2013 Annual Report Making a Difference in People’s Lives Table of Contents Page Our business 2 Management’s discussion and analysis of financial condition and results of operations 15 Management 32 Principal shareholders 37 Certain relationships and related party transactions 38 Description of certain financing arrangements 41 Risk factors 47 Glossary 67 Index to financial statements F-1 Our Business Overview ConvaTec is a global medical products and technologies company, with leading market positions in ostomy care, wound therapeutics, continence and critical care, and infusion devices. Our products provide a range of clinical and economic benefits, including infection prevention, protection of at-risk skin, improved patient outcomes and reduced total cost of care. We have over 8,000 employees, with 11 manufacturing sites in 8 countries, and we do business in more than 100 countries. For the 12 months ended December 31, 2013, we had net sales of $1,700.7 million and adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $549.6 million. ConvaTec has a history of innovation and industry leadership that spans over 35 years: Our AQUACEL® dressings feature a unique wound contact layer that transforms into a gel on contact with wound fluid, creating an optimal environment for wound healing and minimizing the risk of infection. We pioneered modern ostomy care with the development of moisture-absorbing medical adhesives, and today our ostomy products are designed with ConvaTec Moldable Technology™ for clinically superior performance. We are the world’s leading provider of disposable infusion sets to manufacturers of insulin pumps. Our Strengths Leading Position in Attractive, Growing Markets We are one of the top three global leaders in many of our core segments. We have leading market shares globally in infusion devices, fecal management and several advanced wound care segments; in ostomy care, we have leading share in several markets globally and the second largest share in North America. Additionally, we have brands that are widely recognized and respected by health care providers and care givers alike. Our broad product portfolio, brand equity and reputation for quality create significant competitive advantages. We operate in attractive and growing markets. Underlying health care trends —aging populations, growing incidence of disease and expanded adoption of advanced therapies globally — will create additional demand across all markets. The Wound Therapeutics market is expected to grow 5-6% per annum over the next five years, driven by an increase in the number of addressable wounds and a shift from traditional products to more advanced therapies. The Ostomy Care market has an expected growth rate of 3-4% per annum over the next five years, driven by favorable demographics. The Continence & Critical Care (“CCC”) market has an expected growth rate of 4-5% per annum over the next five years, driven by increases in general, non-elective care consumption and reimbursement coverage. The Infusion Devices market is expected to grow 5-6% per annum over the next five years, driven by the increasing prevalence of diabetes and expanded reimbursement coverage for insulin pump therapy. Large, Diversified and Recurring Revenue Base Derived from Medical Consumables Our business is highly diversified across countries, end markets, product lines, customers and payers. For the twelve month period ended December 31, 2013, Ostomy Care, Wound Therapeutics, Continence & Critical Care, and Infusion Devices segments generated 36%, 31%, 18%, and 15% of total net sales, respectively. Our products are marketed and distributed to a wide range of customers, including health care providers, patients and manufacturers. For the year ended December 31, 2013, no single customer represented more than 10% of our net sales, and no single product represented more than 15% of net sales. A majority of our business is derived from medical consumables and tied to long-term customer relationships, generating consistent, recurring revenues. The Ostomy Care segment in particular is characterized by a large base of loyal long-term patients, with relationships spanning 10-15 years or more. 2 ConvaTec Healthcare B S.a.r.l. and Subsidiaries Deep Product Pipeline and Accelerating New Product Revenue We have been a leader in new product development for over 35 years. Our long and successful history of product innovation includes Hydrofiber® Technology for wound care (introduced in 1996), Moldable Technology™ in ostomy (introduced in 2002), and Flexi-Seal® for fecal management (introduced in 2004). Recent product launches continue this trend, with AQUACEL® Foam the most successful launch in our history. We have a revitalized core product portfolio and a strong pipeline of innovative new products that will drive future growth. Successful Acquisitions with Additional M&A Opportunity We have a strong track record of successful acquisitions, with a focus on high-growth, low-risk targets that are easily integrated and provide immediate value creation. We continue to look for acquisitions in three strategic areas: getting closer to customers through direct-to-consumer channels, enhancing our product portfolio and expanding in emerging markets. We believe there is a significant opportunity to supplement organic growth with such acquisitions. Strong Emerging Market Growth We have a growing presence in emerging markets, with double-digit compound annual growth rates since 2010. For the year ended December 31, 2013, sales in emerging markets represented 13.6% of total revenues. Emerging markets have attractive growth characteristics, driven by an expanding middle class, increasing access to health care and aging populations with longer life expectancies. We are well positioned for growth as emerging markets adopt advanced medical treatments. Growing Direct-to-Customer Capabilities With the 180 Medical and Symbius Medical acquisitions in the US and similar acquisitions in the UK, we have growing direct-to-customer capabilities. These capabilities enable us to develop stronger relationships with our customers, build brand loyalty and generate additional revenue by leveraging the sales model across our entire portfolio. Highly Efficient Global Manufacturing We have a highly efficient and strategically located manufacturing network, with 11 sites in 8 countries, many of which are in relatively low-cost labor markets. This gives us significant operational flexibility and the ability to continuously drive improvements in productivity and overall profitability. Our broad distribution network provides an important complement to our manufacturing capabilities, together enabling us to efficiently serve our global customer base. Excellent Financial Results and Superior Cash-Flow Generation Fiscal 2013 marked the second straight year of accelerated business performance for ConvaTec. With most of our products used in necessary and non-elective medical care, our business has strong and predictable cash flow generation characteristics. We have the ability to continue to generate significant cash flow based on our competitive strengths and the relatively low level of capital expenditure and working capital required to maintain our underlying businesses. Increased operating efficiencies and productivity savings have contributed to margin expansion and are allowing us to invest in growth-generating activities. Our Strategy We intend to drive sustained revenue and EBITDA growth by extending our market leadership, capturing new revenue streams and continuously improving productivity. Extend Market Leadership In Ostomy Care, we are focused on establishing ConvaTec as the clear market leader by developing even stronger relationships with customers and by regularly introducing new products. We have a highly disciplined approach to attracting new ostomy customers and earning their loyalty. We also continue to focus on differentiating our ostomy products through our proprietary ConvaTec Moldable Technology™, which is clinically proven to prevent leakage and 3 ConvaTec Healthcare B S.a.r.l. and Subsidiaries skin complications. In addition, we are leveraging our skin care and clothing accessories to capture incremental revenue and broaden relationships with customers. In Wound Therapeutics, we are leveraging the AQUACEL® brand into new market segments and medical indications, introducing a variety of new products that support infection control. In particular, we are focused on taking significant share of the nearly $1 billion market for foam dressings with our new AQUACEL® Foam offering and on expanding our share of the global silver dressing market with the launch of our new AQUACEL® Ag+ dressings. In Continence & Critical Care, we are extending our leadership in fecal management with continuous product enhancements and by helping health care providers respond to the challenge of hospital-acquired infections. In addition we are focused on taking significant share in the $1.5 billion market for intermittent self-catherization with our new GentleCath™ portfolio. In Infusion Devices, we continue to expand our position as the leading provider of disposable infusion sets to insulin pump manufacturers and pursue broader strategic partnerships with OEMs (original equipment manufacturers). In addition, we are expanding our presence in other continuous infusion therapies, including treatments for Parkinson’s disease and pain management. Launch New Products W e continue to innovate