISBE 1.0 (2019-2022)

FISBE 2.0 (2023 into the medium term)

Focus

on key categories and

markets

Focus

strengthening customer loyalty

in our

key markets and categories

Innovate

in our work and trusted

solutions

Innovate

To increase vitality and velocity

trusted

medical

solutions

Simplify

our organisation and

operations

Simplify

To improve productivity across

our organisation

Build

core capabilities

Build

And embed mission-critical

capabilities

and a winning culture

Execute

with excellence

Execute

With excellence

while integrating ESG

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Key performance indicators

Strategic report

We are continuously

tracking our progress

We use a mix of financial and non-financial metrics

to measure delivery of our strategy.

FINANCIAL KPIs

Group revenue growth

Adjusted operating profit margin

2022

2021

2020

+6.9%

+5.8%

+4.0%

$2,072.5m

$2,038.3m

$1,894.3m

2022

2021

2020

19.5%

17.7%

18.5%

Metric

Group revenue growth compares the revenue generated from the

sale of the Group’s products in the current year with the prior year.

Metric

Adjusted operating profit margin is adjusted operating profit

as a % of revenue.

Target: Mid 20s adjusted operating profit margin in the

medium term

Relevance to strategy

Group revenue performance reflects the growth of our business

and our progress towards achieving our ambition of delivering

attractive revenue growth year-on-year.

Relevance to strategy

Adjusted operating profit margin reflects how effectively we are

running our business – a key factor if we are to deliver sustainable

and profitable growth.

Focus

Innovate

Build

Execute

Focus

Innovate

Simplify

Build

2022 performance

–

6.9% increase on constant currency basis

–

AWC revenues grew 12.7% driven by strong organic growth

in GEM and Europe, supported by the contribution from the

Triad acquisition

–

OC revenues grew 2.8%, driven by strong growth in GEM and

robust performance in Europe

–

CCC revenues grew 2.6% driven by continued strength in new

patient starts and high customer retention, supported by Cure

Medical and Patient Care Medical acquisitions, partially offset

by a decline in Critical Care

–

IC revenues grew 10.2% driven by continued demand for our

innovative infusion sets by diabetes patients

2022 performance

–

Adjusted operating profit margin increased by 180bps to 19.5%

–

Pricing, mix and productivity improvements, combined with

significant G&A savings and an 80 bps foreign exchange tailwind

more than offset inflationary headwinds and increases in

strategic investments

Revenue growth is stated at constant currency.

Certain financial measures in this Annual Report and Accounts,

including the adjusted performance measure above, are not prepared

in accordance with IFRS. All adjusted performance measures are

reconciled to the most directly comparable measure prepared in

accordance with IFRS on pages 224 to 228.

Convatec Group Plc Annual Report and Accounts 2022

FINANCIAL KPIs

NON-FINANCIAL KPI

Adjusted free cash flow (post-tax)

Quality

(number of complaints per million (CPM) products sold)

$274.7m

$347.4m

2022

2021

2020

$202.6m

2022

2021

2020

-12.8%

-11.3%

-15.9%

Metric

Adjusted free cash flow (post-tax) is adjusted net cash

generated from operations (net of capital expenditure) less

income taxes paid.

For reconciliation see page 228.

Metric

CPM measures the number of complaints we receive per million

products sold.

Relevance to strategy

Adjusted free cash flow reflects how effectively we are able to

convert the profit we generate into available cash (after

accounting for working capital movements, making capital

investments and paying tax).

Relevance to strategy

CPM is a strong indication of our manufacturing quality and

is key to ensuring that we develop trusted medical solutions.

It is also a reflection of our core capabilities and our ability to

execute effectively.

This is also an ESG metric, see page 48.

Focus

Innovate

Simplify

Execute

Build

Innovate

Execute

2022 performance

–

Adjusted free cash flow decreased by 26%

–

Adjusted EBITDA increased by 7.7% driven by good revenue

growth and a reduction in operating costs

–

However, this was more than offset by higher capital

investment to support future growth and increased inventory

to improve resilience

2022 performance

–

Overall year-on-year reduction of 12.8% as the Quality CoE

begins to have a positive impact

–

Driven by implementation of continuous improvement across

our manufacturing and quality operations

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Foam

Operational review

Strategic report

Advanced

Wound Care

Strong organic growth supported by entry

into the wound biologics segment

through

the acquisition of Triad Life Sciences.

ABOUT AWC

2022 performance

During 2022, the business achieved

strong growth in GEM and Europe

which more than offset a decline

in North America where our limited

position in the foam segment and

lower surgical volumes continued

to weigh on performance. As a result,

the business saw overall growth across

all segments globally.

Revenue of $621 million increased

4.8% on a reported basis or 12.7%

on a constant currency basis. This

performance reflected the acquisition

of Triad Life Sciences, now known as

Advanced Tissue Technologies (ATT)

which generated $35 million of revenue.

On an organic basis revenue rose by 6.8%.

We made continued strategic progress

in AWC during the period. In March

2022, we strengthened our position

with our entry into the wound

biologics

segment through the

acquisition of Triad Life Sciences. Our

commercial execution continued to

improve, as we leveraged our common

Customer Relationship Management

(CRM) platform in North America and

Europe. ConvaFoam was cleared for

launch at the end of 2022 and began

the US rollout in early 2023, which

will strengthen our competitive

position in the large and rapidly

growing foam segment.

In 2023 we will focus on:

–

Successfully launching ConvaFoam

in the US and preparing for a

European launch in 2024; driving

development of ConvaVac and

preparing to launch in 2024

–

Growing the InnovaMatrix

platform in the US and developing

the product outside the US.

–

Continuing to strengthen

commercial execution globally

2022 revenue

$621m

Market size

c. $7bn

Market growth

c. 5%

By category

Segment

2022

market size

($bn)

5-year

projected

CAGR

suNPWT

0.4

~20%

Biologics

2.2

~7%

Foams

1.8

~6%

Antimicrobials

0.9

~6%

Alignates and

fibre

0.3

~5%

Other AWDs

1.4

~2%

Category position

No. 2

Global advanced wound dressings

No. 1

Global antimicrobial dressings

Global alginate and fibre dressings

Global hydrocolloid dressings

Key competitors

• 3M

• Smith & Nephew

• Mölnlycke

Size, growth and position information

contained in this Operational review are

estimates and are based on internal analysis

and publicly available sources, including

SmartTRAK and Global Industry Analysts

Inc. reports. AWC includes single-use

negative pressure wound therapy, biologics,

foams, antimicrobials and other advanced

wound dressings such as composite/island

dressings, alginate and fibre dressings

including contact layers, hydrocolloids,

films, super-absorbents and hydrogels.

Excluding biologics, composite/island

dressings and film.

OUR KEY BRANDS

David Shepherd

President & Chief Operating

Officer, Advanced Wound Care

Convatec Group Plc Annual Report and Accounts 2022

Wound biologics segment as defined by

SmartTRAK. Includes skin substitutes, active

collagen dressings and topical drug delivery.

INNOVATE

Acquisition of Triad Life Sciences

The acquisition of Triad Life Sciences

(now known as Advanced Tissue

Technologies, or ATT) has expanded

our AWC portfolio with biologically-

derived innovative products to

address unmet clinical needs in

surgical wounds, chronic wounds

and burns.

It has strengthened Convatec’s AWC

position in the US and secured access

to an innovative technology platform

that is highly complementary to

Convatec’s existing portfolio, enabling

the Group to meet a wider range of

needs of both patients and health

care practitioners.

The ATT commercial team has made

good progress selling InnovaMatrix

AC into Physician Offices in the US

aided by the reputation of Convatec

in the wound space. In 2023 we will

leverage our broader commercial

infrastructure in the US to serve more

patients. Additionally, following

regulatory clearances in 2022, we

intend to expand our portfolio with

both InnovaBurn

and InnovaMatrix

Powder in 2023.

The transaction has been immediately

accretive to sales growth and has an

attractive financial profile, supporting

our strategic intent of pivoting to

sustainable and profitable growth.

Read more about our full product suite

online www.convatecgroup.com/

our-categories/advanced-wound-

care/

Entry into the

wound biologics

segment

InnovaMatrix

powder

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Operational review

continued

Strategic report

Ostomy Care

Improving performance by supporting

patients across the continuum of care.

ABOUT OC

Bruno Pinheiro

President & Chief Operating

Officer, Ostomy Care

2022 performance

Under the new leadership of Bruno

Pinheiro, our OC business continued to

make good strategic progress during

2022. He and the team increased the

focus on driving an improved experience

across the continuum of care. The

highly-rated Home Services Group is

helping to grow the number of new

US ostomy patients, while in Europe,

during the year, we launched new digital

services to support both health care

professionals and patients better.

Revenue of $522 million declined

4.5% on a reported basis but increased

2.8% on a constant currency basis and

3.4% on an organic basis.

The business achieved continued

strong growth in GEM, particularly in

Latin America and China, while Europe

achieved a robust performance with

some pricing initiatives helping to

offset the continued planned

rationalisation of lower-margin

non-Convatec products at Amcare UK.

In North America, new patient starts

remained stable, supported by HSG

ostomy sales.

Overall, we have continued to improve

our mix and expand our margins.

We saw good demand for Convatec

products, for example our accessories

sales saw strong growth in 2022,

following the relaunch of the Esenta

brand. Across all geographies, revenue

from Convatec ostomy products grew

5.5% on an organic basis.

In 2023 we will focus on:

–

Driving new patient starts and

continuing collaboration with HSG

–

Improving consistency of

commercial execution across

the continuum of care

–

Preparing to launch Esteem 2.0

in H1 2024

2022 revenue

$522m

Market size*

c. $3bn

Market growth

c. 4%

Segment

2021

market size

($bn)

5-year

projected

CAGR

GEM

0.6

~6%

Europe

1.6

~3%

North America

0.8

~3%

Category position

No. 3

Global ostomy

No. 2

Key competitors

• Coloplast

• Hollister/Dansac

Size, growth and position information

contained in this Operational review are

estimates and are based on internal

analysis and publicly available sources.

OUR KEY BRANDS

Convatec Group Plc Annual Report and Accounts 2022

FOCUS

China and Latin America leading

the way

Our presence in the global

emerging markets has been a key driver

of growth in Ostomy Care during 2022.

Growing double digit, they now

account for ~25% of OC’s revenues.

Three of Convatec’s key focal markets

are in the Emerging Markets: China,

Brazil and Colombia,

We estimate that our growth in OC in

China in 2022, has been approximately

3x greater than the market. This has

been achieved by developing deeper

relationships with our existing hospital

clients, focusing on new hospital listings,

enhancing our e-commerce offering and

continuously upgrading customer

service. Furthermore, we worked with

the local government, pharmacies and

volunteers to deliver products during

the ongoing lock downs.

In Latin America, we expanded our

presence in Colombia and Brazil,

through a combination of our

Convacare clinics, direct distribution

to private hospitals and establishing

partnerships with isurance providers.

In 2023, we will continue to grow share

in the emerging markets with a focus

on patient access and loyalty.

Read more about our full product suite

online www.convatecgroup.com/

our-categories/ostomy-care/

Driving growth in

our key emerging

markets

Esenta

accessories

Moldable

Ostomy pouch

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Strategic report

Continence &

Critical Care

Continued strength in new patient starts

and high customer retention drove US

growth, supported by Cure and Patient

Care Medical acquisitions.

ABOUT CCC

Seth Segel

President & Chief Operating

Officer, Continence Care and

Home Services Group

2022 performance

Revenue of $546 million rose 0.6% on

a reported basis, 2.6% on a constant

currency basis and 3.6% on an organic

basis. A good operating performance

in Continence Care was supported by

contributions from the Cure Medical

and Patient Care Medical acquisitions,

as well as an improving pricing

environment in North America.

Continence Care achieved revenue of

$409 million in 2022, up 5.0% on an

organic basis, with continued strength

in new patient starts and high customer

retention. This was complemented

by good demand for our Cure and

GentleCath™ portfolios in the US and

Latin America, and our developing

presence in France and the UK following

the launch of the GentleCath™ Air for

Men compact catheter.

During 2022 the strategic decision was

taken to exit hospital care and related

industrial sales. The hospital care

activities, reported as part of CCC,

generated $72 million of revenue in

2022 (2021: $79 million). From 31 May,

when we closed the Belarus factory,

revenue has been excluded from

organic calculations. The related

industrial sales, reported as part

of IC, generated $26 million of

revenue in 2022 (2021: $22 million).

Critical Care revenue of $137 million

declined 1.3% on an organic basis with

Flexi-Seal™, which remains in the

Group portfolio, declining following

strong COVID-19 impacted

comparatives.

In 2023 Continence Care will

focus on:

–

Continuing to drive US growth via

–

Exceptional service,

–

Both Cure Medical and GentleCath™

portfolios (including the new

GentleCath™ Air for Men)

–

Expanding in Europe and Global

Emerging Markets

–

Preparing to launch GentleCath Air™

for Women in late 2023/early 2024

From 2023 onwards, Flexi-Seal™

(2022 revenue: $66 million), our

faecal management system, will

move from Critical Care to Ostomy

Care. The remaining industrial sales,

predominantly continence related

supplies for B2B customers (2022

revenue: $17 million), will move from

Infusion Care into Continence Care.

Going forward the CCC category will

be renamed Continence Care and

we will restate comparatives.

2022 revenue

$546m

Market size*

c. $2.2+bn

Geography

2022

market size

($mm)

900

EU4 (UK, France, Italy,

Germany)

700

Other EMEA

300

APAC

150

Latin America

100

Market growth

c. 4%

Category position

No. 1

~40% market share

Retailer in intermittent catheters

in the US (Home Services Group)

No. 2

~23% market share

Manufacturer of intermittent

catheters in the US

Key competitors

• Coloplast

• Hollister

• Bard

• Wellspect

Continence & Critical Care comprises the

global intermittent catheter segment plus

the faecal management segment.

Operational review

continued

OUR KEY BRANDS

Convatec Group Plc Annual Report and Accounts 2022

BUILD

How one lives with their medical

device is equally important to the

device itself

As long-time makers of catheters,

we know there are no “silver bullets”

that solve all customer needs. Users

have very different wants and select

a product based on diverse criteria.

Sometimes it is about the technology

and its impact on the anatomy.

Sometimes it is the packaging and

usability. Sometimes it is about the

portability. An important part of

offering solutions is helping customers

in their daily lives and having a broad

range of products with different

underlying technologies and designs.

During 2022 we expanded our

portfolio by leveraging our state-of-

the-art FeelClean™ technology and

brought to market a pocket-sized,

discreet GentleCath™ Air offering

for men. In addition, we continued

innovating on our Cure Medical

ready-to-use hydrogel platform,

which has been developed through

a long track record of user-driven,

rapid innovation.

Our broader portfolio enables us

to expand in key European markets,

where discreet catheters comprise

~45% of the catheters distributed.

During 2022 we enhanced our

presence in France, built a new team

in the UK and established our

foundational leadership in Italy. In

2023, we will also seek to bring these

solutions into established Convatec

Global Emerging Markets.

Read more about our full product suite

online www.convatecgroup.com/

our-categories/continence-critical-

care/

Expanding our

presence in

Continence Care

GentleCath

Air for Men

GentleCath

Glide

Overview

Governance

Financial statements

Additional information

Strategic report

Convatec Group Plc Annual Report and Accounts

2022

Strategic report

Infusion Care

Continued strong growth driven by

strong demand for our infusion sets

for diabetes patients.

ABOUT IC

Kjersti Grimsrud

President & Chief Operating

Officer, Infusion Care

2022 performance

Our Infusion Care business continued

to strengthen in 2022. To respond to

the underlying demand for automated

insulin delivery systems and their

accessories, during 2022, we built

additional capacity at our Osted,

Denmark and Reynosa, Mexico plants.

We continued to innovate, launching

our MioAdvance Extended Wear

Infusion Sets (EWIS) in the US, and

are diversifying our customer base

by growing applications outside of

diabetes, such as Parkinson’s.

Revenue of $384 million increased

7.5% on a reported basis, 10.2% on

a constant currency basis and 9.8%

on an organic basis. The difference

between constant currency and

organic growth was due to the impact

of the industrial sales exit. This strong

growth was primarily driven by

continued demand for our infusion

sets used by diabetic patients. Growth

was also supported by increasing

demand for differentiated infusion

sets for alternative therapies, such

as pain management, albeit off a

small base.

In 2023 we will focus on:

–

Scaling up production of

MioAdvance EWIS

–

Expanding the usage of infusion sets

for the delivery of other

subcutaneous therapies, including

launching with AbbVie, once

regulatory approval is received for

their Parkinson’s drug therapy

–

Successfully launching a tailored

infusion set for Tandem Mobi once

regulatory approval is received

2022 revenue

$384m

Market size*

c. $1.6+bn

Market growth

c. 8%

Automated Insulin Delivery

c. 6%

Parkinsons Disease

c. 8%

Pain management

c. 10%

Primary Immunoglobulin

deficiency

Key partners

• Beta Bionics

• Medtronic

• Roche

• Sooil

• Tandem

Category position

No. 1 globally

Infusion sets for insulin pumps

Key competitors

• Smiths

• Ypsomed

• Gerresheimer

• Apex Medical

Infusion Care comprises infusion set for

diabetes and biologic drug delivery

segment outside of diabetes.

Based on growth of the automated insulin

delivery market from 2022 to 2032.

Operational review

continued

OUR KEY BRANDS

Convatec Group Plc Annual Report and Accounts 2022

EXECUTE

Increasing capacity, enhancing

quality and developing resilience

We are the global leader in infusion

sets for subcutaneous drug delivery,

and the diabetes segment is our main

focus. Every single day, our product

supports more than 1 million people

living with diabetes. In order to serve

all these end users, we manufacture

and deliver more than 110 million

products each year.

During 2022 we expanded our

footprint and capacity in Denmark

and Mexico. We doubled our

manufacturing capacity at our plant in

Osted, Denmark. It is the most

advanced manufacturing site in the

overall Convatec network and all

electricity is from renewable sources.

We also continued to enhance our

quality metrics and develop resilience

by improving surge capacity to ensure

we deliver for our customers and

their patients.

In addition we have continued to

innovate, launching our extended wear

infusion sets in the US, which is better

for our patients and the environment.

Read more about our full product suite

online www.convatecgroup.com/

our-categories/infusion-care/

Increasing capacity

to respond to

strong demand

MioAdvance

Extended Wear

Infusion Set

Osted facility

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Financial review

Strategic report

“The Group performed well in

2022, delivering good revenue

growth and expansion in the

adjusted operating profit margin

to 19.5%, notwithstanding the

significant inflationary headwinds.”

Jonny Mason

Chief Financial Officer

We made good progress in 2022

in executing our FISBE strategy and

demonstrated that we are pivoting

to sustainable and profitable growth.

Revenue grew by 1.7% on a reported

basis and 6.9% on a constant currency

basis. We delivered an adjusted

operating profit margin of 19.5%,

representing expansion of 180bps

over the previous year with mix/price,

operations productivity, significant

G&A spend reduction and 80bps

of foreign exchange tailwind more

than offsetting significant inflation

and continued investment in

commercial capabilities.

Adjusted basic earnings per share

reduced year-on-year primarily due

to adjusted operating profit growth

being more than offset by increases

in adjusted net finance, non-operating

and income tax expenses. These are

explained in further detail on page 32.

The competitive position of the Group

was further strengthened during the

year, entering the attractive wound

biologics

segment through our

acquisition of Triad Life Sciences,

whilst exiting the lower-margin

and lower-growth hospital care

and industrial sales activities. We

also made good progress with our

simplification and productivity

initiatives, most notably reducing

G&A spend in the year.

In November 2022, we successfully

refinanced our bank facilities with

$1.2 billion committed for five years

at slightly improved margins over

base rates compared to the previous

facilities. The Group’s $500.0 million

senior unsecured notes remain in

place and are committed until 2029.

The Group’s financial prospects are

attractive and we have confidence in

our ability, over the medium term, to

deliver sustainable annual mid-single-

digit organic revenue growth and to

expand our adjusted operating profit

margin into the mid-20s.

Reported revenue

growth

+1.7%

$2,072.5m

$2,038.3m

2021

2022

Reported operating

profit growth

+1.8%

$207.3m

$203.6m

2021

2022

Reported basic earnings

per share

3.1¢

(2021: 5.9¢)

Adjusted operating

profit margin growth

+180bps

19.5%

17.7%

2021

2022

Adjusted operating

profit growth

+11.6%

$403.7m

$361.7m

2021

2022

Adjusted basic earnings

per share

12.7¢

(2021: 13.1¢)

Reported and adjusted results

The Group’s financial performance, measured in accordance with IFRS, is set out in the Consolidated

Financial Statements and Notes thereto on pages 168 to 217 and referred to in this Annual Report as

“reported” measures.

The commentary in this Financial review includes discussion of the Group’s reported results and

alternative performance measures (or adjusted measures) (APMs). Management and the Board

use APMs as meaningful measures in monitoring the underlying performance of the business.

These measures are disclosed in accordance with the ESMA guidelines and are explained and

reconciled to the most directly comparable reported measures prepared in accordance with

IFRS on pages 224 to 228.

Constant currency growth

Management and the Board review revenue on a constant currency basis which removes the

effect of fluctuations in exchange rates to focus on the underlying revenue performance.

Constant currency information is calculated by applying the applicable prior period average

exchange rates to the Group’s reported revenue performance in the current period. Revenue

and the revenue growth on a constant currency basis are non-IFRS financial measures and

should not be viewed as replacements of IFRS reported revenue.

HIGHLIGHTS

These non-IFRS financial measures are explained and reconciled to the most directly comparable

financial measures prepared in accordance with IFRS on pages 224 to 228.

Wound biologics segment as defined by SmartTRAK. Includes skin substitutes, active collagen

dressings and topical drug delivery.

Convatec Group Plc Annual Report and Accounts 2022

Revenue

Group revenue for the year ended 31 December 2022 of $2,072.5 million (2021: $2,038.3 million) increased 1.7% year-on-year

on a reported basis or 6.9% on a constant currency basis.

The Group experienced significant foreign exchange headwinds of 5.2% on its reported revenue growth. The majority of the

Group’s 2022 revenue was denominated in US dollars (52%), however there are other significant currencies in which revenue

is denominated, notably EUR (20%), GBP (6%) and DKK (2%). These currencies depreciated significantly against the US dollar

during the year, as disclosed in Note 20 – Financial risk management to the Consolidated Financial Statements.

Adjusting for the foreign exchange headwind and acquisition and divestiture-related activities

, Group revenue grew by

5.6% on an organic basis. This was driven by continued strong growth in Advanced Wound Care and Infusion Care, with

good growth seen in Ostomy Care and Continence & Critical Care. Given the largely reimbursed markets that we serve,

there was limited opportunity to pass on the significant inflation we have seen in 2022. However, initiatives executed

through our Pricing Centre of Excellence have successfully delivered positive price impact on revenue. For more details

about category revenue performance, refer to the Operational reviews on pages 22 to 29.

Acquisitions were Triad Life Sciences in 2022 and Cure Medical and Patient Care Medical in 2021. Divestiture-related activities in 2022 were the

discontinuation of hospital care, related industrial sales and associated Russia operations, whilst in 2021 it was the divestment of incontinence activities.

Revenue by category

2022

2021

Reported

growth

Foreign

exchange

impact

Constant

currency

growth

Organic

growth

Advanced Wound Care (AWC)

620.7

592.3

4.8%

(7.9)%

12.7%

6.8%

Ostomy Care (OC)

522.1

546.5

(4.5)%

(7.3)%

2.8%

3.4%

Continence & Critical Care (CCC)

546.3

542.9

0.6%

(2.0)%

2.6%

3.6%

Infusion Care (IC)

383.4

356.6

7.5%

(2.7)%

10.2%

9.8%

Total

2,072.5

2,038.3

1.7%

(5.2)%

6.9%

5.6%

AWC revenue grew 4.8% on a reported basis or 12.7% on a constant currency basis, supported by the contribution from the

Triad Life Sciences acquisition in March 2022, with strong organic growth of 6.8%.

OC revenue fell by 4.5% on a reported basis but increased 2.8% on a constant currency basis. We continued to see good

growth in Convatec products of 4.9% on a constant currency basis, driven by strong growth across the Global Emerging

Markets and Europe and supported by the launch of the Esenta accessories range. This was partially offset by the

planned product rationalisation and transitioning the portfolio away from the lower-margin non-Convatec Ostomy

products. The 60bps difference between constant currency growth and organic growth reflects the discontinuation

of Russia activities associated with the exit of hospital care.

CCC revenue grew 0.6% on a reported basis or 2.6% on a constant currency basis. Sales in Continence Care grew well by

6.0%, driven by our 180 Medical service business, which was supported by the acquisitions of Cure Medical and Patient

Care Medical in 2021 and early progress with catheter sales outside of the United States. This growth was partially offset

by a reduction in sales of Critical Care products, following the strategic decision to exit hospital care-related activities as

announced in May 2022, coupled with lower Flexi-Seal sales in 2022 following the strong COVID-driven performance in 2021.

IC revenue grew 7.5% on a reported basis or 10.2% on a constant currency basis, reflecting continued strong demand for our

innovative infusion sets for diabetes patients, coupled with promising progress in non-diabetes therapeutic areas such as

Parkinson’s disease, primary immune deficiencies and pain management.

See pages 22 to 29 for detail on the performance of each category.

Group financial performance

Reported

2022

Reported

2021

Adjusted

2022

Adjusted

2021

Revenue

2,072.5

2,038.3

2,072.5

2,038.3

Gross profit

1,103.9

1,123.1

1,245.6

1,233.3

Operating profit

207.3

203.6

403.7

361.7

Profit before income taxes

81.9

151.3

337.6

309.4

Net profit

62.9

117.6

256.8

263.0

Basic earnings per share (cents per share)

3.1¢

5.9¢

12.7¢

13.1¢

Diluted earnings per share (cents per share)

3.1¢

5.8¢

12.6¢

13.0¢

Dividend per share (cents)

6.047¢

5.871¢

These non-IFRS financial measures are explained and reconciled to the most directly comparable financial measures prepared in accordance with IFRS

on pages 224 to 228.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Financial review

continued

Strategic report

Revenue impact of strategic exits during 2022

The strategic exit of hospital care and industrial sales will

impact revenues as we move into 2023. The table below

shows the 2022 revenue attributable to these activities.

The ongoing activities are more focused on higher-margin

and higher-growth chronic-care categories.

2022

reported

Impact

2022 revenue

from ongoing

activities

Advanced Wound Care

620.7

–

620.7

Ostomy Care

522.1

(4.9)

517.2

Continence & Critical Care

546.3

(71.8)

474.5

Infusion Care

383.4

(25.6)

357.8

Total

2,072.5

(102.3)

1,970.2

Sales related to discontinuation from hospital care, related industrial

sales and associated Russia operations

Reported net profit

Reported operating profit was $207.3 million, an increase

of $3.7 million on the prior year. Reported gross margin

decreased year-on-year from 55.1% to 53.3%, driven by

inflationary headwinds on raw materials and freight.

The reported gross margin was also impacted by increases

in one-time divestiture and termination costs (primarily

relating to the exit from hospital care and industrial sales

activities) of $21.4 million and the release of the fair value

uplift of inventory arising from the acquisition of Triad

Life Sciences of $8.7 million. These were partly offset by

foreign exchange tailwinds and mix/price benefits.

Reported operating expenses decreased by $22.9 million,

which was primarily due to a reduction of $70.4 million in

general and administrative expenses, partly offset by

increases in selling and distribution expenses of $36.2

million and other operating expenses of $13.8 million.

The improvement in G&A reflected the Group’s increasing

focus on simplifying its global processes and improving

productivity. The increase in selling and distribution

expenses was primarily driven by increases in headcount

associated with higher revenue, the inclusion of acquired

businesses and inflationary impacts on distribution costs.

Other operating expenses of $13.8 million (2021: nil) largely

reflected impairments arising from the exit from hospital

care and related industrial sales activities in 2022.

Reported net finance costs and non-operating expenses

totalled $125.4 million (2021: $52.3 million). Reported net

finance costs increased by $24.2 million to $67.7 million,

reflecting an additional $8.6 million of net finance expenses

and $15.6 million (2021: nil) for the unwind of discount

relating to the contingent consideration arising from the

acquisitions of Cure Medical in 2021 and Triad Life Sciences

in 2022. Reported non-operating expenses of $57.7 million

(2021: $8.8 million) principally arose from the

remeasurement charges in the year relating to the

contingent consideration payable in respect of the Cure

Medical and Triad Life Sciences acquisitions of $29.5 million

(2021: nil), foreign exchange losses of $14.2 million (2021: loss

of $9.3 million), the recycling of cumulative translation

losses from reserves following the closure activities

associated with the hospital care and industrial sales exit

of $12.2 million (2021: nil) and a loss on divestiture-related

activities of $2.0 million (2021: $0.5 million gain).

After income tax expense of $19.0 million (2021: $33.7 million),

reported net profit was $62.9 million (2021: $117.6 million)

generating basic earnings per share of 3.1 cents (2021: 5.9 cents).

Adjusted net profit

Adjusted gross profit increased by 1.0% to $1,245.6 million

(2021: $1,233.3 million). The adjusted gross margin of 60.1%

was broadly flat to the previous year (2021: 60.5%), with the

significant inflationary pressures on both raw materials and

freight costs partly offset by foreign exchange tailwinds

and mix/price benefits.

The Group achieved adjusted operating profit of

$403.7 million (2021: $361.7 million) with an adjusted

operating profit margin of 19.5% (2021: 17.7%). There was a

decrease in operating expenses in the year, with adjusted

G&A reduced by $52.8 million, to 8.9% of revenue (2021: 11.7%).

This was partially offset by an increase of $25.7 million in

adjusted selling and distribution expenses.

Adjusted net profit fell 2.4% to $256.8 million (2021:

$263.0 million) given the $8.6 million increase in adjusted

net finance expense from higher market interest rates

coupled with a $34.4 million increase in the adjusted

income tax expense (which is explained below).

Adjusted basic and diluted EPS were 12.7 cents and 12.6 cents

respectively (2021: 13.1 cents and 13.0 cents), calculated on

the basic weighted average ordinary shares of 2,024 million

shares (2021: 2,009 million shares) and 2,040 million diluted

shares (2021: 2,026 million) respectively.

Taxation and tax strategy

Reported

2022

Reported

2021

Adjusted

2022

Adjusted

2021

Profit before

income taxes

81.9

151.3

337.6

309.4

Income tax

expense

(19.0)

(33.7)

(80.8)

(46.4)

Effective tax rate

23.2%

22.3%

23.9%

15.0%

These non-IFRS financial measures are explained and reconciled to the

most directly comparable financial measure prepared in accordance

with IFRS on pages 224 to 228.

The Group’s reported income tax expense was $19.0 million

(2021: $33.7 million). The Group’s reported effective tax rate

of 23.2% for the year was higher than the prior year (2021:

22.3%) mainly due to the increase in US tax expenses

following the acquisition of Triad Life Sciences and non-

deductible contingent consideration relating to the

acquisition of both Triad Life Sciences and Cure Medical,

partially offset by the recognition of deferred tax assets

for previously unrecognised tax losses of $20.1 million in the

US (2021: $6.8 million related to recognition of deferred tax

assets following the acquisition of Cure Medical). For further

information, see Note 6 – Income taxes to the Consolidated

Financial Statements.

After adjusting items, the adjusted effective tax rate was

23.9% (2021: 15.0%). The increase in adjusted effective tax

rate was principally driven by the non-cash deferred tax

expenses due to the utilisation of US Federal tax losses

which are now fully recognised as deferred tax assets

following the acquisition of Triad Life Sciences, based on

stronger future taxable profitability forecasts, and the

impact of profit mix between jurisdictions in which the

Group has a taxable presence. The adjusted effective tax

rate of 23.9% was in line with guidance provided in the

interim results for the period ended 30 June 2022.

In 2021, the adjusted effective tax rate of 15.0% was

principally because of the lower incidence of taxes in the

US, and a net tax benefit in the UK for additional tax reliefs

claimed in respect of prior years. These factors were

partially offset by the impact of profit mix between

jurisdictions in which the Group has a taxable presence.

Convatec Group Plc Annual Report and Accounts 2022

Convatec is a responsible business and promotes the highest standards of compliance and ethical behaviour. Management

takes a responsible attitude to tax, recognising that it affects all of our stakeholders. The Group had on average more than

10,000 employees worldwide during 2022 and operated in over 100 countries through direct sales and local distributors.

As a result, our business activities generated a substantial amount of taxes. These included both corporate income taxes

and non-income taxes such as payroll taxes, property taxes, VAT/Sales and Use taxes, and other taxes. In order to provide

transparency on the Group’s approach to tax, the Global Tax Strategy has been published and is available on the corporate

website (www.convatecgroup.com/corporate-responsibility/socio-economic-contribution/tax-statement).

Alternative performance measures (APMs)

In line with the Group’s APM policy, the following adjustments were made to derive adjusted operating profit and adjusted

profit before tax.

Operating profit

Finance expense

Non-operating

expense

2022

2021

2022

2021

2022

2021

Reported

207.3

203.6

(67.7)

(43.5)

(57.7)

(8.8)

Amortisation of acquired intangibles

131.3

130.4

–

Acquisitions and divestitures

56.6

17.8

15.6

–

43.7

–

Termination benefits and related costs

7.1

4.3

–

Impairment of assets

1.4

–

Litigation expenses

–

5.6

–

Adjusted

403.7

361.7

(52.1)

(43.5)

(14.0)

(8.8)

In line with the Group’s APM policy, adjustments made to derive adjusted operating profit in 2022 included the

amortisation of acquired intangibles of $131.3 million (2021: $130.4 million), of which $93.0 million (2021: $96.8 million)

resulted from intangible assets arising from the spin-out from Bristol-Myers Squibb in 2008 and will be fully amortised by

December 2026, divestiture-related costs of $39.7 million principally related to the exit from the hospital care and industrial

sales activities and acquisition-related costs of $16.9 million primarily related to the acquisition of Triad Life Sciences.

Termination costs of $7.1 million were in respect of the exit from hospital care and industrial sales activities and an

impairment charge of $1.4 million related to a legacy acquisition-related customer relationship asset.

In 2021, acquisition and divestiture costs of $17.8 million related to potential and actual strategic transactions which

were executed, aborted or in-flight and sought to improve the strategic positioning of the Group. Termination costs of

$4.3 million were in respect of the Group’s Transformation Initiative whilst litigation expenses of $5.6 million related to

a one-off claim that was also settled in 2021.

The adjustment of $15.6 million made to derive adjusted finance expenses in 2022 wholly related to the discount unwind

in respect of the contingent consideration payable on the Triad Life Sciences and Cure Medical acquisitions.

Adjustments made to derive adjusted non-operating expenses in 2022 included remeasurement charges of $29.5 million

in respect of the contingent consideration payable on the Triad Life Sciences and Cure Medical acquisitions and divestiture-

related costs of $14.2 million principally related to cumulative translation adjustments and a loss on disposal from the exit

of the hospital care and industrial sales activities.

Of the total of $255.7 million of adjusting items, $244.6 million were non-cash items. For further information on Non-IFRS

financial information, see pages 224 to 228.

The Board, through the Audit and Risk Committee, continuously reviews the Group’s APM policy to ensure that it remains

appropriate and represents the way in which the performance of the Group is managed.

Strategic transformation

During 2022, the Group completed the first phase of its FISBE strategy (FISBE 1.0), a global multi-year transformation

programme which commenced in 2019. FISBE 1.0 started to position the Group for sustainable and profitable growth

and in 2022, we saw improved organic revenue growth performance and adjusted operating profit margin growth.

Transformation costs associated with FISBE 1.0, treated as an adjusting item, were minimal in 2022 (2021: $4.3 million).

FISBE 1.0 strengthened the Group, with the business becoming more focused on chronic care, developing a deeper and

broader innovation pipeline, notably delivering three new product launches during 2022, and improving commercial

and operational execution, for example the significant reduction in complaints per million across the past three years.

The Group has explored and executed acquisitions and divestitures to strengthen the strategic positioning of the Group

and increase its focus on the four key categories. During 2022, this included the acquisition of Triad Life Sciences, the equity

investment in the preference shares of BlueWind Medical Ltd (BlueWind Medical), the strategic decision to withdraw from

hospital care activities and related industrial sales as announced on 12 May 2022 and other potential transactions. Further

details are provided in Note 10 – Investment in financial assets, Note 26 – Acquisitions, Note 27 – Divestitures and the

Non-IFRS financial information section to the Consolidated Financial Statements.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

As announced at the Capital Markets Event on 17 November

2022, following the completion of FISBE 1.0, our strategy

is now evolving to deliver the pivot (FISBE 2.0). This is

discussed further on pages 15 to 19. Medium-term targets

associated with FISBE 2.0 include delivering sustainable

mid-single-digit organic revenue growth per annum and

expanding the adjusted operating margin into the mid-

20s. This is to be delivered through simplification and

productivity initiatives, improving the product margin

mix and operating leverage. Furthermore, there may be

potential M&A opportunities to further strengthen the

Group. The outcome of delivering on these targets will

be sustainable and profitable growth with double-digit

adjusted EPS and adjusted free cash flow compound

annual growth over the medium term.

Acquisitions and investments

As noted above, in line with our strategic transformation

and consistent with the “Focus” pillar of FISBE (see page 16),

we acquired Triad Life Sciences, a US-based medical device

company, on 14 March 2022 for an initial consideration of

$125.3 million. The acquisition of Triad Life Sciences

strengthens the Group’s Advanced Wound Care position

in the US, securing access to a complementary and

innovative technology platform that enhances advanced

wound management and patient outcomes. In addition

to the initial consideration, there is further contingent

consideration payable of up to $325.0 million, based on

the achievement of two short-term milestones (totalling

$50.0 million) and sales performance during the first two

years post-completion (maximum earnout of $275.0 million

based on stretching financial performance over the period).

The two short-term milestones were successfully achieved

in 2022, resulting in $50.0 million being paid during the year.

Based on the latest available information, the discounted

fair value of the remaining contingent consideration as at

31 December 2022 was $130.8 million. Refer to Note 26 –

Acquisitions to the Consolidated Financial Statements

for further details.

Management have identified that reasonably possible

changes in certain key assumptions and forecasts may

cause the calculated fair value of the contingent

consideration to vary materially within the next financial

year and accordingly, management have deemed this

to be a key estimate. See Note 1.4 – Critical accounting

judgements and key sources of estimation uncertainty to

the Consolidated Financial Statements for further details.

The Group also has contingent consideration of up to

$10.0 million in respect of the acquisition of Cure Medical

in 2021, which is based upon post-acquisition performance

targets and due to be paid within three years of the

acquisition date. Based on the latest available information,

the discounted fair value of the remaining contingent

consideration as at 31 December 2022 was $9.2 million

(2021: $3.1 million).

On 9 May 2022, the Group invested $30.7 million in

preference shares of BlueWind Medical, inclusive of

transaction costs. This represents an investment into an

innovative technology in the large and growing overactive

bladder market, related to the Continence space. Refer to

Note 10 – Investment in financial assets to the Consolidated

Financial Statements for further details.

Strategic decision to exit from hospital care and

industrial sales

On 12 May 2022, it was announced that the Group would

be withdrawing from its hospital care activities and

related industrial sales during the remainder of 2022.

The withdrawal from these lower-margin and lower-growth

activities is consistent with the Group’s FISBE strategy,

with the Group focusing on higher-growth chronic care

markets with higher margins and higher levels of

recurring revenue.

The manufacturing plant in Belarus, which produced

hospital care goods, ceased manufacturing on 31 May 2022

alongside the discontinuation of associated Russia

activities. The remainder of the hospital care and industrial

sales activities were mostly phased out in the second half

of 2022. The majority of the exit and closure activities have

been completed at the end of the year, with minimal

residual sales expected in 2023. Further details are

provided in Note 27 – Divestitures to the Consolidated

Financial Statements.

Dividends

Dividends are distributed based on the distributable

reserves of the Company, which are primarily derived

from the dividends received from subsidiary companies

and are not based directly on the Group’s retained earnings.

The distributable reserves of the Company at 31 December

2022 were $1,562.9 million (2021: $1,590.3 million).

The Board declared an interim dividend of 1.717 cents per

share in August 2022 and has recommended a final 2022

dividend of 4.330 cents per share, which would bring the

full year dividend to 6.047 cents per share (2021: 5.871 cents

per share), an increase of 3% and a pay-out ratio when

compared to adjusted net profit of 48%. Our stated policy

is a pay-out ratio of 35% to 45% of adjusted net profit but

this is interpreted flexibly over time to reflect the underlying

performance of the business and the Board’s confidence in

its future growth prospects.

Further information about the Group’s dividend policy and

dividends paid can be found on page 162 and information

on capital maintenance and the available distributable

reserves position can be found on page 200.

Sources of cash and free cash flow

Sources of cash

One of the Group’s primary sources of cash is net cash

generated from operations.

Net cash generated from operations

Reported

2022

Reported

2021

EBITDA

432.0

420.1

Share-based payments

16.7

16.4

Working capital movement

(62.5)

(31.6)

(Loss) on foreign exchange derivatives

(1.7)

(4.3)

Net cash generated from operations

384.5

400.6

EBITDA is reconciled to the most directly comparable financial measure

prepared in accordance with IFRS in the cash conversion table on page 228.

Reported net cash generated from operations decreased

by $16.1 million to $384.5 million during the year, mainly

due to working capital movements. The increase in working

capital in the year ended 31 December 2022 was driven by

increased inventory levels of $36.3 million to build resilience

across the Group and increases in trade and other

receivables of $63.6 million due to sales phasing and the

timing of receipts. This was partially offset by increases in

trade and other payables of $40.7 million primarily due to

the increase in derivative financial liabilities as a result of

the mark to market (MTM) valuations at the year end and

an increase in restructuring provisions.

Financial review

continued

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

Free cash flow

Adjusted free cash flow (post-tax), is one of the four key financial performance indicators we use to monitor the delivery

of our strategy.

Reported

2022

Reported

2021

Adjusted

2022

Adjusted

2021

EBITDA

432.0

420.1

500.0

464.2

Share-based payments

16.7

16.4

–

Working capital movement

(62.5)

(31.6)

(98.6)

(32.3)

(Loss) on foreign exchange derivatives

(1.7)

(4.3)

(1.7)

(3.9)

Capital expenditure (net)

(144.2)

(94.1)

(144.2)

(94.1)

Net cash generated from operations, net of capital expenditure

240.3

306.5

255.5

333.9

Cash conversion

55.6%

73.0%

51.1%

71.9%

Income taxes paid

(52.9)

(59.2)

(52.9)

(59.2)

Free cash ﬂow (post-tax)

187.4

247.3

202.6

274.7

Adjusted free cash flow, adjusted EBITDA, adjusted working capital and adjusted non-cash items are explained and reconciled to the most directly

comparable financial measure prepared in accordance with IFRS in the cash conversion table on page 228.

Adjusted free cash flow (post-tax), was $202.6 million (2021: $274.7 million). The $35.8 million increase in adjusted EBITDA,

primarily driven by a reduction in adjusted operating costs (see commentary in Adjusted net profit section), was more than

offset by the $50.1 million increase in capital programmes as well as the increase in working capital.

Cash conversion was 55.6% (2021: 73.0%) and adjusted cash conversion was 51.1% (2021: 71.9%). The decline in the ratio in

2022 primarily reflected the strategic decision to increase capital expenditure and build inventory for resilience, coupled

with the timing of receipts from customers.

The $1.7 million loss (2021: $4.3 million loss) from foreign exchange derivatives was a result of hedging activity to help

mitigate the impact on underlying exposures from volatility in foreign exchange rates.

Liquidity and net debt

Net debt bridge ($m)

1,200

1,000

800

600

400

Net debt

1 January

2022

EBITDA

2,4

Working

capital

& FX

on derivatives

Capital

expenditure

Acquisitions

and

divestitures

Investment

in ﬁnancial

assets

Debt

servicing

Tax & others

Dividends

Net debt

31 December

2022

Reported

432.0

(64.2)

(144.2)

(173.4)

(30.7)

(77.2)

(41.1)

(88.1)

(881.2)

500.0

(100.3)

(144.2)

(173.4)

(30.7)

(77.2)

(73.0)

(88.1)

(1,068.1)

Reported and Adjusted EBITDA are reconciled to the most directly comparable financial measure prepared in accordance with IFRS in the cash

conversion table on page 228 and reconciliation of earnings to adjusted earnings table on page 226 respectively.

Net debt is calculated as the carrying value of current and non-current borrowings, net of cash and cash equivalents and excluding lease liabilities.

EBITDA, working capital and tax & others are on an adjusted basis. The reported numbers are disclosed within the grey bar above and commented on

further below.

Adjusted EBITDA was $500.0 million and excludes $39.2 million in respect of working capital movements arising from

acquisitions and divestitures, primarily driven by the Triad Life Sciences acquisition and the exit from hospital care and related

industrial sales during the year. Other items excluded to derive adjusted EBITDA were $5.0 million of acquisition and divestiture

expenses, $10.2 million of termination costs and $16.7 million of share-based payments, offset by a decrease in termination

accruals of $3.1 million. These numbers can be seen within the non-IFRS financial information section on page 228.

Adjusted working capital & FX on derivatives of $100.3 million included the $39.2 million working capital movement arising

from acquisitions and divestitures as explained above. A reconciliation of adjusted working capital to reported working

capital is shown in the Non-IFRS financial information section on page 228.

The Group continued to make significant investments to strengthen and grow the business such as expanding the manufacturing

facilities in its Infusion Care business, adding more automation to our production lines and developing new digital technologies to

deliver enhanced customer experiences. Consequently, capital expenditure during 2022 was $144.2 million.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Financial review

continued

Strategic report

The Group made several strategic investments in 2022 to strengthen its competitive position, including the acquisition of

Triad Life Sciences for an initial consideration of $123.3 million and two additional payments totalling $50.0 million for the

successful achievement of two milestones in 2022 in relation to that acquisition. The Group also made a $30.7 million equity

investment in BlueWind Medical, inclusive of transaction costs.

Debt servicing payments of $77.2 million are comprised of net interest payments of $49.9 million, lease payments of

$20.7 million and the amortisation of financing fees of $6.6 million.

Tax & others of $73.0 million, on an adjusted basis, consisted of income taxes paid of $52.9 million, foreign exchange on cash

and cash equivalents of $15.9 million, $5.0 million of acquisition and divestiture expenses and $10.2 million of termination

costs, offset by foreign exchange on borrowings of $11.0 million. Excluding $5.0 million of acquisition and divestiture

expenses, $10.2 million of termination costs and $16.7 million of share-based payments, tax & others, on a reported basis,

was $41.1 million.

Dividend cash payments of $88.1 million were made to shareholders in the year. This represented 78.2% of total dividends

declared in the year, with the remaining 21.8% electing to settle via scrip dividends.

Borrowings and net debt

$463.4m

($852.5m)

($90.5m )

($492.1m)

$143.8m

($88.3m)

($493.1m)

Cash and cash equivalents

Lease liabilities

Senior notes

Credit facilities

2021

2022

2021

2022

2021

2022

2021

2022

Net debt excluding leases $1,068.1m

(2021: $881.2m)

500

250

-1,000

-750

-250

-500

Net debt/

adjusted EBITDA

At 31 December 2021

1.9x

Net debt/

adjusted EBITDA

At 31 December 2022

2.1x

($718.8m)

Senior notes of $493.1 million (2021: $492.1 million) are stated net of financing fees of $6.9 million (2021: $7.9 million). Credit facilities of $718.8 million

(2021: $852.5 million) are stated net of financing fees of $8.4 million (2021: $5.4 million).

As at 31 December 2022, the Group’s cash and cash equivalents were $143.8 million (31 December 2021: $463.4 million) and

the debt outstanding on borrowings was $1,211.9 million (31 December 2021: $1,344.6 million).

The Group successfully refinanced its bank facilities in November 2022, with $1.2 billion committed for five years at slightly

improved margins over base rates compared to the previous facilities, comprising a multicurrency revolving credit facility

of $950.0 million and a term loan of $250.0 million, both with maturity in November 2027. The Group’s $500.0 million senior

unsecured notes, issued in October 2021, remain in place with maturity in October 2029.

As at 31 December 2022, $472.8 million of the multicurrency revolving credit facility remained undrawn. This, combined

with cash of $143.8 million, provided the Group with total liquidity of $616.6 million at 31 December 2022 (31 December

2021: $663.4 million). Of this, $19.2 million was held in territories where there are restrictions related to repatriation

(31 December 2021: $37.5 million).

At 31 December 2022, the Group had total interest-bearing liabilities, including IFRS 16 lease liabilities, of $1,300.2 million

(2021: $1,435.1 million). Offsetting cash of $143.8 million (2021: $463.4 million) and excluding lease liabilities, net debt was

$1,068.1 million (2021: $881.2 million), equivalent to 2.1x adjusted EBITDA (2021: 1.9x adjusted EBITDA), with the increase

primarily driven by strategic investments such as the acquisition of Triad Life Sciences, equity investment in BlueWind

Medical and increased investment in capital expenditure.

For further information on borrowings see Note 21 – Borrowings to the Consolidated Financial Statements.

Convatec Group Plc Annual Report and Accounts 2022

Covenants

At 31 December 2022, the Group was in compliance with all financial and non-financial covenants associated with the

Group’s outstanding debt.

The Group has two financial covenants, being net leverage and interest cover, each of which is defined, where applicable,

within the borrowing documentation. The table below summarises the Group’s most restrictive covenant thresholds and

position as at 31 December 2022 and 2021.

Maximum

covenant net

leverage

Covenant

net

leverage

Minimum

covenant

interest

cover

Covenant

interest

cover

31 December 2022

3.50x

2.28x

3.5x

9.9x

31 December 2021

3.50x

1.97x

3.5x

11.7x

Net leverage is net debt/adjusted EBITDA and interest cover is adjusted EBITDA/interest expense (net) in accordance with the definitions contained

in underlying borrowing documentation and are not the same as the definitions of these measures presented in the Adjusted Performance Measures

section on pages 224 to 228 and applied in the commentary in this Financial review.

Group financial position

At 31 December

2022

2021

Change

Intangible assets and goodwill

2,149.5

2,058.5

91.0

Other non-current assets

553.2

504.7

48.5

Cash and cash equivalents

143.8

463.4

(319.6)

Other current assets

745.5

647.4

98.1

Total assets

3,592.0

3,674.0

(82.0)

Current liabilities

(533.1)

(569.2)

36.1

Non-current liabilities

(1,449.2)

(1,410.0)

(39.2)

Equity

(1,609.7)

(1,694.8)

85.1

Total equity and liabilities

(3,592.0)

(3,674.0)

82.0

Intangible assets and goodwill

Intangible assets and goodwill increased by $91.0 million to $2,149.5 million (2021: $2,058.5 million). This was primarily due

to intangible assets and goodwill arising from the Triad Life Sciences acquisition of $284.7 million combined with intangible

asset additions of $44.6 million, partially offset by the in-year amortisation of intangible assets of $147.4 million, the net

effect of foreign exchange of $84.7 million and an impairment charge of $5.7 million against intangible assets.

We regularly review our trading performance to establish whether there were any triggers that would require an

impairment review of goodwill or other intangible assets. During 2022, there was an impairment of $4.3 million in respect of

a product-related intangible asset which has been phased out as part of the hospital care exit. There was also a $1.4 million

impairment relating to a legacy acquisition-related customer relationship intangible asset as part of the rationalisation of

activities in the portfolio.

The annual Cash Generating Unit (CGU) impairment review was conducted on the CGU groups and, taking into

consideration our future forecasts and reasonably possible scenarios, significant headroom remained in the carrying

value of all CGU groups in comparison to the sensitised recoverable value. No impairment was recognised against goodwill

or indefinite lived intangible assets during the year. In addition, management considered the severe but plausible

downside scenarios used in the Viability assessment and headroom remained on the carrying value of all CGU groups.

Further information on goodwill and other intangible assets can be found in Note 9 – Intangible assets and goodwill to

the Consolidated Financial Statements.

Other non-current assets

Other non-current assets, including property, plant and equipment (PP&E), right-of-use assets, investment in financial assets,

deferred tax assets, restricted cash and other assets increased by $48.5 million to $553.2 million (2021: $504.7 million). The

increase reflected the continued investment in our manufacturing facilities, with additions in PP&E of $100.0 million offset

by depreciation of $39.7 million, the net effect of foreign exchange of $17.9 million and impairments of $7.4 million. Included

within other non-current assets was the investment made in May 2022 in the preference shares of BlueWind Medical. This was

held at fair value of $30.7 million, which has not changed since the date of investment. Restricted cash reduced by $6.3 million

primarily due to the reclassification of escrow amounts arising from the acquisitions of Cure Medical and Patient Care Medical

in 2021 to current assets whilst ROU assets have reduced by $4.2 million.

Current assets excluding cash and cash equivalents

Current assets, excluding cash and cash equivalents, increased by $98.1 million to $745.5 million (2021: $647.4 million),

driven by increases in trade and other receivables of $40.5 million, inventory of $28.1 million and restricted cash of

$17.8 million. The increase in trade and other receivables, net of foreign exchange effects of $17.2 million, was mainly

due to sales phasing and the timing of receipts whilst the increase in inventories, net of foreign exchange effects of

$19.0 million, was largely attributable to the ramp up of inventory in order to build resilience across the Group.

Restricted cash increased by $17.8 million to $18.2 million, driven by escrow amounts arising from the acquisition of Triad

Life Sciences in 2022 and the reclassification of escrow amounts arising from the acquisitions of Cure Medical and Patient

Care Medical in 2021 from non-current assets to current assets.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Current liabilities

Current liabilities decreased by $36.1 million to $533.1 million

(2021: $569.2 million), reflecting a $144.8 million decrease

in the current portion of borrowings as a result of a change

in profile of the Group’s borrowings under the new credit

facilities, largely offset by a $95.2 million increase in

provisions primarily driven by the contingent consideration

payable on the Triad Life Sciences acquisition and an

increase of $20.8 million in derivative financial liabilities,

due to movements in the MTM valuations at the year end.

Non-current liabilities

Non-current liabilities increased by $39.2 million to

$1,449.2 million (2021: $1,410.0 million). This included an

increase in non-current borrowings of $12.1 million, resulting

from a change in profile of the Group’s borrowings under

the new credit facilities and an increase in provisions of

$51.4 million driven by the contingent consideration payable

on the Triad Life Sciences and Cure Medical acquisitions.

This was partially offset by a reduction in other non-current

liabilities primarily due to a reduction in the Group’s pension

obligations and the reclassification of escrow amounts

from non-current liabilities to current liabilities.

Going concern

In preparing their assessment of going concern, the

Directors considered available cash resources, access to

committed funding, financial performance and forecast

performance, including continued implementation of

the FISBE strategy, together with the Group’s financial

covenant compliance requirements and principal risks

and uncertainties.

Management also applied the same severe but plausible

downside scenarios utilised in the preparation of the

Viability statement. Under each scenario, the Group

retained significant liquidity and covenant headroom

throughout the going concern period, i.e. 12 months

from the date of this report. A reverse stress test, before

mitigation, was also considered to demonstrate what

reduction in revenue would be required in the next

12 months to create conditions which may lead to a

potential covenant breach. For a breach of covenants to

occur in the next 12 months, before mitigation, the Group

would need to experience a sustained revenue reduction

of more than 10% across all categories and markets. This

was considered implausible given the Group’s strong global

market position, diversified portfolio of products and the

mitigations available to the Board and management. For

further information on the Viability statement, see pages

98 and 99 and for Going concern, see Note 1.2 to the

Consolidated Financial Statements.

Accordingly, the Directors continue to adopt the

going concern basis in preparing the Consolidated

Financial Statements.

Financial control environment

The Group continues to closely monitor the financial and IT

general control environment, using a single system for the

self-certification of effectiveness of key financial controls

across our operations globally. The response rate remained

high throughout the year. The Global Financial Controls

(GFC) team, acting as the second line of defence, monitors

responses and reviews all notified control failures to ensure

that there is no risk of material financial misstatement.

Focused support and training is given to Global Business

Services (GBS) and market finance teams to review controls

and ensure that the control framework continues to

operate effectively. A similar self-certification process is

operated by the IT governance, risk and compliance team

for IT controls covering cyber, privacy and financial systems.

The global financial control framework was refreshed

in 2022 to increase focus on material risk, with the

introduction of a less resource-intensive framework for

the smaller operating entities, and additional controls to

address new risk areas identified. The control frameworks

will continue to evolve to respond to the development of

corporate governance requirements in the UK.

Independent assurance on these control frameworks is

provided by the Internal Audit team, with a review of the

global financial controls and the IT general controls

performed in the year, in addition to sample testing

carried out by the GFC and IT Governance teams and

reviews of financial controls of specific markets and GBS.

Jonny Mason

Chief Financial Officer

8 March 2023

Financial review

continued

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

Non-financial

information statement

Key non-financial matter

Policies and processes we implement

Page

Environmental matters

Climate change and environmental strategy

Pages 40 to 74

Employees

Our vision and values

Page 6

Code of Conduct

Page 62

Diversity, Equity & Inclusion and Wellbeing

Page 59

Our people strategy

Page 56

Employee induction, training and development programmes

Page 58

Employee engagement

Page 58

Diversity targets and review of metrics

Page 60

Human rights

Human Rights and Labour Standards

Page 63

Modern Slavery Act Statement

Page 63

Social and community matters

Community engagement

Pages 71 to 74

Anti-corruption and anti-bribery

Third Party Compliance Manual

Page 63

Compliance helpline and website

Page 62

Principal risks and impact

of business activity

Pages 92 to 97

Non-financial key

performance indicator

Page 21

Our business model

Page 8

In accordance with the requirements of Section 414CB of the Companies Act 2006, the information below is provided

to help our stakeholders understand our position in relation to key non-financial matters including, where appropriate,

the relevant policies and processes we operate.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Responsible business review

Realising our vision,

responsibly

Our approach to Environmental, Social and Governance

(ESG) aims to drive the actions necessary to help us to

realise our vision whilst acting in a way that engenders

trust with all our stakeholders.

There’s continued momentum

behind ESG. How do you approach

ESG at Convatec?

Improving lives is at the heart of

our business: we help people

through our products and services.

Importantly, the way in which we

conduct business also adds value.

That’s why we launched our ESG

framework, Convatec Cares, last

year – it’s structured to align what

we do and how we do it, allowing us

to be more than the sum of our

parts. Embedding ESG throughout

our organisation is a strategic

priority for us and I’m proud of the

progress we’ve made. Our

commitment is to ensure that

words are backed up with actions

and outcomes – recognising the

benefits to all stakeholders in

doing so.

Among the hundreds of possible

ESG data points that a company

can be ranked on, how do you

decide what to prioritise?

Navigating the complexity of ESG

considerations can be challenging.

This is why we rely on stakeholder

feedback – gathered formally

through an independent

materiality assessment every 18

months, and informally through

regular stakeholder interactions.

This way, we prioritise the things

that matter most to the business

as well as those around us.

The nature of ESG is cross-

disciplinary and cross –

functional. What’s your

approach to ESG governance

at Convatec?

Our ESG framework allows us to

bring teams together and

organise our initiatives to drive

value, while also defining clear

and accountable ownership.

Our CELT-led ESG Steering

Committee has oversight of

ESG strategy, oversees sub-

committees and working

groups on key focus areas and

updates the Board to ensure

visibility, engagement, support

and challenge at all levels.

Strategic report

ESG practices are central to Convatec’s

long-term success by enabling our pivot

to sustainable and proﬁtable growth

and bringing our vision to life.

Q&A

Karim Bitar, CEO

Chair, ESG Steering Committee

Convatec Group Plc Annual Report and Accounts 2022

CONVATEC CARES: OUR ESG FRAMEWORK

ESG PILLARS

Delivering for

our customers

with innovative products,

services and solutions

that are patient-centric

and informed by

healthcare professional

(HCP) needs and which

improve lives

Enabling our people

to thrive

by protecting

their health and safety and

using their talent for good

Behaving ethically and

transparently

to protect and enhance

our reputation with all

our stakeholders

Protecting the planet

and supporting

communities

through the way we

operate and the

contribution we make

to the world around us

Based on our materiality matrix

(page 46), our ESG framework

Convatec Cares sets out the

commitments and activities

across the Company that will

help us pivot to sustainable

and profitable growth. It

focuses on the topics that are

most material for the Group

and our stakeholders.

ESG mission

Underpinned by our values

(page 2) our ESG mission is to

drive progress towards our

vision of pioneering trusted

medical solutions to improve

the lives we touch by aligning

and enabling ESG-related

initiatives for the benefit of

our customers, colleagues,

community and shareholders.

Our ESG framework is built

around four ESG pillars.

Pioneering

trusted medical

solutions

to improve the

lives we touch

→ To find out more

about Convatec Cares,

watch our short video

www.convatecgroup.com/

sustainability/our-frameworks-and-targets/

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Responsible business review

continued

ESG GOVERNANCE: BOARD AND MANAGEMENT

ROLE OF THE BOARD

ROLE OF

MANAGEMENT

INTEGRATION INTO

OUR FISBE STRATEGY

Our Board has ultimate oversight of ESG, including climate-related risks and

opportunities, at Convatec. The Executive Director responsible for these issues

is our CEO, Karim Bitar. As a Board member, he brings together continuity and

responsibility for our ESG strategy. The Board reviews progress in respect of

the execution of our ESG strategy, including two formal touchpoints for ESG

updates, as described below.

See pages 105 and 117 for information about the Board’s activities in this area

during 2022.

Role of the Audit and Risk Committee

The Board’s Audit and Risk Committee (ARC) is responsible for reviewing and

approving our ESG and Task Force on Climate-related Financial Disclosures

(TCFD) reporting, in terms of data integrity and compliance with regulatory

requirements, as well as for oversight of the annual assurance of the

Responsible business review (page 74).

See page 133 for more information on the ARC’s activities in this area.

Our ESG Steering Committee is chaired by the CEO and includes six members of our

Convatec Executive Leadership Team (CELT). The Chief Human Resources Officer is

the day-to-day CELT sponsor for ESG, providing ESG stewardship across the Group

with the support of the CEO.

The Committee oversees the formulation and delivery of the ESG strategy and

meets three times a year. It drives the strategy, progress and required actions to

manage our ESG-related risks and capitalise on opportunities. This is then reported

to CELT for discussion, review and challenge. The Committee updates the Board

twice a year. Together, these measures ensure that all members of CELT understand

our business response to ESG topics and are committed to delivering against our

commitments to become a more sustainable business.

The Committee oversees three sub-groups, which are composed of leaders across

the business. The TCFD Working Group, which includes leaders from risk, finance

and operations, met quarterly in 2022 to advance the essential work needed to meet

TCFD requirements. The Human Rights Committee, which comprises leaders from

HR, legal, compliance, procurement and supply chain, monitors progress on

protecting labour and human rights in our operations and supply chain and met

twice in 2022. In 2022, we formed a Diversity, Equity & Inclusion (DE&I) and Wellbeing

Council, which meets annually. In 2023, we intend to launch a working group on

product sustainability.

Our central ESG team works across the Group to bring together stakeholder

activities, initiatives and priorities, and support the work of the Committee. We also

have a dedicated Environmental, Health and Safety (EHS) team within our Global

Quality & Operations function. They work across our manufacturing and R&D

facilities to deliver environmental management systems in line with our corporate

requirements, aligned with ISO 14001, and remain aligned to Group ESG priorities.

In 2022, ESG was elevated through our Company-wide strategic planning process.

Leaders from each business unit and functional area prioritised our ESG targets,

integrated them with business plans, internal targets, commitments and actions,

and allocated resources against them. The process was designed to prioritise the

risks and opportunities presented by our ESG commitments, as well as clarify the

necessary processes and activities needed to deliver on our targets.

Given the importance, complexity and dynamic nature of ESG considerations,

the strategic planning process also clarified various roles and responsibilities for

positioning the Group to meet our targets. This strategic planning cycle ensures

appropriate financial and operational plans are in place.

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

OUR ESG STEERING COMMITTEE

Responsibilities

–

Custodian of ESG strategy and objectives, including

our approach to key sustainability topics such as:

– Our impact on the environment and communities,

including transition planning

– Engagement with the workforce and the Group’s

DE&I and Wellbeing approach, as well as protection

of human rights in the supply chain

–

Leads on relevant key stakeholder engagement

across Convatec (and beyond)

–

Establishes and oversees sub-groups to drive

execution and focus in particular areas

Details on the relevant skills and experience of our

CELT members can be found online on pages 112 and

113. The VP, Internal Audit & Enterprise Risk regularly

attends the ESG Steering Committee, with particular

focus on climate-related risks and opportunities.

In 2023, the ESG Steering Committee will facilitate our

ESG agenda through a wider focus on transition

planning, Scope 3 emissions, the supply chain, and

progress through innovation and strategic community

partnerships, while supporting data-driven decision-

making and embedding ESG in our FISBE strategy. See

page 74 for information on our ESG assurance scope.

1. Not members of CELT

CEO (Chair)

EVP, Chief Technology

Officer and Head of R&D

CFO

EVP, Chief Human

Resources Officer

& ESG Stewardship

EVP, Chief of Global

Quality & Operations

Head of Investor

Relations & Corporate

Communications

EVP, Chief of Corporate

Strategy & Business

Development, General

Counsel & Company

Secretary

Head of Global

Communications,

Engagement & ESG

The Board

ESG Steering

Committee

Human Rights Committee

DE&I and Wellbeing Council

TCFD working group

Strategic planning

process

ESG strategic pillar

owners and leaders to

drive progress,

performance,

compliance and

metrics

Audit and

Risk

Committee

ESG Steering

Committee

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Responsible business review

continued

Stakeholder

Importance of stakeholders and

their key needs

How we engage

Outcomes

The people who use our products and rely on our services

Customers/

patients

Our products and services are

delivered for our customers and

patients, who have chronic

conditions. They need:

–

Safe, effective, accessible

and innovative products

–

Support and information

–

Direct-to-consumer channels

–

Home delivery companies

–

Specialist nurses and call centres

–

Targeted consumer research

–

Responding to specific

consumer questions, feedback

and complaints

–

Incorporation of relevant consumer

feedback in our research and

development processes

–

Service provision reviews based

on customer feedback, and

implementation of enhancements

as required

–

Tracking and management of

customer issues

Direct enablers who help us deliver

Healthcare

professionals

Healthcare professionals provide

valuable insight into our product

development and help to ensure that

our products reach a wide range of

patients. They need:

–

Products and services that meet

patients’ needs and benefit the

healthcare delivery system

–

Fair pricing

–

Ongoing clinical and commercial

dialogue

–

Targeted research

–

Specialist training programmes

–

Advisory boards

–

Key opinion leader meetings

–

Product and service insights inform

our development processes and our

day-to-day operations

Our people

Our employees bring our vision,

values and FISBE strategy to life,

fostering an inclusive and supportive

culture that enables them to deliver

for customers and patients. They

need:

–

Safe, healthy, ethical and fair

working environment

–

Focus on DE&I and wellbeing

–

Ability to make a difference to the

people who rely on our products

and services

–

Career growth opportunities

–

Attractive reward and recognition

–

Group-wide interaction via our

intranet, our MyConvatec app

and regular town hall meetings

–

Employee recognition activities

–

DE&I and wellbeing initiatives,

including Employee Resource

Groups

–

Customer stories

–

Group-wide employee surveys

–

Union representation and works

councils (where relevant)

–

Board-level engagement

programme

–

Performance reviews

–

Independent third-party managed

whistleblower hotline (Compliance

Helpline/website)

–

Incorporation of insights to shape

our people strategy, talent

processes and development/

training programmes

–

Cadence of employee

communications and engagement

–

Read more on behaving ethically

and transparently on pages 62-65

Channel

partners1

Our channel partners are critical to

ensure that Convatec’s products and

services are available to those with

chronic conditions. They need:

–

Effective, competitively priced

products

–

Fair pricing and commercial terms

–

Continuity of supply

–

Commercial dialogue

–

Marketing activities

–

Tender processes

–

Distributor due diligence and

compliance training

–

Quarterly reviews with partners

–

Continued inclusion in tender

processes

–

Development of valuable

relationships to address

consumer needs

Strategic report

Engaging stakeholders

We proactively engage with our stakeholders to understand their issues, build

positive relationships and inform Company practices and decision-making.

1. Including distributors, large buying organisations, integrated delivery networks, hospitals and national and regional payors

Convatec Group Plc Annual Report and Accounts 2022

Stakeholder

Importance of stakeholders and

their key needs

How we engage

Outcomes

B2B customers

Our B2B customers are critical to

ensuring that Convatec’s innovative

products can be used with other

companies’ own products to address

patient needs. They need:

–

Innovative products for use with

their own products

–

Long-term relationships

–

Fair pricing and commercial terms

–

Continuity of supply

–

Commercial dialogue and

partnership

–

Development of long-term

partnerships focused on addressing

patient needs

Investors and

debt providers

Our investors and debt providers are

critical to supporting and maintaining

Convatec’s ability to operate and

deliver, as well as our high standing

and reputation in the financial

markets. They need:

–

A clear corporate strategy and

delivery on that strategy

– Sustainable returns

–

Responsible business practices

–

Cash flow to pay dividends and

service debt obligations

–

Annual General Meeting

–

Capital Markets Event

–

Technology & Innovation Event

–

Active investor relations

programme: in 2022 we hosted

more than 250 investor meetings

including two multi-day roadshows

and participation in 6 conferences

–

Post-roadshow investor surveys

plus feedback from corporate

brokers

–

Relationship-led engagement with

debt providers

–

Board members accessibility

–

Quality materials to ensure the

capital markets appreciate the

health of the business and its

future prospects

–

Strategy, Board composition

and succession planning and

remuneration policy take into

account feedback from investors

–

Read more about our capital

allocation policy on page 13

Evaluators who hold us to account for our performance

Regulators

Regulatory bodies are critical to our

license to operate and ability to

deliver for customers. They need:

–

Adherence to legislation and

regulation

–

Proactive engagement when

challenges arise

–

Regular and ad hoc dialogue in

relation to product approvals and

other matters

–

Implementation of responsible

and diligent business practices

–

Compliance with legislation

and regulation

–

Input into relevant industry

consultations

Governments

Governments set out legislative and

other frameworks which underpin our

work. They need:

–

Responsible business practices

– Employment

–

Income generation via taxes

–

Ad hoc dialogue in relation to

specific matters, including fiscal

(e.g. taxation), employment (e.g.

apprenticeships) and corporate

governance

–

Making a socio-economic

contribution to a range of

stakeholders, including through

paying taxes as described on page 71

Communities

Communities are core to our people

and planet commitments. They need:

–

Employment opportunities

–

Medical education

–

Active management of

environmental impact from

operations

–

Ad hoc dialogue in relation to

specific matters

–

Support for a range of medical

education initiatives

–

Charitable partnerships and

donations, including NGO partners

–

Enhancing the communities where

we operate

–

Building our reputation in our

communities and across broader

society

Industry bodies

Industry bodies help us to ensure that

our interests are understood and

effectively communicated. They need:

–

High-quality input into industry

policies and standards

development

–

Proactive engagement in relation to

relevant issues

–

Membership of several industry

bodies, including Association of

British HealthTech Industries,

MedTech Europe and AdvaMed

–

Participation in discussions in

relation to industry issues,

including best practice

–

Contributing to improved

understanding of key industry

issues

–

Helping to shape relevant agendas

and standards

Convatec Group Plc Section 172 statement

Section 172 of the Companies Act 2006 (the Act) requires each of our Directors to act in a way that he or she considers,

in good faith, would most likely promote Convatec’s success for the benefit of its shareholders as a whole, having regard

to other stakeholders. Section 172 requires our Directors to have specific regard, amongst others, to the matters set out

in section 172(1)(a-f) of the Act. On pages 118 to 121 we explain how our Board engages with stakeholders to gain an

understanding of stakeholder issues and, during the year, discharged its duty pursuant to section 172 of the Act.

On these pages, we identify our stakeholders and how Convatec engages with them, further detailing within our

ESG Materiality Matrix (page 46) what we believe to be the key issues to our stakeholders. As we continue our journey

to pivot to sustainable and profitable growth, we are mindful of the importance of staying aware and responsive to

stakeholder needs.

The Directors acknowledge that every decision made will not necessarily result in a positive outcome for all stakeholders;

however, the Board aims to make well-considered decisions consistent with our vision, values and our strategic priorities.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Responsible business review

continued

We understand the importance of

operating responsibly and generating

value sustainably. As we pivot to

sustainable and profitable growth,

our focus is on the operational,

people-led and environmental

issues that are most material to

us and our stakeholders.

During 2022, we were guided by our

materiality matrix developed in 2021,

which (through research with internal

and external stakeholder input)

identified the top 18 issues important

to the business and our customers,

colleagues, communities and

shareholders. These are:

To stay aware of and responsive to our

stakeholders’ needs, we will conduct

our next materiality assessment in

2023 to support the continued

evolution of our ESG priorities.

In line with best practice, we intend to

use a double materiality approach to

consider not just the potential impacts

of ESG issues on our business success

(financial materiality), but also the

impacts of the business and its value

chain on people and the planet

(impact materiality).

IDENTIFYING KEY ISSUES FOR STAKEHOLDERS

Environmental topics

Social topics

Governance topics

Product safety

Waste (operational)

Health and safety

DE&I

Talent attraction and growth

Responsible and resilient

supply chain

Colleague wellbeing

Advocacy and community

relations

Integration of ESG into core

business process

Board-level accountability

for ESG performance

Sustainable product design

Data security and privacy

Carbon and energy

(operational)

Water (operational)

Labour standards/Modern

slavery

Biodiversity impacts on

plant and animal life

Customer access

Business ethics

Strategic report

2022 ESG MATERIALITY MATRIX

Stakeholder importance

Business impact

Convatec Group Plc Annual Report and Accounts 2022

SUPPORTING THE UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS

We support the United Nations Sustainable Development

Goals (SDGs) which aim to align governments, businesses

and the third sector in their efforts to end poverty, fight

inequality and address climate change. Convatec joins over

15,000 companies as a participant in the UN Global Compact

(UNGC) in which we pledge to follow the UNGC’s ten

principles on human rights, labour, environment and

anti-corruption. Our UNGC Annual Communication on

SDG target

Contributing activity and policies

SDG 3.4

: By 2030, reduce by one third premature

mortality from non-communicable diseases

through prevention and treatment and promote

mental health and well-being

SDG 3.8

: Achieve universal health coverage,

including financial risk protection, access to

quality essential health-care services and access

to safe, effective, quality and affordable

essential medicines and vaccines for all

–

Patients and HCPs served

–

Improving efficacy and safety of our products through

innovation

–

Supporting wellbeing of colleagues (page 59)

–

Improving access to products and services by focusing on

affordability (page 55), supply chain (page 55) and education

(pages 54 and 73)

–

Vitality index target (page 48)

–

Quality target (reducing complaints per million) (page 48)

–

Target to reduce voluntary turnover (page 48)

4.4

: By 2030, substantially increase the number

of youth and adults who have relevant skills,

including technical and vocational skills, for

employment, decent jobs and entrepreneurship

–

Apprenticeship programmes (page 59)

–

Building capabilities of our people (page 58)

–

Medical education (page 73)

–

NGO partnerships (pages 71 to 73)

8.5

: By 2030, achieve full and productive

employment and decent work for all women

and men, including for young people and

persons with disabilities, and equal pay for

work of equal value

8.7

: Take immediate and effective measures to

eradicate forced labour, end modern slavery and

human trafficking and secure the prohibition and

elimination of the worst forms of child labour,

including recruitment and use of child soldiers,

and by 2025 end child labour in all its forms

8.8

: Protect labour rights and promote safe and

secure working environments for all workers,

including migrant workers, in particular women

migrants, and those in precarious employment

–

Strengthened engagement, audit and risk assessment

of suppliers (page 63)

–

Expanding apprenticeship programmes (page 59)

–

Ensured 100% of our locations at or above the living wage

(page 61)

–

Health and safety programming (page 61)

–

Updated Code of Conduct; Human Rights & Labour Standards

Policy; and Global Third Party Manual

–

Human Resources policies

10.2

: By 2030, empower and promote the social,

economic and political inclusion of all,

irrespective of age, sex, disability, race, ethnicity,

origin, religion or economic or other status

10.4

: Adopt policies, especially fiscal, wage and

social protection policies, and progressively

achieve greater equality

–

Diversity, equity & inclusion and wellbeing commitments

(page 59)

–

Strengthened and expanded our employee resource groups

(page 60)

–

Our products and services help people with chronic conditions

regain increased mobility and ability to partake in societal

activities

–

Updated hiring practices to reduce barriers and increase

diversity (pages 59 and 60)

–

Maintain a target for women in senior leadership

–

Gender pay gap reporting

12.5

: By 2030, substantially reduce waste

generation through prevention, reduction,

recycling and reuse

12.6

: Encourage companies, especially large and

transnational companies, to adopt sustainable

practices and to integrate sustainability

information into their reporting cycle

–

Waste, water and packaging waste reduction plans developed

(pages 69 and 70)

–

Scope 1 and 2 Science Based Targets (SBTs) developed to

inform emissions reduction plans (page 68)

–

Launched digital product sustainability tool as part of green

design guidelines (GDGs) (page 51)

–

Our product life-cycle analysis programme and GDGs support

the development of more sustainable products

13.3

: Improve education, awareness-raising and

human and institutional capacity on climate

change mitigation, adaptation, impact reduction

and early warning

–

Increased depth of internal communications on climate

change topics such as COP27, driving tips, and the SBT process

to engage employees in our commitments

–

Included educational resources as part of ESG Steering

Committee meetings and Board updates

–

Working with our suppliers on emissions reductions

–

Setting SBTs

Progress can be found at www.convatecgroup.com/

sustainability/esg-reports-and-data and on the

UNGC website.

Though all 17 goals are interlinked and are important to

us and our stakeholders, our business operations and

ESG framework explicitly link to six goals where we can

contribute to a more sustainable future:

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Responsible business review

continued

Our ESG targets

Our ESG targets serve as milestones on our ESG

journey and ensure we execute against our Convatec

Cares framework. We track our progress throughout

the year and report to management and the Board.

Delivering for our customers

Target

Progress in 2022

Status

Quality

: Align existing quality metrics to industry best practice and

continue focusing on product safety by Q4 2022

Reviewed legacy product quality

disclosures to bring 2022 approach

into line with industry practice

Page 52

Quality target

: Reduce complaints per million (CPM) by 8% for 2023

against a 2022 baseline

13% reduction against 2021

Page 53

Product vitality

: Vitality Index of 30% by Q4 2025

26% (25% in 2021). Includes product

acquisitions.

Page 50

Product development

: Implement Green Design Guidelines as part of

product development process and expand user base to at least 50

users by Q4 2022

Incorporated GDGs into new

product development process and

106 users added to GDG platform

Page 50

Product development

: Expand use of GDG digital tools, with at least

five new product launches assessed by Q4 2023

Implemented and tested

assessment process

Page 51

Enabling our people to thrive

Target

Progress in 2022

Status

Health and safety

4.1 Increase our Operations Hazard Observation Rate to above 200 per

200,000 hours worked by Q4 2022

234 per 200,000 hours worked

(190 in 2021)

Page 61

Health and safety

: Maintain an annual Operations Hazard Observation

Rate above 200 per 200,000 hours worked

See above

Page 61

4.2 Sustain Operations Lost Time Injury Rate below 0.22 by Q4 2025

0.20 per 200,000 hours worked

(0.3 in 2021)

Page 61

Diversity, equity & inclusion and wellbeing

5.1 Reach at least 40% females in combined CELT and senior

management by Q4 2024

38% (32% in 2021)

Page 60

5.2 Reduce voluntary turnover to less than 10% by Q4 2023

12.9% in 2022 (11% in 2021)

Page 60

PROGRESS KEY

Achieved

New

In Progress

Complete definitions for each target are provided on pages 241 and 242. The 2022 progress

against a select set of metrics have been reviewed as part of the assurance process. For

further details please see the assurance statement on page 74 and basis of reporting at

www.convatecgroup.com/sustainability/esg-reports-and-data.

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

Behaving ethically and transparently

Target

Progress in 2022

Status

Human rights

: Complete the review, update and publication of our

Human Rights and Labour Standards Policy and our Supplier Code

of Conduct, by Q4 2022

Updated and republished

Page 63

Human rights

: Launch annual compulsory training programme on

Human Rights for all employees by Q4 2023

Providers identified to develop

Human Rights education module for

employees that is consistent with

our policy

Page 63

Human rights

: Strengthen our risk management practices focused on

labour standards and modern slavery through our procurement and

supply chain, including through the introduction of a new responsible

supplier assessment platform by Q2 2023

Conducted due diligence and

competitive process to assess

potential solutions, resulting in

contract award

Page 63

Code of conduct

: Ensure at least 95% of employees trained on an

annual basis by Q4 2023 and in subsequent years

On track (96% trained in 2022)

Page 62

Procurement and supply chain

: Ensure that 80% of Convatec’s

spend is with suppliers with whom we have engaged to request

their participation in our EcoVadis platform by Q4 2023

66% of spend supported by

suppliers engaged to participate

with EcoVadis

EcoVadis participation requested

in 23 of 33 request for proposal/

request for information events

Page 64

Protecting the planet and supporting communities

Target

Progress in 2022

Status

Emission reduction

9.1 Achieve net zero carbon (in line with our SBTi target) by 2045

Page 66

9.2 Complete the Scope 3 materiality assessment and develop the

measurement strategy by Q4 2022, with the intention of publishing

our Scope 3 GHG inventory by Q4 2023

Scope 3 materiality study

completed and measurement

strategy developed

Page 69

9.3 Reduce our combined Scope 1 and 2 greenhouse gas (GHG)

emissions by 5%, against a 2021 baseline by Q4 2022

Scope 1 and 2 GHG emissions

reduced by 32%

Page 68

Science-based target commitment

10.1 Set quantitative targets for Scope 1 and 2 GHG emissions, against

a 2021 baseline, aligned with the SBT criteria by Q4 2022

Scope 1 and 2 SBTs proposed

Page 68

Reduce our combined Scope 1 and 2 emissions by 70% in line with our

SBTs by 2030

See 9.3 above

Page 68

10.2 Set quantitative targets for Scope 3 GHG emissions, against a

2021 baseline, aligned with the SBT criteria by Q4 2023

Scope 3 materiality study

completed

Page 69

10.3 Achieve validated SBT for Scope 1, 2 and 3 emissions by Q4 2023

Scope 1 and 2 SBTs proposed

Page 68

Community contributions

11.1 Establish new NGO partnership(s) and funding commitments

by Q4 2022

$250,000 donated to the Disaster

Emergencies Committee (DEC)

through ongoing partnership

$220,000 supporting NGO

partnerships around our

manufacturing sites

Page 73

Contribute at least $2 million in cash and in-kind support to our

community partners to improve lives by Q4 2025

See above

Page 73

11.2 Contribute responsibly to a range of HCP and patient education

programmes. Set specific targets for 2023-25 on reach and impact

Over 231k HCPs and patients

participated in educational

programming led by Convatec. In

process of setting impact metrics

(see below)

Pages

73 and 74

Continue to expand the reach of our HCP education programmes,

including through the development of a global medical education

digital platform and recategorisation of activity to improve impact

by Q4 2023

Ongoing development of Medical

Education Centre of Excellence

strategy

Pages

73 and 74

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Responsible business review – customers

Strategic report

How is Convatec delivering the

’Pioneering’ aspect of its vision?

Chronic care patient needs are large

and growing. To realise our vision, we

strengthened our technology and

innovation capabilities so that we can

continue to launch new products and

services, supported by a strong

pipeline. In 2022, we made good

progress through the launch of

three new products as well as the

acquisition of Triad Life Sciences

which provides a key technology

platform for us. Together with

investments such as BlueWind

Medical Ltd (see page 120), these are

all examples of how we are improving

the lives we touch.

How does Convatec engender trust

with its customers through its

products and services?

We made a promise to be forever

caring. This means that we will never

stop listening, learning and improving

our solutions for customers and

patients. Today, we are working more

closely than ever before with our

customers – from the people living

with difficult chronic conditions, to the

healthcare professionals (HCPs), care

givers and businesses that support

them. We put their needs at the heart

of our innovation so that more people

can live their lives to the fullest. We’re

deploying new capabilities such as

human centred design and human

factors engineering, as we embed our

innovation mindset with forever caring

at its heart and prioritise quality and

efficacy. This in turn builds trust.

With ageing populations and

increased rates of chronic

conditions around the globe, how

are you adjusting to the shifting

nature of healthcare to meet

patient and caregiver needs?

To close the care gap, we need more

than medical products. This is why we

see our solutions as having three

components: product, digital offerings,

and services. The people whose lives we

touch, patients, caregivers and HCPs, all

want actionable insight in addition to

our products. We need to be thinking

about solutions which help us stay in line

with a dynamic healthcare landscape,

including the rise in care being delivered

outside a hospital setting.

Q&A

Dr. Divakar Ramakrishnan

EVP, Chief Technology

Officer & Head of Research

& Development

DELIVERING

FOR OUR

CUSTOMERS

2022 highlights

–

Launched three key new

products, with an additional

five in the pipeline.

–

Rolled out our digital

sustainability tool, part of our

Green Design Guidelines (GDG),

enabling research and

development colleagues to

enhance focus on sustainability

in product development.

–

Entered the wound biologics

segment

and overactive

bladder markets through

strategic investments.

–

Implemented enhanced key

performance indicators that

increase specificity for our quality

system, and which prioritise

timeliness, ageing, and

effectiveness of our actions

in the quality system.

2023 priorities

–

Expand the use of our digital

sustainability tool and GDG,

with at least five strategic

projects assessed.

–

Launch at least three new

products and expand our

product pipeline in support

of our ESG vitality target.

–

Continue focus on product safety.

Producing innovative

products, services and

solutions that improve

lives, are patient-

centric and informed

by HCP needs.

Innovation journey

To fulfil our vision and drive growth,

we are continuing to strengthen our

research and development (R&D)

capabilities, alongside bringing new

products to market. We have invested

$92 million in 2022 in R&D and continued

to make progress towards our goal

of reaching and sustaining 30% new

product vitality by 2025, supported

by strategic acquisitions. Our approach

to innovation continues to build

momentum in the following ways:

–

Increased investment

: We have

more than doubled spend on R&D

investment in new products and

capabilities since 2019, enabling

our new operating model which

integrates R&D teams across

functions to leverage shared

capabilities with cross-functional

reviews, new product development

process gate reviews and semi-

annual portfolio reviews.

–

Innovation mindset

: We recognise

that the users of our solutions are

people, not just patients. Our

solutions therefore involve digital

and service offers as well as our

products. We also understand that

many of our products are produced

and used in high volume and must

be of the highest quality.

–

Simplified processes

: We use a

single business and product

development process across all four

product categories, from ideation

through to launch, that we refer to

as IDEAL. This process goes beyond

R&D and involves commercial,

technical and operations teams.

–

Leadership and competencies

With a new operating model, we

attracted global talent for R&D,

medical, regulatory, intellectual

property and portfolio management.

We maintain four major technology

centres: one in the US (Boston), and

the others close to our manufacturing

facilities in the UK, Denmark and

Slovakia.

As defined by SmartTRAK: see page 22

Convatec Group Plc Annual Report and Accounts 2022

–

Portfolio management

: Our

investment must be properly

managed in order to maximise value

for all our stakeholders. It starts

with detailed regular reviews as

described above. We look through

all projects to prioritise where

resources are best deployed. In

between reviews, we have our

budget and strategic planning

process and regular engagement

with the Board.

–

Continuous improvement

: While

proud of our progress, scaling up

investment and output has not been

without challenge. We take every

opportunity to iterate the IDEAL

process and new methodologies

such as low volume production

ahead of high volume automated

manufacturing. This helps ensure

we’re embedding a continuous

improvement philosophy in our

innovation mindset.

New products and solutions

In 2022, we delivered on our plan to

launch three new products. These

products offer significant benefits for

the user. For example, our GentleCath

Air™ for Men uses third-generation

catheter technology, which means it

does not use a coating that can cause

trauma and deposit in the urethra.

The InnovaMatrix® AC, derived from

porcine placenta, is designed for

hard-to-heal wounds. The MioAdvance

extended wear infusion set (EWIS)

reduces the user’s body burden by

50%, as described on the right.

During 2022, a total of 83 patent filings

were made (2021: 33) and ideation has

been supported by new capabilities in

preclinical research that looks at

underlying physiological processes,

enabling our engineers to create highly

targeted solutions to address the

most challenging problems. We

believe sharing the success of our

solutions with our people really

matters. In 2022, we developed a new

intellectual property recognition

programme to recognise creative and

innovative thinking and celebrate our

commitment to innovations as a core

part of our culture.

Preclinical studies

In 2022, we opened a dedicated space,

Convatec User Insights and Evidence

Suites, to hold controlled studies with

healthy volunteers. The space, based

at our Deeside, Wales facility, allows

for more face-to-face research with

volunteers visiting to ensure we fully

appreciate how their usage impacts

the device and consequently future

designs. This can take the format

of a wear test in order to better

understand the device’s performance.

Additional data such as performance

and safety information can be

collected during these wear studies.

This information supplements existing

preclinical data on the device such as

the biocompatibility of the materials

used. This format is designed to

develop new knowledge and support

future designs of Convatec products.

Strategic investments

In 2022, we acquired Triad Life

Sciences, enabling us to progress into

the wound biologics segment

through

Triad’s technology, know-how and

innovative products. Now named

Advanced Tissue Technologies (ATT),

these complement our existing AWC

portfolio and capabilities, enabling

us to meet a wider range of needs

for both patients and healthcare

practitioners. For more information on

Advanced Wound Care, see page 22.

