Gates Industrial Corp plc (Form: 10-Q, Received: 11/06/2019 13:50:40)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 001-38366

Gates Industrial Corporation plc

(Exact Name of Registrant as Specified in its Charter)



England and Wales		98-1395184
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



1144 Fifteenth Street, Denver, Colorado		80202
(Address of principal executive offices)		(Zip Code)

(303) 744-1911

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary Shares, $0.01 par value per share	GTES	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:



Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 4, 2019, there were 290,118,125 ordinary shares of $0.01 par value outstanding.

TABLE OF CONTENTS



Part I – Financial Information

Item 1.	Financial Statements (unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	53

Part II – Other Information

Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6.	Exhibits	55
Signatures		56

Table of Contents

Forward-looking Statements

This Quarterly Report on Form 10-Q (this “quarterly report” or “report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “trends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those expressed in or implied by our forward-looking statements, including but not limited to the factors described in the section entitled “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (the “annual report”), as filed with the Securities and Exchange Commission (the “SEC”), which include the following: conditions in the global and regional economy and the major end markets we serve; economic, political and other risks associated with international operations, including exchange rate fluctuations; availability of raw materials at favorable prices and in sufficient quantities; changes in our relationships with, or the financial condition, performance, purchasing power or inventory levels of, key channel partners; competition in all areas of our business; pricing pressures from our customers; continued operation of our manufacturing facilities; our ability to forecast demand or meet significant increases in demand; market acceptance of new product introductions and product innovations; our cost-reduction actions; litigation, legal or regulatory proceedings brought against us; enforcement of our intellectual property rights; recalls, product liability claims or product warranties claims; anti-corruption laws and other laws governing our international operations; existing or new laws and regulations that may prohibit, restrict or burden the sale of aftermarket products; our decentralized information technology systems and any interruptions to our computer and IT systems; environmental, health and safety laws and regulations; insurance coverage of future losses we may incur; lives of products used in our end markets as well as the development of replacement markets; our ability to successfully integrate acquired businesses or assets; our reliance on senior management or key personnel; our ability to maintain and enhance our brand; work stoppages and other labor matters; our investments in joint ventures; liabilities with respect to businesses that we have divested in the past; terrorist acts, conflicts and wars; losses to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events; additional cash contributions we may be required to make to our defined benefit pension plans; the loss or financial instability of any significant customer or customers; changes in legislative, regulatory and legal developments involving taxes and other matters; our substantial leverage; and the significant influence of our majority shareholder, The Blackstone Group Inc., over us, as such factors may be updated from time to time in the Company’s periodic filings with the SEC. Investors are urged to consider carefully the disclosure in this report and our other filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. Gates undertakes no obligation to update or supplement any forward-looking statements as a result of new information, future events or otherwise, except as required by law.

ABOUT THIS QUARTERLY REPORT

Financial Statement Presentation

Gates Industrial Corporation plc is a public limited company that was organized under the laws of England and Wales on September 25, 2017.

Certain monetary amounts, percentages and other figures included elsewhere in this quarterly report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

All amounts in this quarterly report are expressed in United States of America (the “United States” or “U.S.”) dollars, unless indicated otherwise.

Table of Contents

Certain Definitions

As used in this quarterly report, unless otherwise noted or the context requires otherwise:


•	“Gates,” the “Company,” “we,” “us” and “our” refer, unless the context requires otherwise, to Gates Industrial Corporation plc and its consolidated subsidiaries; and


•	“Blackstone” or “our Sponsor” refer to investment funds affiliated with The Blackstone Group Inc., which, although no individual fund owns a controlling interest in us, together represent our current majority owners.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1: Financial Statements (unaudited)