We identified that overactive bladder

(OAB), which is related to our

continence care activities, is a chronic

segment where there is potential to

radically improve outcomes for

patients, and in 2022, we made a

minority investment in BlueWind

CASE STUDY:

MIOADVANCE EXTENDED WEAR INFUSION SET

Convatec has developed and

manufactured the first and only

infusion set labelled for up to seven

days’ wear. An infusion set delivers

insulin from an insulin pump to the

body and typically requires a set

change every two to three days.

Developed in partnership with

Medtronic, our device provides

significant benefits for people

around the world with diabetes,

with an estimated 50% reduction

in set changes required. The device

was launched for use in 2022 in the

US and several European countries.

The technology is a major

innovation in infusion sets,

consisting of a novel inserter

system and infusion set. The

extended wear set uses advanced

materials that help reduce insulin

preservative loss and maintain

insulin flow and stability, to double

the wear time of the infusion set.

Additionally, use of the set is

estimated to result in annual cost

savings on insulin of up to 25%, due

to a reduced number of infusion set

and reservoir changes that result in

unrecoverable insulin, as well as

around 2kg less plastic waste per

year for each patient.

Medical Ltd. BlueWind is the developer

of RENOVA iStim

, an implantable

neuromodulation device for the

treatment of urge incontinence alone

or in combination with urinary urgency

and/or urinary frequency. We believe

the technology is an important step

towards people maintaining greater,

daily control over their own treatment.

Sustainable product design

Our new product development (NPD)

processes include a review of the

proposed materials against certain

externally compiled lists of

’substances of concern’, including the

requirements of California Proposition

65 and REACH25. This approach is

consolidated within our Ethical Issues

and NPD policy.

As well as focusing on our key product

development priorities, we are

strengthening our focus on more

sustainable product portfolios. In

2021, we launched the pilot of a digital

tool for our GDG, which cover a range

of aspects including consideration of

carbon footprint, water footprint,

circularity, substances of concern and

non-quantitative ’red flags’ (e.g.

potential use of substances which

As defined by SmartTRAK: see page 22

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Responsible business review – customers

continued

Strategic report

are fully legal, but could be seen as

less favourable to the wider

environment). This tool can also assess

the sustainability of new products

compared to existing products.

In 2022, we developed an extensive

raw material database and an

additional 29 existing products were

incorporated into our digital tool to

offer a baseline for comparison

when assessing new products. Our

ESG target to expand the user base

to 50 trained users by Q4 2022 was

achieved, and the GDGs have been

integrated into our IDEAL process to

ensure the selection of materials that

reduce the future environmental

impact of our products and packaging.

Given our focus on patient safety

and the regulatory framework in

place for MedTech products, it is

not straightforward to change device

form and components. Extensive

requalification and reapproval of

products are necessary after any

change before modified products

can be launched. It can also be

problematic to include recycled

content in device materials due to

regulatory constraints regarding

quality and traceability.

Product quality

Product quality is key for our

customers and vital in earning

Convatec a reputation as a trusted

provider. In 2021, we set an ESG target

to align existing quality metrics to

industry standards and our continued

focus on product safety and efficacy.

In 2022, we delivered on that

commitment by:

–

Baselined quality metrics to industry

standards. We’ve enhanced and

implemented new key performance

indicators that provide more

granularity and proactive insights

on the state of the quality system,

prioritising timeliness, ageing, and

effectiveness, which has enabled

us to improve our overall efficiency

in problem solving.

–

Established goals to increase level

of compliance in response to the

market, and implemented company-

wide training. We are set to launch

training for specific roles in 2023.

–

Prepared a strategy to decrease

response time to our customers

via speed of execution within

our quality system.

CASE STUDY:

SUSTAINABLE FLOW WRAP PACKAGING

Currently around 45 million ostomy

wafers are produced each year

across the nine different

production lines at the Haina,

Dominican Republic, ostomy

facility. Historically, these have been

packaged using PVC and a paper-

plastic hybrid backing, which

cannot be recycled and creates

waste product.

In 2022, we conducted a study of

flow-wrapped wafers with users

and healthcare professionals in four

countries, and concluded that

changing to a flexible flow wrap

would not affect usability. Rather,

the advantages of flow wrap for our

HCPs and customers are substantial

in that packs are easier to open and

store and are visually improved,

thanks to the incorporation of the

Convatec colour-coding system

developed to help HCPs pick the

appropriate size.

Before and after: previous packaging on the left,

next to the new streamlined version

Early in 2023, we will begin to

package ostomy wafers in flow

wrap instead of PVC. As well as

contributing to our environmental

waste reduction goals, since

production is more energy efficient

and the packaging has 80% less

plastic by weight, it also uses

fewer carbon-intensive raw

materials. Further Scope 3

emissions exist in the processing

of the waste, both from production

and end-of-life processing.

Convatec Group Plc Annual Report and Accounts 2022

While we continuously monitor

customer feedback and have reduced

complaints rates during 2022, our first

priority continues to be ensuring

patient safety and that we take any

necessary action with urgency. We

have set a new ESG target to reduce

complaints per million (CPM) and will

place particular focus on those related

to adverse events. In 2023, we will be

segmenting our overall complaint

rates to provide clearer distinction on

how we are improving and maintaining

the overall product safety profile of

our products, as defined by our risk

management systems. This will

introduce greater visibility to a quality

performance target of continued

improvement in overall events.

Product safety is also a key priority for

our customers and for our reputation

as a trusted provider. In 2022, we

successfully achieved recertification

of our quality system. Regulators

consider most of the products and

solutions we develop to be of low risk

to users. Nevertheless, we have a

rigorous and robust supplier audit

mechanism and quality management

system. Notified bodies, such as the

British Standards Institute (BSI) also

review our quality processes and

procedures. In 2022, we established

a new quality compliance programme,

focused on continuously improving

our overall quality compliance profile

through a rigorous corporate internal

audit programme. This is already

delivering results, strengthening core

capabilities, and continuously

enhancing our overall quality culture.

We conducted a total of 153 audits

on suppliers during 2022 (2021: 187).

Our ability to perform onsite audits

improved in 2022, so we prioritised

onsite follow-ups with our critical

suppliers. We performed fewer audits

compared to 2021, due to the exit of

our hospital care business, which saw

a reduction in our supply base.

In rare circumstances it may be

considered necessary to conduct a

product recall, following a detailed

internal quality investigation. Recalls

are controlled by standard operating

procedures, all of which underwent

continuous improvements in 2022 as

part of our focus to elevate standards

across the quality system. In 2022, we

executed 11 product recalls (2021: 8).

While there was no risk of harm to

patients, the distributed products did

not meet the elevated requirements

of the quality system.

Use of animals in research

We believe strongly in avoiding the use

of live animals in research and testing

unless absolutely necessary. Every

effort is made to conduct as much of

our research with bench work and

cell cultures. If there is a critical need

to conduct animal studies then the

highest of ethical standards are

followed. Any discomfort to an

animal is avoided and all work is

undertaken in certified facilities

with veterinarian observation.

All medical devices are required to

show biocompatibility prior to

approval and use, per ISO 10993-

1:2018. This requirement is enforced by

government authorities and is part of

the registration process for medical

devices. As part of this requirement,

certain biological risks are required

to be evaluated and mitigated through

the use of testing. In some cases, this

can be done through analytical or

in vitro methods; however, some

biological risks are only able to be

evaluated though the use of defined

and prescribed animal tests.

As such, when mandated by the

intended use of the device and the

registering competent authorities, we

will execute the critical biocompatible

verification tests required by the ISO

standards to ensure patient safety

and registration requirements.

We do not willingly perform any

animal testing in the development

or functional verification of our

devices, as described in our Ethical

Issues and New Product Development

Policy which can be found at

www.convatecgroup.com/investors/

governance/our-policies-and-

statements/.

In 2022, four rats were used to

support studies in burn healing

research. These studies were

conducted at the University of

Memphis Biomedical Engineering

Department and were cleared with

their Institutional Animal Care and

Use Committee.

In 2022, as part of the acquisition of

Triad Life Sciences and subsequent

formation of Convatec Advanced

Tissue Technologies, we now engage

in studies that use porcine placentas.

These are derived naturally through

the birthing process and provided in

partnership with a farm. The placentas

are subsequently stored at ultra-low

temperatures until required. No swine

are killed in the process.

Colleagues celebrate Quality

Month in Reynosa in October 2022

QUALITY MONTH

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Strategic report

CASE STUDY: SERVICES

In a historically product-

focused industry, we

recognise that support

services are an essential

part of our forever caring

promise. In 2022, we grew

many of our service

offerings.

me+™

Our me+™ programme operates

throughout Asia, Latin America,

Europe and the US and aims to

support people managing chronic

conditions to help them enjoy their

lives. The programme provides

access to phone support and a

range of online resources covering

lifestyle tips and advice, educational

and guided recovery tools and

peer-to-peer support related to

ostomy care and continence care.

In the US, the me+™ programme

has expanded its offering to include

ostomy care telehealth and supplier

connections.

In the past year, we launched two

mobile phone applications to

increase accessibility of me+™

services. The Ostomy Nurse

Solutions (ONS) app helps carers

choose which product a patient

needs and order samples directly.

The My Ostomy Journey (MOJ) app is

designed to support the daily needs

of those using the product, including

tracking pouch changes, fluid intake

and food diary, as well as offering

easy access to me+ support.

We continued to offer and expand

virtual support services, including

our virtual telehealth service in the

US, available in English and Spanish.

These services continue to provide

valuable support to many patients

and consumers, with 99% of people

that have used the service saying

that they would recommend it to

someone else.

We have increased investment

in digital capability in the US

and Poland, playing a key role in

connecting people living with an

ostomy throughout their journey

and improving the experience of

customers when using our

products and services.

Home Services Group

In 2022, we expanded the reach of

our Homes Services Group (HSG),

which incorporates Amcare™ in the

UK and 180 Medical across the US.

A dedicated provider of support

and solutions to the stoma,

continence and wound care

communities, HSG has played an

important role in our commitment

to delivering for customers.

180 Medical expanded its digital

offerings in 2022. The number of online

chats with customers and potential

customers more than doubled during

the year. 180 Medical’s e-script platform

grew to 24% of our facility and doctor

referral volume. The 180 Medical

Customer Portal has also undergone

updates in 2022 so that customers have

more oversight of their accounts, and

can confirm orders, view and track

shipments, pay bills, request changes,

update contact information, and

even complete certain kinds of

documentation by themselves.

180 Medical’s customer-focused team

structures were updated in 2022 to

streamline the intake process,

reducing hold times and allowing our

team members to specialise more

within their roles. Now we have

employees dedicated solely to new

patient intake and new patient setups.

We have a team focused on handling

outbound calls and tasks, and one

focused entirely on handling calls from

existing patients. Our patient advocate

programme continues to improve our

customers’ ability to speak to other

users of the products.

Amcare™’s move to a cloud-based

platform that empowers Customer

Services Teams by reducing order

processing times and creating a

work-queue system has led us to

more efficiencies in our processes

in 2022. We now ship more than

10,000 orders to our customers

each month, with over 99% of

shipments delivered next day.

As we head towards 2023, we

will continue to develop the

capabilities, tailoring this bespoke

system to match our needs. We

have added further technology

systems to our operation to

enhance our capabilities and

efficiencies to better serve our

employees and customers. When

combined with our continued

training and education of our

employees, these system

investments have ushered in a

new era of culture and technology

to Amcare™ and our UK and

Ireland operations.

The emphasis on customer support

services in 2022 increased the Net

Promoter Scores (NPS) of HSG. The

Amcare™ NPS for existing

customers rose from 40 to 61, and

for new customers from 40 to 71.

180 Medical attained an NPS score

of 79 in 2022. In addition, 180

Medical reached a major milestone

of over 9,000 excellent reviews on

Trustpilot, which is an overall 4.8

out of five stars.

Responsible business review – customers

continued

Convatec Group Plc Annual Report and Accounts 2022

Reliability of supply

Satisfying and exceeding our customer

expectations continues to be a top

priority. Throughout 2022, we’ve

continued to make strong progress

to ensure product availability and

reliable delivery. Close collaboration

across all relevant functions is enabled

by our Sales and Operations process.

This key capability enables us to plan

for short, medium and long-term

requirements, anticipating demand

scenarios and to ensure production,

inventory and logistics readiness. This

is supported by a rigorously managed

performance framework overseeing

end-to-end reliability.

When it comes to resilience, in the

short term, we have and will continue

to invest in strategic inventory,

including raw materials and finished

goods in adequate quantities, so that

our customers can be secure in the

knowledge that products will be

delivered, despite the global context

of supply chain challenges. In 2022,

impacts to shipping lanes placed

particular pressure on raw material

and finished goods transportation.

We’re continuing to expand our efforts

to establish dual source raw material

and manufacturing options. We’ve

added capacity throughout the

network so that we can produce

sufficient products to insulate our

customers against future supply chain

disruptions. Overall, notwithstanding

supply chain pressures, we

significantly reduced and stabilised

lead-times associated with moving

finished goods to key market

warehouses. Our resilience plans

mitigated impacts wherever possible,

which includes building safety stock of

raw and finished good materials and

adjusting transportation methods in

key markets. We also effectively

established a number of new shipping

lanes and alternatives modes of

transport to ensure ongoing flexibility

to move product without delay.

We are in the process of globalising

the real-time tracking system of our

end-to-end supply chain, giving

visibility of inbound shipments,

inter-site movements and downstream

deliveries to customers. This enables

our customers to track their orders

right through to delivery. Wherever

possible, we work with logistics

partners to secure freight capacity

and increase end-to-end inventory

levels to derisk any interruption in

supply to our customers.

Access to healthcare

Access to healthcare is a basic

human right that should be available

to all who need it. This fundamental

principle is integrated in our

vision and we run our business

to ensure the following:

Availability

: We continue to evolve

our sales channels to best meet our

customers’ needs. Progressing

patient and HCP support, in 2022,

Ostomy Care launched two mobile

apps (page 54). In GEM, our

healthcare practitioner medical

educational training programmes,

such as Convatec’s Asia-Pacific

Education programme (CAPE),

ultimately expand access to

products in markets that are rapidly

developing and where access has

been historically limited.

Adaptability

: Based on feedback

from users and healthcare

professionals our products

address a broad range of patient

needs reflecting the different

challenges that individual users

experience. Getting the range of

products right relies on research

and stakeholder engagement

(see pages 44 and 45).

Usability

: Products may ’do a job’

medically, but given the social and

emotional context of the people

we serve, we need to provide

solutions which go beyond the

provision of a functional device.

To lower access barriers, we help

patients identify the device which

best suits their needs, provide

easy-to-follow literature, videos

and online support and deliver

millions of products a year.

Affordability

: Affordability is

a key issue which we strive to

address through competitive

pricing and innovation to increase

product effectiveness and, as a

result, reduce healthcare costs

and improve patients’ lives.

In 2022 we launched a global

Pricing Centre of Excellence

which considers the role of

economic affordability in

product availability.

Data privacy

We operate a privacy governance

framework to ensure that we protect

and properly process personal data

and comply with all privacy

regulations including the European

Union General Data Protection

Regulation (GDPR) and the California

Consumer Privacy Act (CCPA).

This framework includes policies,

procedures, controls and records

that operate across our business on

a global basis. The implementation

of this framework is supported by

mandatory employee training, which

forms part of our induction process

for new employees and annual

updates for existing employees,

underpinned by our Group compliance

programme. Its effectiveness is

overseen by several internal

governance groups, including our

Cybersecurity Steering Committee.

Our various data policies, procedures

and controls are regularly assessed by

our internal audit team. In particular

markets, trained privacy champions,

supported by third-party experts,

provide first-line local support on

privacy matters. This framework is

continually reviewed to ensure any

changes in legislation are incorporated

and is regularly reviewed for

effectiveness by the ARC.

Our new data privacy governance

structure ensures global leadership

of privacy and compliance Group-

wide by setting out the roles and

responsibilities for managing the

collection, use, retention and

disclosure of personal data across the

organisation. This is achieved by

implementing executive leadership

and sponsorship for critical personal

data classes, by assigning four CELT

leaders accountable for ensuring that

the use of four critical personal data

classes across the organisation is

properly governed.

From time to time, we may experience

theft or inadvertent disclosure of data.

In 2022, there were no reportable

issues to data protection authorities

and no significant volume of data

subject access requests were received.

For further information on our

information systems, security and

privacy risk, see page 93.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

ENABLING

OUR PEOPLE

TO THRIVE

–

Improving career pathways

(page

59): This work brings to life a new,

consistent career framework,

helping colleagues around the world

understand more clearly where their

role currently fits, and informs their

future career planning and

development.

–

Simplifying global payroll offering

Strengthening payroll compliance,

efficiency and consistency,

governance and insight through

improved automation.

2022 highlights

–

Maintained a strong performance

on McKinsey’s global

Organisational Health Index

(OHI), outperforming peers and

the industry in many areas.

–

Expanded our Total Safety

Leadership training to further

enhance our focus on health

and safety.

–

Rolled out new career pathways

globally – a new career

architecture and grading

framework.

2023 priorities

–

Continued progress towards our

target of 40% women in

leadership positions.

–

Roll out a range of new DE&I and

Wellbeing programmes, starting

with mentoring.

–

Expand range and accessibility

of leadership and development

programmes.

Protecting the health

and safety of our people

and using their talent

for good

At the end of 2022 we employed

10,036

people (2021: 10,142). Employee

turnover in 2022 was 28.1%

(2021: 19%),

largely driven by our exit from the

hospital care category. As a result of

this, we closed our factory in Minsk,

Belarus in May 2022. Voluntary

turnover in 2022 was 12.9% (2021: 11%).

Information on our employee profile

is illustrated in the graphs on the

following pages, while our definitions

for employee count and gender

diversity is detailed on page 60.

While our employees are spread across

our global footprint, based in 46

countries, approximately 58% of our

workforce is employed at our nine

manufacturing locations (2021: 59%).

In addition to our facilities in the

Dominican Republic, Mexico and

Slovakia, we have manufacturing

operations in the UK (two locations),

Denmark (two locations) and the

Netherlands. Of countries with no

manufacturing operations, the US has

the largest concentration of employees.

Our people strategy

Our people mission is to “

create a

stimulating, inclusive and rewarding

environment for our people to thrive

and grow together, for the benefit

of our customers, colleagues,

communities and shareholders

.”

To do this we focus on:

–

Aligning talent to value and building

a diverse talent workforce

–

Building high-performing teams

–

Embedding our values-based

culture across the Group

–

Developing our reputation as

a best-in-class employer with

a compelling employer value

proposition, whilst raising our

profile in the communities we serve

As we focus on employee experience,

we remain committed to giving our

people access to a range of services

and data directly through convenient,

intuitive and responsive tools. In 2022,

we expanded our HR transformation

programme launched in 2021, in which

we focus on:

–

Processes

: We have worked

extensively with HR teams to

develop and agree a single,

standardised way of working in HR

across most areas of our operation

for the first time. These standard

processes were put into effect as

we implemented changes and

improvements to Workday and

progressed HR transformation.

Responsible business review – colleagues

Strategic report

Includes eight Non-Executive Directors.

For full breakdown, see page 60.

This includes voluntary and involuntary

turnover.

How are you fostering an

inclusive culture at Convatec?

We’ve worked hard to create

a working environment that

allows everyone to be

themselves and feel supported

to grow. In March 2022, we

launched our integrated

strategic framework that serves

as a central, Company-wide

starting point for our DE&I

and Wellbeing journey. We

appointed CELT sponsors for

each of our Employee Resource

Groups (ERGs) and continue to

support colleagues through

flexible working.

Additionally, in 2022 a range of

initiatives have driven our

employee engagement efforts,

including a campaign to embed

our new forever caring promise,

alongside our vision, values and

strategy (the Big Conversation),

a new employee recognition

platform, Convatec Champions,

and a series of global town halls,

all seeking to foster an

engaging, inclusive and winning

culture.

How are you continuously

improving employee

experience?

Historically, some of our systems

and processes have been

difficult to navigate and

fragmented due to disparate

systems, manual ways of

Q&A

Natalia Kozmina

EVP, Chief Human Resources

Officer & ESG Stewardship

Convatec Group Plc Annual Report and Accounts 2022

We are seeing the value of our HR

transformation, from strengthened

business partnering and core

capabilities. We are unlocking

efficiencies by making Workday more

widely available in order to strengthen

our data-driven approach and simplify

processes, while creating a stronger

platform to support our people to

grow. Notwithstanding, we continue

to navigate a backdrop of dynamic

talent and labour market

considerations, including the

impacts of flexible and hybrid working,

automation and digitalisation, and

managing employee wellbeing and

mental health.

Building a winning culture

Our people strategy was designed to

help shape an engaging, inclusive and

high-performing culture that enables

all our people to give their best and

fulfil their potential wherever they

work. Our values guide our behaviours

and how we run our business every

day. They are embedded in our

policies and processes, including our

performance reviews, which assess

both the ’what’ and ’how’ of each

employee’s contribution.

2022 saw us redouble efforts to

strengthen employee engagement.

We hosted our first Global Town Hall,

in which all offices and manufacturing

sites around the globe joined in a live

update and conversation with CELT.

Reports are regularly provided to the

Board for feedback to help assess and

CASE STUDY: BLACK EXECUTIVE LEADERSHIP

PROGRAMME

In 2022, a second Convatec cohort finished the Black Executive Leadership

Programme (BELP). The BELP, in association with McKinsey, was launched

in February 2021 to build core leadership and management capabilities for

our black leaders across Convatec, as well as establish an expanded

network of peers across industries for continuous engagement and

learning. Upon successful completion of the prestigious programme, each

participant was assigned a Convatec executive sponsor for additional

capacity building and developmental leadership opportunities.

monitor culture, including progress on

our people strategy, Organisational

Health Index (OHI) results, and

engagement on talent and succession

planning (see page 58).

Recognising and appreciating

colleagues and the contribution they

make is important, and so in 2022 we

launched Convatec Champions – a

more impactful way of recognising

colleagues across the Company. Built

on a best-in-class digital platform,

any colleague can nominate another

colleague for recognition via an

interactive platform to recognise good

work and behaviours aligned to our

promise and values.

–

Refreshing the HR operating model

Moving forward, our model with

employee experience at its heart

will set out how HR people partners,

Centres of Excellence teams (Total

Rewards & Recognition; Talent

Management, Acquisition, Learning

& Development), HR Service Delivery

and HR Business Partners all come

together, and how our Global

Business Services capability will

support and make easier day-to-day

HR solutions that benefit everyone.

working and dated tools. This

has prompted us to optimise

the service experience for

employees through

simplification and digitisation.

As part of this, we are shifting

to more global processes and

standard ways of working,

so that we can bring greater

consistency to how HR and other

functions support the business

and significantly improve

colleague and line manager

experiences. This includes

making better use of our digital

tools including Workday (our

people data system) so that it

is more widely available and

will help shift us to greater

levels of being data driven.

What are you doing to build

high-performing teams?

We are committed to deliver

business value by attracting,

developing and retaining the best

talent. In 2022, we refreshed our

employer brand, enhanced our

performance management and

succession planning approach

and continued to invest in

best-in-class recruitment

practices to attract the best

talent. As part of our learning and

development programme, we

launched a set of team principles

across the Group this year as a

starting point to foster a high-

performance culture at Convatec.

“The programme

enabled me to

develop new

skills and learn

from colleagues’

experiences.”

BELP participant

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

GLOBAL LEADERS MEETING

Strengthened employee

engagement

In 2022, we hosted our second

iteration of the Big Conversation,

an initiative designed to demonstrate

how we come together as one

company through our vision, strategy,

promise and values. Colleagues who

participated have given the Big

Conversation an employee Net

Promotor Score (eNPS) of 62 and

rated the value of the conversation

at 4.7 out of 5.

In October 2022, we conducted our

third OHI survey, having completed

the previous assessment in 2020, in

partnership with McKinsey & Co. We

achieved our strongest response to

date with 90% of colleagues sharing

feedback on what is working well

and what can be improved.

We are proud to have maintained our

strong position on the global index,

achieving an overall score of 75

(November 2020: 76), effectively

sustaining our top quartile position.

Our last survey in 2020 saw us deliver

an 18-point increase on the first OHI

in 2019, which McKinsey noted as a

significant improvement. In 2022,

to sustain that level (despite the

challenges of the last two years

and the level of change within the

organisation), is considered positive.

The most recent OHI benchmark data

positions Convatec as one of the

top-performing medical products,

devices and services companies.

We made significant improvements in

most of the areas that were identified

as priorities following feedback

received in the 2020 survey. For

example, scores on customer focus,

employee engagement and reward

and recognition have all risen by

between two and four points. As we

set a clear path to become even

more focused on the customers and

patients we serve, we are seeing

progress towards that, with increased

confidence in some important areas

of FISBE, especially Focus (including

strategic clarity and shared vision) and

Building capabilities. During 2023, to

address the survey’s findings and the

areas that require improvement, each

CELT member has developed an action

plan and at a Group level we will be

focusing on innovation, simplification

and work environment.

Building high-performing teams

This year we launched a global

high-performing teams programme

for our Global Leadership Team,

building on work CELT has been doing

with the University of Michigan Ross

Business School since 2021. In May

2022, as part of the first Global

Leaders Meeting that brought together

our top 100 leaders for the first time

since 2018, we commenced a six-month

learning journey with the Michigan

team. The journey focuses on building

capabilities to embed the five

principles of high-performing teams

(team principles) within Convatec.

The learning journey will continue

into 2023 with a focus on leadership

capability to build an inclusive culture,

and extend to a broader population

of people leaders in the business.

Strengthening core capabilities

In 2022, we launched our first Learning

Excellence Academy curriculum which

outlines learning and development

opportunities available to all

colleagues and teams. Through this

work, we’ve highlighted strategic

and leadership capabilities as well

as functional development

opportunities. In addition, we

strengthened our focus on leadership

and management training to ensure

managers have easy access to

processes and tools needed to

lead their direct reports.

To ensure we have the relevant

manufacturing skills and

competencies, we created a globally

consistent Core Training Matrix for

our key manufacturing sites. We have

mapped all the required training

needs, by process and positions and

the timing at which each training

should be delivered; this is

complementary to the existing quality/

regulatory matrix already in place. Full

deployment will be completed, for all

manufacturing across sites by 2023.

All training is designed to improve our

ability to deliver for customers,

consistent with our forever caring

promise. For example, all colleagues

and contractors must complete

complaint handling training,

available in several languages.

In addition, a range of resources

support employee growth and

development throughout their

careers, including a portal to access

formal, self-directed, and innovative

content that is available to equip

employees with the knowledge and

skills to develop and perform

effectively. Categorised into three

levels of leadership communities, from

aspiring leaders to strategic leaders,

it provides employees with skills such

as personal effectiveness, managing

change and strategic leadership

and delegation.

Our Continuous Improvement team

received international recognition in

Problem Solving & Decision Making,

where we were nominated in six

different categories and received

awards in three categories. The

Kepner-Tregoe (KT) Excellence Awards

are given to individuals, teams, and

organisations that distinguish

themselves as being the best in the

world in the application of critical

thinking skills to improve business

system performance.

Responsible business review – colleagues

continued

Strategic report

Top 100 leaders gather in Boston

Convatec Group Plc Annual Report and Accounts 2022

OUR APPROACH: DE&I AND WELLBEING

Next generation talent

Part of building core capabilities is

engaging with and training the next

generation. Partnering with Coleg

Cambria, we have built an

apprenticeship programme for our

manufacturing site in Wales, UK.

The three-year apprenticeship

programme, aimed at students and

young adults aged 16+, adds value

through approaching multiskilling in

a structured way. The recruitment

process seeks to dismantle barriers

(such as requiring previous experience)

by assessing applicants on topics like

communication, teamwork, and ability

to follow instructions. In 2022, our

Deeside site had eight apprentices in

engineering and manufacturing, and

more are in the pipeline for 2023. The

programme also allows Convatec

colleagues to engage in meaningful

mentorship opportunities.

In 2022, the Michalovce site in Slovakia

partnered with Technical University

Košice. Through this partnership

Convatec supports Biomedical

Engineering students on their

diploma theses, recruits students

and participates in career days.

To encourage innovation among

students, Convatec hosted a

hackathon in Denmark, where

university students could participate

in competitions and workshops to

develop infusion care solutions related

to product design, digital support and

sustainability.

In the spirit of next-generation

development, we sent three ’rising

stars’ to the One Young World Summit

in Manchester, UK, an annual summit

where young leaders from around the

world work together on social action

programmes. We will support the

summit again in 2023.

Career pathways

Career development is a core element

of our people mission. In Q4, we

reorganised our career pathways

framework as the first step to better

support development and progression

and offer a new common, globally

consistent and clearer approach. The

revised methodology simplifies the

sizing, organising and internal titling

of all roles to help colleagues self-

navigate their own career

development and understand what

it takes to move from one role to

another. Over time this common

approach will also enable greater data

and insights to ensure more equitable

pay practices as part of our employee

’deal’, comprising of contractual,

experiential, and emotional elements.

Diversity, Equity & Inclusion

(DE&I) and Wellbeing

Our colleagues represent multiple

nationalities, as well as the many

cultures, religions, races, sexual

orientations, backgrounds and beliefs.

We recognise that we will only ’grow

together’ and ’improve care’ if we

harness the power of our differences

and encourage diverse thinking.

Our colleagues should feel included,

valued and respected – not just

because it’s the right thing to do, but

because people are the best versions

of themselves when they feel they are

being treated fairly and respectfully.

Diverse opinions and perspectives

spark innovation. We cannot expect

to meet diverse customer needs

without embracing the diversity of our

colleagues.

Our Company-wide DE&I and

Wellbeing framework, rolled out

in 2022, has four priority areas:

Cultivate an inclusive culture

for our colleagues

–

Inclusion was built into high –

performing teams training for CELT

and the global leadership team

–

DE&I goals were set for all people

leaders as part of 2022 objectives

setting process

–

Our third OHI survey included

DE&I and Wellbeing questions to

strengthen our benchmark to

practices moving forward

Build a diverse workforce with

greater gender and ethnic

diversity across our leadership

–

Diversity metrics were established

for senior management roles

–

Employee Resource Groups (ERGs)

had a CELT sponsor appointed and

our new DE&I and Wellbeing Council

was formed

–

Expanded our management

accelerator programme for black

leaders into Europe from the US

last year

Support wellbeing as a priority

for colleagues

–

Strengthened our employee

assistance programme, including

a focus on financial wellbeing

–

Rolled out global digital recognition

platform, Convatec Champions

–

Ongoing support for hybrid and

flexible working through ’Our Work

Life’ approach

Enhance our reputation

through leveraging our scale,

partnerships and programmes

–

Strengthen reporting, such as the

steps we take towards meeting our

ESG target of 40% females in senior

management (CELT+1) by Q4 2024

–

Black Executive Leadership

Programme (page 57)

–

Partnering with local colleges for

apprenticeships recruitment

(page 59)

For more on our DE&I and Wellbeing

journey, click here www.convatecgroup.

com/sustainability/enabling-our-

people/dei-spotlight-page/.

Pioneering

trusted medical

solutions

to improve the

lives we touch

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Strategic report

As at 31 December 2022, women

represented 40% of our Board

membership, 38% of our senior

management team and 36% of CELT.

Our DE&I and Wellbeing target is to

reach at least a combined 40% females

in senior management and CELT roles

by Q4 2024, and our current progress

in 2022 is 38% for senior management

and CELT combined (32% in 2021). Our

gender diversity profile as at 31

December 2022 is below.

Our gender pay gap

In 2022, the remuneration committee

reviewed our UK gender pay ratio. The

median hourly pay difference between

our UK male and female employees (all

UK-based entities) at 5 April 2022 was

12.2%, which is below the UK median

pay gap of 14.9% (Source: Office for

National Statistics). Further

information about our pay data is

included in our Gender Pay Gap

Report, which can be found at

www.convatecgroup.com/

sustainability/esg-reports-and-data.

Since 2021, we have enhanced our

disclosure to include all UK-based

entities, including those not in scope

of the statutory requirement.

Male

Female

Total

Number

Board

1,2

CELT

Senior management

Other employees

9,936

3,750

6,186

Total

1, 4

10,036

3,813

6,225

Responsible business review – colleagues

continued

Increasing diversity

We track employee diversity through

our HR systems, and the Board will

continue to review our diversity profile

on an annual basis. In 2022, we have

improved the process flow on our

HR systems, expanding fields and

providing colleagues with greater

control to update their personal

information if they choose, including

in fields such as pronouns, ethnicity,

gender identity and disability.

In 2022, we increased membership

and governance of our three ERGs,

which include LGBTQIA+ (Pride), Black

Employees and Women’s Network. To

build employee engagement, the ERGs

promoted and celebrated key

moments on the calendar such as

Pride Month, Black History Month and

International Women’s Day, as well as

hosting speaker sessions, leadership

opportunities, and photo

competitions. Our ERGs have CELT-

level sponsorship which includes

engagement, mentorship, and

strategic support. ERGs also engage

in community partnerships, working

with universities such as HBCUs and

charities such as those that engage

with OKC Pride.

Includes eight Non-Executive Directors

2. The CEO and the CFO are included as members of the Board and CELT

Includes direct reports of CELT, excluding administrative staff. The percentage of women in CELT

and senior management combined in 2022 is 38%

Excludes freelancers, independent contractors or other outsourced and non-permanent

workers who are hired on a project or temporary basis

OUR PEOPLE: AT A GLANCE

Employees

Agency staff and independent

contractors

Americas

APAC

EMEA

Europe

North America

Rest of World

Geographical

areas 2019–2021

Geographical

areas 2022

< 30

30–50

> 50

< 30

30–50

> 50

Male

Female

< 30

30–50

> 50

Male

Female

Employees and contractors

Employees by age band

Leavers and hires by age band

Leavers and hires by gender

Hires

Leavers

Employees by geography

10,036

350

319

341

314

10,142

9,914

9,197

2019

2020

2021

2022

14%

38%

48%

42%

41%

50%

52%

53%

2019

2020

2021

2022

58%

21%

20%

17%

61%

17%

60%

20%

61%

22%

2019

2020

2021

2022

1,219

283

153

164

920

796

1,147

808

1,169

865

2019

2020

2021

2022

1,514

862

569

319

221

215

961

683

989

436

750

856

2019

2020

2021

2022

1,176

1,545

1,216

1,293

1,145

1,010

837

804

2019

2020

2021

2022

1,257

1,688

1,129

828

1,147

862

579

885

2019

2020

2021

2022

Convatec Group Plc Annual Report and Accounts 2022

Cost of living

In response to rising pressures on

the cost of living in the UK and US,

we undertook a supplementary

mid-year pay review and made salary

adjustments for employees in our

lower grades. The out of cycle pay

awards recognised the rise in the

cost of living and inflationary

pressures in these countries. For

employees globally we continue with

our annual salary review increases.

In 2023, we will prioritise supporting

employees in lower grades globally.

In addition, we raised awareness of

financial wellbeing support available

as part of our global employee

assistance programme (EAP), which

included a range of educational

sessions open to all colleagues.

Paying a living wage

We are committed to providing fair

pay for our employees, and in 2022,

we conduced a global living wage

assessment to ensure that 100% of

our locations continue to pay at or

above the national or local living wage.

Following our accreditation by the UK

Living Wage Foundation in November

2017, we have also been confirmed as

a ’real living wage’ employer in the

UK for the sixth consecutive year

and continued to work with our

contractors to ensure they pay their

employees at the same rates. We

require all our contractors

to comply with local laws on

employment rights. We understand

concerns from our employees about

the rising cost of living.

As a company, we actively look at ways

to support our colleagues in line with

our core values and our forever caring

promise. Through various channels,

we shared the resources offered by

our EAP, including financial planning

support. Mindful of the pressures for

many people and families, we have

expanded support for those hardest-

hit by rising inflation and assessed

the issue during our 2023 annual

budgeting process.

Health and safety

In the relatively higher-risk locations

such as our manufacturing and R&D

sites, we have a dedicated

Environment, Health and Safety (EHS)

team. Our global EHS team leads the

development of the EHS strategy,

policies and standards; audits

performance; supports the site teams

to improve working practices; and

ensures both legislative and company

requirements are met. The global EHS

team reports to the Chief Global

Quality & Operations Officer, who is a

member of CELT and the ESG Steering

Committee. EHS performance is

reported to senior management on

a monthly basis, with updates provided

to CELT and the Board during the year.

During 2022, we maintained our focus

on key initiatives such as electrical

safety, machinery and equipment

safety, and developing safety-specific

standard work instructions (SWI),

delivering improvements and

increased engagement with all

operations colleagues. The

improvements realised through safety

SWI were well received and are now an

integral part of our ongoing

operations and training plans.

Our manufacturing sites in Rhymney,

Deeside and Michalovce maintained

their ISO 14001 (Environmental)

certification, while Deeside and

Michalovce also have ISO 45001

(Occupational Health & Safety

Management) certification. These

types of accreditations further

demonstrate our responsible business

commitments. We keep under review

the benefit of investing further in

voluntary certifications and standards

for other locations.

During 2022 there were no fatalities.

The target of reducing our Operation’s

Lost Time Injury Rate (LTIR) per

200,000 hours worked to below

0.22 by 2025 is on track. In addition,

we have also achieved our target of

increasing the Operations Hazard

Observation Rate to above 200 per

200,000 hours worked by Q4 2022,

attaining a rate of 234 in 2022,

reflecting the increased engagement

and proactive approach of eliminating

hazards before anyone has been hurt.

Our H&S performance table

2022

2021

2020

2019

Fatalities

Group Lost Time Injury Rate

0.18

0.26

0.21

0.27

Group Hazard Observation Rate

196

148

138

Operations Lost Time Injury Rate

0.20

0.30

0.23

0.30

Operations Hazard

Observation Rate

234

190

173

Lost Time Injuries

The data is based on OSHA definitions and rates are calculated based on 200,000 hours worked, as

described in our basis of reporting (page 241).

Lower rates are desirable for Lost Time Injury Rates; higher rates are desirable for Hazard

Observation Rates.

In line with our values, and our

forever caring promise, we want to

do all we can to help keep our

people and their families safe.

Our Fleet Safety Programme is

designed to help us enhance safety

for all our drivers (not just

colleagues travelling on Company

business). We are currently working

with expert partners in North

America and EMEA to enhance

existing safety programmes in

these regions, combining training

modules, driver assessments and

other support.

These programmes were

strengthened for company drivers

during 2022 and will be opened to

all employees during 2023.

Read how we are using electric

vehicles on page 69

CASE STUDY: GLOBAL FLEET SAFETY

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

BEHAVING

ETHICALLY AND

TRANSPARENTLY

During Ethics & Compliance Week we

launched our refreshed Code of Ethics

and Business Conduct and raised

awareness of a range of ethical

decision-making resources. Last year,

we set a target for at least 95% of

employees to be trained on the Code

of Conduct annually by Q4 2023 and

we achieved that target in 2022.

2022 highlights

–

Achieved Code of Ethics and

Business Conduct training

completion among 96%

of employees.

–

Updated and refreshed our Code

of Ethics and Business Conduct,

Global Third Party Compliance

Manual and Human Rights and

Labour Standards Policy.

–

Continued our global business

risk mitigation efforts.

–

Strengthened audit process in

procurement and supply chain

–

Improved average EcoVadis

supplier ratings by 6.5%.

2023 priorities

–

Update global ethics and

compliance policies and

employee education.

–

Strengthen our risk management

activities with a particular focus

on third parties and adherence

to labour standards and modern

slavery-related matters within

our supply chain.

–

Continue expansion of

EcoVadis platform to include

additional suppliers.

Protecting and

enhancing our

reputation across all our

stakeholders and with

our supply chain

Ethics and compliance

governance

CELT meets with our Head of Ethics

and Compliance on a quarterly basis

to review the compliance programme,

including its risk assessment and

mitigation efforts; investigative and

monitoring oversight; and policy

development and educational

delivery. The Audit and Risk Committee

also meets with the Head of Ethics and

Compliance biannually. This helps

assure that ethics and compliance

concerns are discussed and actioned

at the highest levels of the Company.

Regular corporate-wide and localised

communications and education assure

that all of our people are aware of the

ethics standards expected of them.

Our extensive ethics and compliance

programme incorporates several

policies and procedures including:

–

Maintaining a Code of Ethics and

Business Conduct (Code of Conduct)

that is updated regularly and

mandating annual training for all

employees either online, with

electronic acknowledgement of

completion, or through participation

in town hall meetings.

–

Making available an independently

provided Compliance Helpline and

web link for employees and third

parties (convatec.ethicspoint.com),

to seek guidance and to report

suspected deviations or policy

breaches.

–

Making it easy for issues to be

reported by colleagues, reviewed by

our Ethics & Compliance team and

where appropriate, that any

resulting investigation and outcome

of any significant issues are overseen

by the ARC (see page 132).

–

Serving as a second line of defence

by regular onsite or computer-based

monitoring of business activities to

assure that they are consistent with

policy, the Code of Conduct or

industry best practices.

–

Providing a third line of defence

through our risk assessment

process, which involves direct

engagement with global market

or functional leaders, and our

commitment when areas of concern

are identified, to work with those

leaders on an ongoing basis to

improve business practices,

where needed.

Strategic report

How are you staying ahead of

ethical business practices in a

fast-moving industry, with a

range of factors beyond your

control impacting your

business?

We regularly review and update

our policies, procedures and

practices to consider and include

the most current issues, and

accompany these with clear

communication and training so

our teams know what’s expected

of them. We also believe it must

be as easy as possible to identify

and resolve any potential

concerns, which is why we

maintain a compliance helpline.

To keep a pulse on the external

environment, we also utilise a

range of ratings and disclosure

programmes to help us identify

risks and opportunities.

A growing trend in ESG is

addressing sustainability topics

further out in the supply chain.

What is the role of partnerships

in ensuring Convatec meets its

commitments to ethics and

transparency?

We can be transparent about how

we behave in our own operations,

but we also are working to

understand how our partners in

Q&A

Evelyn Douglas

EVP, Chief of Corporate Strategy

& Business Development, General

Counsel & Company Secretary

Responsible business review – commerce

Convatec Group Plc Annual Report and Accounts 2022

Although we believe that our conflict-

of-interest measures operated

effectively in 2022, we piloted a

web-based survey mechanism that

invites managers to identify actual or

potential conflicts of interest. We are

planning on expanding the scope of

survey participants to most office-

based management level employees

by 2024.

We are committed to creating a

working environment where everyone

is treated fairly with respect, dignity

and consideration and where there are

opportunities for all. We used the

platform of International Human

Rights Day on 10 December to launch

our refreshed Human Rights and

Labour Standards Policy, which

incorporates principles and guidelines

set out in the United Nations Universal

Declaration of Human Rights, Modern

Slavery Act and the UN Guiding

Principles on Business and Human

Rights, addresses a range of issues

including equal opportunities,

anti-harassment and dignity at work.

As a policy that underpins the way we

work with each other, with partners,

and with suppliers, it was updated in

2022 to include:

–

explanation of our process for

evaluating suppliers to ensure

they align with our principles

and practices

–

articulation of our approach to

labour standards, including

compliance with relevant laws and

regulations in the countries in which

we operate

–

explanation of the Convatec Human

Rights Committee and its role in

monitoring implementation of the

policy and leading any additional

steps required.

In 2022, our cross-functional Human

Rights Committee, a sub-group of our

ESG Steering Committee, continued

driving forward this important agenda.

Chaired by Natalia Kozmina, EVP, Chief

Human Resources Officer & ESG

Stewardship, and including colleagues

from legal, compliance, supply chain,

and HR, the Committee reviewed and

updated our human rights-related

policies and practices and identified

strategies to strengthen supplier

due diligence.

Our Code of Conduct, Human Rights

and Labour Standards Policy, and

Modern Slavery Act Statement can be

found here: www.convatecgroup.

com/investors/governance/our-

policies-and-statements/.

We also engage with stakeholders on

ethical topics within our sector. During

2022, we continued to participate in a

number of AdvaMed meetings and

discussions regarding key legal,

ethical and compliance issues,

including HCP interactions. AdvaMed

is the largest medical device industry

organisation in the US and a global

leader in harmonising MedTech

industry codes on ethics and assuring

transparent interactions with

healthcare professionals.

Transparency, ratings,

disclosures and memberships

Being transparent with our

stakeholders about how we run our

business is a vital part of building

strong, long-term relationships based

on trust. Our disclosures and reporting

are assessed and scored by a range of

external ESG analysts and other

organisations, and we use this

information to benchmark our

progress. See page 65 for more on

our approach to disclosures and

memberships.

Supplier due diligence

To help protect against the risk of a

third party acting unethically, our

compliance team conducts a range of

due diligence and compliance audits.

When we execute distributor

agreements, they contain appropriate

assurances that the distributors will

deliver both online and live

compliance training programmes to

their staff, based on our Global Third

Party Compliance Manual. Using a

risk-based approach, we conduct due

diligence on distributors when they

are initially engaged, and every three

years thereafter, using an external due

diligence web tool.

We require that new suppliers agree

to adhere to the manual, which covers

a range of topics including

commitments to the International

Labour Organisation conventions and

the Principles of the UN Global

Compact and environmental

protections. It extends our Code of

Conduct and our Human Rights and

Labour Standards Policy to the supply

chain which, before 2022, were

addressed in our Supplier Code of

Conduct. The manual is introduced to

all existing supplier contracts as these

are renewed. A copy of the manual is

available at www.convatecgroup. com/

investors/governance/our-policies-

and-statements/.

We monitor and assess suppliers using

third-party risk platforms, which

provide in-depth, real-time coverage

of a range of factors that could impact

on supplier performance (including

geopolitical, climatic and civil unrest),

as well as events that may have been

caused by our suppliers (for example

major pollution and strike incidents).

We also operate processes that are

designed to ensure vendors are

engaged promptly when a risk event

occurs and that these events are

tracked through to satisfactory

closure of the potential risk.

the supply chain tackle ethics and

transparency around issues such

as environmental protection and

human rights. In 2022 we

expanded our practices with the

help of EcoVadis, and that will

continue to evolve in 2023 with

strengthened due diligence and

risk assessment through our

value chain.

How does Convatec ensure that

ethics permeates everything

it does?

Doing what’s right and owning it

are two of the values that we

must live out every day, and we

start by setting the tone from

the top that we take this

seriously. As an example, during

our annual Ethics & Compliance

Week, CELT members showed

their support of Convatec’s

compliance tools and their role

in enabling a culture of doing

what’s right through a series

of communications and virtual

events. We are investing in our

business practices, including

regular annual training for all

colleagues, to ensure that our

decisions at all levels continue

to embody these values and to

embed ethical behaviour in

everything we do.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Working responsibly with

partners

We aim to build long-term, mutually

beneficial relationships with third

parties along the value chain,

including suppliers of materials and

services, transport and logistics

companies, and distribution

businesses. Led by our Global

Procurement and Supply Chain

teams, we are clear that relationships

with third parties must be consistent

with our vision and values, and the

regulatory framework which

underpins our ethical

business practices.

We believe that developing a more

sustainable supply chain will benefit

our business over the long term

through increased efficiency, product

improvements, reduced risk and deeper,

more collaborative relationships.

Our spend is concentrated towards a

relatively small number of suppliers.

For example:

–

Ten suppliers represent

approximately 80% of our contract

manufacturing spend

–

Three suppliers represent

approximately 70% of our logistics

spend, while

–

Our raw materials supply chain

is more diverse, with 45 suppliers

representing approximately 80%

of our total raw material spend

Like many medical device companies,

our products are often sold by third

parties, such as distributors.

We endeavour to select partners who

can support our sustainability efforts.

For example, in 2021 and 2022,

Convatec Colombia contracted a new

partner to take on the removal and

recycling of paper and cardboard

material involved in local logistics

(e.g. product deliveries). Through the

partnerships, Convatec was able to

deliver over five tonnes of material for

efficient recycling, transformation and

reuse. The Convatec Quality Assurance

and Regulatory Affairs team is now

working with the partner to implement

standards, such as harmonising

metrics of recycling process (i.e.

Convatec box sizes), and develop

strategies for aligning with new

laws and trends.

We also work with our suppliers to

support and improve their

sustainability efforts. For example,

proactive engagement with a key

direct material supplier has resulted

in a 61% increase year-on-year in their

EcoVadis rating (see below).

Strategic report

CASE STUDY: LABOUR STANDARDS AND MODERN SLAVERY

In 2022, we made good progress towards our

ESG target of engaging with suppliers who

represent 80% of Convatec’s spend by Q4 2023.

Utilising the EcoVadis platform helps identify

improvement areas to focus on with our supply

chain partners. We take a proactive role in

supporting key suppliers to take actions that

can prompt feedback from their assessment

score, as part of our overall approach to

responsible supply chain stewardship. In

2022, these actions have helped contribute

to a 6.5% increase in the average score of our

rated partners.

As an example, led by our Global Procurement

team, we worked with a key small and medium

sized (SME) provider of roll stock that we use in

our adhesive foam products. Following their

assessment, we reviewed their action plan and

supported them to make improvements. This

included sharing good practice materials and

policy examples to strengthen their focus on

labour standards and human rights,

environmental and ethical practices. This work

resulted in the supplier meeting our

expectations for a partner of this nature and

them creating a revised employee handbook

for their employees. Overall, this practice led to

a 61% increase to their EcoVadis rating from 2021

to 2022, which as well as enhancing their

relationship with Convatec, also strengthens

their commercial position in the market.

Responsible business review – commerce

continued

Convatec Group Plc Annual Report and Accounts 2022

EXECUTE

Convatec has been included in

Sustainalytics’ 2023 Top-Rated ESG

Risk Rating Companies List for our

progress in 2022. Note, in 2021

Sustainalytics changed its

methodology for better comparability

of scores across industries. We now

follow the Risk Rating metric.

In 2022, Convatec received a rating of

AAA (on a scale of AAA-CCC) in the

MSCI ESG Ratings assessment. We

achieved above industry average

scores on human capital development

– which considers topics such as

efforts to attract and retain talent

(see page 59) and governance – that

assesses strategic oversight of

company management (page 114).

During the year, we achieved a B

score with ISS.

Disclosures

The landscape of ESG ratings and

disclosures is complex and constantly

evolving. We continue to disclose

against various reporting schemes

Ratings, disclosures

and memberships

that we believe offer most value to all

our stakeholders and keep our

approach under regular review. In 2022,

we disclosed against Carbon Disclosure

Project (CDP) (see page 68), SASB and

GRI (see www.convatecgroup.com/

sustainability/esg-reports-and-data/),

Workforce Disclosure Initiative, FTSE

Women Leaders Review, and

maintained UK Living Wage Foundation

accreditation. Our TCFD disclosure is

found on page 75.

Memberships

In addition to the disclosures below,

we have maintained UN Global

Compact (UNGC) membership since

2018, reporting annually against the

ten principles of the UNGC (page 47).

We also support MedTech Europe’s

sector engagement on sustainability

and are members of the Asia Pacific

Medical Technology Association

(APACMed), the Association of British

HealthTech Industries (ABHI) and the

All-Party Parliamentary Corporate

Responsibility Group.

Ratings

Rating organisation

2018

2019

2020

2021

2022

ISS

B-

Sustainalytics Overall

Performance

72/100

74/100

73/100

Not

available

Not

available

Sustainalytics Risk

Rating

16.5

15.3

15.2

14.6

14.5

MSCI ²

AAA

As at 1 September 2022. Lower scores are desirable for Risk Rating while higher scores are desirable

for Overall Performance.

Disclaimer: The use by Convatec of any MSCI ESG Research LLC or its affiliates (MSCI) data, and the

use of MSCI logos, trademarks, service marks or index names herein, do not constitute a

sponsorship, endorsement, recommendation or promotion of Convatec by MSCI. MSCI services and

data are the property of MSCI or its information providers, and are provided ’as-is’ and without

warranty. MSCI names and logos are trademarks or service marks of MSCI.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts

2022

Strategic report

How will Convatec meet its net zero

carbon target?

We’ve started by focusing on our

operations, setting emissions

reduction targets and expanding

our renewable energy

infrastructure in our manufacturing

sites. With our net zero target now

in place, we have begun the SBT

process to inform the reduction

targets we need to meet to reach

net zero before 2045.

How is Convatec working with its

supply chain to advance its

environmental strategy?

While we can more easily manage

things we control directly, we cannot

meet our targets without working

with partners in our supply chain.

In 2022 we finished a Scope 3

materiality study that confirmed

over 90% of our emissions are Scope

3. To reduce these, we are working

with expert partners to set SBTs, and

regularly meet with suppliers and

distributors about their

environmental strategies.

Apart from environmental work,

how does Convatec contribute to

its communities?

We believe developing strong

partnerships in the communities

where we operate is important in

’doing what’s right’, and this year we

elevated the voice of the community

in our programmes and

commitments. In addition to our

support of humanitarian relief in

Ukraine, we also developed

partnerships around our

manufacturing communities

during Forever Caring Month and

encouraged colleagues to use

their volunteering days.

Q&A

John Haller

EVP, Chief Global Quality

& Operations Officer

PROTECTING THE

PLANET AND

SUPPORTING

COMMUNITIES

2022 highlights

–

Set Scope 1 and 2 SBTs,

completed Scope 3 materiality

assessment, and determined

Scope 3 baseline.

–

Reduced Scope 1 and 2

greenhouse gas emissions

by 32%.

–

Deployed a $1.5 million disaster

relief response in Ukraine,

including cash and product.

2023 priorities

–

Set Scope 3 SBTs.

–

Validate all SBTs.

–

Launch multi-year non-

governmental organisation

(NGO) partnership.

The way we operate and

the contribution we

make to the world

around us

Our net zero transition

We understand the importance of the

2015 Paris Agreement and the need for

change in order to achieve net zero

carbon emissions by 2045. To ensure

that we follow the climate science and

build on our progress made to date in

reducing emissions, we committed to

validating science-based targets (SBT)

by the end of 2023. As such, our key

focus this year has been to quantify

our baseline Scope 3 emissions, whilst

developing the carbon emission

reduction pathway for our operational

emissions, setting 1.5°C SBTi aligned

Scope 1 and 2 targets in this report to

be achieved by 2030.

Our net zero transition strategy areas

of focus are:

–

Governance – to facilitate and

ensure coherent action across the

Group to reduce the Group’s impact

on the environment

–

Carbon and energy – to achieve

validated Scope 1, 2 and 3 SBTs to

ensure carbon emissions reductions

in our own operations are in line with

the Paris Accord. Increase energy

efficiency to improve our production

efficiency and develop a pipeline of

decarbonisation projects globally

–

Sustainable product design and

supply chain – to ensure innovation

in product design to reduce the

cradle-to-grave carbon footprint,

including assessing our value chain

Scope 3 emissions

–

Waste – to reduce the amount of

production waste leaving our plants

and to reach zero waste to landfill

by 2030

–

Water – to achieve sustainable water

withdrawal at high water-stressed

locations and develop our water

management practices at all

locations

See also: EHS policy statement at

www.convatecgroup.com/investors/

governance/our-policies-and-

statements and our TCFD disclosure

on page 75.

Strategic report

Responsible business review – communities

Convatec Group Plc Annual Report and Accounts 2022

Energy consumption

In 2022, total energy consumption across the Group was 137,614 MWh

(2021:141,960 MWh).

Energy intensity

Our overall energy intensity ratio has

reduced by 4.7% in 2022. We have

reduced the energy intensity ratio at

our manufacturing sites by 1.7%

(GWh/$m revenue) in 2022 through

implementation of our energy

efficiency programme. During 2022,

17 new energy efficiency projects have

been delivered across our sites, with a

further 12 projects being evaluated,

awaiting approval and funding, or

being implemented.

Total energy consumption (by function) (MWh)

¹,²

2022

2021

2020

2019

Manufacturing locations

103,131

103,207

95,523

97,233

Non-manufacturing locations

9,770

10,736

6,205

7,279

Company vehicles

24,713

28,017

–

Total energy consumption

137,614

141,960

101,728

104,512

Total UK energy consumption

25,856

25,339

10,381

–

Total energy consumption (by fuel source) (MWh)

¹,²

2022

2021

2020

2019

Non-renewable electricity

22,748

43,252

66,047

66,833

Renewable electricity

50,999

31,869

10,607

11,528

Natural gas

38,609

38,130

24,766

16,699

Green gas

–

8,546

District heating

464

642

254

828

Diesel

Company vehicles

24,713

28,017

–

Total energy consumption

137,615

141,961

101,727

104,512

Energy intensity (GWh/$m revenue)

¹,²

2022

2021

2020

2019

Energy intensity

0.066

0.070

0.054

0.057

2.4% is estimated for 2022 data; 2021: 2.7%

2. See our basis of reporting (link on page 241) for our 2021 methodology restatement

Our energy transition

Since the launch of our energy, utilities

and waste programme in 2019, 66

efficiency projects have been fully

implemented, with a further 11 awaiting

approval and 12 at feasibility stage.

The knowledge gained across our

global operations facilities’ teams

through the sharing of project

feasibilities and implementation

results have provided a solid

foundation to develop our net zero

energy transition. By maintaining a

clear focus on the Scope 1 and 2 SBT

reductions required, a pathway for

Scope 1 and 2 emissions reductions

has been developed. The most

impactful levers were considered

by site teams during this process,

carefully applying those that would be

suitable at a particular site. See below

for our identified Scope 1 and 2 levers.

Each lever was assessed and

categorised appropriately by site

facilities teams and the global

energy and environment team. Under

the energy efficiency levers, the suite

of projects built up from 2019 was

referenced at each site as well as

other sources such as mandatory

Energy Savings Opportunity Scheme

(ESOS) audits, energy audits and

consultant reports.

LEVERS WE USE FOR EMISSIONS REDUCTION

Scope 1

Scope 2

Improve the energy

efficiency of natural

gas powered heating

systems

Implement emerging

natural gas replacement

technology – e.g.

hydrogen

Improve the energy

efficiency of existing

plant and machinery

Smart metering

systems

Install refrigerant leak

detection systems

Reduce usage of

onsite gas power

generation/cooking

systems

Install solar panels

Replace natural gas

heating systems with

electric heat pumps

Electrification of

leased vehicle fleet

Replace district

heating equipment

with electric heat

pump technology

Purchase green gas or

’biogas’ certificates

Purchase renewable

energy certificates

Procure a ’power

purchase agreement’

to guarantee the

renewable source

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Energy efficiency

It is vital that we reduce the energy

we use, as the cleanest kWh of

energy possible is the one not used.

We continue to identify projects to

improve our energy efficiency.

Information about some of the

energy-saving initiatives implemented

during 2022 is included below.

Our greenhouse gas emissions

Our greenhouse gas (GHG) reporting

follows the methodologies set out

in ’The Greenhouse Gas Protocol:

A Corporate Accounting and Reporting

Standard (Revised Edition)’, developed

by the World Business Council for

Sustainable Development and the

World Resources Institute. We

participated in the Carbon Disclosure

Project (CDP) and our response is

available on the CDP website. Our

disclosure score, published in

December 2022 is C (2021: B). The score

is representative of activity in 2021,

and since then we have set out our ESG

framework, enhanced our governance

and greatly improved the volume,

consistency and sophistication of our

date and carbon reporting processes.

This year, we completed a SBT

readiness assessment of our

Scope 1 and 2 baseline emissions.

Improvements in the data are

included in our basis of reporting

document (page 241) and this includes

the restatement of previous years’

data due to a materiality of 35%

variance of overall reported emissions

in our baseline year (2021).

Our GHG emissions relate to

consumption of natural gas, diesel,

electricity, district heating and

refrigerant gases, used to power, heat

and cool our facilities and production

processes. Our company vehicles are

also included. This data is provided by

service providers and employees.

Our 2022 GHG emissions under the

market-based method totalled

24,653 tonnes CO

e. In 2022, a

reduction in market-based GHG

emissions of 34.4% was achieved at

our manufacturing locations, through

improved energy efficiency and

sourcing of renewable electricity at

an additional two of our nine global

locations. Our fleet of 1,157 vehicles

generated emissions of 6,096 tonnes

e. In 2022, our refrigerant gas

emissions amounted to 746 (2021: 615)

tonnes CO

e, emitted, with 12.4% of

those emissions estimated.

We seek to reduce our Scope 1

emissions through our energy

efficiency programme, including

initiatives such as the implementation

of emerging technologies like heat

pumps and hydrogen to replace our

natural gas-fuelled processes. In 2022

we have commissioned a study into

our process and comfort heating

systems by a third-party provider to

understand the technologies available

to us, the associated emissions

reductions, business case and

also market readiness.

Strategic report

Facilities

Initiative

Energy consumption

reduction (MWh)/%

Deeside

HVAC ductwork leakage

resolution

66/(1%)

Rhymney

Chilled water link and air

change rate reduction

92/(1%)

Sunderland – Amcare

LED lights

22/(6%)

Haina

Improved practices

during downtime

periods, phase 1 roof

mounted solar PV, and

HVAC replacements

1,537/(8%)

Osted

LED lights

63/(1%)

Michalovce

Installation of

absorption chillers

and optimisation

of compressed air

distribution networks

600/(2%)

Reynosa

Two-way valve control of

HVAC fans and pumping

systems

883/(5%)

GHG (market-based method) (tonnes CO

¹,²

2022

2021

2020

2019

Scope 1 (Global)

14,395

14,931

5,608

5,046

Scope 1 (UK)

3,202

3,107

2,012

2,053

Scope 2 (Global)

10,258

21,255

24,650

24,016

Scope 2 (UK)

Total GHG emissions

24,653

36,186

30,258

29,062

Total UK

3,272

3,136

2,012

2,053

GHG (location-based method) (tonnes CO

¹,²

2022

2021

2020

2019

Scope 1 (Global)

14,395

14,931

5,608

5,046

Scope 1 (UK)

3,202

3,107

2,012

2,053

Scope 2 (Global)

23,210

25,872

27,169

27,318

Scope 2 (UK)

2,200

2,348

2,433

2,847

Total (Global) GHG emissions

37,605

40,803

32,777

32,364

Total UK

5,402

5,455

4,445

4,900

GHG emission intensity (tonnes/$m revenue)

¹,²

2022

2021

2020

2019

GHG emission intensity

(location basis)

18.1

20.0

17.3

16.7

GHG emission intensity

(location basis, UK)

2.6

2.7

2.3

2.7

GHG emission intensity

(market basis)

11.9

17.8

16.0

14.9

GHG emission intensity

(market basis, UK)

1.6

1.5

1.1

Please refer to our updated methodology for 2021 and 2022 in our Basis of reporting document

(link on page 241).

2. In 2022, 2.6% of total Scope 1 and 2 emissions is estimated; 2021: 3.3%.

Responsible business review – communities

continued

Convatec Group Plc Annual Report and Accounts 2022

Vehicle emissions

Convatec’s team in Brazil are replacing

current petrol and diesel vehicles with

electric vehicles (EVs) to distribute

Convatec products to hospitals and

clinics in the urban area of São Paulo,

in partnership with DHL.

Each EV saves approximately five

tonnes of CO

and 1,900 litres of diesel

per year compared to non-EVs. To

support employees who use EVs, we

have installed charging stations for

personal use at our Deeside facility.

Renewable energy

As part of our proposed aligned Scope

1 and 2 SBTi targets, we have

committed to procuring 80% of our

electricity from renewable sources by

2025, reaching 100% by 2030. We now

expect to achieve the 80% target by

the end of 2023.

During 2022, we actively progressed

renewable energy programmes across

our manufacturing operations sites.

In Mexico, we purchased international

Renewable Energy Certificates (iRECs)

certificates from certified in-country

solar and wind sources to match our

annual electricity consumption.

Renewable energy accounted for

approximately 37% of total energy

consumption in 2022 compared to

22% in 2021. Information about the

methodology we use for disclosing

renewable energy in relation to our

Scope 1 and 2 emissions can be found

on page 241.

Scope 3 carbon materiality study

We engaged teams across the business

to collect data in each of the 15 Scope 3

categories. A high-level screening

was conducted in partnership with

UL Solutions, to assess the materiality

of each category and quantify those

deemed to be material.

The headline result of the study was

that 95% of total emissions arise in our

value chain. The methodology used

was based on the GHG protocol

framework. (Source: GHG protocol;

Scope 3 standard)

Data was collected from a variety of

different sources:

–

Supplier-based spend data

–

Convatec life cycle analysis studies

–

Supplier primary data (through

direct Requests for Information

(RFIs) or existing platforms such as

CDP)

–

Convatec’s existing environmental

data collection platform

(UL Solutions)

–

Convatec-owned information

(e.g. shipment files)

–

Convatec company expense and

travel agent system

–

Interviews with internal product

experts in each business unit

The total emissions of each material

category is reported below and a link

to the methodology used is found on

page 241.

Water

During 2022, working with expert

partners, we have completed a water

risk assessment (using WRI Aqueduct

3.0 Water Risk Atlas and Ecolab Smart

Water Navigator) to understand the

relative sustainability of our water use

and the inherent risks to our

operations in each global location.

An assessment of the incoming water

(quality and quantity) risks and

outgoing water (quality) risks has been

undertaken to inform the study. The

results show that although our site in

Haina, Dominican Republic, has the

highest potential overall water risk,

associated with the physical (quality),

regulatory and reputational risks, the

water withdrawal risk is low. Whereas

our manufacturing site in Reynosa,

Mexico, despite having low-medium

overall water risks, is the only site with

high baseline water stress and

consequently a medium water

withdrawal risk. As such, this site is

prioritised for target setting for water

withdrawal. According to the 2021

data, of the total amount of water

withdrawn, only 7% is calculated as

consumed within our operations.

As part of our net zero transition, we

have also developed a suite of water

reduction projects globally to reduce

our water withdrawal. Projects

considered during the development

of the environmental roadmap include

rainwater harvesting, grey water

recovery, cooling tower efficiency

improvements and control of water

appliances in toilets and kitchens.

In 2022, we withdrew approximately

169 megalitres of water (2021: 176

megalitres), all of which was provided

by municipal water suppliers or other

public or private water utilities. The

majority of water (95%) is withdrawn

at our manufacturing sites in the

Dominican Republic, Mexico, Slovakia

and the UK. No water is abstracted

directly from lakes, rivers or other

bodies of water. Data is compiled from

invoiced amounts and meter readings.

A small percentage of water is treated

on site (2022: 0.01%, 2021: 0.04%).

CASE STUDY:

EXPANDING CAPABILITIES

ON RENEWABLE ENERGY

In Q4 2022, we completed the

first phase of our first roof-

mounted solar photovoltaic

installations, generating green

electricity to power a portion

of our manufacturing plants’

electricity usage in Haina,

Dominican Republic. This project

provides increased resilience

from energy price and power

grid fluctuations, whilst also

reducing the amount of grid-

supplied electricity required.

This project generated 109 MWh

of green electricity in 2022. Once

completed, this project is

expected to reduce our total

electricity consumption by 1,558

MWh, which equates to an

estimated location-based

emissions reduction of 875

tonnes of CO

Scope 3 emissions

2022

2021

Category 1: Purchased goods and services

295,482

299,007

Category 2: Capital goods

51,301

31,562

Category 3: Fuel and energy related activities

8,214

8,732

Categories 4 and 9: Transport and distribution

82,421

62,802

Category 5: Waste generated in operations

3,055

5,200

Category 6: Business travel

2,328

1,202

Category 7: Employee commuting

3,352

3,820

Category 12: End of life treatment of sold products

40,020

39,670

Total

510,824

488,182

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

5,641 tonnes of water (2021: 5,391

tonnes) are tankered offsite as

hazardous waste, the vast majority

relates to our Rhymney site in the UK

where, as part of the production

process, water becomes contaminated

with Industrial Denatured Alcohol (IDA)

and is segregated for further

processing. After processing, a

significant proportion of the IDA is

recovered and reused at the site. The

remaining treated water is returned to

the environment via a sewer as part of

a permitted discharge. Other

uncontaminated wastewater is

discharged via a sewer.

As set out in our Environmental

Policy statement, we are committed

to understanding, quantifying and

minimising our waste (hazardous

and non-hazardous), and water

consumption. We are also intensifying

our focus on initiatives which will drive

a reduction in waste generated by our

product, packaging and non-

manufacturing activities.

Water use

(megalitres purchased)

2021

2022

2020

2019

2018

2017

169

146

158

166

170

176

2022 data includes an additional R&D site.

Waste

During 2022, we have undertaken

analysis of our waste processing

and disposal practices, completing

a study of the waste generated from

our manufacturing plants and the

fate of each type. We have identified

preliminary goals, including

provisional targets which will be

finalised and subject to SBT validation

alongside our Scope 3 target at the

end of 2023. We are also developing

roadmaps with site manufacturing

teams, reaffirming baselines and

opportunities for reducing waste and

minimising environmental impact.

The table below shows our waste

recycling and disposal performance

over the last five years for both

hazardous and non-hazardous waste.

Non-hazardous waste represents

69% (2021: 74%) of the total waste

generated and the chart indicates the

proportion of this waste recycled is

26% (2021: 18%) and the proportion

disposed of to landfill is 47% (2021:

66%). The change in the split between

recycling and landfill seen during 2021

compared to 2020 is attributable to

increased recycling levels in the

Dominican Republic, Slovakia and

the UK.

Hazardous waste represents 31% (2021:

26%) of total waste generated and 99%

(2021: 99%) of this is recycled. The vast

majority of hazardous waste (97%,

2021: 95%) is generated at our Rhymney

site and its treatment is described in

the previous section. Of the remainder,

1% (2021: 1%) is disposed of to landfill.

Following our decision to exit hospital

care, we worked with a number of

partners to donate products,

minimising waste and disposal of

products we no longer sell.

Environmental impacts in the

value chain

As well as the environmental impact

of our own operations, the delivery,

use and disposal of our products also

creates impacts along the value chain,

including the sourcing of raw

materials, sterilisation, supplier

manufacturing, packaging, logistics

and transport. To minimise this

’indirect’ environmental impact we

will be assessing the environmental

performance of key suppliers,

reporting value chain impacts and

assessing product and packaging

performance.

As explained on page 63, we assess

suppliers’ environmental performance

against our Supplier Code of Conduct

(SCoC) and we require new suppliers

to sign our SCoC. No supply contracts

were terminated on the basis of the

environmental assessments

conducted in 2022.

Strategic report

CASE STUDY:

INCINERATION OF

OSTOMY PRODUCTION

WASTE FOR ENERGY

RECOVERY IN

MICHALOVCE

During 2022, we completed a

project to ensure that all Ostomy

production scrap which cannot

be recycled is incinerated for

energy recovery. This project will

reduce the amount of waste sent

to landfill annually by 300

tonnes (5% of waste sent to

landfill globally in 2022). A

certified waste provider was

commissioned for this work,

following Slovakian

environmental legislation for the

incineration for energy recovery

process. This project will also

reduce Scope 3 emissions by 133

tCO

e per annum, due to the

improved carbon emissions

related to the new process

implemented.

Waste recycled (tonnes)

2022

2021

2020

2019

Non-hazardous waste

Disposed of

9,655

13,599

11,806

10,060

Recycled

3,425

2,990

2,120

3,671

Generated

13,080

16,589

13,926

13,731

Hazardous waste

Disposed of

Recycled

5,789

5,606

5,337

5,716

Generated

5,858

5,688

5,409

5,794

Total Generated

18,938

22,277

19,335

19,525

Fate of non-hazardous waste generated (%)

2022

2021

2020

2019

Recycled

26%

18%

15%

27%

Incineration (with energy recovery)

27%

16%

10%

Incineration (without energy

recovery)

Landfill

47%

66%

75%

59%

Data restated as per the basis of reporting,

Responsible business review – communities

continued

Convatec Group Plc Annual Report and Accounts 2022

Environmental impact of

products and packaging

Our products are the most visible

element of our environmental

performance and encapsulate

accumulated environmental impacts

along the value chain, from extraction

of raw materials, through manufacture

and logistics, use by customers, and

final disposal.

By better understanding where the

most significant impacts are created,

we are better able to focus on the

priorities for attention. In previous

years we have undertaken projects

to build our knowledge in this key area.

As highlighted above, we need to do

more work and this will be a key

priority in 2023 and is captured in our

ESG targets on pages 48 and 49.

Our new product development

process and Green Design Guidelines

help to facilitate this progress further,

as described on pages 51 and 52.

We are in the process of establishing

an environmental strategy delivery

team collaborating across operations

and a review of the carbon impact of

our packaging will be considered as

part of this initiative.

Socio-economic contribution

to society

Through running our business, we aim

to make a socio-economic contribution

to society. This contribution, which is

important to a range of stakeholders,

is summarised in the table below.

Using the volunteering policy

launched in 2021, colleagues

engaged in a range of charitable

activity throughout 2022. We

celebrated and shared their stories

during Forever Caring Month, an

initiative that encouraged

colleagues to demonstrate our

forever caring promise in their

communities. Throughout

November and December,

colleagues shared and celebrated

their volunteering stories and how

it contributed to growing pride and

trust with communities. As part of

the initiative, Convatec also

partnered with charities around our

nine manufacturing sites with over

$220,000 donated on issues most

important to us and our

communities. Over 1,000 lives were

impacted through programming

supported by our contribution.

2022

2021

2020

2019

Direct economic value generated

2,072.5

2,038.3

1,910.8

1,827.2

Economic value distributed

Operating costs

990.4

962.3

891.7

890.0

Employee wages and benefits

648.5

650.1

579.7

515.0

Payments to providers of capital

312.8

262.7

254.0

351.2

Payments to governments

45.7

47.6

56.3

38.2

Community investment

0.7

1.5

0.7

0.5

Economic value retained

74.4

114.1

128.4

32.3

Operating costs exclude depreciation, amortisation, impairment charges, asset write-offs and operating taxes. Employee wages and benefits, payments

to governments and community investments are normally part of operating costs, but have been excluded as they appear on separate lines in the table.

Payments to providers of capital have been included on an accruals basis and include interest paid on long-term debt, capital and interest payments on

right-of-use assets, net debt repayment, dividends and own share reserve purchase paid to Convatec shareholders.

Payments to governments include corporate income taxes, sales taxes, real estate taxes and other taxes, but exclude employer portion of payroll taxes,

as they are included in employee wages and benefits.

4. Calculated as costs associated with charitable community donations. Excludes product donations. See page 73 for calculation of value to communities.

CASE STUDY: FOREVER CARING MONTH

Reducing hunger and food waste:

volunteering in Hong Kong

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

BUILD

Strategic report

With the onset of war in Ukraine, we

coordinated a tiered response valued

over $1.5 million to support

humanitarian relief. This included:

–

Monetary donation

– In line with our

commitments as a member of the

UNGC and industry best practice, we

donated $250,000 to the Disasters

Emergency Committee (DEC), who

support the on-the-ground work of

their 15 member organisations.

–

Product donation

– In partnership

with the Polish Red Cross and the

Ukraine-Slovakia SOS, we donated

over $1.2 million worth of Convatec

products from across our portfolio.

We know that managing chronic

conditions can be stressful at the

best of times, and that people

affected by the war need support

Disaster relief in Ukraine: our approach

over many months. A small working

group comprised of Convatec

colleagues from across the business

met weekly through March – April

2022 to coordinate the effort,

determining culturally appropriate

products, necessary translations and

brokering the charity partnerships.

–

Support of our people

–

Geopolitical events in the region

were stressful to many colleagues

globally. Throughout 2022, a series

of communications and updates

to colleagues informed them of

the actions the Group was taking.

To support their mental health

and wellbeing, EAP resources were

made available alongside additional

wellbeing resources. We also

encouraged colleagues to use

volunteering days to support

charities that they have access to

through our global volunteering

policy. Many colleagues did so in

a range of ways such as driving

refugees to host families, fundraising

for charities, or spending time on

the phone to help displaced people

access medical products.

Our response to the war in Ukraine

demonstrates the importance

of coordinating centralised action

to maximise impact, and the value

of having processes to ensure

quick responses in instances

of future disasters.

Responsible business review – communities

continued

Courtesy of the DEC

“We are delighted to be working with

Convatec. Your generosity and support

has enabled our members to immediately

respond on the ground in Ukraine and

neighbouring countries with food, shelter

and protection.”

Disasters Emergency Committee

Convatec Group Plc Annual Report and Accounts 2022

Contribution to governments

We are fully committed to meeting

our legal tax obligations in each of

the countries in which we operate.

We fully support and embrace greater

transparency with tax authorities

and the initiatives being introduced

by the Organisation for Economic

Cooperation and Development (OECD)

and governments to ensure clarity and

adherence to the tax laws of each

jurisdiction in which we operate.

Our Tax Policy is available at

www.convatecgroup.com/investors/

governance/our-policies-and-

statements/.

Supporting communities

Our forever caring promise is a

commitment we make to customers

and those we serve every day. It’s also

a promise we make to the communities

in which we operate.

In recent months, we’ve made good

progress refreshing our approach

to support communities. In recognising

that the way in which we operate

enhances the contribution we make

to local communities, we are

developing stronger partnerships with

select non-governmental organisations

(NGOs) to ensure that partnerships

can be targeted to achieve maximum

impact. We will develop these

partnerships over the long term in

the places where we operate, and

whose activities focus on issues of

healthcare access/equity, education,

or disaster relief.

From a Group-level perspective, our

approach is to support partnerships

on issues that closely align with our

vision and values, and where the

majority of our people and impact

is made.

It is also the case that team-driven

volunteering and charity work in any

community is valuable and also an

important part of our impact. Our

two-day volunteering policy makes

it easy for colleagues to engage in

community service. Business units,

functions and our ERGs also contribute

to further local market activities as well.

Partnerships

In line with our ESG commitment to

establish new NGO partnerships and

funding commitments, in 2022:

–

We partnered with the Disasters

Emergency Committee (DEC), to

support their efforts for Ukraine

relief, including through three

donations and employee appeals

throughout the year (see left).

–

We launched Forever Caring Month,

supporting eight partner charities

near our manufacturing sites

(see page 71).

Medical education

In line with our forever caring promise,

we support HCPs through our medical

educational programming. We provide

grants to support HCPs and third

parties (such as regional bodies,

associations, educational and hospital

institutions) engaging with

educational and scientific meetings,

programmes, workshops, events,

activities and public education,

non-contingent on the use of Convatec

products. In 2021, we set a target to

contribute responsibly to a range of

HCP and patient education

programmes, and we delivered on this

in several ways throughout 2022.

In celebration of 25 years of our

Hydrofiber® dressing AQUACEL™,

we pledged $250,000 to fund medical

education in partnership with the

Welsh Wound Innovation Centre

(WWIC). Throughout 2022, WWIC

hosted four courses, in a four-day

online format, covering topics

including wound assessment, pressure

ulcers/injuries and hard-to-heal

wounds. WWIC have educated over 631

delegates from 12 countries, exceeding

our original goals for the programme.

2022 VALUE TO COMMUNITIES

In line with our forever caring promise

and company values, we supported

our communities through:

$500,000+

to community partners through

programming and disaster relief

$1.3 million+

Products valued at $1.3 million+

donated to charity partners

$185,000+

in medical education grants supporting

over 4,600 HCPs

Product value calculated using regional average

sale price. Includes contribution from products

with shortened shelf lives.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

STATEMENTS

Strategic report

Responsible business review – communities

continued

To support future medical education

programming, we advanced our

multi-channel education capabilities

for both HCP and patient programmes

within AWC via our Wound Hygiene

integrated medical education and

communication programmes.

Educational publications, webinars and

symposia, podcasts and competency-

based skills training have to date, been

implemented in 38 countries

worldwide. A global resource centre,

woundhygiene.com provides both

theoretical and practical information

for HCPs, with plans to expand to

patient education in early 2023.

In 2022, our Convatec Asia-Pacific

Education (CAPE) activities expanded

in several dimensions. Our digital

ConvaTeach platform – a multi-

channel, global education tool that

connects HCPs across regions and

disciplines – was improved through

the development of new training

materials, case compendiums and

new features and expanded to an

additional 1,000 new users by

launching in China in July 2022.

We held a CAPE Summit as a virtual

conference covering AWC and OC,

with Continuing Medical Education

(CME) accreditation supported by

multiple leading experts in their field

from countries across our Global

Emerging Markets (GEM). The summit

was attended by over 1,800

participants over two days. The

number of total HCPs touched through

our 2022 CAPE virtual and in-person

programmes reached over 231,000

across the GEM region through nearly

7,000 events in 2022.

In 2022, we tracked GEM, AWC, OC

and CC&C medical education activity

centrally. In 2023, as part of launching

a new Medical Education Centre of

Excellence, we intend to develop a new

Global Professional Medical Education

digital platform to capture metrics

across the Group. The platform will

help us integrate the work of business

leads and regional educational

programmes, which will strengthen

our HCP offering digitally and non-

digitally in all business areas. In 2023,

we also intend to develop a new

patient education programme in AWC.

Independent assurance

In line with our commitment to transparency, we commissioned Deloitte

LLP to perform limited assurance procedures on selected key

performance indicators as detailed in our Responsible business review

2022. The assurance was completed in accordance with the International

Standard on Assurance Engagements 3000 (revised) (ISAE 3000) and

3410 (ISAE 3410). Details of the procedures performed are oulined with

Deloitte’s independent assurance opinion, which can be located at www.

convatecgroup.com/investors/governance/our-policies-and-statements/.

Performance data

The scope of Deloitte’s work covered the following 2022 disclosures

(performance data) from the review:

–

Greenhouse gas emissions: Scope 1 (14,395 tonnes CO

e); Scope 2

(market based) (10,258 tonnes CO

e ); Scope 2 (location based)

(23,210 tonnes CO

e ) (page 68)

–

Emission intensity (location based: 18.1 tonnes CO

e/$million

revenue and market based:

11.9 tonnes CO

e/$million revenue) (page 68)

–

Energy consumption (137,615 MWh) (page 67)

–

Energy intensity (0.066 MWh/$million revenue) (page 67)

–

Health and safety: operations lost time injuries and rate (0.20)

and hazard observation rate (234) (page 61)

–

DE&I and Wellbeing: percentage of females in senior management

and CELT (38%) (page 60)

Convatec’s basis of reporting for the above metrics can be found

at www.convatecgroup.com/sustainability/esg-reports-and-data/.

We regularly assess the scope of our ESG assurance and covered metrics.

Deloitte’s full Assurance Statement, including opinion and basis

of opinion is available at www.convatecgroup.com/sustainability/esg-

reports-and-data/.

Completeness of information

The information contained in the Responsible business review section of

our 2022 Annual Report and Accounts covers all operations over which we

had financial control for the 2022 financial and calendar year. It also covers

all of the issues identified in our ESG framework and places emphasis on

the most material issues.

Where a reported KPI does not relate to the entire organisation for the

whole year, the scope of its boundaries is indicated. Businesses acquired or

disposed of during the year are not included in our reporting for that year

except where disclosed otherwise.

Convatec Group Plc Annual Report and Accounts 2022

TCFD disclosure

STATEMENT OF COMPLIANCE

We are committed to continued adoption and alignment with the recommendations of the Task Force on Climate-related

Financial Disclosures (TCFD). In compliance with the FCA Listing Rule LR 9.8.6R(8) on climate-related disclosure, the table

below summarises where we are reporting consistently against the recommendations. Where we are working to strengthen

our response, we have indicated what the gap is and how we intend to close the gap. Further supporting information can

be viewed in our ESG section of the annual report under the ‘Protecting the planet and supporting communities’ pillar on

pages 66 to 74.

Recommendation

Status

Page

GOVERNANCE

a) Board oversight

Comply

b) Management’s role

Comply

STRATEGY

a) Climate-related risks and opportunities

Comply

b) The impact of climate-related risks and opportunities

–

Transition plan: In 2022, Convatec focused on measures we could take to reduce the

environmental impact of our direct operational emissions. In 2023, we will develop our

transition plan which will incorporate decarbonisation measures as well as plans to align

our strategy and wider business activities with 1.5C in a sustainable way.

Explain

(partial

disclosure)

c) The resilience of the organisation’s strategy

–

Strategic and financial planning: Convatec has started to assess the potential future

financial impact of climate risks and opportunities and in 2022 we have completed a

physical climate risk analysis. As we move forward, we recognise the need to develop

our quantified transition plan and we intend to incorporate findings from physical and

transition quantitative climate scenario analysis into our strategic planning cycle in 2023

to strengthen our response to climate change.

Explain

(partial

disclosure)

RISK MANAGEMENT

a) Identifying and assessing climate-related risks

Comply

b) Managing climate-related risks

Comply

c) Integration into overall risk management

Comply

METRICS AND TARGETS

a) Climate metrics

–

Cross-industry metrics: In 2022, Convatec undertook a qualitative climate scenario

analysis to assess the potential significance of climate risks and opportunities and

began quantification of the physical financial impact. In 2023, once we have developed

our transition plan, we will be in a better position to fully report against the climate risk

and opportunity categories. In 2023, there will be ESG objectives in the personal objectives

of each CELT member for bonus purposes. In respect of the two executive directors, the new

Executive Remuneration Policy (which will go to the AGM for approval) will include an ESG

objective, contributing to 5% of their overall bonus.

Explain

(partial

disclosure)

b) GHG emissions

Comply

c) Climate targets

Comply

The Task Force on Climate-related

Financial Disclosures

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Strategy and risk management

Our strategy includes emissions/environment as an ESG

priority aspect. In the next strategic planning cycle, we will

also include outcomes from the climate scenario analysis.

Major capital expenditure

In 2022, climate was added as a factor in M&A due diligence

and decision-making. During 2023, we will include climate

consideration in capital allocation.

Business plans and budgeting

Our strategic plan is used to inform the development of the

annual business plan and budget.

Goals and targets

We have committed to reduce our environmental impact

across emissions, waste, water and product life cycles and

we are developing plans to deliver on these targets.

Performance monitoring

We have KPIs associated with our environmental ambition

and we report our annual performance alongside four years

of historical data.

CONSIDERATION OF

CLIMATE ACROSS

BUSINESS PROCESSES

TCFD disclosure

continued

Governance

Summary of disclosure

–

The Board has oversight of all

climate-related matters, with the

CEO carrying overall responsibility.

–

The ARC is responsible for reviewing

and approving Convatec’s ESG and

TCFD Disclosures and monitoring

the integrity of the targets and

related metrics.

–

In addition to the above two bodies,

climate risks and opportunities are

further assessed and managed by

the ESG Steering Committee and

CELT, who feed upwards to the ARC

and Board on climate actions and

cascade the organisation’s climate

objectives for implementation and

delivery by their teams.

Next steps

–

Following the identification and

assessment of climate-related risks

and opportunities in 2022, during

2023 we will incorporate their

consideration as part of our

business strategy planning and

financial planning processes.

–

Given that our response to climate

change is dependent on many parts

of the business, we plan to devote

more time to climate matters in

relevant Board committees, in

addition to those already assigned

to the ARC.

Governance structure for

climate-related matters

The Board has oversight of all climate-

related issues within the organisation,

with the CEO ultimately responsible for

the implementation of climate-related

actions across business units and

functions. Implementation is guided

and promoted by CELT members who

are responsible for driving progress,

performance, compliance, and metrics

against the four ESG strategic pillars.

The Board discusses climate-related

matters in its meetings including two

deep-dive sessions during the year, and

is supported by Board and Management

committees to aid its understanding

and provide relevant information to

the Board:

–

The ARC is responsible for reviewing

and approving Convatec’s ESG and

TCFD reporting for data integrity,

management of risks and

compliance with relevant

regulatory requirements.

–

The Remuneration Committee has

oversight of the incorporation of

ESG objectives in remuneration

going forward.

–

CELT has delegated responsibility

from the Board to set the direction of

Convatec’s strategy, ensure climate-

related issues have appropriate

management in place, and cascade

this through the organisation.

–

The ESG Steering Committee and

the TCFD Working Group support the

implementation of the Group’s vision,

in line with our FISBE strategy, and are

supported by the organisation’s

strategic planning process.

See pages 42 and 43 for further detail

on ESG governance structures.

Climate-related governance

principles over internal

processes, supply chains,

and capital allocation

The organisation follows a bottom-up

approach when it comes to internally

responding to climate-related issues.

Each business unit and functional area

has an individual risk register which

includes impacts of climate-related

risks. In addition, the TCFD Working

Group has conducted a climate

scenario analysis in 2022, which takes

a top-down assessment of climate risks

and opportunities across the Group.

We have a risk management process

to address our principal risks and

uncertainties, including the

Environment and Communities risk,

which incorporates climate change

strategy as one of the key principal

risk drivers, including transition

risks. Several members of senior

management have a climate-related

personal objective attached to the

individual performance elements

of their remuneration.

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

Engage with functions

across

the business to build awareness

of how climate change may

impact operations and identify

whether climate risks and

opportunities are already

being managed.

Integrate

results of physical risks analysis into

impairment testing, and in business continuity

and risk management plans. Incorporate priority

transition risks and opportunities into the

strategic-planning process

Using results from the qualitative scoring

assessment of

transition risks and

opportunities

to prioritise those for

quantitative

climate scenario analysis

, accounting for

methodical limitations

Use outcomes of identification and assessment

to inform decision-making on

response options

based on the significance of potential impacts

and those identified as priority in the near term

Contextualise

identified risks

and opportunities based on our

business operations and market

landscape to better understand

the cause and consequence and

controls to be put in place.

Conduct climate scenario

analysis, to qualitatively

assess

transition risks and opportunities

and to

quantify

the potential

financial impact of the physical

risk of selected critical sites within

our value chain.