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Operations



	Three months ended					Nine months ended
(dollars in millions, except per share amounts)	September 28, 2019			September 29, 2018		September 28, 2019			September 29, 2018
Net sales	$	746.6		$	828.4	$	2,361.4		$	2,555.5
Cost of sales	474.2			501.2		1,480.3			1,534.9
Gross profit	272.4			327.2		881.1			1,020.6
Selling, general and administrative expenses	191.9			202.7		590.4			621.1
Transaction-related expenses	1.0			0.2		0.7			6.2
Impairment of intangibles and other assets	0.7			0.2		0.7			0.6
Restructuring expenses	0.3			1.2		3.9			3.2
Other operating expenses	1.8			5.1		6.6			12.5
Operating income from continuing operations	76.7			117.8		278.8			377.0
Interest expense	37.2			40.2		114.5			139.8
Other (income) expenses	(2.4		)	3.4		(7.2		)	17.5
Income from continuing operations before taxes	41.9			74.2		171.5			219.7
Income tax expense (benefit)	4.4			7.2		(497.8		)	30.4
Net income from continuing operations	37.5			67.0		669.3			189.3
Loss on disposal of discontinued operations, net of tax, respectively, of $0, $0, $0 and $0	0.1			0.3		0.6			0.7
Net income	37.4			66.7		668.7			188.6
Less: non-controlling interests	1.9			6.8		(2.0		)	18.9
Net income attributable to shareholders	$	35.5		$	59.9	$	670.7		$	169.7

Earnings per share
Basic
Earnings per share from continuing operations	$	0.12		$	0.21	$	2.31		$	0.60
Earnings per share from discontinued operations	—			—		—			—
Earnings per share	$	0.12		$	0.21	$	2.31		$	0.60

Diluted
Earnings per share from continuing operations	$	0.12		$	0.20	$	2.30		$	0.58
Earnings per share from discontinued operations	—			—		—			—
Earnings per share	$	0.12		$	0.20	$	2.30		$	0.58

The accompanying notes form an integral part of these condensed consolidated financial statements.

Table of Contents

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Comprehensive Income



	Three months ended						Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Net income	$	37.4		$	66.7		$	668.7		$	188.6
Other comprehensive (loss) income
Foreign currency translation:
—Net translation loss on foreign operations, net of tax expense, respectively, of $0.3, $1.3, $0.6 and $0.5	(94.7		)	(2.2		)	(49.6		)	(83.4		)
—Gain on net investment hedges, net of tax expense, respectively, of $0, $0.2, $0 and $0.2	13.3			3.8			14.1			4.7
Total foreign currency translation movements	(81.4		)	1.6			(35.5		)	(78.7		)
Cash flow hedges (Interest rate derivatives):
—(Loss) gain arising in the period, net of tax benefit, respectively, of $0.9, $0, $5.2 and $0	(4.0		)	3.6			(27.6		)	13.3
—Reclassification to net income, net of tax benefit, respectively, of $0, $3.3, $0 and $2.0	0.9			4.3			1.2			6.5
Total cash flow hedges movements	(3.1		)	7.9			(26.4		)	19.8
Available-for-sale investments:
—Net unrealized loss, net of tax expense, respectively, of $0, $0.1, $0 and $0.1	—			(0.5		)	—			(0.5		)
Total available-for-sale investments:	—			(0.5		)	—			(0.5		)
Post-retirement benefits:
—Current year actuarial movements, net of tax benefit, respectively, of $0, $0, $0 and $0.1	—			—			—			(0.1		)
—Reclassification of prior year actuarial movements to net income, net of tax benefit, respectively, of $0, $0, $0.1 and $0	(0.1		)	(0.1		)	(0.2		)	(0.4		)
Total post-retirement benefit movements	(0.1		)	(0.1		)	(0.2		)	(0.5		)
Other comprehensive (loss) income	(84.6		)	8.9			(62.1		)	(59.9		)
Comprehensive (loss) income for the period	$	(47.2	)	$	75.6		$	606.6		$	128.7

Comprehensive (loss) income attributable to shareholders:
—(Loss) income arising from continuing operations	$	(37.4	)	$	82.2		$	617.0		$	130.6
—Loss arising from discontinued operations	(0.1		)	(0.3		)	(0.6		)	(0.7		)
	(37.5		)	81.9			616.4			129.9
Comprehensive loss attributable to non-controlling interests	(9.7		)	(6.3		)	(9.8		)	(1.2		)
	$	(47.2	)	$	75.6		$	606.6		$	128.7

The accompanying notes form an integral part of these condensed consolidated financial statements.