2022 PRIORITIES

2023 NEXT STEPS

Strategy

Summary of disclosure

–

Engagement with Group and

operating functions to understand

the relevance of climate-related

matters to the business and the

relative level of potential impact in

comparison to climate risks as well

as other business risks.

–

Identification and assessment

(including scoring and ranking)

of climate risks and opportunities

using climate scenario analysis.

–

Potential future financial impact of

physical climate risks are assessed

for productivity loss and damage to

Convatec-controlled assets across

International Panel on Climate

Change (IPCC) scenario pathways.

–

Transition risks and opportunities

are qualitatively assessed against

three climate scenarios, and across

short-, medium- and long-term

time horizons.

Next steps

–

Complete climate scenario analysis

by quantifying the financial impact

from priority transition risks and

opportunities (where data and

methodologies allow).

–

Incorporation of the climate

analysis outcomes into the Group’s

strategic planning process in 2023,

which will inform a range of financial

planning decisions.

–

Continue to develop near- and

long-term transition plans to

achieve our net zero goals and

demonstrate alignment of our

product portfolio and strategy

to a low-carbon economy across

the value chain and the local

communities we operate in.

Approach to climate scenario

analysis

In 2022, we identified three priorities

to progress the existing identification

and assessment of climate-related

risks and opportunities. These

actions enable us to embed climate

considerations in business planning

processes. In the future, the

integration of climate-related

matters will be underpinned by

financial impact calculations and

increased awareness and capabilities

across teams to manage climate risks

and opportunities.

We use both a qualitative and

quantitative approach to climate

scenario analysis. The methodology

we apply for these assessments is

described in more detail in the Risk

Management section (page 85). Before

conducting these assessments, we

reviewed the risks and opportunities

identified last year and built upon

these through further research and

stakeholder engagement. This

exercise gave us confidence that

potential risks and opportunities have

been identified and documented. We

also increased awareness across the

Group of potential climate impacts

to our business activities.

In the first instance, we use a

qualitative approach to screen the

relevance and potential impact of

identified risks and opportunities.

Where the results indicate relatively

high levels of impact, and where data

and methodologies allow, we will seek

to quantify the potential financial

impact. In these cases, we refer to the

qualitative assessment results and will

identify suitable risk indicators to

monitor exposure over time.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Size of impa

Likelihood

RISK MATRIX: CONSOLIDATED RISK SCORES ACROSS TIME HORIZONS AND

CLIMATE SCENARIOS

Ph1

Ph2

Ph3

Key:

High vulnerability

Medium vulnerability

Low vulnerability

Introduction to climate scenarios

The future is increasingly uncertain over the long time horizons used in climate scenario analysis. In our climate scenario

analysis, we draw upon scenarios from the IPCC, the International Energy Agency (IEA) and the Network for Greening the

Financial System (NGFS) to inform the assessment of climate impacts. The table below summarises the specific scenario

sources we have used.

Ambitious policy

Middle of the road

High warming

Scenario storyline

Paris-aligned scenario, where

global CO

emissions are cut

severely, with ambitious and

gradual efforts to limit

temperature rise.

Slower, less ambitious policy

action OR a time lag before

sudden ambitious action.

Emissions remain stagnant in the

near-term with notable shifts

occurring between 2030 – 2050.

Limited to no action, with

society continuing along past

trends and emissions increasing

significantly resulting in

extreme warming.

Scenario sources

–

NGFS Orderly transition

–

REMIND-MAgPie Net Zero

scenario

–

IEA Net Zero scenario

–

IPPC’s SSP1-2.6

–

NGFS Disorderly transition

–

REMIND-MAgPie Delayed

Transition scenario

–

IEA Announced Pledges

scenario

–

IPPC’s SSP2-4.5

–

NGFS Hot House World

–

REMIND-MAgPie Current

Policy scenario

–

IEA Stated Policies scenario

–

IPPC’s SSP5 8.5

Temperature outcome (2100)

1.4°C – 1.8°C

1.6°C – 2.7°C

2.5°C – 4.4°C

The time horizons used for this

assessment are short term (0 to one

year) to reflect baseline risk and align

with our business plan, medium term

(one to five years) to align with the

strategic planning cycle into which

climate matters will ultimately be

integrated, and long term (five years to

2050) to align with global goals for net

zero and as 2050 is a common end-

year for scenario projections.

Risk and opportunity assessment

In our qualitative assessment, we draw

upon data from climate scenarios as

an evidence-based approach to

understanding how climate issues will

manifest over time, across scenarios.

As such, we score each risk identified

against vulnerability, impact and

likelihood; and opportunity against

size and ability to execute (see detailed

methodology on page 84). This

assessment is granular, and the

outcome provides Convatec with

detail on the significance of each risk

at different intersects of time and

future climate scenarios.

The matrices below describe the

climate-related risks and

opportunities considered material

to the business, and the relative

significance of these.

In the risk matrix, each risk position is

based on the aggregate score for each

scoring criterion (vulnerability, impact

and likelihood) consolidated across all

time horizons and climate scenarios.

While it is important to understand

the possible shift of risk impact over

time and climate scenario, this

aggregate view helps to simplify

the results and supports the overall

prioritisation of the risks.

TCFD disclosure

continued

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

Key:

Products and markets

Resource and energy

Resilience

Our assessment of climate-related risks shows that there is potential for significant impacts from hazards across TCFD

risk categories including market changes, policy intervention, technological developments, and physical climate change

events. We recognise that managing and reducing the impact of our direct operations is important, but the next step and

greater challenge for the Group will be to consider our value chain impact, especially the materials we use which will

require significant investment in R&D.

Higher magnitude, higher likelihood

Higher magnitude, lower likelihood

–

M1. Increase in price for purchased goods and services

–

M5. Limited availability of renewable energy

–

P2. Increased pricing of GHG emissions applied to direct operations

–

P4. Increase in regulation on raw materials used in our products

–

T1. Cost to invest in climate mitigation and adaptation of operations

–

T2. Restricted access to alternative materials due to efficacy priorities

–

Ph1. Increase in repair costs, and loss of productivity at manufacturing sites

due to extreme and gradual weather changes

–

R3. Customers opt for suppliers providing ‘more

sustainable’ products

–

R4. Sudden and rapid change in consumer perception

of materials used

Lower magnitude, higher likelihood

Lower magnitude, lower likelihood

–

M2. Change and volatility in energy prices, increase the operating costs of

direct operations

–

M4. Higher costs to procure sustainable materials

–

P1. Additional costs to comply with evolving regulations and exposure to

climate-related litigation

–

P3. Increase in regulations that affect our manufacturing processes

–

R1. Increased investor concern and scrutiny over climate credentials

–

R2. Customers request greater climate ambition and transparency

–

T5. Gap in the use of AI which is fast developing as a critical tool to manage

climate risk

–

Ph2. Delays in receiving goods or unfilled orders from suppliers disrupted by

climatic events

–

Ph3. Disruption in transportation both upstream and downstream due to

extreme weather conditions

–

M3. Increased competition to buy oil and gas

by-products (e.g. chemicals, plastics)

–

T3. Increased competition for IP ownership on new

low-emission products and materials

–

T4. Unsuitable or ineffective use of data to inform

decision-making on climate issues

In the opportunity matrix, each position is based on the aggregate score for each scoring criterion (size of opportunity and

ability to execute), consolidated across all time horizons and climate scenarios. Similar to the risk matrix, this aggregated

view helps to simplify where the Group should concentrate its efforts going forward.

The results of our assessment, shown below, represent the relative opportunity against each other. Whilst, the matrix shows

the spread of opportunity, we believe we have a high ability to execute across all opportunities. The identified opportunities

align with our business strategy which means, whilst we may face some barriers related to the cost and development of

technology, plans are being developed or are in place to take action. Over time the significance of realising these

opportunities becomes even more important as the likelihood and magnitude of transition and physical risks increase.

Size of opportunity

Ability to execute

RE4

RE3

RE2

RE1

PM1

OR1

OR3

OR2

OPPORTUNITY MATRIX: CONSOLIDATED OPPORTUNITY SCORES ACROSS TIME HORIZONS

AND CLIMATE SCENARIOS

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Our climate-related risks and

opportunities described

The identified risks and opportunities

to our business can be grouped into

four broad areas of impact which help

to understand the relationship

between different risks as well as

associated opportunities:

Supply chain and raw materials

used

Direct operations and processes

Stakeholder expectations

Physical damage and disruption

The grouping of each individual risk

and opportunity driver into the

respective broad areas of business

impact are set out in the analyses

below.

The table below describes these key

impact areas and provides the average

score of all risks and all opportunities

that feed into it. This score provides an

indication of the potential financial

impact to Convatec, showing how the

impacts may vary over time and

climate scenarios.

Relative risk impact

Relative opportunity impact

Scenario

Time period

Low

A = Ambitious

S = Short term (0-1 years)

Medium

M = Middle of the road

M = Medium term (2-5 years)

High

H = High warming

L = Long term (6+ years to

2050)

Supply chain and raw materials used:

The largest proportion of emissions in our value chain are derived from the materials we use, the majority of which come from

petrochemicals. Exploring the feasibility of more sustainable alternative materials across our product portfolios is an important

potential means to reduce the embodied GHG emissions and to manage transition risks associated with a change in material availability

and price.

Risk drivers

–

Suppliers face increased costs as we transition to a low-carbon economy, which may be passed

on to Convatec.

–

Possible bottlenecks for any sustainable material alternatives as demand increases.

–

Period of increased competition for petrochemical-based materials as road transport demand

for oil declines.

–

Regulation (e.g. taxes on single-use plastics), as well as sudden shifts in consumer perception of

materials, could inhibit the use of certain materials.

–

Limited options to use sustainable materials without compromising product efficacy, or restricted

access to solutions if competitors patent designs.

Includes: M1, M3, M4, P4, T2,T3, R4, R5 – see Risk Matrix above

Assessment

Scenarios

Time

Opportunity drivers

–

Implementation of Convatec’s GDG tool to inform where to focus appraisal of alternative lower-

emission material options in the design/redesign phase to promote alignment of our product

portfolio with the low-carbon transition.

–

Lower emission materials may also increase diversity and resilience of supply, e.g. by reducing

reliance on petrochemicals.

Assessment

Scenarios

Time

Possible strategic and financial impact

–

Unable to deliver products on time or, in the

worst cases, at all, as material shortages mean

we cannot manufacture products.

–

Increased costs for procurement, which could

impact profit margins, or result in loss of sales

if products are not priced competitively.

–

Large investment costs in R&D to identify and

use sustainable material alternatives and to

also achieve regulatory compliance.

Possible management response

–

Develop a supplier engagement strategy

to increase the volume of suppliers with

green credentials.

–

Continue rollout of the GDG and associated

Footprinter tool, ultimately using it for

emission measurement and design decisions.

–

Invest in suitable resources to monitor trends

in material alternatives and availability.

Possible metrics and targets

Emissions from raw material

purchases, with the goal to reduce

embodied emissions of products

TCFD disclosure

continued

Strategic report

Greater size of opportunity, greater ability to execute

Greater size of opportunity, smaller ability to execute

–

PM1. Development of lower emission and sustainable materials

in products

–

OR3. Collaboration in industry and lobbying of governments to

address climate impacts

–

RE2. Investment in onsite renewable generations or PPA

Smaller size of opportunity, greater ability to execute

Smaller size of opportunity, smaller ability to execute

–

RE1. Implementing energy efficiency projects in offices and

manufacturing plants

–

OR1. Increase resilience in the supply chain to be able to better

absorb climate-related shocks

–

OR2. Use of data to manage climate risk and seize opportunities

–

RE3. Decarbonisation of heat to reduce reliance on fossil fuels

in manufacturing operations

–

RE4. Reduce water intensity of operations

Convatec Group Plc Annual Report and Accounts 2022

Direct operations and processes:

In a transition to a low-carbon economy, we will be affected by global and national policy interventions aimed at increasing the cost of

emitting carbon. While we are not currently subject to global carbon pricing mechanisms, we may face a change in the cost of energy

consumption as well as restrictions on environmentally intensive processes such as sterilisation. During the energy transition, there is

uncertainty about how the supply of renewable sources will meet the exponential increase in demand and we could be faced with

limitations in procuring renewable energy.

Risk drivers

–

Incentives to shift to low-carbon energy driven by changes in energy prices and the introduction or

expansion of carbon pricing mechanisms in regions we operate in.

–

In the energy transition there may be limited availability of renewable energy due to a lack of

procurement opportunities, extreme costs and constraints in the availability of renewable sources.

–

Resource and financial investment into the implementation of low-emission and renewable

technologies are required to achieve decarbonisation through the value chain.

Includes: M2, M5, P2, P3, T1

Assessment

Scenarios

Time

Opportunity drivers

–

Continued implementation of energy efficiency and GHG reduction measures (e.g. LED light lamps,

low GWP refrigerant charged cooling systems).

–

Increasing the number of sites with self-generation renewables will decrease our exposure to

potential future increases and volatility of electricity prices.

–

Switching from natural gas to lower-carbon or renewable energy sources for heating will reduce our

exposure to future increases in the cost of consumption of fossil fuels.

Includes: RE1, RE2, RE3

Assessment

Scenarios

Time

Possible strategic and financial impact

–

Increased operational costs if we are not able

to decarbonise and reduce reliance on

carbon-intensive fuel and chemical sources.

–

Large upfront costs to direct capital towards

decarbonisation.

–

Operational cost savings through the

implementation of efficiency measures and

avoided transition costs.

Possible management response

–

Introduction of a bespoke carbon price to

use within capital allocation to support the

direction of investment towards projects

that avoid GHG emissions or deliver

GHG reductions.

Possible metrics and targets

Non-renewable energy – aim to

reach 100% renewable electricity

by 2030.

Scope 1 and 2 SBT.

Stakeholder expectations:

We recognise that managing climate-related risks and opportunities is essential for delivering long-term value and building climate

resilience. Stakeholder expectations on transparency, ambition level and performance against ESG and climate matters is evolving

rapidly.

Risk drivers

–

Increased volume of legislation and reporting requirements will require us to direct appropriate

resources to respond and manage increasing stakeholder scrutiny.

–

Ineffective or limited use of data and AI could result in us having a limited understanding of baseline

impacts and the direction of travel of climate performance. As a result, if we do not have suitable

data, we will not be able to make informed decisions in regard to climate action.

–

Stakeholder (including investors and customers) requests for climate information are exponential,

with high expectations to be ambitious, transparent in disclosure and to appropriately manage

risks and opportunities. For example, the NHS has laid out a supplier roadmap to net zero which

sets out requirements to 2030.

Includes: P1, T4, T5, R1, R2

Assessment

Scenarios

Time

Opportunity drivers

We are best placed to respond to stakeholder expectations if we are able to manage our climate risks

appropriately, for example:

–

Diversifying our supply chain with supplier duality to better absorb climate-related shocks,

including product scarcity, price volatility, and extreme weather.

–

Continued investment, use and roll-out of data management tools and software, e.g. increasing

supplier engagement through EcoVadis and use of TransVoyant to reduce and monitor distribution

costs and increase the efficiency of logistics.

–

Implementation of GDG Footprinter tool to improve reporting of emissions impact across the

product portfolio.

–

Collaboration in industry and lobbying of governments, to drive innovation and identify sustainable

solutions which support the decarbonisation of the sector while meeting the needs of patients.

Includes: OR1, OR2, OR3

Assessment

Scenarios

Time

Possible strategic and financial impact

–

Limited tender opportunities if we do not meet

the ‘rules of engagement’.

–

Customers switch to alternative suppliers, and

we lose sales and market share.

–

Limited access to capital if investors switch to

better climate-performing stocks.

Possible management response

–

Frequent review of investor priorities through

consistent engagement to ensure we meet

expectations.

–

Reviewing performance and reporting on

progress against environmental targets.

Possible metrics and targets

Benchmarking of our ESG metrics

and targets against government

regulations, peers and key

stakeholders to ensure we

meet our commitments and

reduction targets.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Physical damage and disruption:

In the future gradual climate changes and an increase in the frequency of extreme weather events will have an impact across our value

chain. While we are aware of the physical climate hazards most prevalent across our manufacturing sites and can implement adaptation

and controls to reduce the risk, we have less influence over how suppliers are managing climate risk.

Risk drivers

–

Damage and disruption at manufacturing sites due to extreme and gradual weather changes.

–

Delays in receiving goods from suppliers due to disruption from climatic events at supplier sites.

–

Disruption in transportation both upstream and downstream due to extreme weather conditions,

which, for example, may prevent travel on roads (snowstorms) or unloading/loading at ports

(storms).

–

Rising temperatures and increased frequency of heat wave events.

–

Water security reduces due to increasing demand and a shrinking supply of water, especially

considering the decline in water quality.

–

Floods and storms (e.g., hurricanes) increase in severity and frequency, driven predominantly by the

increased likelihood of extreme precipitation events.

Includes:

Assessment

Scenarios

Time

Opportunity drivers

–

Implementation of water efficiency measures including replenishment initiatives and exploring

alternative water sources at priority sites (especially those in high water stress regions – Haina and

Reynosa). This will mitigate the potential impact of degrading water quality and water availability

due to climate change.

Includes: RE4

Assessment

Scenarios

Time

Possible strategic and financial impact

–

Increased costs to manage damage and

disruption at manufacturing sites.

–

Unable to meet customer orders on time due

to unforeseen disruption in the value chain

both at supplier sites and in logistics.

–

Forced to move operations to an alternative

location.

–

Loss of revenue and missed growth targets.

Possible management response

–

Conduct deep-dive physical risk assessments

to understand cause of risk to identify

appropriate adaptation response.

–

Introduce suitable adaptation measures to

reduce risk, i.e. flood defences, temperature

control at heat-stressed sites.

Possible metrics and targets

Capital expenditure on climate

adaptation. 100% of high risk sites

to have implemented business

continuity plans.

Identify efficiency metrics and

develop monitoring to track

impact on performance.

Physical risk impact assessment

Historically, we have undertaken

physical climate risk assessments

across our property portfolio to

maintain our capability to manage and

respond to events. The outputs of the

analysis inform our business continuity

plans for our manufacturing sites and

key suppliers. This year, we conducted

a quantitative climate scenario

analysis to understand how our owned

and controlled operations may be

financially impacted by climate change

over longer time horizons, and under

different temperature outcome

scenarios. Four locations and seven

assets were included in the

assessment scope due to their

contribution to Group revenue, or

due to their locational exposure to

higher physical climate risks.

Our assessment of physical climate

change impacts has two elements.

The first is to understand the actual

financial losses and disruption in the

past year, and secondly, to assess the

potential future financial impacts

considering a range of climate hazards

and forward-looking climate scenarios.

Actual physical impact

assessment:

Our assessment of actual impacts was

based on our experiences across our

manufacturing sites over the last year.

In the past year, we have closed our

plant in Haina for one day as a result of

Tropical Storm Fiona. This follows

established protocols that prioritise

the safety of our workforce and ensure

we can make the facility storm impact

ready. Our business continuity plans

were implemented to carefully

manage the impact on our business

and the financial impact was negligible

with any productivity impact mitigated

by using plant downtime when the

facility was back open or utilising

safety stock to ensure there was no

impact on patients or customers. As

part of our annual production

planning process, we incorporate a

number of days into the production

schedule to allow for potential

disruption and plant closure due to

adverse weather events.

Forward-looking physical impact

assessment:

For the forward-looking assessment,

we modelled the potential impact of

productivity loss as well as asset

damage driven by 12 climate indicators

which can be categorised to hazards

including flood, heat stress, storms,

and water stress.

Hazard: climate variable mapping

Water stress

: Monthly Mean

Precipitation

Wildfire

: Keetch-Byram Drought

Index (KBDI) Fire Risk

Heat stress

: Monthly Mean

Temperature, Monthly Relative

Humidity, Air Heatwave Days,

Cooling Degree Days, Maximum

Temperature Days Higher 35ºC

Storms

: Heating Degree Days,

Extreme Wind Speed, Extreme

Precipitation

Floods

: Mean Sea Level Rise,

Extreme Water Level, Riverine

Flood Depth

The analysis was based on data from

Climate Insights, a tool owned and

developed by CLIMsystems (part of

SLR). The data from the Climate

Insights tool, shows the potential

future change in climate variables

based on global climate models

(GCMs) of the coupled model

intercomparison project (CMIP6) for

the periods from 2010 to 2055 with

a five-year step under the selected

scenarios of SSP1-1.9, SSP2-4.5 and

SSP5-8.5 (see page 78 for scenario

description). The climate data

provided is then correlated to our

business data, including revenue

generation and building value, to

provide an annual assessment of

the potential value at risk (VaR)

experienced from repair costs for

asset damage, and revenue loss due

to decreased productivity driven by

the likes of employee efficiency and

site closures. As such, it is not a

forecast of potential annual costs or

revenue losses but is a helpful

indication of the potential impacts

from physical climate change events

which are likely to increase over time.

The analysis does not take account of

any mitigation actions that the

business would implement.

TCFD disclosure

continued

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

Physical Hazards

The analysis shows an increase in

exposure to climate change over

time, in response to expected

increases in global temperatures.

Across the Group’s key assets, floods

and storm-related damages account

for the most significant impact.

The diagram below indicates which

physical hazards are most likely to

impact each site assessed in 2050

using the SSP-8.5 upper global

warming scenario. For example, at

our manufacturing site at Deeside,

flooding could cause the greatest risk

of financial losses due to damage and

productivity loss. However, heat stress

will become a more prevalent issue in

the longer-term at our sites in warmer

climates including our Reynosa site

in Mexico and Haina site in the

Dominican Republic.

Financial impact assessment

Here, we report the aggregate potential

financial impact across all seven sites,

for both damages and productivity

loss. To provide a ‘worst-case’ view for

the purpose of ensuring appropriate

risk controls, the financial results

reported do not account for mitigation

and adaptation measures which will

reduce our exposure and impact.

We present the assessment results

in absolute terms and as a cumulative

year-over-year (YOY) change. Whilst

the absolute financial impacts provide

a useful benchmark for the potential

significance of climate-related

disruption in the future, the YOY

change from the 2023 baseline is

useful to understand the potential

change over time from what we

consider the status quo today.

–

Absolute impact at point in time

Climate-adjusted value at risk for a

given year, indicates the extent and

probability of potential losses in

the future.

–

YOY cumulative change from

baseline

: We have considered the

potential increase in losses over

time, and as such have calculated

the delta of future years against

this year as a baseline. We have

presented this as the net present

value of the cumulative cash flow

impact for the period 2023-2050,

discounted at the Group WACC.

Damage to assets

Absolute

YOY

2030

(50th percentile)

2050

(50th percentile)

NPV

2023-2050

(5th – 95th percentile)

Scenario

Ambitious policy

$11.5m

$11.9m

Up to $4.2m

Middle of the road

$11.5m

$12.1m

Up to $5.1m

Hot House World

$11.6m

$12.4m

Up to $6.2m

Productivity loss at assets

Absolute

YOY

2030

(50th percentile)

2050

(50th percentile)

NPV

2023-2050

(5th – 95th percentile)

Scenario

Ambitious policy

$29.3m

$32.6m

$7.3m to $23.7m

Middle of the road

$29.3m

$35.5m

$11.3m to $29.3m

Hot House World

$29.9m

$38.4m

$15.9m to $37.6m

SIGNIFICANCE OF CLIMATE HAZARDS DRIVING IMPACT IN 2050, SSP5-8.5

Deeside

(two sites, total size 19k m²)

Haina

Dominican Republic

(two sites, total size 225k m²)

Reynosa

Mexico

(two sites, total size 172k m²)

Osted

Denmark

(one site, total size 8k m²)

57%

Proportion of overall

Group financial impact

by site, NPV:

Water

stress

Wildfire

Heat

stress

Storm

Flood

19%

18%

KEY:

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

CLIMATE RISK AND OPPORTUNITY SCORING CRITERIA

Climate scenarios

Time horizons

Risk score

Opportunity score

Vulnerability

Size of

opportunity

Ability to

execute

Hazard

Likelihood

Magnitude

Chance of

occurring

Adaptive capacity

Ability to adjust or respond

Sensitivity

Degree to which systems could be affected

Exposure

Presence of systems that could be affected

Size of impact

We assess the likelihood, magnitude,

size of opportunity and ability to

execute across three climate

scenarios and short-, medium- and

long-term horizons.

Strategic report

TCFD disclosure

continued

As the analysis in the tables and

graphs demonstrate, the most

significant physical climate-related

risks to the Group’s key assets arise

from floods and storm-related events.

It is important to note that these

financial results do not account for

mitigation and adaption measures

which will allow us to reduce our

exposure and potential impact over

time. Our risk assessment process

allows us to analyse our physical

climate-related risks at each site

and we have a planned programme of

capital investment to develop further

resilience measures at each key

location which will allow us to mitigate

and reduce any potential financial

impact, i.e. flood defences, enhanced

temperature control systems and

building reinforcement measures.

The analysis of the risks and which

sites are potentially most impacted by

which climate-related risks will be

used to help prioritise investment

decisions. As we go through our

strategic planning cycle in 2023, the

analysis will inform our discussions

and help ensure we are evaluating

climate-related physical risks on an

ongoing basis and developing plans

to mitigate and minimise the impact

on our business.

In addition to the capital investment

programmes to mitigate the risks of

physical climate-related risks on our

business, we also consider other

adaption measures across our broader

operations and supply chain to help

reduce the potential impact of risks

going forward, i.e. levels of safety

stock holding to minimise any impact

of production downtime, alternative

production locations for key product

lines and different sources of raw

material suppliers.

In the event that we do experience an

impact on our business from extreme

weather events, we operate global

insurance programmes that provide

levels of financial cover against

property damage and business

interruption from the impacts of

natural catastrophe events such

as floods and windstorm.

Absolute climate risk adjusted ﬁnancial impact at point in time, SSP2-4.5, 50th percentile

£0

$10,000,000

20,000,000

30,000,000

40,000,000

Absolute potential ﬁnancial impact in 2030

from all physical hazards in upper global

warming scenario

Absolute potential ﬁnancial impact in 2050

from all physical hazards in upper global

warming scenario

2030

By value driver

2030

By location

2030

By Climate

hazard

2050

By value driver

2030

By location

2030

By Climate

hazard

50,000,000

60,000,000

Flood

Heat stress

Storms

Water stress

Wildﬁre

Damages

Productivity

United

Kingdom

United

Kingdom

Mexico

Dominican

Republic

Dominican

Republic

Denmark

Convatec Group Plc Annual Report and Accounts 2022

Resilience and transition plan

One of the major challenges we face

as a medical products provider is to

increase the delivery of sustainable

solutions. There are two main

elements to this challenge which will

feature in our transition plan, to be

developed during 2023.

Mapping, measuring and

monitoring our supply chain is

core to understanding our wider

impacts on the environment and

to identify areas where we have

stronger levels of influence to

limit impacts and achieve shared

goals. We use software solutions

including TransVoyant and

EcoVadis to collate data on

different aspects, and as a result,

have been able to implement

efficiencies within logistics and

collaborate with suppliers which

have aligned ESG goals to us. The

use of these solutions gives the

Group confidence in its data

integrity and will become

increasingly important in

decision-making to reduce GHG

emissions as we head towards

our target achievement dates.

The GDG (for more detail see page

50) provide us with a framework of

environmental factors to be

considered as part of new product

design and redesign. The

associated Footprinter tool

provides an overall environmental

impact score as well as for each

factor, which helps to indicate the

trade-off between different

material options. This tool was

launched in Q4 2022, and in the

future will become a vital resource

to understand emission hotspots

in our product portfolio.

Ultimately the tool will be

incorporated with other design

tools and processes to improve

the data accuracy of emissions

reporting and transition to

lower-impact products. We expect

this integration to occur over

several years.

We are committed to delivering

medical solutions, in an

environmentally and socially

conscious way. In 2022, our first

priority was to identify measures to

reduce our operational impact in the

manufacture of products. In 2023, we

will explore opportunities to manage

our Scope 3 emissions and develop a

supplier engagement strategy. The

actions identified will feature in our

transition plan. In 2022 we committed

$3 million in climate mitigation and

have identified an estimated

approximate $40 million of mitigation

and adaptation projects across eight

manufacturing sites that have or will

be starting from 2022 to 2031.

Risk management

Risk management approach

Climate-related issues are considered

within the Environment and

Communities principal risk which sits

under the Strategic Risks category of

risks in our Group risk management

framework (page 97). This is in

recognition of the strategic

importance the business places on the

need to align with a net zero transition.

The Environment and Communities

principal risk includes risks associated

with the failure to adopt, transition to,

and integrate a low-carbon economy

strategy through core business

activities, to meet stakeholder

expectations and net carbon

zero targets.

The approach to identify, assess and

manage this risk on an ongoing basis

follows our overall Group risk

management approach which is

described within the Risk Management

section of this report (pages 88 to 97).

The identification of additional

mitigations to reduce risk exposure on

an ongoing basis is developed by risk

owners in each relevant area of the

business. Agreed mitigating actions

are included in the annual strategic

planning process and ESG strategy.

Scenario based climate risk

assessment

We further developed our assessment

of climate risks by undertaking

periodic comprehensive climate

scenario analysis. This includes the

identification and assessment of

transition and physical climate risks

and associated opportunities, across

future climate scenarios, and time

horizons (see pages 78 to 82).

Climate risks and opportunities were

identified through detailed business

workshops in 2021 from interviews

with internal experts, climate policy

and regulation research and inputs

from climate scenario models

(including IPCC, NGFS and IEA). Follow

up workshops have been held over the

course of 2022 to refresh the climate

risks and opportunities to ensure that

they remain relevant to the current

business operations and practices,

and will be held on a periodic basis

going forward. The strategy section

sets out the results of the current view

of our scenario-based climate-related

risks and opportunities.

The business has reviewed the risks

and opportunities identified within the

scenario-based assessment, and

where applicable factored them into

the group principal risk management

process. Consensus was achieved on

the principal climate risks and

opportunities through a workshop

with relevant business teams

(including Investor Relations, Finance,

Risk Management, Strategy, Innovation

and Operations) aimed at first refining

and then prioritising risks by financial

impact and likelihood.

Next steps

–

Integration

: In 2023, we will

complete the quantification of

transition financial impacts from

material climate risks. In parallel, the

business will work towards

integrating the assessment into the

ERM and strategy planning process.

This will include development of key

climate risk indicators and

tolerances to provide guidance to

risk management decisions.

–

Climate risk governance

: As part of

our risk management process, we

will assign risk owners that will be

accountable for determining what

appropriate controls and

management responses are

required.

–

Risk controls

: Integration of climate

risks into our ERM Framework will

help to ensure appropriate control

measures are put into place that are

based on the perceived materiality

of climate risk and our ability to

influence. Although some of these

measures are already outlined in our

current decarbonisation plans (see

page 66), by fully integrating climate

risks, we will be able to continuously

monitor the sufficiency of control

measures as part of our business

planning process.

Climate risk governance

We recognise the importance of

identifying and monitoring climate-

related risks, which feature as drivers

of our Environment and Communities

principal risk. This includes those risks

associated with global climate change,

and more broadly, the ability to

demonstrate a move to a greener

future and deliver positive outcomes

for the communities our operations

directly impact.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

The Board undertakes a bi-annual

assessment of the Group’s

principal risks. The CELT is supported

by the Group risk team and a network

of risk champions across the business,

who are tasked with maintaining

identification, assessment,

management and awareness of key

risks and control measures on an

ongoing basis throughout the year.

Ownership and management of all

risks is assigned to relevant members

of CELT, who are responsible for

ensuring the operating effectiveness

of the internal control processes and

for implementing effective key

risk-mitigation plans. Environment and

Communities is owned by the EVP,

Chief Human Resources Officer & ESG

Stewardship. CELT is supported by the

Group risk team and a network of risk

champions across the business, who

are tasked with maintaining awareness

of key risks and control measures.

Scenario based climate risk

assessment approach

We have worked with our climate

strategy adviser, Corporate Citizenship

(part of SLR), to further develop our

climate risk and opportunity

assessment approach. Initiated in

2022, the work will assist the

integration of climate considerations

into our risk management process.

Risk identification was based on a

range of sources including a review

of regulatory requirements related

to climate change, climate policy and

climate scenario research, review of

peer disclosures and interviews with

internal experts. Once risks were

identified and scored, they were then

validated in a workshop with senior

stakeholders representing all relevant

Group functions. These risks were then

presented to the ARC for review and,

where appropriate, incorporated into

the group principal risk assessment.

Central to the assessment of climate

risks (and opportunities), is the need to

account for a range of possible future

climate pathways. Climate scenario

analysis is undertaken to respond to

this uncertainty and complexity by

creating a range of hypothetical

futures. Thinking about a range of

future scenarios supports strategic

and risk management decision-

making, taking into account a range of

different potential outcomes. In

accordance with the TCFD

implementation guidance, the climate

scenario analysis process seeks to

assess climate impacts through a

combination of both qualitative and

quantitative measures (where data

and methodologies allow).

The following diagram describes the

qualitative assessment criteria used to

score and rank the identified climate-

related risks and opportunities. To

assess the potential impact to its

business and cashflows, identified

climate-related risks have been

assessed against likelihood of

occurrence, magnitude of impact and

vulnerability, where vulnerability is a

function of exposure, sensitivity and

adaptive capacity. Sensitivity reflects

the predisposition of organisations,

assets, societies, processes, or

systems to be adversely affected

by risk. Adaptive capacity refers to

characteristics or actions that may

reduce the level of risk posed by a hazard

and thereby alleviate vulnerability.

Climate opportunities have been

scored based on the potential size of

opportunity through avoided costs or

increased revenue, as well as the

ability to realise the opportunity. Each

term is scored on a five-point scale and

scoring thresholds are defined for

each indicator to ensure a consistent

and comparable approach is applied

across all impacts, climate scenarios

and time horizons. The potentially

subjective nature of qualitative scoring

is countered by reference to sector

and policy research, interviews with

internal experts, as well as climate

scenario databases including the IPCC

WGI Interactive Atlas and NGFS IIASA

Scenario Explorer.

The output is the prioritisation of

possible impacts on which the

business agrees to focus control

measures and investment. Where

methodologies allow, we have sought

to better understand the business

impact from a selection of priority

physical and transition impacts

through the quantification of potential

financial impact across different

climate scenarios (see page 83).

By interpreting climate impacts into

corporate financial terms, the business

can integrate climate considerations

into financial planning and strengthen

the case for investment in mitigation

and adaptation measures.

Strategic report

TCFD disclosure

continued

CLIMATE RISK MANAGEMENT PROCESS

Identify

Assess and

prioritise

Quantify

gross/net

impact

Risk

tolerance

determined

Indentify

controls and

actions

Function

and category

risk register

Group risk

CLIMATE SCENARIO

ANALYSIS

CLIMATE RISK

RESPONSE

CLIMATE RISK

Climate Key Risk

Indicators

RISK MANAGEMENT GOVERNANCE

Board, CELT, ARC, Function leadership, Risk champions, Risk owners, ERM team, IA

Convatec Group Plc Annual Report and Accounts 2022

Metrics and targets

Summary of disclosure on

priority activity in 2022

–

Complete GHG inventory reported

for Scope 1, 2 and 3, alongside

additional climate metrics

including energy and water use,

and waste generation.

Next steps for 2023

–

Formalise risk monitoring of existing

climate metrics and targets and

assess whether additional metrics

are required in order to sufficiently

manage risk.

–

Propose GHG near-term reduction

targets to SBTi for validation,

confirming that we are aligned

with the latest climate science

and pathways under the Paris

Agreement.

–

Review alignment against the

TCFD cross-industry climate-related

metric categories to meet full

alignment with the TCFD

recommendations as well as in

recognition of Convatec’s support

to provide relevant and comparable

information to stakeholders.

We use a range of metrics to

understand our baseline impact on

the environment. There are four key

areas that we monitor: emissions,

energy use, waste and water. As

disclosed on pages 66 to 71, some of

these metrics are used to measure our

exposure to certain risks and to track

performance over time. For example,

if a performance trend was upward

this would indicate the potential

impact may be greater and therefore

highlight that additional action and

mitigation are needed. Further

information on our performance

against climate metrics are included

on pages 66 to 71, while the detail

below shows our alignment against

the TCFD cross-industry climate-

related metric categories.

–

Scopes 1-3 emissions

: The Group’s

operational emissions are calculated

and reported annually, and for the

first time we are reporting a

complete Scope 3 inventory

(page 69).

–

Climate-related risks

: In 2022,

we undertook qualitative and

quantitative climate scenario

analysis for transition and physical

risks respectively. Internally we are

using the results of this assessment

to inform the appropriate response

for priority risks.

–

Climate-related opportunities

A qualitative climate scenario

analysis was conducted for

opportunities. Internally we are

using the assessment results to

prioritise the areas which could have

the greatest impact, and to inform

management response options for

identified opportunities.

–

Capital deployment

: We have an

estimated capex spend of circa $40

million of mitigation and adaptation

projects across eight manufacturing

sites that have or will be starting

from 2022 to 2031.

–

Remuneration

: In 2023, there will

be ESG objectives in the personal

objectives of each CELT member for

bonus purposes. In respect of the

two executive directors, the new

Executive Remuneration Policy

(which will go to the AGM for

approval) will include an ESG

objective, contributing to 5%

of their overall bonus.

While measuring and monitoring

our environmental performance is

valuable, having associated targets

keeps us responsible for the active

management of climate impacts. For

2023, we are launching new targets

across our key environmental impact

areas. These targets reflect our

strategy and mission to limit the

negative impact we have on the planet

and to play our part in reducing the

likelihood of an extremely high

warming future scenario.

–

Emissions

: We have set net zero

targets internally, which will align

our business with the Paris

Agreement. We have proposed GHG

near-term reductions targets for

submission to SBTi for validation in

the current year. This target aligns

Convatec with global climate goals

and with customer requests

to report a science-based target.

–

Energy

: Procure 80% renewable

energy by 2025 and 100% by 2030.

This target will reduce our exposure

to potential future increases in the

overall cost of consumption for

fossil fuels.

–

Water

: To deliver on our targets for

water consumption reduction at

high water-stressed locations and

develop our water management

practices at all locations.

–

Waste

: To deliver on our targets to

reduce the amount of production

waste leaving our plants to be zero

waste to landfill by 2030.

In 2023, we will continue our work

to understand what resources and

financial investments are needed in

the near term in order to enact change

and meet these targets. As part of

this, we will leverage the different

tools and software implemented

across Convatec to understand where

the largest impact areas are and what

the drivers are. This information will

support the identification of suitable

measures that address the root cause

in order to have the greatest impact.

For further information on measures

implemented in the last year to manage

our impacts, see pages 66 to 71.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Strategic enterprise level

Operational exposure management

Board risk

appetite

statements

Business risks and tolerance

Articulation into principal risks

RISK MANAGEMENT FRAMEWORK

Risk management

Strategic report

Helping to develop a more

resilient business through

effective risk management

Risk culture

The Board is responsible for risk

management and promotes a

transparent and accountable culture.

It does not inhibit sensible risk-taking

that is critical to growth and delivery

of the Group’s vision and strategy, but

it does set the boundaries for such

risk-taking. The Board and its

committees set the tone for CELT and

other senior management to promote

and cascade this culture through the

Group and with external stakeholders.

The Board, its committees and CELT

ensure that our risk management

systems are robust, effective and take

account of appropriate exposures. The

Board supports effective risk

management across the Group by

implementing and overseeing a

framework of appropriate and

effective controls that enable risk to

be assessed and managed.

The risk-related responsibilities

of the Board’s committees

Audit and Risk Committee (ARC)

Monitors and reviews all risk

management processes, including the

effectiveness of risk identification,

appetite, mitigation and control

measures.

Nomination Committee

Oversight to ensure that the Group has

a talented, diverse and effective Board

and CELT, combining extensive

corporate experience with knowledge

of our markets and regulatory

environment, as well as a pipeline of

future senior talent capable of

identifying and managing risk to

enable effective strategy delivery.

Remuneration Committee

Oversees the implementation of

appropriate reward arrangements to

drive a high-performing culture that

manages risk in line with our risk

appetite.

Our risk appetite

The Board sets the level of risk we are

prepared to accept to deliver our

strategy and realise our vision. In 2022,

we formally reviewed our risk appetite

and the risk tolerance levels of each

principal risk. Our risk appetite is

defined through four risk appetite

statements, which are detailed on this

page, and each principal risk is aligned

to one of the four statements, with risk

tolerance levels set in line with the

current and forecast business

environment. On an ongoing basis, the

ARC monitors the level of risk to which

the Group is exposed and how the

business continues to mitigate the risk

and operate within the stated risk

appetite levels. In 2023, we will

continue to enhance our approach to

risk appetite through embedding

identified metrics and obtaining

assurance over the key controls for

each of our principal risks to support

the Group to operate within our risk

appetite, and as a management tool

for business decisions.

Board risk appetite statements

Seek

Risk is taken in order to choose strategic

options that offer potentially higher

business rewards and/or there is

confidence in the level of robust systems

of internal control to respond effectively

and limit the duration of potential impact.

Risks that arise from events that are

outside realistic boundaries for

Convatec’s immediate direct influence

and control. A focus is required to build a

reasonable level of resilience to impacts

on strategic objectives.

Manage

Risk is accepted by Convatec in order to

achieve strategic objectives, and where

the risk is able to be managed to a level

that would not result in material impact

to strategic objectives.

Cautious

Risks arising from Convatec’s people,

processes, and systems that are

controllable and where there is no

appetite for risk taking in this area. The

objective is to eliminate the risk or to

reduce it to an absolute minimal level of

tolerance.

Convatec Group Plc Annual Report and Accounts 2022

Risk management framework

We continue to strengthen our risk management approach

through the development of a process that is based upon

ISO 31000, Risk Management, and complies with the

requirements of the UK Corporate Governance Code.

Our process undertakes a continuous bottom-up review of

risk (current and emerging), across each area of our

business, to identify the main threats to delivery of our

strategy. The resulting business risk profile is used to inform

our biannual principal risk update process, working with

subject matter experts from the business and supported by

the CELT sponsor(s). We identify, assess and prioritise our

business and principal risks in accordance with our defined

risk assessment criteria. Risk ratings are used to prioritise

our risks and are a product of the expected impact and the

likelihood of that impact to occur as a result of an event,

taking into consideration identified risk controls and certain

additional risk mitigation measures that have been

implemented and are monitored to further reduce our risk

exposure and ensure alignment with our risk appetite.

Consequently, this process results in our principal risks

being managed at the residual risk level rather than

inherent risk. The ARC oversees the risk management

process each quarter. For further information see page 131.

Governance and oversight

The work of the Board and the ARC is underpinned by a formal

structure of delegated authority and supported by Group

policies covering key areas of operation, including risk

management. The diagram below shows the key roles,

responsibilities and overall arrangements for collecting,

monitoring and reviewing risk information.

Leadership Teams

–

Identify new and emerging risks to the Group’s

strategy.

–

Review management of their specific risks on a

quarterly basis against the Group’s risk appetite.

–

Identify additional mitigations to reduce risk exposure

on an ongoing basis.

–

Assign senior business representatives (Risk

Champions) for each category and function to take a

lead role in the identification of risk, and updating risk

information for senior management oversight.

Risk information top down

Risk information bottom up

Principal risks:

Risks with potential material

consequences at a Group level or where the risk is

connected and may trigger a succession of events that,

in aggregate, become material to the Group. Risks may

materialise individually, simultaneously or in

combination to impact the delivery of our strategic

priorities and the long-term value of Convatec.

Business risks:

Risks identified from any aspect of the

Group that are relevant to one or more categories,

functions and/or Centres of Excellence, and can be

owned at that level.

OUR RISK MANAGEMENT PROCESS

Strategy and objectives

Risk reporting

Monitoring and challenge

Risk analysis

Risk identification

Risk description

Risk assessment

Risk categorisation

Risk response

Tolerate

Treat

Terminate

Transfer

Convatec Executive Leadership Team (CELT)

–

Sponsors a coordinated approach to establishing and

embedding enterprise risk management.

–

Employs a central risk team to establish and facilitate

the risk management process across the Group to

provide risk information for management oversight

and decision.

–

Manages the principal risks appropriately to operate

within the Group’s risk appetite.

–

Ensures that risk recognition and appetite are integral

to determining strategy.

–

Delivers strategy by managing risks.

Audit and Risk Committee (ARC)

–

Considers the risk environment through reporting from

management, internal audit and the external auditor

and considering external developments (e.g.

geopolitical events).

–

Reviews, and reports to the Board on the effectiveness

of the internal control environment and risk

management systems.

–

Sets the internal audit annual plan and external audit

scope to provide assurance on a materiality basis that

the Group operates within the Board’s approved risk

appetite through appropriate and effective controls

and mitigations.

Board

–

Sets the Group’s risk appetite.

–

Ensures appropriate risk management and internal

control systems are in place to enable the

identification and robust assessment of the principal

and emerging risks.

–

Ensures effective processes exist to manage the

principal risks and takes a balanced view of those risks

against Convatec’s strategy and risk appetite.

–

Assesses the Group’s prospects and resilience through

the Viability statement.

–

Sets the ‘tone from the top’ and the culture for

managing risk.

–

Sets strategic priorities in light of the Group’s risk

profile.

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Risk management

continued

Strategic report

2022 risk landscape

Our principal risks remain consistent with those identified

in 2021, although our overall risk profile has moved to reflect

the challenges from the macroeconomic environment,

including global inflationary cost pressures, the ongoing

supply chain and commercial impact of the Russian

invasion into Ukraine and the continuing fallout from the

COVID-19 pandemic. Since 2020, the risk profile has been

elevated as a result of these global forces, and we have

continued to manage the challenges facing the wider

business landscape and build further resilience into our

operations. As such we remain well placed to successfully

deliver our strategy. To support our objectives and mitigate

specific external events we increased our focus in certain

areas as detailed below.

Strategic risks

In 2022, we continued to drive good momentum in the

business through strengthening our competitive position

and financial performance as we execute our FISBE strategy,

seek to improve efficiencies across the business and deliver

acquisitions and divestment to support our strategic

growth aims in our key markets. We responded quickly

and decisively to stand up a rapid-response team and take

action to the growing crisis in Ukraine and its effect on our

manufacturing and commercial operations. In our product

development pipeline, we successfully delivered three key

products to our targeted markets and continue to focus on

improving pipeline delivery through our defined innovation

framework. Our ESG agenda continues to develop to

achieve our net-zero commitment and science-based target

initiative as well as the recommendations of the TCFD.

Operational risks

The current climate, driven by global inflationary pressures,

continues to bring challenge to the business. We have

experienced external supply chain pressures in cost

inflation for raw materials, freight and on all other aspects

of the business cost base, as well as through constraints

in our global supply chain. The business continues to

effectively manage and respond to the issues faced and

to work closely with third parties on potential areas of

exposure to minimise any possible impact, including

through building appropriate strategic inventory. The rising

cost of living and competition for talent is placing upward

pressure on our people risk and we are heavily focused on

programmes of initiatives that we have put in place to

support the continued attraction, recruitment and

retention of key talent, roles and skills. Over the course

of 2022, we have continued to improve the robustness of

our IT infrastructure and cybersecurity, data management

and privacy framework in line with the changing

business environment.

Financial risks

We continued to positively manage the adverse effects of

the macroeconomic environment on our businesses and

overall drove continued strong revenue growth in 2022.

Over the year, we continued to improve margin by

simplifying our business, driving efficiencies through our

cost base and improving margin through mix. Through

refinancing our bank facilities in November 2022 with

$1.2 billion committed for five years at slightly improved

margins over base rates we continued to strengthen our

balance sheet and reflect our stronger credit standing.

Tax governance continued to be strengthened through

effective implementation of transformational change and

managing the impact of changes in tax law and regulation.

Compliance risks

We continued to strengthen and adapt our compliance

framework as we grow in mature markets and target

investment in emerging markets. We took steps to ensure

the maintenance of ongoing compliance in our markets,

including the continued provision of ethics training and

focused global compliance resources and initiatives. During

the period, we identified exposures and addressed risks of

non-compliance through implementation of appropriate

mitigation programmes. We continued to progress

improvements in our third-party risk management and

contract procurement to maintain expected standards

of compliance within our third-party partners. Third-party

activity continued to be monitored and managed through

due diligence by our Compliance team and an independent,

expert third party. The Russian invasion of Ukraine

introduced additional sanction framework requirements

that we responded to, met and continue to monitor

across the relevant parts of our business and supply

chain affected.

2023 anticipated risks

We expect certain risks to impact in 2023 and have put

in place mitigation measures to reduce any adverse

implications for the Group’s financial results, operations,

reputation and strategy. While these specific risks are

embedded in many of our principal risks, further details

are provided below.

Global inflationary pressures

Our operating and financial performance is influenced,

amongst other factors, by the economic conditions of the

countries and markets in which we operate, and our ability

to manage exposure to volatile economic measures.

Pressure from economic deterioration, inflation and

recessionary impacts can all contribute to challenging

market conditions. Recent global economic conditions have

meant that global inflationary pressure has increased,

resulting in rises in our manufacturing and operating cost

base. Whilst the management of our supply chain is a core

competence, we monitor the evolving situation and have

taken appropriate steps to prepare for foreseeable

challenges in the current environment over high inflation

on commodities, lead times and shortages for raw materials

and manufactured goods, fluctuations and adverse

movement in shipping costs, congestion and capacity

constraints, which are all expected to continue into 2023.

Security of energy supply

Our manufacturing operations are reliant on energy

supplies from national infrastructure (electricity and gas) in

the countries in which we are based. In turn, these countries

are in part reliant on supplies from other parts of the world.

Electricity and gas prices and availability will be increasingly

shaped in 2023 by international forces, including the effects

of sanctions regimes against energy exporters such as

Russia, combined with the additional challenge of

transitioning to lower carbon generation. Any break in this

supply chain, for example as a result of unplanned outages

in-country, or as a result of heightening energy costs, could

jeopardise our revenues and/or manufacturing productivity

and impact supply to customers.

Convatec Group Plc Annual Report and Accounts 2022

Attraction, recruitment and retention

Our success is dependent on maintaining and growing

the capability and capacity of members of our senior

management teams and workforce, specifically attracting,

retaining and recruiting key talent and skills in critical roles,

certain customer-facing employees as well as technical

experts focused on the development of new products and

technologies. The rising cost of living for our workforce and

competition for talent across our markets is intensifying

the challenges in retaining and/or recruiting key talent and

skills across our business. We expect this pressure to

continue into 2023 and programmes of work are in progress

to reduce our exposure to workforce engagement and

talent attraction and retention risks.

New market growth and product delivery

We expect to launch new products for AWC and IC in 2023

and products across all of our categories continuing into

2024. Delivery of our product pipeline is supported by our

product development and launch process, which acts

end-to-end to govern our actions and milestones from

ideation through development to scale-up and finally

approval and launch in a consistent manner. We continue

to focus on our 12 key markets around the world, with

a particular emphasis on China and the US. In 2023, from

a markets perspective, we will continue to invest in China

as a key market going forward and continue to grow our

market share in the US. We will continue to strengthen our

competitive position by evaluating potential partnerships

and acquisitions. Any delays or failure to meet market

expectations in our growth plans, however, may result

in a lack of stakeholder confidence to deliver against

stated plans.

Emerging risks

On a biannual basis, our Enterprise Risk Management

(ERM) team engages with senior management to identify

any emerging risks that relate to new or changing

conditions in our market environment, which may impact

the Group beyond the horizon of our long-term Viability

statement. In 2022, we re-evaluated our emerging risk

model with each area of the business against the principal

risks and revised the key exposures to expand upon the

previous disclosure. In 2023, we will develop this model

further to enhance our measurement of these key

exposures, the resilience in place and identify relevant

metrics to aid with detection. As at the date of this report,

the following emerging risks have been identified:

Medical advances

Technology and innovation are essential if we are to meet

customer demands. If we do not develop the right

products, have access to the right technology or deploy

it effectively within our key markets, or adjust to medical

and surgical advancements and improvements in detection,

cure and prevention (including in the development of smart

‘artificial device’ technology) we may lose market share in

multiple key markets to existing and new-entrant competitors.

Future material and operational restrictions

Our future business is dependent on our ability to

anticipate and/or adapt to future health, safety and

environmental legislation, concerns, studies or the loss of

stakeholder confidence in the materials and processes used

in the manufacture of current and future products, or

where there is a proven greener alternative, for example

single-use plastics.

Long-term third-party management

Our current and future products rely on regulated

manufacturing processes and approved supply chains.

We are dependent on our ability to effectively manage the

security of supply in our key raw materials and unfinished

goods, critical services and manufacturing energy supply to

avoid any future chronic sourcing issues/cessation in service

by single or sole source suppliers for key product lines.

Future market environment

Our ambition to drive growth and further develop our

business is reliant on our ability to adapt to future market

and healthcare models, market competition and major

unforeseen economic events. The value of customer data

has increased and any shortfall in our ability to adapt to an

increase in the management of customer data, expanding

data commercialisation capability and technology and

widening range of virtual capability allows for potential

disintermediation and/or bundling of other products and

services by emerging, non-traditional competitors entering

the market.

Other factors

For further information relevant to our risk profile see:

–

Our business model – pages 8 and 9

–

Key performance indicators – pages 20 and 21

–

Operational review – pages 22 to 29

–

Responsible business review – pages 40 to 74

–

The Task Force on Climate-related Financial Disclosures

– pages 75 to 87

–

Viability statement – pages 98 and 99

–

Governance – pages 102 to 165

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Key:

Operational Resilience and Quality

Information Systems, Security and Privacy

Innovation and Regulatory

Customer and Markets

Political and Economic Environment

People

Legal and Compliance

Strategy and Change Management

Environment and Communities

Tax and Treasury

Risk category:

Strategic

Operational

Financial

Compliance

Increased

Unchanged

Decreased

Impact

Likelihood

The Board reviews and agrees our principal risks on a

biannual basis, taking account of our risk appetite together

with our evolving strategy, current business environment

and any emerging risks. Our principal risks are set out over

the following pages in order of priority (based on the rating

of residual likelihood and impact, as described opposite).

They are also reflected in the key adverse scenarios

underlying the Viability statement (see pages 98 to 99).

Risk heatmap

The graphic below summarises our assessment of the

expected impact and the likelihood of that impact to happen

as a result of our principal risks occurring after taking into

consideration the mitigating actions and effective controls

in place to manage each risk, with an indication of the change

in the risk profile since December 2021.

Principal risks

Strategic report

Below is an overview of the Group’s principal risks that could impact the

delivery of our strategy and the realisation of our vision, in order of priority.

The Board has oversight of all principal risks that the Group faces.

2022 RISK MANAGEMENT CASE STUDY

The Russian invasion of Ukraine, supported by Belarus, and

the resultant sanction framework implemented by the US,

EU and UK (amongst others) required the Group to consider

the complexities and risks associated with our presence in

Russia and Belarus.

We responded quickly to the evolving situation in Ukraine

and the surrounding region when it first emerged at the

beginning of 2022. A rapid response team (RRT), comprising

of CELT members and senior leadership was formed to take

real-time strategic decisions on behalf of the Group. The

RRT was supported by a cross-functional senior leadership

working group to manage events on a day-to-day basis and

provide a structure to form recommendations for the

Group to consider.

Risk identification and assessment:

–

Short term – focus on maintaining the security of supply

for our manufacturing plants, sustain product supply to

our customers and respond promptly to the emerging

statutory framework of sanctions.

–

Medium to long term – existing and future operational

and commercial presence in Russia and Belarus; supply

chain management; compliance with all laws and

regulation in an evolving environment; and financial

exposure and obligations.

Risk response:

–

Assessment of current level of operational and supply

chain preparedness and resilience to short-term impacts

on customers; and

–

Sanction framework checks in place with shareholder

chain and finance teams.

Risk monitoring

–

Working group in place with dedicated workstreams; and

–

Continued assessment of potential impacts to the

business with appropriate mitigation plans.

On 12 May 2022, it was announced that the Group would be

withdrawing from its hospital care activities and related

industrial sales during the remainder of 2022. The

withdrawal from these low-margin activities is consistent

with the Group’s FISBE strategy, with the Group focusing on

higher-growth chronic care markets with improved margins

and higher levels of recurring revenue. Given the geopolitical

situation in the region, the manufacturing plant in Belarus

which produces hospital care goods ceased manufacturing

on 31 May 2022 alongside the discontinuation of associated

Russia activities. The remainder of the hospital care and

industrial sales activities were mostly phased out in the

second half of 2022.

Convatec Group Plc Annual Report and Accounts 2022

1. Operational resilience and quality

Risk

Supply and manufacture of products and packaging are reliant on the resilience of supply chain partners and manufacturing assets, and

robust clinical and quality system processes. We invest in and develop our assets, systems and processes to provide a level of operational

integrity and performance. Failure to respond to events, including geopolitical issues and any increase in extreme weather patterns from

climate change, that result in production and/or supply chain delays, adverse product quality and health, safety and environmental

incidents could result in underperformance, a requirement to recall a product, reputational harm or a loss of stakeholder confidence

in our ability to deliver our strategic ambitions.

Key drivers

Risk mitigation

–

Business continuity management.

–

Supply chain resilience capabilities.

–

Quality standards and resolution of existing and emerging

quality issues within the supply chain, manufacturing and

packaging processes.

–

Health and safety of employees and contractors. Protection of

the environment.

–

Maintaining manufacturing plant performance.

–

Single source or sole suppliers for raw materials and services.

–

Executive-led operational business continuity governance group

provides high-level oversight. Business continuity plans for

manufacturing facilities, inventory movement and our key supply

chain to maintain capability to respond rapidly and appropriately

to any incident.

–

Procurement and supply chain processes to monitor, manage

and provide assurance to supply-based risk across our markets,

inventory, energy security, key suppliers and supply routes, ports

and countries of operation.

–

Dedicated engineering, health, safety and environment, and

quality project teams and processes to prioritise and address risk

to manufacturing processes, facilities and people.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Operational

Appetite:

Manage

Accountability:

John Haller, EVP, Chief

Global Quality & Operations Officer

Link to strategy:

Increase the efficiency and effectiveness of

operations to support future market and

customer demands.

2022: no material change

Read more on pages 40 to 87

2. Information systems, security and privacy

Risk

Failure to ensure that our systems, data management and related controls supporting our global business are effective, available,

integral and secure, and recoverable, including those of our third-party partners, could adversely affect our ability to maintain continuity

in our operations and the trust of our customers and other stakeholders. Information security breaches can lead to data theft, fraud or

accidental disclosure and result in non-compliance with global data protection laws. Any real or perceived failure to comply with laws

and regulations, or to adjust to a change in conditions and increase in scrutiny, could result in adverse consequences such as penalties,

regulatory investigation, a decrease in corporate trust from stakeholders or additional compliance measures.

Key drivers

Risk mitigation

–

Data management and privacy.

–

Cyber security.

–

IT and network resilience, business continuity and disaster

recovery arrangements.

–

IT network alignment to business needs.

– Digitisation.

–

Data optimisation.

–

Cybersecurity leadership council, ethics committee and privacy

leadership team provide governance and oversight with policies,

methodologies, training and accountability framework in place

to manage the protection and use of personal data.

–

Global Information Security and Compliance function supports

the business with an IT general control framework in place to

protect systems and data. Independent cyber assessment and

data review programme in place.

–

Regularly evaluate, improve and test the resilience of our

infrastructure and security incident response and recovery plan

for continued effectiveness and proportionality.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Operational

Appetite:

Manage

Accountability:

Jonny Mason,

Chief Financial Officer

Link to strategy:

Enhance the efficiency and resilience of our

IT systems and processes to support

effective delivery of our operations.

2022: no material change

Read more on pages 55 & 99

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Principal risks

continued

Strategic report

3. Innovation and regulatory

Risk

Failure to invest in and develop safe, effective, profitable and sustainable long-life products to meet customer and market expectations,

fill unmet medical needs or respond to disruptive new technologies, could result in lost market share, underperformance and a lack of

stakeholder confidence to deliver in line with expectations. We are subject to oversight by a number of regulatory jurisdictions that

continue to implement significant obligations and scrutinise how we operate. Failure to fulfil emerging obligations, provide safe clinical

processes, or produce products and packaging that meet stringent and transparent customer, environmental and performance criteria,

or operate inadequate or environmentally inappropriate manufacturing and quality systems could impact our ability to supply or a

requirement to recall product(s), with the potential for regulatory action and/or liability claims, due to non-compliance with regulatory

bodies, a failure to meet stakeholder expectations or patient harm from faulty products.

Key drivers

Risk mitigation

–

Product innovation transition from end-of-life technology and

ageing products.

–

Compliance with regulatory frameworks and anticipation of

emerging regulatory environment.

–

Disruptive and new technologies. Changing customer and

market needs.

–

Maintaining legal manufacture structure, authorised

representatives and assurance process for pre-market,

manufacture, and post-market compliance.

–

Managing safe clinical services for sustainable growth.

–

Sustainable approach to responsible products, packaging

and development.

–

Central Technology & Innovation team provides strategic

direction for continued R&D investment, product development,

medical education, regulatory approval and new product

reimbursement and launches to cultivate the product pipeline.

–

Product portfolio reviews provide oversight on short-, medium

– and long-term innovations and the balance across product

categories and market regions.

–

Regulatory teams and regulatory intelligence process supports

the business to meet the latest standards and expectations in

all our jurisdictions and manages our relationship with

regulatory bodies.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Strategic

Appetite:

Cautious

Accountability:

Dr Divakar Ramakrishnan,

Chief Technology Officer & Head of

Research & Development

Link to strategy:

Create a leading and responsive position in

the regulatory environment, and through a

sustainable development pipeline, improve

the long-term customer experience, meet

market demands and capture growth

opportunities in our markets.

2022: decreased – delivery of three key new

products, the increased robustness of our

development pipeline and the continued

delivery of the EU-MDR Compliance

programme.

Read more on pages 50 to 55

4. Customer and markets

Risk

Growth and value in our markets rely on our product portfolio, future innovation, M&A pipeline and digital strategy delivering to

expectations and meeting customer demands, along with a competitive pricing strategy. There is continued pressure on pricing and

cost containment from rising global inflation rates and large and consolidating buying groups, as well as on reimbursement rates for

products sold into the home care setting from government or commercial payers managing and reducing their costs. Competitor

behaviour, attractiveness and effectiveness of our portfolio from market trends or public perception, and maintaining a low-cost

base, all increase competition for sales and reduce prices and margins. Failure to identify, react or plan effectively to changes in

market conditions, competition, customer demand, expectations and behaviours could result in suboptimal decisions,

underperformance and adverse results.

Key drivers

Risk mitigation

–

Local or national government healthcare budget provisions.

–

Operational, contracting and price review process.

–

Product portfolio rationalisation.

–

Competitive markets and behaviours and consolidation of

buying groups.

–

Changes in customer buying patterns and service level

expectations.

–

Manufacturing costs in a low-margin driven pricing environment

and as a result of changes in consumer and government

behaviour/attitude to sustainability.

–

Key market and geographies focus supported by the Global

Pricing CoE established in key regions to adapt to changing

market conditions and provide insight and information in a timely

manner to respond to increases in risk, with regular pricing

analysis and reviews undertaken.

–

Executive operational reviews in place to drive manufacturing

cost efficiencies and focus through dedicated R&D and

technology innovation teams on new product development

and launch.

–

Market environment monitored and key strategic markets, such

as China, assessed for further growth opportunities. Supply

chain team manages and mitigates market and region challenges

and logistics.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Financial

Appetite:

Manage

Accountability:

Presidents and

Chief Operating Officers

Link to strategy:

Grow portfolio and market share through

cost efficient, innovative products that

strengthen the relationship with our

customer base.

2022: no material change

Read more on pages 22 to 29

Convatec Group Plc Annual Report and Accounts 2022

5. Political and economic environment

Risk

Our global operations and markets are subject to various political interventions and changes to corporate governance requirements,

particularly in relation to global inflationary and supply chain pressures, security of raw material and energy supply, healthcare system

reform, regulatory reform, governance of industry operations, amendment to existing tax and disclosure regimes and fiscal terms, and

protection of consumers and business customers. Continuing volatility in the international political climate increases the possibility of

tariff structure changes, sanctions or other trade limiting actions. A failure to identify and adapt to these factors could impact sourcing

commodities and services, as well as our ability to maintain a presence in current and future markets and countries.

Key drivers

Risk mitigation

–

Financial markets, inflationary and supply chain pressures and

macroeconomics.

–

National healthcare reforms, political movements and trends

–

Geopolitics and security of the supply chain.

–

Uncertainties effected by global pandemics, interstate conflict

and social unrest affecting key markets.

–

Compliance with sanction frameworks.

–

Adverse national trading relationships, customs duties

and tariffs.

–

Compliance, IR, Legal, Regulatory and Tax teams support the

business, liaise with external stakeholders and respond to

changing requirements where appropriate.

–

Global supply chain function manages our presence in markets

and across regions. Third-party contracts in place to maintain

the security of supply. Monitoring of supply chain through

implemented systems and third-party partners.

–

Dialogue with governments in relation to specific matters.

Membership of appropriate industry bodies and participation

on industry issues including development and implementation

of best practice. External support via third-party consultants

to identify and manage risks present to our operations.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Strategic

Appetite:

Accountability:

Jonny Mason,

Chief Financial Officer

Link to strategy:

Effective minimisation of political and

macroeconomic disruption will enable

us to identify areas for operational

improvement, deliver further value and

maintain our competitive market positions.

2022: increased – global inflationary

pressure challenges on all aspects of the

business cost base as well as global supply

chain constraints.

Read more on pages 12 to 13

6. People

Risk

Failure to effectively recruit, retain and develop a diverse and inclusive workforce with strong succession to align the right talent,

particularly in our senior management and through the development of the talent pipeline, to enable key business imperatives.

Intensifying global cost of living and inflationary pressures increases the challenge in retaining and/or recruiting key talent and skills.

Failing to successfully manage transformation and/or the effects of high business disruption could impact employee effectiveness,

engagement and wellbeing and adversely affect our ability to transform our business, achieve our strategic objectives and deliver growth.

Key drivers

Risk mitigation

–

Attraction, recruitment and retention of key skills and

capabilities, including salary and remuneration inflation

challenges in critical areas.

–

Effective succession and knowledge management planning

strategy for senior leadership and key roles.

–

Mental and occupational health and wellbeing of the workforce.

–

Resource planning, people capability and capacity, including the

speed and volume of management change.

–

Performance and development management, diversity, equal

opportunities and labour relations.

–

Company culture, values and workforce engagement.

–

Executive and senior leadership focus on maintaining a diverse

and effective leadership team with a pipeline of senior future

talent and retention and development of key skills across the

organisation. Continuing focus on ERGs.

–

Talent to value approach embedded in the strategic planning

process. Talent management reviews create pipeline of talent

for critical and leadership roles.

–

OHI and employee pulse surveys in place. Implementation of

appropriate reward arrangements to attract and retain top,

senior talent, maintain strength in key skills and respond to

regional cost of living issues.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Operational

Appetite:

Manage

Accountability:

Natalia Kozmina,

EVP, Chief Human Resources Officer & ESG

Stewardship

Link to strategy:

Create a sustainable level of expertise

and key skills across the Group.

2022: increased – rising cost of living

challenges for our workforce and increased

competition for talent across our markets

challenges retention and recruitment of key

talent and skills

Read more on pages 56 to 61

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Principal risks

continued

Strategic report

7. Legal and compliance

Risk

Our business is subject to a complex environment of laws and regulations across multiple jurisdictions. Any real or perceived failure to

comply with required and/or new and emerging laws, regulations and sanctions or to adjust to a change in conditions and increase in

scrutiny, or exposure to litigation from contractual obligations or intellectual property could result in adverse consequences such as

penalties, government investigation, a decrease in corporate trust from stakeholders, competitive disadvantage or additional

compliance measures.

Key drivers

Risk mitigation

–

Market conduct compliance.

–

Legal obligations in relation to customer conduct, including sales

practices and distributor activity.

–

Product and patient liability.

–

Commercial litigation.

–

Financial crime.

–

Complexity and transparency of IP and patent environment,

including in tax and operations.

–

Our Code of Conduct, Group policies and standards govern how we

conduct our affairs through our values and culture. Executive-level

Compliance Steering Committee and Audit & Risk Committee

provide oversight to the Group on annual compliance assurance

programme, mandatory training, compliance initiatives and

emerging exposures. Independent whistleblower process in place.

–

In-house legal counsel team with external counsel engaged when

appropriate. Contract database, contract approval process and

Grant of Authority scheme in place. Third-party risk control

framework for onboarding due diligence process and distributor

training. Patent counsel manages patent protection and ongoing

market IP monitoring processes.

–

Sanction framework checks in place with shareholder register,

Compliance, Treasury, banking partners, supply chain and

finance teams.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Compliance

Appetite:

Cautious

Accountability:

Evelyn Douglas, EVP, Chief

of Corporate Strategy & Business

Development, General Counsel & Company

Secretary

Link to strategy:

Create an industry-leading legal and

compliance approach to our obligations

and stakeholder expectations.

2022: no material change

Read more on pages 62 to 65

8. Strategy and change management

Risk

Delivery of our strategy will involve growth in a number of networks, simplifying the business and achieving efficiencies, maintaining

a low-cost base and divestments to position ourselves to deliver targets whilst sustaining a stable platform for investment. Any failure

to ensure that we deliver material growth in key markets, integrate M&A activity and establish strategic partnerships, contend with new

market entrants and maximise the value of data could fail to create shareholder value, erode investor confidence, and have a significant

impact on the Group’s revenues and profits. The successful delivery of business change is fundamental to our future success. Large-scale

change initiatives carry complexity and a material delay or challenge to our change programme and the realisation of planned benefits

may affect objectives, strategic growth, investor confidence and cause financial loss.

Key drivers

Risk mitigation

–

Transformation execution.

–

Programme management and governance.

–

Mergers & acquisitions and divestures.

–

Strategic partnerships.

–

Strategy definition and execution.

–

Investor relations and stakeholder management.

–

The Board approves the Group strategic plan setting the strategic

direction and confirming strategic choices that are embedded in

targets across the business.

–

Central strategy team supports the business delivering against

the embedded strategic planning process and timetable to define

clear delegated targets in business plans.

–

Central Financial Planning, Performance & Delivery function

provides overarching global oversight to delivery of change

management and efficiencies programme. The function works

to ensure capital is allocated in line with strategy and towards

projects best able to deliver expected business benefits.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Strategic

Appetite:

Seek

Accountability:

Evelyn Douglas,

EVP, Chief of Corporate Strategy &

Business Development, General Counsel

& Company Secretary

Link to strategy:

Create a continuous streamlined

business model that assesses value-

adding opportunities, maximises

investment returns and delivers strategy

to meet stakeholder expectations.

2022: no material change

Read more on pages 15 to 19

Convatec Group Plc Annual Report and Accounts 2022

9. Environment and communities

Risk

Long-term success relies on addressing the challenges to the sustainability of our operations (including environmental and social

aspects), supply chain resilience, products and the ability to manage the impact of climate change, developing trends in the political

environment and increasing pressure and scrutiny from external groups, society, customers and communities in which we operate.

The level of requirements and expectation from stakeholders is increasing, which requires a robust, transparent and equitable level

of sustainable corporate culture to underpin the way in which the Group operates. Failure to implement appropriate plans across

environmental, social and governance aspects, including incorporating the recommendations of the TCFD and SBTi and deliver on a

net zero commitment, could hinder efforts to mitigate long-term risks and bring a range of reputational and commercial impacts to

the business across a range of stakeholders.

Key drivers

Risk mitigation

–

Environmental and climate change strategy delivering our net

zero commitment and Science-Based Targets initiative.

–

Recommendations of the TCFD and emerging ESG reporting

requirements and standards.

–

Responsible and sustainable behaviours across the supply chain.

–

Product impacts and sustainable product design.

–

Sustainable corporate culture in DE&I and transparent ways

of working.

–

Community investment programme.

–

Executive ESG Steering Committee, including functions from

across the business, provides oversight and direction on Group

strategy and execution.

–

ESG framework implemented, aligned to our Group reporting

and regulatory requirements, with published policies and

independent third-party expert assurance in place.

–

Supply chain partners managed through contracts, supplier

code of conduct and performance monitoring with third-party

assurance process in place for key suppliers.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Strategic

Appetite:

Manage

Accountability:

Natalia Kozmina, EVP,

Chief Human Resources Officer & ESG

Stewardship

Link to strategy:

Achieve an effective balance between

short-term needs and delivery versus

longer-term requirements and

commitments, in response to anticipated

exposures from changes and events in

the climate, the environment and society.

2022: no material change

Read more on pages 66 to 74

10. Tax and treasury

Risk

Our business operates across multiple jurisdictions with complex tax laws and regulations and it manufactures and/or operates across

markets with multiple currencies. Changes in tax law and regulations as well as any organisational change that affects the Group’s tax

operations framework, may impact tax liabilities and increase filing and disclosure requirements and obligations. Failure to manage

tax compliance, inflationary pressures, fluctuations in interest and foreign exchange movements, counterparty exposure, the cost of

and access to financing or a deterioration in cash-flow and liquidity as a result of impacts to our revenue, costs and/or global financial

systems could drive reductions in stakeholder trust, financial performance and future investment.

Key drivers

Risk mitigation

–

Multiple tax jurisdictions and emerging changes to tax law

and regulations.

–

Complex global tax regulatory environment and complex

Group trading structure and intra-group trading. Unprovided

tax liabilities.

–

Global economic environment, including exposure from

interest and foreign exchange rates.

–

Financial obligations, cashflow management, access to funding

and credit rating.

–

Counterparty exposure.

–

Financial reporting and controls in key processes.

–

Central global tax function monitor changes in tax laws and

regulations, as well as support during major internal projects,

to advise the business regularly on obligations, requirements

and future improvements to the tax governance framework.

–

Central global tax function works with the business and

Finance team in major jurisdictions to understand tax changes

and provide support.

–

Central corporate Treasury function manages the capital

structure that supports strategy, liquidity access to meet

financial obligations and liquidity reserve. Refinancing of our

bank facilities for five years completed in 2022. Interest rate

hedging strategy in place.

Risk details and link to strategy

Opportunity

Risk profile change

Category:

Financial

Appetite:

Manage

Accountability:

Jonny Mason,

Chief Financial Officer

Link to strategy:

Robust tax arrangements, financial

performance and balance sheet to

increase stakeholder and shareholder

confidence.

2022: no material change

Read more on pages 30 to 38

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

Convatec Group Plc Annual Report and Accounts 2022

Viability statement

Strategic report

The Group’s future

prospects and viability

An understanding of the Group’s

strategy, to pivot to sustainable and

profitable growth, and its business

model (pages 16 to 19 and pages 8 and

9), are central in allowing the Board to

assess the Group’s prospects, liquidity,

resilience and viability. The principal

and emerging risks being addressed

by the Company (see pages 91 to 97)

are reflected in the determination of

the Group’s strategy and its successful

implementation.

Assessment of future prospects

The Group’s annual planning process

consists of monthly monitoring of

progress against the financial budget

and key objectives for the current year

by CELT and the Board, reforecasting

throughout the year in respect of the

expected outcome for the current year,

preparing a detailed budget for the

following year and updating a rolling

five-year strategic plan, following a

detailed review by the Board, which

forms the main basis on which to assess

the longer-term prospects of the Group.

In 2022, the Board approved a detailed

operational plan and execution model

to deliver sustainable and profitable

growth over the medium to long term.

The Board subsequently approved the

financial plan that underpins

the Group’s five-year strategic plan.

The financial plan forecasts the Group’s

profitability, cash flows and funding

requirements for the relevant period.

Our strategy is consumer-centric,

agile, focuses on innovation and

ensures clear accountability. It has been

developed from strategic plans for each

of our business units and functional

areas, supplemented by items managed

at a Group level and assumptions such

as macroeconomic activity, market

sector growth forecasts, competitor

activity and exchange rates. This has

then been supplemented by CELT’s

plans for improving the operational

effectiveness and execution of all

elements of the Group.

Key factors affecting the Board’s

view of the Group’s prospects over

the period of the viability assessment

and the longer term are:

–

The fundamentals of our markets,

products and brands remain sound,

as does our current and future

strategy of leveraging our product

portfolio for growth in attractive

segments and geographies,

developing and commercialising

new technologies and services and

striving to reduce complexity and

increase efficiency.

–

Established positions in large,

structurally growing markets; strong

brands and a range of differentiated

products; a well-diversified business

platform across a range of market

segments and geographies; and

cash generation capabilities.

–

Refinancing of the Group’s bank

facilities with $1.2 billion committed

for 5 years in addition to the

Group’s $500 million 2029 senior

unsecured notes.

–

The five strategic pillars that will

support the delivery of the strategy,

which are set out on page 15.

The key assumptions considered in the

strategic plan, on which this viability

assessment is based, include:

–

Our markets remain structurally

sound and continue to grow at

existing levels with no significant

change to re-imbursement

environments.

–

Margin improvement is driven by

successful execution of our

operational excellence programmes

in order to deliver productivity gains

in excess of pricing and other

headwinds.

–

Although the persistence of

COVID-19 remains uncertain,

impacts on operations remain

limited and have been embedded

into the assumptions for the

strategic planning cycle.

–

Climate risk has been considered

but is not expected to have an

impact during the viability period

of three years.

–

Through the execution of our

strategy, we simplify our business,

remove excess costs and re-invest

in future innovation.

–

Maintaining the existing dividend

policy over the viability period.

Viability assessment

Throughout the year, the Board has

undertaken a robust assessment of the

principal risks affecting the Group and

also emerging risks, particularly those

that could threaten the business model

and the Group’s viability over an

extended period, including an

assessment of the likelihood of them

materialising. These risks and the actions

being taken to manage or mitigate these

risks are explained in detail on pages 93

to 97. This analysis has then been

applied to allow the Board to assess

the prospects, liquidity, resilience and

viability of the Group.

The directors are of the view that the

appropriate period of assessment

remains a three-year period from January

2023 to December 2025 (“the Viability

Period”). Although the Directors have no

reason to believe that the Group will not

be viable over a longer period, the Board

has chosen to conduct the assessment

for this three-year period because:

–

Our R&D and production cycles tend

to be of a duration of less than three

years with key innovation pipeline

programs targeting launch within

the Viability Period.

–

Significant capital investments are

being made over the next year to

realise the Group’s strategy over the

medium to long term. The Group’s

business model means that its capital

investment is discretionary and it

has the ability to respond in a timely

manner to reasonably possible

Group specific and market events and

therefore does not require a longer

time horizon assessment.

–

Implicitly, it is harder to accurately

forecast the latter years of a five-

year plan.

The viability assessment has

consisted of stress testing the

forecasts underlying the strategic

plan by modelling severe but

plausible scenarios in which a number

of the Group’s principal risks and

uncertainties materialise within the

Viability Period. We have modelled

scenarios which group together

principal risks where we believe

interdependencies exist between

risks, in addition to scenarios

where unconnected risks occur

simultaneously. These scenarios

focused on both external factors,

such as the possible impact of,

economic recession in some markets

leading to higher interest rates and

increased inflation headwinds, and

internal factors, such as a regulatory

breach resulting in a loss of revenues.

We continue to strengthen and develop

the link between the Group’s principal

risks and the viability assessment and

scenarios. The Group’s principal risks

are updated through the lens of our risk

appetite together with assessing our

evolving strategy, current business

environment and any emerging risks.

We reviewed the severe but plausible

risk events from each principal risk

and prioritised those by relative impact

Overview

Governance

Financial statements

Additional information

Convatec Group Plc Annual Report and Accounts 2022

Strategic report

to form revised long-term viability

scenarios. As a result of ongoing

investment in our operational

resilience over the course of 2022 we

have decided to shift focus in our EHS

incident scenario from our plant in the

Dominican Republic to the equivalent

manufacturing facility in Slovakia. The

Group has taken into account the

COVID-19 situation as part of the budget

and strategic plan cycle. We have

updated the long-term viability model

to include scenarios on financial market

distress and macroeconomic forces

and/or sanctions restricting access to

a key global market as higher priorities

in the current environment. This reflects

the importance of both these areas to

our business as we grow new and

emerging markets as well as the

changing and emerging external

environment that our current and

future operations work within.

The scenarios and sensitivity testing

have been based upon the current

Board-approved strategic plan and

forecast revenues, operating profit

and balance sheets and were reviewed

against the current and projected

liquidity and funding position. The main

severe but plausible scenarios are

included in the table below.

Consideration was also given to a

number of other scenarios as well as

the combination of the main severe

but plausible scenarios, reflecting

individual risks and events. In the Board’s

estimation these events would not

plausibly occur to a level of materiality

that, in themselves, would endanger

the Group’s viability.

The scenarios took no account of the

likely mitigating actions available to the

Directors through adjustments to the

Group’s strategy and other means

in the normal course of business,

for example lower capital investment

or reduced dividends.

This assessment was informed by

Management’s and the Board’s

combined judgement as to the potential

financial (particularly liquidity) impact

of these risks if they were to materialise,

together with their likelihood of

occurrence. The Directors reviewed

and discussed the process undertaken

by Management and also reviewed

the results of reverse stress testing

performed against the forecast base

case to determine the performance

levels that would result in a breach of

covenants. For a breach of covenants

to occur in the next 12 months, before

mitigation, the Group would need to

experience a sustained revenue

reduction of more than 10% across

all categories and markets. This was

considered to be implausible given the

Group’s strong global market position

and diversified portfolio of products and

mitigations available to the Board and

management, as described above.

In addition, the Board undertook

an independent review of market

information, including investors’ and

analysts’ views and the insights from

market commentators on the future

viability of the Group and the market

prospects. This review was undertaken

to ensure that where there was an

external view or information that

was contradictory to the views of

Management, the Board understood

the rationale for the difference of

opinion and agreed with Management’s

view. This independent review and the

scenario tests enabled the Board

to conclude on the Group’s viability

and resilience.

Viability statement

Having assessed the Group’s principal

risks and uncertainties, and the

consolidated financial impact of

sensitivity analysis (including a severe

but plausible set of scenarios, which

did not take into consideration any

mitigating actions available to the

Group), plus the Group’s level of cash

generation and existing financing

facilities, and the timing of the peak

cash outflows, the Board has

determined that it has a reasonable

expectation that the Group will be

able to continue to operate within

its existing bank covenants and meet

its liabilities over the viability period

to December 2025.

The Group’s Going Concern statement

is detailed on pages 172 and 173.

Karim Bitar

Chief Executive Officer

Jonny Mason

Chief Financial Officer

Scenarios

Linkage to risks on pages 93 to 97

Impacts from a significant EHS incident, linked to a fire, at the Michalovce plant in Slovakia

–

Impact on supplying customers before plant production is restored

–

Reduced production or extended period of shut down

–

Loss of sales could have a material adverse impact on the Group’s reputation

–

Impact of supply disruption

–

Operational Resilience and Quality

Impacts from a significant cyber incident producing a significant interruption

–

A significant data privacy breach, leading to a regulatory penalty and subsequent costs for

investigation and remediation

–

We have modelled a one-off significant fine (3% of revenue) resulting from a privacy issue

–

Information Systems, Security and

Privacy

–

Operational Resilience and Quality

Impacts from significant regulatory issues

–

Significant breach of regulatory compliance in a product line

–

Reduced production and loss of sales due to reputation

–

Impact of supply disruption

–

Legal and Compliance

–

Innovation and Regulatory

–

Operational Resilience and Quality

Financial market distress

–

Significant economic downturn resulting in additional interest rate and inflation increases

–

Increased costs as a result of inflationary pressure on materials prices and global logistics costs

–

Political and Economic Environment

Macroeconomic forces and/or sanctions restrict access to key global markets

–

Failure to deliver stated growth targets in a key global focus market

–

Supply chain issues to our manufacturing and distribution from the affected key global

focus market

–

Customer and Markets

–

Political and Economic Environment

–

Legal and Regulatory

–

Strategy and Change Management

What’s inside

Governance

Convatec Group Plc Annual Report and Accounts 2022

100

Convatec Group Plc Annual Report and Accounts 2022

100

Governance

102

Governance at a glance

103

Board statements

Board statements required by the UK Corporate

Governance Code 2018

104

Chair’s governance letter

The Chair’s overview of governance developments

during the year

107

How we have applied the Code’s core principles

110

Board of Directors

112

Convatec Executive Leadership Team (CELT)

114

How we are governed

116

Board activity and actions

122

Board evaluation

123

Nomination Committee report

126

Audit and Risk Committee report

139

Directors’ Remuneration report

140 Letter from the Chair of the

Remuneration Committee

142 Our remuneration at a glance

144 Our Annual Report on Remuneration

153 Our Remuneration Policy

162

Directors’ report

165

Directors’ responsibilities statement

Overview

Strategic report

Financial statements

Additional information

101

Governance

Convatec Group Plc Annual Report and Accounts 2022

101

GOVERNANCE HIGHLIGHTS

Board

•

Consideration of, and agreement for, the acquisition

of Triad Life Sciences.

•

Consideration of, and agreement for, the minority

investment in BlueWind Medical Ltd of $30.0 million,

a company developing an innovative solution for the

continence market.

•

Consideration of, and agreement for, Convatec’s

withdrawal from hospital care activities and related

industrial sales.

•

Ongoing review of other M&A opportunities.

•

Oversight of execution against the FISBE 1.0 strategy and

the development of FISBE 2.0.

•

Capital expenditure discussions and approvals for

manufacturing expansion.

•

Approval of the refinancing of the Group’s

banking facilities.

•

Review and approval of the Group’s Strategic Plans

and Budget.

•

Review of a revised Treasury Policy and establishment

of a new Treasury, Tax & Finance Committee.

Nomination Committee

•

Review of, and recommending changes to Board

Committee composition, taking into account

Directors’ skills, knowledge and experience.

•

Consideration of progress against diversity,

equity & inclusion and wellbeing strategic targets.

•

Review of succession and talent at Board, CELT

and wider global leadership team levels.

•

Consideration of CEO succession plan.

Audit and Risk Committee

•

Consideration of the Group’s internal controls

environment, including cyber security and data privacy.

•

Review of interim and full-year results statements prior

to recommending to the Board for approval.

•

Oversight of Convatec’s enterprise risk management

framework and risk reporting.

•

Review of the BEIS corporate governance and audit

reform proposals and the measures taken or to be

taken by the Company in response.

•

Review of TCFD and other non-financial reporting

and disclosures.

•

Review and approval of the external audit plan for the

2022 external audit.

•

Review of 2022 internal audit reports and 2023 internal

audit plan.

•

Evaluation of the effectiveness of the external auditor

and internal audit function.

Remuneration Committee

•

Review of remuneration advisers to the Committee,

selection and appointment of Willis Towers Watson.

•

Consideration of shareholder feedback following

the 2022 AGM and determination of next steps.

•

Development of the new Remuneration Policy taking

into account extensive shareholder consultation

through the year.

•

Review of remuneration arrangements under the LTIP

and annual bonus scheme.

Governance at a glance

Governance

Board and Committee meetings:

Board scheduled meetings

Audit and Risk Committee meetings

Nomination Committee meetings

Remuneration Committee meetings

Male: 60%

Female: 40%

1 year or less: 1

1–2 years: 2

2–3 years: 2

3–4 years: 3

4 years or more: 2

Gender

Length of tenure

BOARD STATISTICS

As at 31 December 2022 and at 8 March 2023.

As at 8 March 2023.

In addition, there were several strategic or project-specific meetings

of the Board and sub-committees thereof held at short notice

throughout the year.

Convatec Group Plc Annual Report and Accounts 2022

102

Convatec is subject to the requirements of the UK Corporate Governance Code 2018. In accordance with the Code the Board

is required to make a number of statements. These are set out in the table below.

Requirement

Board statement

More information

UK Corporate Governance

Code compliance

Throughout the financial year ended 31 December 2022, except as explained

on page 106, the Company has complied with the Code.

Page 106

Going concern

The Directors are satisfied that the Group has sufficient financial resources

to continue operating for at least 12 months from the date of signing of the

2022 Annual Report and Accounts and, therefore, have adopted the going

concern basis in preparing the Group’s 2022 Financial Statements.

Page 172

Viability statement

The Directors have assessed the viability of the Group over a three-year

period ending 31 December 2025, taking into account the principal risks

identified by the Board as set out on pages 92 to 97. This assessment had led

the Board to the reasonable expectation that the Group will remain viable

and continue in operation and meet its liabilities as they become due over

the Viability Period through to December 2025.

Pages 98 and 99

Fair, balanced, and

understandable

The Directors consider that the 2022 Annual Report and Accounts, taken as

a whole, is fair, balanced and understandable, and provides the necessary

information for all stakeholders to assess the Group’s position and

performance and its business model and strategy.

Page 138

Assessment of the Group’s

principal and emerging risks

The Directors confirm that they have undertaken a robust assessment of the

principal and emerging risks facing the Group.

Pages 88 to 97

Annual review of risk

management and internal

control systems

The Board undertook a review of the effectiveness of the Group’s risk

management framework and internal controls, including those over the

financial reporting period, and concluded that these provided assurance

that there were no control failures in the year which could materially impact

the financial statements or the future financial performance of the Group.

Page 121

Stakeholder engagement

The Board has taken steps to understand stakeholders’ views and has

considered them in its discussions and decision-making process.

Pages 118 to 121

Board statements

Overview

Strategic report

Financial statements

Additional information

103

Convatec Group Plc Annual Report and Accounts 2022

Governance

Chair’s governance letter

Dear Shareholder

I am pleased to present this

Governance report which covers,

amongst other things, key governance

developments throughout the year,

progress against our diversity strategy

at Board and senior management

levels and the Board’s stakeholder

engagement activities.

Our key governance priorities

Sound corporate governance and

effective oversight provide the

foundations of successful and

sustainable businesses. During

2022, the Board not only maintained

a sharp focus on execution and

delivery against the Group’s FISBE

strategy, including reviewing progress

against our simplification and

productivity agenda, but also

considered the Group’s future

corporate strategy and delivery.

This included reviewing a number of

corporate development opportunities,

such as M&A transactions and

strategic investments.

Set out later in this report is further

detail on some of the key agenda

items and decisions made during the

year and how the Board considered

key stakeholders in making those

decisions. We also provide detail on

the activities of the Board committees.

Our culture

We have a clear vision statement

which encapsulates our purpose

and ambition and a set of values that

reflect our culture, all of which have

become embedded throughout the

Group and influence our everyday

behaviours and how we do business.

The launch of ’Convatec Cares’, our ESG

framework, supports what we do and

reflects our vision and values, and how

they are integral to our wider strategic

framework, set out on page 8.

The Board remains committed to

promoting a culture with our values

and forever caring promise at the

heart. We have continued to assess

and monitor culture through reports

provided regularly to the Board and

Nomination Committee, including

reviews of the results of Convatec’s

Organisational Health Survey, the

outcomes of which are described on

page 58. In addition, we received

reports on progress against our

people strategy as well as talent and

succession planning.

An evolving Board

As reported in last year’s Annual

Report, Jonny Mason joined Convatec

as Chief Financial Officer Designate

on 31 January 2022 and became Chief

Financial Officer and a Director of the

Company on 12 March 2022. Jonny

replaced Frank Schulkes, who stepped

down as CFO and from the Board on

11 March 2022.

Kim Lody and Sharon O’Keefe joined the

Board as Non-Executive Directors on

1 February 2022 and 1 March 2022,

respectively. Rick Anderson stepped

down from the Board on 3 March 2022,

as did Dr. Regina Benjamin on 12 May 2022.

Following these Director changes,

during the first half of 2022 the

Nomination Committee reviewed

the resulting Board composition

and determined that there continues

to be an appropriate mix of skills,

knowledge, experience and diversity

on the Board to fulfil the Board’s vision

and support the delivery of the

Company’s FISBE strategy. The Board

supported that assessment.

Membership of each of the Board’s

committees and changes in the

Committees’ memberships are set out

in the respective committee reports

on pages 123, 126 and 139.

Governance

“Sound corporate

governance

and eﬀective

oversight provide

the foundations

of successful

and sustainable

businesses.”

Dr John McAdam CBE

Chair

Safeguarding the

business now and

into the future

Convatec Group Plc Annual Report and Accounts 2022

104

Workforce engagement

2022 saw the appointment of Sharon

O’Keefe as Convatec’s dedicated

Non-Executive Director workforce

liaison champion. She has since

attended and debriefed the Board

on a number of employee engagement

activities, including a multi-day

Convatec Global Leaders Meeting,

an event which provided her with an

excellent opportunity to engage with

Convatec’s top 100 leaders. Further

details of Board-level workforce

engagement can be found on page

118. We are planning yet more direct

employee engagement activities for

the Board in 2023, including an off-

site Board meeting at one of our

manufacturing sites.

Convatec’s ’Our Work Life’ initiative

continued to gather momentum and

reinforces our approach to working in

more agile and flexible ways, as well as

supporting employees’ physical and

mental health and wellbeing. This

initiative includes our annual ’Convatec

Day’, a global mental health awareness

campaign, as well as workshops,

activities and focus groups.

Our other key stakeholders

Our key stakeholder groups are

identified and detailed on pages

44 to 45. Recognising that the

sustainable success of our business

is dependent on our stakeholders,

and mindful of our duty under section

172 of the Companies Act 2006, we have

ensured that all Directors have timely

access to information about stakeholder

issues and concerns. Information about

how the Board has taken account of

section 172 considerations in our Board

discussions and decision-making

processes is set out on pages 118 to 121.

Our section 172 statement is on page 45.

A key engagement during the year

was with our shareholders, as we

sought further insight and

understanding of concerns following

the significant minority vote against

Convatec’s Directors’ Remuneration

report resolution at our Annual

General Meeting (AGM) in 2022. We are

grateful to shareholders for sharing

their thoughts and views which have

been invaluable as we have developed

our new Remuneration Policy which

will be put forward for shareholder

consideration and vote at the

2023 AGM in May.

Environmental, social and

governance (ESG)

The Board oversees our responsible

business programme and details of

work in this area during the year are

included on page 117.

In recent years, we have laid strong

foundations to ensure we operate in a

responsible and sustainable way (see

pages 40 to 74) and in 2022, we made

progress against sustainability targets,

including against new targets which

were set in 2021.

Our CELT-led ESG Steering Committee,

chaired by the CEO, met three times

during the year.

The remit of the ESG Steering

Committee includes reviewing

progress on our sustainability targets,

setting new targets where required

and enhancing our TCFD disclosures.

The Committee provided regular

updates to the Board on progress

against ESG strategic aims, and to the

Audit and Risk Committee in relation

to TCFD disclosures and ESG assurance.

Governance practices

During the year the Board held four

in-person Board meetings, in March,

July, September and December, and

four Board meetings by video

conference, in April, May, August and

October, a pattern which we expect

to continue through 2023 and beyond.

Our 2022 AGM took place as a hybrid

meeting, with the added functionality

of enabling shareholders to attend,

fully participate in voting and ask

questions, both in person and

remotely. Our 2023 AGM will similarly

be held as a hybrid meeting.

Board evaluation

In accordance with the Code

requirements, a performance

evaluation of the Board and Board

Committees was carried out in the

autumn of 2022. This was conducted

by way of an externally facilitated

questionnaire to Board members and

select senior managers, with findings

then collated externally and reports

provided to the Board and Board

Committees. Details of the evaluation

process and key points arising from the

2022 review can be found on page 122.

Overview

Strategic report

Financial statements

Additional information

105

Convatec Group Plc Annual Report and Accounts 2022

Governance

Chair’s governance letter

continued

Governance

Diversity

The Board is committed to achieving

diversity and inclusion across the

Group and, in doing so, ensure

transparency against our targets. We

have chosen to report against the new

comply or explain diversity targets

under the Listing Rules within this

Annual Report. As at 31 December 2022

and the date of this report, we comply

with these targets. Further details can

be found within the Nomination

Committee Report on page 124.

We are compliant with the

recommendations of the Parker Review

on ethnic diversity and will continue to

monitor Board composition to ensure

that we maintain an appropriately

diverse Board in all respects. As at

31 December 2022 and the date of this

report, the proportion of women on

our Board was 40% (2021: 30%) and

one member of our Board is from a

minority ethnic background.

Our objective is to achieve 40% of

senior management roles (members

of CELT and their direct reports,

excluding administrative staff) held

by women by the end of 2025. As at

31 December 2022, women held 38%

of our senior management roles

(2021: 32%).

During the year, the Board and

Nomination Committee have

considered diversity, equity &

inclusion and wellbeing insights globally

across a range of metrics, with a focus

on gender, and insights from our

Employee Resource Groups. Initiatives

to increase diversity, equity & inclusion

and wellbeing are being consistently

implemented across the Group and

the Board and Nomination Committee

will continue to review the Group’s

efforts and the implementation of

our people strategy.

Our diversity policy for the Board,

senior management and the wider

workforce is a key pillar of our ESG

strategy and is fully aligned to our

FISBE strategy and our people strategy.

The objectives of our diversity policy

are set out on page 59.

The Code

During the year, we have complied with

the Code other than:

•

Provision 36: formal policy for

post-employment shareholding

requirements. The Remuneration

Committee was of the view that the

structure of the Deferred Bonus Plan

and LTIP sufficiently supported the

requirement for Executive Directors

to maintain a meaningful

shareholding in the Company for a

period of time after they leave the

Group. The Committee has

considered feedback from

shareholders and evolving investor

sentiment on post-employment

shareholding requirements and a

new post-employment shareholding

requirement forms part of our new

Remuneration Policy which

shareholders will be invited to vote

upon at our 2023 AGM (see page 157).

•

Provision 38: pension contribution

rate for Executive Directors to be

aligned to those available to the

workforce. Karim Bitar’s pension

benefit previously reflected the

shareholder Remuneration Policy in

force at the time of his appointment,

however his pension benefit was

aligned to the wider UK workforce

from 1 January 2023. (See page 143).

Jonny Mason’s pension benefit has

been in line with that of the wider UK

workforce from his appointment.

•

Provisions 40 and 41: employee

engagement on executive

remuneration. The Remuneration

Committee has not undertaken

consultation with the workfoce

when considering executive

remuneration, however the

Committee has considered wider

pay practices across the Group

and is mindful when applying

salary increases.

We explain how we have applied the

Code’s principles on pages 107 to 109.

These core principles also serve as a

framework for the following sections

of this Annual Report which explain

our governance structure and the

processes we operate to support

the Group’s long-term success.

2023 priorities

The Board remains committed

to the highest levels of corporate

governance. As a Board, we will

continue to oversee delivery of our

FISBE strategy, especially as it evolves

this year. We will also continue to

monitor our simplification and

productivity initiatives, including the

continuing transition of key central

functions to our Global Business

Services team in Lisbon.

In 2022, we saw the launch of several

key new products. The Board will

continue to monitor the successful

development and launch of a range

of new products, at the same time

overseeing the continuing build of our

wider supply chain resilience. After

much progress over the last few years,

we will also continue to monitor the

ESG and climate agenda, evolving

societal expectations and Convatec’s

response and actions.

Dr. John McAdam CBE

Chair

8 March 2023

Convatec Group Plc Annual Report and Accounts 2022

106

How we have applied the Code’s core principles

BOARD LEADERSHIP AND COMPANY PURPOSE

Principles

Application

Where further information is available

An effective and entrepreneurial

Board that promotes long-term

sustainable success of the Company

and which generates value for

shareholders and contributes to

wider society

The Board discharges its responsibilities

through a programme of activities that

include review and approval of the

Group’s strategy, regular progress reviews

of its execution and implementation,

discussion on arising key issues and

monitoring of performance, to enable

the Group to deliver sustainable and

profitable growth.

Board focus and principal matters

considered in 2022

Pages 116 to 121

Establishment of purpose, values

and strategy and promotion of

desired culture

The Board endorses the Group’s vision

statement (which encapsulates our

promise, purpose and ambition), its values

and our forever caring promise. During the

year, it has reviewed the Group’s strategy

and continued to assess and monitor

culture to ensure their alignment.

How we realise our vision

Page 6

Building a winning culture

Page 57

Chair’s statement

Pages 10 and 11

Chair’s governance letter

Pages 104 to 106

Culture

Page 115

Ensuring resources are in place

to meet objectives, measuring

performance and establishing

controls which assess and

manage risk

The Board regularly reviews the Group’s

financial and non-financial resources to

ensure that it has the resources available

to deliver its strategy. The Board has

approved and regularly reviews a series

of KPIs. The Board has established an

effective governance and risk

management framework.

The Group’s KPIs

Pages 20 and 21

The Group’s risk management

framework

Page 89

Audit and Risk Committee report

Pages 126 to 138

Effective stakeholder engagement

and participation

To fulfil its duty to promote the Group’s

long-term success and generate value for

shareholders, stakeholders and wider

society, the Board has designated a

Non-Executive Director for workforce

engagement and established a number

of mechanisms to facilitate stakeholder

engagement and ensure that the Directors

consider all relevant stakeholder issues

and concerns.

Engaging stakeholders and section

172 statement

Pages 44 and 45

Board stakeholder engagement

Pages 118 and 119

Board key decisions

Pages 120 and 121

Ensuring workforce policies and

practices are consistent with the

Company’s values and support

long-term sustainable success,

and that mechanisms are in

place to allow the workforce

to raise concerns

The Board has ensured that workforce

policies and practices are consistent with

the Group’s values and has established

mechanisms, including an independently

provided whistleblowing/speaking-up

facility to allow the workforce to raise

concerns anonymously.

Enabling our people to thrive

Pages 56 to 61

Compliance Helpline and website

Page 62

Audit and Risk Committee report

Pages 126 to 138

Overview

Strategic report

Financial statements

Additional information

107

Convatec Group Plc Annual Report and Accounts 2022

Governance

DIVISION OF RESPONSIBILITIES

Principles

Application

Where further information is available

The Chair’s role

The Chair was independent on

appointment and is responsible for the

leadership of the Board.

Key Board roles and responsibilities

Page 115

Clear division of responsibilities and

appropriate combination of executive

and non-executive roles

The Board includes eight Non-Executive

Directors and two Executive Directors.

Their responsibilities are clearly defined.

Key Board roles and responsibilities

Page 115

Time commitment, constructive

challenge and strategic guidance

All Directors have demonstrated that

they have sufficient time to fulfil their

duties and responsibilities. In their roles,

the Non-Executive Directors have

provided constructive challenge,

strategic guidance and held

management to account.

Nomination Committee report

Pages 123 to 125

Board evaluation

Page 122

Effective and efficient Board

All Directors have access to an encrypted

electronic portal system which enables

them to receive accurate and timely

information. They also have access to

the advice of the Company Secretary

and independent professional advice

at the expense of the Group. The Board

undertook an externally facilitated

Board evaluation by way of detailed

questionnaires, the conclusions of

which are contained within this report.

The Non-Executive Directors meet with

the Chair, without the Executive Directors

present, to discuss performance against

agreed objectives. The Non-Executive

Directors also meet without the Chair

to appraise his performance. The Chair

provides performance feedback to each

Non-Executive Director throughout the

year as and when the need arises.

Board and Committee meetings

Page 115

Board evaluation

Page 122

COMPOSITION, SUCCESSION AND EVALUATION

Principles

Application

Where further information is available

Board appointments and succession

A Nomination Committee is established

and Board appointments are made in

accordance with a formal, rigorous and

transparent procedure, with diversity

a key consideration as well as relevant

knowledge, skills and experience.

The Nomination Committee regularly

considers Board and senior

management succession.

Nomination Committee report and

Board appointment procedure

Pages 123 to 125

Board appointments

Page 124

Talent and succession planning

Page 125

Combination of skills, experience and

knowledge, with regard also to tenure

Our Board is balanced and diverse and

its members have proven leadership

capabilities and relevant healthcare,

operational and financial skills and

experience. Board member tenure is such

that there is a balance of deep knowledge

of the Company and fresh perspective

and challenge.

Directors’ biographical information

Pages 110 and 111

Skills and experience matrix

Page 110

Board member tenure

Page 102

Annual evaluation

In compliance with the Code, during 2022,

the Board undertook an evaluation of its

performance and that of its committees.

The evaluation was by way of an

externally facilitated questionnaire and

reporting process.

Board evaluation

Page 122

How we have applied the Code’s core principles

continued

Governance

Convatec Group Plc Annual Report and Accounts 2022

108

AUDIT RISK AND INTERNAL CONTROL

Principles

Application

Where further information is available

Independent and effective internal

and external audit functions

The Board has delegated a number of

responsibilities to the Audit and Risk

Committee including oversight of the Group’s

financial reporting processes and ensuring

the effectiveness and independence of the

external and internal auditors. The Audit and

Risk Committee Chair regularly briefs the

Board on how the Committee has discharged

its responsibilities.

Audit and Risk Committee report

Pages 126 to 138

Fair, balanced and understandable

assessment

The Board has established arrangements

to ensure that reports and other information

published by the Group are fair, balanced

and understandable.

Audit and Risk Committee report

Page 138

Risk management and internal

control systems

The Board sets the Group’s risk appetite and

assesses the nature and extent of its principal

risks. Annually, the Board reviews the

Company’s principal and emerging risks and

the effectiveness of the Group’s risk

management and internal control systems

and processes. The Audit and Risk Committee

regularly reviews the effectiveness of these

systems and processes throughout the year.

Risk management

Pages 88 to 97

Audit and Risk Committee report

Pages 126 to 138

REMUNERATION

Principles

Application

Where further information is available

Remuneration policy and practices

The Group’s Remuneration Policy, which

was approved by shareholders at the

2020 AGM, is designed to support our

strategy, be aligned to our vision and our

employee and shareholder interests and

promote long-term sustainable success.

Remuneration Policy

Pages 153 to 161

Directors’ Remuneration report

Pages 139 to 161

Development of remuneration policy

and packages

Following a comprehensive consultation

with Convatec’s shareholders, a new

Remuneration Policy is being submitted

to shareholders for consideration at the

2023 AGM, which has been designed to

support Convatec’s strategy and

promote long-term sustainable growth.

Remuneration Policy

Pages 153 to 161

Directors’ Remuneration report

Pages 139 to 161

Independent judgement and

discretion

Following a formal and transparent

procedure, the Remuneration Committee

sets the remuneration for the Executive

Directors and oversees the remuneration

of senior management. In doing so it

applies judgement and, if required,

discretion to ensure a considered

outcome on remuneration issues.

Directors’ Remuneration report

Pages 139 to 161

Overview

Strategic report

Financial statements

Additional information

109

Convatec Group Plc Annual Report and Accounts 2022

Governance

Margaret Ewing

Senior

Independent

Director

AR*

Board of Directors

Governance

Experienced

leadership

A diversely skilled

Board with proven

leadership capabilities

and relevant healthcare,

operational and financial

skills and experience.

Jonny Mason

Chief Financial

Officer

Karim Bitar

Chief Executive

Officer

Dr John McAdam CBE

Chair

Date of appointment

September 2019

Independent

Yes (on appointment)

Relevant skills and experience

•

Extensive chair and board leadership

experience, including as former Chair

of Rentokil Initial plc and United Utilities

Group PLC and as a Non-Executive

Director of a number of FTSE 100 and

US companies.

•

Extensive experience of leading

companies undergoing transformation

including as Chief Executive of ICI plc

between 2003 and 2008.

Current external appointments

Adviser to BlackRock’s Long Term

Investment Group

Date of appointment

March 2022

Independent

Relevant skills and experience

Seasoned CFO with an extensive track

record in listed and international

businesses.

Was formerly CFO of Dixons Carphone Plc,

now known as Currys Plc from 2018-2021,

CFO of Halfords Plc from 2015 to 2017,

CFO of Scandi Standard AB, CFO at

Odeon and UCI Cinemas and FD of

Sainsbury’s Supermarkets.

Current external appointments

None.

Date of appointment

September 2019

Independent

Relevant skills and experience

•

Significant board level and leadership

experience including as Non-Executive

Director of Spectris plc between 2017

and 2021 and Chief Executive Officer

of Genus plc between 2011 and 2019.

• Successful business transformation

track record.

•

Extensive and broad management

experience.

•

Relevant sector knowledge and

experience, including 15 years with Eli Lilly,

where from 2008, Karim was President of

Europe, Australia and Canada.

Current external appointments

Member of the University of Michigan,

Ross School of Business Advisory Board.

Audit and Risk Committee

Nomination Committee

Remuneration Committee

* Committee Chair

KEY TO COMMITTEE

Date of appointment

August 2017

Independent

Yes

Relevant skills and experience

•

Chartered Accountant with significant

financial experience, including as former

Managing Partner of Deloitte LLP and

CFO of BAA plc.

•

Extensive audit and risk management

experience.

•

Strong board experience, having served

as a Non-Executive Director of Whitbread

plc and Standard Chartered plc and CFO

of BAA plc and Trinity Mirror plc.

Current external appointments

Non-Executive Director and Chair of the

Audit and Risk Committee of ITV plc.

Non-Executive Director, Chair of the Audit

and Compliance Committee and a member

of the Nominations Committee of

International Consolidated Airlines

Group, S.A.

Skills and experience

Strategy,

transformation

and organisational

design

95%

Global business

80%

Listed board

experience

90%

Leadership

98%

Operational

85%

Finance

73%

Healthcare

78%

Technology

and innovation

78%

Corporate

transactions

and M&A

78%

Environmental,

social & governance

and sustainability

55%

Percentages based on Directors’ individual

self-scoring of skills and experience.

Convatec Group Plc Annual Report and Accounts 2022

110

Sharon O’Keefe

Non-Executive

Director

Sten Scheibye

Non-Executive

Director

Date of appointment

July 2018

Independent

Relevant skills and experience

• Substantial healthcare knowledge

and significant operational experience

as former President and CEO of

Coloplast A/S.

•

Board experience, including previous

roles as Chair of the Novo Nordisk

Foundation and of Novo Holdings A/S.

• Extensive governance experience

including as a member of the Danish

Corporate Governance Committee,

also serving as the Committee’s Chair.

Current external appointments

Chair of BioInnovation Institute Foundation,

BioInnovation Institute Holdings A/S and of

The Knud Højgaard Foundation, Non-

Executive Director of Perfusion Tech Aps.

Date of appointment

March 2022

Independent

Yes

Relevant skills and experience

•

Extensive healthcare and executive

experience, with focus on driving quality,

efficiency and innovation.

•

Previously President and Chief Operating

Officer of UChicago Medicine, Non-

Executive Director of Aviv REIT and of

Vocera Communications.

•

Holds an M.S. in Nursing Administration

from the Loyola University of Chicago,

and a B.S. in Nursing from Northern

Illinois University.

Current external appointments

•

Non-Executive Director of Adtalem Global

Education Inc., and of Apollo Endosurgery

Inc.

Brian May

Non-Executive

Director

Date of appointment

March 2020

Independent

Yes

Relevant skills and experience:

•

Significant financial and international

business experience, including as Chief

Financial Officer of Bunzl plc from 2006 to

2019. Prior to that, Brian held a number of

senior management finance roles with

Bunzl, including divisional Finance Director,

Group Treasurer and Head of Internal Audit.

•

Experience as a Non-Executive Director

including of United Utilities Group Plc

between 2012 and 2021, where he was

also Chair of the Audit Committee.

•

Extensive experience of significant

strategic initiatives that delivered growth

and sustained shareholder returns over

the long term.

• Chartered accountant.

Current external appointments

Non-Executive Director of Ferguson plc,

where Brian is also a member of its

Nominations and Governance Committee and

Audit Committee. Non-Executive Director of

OFI Group Limited.

Prof Constantin

Coussios OBE

Non-Executive

Director

Date of appointment

September 2020

Independent

Yes

Relevant skills and experience

• Internationally recognised key

opinion leader in the field of

biomedical engineering.

•

Proven track record of translating

research into commercial technologies

through academic entrepreneurship

including as Founder, Chief Technology

Officer and Chief Scientific Officer of

three successful spin-outs.

•

Significant experience of drug delivery

devices and technologies, including

directing and leading the Oxford

Centre for Drug Delivery Devices,

a cross-disciplinary centre working

across pharmaceutical and medical

device companies and the NHS,

between 2014 and 2020.

Current external appointments

Director, Institute of Biomedical

Engineering, University of Oxford.

Professorial Fellow, Magdalen College,

Oxford, Founder and Director of OrganOx

Limited, OxSonics Limited and OrthoSon

Limited. Trustee of the Oxford Transplant

Foundation and Governor of Magdalen

College School, Oxford.

Kim Lody

Non-Executive

Director

Date of appointment:

February 2022

Independent

Yes

Relevant skills and experience

• Extensive healthcare, reimbursement,

and MedTech experience with a

background in international and

multicultural environments.

•

Formerly President and CEO of NYSE

listed Sonida Senior Living Corporation

(retired).

•

Leadership and management experience,

serving as President of GN Hearing for

North America, President of Resound in

the US and President of Chronic Care for

the US subsidiary of Coloplast, Chief

Operating Officer of Senior Home Care,

and Executive Vice President and Chief

Marketing Officer of Gentiva Health

Services. Kim has also held various

other senior leadership roles.

Current external appointments

Board of Directors, Ball Ventures.

Heather Mason

Non-Executive

Director

Date of appointment

July 2020

Independent

Yes

Relevant skills and experience

• Significant international healthcare

experience leading fully integrated

global businesses, including 27 years with

Abbott Laboratories, where Heather held

a number of global senior operational

and strategic leadership roles, including

Senior Vice President of Abbott Diabetes

Care and most recently Executive Vice

President of Abbott Nutrition.

• Extensive relevant international,

commercial and operational experience.

•

Proven track record of overseeing the

development of commercially viable new

product pipelines and brand building.

Current external appointments

Chair of SCA Pharmaceuticals, LLC.

Non-Executive Director and member of the

Audit and Compensation Committees of

Immatics, Inc., Non-Executive Director of

Pendulum Therapeutics, Inc. and of Assertio

Therapeutics, Inc., where Heather is Chair of

the Governance Committee and member of

the Audit and Compensation Committees.

Overview

Strategic report

Financial statements

Additional information

111

Convatec Group Plc Annual Report and Accounts 2022

Governance

Convatec Executive Leadership Team (CELT)

Governance

Karim Bitar

Chief Executive Officer

Jonny Mason

Chief Financial Officer

David Shepherd

President & Chief Operating Officer,

Advanced Wound Care

Appointed to CELT: 2018

David joined Convatec and CELT

in 2018, having previously worked

for Johnson & Johnson for 26 years,

where he held a variety of sales,

marketing, strategic and

operations roles, most recently

being Vice President, Southern

EMEA with responsibility for

15 businesses across the region.

Prior to that, he was the US

President for Cardiovascular

and Speciality Services.

Natalia Kozmina

Executive Vice President, Chief

Human Resources Officer & ESG

Stewardship

Kjersti Grimsrud

President & Chief Operating Officer,

Infusion Care

Seth Segel

President & Chief Operating

Officer, Continence Care and

Home Services Group

Appointed to CELT: 2020

Prior to joining Convatec in 2020,

Natalia was Senior Vice President,

Human Resources at Iron Mountain.

Prior to this, she was Vice President of

Human Resources for Smiths Group,

following several years as Principal

of the Global Health Practice at Egon

Zehnder. Natalia transitioned to HR

after spending more than 15 years

in the pharmaceutical industry and

brings more than 20 years of life

sciences and technology sectors

knowledge to her role.

Appointed to CELT: 2018

Kjersti joined Convatec and the CELT

in 2018. She was a member of the

founding team at Axis-Shield and

appointed President Europe and the

Middle East and President

International, at Alere, Inc., following

its acquisition. Kjersti’s 25 years of

experience in the MedTech sector

includes roles within diabetes care,

including General Manager,

Operations, Sales, Marketing and

R&D positions.

Appointed to CELT: 2020

Seth served as CEO of Woodbury

Health Products for five years until

it was acquired by Convatec in 2017.

Prior to this, Seth was Executive

Vice President at Cantel Medical

Corp, a speciality healthcare

company dedicated to Infection

Prevention and Control. Seth has

lived and worked in North America,

Asia and Europe, holding positions

in investment banking, management

consulting, and as head of operations.

CELT is responsible for the management and

performance of the individual business units

with frequent reporting to, and oversight by,

the Board.

Karim Bitar, CEO and Jonny

Mason, CFO, are also members of

CELT. Their biographical details

are provided on page 110.

More detailed CELT member

biographical information is

available at

www.convatecgroup.com

BOARD MEMBERSHIP

Convatec Group Plc Annual Report and Accounts 2022

112

Dr Divakar Ramakrishnan

Executive Vice President, Chief

Technology Officer & Head of

Research & Development

Bruno Pinheiro

President & Chief Operating Officer,

Ostomy Care

Evelyn Douglas

Executive Vice President, Chief

Corporate Strategy and Business

Development, General Counsel

& Company Secretary

Appointed to CELT: 2020

Prior to joining Convatec three years

ago, Divakar served as Chief Digital

Officer and Vice President for Eli Lilly’s

Drug Delivery, Device and Digital Health

groups, where he led a global R&D team

focused on developing innovative and

digitally-enabled devices to improve

patient care. Divakar’s career in

healthcare spans more than 20 years.

He served as Eli Lilly’s Vice President of

Manufacturing Science and Technology,

a role in which he oversaw all the

company’s process development

across its entire product portfolio.

Appointed to CELT: 2021

Bruno worked for Bristol Myers Squibb

prior to its sale to Convatec in April

2005. Bruno’s diverse experience

spans across Sales, Business

Development & Global Emerging

Markets. Prior to his appointment as

interim President & COO, Global

Emerging Markets, Bruno led a diverse

team across eight countries in his role

as Head of Convatec’s Latin America

business. Bruno was appointed as

President & Chief Operating Officer,

Ostomy Care, in May 2022.

Appointed to CELT: 2020

Evy has in-depth expertise in the

MedTech sector, having spent 20

years at Becton, Dickinson and

Company (BD) prior to joining

Convatec in 2020. At BD, she was

Senior Vice President of Corporate

Development and Strategy, where

she supported the company to

build its capabilities, focusing on

opportunities for partnerships,

acquisitions and divestitures. Prior

to her role in corporate development

at BD, Evy held senior positions in

their legal team.

John Haller

Executive Vice President, Chief

Quality & Operations Officer

Anne Belcher

President & Chief Operating Officer,

Global Emerging Markets

Appointed to CELT: 2022

John joined Convatec in 2022 from

Next Press, where he was General

Manager. Previously, he spent 26 years

with Stryker Corporation, a leading

global MedTech business, where he

played a pivotal role in helping Stryker

grow from a $1 billion revenue

company to a $13 billion revenue

company. John has lived and worked in

countries around the world.

Appointed to CELT: 2022

Anne joined Convatec last year after

30 years at GlaxoSmithKline (GSK),

where she most recently served as

Senior Vice President & General

Manager, Nordics. She originally joined

GSK as a sales representative in New

Zealand in 1991 and went on to hold

senior roles globally within GSK. Anne

has experience in diverse market

environments, including both mature

and emerging markets across Asia

Pacific, EMEA and the Americas.

Members of the ESG Steering

Committee

Overview

Strategic report

Financial statements

Additional information

113

Convatec Group Plc Annual Report and Accounts 2022

Governance

How we are governed

Governance

ESG Steering Committee

An executive committee chaired by

the CEO that drives the ESG agenda

within the Group, monitoring

performance of the ESG programme

and regularly reporting to the Board.

Market Disclosure Committee

A Board committee chaired by the Chair

that oversees the disclosure of

information by the Company to meet its

obligations under the Market Abuse

Regulation, Listing Rules and Disclosure

Guidance and Transparency Rules.

Responsibilities:

• Reviews Board composition and

proposes appointments to the

Board.

• Considers succession planning

for the Board and senior

management.

• Sets diversity and inclusion

targets and objectives for Board

and senior management.

Responsibilities:

•

Oversees the integrity of the

Group’s financial reporting,

internal controls and risk

management framework.

• Ensures the Group complies

with legal and regulatory

governance requirements,

including those related to

financial reporting,

environmental and climate

change-related matters.

• Assesses the independence

and effectiveness of the

external and internal auditors.

Responsibilities:

• Ensures the Remuneration

Policy and wider

remuneration practices are

designed to support the

Group’s strategy and

promote long-term

sustainable success.

• Oversees Remuneration

Policy implementation for

Executive Directors and

senior management.

• Reviews workforce

remuneration and

related policies.

Nomination Committee

Audit and Risk Committee

Remuneration Committee

GOVERNANCE FRAMEWORK

Our governance framework, which includes the Board and its three committees, is set out below.

Responsibilities:

•

Oversees and is responsible for the

long-term success of the Group

and for ensuring that there is a

framework of appropriate and

effective governance and controls

which enables risk to be assessed

and managed.

Board

• Sets the Group’s strategic aims,

determines resource allocation to

ensure that the necessary financial and

human resources are in place for the

Group to meet its objectives and

reviews management performance.

•

Determines the Group’s purpose and

values and monitors and assesses

the Group’s culture and ensures that

its obligations to shareholders and

other stakeholders are understood

and met.

Responsibilities:

• Implements Group strategy for the

long-term success of the Group,

monitoring performance and

significant business projects and

initiatives against budget and the

agreed strategy.

Convatec Executive Leadership Team

•

Assists the CEO in executing the

authority delegated by the Board,

making and implementing day-to-day

operational decisions and exercising

oversight of the Group’s commercial

issues.

• Monitors and assesses the Group’s

cultural activities, execution

against the ESG strategy and

day-to-day behaviours to ensure

that they are aligned with the

Group's purpose and values.

Treasury, Tax & Finance Committee

An executive committee chaired by

the CFO that oversees day-to-day

tax and treasury matters and

treasury related financial liabilities.

The Board is collectively accountable

to the Company’s shareholders for

the proper conduct of the Group’s

business and its long-term success.

The Board is responsible for effective

oversight, delegating some of its

responsibilities to Board Committees

through agreed terms of reference

which are subject to annual review.

Terms of reference for each Board

Committee can be found at www.

convatecgroup.com/investors/

governance.

INTRODUCTION TO OUR GOVERNANCE FRAMEWORK

The Board also delegates responsibility

for the day-to-day operational

management of the Company to the

Chief Executive Officer, who is supported by

the Convatec Executive Leadership Team,

which is chaired by the CEO.

The independent Non-Executive

Directors exercise independent,

objective judgement in respect of

decisions of the Board, and scrutinise

and challenge management. Through the

various committees of the Board, they

have responsibility for ensuring the

robustness and integrity of financial

information, internal controls and risk

management framework, that the

Board has an appropriate mix of skills,

knowledge, experience and diversity

to fulfil the Board’s vision and support

the delivery of the Company’s FISBE

strategy, and that remuneration

arrangements appropriately support the

Group’s culture and strategic ambition.

Other key committees

Convatec Group Plc Annual Report and Accounts 2022

114

Key Board roles and responsibilities

Matters reserved for the Board

Board and Committee meetings

Chair

• Independent on appointment

•

Leads the Board and facilitates

constructive Board discussions

•

Promotes high standards of governance

•

Sets the Board agenda

•

Supports and guides the CEO

•

Leads the review of the effectiveness

and performance of the other Directors

Senior Independent Director

•

Sounding board for the Chair

•

Serves as intermediary for other

Directors when necessary

•

Available to shareholders should they

have concerns where contact through

the normal channels has either failed

to resolve or would be inappropriate

•

Leads the review of the effectiveness

and performance of the Chair

Non-Executive Directors

•

Bring relevant skills, experience and

knowledge to provide constructive

challenge

• Independent Non-Executive Directors

provide independent judgement and

serve on the Board’s committees

•

Support the Chair by ensuring effective

governance across the Group

•

Monitor strategic execution in accordance

with risk and control framework

Chief Executive Officer

•

Accountable to, and reports to, the Board

•

Leads the executive management team in

delivery of the Group strategy and

objectives as determined by the Board

•

Day-to-day responsibility for executive

management matters

•

Responsible for maintaining dialogue

with the Chair and the Group’s

stakeholders

•

Sets the cultural tone throughout

the organisation

Company Secretary

•

Responsible for advising the Board on

all corporate governance matters and

best practice

•

Works with the Chair to ensure Directors

receive accurate and timely information

to enable them to discharge their duties

•

Works with the Chair to design the

induction programme for new Board

members, ongoing training and the

format of the Board evaluation

The Board has a schedule of matters

reserved for its approval and a formal

structure of delegated authority.

This schedule of matters clearly defines

the decisions which can only be made by

the Board and largely relates to matters

of strategic importance, particularly

high value or governance related,

where independence from executive

management is important. It is available

at www.convatecgroup.com/investors/

governance. The schedule was reviewed

and updated during the year.

The Board has delegated certain

responsibilities and authority to the

Board committees, which all operate in

accordance with Board-approved terms

of reference. The Board has also delegated

specified management control to the

Executive Directors and CELT. The written

terms of reference that each of the Board

committees operates under can also be

found within the web link referenced above.

The principal activities undertaken during

the year by the Nomination, Audit and Risk

and Remuneration Committees are set out

in their respective reports in this Annual

Report. The paragraphs under the heading

“Directors’ Remuneration report” on pages

139 to 161 are incorporated by reference into

this Corporate governance report.

Board attendance

Director

Member

since

Attended

John McAdam (Chair)

Sept 2019

8/8

Karim Bitar

Sept 2019

8/8

Jonny Mason

March 2022

7/7

Brian May

March 2020

8/8

Margaret Ewing

Aug 2017

8/8

Constantin Coussios

Sept 2020

8/8

Sten Scheibye

July 2018

7/8

Heather Mason

July 2020

8/8

Kim Lody

Feb 2022

8/8

Sharon O’Keefe

March 2022

8/8

Frank Schulkes

(Board member

until 11 March 2022)

Nov 2017

1/1

Rick Anderson

(Board member

until 3 March 2022)

Oct 2016

1/1

Regina Benjamin

(Board member

until 12 May 2022)

Aug 2017

3/3

Details of the number of Board and

Committee meetings which took place

during the year can be found on page 102.

Attendance at scheduled Board meetings

was 100% by all eligible Directors during

the year apart from Sten Scheibye who was

unable to attend one scheduled meeting

due to unavoidable circumstances (see

meeting attendance table). Four of the

scheduled Board meetings were held

in person in the UK, and four meetings

were conducted using video and audio

conference facilities; a format which the

Board intends to continue to follow during

2023. In addition to the scheduled meetings,

several meetings were held at short notice

to consider specific matters, projects or

transactions, for example the acquisition

of Triad Life Sciences.

The Non-Executive Directors met on one

occasion during the year without the Chair

and Executive Directors present.

The Company Secretary and Deputy

Company Secretary attend all Board

meetings. External advisers also attend

meetings where independent guidance and

expertise is required to facilitate the Board

in carrying out its duties. Members of CELT

(who are not Board members) and other

senior executives regularly attend relevant

parts of meetings to make presentations

and provide their input on a range of topics.

The Board and its Committees are provided

with appropriate and timely information.

For scheduled meetings, agendas are

drafted based on a previously agreed

annual forward agenda schedule and are

then reviewed with the CEO and the relevant

Board or Committee Chair. Agendas may

then be amended, if deemed appropriate,

to reflect current business priorities.

The Directors have access to an encrypted

electronic portal system, which enables

them to receive and review Board and

committee papers quickly and securely

electronically.

Scheduled Board and committee

meetings held

Strategy setting

The CEO, CFO and other members of

CELT take the lead in developing the

Group’s strategy. A dedicated

two-day strategy meeting is held

annually between the Board and

CELT, at which the strategy is

reviewed, constructively challenged

and approved by the Board.

Culture

The Board has the responsibility

of ensuring that Convatec’s culture

remains fully aligned with the

Company’s purpose, values and

strategy. Our values frame the

Group’s culture and our employees’

behaviours, in turn determining how

we do business. To this end, the Board

continues to assess and monitor

culture in different ways, including:

•

Regular briefings from the CEO, the

Chief Human Resources Officer and

other members of the senior.

management team on progress against

our FISBE and people strategies.

• Review of Convatec’s Organisational

Health Index survey results and output

from our Big Conversation initiatives.

• Post-engagement briefings from

Sharon O’Keefe, the Board’s workforce

liaison champion.

• Review of Compliance Hotline

investigation reports and internal

audit reports.

Overview

Strategic report

Financial statements

Additional information

115

Convatec Group Plc Annual Report and Accounts 2022

Governance

Board focus and principal matters considered in 2022

The principal matters considered by the Board during 2022 and their linkage to the Company’s strategic priorities are set

out in the table below.

As part of the business of each Board meeting, the CEO submits a report on business performance, including areas of

progress and areas which are not progressing to plan. The Board also receives a report from the CFO providing updates

on the Group’s financial performance. Members of the CELT and senior management regularly attend Board meetings to

ensure that the Board has good visibility of business developments, opportunities, principal and emerging risks and their

mitigation, and key operating decisions. The Board also receives key functional reports and presentations in relation to

Convatec’s responsible business agenda, enterprise risk management, stakeholder engagement, legal and compliance

as well as presentations from internal and external speakers on other topics relevant to the business and the environment

it operates in.

Areas of focus

Activities

Strategic priorities

Strategy and delivery

•

Considering and approving the Group’s

strategy and any changes and monitoring

execution and delivery.

•

Considering and approving major

transactions, capital projects, corporate

actions or investments by the Company.

•

Reviewing and approving the Group’s

branding strategy.

•

Decision in relation to the acquisition of Triad

Life Sciences (see Key decisions on page 120)

and subsequent review in relation to its

integration into the Group.

•

Decision to approve the strategic investment

in BlueWind Medical Ltd (see Key decisions

on page 120).

•

Decision to support substantial investment in

high speed automated manufacture of Gentle

Cath (GC) Air for Women v2.0 at our Slovakian

plant facility (see Key decisions on page 120).

•

Decision to withdraw from hospital care

activities and related industrial sales

(see Key decisions on page 121).

•

Regular review of progress and evolution of

the FISBE strategy, including participation in

a two-day strategy session and approval of

strategic plans and of FISBE 2.0.

•

Review of other corporate development

opportunities or capital investments to

ensure alignment with our FISBE strategy and

Business Unit plans.

•

Approval of the Group’s term and revolving

credit facilities up to $1.2 billion committed

for five years.

•

Ostomy Care and Advanced Wound Care

deep-dive business reviews and Global

Quality and Operations briefing.

•

Post-acquisition review of Cure Medical.

•

Regular review of innovation and technology,

including the new product pipeline.

Focus

Innovate

Simplify

Build

Execute

Leadership

•

Making appointments to Board or Board

Committees, following recommendations

from the Nomination Committee.

•

Reviewing the performance of the Board

and its committees, individual Directors

and the Group’s overall corporate

governance framework.

•

Board evaluation completed and results

reviewed in late 2022 (see page 122 for details).

•

Consideration and confirmation of changes

to the composition of the Board Committees

following changes to the Board in 2022.

Build

Execute

Business plan and performance

•

Approving annual budget and business

plan and regularly reviewing actual

performance and latest forecasts against

the budget and business plan.

•

Approved 2023 budget and business plan.

•

Regular CFO Reports and briefings.

•

Consideration of published Trading Update

in November 2022.

Focus

Innovate

Simplify

Build

Execute

Board activity and actions

Governance

Convatec Group Plc Annual Report and Accounts 2022

116

Areas of focus

Activities

Strategic priorities

Financial reporting

•

Approving final and interim results,

trading updates, the Annual Report and

the release of price-sensitive information.

•

Approving the dividend policy,

determination of any interim dividend

and the recommendation (subject to the

approval of shareholders) of any final

dividend to be paid by the Company.

•

Approval of the Viability and Going Concern

statements.

•

Approval of half-year and full-year results.

•

Confirmation and approval of the interim

dividend and recommendation of the

final dividend.

•

Approval of the 2021 Annual Report and

Notice of 2022 AGM, held as a hybrid meeting.

Focus

Execute

Risk and governance

•

Ensuring the Group has effective systems

of internal control and risk management

in place, including approving the Group’s

risk appetite.

•

Review of the effectiveness of the Group’s risk

management and internal control systems.

•

Review and approval of the Group’s Risk

appetite, ensuring that Group strategy and

current performance are aligned with risk

appetite.

•

Regular Governance, Legal and

Compliance briefings.

•

Briefings to the Board from the Board

Committee Chairs on the activities of

the Committees.

•

Review and update of the Securities

Dealing Policy.

•

Review of Board matters reserved and

Board Committee terms of reference.

Focus

Innovate

Simplify

Build

Execute

Stakeholder engagement

•

Considering the balance of interests

between the Group’s stakeholders.

•

Receiving and considering the views

of the Company’s shareholders.

•

Receiving and considering the views

of the Company’s employees.

•

Briefings provided by the Investor Relations

team and/or the Group’s corporate brokers

on investor feedback following results

announcements and investor roadshows.

•

Debrief on investor feedback following

Convatec’s Capital Markets event.

•

The Board met healthcare practitioners

and patients from the US and UK to obtain

valuable insights into their concerns

and needs.

•

The Chair had meetings with two of our top

20 institutional shareholders during the year.

•

Sharon O’Keefe took over the role of Non-

Executive Director workforce liaison

champion providing post engagement

briefings to the Board.

Innovate

Build

Execute

Responsible business

•

Overseeing the Group’s responsible

business programme.

•

Reviewing the Group’s responsible

business strategy and its implementation.

•

Considering the Group’s people and

their welfare.

•

Regular briefings from the ESG Steering

Committee chaired by the CEO.

•

Oversight of the development of our new

ESG framework.

•

Reviewed progress against sustainability

targets and agreed priorities for 2023.

•

Review of progress on DE&I initiatives

including gender data.

•

Review of employee gender pay gap data.

•

Review of the Modern Slavery Statement.

•

Review of the Group’s latest Organisational

Health Index results.

Innovate

Simplify

Build

Execute

Overview

Strategic report

Financial statements

Additional information

117

Convatec Group Plc Annual Report and Accounts 2022

Governance

Board activity and actions

continued

Governance

Stakeholders

Board-level engagement

Our people

Sharon O’Keefe was appointed in May 2022 as our dedicated Non-Executive Director for workforce

engagement. Sharon participated in the Global Leaders Meeting in May 2022 , bringing together our

top 100 leaders across the business, and has attended other employee-related events and activities,

including interaction with the Employee Resource Groups, employee communications via Convatec’s

intranet and site visits (including ’meet and greet’ with employees). Sharon provided post-event

briefings to the Board.

Members of the management team regularly attend relevant parts of Board and committee meetings

to present on specific topics, including briefings on our people strategy,

The Chair participated in a ’Q&A’ session at the Global Leaders Meeting in 2022.

The Board and the Audit and Risk Committee receive reports from the Group’s compliance function

detailing input from the Group’s Compliance Helpline and website. When relevant, this includes details

of investigations arising from information provided via the Compliance Helpline and website and

resulting outcomes (see page 132).

Investors

All members of the Board are available to meet with shareholders.

The Chair had meetings with two of our top 20 institutional shareholders during the year.

The Chair and Committee Chairs have regular dialogue with Convatec’s major shareholder, Novo,

through Novo’s representative on our Board, Sten Scheibye.

The Board receives analysts’ notes published about the Group and the sector and receives regular

updates on investor relations matters. The Board considers this feedback important to understand our

investors’ views on Convatec’s progress in pivoting to sustainable and profitable growth. Investors’

feedback and insights are taken into account by the Board in our communications to shareholders.

The Executive Directors participate in an active IR programme, including investor roadshows. Convatec

held an Innovation Day on 17 May 2022 for investors to learn more about our new product launches and

held our first Capital Markets Day for investors on 17 November 2022. Further information about our

engagement with shareholders and potential investors is provided on page 105.

All Directors participated in our 2022 AGM which took the form of a hybrid meeting, which enabled

shareholders to attend, vote and ask questions either in person or remotely.

The Chair of the Remuneration Committee led a comprehensive shareholder consultation exercise in

relation to our proposed new Remuneration Policy, engaging with over 30 shareholders as well as the

Investment Association and proxy-voting agencies. The views of our shareholders and other bodies were

taken into account in formulating and finalising the Remuneration Policy proposals which are being

submitted to shareholders for consideration at our 2023 AGM.

HOW THE BOARD ENGAGED

BOARD STAKEHOLDER

ENGAGEMENT

Connecting with our

stakeholders and discharging

section 172 duties

When making decisions, the

Board acts in a way that the Directors

consider most likely to promote

the success of the Company, for the

benefit of its shareholders as a whole,

while also considering the broad

range of stakeholders who interact

with the business.

Our section 172 statement is set out

on page 45.

How we engage as a Board

All of our stakeholders are important to

us. Identifying our key stakeholders was

an essential step in the implementation

of our FISBE strategy. Ultimately, our

vision – pioneering trusted medical

solutions to improve the lives we

touch – can only be fulfilled through

interaction with our stakeholders.

For that reason, we are committed to

maintaining strong relationships and

good communication lines with

stakeholders. We also consider this

fundamental to the successful delivery

of our strategy and long-term prospects

and alignment with our purpose. Further

information on how the Company

proactively engages with a broad

range of stakeholders to understand

their issues and to build positive

relationships can be found on

pages 44 and 45.

Our vision and values provide a

framework which helps our employees

make decisions in the best interests of

the Group and our stakeholders. This

approach ensures that stakeholder

issues are considered throughout the

organisation and not just at Board level.

How the Board understands

stakeholders’ interests

The table below summarises how

our Board gains an understanding of

stakeholder issues. The table on pages

120 and 121 describes how the Board

considered different stakeholders

in making four key decisions in 2022.

Convatec Group Plc Annual Report and Accounts 2022

118

Stakeholders

Board-level engagement

Consumers/

patients/healthcare

professionals

During the year, the Board held an in-depth group discussion session with a surgeon specialising in

advanced wound care, a vascular nurse and a patient. This provided valuable insight into patient and

HCP needs. These insights were applied to the constructive challenge and debate regarding the Group

and Business Unit strategies in July 2022.

Supply chain partners

and channel partners

During the year, the Board received reports from the Global Quality and Operations team with respect

to initiatives they are undertaking to continue to improve the resilience of our global supply chain .

The Board confirms its compliance with the UK Payment Practices Reporting Duty and the Prompt

Payment Code and similar legislation across the Group in relation to the year ended 31 December 2022.

The Board reviewed and discussed strategic plans for each of our business units during the year. The

Board supported close collaboration with one of our key partners, Medtronic, with whom we launched

the first and only infusion set that can be worn for up to seven days.

We work in close cooperation with all of our partners to develop products that improve the quality of

life of our patients.

The Board considered and approved multi-million dollar manufacturing infrastructure investment, thus

strengthening Convatec’s supply chain and resilience whilst also scaling up production and availability

of life-enhancing products for the customers and patients we serve.

Further details of the steps taken to ensure that Convatec’s vision and values guide our operations and

supply chain, taking a zero-tolerance approach to any form of modern slavery can be found in our

Modern Slavery Statement at www.convatecgroup.com/modern-slavery-statement/.

Regulators

The Board has received reports on the implementation of MDR from the Group’s regulatory function.

Governments

The Audit and Risk Committee received reports from the Global Tax function on taxation matters across

the Group and approved the Tax Statement including tax strategy, which was subsequently agreed by

the Board.

All other stakeholders

The Board receives information relating to our stakeholder groups through the executive reports at each

Board meeting and in the annual strategy sessions from Business Units.

HOW THE BOARD ENGAGED

continued

Overview

Strategic report

Financial statements

Additional information

119

Convatec Group Plc Annual Report and Accounts 2022

Governance

Governance

Board activity and actions

continued

BOARD KEY DECISIONS IN 2022

Investment in

BlueWind Medical Ltd

In May 2022, Convatec invested

$30.7 million, inclusive of

transaction costs, in BlueWind

Medical, a developer of a small

implantable tibial nerve

stimulation device for patients

with an overactive bladder.

S.172 – How the Board considered

different stakeholders in making

the decision

Investors:

The investment supports

Convatec’s FISBE strategy by

securing a relationship with a

company developing an innovative

solution related to the US

Continence space, an exciting

opportunity to gain exposure to

a new and innovative technology

in the Overactive Bladder segment.

The investment also provides the

potential for financial returns in

the future.

Patients and HCPs:

The new

technology has the potential to

provide better outcomes for patients

who have an overactive bladder

(currently there are around 34 million

patients affected by this condition in

the US alone).

Investment of

$26.9 million capital

to provide enhanced

manufacturing

of new product

In March 2022, the Board

approved an investment of

$26.9 million to provide high-

speed automated manufacture

of GentleCath Air™ for Women

v2.0 at our Slovakian plant facility.

S.172 – How the Board considered

different stakeholders in making

the decision

The investment was fully aligned with

our FISBE strategy.

Investors:

Investing in manufacturing

plant expansion is expected to lead to

additional revenue for Convatec, and

ultimately to higher returns for

investors. It also underpins confidence

in Convatec’s future growth and the

overall success of the business.

Patients and HCPs:

The expanded

plant is expected to provide greater

output of a new catheter for patients

and ensures that patient demand can

be met.

Suppliers and distributors:

Expanding our capacity to deliver

more catheter products not only

provides more resilience in the supply

chain for Convatec but helps to

ensure a consistent supply feed.

Communities:

The expansion plans

will lead to employment

opportunities for local communities

in Slovakia. Being able to enhance

production of these vital and

life-enhancing products will have a

positive impact on our customers

and patients in all communities

around the world.

Acquisition of Triad

Life Sciences

In March 2022 Convatec acquired

Triad Life Sciences.

Based in Tennessee, US, the

business has developed and

markets a specialist porcine

amniotic membrane for

treatment and healing of acute

and chronic wounds. The

acquisition provides an

opportunity for Convatec to enter

a high-growth, sizeable wound

biologics

segment,

a key growth strategy for our

Advanced Wound Care business,

and allowing Convatec to better

serve patients with advanced

wound needs all over the world.

S.172 – How the Board considered

different stakeholders in making

the decision

The acquisition was fully aligned

with our FISBE strategy.

Investors:

The acquisition provided

strategic opportunities for product

development and use of the

technology in other areas within

Convatec, as well as providing

additional revenue growth and

increasing the potential for higher

shareholder returns.

Patients and HCPs:

The new

technology has the potential

to provide better outcomes for

patients who have chronic wounds,

and the potential to provide better

outcomes for patients with other

chronic conditions as the

technology is developed and

new applications and products

are introduced.

Our people:

The transaction

benefited employees of both

organisations by better serving

customers and increasing the

strength of the combined business

and creating opportunities with

a larger scale Advanced Wound

Care business.

Communities:

The acquisition

strengthened Convatec’s presence,

product range and reach to the

customers and patients we serve

in communities across the world.

Suppliers and distributors:

The

transaction provides an opportunity

to build our partnerships with

trusted suppliers and distribution

network across the globe.

As defined by SmartTRAK: see page 22.

Convatec Group Plc Annual Report and Accounts 2022

120

Risk management and internal

control effectiveness

The Board is ultimately responsible

for overseeing how we manage both

internal and external risks (current

and emerging) that could impact our

business model and strategic goals.

The Board also determines the Group’s

risk appetite and monitors adherence

to it through reports received by the

Audit and Risk Committee and from

the VP of Internal Audit & Enterprise

Risk. The Board regularly reviews the

Group’s principal risks and, on an

annual basis, reviews the effectiveness

of our risk management and internal

control systems and undertakes

horizon scanning to identify new

emerging risks. The Audit and Risk

Committee reviews the Group’s risk

management and internal control

systems periodically throughout

the year. The Group’s principal and

emerging risks are set out on pages

92 to 97

Statement of review

During 2022, the Board has directly,

or through delegated authority to the

Audit and Risk Committee, monitored

and reviewed the Group’s risk

management activities and processes,

including a review of the effectiveness

of all material risk mitigations and the

financial, operational and compliance

internal controls. The Audit and Risk

Committee’s activities in these areas

are set out in the Audit and Risk

Committee report on pages 131 and

132. Following this review, the Board

is satisfied that the Group’s risk

management and internal control

framework provided assurance that

there were no control failures in the

year that could have a material impact

on the Group’s financial statements or

its future financial situation.

Withdrawing from the

hospital care business

and related industrial

sales products

During 2022, Convatec withdrew

from the lower margin, lower

growth hospital care business

and ceased related industrial

sales. As a result, production of

a portfolio of products was

phased out at two of the Group’s

manufacturing sites. The decision

was made to close one of the

sites, the manufacturing plant in

Belarus, which manufactured

products almost entirely for the

hospital care business.

S.172 – How the Board considered

different stakeholders in making

the decision

The decision was in full alignment

with our FISBE strategy.

Investors:

Following the exit,

Convatec is focused on higher-

growth chronic care markets with

improved margins and higher levels

of recurring revenue, increasing

the potential for higher

shareholder returns.

Patients and HCPs:

Patient impact

was determined to be low in the

medium term due to the generic

nature of the products concerned.

It was determined in the short term

that the Company would support

customers and patients to find

alternative sources of the products.

Our people:

With the restructure

there were inevitable job losses. The

Company was determined to work

closely with employees, unions and

partners to fulfil obligations and

treat all those impacted in line with

Convatec’s core values.

Suppliers and distributors:

It was

noted that some suppliers and

providers of raw materials had

already started exiting Belarus.

Governments

: Given the geopolitical

situation there was the increased

threat of sanctions on the Company

should operations have continued

in Belarus.

Overview

Strategic report

Financial statements

Additional information

121

Convatec Group Plc Annual Report and Accounts 2022

Governance

Individual Director evaluation

As part of the annual evaluation

process, there is a review of the

effectiveness and commitment

of individual Directors. In respect

of the Non-Executive Directors this

includes a review of an individual’s

commitment of time to the Company

in light of their other commitments

(as noted in their biographies on

pages 110 and 111). Except in relation

to his own, the Chair leads the

individual Director evaluations.

Board Chair evaluation

The evaluation of the performance of

the Board Chair by the other Directors

was led by the Senior Independent

Director (SID) and without the

presence of the Board Chair. The

overall conclusion was that he was

performing very well in all aspects

of the role. The Chair values the

individual opinions of all Directors

and seeks and listens to their views.

He chairs effective meetings, allows

debate and encourages contribution

and challenge, with a focus on clarity

and pragmatism in decision-making.

He has a strong and constructive

relationship with the Executive

Directors, particularly the CEO, and

provides appropriate challenge,

support and advice.

The SID provided feedback to the

Board Chair after the review of

his performance.

2021 Board evaluation progress

report and 2022 Board evaluation

review

In 2021 the Board undertook an

evaluation of its effectiveness as

required by the Code (details of which

are set out in the 2021 Annual Report

and Accounts). Information about

the key priorities arising from this

evaluation and progress to date is

set out below.

In October 2022 the Board again

undertook a questionnaire-based

evaluation, externally facilitated

by Lintstock. The questionnaire

included both quantitative and

qualitative questions.

Lintstock analysed the results and

provided reports for the Board and

Board Committees, with unattributed

scoring and comments. The reports

and key findings were discussed at the

December 2022 Board and Committee

meetings, with each forum considering

the evaluation outcomes and any

appropriate actions.

The key findings from the 2022 Board

evaluation process, including the

actions agreed to address

recommendations resulting from the

review process, are set out below.

Lintstock has no other connection

with Convatec or any of the individual

Convatec Directors.

Actions

Progress

Board composition

The profile of the Board should evolve over the next

three to five years to match Convatec’s strategic goals.

The Board should continue to ensure that digital,

innovation and international experience is sought

and in addition, medical expertise would be considered

to further strengthen the Board, whilst ensuring a

sufficient level of diversity is maintained.

The Nomination Committee allocated dedicated time

in 2022 to discuss Board composition and succession

planning. Three appointments were made to the Board

during the year. Succession planning remains on the

Nomination Committee forward agenda for each of

its two scheduled meetings in 2023.

Strategic and operational oversight

The Board would benefit from deep dives into areas

such as technological developments in medical

solutions; and greater understanding of medical

regulations, patients’ needs and suppliers/distributors.

Deep dives in these areas were included on the Board

agenda during 2022, either at scheduled Board meetings

or at the July 2022 strategy meeting.

PROGRESS IN RELATION TO ACTIONS ARISING FROM THE 2021 BOARD EVALUATION

2022 BOARD AND COMMITTEE EVALUATION REVIEW

Overall the Board was considered to be working effectively, with a view that the Board was well aligned and with

good Board member dynamics. The two priority recommendations arising from the Board evaluation and proposed

actions are set out below.

Findings

Actions for 2023

Board engagement with the CELT and future

leadership talent

In support of succession planning and understanding

the business, provide a structured engagement

programme between NEDs and current and future

leadership talent across the Group.

Consider a structured engagement programme

between NEDs, Executive Directors, CELT and CELT-1,

encompassing both formal and informal events in

the UK and elsewhere. Ensure that the Board and/or

Committee members visit other Convatec sites other

than Head Office.

Board agenda

Reinforce focus on key areas for the business, such as

the competitive and macroeconomic environments;

provide improved stakeholder oversight in areas

identified by Board members.

Ensure that the Board’s 2023 and 2024 forward agendas

evolve to reflect the Board’s evolving priorities.

Board evaluation

Governance

Convatec Group Plc Annual Report and Accounts 2022

122

Dr John McAdam CBE

Chair of the Nomination

Committee

Nomination Committee report

A word from

the Chair

“A balanced and diverse Board, with a broad

range of skills, experience and knowledge,

is more likely to be an effective Board.”

COMMITTEE INTRODUCTION AND OVERVIEW

COMMITTEE MEMBERSHIP, MEETINGS AND

ATTENDANCE

The table below shows Committee members and the

number of scheduled meetings attended out of the number

of meetings members were eligible to attend during 2022.

Director

Member since

Attended

John McAdam (Chair)

September 2019

2/2

Margaret Ewing

May 2019

2/2

Heather Mason

September 2020

2/2

Brian May

September 2020

2/2

Constantin Coussios

January 2022

2/2

Kim Lody

February 2022

2/2

Sharon O’Keefe

March 2022

2/2

Rick Anderson

(member until 3 March 2022)

September 2020

0/0

Regina Benjamin

(member until 12 May 2022)

June 2019

1/1

Dr McAdam was appointed Chair of the Committee on 30 September 2019

There were three appointments to the Committee during

the year: Constantin Coussios on 27 January 2022, Kim Lody

on 1 February 2022, and Sharon O’Keefe on 1 March 2022.

Rick Anderson and Regina Benjamin stepped down as

Committee members on resigning from the Board.

The Deputy Company Secretary attends meetings as

Secretary to the Committee and the EVP, Chief Human

Resources Officer regularly attends the Committee’s

meetings to provide information and support to the

Committee to enable it to carry out its duties and

responsibilities effectively.

KEY NUMBERS

Meetings held

(2021: 3)

Attendance

100%

(2021: 94%)

ACTIVITY HIGHLIGHTS

•

Recommendations to the Board for Committee

appointments.

•

Reviewed skills, experience and characteristics of

Board members and determined that the Board was

balanced, diverse and with an appropriate level of

skills, knowledge and experience.

•

Reviewed talent and succession planning for the

CEO and the CELT.

•

Reviewed progress and development of the Group’s

diversity, equity & inclusion and wellness strategy

and assessed key metrics.

•

Reviewed progress of leadership development

programme for CELT and application of new high–

performing team principles, helping to build and develop

a sustainable, diverse and inclusive organisation.

2023 PRIORITIES

•

Maintain focus on succession planning and talent

management for Executive Directors and senior

management.

•

Continue to monitor progress against the diversity,

equity & inclusion and wellbeing agenda across

the Group.

KEY AREAS OF RESPONSIBILITY

•

Reviews regularly the Board’s composition.

•

Leads Board appointments process as necessary.

•

Oversees and recommends orderly Board succession

and oversees senior management succession planning.

•

Reviews whether each Non-Executive Director

is devoting enough time to his or her duties.

•

Oversees the balance of skills and experience

within the Group and on the Board.

•

Monitors diversity within the Board and across

the Group.

The role and responsibilities of the Committee are

set out in the terms of reference and available at

www.convatecgroup.com/investors/governance/.

These are subject to annual review.

Overview

Strategic report

Financial statements

Additional information

123

Convatec Group Plc Annual Report and Accounts 2022

Governance

Nomination Committee report

continued

Governance

Dear Shareholder

I am pleased to present the

Nomination Committee Report, which

summarises how the Committee

discharged its duties during the year.

Our role

As a Board we recognise that a

balanced and diverse Board, with a

broad range of skills, experience and

knowledge, is more likely to be an

effective Board. In support of our

vision of pioneering trusted medical

solutions that improve the lives we

touch, and with the ultimate aim of

creating sustainable value for all our

stakeholders, we continue to focus

on ensuring that we have that right

balance of skills, knowledge and

diversity, both at the Board and

within our leadership team.

An equally important role for the

Committee is ensuring that we have

an appropriate pipeline of future talent

within the business. The Committee

regularly reviews succession plans,

not only for the Board, but also for CELT.

In support of Convatec’s succession

planning, a new leadership

development programme was rolled

out for our Global Leadership Team

(circa 100 leaders across the business)

with emphasis on our high performance

team principles. This has been well

received and is accelerating the

development and retention of this

important group of leaders, a group

that has a crucial role to play in inspiring

and motivating our people to accelerate

and deliver on our strategic aims.

Board changes

As Convatec continues to pivot to

sustainable and profitable growth,

the Committee has continued to focus

on recruiting the best executive and

non-executive talent to the Board.

As reported last year, the Committee

recommended to the Board the

appointment of Jonny Mason as our

new CFO with effect from 12 March

2022, replacing Frank Schulkes who

stepped down from the Board and

as CFO on 11 March 2022.

At the end of 2021 the Committee

recommended the appointment of two

new independent Non-Executive

Directors, Kim Lody and Sharon O’Keefe,

who joined the Board on 1 February 2022

and 1 March 2022, respectively. Rick

Anderson resigned as Non-Executive

Director on 3 March 2022, and Dr Regina

Benjamin resigned as a Non-Executive

Director on 12 May 2022.

Board committees’ composition

During the year, the Committee

reviewed the composition of Board

committees and recommended

changes which were approved by

the Board. The composition of the

Nomination Committee and changes

during the year are set out on page 123.

Similarly, the composition and any

changes to membership during the

year of the other Board committees

are set out at the beginning of the

respective Reports that follow.

Diversity

The Board endorses the aims of the

Davies’ report entitled “Women on

Boards”, the Hampton-Alexander

report entitled “FTSE Women Leaders

– Improving Gender Balance in FTSE

Leadership”, and the Parker report

entitled “A Report into the Ethnic

Diversity of UK Boards”. The Board

also endorses the Government’s

new five-year review to monitor

women’s representation in FTSE 350

companies, entitled “The FTSE

Women Leaders Review”.

At Board level we have members of

various nationalities, gender and

ethnicity who have an excellent range

of appropriate skills and expertise.

As at 31 December 2022 and at the

date of this report, we comply with

the new Listing Rule recommendations.

Adjacent on this page, we have

provided data on Board and CELT

members’ gender and ethnicity, and

whereby directors and CELT

members were asked to self-declare

against the Office for National

Statistics classification.

The Committee will continue to monitor

Board diversity in other respects,

including experience, skills, personal

attributes, age and ethnicity. In all

instances individuals will continue

to be appointed on merit and the

Committee will remain focused on

always ensuring that the Board has

the relevant skills and expertise to

perform effectively.

As part of our ongoing diversity and

inclusion strategy, our target is to

achieve 40% of senior management

roles to be held by female executives by

2025 and this currently stands at 38%.

During the year the Board has

considered diversity insights across a

range of metrics with a focus on gender

and the initiatives to advance women in

leadership. In 2023 the Committee and

the Board will continue to monitor the

ongoing development of Diversity,

Equity & Inclusion and Wellbeing

initiatives across the Group.

Board and senior leadership gender representation

Number

of Board

members

Percentage

Board

Number

of senior

positions on

the Board

(CEO, CFO,

SID and

Chair)

Number in

executive

management

Percentage

of executive

management

Men

60%

56%

Women

40%

44%

Note: Executive Management includes CELT members, but excludes the CEO and CFO. The Company

Secretary, Evelyn Douglas, is included within the CELT disclosure.

Board and senior leadership ethnicity representation

Number

of Board

members

Percentage

Board

Number

of senior

positions on

the Board

(CEO, CFO,

SID and

Chair)

Number in

executive

management

Percentage

of executive

management

White British or other

white (including

minority-white groups)

90%

78%

Mixed/multiple ethnic

groups

–

Asian/Asian British

11%

Black/African/Caribbean/

black British

–

Other ethnic group,

including Arab

10%

11%

Note: Executive Management includes CELT members but excludes the CEO and CFO. The Company

Secretary, Evelyn Douglas, is included within the CELT disclosure.

Convatec Group Plc Annual Report and Accounts 2022

124

Relevant skills and expertise

The Board benefits from a wide variety

of relevant skills, experience and

knowledge, details of which are set

out in the biographies and skills matrix

on pages 110 and 111.

Board appointments

Appointments to our Board are made

solely on merit with the overarching

objective of ensuring that the Board

maintains the correct balance of

diversity, experience, skills, length of

service and knowledge of the Group to

successfully establish and oversee the

delivery of the Group’s strategy, whilst

also providing constructive challenge

as necessary. Appointments are made

based on the recommendation of the

Nomination Committee with due

consideration given to the benefits of

diversity in its widest sense, including

gender, social and ethnic backgrounds.

The Nomination Committee also

reviews the ongoing commitments

of candidates prior to making

recommendations for the appointment

of new Directors. Directors are required

to seek Board approval prior to taking

on additional commitments to ensure

that existing roles and responsibilities

continue to be met and conflicts are

avoided or managed.

When recruiting new Non-Executive

Directors, meetings are held between

potential candidates and the Chair,

CEO, CFO and Non-Executive Directors.

Members of the Nomination

Committee review feedback and

recommend candidates for

appointment to the Board. Decisions

relating to such appointments are

made by the entire Board based on

a number of criteria including the

candidate’s skills and experience,

the contribution they can make to our

business and their ability to devote

sufficient time to properly fulfil their

duties and responsibilities.

Reappointment of Directors

All Directors are subject to annual

re-election and will be proposed for

re-election by shareholders at the AGM

to be held on 18 May 2023. Following

evaluation, all Directors continue to be

effective and have the time available

to commit to their role, and the Board

has recommended that all directors

are put forward for re-election.

Non-Executive Directors are initially

appointed for a three-year term and

retiring Directors, if willing to act, will

be deemed to be re-appointed unless

the resolution for their re-

appointment is not approved.

Talent and succession planning

Succession planning work during 2022

focused on the Board and CELT. The

Committee has considered succession

planning for each of the Executive

Directors and CELT members, as well

as emerging talent within the business.

The review included scoping those

potential successors ready now,

those ready in one to two years,

and those anticipated to be ready

in three to five years.

Given its importance, succession

planning is scheduled for the

Committee’s consideration

twice a year.

External search firms

For all independent Non-Executive and

Executive Director appointments, we

engage international search and

selection firms to support the Board,

most recently using firms including

Heidrick & Struggles, Spencer Stuart

and Russell Reynolds. None of them

have any connection with the Group,

or any Director, other than they may

be engaged to assist with Board and

senior management appointments

and ordinary course succession

planning from time to time.

Board induction, training and

development

On joining the Board, all Non-Executive

Directors participate in a formal

induction programme. The

programme is monitored by the Chair

(other than in relation to his own

induction, which is guided by the

Senior Independent Director) and is

the responsibility of the Company

Secretary. Its purpose is to ensure that

each newly appointed Non-Executive

Director is able to contribute to Board

discussions as quickly as possible.

While each induction programme is

tailored to the individual Director’s

needs based on their skills and

experience, typically each programme

provides new Directors with insight

into the Group’s strategy, culture and

operations and informs them about

the governance and compliance

processes and procedures we operate.

In 2022, the induction programme for

our two new US-based Non-Executive

Directors, Kim Lody and Sharon

O’Keefe, included meetings with our

corporate law firm who provided

comprehensive training on UK

company law and the Code.

During the year Freshfields Bruckhaus

Deringer also provided the Board with

directors’ duties refresher training

and an update on governance and

regulatory matters. The Board also

received updates and training from

the Group’s senior management and

external advisers covering a range

of topics.

We continued to evolve our training

programme and, in particular, its

scope was expanded to include

training from external advisers to both

the Remuneration and Audit and Risk

Committees. Training focused on

matters specific to their respective

committee activities, including

corporate governance updates,

executive remuneration, corporate

reporting and audit updates.

All Directors have access to the

advice and services of the Company

Secretary and, through her, have

access to independent professional

advice in respect of their duties,

at the Group’s expense.

Committee evaluation

The Committee conducted an

evaluation of its performance in the

form of a detailed questionnaire

facilitated by an external provider,

Lintstock, the results of which were

highly rated overall. Matters identified

for attention in 2023 are set out under

2023 Priorities on page 123.

Copies of all appointment letters are

available for inspection at the

Company’s registered office.

On behalf of the Nomination

Committee.

Dr John McAdam CBE

Chair of the Nomination Committee

8 March 2023

Overview

Strategic report

Financial statements

Additional information

125

Convatec Group Plc Annual Report and Accounts 2022

Governance

A word from

the Chair

“I am pleased to see the progress that

has been made to simplify and deliver

on environmental matters, resilience,

risk management and control.”

COMMITTEE INTRODUCTION AND OVERVIEW

COMMITTEE MEMBERSHIP, MEETINGS AND

ATTENDANCE

The table below shows Committee members and the

number of meetings attended out of the number of

meetings members were eligible to attend during 2022.

Director

Member since

Attended

Margaret Ewing (Chair)

August 2017

7/7

Brian May

March 2020

7/7

Heather Mason

September 2020

7/7

Ms Ewing was appointed Chair of the Committee on 28 June 2019.

The biographies of the Committee members on pages 110 and

111 outline the members’ collective wide finance, audit, risk

management and relevant sector and business experience,

enabling the Committee to provide constructive challenge

and support to management and the auditors. In accordance

with the Code, the Board has determined that Margaret Ewing

and Brian May have recent and relevant financial experience

and is satisfied that the Committee has competence relevant

to the sector and its overall responsibilities.

The Deputy Company Secretary attends meetings as

Secretary to the Committee. Other regular attendees, at

the invitation of the Committee, include the Chair, CEO, CFO,

General Counsel & Company Secretary, VP Group Financial

Controller & Transformation, VP Internal Audit & Enterprise

Risk and external audit partners.

During the year, the Committee periodically met without

others present, and also held separate private sessions with

the CFO, VP Internal Audit & Enterprise Risk and the external

audit partners

KEY NUMBERS

Meetings held

(2021: 7)

Attendance

100%

(2021: 100%)

ACTIVITY HIGHLIGHTS

•

Review of key judgements and estimates, adjusted

measures and disclosures in respect of the 2022

financial statements

•

Consideration of the withdrawal from hospital care and

related industrial sales and associated restructuring

•

Monitoring of progress and improvements in ESG

reporting, including development of targets and

compliance with TCFD requirements

•

Review of risks and initiatives to improve operating

resilience

2023 PRIORITIES

•

Commissioning an independent assessment of

the maturity and effectiveness of cybersecurity and

data privacy activities to complement the

Committee’s expertise

•

Ensuring the focus of the Internal Auditor is aligned to

the Committee’s priorities and concerns regarding risk

across the Group

•

Externally benchmarking the governance approach

to ESG to enhance the Committee’s ESG-related

oversight and responsibilities

•

Reviewing the future finance model and its role in

delivering the simplification agenda

KEY AREAS OF RESPONSIBILITY

The Committee’s principal responsibilities are to oversee

and provide assurance to the Board on:

•

The integrity and quality of financial reporting

•

Effectiveness of audit arrangements

•

Robustness and effective operation of internal

controls, compliance and risk management processes

•

TCFD and ESG metrics and data reporting

The role and responsibilities of the Committee are set

out in the terms of reference (available on the Company’s

website) which were reviewed and updated by the

Committee in March and October 2022 to reflect changes

in the relevant legislation and regulations and

recommended good practice.

Margaret Ewing

Chair of the Audit and Risk

Committee

Governance

Audit and Risk Committee report

Convatec Group Plc Annual Report and Accounts 2022

126

Dear Shareholder

On behalf of the Board, I am pleased

to present the 2022 Audit and Risk

Committee Report. This report is

intended to provide shareholders and

other stakeholders with an insight

into key matters considered in 2022,

together with how the ARC has

discharged its responsibilities and

provided assurance on the integrity of

the 2022 Annual Report and Accounts.

It is our responsibility to ensure the

financial and non-financial information

published by the Group appropriately

presents its activities to all stakeholders

in a way that is transparent, useful and

understandable and is aligned with the

latest guidance and requirements of

regulators and other relevant bodies. In

addition, the Committee’s fundamental

priorities include ensuring the quality

and effectiveness of the external and

internal audit processes and monitoring

the management of the principal risks

and effectiveness of the internal

controls of the business.

During the year, management

undertook a strategic review of the

Group to ensure that we can continue

to serve, support and innovate to

benefit the people who rely on our

products and services in chronic care

sectors. This led to the announcement

of the withdrawal from the hospital

care activities and related industrial

sales business. In addition, risk

management became an area of

increasing focus as a result of recent

and ongoing global events, including

their inflationary implications. Building

on the timely business response to

recent issues, the Committee

welcomed the management initiative

to develop a rapid response team

to provide a balanced and consistent

approach to business continuity

in readiness for future events. In

planning the Committee’s agenda,

we took account of management’s

areas of focus and any consequential

significant issues and operational,

compliance and financial risks likely

to have an impact on the Group’s

financial statements.

Throughout 2022, we have ensured:

the key challenges and risks faced

by the Group were reflected in the

external and internal audit plans;

effective controls remained in place;

changes in the Group’s principal and

emerging risks were identified and

effectively managed; ongoing

compliance with all regulatory and

legal obligations; and sound financial

judgements and estimates continued

to be made.

During 2022, I have maintained regular

dialogue with my fellow members of

the Committee, the CFO, other

members of management (financial,

legal and commercial) and the Vice

President of Internal Audit & Enterprise

Risk Management, including meeting

with ’agenda topic owners’ prior to

Committee meetings, ensuring the

Committee would be provided with

the necessary information to enable

it to guide, challenge and advise and,

when required, make informed

decisions. I also met regularly with

the lead partners from Deloitte, the

external auditor, as part of my ongoing

review of their effectiveness.

To help the Committee meet its

oversight responsibilities, several

knowledge sessions were held

during 2022 on key areas including

cybersecurity, data privacy, financial

and IT general internal controls (and

related improvement programme)

and proposed regulatory reform.

In addition, the Committee was

delighted to visit the Global Business

Services (GBS) centre in Lisbon, to gain

insight into the operations which were

set up in 2020 as part of Convatec’s

transformation and simplification

programme. In 2023, we will continue

to review progress in the GBS as

additional geographies and activities

are transitioned to it, processes

mature, and as we prepare for the

changes in corporate governance

and regulatory requirements.

Despite offering to be available for

meetings, no direct meetings with

Convatec shareholders were held

during 2022, with the exception of

regular interactions with Sten Scheibye,

Novo’s representative, and a Non-

Executive Director. During 2023, I will

seek direct engagement with key

investors on financial reporting, risk

and assurance planning as we prepare

for the proposed corporate governance

changes in anticipation of their

implementation for the financial

year ending 31 December 2024.

In July 2022, the Chair received a letter

from the FRC in respect of its review

of the Company’s Annual Report

and Accounts for the year ended

31 December 2021. The review was

based solely on the financial

statements without any detailed

knowledge of the business or the

underlying transactions, and did

not result in any specific questions

or queries. They did, however, note

a number of matters where they

believed that users of the accounts

would benefit from improvements to

certain existing disclosures, including

changes to the wording of certain

accounting policies, disclosures of

tax losses by expiry date and more

disclosures on restricted cash, leases

and Alternative Performance Measures

(APMs). The Committee reviewed

management’s proposed responses

in respect of each matter raised and

agreed amended disclosure notes

where applicable in the 2022 ARA,

having also considered the views

of the external auditor.

We welcomed Jonny Mason as

CFO and supported him during his

induction period. During 2022 Jonny

has focused on simplifying processes,

managing risk and delivering in line

with the FISBE strategy. The

Committee has developed a very

effective, transparent and trusted

relationship with Jonny.

I would like to thank my fellow

Committee members and all teams

involved with the Committee’s activities

for their contribution during 2022 and

their relentless focus on quality, sound

judgements, controls and risk in a

challenging global environment,

politically and economically.

I hope that you find this report

informative and responsive to

shareholders’ and other stakeholders’

expectations and can take assurance

from the work undertaken by the

Committee during the year and

planned for 2023.

Overview

Strategic report

Financial statements

Additional information

127

Convatec Group Plc Annual Report and Accounts 2022

Governance

OUR ROLE

•

Interim and full-year results

statements, prior to

recommendation to the Board

for approval, together with

supporting reports from CFO and

VP, Group Finance Controller

highlighting all key judgements

and estimates

•

External auditor reports to the

Committee at each Committee

meeting, regarding audit plan and

progress in implementation,

interim review and full year audit

•

Final draft 2022 ARA, the external

auditor’s and management

reports on all key judgements

•

Appropriateness of going concern

and viability assessments,

including basis of preparation and

management reports on all key

judgements, risk scenarios and

underlying assumptions,

supporting analysis and evidence

•

Acquisition papers and related

accounting treatments and

judgements, including assessment

of earn-outs and impact on the

recognition of deferred tax,

particularly in respect of the

acquisition of Triad Life Sciences

•

Accounting treatment and

provisions for the costs and

contract breaches associated

with the closure of our facility in

Review and challenge

judgements, estimates

and policies

Review appropriateness

of the going concern and

viability statements

Advise Board on fair,

balanced and

understandable

Integrity of the

published financial

information

Belarus alongside the

discontinuation of associated

Russia activities

•

Policy for APMs and review of

proposed adjusting items for

rationale to be considered as

non-recurring items

•

Group’s treasury policy, regular

treasury activity and funding

status updates, funding strategy

and debt covenant compliance

at relevant reporting dates

•

Group’s key tax risks, effectiveness

of related controls and mitigations

and tax transparency agenda,

including the Company’s

published Tax Strategy Statement,

subsequently approved by

the Board

•

Estimated effective tax rates

applied in interim and full-year

financial statements, judgements

and disclosures in respect of

underlying key tax issues/risks

•

Progress of the Finance

Transformation programme,

the implementation of the

target operating model and

the standardisation of activities

transitioned to GBS

•

Monitoring of the continuing

effectiveness of internal controls

and the internal control framework

improvement programme

SCOPE OF REVIEW BY THE COMMITTEE

Significant audit risks and accounting judgements

Audit and Risk Committee report

continued

Governance

2022 KEY MATTERS

Matters considered at the meetings

are set out on pages 129 to 135.

The Committee meeting agendas

are tailored to ensure that emerging

topics are included and to allow

for ad hoc discussion and reviews.

A summary of the Committee’s

activities during 2022 and until

the date of this report is detailed

on the following pages.

Annual review

During the year, the Committee

members and regular attendees

(including the internal and external

auditors) undertook an evaluation

of the Committee’s effectiveness. An

external provider, Lintstock, prepared

(with input from the Committee chair

and Deputy Company Secretary) and

provided participants in the evaluation

with a questionnaire (different

questionnaire for Committee

members to that provided to other

evaluation participants). Lintstock

also collated and summarised the

responses, but without drawing

conclusions. The findings and

proposed responses were discussed

initially by the Committee and then

shared with the Board. Overall, it

was concluded that the Committee

continued to perform very effectively

and had addressed its key priorities

and action plan for 2022, with priority

areas of focus for 2023 also identified.

The significant operational and

financial issues and risks which may

impact the Company’s financial

statements, internal controls and/or

delivery and execution of the

Company’s strategy were considered

by the Committee when planning its

agenda and reviewing the audit plans

of internal and external auditors.

The Committee used its collective

expertise to challenge the approach

and judgements made by management

in the accounting treatment and

valuation of financial matters,

and the resulting disclosures. The

Committee also considered these

issues with the external auditor,

reviewing reports outlining work

performed, and any issues identified,

together with consideration of the risk

of management override of controls.

A summary of the significant areas

of audit focus, as described in the

Auditor’s Report on pages 232 to 240,

plus additional areas of key focus by

the Committee is outlined below.

Following considerable discussion and

review of each significant accounting

judgement with management and the

external auditor, the Committee was

satisfied that there were relevant

accounting policies in place in relation

to these significant issues and that

management had correctly applied

these policies and exercised

reasonable judgement.

Financial reporting

Convatec Group Plc Annual Report and Accounts 2022

128

KEY MATTERS IN 2022

Key matter

Issue

Action taken by the Committee and

outcome/future actions

Acquisitions and

Investments

As reported on pages 213 to 215, the Group acquired

Triad Life Sciences (now Advanced Tissue

Technologies or ATT) in March 2022 for an initial

consideration of $125.3 million, with potential further

contingent consideration of $325.0 million based on

two short-term milestones and the performance

during the first two years post-completion. The two

short-term milestones were both achieved in 2022

resulting in payments of $50.0 million. The valuation

of the contingent consideration has been identified

as a key estimate. Key inputs used in calculating the

fair value of the contingent consideration include a

weighted probability of different scenarios and

revenue projections based on latest available

internal forecasts, discounted using an appropriate

discount rate. Management engaged a third-party

valuation specialist to calculate the appropriate

discount rate to use in calculating the $130.8 million

discounted fair value of the remaining contingent

consideration at 31 December 2022. The potential

range of discounted outcomes with the next financial

year is between $85.2 million and $230.8 million.

In respect of the acquisition of Cure Medical in 2021,

there is total potential contingent consideration of

$10.0 million, which is based on post-acquisition

performance targets and due to be paid within three

years of the acquisition date. As at 31 December 2022,

the discounted fair value of the contingent

consideration was $9.2 million (2021: $3.1 million),

with the increase arising as a result of good

performance during 2022 together with the latest

financial forecasts, and the unwinding of the

discount during the year.

In May 2022, the Group invested $30.7 million in

preference shares of BlueWind Medical Limited,

inclusive of transaction costs. The equity investment

is held at fair value in the Consolidated Financial

Statements, with any changes in fair value taken to

Other Comprehensive Income. Management engaged

with a third-party valuation specialist to calculate

the fair value at 31 December 2022, which has not

changed since the date of investment.

The materiality of the acquisition of Triad Life Sciences

poses a significant financial risk related to the

accounting for this transaction. To address this risk, the

Committee compared the performance of Triad Life

Science’s latest forecasts with the assumptions in the

acquisition business case, considered the work

undertaken by the external valuation experts and

discussed with Deloitte the results of their audit of the

transaction accounting. The Committee reviewed and

challenged the key drivers of the valuation of intangible

assets identified, the fair value uplift of inventory

acquired and the resulting value of goodwill. The

Committee also ensured that the implications of the

potential maximum consideration were reflected in

management’s going concern and viability assessments.

The Committee reviewed the basis for determining the

increase in the contingent consideration liability related

to Cure Medical and concluded that it was appropriate.

In respect of BlueWind Medical, the Committee

considered the audit work performed by Deloitte and

the conclusions of the external valuation experts.

The Committee discussed these key judgements with

the auditors and considered the results of their audit

review, including the conclusions of Deloitte’s valuation

experts, and ultimately considered that the accounting

for acquisitions and investments was appropriate.

Withdrawal from

hospital care and

associated

industrial sales

business

The withdrawal from hospital care and the

associated industrial sales business has resulted

in management making assumptions related to

the costs of a plant closure, restructuring of other

impacted businesses and operations and the impact

of the contractual commitments to customers in

many markets across the globe.

The Committee reviewed the estimates and incurred

closure costs throughout the year, with particular

attention paid to those unspent at year end and carried

over as a provision. The judgements taken on items

estimated due to uncertainty were scrutinised and

challenged with management and discussed with

the external auditor.

Management ascertained that the withdrawal costs are

a non-recurring item and consequently should qualify

as an adjusted item. The Committee carefully reviewed

the non-recurring nature of the various related costs,

and their consideration as an adjusted item.

The Committee concluded that, given the status of the

withdrawal from these businesses at the reporting date,

the provisions were sensible and the costs treated as

adjusted items were categorised appropriately.

Overview

Strategic report

Financial statements

Additional information

129

Convatec Group Plc Annual Report and Accounts 2022

Governance

Key matter

Issue

Action taken by the Committee and

outcome/future actions

APMs

APMs are disclosed to enable the reader of the

financial statements to form a balanced view of the

ongoing prospects of the Group. Non-recurring items

impacting the financial statements are adjusted in

order to reflect the results of the ongoing business.

The Committee reviewed all proposed adjusting items in

detail, ensuring that they are consistent with the policy

and challenged the treatment of proposed new adjusted

items. The Committee requested additional detail in

respect of a number of new costs proposed as adjusting

items, particularly in respect of the strategy and plans

that give rise to such costs.

The Committee concluded that the adjusted items were in

accordance with the policy, and that a reconciliation to cash

conversion had been included as per the recommendation

in the recent letter from the FRC. The Committee will review

the APM policy in early 2023 to ensure that it continues to

appropriately allow the performance of the underlying

ongoing business to be reflected as management

implements the FISBE 2.0 strategy.

Management

override of

controls

There is a risk of management bias and influence on

key judgements which may materially impact the

financial statements.

The Committee reviewed the internal control framework

and its operating effectiveness, in conjunction with the

progress by the Fraud Risk Committee on the

identification and mitigations of fraud risk.

The Committee has reviewed key judgements relation to

the exit from hospital care and the acquisition of Triad

Life Sciences and considered whether there were any

indicators of management bias.

The Committee also considered the work of the external

auditor who confirmed that they had not identified

areas of material management bias or concern over

key judgements and consolidation entries.

The Committee considered they had been provided

with assurance that no material override of controls

had occurred.

OTHER IMPORTANT ACCOUNTING AND DISCLOSURE JUDGEMENTS

The Committee considered the key risks, facts and judgements for the following areas:

Matter

Action taken by the Committee

Outcome/future actions

Going concern

and viability

statements

The Committee reviewed the appropriateness of the going

concern basis of accounting in preparing the interim and full-

year financial statements and assessed the longer-term

viability of the Group in accordance with the requirements of

the Code.

In reaching its view, the Committee considered the process and

methodology adopted by management and the principal and

emerging risks and their potential impact, and also challenged

the appropriateness of the three-year viability period. The

forecasts, stress test scenarios, including the underlying

scenario assumptions and the reverse stress test, were

reviewed and assessed against the Group’s financing facilities

and covenants. In addition, the Committee obtained a

summary of external views from analysts and other industry

commentators, to understand the wider market views on the

Group’s future financial performance and viability, and the

external auditor’s findings and conclusions on this matter.

The Committee also considered the adequacy and accuracy of

the disclosures in the 2022 ARA in respect of the Group’s ability

to continue as a going concern and its future viability.

Following this thorough assessment,

the Committee recommended additional

assumptions related to a significant cyber

incident scenario and sanctions being

applied to certain geographies in response

to the macroeconomic market distress

scenario. Having taken these

recommendations into account, the

Committee considered the scenarios

applied were severe but plausible and the

extent of the analysis made by management

to be appropriate and recommended the

viability statement and related disclosures

and the going concern statement to the

Board for approval and inclusion in the

2022 ARA.

Recognition of US

deferred tax assets

(DTAs)

The Committee reviewed the revised position, following the

acquisition of Triad Life Sciences, in relation to the recognition

of DTAs in respect of US tax losses. The Committee sought

explanations as to how the acquisition of Triad Life Sciences

gave rise to new deferred tax liabilities which provided a

justification for additional recognition of the Group’s DTAs

in the US. The Committee considered the assessment and

conclusion of the external auditor.

The Committee agreed with management’s

proposal for additional recognition of US

DTAs in light of the new deferred tax liability

profile arising from the acquisition of Triad

Life Sciences.

Governance

Audit and Risk Committee report

continued

Convatec Group Plc Annual Report and Accounts 2022

130

Matter

Action taken by the Committee

Outcome/future actions

Dividends and

distributable

reserves

The Committee reviewed the analysis of realised distributable

reserves and the availability of liquidity, including the effect of

sensitivities aligned to the viability statement.

The Committee considered the proposed dividend with

reference to the proposed enhanced dividend and

distributable reserves requirements of the Government’s

proposals (in response to the BEIS consultation on corporate

governance reform).

The Committee concluded that it was able to

advise the Board that there were sufficient

realised distributable reserves and cash

resources to enable the Board to approve

the 2022 interim and final dividends.

Operating segment

reporting

The Committee considered management’s assessment to

support the position that, for the purposes of financial

reporting, no triggers have been identified that contradicted

the view that the Group’s business should be treated as a single

segment entity. Management’s assessment concluded that the

CEO continues to be the Chief Operating Decision Maker, and

the business continues to operate in a matrix structure.

Financial information in respect of revenues is provided to the

CEO for decision-making purposes, both on a category and key

market basis, with the primary focus of financial reporting

based on the consolidated Group results.

With reference to IFRS 8, the Committee

noted the resource allocation continues

to be driven with the support of global

functions and Centres of Excellence, and

consequently agreed with management’s

view that the Group should continue to

report as a single segment for the purposes

of the disclosures in the 2022 ARA.

The Committee will continue to review

the appropriateness of the single-segment

approach as the Group completes its

pivot to the new operating model and

improvements are made to the internal

management reporting process, including

allocation of central costs.

DISCHARGE OF OTHER KEY AREAS OF RESPONSIBILITY

Throughout the year, the Committee addressed its other key areas of responsibility contributing to its ability to provide

assurance to the Board that it could conclude on the effectiveness of the Company’s internal controls, compliance, fraud

prevention and risk management processes throughout the year.

Our role

Items reviewed

Outcome/future actions

Enterprise risk management

and insurance

• Assist the Board to

establish and articulate

overall risk appetite,

oversee specific risk

exposures and mitigations

and ensure Group is

operating within the

Board’s risk appetite

• Ensure a robust

assessment of principal

and emerging risks has

been undertaken, with

effective mitigations and

controls established

• Monitor the policies and

process for identifying new,

emerging and existing risks,

and effectively managing

their impact on the Group

•

Review effectiveness of the

Company’s risk management

systems and processes

• Review of the annual

insurance renewal strategy

and programme to assess

coverage of insurable risks

across the Group

• Principal and emerging risks, including

the interim and full-year risk management

statements and disclosures

•

Update to the risk management policy

• Effectiveness of the Group’s risk

management processes

•

Progress in improving the risk management

framework and reporting

•

Updates on the management of cyber and

data privacy risks

• Proposed risk appetite for subsequent

consideration and approval by the Board

•

Support to evidence the Group had operated

within the Board-approved risk appetite and the

Group’s strategy and three-year strategic plan

were consistent with the Group’s risk appetite

•

Viability of the Group over the next three years

considering severe but plausible scenarios of

impact of the Group’s principal risks

• Annual insurance renewal programme,

subsequently approved (other than Board-

approved Directors’ and officers’ liability

insurance)

• Monitoring of the implementation of

additional resilience uplift programmes

across the Group in response to insurance

programme reviews and recommendations

The Committee noted the continued

improvements to the risk framework following

the refreshed approach initiated in 2019,

including the way in which risks are identified,

managed and reported to CELT, the Committee

and the Board.

The Committee supported the elevation of the

political and economic risk given the external

global events (including the implications of

significantly increased inflation and interest rates).

The Committee reviewed the progress in

implementing improvements to the management

of cyber and data privacy risks, on a quarterly

basis, and the results of the oversight survey

conducted in 2022. The Committee concluded

that, despite some slippage in management’s

cyber risk strategy implementation, good

progress had been achieved, including improved

cyber defence capabilities and improvements

in the IT controls and risk profile.

The Committee reviewed the proposed insurance

renewals programme, and scrutinised areas

where the extreme total loss scenario exceeded

the maximum insurable loss.

The Committee was encouraged by the plan

to strengthen the enterprise risk management

process and continued investment in capital

and operational programmes which enhance

our business resilience, and to develop a rapid

response team to respond to incidents in order

to manage certain risks leading to the potential

reduction in the cost of insurance cover.

The Committee requested a knowledge-

sharing session covering the Group insurance

programme prior to the renewal in 2023 and a

review of alignment between insurable risks

and insurance policy cover.

Overview

Strategic report

Financial statements

Additional information

131

Convatec Group Plc Annual Report and Accounts 2022

Governance

Our role

Items reviewed

Outcome/future actions

Internal controls

• Promote and review sound

risk management and

internal control systems

over financial, operational

and compliance processes

• Review the effectiveness of

internal controls

• Quarterly updates of management’s

self-attestation of compliance with the

Group’s financial control framework,

including details of control failures (all

immaterial during 2022), their remediation

and the independent reviews by the Group

Financial Control function

•

Deep dive on the updated internal control

framework and the controls improvement

programme

•

Internal audit reviews of financial and

operational controls in a number of

countries and businesses with agreed

remediation plans (compliance controls

are discussed below)

•

Reports from the external auditor on control

weaknesses identified during their audit

The Committee reviewed the proposals to refresh

the financial control model to focus on risk and

requested a deep dive to understand and challenge

the new internal control framework (see case study).

The Committee is pleased to note the improvements

in the internal control framework in 2022 and in the

results of the self-attestations and independent

reviews of control evidence.

Based on the deep dive and the quarterly updates,

and the reports from the internal and external

auditors, the Committee noted that the Group’s

internal controls and risk management processes

were monitored throughout the year, with no

control failures that could have a material impact on

the Group’s financial statements. and mitigating

actions taken until control failures were remediated.

Compliance, including

whistleblowing and fraud

• Review the Group’s codes,

policies, systems and

controls in respect of fraud,

bribery, corporate conduct

and regulatory and legal

compliance

• Reports on the global compliance

programme, monitoring processes,

compliance control testing, issues, and

litigation matters from the Deputy

General Counsel and the Global Chief

Compliance Officer

•

Reports on the cases raised via the

confidential Compliance Helpline for

employees and certain third parties to report

misconduct or policy deviations with analysis

of the volume of cases triaged, investigated

and resolved by the Office of Ethics &

Compliance, and a summary of the subject

matters, locations and disposition of

whistleblower matters and any consequent

enhancements to our non-retaliation policy

•

Updates on the global business risk

assessment review focusing on commercial

relationships performed by the Office of

Ethics & Compliance, supported by

Internal Audit

•

Updates on the fraud risk assessment and

the development of the fraud risk

management framework and associated

control programme managed jointly by the

respective Vice Presidents for Internal Audit

& Enterprise Risk Management and the

Office of Ethics & Compliance and Group

Financial Control

The Committee considered the results of the global

business risk assessments across a number of key

global markets that determined the overall

existence of an ethical business culture; however,

targeted enhancements to certain third-party

business partner relationships were required.

Executive leadership is continuing to further develop

corporate culture throughout the Group and to

ensure adherence to global policies and procedures.

In addition, the Committee noted positive

compliance culture results from the high-level risk

assurance initiative in which ten compliance risk

areas are self-evaluated by key business leaders

and tested by the Office of Ethics & Compliance in

partnership with Enterprise Risk Management,

and in which most improvements related to

resource management.

The Committee was pleased to note the ongoing

development of the global fraud risk programme

to monitor fraud risk effectively across the Group,

and the implementation of the associated

controls programme.

The Committee continues to monitor our

compliance culture across the Group with strong

focus on markets which have an enhanced

perceived corruption index risk score.

Governance

The Group implemented a global

internal control programme in 2019

to support the Directors’ related

statements in the Annual Report

and Accounts. Aligned to COSO, the

framework is primarily focused

currently on financial reporting

risks and comprises the key

elements, including Entity Level

Controls, controls over the financial

processes and IT general controls

over the financial systems, and is

supported by a control monitoring

programme including self-

assessments, independent

assessments and quarterly updates

to the Committee. In 2022, the

framework was refreshed to

provide a focus on risk, including

the introduction of a lighter

framework for the smaller operating

entities, with controls more closely

aligned to the financial reporting

’close’ process.

In October, the Committee requested

a knowledge session to understand

the refreshed control framework,

including the monitoring and

assurance processes, to provide the

basis for the Directors’ statement in

relation to internal control, and to

assess the readiness of the Group for

the forthcoming proposed FRC-

related changes to the Code.

The Committee noted that the high

level of operating effectiveness,

recorded by the self-assessment

process, was supported by the

monitoring process by the Financial

Controls team, with a significant

improvement in the quality of

controls evidence.

The Committee was assured that

the recent development towards a

more risk-focused controls

framework had been appropriate

and that the proposed roadmap to

extend the internal control

framework to manage additional

risks (e.g. non-financial data) to

address the BEIS requirements was

achievable. The Committee will

review the assurance of the internal

control programme in the light of

BEIS guidance in 2023.

CASE STUDY: INTERNAL CONTROL

Audit and Risk Committee report

continued

Convatec Group Plc Annual Report and Accounts 2022

132

The Board:

Ultimate responsibility for internal control

Audit and Risk Committee:

Oversight of internal control framework

Tax, Treasury and Finance Committee:

Oversight of tax and treasury matters and

liabilities

Senior management:

Delegated responsibility for internal control

Our role

Items reviewed

Outcome/future actions

Regulatory compliance –

ESG and TCFD

• Review and approve the

TCFD disclosures and

oversee the Responsible

Business report (pages

40 to 87)

• Approve the appointment

of Deloitte as the ESG

assurance partner and

review their report

•

Progress on the enhancements to the

ESG governance and framework, to enable

compliance with the increasing stakeholder

and regulatory reporting disclosure

requirements

•

The disclosure benchmarking assessment

against other listed groups and sector peers

•

Results of the Scope 3 emissions materiality

study and the strategy to develop Scope 3

science-based targets

•

Monitoring of the progress to develop

scenario analyses of climate-related physical

and transition risks and opportunities

The Committee remained focused on ESG and

TCFD reporting during 2022, providing challenge

to management to meet the increasing reporting

requirements and stakeholder expectations and

develop quantitative targets.

The Committee is encouraged by the significant

progress made during 2022 as environmental

targets are developed, and the Group has started

to deliver against them. The Committee will

continue to monitor progress and ensure that

robust plans and roadmaps are in place to meet

the commitments and targets.

The Scope 3 materiality study findings were

reviewed and assessed by the Committee as a

key building block to developing and committing to

science-based targets in 2023. The Committee will

continue to monitor progress on how the Group

works with its suppliers to develop and deliver

Scope 3 reduction targets going forward.

The appointment of an independent expert adviser

on key ESG topics was approved by the Committee

to assist with the development of quantitative

targets and initiatives to meet these targets, as well

as the response to the ongoing development of

reporting requirements. The Committee approved

the appointment of Deloitte as ESG assurance

partner, after considering that it did not impact

on their independence as external auditor.

The three lines of defence model summarises the roles and responsibilities for our internal control framework around

the Group to ensure that the financial statements are free from material misstatement.

Business operations

•

Identify, assess and manage

financial risks on an ongoing

basis, including maintenance

and operation of the internal

control framework to mitigate

key risks

• Self-assess on operating

effectiveness of key controls

through the control monitoring

programme.

Group financial control

and IM governance, risk

and control

•

Support the business in their

financial risk, IT risk and control

management including setting

relevant policies, reviewing the

risk assessment, advising the

business on controls and

establishing the key controls

•

Report on the operating

effectiveness of the control

framework (self-attestation and

controls monitoring including

reviewing the quality of control

evidence on a sample basis).

Internal audit

• Provides independent

assurance over the design and

operating effectiveness of the

Group’s Internal control

framework.

External audit

•

Reviews controls relevant to

the external audit approach

and report to management

on control improvements.

Risk ownership

1st line of defence

Challenge

2nd line of defence

Assurance

3rd line of defence

THREE LINES OF DEFENCE

Overview

Strategic report

Financial statements

Additional information

133

Convatec Group Plc Annual Report and Accounts 2022

Governance

Our role

Items reviewed

Outcome/future actions

Internal audit

• Monitor and review the role

and effectiveness of the

internal audit function,

ensuring the internal audit

plan is aligned to the key

risks of the business and

that the function is able to

provide support and

assurance to the Board,

Committee and

management in the

execution and delivery of

the Group’s strategy and

transformation and

effectiveness of its internal

controls and processes

• Annual internal audit plan, resourcing

and budget, subsequently approved

• Reports summarising conclusions and

recommendations made following internal

audit and progress of implementation of

agreed management actions

•

Effectiveness of the Group’s internal audit

function and processes

The Committee considered the results of the

audits conducted during the year (particularly

any emerging themes of concern) and approved

changes to the audit plan to reflect changing

circumstances or risks.

The Committee approved the proposed 2023

internal audit plan, which had been prepared

adopting a risk focused approach, using the

Group’s principal and emerging risks as a base.

In December, the Committee undertook an

assessment of the effectiveness of the internal

audit function, including obtaining feedback

from CELT members and other relevant

Management to understand if they feel that

they are receiving the assurance they need on

the key risks communicated by the VP Internal

Audit & Enterprise Risk Management directly with

the CELT. Both management and the Committee

concluded that the quality and effectiveness of

the internal audit function continued to improve

in 2022.

Looking forward to 2023, the Committee will

ensure that the internal auditor function remains

independent, whilst responding to the ’pull’ from

management for increased support and audits,

providing independent assurance across an

appropriately balanced portfolio of audits

covering financial controls and processes and

key areas of risk, with some advisory support,

particularly to assist the Group in improving

its second line of defence capabilities.

The Committee will also review the scope of

assurance to be obtained from internal audit as

the Audit and Assurance policy is developed in

line with the expected changes to the corporate

governance regulations.

Governance

Audit and Risk Committee report

continued

Convatec Group Plc Annual Report and Accounts 2022

134

Our role

Items reviewed

Outcome/future actions

Regulatory developments

• Monitor the development

of regulations relating to

ESG, TCFD, climate change,

audit and corporate

governance, FRC and FCA

reporting requirements

• Consider management’s

preparedness to adopt the

changing requirements

• Briefings and discussion on the

Government’s and FRC’s responses to the

BEIS Audit and Corporate Governance

reform proposals

•

Review of the internal plan to develop

and adopt the new requirements within

the Group

•

Review of developments in ESG and TCFD

requirements

• Review of management’s assessment of

thematic reviews issued by the FRC during

2022 (including ESEF requirements)

The Committee requested a briefing from the

external auditor regarding the status of the BEIS

proposals following the Government response

to the “Restoring trust in audit and corporate

governance” consultation and the auditor’s views

on the group’s key challenges in implementing

the likely reforms and the appropriateness of

management’s implementation plans.

Although the many requirements still lack clarity,

the Committee was satisfied that the current

plans (to focus on no-regret actions, which

improved the control environment of the Group)

were appropriate to enable the relevant teams

to progress, whilst monitoring further guidance

as it is released.

Treasury

• Provide oversight of the

treasury function

• Review activities of the

treasury function including

the status of the treasury

instruments, the

indebtedness of the

Group and compliance

with covenants within its

debt instruments

•

Review of the proposed (and subsequently

completed) refinancing of the Group’s bank

facilities

•

Monitoring of the implementation of the

treasury management system

• Group’s treasury policy (approved) and

review policy compliance at relevant

reporting dates

The Committee reviewed the proposed

refinancing and recommended it to the Board

for approval.

The Committee reviewed compliance with

covenants and other conditions of financing

arrangements.

The introduction of the Treasury, Tax and Finance

Committee was considered by the Committee to

be a key development to align these key finance

disciplines, and will lead to improvements to

governance, control and risk mitigation.

Tax

• Provide oversight of the tax

function

• Review the key aspects of

taxation, including

compliance, accounting

judgements, reporting, tax

strategy and the external

reporting requirements of

regulators and tax bodies

• Global tax strategy

• Company’s published tax statement, which

was subsequently approved by the Board

•

Tax rates applied in the interim and full-year

financial statements

• Judgements and disclosures in respect

of underlying key tax issues

•

The Group’s key tax risks, effectiveness

or related controls and mitigations and

tax transparency agenda

The Committee considered the Group’s tax risk

profile in light of tax authorities around the world

undertaking an increasing number of tax audits

in respect of all companies, requirement for

greater transparency and new tax legislation in

jurisdictions where the Group has presence and

was satisfied that the Group manages its tax

affairs carefully, ensuring that we operate

within our tax risk appetite.

The provision for uncertain tax positions was

reviewed by the Committee and considered to be

in line with the requirements of IFRIC 23.

The Committee was concerned with the

significant changes in the actual and effective

tax rates to be applied during the year compared

to the guidance previously shared, and requested

a detailed explanation. The Committee was

satisfied with the analysis of the tax position by

management demonstrating the impact of the

Triad Life Sciences acquisition on the US deferred

tax liability.

Overview

Strategic report

Financial statements

Additional information

135

Convatec Group Plc Annual Report and Accounts 2022

Governance

EXTERNAL AUDIT

Audit process

The Committee is responsible for overseeing the relationship with the external auditor, the audit process and, most

importantly, the effectiveness and quality of the audit. The following table summarises the steps taken by the Committee

in overseeing the effectiveness of the 2022 audit and its quality.

Significant matters for review

Decisions and actions taken by the Committee

The annual audit plan and strategy

including the scope of the audit,

changes in approach and

methodology, emerging industry

and Group-specific risks and change

in the audit leadership team

Reviewed and challenged the proposed audit plan, and agreed the addition of the

accounting for the acquisition of Triad Life Sciences as a significant risk due to the

judgements associated with the contingent consideration, and the removal of revenues

as a significant audit risk.

Challenged the structure of the audit to centralise certain audit activities in Lisbon to

leverage the Group’s GBS operating model and simplify the management of the audit.

Materiality level for audit including

Group materiality and component

materiality

Reviewed methodology and agreed a higher level of materiality for 2022. In reaching this

conclusion the Committee agreed with the auditor that the methodology applied in 2021

(based on improved forecast profitability) remained appropriate and should be adopted.

Audit fee and terms of engagement

Approved the audit fee and terms of engagement, ensuring no impact on scope of audit

or quality of resource engaged due to the agreed fee level.

The Committee noted that the regulatory change ISA 315 (Identifying and Assessing the

Risks of Material Misstatement through Understanding the Entity and its Environment)

and resource inflation had an impact on audit cost.

Deloitte has also been engaged to provide limited assurance on ESG data in 2022.

Audit scope and risk assessment

Further to the challenge by the Committee in 2021 to align to the Group strategy, all 12 of

the Group’s focus markets were in audit scope – five were subject to full scope audit

procedures, four had the material components subject to specified audit procedures, and

three were subject to local statutory audits by Deloitte, with desktop reviews undertaken

by the central audit team.

Deloitte undertook a thorough risk assessment process to identify the three areas of

significant audit risk and other areas of audit focus. The Committee sought an explanation

for the change in emphasis and particularly the downgrading of risks considered

significant in 2021 and agreed with Deloitte’s proposals. The Committee did not identify

additional risks that could materially impact the consolidated financial statements.

Having considered the proposed audit scope, risk assessment and materiality level, the

Committee approved the 2022 audit plan and subsequent changes to certain aspects of

the plan to reflect the Group’s performance.

Audit findings, significant issues and

other accounting judgements

Discussed with Deloitte and management throughout the year, and particularly during the

year-end audit.

Deloitte’s independence, objectivity

and quality control procedures

Independence and objectivity confirmed and quality control procedures reviewed

(see below).

Audit quality and effectiveness

The Committee is very focused

on audit quality and effectiveness,

ensuring the rigour and challenge

of the external audit process are

maintained. The Committee sought

to ensure the objectivity and quality

of the external audit throughout the

year by meeting regularly with the

audit partners (with and without

management present) and considering

the quality and clarity of the auditor’s

communication with management, the

Committee and the Board, both orally

and written. The Committee formally

reviewed the quality and effectiveness

of the external audit in December,

taking into consideration

management’s conclusions. The

formal review process and key areas

of focus are outlined in the diagram

on page 137.

In particular, the Committee assessed

the depth of review and the level of

challenge provided by the external

auditor over the significant accounting

policies applied and the judgements

and estimates made by management.

An example of where the Committee

observed the external auditor to

demonstrate both professional

scepticism and a challenge to

management was in relation to the

valuation of the provisions associated

with the withdrawal from hospital

care. The external auditor discussed

the basis of the estimates for the

provisions with key stakeholders

and was eventually satisfied with the

provisions recognised. The Committee

also considered the summary of the

issues raised by the FRC from their

Audit Quality Inspection of the

external auditor, how the issues

identified impact the audit of the

Convatec Group, and the actions

being taken by the external auditor

to address the issues raised. The

Committee was pleased with the

introduction of a new key audit

partner, with specific experience of

auditing groups with global business

services facilities and noted his

responsibility for leading the GBS-

based audit activities.

The Committee’s review concluded

that the Company benefited from a

capable and knowledgeable senior

audit team, that provided the

Committee with strong opinions, views

and insights, with clear evidence of

robust challenge of management and

exercise of appropriate scepticism in

relation to key audit judgements and

estimates, reliable interpretation of

evidence provided by management

and use of external sources to support

their conclusions when appropriate.

Overall, the results of the external

Governance

Audit and Risk Committee report

continued

Convatec Group Plc Annual Report and Accounts 2022

136

PROCESS TO REVIEW EFFECTIVENESS OF THE EXTERNAL AUDITOR

Review and discussion:

audit quality and effectiveness review

and the evidence gathered by the

Committee during the year confirm

that Deloitte’s audit process and

procedures were appropriate and

effective, focused on the areas of

greatest risk and that the audit

team provided an effective, robust

and objective challenge to Group

management. Based on the

Committee’s conclusions, we

recommended to the Board

that Deloitte be proposed for

reappointment by shareholders at

the AGM to be held on 18 May 2023.

Audit independence

The Committee ensures objectivity

and independence of the external

auditor through the policy on the

provision of non-audit services, which

is compliant with the Revised Ethical

Standard (2019 ES). The policy requires

non-audit engagements performed by

the external auditor to be approved by

the Committee. Permissible services

are subject to a fee cap of 10% of

average audit fees billed to the

Company by the auditor in the past

three financial years. The Group was

compliant with the policy in 2022,

when non-audit fees principally

related to the interim review of the

Group’s half-year unaudited financial

statements. A summary of fees paid to

the external auditor is set out in Note 3

to the Financial Statements.

In addition, the Committee’s review

of the independence of the external

auditor included:

•

Confirmation to the Directors

from Deloitte that they remained

independent and objective within

the context of applicable

professional standards

•

Monitoring the tenure and rotation

of the lead and engagement

partners. Claire Faulkner rotated

into the role of lead partner in 2021

and the Committee is very happy for

her to continue in this position for

the next three years. After

completing the permissible seven

years’ service on the Group’s audit

this year, Dawn Harris will hand the

role of engagement partner to

David Holtam for 2023, who will

also continue leading the GBS audit

•

Monitoring the tenure and rotation

of other key personnel

•

Observing the relationship and

tone of communication between

management and the auditor

• Deloitte reconsidering and

reconfirming their audit

independence under 2019 ES given

Margaret Ewing’s situation as both

a former partner of Deloitte LLP

and chair of this Committee, with

Deloitte and the Committee

(excluding Margaret Ewing)

concluding that this relationship

does not affect the external

auditor’s independence

The Committee concluded that

Deloitte remained appropriately

independent in the role of external

auditor.

External auditor appointment

and engagement tender

At the AGM on 12 May 2022,

shareholders approved the

reappointment of Deloitte as the

Group’s external auditor. Deloitte

has been the Group’s external auditor

since the Company’s listing in October

2016 and prior to this were the

Company’s external auditor for the

period 2008 to 2016. The Committee

recommended to the Board the

proposal to reappoint Deloitte as

external auditor at the 2023 AGM.

In compliance with the 2014 Order,

the Company will undertake an audit

tender (not mandatory rotation) during

2024, effective for the 2026 audit.

However, the Committee will review

this matter annually, taking into

consideration the ongoing provision

of a high-quality and effective audit,

changing regulations and market

practice. The audit tender process will

be designed to adopt market and best

practice and it is anticipated that

challenger or second-tier audit firms

will be invited to participate along with

major audit firms.

Objectivity

Quality and clarity of communication

Level of challenge over policies,

judgements and estimates

Capability and understanding of the business

Survey

completed

by finance

leaders

Report of

survey

responses

Review and

discussion by

management

Review and

discussion by

Audit and Risk

Committee

Directors’

Statement in

the ARA

Discussion

with external

auditor and

agree actions

Overview

Strategic report

Financial statements

Additional information

137

Convatec Group Plc Annual Report and Accounts 2022

Governance

FAIR, BALANCED, AND

UNDERSTANDABLE

The Board is required to provide its

opinion on whether it considers that

the Company’s 2022 ARA taken as a

whole are fair, balanced and

understandable, and provide the

information necessary for

shareholders and other stakeholders

to assess the Company’s position and

performance, business model and

strategy and key risks that challenge

the Group.

To support the Board in providing its

opinion, the Committee considered

the overall cohesion and clarity of the

ARA and assessment of the quality of

reporting through discussion with

management and the external auditor

and the assurance framework, process

and controls that were applied in its

preparation. This included:

•

a verification process dealing with

the factual content

• comprehensive reviews undertaken

independently by senior

management to consider

messaging, adequacy of disclosures,

compliance with regulatory and

legal reporting requirements,

and balance

•

specific reviews by the Board and

CELT in relation to key sections of the

ARA and relevant sections of the ARA

as audited by Deloitte

• confirmation from management

that the assurance framework had

been adhered to for the preparation

of the 2022 ARA

Committee conclusions and

confirmations

Taking into consideration all areas of

focus of the Committee during the

year and in reviewing the 2022 ARA,

including reviewing the supporting

detailed topic papers, presentations

and reports from management, the

Committee is satisfied that:

•

The Financial Statements for the year

ended 31 December 2022 have been

prepared applying appropriate

accounting policies and address the

critical accounting judgements and

key sources of estimation uncertainty,

both in respect of the amounts

reported and the disclosures made

•

The significant assumptions used for

determining the value of assets and

liabilities have been appropriately

scrutinised and challenged and are

sufficiently robust

•

The Group’s internal controls and

risk management processes were

monitored throughout the year,

with management continuing to

implement further improvements

in 2023

•

The conclusions in relation to critical

accounting judgements, significant

assumptions and estimates and key

valuation assumptions are in line

with those drawn by the auditor,

having discussed them with the

auditor during the audit planning

process and at the finalisation of

the year-end audit and following

robust challenge of both the

auditor and management

Consequently, the Committee has

confirmed to the Board, in its advisory

capacity, that:

•

The key accounting estimates,

judgements and disclosures

within the Financial Statements

are appropriate and serve to

provide a true and fair view

•

The 2022 ARA, overall, are fair,

balanced and understandable.

The Board’s statement in relation

to this confirmation is included on

page 165

•

It is reasonable for the Directors to

make the viability statement and the

going concern statement on pages

98 and 99 and pages 172 and 173

•

The Group’s whistleblowing and

fraud risk processes have operated

effectively during the year, with

further improvements to be

implemented during 2023

The Board is able to provide the

statement regarding the effective

operation throughout the year of the

Group’s internal controls and risk

management processes in the

2022 ARA.

Margaret Ewing

Chair of the Audit and Risk Committee

8 March 2023

Governance

Audit and Risk Committee report

continued

Convatec Group Plc Annual Report and Accounts 2022

138

Directors’ Remuneration report

A word from

the Chair

“The Committee completed an extensive

consultation exercise in 2022 and would like

to thank everyone who participated for their

valuable feedback and contribution to shaping

our Remuneration Policy proposals.”

COMMITTEE INTRODUCTION AND OVERVIEW

COMMITTEE MEMBERSHIP, MEETINGS AND

ATTENDANCE

The table below shows the number of scheduled meetings

attended out of the number of meetings members were

eligible to attend during 2022.

Director

Member since

Attended

Brian May¹

March 2020

5/5

Constantin Coussios

January 2022

5/5

Kimberly Lody

February 2022

3/4

Sharon O’Keefe

March 2022

4/4

Rick Anderson

(member until 3 March 2022)

September 2020

2/2

Regina Benjamin

(member until 12 May 2022)

June 2019

2/2

Mr May was appointed Chair of the Committee on 1 September 2020

There were three appointments during the year: Constantin

Coussios was appointed on 27 January 2022, Kimberly Lody

was appointed on 1 February 2022 and Sharon O’Keefe was

appointed on 1 March 2022. Rick Anderson and Regina

Benjamin stepped down from the Committee due to their

resignation from the Board.

The Deputy Company Secretary attends meetings as the

Secretary to the Committee. The Chair, CEO, CFO, EVP Chief

Human Resources Officer & ESG Stewardship and VP Global

Head of Total Rewards & Recognition attend meetings of

the Committee by invitation, as does the Committee’s

appointed adviser. Executives are absent when their own

remuneration is under consideration.

KEY NUMBERS

Meetings held

(2021: 5)

Attendance

95%

(2021: 100%)

Brian May

Chair of the Remuneration

Committee

ACTIVITY HIGHLIGHTS

–

Ensured the remuneration arrangements for the

Executive Directors and CELT members in 2022

continue to support Convatec’s sustainable and

profitable growth strategy.

–

Kept under review remuneration arrangements and

outcomes to ensure continued alignment of executive

interests with those of other stakeholder groups.

–

Completed an annual review of the Committee’s terms

of reference versus best practice guidelines and

completed an annual performance review to support

continuous improvement.

–

Conducted an in-depth review of our Policy (ahead

of being required to put this to a binding shareholder

resolution at the 2023 AGM) to ensure that it remains fit

for purpose, aligned with our strategy, reinforces our

remuneration principles and reflects good practice.

2023 PRIORITIES

–

Continue to actively engage with key stakeholders

on remuneration matters, as appropriate.

–

Implement 2023 Remuneration Policy to deliver

competitive and motivational remuneration that

reinforces the successful delivery of our stated

strategic ambition and alignment with long-term

shareholder interests.

KEY AREAS OF RESPONSIBILITY

–

Designs, recommends and implements the Company’s

Remuneration Policy, packages for the Executive

Directors and CELT, and sets the fee for the Non-

Executive Chair.

–

Ensures appropriate alignment of executive

remuneration with the remuneration approach

across the wider organisation.

In this section you will find

Letter from the Chair of the Remuneration Committee

Pages 140 and 141

Our remuneration at a glance

Pages 142 and 143

Our Annual Report on Remuneration

How we implemented our Remuneration Policy during 2022

and how we intend to apply it in 2023. Pages 144 to 152

Our Remuneration Policy

Pages 153 to 161 set out the updated Remuneration Policy

for approval.

Overview

Strategic report

Financial statements

Additional information

139

Convatec Group Plc Annual Report and Accounts 2022

Governance

LETTER FROM THE CHAIR OF

THE REMUNERATION

COMMITTEE

Dear Shareholder

On behalf of the Board, I am pleased to

present the report of the Remuneration

Committee for the year ended

31 December 2022. I would like to thank

our outgoing Non-Executive Directors

Rick Anderson and Regina Benjamin

for their service on the Remuneration

Committee and welcome our new

Committee members Constantin

Coussios, Kim Lody and Sharon

O’Keefe who joined the Committee on

27 January, 1 February and 1 March

2022, respectively.

Context and approach to

remuneration

I would like to start this letter by

thanking all our employees for their

strong commitment and contribution

in the past year. It is only through our

employees’ impressive performance that

we have been able to increase our market

capitalisation and enter the FTSE 100

during 2022. Our FISBE strategy continues

to be embedded into the organisation

and we are set to build on this growth

trajectory in 2023. We intend that our new

policy proposals will allow remuneration

decisions that continue to support the

future success of the Company.

Shareholder consultation in

relation to 2022 AGM voting

The Remuneration Committee

recognises that a minority of

shareholders were not able to support

the Remuneration Report resolution

at the 2022 AGM. In conducting an

exercise of engagement with our

shareholders we understand that the

main point of contention was the

Committee’s decision to exclude the

impact of strategic investments on

financial outcomes under the 2019

long-term incentive plan (LTIP) award.

These investments were made in

support of the FISBE strategy and were

not yet known at the time targets for

the 2019 LTIP award were set.

The Committee continues to believe

that neutralising the impact of these

elements on performance was an

appropriate reflection of Executive

Director impact and shareholder

experience. That said, the Committee

recognises that shareholders would

have preferred a greater level of

discussion of this point in the years

leading up to vesting.

Going forward, the Remuneration

Committee is committed to positive

and proactive engagement with

shareholders, and shareholders will

note that no discretion or judgement

has been used to modify the 2020 LTIP

vesting this year (see below).

Performance in the year ended

31 December 2022 and

implications for remuneration

The Board is pleased with the

continued strategic progress of the

Group and its strong performance

in 2022. The Group delivered 6.9% and

12.2% constant currency revenue and

adjusted operating profit growth,

respectively. Further details are set

out in the Financial review on pages

30 to 38.

Based on performance, the Committee

approved payouts under the 2022

annual bonus of 73% of maximum for

the CEO and 72% of maximum for the

CFO. The Committee reviewed the

formulaic bonus outcome in the

context of the wider performance of

the Group, as well as the experience of

our stakeholders, and concluded that

there was no need to make any

discretionary adjustment.

Over the three-year performance

period, our adjusted profit before

income taxes (PBT) and total

shareholder return (TSR) performance

resulted in 77% and 92% of maximum

vesting under each metric. This means

the 2020 LTIP awards will vest at 81%

of maximum. The Committee was

satisfied that the vesting outcome

under both metrics was appropriate

given the Company’s superior

performance and so no discretionary

adjustments have been made.

Appointment of new CFO

Jonny Mason was appointed as CFO

on 12 March 2022, after Frank Schulkes

stepped down from the Board on

11 March 2022. Frank assisted the

Company through the transition

period in the early part of the year

and we thank him for his service. As

disclosed last year, the Committee

determined Frank a ‘good leaver’ and

his remuneration arrangements on

departure were in accordance with the

Remuneration Policy and plan rules.

Jonny is a seasoned CFO with an

extensive track record of

transformation and performance.

His remuneration package is

commensurate with his experience

and directly aligned with our focus

on sustainable and profitable growth.

Jonny’s salary was set at £500,000 on

appointment with a maximum bonus

opportunity of 200% of salary and an

annual LTIP award opportunity of 250%

of salary. In keeping with its stated

commitment, the Committee set the

pension allowance for Jonny to align

with the wider workforce (currently at

8.5% of salary) from appointment.

Directors’ Remuneration report

continued

Committee focus and activities in 2022

Focus areas

Activities

Policy

–

Undertook a detailed strategic review of Remuneration

Policy

–

Consulted with investors, representing the majority of

the register

–

Considered investor feedback and amended final Policy

proposals to reflect investor guidance

Remuneration packages

–

Approved Executive Director and CELT salaries for 2022

–

Approved the 2021 bonus outcomes for Executive Directors

and CELT

–

Approved 2022 LTIP award levels for Executive Directors

and CELT

–

Considered the AGM voting outcomes and completed follow

up shareholder consultation

Setting performance

targets

–

Reviewed and set financial targets for 2022 annual bonus

and 2022 LTIP, in the context of multiple internal and external

reference points for performance over the relevant period

Equity incentives

–

Confirmed outcome of the 2020 award cycle

–

Reviewed developments in the executive

remuneration landscape

Workforce remuneration

–

Received updates on workforce remuneration policies

and practices

–

Reviewed increases to salary budget in light of the

inflationary environment and global living wage levels

in all our locations

Effectiveness

–

Completed a review of our remuneration advisers and

selected Willis Towers Watson

–

Worked with Willis Towers Watson to complete the review

of our Remuneration Policy

Governance

Convatec Group Plc Annual Report and Accounts 2022

140

Proposed amendments to our

Remuneration policy

Since the announcement of Karim Bitar

as CEO in March 2019, Convatec has

grown its market capitalisation

considerably from 129 to 75 in the FTSE

at the end of 2022. Convatec has also

outperformed the FTSE 350 (excluding

investment trust) with TSR growth of

91% compared to 18% from the index

over the same period (see page 148).

Beyond share price performance, the

Group has continued its pivot towards

sustainable and profitable growth

despite considerable cost inflation

and economic headwinds.

In light of the above, and the need to

support the next chapter of the FISBE

growth strategy, the Committee

conducted a thorough review of its

Remuneration Policy during 2022.

Specifically, the review was based

on four key objectives to ensure the

new policy:

Promotes the Group’s strategy

of pivoting to sustainable and

profitable growth

Supports the delivery of long-term

value creation for shareholders

Ensures we retain high calibre

individuals and the ability to

recruit top talent in a globally

competitive sector

Acknowledges shareholder views

and evolving best practice

governance considerations as

well as the Group’s wider impact

on society

To arrive at its final proposals the

Group conducted an extensive

consultation exercise with its largest

shareholders, covering the majority of

the share register as well as a number

of proxy voting agencies. Taking into

account the feedback received, the

following amendments are proposed:

–

The alignment of the CEO’s pension

with that of the wider UK workforce

(CFO alignment already in place)

–

The introduction of a policy on

post-cessation shareholding for

Executive Directors

–

The increase of the maximum LTIP

award from 250% to 300% of salary

for the CEO (no change to CFO)

–

A selection of changes to the choice

and weighting of metrics in

incentives, namely:

–

The introduction of an organic

revenue measure in both the bonus

and the LTIP

–

The inclusion of quantifiable ESG

metrics in the annual bonus

–

The revision of the relative TSR

measure in the LTIP to include equally

weighted measurement against two

indices: the FTSE 50-150 excluding

investment trusts and the S&P

Global Healthcare Equipment

& Services Index.

In total, these changes align with the

key strategic focus areas of our revised

FISBE growth strategy, the growth of our

business since the CEO’s appointment

and the need to compete for top talent

in the global healthcare sector.

The proposed reduction in pension

contributions and the introduction

of a post-cessation shareholding

requirement are in line with

commitments made previously to align

with best practice governance. The

amendments to performance

conditions under both the bonus and

the LTIP are proposed to reflect

Convatec’s focus on sustainable and

profitable growth. In particular, the

distinction between organic revenue

growth in driving long-term shareholder

value creation and short-term results

was discussed with our major investors

during the consultation exercise. Given

the importance of encouraging both

growth in the year and consistently

over several years, the organic revenue

growth metric was included as a

measure in both schemes.

In addition, the Committee has

embedded ESG metrics in the annual

bonus to ensure focus on delivery of

our ESG agenda, with the flexibility to

evolve the definition, weighting and

targets of this measure as our ESG

strategy matures. Specifically, the

measures selected are based on

quantifiable targets aligned with our

longer-term ESG goals. We have also

reflected on the choice of TSR peer

groups in the LTIP and have updated

our approach to reflect our size and

provide an additional global sector-

related benchmark of performance.

The proposed increase in the LTIP award

for the CEO is reflective of the significant

growth and outperformance of the

business since the Policy was last

renewed. It is also reflective of the

globally competitive sector within which

the Company operates and remains

below the shareholding requirement of

the CEO which (at 400% of salary) is well

above market norms for a company of

Convatec’s size. Further details of the

measures and targets set out for 2023

awards are included below.

Remuneration in 2023 and beyond

In keeping with its stated commitment,

the Committee reduced the pension

allowance for the CEO from 15% to 8.5%

of salary to ensure all existing and future

Executive Directors are aligned with the

wider UK workforce. As a result of the

changes to our policy for 2023, the

annual bonus will be weighted at 45%

on adjusted operating profit, 25% on

organic revenue growth, 10% on

adjusted free cash flow and 20% on

strategic objectives including 5%

linked to ESG priorities.

2023 LTIP awards will be measured 50%

on adjusted PBT, 25% on organic

revenue growth and 25% on relative

TSR equally weighted against the FTSE

50-150 excluding investment trusts

and the S&P Global Healthcare

Equipment & Services Index. Further

details are set out in the Annual Report

on Remuneration, on pages 144 to 152

of this report.

Despite considerable inflationary and

wider macroeconomic challenges to

our long-term growth plans, the

Company’s financial objectives remain

ambitious. The Committee reviewed

the targets under the LTIP and

determined that in line with these

ambitions, it remains appropriate to

set a PBT growth range which requires

growth well in excess of consensus

and at the upper end of UK market

norms. The Company has therefore set

a range at 7% to 14% for the 2023 LTIP

award versus 8% to 15% last year.

Similarly, the Committee decided to

set the new organic revenue growth

range at 3.5% to 6.5% per annum which

is aligned around consensus and the

medium-term goals shared at the

Capital Markets Day (17 November

2022). The Committee will continue to

review the performance ranges very

closely on an annual basis for each LTIP

grant cycle and ensure that maximum

pay outs are only delivered if

exceptional performance and long-

term shareholder value are delivered.

Despite relatively higher rates of

inflation, the Committee decided

to moderate the salary increases for

the Executive Directors and focus on

the wider employee population due to

the cost of living pressures. As a result,

the increases to the CEO and CFO were

held at 2.5% and the average increases

to Convatec’s wider UK employee

population were at 6.2%.

Concluding remarks

On behalf of the Committee, I would

like to thank you for your support

and I trust you will find the Directors’

Remuneration report useful and

informative. I would particularly like to

thank our shareholders for their time

and feedback in consultations on our

policy renewal – the dialogue was

invaluable in shaping our proposals

set forth in this report. I hope that we

can count on your support for both the

Annual Report on Remuneration and

Remuneration Policy being put to

shareholders at the 2023 AGM.

Brian May

Chair of the Remuneration Committee

8 March 2023

Overview

Strategic report

Financial statements

Additional information

141

Convatec Group Plc Annual Report and Accounts 2022

Governance

Directors’ Remuneration report

continued

2022 annual bonus outcomes

The charts below show how actual performance contributed to the bonus payouts for the Executive Directors for 2022:

Outcome warranted by

performance: 76.7% of

maximum for this element.

Outcome warranted by

performance: 91.8% of

maximum for this element.

Annual bonus: 145.4% of salary

(£1,338,843); 72.7% of maximum

bonus opportunity. LTIP: 80.5%

maximum LTIP opportunity

(£1,894,500).

Annual bonus: 143.4% of salary

(£579,115); 71.7% of maximum bonus

opportunity. Bonus pro-rated from

appointment to the Board on

12 March 2022.

Annual bonus: 104.6% of salary

(£93,331); 69.7% of maximum bonus

opportunity. Bonus pro-rated for

the period on the Board to 11 March

2022. LTIP: 80.5% of maximum LTIP

opportunity (£823,350). LTIP

pro-rated to 8 December 2022.

OUR REMUNERATION AT A GLANCE

This section provides a summary of outcomes relating to 2022.

2020-2022 LTIP outcomes

The charts to the right show how

actual performance contributed to the

LTIP awards vesting for the Executive

Directors for the three-year period

ended 31 December 2022. Overall

the LTIP vesting outcome was at

80.5% of maximum.

2022 remuneration: outcomes

vs performance scenarios –

Karim Bitar (CEO)

2022 remuneration: outcomes

vs performance scenarios –

Jonny Mason (CFO)

2022 remuneration: outcomes

vs performance scenarios –

Frank Schulkes (previous CFO)

Adjusted free cash flow

(20% weighting)

Relative TSR

(25% weighting)

Personal strategic objectives

(20% weighting)

Personal strategic objectives were

set for each Executive Director in

relation to the following areas of

strategic focus for 2022:

–

Customer

–

People

–

Product/service improvement

–

Business performance

Adjusted operating profit¹

(60% weighting)

Adjusted PBT

(75% weighting)

Single Figure 2022

Maximum

Minimum

Fixed Remuneration

On-target

£5,294,216

£4,341,158

£1,107,815

£2,611,865

Annual bonus

LTIP

Maximum

Minimum

On-target

£1,248,077

£1,026,467

£447,352

£847,714

Single Figure 2022

Fixed Remuneration

Annual bonus

LTIP

Maximum

Minimum

On-target

£1,484,035

£1,026,339

£109,658

£499,504

Single Figure 2022

Fixed Remuneration

Annual bonus

LTIP

Target

Threshold

Actual

Maximum

$355m

$373m

$394m

$390m

Maximum

Threshold

Actual

4.5%

10%

8.3%

Target

Threshold

Actual

Maximum

$260m

$274m

$296m

$203m

Jonny Mason

Karim Bitar

Frank Schulkes

95%

90%

80%

Stretch

(upper quartile)

Threshold

(median)

Vesting

(78th percentile)

Maximum

(upper decile)

50%

90%

100%

92%

Outcome warranted by

performance: 89.5% of maximum

for this element.

Adjusted operating profit is calculated

on a constant currency basis.

Outcome warranted by

performance: 0% of maximum

for this element.

Details of the objectives set

for the Executive Directors,

and performance against these,

are on page 145.

Governance

Convatec Group Plc Annual Report and Accounts 2022

142

Our approach to implementing our Remuneration Policy in 2023

Rationale

Link to strategy

Base salary

Reviewed

annually

Policy: Benchmarked periodically against comparable roles at

international Medtech peers, as well as UK-listed companies of

similar size and complexity. In deciding base salary levels, the

Committee considers personal performance including the

individual’s contribution to the achievement of the Group’s strategic

objectives. The Committee will also consider employment conditions

and salary levels across the Group, and prevailing market conditions

in the geographies in which the Group competes for talent. Base

salaries are reviewed annually with any increases normally aligned

with those of the wider workforce, and effective from 1 April.

Implementation in 2023: Karim Bitar: £943,820; Jonny Mason:

£512,500 (2.5% increase).

Due to the cost of

living pressures, the

increases for the

Executive Directors

were held at 2.5%

compared with the

wider UK workforce

average at 6.2%.

Innovate

Build

Pension and

benefits

Policy: Executives may receive a contribution to a personal pension

plan, a cash allowance in lieu or a combination thereof. Other

benefits normally include car allowance, medical insurance and life

insurance, and are set at a level considered appropriate taking into

account market practice and consistent with the wider workforce.

Implementation in 2023: Reduction in pension contribution for

Karim Bitar down from 15% to 8.5% in line the wider UK workforce

from 1 January 2023. Jonny Mason already receives a pension benefit

of 8.5%, aligned to that of the wider UK workforce.

Pension levels for

all Executive

Directors are now

aligned to the wider

workforce rate,

in line with

prior

commitment to

investors.

Annual bonus

Policy: Maximum opportunity: 200% of salary (target: 50% of

maximum). Performance measures, targets and weightings are set at

the start of each year. Financial performance will normally be weighted

80% of the overall opportunity, with the remainder (up to 20%) linked

to the achievement of personal strategic objectives. A minimum of 5%

of the bonus opportunity will be based on quantifiable ESG metrics.

One-third of any bonus earned is deferred into shares normally for

three years. Malus and clawback provisions apply.

Implementation in 2023: Maximum opportunity of 200% of salary

for Karim Bitar and Jonny Mason. The annual bonus

will be based

on: adjusted operating profit (weighted 45%), organic revenue

growth (25%), adjusted free cash flow (10%) and personal strategic

objectives (20%), of which 5% relate to quantifiable EGS metrics.

The introduction of

an organic revenue

growth measure in

the bonus supports

our strategy of

sustainable growth.

Introducing

quantifiable ESG

targets also

ensures our

continued focus in

this area aligned

with our ESG

strategy.

Focus

Innovate

Simplify

Build

Execute

Long-Term

Incentive Plan

Policy: Maximum opportunity: 300% of salary. The performance

conditions and targets are agreed and set to ensure they remain

appropriately stretching and aligned to the Group’s strategy. 25%

of an award will vest at threshold, with 100% vesting at maximum.

The minimum performance and vesting period is three years.

A two-year post-vesting holding period will apply. Malus and

clawback provisions apply under certain circumstances.

Implementation in 2023: Award opportunity of 300% of salary

for Karim Bitar and 250% for Jonny Mason. Awards will vest subject

to adjusted PBT growth (weighted 50%), organic revenue growth

(weighted at 25%), and TSR versus the constituents of the FTSE

50 to 150 excluding investment trusts (12.5%) and the S&P Global

Healthcare Services Index (12.5%) over the three financial years to

31 December 2025.

Recognises the

significant growth

in the size and

complexity of

Convatec since the

last time the Policy

was renewed and

ensures the

attraction and

retention of high

calibre talent from

the international

Medtech sector.

The introduction

of organic revenue

growth also drives

long-term value

creation and

furthers our focus

on sustainable

growth.

Focus

Simplify

Execute

Innovate

Shareholding

requirement

Policy: Executives are required to build up shareholdings of 400%

of salary for the CEO and 300% of salary for the CFO. These must be

retained whilst the Executive Directors remain on the Board. 50% of

any net vested share awards (after sales to meet tax liabilities) must

be retained until the minimum shareholding requirements are met.

At the end of 2022, Karim Bitar held shares worth 547% of his 2022

salary and Jonny Mason held shares worth 22% of his 2022 salary.

For 2023, Executive Directors will be required to hold 100% of their

in-situ shareholding requirements for 12 months after cessation

and 50% for the next 12 months. This means 400% and 300% of

salary in the first year and 200% and 150% of salary in the second

year post-cessation for the CEO and CFO, respectively.

Current

shareholding

guidelines are well

ahead of market

norms for a

similarly sized

business.

Introduction of

post-cessation

policy aligns with

UK corporate

governance

expectations and

prior commitment

to investors.

Focus

Adjusted operating profit and organic revenue is calculated on a constant currency basis, using a budget rate.

Overview

Strategic report

Financial statements

Additional information

143

Convatec Group Plc Annual Report and Accounts 2022

Governance

Directors’ Remuneration report

continued

OUR ANNUAL REPORT ON REMUNERATION

This section of the Remuneration

report provides details of how our

Remuneration Policy was implemented

during the financial year ended

31 December 2022, and how it will be

implemented during the year ending

31 December 2023. It has been

prepared in accordance with the

provisions of the Companies Act

2006 and Schedule 8 of the Large and

Medium-sized Companies and Groups

(Accounts and Reports) Regulations

2008 (as amended). It also meets

the requirements of the FCA’s

Listing Rules.

In accordance with the Regulations,

the following sections of the

Remuneration report are subject

to audit: the single total figure of

remuneration for Executive Directors

and Non-Executive Directors, and

accompanying notes (pages 144 and

147), scheme interests awarded during

the financial year (page 146), exit

payments made in the year (page 148),

payments to past Directors (page 148)

and the statement of Directors’

shareholdings (page 152). The

remaining sections of the report are

not subject to audit.

Committee membership in 2022

Details of the membership of the

Committee, the number of times it met

during 2022 and attendance at its

meetings are set out on page 139.

Committee responsibilities

The Committee’s key areas of

responsibility are also set out

on page

139.

Committee performance

evaluation

A performance evaluation of the

Remuneration Committee was carried

out in 2022, facilitated by an external

consultant, Lintstock, by way of a

detailed questionnaire. The key

priority identified for 2023 was to

ensure that over the course of the year,

Committee members are provided

with continuing education on

governance and remuneration

regulations, including insights into

investor expectations.

Advisers

The Committee conducted a

detailed review of its advisers and

appointed Willis Towers Watson

from May 2022. During the year,

Willis Towers Watson reported to the

Chair of the Committee and provided

Summary of shareholder voting

The following table shows the results at the 2022 AGM of the advisory vote on the

2021 Annual Report on Remuneration and the binding vote at the 2020 AGM on

the 2020 Remuneration Policy.

Resolution

Votes

‘for’

Votes

‘against’

Votes

withheld

Approve the Directors’ Remuneration Policy

(2020 AGM)

87.54%

12.46%

906,684

To approve the Directors’ Remuneration report

(2022 AGM)

72.51%

27.49%

24,156,478

Votes ‘withheld’ are not votes in law and, therefore, have not been included in the calculation

of the proportion of votes ‘for’ or ‘against’ each resolution.

The Committee completed an engagement exercise with shareholders following the 2022 AGM,

as set out in the Chair’s letter on page 140.

Single total figure of remuneration for Executive Directors (audited)

The following table sets out a single figure for the total remuneration received by each Executive Director for the 2022

financial year, and compares this with the equivalent figure for the 2021 financial year.

Director

Base

salary

’000

Taxable

benefits

’000

Annual

bonus

’000

LTIP

’000

Pension

benefit

’000

Other

’000

Total

Fixed

’000

Total

Variable

’000

Total

’000

Karim Bitar

2022

£915

£56

£1,339

£1,895

£137

n/a

£1,108

£3,233

£4,341

2021

£892

£56

£1,433

£298

£134

£888

£1,081

£2,618

£3,699

Jonny Mason

2022

£400

£13

£579

n/a

£34

n/a

£447

£579

£1,026

Frank Schulkes

2022

£93

£3

£93

£823

£14

n/a

£110

£916

£1,026

2021

£461

£16

£535

£680

£69

n/a

£547

£1,215

£1,762

For Karim Bitar, Jonny Mason and Frank Schulkes, benefits consist primarily of car allowance, private medical insurance, life assurance and permanent

health insurance. For Karim Bitar, taxable benefits include a healthcare allowance of £30,000 payable per annum.

Reflects the total bonus awarded for performance in the relevant financial year. One-third of the bonus earned by Karim Bitar, Jonny Mason and Frank

Schulkes is deferred into shares for three years (the vesting of which is not subject to any further performance conditions). See page 145 for further

details.

2022 figures represent the estimated value of LTIP awards made to Karim Bitar and Frank Schulkes in May 2020. These awards shall vest on the third

anniversary of grant as to 80.5% of maximum based on performance over the three-year performance period ending 31 December 2022 (further details

of which are set out on page 146). The estimated values shown in the table above use the three-month average share price for the period ended

31 December 2022 (221.7p), and will be trued up in next year’s report to reflect their value (including any accrued distribution which were reinvested into

shares) on the vesting date. The value of vested shares has increased by £133,564 for Karim Bitar and £58,047 for Frank Schulkes since the respective

award dates as a result of share price appreciation. The 2021 figure represents the actual vesting value of the 2019 LTIP award.

Karim Bitar’s and Frank Schulkes’ pension benefits in the year, equivalent to 15% of base salary. Jonny Mason’s pension benefit is equivalent to 8.5% of

base salary.

The 2021 figure in the ‘Other’ column represents the actual vesting value of the Conditional Shares awarded to Karim Bitar as part of the buy-out award

made on his appointment. As disclosed in the 2019 Annual Report, the vesting of this award was linked to the same performance conditions as the 2019

LTIP which vested at 44.2% of maximum.

6. Total of base salary, taxable benefits and pension benefit.

Total of annual bonus, LTIP and other payments.

reward survey benchmark data to

the Company. Willis Towers Watson

has no other connection with the

Group (remuneration-related or

otherwise) and is considered to be

independent by the Committee.

Fees paid to Willis Towers Watson

are determined on a time and

materials basis, and totalled

£130,010 (excluding expenses and

VAT) for the 2022 financial year in its

capacity as adviser to the Committee.

Willis Towers Watson is a member of

the Remuneration Consultants

Group and, as such, voluntarily

operates under the Code of

Conduct in relation to executive

remuneration consulting in the UK

(www.remunerationconsultantsgroup.

com). In the period prior, the

Committee’s adviser was Ellason LLP,

with fees for the period appointed at

£44,930 (excluding expenses and VAT).

Governance

Convatec Group Plc Annual Report and Accounts 2022

144

Incentive outcomes for the year ended 31 December 2022 (audited)

Annual bonus in respect of performance in the 2022 financial year

For 2022, Karim Bitar and Jonny Mason had a maximum bonus opportunity of 200% of their 2022 base salary. Any payments

under the annual bonus are normally payable two-thirds in cash and one-third in shares, deferred for three years. The

on-target opportunity was 50% of maximum. The annual bonus for 2022 was based on a combination of adjusted operating

profit

(weighted 60%), adjusted free cash flow (20%) and personal strategic objectives (20%).

The tables below summarise the structure of the 2022 annual bonus, the targets set, our performance over the financial

year and the resulting annual bonus payout.

Performance targets

Financial measure

Link to corporate strategy

Threshold

0% payout

Target

50% payout

Maximum

100% payout

Actual

performance

Adjusted operating profit

for bonus purposes

Focus

Innovate

$355m

$373m

$394m

$390m

Adjusted free cash flow

Simplify

Execute

$260m

$274m

$296m

$203m

Objectives and actual performance

Karim Bitar

–

Successfully executed FISBE strategy, achieving sustainable and profitable growth while strengthening

Convatec’s competitive position.

–

Continued inorganic strategy with successful acquisition and integration of Triad Life Sciences.

–

Continued delivering improvements in overall quality of products (13% CPM reduction), greenhouse gas

emissions (32% reduction in S1/S2 over 2021) and increased resilience of operations.

–

Successfully launched three new products: Extended Wear Infusion Sets, GentleCath™ Air for Men, and

InnovaMatrix

–

Strengthened senior leadership team with key appointments in areas such as Quality & Operations and

Global Emerging Markets, along with sustaining high levels of employee engagement.

Jonny Mason

–

Successfully exited the hospital care business, including the disposal of the associated factory in Belarus,

to increase Convatec’s focus on our four chronic care categories.

–

Secured refinancing of bank facilities for a further five years at attractive rates so that, in conjunction with

the bond issue in 2021, the delivery of the strategic plan is fully funded.

–

Drove simplification of processes in finance and IT, to reduce low-value-added activities and improve

productivity. This supported a 2.8 percentage points reduction in G&A cost to sales ratio.

–

Strengthened the finance team, in corporate and across the business units, to improve the focus on

excellent execution of the strategy which supported the evolution from FISBE 1.0 to 2.0, as announced at

the Capital Markets Event in November.

–

Improved performance reporting across the organisation to support the delivery of the financial targets

for the year, including the corporate response to the unexpected, substantial inflationary pressures. This

supported a 180 basis-points improvement in adjusted operating margin year on year.

Frank Schulkes

–

Progressed preparation of the exit from the hospital care business to increase Convatec’s focus on our

four chronic care categories.

–

Successfully led 2021 year-end financial reporting in support of the Group’s annual reporting.

–

Continued driving simplification of processes in finance and IT, to reduce low-value-added activities and

improve productivity.

–

Supported onboarding of Jonny Mason, incoming CFO, to ensure smooth integration and transition of

leadership in the Finance function.

Annual bonus in respect of performance breakdown

Maximum

Earned bonus

Director

Measure

Weighting

opportunity

(% of salary)

(‘000)

Karim Bitar

Adjusted operating profit for bonus purposes

60%

120%

107%

£989

Adjusted free cash flow

20%

40%

£0

Personal strategic objectives

20%

40%

38%

£350

Total

100%

200%

145%

£1,339

Jonny Mason

Adjusted operating profit for bonus purposes

60%

120%

107%

£434

Adjusted free cash flow

20%

40%

£0

Personal strategic objectives

20%

40%

36%

£145

Total

100%

200%

143%

£579

Frank Schulkes

Adjusted operating profit for bonus purposes

60%

90%

81%

£72

Adjusted free cash flow

20%

30%

£0

Personal strategic objectives

20%

30%

24%

£21

Total

100%

150%

105%

£93

Adjusted operating profit for bonus purposes is calculated on a constant currency basis using a budget rate.

The bonus for Frank Schulkes is pro-rated to 11 March 2022 for the period served on the Board. The bonus for Jonny Mason is pro-rated from appointment

to the Board on 12 March 2022.

One-third of the bonus earned by the Executive Directors (including Frank Schulkes) will be deferred into shares to be held

for three years. Details of this element of the bonus award will be disclosed in next year’s Annual Report.

Overview

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145

Convatec Group Plc Annual Report and Accounts 2022

Governance

Scheme interests vesting in respect of the year ended December 2022

In 2020, Karim Bitar and Frank Schulkes were granted conditional share awards under the LTIP. These LTIP awards were

subject to performance over the three-year period ended 31 December 2022, and performance conditions based on a

combination of: Relative TSR and adjusted PBT growth, both over a three-year period, weighted 25% and 75% respectively.

The table below sets out details of the targets, and performance against these:

Measure

Weighting

Performance range

Actual performance

Weighted vesting

outcome

Three-year Relative TSR against the constituents

of the FTSE 350 excluding investment trusts

25%

Median to

90th percentile

78th percentile

23.0%

Three-year compound annualised growth

in adjusted PBT

75%

4.5% to

10.0% p.a.

8.3%

57.5%

Total % vesting

80.5%

Accordingly, Executive Directors’ 2020 LTIP awards will vest on the third anniversary of grant as set out below:

Director

Date of grant

Number awarded

% vesting

Number vesting

Karim Bitar

1 May 2020

1,061,532

80.5%

854,533

Frank Schulkes

1 May 2020

461,342

80.5%

371,380

Number of awards pro-rated to departure date of 8 December 2022.

Scheme interests awarded in 2022 (audited)

2022 LTIP awards

During the year ended 31 December 2022, the Executive Directors were awarded conditional share awards under the LTIP,

details of which are summarised in the table below.

Face value

Director

Date of grant

Number awarded

Award price

Value

% of annualised

salary

Vesting date

Karim Bitar

14 March 2022

1,238,337

181.13p

£2,243,000

250%

14 March 2025

Jonny Mason

14 March 2022

690,112

181.13p

£1,250,000

250%

14 March 2025

The LTIP face values are determined as a percentage of each Executive Director’s annualised salary on the date of grant, and converted into numbers of

conditional shares using the average of the three-day closing price preceding the date of grant.

The performance conditions attached to these 2022 LTIP awards are set out in the table below.

Vesting schedule

Measure

Weighting

Performance

period

Performance

requirement

% of

maximum

Three-year Relative TSR against the constituents of the

FTSE350 excluding investment trusts

25%

1 January

2022 to

31 December

2024

< Median

Median

25%

75th

percentile

to ≥ 90th

percentile

90%

≥ 90th

percentile

100%

Straight-line sliding scale

vesting between these points

Three-year compound annualised growth in adjusted PBT

75%

1 January

2022 to

31 December

2024

< 8.0% p.a.

8.0% p.a.

25%

≥ 15.0% p.a.

100%

Straight-line sliding scale

vesting between these points

To the extent the 2022 LTIP awards vest, vested shares will be required to be held for a further two-year post-vesting

holding period.

2021 Deferred bonus

One-third of the 2021 bonus earned by Karim Bitar and Frank Schulkes was deferred into shares to be held for three years

under the DBP, details of which are summarised in the table below.

Value

Director

Date of grant

Number

awarded

Award price

% of 2021 bonus

Vesting date

Karim Bitar

14 March 2022

263,650

181.13p

£477,549

One-third

14 March 2025

Frank Schulkes

14 March 2022

98,462

181.13p

£178,344

One-third

14 March 2025

The award values are determined as one-third of each Executive Director’s 2021 bonus and converted into numbers of conditional shares using the

average of the three-day share price preceding the date of grant.

Directors’ Remuneration report

continued

Governance

Convatec Group Plc Annual Report and Accounts 2022

146

Fees retained for external non-executive directorships

Executive Directors may hold one external appointment and retain the fees paid for such a role. Neither of the Executive

Directors held an external non-executive director appointment during the year.

Single total figure of remuneration for Non-Executive Directors (audited)

The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the 2022

and 2021 financial years.

Fee

Benefits

Total

Non-Executive Director

2022

’000

2021

’000

2022

’000

2021

’000

2022

’000

2021

’000

John McAdam

£326

£320

£0

£326

£320

Margaret Ewing

£117

£1

£0

£118

£117

Sten Scheibye

£75

£1

£76

Brian May

£95

£1

£96

£95

Heather Mason

£75

£2

£1

£77

£76

Constantin Coussios

£75

£1

£0

£76

£75

Kimberly Lody

£69

–

£2

–

£71

–

Sharon O’Keefe

£69

–

£2

–

£71

–

Rick Anderson

£13

£75

£1

£15

£76

Regina Benjamin

£31

£85

£0

£31

£85

In addition to the fees payable to each of the Directors, the Group reimburses reasonable expenses.

2. Joined the Board on 1 February 2022.

3. Joined the Board on 1 March 2022. Includes fee for acting as a Board Level Employee Representative.

4. Stepped down from the Board on 3 March 2022.

5. Stepped down from the Board on 12 May 2022.

Percentage change in Director remuneration

The table below shows the percentage change in Director remuneration (from 2019 to 2022) compared to the average

percentage change in remuneration for other employees over the same period. As required under The Companies

(Directors’ Remuneration Policy and Directors’ Remuneration report) Regulations 2019, this analysis will continue to

be expanded to build up a five-year history.

Convatec Group Plc does not have any other employees other than Executive Directors. For the comparator group, we have

used the population of UK-based employees whose remuneration is based on overall Group business performance rather

than that of a particular Business Unit. In determining the annual change in average employee remuneration, we have

looked at average annual pay increase (excluding promotions) and actual bonus payments. We have only included

employees who were in the Group in both years of the comparison to ensure consistency.

Annualised percentage change from

2021 to 2022

Annualised percentage change from

2020 to 2021

Annualised percentage change from

2019 to 2020

Salary

or fees¹

Benefits²

Bonus

Salary

or fees

Benefits

Bonus

Salary

or fees

Benefits

Bonus

Executive Directors

Karim Bitar

2.6%

(6.5)%

1.9%

(16.9)%

40%

Jonny Mason

n/a

Frank Schulkes

0.4%

(9.3)%

1.9%

(5.9)%

(17.9)%

2.5%

0.5%

42%

Non-Executive

Directors

John McAdam

2.5%

213.0%

n/a

(100)%

n/a

Margaret Ewing

310.1%

n/a

(5.4)%

n/a

0.9%

(100)%

n/a

Sten Scheibye

72.9%

n/a

15.4%

n/a

8.3%

(100)%

n/a

Brian May

443.5%

n/a

8.4%

n/a

Heather Mason

134.2%

n/a

15.4%

n/a

Constantin Coussios

247.4%

n/a

15.4%

n/a

Kimberly Lody

n/a

Sharon O’Keefe

n/a

Rick Anderson

n/a

2.2%

n/a

11.9%

(4.6)%

n/a

(6.9)%

100%

n/a

Regina Benjamin

n/a

(8.6)%

(100)%

n/a

(1.2)%

(92.1)%

n/a

Average per employee

5.3%

10.0%

13.5%

2.7%

(16.5)%

(39.2)%

2.7%

16%

Former Directors (who did not serve on the Board during the financial year under review) have been removed from the table. Relevant prior data and

commentary can be found in last year’s annual report.

Salary/fee figures have been annualised for this analysis to permit a meaningful comparison over time. Effective 1 September 2020, the Non-Executive

Director fee structure was changed: the base fee was increased and committee membership fees were discontinued.

The year-on-year increase in benefits reflects the Group’s best estimate for the change in the average value of benefits for other employees. Non-

Executive Directors’ benefits relate to taxable expenses (largely travel to attend meetings, and due to COVID-19 restrictions very limited travel took place

in 2021 compared to 2022).

3. Joined the Board on 12 March 2022 as CFO.

4. Joined the Board on 1 February 2022.

5. Joined the Board on 1 March 2022 and receives a fee for acting as a Board Level Employee Representative.

Overview

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Financial statements

Additional information

147

Convatec Group Plc Annual Report and Accounts 2022

Governance

Relative importance of spend on pay

The table below shows shareholder distributions (i.e. dividends) and total employee pay expenditure for the financial years

ended 31 December 2022 and 31 December 2021, and the percentage change year-on-year.

2022

2021

Year-on-year

change

Total employee pay expenditure¹

649

650

(0.2)%

Shareholder distributions²

113

114

(0.9)%

1. Decrease in total employee pay expenditure predominantly relates to foreign exchange differences.

The decrease in dividend is due to the difference in the exchange rate year-on-year. Overall dividend per share paid in 2022 (in cents) remained consistent

with 2021.

Exit payments made in the year (audited)

Frank Schulkes stepped down as CFO and as a Director of the Company on 11 March 2022. He remained an employee of the

Group until 8 December 2022. In accordance with the terms of his service agreement, Frank continued to receive his salary,

pension benefit and other benefits over the period until he left the Group in December 2022. He received a total of £407,551

during the remainder of his notice period as per his contractual agreement. In line with our Policy, the Committee agreed to

pay outplacement fees of up to £20,000 (excluding VAT) and make a contribution of up to £10,000 (excluding VAT) towards

legal fees incurred in connection with the arrangements relating to his departure during the year. Frank received £10,000

(excluding VAT) with respect to his legal fees.

Frank will be paid a pro-rata bonus of £93,331 for the 2022 financial year. One-third of the payment will be deferred into

shares for three years. The Committee exercised the discretion afforded under the plan rules to treat the award in line with

the approved policy on cessation.

Payments to past Directors (audited)

There were no payments to past Directors during the year.

Review of past performance

The first graph shows the Group’s TSR compared to the FTSE 350 index, an index of which the Group is a constituent.

Performance, as required by legislation, is measured by TSR over the period from commencement of conditional dealing

(26 October 2016) to 31 December 2022.

The second graph shows TSR performance of the Group compared with the FTSE 350 index excluding investment trusts

since the announcement of Karim Bitar as CEO (25 March 2019) to 31 December 2022.

Directors’ Remuneration report

continued

Governance

TSR chart – Convatec vs the FTSE 350 Index

Value of £100 invested on 25 October 2016 in Convatec and

the FTSE 350 Index (£)

Convatec Group Plc

FTSE 350

100

110

120

130

140

25/10/16

31/12/16

31/12/17

31/12/18

31/12/19

31/12/20

31/12/21

31/12/22

Value of £100 invested on 25 March 2019 in Convatec and the

FTSE 350 Index excluding investment trusts (£)

Convatec Group Plc

FTSE 350 excluding investment trusts

100

110

120

130

140

150

160

170

180

190

200

March 19

Dec 19

Dec 20

Dec 21

Dec 22

Convatec Group Plc Annual Report and Accounts 2022

148

The table below details the CEO’s single total figure of remuneration and incentive outcomes over the same period:

2017

2018

2019

2020

2021

2022

Karim Bitar

(from 30 September 2019)

CEO single figure (‘000)

£6,878¹

£2,786

£3,699²

£4,341

Annual bonus (% max.)

70.2%

98.5%

79.8%

72.7%

LTIP vesting (% max.)

n/a

44.2%

80.5

%³

Rick Anderson

(15 October 2018 to

29 September 2019)

CEO single figure (‘000)

£264

£1,118

Annual bonus (% max.)

n/a

LTIP vesting (% max.)

n/a

Paul Moraviec

(to 14 October 2018)

CEO single figure (‘000)

£917

£631

Annual bonus (% max.)

n/a

LTIP vesting (% max.)

n/a

2019 remuneration includes the face value of the restricted share awards made to Karim Bitar as part of his buyout.

2. Includes the actual vesting value of Karim Bitar’s Conditional Share award that formed part of his buyout arrangement on appointment of £888k.

3. Represents the performance outcome of the 2020 LTIP (as a % of maximum) with a final vesting date in May 2023.

CEO pay ratio

The table below discloses the ratio of CEO pay for 2022, comparing the single total figure of remuneration for Karim Bitar to

the full-time equivalent total reward of those colleagues whose pay is ranked at the 25th, 50th and 75th percentiles in our

total UK workforce.

Methodology Option A has been chosen to calculate the ratio, as it provides a fair comparison of colleague pay with that of

our CEO by using a consistent methodology to value remuneration and identify our colleagues ranked at the 25th, 50th and

75th percentiles. Colleague pay was calculated based on actual pay and benefits for the 12 monthly payrolls in respect of

the full financial year to 31 December 2022. We are confident that the three colleagues identified are a true reflection of our

UK workforce; none of these individuals received any additional or exceptional pay during 2022. We can also confirm that

no adjustments were made to the calculation of the total remuneration for these employees from the methodology set

out for the CEO’s single total figure remuneration. Our pay ratios are set out below:

Year

Method

25th percentile

50th percentile

75th percentile

2022

Option A

125:1

98:1

59:1

2021

Option A

115:1

89:1

52:1

2020

Option A

83:1

65:1

40:1

The table below provides information on the salary and total pay and benefits paid to our colleagues ranked at the 25th,

50th and 75th percentiles.

Year

Method

25th percentile

50th percentile

75th percentile

2022

Salary

£29,892

£38,000

£55,017

Total pay and beneﬁts

£34,757

£44,418

£73,336

2021

Salary

£27,638

£34,521

£58,739

Total pay and beneﬁts

£32,663

£41,964

£71,619

2020

Salary

£26,660

£34,487

£52,415

Total pay and beneﬁts

£33,425

£42,641

£69,668

Overview

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Financial statements

Additional information

149

Convatec Group Plc Annual Report and Accounts 2022

Governance

Implementation of Executive Director Remuneration Policy for 2023

Base salary

Following a review of the Executive Directors’ salaries and the cost of living challenges, the Committee decided to award

a base salary increase of 2.5% (materially lower than the average increase for the general employee population in the UK

at 6.2%). The increase will be effective 1 April 2023.

Director

Role

From 1 April 2023

From 1 April 2022

Karim Bitar

CEO

£943,820

£920,800

Jonny Mason

CFO

£512,500

£500,000

Pension

Karim Bitar and Jonny Mason receive a pension benefit of 8.5% of base salary in line with that available to the wider UK

workforce. Karim Bitar receives his pension benefit as a combination of a contribution to pension and the balance as a cash

allowance. Jonny receives his pension benefit as a cash allowance.

Annual bonus

For 2023, Karim Bitar and Jonny Mason will continue to have a maximum bonus opportunity of 200% of salary. The on-target

bonus opportunity remains 50% of maximum. Two-thirds of any bonus earned will be paid in cash, with the remainder

deferred into Convatec Group Plc shares for a further three-year period.

The annual bonus for 2023 will be based on the following measures and weightings:

Measure

Link to corporate strategy

Weighting

Adjusted operating profit

for bonus purposes

Focus

Innovate

Simplify

45%

Organic revenue growth

Focus

Innovate

Simplify

25%

Adjusted free cash flow

Simplify

Execute

10%

Personal strategic objectives (including ESG)

Focus

Build

20%

(of which 5%

relates to ESG)

Adjusted operating profit and organic revenue growth are both calculated on a constant currency basis using a budget rate.

The Committee believes the balance of financial measures for 2023 (as set out above) is appropriate in the context of the

emphasis in our strategy on sustainable and profitable growth. In particular, the introduction of organic revenue alongside

operating profit and maintaining a focus on free cash flow were considered by the Committee to provide the right mix to

support our strategy in 2023. Lastly, the incorporation of specific and quantifiable ESG metrics in the personal strategic

objectives of the bonus ensures continued leadership focus on the ESG agenda and allows flexibility to evolve the ESG

metric definition and targets over the life of the Policy as company reporting and strategic focus progresses.

The Board currently considers these targets to be commercially sensitive and intends to disclose retrospectively in next

year’s Annual Report on Remuneration. In the event the Board considers these targets to remain commercially sensitive,

they will be disclosed as soon as possible once they are no longer considered to be sensitive.

In line with our Policy, bonuses for the 2023 financial year will be subject to the Group’s policy on deferral, and its malus

and clawback provisions (see page 155 for further details).

Directors’ Remuneration report

continued

Governance

Convatec Group Plc Annual Report and Accounts 2022

150

Long-Term Incentive Plan (LTIP)

The inclusion of an organic revenue metric in the LTIP recognises the importance of sustained revenue growth as a key

driver of long-term value creation for shareholders under the next phase of the FISBE strategy. The measurement of our

relative TSR against both the FTSE 50-150 excluding investment trusts and a global sector index recognises the growth of

the business over time, the diversity of our shareholder base and the varying benchmarks used to measure performance

and value creation over the long term.

The 2023 LTIP will vest after three years, subject to the following performance targets assessed over the three years ending

31 December 2025:

Measure

Weighting

Threshold

(25% vesting)

Stretch

(90% vesting)

Maximum

(100% vesting)

Organic revenue growth

25%

3.5%

6.5%

Three-year compound annualised growth in adjusted PBT

50%

7% p.a.

14% p.a.

Three-year Relative TSR rank vs constituents of FTSE 50 to 150

excluding investment trusts and using three-month average

opening and closing values)

12.5%

Median

75th

percentile

≥ 90th

percentile

Three-year Relative TSR rank vs constituents of S&P Global

Healthcare Equipment & Services index (calculated in GBP)

12.5%

Median

75th

percentile

≥ 90th

percentile

To the extent an award vests, it will be subject to a further two-year holding period.

Implementation of Non-Executive Director Remuneration Policy for 2023

The Remuneration Committee sets the fee for the Chair and approved an increase aligned with that of the Executive

Directors at 2.5%.

The fees for the Non-Executive Directors, other than the Chair, are reviewed and set by the Non-Executive Director Fee

Committee comprised of the Chairman, CEO and CFO.

Non-Executive Director fees were reviewed in late 2022 by the Non-Executive Director Fee Committee who approved an

increase of 2.7% to the Non-Executive Director basic fees. In addition, this Committee approved a 4.5% increase to the Audit

and Risk Committee Chair fee and a 5% increase to the Senior Independent Director fee, the Remuneration Committee

Chair fee and the Board Level Employee Representative fee. The fee increases will take effect on 1 April 2023.

To recognise the international makeup of the Board, the Non-Executive Director Fee Committee approved a change in

approach to the Non-Executive Director fee structure introducing US dollar and Euro fee levels, alongside the Sterling fee

rates. The Non-Executive Directors will be given the one-time election to have their fee denominated in their preferred

currency, and, where relevant, will take effect from 1 April 2023.

The fees payable to the Non-Executive Directors are set out below.

Role

Fee structure

in 2023¹

Fee structure

in 2022

Chair

£336,200

£328,000

Non-Executive Director basic fee

£77,000, $101,000 or €89,000

£75,000

Additional fees:

Senior Independent Director

£21,000, $28,000 or €24,000

£20,000

Chair of the Audit and Risk Committee

£23,000, $30,000 or €26,000

£22,000

Chair of the Remuneration Committee

£21,000, $28,000 or €24,000

£20,000

Fee for acting as a Board Level Employee Representative

£10,500, $14,000 or €12,000

£10,000

Effective 1 April 2023.

Overview

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Financial statements

Additional information

151

Convatec Group Plc Annual Report and Accounts 2022

Governance

Directors’ Remuneration report

continued

Governance

Directors’ shareholdings (audited)

The table below sets out details of the current shareholdings of each Director (and any relevant connected persons) as at

31 December 2022. For Executive Directors, the current shareholding is compared to their shareholding guideline.

Options

Owned outright or vested

Director

31 December

2021

31 December

2022

Unvested and

not subject to

performance

conditions

Unvested and

subject to

performance

conditions

Vested but not

exercised

Unvested and

not subject to

performance

conditions

Current

shareholding¹

(% salary)

Shareholding

guideline

(% salary)

Current directors

Karim Bitar

1,606,064

1,943,562

620,458

3,447,560

–

547%

400%

Jonny Mason

n/a

50,000

–

690,112

–

22%

300%

John McAdam

23,181

–

Margaret Ewing

10,000

–

Sten Scheibye

25,000

45,000

–

Brian May

25,000

Heather Mason

10,000

–

Constantin

Coussios

8,440

18,301

–

Kimberly Lody

n/a

10,000

–

Sharon O’Keefe

n/a

3,200

Former directors

Frank Schulkes

169,180

223,444

1,735,785

10,230

137%

300%

Rick Anderson

210,706

Regina Benjamin

10,000

–

Executive Director shareholdings calculated based on the number of shares that are owned outright or vested plus an estimated number of unvested

shares that are not subject to performance conditions, on a net of tax basis. These shares are valued using a share price of 221.7p, being the average share

price during the last three months of the 2022 financial year.

2. Reflects shareholding at the date of stepping down from the Board.

No further shares were acquired by the Directors between 31 December 2022 and 8 March 2023, being the latest practicable

date prior to publication of this Annual Report.

Share scheme dilution limits

The Company complies with the guidelines laid down by the Investment Association. These restrict the issue of new shares

under all the Company’s share schemes in any ten-year period to 10% of the issued ordinary share capital and under the

Company’s discretionary schemes to 5% in any ten-year period.

The Directors’ Remuneration report has been approved by the Board and signed on its behalf by:

Brian May

Chair of the Remuneration Committee

8 March 2023

Convatec Group Plc Annual Report and Accounts 2022

152

This section of the Directors’ Remuneration report has been prepared in accordance with the Remuneration Reporting

Regulations, and sets out details of the 2023 Policy to be approved by shareholders at the 2023 AGM in May and is effective

for a period of up to three years from that date.

We also describe below how our Policy reflects the principles of Provision 40 of the 2018 UK Corporate Governance Code:

–

Clarity:

we are committed to transparent disclosure of our remuneration structures and decisions, including clear

rationale and context for these.

–

Simplicity:

our Policy and approach to its implementation is simple and well-understood internally and externally.

–

Risk:

remuneration arrangements are designed not to encourage or reward excessive risk taking, with targets set to be

stretching and achievable, and retaining Committee discretion to adjust formulaic bonus and LTIP outcomes to align with

underlying performance.

–

Predictability:

there are defined threshold and maximum pay scenarios, which we have disclosed on page 158.

–

Proportionality:

there is a clear and direct link between performance and reward. No variable remuneration is payable

for performance below defined thresholds.

–

Alignment to culture:

the Committee has designed the Policy to align with the Group’s culture, driving behaviours that

promote the long-term and sustainable success of the Group for the benefit of all stakeholders.

Details of how the Company plans to implement the 2023 Policy for the year ending 31 December 2023, are provided in the

Annual Report on Remuneration starting on page 144.

Remuneration principles

When setting remuneration for the Executive Directors, the Committee considers the following principles:

–

Incentivise sustained strong financial performance.

–

Align rewards with the delivery of the Group’s strategy and long-term interests of shareholders..

–

Help attract, motivate and retain the best talent to deliver the Group’s strategy and create long-term shareholder value.

–

Reflect market best practice and consistently adhere to principles of good corporate governance and encourage good

risk management.

OUR REMUNERATION POLICY

Overview

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Financial statements

Additional information

153

Convatec Group Plc Annual Report and Accounts 2022

Governance

2023 Remuneration Policy for the Executive Directors

Purpose and link to strategy

Operation

Opportunity

Performance measures

Base salary

To attract and retain talented

Executive Directors to deliver

the Group’s strategy, by

ensuring base salaries and the

implied total package are

competitive in relevant talent

markets, while not overpaying.

Base salaries will be reviewed

by the Committee annually,

and benchmarked periodically

against comparable roles at

international MedTech peers,

as well as UK-listed companies

of similar size and complexity.

Any resulting changes are

normally effective from 1 April,

in line with the effective date

for salary increases for the

broader workforce.

In deciding base salary levels,

the Committee considers

personal performance including

the individual’s contribution to

the achievement of the Group’s

strategic objectives. The

Committee will also consider

employment conditions and

salary levels across the Group,

and prevailing market conditions

in the geographies in which the

Group competes for talent.

Base salary increases for the

Executive Directors will normally

be no higher than those of the

wider workforce, but may be

made above or below this level

in exceptional circumstances

such as a material change

in responsibilities, size or

complexity of the role, or if

a Director was intentionally

appointed on a below-

market salary.

The maximum salary payable

to Executive Directors will be

capped at the upper quartile

of the benchmarking

comparator group for the role

under review. Salaries will be

set on a case-by-case basis

to reflect the role and the

experience and qualifications

of the individual.

Base salaries for the year under

review and the following year,

as well as the rationale for any

increases, will be disclosed in

the relevant year’s Annual

Report on Remuneration.

n/a

Pension

To provide an appropriate level

of post-retirement benefit for

Executive Directors in a

cost-efficient manner, taking

account of the provisions for

the wider workforce.

Executive Directors may

receive a contribution to a

personal pension plan, a cash

allowance in lieu, or a

combination thereof.

Salary is the only element

of remuneration that is

pensionable.

Karim Bitar and Jonny Mason

receive a pension benefit

from the Group of 8.5% of

salary, in line with the wider

UK workforce.

Details of the pension

contributions made to

Executive Directors during

the year are disclosed in

the Annual Report on

Remuneration.

n/a

Directors’ Remuneration report

continued

Governance

Convatec Group Plc Annual Report and Accounts 2022

154

Purpose and link to strategy

Operation

Opportunity

Performance measures

Other benefits

To provide non-cash benefits

which are competitive in the

market in which the Executive

Director is employed.

The Group may provide

benefits in kind including, but

not limited to, a company car

or car allowance, private

medical insurance (or

allowance in lieu), permanent

health insurance, and life

insurance. Executive Directors

may also be provided certain

other benefits to take account

of individual circumstances

such as, but not limited to,

payment of financial, and/or

legal adviser fees, expatriate

allowance, relocation

expenses, housing allowance

and tax equalisation (including

associated interest, penalties

or fees plus, in certain

circumstances or where the

Committee consider it

appropriate, any tax incurred

on such benefits). Executive

Directors may also be offered

any other future benefits made

available either to all senior

employees globally or in the

region in which the Executive

Director is employed.

Benefits for Executive

Directors are set at a level

which the Committee

considers appropriate

compared to wider employee

benefits, as well as competitive

practices in relevant markets.

The value of annual benefits

will normally not exceed 10% of

salary. The Committee retains

discretion to approve non-

material increases in cost.

In addition, the Committee

retains discretion to approve

a higher cost in exceptional

circumstances (e.g. to facilitate

recruitment, relocation,

expatriation, etc.) or in

circumstances where factors

outside the Group’s control

have changed (e.g. market

increases in insurance costs).

Benefits in respect of the year

under review are disclosed in

the Annual Report on

Remuneration.

n/a

Annual bonus

To incentivise Executive

Directors to deliver strong

financial performance on an

annual basis and reward the

delivery of the Group’s

strategic aims that will

underpin the longer-term

health and growth of the

business.

Deferral into shares enhances

alignment with shareholders.

Performance measures,

targets and weightings are set

by the Committee at the start

of the year. After the end of the

financial year, the Committee

determines the level of bonus

to be paid, taking into account

the extent to which these

targets have been achieved.

To the extent that the

performance criteria have

been met, one-third of the

annual bonus earned will

normally be compulsorily

deferred into shares for a

period of three years under

the Deferred Bonus Plan.

The remainder of the bonus

will be paid in cash.

Dividends may accrue on

deferred bonus shares over

the deferral period and, if so,

will be paid on deferred

shares at the time deferred

shares are released to the

Executive Director.

Malus and clawback provisions

apply to the annual bonus

in certain circumstances (as

set out in the Notes to the

Policy Table).

The maximum annual bonus

opportunity is 200% of base

salary for both Executive

Directors.

The payout for on-target

performance is 50% of

maximum; threshold

performance results in

a payout of no more than

25% of maximum.

Bonuses are based on a

combination of stretching

annual financial and non-

financial/strategic

performance measures,

selected to reflect the Group’s

short-term KPIs, financial goals

and strategic drivers.

The financial element of the

annual bonus will normally

be weighted 80% of the overall

bonus opportunity, with the

balance based on personal

strategic objectives, including

a minimum of 5% linked to

qualifiable ESG metrics.

The Committee may adjust

the formulaic annual bonus

outcomes (including to zero)

to avoid unintended outcomes,

align pay outcomes with

underlying Group performance

and ensure fairness to

shareholders and participants.

Further details will be disclosed

in the relevant Annual Report

on Remuneration. Performance

targets set for each year will

be disclosed retrospectively,

usually in the Annual Report

on Remuneration in respect

of the year to which such

performance targets relate.

Overview

Strategic report

Financial statements

Additional information

155

Convatec Group Plc Annual Report and Accounts 2022

Governance

Purpose and link to strategy

Operation

Opportunity

Performance measures

Long-Term Incentive Plan (LTIP)

To align the interests of

Executive Directors and

shareholders in growing the

value of the Group over the

long term.

Executive Directors are eligible

to receive annual awards of

Convatec Group Plc shares

under the LTIP either in the

form of conditional share

awards or nil cost options.

Prior to awards being granted

each year, the performance

conditions and targets are

agreed and set to ensure they

remain appropriately

stretching and aligned to the

Group’s strategy.

Awards granted under the LTIP

to Executive Directors will

have a performance period of

three years and a minimum

vesting period of three years.

If no entitlement has been

earned at the end of the

relevant performance period,

awards will not vest. Shares

received as a result of an

award vesting will normally

be subject to an additional

two-year holding period.

Dividends may accrue on LTIP

awards over the vesting period

and, if so, will be delivered in

shares that vest at the end of

the vesting period.

LTIP awards granted to

Executive Directors will be

subject to malus and clawback

provisions, as set out in the

Notes to the Policy Table.

The maximum annual LTIP

opportunity is 300% of base

salary for the CEO and 250%

of base salary for the CFO.

25% of an award will vest if

performance against each

performance condition is at

threshold and 100% if it is at

maximum, normally with

straight-line vesting in

between.

Further details of the LTIP

awards granted to each of the

Executive Directors will be

disclosed in the relevant

Annual Report on

Remuneration.

Vesting of the LTIP is subject to

continued employment during

the performance period and the

achievement of performance

conditions aligned with the

Group’s strategic plan and

shareholder value creation.

Measures and their weightings

will be determined by the

Committee prior to making

an award.

The Committee may adjust the

formulaic LTIP outcome to

ensure it takes account of any

major changes to the Group

(e.g as a result of M&A activity)

and is a fair reflection of

the underlying financial

performance of the Group

over the performance period.

Further details, including the

performance targets attached

to the LTIP in respect of each

year, will be disclosed in the

relevant Annual Report on

Remuneration.

Save-As-You-Earn (SAYE) or equivalent scheme

To align the interests of

employees and shareholders

by encouraging employees to

buy and own Convatec Group

Plc shares.

Executive Directors are

entitled to participate in the

Group’s all-employee share

plan if available in the

jurisdiction in which they are

based on identical terms as

other eligible employees. A

UK or Europe-based Executive

Director may make monthly

savings over a period of three

or five years or other period

set by any relevant tax

authority linked to the grant

of an option over Group

shares. The option price will be

set at a discount of up to 15% of

the market value of the shares

at grant (to align with similar

all-employee arrangements

in the US).

Employees are limited to

saving a maximum in line with

the monthly savings limit

imposed by the Committee

(which will not exceed any

limits imposed by legislation)

at the time they are invited to

participate.

n/a

Directors’ Remuneration report

continued

Governance

Convatec Group Plc Annual Report and Accounts 2022

156

Notes to the Policy Table

Malus and clawback policy

Malus and clawback may be applied

to the annual bonus and LTIP awards

in certain circumstances including:

–

cases of fraud, negligence or gross

misconduct by the Executive

Director;

–

material financial misstatement in

the audited financial results of the

Group;

–

error in calculation; or

–

other exceptional circumstances at

the Committee’s discretion.

Cash bonuses will be subject to

clawback, with deferred shares being

subject to malus, over the deferral

period. LTIP awards will be subject

to malus over the vesting period and

clawback from the vesting date to the

second anniversary of the relevant

vesting date.

Share ownership guidelines

The Committee recognises the

importance of aligning Executive

Directors’ and shareholders’ interests

through significant shareholdings in

the Group. The Group’s policy is to

require Executive Directors to build

up shareholdings worth 400% of base

salary for the CEO, and 300% of base

salary for other Executive Directors,

and to retain these shares whilst an

Executive remains on the Board of

Directors. 50% of any net vested share

awards (after sales to meet tax

liabilities) must be retained until the

minimum shareholding requirements

are met. Shareholdings will be valued

at the higher of the acquisition price of

the shares and the average share price

over the last three months of the

financial year.

Post-exit shareholding

requirement

The Committee further recognises

the expectation of shareholders that

a requirement is placed on Executive

Directors to maintain a meaningful

shareholding for a period of time after

they leave the Company. In keeping

with prior commitments, the 2023

Policy has introduced a requirement

for Executive Directors to hold 100%

of their in-situ guideline in the first

year post-exit and 50% in year two (e.g.

400% and 200% of salary for the CEO

in year one and year two, respectively.)

Details of the Executive Directors’

current personal shareholdings, and

progress towards meeting the share

ownership guidelines, are provided

in the Annual Report on Remuneration.

Use of discretion

The Committee may apply its

discretion (as set out below) when

agreeing remuneration outcomes, to

help ensure that the implementation

of our Remuneration Policy is

consistent with the guiding principles

set out in this report.

Payments from outstanding awards

The Committee reserves the right, in

certain circumstances, to make any

remuneration payments and

payments for loss of office (including

exercising any discretions available to

it in connection with such payments)

where the terms of the payment were

agreed: before the Policy in force at

that time came into effect; or at a time

when the relevant individual was not a

Director of the Group provided that,

in the opinion of the Committee,

the payment was not agreed in

consideration of the individual

becoming a Director of the Group. For

these purposes, payments include the

satisfaction of variable remuneration

awards previously granted, but not

vested, to an individual.

Minor changes to Policy

The Committee retains discretion to

make minor, non-significant changes

to the Policy set out above (for reasons

including, but not limited to,

regulatory, exchange control, tax or

administrative purposes or to take

account of a change in legislation)

without reverting to shareholders for

approval for that amendment, where

seeking such shareholder approval

would be disproportionate to the

discretion being exercised.

LTIP awards

The Committee may exercise its

discretion as provided for in the

LTIP rules approved by shareholders.

The Committee may also adjust the

number of shares comprising an LTIP

award (or the exercise price if the

award comprises options) in the

event of a variation of share capital,

demerger, special dividend,

distribution or any other corporate

event which may affect the current

or future value of an award. It is

intended that any adjustment will

be made on a neutral basis, i.e. to

not be to the benefit or detriment of

participants. Any use of discretion by

the Committee during a financial year

will be detailed in the relevant Annual

Report on Remuneration and may

be the subject of consultation with

the Group’s major shareholders,

as appropriate.

Remuneration Policy for the

wider workforce

The Remuneration Policy for other

employees is based on principles that

are broadly consistent with those

applied to Executive Director

remuneration, with a common

objective of driving financial

performance and the achievement of

strategic objectives, and contributing

to the long-term success of the Group.

Remuneration supports our ability to

attract, motivate and retain skilled and

dedicated individuals, whose

contribution will be a critical factor

in the Group’s success. Annual salary

reviews take into account Group

performance, local pay and market

conditions, and salary levels for similar

roles in comparable companies.

Pension entitlements and other

benefits vary according to jurisdiction,

to ensure these remain appropriately

competitive for the local market.

Some employees below executive

level are eligible to participate in

annual bonus schemes. Opportunities

and performance measures vary by

organisational level, geographical

location and an individual’s role.

Employee ownership of Convatec

Group Plc shares is promoted across

the Group. Senior executives are

eligible for LTIP awards on similar

terms as the Executive Directors,

although award opportunities are

lower and vary by organisational

level. Other executives are eligible

for restricted share awards on a

discretionary basis. Convatec also

offers an opportunity for broader-

based participation in a share

purchase plan, as approved by

shareholders at the 2017 AGM.

Approach to target setting and

performance measure selection

The Committee considers carefully the

selection of performance measures at

the start of each performance cycle,

taking into consideration the Group’s

strategic objectives and the

macroeconomic environment.

Annual bonus measures are selected

to align with the Group’s KPIs (see

pages 20 and 21). Measures may

change from year-to-year (subject

to the Remuneration Policy), and the

rationale for any changes to the bonus

measures selected will therefore be

disclosed in the relevant Annual

Report on Remuneration.

Overview

Strategic report

Financial statements

Additional information

157

Convatec Group Plc Annual Report and Accounts 2022

Governance

LTIP performance measures are

selected to ensure they align with

the Group’s strategy and long-term

shareholder value creation. LTIP

awards to be granted in 2023 will be

based on a blend of adjusted PBT

performance, organic revenue growth,

and relative TSR over a three-year

period. The Committee considers

these measures to align executive and

shareholder interests through a good

balance between external and internal

measures of performance, and

between growth and returns in the

context of the Group’s strategy.

For 2023 LTIP awards, TSR performance

will be measured relative to the FTSE

50-150 excluding investment trusts

and the S&P Global Healthcare

Equipment & Services (50%/50%).

Targets are set to be stretching but

achievable over the three-year

performance period, taking account of

multiple relevant reference points, for

example, internal forecasts, external

expectations for future performance

at both the Group and its closest

sector peers, and typical performance

ranges at other FTSE companies of

comparable size and complexity.

The Committee also retains discretion,

in exceptional circumstances, to vary,

substitute or waive the performance

conditions attaching to incentive

awards (within the relevant limits set

out in the Policy table) if there is a

significant and material event which

causes the Committee to believe

the original conditions are no longer

appropriate, and the new performance

conditions are deemed reasonable

and not materially less difficult to

satisfy than the original conditions.

Pay-for-performance:

scenario analysis

The charts below provide an estimate

of the potential future reward

opportunities for Karim Bitar and

Jonny Mason, and the potential split

between the different elements of

remuneration under four different

performance scenarios: “Maximum +

50% share price growth”, “Maximum”,

“On target” and “Minimum”.

Potential reward opportunities are

based on the forward-looking policy,

applied to 2023 base salaries and

incentive opportunities. LTIP awards

granted in a year will not normally vest

until the third anniversary of the date

of grant, and the projected value of

the “Maximum”, “On target” and

“Minimum” scenarios excludes the

impact of share price movement.

Pay scenarios

CEO – Karim Bitar

Fixed Remuneration

£7,234,403

£5,818,703

£1,099,703

£2,751,353

Annual bonus

LTIP

CFO – Jonny Mason

Fixed Remuneration

£3,519,323

£2,878,698

£572,448

£1,405,260

Annual bonus

LTIP

Directors’ Remuneration report

continued

The above charts are based on the following assumptions:

“Maximum + 50% SPA”:

fixed remuneration (salary, pension, other benefits), plus maximum bonus (200% of salary) and full vesting of the 2023 LTIP awards

(300% of salary for the CEO/250% of salary for the CFO, and reflecting 50% share price growth over the vesting period).

“Maximum”:

fixed remuneration (as above), plus maximum bonus (200% of salary) and full vesting of the 2023 LTIP awards (300% of salary for the CEO/250%

of salary for the CFO) assuming no share price growth.

“On-target”:

fixed remuneration (as above), plus target bonus (50% of maximum or 100% of salary) and threshold LTIP vesting (25% of maximum or 75% of

salary for the CEO/62.5% of salary for the CFO) assuming no share price growth.

“Minimum”

: fixed remuneration only, being the only element of Executive Directors’ remuneration not linked to performance.

Executive Director service contracts

In accordance with general market practice, each of the Executive Directors has a rolling service contract. Karim Bitar and

Jonny Mason have service contracts with the Company (copies of which are available to view at the Company’s registered

office) that are terminable on 12 months’ notice from the Group and six months’ notice from the Executive Director. This

practice will also apply for any new Executive Directors. The following table shows the date of the service contract for each

Executive Director that served during the year:

Executive Director

Position

Date of appointment

Date of service agreement

Karim Bitar

CEO

30 September 2019

24 March 2019

Jonny Mason

CFO

31 January 2022

8 December 2021

Exit payments policy

The Group’s policy on termination payments is to consider the circumstances on a case-by-case basis, taking into account

the relevant contractual terms in the executive’s service contract and the circumstances of termination. Executive

Directors’ contracts provide for the payment of a pre-determined sum in the event of termination of employment in certain

circumstances (but excluding circumstances where the Group is entitled to dismiss without compensation), comprising

base salary, pension benefit and benefits in respect of the unexpired portion of the notice period. Termination payments

may take the form of payments in lieu of notice. Payments would normally be made on a phased basis and subject to

mitigation. If the employment is terminated by the Group, the Committee retains the discretion to settle any other amount

the Committee considers reasonable to the Executive Director including in settlement of claims, in respect of legal fees

incurred in connection with the termination and fees for outplacement services and relocation costs.

Governance

Convatec Group Plc Annual Report and Accounts 2022

158

In addition to contractual provisions, the following table summarises how awards under each discretionary incentive plan

are typically treated in specific circumstances, with the final treatment remaining subject to the Committee’s discretion

as provided under the rules of the plan. In the event of termination, any outstanding options granted under the SAYE, or

equivalent, scheme will be treated in accordance with the rules of the scheme, which do not include discretion. Disclosure

in relation to any departing Executive Director, including details of any remuneration payment made to them after they cease

to be a Director, will be made on the Company’s website in accordance with Section 430(2B) of the Companies Act 2006.

Treatment of awards on cessation of employment

Reason for cessation

Calculation of vesting/payment

Timing of vesting/payment

Annual bonus

Injury, disability, death, redundancy,

retirement, or other such event as

the Committee determines

The Committee may determine that a bonus is

payable on cessation of employment (normally

pro-rated for the proportion of the performance year

worked) and the Committee retains discretion to

determine that the bonus should be paid wholly in

cash. The bonus payable will be determined based on

the performance of the Group and of the individual

over the relevant period, and the circumstances of

the Director’s loss of office.

At the normal payment date,

taking into account actual

Company performance for the

performance period.

All other reasons (including

voluntary resignation)

No bonus will be paid for the financial year.

Not applicable.

Deferred bonus shares

Resignation or dismissal for cause

Awards normally lapse.

Not applicable.

All other reasons (e.g. injury,

disability, death, redundancy,

retirement, or other such event as

the Committee determines)

Awards will normally vest in full (i.e. not pro-rated for

time) unless the Committee determines that time

pro-rating should apply.

At the normal vesting date, unless

the Committee decides that awards

should vest earlier (e.g. in the event

of death).

Change of control

Awards will normally vest in full (i.e. not pro-rated for

time). Awards may alternatively be exchanged for

equivalent replacement awards, where appropriate.

On change of control.

LTIP awards

Resignation or dismissal for cause

Awards normally lapse.

Not applicable.

All other reasons (e.g. injury,

disability, death, redundancy,

retirement, or other such event as

the Committee determines)

Awards will normally be pro-rated for time (unless

the Committee exercises discretion to disapply time

pro-rating) and will vest based on performance over

the original performance period (unless the

Committee decides to measure performance to the

date of cessation).

At the normal vesting date, unless

the Committee decides that awards

should vest earlier (e.g. in the event

of death).

Change of control

LTIP awards will normally be pro-rated for time

(unless the Committee exercises discretion to

disapply time pro-rating) and will vest subject to

performance over the performance period to the

change of control.

LTIP awards may alternatively be exchanged for

equivalent replacement awards, where appropriate.

On change of control.

Overview

Strategic report

Financial statements

Additional information

159

Convatec Group Plc Annual Report and Accounts 2022

Governance

Approach to remuneration on recruitment

External appointments

In cases of hiring or appointing a new Executive Director from outside the Group, the Committee may make use of all existing

components of remuneration set out in the Policy table, up to the disclosed maximum opportunities (where applicable).

When determining the remuneration package for a new Executive Director, the Committee will take into account all

relevant factors based on the circumstances at that time to ensure that arrangements are in the best interests of the Group

and its shareholders. This may include factors such as the experience and skills of the individual, internal comparisons and

relevant market data.

The Committee may also make an award in respect of a new appointment to “buy-out” incentive arrangements forfeited on

leaving a previous employer, i.e. over and above the maximum limits on incentive opportunities set out in the Policy table.

In doing so, the Committee will consider relevant factors, including any performance conditions attached to these awards,

the likelihood of those conditions being met, and the time over which they would have vested. The intention is that the

expected value of any “buy-out” award would be no higher than the expected value of the forfeited arrangements, and that

the structure will replicate (as far as reasonably possible) that of the awards being forfeited. The Committee may consider

it appropriate to structure “buy-out” awards differently from the structure described in the Policy table, exercising its

discretion under the LTIP rules to structure awards in other forms (including market value options, restricted shares,

forfeitable shares or phantom awards) and may use the exemption permitted within the Listing Rules where necessary

to make a one-off award to an Executive Director in this context.

Internal promotion

Where a new Executive Director is appointed by way of internal promotion, the Policy will be consistent with that for

external appointees, as detailed above (other than in relation to “buy-out” awards). Any commitments made prior to

an individual’s promotion will continue to be honoured even if they would not otherwise be consistent with the Policy

prevailing when the commitment is fulfilled, although the Group may, where appropriate, seek to revise an individual’s

existing service contract on promotion to ensure it aligns with other Executive Directors and good practice.

Disclosure on the remuneration structure of any new Executive Director, including details of any “buy-out” awards, will be

disclosed in the RNS notification made at the time of appointment and in the Annual Report on Remuneration for the year

in which recruitment occurred.

External appointments held by Executive Directors

Executive Directors may accept one external appointment subject to approval by the Board, there being no conflicts of

interest and the appointment not leading to deterioration in the individual’s performance. Executive Directors may retain

the fees paid for such roles. Details of external appointments and the associated fees received will be included in the

Annual Report on Remuneration.

Consideration of conditions elsewhere in the Group

The Committee seeks to promote and maintain good relations with employees as part of its broader employee

engagement strategy, considers pay practices across the Group and is mindful of the salary increases applying across

the rest of the business in relevant markets when considering any increases to salaries for Executive Directors.

Consideration of shareholder views

The Committee will take into consideration all shareholder views received during the year and at the Annual General

Meeting each year, as well as guidance from shareholder representative bodies more broadly, in shaping the Group’s

implementation of its Remuneration Policy. It is the Committee’s intention to consult with major shareholders in advance

of making any material changes to remuneration arrangements for Executive Directors.

Directors’ Remuneration report

continued

Governance

Convatec Group Plc Annual Report and Accounts 2022

160

Remuneration Policy for the Non-Executive Directors

Details of the Policy on fees paid to our Non-Executive Directors are set out in the table below:

Purpose and link to strategy

Operation

Opportunity

Performance

measures

Non-Executive Director fees

To attract and retain

Non-Executive Directors of

the highest calibre with

broad commercial and other

experience relevant to the

Group

The fees of the Chair are determined by the

Committee. The fees paid to Non-Executive Directors

are determined by the Chair and Executive Directors.

Additional fees are payable for acting as Senior

Independent Director and for chairing the Audit

and Risk Committee or the Remuneration Committee.

An additional fee is also payable for acting as a Board

Level Representative for the workforce. Flexibility to

introduce Committee membership fees is also

retained if deemed to be necessary.

The maximum aggregate

annual fee for all

Non-Executive Directors

(including the Chair) as

provided in the Group’s

Articles of Association is

£1,500,000.

n/a

Fee levels are reviewed annually (with any increases

normally effective 1 April), taking into account

external advice on best practice and competitive

levels, in particular at other FTSE companies of

comparable size and complexity. Time commitment

and responsibility are also taken into account when

reviewing fees.

Chair and Non-Executive Director fees are paid

in cash.

The Committee reimburses the Chair and Non-

Executive Directors for reasonable expenses

in performing their duties and may settle any tax

incurred in relation to these expenses. For any

Non-Executive Director that is based overseas,

the Group will meet travel and accommodation

expenditure as required to fulfil their Non-

Executive duties.

The fees paid to the Chair and Non-Executive

Directors are disclosed in the Annual Report

on Remuneration.

Fee increases will be

applied taking into

account the outcome of

the annual review.

Non-Executive Directors are not eligible to join the Group’s pension, incentives or share schemes or to participate in any

of the Group’s other benefit arrangements.

In recruiting a new Non-Executive Director, the Committee will use the Policy set out above.

Non-Executive Director letters of appointment

None of the Non-Executive Directors has a service contract with the Group. They do have letters of appointment, and will

be submitted for re-election annually. The dates relating to the appointments of the Chair and Non-Executive Directors

who served during the reporting period are as follows:

Director

Role

Date of

appointment

Date of letter of

appointment

Date of election/

re-election

John McAdam

Non-Executive Chair

30 September 2019

18 August 2019

12 May 2022

Margaret Ewing

Senior Independent Director

11 August 2017

17 August 2017

12 May 2022

Sten Scheibye

Non-Executive Director

3 July 2018

12 May 2022

Brian May

Independent Non-Executive Director

2 March 2020

26 February 2020

12 May 2022

Heather Mason

Independent Non-Executive Director

1 July 2020

8 May 2020

12 May 2022

Constantin Coussios

Independent Non-Executive Director

1 September 2020

29 June 2020

12 May 2022

Kimberly Lody

Independent Non-Executive Director

1 February 2022

13 December 2021

12 May 2022

Sharon O’Keefe

Independent Non-Executive Director

1 March 2022

24 February 2022

12 May 2022

Rick Anderson

Independent Non-Executive Director

31 October 2016

12 October 2016

n/a

Regina Benjamin

Independent Non-Executive Director

11 August 2017

15 August 2017

n/a

Rick Anderson and Regina Benjamin stepped down from the Board on 3 March 2022 and 12 May 2022, respectively.

Overview

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Financial statements

Additional information

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Convatec Group Plc Annual Report and Accounts 2022

Governance

Directors’ report

The Directors present their Annual Report on the

aﬀairs of the Group, together with the Financial

Statements and auditor’s report, for the year

ended 31 December 2022.

Taken together, the Strategic report on pages 4 to 99 and this Directors’ report fulfil the requirements of the Disclosure

Guidance and Transparency Rules to provide a management report.

Information incorporated by reference

The following information is provided in other sections of this Annual Report and is incorporated by reference.

Information

Section where provided

Page

Corporate governance

Corporate governance statements

103

Nomination, Audit and Risk Committee reports

123 to 138

Post-balance sheet events

Financial Statements – Note 30

217

Likely future developments and research and

development activities

Strategic report

10 to 87

Preparation and disclosure of Financial Statements

and Annual Report

Directors’ responsibilities statement

165

Use of financial instruments

Financial Statements – Note 23

209 and 210

Shares held by the Company’s Employee Benefit Trust

Financial Statements – Note 17

199 and 200

Board membership and biographical details

Corporate governance report

110 and 111

Related party transactions

Financial Statements – Note 29

216

Employee engagement

Strategic report

Governance section

118

Greenhouse gas emissions

Strategic report

68 and 69

Engagement with suppliers, customers and others

in a business relationship with the Company

Strategic report

Governance section

44 and 45

118 and 119

Disclosure of information

to the auditor

Each of the Directors, as at the date

of this Annual Report, confirms that:

–

the Director has taken all steps that

he/she ought to have taken as a

Director in order to make him/herself

aware of any relevant audit

information and to establish that

the Company’s auditor is aware of

that information; and

–

so far as the Director is aware, there is

no relevant audit information of which

the Company’s auditor is unaware.

This confirmation is given and should

be interpreted in accordance with

the provision of Section 418 of the

Companies Act 2006. Deloitte LLP have

expressed their willingness to continue

in office as auditor and a resolution to

reappoint them will be proposed at

the 2023 AGM.

Branches of the Company

The Group, through various subsidiary

and related undertakings, has

branches in a number of different

jurisdictions in which the business

operates. Further details are included

in subsidiary undertakings on pages

229 to 231.

Dividends

Our stated policy is to target a payout

ratio of between 35% and 45% of

adjusted net profit. This is interpreted

flexibly over time to reflect the

development of the business. The

Board is recommending a 3.0%

increase in the full year dividend to

reflect the underlying improvement

in business performance.

We annually assess the application of

the policy when proposing the dividend,

taking into account, among other things,

our growth prospects, capital efficiency,

investment plans and the profitability of

the Group, whilst also maintaining

appropriate levels of dividend cover.

Any decision to declare and pay

dividends will be made at the discretion

of the Directors and will depend on,

among other things, applicable law,

regulation, restrictions, strategic

objectives, capital management, the

Group’s various stakeholders (for

further information see the section 172

statement on page 45), review of our

comparator peer group, available and

forecast distributable reserves of the

Company and the forecast cashflows

and liquidity of the Group, and other

factors the Directors deem significant.

During the year, the Directors resolved

to pay an interim dividend of 1.717 cents

per share on 6 October 2022. A scrip

dividend alternative was oﬀered in

respect of the interim dividend allowing

shareholders to elect by 16 September

2022 to receive their dividend in the

form of new ordinary shares. On

6 October 2022, 2,107,103 ordinary

shares of 10p each were allotted to

shareholders who had elected to take

the scrip dividend alternative.

The Directors recommend a final

dividend for the year of 4.330 cents per

share (2021: 4.154 cents) which, together

with the interim dividend, makes a total

for the year of 6.047 cents per share

(2021: 5.871 cents), a 3% increase over

the prior year. The final dividend, if

approved by the shareholders, will be

paid on 25 May 2023 to shareholders on

the register at the close of business on

11 April 2023; a scrip dividend alternative

will also be available to shareholders.

Capital structure

Share capital

As at 31 December 2022, the Company’s

issued share capital consisted of

2,043,872,048 ordinary shares of 10p

each. Further details of the authorised

and issued share capital, together with

details of the movements in the

Company’s issued share capital during

the year, are shown in Note 17 to the

Consolidated Financial Statements.

As at 31 December 2022, the Company

had only one class of share consisting

of ordinary shares of 10p each.

Governance

Directors’

report

Convatec Group Plc Annual Report and Accounts 2022

162

Acquisition of Company’s

own shares

At the Company’s AGM on 12 May 2022

the Directors’ authority was renewed

under shareholders’ resolution to

purchase through the market up to 10%

of the Company’s ordinary shares at a

maximum price per share at the higher

of: (i) an amount equal to 105% of middle

market quotations of the price of shares

for the five business days prior to the

date of purchase; and (ii) an amount

equal to the higher of the last

independent trade and the highest

current independent bid at the time of

purchase. This authority will expire at

the end of Company’s 2023 AGM and the

Company will seek its renewal at the

AGM. It is confirmed that no acquisition

of the Company’s own shares has been

made under such authority.

Shareholders’ rights

The rights attaching to the ordinary

shares are governed by the Company’s

Articles of Association (the Articles) and

prevailing legislation. There are

no specific restrictions on the size of a

holding. Subject to applicable law and

the Articles, holders of ordinary shares

are entitled to receive all shareholder

documents, including notice of any

general meeting, attend, speak and

exercise voting rights at general

meetings, either in person or by proxy,

and participate in any distribution of

income or capital.

Restrictions on voting

There are no specific restrictions on

voting rights, save in situations where

the Company is legally entitled to

impose such restrictions (usually where

amounts remain unpaid on shares after

request, or the shareholder is otherwise

in default of an obligation to the

Company). Currently all issued ordinary

shares are fully paid. There are no

agreements between holders of

securities in the Company that are

known to the Company and may result

in restrictions on transfer or on

voting rights.

Restrictions on the transfer

of ordinary shares

The transfer of ordinary shares is

governed by the general provisions of

the Company’s Articles and applicable

legislation. There are no restrictions on

the transfer of ordinary shares other

than: (i) as set out in the Articles; and (ii)

certain restrictions which may from time

to time be imposed by laws and

regulations and pursuant to the Listing

Rules whereby Directors and certain

officers and employees of the Company

require approval to deal in the ordinary

shares in accordance with the

Company’s share dealing policies and

the Market Abuse Regulation.

Directors’ appointment,

replacement and powers

The appointment and replacement of

Directors of the Company is governed

by its Articles, the Code, the Companies

Act and related legislation. The Articles

themselves may be amended by special

resolution. Details of the powers of the

Board and its Committees are described

in the Corporate governance report on

page 115. The powers of the Board are set

out in the Articles and the Terms of

Reference of each of the Board’s

committees set out their respective

duties and responsibilities. The

aforementioned documents can be

found at www.convatecgroup.com/

investors/governance.

Significant agreements

There are a number of agreements that

take eﬀect, alter or terminate upon a

change of control of the Company such

as commercial contracts, bank loan

agreements, property lease

arrangements and employees’ share

plans. Other than the Group’s main

funding agreements referenced in the

following paragraph, none of these are

considered to be signiﬁcant in terms of

their likely impact on the business of

the Group as a whole. Furthermore,

the Directors are not aware of any

agreements between the Group and

its Directors or employees that provide

for compensation for loss of oﬃce or

employment that occurs because

of a change of control resulting from

a takeover bid.

In the event of a change of control of the

Company, the Group’s main funding

agreements allow the lenders to give

notice of repayment for all outstanding

amounts under the relevant facilities.

Directors’ indemnities

The Group has made qualifying

third-party indemnity provisions for

the beneﬁt of its Directors, which were

made during the year and remain in

force at the date of this report.

Company Secretary

The Company Secretary provides

ongoing support to the Board in

relation to corporate governance issues

and compliance with the Listing Rules.

She is responsible for establishing,

implementing and monitoring the

corporate governance framework,

attending (directly or through a

designate) all Board and committee

meetings, advising on effective Board

processes, advising on Directors’

statutory duties, disclosure obligations

and requirements under the Listing

Rules, and working in conjunction with

the investor relations team regarding

dialogue with investors.

Political donations

No political donations, including to

non-UK political parties, were made

during the period. Information about

the Group’s lobbying activities is

included on page 45.

Substantial shareholdings

At 31 December 2022 the Company had been notified in accordance with Chapter 5 of the Disclosure Guidance and

Transparency Rules, of the following voting rights as a shareholder of the Company. At 8 March 2023, being the latest

practicable date prior to the publication of this Annual Report, the Company had not received any further notifications

pursuant to Chapter 5 of the Disclosure Guidance and Transparency Rules.

Shareholder

No. of ordinary shares

Percentage of

voting rights

Nature of holding

Novo Holdings A/S

395,318,793

20.25%

Direct holding

The Capital Group Companies, Inc.

97,418,767

4.9911%

Indirect holding

Artisan Partners Limited Partnership

97,980,658

4.98%

Indirect holding

Pelham Capital LTD.

93,526,729

4.71%

Direct holding/

Financial instruments

Black Creek Investment Management, Inc.

80,048,681

Direct holding/

Indirect holding

Standard Life Aberdeen Plc

Below 5%

Indirect holding

BlackRock, Inc.

Below 5%

Indirect holding/

Financial instruments

It should be noted that the percentages are shown as notified and that these holdings are likely to have changed since the Company was notified, however

notification of any change is not required until the next notifiable threshold is crossed.

Overview

Strategic report

Financial statements

Additional information

163

Convatec Group Plc Annual Report and Accounts 2022

Governance

Directors’ report

continued

Relationship agreement with

controlling shareholders

Novo Holdings A/S (Novo) became a

significant shareholder on 31 March

2017 and the Company entered a

relationship agreement with Novo

on such date as required by Listing

Rule 9.2.2A R(2)(a). Given its significant

investment in the Company, Novo is

entitled to appoint one Non-Executive

Director to the Board for so long as

they and their associates are entitled

to exercise, or control the exercise of,

10% or more of the votes able to be

cast on all or substantially all matters

at general meetings of the Company.

In the financial period to 31 December

2022 (and also from 31 December

2022 to 8 March 2023, being the

latest practicable date prior to

publication of this Annual Report),

the Company has complied with

the independence provisions of the

relationship agreement, and so far as

the Company is aware, Novo and their

associates also complied with the

independence provisions.

Diversity and inclusion

We are committed to creating a

values-led, performance-driven

culture which starts with our

employees, and we aim to bring

together a rich diversity of

backgrounds, experiences,

preferences and capabilities which

unite together to improve people’s

lives through their work at Convatec.

The Board considers a diverse

workforce as critical to its success.

Information about the Group’s

initiatives to achieve diversity

across the business, including

specific objectives, are contained

on pages 59 and 60.

Employment of disabled people

Applications for employment by

disabled people are always fully

considered, bearing in mind the

aptitudes of the applicant concerned.

In the event of members of staﬀ

becoming disabled every eﬀort is

made to ensure that their employment

with the Group continues and that

appropriate training is arranged.

It is the policy of the Group that the

training, career development and

promotion of anyone with a disability

should, as far as possible, be identical

to that of other employees.

Employee share schemes

In addition to the discretionary share

schemes operated as part of the

Group’s long-term incentives, detailed

in the Remuneration Policy on page

156, the Group operates an all-

employee share scheme in selected

jurisdictions. The Directors believe

that this scheme aligns the interests

of employees and shareholders by

encouraging employees to buy and

own shares in the Company, thus

enabling them to benefit directly from

the anticipated growth and success of

the Group in the future.

Executive Directors may also

participate in the UK all-employee

share scheme, which is an HMRC

approved savings-related share option

plan, on the same basis as other

eligible employees. All participants

may invest up to the limits set in line

with HMRC guidance and as operated

by the Group.

Shares acquired through the Group’s

share plans rank pari passu with

existing ordinary shares in issue and

have no special rights with regards to

voting, rights to dividend, control of

the Company or otherwise.

All of the Group’s employee share

plans contain provisions relating to

a change of control. On a change of

control, options and awards granted

to employees under the Group’s

share plans may vest and become

exercisable, subject to the satisfaction

of any applicable performance

conditions at that time.

Listing Rules – compliance with LR 9.8.4R

The information required to be disclosed by LR 9.8.4R can be found in the following locations. There are no other

disclosures required under this LR.

Section

Applicable sub-paragraph within LR 9.8.4R

Location

Interest capitalised

Group Financial Statements, Note 25, page 212

Details of long-term incentive schemes

Directors’ Remuneration report, page 156

Confirmation of relationship agreement

Directors’ report, page 164

Annual General Meeting

The Annual General Meeting will be held on 18 May 2023 at 2pm and will take place at 3 Forbury Place, 23 Forbury Road,

Reading, RG1 3JH, in the form of a hybrid meeting. Notice of the meeting, containing details of the resolutions to be put to

the meeting, will be available at www.convatecgroup.com/investors/shareholder-centre/agm-information/.

By order of the Board:

Evelyn Douglas

Company Secretary

8 March 2023

Convatec Group Plc is registered in England No. 10361298

Governance

Convatec Group Plc Annual Report and Accounts 2022

164

Directors’ responsibilities statement

The Directors are responsible for

preparing the Annual Report and the

Financial Statements in accordance

with applicable law and regulations.

Company law requires the Directors

to prepare financial statements for

each financial year. Under that law

the Directors are required to prepare

the Group Financial Statements in

accordance with United Kingdom

adopted International Accounting

Standards and have elected to

prepare the parent company financial

statements in accordance with United

Kingdom Generally Accepted

Accounting Practice (United Kingdom

Accounting Standards and applicable

law), including FRS 101 “Reduced

Disclosure Framework”. Under

company law the Directors must

not approve the accounts unless they

are satisfied that they give a true and

fair view of the state of affairs of the

Group and Company and of the profit

or loss of the Group and Company for

that period.

In preparing the parent company’s

financial statements, the Directors are

required to:

–

select suitable accounting policies

and then apply them consistently;

–

make judgements and accounting

estimates that are reasonable

and prudent;

–

state whether applicable UK

Accounting Standards have been

followed, subject to any material

departures disclosed and explained

in the Financial Statements; and

–

prepare the Financial Statements on

the going concern basis unless it is

inappropriate to presume that the

Company will continue in business.

In preparing the Group Financial

Statements, International Accounting

Standard 1 requires that Directors:

–

properly select and apply

accounting policies; present

information, including accounting

policies, in a manner that provides

relevant, reliable, comparable and

understandable information;

–

provide additional disclosures

when compliance with the

specific requirements in IFRSs are

insufficient to enable users to

understand the impact of particular

transactions, other events and

conditions on the Group’s financial

position and financial performance;

and

–

make an assessment of the Group’s

ability to continue as a going

concern.

The Directors are responsible for

keeping adequate accounting records

that are sufficient to show and explain

the Group and Company’s

transactions and disclose with

reasonable accuracy at any time the

financial position of the Group and

Company and enable them to ensure

that the Financial Statements comply

with the Companies Act 2006. They are

also responsible for safeguarding the

assets of the Group and Company and

hence for taking reasonable steps for

the prevention and detection of fraud

and other irregularities.

The Directors are responsible for

the maintenance and integrity of the

corporate and financial information

included on the Group’s website.

Legislation in the United Kingdom

governing the preparation and

dissemination of financial statements

may differ from legislation in other

jurisdictions.

Responsibility statement

We confirm that to the best of our

knowledge:

–

the Financial Statements, prepared

in accordance with the relevant

financial reporting framework, give

a true and fair view of the assets,

liabilities, financial position and

profit or loss of the Company and

the undertakings included in the

consolidation taken as a whole;

–

the Strategic report includes a fair

review of the development and

performance of the business and

the position of the Company and

the undertakings included in the

consolidation taken as a whole,

together with a description of the

principal risks and uncertainties

that they face; and

–

the Annual Report and Financial

Statements, taken as a whole, are

fair, balanced and understandable

and provide the information

necessary for shareholders to

assess the Group and Company’s

performance and position,

business model and strategy.

This responsibility statement was

approved by the Board of Directors

on 8 March 2023 and is signed on

its behalf by:

Karim Bitar

Chief Executive Officer

Jonny Mason

Chief Financial Officer

Overview

Strategic report

Financial statements

Additional information

165

Convatec Group Plc Annual Report and Accounts 2022

Governance

What’s inside

Convatec Group Plc Annual Report and Accounts 2022

166

Financial statements

168

Consolidated financial statements

218

Company financial statements

224 Non-IFRS financial information

232

Independent auditor’s report

Financial

statements

167

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

Convatec Group Plc Annual Report and Accounts 2022

167

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2022

Notes

2022

2021

Revenue

2,072.5

2,038.3

Cost of sales

(968.6)

(915.2)

Gross profit

1,103.9

1,123.1

Selling and distribution expenses

(575.9)

(539.7)

General and administrative expenses

(214.9)

(285.3)

Research and development expenses

(92.0)

(94.5)

Other operating expenses

(13.8)

–

Operating profit

207.3

203.6

Finance income

5.5

0.8

Finance expense

(73.2)

(44.3)

Non-operating expense, net

(57.7)

(8.8)

Profit before income taxes

81.9

151.3

Income tax expense

(19.0)

(33.7)

Net profit

62.9

117.6

Earnings per share

Basic earnings per share (cents per share)

3.1¢

5.9¢

Diluted earnings per share (cents per share)

3.1¢

5.8¢

The accounting policies and notes on pages 172 to 217 form an integral part of the Consolidated Financial Statements.

All amounts are attributable to shareholders of the Group and wholly derived from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2022

Notes

2022

2021

Net profit

62.9

117.6

Other comprehensive (expense)/income

Items that will not be reclassified subsequently to the Consolidated Income Statement

Remeasurement of defined benefit pension plans, net of tax

8.4

3.3

Change in pension asset restriction

–

1.3

Items that may be reclassified subsequently to the Consolidated Income Statement

Foreign currency translation, net of tax

(113.6)

(29.6)

Realisation of cumulative translation adjustments

12.2

–

Effective portion of changes in fair value of cash flow hedges

(7.7)

(5.1)

Changes in fair value of cash flow hedges reclassified to the Consolidated Income Statement

16.5

5.7

Costs of hedging

(1.1)

(0.4)

Income tax in respect of items that may be reclassified

2.4

(0.9)

Other comprehensive expense

(82.9)

(25.7)

Total comprehensive (expense)/income

(20.0)

91.9

All amounts are attributable to shareholders of the Group and wholly derived from continuing operations.

Consolidated Financial Statements

Convatec Group Plc Annual Report and Accounts 2022

168

Financial statements

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2022

Notes

2022

2021

Assets

Non-current assets

Property, plant and equipment

400.4

366.7

Right-of-use assets

79.4

83.6

Intangible assets and goodwill

2,149.5

2,058.5

Investment in financial assets

30.7

–

Deferred tax assets

26.6

28.9

Derivative financial assets

0.2

–

Restricted cash

7.3

13.6

Other non-current receivables

8.6

11.9

2,702.7

2,563.2

Current assets

Inventories

336.9

308.8

Trade and other receivables

364.0

323.5

Derivative financial assets

26.4

15.1

Restricted cash

18.2

–

Cash and cash equivalents

143.8

463.4

889.3

1,110.8

Total assets

3,592.0

3,674.0

Equity and liabilities

Current liabilities

Trade and other payables

346.6

342.5

Borrowings

–

144.8

Lease liabilities

20.3

19.7

Current tax payable

33.5

45.5

Derivative financial liabilities

32.5

11.7

Provisions

100.2

5.0

533.1

569.2

Non-current liabilities

Borrowings

1,211.9

1,199.8

Lease liabilities

68.0

70.8

Deferred tax liabilities

83.2

87.2

Provisions

53.1

1.7

Derivative financial liabilities

0.3

2.9

Other non-current liabilities

32.7

47.6

1,449.2

1,410.0

Total liabilities

1,982.3

1,979.2

Net assets

1,609.7

1,694.8

Equity

Share capital

250.7

247.0

Share premium

165.7

142.3

Own shares

(1.5)

(2.2)

Retained deficit

(892.2)

(842.0)

Merger reserve

2,098.9

Cumulative translation reserve

(177.1)

(75.7)

Other reserves

165.2

126.5

Total equity

1,609.7

1,694.8

Total equity and liabilities

3,592.0

3,674.0

The Consolidated Financial Statements of Convatec Group Plc, company number 10361298, were approved by the Board of

Directors and authorised for issue on 8 March 2023 and signed on its behalf by:

Jonny Mason

Karim Bitar

Chief Financial Officer

Chief Executive Officer

169

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2022

Notes

capital

premium

Own

Retained

deficit

Merger

reserve

Cumulative

translation

reserve

Other

reserves

Total

At 1 January 2021

245.5

115.3

(6.7)

(845.3)

2,098.9

(46.1)

109.1

1,670.7

Net profit

–

117.6

–

117.6

Other comprehensive income:

Foreign currency translation

adjustment, net of tax

–

(29.6)

–

(29.6)

Remeasurement of defined benefit

pension plans, net of tax

–

3.3

Change in pension asset restriction

–

1.3

Changes in fair value of cash flow

hedges, net of tax

–

(0.7)

Other comprehensive

(expense)/income

–

(29.6)

3.9

(25.7)

Total comprehensive income

–

117.6

–

(29.6)

3.9

91.9

Dividends paid

–

(85.8)

–

(85.8)

Scrip dividend

17, 18

1.5

27.0

–

(28.5)

–

Share-based payments

–

16.4

Share awards vested

–

4.5

–

(3.5)

1.0

Excess deferred tax benefit from

share-based payments

–

0.6

At 31 December 2021

247.0

142.3

(2.2)

(842.0)

2,098.9

(75.7)

126.5

1,694.8

Net profit

–

62.9

–

62.9

Other comprehensive

(expense)/income:

Foreign currency translation

adjustment, net of tax

–

(113.6)

–

(113.6)

Realisation of cumulative translation

adjustments

5, 27

–

12.2

–

12.2

Remeasurement of defined benefit

pension plans, net of tax

–

8.4

Changes in fair value of cash flow

hedges, net of tax

–

10.1

Other comprehensive

(expense)/income

–

(101.4)

18.5

(82.9)

Total comprehensive

income/(expense)

–

62.9

–

(101.4)

18.5

(20.0)

Dividends paid

–

(88.1)

–

(88.1)

Scrip dividend

17, 18

1.1

23.4

–

(24.5)

–

Allotment of shares to Employee

Benefit Trust

2.6

–

(2.6)

–

Share-based payments

–

16.6

Share awards vested

–

3.3

–

2.9

6.2

Excess deferred tax benefit from

share-based payments

–

0.2

Transfer between reserves

–

(0.5)

–

0.5

–

At 31 December 2022

250.7

165.7

(1.5)

(892.2)

2,098.9

(177.1)

165.2

1,609.7

Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

170

Financial statements

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2022

Notes

2022

2021

Cash flows from operating activities

Net profit

62.9

117.6

Adjustments for

Depreciation of property, plant and equipment

39.7

40.6

Depreciation of right-of-use assets

22.1

22.8

Amortisation of intangible assets

147.4

147.2

Income tax

19.0

33.7

Non-operating expense, net

56.0

4.5

Finance costs, net

67.7

43.5

Share-based payments

16.7

16.4

Impairment/write-off of intangible assets

6.3

2.9

Impairment/write-off of property, plant and equipment

9.2

3.0

Change in assets and liabilities:

Inventories

(36.3)

(19.6)

Trade and other receivables

(63.6)

(29.4)

Other non-current receivables

3.0

1.1

Restricted cash

(11.8)

(8.4)

Trade and other payables

40.7

10.7

Other non-current payables

5.5

14.0

Net cash generated from operations

384.5

400.6

Interest received

5.5

0.8

Interest paid

(55.4)

(36.3)

Income taxes paid

(52.9)

(59.2)

Net cash generated from operating activities

281.7

305.9

Cash flows from investing activities

Acquisition of property, plant and equipment and intangible assets

8, 9

(144.2)

(94.1)

Acquisitions, net of cash acquired

(123.3)

(113.8)

Payment of contingent consideration arising from acquisitions

(50.0)

–

Net cash (outflow)/inflow arising from divestitures

(0.1)

1.4

Investment in financial assets

(30.7)

–

Net cash used in investing activities

(348.3)

(206.5)

Cash flows from financing activities

Repayment of borrowings

(842.5)

(583.9)

Proceeds from borrowings

714.2

491.8

Payment of lease liabilities

(20.7)

(22.0)

Dividends paid

(88.1)

(85.8)

Net cash used in financing activities

(237.1)

(199.9)

Net change in cash and cash equivalents

(303.7)

(100.5)

Cash and cash equivalents at beginning of the year

463.4

565.4

Effect of exchange rate changes on cash and cash equivalents

(15.9)

(1.5)

Cash and cash equivalents at end of the year

143.8

463.4

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Governance

Strategic report

Overview

Financial statements

1. BASIS OF PREPARATION

This section describes the Group’s significant accounting policies that relate to the Consolidated Financial Statements

and explains critical accounting judgements and estimates that management has identified as having a potentially

material impact to the Group. Specific accounting policies relating to the Notes to the Consolidated Financial Statements

are described within that note.

1.1 General information

Convatec Group Plc (the Company) is a public limited company incorporated in the United Kingdom under the Companies

Act of 2006. The Company's registered office is 3 Forbury Place, 23 Forbury Road, Reading RG1 3JH, United Kingdom.

The Consolidated Financial Statements have been prepared in accordance with United Kingdom adopted international

accounting standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting

Standards Board (IASB).

The Consolidated Financial Statements are presented in US dollars (USD), reflecting the profile of the Company and its

subsidiaries (collectively, the Group) revenue and operating profit, which are primarily generated in US dollars and US dollar-

linked currencies. All values are rounded to $0.1 million except where otherwise indicated.

Pages 2 and 3 in the Strategic report provide further detail of the Group's principal activities and nature of its operations.

1.2 Significant accounting policies

The following significant accounting policies apply to the Consolidated Financial Statements as a whole:

Basis of accounting and presentation

The consolidated financial information has been prepared on a historical cost basis, except for certain financial instruments

where fair value has been applied. Historical cost is generally based on the fair value of the consideration given in exchange

for goods and services.

Basis of consolidation

The Consolidated Financial Statements include the results of the Company and all its subsidiary undertakings. Subsidiaries

are entities controlled by the Group. Control exists when the Group: (i) has power over the investee; (ii) is exposed, or has

rights, to variable returns from its involvement in the investee; and (iii) has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one

or more of the three elements of control listed above.

The consolidated financial information of the Company's subsidiaries is included within the Group's Consolidated Financial

Statements from the date that control commences until the date that control ceases and is prepared for the same year-end

date using consistent accounting policies.

Going concern

As discussed in the Financial review on pages 30 to 38, the overall financial performance of the business remains strong with a

robust liquidity position.

As at 31 December 2022, the Group held cash and cash equivalents of $143.8 million (31 December 2021: $463.4 million), and

borrowings of $1,211.9 million (31 December 2021: $1,344.6 million). During the year, the Group refinanced its bank facilities with

$1.2 billion committed for five years at the appropriate reference rate plus margins of 1.75% and 2.00% for the multicurrency

revolving credit facility and the term loan facility respectively. The new credit facility of $1.2 billion comprises a $250.0 million

term loan and a $950.0 million multicurrency revolving facility. The borrowings as at 31 December 2022 comprised senior

notes of $500.0 million, term loan of $250.0 million, and multicurrency revolving credit facilities of $477.2 million, net of

unamortised financing fees of $15.3 million. The senior notes are repayable in 2029 and the term loan and multicurrency

revolving credit facilities are repayable in 2027. $472.8 million of the multicurrency revolving credit facilities remained

undrawn as at 31 December 2022, which together with cash and cash equivalents of $143.8 million, provided the Group with

total liquidity of $616.6 million as at that date (2021: $663.4 million). The principal financial covenants remained unchanged

and as at 31 December 2022, the Group was in compliance with its financial covenants.

In preparing their assessment of going concern, the Directors have considered available cash resources, financial performance

and forecast performance, including strategy delivery, together with the Group’s financial covenant compliance requirements

and principal risks and uncertainties. The Directors have used cash flow forecasts derived from actual performance in 2022,

the Board approved 2023 budget and longer-term strategic plan as foundations. The forecasts reflected the full potential

funding requirements in relation to the remaining estimated contingent consideration payable in relation to the Triad Life

Sciences and Cure Medical acquisitions, and the impact of exiting hospital care and industrial sales activities. The Directors

have considered a going concern period to 31 December 2024, which is at least 21 months from the date of approval of the

Consolidated Financial Statements.

Notes to the Consolidated Financial Statements

Convatec Group Plc Annual Report and Accounts 2022

172

Financial statements

In accordance with FRC guidance, management applied severe but plausible downside scenarios linked to the Group’s

principal and emerging risks, including supply chain disruption, cyber security disruption, significant regulatory breaches,

financial market distress and geopolitical events and sanctions to a key global market. Further details of the specific

scenarios are provided in the Viability statement on page 99. The Board has reviewed these scenarios as part of the going

concern assessment and has concluded that these scenarios are in line with the Group’s principal and emerging risks and

continue to reflect the financial risk of severe but plausible downside events and circumstances during the going concern

period. Under each scenario, the Group is forecast to retain significant liquidity and covenant headroom throughout the

going concern period.

The Group has carried out reverse stress test against the forecast base case to determine the performance levels that would

result in a breach of covenants. For a breach of covenants to occur in the next 12 months, before mitigation, the Group would

need to experience a sustained revenue reduction of more than 10% across all categories and markets. This was considered to

be implausible given the Group’s strong global market position and diversified portfolio of products and the mitigations

available to the Board and management, which include minimising capital expenditure to critical requirements and reducing

levels of discretionary spend.

Accordingly, at the time of approving these Consolidated Financial Statements, the Directors have a reasonable expectation

that the Group and the Company will have adequate liquid resources to meet their respective liabilities as they become due

and will be able to sustain its business model, strategy and operations and remain solvent for a period of at least 12 months

from 8 March 2023.

Foreign currency translation and transactions

Assets and liabilities of subsidiaries whose functional currency is not US dollars are translated into US dollars at the rate of

exchange at the period end. Income and expenses are translated into US dollars at the average rates of exchange prevailing

during the year. Foreign currency gains and losses resulting from the translation of subsidiaries into US dollars are recognised

in the Consolidated Statement of Comprehensive Income. Exchange differences arising from the translation of the net

investment in foreign operations are taken to the cumulative translation reserve within equity. They are recycled and

recognised in the Consolidated Income Statement upon disposal of the operation.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional

currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each

reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates

prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated

at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of

historical cost in a foreign currency are not retranslated. Any gain or loss arising from subsequent exchange rate movements

is included as an exchange gain or loss in the Consolidated Income Statement.

1.3 Climate change

The Directors recognise the risk of climate change on the business and acknowledge that the Group must take appropriate

action to mitigate and, where feasible, prevent further climate change impact. Accordingly, climate related risks are considered

within the “Environment and Communities” principal risks and are discussed in greater detail in the “Principal risks” section

within the Annual Report and Accounts.

Whilst the valuation of our assets and liabilities has not been materially impacted as at 31 December 2022, the Group will

continue to monitor possible implications of climate related risks that could arise in future years on both future cash flows

and the valuation of the Group’s assets and liabilities, as Government policies and the Group’s own strategy and transition

plans evolve. Further detail is provided within the “Responsible business review – communities” and “TCFD disclosure”

sections of the Annual Report and Accounts on pages 66 to 87.

1.4 Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements, in conformity with adopted IFRS, requires management to make judgements,

estimates and assumptions that affect the application of accounting policies and the reported value of assets and liabilities,

income and expense. Actual results may differ from these estimates or judgements of likely outcome. Management regularly

reviews, and revises as necessary, the accounting judgements that significantly impact the amounts recognised in the

Consolidated Financial Statements and the sources of estimation uncertainty that are considered to be “key estimates”

due to their potential to give rise to material adjustments in the Group’s Consolidated Financial Statements within the next

financial year.

Considerations for the identification of critical accounting judgements and key estimates

A detailed assessment was performed by management of the potential impact on each balance sheet caption and associated

accounting estimates and judgements at each reporting date during the year. In preparing the Consolidated Financial

Statements, no critical accounting judgements have been identified. A key estimate has been identified in relation to the

valuation of the contingent consideration related to the acquisition of Triad Life Sciences Inc (Triad Life Sciences).

As detailed further in the Group’s Audit and Risk Committee report on pages 126 to 138, the Committee has reviewed,

discussed, and challenged management on identification and, where appropriate, the determination of its critical accounting

judgements and key estimates.

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Financial statements

1. BASIS OF PREPARATION (CONTINUED)

Valuation of the contingent consideration in relation to the acquisition of Triad Life Sciences

The contingent consideration is based on both specified post-acquisition financial and non-financial performance targets

as defined by the Merger Agreement. The contingent consideration is fair valued at the date of acquisition with key inputs

including a weighted probability of different scenarios and revenue projections based on internal forecasts, discounted using

an appropriate discount rate that reflects the relative risk of the investment as well as the time value of money.

Actual revenue results may differ from estimates, leading to a change in the fair value of the contingent consideration.

Management has identified that reasonably possible changes in certain key assumptions and forecasts may cause the

calculated fair value of the contingent consideration to vary materially within the next financial year. The maximum

undiscounted contingent consideration payable under the Merger Agreement was $325.0 million, of which $50.0 million

was paid during the year following successful attainment of the two short-term milestones. The estimated discounted fair

value of the remaining contingent consideration payable as at 31 December 2022 was $130.8 million.

Management has determined that the reasonable potential range of discounted outcomes within the next financial year is

between $85.2 million and $230.8 million, compared to a maximum remaining undiscounted contingent consideration of

$275.0 million.

The timing and amount of future contingent elements of consideration is therefore considered a key source of estimation

uncertainty. Refer to Note 26 – Acquisitions for more information.

1.5 Accounting standards

New standards, interpretations and amendments applied for the first time

On 1 January 2022, the Group adopted the following amendments which are mandatorily effective for the period beginning

1 January 2022:

•

Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);

•

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);

•

Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41);

and

•

References to Conceptional Framework (Amendments to IFRS 3).

The adoption during the year of the amendments and interpretations has not had a material impact on the Consolidated

Financial Statements.

Apart from these changes, the accounting policies set out in the Notes have been applied consistently to both years

presented in these Consolidated Financial Statements.

New standards, interpretations and amendments not yet effective

There are a number of standards, amendments to standards and interpretations which have been issued by the IASB that are

effective in future accounting periods that the Group has decided not to adopt early.

The following amendments are effective for the period beginning 1 January 2023:

•

Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);

•

Definition of Accounting Estimates (Amendments to IAS 8);

and

•

Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).

The following amendments are effective for the period beginning 1 January 2024:

•

IFRS 16 Leases (Amendment – Liability in a Sale and Leaseback);

•

IAS 1 Presentation of Financial Statements (Amendment – Classification of Liabilities as Current or Non-current);

and

•

IAS 1 Presentation of Financial Statements (Amendment – Non-current liabilities with Covenants)

The Group is currently assessing the impact of these new accounting standards and amendments and does not believe these

will have a material impact on the Group.

Other interpretations and amendments

In addition to these issued standards, there are a number of other interpretations, amendments and annual improvement

project recommendations that have been issued but not yet effective that have not yet been adopted by the Group because

application is not yet mandatory, or they are not relevant for the Group.

•

IFRS 17 – Insurance contracts (effective from 1 January 2023)

is ultimately intended to replace IFRS 4. It sets out the

requirements that a company should apply in reporting information about insurance contracts it issues and reinsurance

contracts it holds. The Group believes that the adoption of IFRS 17 will not have a significant impact on the Consolidated

Financial Statements.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

174

Financial statements

RESULTS OF OPERATIONS

This section includes disclosures explaining the Group’s performance for the year, including segmental information,

operating costs, other expenses, taxation and earnings per share.

2. REVENUE AND SEGMENTAL INFORMATION

2.1 Revenue recognition

The Group sells a broad range of products to a wide range of customers, including healthcare providers, patients and

manufacturers. This note provides further information about how the Group generates revenue and when it is recognised

in the Consolidated Income Statement.

Accounting policy

Revenue recognition

The Group measures revenue for goods sold based on the consideration specified in a contract with a customer, net of

discounts, chargeback allowances and sales-related taxes. Revenue is recognised when control over a product or service is

transferred to a customer, distributor or wholesaler, which is generally when goods have been delivered, as most products

are insured by the Group until delivery. Due to the short-term nature of the receivables from sale of goods, the Group

measures them at the original transaction price without discounting. The transaction price is the amount the Group

expects to receive at that date.

Nature of goods and services

Advanced Wound Care, Ostomy Care, Continence and Critical Care products are sold to pharmacies, hospitals and other

acute and post-acute healthcare service providers directly or through distributors and wholesalers. Products are also sold

directly to end customers (patients) through the Group's home services entities and a small number of clinical and retail

outlets. Infusion Care primarily serves business-to-business customers, consisting principally of the leading insulin pump

manufacturers. A small proportion of its revenue is derived from business-to-business urology product sales.

In 2022 and 2021, no single customer generated more than 10% of the Group's revenue.

Nature, timing of satisfaction of performance obligations

Principally, the Group's contracts with customers contain a single performance obligation, that is the delivery of products

to customers. Revenue is typically recognised when the customer receives the product but is subject to the shipping terms

in each individual contract. Where non-standard shipping arrangements exist, revenue is recognised when control of the

goods has transferred. Allowances for returns, where the contract specifies these terms, are made at the point of sale.

For sales to distributors, revenue is recognised when title is transferred to the distributor and the distributor has assumed

control, the timing of which depends on the contractual terms with each distributor. Chargeback allowances or

contractual deductions relating to end-customer agreements, which may differ from distributor contracts, are made at

the point of title transfer to the distributor. In certain European countries, rebates are provided to governments and are

often mandated by laws or government regulations. These rebates are estimated based on government regulations and

unbudgeted spending, laws and terms of individual rebate agreements, and are recorded as a deduction from revenue

at the time the related revenue is recorded. The estimates are adjusted periodically to reflect actual experience.

When distributors buy products from the Group at a contract price and sell these products to end-customers at a price

agreed with the Group that is lower than the distributors’ list price, a chargeback may arise and a claim may be submitted

to the Group by the distributor. The provision for chargebacks is based on expected sell-through levels by the Group’s

distributors to contracted customers, as well as estimated distributor inventory levels. Retrospective claims are reviewed

against estimations to ensure provisions are regularly updated.

Volume discounts

The Group offers certain prospective volume discounts to customers who achieve a specified volume amount or value

of purchases in any given year. Volume discounts that meet the definition of a material right are recognised as a separate

performance obligation. Material rights are the option to purchase additional products at a discount which would not have

been given had the contract not been entered into and are incremental to the range of discounts typically given for those

goods to that class of customer.

The stand-alone selling price of these volume discounts is based on the discount that the customer would obtain when

exercising the option, adjusted for any discount the customer could receive without exercising the option and the

likelihood that the option will be exercised. The revenue allocated to volume discounts is short term in nature and

recognised proportionally to the pattern of options exercised by the customer or when the option expires.

175

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Financial statements

2. REVENUE AND SEGMENTAL INFORMATION (CONTINUED)

Contract costs

Incremental costs in respect of obtaining a contract with a customer principally relate to commissions paid by the Group

to its sales representatives. Such costs are capitalised as an asset to the extent that they directly relate to a specific contract,

are used to generate or enhance resources used in satisfying performance obligations and are expected to be recovered.

The amortisation period for commissions can differ according to the contract term. Renewals of milestones in the contract

are taken into account when determining the amortisation period. For each contract that has sales commissions paid, the

Group has determined an appropriate amortisation period that is consistent with the transfer of control to the customer.

These capitalised costs amounted to $5.4 million (2021: $5.6 million) at 31 December 2022 and the amount of related

amortisation expense for the year ended 31 December 2022 was $4.3 million (2021: $3.6 million). There was no impairment

loss in respect of the costs capitalised.

Contract balances

The Group recognises contract liabilities that are primarily in respect of advance consideration received from customers

prior to transfer of the related products and material rights offered to customers for options to purchase additional

goods. The contract liability balance at 31 December 2022 was $1.3 million (2021: $4.9 million).

2.2 Segment information

The Board considers the Group’s business to be a single segment entity engaged in the development, manufacture and

sale of medical products, services and technologies. R&D, manufacturing and central support functions are managed

globally for the Group, supporting all categories of sales. Revenues are managed both on a category and regional basis.

This note presents the performance and activities of the Group as a single segment.

Pages 22 to 29 of the Strategic report provide further detail of category revenue.

The Group's CEO, who is the Group's Chief Operating Decision Maker, evaluates the Group's global product portfolios on a

revenue basis and evaluates profitability and associated investment on an enterprise-wide basis due to shared infrastructures

and support functions between the categories and geographies. Financial information in respect of revenues provided to the

CEO for decision-making purposes is made on both a category and geographic basis. Resources are allocated on a Group-wide

basis, with a focus on key categories and the key markets. The allocations are based on the relative merits of the individual

proposals across the Group.

Revenue by category

The Group generates revenue across four major product

categories. The following chart sets out the Group's

revenue for the year ended 31 December by category:

Revenue by category ($m)

Geographic markets

The following chart sets out the Group's revenue by

geographic market in which third-party customers

are located:

Revenue by geography ($m)

2021

522.1

620.7

Advanced

Wound Care

Advanced

Wound Care

Ostomy Care

Continence &

Critical Care

Continence &

Critical Care

Infusion Care

546.3

383.4

2022

2,072.5

546.5

592.3

542.9

356.6

2,038.3

688.6

Europe

North America

RoW

(1)

Europe

North America

RoW

(1)

1,090.3

293.6

2022

2,072.5

741.6

1,022.1

274.6

2,038.3

2021

Rest of World (RoW) comprises all countries in Asia-Pacific,

Latin America (including Mexico and the Caribbean), South America,

the Middle East (including Turkey) and Africa.

From 2023 onwards, Flexi-Seal

(2022 revenue: $65.8 million), our faecal management system, will move from Continence &

Critical Care to Ostomy Care. The remaining industrial sales, predominantly continence-related supplies for B2B customers

(2022 revenue: $16.7 million) will move from Infusion Care into Continence Care. Going forward the Continence & Critical Care

category will be renamed Continence Care.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

176

Financial statements

Geographic regions

The following table sets out the Group's revenue on the basis of where the legal entity generating the revenue resides,

including countries representing over 10% of Group revenue and the UK, where the Group is domiciled:

2022

2021

Geographic regions

749.8

704.1

131.5

147.2

Denmark

371.7

346.8

Other

819.5

840.2

2,072.5

2,038.3

Other consists primarily of other countries in Europe, Asia-Pacific, Latin America and Canada.

The following table sets out the Group's long-lived assets by country in which the legal entity resides:

2022

2021

Long-lived assets

1,349.6

1,141.9

695.7

777.8

Denmark

266.0

272.6

Other

318.0

316.5

Total long-lived assets

2,629.3

2,508.8

Long-lived assets consist of property, plant and equipment, right-of-use assets, intangible assets and goodwill.

3. OPERATING COSTS

The Group incurs operating costs associated with the day-to-day operation of the business. These operating costs are

deducted from revenue to calculate operating profit.

3.1 Operating profit

Operating profit is stated after deducting from revenue:

Notes

2022

2021

Depreciation:

Property, plant and equipment

39.7

40.6

Right-of-use assets

22.1

22.8

Amortisation of intangible assets

147.4

147.2

Impairment/write-off of intangible assets

6.3

2.9

Impairment/write-off of property, plant and equipment

9.2

3.0

Loss on terminated leases

0.1

–

Amounts in respect of inventories included in cost of sales

818.3

766.7

Write-down of inventories

22.6

6.4

Lease expenses

3.9

2.8

Staff costs:

Wages and salaries

532.7

533.4

Share-based payment expense

16.7

16.4

Social security costs

67.5

64.2

Defined contribution plans post-employment costs

21.2

21.0

Defined benefit plans pension costs

1.7

3.6

Recruitment and other employment-related fees

8.7

11.5

Total staff costs

648.5

650.1

The write-down of inventories to their realisable value is included in cost of sales.

Lease expenses comprises the costs in respect of low-value leases and short-term leases. Refer to accounting policy in Note 24 – Leases.

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3. OPERATING COSTS (CONTINUED)

The remuneration of the Executive Directors, which is set out on pages 139 to 151, has been audited and is included within staff

costs and forms part of these Consolidated Financial Statements.

3.2 Employee numbers

The average number of the Group's employees

by function:

Employees by function

The average number of the Group's employees

by location:

Employees by location

2021

3,258

5,749

Operations

Sales and

marketing

General and

administrative

R&D

Operations

Sales and

marketing

General and

administrative

R&D

861

529

2022

10,397

3,104

5,587

863

471

10,025

6,214

Europe

North

America

RoW

Europe

North

America

RoW

1,405

2,778

2022

10,397

5,985

1,310

2,730

10,025

2021

The total number of employees as at 31 December 2022 was 10,028 (2021: 10,134).

3.3 Auditor's remuneration

The total remuneration of the Group's auditor, Deloitte LLP, for services provided to the Group during the year ended

31 December, is analysed below:

2022

2021

Fees for audit services

Group

1.5

1.2

Subsidiaries

3.0

3.2

Total fees for audit services

4.5

4.4

Fees for non-audit services

Audit-related assurance services

0.2

Other assurance services

0.1

0.2

Total auditor remuneration

4.8

A description of the work performed by the Audit and Risk Committee to safeguard auditor independence when non-audit

services are provided is set out in the Audit and Risk Committee report on pages 126 to 138.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

178

Financial statements

4. OTHER OPERATING EXPENSES

Other operating expenses were as follows:

2022

2021

Exit and divestiture-related activities

12.4

–

Impairment of other intangible assets

1.4

–

13.8

–

As a result of the exit from hospital care and industrial sales-related activities and disposal of a foreign subsidiary,

impairments of $8.1 million to property, plant and equipment and $4.3 million to intangible assets have been recognised

during the period. See Note 27 – Divestitures for further details. The impairment of other intangible assets relates to a legacy

acquisition-related customer relationship asset which was impaired as part of the rationalisation of activities in the portfolio.

5. NON-OPERATING (EXPENSE)/INCOME, NET

Non-operating (expense)/income, net was as follows:

Notes

2022

2021

Net foreign exchange (loss)/gain

(13.5)

4.3

Realisation of cumulative translation adjustments

(12.2)

–

Gain/(loss) on foreign exchange forward contracts

15.8

(9.7)

Loss on foreign exchange cash flow hedges

(16.5)

(3.9)

Change in contingent consideration

(29.5)

–

(Loss)/gain on divestiture

(2.0)

0.5

Other non-operating income

0.2

–

Non-operating expense, net

(57.7)

(8.8)

The foreign exchange losses in 2022 primarily relate to the foreign exchange impact on intercompany transactions, including loans transacted in non-functional

currencies. The Group uses foreign exchange forward contracts to manage these exposures in accordance with the Group's foreign exchange risk management policy.

The $29.5 million expense relates to the change in fair value of the contingent consideration for the Cure Medical ($5.8 million) and Triad Life Sciences ($23.7 million)

acquisitions as described in Note 26 – Acquisitions.

Of the total net non-operating expense, $1.7 million (2021: $4.3 million) relates to mark-to-market derivatives, the cash flow impact of which have been shown within

the changes in working capital section of the Consolidated Statement of Cash Flows.

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6. INCOME TAXES

The note below sets out the current and deferred tax charges, which together comprise the total tax expense in the

Consolidated Income Statement. The deferred tax section of the note also provides information on expected future tax

charges or benefits and sets out the deferred tax assets and liabilities held across the Group.

Accounting policy

The tax expense represents the sum of current and deferred tax.

Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or

substantively enacted at the reporting date, and any adjustment to tax payable in respect of prior years. Taxable profit

differs from profit before income taxes because taxable profit excludes items that are either never taxable or tax

deductible or items that are taxable or tax deductible in a different period.

Deferred tax

Deferred tax is recognised using the balance sheet liability method for temporary differences between the carrying

amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred

tax is not recognised for temporary differences:

•

on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects

neither accounting nor taxable profit or loss;

•

arising on the initial recognition of goodwill;

•

on investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse

in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to temporary differences when

the asset is realised or the liability is settled, based on the laws that have been enacted or substantively enacted by the

reporting date.

Deferred tax assets are recognised for unused tax losses, tax credits and deductible temporary differences, to the extent

that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets

are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit

will be realised.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and

they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they

intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Current tax and deferred tax for the year

Current tax and deferred tax are recognised in the Consolidated Income Statement, except when they relate to items that

are recognised in other comprehensive income or directly in equity, in which case, the current tax and deferred tax are also

recognised in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from

the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Tax provisions

The Group is subject to income taxes in numerous tax jurisdictions. Judgement is sometimes required in determining the

worldwide provision for income taxes. There may be transactions for which the ultimate tax determination is uncertain and

may be challenged by the tax authorities. The Group recognises liabilities for anticipated or actual tax audit issues based

on estimates of whether additional taxes will be due. Where an outflow of funds to a tax authority is considered probable

and the Group can make a reliable estimate of the outcome of the issue, management calculates the provision for the best

estimate of the liability. In assessing its uncertain tax provisions, management takes into account the specific facts of each

issue, the likelihood of settlement and the input of professional advice where required. The Group assumes that where a

tax authority has a right to examine amounts reported to it, they will do so and will have full knowledge of all relevant

information. Where the ultimate liability as a result of an issue varies from the amounts provided, such differences could

impact the current and deferred tax assets and liabilities in the period in which the dispute is concluded.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

180

Financial statements

6.1 Taxation

The Group's income tax expense is the sum of the total current and deferred tax expense.

2022

2021

Current tax

UK corporation tax

–

0.8

Overseas taxation

46.8

Adjustment to prior years

(2.0)

(4.3)

Total current tax expense

44.8

43.3

Deferred tax

Origination and reversal of temporary differences

(3.7)

(6.5)

Change in tax rates

(3.2)

4.4

Adjustment to prior years

1.2

(0.7)

Benefit from previously unrecognised tax losses

(20.1)

(6.8)

Total deferred tax benefit

(25.8)

(9.6)

Income tax expense

19.0

33.7

In 2022, the deferred tax movement included a benefit of $20.1 million in respect of the recognition of previously

unrecognised tax losses in the US following the acquisition of Triad Life Sciences.

In 2021, the change in tax rates mainly relates to the revaluation of the net deferred tax liability in the UK following the

enactment of Finance Act 2021, which increases the UK corporation tax rate from 19.0% to 25.0% from 1 April 2023.

The Group’s deferred tax benefit in the year ended 31 December 2021 was mainly influenced by the deferred tax benefit of

$6.8 million for the recognition of deferred tax assets following the acquisition of Cure Medical LLC (Cure Medical) in respect

of previously unrecognised tax losses in the US.

6.2 Reconciliation of effective tax rate

The effective tax rate for the year ended 31 December 2022 was 23.2%, as compared with 22.3% for the year ended

31 December 2021.

Tax reconciliation to UK statutory rate

The table below reconciles the Group’s profit before income taxes at the UK statutory rate to the Group's total income

tax expense:

2022

2021

Profit before income taxes

81.9

151.3

Profit before income taxes multiplied by rate of corporation tax in the UK

of 19.0% (2021: 19.0%)

15.6

28.7

Difference between UK and overseas tax rates

3.0

4.0

Deferred tax impact for increase in UK tax rate

–

4.8

Non-deductible/non-taxable items

14.4

1.3

Movement in unrecognised tax losses and other assets

1.0

(0.1)

Recognition of previously unrecognised US deferred tax assets

(20.1)

(6.8)

Movement in provision for uncertain tax positions

2.5

(0.3)

Other

2.6

2.1

Income tax expense and effective tax rate

19.0

23.2%

33.7

22.3%

This includes changes in tax rates based on substantively enacted legislation across various tax jurisdictions as of 31 December.

Includes tax on amortisation of finite-lived intangibles and taxes on unremitted earnings.

The Group’s income tax expense includes a $20.1 million tax benefit due to the recognition of deferred tax assets following

the acquisition of Triad Life Sciences in respect of previously unrecognised tax losses in the US and the $9.5 million effect of

non-deductible contingent consideration on the acquisition of both Triad Life Sciences and Cure Medical. Refer to Note 26 –

Acquisitions for the acquisition accounting of Triad Life Sciences.

181

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6. INCOME TAXES (CONTINUED)

The Group has worldwide operations and therefore is subject to several factors that may affect future tax charges, principally

the levels and mix of profitability in different tax jurisdictions, transfer pricing regulations, tax rates imposed and tax regime

reforms. The calculation of the Group’s tax expense involves a degree of estimation and judgements in respect of certain

items for which the tax treatment cannot be finally determined until resolution has been reached with the relevant tax

authority, specifically in relation to open tax and transfer pricing matters. Due to the high volume of intercompany

transactions, the Group’s evolving business model and the increasing complexity in interaction between multiple tax

laws and regulations, transfer pricing requires judgement in determining the appropriate allocation of profits between

jurisdictions. The Group assessed the impact of ongoing changes to the Group’s operating model, the supporting

documentation for the tax and transfer pricing positions, existing tax authority challenges, and the likelihood of new

challenges by tax authorities. In line with the requirements of IFRIC 23,

Uncertainty over Income Tax Treatments

, the Group

has provided for uncertain tax positions in respect of transfer pricing positions and withholding tax liabilities. The net

increase in provisions during 2022 was driven by the reassessment of estimates, and settlement and expiry of open tax issues

in various jurisdictions. Where open issues exist, the ultimate liability for such matters may vary from the amounts provided

and is dependent upon the outcome of discussions with the relevant tax authorities or, where applicable, appeal

proceedings. Accordingly, settlement and expiry of open tax issues could have a significant impact on future tax expenses.

The Group is monitoring tax reforms driven by the OECD’s project to address the tax challenges arising from the digitalisation

of the economy, including Global Anti-Base Erosion Model Rules (Pillar Two). The Group has analysed the tax impact of the

project to the Group based on OECD model rules issued on 20 December 2021 and draft legislations available in jurisdictions

in which the Group operates in, and expect the tax impact to be not material in the foreseeable future. The Group will

reassess the tax impact once new legislation becomes available. This has no impact on the Group’s result for 2022.

6.3 Deferred tax

The components of deferred tax assets and liabilities at 31 December are as follows:

2022

2021

Deferred tax assets

26.6

28.9

Deferred tax liabilities

(83.2)

(87.2)

(56.6)

(58.3)

6.4 Movement in deferred tax assets and liabilities

Deferred tax is measured on the basis of the tax rates enacted or substantively enacted at the reporting date. The movements

in the deferred tax assets and liabilities were as follows:

Inventory

Tax losses

PP&E

Intangibles

Interest

Other

Total

At 1 January 2021

14.2

55.3

1.2

(175.3)

21.4

23.2

(60.0)

Recognised in Income

Statement

(5.8)

34.4

(12.5)

1.1

(4.0)

(3.6)

9.6

Recognised in other

comprehensive income

–

(0.9)

0.1

(0.8)

Acquisitions

(0.2)

–

(0.1)

(9.1)

–

(9.4)

Other

–

0.5

Foreign exchange

0.2

(0.2)

0.4

0.9

–

0.5

1.8

At 31 December 2021

8.4

89.5

(11.0)

(

182.4

)

16.5

20.7

(

58.3

)

Recognised in Income

Statement

(1.4)

(5.5)

5.9

(

1.7

)

8.5

20.0

25.8

Recognised in other

comprehensive income

–

2.4

–

2.4

Acquisitions

(2.4)

6.3

–

(36.2

)

–

(32.3

)

Other

–

1.1

Foreign exchange

(1.3)

(0.2)

1.6

2.7

1.0

0.9

4.7

At 31 December 2022

3.3

90.1

(3.5)

(217.6

)

28.4

42.7

(56.6

)

Refer to Note 26 – Acquisitions for the acquisition accounting of Triad Life Sciences.

Net deferred tax liabilities provided in relation to intangible assets are predominantly in respect of temporary differences

arising on assets and liabilities acquired as part of business combinations. The net movement in deferred tax liability in

respect of intangible assets in 2022 mainly relates to the acquisition of Triad Life Sciences. An amount relating to deductible

tax amortisation of intangible assets of $15.4 million that are not expected to reverse against taxable income in the future

(2021: $15.9 million) is not recognised.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

182

Financial statements

The Group has a history of US tax losses and has recognised a deferred tax asset on US tax losses at 31 December 2022

only to the extent that there are suitable offsetting taxable temporary differences. In 2022, there was an increase in suitable

offsetting taxable temporary differences in the US resulting in an additional amount of tax losses in the US being recognised

as a deferred tax asset. In particular, upon acquisition of Triad Life Sciences, a net deferred tax liability of $32.3 million was

recognised on acquisition (principally in relation to intangible assets – refer to Note 26 – Acquisitions for further details). Some

of this can be offset by the Group’s US tax losses and, therefore, the deferred tax recognition criteria were met, resulting in a

tax benefit of $20.1 million being recognised. Following the Triad Life Sciences acquisition, all Federal tax losses in the US were

recognised as deferred tax assets. Deferred tax assets on temporary differences of $0.3 million, state tax losses of $2.3 million

and foreign tax credits of $3.9 million remain unrecognised in the US based on forecasts of future taxable profit where the

underlying assumptions are consistent with the impairment and going concern forecasts.

Deferred tax on inventory predominantly relates to a deferred tax asset recognised on intra-Group profits arising on

intercompany inventory that are eliminated in the Consolidated Financial Statements. As intra-Group profits are not eliminated

from the individual entities’ tax returns, a temporary difference arises that will reverse when the inventory is sold externally.

Other net temporary differences include accrued expenses, employee costs, and pensions, for which a tax deduction is only

available on a paid basis, research and development expenses, unremitted earnings and share-based payments.

To the extent that dividends remitted from overseas subsidiaries and branches are expected to result in additional taxes,

appropriate amounts have been provided for. Deferred tax is not provided on temporary differences of $351.8 million in the

year to 31 December 2022 (2021: $369.1 million) arising on unremitted earnings as management has the ability to control any

future reversal and does not consider such a reversal in the foreseeable future to be probable.

6.5 Unrecognised tax losses carried forward

Deferred tax assets are only recognised where it is probable that future taxable profits will be available to utilise the tax

losses. The following table shows the unrecognised tax losses carried forward, including anticipated period of expiration:

Trading and capital losses expiring:

2022

Losses

2021

Losses

Within 5 years

10.0

15.3

Between 5 to 10 years

12.7

88.3

More than 10 years

30.7

75.0

Unlimited

958.0

661.6

Total

1,011.4

840.2

The Group also has unrecognised tax credits, in respect of non-US tax payments of $3.9 million (2021: $4.0 million) in the US,

which are due to expire within five years.

The unrecognised tax losses of $1,011.4 million reflects judgements and estimates considered in the provision for uncertain tax

positions, in line with the requirements of IFRIC 23,

Uncertainty over Income Tax Treatments

. The Group has Luxembourg tax

losses of $941.9 million (2021: $638.4 million) which are not recognised and will not expire. The movement in Luxembourg tax

losses not recognised is mainly attributable to foreign exchange differences and the reassessment during the year of

utilisation of losses in a prior year following an internal corporate reorganisation.

7. EARNINGS PER SHARE

Basic earnings per share is calculated based on the Group’s net profit for the year attributable to shareholders divided by

the weighted average number of ordinary shares in issue during the year. The weighted average number of shares is net of

shares purchased by the Group and held as own shares.

Diluted earnings per share take into account the dilutive effect of all outstanding share options priced below the market

price in arriving at the number of shares used in its calculation.

2022

2021

Net profit attributable to the shareholders of the Group ($m)

62.9

117.6

Basic weighted average ordinary shares in issue (number)

2,023,839,657

2,008,923,797

Dilutive impact of share awards (number)

16,407,811

17,416,548

Diluted weighted average ordinary shares in issue (number)

2,040,247,468

2,026,340,345

Basic earnings per share (cents per share)

3.1¢ per share

5.9¢ per share

Diluted earnings per share (cents per share)

3.1¢ per share

5.8¢ per share

The calculation of diluted earnings per share excludes 404,241 (2021: 1,878,714) share options that were non-dilutive for the

year because the exercise price exceeded the average market price of the Group's ordinary shares during the year.

183

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Financial statements

OPERATING ASSETS AND LIABILITIES

This section set outs the assets and liabilities that the Group holds in order to operate the business on a day-to-day basis,

including long-term assets which generate future revenues and profits for the Group.

Liabilities relating to the Group’s financing activities are addressed in “Capital structure and financial costs”.

8. PROPERTY, PLANT AND EQUIPMENT

The Group invests in buildings, equipment and manufacturing machinery to operate the business and to generate revenue

and profits. Assets are depreciated over their estimated useful economic life reflecting the reduction in value of the asset due,

in particular, to wear and tear.

Accounting policy

Property, plant and equipment (PP&E) are stated at cost less accumulated depreciation and impairment losses. Cost

includes expenditures that are directly attributable to the acquisition of an asset including subsequent additions and

improvements when it is probable that future economic benefit associated with the item will flow to the Group and the

cost can be reliably measured.

Depreciation is provided on a straight-line basis from the point an asset becomes available for use. Depreciation is

calculated to reduce the asset’s cost to its residual value over the asset’s estimated useful economic life. Assets are

depreciated as follows:

Asset category

Useful life

Land

not depreciated

Land improvements

15 to 40 years

Leasehold improvements

shorter of useful life or lease tenure

Buildings

15 to 50 years

Machinery, equipment and fixtures

3 to 20 years

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale

proceeds, less any selling expenses, and the carrying amount of the asset. This difference is recognised in the Consolidated

Income Statement.

Assets under construction reflects the cost of construction or improvement of items of PP&E that are not yet available for

use. Finance costs incurred in the construction of assets that take more than one year to complete are capitalised using

the Group’s weighted average borrowing cost during the period in which the asset is under construction. Capitalisation of

finance costs ceases when the asset becomes available for use.

Consideration of useful economic lives

The assets’ residual values, depreciation methods and useful economic lives are reviewed annually and adjusted if appropriate.

Impairment of assets

The carrying values of PP&E are reviewed for indicators of impairment annually or when events or changes in

circumstances indicate the carrying value may be impaired. If any such indication exists, the recoverable amount of the

asset is estimated, being the higher of an asset’s fair value less costs to sell and the net present value of its expected pre-

tax future cash flows (value in use).

When an asset’s recoverable amount falls below its carrying value, an impairment is charged to the Consolidated

Income Statement.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

184

Financial statements

The movement in the carrying value of each major category of PP&E is as follows:

Land & land

improvements

Building, building

equipment and

leasehold

improvements

Machinery,

equipment and

fixtures

Assets under

construction

Total

Cost

1 January 2021

15.8

129.4

483.4

77.2

705.8

Additions

–

1.5

3.6

65.7

70.8

Disposals

–

(4.0)

(12.0)

(0.3)

(16.3)

Transfers

–

6.0

34.3

(40.3)

–

Foreign exchange

(0.5)

(3.0)

(18.6)

(3.8)

(25.9)

31 December 2021

15.3

129.9

490.7

98.5

734.4

Additions

–

1.8

8.2

90.0

100.0

Arising from acquisitions (Note 26)

–

0.5

0.3

–

0.8

Disposals

–

(4.0)

(17.5)

(1.8)

(23.3)

Transfers

–

13.7

24.7

(38.4)

–

Foreign exchange

(1.1)

(6.7)

(25.2)

(4.6)

(37.6)

31 December 2022

14.2

135.2

481.2

143.7

774.3

Accumulated depreciation

1 January 2021

0.9

50.5

302.2

–

353.6

Depreciation

0.1

6.1

34.4

–

40.6

Disposals

–

(3.3)

(11.0)

–

(14.3)

Impairment

–

1.0

–

1.0

Foreign exchange

–

(1.2)

(12.0)

–

(13.2)

31 December 2021

1.0

53.1

313.6

–

367.7

Depreciation

–

6.8

32.9

–

39.7

Arising from acquisitions (Note 26)

–

0.2

0.1

–

0.3

Disposals

–

(4.0)

(17.5)

–

(21.5)

Impairment

–

1.9

5.5

–

7.4

Foreign exchange

–

(2.7)

(17.0)

–

(19.7)

31 December 2022

1.0

55.3

317.6

–

373.9

Net carrying amount

31 December 2021

14.3

76.8

177.1

98.5

366.7

31 December 2022

13.2

79.9

163.6

143.7

400.4

Included within disposals costs were asset write-offs of $1.8 million (2021: $2.0 million).

185

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Financial statements

9. INTANGIBLE ASSETS AND GOODWILL

The split of intangible assets and goodwill is as follows:

Notes

2022

2021

Intangible assets

9.1

924.9

902.2

Goodwill

9.2

1,224.6

1,156.3

Intangible assets and goodwill

2,149.5

2,058.5

9.1 Intangible assets

The Group’s intangible assets are those that have been recognised at fair value as part of business combinations, investment

in product development and software purchased to support business operations. These are assets that are not physical in

nature but can be sold separately or arise from legal rights.

Accounting policy

Recognition

Measurement on initial recognition of intangible assets is determined at cost for assets acquired by the Group and at fair

value at the date of acquisition if acquired in business combinations. Following initial recognition of the intangible asset,

the asset is carried at cost less any subsequent accumulated amortisation and accumulated impairment losses.

Purchased computer software and certain costs of information technology are capitalised as intangible assets. Software

that is integral to purchased computer hardware is capitalised as PP&E.

R&D

R&D expenses are comprised of all activities involving investigative, technical and regulatory processes related to

obtaining appropriate approvals to market our products. It also includes new product development aimed at developing

more sustainable product portfolios for the longer term, as mentioned within the Responsible Business review section

(refer to page 51). Costs include payroll, clinical manufacturing and pre-launch clinical trial costs, manufacturing

development and scale-up costs, product development, regulatory costs including costs incurred to comply with

legislative changes, contract services and other external contractors’ costs, research licence fees, depreciation and

amortisation of laboratory facilities, and laboratory supplies.

Research costs are expensed as incurred. Development costs are capitalised only if the expenditure can be measured

reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the

Group intends to and has sufficient resources to complete development and use or sell the asset. Subsequent to initial

recognition, development costs are measured at cost less accumulated amortisation and any accumulated impairment

losses. Upgrades and enhancements are capitalised to the extent they will result in added functionality and probable

future economic benefits.

Amortisation

Intangible assets with an indefinite life are not amortised. Amortisation of intangible assets with a finite life is calculated

using the straight-line method based on the following estimated useful lives:

Asset category

Useful life

Product-related

3 to 20 years

Capitalised software

3 to 10 years

Customer relationships and non-compete agreements

2 to 20 years

Trade names – finite

2 to 10 years

Trade names – indefinite

indefinite

Development costs

5 years

Assets under construction reflects the cost of development or improvement of intangible assets that are not yet available

for use.

Impairment of assets

Intangible assets with finite life are reviewed for indicators of impairment at each reporting period or when events or

changes in circumstances indicate the carrying value may be impaired. If any such indication exists, the recoverable

amount of the asset is estimated, being the higher of an asset’s fair value less costs to sell and the net present value of its

expected pre-tax future cash flows (value in use).

When an asset’s recoverable amount falls below its carrying value, an impairment is charged to the Consolidated

Income Statement.

Refer to Note 9.3 – CGU impairment review for consideration of impairment of indefinite-lived intangible assets.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

186

Financial statements

The movement in the carrying value of each major category of intangible assets is as follows:

Product-

Capitalised

software

Customer

relationships

and non-

compete

agreements

Trade names

Development

cost

Assets under

construction

Total

Cost

1 January 2021

2,101.2

128.6

305.5

260.2

12.5

8.2

2,816.2

Additions

–

2.2

–

20.6

22.8

Arising from acquisitions

4.9

–

33.2

4.6

–

42.7

Write-offs

(7.1)

(21.6)

(0.7)

–

(0.4)

(29.8)

Transfers

–

13.3

–

(13.3)

–

Foreign exchange

(12.9)

(0.3)

(7.0)

(1.1)

(0.9)

(0.3)

(22.5)

31 December 2021

2,086.1

122.2

331.0

263.7

11.6

14.8

2,829.4

Additions

10.0

0.6

–

34.0

44.6

Arising from acquisitions

154.8

–

154.8

Write-offs

(50.7)

(1.8)

(0.3)

–

(0.6)

(53.4)

Transfers

–

11.8

–

(11.8)

–

Foreign exchange

(79.7)

(2.4)

(6.3)

(0.9)

(0.6)

(0.9)

(90.8)

31 December 2022

2,120.5

130.4

324.4

262.8

11.0

35.5

2,884.6

Accumulated amortisation

1 January 2021

1,530.9

90.4

185.8

7.7

9.0

–

1,823.8

Amortisation

107.1

12.3

24.5

1.9

1.4

–

147.2

Write-offs

(7.1)

(21.6)

(0.7)

–

(29.4)

Impairment

–

2.5

–

2.5

Foreign exchange

(10.1)

(0.1)

(6.1)

0.1

(0.7)

–

(16.9)

31 December 2021

1,620.8

83.5

203.5

9.7

–

1,927.2

Amortisation

108.6

12.0

24.3

1.4

1.1

–

147.4

Write-offs

(50.7)

(1.8)

(0.3)

–

(52.8)

Impairment

4.3

–

1.4

–

5.7

Foreign exchange

(61.0)

(0.9)

(5.4)

–

(0.5)

–

(67.8)

31 December 2022

1,622.0

92.8

223.5

11.1

10.3

–

1,959.7

Net carrying amount

31 December 2021

465.3

38.7

127.5

254.0

1.9

14.8

902.2

31 December 2022

498.5

37.6

100.9

251.7

0.7

35.5

924.9

Capitalised software is in respect of purchased and internally generated software.

Acquisitions comprise assets in relation to the Triad Life Sciences acquisition. See Note 26 – Acquisitions. In the year ended 31 December 2021, acquisitions comprise

of Cure Medical and Patient Care Medical.

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Financial statements

9. INTANGIBLE ASSETS AND GOODWILL (CONTINUED)

Amortisation expenses in respect of finite-lived intangible assets for the year ended 31 December were as follows:

2022

2021

Cost of sales

113.1

110.7

Selling and distribution expenses

3.2

2.0

General and administrative expenses

29.1

32.5

Research and development expenses

2.0

Total amortisation expense

147.4

147.2

The carrying amount of trade names with indefinite life at 31 December 2022 was $248.9 million (2021: $249.8 million). Each of

these trade names are considered to have an indefinite life, given the strength and durability of the current trade name and

the level of marketing support. The trade names are in relatively similar stable and profitable market sectors, with similar risk

profiles, and their size, diversification and market shares mean that the risk of market-related factors causing a reduction in

the lives of the trade names is considered to be relatively low. The Group is not aware of any material legal, regulatory,

contractual, competitive, economic or other factor which could limit their useful lives.

Individual intangible assets with a carrying amount in excess of 10% of the total intangible asset carrying amount were as follows:

2022

2021

$m Remaining life

Trade names

Convatec trade name

234.6

Indefinite

Product-related

InnovaMatrix

145.6

–

13.3 years

Aquacel

including Hydrofibre

120.2

172.2

3.6 years

Stoma care

113.6

145.2

3.6 years

9.2 Goodwill

The Group recognises goodwill resulting from business combinations where there are future economic benefits from

assets which cannot be individually separated and recognised. Goodwill represents the amount paid in excess of the fair

value of the net assets of the acquired business.

Accounting policy

Refer to Note 1 – Basis of preparation for the Group accounting policy in relation to the initial valuation and recognition of

goodwill arising from acquisitions.

Goodwill is not subject to amortisation but is tested for impairment annually or when events or changes in circumstances

indicate the carrying value may be impaired. Refer to Note 9.3 – CGU impairment review for consideration of impairment

of goodwill.

Goodwill is denominated in the functional currency of the acquired entity and revalued to the closing exchange rate at

each reporting period date.

The changes in the carrying value of goodwill as at 31 December were as follows:

Total

1 January 2021

1,097.2

Divestitures

(0.9)

Arising from acquisitions

79.0

Foreign exchange

(19.0)

31 December 2021

1,156.3

Arising from acquisitions (Note 26)

129.9

Foreign exchange

(61.6)

31 December 2022

1,224.6

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

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Financial statements

9.3 Cash generating unit (CGU) impairment review

An impairment assessment is required to be performed annually for goodwill and indefinite-lived intangibles or when

events or changes in circumstances indicate the carrying value may be impaired. An impairment is a reduction in the

recoverable amount of an asset compared to the carrying value of the asset. Recoverable amount is the higher of value

in use and fair value less costs to sell.

This note provides details of the annual impairment assessment that has been performed.

Accounting policy

For impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from

continuing use that are largely independent of the cash inflows of other assets or CGUs. Additionally, goodwill arising from

a business combination is allocated to a CGU or groups of CGUs that are expected to benefit from the synergies of the

combination. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.

The recoverable amounts of the CGUs are determined based on value in use calculations, which reflect the estimated

future cash flows of each CGU discounted by an estimated weighted average cost of capital that represents the rate of

return an outside investor would expect to earn. This discount rate is based on the weighted average cost of capital for

comparable public companies and is adjusted for risks specific to the CGU including differences in risk due to its size,

geographic concentration and trading history.

Future cash flows are determined using the latest available Board-approved forecasts and strategic plans. These forecasts

and strategic plans are based on specific assumptions for each CGU during the five-year planning period with respect to

revenue, results of operations, working capital, capital investments and other general assumptions for the projected

period. The forecast assumptions that derive the future cash flows are based on the historical results of each CGU

combined with external market information and defined strategic initiatives.

If identified, impairment losses are recognised in the Consolidated Income Statement. They are allocated first to reduce

the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the remaining

assets in the CGU, on a pro-rated basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the

extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of

depreciation or amortisation, if no impairment loss had been recognised. The Group has not recognised any reversal of

previous impairments in either 2022 or 2021.

The Group continues to operate under the same operating model as prior year and determined that there has not been

any triggers for a change in CGU groups. There has been no change in the reporting to the CODM during the year ended

31 December 2022, with profitability continuing to be assessed on a consolidated basis, and management’s focus is

predominantly category and key market focus. Goodwill is deemed to be monitored on a category basis, and the Group’s

CGU groups continue to be; (i) Advanced Wound Care; (ii) Ostomy Care; (iii) Continence & Critical Care, and (iv) Infusion Care.

Goodwill and intangible assets with indefinite life (trade names) are allocated to the Group's CGU groups as at 31 December

as follows:

Goodwill

Indefinite-lived intangible assets

2022

2021

2022

2021

CGU groups

Advanced Wound Care

490.0

386.9

104.8

Ostomy Care

116.5

121.7

91.2

Continence & Critical Care

535.6

558.0

41.2

41.4

Infusion Care

82.5

89.7

11.7

12.4

Total

1,224.6

1,156.3

248.9

249.8

Determining the estimated recoverable amount of a CGU group is judgemental in nature. The key input used in the estimation

of value in use as at 31 December 2022 is the Group’s five-year Board approved strategic plan, with key assumptions including

forecast sales growth rates, terminal value growth rate and discount rates. Forecast sales growth rates are based on past

experience adjusted for macroeconomic activity, sector market growth forecasts, competitor activity and strategic decisions

made in respect of each CGU group.

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9. INTANGIBLE ASSETS AND GOODWILL (CONTINUED)

The terminal value growth rate and discount rates used were as follows:

Discount rate (pre-tax)

2022

2021

CGU groups

Advanced Wound Care

13.5

10.5

Ostomy Care

12.5

10.0

Continence & Critical Care

11.5

9.5

Infusion Care

12.5

9.5

Terminal value growth rate

2.0

The discount rate is based on the weighted average cost of capital for comparable public companies and is adjusted for risks specific to the CGU group including

differences in risk due to its size, geographic concentration and trading history.

The estimated terminal value growth rate for the CGU groups is a prudent estimate based on expectations concerning the growth trends of the CGU groups, taking

into account global gross domestic product growth, general long-term inflation and population expectations.

Global equity markets have become more volatile in 2022, driven by rising inflation levels, the war between Russia and

Ukraine and the energy crisis. Consequently, discount rates have seen an increase in the year, driven by rises in the markets’

risk-free rates.

No impairments have been recognised in respect of the Group’s current CGU groups for the years ended 31 December 2022

and 2021.

Taking into consideration the Board approved 2023 budget and longer-term strategic plan as foundations, sensitivity analysis

was performed considering changes in key assumptions including discount rates and terminal value growth rate, and

consideration of risk-based severe but plausible downside scenarios consistent with those identified as part of the Viability

assessment (refer to page 99 for full details of scenarios). As part of the assessment, an external benchmarking assessment

was also carried out on the forecast sales growth rates.

Under all severe but plausible scenarios, headroom remained on all CGU groups, demonstrating that the impairment of

goodwill and indefinite-lived intangible assets is not a key source of estimation uncertainty and any possible impairment

would not result in a material adjustment in the next financial year.

10. INVESTMENT IN FINANCIAL ASSETS

Accounting policy

The Group has made an irrevocable election to designate its equity investment in BlueWind Medical at fair value through

other comprehensive income (FVOCI). It has been initially recorded at fair value plus transaction costs and will be

remeasured at subsequent reporting dates to fair value.

Unrealised gains and losses are recognised in other comprehensive income.

On disposal of the equity investment, any gains and losses that have been deferred in other comprehensive income are

transferred directly to retained earnings.

Dividends on equity investments are recognised in the income statement when the Group’s right to receive payment is

established, it is probable the economic benefits will flow to the entity and the amount can be measured reliably.

On 9 May 2022, the Group invested $30.0 million in preference shares of BlueWind Medical Limited (BlueWind Medical).

BlueWind Medical is developing an implantable tibial neuromodulation device, for the treatment of urge incontinence and

urinary urgency. This represents an investment into an innovative technology in the large and growing overactive bladder

market, related to the Continence space.

In line with IFRS 9

Financial Instruments

, the investment met the definition of an equity instrument and the Group has made

an irrevocable election on initial recognition to measure the investment at FVOCI. The Group considers this investment to be

strategic in nature and it is not held for trading.

In line with IFRS 13

Fair value measurement

, this investment has been classified as Level 3 in the fair value hierarchy as its

measurement is derived from significant unobservable inputs. As at the date of the transaction, the equity investment was

recorded at its cost of investment which approximates to fair value plus transaction costs of $0.7 million.

As at 31 December 2022, the fair value of the investment has been remeasured and remained at $30.7 million. No dividends

were recognised during the year.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

190

Financial statements

11. INVENTORIES

Inventories are the materials used in manufacturing, products manufactured or purchased to be sold by the Group in the

ordinary course of business. Inventories include finished goods, goods which are in the process of being manufactured

(work in progress) and raw and packaging materials awaiting use in production.

Accounting policy

Inventories are valued at the lower of cost or net realisable value with the cost determined using an average cost method.

The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and indirect

production overheads. Production overheads comprises indirect material and labour costs, maintenance and depreciation

of the machinery and production buildings used in the manufacturing process, as well as costs of production

administration and management.

Net realisable value is defined as anticipated selling price or anticipated revenue less cost to completion. Estimates of net

realisable value are based on the average selling prices at the end of the reporting period, net of applicable direct selling

expenses. Subsequent events related to the fluctuation of prices and costs are also considered, if relevant. If net realisable

values are below inventory costs, a provision corresponding to this difference is recognised.

Provisions are also made for obsolescence of inventories that; (i) do not meet the Group's specifications; (ii) have exceeded

their expiration date; or (iii) are considered slow-moving. The Group evaluates the carrying value of inventories on a regular

basis, taking into account such factors as historical and anticipated future sales compared with quantities on hand, the

price the Group expects to obtain for products in their respective markets compared with historical cost and the

remaining shelf life of goods on hand.

The components of inventories at 31 December were as follows:

2022

2021

Raw and packaging materials

79.6

71.9

Work in progress

41.6

37.9

Finished goods

215.7

199.0

Inventories

336.9

308.8

Inventories are stated net of provision for obsolescence of $25.5 million (2021: $21.3 million). Adjustments to write-down

inventory to its net realisable value are provided in Note 3.1 – Operating profit.

12. TRADE AND OTHER RECEIVABLES

Trade receivables consist of amounts billed and currently due from customers. Gross trade receivables are presented

before allowances for expected credit losses, sales discounts and chargeback allowances. Credit risk with respect to trade

receivables is generally diversified due to the large dispersion and type of customers across many different geographies.

Other receivables include amounts due from third parties not related to revenue and prepaid expenses.

Accounting policy

Credit is extended to customers based on the evaluation of the customer’s financial condition. Creditworthiness of

customers is evaluated on a regular basis. Exposure to credit risk is managed through credit approvals, credit limits and

monitoring procedures. The Group considers a default event to be one where the customer does not have sufficient funds

to make their required payments and/or is in the process of being liquidated.

An allowance is maintained for expected lifetime credit losses that result from the failure or inability of customers to make

required payments. It is not necessary for a credit event to have occurred before credit losses are recognised. Instead, the

Group accounts for expected lifetime credit losses and changes in those expected lifetime credit losses. In determining

the allowance, consideration includes the probability of recoverability based on past experience and general economic

factors, incorporating forward-looking information and adjustments for customers who represent a lower risk of default,

which includes public or private medical insurance customers and customers guaranteed by local government. The

amount of expected credit losses, if any, is required to be updated at each reporting date.

Certain trade and other receivables may be fully reserved when specific collection issues are known to exist, such as pending

bankruptcy. The Group writes off uncollectable receivables at the time it is determined the receivable is no longer collectable.

Trade and other receivables are not collateralised or factored and the Group does not charge interest on past due

amounts. Refer to Note 2.1 – Revenue recognition for details on the accounting policy in respect of chargeback allowances.

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12. TRADE AND OTHER RECEIVABLES (CONTINUED)

Trade and other receivables at 31 December were as follows:

2022

2021

Included within current assets:

Trade receivables

344.7

296.9

Less: allowances for expected credit losses

(22.0)

(14.6)

Less: sales discounts and chargebacks

(37.6)

(31.7)

Other receivables

54.2

50.9

Prepayments

24.7

22.0

Trade and other receivables

364.0

323.5

The balance of restricted cash with a maturity of less than one year as at 31 December 2022 is $18.2 million and is presented separately on the face of the Consolidated

Statement of Financial Position. The prior year balance of $0.4 million is presented within other receivables and has not been reclassified due to its immateriality.

The aged analysis of trade receivables at 31 December was as follows:

2022

2021

Current

255.0

235.2

Past due 1 to 30 days

33.6

15.5

Past due 31 to 90 days

22.5

17.3

Past due 91 to 180 days

7.9

0.7

Past due by more than 180 days

25.7

28.2

344.7

296.9

The unimpaired amounts at 31 December that are past due were aged as follows:

2022

2021

Past due 1 to 30 days

32.1

14.2

Past due 31 to 90 days

20.6

16.5

Past due 91 to 180 days

4.7

–

Past due by more than 180 days

10.3

16.4

67.7

47.1

The Group believes that the unimpaired amounts that are past due are still collectible in full, based on historic payment

behaviour and extensive analysis of customer credit risk.

Movements in the allowance for expected credit losses for the years ended 31 December were as follows:

2022

2021

At 1 January

(14.6)

(12.6)

Charges

(6.6)

(8.2)

Utilisation of provision

1.1

5.6

Foreign exchange

(1.9)

0.6

At 31 December

(22.0)

(14.6)

Other non-current receivables

Other non-current receivables of $8.6 million (2021: $11.9 million) are principally in respect of deposits held with lessors,

prepaid expenses and other receivables.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

192

Financial statements

13. TRADE AND OTHER PAYABLES

Trade payables consist of amounts owed to third-party suppliers and represent a contractual obligation to deliver cash in

the future.

Other payables include taxes and social security, accruals and liabilities for other employee-related benefits.

Accounting policy

Trade payables are recognised at the value of the invoice received from the supplier and are not interest bearing. The

carrying amount of trade and other payables is considered to approximate fair value, due to their short-term maturities.

The components of trade and other payables at 31 December were as follows:

2022

2021

Included within current liabilities:

Trade payables

112.2

116.7

Taxes and social security

26.0

29.0

Other employee-related liabilities

92.3

Accruals and other payables

116.1

104.5

Trade and other payables

346.6

342.5

2022

2021

Included within non-current liabilities:

Defined benefit obligations (Note 15)

11.0

19.7

Other employee-related liabilities

7.7

7.4

Accruals and other payables

14.0

20.5

Other non-current liabilities

32.7

47.6

14. PROVISIONS

A provision is an obligation recognised when there is uncertainty over the timing or amount that will be paid. Provisions

held by the Group are primarily in respect of restructuring, decommissioning, dilapidations, legal liabilities and contingent

consideration relating to acquisitions.

Accounting policy

A provision is recognised when there is a present legal or constructive obligation as a result of a past event, it is probable

that the Group will be required to settle the obligation and that obligation can be measured reliably. Restructuring

provisions are only recognised when a constructive obligation exists, which requires both a detailed formal plan and

a valid expectation being raised in those affected by starting to implement that plan or announcing the main features.

Provisions are measured at the best estimate of the expenditure required to settle the obligation and are discounted to

present value if the effect is material. Provisions are reviewed on a regular basis and adjusted to reflect management’s best

current estimates. Due to the judgemental nature of these items, future settlements may differ from amounts recognised.

When the timing of a settlement is uncertain or expected to be more than 12 months from the reporting date, amounts are

classified as non-current.

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14. PROVISIONS (CONTINUED)

The movements in provisions are as follows:

Decommissioning

and dilapidations

Restructuring

Legal

Contingent

consideration

Total

1 January 2022

1.2

5.0

0.5

–

6.7

Contingent consideration

from acquisitions

–

141.8

Charged to income statement

1.7

15.7

(0.3)

29.5

46.6

Utilised

–

(10.4)

–

(50.0)

(60.4)

Discount unwinding

–

15.6

Reclassification from trade and

other payables

–

3.1

Foreign exchange

(0.1)

–

(0.1)

31 December 2022

2.8

10.3

0.2

140.0

153.3

Current

–

10.3

–

89.9

100.2

Non-current

2.8

–

0.2

50.1

53.1

During the year ended 31 December 2022, $3.1 million was reclassified from trade and other payables in relation to the Cure Medical acquisition to better reflect

the estimation uncertainty of the contingent consideration.

The expected timings of the payment of the contingent consideration are disclosed in Note 26 – Acquisitions. The timing for other non-current provisions is undefined.

Decommissioning and dilapidation provisions

Decommissioning provisions represent the estimated costs of dismantling and removing PP&E and restoring the site on which

it was located. Dilapidation provisions are in respect of contractual obligations, on the expiry of a lease, to return leased

properties in the condition which is specified in the individual leases.

Restructuring provisions

Restructuring provisions are mainly related to the exit from the low-margin hospital care and industrial sales portfolio.

Further details are in Note 27 – Divestitures. All restructuring provisions are supported by detailed plans and a valid

expectation has been raised in those affected as required by the Group’s accounting policy.

Legal provision

Legal provision of $0.2 million is in respect of an ongoing case. Legal issues are often subject to uncertainties over the timing

and the final amounts of any settlement.

Contingent consideration

Contingent consideration arising from business combinations is fair valued on acquisition and at each reporting period.

As at 31 December 2022, the discounted fair value of the contingent consideration payable in respect of the Cure Medical

acquisition was $9.2 million (2021: $3.1 million), with an increase of $5.8 million arising as a result of good performance to date,

together with the latest financial forecasts, and the unwind of discount of $0.3 million during the year. This has been charged

to the Consolidated Income Statement.

As at 31 December 2022, the discounted fair value of the contingent consideration payable in respect of the Triad Life Sciences

acquisition was $130.8 million, with the movements since the acquisition date fair value of $141.8 million being a combination of

an increase of $23.7 million arising from management’s view that the latest available financials are expected to exceed original

expectations and the unwind of discount of $15.3 million during the year, partly offset by the payments of $50.0 million to the

sellers following successful attainment of the two short-term milestones per the Merger Agreement.

Further detail is provided in Note 26 – Acquisitions.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

194

Financial statements

15. POST-EMPLOYMENT BENEFITS

The Group has over 10,000 employees globally and operates a number of defined benefit and defined contribution

pension plans for its employees. Each individual plan is subject to the applicable laws and regulations of the country

inwhich the plan operates.

Defined contribution arrangements are where the Group pays fixed payments as they fall due into a separate fund on

behalf of employees participating in the plan and has no further legal or constructive obligations. The cost of Group

contributions to defined contribution arrangements during the year is provided in Note 3 – Operating costs.

A defined benefit plan is a pension or other post-employment benefit plan under which the Group has an obligation to

provide agreed benefits to current and former employees. The Group bears the risk that its obligation may increase or that

the value of the assets in the pension fund may decline. The benefit payable in the future by the Group is discounted to the

present value and the fair value of plan assets is deducted to measure the defined benefit pension position.

The Group has defined benefit plans in a number of European countries. The most significant plans are: Switzerland,

which has a state-mandated plan that remains open to all Swiss employees; and Germany, which has one unfunded plan,

that remains open to German employees but is now closed to new entrants, and a funded plan that was put in place from

April 2019. The value of the funded plan in Germany is negligible to the Group. The Group's other defined benefit plans are

located in Austria, France and Italy (referred to as “Other” in the tables below). The Group’s UK defined benefit plan was

bought out by Aviva in December 2021 and the Group has no further liability for the benefits accrued under that plan.

For plans in Switzerland, Germany and Austria, asset funds for each country are being accumulated to meet the accruing

liabilities. The assets of each of these funds are either held under trusts or managed by insurance companies and are

entirely separate from the Group’s assets.

Accounting policy

Defined contribution pension plans

Payments to defined contribution pension plans are recognised as an expense when employees have rendered service

entitling them to the contributions. Payments made to state-managed retirement benefit plans are treated as payments

to defined contribution pension plans where the Group’s obligations under the plans are equivalent to those arising in a

defined contribution pension plan.

Defined benefit pension plans

The Group records an asset or liability related to its defined benefit pension plans as the difference between the fair

value of the plan assets and the present value of the plan liabilities. The obligations of the plans are calculated using the

Projected Unit Credit Method, with actuarial valuations being performed by an independent actuary at the end of each

reporting period. The valuation requires estimates and judgements to be made to calculate the Group’s liabilities, and

results in actuarial gains and losses being recorded.

Actuarial gains and losses, movements in the return on plan assets (excluding interest) and the impact of the asset ceiling

(if applicable) are recognised immediately in the Consolidated Statement of Financial Position with a charge or credit to

the Consolidated Statement of Comprehensive Income. Remeasurements recorded in the Consolidated Statement of

Comprehensive Income are not subsequently reclassified to the Consolidated Income Statement.

Past service cost is recognised in the Consolidated Income Statement in the period of plan amendment, where relevant.

Net interest is calculated by applying a discount rate to the net defined benefit liability or asset.

The assets of the plans are held at fair value, which is equal to market value, and are held in separate trustee-administered

funds or similar structures in the countries concerned. Surplus assets within the plan are only recognised to the extent

that they are recoverable in accordance with IFRIC Interpretation 14,

IAS 19 – The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and their Interaction

(IFRIC 14).

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15. POST-EMPLOYMENT BENEFITS (CONTINUED)

Risks

The defined benefit plans typically expose the Group to risks. The most significant risks impacting the Group as a result of

these plans are as follows:

Investment risk

The present value of the defined benefit plan liability is calculated using a discount rate determined

by reference to high-quality corporate bond yields; if the return on plan assets is below this rate, it will

create a plan deficit. Currently the Group's plans invest primarily in debt instruments.

Interest risk

A decrease in the interest rate will increase the plan liability, but this will be partially offset by an

increase in the return on the plan’s fixed rate debt instruments.

Longevity risk

The present value of the defined benefit plan liability is calculated by reference to the best estimate

of the mortality of plan participants both during and after their employment. An increase in the life

expectancy of the plan participants will increase the plan’s liability.

Salary risk

The present value of the defined benefit plan liability is calculated by reference to the future salaries of

plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.

Amounts recorded in the Consolidated Financial Statements

Consolidated Income Statement

The aggregate expense for all post-employment defined benefit plans recognised in the Consolidated Income Statement for

the year ended 31 December was as follows:

2022

2021

Defined benefit plans:

Current service cost

1.7

2.2

Past service cost

(0.2)

–

Interest income on plan assets

(0.2)

–

Interest expense on defined benefit obligations

0.4

0.2

UK pension settlement cost

–

1.2

Total expense (Note 3)

1.7

3.6

The UK defined benefit pension scheme was bought out during the year ended 31 December 2021, with a loss on settlement of $1.2 million recognised in the

Consolidated Income Statement.

Consolidated Statement of Comprehensive Income

Aggregate actuarial gains and losses for all defined benefit plans recognised in the Consolidated Statement of

Comprehensive Income for the year ended 31 December were as follows:

2022

2021

Remeasurement effect recognised in other comprehensive income:

Actuarial gain on liabilities due to experience

1.3

1.6

Actuarial gain/(loss) arising from changes in financial assumptions

8.9

(0.8)

Actuarial gain arising from changes in demographic assumptions

–

0.8

Actuarial (loss)/gain on plan assets

(1.7)

1.6

Remeasurement gain recognised in other comprehensive income

8.5

3.2

Deferred tax on remeasurement gain recognised in other comprehensive income

(0.1)

0.1

Change in pension asset restriction

–

1.3

Total amount recognised in other comprehensive income

8.4

4.6

Notes to the Consolidated Financial Statements

continued

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Financial statements

Consolidated Statement of Financial Position

The amount recognised for each defined benefit arrangement in the Consolidated Statement of Financial Position at

31 December was as follows:

Germany

Switzerland

Other

Total

2022

2021

2022

2021

2022

2021

2022

2021

Fair value of schemes’ assets

–

10.4

13.3

0.7

0.8

11.1

14.1

Present value of funded

schemes’ liabilities

–

(

12.3

)

(17.2)

(0.7)

(1.4)

(13.0)

(18.6)

Deficit in the funded schemes

–

(

1.9

)

(3.9)

–

(0.6)

(1.9)

(4.5)

Present value of unfunded

schemes’ liabilities

(7.4)

(12.6)

–

(1.7)

(2.6)

(9.1)

(15.2)

Net pension liability

(7.4)

(12.6)

(

1.9

)

(3.9)

(1.7)

(3.2)

(11.0)

(19.7)

Recognised within Consolidated Statement of Financial Position:

Defined benefit obligations (Note 13)

(11.0)

(19.7)

The weighted average duration of the Group's defined benefit obligations at the end of the year is 17 years (2021: 21 years).

Fair value of assets and present value of the liabilities of the plan

The amount included in the Consolidated Statement of Financial Position arising from its obligations in respect of its defined

benefit plans was as follows:

Assets

Liabilities

Total

At 1 January 2021

30.3

(49.8)

(19.5)

Current service cost

–

(2.1)

Interest income/(expense)

0.1

(0.3)

(0.2)

Remeasurement gain

0.1

1.2

1.3

Contributions by employer

0.7

–

0.7

Contributions by members

0.6

(0.6)

–

Benefits paid

(2.7)

3.0

0.3

Experience gain

–

1.9

Pension settlement

(14.4)

11.0

(3.4)

Foreign exchange

(0.6)

1.9

1.3

At 31 December 2021

14.1

(33.8)

(19.7)

Current service cost

–

(1.7)

Past service cost

–

0.2

Interest income/(expense)

0.2

(0.4)

(0.2)

Remeasurement gain/(loss)

(1.7)

6.5

4.8

Contributions by employer

0.6

–

0.6

Contributions by members

0.5

(0.5)

–

Benefits paid

(2.4)

2.7

0.3

Experience gain

–

3.9

Foreign exchange

(0.2)

1.0

0.8

At 31 December 2022

11.1

(22.1)

(11.0)

Plan assets

The fair value of defined benefit plan assets at 31 December, which has been determined in accordance with IFRS 13

, Fair

Value Measurements

, is analysed below. All assets have a quoted market price and are categorised as a Level 1 measurement

in the fair value hierarchy.

Germany

Switzerland

Other

Total

2022

2021

2022

2021

2022

2021

2022

2021

Equity instruments

–

3.4

4.0

–

3.4

4.0

Debt instruments

–

4.1

4.8

–

4.1

4.8

Property

–

1.6

2.0

–

1.6

2.0

Qualifying insurance policies

–

0.7

0.8

0.7

0.8

Other

–

1.3

2.5

–

1.3

2.5

Plan assets

–

10.4

13.3

0.7

0.8

11.1

14.1

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15. POST-EMPLOYMENT BENEFITS (CONTINUED)

Actuarial assumptions

The Group makes certain key assumptions in order to value the plan obligations, and the approach to how these are set was

as follows:

Approach taken

Discount rate

Calculated by reference to the yields on high-quality corporate bonds which match expected

cash flows in each territory in which a defined benefit plan is present.

Inflation

Calculated using the difference on yields between fixed and index-linked government bonds.

Future salary increases

Based on historical expectations and known future increases, including expected inflation rates.

Mortality

Based on mortality tables derived from assessments performed by national governments and

based upon recommendations by plan actuaries.

The principal actuarial assumptions for each defined benefit arrangement used at 31 December were as follows:

Germany

Switzerland

Other

2022

2021

2022

2021

2022

2021

Discount rate

3.56%

1.03%

1.90%

0.30%

3.47% to 4.05%

0.29% to 1.22%

Rate of price inflation

N/A

1.00%

0.50%

2.20% to 3.00%

1.20% to 2.00%

Future salary increases

3.00%

2.00%

1.75%

0.00% to 3.00%

Discount rates have increased in the year, driven by macroeconomic factors such as rising inflation levels, the war between

Russia and Ukraine and the energy crisis.

The current mortality assumptions underlying the values of the obligations in the defined benefit plans were as follows:

Germany

Switzerland

Other

2022

2021

2022

2021

2022

2021

Life expectancy at age 65

Male

18.6 years

17.5 years

22.8 years

22.7 years

23.9 years

20.5 years

Female

22.0 years

20.9 years

24.6 years

24.5 years

27.9 years

24.0 years

Life expectancy at age 65

in 20 years' time

Male

21.4 years

20.2 years

25.1 years

25.0 years

24.9 years

21.7 years

Female

24.3 years

23.1 years

26.6 years

26.5 years

28.9 years

25.1 years

Sensitivity analysis

The effect of movements in the key actuarial assumptions in respect of the Germany and Switzerland plans at 31 December 2022

would be an (increase)/decrease to the defined benefit asset/liabilities as follows:

Germany

Switzerland

Increase 0.5%

Decrease 0.5%

Increase 0.5%

Decrease 0.5%

Discount rate

0.7

(0.7)

1.1

(0.8)

Inflation

N/A

(0.2)

0.6

Future salary increases

N/A

(0.1)

0.4

1 year increase

1 year decrease

1 year increase

1 year decrease

Life expectancy

(0.1)

0.2

(0.1)

0.3

Future funding

Payments expected to be made by the Group to its defined benefit pension plans in the year ended 31 December 2023 are

as follows:

Germany

Switzerland

Other

Total

Expected payments

0.1

0.7

–

0.8

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

198

Financial statements

CAPITAL STRUCTURE AND FINANCIAL COSTS

The Group ensures that all entities within the Group have sufficient funding to deliver the Group’s strategy while

maximising the return to shareholders through the debt and equity balance. The capital structure of the Group consists

of net debt (which includes borrowings less cash and cash equivalents and excluding lease liabilities) and equity of the

Group, comprising issued capital, reserves and earnings as disclosed in the Consolidated Statement of Changes in Equity.

16. CAPITAL STRUCTURE AND NET DEBT

The capital structure of the Group at 31 December was as follows:

2022

2021

Borrowings (Note 21)

1,211.9

1,344.6

Less: Cash and cash equivalents (Note 22)

(143.8)

(463.4)

Net debt (excluding lease liabilities)

1,068.1

881.2

Equity

1,609.7

1,694.8

Total capital

2,677.8

2,576.0

The Group's capital structure is managed to provide ongoing returns to shareholders and service debt obligations, whilst

maintaining maximum operational flexibility. Refer to pages 30 to 38 in the Financial review for discussion of the Group's

sources and uses of cash.

17. SHARE CAPITAL AND RESERVES

Share capital

Called up share capital is the total number of shares in issue at their par value. The rights attaching to the ordinary shares

are uniform in all respects. They form a single class for all purposes, including with respect to voting and for all dividends

and other distributions thereafter declared, made or paid on the ordinary share capital of the Group. Incremental costs

directly attributable to the issue of new ordinary shares are shown in equity as a deduction from the proceeds, net of tax.

Repurchased shares are classified as own shares and are disclosed in the own shares reserve.

Share premium

The share premium represents amounts received in excess of the nominal value of the ordinary shares.

Own shares

Own shares are ordinary shares in the Group purchased and held by an Employee Benefit Trust to satisfy obligations under

the Group's employee share ownership programmes.

When any Group company purchases the Company’s equity share capital (own shares), the consideration paid, including

any directly attributable incremental costs (net of tax), is deducted from equity until the shares are cancelled, reissued

or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly

attributable costs and the related tax effects, is recognised in equity and the resulting surplus or deficit on the transaction

is presented within share premium.

Merger reserve

In 2016, the Consolidated Financial Statements were prepared under merger accounting principles. Under these principles,

no acquirer was required to be identified and all entities were included at their pre-combination carrying amounts. This

accounting treatment led to differences on consolidation between issued share capital and the book value of the

underlying net assets. This difference is included within equity as a merger reserve.

Cumulative translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial

statements of foreign subsidiaries.

Other reserves

Other reserves comprises the cumulative changes in the effective portion of cash flow hedges, cost of hedging,

remeasurement of defined benefit plans and the share-based payment reserve.

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17. SHARE CAPITAL AND RESERVES (CONTINUED)

Share capital

Shares were allotted during the year in respect of the Group's scrip dividend offering. The movements in ordinary shares of

10 pence each were as follows:

Issued and fully paid or credited as fully paid

Ordinary shares

number

Share capital

Share premium

1 January 2021

2,004,347,138

245.5

115.3

Issue of new shares for Scrip Scheme – 2020 final dividend

9,475,532

1.3

24.8

Issue of new shares for Scrip Scheme – 2021 interim dividend

750,265

0.2

2.2

10,225,797

1.5

27.0

31 December 2021

2,014,572,935

247.0

142.3

Issue of new shares for Employee Benefit Trust

20,000,000

2.6

–

Issue of new shares for Scrip Scheme – 2021 final dividend

7,192,010

0.9

18.0

Issue of new shares for Scrip Scheme – 2022 interim dividend

2,107,103

0.2

5.4

29,299,113

3.7

23.4

31 December 2022

2,043,872,048

250.7

165.7

At 31 December 2022, 10,975,451 shares (2021: 742,756 shares) were held in the Employee Benefit Trust. The market value of

own shares at 31 December 2022 was $30.8 million (2021: $1.9 million).

Other reserves

Other reserves include the share-based payment reserve of $155.0 million (2021: $135.3 million) and remeasurement of defined

benefit obligations of $4.8 million (2021: $3.6 million loss), a transfer between reserves of $0.5 million (2021: nil) and the

effective portion of cash flow hedges of $4.9 million (2021: $5.2 million loss). A reconciliation of movements in all reserves

is provided in the Consolidated Statement of Changes in Equity.

Distributable reserves

Retained and realised distributable reserves equates to the retained surplus of Convatec Group Plc as set out in the

Company Financial Statements on page 218. At 31 December 2022, the retained surplus of the Company was $1,562.9 million

(2021: $1,590.3 million). The capacity of the Company to make dividend payments is primarily determined by the availability

of these retained and realised distributable reserves and the Group's cash resources including available borrowing facilities.

Cumulative translation reserve

During the year to 31 December 2022, the Group disposed of a subsidiary as part of the exit from all hospital care and related

industrial sales activities. The cumulative amount of exchange differences relating to this foreign operation of $12.2 million,

recognised in other comprehensive income, has been reclassified from equity to the Consolidated Income Statement, within

non-operating expense (Note 5).

18. DIVIDENDS

The Group ensures that adequate realised distributable reserves are available in the Company in order to meet proposed

shareholder dividends, and the purchase of shares for employee share scheme incentives. The Company principally

derives distributable reserves from dividends received from subsidiary companies.

In determining the level of dividend for the year, the Board considers the following factors and risks that may influence

the proposed dividend:

•

The underlying performance of the business;

•

The Board’s confidence in the Group’s future growth prospects;

•

Availability of realised distributable reserves;

•

Available cash resources and commitments;

•

Strategic opportunities and investments, in line with the Group’s strategic plan; and

•

Principal risks of the Group (as disclosed on pages 92 to 97).

The Board paid the 2021 final dividend in May 2022 and the 2022 interim dividend in October 2022. The Board has taken

into consideration balancing the return to shareholders with investment in the business. The decision to increase the

dividend for 2022 by 3.0% reflects the Board’s confidence in the future performance of the Group and the underlying

financial strength, distributable reserves position and cash generation of the Group. Detail of the Group’s considerations

and rationale for its policy in respect of the dividend distribution is given in the Directors’ report on page 162.

Accounting policy

Dividends paid are included in the Group Consolidated Financial Statements at the earlier of payment of the dividends or,

in respect of the Company’s final dividend for the year, on approval by shareholders.

The Company operates a scrip dividend scheme, allowing shareholders to elect to receive their dividend in the form of new fully

paid ordinary shares. For any particular dividend, the Directors may decide whether or not to make the scrip offer available.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

200

Financial statements

Dividends paid and proposed were as follows:

Pence

per share

Cents

per share

Total

Settled in cash

Settled via scrip

No of scrip shares

issued

Final dividend 2020

2.845

3.983

79.7

53.6

26.1

9,475,532

Interim dividend 2021

1.229

1.717

34.6

32.2

2.4

750,265

Paid in 2021

4.074

5.700

114.3

85.8

28.5

10,225,797

Final dividend 2021

3.161

4.154

77.8

58.9

18.9

7,192,010

Interim dividend 2022

1.410

1.717

34.8

29.2

5.6

2,107,103

Paid in 2022

4.571

5.871

112.6

88.1

24.5

9,299,113

Final dividend 2022 proposed

3.657

4.330

88.5

The final dividend proposed for 2022, to be distributed on 25 May 2023 to shareholders on the register at the close of

business on 11 April 2023, is based upon the issued and fully paid share capital as at 31 December 2022 and is subject to

shareholder approval at the Annual General Meeting on 18 May 2023. The dividend will be declared in US dollars and will

be paid in Sterling at the chosen exchange rate of $1.184/£1.00 determined on 8 March 2023.

The Company operates a scrip dividend scheme allowing shareholders to elect to receive their dividends in the form of

new fully paid ordinary shares. For any particular dividend, the Directors may decide whether or not to make the scrip offer

available. A scrip dividend alternative will be offered allowing shareholders to elect by 3 May 2023 to receive their dividend

in the form of new ordinary shares.

The interim and final dividends for 2022 give a total dividend for the year of 6.047 cents per share, an increase of 3.0% over the

prior year (2021: 5.871 cents per share).

19. SHARE-BASED PAYMENTS

The Group operates a number of plans used to award shares to Executive Directors and other senior employees as part

of their remuneration package. A charge is recognised over the vesting period in the Consolidated Income Statement to

record the cost of these, based on the fair value of the award at the grant date.

The Group’s share-based payment schemes in place are as follows:

Long Term Incentive Plan (LTIP)

Provides Performance Share Plan (PSP) awards subject to Group performance and market conditions and Restricted Stock

Units (RSU) subject only to remaining employed up to the vesting date. Details on share-based payments in relation to

Executive Directors is set out on page 146.

Deferred Bonus Plan (DBP)

Provides for the grant of share awards to defer a portion of the participant’s bonus as determined by the Remuneration

Committee. The awards vest subject only to remaining employed up to the vesting date.

Share Plan (SP)

Provides for the grant of discretionary share awards. Awards granted in 2022 will vest to employees still employed on the

vesting date.

Employee Plans

The Group also operates Employee Plans which provide eligible employees the opportunity to save up to £500 per month

(or local currency equivalent) with an option to acquire shares using these savings at a 15% discount to the market price at

date of grant. The Employee Plans are available to employees under the following schemes:

•

Save-As-You-Earn (SAYE)

– Available to all employees in the UK employed by participating Group companies.

•

Employee Stock Purchase Plan (ESPP)

– Available to all employees in the US.

•

International Share Save Plan

– Available to all employees in certain countries in the rest of the world.

Accounting policy

Equity-settled share-based payment awards are measured at the fair value of the award on the grant date, excluding the

effect of non-market-based vesting conditions. The fair value of the awards at the date of the grant is expensed to the

Consolidated Income Statement over the vesting period on a straight-line basis.

Appropriate adjustments are made to reflect expected and actual forfeitures during the vesting period due to

uncertainties in satisfying service conditions or non-market performance conditions. The corresponding credit is to other

reserves in the Consolidated Statement of Financial Position.

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19. SHARE-BASED PAYMENTS (CONTINUED)

Share-based payment expenses recognised in the Consolidated Income Statement as follows:

2022

2021

LTIP

10.8

11.6

3.0

2.1

DBP

1.6

1.4

Employee Plans

1.3

16.7

16.4

During the year to 31 December 2022, $16.6 million (2021: $16.4 million) of share-based payment was equity-settled and $0.1 million

(2021: nil) was cash-settled. All amounts that were equity-settled were recognised in Other reserves, with the amounts that were

cash-settled recognised through other liabilities.

Awards outstanding

The movements in the number of share and share option awards and the weighted average exercise price of share options are

detailed below:

2022

2021

Number of

shares/

options

000's

Weighted

average exercise

price of options

£ per share

Number of

shares/

options

000's

Weighted

average exercise

price

£ per share

Outstanding at 1 January

33,707

0.43

30,472

0.51

Granted

14,225

0.32

13,190

0.33

Forfeited

(7,728)

0.48

(8,265)

0.53

Exercised

(9,404)

0.54

(1,690)

0.46

Outstanding at 31 December

30,800

0.33

33,707

0.43

Exercisable at 31 December

993

1.33

826

1.80

Weighted average fair value of awards granted (£ per share)

–

1.18

–

1.18

The average share price during 2022 was £2.11 (2021: £2.15). The share price of the Company at 31 December 2022 was £2.33.

The range of exercise prices and the weighted average remaining contractual life of options outstanding at 31 December were

as follows:

Range of prices

2022

Number of

shares/

options

000's

2021

Number of

shares/

options

000's

Nil

24,990

24,198

1.21

788

5,338

1.74

2,511

–

1.76

1,108

1,344

1.84

755

2.08

1,385

2,072

30,800

33,707

Weighted average remaining contractual life of options outstanding

2.2 years

1.9 years

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

202

Financial statements

Valuation assumptions

All share awards granted are valued directly by reference to the share price at date of grant except:

•

PSP shares awarded under the LTIP plans are subject to both market-based measures and non-market-based measures.

Values under the market-based element are based on relative Total Shareholder Return (TSR) performance conditions and

are valued using a Monte Carlo simulation.

•

Options granted under the Employee Plans are valued using the Black-Scholes model.

The principal assumptions used in these valuations were:

2022

2021

LTIP

SAYE &

International

Share Save Plan

ESPP

LTIP

SAYE &

International

Share Save Plan

ESPP

Share price at date of grant

£1.79

£2.13

£1.99

£1.92

£2.44

Exercise price

nil

£1.74

nil

£2.08

Expected life

3.0 years

3.6 years

2.0 years

3.0 years

3.6 years

2.0 years

Expected volatility

28.7%

40.6%

Risk-free rate

1.3%

0.1%

Dividend yield

2.5%

2.1%

Fair value

£1.03

£0.36

£0.33

£1.00

£0.54

£0.48

The expected volatility was determined by calculating the observed historical volatility of share prices of peer group companies (including the Company) over the

expected life of the share award.

20. FINANCIAL RISK MANAGEMENT

The Group’s treasury policy seeks to minimise the Group's principal financial risks. No trading or speculative transactions in

financial instruments are undertaken. This note presents information about the Group’s exposure to financial risks and the

Group’s objectives, policies and processes for measuring and managing risks.

Financial risk management objectives

Based on the global operations of the Group, management consider the key financial risks to be liquidity, foreign exchange,

interest rate and counterparty credit. The management of counterparty credit risk is discussed in Note 12 – Trade and

other receivables.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group

manages and minimises liquidity risk by using global cash management solutions and actively monitoring both actual and

projected cash outflows to ensure that it will have sufficient liquidity to meet its liabilities when due and have headroom to

provide against unforeseen obligations. As at 31 December 2022, the Group held cash and cash equivalents of $143.8 million

(2021: $463.4 million), of which 74.5% was held centrally.

On 15 November 2022, the Group refinanced its existing bank facilities with $1.2 billion of committed bank lending, comprising a

multicurrency revolving credit facility of $950.0 million and a term loan of $250.0 million, both with a maturity in November 2027.

The Group’s $500.0 million senior unsecured notes remain in place, with maturity in October 2029. As at 31 December 2022,

$472.8 million of the multicurrency revolving credit facility remained undrawn.

Medium and long-term borrowing requirements are met through committed bank facilities and capital market funding as

detailed in Note 21 – Borrowings. Short-term borrowing requirements, if necessary, may be met from drawings under the

multicurrency facility.

Longer term, the Group has assessed its liquidity forecast as part of the viability assessment and its ability to continue

trading as a going concern. For further detail on the Group's assessment of liquidity risk, refer to the Viability statement

on pages 98 and 99.

Foreign exchange risk

As a result of the global nature of operations, the Group is exposed to market risk arising from changes in foreign currency

exchange rates.

Where possible, the Group manages foreign exchange risk by matching same currency revenues and expenses. It will also

denominate debt in certain currencies and use foreign exchange forward contracts and swap contracts to further minimise

transactional foreign exchange risk, with certain currency contracts designated as cash flow hedges; refer to Note 23 –

Financial instruments for details. As a result, the impacts of the fluctuations in the market values of assets and liabilities

and the settlement of foreign currency transactions are reduced.

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20. FINANCIAL RISK MANAGEMENT (CONTINUED)

The following table summarises the exchange rates used for the translation of currencies into US dollars that have the most

significant impact on the Group results:

Currency

Average rate/

Closing rate

2022

2021

USD/EUR

Average

1.05

1.18

Closing

1.07

1.14

USD/GBP

Average

1.24

1.38

Closing

1.20

1.35

USD/DKK

Average

0.14

0.16

Closing

0.14

0.15

During 2022, revenue was mostly USD denominated (52%). Other significant currencies were EUR (20%), GBP (6%) and DKK

(2%). The balance comprises a basket of other currencies which, on an individual basis, were each less than 2% of revenue.

Sensitivity analysis on foreign exchange risk

The sensitivity analysis below assumes a 10% strengthening of the US dollar against the principal currencies to highlight the

sensitivity of profit before income taxes and total equity to translation foreign exchange risk as at 31 December, with all other

variables held constant.

Currency

Sensitivity

2022

2021

Increase/(decrease) in profit before income taxes

USD/GBP

+10%

4.0

0.1

USD/EUR

+10%

(12.8)

(40.6)

USD/DKK

+10%

(10.4)

(20.5)

Decrease/(increase) in total equity

USD/GBP

+10%

(81.6)

(93.0)

USD/EUR

+10%

(8.1)

6.5

USD/DKK

+10%

(24.3)

(31.4)

Interest rate risk

The Group’s principal exposure to interest rate risk is in relation to interest expense on borrowings made under the Group's

credit facilities which attract interest at floating rates plus a fixed margin as well as any cash or investments that result in

interest income at floating rates. Floating rate instruments expose the Group to interest rate cash flow and expense risk.

The Group manages this exposure on a net basis within Board-approved policy parameters, including the use of interest

rate swaps designated as cash flow hedges to maintain an appropriate mix between fixed and floating rate borrowings.

As at 31 December 2022, the Group’s borrowings were denominated in USD and Euros. Prior to refinancing in November 2022,

credit facilities exposed the Group to USD LIBOR and EURIBOR reference rates. In line with IBOR reform, the facilities executed

in November 2022 referenced USD SOFR and EURIBOR. The Group’s interest rate swaps of $275.0 million as at 31 December 2022,

which matured in January 2023 were referenced to USD LIBOR. As at the year end, the Group had also entered into forward

starting interest rate swaps of $180.0 million, which are effective from January 2023, and these are referred to the SOFR

benchmark (see Note 23 – Financial Instruments).

IBOR Reform

Non-derivative financial liabilities

In November 2022, the Group refinanced its bank borrowings and as a result extinguished its existing non-derivative financial

liabilities linked to US LIBOR. The Group’s new facilities are at floating rate and reflect IBOR reform. Whilst one of the Group’s

facilities is multicurrency, most borrowings are expected to be denominated in USD and EUR with the reference rates of SOFR

and EURIBOR, respectively.

In July 2019, the Belgian Financial Services and Markets authority granted authorisation with respect to EURIBOR under

European Union Benchmarks Regulation. This allows market participants to continue to use EURIBOR. The Group expects

EURIBOR will continue as the EUR benchmark for the foreseeable future.

Derivatives

As of 31 December 2022, the Group held interest rate swaps for the purpose of risk management that are designated in cash

flow hedge relationships. The floating legs of these swaps are linked to both US LIBOR and SOFR. The Group’s derivatives are

governed by contracts based on the master agreement of the International Swaps and Derivatives Association (ISDA).

All interest rate swaps linked to US LIBOR had a maturity of January 2023. Interest rate swaps traded after November 2022

have a floating rate linked to SOFR, aligned with the Group’s facilities. See Note 23 – Financial Instruments.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

204

Financial statements

Hedge accounting

At the date of refinancing, the Group’s existing bank borrowings were extinguished and replaced with drawings under the

new facilities. Existing cash flow hedges were maintained as the underlying interest rate risk still existed and the hedging

relationships continued to fulfil the requirements of IFRS 9.

Swaps with floating legs linked to SOFR have also been designated as cash flow hedges and will provide interest rate risk

management beyond January 2023.

Sensitivity analysis on interest rate risk

Based on the composition and the terms of the Group's borrowings as at 31 December 2022, and including the 0% interest

rate floor and after the effect of the interest rate swaps and cash, if interest rates were to increase or decrease by 100 basis

points, the interest expense on borrowings would increase by $4.0 million (2021: $0.1 million) or decrease by $4.0 million

(2021: $2.3 million increase) assuming that all other variables remain constant and excluding any effect of tax. In 2021, the

impact of the interest rate decrease is limited due to the 0% interest floor on the borrowings.

21. BORROWINGS

The Group’s sources of borrowing for funding and liquidity purposes derive from senior notes and credit facilities,

including a committed revolving credit facility.

In November 2022, the Group refinanced its bank facilities with $1.2 billion committed for a five-year term. The Group’s

2029 unsecured senior notes of $500.0 million remain in place.

Accounting policy

Borrowings are recognised at fair value less directly attributable costs on the date that they are entered into and

subsequently measured at amortised cost using the effective interest rate method. Borrowing costs directly attributable

to the facility are capitalised and amortised over the period of the loan.

The effective interest rate method is a method of calculating the amortised cost of a financial liability and allocating the

interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future

cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net

carrying amount on initial recognition.

Borrowings are classified as non-current when the repayment date is more than 12 months from the period-end date or

where they are drawn on a facility with more than 12 months to expiry.

The Group derecognises borrowings when its contractual obligations are discharged, terminated or expired.

Fair value measurement

Borrowings are classified as Level 1 or Level 2 in the fair value hierarchy in accordance with IFRS 13, Fair Value Measurements,

based upon the degree to which the fair value movements are observable.

The Group's borrowings as at 31 December were as follows:

Currency

Year of

maturity

2022

Face value

2021

Face value

Revolving Credit Facility

USD/Euro

2027

477.2

–

Term Loan

USD

2027

250.0

–

Senior Notes

USD

2029

500.0

Revolving Credit Facility

Multicurrency

2024

–

Term Loan Facility A

USD/Euro

2024

–

461.2

Term Loan Facility B

USD/Euro

2024

–

396.7

Interest-bearing borrowings

1,227.2

1,357.9

Financing fees

(15.3)

(13.3)

Total carrying value of borrowings

1,211.9

1,344.6

Current portion of borrowings

–

144.8

Non-current portion of borrowings

1,211.9

1,199.8

Included within the Revolving Credit Facility was €145.0 million ($155.2 million) at 31 December 2022 (2021: nil), representing 32.5% of RCF debt denominated in Euros

and 67.5% denominated in US dollars.

Included within Term Loan Facility A as at 31 December 2021 was €78.4 million ($89.2 million) representing 19% of the loan denominated in Euros and 81%

denominated in US dollars.

Included within Term Loan Facility B as at 31 December 2021 was €67.5 million ($76.7 million), representing 19% of the loan denominated in Euros and 81%

denominated in US dollars.

Financing fees of $15.3 million (2021: $13.3 million) related to the remaining unamortised fees incurred on the credit facilities of $8.4 million (2021: $5.4 million) and on

the senior notes of $6.9 million (2021: $7.9 million).

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21. BORROWINGS (CONTINUED)

Credit facilities

The credit facilities held by the Group are committed and available for the refinancing of certain existing financial

indebtedness and general corporate purposes. On 15 November 2022, the Group refinanced its credit facilities. The original

facilities, maturing in October 2024 and, consisting of two five-year multicurrency term loans totalling $1.5 billion and an

undrawn $200.0 million multicurrency revolving credit facility, were settled and extinguished respectively on refinancing.

During the year and until the refinancing activity, $27.5 million (2021: $88.4 million) was repaid in accordance with the

repayment schedule for the original facilities.

The new credit facility for $1.2 billion comprises of a $250.0 million term loan and a $950.0 million multicurrency revolving

credit facility, both committed for a five-year term. As at 31 December 2022, the term loan was fully drawn and $477.2 million

of the revolving credit facility was drawn, with $472.8 million undrawn.

Transaction costs directly attributable to the refinancing have been capitalised and are amortised over the term of the facility

using the effective interest rate method. Unamortised deferred financing fees of $2.7 million associated with the previous credit

agreement have been written off to the Consolidated Income Statement in 2022 (refer to Note 25 – Finance income and expense).

The principal financial covenants are based on a permitted net debt to covenant-adjusted EBITDA

ratio and interest cover

test as defined in the credit facilities agreement. Testing is required on a semi-annual basis, at June and December, based on

the last 12 months’ financial performance. At 31 December 2022, the permitted net debt to covenant-adjusted EBITDA

ratio

was a maximum of 3.50 times and the interest cover a minimum of 3.50 times, terms as defined by the credit facilities

agreement. In accordance with the credit facilities agreement, the net debt to covenant-adjusted EBITDA

ratio can increase

toa maximum 4.00 times for permitted acquisitions or investments.

Senior notes

Unsecured senior notes of $500.0 million were issued on 7 October 2021 with a maturity date of 15 October 2029 at a coupon

rate of 3.875% per annum, payable semi-annually and, except for certain options redemption conditions, is not redeemable

at the issuer’s option prior to 7 October 2024. The Group’s refinancing activity did not affect the senior notes.

The senior notes are subject to a financial covenant which is an interest cover test (minimum of 2 times) as defined in the

indenture. Testing is required annually based on the last 12 calendar months’ financial performance.

Financial covenants

The Group was in compliance with all financial and non-financial covenants at 31 December 2022, with significant available

headroom on the financial covenants (in excess of $588.0 million debt headroom on net debt to covenant-adjusted EBITDA

Excluding the impact of interest rate swaps, the weighted average interest rate on borrowings for the year ended

31 December 2022 was 3.4% (2021: 2.0%). The increase in the weighted average interest rate was due to rising underlying

reference base rates on debt with floating rates and a full year of interest on the senior notes issued in 2021.

Borrowings not measured at fair value

The senior notes are listed and their fair value at 31 December 2022 of $430.8 million (2021: $507.7 million) has been obtained

from quoted market data and therefore categorised as a Level 1 measurement in the fair value hierarchy under IFRS 13,

Fair

Value Measurements

. For the Group’s other borrowings, the fair value is based on discounted cash flows using a current

borrowing rate and is categorised as a Level 2 measurement. At 31 December 2022, the estimated fair value of the Group's

other borrowings was $762.4 million (2021: $847.3 million).

Covenant-adjusted EBITDA is calculated based on terms as defined in the credit facilities agreement. This is different to adjusted EBITDA, which is an alternative

performance measure (APM) as disclosed on pages 224 to 228.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

206

Financial statements

Maturity of financial liabilitiesS

The contractual undiscounted future cash flows, including contractual interest payments, related to the Group's financial

liabilities were as follows:

Contractual cash flows

Within 1

year

or on

demand

1 to 2

years

2 to 3

years

3 to 4

years

4 to 5

years

More than

5 years

Total

Carrying

amount

At 31 December 2022

Borrowings

57.5

55.2

50.8

50.2

777.8

538.8

1,530.3

1,211.9

Lease liabilities (Note 24)

22.7

17.8

13.1

9.8

7.9

94.2

165.5

88.3

Trade and other payables (Note 13)

346.6

–

346.6

Derivative financial instruments (Note 23)

Derivative financial instruments payable

1,919.8

6.3

1.2

–

1,927.3

32.5

Derivative financial instruments receivable

1,912.5

6.9

1.0

–

1,920.4

26.6

At 31 December 2021

Borrowings

184.7

182.0

591.2

19.4

558.1

1,554.8

1,344.6

Lease liabilities (Note 24)

22.6

19.4

14.7

10.9

8.3

28.4

104.3

90.5

Trade and other payables (Note 13)

342.5

–

342.5

Derivative financial instruments (Note 23)

Derivative financial instruments payable

1,723.4

2.9

–

1,726.3

14.6

Derivative financial instruments receivable

1,726.3

–

1,726.3

15.1

Reconciliation of movement in borrowings

2022

2021

Borrowings at 1 January

1,344.6

1,456.4

Repayment of borrowings

(842.5)

(583.9)

Proceeds of new borrowings, net of financing fees

714.2

491.8

Foreign exchange

(11.0)

(26.5)

Non-cash movements

6.6

6.8

Borrowings at 31 December

1,211.9

1,344.6

In the year ended 31 December 2022, repayment of borrowings included the scheduled repayment instalment on Term Loan Facility A of $27.5 million (2021: $88.4 million)

and the full repayment of all term loans facilities of $815.0 million as part of the refinancing activity.

On 15 November 2022, the Group entered into new revolving credit facilities and term loan facility. The transaction costs in respect of the refinancing activities were

$8.6 million. For the year ended 31 December 2021, 180 Medical, Inc. a wholly owned subsidiary of the Group, issued 8-year, non-call for 3 years unsecured senior notes

of $500.0 million in accordance with Rule 144A and Regulation S [under the Securities Act]. Transaction costs in respect of the issuance were $8.2 million.

Non-cash movements were in respect of the amortisation of deferred financing fees associated with the borrowings and the $2.7 million write-off of the remaining

unamortised deferred financing fees following early termination of the Group’s previous credit facilities.

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Financial statements

22. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash held at bank is used for the Group's day-to-day operations. The Group utilises bank deposits or money market funds

which have a maturity of three months or less as liquid investments that enable short-term liquidity requirements to be met.

Accounting policy

Cash and cash equivalents comprise cash in hand and current balances with banks and similar institutions. All liquid

investments, including term deposits and money market funds, have original maturities of three months or less, are

subject to insignificant risk of changes in value and are repayable within one business day with no significant loss of

interest, resulting in classification as cash equivalents.

Cash at bank earns interest at rates based on daily bank deposit rates. Term deposits and money market funds earn

interest at the respective short-term deposit rate.

Cash and cash equivalents at 31 December 2022 included $19.2 million (2021: $37.5 million) of cash held in territories where

there are restrictions related to timely repatriation. The amounts meet the definition of cash and cash equivalents but are

not deemed to be readily available for general use by the wider Group.

Consolidated Statement of Cash Flows

Under certain circumstances, the Group utilises bank overdrafts to manage temporary fluctuations in cash positions.

The bank overdrafts are repayable on demand, used as part of the Group’s overall cash management strategy and form

part of cash and cash equivalents for the purpose of the Consolidated Statement of Cash Flows. The Group had no bank

overdrafts as at 31 December 2022 or 31 December 2021.

The Group reports cash flows from operating activities using the indirect method in accordance with IAS 7,

Statement of

Cash Flows

. The Group has elected to classify net interest paid (including interest on lease liabilities) as cash flows from

operating activities. Short-term lease payments and payments for leases of low-value assets are included in cash flows

from operating activities.

Changes in working capital assets and liabilities as reported in cash flows from operating activities reflect the changes in the

Consolidated Statement of Financial Position between the current and previous financial year end, including adjustments for

amounts relating to acquisitions and disposals (when necessary), as well as currency translation adjustments.

Cash payments for the principal portion of lease liabilities is included within cash flows from financing activities.

Acquisition of property, plant and equipment, and intangible assets reflects additions to the related assets, including

adjustments for changes in capital accruals. Acquisition of intangible assets relates to capitalised software, development

and product-related licences. Refer to Note 9 – Intangible assets and goodwill for further details.

The adjustment for non-operating expense, net in the Consolidated Statement of Cash Flows, excludes the gains and

losses realised on cash-settled derivative financial instruments. Refer to Note 5 – Non-operating (expense)/income, net.

Restricted cash

In certain instances, there are requirements to set aside cash to support payment guarantees and obligations, including

the payment of value-added taxes, custom duties on imports, tender programmes and lease arrangements. Such amounts

are classified by the Group as restricted cash, which do not form part of cash and cash equivalents. Cash paid into escrow,

arising from a business combination, is also classified as restricted cash.

2022

2021

Cash at bank and in hand

42.6

69.5

Money market funds and bank deposits

101.2

393.9

Cash and cash equivalents

143.8

463.4

2022

2021

Restricted cash – current

18.2

0.4

Restricted cash – non-current

7.3

13.6

Total restricted cash

25.5

14.0

In the prior year, restricted cash with a maturity of less than one year of $0.4 million is included in Trade and other receivables.

Current restricted cash of $18.2 million (2021: $0.4 million) relates to cash held in escrow in respect of the Cure Medical,

Patient Care Medical and Triad Life Sciences acquisitions.

Included in non-current restricted cash of $7.3 million (2021: $13.6 million) is $4.0 million (2021: $9.7 million) relating to cash

held in escrow in respect of the above acquisitions. The remaining balance of $3.3 million (2021: $3.9 million) relates to

amounts held in respect of guarantees and the Group’s Share Save scheme for employees. None of these amounts are

accessible on demand.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

208

Financial statements

23. FINANCIAL INSTRUMENTS

A derivative financial instrument is a contract that derives its value from the performance of an underlying variable, such as

foreign exchange rates or interest rates. The Group uses derivative financial instruments to manage foreign exchange and

interest rate risk arising from its operations and financing. Derivative financial instruments used by the Group are foreign

exchange forwards and interest rate swaps.

The Group utilises interest rate swap agreements, designated as cash flow hedges, to manage its exposure to variability in

expected future cash outflows attributable to the changes in interest rates on the Group’s committed borrowing facilities.

Accounting policy

Derivative financial instruments are initially recognised at fair value on the derivative contract date and are remeasured

at their fair value at subsequent reporting dates. Derivative financial instruments are classified at fair value through profit

or loss (FVTPL) unless they are designated and qualify as an effective cash flow hedge. The fair value of forward foreign

exchange contracts is determined by using the difference between the contract exchange rate and the quoted forward

exchange rate from third parties at the reporting date.

Hedge accounting

The Group has elected to apply the IFRS 9,

Financial Instruments

hedge accounting requirements. Changes in the fair

values of derivatives designated as cash flow hedges are recognised in other comprehensive income to the extent the

hedges are effective. The fair value is the estimated amount that the Group would receive or pay to terminate the forward

or swap at the reporting date, taking into account current market rates, the Group’s current creditworthiness, as well as

that of the financial instrument counterparties.

The cumulative gain or loss is then reclassified to the Consolidated Income Statement in the same period when the

relevant hedged transaction is realised. Any ineffectiveness on hedging instruments is recognised in the Consolidated

Income Statement as they arise. Hedge accounting is discontinued when the hedging instrument expires or is sold,

terminated or exercised, or no longer qualifies for hedge accounting. The discontinuation is accounted for prospectively.

Any gain or loss recognised in other comprehensive income and accumulated in the cash flow hedge reserve at that time

remains in equity and is reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is

no longer expected to occur, the gain or loss accumulated in the cash flow hedge reserve is immediately reclassified to

profit or loss. Gains and losses arising from forward points and foreign currency basis spreads are excluded from

designation and are treated as a cost of hedging, deferred initially in other equity reserves and released into profit or loss

over the life of the hedging relationship.

The Group held USD interest rate swaps of $275.0 million, with exposure to USD LIBOR as a reference rate and maturing

in January 2023. New USD interest rate swaps of $180.0 million were entered during 2022 with an effective date of

23 January 2023, with exposure to USD SOFR as a reference rate and maturing at various points in the next two years.

These have been designated as cash flow hedges through other comprehensive income. In assessing hedge effectiveness

on a prospective basis for this relationship, the Group has assumed that the USD LIBOR-related interest cash flows on the

swap are not altered by IBOR reform and the hedge continues to be highly effective. Furthermore, hedge accounting did

not need to be discontinued during the period of IBOR-related uncertainty as the Group had taken the relief available in

Phase 1 to separately identify the risk component at the initial hedge designation and not on an ongoing basis.

At the date of refinancing, the Group’s existing bank borrowings were extinguished and replaced with drawings under the

new facilities. Existing cash flow hedges were maintained as the underlying interest rate risk still existed and the hedging

relationships continued to fulfil the requirements of IFRS 9. Swaps with floating legs linked to SOFR have also been

designated as cash flow hedges and will provide interest rate risk management beyond January 2023.

Right to offset

Financial assets and liabilities are offset and the net amount presented in the Consolidated Statement of Financial Position

when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or

to realise the asset and settle the liability simultaneously.

Fair value measurement

Financial instruments are classified as Level 1, Level 2 or Level 3 in the fair value hierarchy in accordance with IFRS 13,

Fair Value Measurements

, based upon the degree to which the fair value movements are observable. Level 1 fair value

measures are defined as those with quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 fair value measurements are defined as those derived from inputs other than quoted prices that are observable

for the asset or liability, either directly (prices from third parties) or indirectly (derived from third-party prices). Level 3 fair

value measurements are defined as those derived from significant unobservable inputs.

The only instrument classified as Level 1 are the senior notes, given the availability of quoted market price (Note 21 – Borrowings).

The Group’s derivative financial instruments, discussed below, are classified as Level 2, and the Group’s equity investment in

preference shares is classified as Level 3 (Note 10 – Investment in financial assets).

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23. FINANCIAL INSTRUMENTS (CONTINUED)

The Group holds interest rate swap agreements to fix a proportion of variable interest on US dollar-denominated debt,

in accordance with the Group's risk management policy. The interest rate swaps are designated as hedging instruments

in a cash flow hedging relationship.

In accordance with Group policy, the Group uses forward foreign exchange contracts, designated as cash flow hedges, to hedge

certain forecast third-party foreign currency transactions. When a commitment is entered into, a layered approach is taken when

hedging the currency exposure, ensuring that no more than 100% of the transaction exposure is covered. The currencies hedged

by forward foreign exchange contracts are US dollars, Swiss francs, Pound sterling, Danish krone and Japanese yen.

The Group further utilises foreign exchange contracts and swaps classified as FVTPL to manage short-term foreign

exchange exposure.

Cash flow hedges

The fair values are based on market values of equivalent instruments at 31 December. The following table presents the

Group's outstanding interest rate swaps, which were designated as cash flow hedges at 31 December:

2022

2021

Effective date

Maturity date

Notional

amount

Fair value

assets/

(liabilities)

Notional

amount

Fair value

assets/

(liabilities)

3 Month LIBOR Float to

Fixed Interest Rate Swap

24 Jan 2020

24 Jan 2023

275.0

2.0

275.0

(2.9)

6 Month term SOFR Float to

Fixed Interest Rate Swap

23 Jan 2023

23 Jan 2024

90.0

0.2

–

6 Month term SOFR Float to

Fixed Interest Rate Swap

23 Jan 2023

23 July 2024

40.0

–

6 Month term SOFR Float to

Fixed Interest Rate Swap

23 Jan 2023

23 Jan 2025

50.0

(0.3)

–

The fair values of the interest rate swaps were disclosed in non-current derivative financial liabilities in the Consolidated Statement of Financial Position. There was

no ineffectiveness recognised in the Consolidated Income Statement.

Foreign exchange forward contracts

The following table presents the Group's outstanding foreign exchange forward contracts valued at FVTPL and foreign

currency forward contracts designated as cash flow hedges, disclosed in current derivative financial assets and liabilities,

at 31 December:

2022

2021

Term

Notional

amount

Fair value

asset/

(liabilities)

Notional

amount

Fair value

assets/

(liabilities)

Foreign exchange contracts

≤ 3 months

996.6

21.3

864.6

14.5

Foreign currency forward exchange contracts designated as

cash flow hedges

≤ 12 months

72.7

3.1

40.8

0.6

Derivative financial assets

1,069.3

24.4

905.4

15.1

Foreign exchange contracts

≤ 3 months

703.7

(30.2)

695.9

(6.5)

Foreign currency forward exchange contracts designated as

cash flow hedges

≤ 12 months

132.8

(2.3)

130.2

(5.2)

Derivative financial liabilities

836.5

(32.5)

826.1

(11.7)

During the year ended 31 December 2022, the Group realised a net gain of $15.8 million (2021: $9.7 million loss) on foreign exchange

forward contracts designated as FVTPL in non-operating expenses, net, (Note 5) in the Consolidated Income Statement.

Impact of hedging on other comprehensive income

The following table presents the impact of hedging on other comprehensive income:

2022

2021

Recognised in other comprehensive income:

Effective portion of changes in fair value of cash flow hedges:

Interest rate swaps

3.3

(1.0)

Foreign currency forward exchange contracts designated as cash flow hedges

(11.0)

(4.1)

Changes in fair value of cash flow hedges reclassified to the Consolidated Income Statement

16.5

5.7

Cost of hedging

(1.1)

(0.4)

Total

7.7

0.2

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

210

Financial statements

24. LEASES

The Group principally leases real estate and vehicles. Leases are recognised as a right-of-use asset with a corresponding

liability recorded at the date at which the leased asset is available for use by the Group.

Accounting policy

The lease liability is measured at the present value of future lease payments discounted using the rate implicit in the lease.

If this rate is not readily determinable, the Group uses its incremental borrowing rate. Generally, the Group uses its

incremental borrowing rate as the discount rate.

Options such as lease extensions or terminations on lease contracts are considered on a case-by-case basis by regular

management assessment.

Each lease payment is allocated between amounts paid for principal and interest. The interest cost is charged to the

Consolidated Income Statement over the lease term to produce a constant periodic rate of interest on the remaining

balance of the liability for each period. The right-of-use asset is depreciated on a straight-line basis over the lease term.

Payments associated with short-term leases and low-value leases are recognised on a straight-line basis as an expense

in the Consolidated Income Statement. Short-term leases are leases with a lease term of 12 months or less and low-value

leases comprise of leases with an underlying asset value of less than $5,000. Expenses recognised for these short-term

and low-value leases for the year ended 31 December 2022 were $3.9 million (2021: $2.8 million).

The movements in right-of-use assets were as follows:

Real estate

and other

Vehicles

Total

As at 1 January 2021

70.3

15.5

85.8

Lease additions

17.1

7.8

24.9

Acquisitions

0.7

–

0.7

Leases terminated

(0.4)

(1.1)

(1.5)

Depreciation of right-of-use assets

(14.5)

(8.3)

(22.8)

Foreign exchange

(2.9)

(0.6)

(3.5)

As at 31 December 2021

70.3

13.3

83.6

Lease additions

12.3

8.4

20.7

Acquisitions (Note 26)

2.2

–

2.2

Leases terminated

(1.4)

0.1

(1.3)

Depreciation of right-of-use assets

(14.7)

(7.4)

(22.1)

Foreign exchange

(3.1)

(0.6)

(3.7)

As at 31 December 2022

65.6

13.8

79.4

Movements in lease liabilities were as follows:

2022

2021

Lease liabilities as at 1 January

90.5

92.1

Lease additions

21.0

24.9

Acquisitions

2.9

0.7

Payment of lease liabilities

(20.7)

(22.0)

Leases terminated

(1.2)

(1.5)

Interest expense on lease liabilities (Note 25)

3.3

3.8

Interest paid on lease liabilities

(3.3)

(3.8)

Foreign exchange

(4.2)

(3.7)

Lease liabilities as at 31 December

88.3

90.5

Total cash outflow of lease liabilities including interest for the year ended 31 December 2022 was $24.0 million (2021: $25.8 million).

Interest paid during the year was $3.3 million (2021: $3.8 million).

Lease liabilities by category at 31 December were as follows:

2022

2021

Real estate

and other

Vehicles

Total

Real estate

and other

Vehicles

Total

Current

13.8

6.5

20.3

13.2

6.5

19.7

Non-current

60.6

7.4

68.0

64.0

6.8

70.8

Total

74.4

13.9

88.3

77.2

13.3

90.5

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Financial statements

24. LEASES (CONTINUED)

The maturity of lease liabilities at 31 December was as follows:

2022

2021

Real estate

and other

Vehicles

Total

Real estate

and other

Vehicles

Total

Within 1 year

13.8

6.5

20.3

13.2

6.5

19.7

1 to 2 years

12.3

4.2

16.5

12.7

4.1

16.8

2 to 3 years

9.5

2.3

11.8

10.7

2.0

12.7

3 to 4 years

8.1

0.7

8.8

8.5

0.6

9.1

4 to 5 years

7.2

0.1

7.3

6.8

0.1

6.9

5 to 10 years

23.5

0.1

23.6

24.2

–

24.2

More than 10 years

–

1.1

–

1.1

Total

74.4

13.9

88.3

77.2

13.3

90.5

The undiscounted contractual cash flows in relation to the maturity of leases liabilities have been disclosed in Note 21 – Borrowings.

25. FINANCE INCOME AND EXPENSE

Finance expenses arise from interest on the Group’s borrowings and lease liabilities. Finance income arises from interest

earned on investment of surplus cash.

Accounting policy

Finance expenses, including the transaction costs for borrowings and any discount or premium on issue, are recognised

in the Consolidated Income Statement using the effective interest rate method.

When existing debt is derecognised in the financial statements any transaction costs not amortised are recognised

immediately in the Consolidated Income Statement.

Upon derecognition of financial liabilities, any unamortised financing fees are recognised immediately in the Consolidated

Income Statement.

Interest related to qualifying assets under construction included within PP&E is capitalised (refer to Note 8 – Property,

plant and equipment).

Refer to Note 24 – Leases for accounting policy on interest expense on lease liabilities.

Interest arising from interest rate swaps is recorded as either interest income or expense over the term of the agreement.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer

qualifies for hedge accounting. The discontinuation is accounted for prospectively. Any gain or loss recognised in other

comprehensive income and accumulated in the cash flow hedge reserve at that time remains in equity and is reclassified

to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain

or loss accumulated in the cash flow hedge reserve is reclassified immediately to profit or loss.

Finance costs, net for the year ended 31 December were as follows:

2022

2021

Finance income

Interest income on cash and cash equivalents

5.5

0.8

Total finance income

5.5

0.8

Finance expense

Interest expense on borrowings

(46.4)

(29.2)

Other financing-related fees

(8.2)

(8.1)

Interest expense on interest rate derivatives

(1.4)

(3.8)

Interest expense on lease liabilities

(3.3)

(3.8)

Capitalised interest

2.0

0.6

Unwinding of discount

(15.6)

–

Other finance costs

(0.3)

–

Total finance expense

(73.2)

(44.3)

Finance costs, net

(67.7)

(43.5)

Other financing-related fees include the amortisation of deferred financing fees associated with the multicurrency revolving credit facilities, term loan facilities

and senior notes. This also includes $2.7 million of deferred financing fees related to the early termination of the Group’s previous credit agreement.

Capitalised interest was calculated using the Group’s weighted average interest rate over the year of 3.4% (2021: 2.0%).

The unwinding of discount is in respect of the contingent consideration payable in relation to the Triad Life Sciences and Cure Medical acquisitions.

Refer to Note 26 – Acquisitions.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

212

Financial statements

26. ACQUISITIONS

During the year to 31 December 2022, the Group completed the acquisition of Triad Life Sciences Inc, a US-based medical

device company.

This note provides details of the transaction and the acquisition accounting that has been recorded to reflect the fair value

of assets acquired and liabilities assumed as well as the intangible assets and goodwill recognised upon acquisition. This

note also provides details of any fair value changes identified post-acquisition in respect of previous acquisitions that the

Group has completed.

Accounting policy

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method of accounting. Consideration

transferred in respect of an acquisition is measured at the fair value of the assets acquired, equity instruments issued and

liabilities incurred or assumed on the date of the acquisition. Identified assets acquired and liabilities assumed are

measured at their respective acquisition-date fair values.

The excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired is recorded

as goodwill. If the fair value of the identifiable net assets acquired is greater than the fair value of the consideration given,

the excess is recognised immediately in the Consolidated Income Statement as a bargain purchase gain. Acquisition-

related costs are expensed as incurred.

The operating results of the acquired business are reflected in the Group’s Consolidated Financial Statements from the

date of acquisition.

Triad Life Sciences Inc (Triad Life Sciences)

Description of the transaction

On 14 March 2022, the Group completed its acquisition of 100% of the share capital of Triad Life Sciences Inc. The acquisition

of Triad Life Sciences strengthens the Group’s Advanced Wound Care position in the US, securing access to a complementary

and innovative technology platform that enhances advanced wound management and patient outcomes.

In addition to the initial consideration of $125.3 million, the sellers may earn contingent consideration up to a maximum of

$325.0 million, in the form of (i) two additional payments of $25.0 million each relating to short-term milestones; and (ii) two

earnout payments conditional on performance during year 1 and year 2 post completion, with the maximum earnout for these

two payments totalling $275.0 million based on stretching financial performance over the period.

The discounted fair value of the contingent consideration at the date of acquisition was $141.8 million, of which $25.0 million

was paid in April 2022 and a further $25.0 million paid in October 2022 following attainment of the first and second short-

term milestones. The earnout payments are due to be paid within three years of the acquisition date, subject to achieving

the specified targets.

Following completion of the initial acquisition accounting, any changes in the fair value of the contingent consideration

at each reporting date will be recorded in the Consolidated Income Statement in accordance with the Group’s accounting

policies. This is explained further on in this note.

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26. ACQUISITIONS (CONTINUED)

Assets acquired and liabilities assumed

The transaction meets the definition of a business combination and has been accounted for under the acquisition method of

accounting. The following table summarises the provisional fair values of the assets acquired and liabilities assumed as of the

acquisition date:

Triad Life

Sciences

Provisional

Non-current assets

Property, plant & equipment

0.5

Right-of-use assets

2.2

Intangible assets – Product-related

154.8

Current assets

Trade and other receivables

4.7

Inventories

10.8

Cash and cash equivalents

15.9

Total assets acquired

188.9

Non-current liabilities

Lease liabilities

(

2.7

)

Deferred tax liabilities

(

32.3

)

Current liabilities

Trade and other payables

(

2.6

)

Lease liabilities

(

0.2

)

Total liabilities assumed

(

37.8

)

Net assets acquired

151.1

Goodwill

129.9

Total

281.0

Initial cash consideration

125.3

Deferred purchase consideration paid into escrow

13.8

Working capital adjustment

0.1

Contingent consideration

141.8

Total consideration

281.0

Analysis of cash outflow in the Consolidated Statement of Cash Flows

Provisional

Initial cash consideration

125.3

Deferred purchase consideration paid into escrow

13.8

Cash and cash equivalents acquired

(

15.9

)

Working capital adjustment

0.1

Net cash outflow from acquisitions, net of cash acquired

123.3

$13.8 million was paid on closing into escrow as security and indemnity by the seller for its obligations under the Merger Agreement. $1.3 million was released in

December 2022 to the sellers following agreement of the closing statement. It is expected that the remaining balance will be released within the next 12 months

subject to the terms of the Merger Agreement.

This is the Group’s calculation of the working capital adjustment and forms part of the initial consideration. The final amount was determined in accordance with the

terms of the Merger Agreement and this was finalised and paid by the reporting date.

The fair values of the assets acquired and liabilities assumed are provisional at 31 December 2022. The Group will finalise these

amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts

and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts

recognised at the acquisition date. The Group will finalise these amounts no later than one year from the acquisition date.

As part of the acquisition accounting, a $10.2 million fair value adjustment was applied to the carrying value of inventory held

at the acquisition date. The fair value adjustment relates to work-in-progress and finished goods and was calculated as the

estimated selling price less costs to complete and sell the inventory, associated margins on these activities, and holding

costs. As at 31 December 2022, $8.7 million has been expensed to cost of goods sold in the Consolidated Income Statement

as these have been sold. The remaining fair value uplift of $1.5 million is expected to be released over the next 6 to 12 months,

in line with forecast revenues.

The fair value of trade and other receivables amounts to $4.7 million, with a gross contractual amount of $7.0 million. At the

acquisition date, the Group’s best estimate of the contractual cash flows expected not to be collected amounts to $2.3 million.

The goodwill recorded, which is not deductible for tax purposes, represents the cost savings, operating synergies and future

growth opportunities expected to result from combining the operations of Triad Life Sciences with those of the Group.

The Triad Life Sciences acquisition is included in the Advanced Wound Care CGU group.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

214

Financial statements

Fair value of contingent consideration at reporting date

The two short-term milestones were achieved and paid during the year ended 31 December 2022. As at 31 December 2022,

management reviewed the fair value of the remaining contingent consideration since the acquisition date, based on the most

recent Board-approved strategic plan and forecast information. Consequently, the discounted fair value of the remaining

contingent consideration was increased by $23.7 million since the amount recognised at 30 June 2022, and was recognised

in non-operating expenses in the Consolidated Income Statement (see Note 5 – Non-operating (expense)/income, net).

The amount of discount unwind recognised in the Consolidated Income Statement during 2022 was $15.3 million and shown

within finance expenses (see Note 25 – Finance income and expense). The discounted fair value of the remaining contingent

consideration as at 31 December 2022 was $130.8 million. Refer to Note 14 – Provisions for the movement in the contingent

consideration during the year.

Management have determined that the potential range of discounted outcomes within the next financial year is between

$85.2 million and $230.8 million, from a maximum undiscounted contingent consideration of $275.0 million.

Acquisition-related costs

The Group incurred $2.4 million of acquisition-related costs directly related to the Triad Life Sciences acquisition in the year

ended 31 December 2022, primarily in respect of legal and advisers’ fees. The acquisition-related costs have been recognised

in general and administrative expenses in the Consolidated Income Statement.

Revenue and profit

The revenue of Triad Life Sciences for the period from the acquisition date to 31 December 2022 was $34.8 million and net profit

for the period was $5.8 million, before recognising acquisition-related intangible asset amortisation charge of $9.2 million and

the inventory fair value uplift release of $8.7 million. If the acquisition had been completed on 1 January 2022, reported Group

revenue would have been $4.4 million higher and Group profit for the year would have been $0.9 million lower, before

recognising acquisition-related intangible asset amortisation charges of $2.0 million.

Cure Medical LLC (Cure Medical)

On 15 March 2021, the Group acquired 100% of the share capital of Cure Medical.

During 2022, management reviewed the expectation of the contingent consideration based on the most recent Board-approved

strategic plan and forecast information. The Cure Medical business has outperformed its performance targets to date and

forecast financial performance was expected to exceed the original expectations. Consequently, the discounted fair value

of the contingent consideration has been revised from $3.1 million to $8.9 million during the year and the remeasurement

charge of $5.8 million has been recognised in non-operating expenses in the Consolidated Income Statement (see Note 5 –

Non-operating (expense)/income, net). The amount of discount unwind recognised in the Consolidated Income Statement

during 2022 was $0.3 million and shown within finance expenses (see Note 25 – Finance income and expense). The discounted

fair value of the contingent consideration as at 31 December 2022 was $9.2 million. Refer to Note 14 – Provisions for the movement

in the contingent consideration during the year.

This is due to be paid within three years of the acquisition date, subject to the terms of the Share Purchase Agreement.

27. DIVESTITURES

During the year ended 31 December 2022, the Group withdrew from its hospital care activities and related industrial sales.

Accounting policy

A divestiture or disposal occurs when the Group ceases to control a subsidiary, business or trade and assets associated

with a specific product line or class of business. Consideration received in respect of a divestiture is measured at fair value,

and all associated assets and liabilities are derecognised at the date control is transferred. The difference between the

carrying value of the net assets divested and the fair value of consideration received is recorded as a gain or loss on

divestiture in the Consolidated Income Statement.

Foreign exchange translation gains or losses relating to subsidiaries that the Group has divested, and that have previously

been recorded in other comprehensive income or expense, are also recognised as part of the gain or loss on divestiture.

The operating results of the divested subsidiary, business or product line cease to be included in the Group's Consolidated

Financial Statements from the date of divestiture.

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27. DIVESTITURES (CONTINUED)

Exit from hospital care and industrial sales activities

On 12 May 2022, following a strategic review, it was announced that the Group would be withdrawing from its hospital care

activities and related industrial sales during 2022. This does not represent a separate major line of business or component

of the Group.

As a result of the exit from the hospital care and industrial sales activities, the Group recognised impairment losses in the year

ended 31 December 2022 in relation to the following:

•

$8.1 million was recognised, within other operating expenses, as an impairment to property, plant and equipment, primarily

in relation to manufacturing equipment in Belarus and Slovakia.

•

$4.3 million was recognised, within other operating expenses, as an impairment to product-related intangible assets.

•

$13.4 million was recognised, within cost of sales, in relation to the write-off of inventories and provision for those which are

not expected to be sold.

In addition, the Group recognised $7.3 million of severance costs, of which $1.2 million remains as a provision as at

31 December 2022, and also recognised a $6.9 million provision in relation to contract exit costs. Management will review

this at each reporting period. The Group incurred $6.7 million of divestiture-related costs in relation to legal fees and closing

down of manufacturing site costs. The majority of the exit and closure activities have been completed at the end of the year,

with minimal costs expected in 2023.

As part of the exit from all hospital care and related industrial sales activities, a subsidiary was sold during the year.

The cumulative amount of exchange losses of $12.2 million recognised in Other Comprehensive Income relating to those

operations, and a loss on disposal of $2.0 million, have been recognised in the Consolidated Income Statement as non-

operating expenses. All costs associated with the exit have been classified as an adjusting item in accordance with our

Alternative Performance Measures policy.

28. COMMITMENTS AND CONTINGENCIES

Commitments represent the Group’s future capital expenditure which is not recognised as a liability in the Consolidated

Financial Statements but represents a non-cancellable commitment.

A contingent liability is a possible liability that is not sufficiently certain to qualify for recognition as a provision because

the amount cannot be measured reliably or because settlement is not considered probable.

Capital commitments

At 31 December 2022, the Group had non-cancellable commitments for the purchase of property, plant and equipment,

capitalised software and development of $39.3 million (2021: $32.1 million).

Contingent liabilities

There were no contingent liabilities recognised as at 31 December 2022 and 31 December 2021.

29. RELATED PARTY TRANSACTIONS

The Directors have not identified any related parties to the Group, other than the key management personnel. The Group

considers key management personnel as defined in IAS 24,

Related Party Disclosures

to be the members of CELT as set out

on pages 112 to 113 and the Non-Executive Directors as set out on page 111.

Key management personnel compensation

Key management personnel compensation for the year ended 31 December was as follows:

2022

2021

Short-term employee benefits

16.4

14.4

Share-based payment expense

9.2

9.0

Post-employment benefits

0.8

0.7

Termination benefits

0.4

–

Total

26.8

24.1

Further details of short-term employee benefits, share-based payment expense and post-employment benefits for the

Executive Directors are shown on page 144. Details of the Non-Executive Directors' fees, included in the table above, are

provided on page 147.

The Group has not been a party to any other material transaction, or proposed transactions, in which any member of the key

management personnel had or was to have a direct or indirect material interest.

Notes to the Consolidated Financial Statements

continued

Convatec Group Plc Annual Report and Accounts 2022

216

Financial statements

30. SUBSEQUENT EVENTS

The Group has evaluated subsequent events through to 8 March 2023, the date the Consolidated Financial Statements were

approved by the Board of Directors.

On 1 March 2023, the Board proposed the final dividend in respect of 2022 subject to shareholder approval at the Annual

General Meeting on 18 May 2023, to be distributed on 25 May 2023. See Note 18 – Dividends to the Consolidated Financial

Statements for further details.

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COMPANY STATEMENT OF FINANCIAL POSITION

As at 31 December 2022

Notes

2022

2021

Assets

Non-current assets

Investment in subsidiaries

3,818.9

4,271.5

Deferred tax assets

2.6

2.1

3,821.5

4,273.6

Current assets

Other receivables

22.4

10.2

Total assets

3,843.9

4,283.8

Equity and liabilities

Current liabilities

Trade and other payables

5.5

8.3

Total liabilities

5.5

8.3

Net assets

3,838.4

4,275.5

Equity

Share capital

250.7

247.0

Share premium

165.7

142.3

Own shares

(1.5)

(2.2)

Retained surplus

1,562.9

1,590.3

Merger reserve

1,765.6

Cumulative translation reserve

3.7

460.8

Other reserves

91.3

71.7

Total equity

3,838.4

4,275.5

Total equity and liabilities

3,843.9

4,283.8

The Company reported a net profit for the year ended 31 December 2022 of $85.2 million (2021: $51.5 million).

The Financial Statements of Convatec Group Plc (registered number 10361298) were approved by the Board of Directors

and authorised for issue on 8 March 2023. They were signed on its behalf by:

Jonny Mason

Karim Bitar

Chief Financial Officer

Chief Executive Officer

Company financial statements

Convatec Group Plc Annual Report and Accounts 2022

218

Financial statements

COMPANY STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2022

capital

premium

Own

Retained

surplus

Merger

reserve

Cumulative

translation

reserve

Other

reserves

Total

equity

At 1 January 2021

245.5

115.3

(6.7)

1,653.1

1,765.6

499.8

58.6

4,331.2

Net profit

–

51.5

–

51.5

Foreign currency

translation adjustment

–

(39.0)

–

(39.0)

Total comprehensive

income

–

51.5

–

(39.0)

–

12.5

Dividends paid

–

(85.8)

–

(85.8)

Scrip dividend

1.5

27.0

–

(28.5)

–

Share-based payments

–

16.4

Share awards vested

–

4.5

–

(3.5)

1.0

Excess deferred tax benefit

from share-based

payments

–

0.2

At 31 December 2021

247.0

142.3

(2.2)

1,590.3

1,765.6

460.8

71.7

4,275.5

Net profit

–

85.2

–

85.2

Foreign currency

translation adjustment

–

(457.1)

–

(

457.1

)

Total comprehensive

income

–

85.2

–

(457.1)

–

(

371.9

)

Dividends paid

–

(88.1)

–

(

88.1

)

Scrip dividend

1.1

23.4

–

(24.5)

–

Share-based payments

–

16.6

Share awards vested

–

3.3

–

2.9

6.2

Excess deferred tax benefit

from share-based

payments

–

0.1

Allotment of shares to

Employee Benefit Trust

2.6

–

(2.6)

–

At 31 December 2022

250.7

165.7

(1.5)

1,562.9

1,765.6

3.7

91.3

3,838.4

For further information on share-based payments, refer to Note 19 – Share-based payments, and for dividends refer to

Note 18 – Dividends to the Consolidated Financial Statements.

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1. BASIS OF PREPARATION

This section describes the Company’s significant accounting policies in respect of the Company Financial Statements and

explains critical accounting judgements and estimates that management has identified as having a potentially material

impact to the Company. Specific accounting policies relating to the Notes to the Company Financial Statements are

described within that note.

1.1 General information

The separate Financial Statements of the Company are presented as required by the Companies Act 2006. The Company meets

the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council

(FRC). Accordingly, the Financial Statements have been prepared in accordance with Financial Reporting Standard 101 (FRS 101)

Reduced Disclosure Framework as issued by the FRC.

As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in

respect of share-based payments, financial instruments, capital management, comparative information, presentation of a

cash flow statement, new but not yet effective IFRSs and certain related party transactions.

As permitted by s408 of the Companies Act 2006 the Company has elected not to present its own Income Statement for

the current or prior year. The profit attributable to the Company is disclosed in the footnote to the Company’s Statement

of Financial Position.

Where required, equivalent disclosures are given in the Consolidated Financial Statements.

The auditor’s remuneration for audit and other services is disclosed in Note 3.3 – Auditor’s remuneration to the Consolidated

Financial Statements.

1.2 Significant accounting policies

Basis of accounting

The Financial Statements have been prepared on the historical cost basis, except for certain financial instruments where fair

value has been applied. The principal accounting policies adopted are the same as those set out in the Consolidated Financial

Statements except as noted below.

Foreign currencies

The functional currency of the Company is Sterling, being the currency of the primary economic environment in which it operates.

The Company has adopted US dollars as the presentation currency for its Financial Statements, in line with the presentation

currency for the Consolidated Financial Statements. For the purpose of presenting individual company financial statements,

assets and liabilities of the Company are translated into US dollars at exchange rates prevailing on the balance sheet date.

Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate

significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences

arising, if any, are recognised in other comprehensive income and accumulated in a separate component of equity, the

cumulative translation reserve, in accordance with IAS 21,

The Effects of Changes in Foreign Exchange Rates

Share-based payments

The Company has implemented the generally accepted accounting principle for accounting for share-based payments with

subsidiary undertakings under FRS 101, whereby the Company has granted rights to issue its shares to employees of its

subsidiary undertakings under an equity-settled arrangement and the subsidiaries have not reimbursed the Company for

these rights. Under this arrangement, the Company treats the share-based payment recognised in the subsidiary's financial

statements as an increase in the cost of investment in the subsidiary and credits equity with an equal amount.

1.3 Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Company's Financial Statements in accordance with FRS 101 requires management to make

judgements, estimates and assumptions that affect the application of accounting policies and the reported value

of assets and liabilities, income and expense. Actual results may differ from these estimates. The estimates and underlying

assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the

estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision

affects both current and future periods.

Management has concluded that there are no critical accounting judgements and key sources of estimation uncertainty that

could result in a material adjustment in the next 12 months.

Company financial statements

continued

Convatec Group Plc Annual Report and Accounts 2022

220

Financial statements

2. STAFF COSTS

The Executive Directors of Convatec Group Plc are the only employees of the Company. The remuneration of the Executive

Directors is set out on pages 142 to 151 within the Remuneration Committee report.

Their aggregate remuneration comprised:

2022

2021

Wages and salaries

4.1

3.6

Share-based payment expense

3.6

3.5

Social security costs

1.0

0.5

Pension-related costs

0.3

Total

9.0

7.9

Average monthly number of employees (including Executive Directors) was 2 (2021: 2).

3. INVESTMENTS IN SUBSIDIARIES

Investments in subsidiaries represent the cost of the Company’s investment in its subsidiary undertakings, net of any

impairment charges. Refer to pages 229 to 231 for details of all the Company’s direct and indirect holdings.

Accounting policy

Investments in Group undertakings are stated at cost less any provision for impairment. The Company assesses

investments for impairment whenever events or changes in circumstances indicate that the carrying value of an

investment may not be recoverable. If any such indication of impairment exists, the Company makes an estimate

of the recoverable amount. If the recoverable amount of the investment is less than the carrying amount of the

investment, the investment is considered to be impaired and is written down to its recoverable amount.

Any impairment charge is initially taken to retained earnings and subsequently offset against any merger reserve by way

of a reserves transfer.

Cost

Impairment

Net book value

At 1 January 2021

6,038.2

(1,732.3)

4,305.9

Capital contributions in respect of share-based payments to employees of subsidiaries

12.1

–

12.1

Reduction due to reimbursement upon exercised awards

(3.0)

–

(3.0)

Foreign exchange

(61.0)

17.5

(43.5)

At 31 December 2021

5,986.3

(1,714.8)

4,271.5

Capital contributions in respect of share-based payments to employees of subsidiaries

12.8

–

12.8

Reduction due to reimbursement upon exercised awards

(8.0)

–

(8.0)

Foreign exchange

(641.0)

183.6

(457.4)

At 31 December 2022

5,350.1

(1,531.2)

3,818.9

An impairment assessment was performed on the investments in subsidiaries at 31 December 2022 and 31 December 2021

with no impairment identified. The share price of Convatec Group plc at 31 December 2022 was £2.33 (2021: £1.93).

The following UK subsidiaries are exempt from the requirement to file audited accounts by virtue of Section 479A of the

Companies Act 2006:

Company

registration

number

Convatec Group Holdings Limited

12698069

Convatec International U.K. Limited

06622355

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4. DEFERRED TAX ASSETS

Deferred tax assets mainly arise in relation to timing differences on the exercise of share-based awards, and taxable losses

arising in the normal course of business.

At 1 January 2021

2.7

Movement in income statement

(0.8)

Movement in other comprehensive income

0.2

At 31 December 2021

2.1

Movement in income statement

0.6

Movement in other comprehensive income

0.1

Foreign exchange

(0.2)

At 31 December 2022

2.6

The deferred tax asset consists of deferred tax on the following items:

2022

2021

Share-based payments

2.6

2.1

At 31 December

2.6

2.1

Deferred tax assets are only recognised where it is probably that future profit will be available to utilise the tax losses.

5. OTHER RECEIVABLES

Other receivables consist of amounts due from Group undertakings, other receivables and prepaid insurance.

2022

2021

Amounts falling due within one year:

Amounts owed by Group undertakings

14.9

7.1

Other receivables

7.4

2.9

Prepayments

0.1

0.2

22.4

10.2

Included in the amounts owed by Group undertakings at 31 December 2022 are intercompany loans of $5.7 million

(2021: $1.5 million) with a variable interest rate set at a margin 10bps below SONIA. The loans are unsecured and are

repayable on demand.

6. TRADE AND OTHER PAYABLES

Trade payables consist of amounts payable to third parties related predominantly to the Company’s corporate responsibilities.

Other payables represent amounts owed to Group undertakings, accruals and other taxation and social security.

2022

2021

Amounts falling due within one year:

Trade payables

0.9

2.9

Other taxation and social security

1.2

1.0

Accruals

3.4

4.4

5.5

8.3

Company financial statements

continued

Convatec Group Plc Annual Report and Accounts 2022

222

Financial statements

7. RESERVES

All reserve balances included in this note are components of Equity and are non-distributable.

Share capital, share premium and own shares

Details of the Company's share capital, share premium and own shares are detailed in Note 17 – Share capital and reserves to

the Consolidated Financial Statements.

Merger reserve

The merger reserve represents the fair value in excess of the par value of shares issued as part of a share exchange upon

incorporation of the Company.

Currency translation reserve

The currency translation reserve comprises the exchange differences arising on the translation of the assets and liabilities

of the Company into US dollars at the prevailing balance sheet rate and income and expense items being translated at the

average exchange rates for the period.

Other reserves

Other reserves are in respect of movements on equity-settled share-based payments.

8. DISTRIBUTABLE RESERVES

As the Company is a holding company with no direct operations, the capacity of the Company to make dividend payments

is primarily derived from dividends received from subsidiary companies.

The retained surplus $1,562.9 million (2021: $1,590.3 million) of the Company equates to the distributable reserves. Details of

the considerations and rationale for the distribution of dividends are given in the Directors’ report on page 162.

9. FINANCIAL GUARANTEES

The Company has guaranteed certain external borrowings of subsidiaries which at 31 December 2022 amounted to

$1,227.2 million (2021: $1,357.9 million).

10. SUBSEQUENT EVENTS

On 1 March 2023, the Board proposed the final dividend in respect of 2022 subject to shareholder approval at the Annual

General Meeting on 18 May 2023, to be distributed on 25 May 2023. See Note 18 – Dividends to the Consolidated Financial

Statements for further details.

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Non-IFRS financial information or alternative performance measures (APMs) are those measures used by management on a

day-to-day basis in their assessment of profit and performance and comparison between periods. The adjustments applied

to IFRS measures reflect the effect of certain cash and non-cash items that the Board believes distort the understanding of

the quality of earnings and cashflows as, by their size or nature, they are not considered part of the core operations of the

business. Adjusted measures also form the basis for performance measures for remuneration, e.g. adjusted operating profit.

For further information see pages 225 to 228.

The APMs used include adjusted gross profit, adjusted general & administration expenses, adjusted selling & distribution

expenses, adjusted operating profit, EBITDA, adjusted EBITDA, adjusted net finance expenses, adjusted non-operating expenses,

adjusted net profit, adjusted earnings per share, adjusted working capital, adjusted cash conversion, adjusted free cash flow and

net debt. Reconciliations for these adjusted measures determined under IFRS are shown on pages 226 to 228. The definitions of

adjusted measures are as calculated within the reconciliation tables.

It should be noted that the Group’s APMs may not be comparable to other similarly titled measures used by other companies

and should not be considered in isolation or as a substitute for the equivalent measures calculated and presented in

accordance with IFRS.

In determining whether an item should be presented as an allowable adjustment to IFRS measures, the Group considers

items which are significant either because of their size or their nature and arise from events that are not considered part of

the core operations of the business. These tend to be one-off events but may still cross more than one accounting period.

Recurring items may be considered in respect of the amortisation of acquisition-related intangibles assets in order to provide

comparability between peer groups where such assets may have been internally generated and therefore, are not reflected

on that company’s balance sheet with a resulting amortisation charge.

If an item meets at least one of these criteria, the Board, through the Audit and Risk Committee, then exercises judgement as

to whether the item should be classified as an allowable adjustment to IFRS performance measures.

Adjustments to derive adjusted operating profit, excluding the impact of tax, for the years ended 31 December 2022 and 2021

include the following costs:

•

Amortisation of intangible assets in respect of material acquisitions ($131.3 million and $130.4 million respectively).

•

Costs incurred in respect of acquisition and divestiture activities ($56.6 million and $17.8 million respectively).

•

Impairment of intangible assets from material acquisitions ($1.4 million and $nil respectively).

•

Termination costs in respect of the Group’s transformation programme and exit from hospital care business and related

industrial sales activities ($7.1 million and $4.3 million respectively).

•

Litigation expenses arising on matters deemed outside the ordinary course of business ($nil and $5.6 respectively).

The tax effect of the adjustments is reflected in the adjusted tax expense to remove the tax impact from adjusted net profit

and adjusted earnings per share.

Adjusted EBITDA, which is used to calculate the metric of adjusted cash conversion and adjusted working capital, is calculated

by adding back share-based payments to adjusted operating profit, together with the annual depreciation, amortisation

charge and impairment/write-off of assets not already removed within the adjusted operating profit.

Non-IFRS financial information

Convatec Group Plc Annual Report and Accounts 2022

224

Financial statements

Amortisation of acquisition-related intangible assets

The Group’s strategy is to grow both organically and through acquisition, with larger acquisitions being targeted to

strengthen our position in key geographies and/or business categories or which provide access to new technology.

The nature of the businesses acquired includes the acquisition of significant intangible assets, which are required to be

amortised. The Board and management regard the amortisation as a distortion to the quality of earnings and it has no cash

implications in the year. The amortisation also distorts comparability with peer groups where such assets may have been

internally generated and, therefore, not reflected on their balance sheet. Amortisation of acquisition-related intangible

assets is, by its nature, a recurring adjustment.

Acquisition-related activities

Costs directly related to potential and actual strategic transactions which have been executed, aborted or are in-flight and

which would improve the strategic positioning of the Group are deemed adjusting items.

Acquisition-related costs relate to deal costs, integration costs and earn-out adjustments including discounting impact which

are incurred directly as a result of the Group undertaking or pursuing an acquisition. Deal costs are wholly attributable to the

deal, including legal fees, due diligence fees, bankers' fees/commissions and other direct costs incurred as a result of the actual

or potential transaction. Integration costs are wholly attributable to the integration of the target and based on integration plans

presented at the point of acquisition, including the cost of retention of key people where this is in excess of normal

compensation, redundancy of target staff and early lease termination payments.

Adjusted measures in relation to acquisitions also include aborted deal costs.

Divestiture-related activities

Divestiture-related activities comprise the gains or losses resulting from disposal of assets or divestment of a business as a result

of a sale, major business change or restructuring programme. These include write-down of non-current assets, provisions to

recognise inventories at realisable value, provisions for costs of exiting contracts and associated legal fees, and any other directly

attributable costs. Any income from the ultimate disposal of a business or subsidiary is included in the gain or loss.

Adjusted measures in relation to divestiture also include aborted deal costs.

Impairment of assets

Impairments, write-offs and gains and losses from defined programmes and where the Group considers the circumstances

of such event are not reflective of normal business trading performance or when transactions relate to acquisition-related

intangible assets where the amortisation is already excluded from the calculation of adjusted measures.

Termination benefits and related costs

Termination benefits and other related costs arise from Group-wide initiatives to reduce the ongoing cost base and improve

efficiency in the business, including divestitures from non-strategic activities. The Board considers each project individually

to determine whether its size and nature warrants separate disclosure. Qualifying items are limited to termination benefits

(including retention) without condition of continuing employment in respect of major Group-wide change programmes.

Where discrete qualifying items are identified these costs are highlighted and excluded from the calculation of adjusted

measures. Due to their nature, these adjusted costs may span more than one year. Restructuring costs not related to

termination benefits are reported in the normal course of business and are not adjusted.

Litigation expenses

Litigation expenses may arise from the ongoing defence or pursuit of claims against or for the Group or the settlement of

claims. The Board considers each litigation claim individually to determine whether the financial consequences were due to

a major incident or uncontrollable factors which distort IFRS measures, and determine if adjusting for the expense would aid

the user in understanding the Group’s performance in that year and comparative periods.

225

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

Reconciliation of earnings to adjusted earnings for the years ended 31 December 2022 and 2021

Year ended 31 December 2022

Revenue

Gross

profit

Operating

costs

Operating

profit

Finance

expense,

net

Non-

operating

expense,

net

PBT

Income

tax

Net

profit

As reported

2,072.5

1,103.9

(896.6)

207.3

(

67.7

)

(57.7)

81.9

(19.0)

62.9

Amortisation of acquired intangibles

–

111.6

19.7

131.3

–

131.3

(29.2)

102.1

Acquisition-related costs

–

8.7

8.2

16.9

15.6

29.5

62.0

(3.5)

58.5

Divestiture-related costs

–

16.6

23.1

39.7

–

14.2

53.9

(7.8)

46.1

Termination benefits and related costs

–

4.8

2.3

7.1

–

7.1

(1.2)

5.9

Impairment of assets

–

1.4

–

1.4

–

1.4

Total adjustments including tax effect

–

141.7

54.7

196.4

15.6

43.7

255.7

(41.7)

214.0

Other discrete tax items

–

(20.1)

Adjusted

2,072.5

1,245.6

(841.9)

403.7

(

52.1

)

(14.0)

337.6

(80.8)

256.8

Software and R&D amortisation

16.1

Depreciation

61.8

Impairment/write-off of assets

1.7

Share-based payments

16.7

Adjusted EBITDA

500.0

Year ended 31 December 2021

Revenue

Gross

profit

Operating

costs

Operating

profit

Finance

expense,

net

Non-

operating

expense,

net

PBT

Income

tax

Net

profit

As reported

2,038.3

1,123.1

(919.5)

203.6

(43.5)

(8.8)

151.3

(33.7)

117.6

Amortisation of acquired intangibles

–

109.5

20.9

130.4

–

130.4

(10.8)

119.6

Acquisitions and divestitures

–

17.8

–

17.8

–

17.8

Termination benefits and

related costs

–

0.7

3.6

4.3

–

4.3

(0.7)

3.6

Litigation expenses

–

5.6

–

5.6

–

5.6

Total adjustments including

tax effect

–

110.2

47.9

158.1

–

158.1

(11.5)

146.6

Other discrete tax items

–

(1.2)

Adjusted

2,038.3

1,233.3

(871.6)

361.7

(43.5)

(8.8)

309.4

(46.4)

263.0

Software and R&D amortisation

13.7

Amortisation of immaterial acquired

intangibles

3.1

Depreciation

63.4

Impairment/write-off of assets

5.9

Share-based payments

16.4

Adjusted EBITDA

464.2

Included within the amortisation of acquired intangibles of $131.3 million (2021: $130.4 million), $93.0 million (2021: $96.8 million)

related to intangible assets arising from the spin-out from Bristol-Myers Squibb in 2008. The carrying amount of these

intangible assets at 31 December 2022 was $330.2 million and will be fully amortised by 31 December 2026.

Acquisition-related costs of $62.0 million are directly related to potential and actual strategic transactions which have been

executed, aborted or are in-flight and which seek to improve the strategic positioning of the Group. The majority of

acquisition-related costs are in respect of the Triad Life Sciences acquisition, which included $2.4 million of legal and adviser’s

fees, $23.7 million of remeasurement charge on contingent consideration, $15.3 million of discounting unwind and $8.7 million

of inventory fair value uplift release. The net cash impact in relation to acquisition-related costs was $2.9 million.

Divestiture-related costs of $53.9 million are mainly related to the phased exit from the low margin hospital care business and

industrial sales portfolio, and include the impairment of intangible assets and property, plant and equipment, write-off of

inventories, and contract exit costs (refer to Note 27 – Divestitures). The net cash impact in relation to divestiture-related

costs was $2.1 million.

Termination benefits and related costs of $7.1 million, pre-tax, are primarily in respect of the severance costs from the Group’s

withdrawal from its hospital care and industrial sales portfolio. The net cash impact of these costs was $10.3 million.

Of the total net cash impact of $15.3 million as presented above, $4.2 million related to accruals recorded in the prior year.

Impairment of assets of $1.4 million relates to a legacy acquisition-related customer relationship asset which was impaired

aspart of rationalisation of activities in the portfolio.

Non-IFRS financial information

continued

Convatec Group Plc Annual Report and Accounts 2022

226

Financial statements

Other discrete tax items in 2022 relate to the tax benefit from the recognition of deferred tax assets following the acquisition

of Triad Life Sciences. In 2021, other discrete tax items related to the tax benefit of $6.8 million resulting from the recognition

of deferred tax following the acquisition of Cure Medical, partially offset by a tax expense of $5.6 million relating to the

revaluation of deferred tax liabilities on UK-acquired intangibles as a result of the increase in the UK corporation tax rate

from1 April 2023. For further details on deferred taxation see Note 6 – Income taxes to the Consolidated Financial Statements.

Reconciliation of operating costs to adjusted operating costs for the years ended 31 December 2022 and

31 December 2021

2022

2021

S&D

G&A

R&D

Other

Operating

costs

S&D

G&A

R&D

Operating

costs

As reported

(575.9)

(214.9)

(92.0)

(

13.8

)

(896.6)

(539.7)

(285.3)

(94.5)

(919.5)

Amortisation of acquired intangibles

–

19.7

–

19.7

–

20.9

–

20.9

Acquisitions and divestitures

9.0

9.9

–

12.4

31.3

0.5

17.3

–

17.8

Impairment of assets

–

1.4

–

Termination benefits and

related costs

2.0

0.3

–

2.3

–

3.7

(0.1)

3.6

Litigation expenses

–

5.6

–

5.6

Adjusted

(564.9)

(185.0)

(92.0)

–

(841.9)

(539.2)

(237.8)

(94.6)

(871.6)

S&D represents selling and distribution expenses.

G&A represents general and administrative expenses.

R&D represents research and development expenses.

Other relates to the impairment of assets from the Group’s withdrawal from hospital care and industrial sales portfolio and impairment of product-related

intangible assets from previous acquisition.

Reconciliation of income tax expense to adjusted income tax expense

2022

2021

Income tax expense

(19.0)

(33.7)

Tax effect of adjustments

(41.7)

(11.5)

Other discrete tax items

(20.1)

(1.2)

Adjusted income tax expense

(80.8)

(46.4)

Other discrete tax items – see note above in respect of adjustments to profit.

Reconciliation of basic and diluted earnings per share to adjusted earnings per share for the years ended

31 December 2022 and 31 December 2021

2022

Adjusted 2022

2021

Adjusted 2021

Net profit attributable to the shareholders of the Group

62.9

256.8

117.6

263.0

Number

Basic weighted average ordinary shares in issue

2,023,839,657

2,008,923,797

Diluted weighted average ordinary shares in issue

2,040,247,468

2,026,340,345

Cents per share

Basic earnings per share

3.1

12.7

5.9

13.1

Diluted earnings per share

3.1

12.6

5.8

13.0

See Note 7 – Earnings per share to the Consolidated Financial Statements.

227

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

Cash conversion for the years ended 31 December 2022 and 31 December 2021

2022

2021

Operating profit

207.3

203.6

Depreciation of property, plant and equipment

39.7

40.6

Depreciation of right-of-use assets

22.1

22.8

Amortisation of intangible assets

147.4

147.2

Impairment/write-off of intangible assets and property, plant and equipment

15.5

5.9

EBITDA

432.0

420.1

Non-cash items

Share-based payments

16.7

16.4

Working capital movement

(62.5)

(31.6)

Loss on foreign exchange derivatives

(1.7)

(4.3)

Net cash generated from operations

384.5

400.6

Acquisition of property, plant and equipment and intangibles assets

(144.2)

(94.1)

Net cash for cash conversion

240.3

306.5

Income taxes paid

(52.9)

(59.2)

Free cash flow (post-tax)

187.4

247.3

Reconciliation of adjusted net cash and adjusted free cash flow (to calculate adjusted cash conversion)

2022

2021

Net cash for cash conversion

240.3

306.5

Non-operating (gain)/loss on foreign exchange forward contracts

–

0.4

Acquisitions and divestitures adjustments

5.0

13.0

Termination benefits and related costs adjustments

10.2

8.4

Litigation costs adjustments

–

5.6

Adjusted net cash for cash conversion

255.5

333.9

Income taxes paid

(52.9)

(59.2)

Adjusted free cash flow (post-tax)

202.6

274.7

EBITDA

432.0

420.1

Adjusted EBITDA

500.0

464.2

Cash conversion

55.6%

73.0%

Adjusted cash conversion

51.1%

71.9%

Reconciliation of adjusted working capital

2022

2021

Working capital movement

(62.5)

(31.6)

Decrease in termination benefits

3.1

4.1

Increase in respect of acquisitions and divestitures

(39.2)

(4.8)

Adjusted working capital movement

(98.6)

(32.3)

Working capital movement is the change in assets and liabilities total within the Consolidated Statement of Cash Flows on page 171.

These are the cash flow impacts to the adjusted items shown in the reconciliation of earnings to adjusted earnings table on page 226.

Net debt

Net debt is calculated as the carrying value of current and non-current borrowings (Note 21 – Borrowings), net of cash and

cash equivalents (Note 22 – Cash and cash equivalents) and excluding lease liabilities.

2022

2021

Borrowings

1,211.9

1,344.6

Lease liabilities

88.3

90.5

Interest-bearing liabilities

1,300.2

1,435.1

Cash and cash equivalents

(143.8)

(463.4)

Interest-bearing liabilities net of cash

1,156.4

971.7

Net debt (excluding lease liabilities)

1,068.1

881.2

Net debt (excluding lease liabilities)/adjusted EBITDA

2.1

1.9

Non-IFRS financial information

continued

Convatec Group Plc Annual Report and Accounts 2022

228

Financial statements

Details of the Company’s subsidiaries and associated undertakings at 31 December 2022 are as follows:

Name

Place of business and

registered office

Portion of ownership

interest

Portion of

voting power held

Akers & Dickinson Limited

United Kingdom

100%

Allied Medical (UK) Services Limited

United Kingdom

100%

Alpha-Med (Medical & Surgical) Limited

United Kingdom

100%

Amcare Limited

United Kingdom

100%

Arthur Wood Limited

United Kingdom

100%

B.C.A. Direct Limited

United Kingdom

100%

Bradgate-Unitech Limited

United Kingdom

100%

Convatec Accessories Limited

United Kingdom

100%

Convatec Holdings U.K. Limited

United Kingdom

100%

Convatec Speciality Fibres Limited

United Kingdom

100%

Convatec International U.K. Limited

United Kingdom

100%

Convatec Limited

United Kingdom

100%

Farnhurst Medical Limited

United Kingdom

100%

Lance Blades Limited

United Kingdom

100%

M.S.B. Limited

United Kingdom

100%

Needle Industries (Sheffield) Limited

United Kingdom

100%

Nottingham Medical Equipment Limited

United Kingdom

100%

Novacare UK Limited

United Kingdom

100%

Pharma-Plast Limited

United Kingdom

100%

Resus Positive Limited

United Kingdom

100%

Rotax Razor Company Limited

United Kingdom

100%

Shrimpton & Fletcher Limited

United Kingdom

100%

Steriseal Limited

United Kingdom

100%

SureCalm Healthcare Holdings Limited

United Kingdom

100%

SureCalm Healthcare Ltd

United Kingdom

100%

SureCalm Pharmacy Limited

United Kingdom

100%

Unomedical Developments Limited

United Kingdom

100%

Unomedical Holdings Limited

United Kingdom

100%

Unomedical Limited

United Kingdom

100%

Unoplast (U.K.) Limited

United Kingdom

100%

Convatec Finance Holdings Limited*

United Kingdom

100%

Convatec Management Holdings Limited*

United Kingdom

100%

Convatec Group Holdings Limited*

United Kingdom

100%

Convatec Services Limited (dissolved)

United Kingdom

100%

Cidron Healthcare Limited*

Jersey

100%

Convatec Healthcare Ireland Limited

Ireland

100%

Convatec France Holdings SAS

France

100%

Laboratoires Convatec SAS

France

100%

Convatec Healthcare D S.à.r.l.

Luxembourg

100%

Convatec Spain Holdings, S.L.

Spain

100%

Convatec Spain S.L.

Spain

100%

CVT Business Services, Unipessoal Lda.

Portugal

100%

KVTech Portugal – Produtos Medicos Unipessoal Ltda

Portugal

100%

Convatec OY

Finland

100%

Convatec (Switzerland) GmbH

Switzerland

100%

Convatec International Services GmbH

Switzerland

100%

Convatec (Austria) GmbH

Austria

100%

Convatec Italia S.r.l.

Italy

100%

Convatec Hellas Medical Products S.A.

Greece

100%

Convatec Polska Sp. Z.o.o

Poland

100%

Convatec Ceska Republika s.r.o.

Czech Republic

100%

Convatec (Australia) PTY Limited

Australia

100%

Convatec (New Zealand) Limited

New Zealand

100%

Convatec Sağlik Ürünleri Limited Şirketi

Turkey

100%

Convatec (Sweden) AB

Sweden

100%

Convatec Norway AS

Norway

100%

229

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

Subsidiary and related undertakings

Name

Place of business and

registered office

Portion of ownership

interest

Portion of

voting power held

Convatec (Germany) GmbH

Germany

100%

EuroTec GmbH

Germany

100%

Unomedical s.r.o.

Slovakia

100%

EuroTec B.V.

Netherlands

100%

EuroTec Beheer B.V.

Netherlands

100%

Convatec Nederland B.V.

Netherlands

100%

Convatec Belgium BVBA

Belgium

100%

EuroTec BV (Belgium Branch)

Belgium

100%

Papyro-Tex A/S

Denmark

100%

Convatec Denmark A/S

Denmark

100%

Unomedical A/S

Denmark

100%

Convatec Denmark Holdings ApS

Denmark

100%

Convatec South Africa (PTY) Limited

South Africa

100%

ConvaCare Medical South Africa (PTY) Ltd

South Africa

100%

Convatec Middle East & Africa LLC

Egypt

100%

Convatec Middle East FZ-LLC

United Arab Emirates

100%

Convatec (Singapore) PTE Limited

Singapore

100%

ConvaCare Medical Singapore Pte Ltd (liquidated)

Singapore

100%

Convatec Malaysia Sdn Bhd

Malaysia

100%

Convatec China Limited (Beijing Branch)

China

100%

Convatec China Limited (Guang Zhou Branch)

China

100%

Convatec China Limited

China

100%

Convatec Dominican Republic Inc.

Dominican Republic

100%

Boston Medical Device Dominicana S.R.L.

Dominican Republic

100%

Convatec Hong Kong Limited

Hong Kong

100%

Convatec Japan KK

Japan

100%

Convatec (Singapore) PTE Limited (Taiwan Branch)

Taiwan

100%

Convatec (Thailand) Co. Limited

Thailand

100%

ZAO Convatec

Russia

100%

Convatec Korea, Ltd

Korea

100%

Convatec Argentina SRL

Argentina

100%

Convatec Canada Limited

Canada

100%

Unomedical S.A de C.V.

Mexico

100%

Boston Medical Care, S. de R.L. de C.V.

Mexico

100%

Boston Medical Device de México, S. de R.L. de C.V.

Mexico

100%

Unomedical Devices S.A. de C.V.

Mexico

100%

Convatec Peru S.A.C.

Peru

100%

Convatec Brasil Ltda.

Brazil

100%

Convatec Medical Care Assistência a Paciente Ltda

Brazil

100%

Boston Medical Devices Colombia Ltda.

Colombia

100%

Boston Medical Care S.A.S IPS

Colombia

100%

Boston Medical Care de Chile S.P.A

Chile

100%

Boston Medical Device de Chile S.A.

Chile

100%

Boston Medical Device Ecuador S.A.

Ecuador

100%

Boston Medical Device de Venezuela, C.A.

Venezuela

100%

Convatec India Private Limited

India

100%

ConvaCare Medical India Private Limited

India

100%

180 Medical Acquisition Inc.

100%

180 Medical Holdings Inc.

100%

180 Medical Inc.

100%

AbViser Medical, LLC

100%

Boston Medical Device, Inc.

100%

Convatec Inc.

100%

Boston Medical Device International, LLC

100%

Cidron Healthcare GP, Inc.

100%

Convatec Technologies Inc.

100%

Personally Delivered, Inc.

100%

Convatec Group Plc Annual Report and Accounts 2022

230

Financial statements

Subsidiary and related undertakings

continued

Name

Place of business and

registered office

Portion of ownership

interest

Portion of

voting power held

Woodbury Holdings, Inc.

100%

WPI Acquisition Corporation

100%

WPI Holdings Corporation

100%

Wilmington Medical Supply, Inc.

100%

PRN Medical Services, LLC

100%

PRNMS Investments LLC

100%

Symbius Medical Inc.

100%

South Shore Medical Supply, Inc.

100%

Unomedical America, Inc.

100%

Unomedical, Inc.

100%

J&R Medical, LLC

100%

Cure Medical LLC

100%

Convatec Triad Life Sciences, LLC

100%

GDC First Avenue, Deeside Industrial Park,

Deeside, Flintshire CH5 2NU, UK

3 Forbury Place, 23 Forbury Road, Reading,

RG1 3JH, UK

44 Esplanade, St. Helier, Jersey, JE4 9WG,

Channel Islands

10 Earlsfort Terrace, Dublin 2, D02 T380,

Ireland

90, Boulevard National, La Garenne

Colombes, F-92250, Paris, France

12C, rue Guillaume Kroll, L-1882, Luxembourg

Constitucion 1, 3ªPlanta, 08960 Sant Just

Desvern, Barcelona, Spain

Avenida da Liberdade, 249 ‐1, 1250‐143 Lisbon,

Portugal

Avenida da Liberdade, 144, 7º 1250-146,

Lisbon, Portugal

Life Science Center, Keilaranta 16 B, 02150

Espoo, Finland

Mühlentalstrasse 38, 8200 Schaffhausen,

Switzerland

Mühlentalstrasse 36/38, 8200 Schaffhausen,

Switzerland

Schubertring 6, 1010 Wien, Austria

Via della Sierra Nevada, 60-00144 Rome, Italy

392A Mesogeion Avenue, Ag. Paraskevi, 15341,

Athens, Greece

Al. Armii Ludowej 26, 00-609 Warszawa,

Poland

Olivova 2096/4, Prague 1, 110 00, Praha 1,

Czech Republic

Level 2 Building 5, Brandon Office Park,

530-540 Springvale Road, Glen Waverley VIC

3150, Australia

Crowe Horwath, Level 29, 188 Quay Street,

Auckland 1010, New Zealand

Şehit İlknur Keles Sokak, Hüseyin

Bağdatlioğlu Plaza 7/3, Kozyatagi, Istanbul,

Turkey 34742

Gårdsfogdevägen 18B, 168 67 Bromma,

Sweden

Nils Hansen vei 2, 0667 Oslo, Norway

Gisela-Stein-Strasse 6, 81671 Munich,

Germany

Solinger Strasse 93 40764 Langenfeld,

Germany

Priemyselný Park 3, 071 01 Michalovce,

Slovakia

Schotsbossenstraat 8, 4705AG Roosendaal,

Netherlands

Houttuinlaan 5F, 3447 GM Woerden,

Netherlands

Parc d’Alliance, Boulevard de France 9,

B-1420 Braine l’Alleud, Belgium

Stationsstraat 35, 2950 Kapellen, Belgium

c/o Convatec Harlev Skinderskovvej 32-36,

2730, Harlev, Denmark

Lautruphøj 1 DK-2750 Ballerup, Denmark

Åholmvej 1-3, 4320 Lejre, Denmark

Workshop 17 Office 1-4, 16 Baker Street,

Rosebank, Johannesburg, Gauteng 2196,

South Africa

22 Kamal El Din Hussein St, 3rd Floor,

Heliopolis Sheraton, Post Code 11977, Cairo,

Egypt

Customer Services Counter, Building N. 02,

First Floor, Dubai Studio City, UAE

456 Alexandra Road, Fragrance Empire

Building #18-01/02, Singapore 119962

10th floor, Menara Hap Seng, No. 1 & 3, Jalan

P. Ramlee, 50250 Kuala Lumpur, Malaysia

Unit 805, 8F Jinbao Tower, No.89 Jinbao

Street Dongcheng District, Beijing 100005,

P.R.C.

Unit 808, Level 8, Fortune Plaza, No.116 Ti Yu

Dong Road, Tianhe District, Guangzhou City,

Guangdong Province, 510620, P.R.C.

Unit 1105-1106, Crystal Plaza Office Tower 1,

No.1359 Yaolong Road, Pudong District,

Shanghai 200124, P.R.C

Carretera Sanchez km 18 ½, Parque Industrial

Itabo, Haina, San Cristóbal, Dominican

Republic

Avenida Winston Churchill ES1. 27 de

Febrero, Apto Plaza Central, Tercer Nivel, del

Sector PIANTINI de la Ciudad de Santo

Domingo de Guzman, Suite A-368, Dominican

Republic

Unit 1901 Yue Xiu Bldg 160–174, Lockhart

Road, Wan Chai, Hong Kong

1-1-7 Choraku, Bunkyo-ku, Tokyo 112-0004,

Japan

5F.-4, No. 57, Fuxing N. Rd, Songshan Dist.,

Taipei City, Taiwan (Post code: 10595)

No. 87, 9th Floor M Thai Tower All Seasons

Place, Wireless Road, Lumpini, Phatumwan,

Bangkok, Thailand

Kosmodamianskaya nab. 52, building 1, 9th

floor, 115054, Moscow, Russia

4F, American Standard B/D,

Yeongdongdaero 112gil 66, Gangnam-Gu,

Seoul, Republic of Korea 06083

CERRITO 1070 Piso:3 Dpto:71, 1010-CIUDAD

AUTONOMA BUENOS AIRES, Argentina

900-1959 Upper Water Street, Halifax, Nova

Scotia B3J 2N2, Canada

Avenida Industrial Falcón, L7, Parque

Industrial del Norte, Reynosa Tamps, Mexico

C.P. 88736

Avenida Insurgentes sur 619, 3° Piso, CIUDAD

DE MEXICO, Nápoles, 03810, Mexico

Av. Fomento Industrial L9 M3, Parque

Industrial del Norte, Reynosa Tamps, Mexico

C.P. 88736

Av. La Encalada 1010 of. 806, Santiago de

Surco, Lima 15023, Perú

Rua Alexandre Dumas, 2100,15º. Andar, Ed

Corporate Plaza, Conj 151 e 152, – Chácará Stº

Antonio – São Paulo, Brazil Cep: 04717-913

Torre los Nogales, Calle 76 # 11-17, Fifth and

Second Floor, Bogotá, Colombia

Calle 82 # 18-31, Bogotá, Colombia

Av Suecia 0181, Providencia, Santiago, Chile

Robles E4-136 y Av. Amazonas, Edificio

Proinco Calisto, piso 12, Quito, Ecuador

EC170526

Av. Sorocaima, Libertador con Venezuela,

Edif Atrium. Piso 3, Oficina 3G, Urb El Rosal,

Municipio Chacao, Edo, Miranda, Venezuela

Next Logistics, Unit No 206, Tower B, Digital

Greens, Sector-61 Golf Course Extension

Road,

Gurgaon-122102, Haryana, India

10th Floor 1002 B, Mangnum Tower-1, Gold

Course Extention Road, Sector 58,

Gurugram, Gurgaon, Haryana, India, 122011

8516 Northwest Expressway, Oklahoma City,

OK 73162, US

200 Crossing Boulevard, Suite 101

Bridgewater,

NJ 08807, US

2315 NW 107th Avenue Suite A30, Doral,

Florida 33172, US

The Corporation Trust Company,

Corporation Trust Center, 1209 Orange

Street, Wilmington, New Castle, Delaware

19801, US

3993 Howard Hughes Parkway Suite 250, Las

Vagas, Nevada 89169-6754, US

725 Primera Blvd, Suite 230, Lake Mary, FL

32746-2127, US

1206 N. 23rd Street, Wilmington, NC

28405-1810, US

20333 N. 19th Avenue, Suite 101, Phoenix, AZ

85027-3627, US

58 Norfolk Avenue, Unit 2, South Easton, MA

02375-1907, US

5701-1 S Ware RD, McAllen, TX 78504, US

4635 Southwest Freeway, Suite 800,

Houston, TX 77027-7105, US

120 South Central Avenue, Clayton, Mo 63105

251 Little Falls Drive, Wilmington, Delaware,

19808, US

Directly held investment by Convatec

Group Plc

231

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CONVATEC GROUP PLC

Report on the audit of the Financial Statements

1. Opinion

We have audited the Financial Statements which comprise:

–

the Consolidated Income Statement;

–

the Consolidated Statement of Comprehensive Income;

–

the Consolidated and Company Statements of Financial Position;

–

the Consolidated and Company Statements of Changes in Equity;

–

the Consolidated Statement of Cash Flows; and

–

the related notes 1 to 30 of the Consolidated Financial Statements and Notes 1 to 10 of the Company Financial

Statements.

The financial reporting framework that has been applied in the preparation of the Group Financial Statements is

applicable law and United Kingdom adopted international accounting standards and IFRSs as issued by the IASB.

The financial reporting framework that has been applied in the preparation of the Company Financial Statements

is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”

(United Kingdom Generally Accepted Accounting Practice).

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.

Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the

Financial Statements section of our report.

We are independent of the Group and the Company in accordance with the ethical requirements that are relevant

to our audit of the Financial Statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical

Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in

accordance with these requirements. The non-audit services provided to the Group and the Company for the year

are disclosed in note 3.3 to the Financial Statements. We confirm that we have not provided any non-audit services

prohibited by the FRC’s Ethical Standard to the Group or the Company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

In our opinion:

–

the Financial Statements of Convatec Group Plc (the ‘Company’) and its subsidiaries (the ‘Group’) give a true and

fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2022 and of the Group’s profit

for the year then ended;

–

the Group Financial Statements have been properly prepared in accordance with United Kingdom adopted

international accounting standards and International Financial Reporting Standards (IFRSs) as issued by the

International Accounting Standards Board (IASB);

–

the Company Financial Statements have been properly prepared in accordance with United Kingdom Generally

Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and

–

the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006.

Independent auditor’s report

Convatec Group Plc Annual Report and Accounts 2022

232

Financial statements

3. Summary of our audit approach

Key audit matters

In the current year, we have identified the following new key audit matters:

–

Acquisition of Triad Life Sciences Inc;

–

Accounting for the exit of hospital care and related industrial sales activities; and

–

Revenue recognition across key markets.

Further explanation of the reasons these have been assessed as key audit matters is

provided in Section 5.

In 2021, we identified four key audit matters, none of which have been identified as continuing

in the current year. These included: (i) changes in cash-generating unit (“CGU”) groups and

reallocation of goodwill, for which there were no CGU changes in 2022 (ii) Taxation – uncertain

tax positions (UTPs) in connection with transfer pricing arrangements which we did not

identify as a significant risk in 2022 (iii) identification and valuation of adjusting items

reported within Alternative Performance Measures (“APMs”), where management policy

for APMs is embedded and is no longer deemed to be a key audit matter, and (iv) acquisition

accounting of Cure Medical LLC – focusing on the intangible asset valuation which is non

recurring in nature.

Materiality

The materiality that we used for the Group Financial Statements was $9.8m which was

determined based on adjusted profit before tax.

Scoping

Combined, we performed audit procedures across fourteen countries accounting for 82%

of revenue, 88% of profit before tax and 81% of net assets.

Significant changes in

our approach

In addition to changes in key audit matters discussed above, our audit approach for 2022,

changed in response to management’s decision to centralise certain finance processes in

the Group’s Global Business Services “GBS” hub which is a shared service centre located

in Lisbon, Portugal. In line with the considerable extent of finance processes transitioned

from the markets to Lisbon, we delivered a significant proportion of the component audits

from GBS.

4. Conclusions relating to going concern

In auditing the Financial Statements, we have concluded that the Directors’ use of the going concern basis of accounting

in the preparation of the Financial Statements is appropriate.

Our evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going

concern basis of accounting included:

–

Evaluating the recently completed financing facilities including nature of facilities, repayment terms and covenants;

–

Assessing the appropriateness of underlying assumptions used in the forecasts and historical forecasting accuracy;

–

Evaluating level of headroom in the forecasts (cash and covenants); and

–

Applying sensitivity analysis to forecasting models.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions

that, individually or collectively, may cast significant doubt on the Group’s and the Company’s ability to continue as a going

concern for a period of at least twelve months from when the Financial Statements are authorised for issue.

In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material

to add or draw attention to in relation to the Directors’ statement in the Financial Statements about whether the Directors

considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant

sections of this report.

233

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the

Financial Statements of the current period and include the most significant assessed risks of material misstatement

(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall

audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our

opinion thereon, and we do not provide a separate opinion on these matters.

5.1. Acquisition of Triad Life Sciences Inc.

Key audit matter

description

In March 2022, the Group completed the acquisition of 100% of the issued share capital of

Triad Life Sciences Inc (“Triad”) a company based in Memphis, Tennessee for a consideration

of $281.0m. The acquisition resulted in the recognition of identifiable product related

intangible assets of $154.8m and goodwill of $129.9m.

Key judgements related to the acquisition included:

–

The valuation of intangible assets identified and resulting goodwill. Management used

a third party expert to assist with the valuation of the acquired intangibles;

–

The valuation of contingent consideration payable. Triad was acquired early in its business

lifecycle and a key judgement at acquisition and at 31 December 2022 related to the fair

value of contingent consideration payable.

–

Following cash milestone payments in the year totalling $50.0m, at 31 December 2022

$130.8 million was estimated as the remaining contingent consideration which is included

within provisions. The range of reasonably possible discounted outcomes within the next

financial year is between $85.2 million and $230.8 million, compared to a maximum

remaining undiscounted contingent consideration of $275.0 million over the earn out

period to 31 March 2024.

The valuation of contingent consideration has been disclosed as a “Critical accounting

judgement and a key source of estimation uncertainty” within Note 1.4 to the Consolidated

Financial Statements. Full details in relation to the acquisition accounting are included within

Note 26. The Audit and Risk Committee include their assessment of this matter on page 129.

How the scope of our

audit responded to the

key audit matter

We performed the following procedures in respect of this key audit matter:

–

We obtained an understanding of the relevant controls over the acquisition accounting,

including the determination of contingent consideration and the fair valuation

of intangible assets arising on acquisition.

–

We reviewed the significant terms of the acquisition within the sale and purchase

agreement.

–

We assessed the competence, capability, and objectivity of management’s expert.

–

With involvement of our internal valuation experts, we evaluated management’s

assumptions and the appropriateness and application of the valuation methodology.

–

We assessed performance and budgeting accuracy since acquisition to evaluate whether

the forecasts that underpin the valuation of intangibles arising on acquisition were

appropriate.

–

We assessed the accuracy of the revenue used in the calculation of contingent

consideration, including verification of a sample of actual revenue transactions for FY22

and evaluation of forecasts for the remainder of the earn out period to 31 March 2024.

–

We evaluated the appropriateness of the disclosures in the Financial Statements including

the disclosure as a key source of estimation uncertainty.

Key observations

We conclude the fair values of the goodwill and product related intangible assets recognised

on acquisition to be appropriate. We are satisfied the assumptions used in the valuation of

the discounted fair value of the contingent consideration are within an acceptable range and

reasonable. We consider the disclosures in relation to the acquisition and the range of

possible outcomes to the earn out to be appropriate.

Independent auditor’s report

continued

Convatec Group Plc Annual Report and Accounts 2022

234

Financial statements

5.2. Accounting for the exit of hospital care and related industrial sales activities.

Key audit matter

description

In May 2022, the Group announced the decision to withdraw from its hospital care activities

and related industrial sales by the end of 2022.

As a result of the exit, the Group has recognised $46.7m of costs of which $25.8m relates to

impairments of product related intangibles, inventory and property, plant and equipment

(“PPE”). The exit costs also included $7.3 million of severance costs, $6.9 million on estimated

contract exit costs and $6.7m of legal and closing down costs.

The completeness of the accounting for the exit has been identified as a key judgement as

this has an impact on the accuracy and reasonability of provisions recognised as well as the

appropriateness of disclosures in the annual report and accounts.

The related disclosure is included within Note 27. The Audit and Risk Committee included

their assessment of this risk on page 129. For specific detail on the Group’s accounting policy,

please see Note 215.

How the scope of our

audit responded to the

key audit matter

We performed the following procedures in respect of this key audit matter:

–

We obtained an understanding of the relevant controls related to the identification and

quantification of impairments and contract exit costs associated with the exit.

–

We assessed the accuracy and completeness of management’s impairments relating to

intangible assets and property plant and equipment based on the assets previously used

in the hospital care and industrial sales activities.

–

We have assessed the inventory write down and provision by substantively testing the post

year-end sales and orders to ensure the accuracy and completeness of the provision.

–

We tested the severance costs substantively by agreeing a sample of the costs to

correspondence with the employees and to payment.

–

We held direct discussions with Convatec’s internal and external legal advisors as well as

operational leads to assess the level of provisioning for contract exit costs. In addition we

reviewed the correspondence received in the year relating to this matter.

–

We evaluated the appropriateness of the disclosures in the Financial Statements.

Key observations

We consider the accounting for the exit of hospital care and related industrial sales activities

to be reasonable and complete. We are satisfied the disclosures made in the Financial

Statements are appropriate.

5.3. Revenue recognition across key markets.

Key audit matter

description

The Group recorded revenue of $2,072.5m million for the year ended 31 December 2022 (31

December 2021: $2,038.3m) under IFRS 15:

Revenue from contracts with customers

As disclosed in Note 2.1 to the Financial Statements, the Group’s policy is to recognise revenue

when control over a product has transferred, generally on delivery, to a customer, distributor

or wholesaler. The Group measures revenue for goods sold based on the consideration

specified in a contract with a customer, net of discounts, rebates, chargeback allowances and

sales-related taxes. The UK, US and Denmark make up the Group’s key sales markets. Further

information is included in the geographic segment information in Note 2.2.

As the audit of revenue is one of the key determinants of our overall audit strategy, revenue

recognition has been included as a key audit matter. Significant allocation of audit resources

as well as increased levels of direction and supervision of the components was required in the

current year, partly as a result of the transfer of a number of processes to the Group’s Global

Business Services centre.

235

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

How the scope of our

audit responded to the

key audit matter

We performed the following procedures in respect of this key audit matter:

–

We completed walkthroughs of the revenue cycle to gain an understanding of the end-to-

end revenue process and to evaluate relevant controls across the Group, and tested

controls at the following components: the US, UK and Denmark;

–

We tested the general IT controls, including three-way matching in SAP which is the main

financial reporting system in the Group;

–

We performed analytical reviews in certain components to identify any unusual sales

trends and obtained an explanation for any such movements;

–

We held direct enquiries with category and geographic market leaders, assessing changes

in customer demand and new product introductions that might impact sales patterns;

–

We performed detailed transaction testing on a sample basis, agreeing sales through to

invoice, final sales contracts and delivery notes;

–

We also reviewed a sample of distributor contracts to assess the terms of sale and to

support recalculation of rebates and chargebacks associated with the revenue.

–

We assessed whether the disclosures within the annual report and accounts are in

compliance with the requirements of IFRS 15

Revenue from contracts with customers.

Key observations

We are satisfied that revenue recognised across key markets and the disclosures made are in

compliance with the requirements of IFRS 15.

6. Our application of materiality

6.1. Materiality

We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the

economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both

in planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:

Group Financial Statements

Company Financial Statements

Materiality

$9.8m (2021: $8.4m)

$5.9m (2021: $5.0m)

Basis for determining

materiality

4.8% (2021: 4.7%) of pre-tax profit adjusted for

acquisition and divestiture costs, termination

benefits and asset impairment.

The Company materiality equates to 0.2%

(2021: 0.1%) of net assets, which is capped

at 60% (2021: 60%) of Group materiality.

Rationale for the

benchmark applied

In determining our materiality benchmark,

we considered the focus of the users of the

Financial Statements. Pre-tax profit is the

base from which key performance measures

are calculated as well as key metrics used in

providing trading updates. We have adjusted

pre-tax profit for certain non-recurring items

as summarised above.

In determining our materiality, based on

professional judgement, we have considered

net assets as the appropriate benchmark

given the Company is primarily a holding

company for the Group. We then capped

materiality at 60% of Group materiality.

PBT adjusted for certain items

Group materiality $9.8m

Component materiality

range $4.9m to $6.8m

Audit Committee reporting

threshold $0.5m

PBT adjusted for certain items

Group materiality

PBT adjusted

for certain items

$206.3m

Independent auditor’s report

continued

Convatec Group Plc Annual Report and Accounts 2022

236

Financial statements

6.2. Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected

and undetected misstatements exceed the materiality for the Financial Statements as a whole.

Group Financial Statements

Company Financial Statements

Performance materiality

70% (2021: 70%) of Group materiality

70% (2021: 70%) of Company materiality

Basis and rationale for

determining performance

materiality

In determining performance materiality, we considered the following factors:

a. our risk assessment, including our understanding of the entity and its overall control

environment;

b. the disaggregated nature of the Group and the likelihood of an individually material error;

and

c. our cumulative experience from prior year audits and level of corrected and uncorrected

misstatements identified.

6.3. Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $0.5m

(2021: $0.4m), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation

of the Financial Statements.

7. An overview of the scope of our audit

7.1. Identification and scoping of components

Our Group audit was scoped on an entity level basis, assessing components against the risk of material misstatement

at the Group level. We have also considered the quantum of Financial Statement balances and individual financial

transactions of a significant nature. In performing our assessment, we have considered the geographical spread of the

Group and any risks presented within each region.

Based on this assessment, we focused our work on thirteen (2021: thirteen) components covering seven (2021: eight)

countries, 70% (2021: 72%) of revenue, 83% (2021: 83%) of profit before tax and 74% (2021: 77%) of net assets. All thirteen

(2021: thirteen) components were subject to a full scope audit. The thirteen (2021: thirteen) components are in the United

States of America, United Kingdom, Switzerland, Denmark, Germany, Italy and France, which include the principal operating

units of the Group.

In addition, we have performed specified audit procedures in ten (2021: eight) components covering nine (2021: eight)

countries, 12% (2021: 8%) of revenue, 5% (2021: 4%) of profit before tax, and 7% (2021: 6%) of net assets. The eleven (2021:

eight) components are located in: the United States of America, Denmark, Spain, Canada, Brazil, the Dominican Republic,

Japan, Australia and Slovakia.

In carrying out our work, we responded to management’s decision to centralise finance processes in the GBS hub. In line

with the considerable extent of finance processes transitioned from the markets to Lisbon, we delivered a significant

proportion of the component audits from GBS whilst providing direction and exercising supervision of component work

at the Group level. We centrally determined the scope of the audit procedures executed by component audit teams and

at the GBS.

Full audit scope 70%

Review at group level 18%

Speciﬁed audit procedures 12%

Revenue

Full audit scope 83%

Review at group level 12%

Speciﬁed audit procedures 5%

Profit before tax

Full audit scope 74%

Review at group level 19%

Speciﬁed audit procedures 7%

Net assets

237

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

Independent auditor’s report

continued

7.2. Our consideration of the control

environment

Our audit approach is evolving

alongside management’s plans to

continue standardising the control

environment across the Group,

including at GBS. Whilst our audit

remains largely substantive, we

increased the extent of our procedures

performed on the control environment

in 2022, focusing on enhancing our

understanding of the progress made

in the standardisation by testing the

relevant controls in the business

processes that have transitioned to

the shared service centre.

For components we identified relevant

IT systems for the purpose of our audit

work, we obtained an understanding

of relevant IT controls and tested the

general IT controls for some operating

companies with the involvement of our

IT specialists. We performed focused

controls tests on the main financial

reporting IT environment in the shared

service centre and used the results of

this work as part of our Group reporting

and to support the components

reporting under local statutory

requirements.

7.3. Our consideration of climate-

related risks

In planning our audit, we have

considered the potential impact of

climate change on the Group’s

business and its Financial Statements.

The Group has reassessed the risk and

opportunities relevant to climate

change and maintained the

Environment & Communities risk as a

principal risk across the Group. This

risk grading has been maintained at

the same level as the prior year and

has been considered and embedded

into the business as explained in the

Strategic Report.

As a part of our audit procedures,

we have reviewed management’s

environment related risk assessment

and held discussions with the Audit

and Risk Committee to understand

the process of identifying climate-

related risks, the determination of

mitigating actions and the impact on

the Group’s Financial Statements.

While management has acknowledged

that the transition and physical risks

posed by climate change have the

potential to impact the medium to

long term success of the business, they

have assessed that there is no material

impact arising from climate change on

the judgements and estimates made

in the Financial Statements as at

31 December 2022 as explained in

note 1.3 on page 173.

We performed our own qualitative risk

assessment of the potential impact of

climate change on the Group’s account

balances and classes of transactions

and did not identify any additional

risks of material misstatement.

Our procedures include reviewing

disclosures included in the Strategic

Report to consider whether they are

materially consistent with the

Financial Statements and our

knowledge obtained in the audit.

7.4. Working with other auditors

As part of our oversight of the

component teams, planning meetings

were held with all component audit

teams. The purpose of these planning

meetings was to determine whether

the component teams had sufficient

understanding of the Group’s

businesses, its core strategy and

significant risks.

We issued our component teams

detailed instructions, included them

in our team briefings and discussed

their risk assessment. We also

provided direction in response to

enquiries made by the component

auditors. All the findings observed

were discussed with the component

auditors in detail and instructions to

perform further procedures were

issued where relevant.

In response to the easing

Covid-19 restrictions and increased

opportunities to travel, we visited local

operations in Denmark, the United

States of America, GBS in Portugal, and

the UK. Considering the new GBS

centre, we increased the frequency of

interactions with management and

component teams during the planning

and audit execution stages. The shared

service centre audit represented a

substantial change to our planned

approach from the prior year.

Members of the Group engagement

team responded to this change by

investing significant effort in directing,

supervising and reviewing the work of

the GBS audit team in Lisbon, with

visits to Lisbon through the year

and regular virtual meetings.

8. Other information

The other information comprises the

information included in the annual

report, other than the Financial

Statements and our auditor’s report

thereon. The Directors are responsible

for the other information contained

within the annual report.

Our opinion on the Financial

Statements does not cover the other

information and, except to the extent

otherwise explicitly stated in our

report, we do not express any form

of assurance conclusion thereon.

Our responsibility is to read the

other information and, in doing so,

consider whether the other

information is materially inconsistent

with the Financial Statements or our

knowledge obtained in the course of

the audit, or otherwise appears to be

materially misstated.

If we identify such material

inconsistencies or apparent material

misstatements, we are required to

determine whether this gives rise to a

material misstatement in the Financial

Statements themselves. If, based on

the work we have performed, we

conclude that there is a material

misstatement of this other

information, we are required to

report that fact.

We have nothing to report in this

regard.

9. Responsibilities of Directors

As explained more fully in the

Directors’ responsibilities statement,

the Directors are responsible for the

preparation of the Financial

Statements and for being satisfied

that they give a true and fair view,

and for such internal control as the

Directors determine is necessary to

enable the preparation of Financial

Statements that are free from material

misstatement, whether due to fraud

or error.

In preparing the Financial Statements,

the Directors are responsible for

assessing the Group’s and the

Company’s ability to continue as a

going concern, disclosing as

applicable, matters related to going

concern and using the going concern

basis of accounting unless the

Directors either intend to liquidate

the Group or the Company or to

cease operations, or have no realistic

alternative but to do so.

10. Auditor’s responsibilities for

the audit of the Financial

Statements

Our objectives are to obtain

reasonable assurance about whether

the Financial Statements as a whole

are free from material misstatement,

whether due to fraud or error, and to

issue an auditor’s report that includes

our opinion. Reasonable assurance is

a high level of assurance, but is not a

Convatec Group Plc Annual Report and Accounts 2022

238

Financial statements

guarantee that an audit conducted in

accordance with ISAs (UK) will always

detect a material misstatement when

it exists. Misstatements can arise from

fraud or error and are considered

material if, individually or in the

aggregate, they could reasonably be

expected to influence the economic

decisions of users taken on the basis

of these Financial Statements.

A further description of our

responsibilities for the audit of the

Financial Statements is located on the

FRC’s website at: www.frc.org.uk/

auditorsresponsibilities. This

description forms part of our

auditor’s report.

11. Extent to which the audit was

considered capable of detecting

irregularities, including fraud

Irregularities, including fraud, are

instances of non-compliance with laws

and regulations. We design procedures

in line with our responsibilities,

outlined above, to detect material

misstatements in respect of

irregularities, including fraud. The

extent to which our procedures are

capable of detecting irregularities,

including fraud is detailed below.

11.1. Identifying and assessing potential

risks related to irregularities

In identifying and assessing risks of

material misstatement in respect of

irregularities, including fraud and

non-compliance with laws and

regulations, we considered the

following:

–

the nature of the industry and

sector, control environment and

business performance including the

design of the Group’s remuneration

policies, key drivers for Directors’

remuneration, bonus levels and

performance targets;

–

the Group’s own assessment of the

risks that irregularities may occur

either as a result of fraud or error

that was approved by the Board;

–

results of our enquiries of

management, internal audit, the

Directors and the audit committee

about their own identification and

assessment of the risks of

irregularities, including those that

are specific to the Group’s sector;

–

any matters we identified having

obtained and reviewed the Group’s

documentation of their policies and

procedures relating to:

–

identifying, evaluating and complying

with laws and regulations and whether

they were aware of any instances of

non-compliance.

–

detecting and responding to the risks

of fraud and whether they have

knowledge of any actual, suspected or

alleged fraud;

–

the internal controls established to

mitigate risks of fraud or non-

compliance with laws and regulations ;

–

the matters discussed among the

audit engagement team including

component audit teams and

relevant internal specialists,

including tax, valuations, IT and

forensics specialists regarding how

and where fraud might occur in the

Financial Statements and any

potential indicators of fraud.

As a result of these procedures, we

considered the opportunities and

incentives that may exist within the

organisation for fraud and identified

the greatest potential for fraud in the

accounting for the exit in hospital care

and related industrial sales activities.

In common with all audits under ISAs

(UK), we are also required to perform

specific procedures to respond to the

risk of management override.

We also obtained an understanding of

the legal and regulatory frameworks

that the Group operates in, focusing

on provisions of those laws and

regulations that had a direct effect on

the determination of material amounts

and disclosures in the Financial

Statements. The key laws and

regulations we considered in this

context included the UK Companies

Act, Listing Rules, pensions legislation

and tax legislation.

In addition, we considered provisions of

other laws and regulations that do not

have a direct effect on the Financial

Statements but compliance with which

may be fundamental to the Group’s

ability to operate or to avoid a material

penalty. These included the Food and

Drug Administration (“FDA”) and the

Medical Devices Regulation (“MDR”).

11.2. Audit response to risks identified

As a result of performing the above,

we identified the accounting for the

exit from the hospital care and related

industrial sales activities as a key audit

matter related to the potential risk of

fraud. The key audit matters section of

our report explains the matter in more

detail and also describes the specific

procedures we performed in response

to that key audit matter.

In addition to the above, our

procedures to respond to risks

identified included the following:

–

reviewing the financial statement

disclosures and testing to

supporting documentation to assess

compliance with provisions of

relevant laws and regulations

described as having a direct effect

on the Financial Statements;

–

enquiring of management, the audit

committee and both in-house and

external legal counsel concerning

actual and potential litigation and

claims;

–

performing analytical procedures to

identify any unusual or unexpected

relationships that may indicate risks

of material misstatement due to

fraud;

–

reading minutes of meetings of

those charged with governance,

reviewing internal audit reports

correspondence with HMRC;

–

in addressing the risk of fraud

through management override

of controls, testing the

appropriateness of journal entries

and other adjustments; assessing

whether the judgements made in

making accounting estimates are

indicative of a potential bias; and

evaluating the business rationale

of any significant transactions that

are unusual or outside the normal

course of business.

We also communicated relevant

identified laws and regulations and

potential fraud risks to all engagement

team members including internal

specialists and component audit

teams and remained alert to any

indications of fraud or non-

compliance with laws and regulations

throughout the audit.

239

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

Independent auditor’s report

continued

Report on other legal and

regulatory requirements

12. Opinions on other matters

prescribed by the Companies

Act 2006

In our opinion the part of the

Directors’ remuneration report to be

audited has been properly prepared

in accordance with the Companies Act

2006.

In our opinion, based on the work

undertaken in the course of the audit:

–

the information given in

the strategic report and the

Directors’ report for the financial

year for which the Financial

Statements are prepared is

consistent with the Financial

Statements; and

–

the strategic report and the

Directors’ report have been

prepared in accordance with

applicable legal requirements.

In the light of the knowledge and

understanding of the Group and the

Company and their environment

obtained in the course of the audit,

we have not identified any material

misstatements in the strategic

report or the Directors’ report.

13. Corporate Governance

Statement

The Listing Rules require us to review

the Directors’ statement in relation

to going concern, longer-term

viability and that part of the

Corporate Governance Statement

relating to the Group’s compliance

with the provisions of the UK

Corporate Governance Code

specified for our review.

Based on the work undertaken as

part of our audit, we have concluded

that each of the following elements

of the Corporate Governance

Statement is materially consistent

with the Financial Statements and

our knowledge obtained during the

audit:

–

the Directors’ statement with

regards to the appropriateness

of adopting the going concern

basis of accounting and any

material uncertainties identified

set out on page 165;

–

the Directors’ explanation as to

its assessment of the Group’s

prospects, the period this

assessment covers and why the

period is appropriate set out on

page 98;

–

the Directors’ statement on fair,

balanced and understandable set

out on page 165;

–

the Board’s confirmation that it

has carried out a robust

assessment of the emerging and

principal risks set out on page 103;

–

the section of the annual report

that describes the review of

effectiveness of risk management

and internal control systems set

out on pages 88 and 89; and

–

the section describing the work of

the audit committee set out on

page 126.

14. Matters on which we are

required to report by exception

14.1. Adequacy of explanations received

and accounting records

Under the Companies Act 2006 we are

required to report to you if, in our

opinion:

–

we have not received all the

information and explanations we

require for our audit; or

–

adequate accounting records have

not been kept by the Company, or

returns adequate for our audit have

not been received from branches

not visited by us; or

–

the Company Financial Statements

are not in agreement with the

accounting records and returns.

We have nothing to report in

respect of these matters

14.2. Directors’ remuneration

Under the Companies Act 2006 we are

also required to report if in our opinion

certain disclosures of Directors’

remuneration have not been made or

the part of the Directors’ remuneration

report to be audited is not in

agreement with the accounting

records and returns.

We have nothing to report in

respect of these matters

15. Other matters which we are

required to address

15.1. Auditor tenure

Following the recommendation of the

audit committee, we were appointed

by the Directors to audit the Financial

Statements for the year ending

31 December 2016 and subsequent

financial periods. The period of

total uninterrupted engagement

including previous renewals and

reappointments of the firm is 7 years,

covering the years ending 31 December

2016 to 31 December 2022.

15.2. Consistency of the audit report

with the additional report to the audit

committee

Our audit opinion is consistent with

the additional report to the audit

committee we are required to provide

in accordance with ISAs (UK).

16. Use of our report

This report is made solely to the

company’s members, as a body, in

accordance with Chapter 3 of Part 16

of the Companies Act 2006. Our audit

work has been undertaken so that

we might state to the company’s

members those matters we are

required to state to them in an

auditor’s report and for no other

purpose. To the fullest extent

permitted by law, we do not accept or

assume responsibility to anyone other

than the company and the company’s

members as a body, for our audit work,

for this report, or for the opinions we

have formed.

As required by the Financial Conduct

Authority (FCA) Disclosure Guidance

and Transparency Rule (DTR) 4.1.14R,

these Financial Statements form part

of the European Single Electronic

Format (ESEF) prepared Annual

Financial Report filed on the National

Storage Mechanism of the UK FCA in

accordance with the ESEF Regulatory

Technical Standard (‘ESEF RTS’). This

auditor’s report provides no assurance

over whether the annual financial

report has been prepared using the

single electronic format specified in

the ESEF RTS.

Claire Faulkner, FCA

(Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

8 March 2023

Convatec Group Plc Annual Report and Accounts 2022

240

Financial statements

Basis of reporting for metrics whose

2022 progress metrics underwent a

formal assurance process as listed on

page 74, as well as voluntary turnover

and Scope 3 emissions can be found

at www.convatecgroup.com/

sustainability/esg-reports-and-data/.

1. Quality:

Align existing quality metrics to

industry standards and our continued

focus in product safety by Q4 2022

(end of December 2022) to ensure

metrics cover both product quality

and safety aspects.

New:

Reduce our complaints per

million (CPM) by 8% for 2023

(calculated as CPM during 1 January

2023 through to 31 December 2023)

against a 2022 baseline (calculated

as CPM during 1 January 2022 through

to 31 December 2022). CPM is

calculated as the number of

complaints received divided by the

number of sales for the given period,

multiplied by one million, rounded to

the nearest whole number. Complaints

include all input from customers that

meet the criteria of a complaint, as

defined in our procedures, and are

received primarily via our customer

service and sales channels. All

Convatec employees have a

responsibility to report a complaint

at any time when interacting with

anyone that has used our products.

2. Product vitality:

Improve Vitality Index to 30% by Q4

2025 (end of December 2025). Vitality

index is defined as the percentage of

revenues that are generated from new

or significantly upgraded products,

and products launched by Convatec

in the preceding five-year period.

This includes products that enter

our portfolio, including through

acquisitions, when treated as

organic revenue.

3. Product development:

Implement Convatec Group’s

Green Design Guidelines (GDG), which

assess products in five environmentally

related areas, as part of our internal

product development processes

(new product development and

material change processes) for all

new products. Expand the user base

of our new GDG digital tool to at least

50 users by Q4 2022 (end of December

2022). Users are defined by licences to

the software, will come from research

and Development (R&D) and Sustaining

Engineering Group (SEG), and will be

trained on using the tool.

New:

Expand use of GDG digital

tools, with at least five new product

launches assessed by Q4 2023.

Strategic projects are defined as

current or future prioritised projects.

Assessment involves comparing the

new product’s Bill of Materials against

the most similar thing that Convatec

currently markets.

4. Health & Safety:

4.1

Increase our Operations Hazard

Observation Rate to above 200

per 200,000 hours worked by Q4

2 2022 (end of December 2022).

Operations comprise our nine

manufacturing locations, with the

rate normalised per 200,000 hours

worked, during calendar year 2022.

The metric includes contractor/

agency staff working at our sites,

as well as permanent staff. Hazard

Observation Rate is defined based

on OSHA definitions.

4.2

Reduce Operations Lost Time Injury

Rate (LTIR) to below 0.22 by Q4 2025

(end of December 2025). Operations

comprises our nine manufacturing

locations, with the rate normalised

per 200,000 hours worked, during

calendar year 2022. LTIR is defined

as per OSHA definitions.

5. Diversity, Equity & Inclusion

and Wellbeing:

5.1

Reach at least 40% females among

senior management and CELT roles

combined by Q4 2024 (end of

December 2024). Senior

management roles include direct

reports of CELT members,

excluding executive assistants.

Calculated on employees as

at December 2024.

5.2

Reduce voluntary turnover to less

than 10% by Q4 2023. Voluntary

turnover includes retirement and

excludes redundancies,

terminations, apprentices, interns,

working students, temporary

workers, fixed term and contingent

workers. It is calculated as total

employees leaving for the year/

average monthly headcount.

6. Human rights:

Complete the (internal) review, update

and publication of our human rights-

related policies, our Human Rights and

Labour Standards Policy and Supplier

Code of Conduct, by Q4 2022 (end of

December 2022).

New:

Launch annual compulsory

training programme on Human Rights

for all employees by Q4 2023. Training

module to include asynchronous and

live training materials required for

full-time, part-time and fixed term

employees, leveraging our established

learning management platform and

completion monitoring tracked

through Compliance teams.

New:

Strengthen our risk management

practices focused on labour standards

and modern slavery through our

procurement and supply chain,

including through the introduction

of a new responsible supplier

assessment platform by Q2 2023.

Practices supported by the platform

and included in the target include

but are not limited to risk assessment

methodology, due diligence,

additional audit insights and training

for stakeholders.

7. Code of Conduct:

Have at least 95% of employees

trained on an annual basis by Q4 2023

and in subsequent years. Training is

conducted digitally. It includes

part-time and full-time employees and

excludes contractors, agency workers

and employees on long-term absence.

Percentage is calculated as number of

employees trained and employed on

31 December divided by total number

of employees as at 31 December.

8. Procurement and supply chain:

By 31 December 2023, ensure that 80%

of Convatec’s spend (from all Business

Units globally) is supported by

suppliers who we have requested to

participate in our EcoVadis platform.

Suppliers include direct material and

external manufacturers and exclude

indirect service/materials providers.

Participation is considered when a

supplier is either: assessed by

EcoVadis on all four themes covered in

the platform, or when an invitation to

participate has been extended and the

supplier has declined to participate,

and Convatec has a documented audit

trail of the dialogue between parties.

ESG target definitions

241

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

9. Emission reduction:

9.1

Achieve net zero carbon (in line

with our SBTi target) by 2045.

This includes reducing all value

chain carbon emissions (Scope 1, 2

& 3) in line with SBTi 1.5

C targets

by 2036, with defined five-year

milestone targets developed by Q4

2022 aligned to SBTi. All value chain

emissions will be reduced to zero

by beginning of Q1 2045

9.2

Complete the Scope 3 materiality

assessment and develop the

measurement strategy by Q4 2022,

with the intention of publishing our

Scope 3 greenhouse gas (GHG)

inventory by Q4 2023. Analyse

existing data available for all 15

categories of Scope 3 emissions and

determine a measurement strategy

to determine a full GHG inventory for

material Scope 3 emissions in 2023.

Scope 3 inventory to be published by

Q4 2023.

9.3 Reduce our combined Scope 1 and 2

GHG emissions by 5%, against a

2021 baseline by Q4 2022.

10. Science Based Target

commitment:

10.1

Set quantitative Science Based

Targets (SBT) for Scope 1 and 2

emissions, against a 2021 baseline,

by Q4 2022 (end of December

2022). Set aligned SBTs for Scope 1

and 2, utilising the SBTi (1.5

calculation tool, to predict

expected verified SBTi’s at the end

of 2022

New:

Reduce our combined Scope 1

and 2 GHG emissions by 70% in line

with our SBTs by 2030. See basis of

reporting document for reporting

boundaries.

10.2 Set quantitative targets for Scope

3 GHG emissions, against a 2021

baseline, aligned with the SBT

criteria by Q4 2023. Set aligned

SBTs for Scope 3, utilising the SBTi

(1.5

C) calculation tool, to predict

expected verified SBTi’s at the end

of 2023.

10.3 Achieve validated SBTs for Scope 1,

2 & 3 emissions by Q4 2023. Gain

fully validated SBTi’s, certified by

the SBT Initiative, covering Scope 1,

2 & 3 emissions, using the 2021

baseline.

11. Community contributions:

11.1

Establish new NGO partnership(s)

and funding commitments by

Q4 2022 (end of December 2022).

Partnerships are formalised via

Letters of Agreement and may

involve product or monetary

donations, in-kind support,

volunteering, or other means

of cooperation.

New:

Contribute at least $2 million

in cash and in-kind support to our

community partners to improve lives

by Q4 2025. Cash contributions are

valued at face value; product

donations are calculated at regional

commercial value. Lives touched

include immediate contact as well as

number of individuals supported by

trained healthcare professionals (HCP)

during the reporting period, Q1 2023 to

Q4 2025.

11.2

Contribute responsibly to a

range of HCP and patient

education programmes by Q4 2022

(end of December 2022). Set

specific targets for 2023-25 on

reach and impact. Contributions

may include monetary and in-kind

donations or other types

of partnerships.

New:

Continue to expand the reach

of our HCP education programmes,

including through the development

of a global medical education digital

platform and recategorisation of

activity to improve impact by Q4 2023.

Expansion may include unique number

of HCPs touched, number of

programes, depth of programming,

and geographic reach.

ESG target definitions

continued

Additional information

Convatec Group Plc Annual Report and Accounts 2022

242

Our corporate website:

www.convatecgroup.com

Information about our Stock Exchange

announcements, key dates in our

financial calendar, our share price

information and background

information is available on our

corporate website at

www.convatecgroup.com/investors.

The date for the release of our

interim results for the six months

ended 30 June 2023 will be posted

in due course on our website.

Shareholders may also receive

information by email by signing up

to the news alert service available at

www.convatecgroup.com/investors/

sign-up-for-more-information.

Share price information

Our closing share price as at

31 December 2022 was 232.60p.

Managing your shareholding

You can manage your shareholding

online by registering to use Investor

Centre, a free and secure website.

Investor Centre is available 24 hours

a day, 365 days a year. To find out

more about Investor Centre visit

www.investorcentre.co.uk.

Registration is a straightforward

process and all you will need is your

shareholder reference number (SRN)

and registered address details.

Shareholders who prefer not to

manage their shareholding online

can contact our Registrars,

Computershare Investor Services

PLC, who manage our share register.

The shareholder helpline number

is +44 (0) 370 703 6219 and further

information about Computershare

Investor Services PLC is set out below.

Internet share dealing

Please note that, if you wish to

purchase shares in the Company,

you may do so through a bank or

stockbroker. Alternatively, please go to

www.computershare.com/dealing/uk

for a range of dealing services made

available by Computershare; this

service is only available to

shareholders in the UK. This service

provides shareholders with a

convenient way to buy or sell the

Company’s ordinary shares on the

London Stock Exchange. The

commission is 1.4%, subject to a

minimum charge of £40. In addition,

stamp duty, currently 0.5%, is payable

on purchases. Real-time dealing is

available during market hours. In

addition, there is a convenient

facility to place your order outside

of market hours.

Up to 90-day limit orders are available

for sales. Before you can trade you will

need to register for the service. To

access the service log on to www.

computershare.com/dealing/uk.

Shareholders should have their SRN

available. The SRN appears on share

certificates as it will be required as

part of the registration process.

A bank debit card will be required

for purchases.

Postal share dealing

Please note this service is, at present,

only available to shareholders resident

in the UK. The commission is 1.4% plus a

charge of £40. In addition, stamp duty,

currently 0.5%, is payable on purchases.

The service is available from 8.00am to

4.30pm Monday to Friday, excluding

bank holidays, on telephone number

+44 (0) 370 703 0084. Before you trade

you will need to register for this service.

This can be done by going online at

www.computershare.com/dealing/uk.

Shareholders should have their SRN

ready when making the call. The SRN

appears on share certificates. A bank

debit card will be required for

purchases. Detailed terms and

conditions are available on request by

telephoning +44 (0) 370 703 0084.

Please note that due to the regulations

in the UK, Computershare are required

to check that you have read and

accepted their Terms and Conditions

before being able to trade, which

could delay your first telephone trade.

If you wish to trade quickly, we suggest

visiting their website and registering

online first.

Share fraud

We would like to warn all of our

shareholders to be very wary of any

unsolicited telephone calls or letters

which offer investment advice, offer to

buy your shares at a discounted price,

or sell them at an inflated price or

offers free company reports. This

type of call should be treated as an

investment scam. Further information

about investment scams and how they

should be reported is available at

www.convatecgroup.com/investors/

shareholder-services/.

Company Secretary and

registered office

Evelyn Douglas

3 Forbury Place

23 Forbury Road

Reading RG1 3JH

Registrar

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol, BS13 8AE

Telephone +44 (0) 370 703 6219

Email www.investorcentre.co.uk/

contactus

Auditor

Deloitte LLP

Brokers

Citigroup Global Markets Limited

UBS Limited

Solicitors

Freshfields Bruckhaus Deringer LLP

Shareholder information

243

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

Adjusted free

cash flow

Adjusted net cash

generated from

operations, net of PP&E

and tax paid

Adjusted or

alternative

performance

measures

(APMs)

Certain financial

measures in this Annual

Report and Accounts

not prepared in

accordance with IFRS

and used as a

meaningful supplement

to reported measures

Advanced

Wound Care

(AWC)

Advanced wound

dressings and skin care

products for the

management of acute

and chronic wounds

resulting from ongoing

conditions such as

diabetes and acute

conditions resulting

from traumatic injury

and burns

AGM

Annual General Meeting

of the Company

ARA

Annual Report and

Accounts

ARC

Audit and Risk

Committee

Articles

The Articles of

Association of the

Company for the time

being in force

Base erosion

and profit

shifting (BEPS)

initiative

OECD initiative which

seeks to close gaps in

international taxation

for companies that

allegedly avoid tax or

reduce tax burden in

their home country by

engaging in tax

inversions

Basic earnings

per share

Net profit available for

Convatec shareholders

divided by the weighted

average number of

ordinary shares in issue

during the year

Basis points

(bps)

One hundredth of a

percentage point. Used,

for example, in quoting

movements in margin

percentages

BEIS

Business, Energy &

Industrial Strategy

Board

The Board of Directors

of Convatec Group Plc

Book tax rate

The tax charge in the

income statement as a

percentage of profit

before tax

Brexit

The UK’s withdrawal

from the European

Union

Compound

annual growth

rate (CAGR)

CAGR shows the rate of

growth over a certain

period of time,

expressed in annual

percentage terms

Capital

expenditure

(capex)

Purchases of property,

plant and equipment

and intangible assets

Cash

conversion

Cash generated from

operations, net of PP&E

divided by EBITDA

Cash-

generating

units (CGUs)

The smallest

identifiable groups of

assets that generate

cash inflows that are

largely independent of

the cash inflows from

other assets or groups

of assets

CE mark

Certification mark that

indicates conformity

with health, safety and

environmental

protection standards

for products sold within

the European Economic

Area

CELT

Convatec Executive

Leadership Team

Code

UK Corporate

Governance Code 2018

in effect from 1 January

2019, issued by the FRC

Code of

Conduct

Our code of conduct

which covers business

conduct and

compliance issues,

including bribery and

corruption

CoE

Centre of Excellence

COGS

Cost of goods sold

Companies Act

Companies Act 2006, as

amended, of England

and Wales

Company or

parent

company

Convatec Group Plc

Constant

currency

growth

Constant currency

growth is calculated by

applying the applicable

prior period average

exchange rates to the

Group’s actual

performance in the

respective period

Continence &

Critical Care

(CCC)

Products and services

for people with urinary

continence issues

related to spinal cord

injuries, multiple

sclerosis, spina bifida

and other causes, and

devices and products

used in intensive care

units and hospital

settings

COSO

The Committee of

Sponsoring

Organizations, a global

organisation providing

a framework for risk

management, internal

control, governance

and fraud deterrence

COVID-19

Coronavirus disease

2019

Corporate

responsibility.

DE&I

Diversity, equity and

inclusion

Derivatives

Financial instruments

used to reduce risk, the

price of which is derived

from an underlying

asset, index or rate

Diluted

earnings per

The calculation of

diluted earnings per

share includes the

dilutive impact of share

awards where the

average market price of

the Group’s ordinary

shares exceeds the

exercise price

Director

A member of the Board

of Directors of Convatec

Group Plc

Disclosure

guidance and

transparency

rules (DTRs)

FCA disclosure

guidance and

transparency rules with

which the Group must

comply

Dividend cover

Adjusted cash

generated from

operations, net of PP&E

(see page 67) divided by

dividend paid (dividend

payable), excluding the

effect of a scrip option

EBITDA

Earnings before

interest, tax,

depreciation and

amortisation

Effective tax

rate (ETR)

The tax charge in the

income statement as a

percentage of profit

before tax

EMEA

Countries located in

Europe, Middle East and

Africa

ESG

Environmental, Social

and Governance

ESMA

European Securities

and Markets Authority

The European Union

EURIBOR

Euro Interbank

Offered Rate

FCA

Financial Conduct

Authority

FDA

US Food and Drug

Administration

FRC

Financial Reporting

Council

Foreign exchange

GDGs

Green Design

Guidelines

GDPR

General Data

Protection Regulation

GHG

emissions

Greenhouse gas

emissions

Group

The Company and its

subsidiaries

GPO

Group purchasing

organisations

H&S

Health and safety

Glossary

Additional information

Convatec Group Plc Annual Report and Accounts 2022

244

Home Services

Group (HSG)

The Group’s home

services business unit

for distribution of

catheter and ostomy

products

IASB

International

Accounting Standards

Board – the

independent

standard setting body

of the IFRS Foundation

IBOR

Interbank Offered

Rate

IFRS

International Financial

Reporting Standards

as issued by the IASB

IFRIC

International Financial

Reporting

Interpretations as

issued by the IASB

Infusion Care

(IC)

Disposable infusion

sets for diabetes

insulin pumps, similar

pumps used in

continuous infusion

treatments for

conditions such as

Parkinson’s disease

and a range of

products for hospital

and home healthcare

markets

Intellectual property

IPO

Initial public offering

Investor relations

KPI – Key

Performance

Indicator

Financial and non-

financial measures

that the Group uses to

assess performance

and strategic progress

LIBOR

London Inter-bank

Offered Rate

Leverage

Net debt divided by

covenant adjusted

EBITDA

LTIP

Long-term incentive

plan

LTIR

Lost time injury rate

M&A

Mergers and

acquisitions

MAR

Market abuse

regulation

MDR

Medical Device

Regulations

introduced in the EU

with required

transition by May 2021.

MDR imposes rigorous

requirements in

relation to a number

of areas including

clinical data and

post-market

surveillance

MedTech

Medical technology

MIP

Margin Improvement

Programme

Net debt

Borrowings less cash

and cash equivalents

and excluding lease

liabilities

NHS

The UK National

Health Service

OECD

Organisation for

Economic Co-

operation and

Development

Opex

Operating expenses,

being the total of

selling and

distribution expenses,

general administrative

expenses and

research and

development, and

other operating

expenses

Organic

growth

Period-over-period

growth at constant

currency, adjusted for:

Triad Life Sciences

(March 2022), Cure

Medical (March 2021)

and Patient Care

Medical (December

2021) acquisitions;

Incontinence

divestment

(December 2021) and,

from 31 May, the

discontinuation of

hospital care, related

industrial sales and

associated Russia

operations

Organisational

Health

Index (OHI)

An index tracking the

organisational

elements that drive

performance

Ostomy Care

(OC)

Devices, accessories

and services for

people with a stoma

(surgicallycreated

opening where bodily

waste is discharged),

commonly resulting

from causes such as

colorectal cancer,

inflammatory bowel

disease and bladder

cancer

PBT

Profit before income

taxes

PP&E

Property, plant and

equipment

Product

categories

The Group has four

product groups, being

Advanced Wound

Care, Ostomy Care,

Continence & Critical

Care and Infusion Care

R&D

Research and

development

ROIC

Return on invested

capital

SBTi

Science Based Target

initiative

SBTs

Science Based Targets

SID

Senior Independent

Director

SKU

Stock keeping unit

SNC

Special nomination

committee

SOFR

Secured Overnight

Financing Rate

SONIA

Sterling Overnight

Index Rate

Sterling, £,

pence or p

The currency of the

United Kingdom

Subsidiary

A company over which

the Group exercises

control

TCFD

Task Force on Climate-

related Financial

Disclosures

Transformation

Initiative

Initiatives and

associated investment

focused on

transforming the

business to deliver

sustainable and

profitable growth

TSL

Total Safety

Leadership

TSR

Total shareholder

return

UKLA

The UK’s Listing

Authority

US dollar, $,

cent or ¢

The currency of the

United States of

America

Viability

period

The three-year period

from January 2023 to

December 2025

245

Convatec Group Plc Annual Report and Accounts 2022

Additional information

Governance

Strategic report

Overview

Financial statements

Cautionary statement regarding

forward-looking statements

The purpose of this Annual Report is

to provide information to the

members of the Company. The Group

and its Directors, employees, agents

and advisers do not accept or assume

responsibility to any other person to

whom this Annual Report is shown or

into whose hands it may come and

any such responsibility or liability is

expressly disclaimed. In order, among

other things, to utilise the “safe

harbour” provisions of the US Private

Securities Litigation Reform Act 1995

and the UK Companies Act 2006, we

are providing the following cautionary

statement: This Annual Report

contains certain forward-looking

statements with respect to the

operations, performance and financial

condition of the Group, including

among other things, statements about

expected revenues, margins, earnings

per share or other financial or other

measures. Forward-looking

statements are generally identified

by the use terms such as “believes”,

“estimates”, “aims”, “anticipates”,

“expects”, “intends”, “plans”,

“predicts”, “may”, “will”, “could”,

“targets”, “continues” or , in each

case, their negatives or other similar

expressions. These forward-looking

statements include all matters that

are not historical facts.

Forward-looking statements are

necessarily based upon a number

of estimates and assumptions that,

while considered reasonable by the

Company, are inherently subject to

significant business, economic and

competitive risks, uncertainties and

contingencies that are difficult to

predict and many of which are

outside the Group’s control. As

such, no assurance can be given

that such future results, including

guidance provided by the Group,

will be achieved.

Forward-looking statements are not

guarantees of future performance and

such uncertainties and contingencies,

including the factors set out in the

“Principal Risks” section of the

Strategic report which begins on

page92, could cause the actual results

of operations, financial condition and

liquidity, and the development of the

industry in which the Group operates,

to differ materially from the position

expressed or implied in the forward-

looking statements set out in this

Annual Report. Past performance of

the Group cannot be relied on as a

guide to future performance. Nothing

in this Annual Report should be

construed as a profit forecast.

Forward-looking statements are based

only on knowledge and information

available to the Group at the date of

preparation of this document and speak

only as at the date of this Annual Report.

The Group and its Directors, officers,

employees, agents, affiliates and advisers

expressly disclaim any obligations to

update any forward-looking statements

(except to the extent required by

applicable law or regulation).

Third-party data

The industry and market data

contained in this Annual Report

has come from third-party sources

and from the Group’s own internal

research and estimates based on the

knowledge and experience of the

Group’s management in the market

in which the Group operates. While

the Group believes that such sources,

research and estimates are reasonable

and reliable, they have not been

independently verified and are subject

to change without notice. Accordingly,

undue reliance should not be placed

on any of the industry or market data

in this Annual Report.

Convatec website

Information on or accessible through

our website www.convatecgroup.com

and other websites mentioned in this

Annual Report, does not form part of

and is not incorporated into this

Annual Report.

Figures

Figures in parentheses in tables and

in the Financial Statements are used

to represent negative numbers.

Important information for readers of this Annual Report

Additional information

Convatec Group Plc Annual Report and Accounts 2022

246

Credits

Designed and produced by

Conran Design Group

Printed by

Pureprint Group, ISO14001, FSC

certified

and CarbonNeutral

This Annual Report is printed on Revive Silk 100 and

Revive Offset 100 paper, manufactured from FSC

Recycled

certified fibre derived from 100% pre and post-consumer

waste. Printed in the UK by Pureprint using its pureprint

environmental printing technology, and vegetable inks

were used throughout. Pureprint is a CarbonNeutral

company. Both the manufacturing mill and the printer

are registered to the Environmental Management System

ISO14001 and are FSC

chain-of-custody certified.

Convatec Group Plc

3 Forbury Place

23 Forbury Road

Reading

RG1 3JH

T: + 44 (0) 118 952 8100

www.convatecgroup.com

Company No: 10361298

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