Table of Contents

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Balance Sheets



(dollars in millions, except share numbers and per share amounts)	As of September 28, 2019			As of December 29, 2018
Assets
Current assets
Cash and cash equivalents	$	456.1		$	423.4
Trade accounts receivable, net	733.2			742.3
Inventories	507.8			537.6
Taxes receivable	24.8			7.2
Prepaid expenses and other assets	142.0			104.1
Total current assets	1,863.9			1,814.6
Non-current assets
Property, plant and equipment, net	721.1			756.3
Goodwill	2,024.1			2,045.9
Pension surplus	52.8			52.6
Intangible assets, net	1,888.2			1,990.6
Operating lease right-of-use assets	117.3			—
Taxes receivable	34.2			27.9
Deferred income taxes	552.6			5.1
Other non-current assets	31.7			29.6
Total assets	$	7,285.9		$	6,722.6
Liabilities and equity
Current liabilities
Debt, current portion	$	43.5		$	51.6
Trade accounts payable	328.5			424.0
Taxes payable	17.4			19.2
Accrued expenses and other current liabilities	193.8			184.2
Total current liabilities	583.2			679.0
Non-current liabilities
Debt, less current portion	2,909.8			2,953.4
Post-retirement benefit obligations	151.0			155.9
Lease liabilities	109.3			—
Taxes payable	155.3			81.9
Deferred income taxes	360.8			439.5
Other non-current liabilities	86.5			79.2
Total liabilities	4,355.9			4,388.9
Commitments and contingencies (note 20)
Shareholders’ equity
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 290,118,125 (December 29, 2018: authorized shares: 3,000,000,000; outstanding shares: 289,847,574)	2.9			2.9
—Additional paid-in capital	2,430.5			2,416.9
—Accumulated other comprehensive loss	(908.6		)	(854.3		)
—Retained earnings	1,052.6			381.9
Total shareholders’ equity	2,577.4			1,947.4
Non-controlling interests	352.6			386.3
Total equity	2,930.0			2,333.7
Total liabilities and equity	$	7,285.9		$	6,722.6

The accompanying notes form an integral part of these condensed consolidated financial statements.

Table of Contents

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Cash Flows



	Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018
Cash flows from operating activities
Net income	$	668.7		$	188.6
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	167.4			163.3
Non-cash currency transaction gain on net debt and hedging instruments	(29.2		)	(35.0		)
Premium paid on redemption of long-term debt	—			27.0
Other net non-cash financing costs	31.2			54.9
Share-based compensation expense	10.5			5.5
Decrease in post-employment benefit obligations, net	(6.4		)	(2.5		)
Deferred income taxes	(635.6		)	(44.0		)
Other operating activities	3.4			1.5
Changes in operating assets and liabilities, net of effects of acquisitions:
—Increase in accounts receivable	(4.0		)	(82.6		)
—Decrease (increase) in inventories	25.2			(81.0		)
—(Decrease) increase in accounts payable	(90.4		)	16.4
—Increase in prepaid expenses and other assets	(29.8		)	(24.6		)
—Increase (decrease) in taxes payable	48.2			(6.4		)
—Decrease in other liabilities	(14.0		)	(38.8		)
Net cash provided by operations	145.2			142.3
Cash flows from investing activities
Purchases of property, plant and equipment	(50.5		)	(143.0		)
Purchases of intangible assets	(8.0		)	(11.9		)
Purchases of investments	(11.7		)	—
Net cash received (paid) under corporate-owned life insurance policies	0.3			(7.4		)
Purchase of businesses, net of cash acquired	—			(50.9		)
Other investing activities	0.3			(0.9		)
Net cash used in investing activities	(69.6		)	(214.1		)
Cash flows from financing activities
Issuance of shares, net of underwriting costs	1.7			799.6
Other offering costs	—			(8.6		)
Payments of long-term debt	(18.9		)	(933.5		)
Premium paid on redemption of long-term debt	—			(27.0		)
Dividends paid to non-controlling interests	(24.5		)	(23.3		)
Other financing activities	1.6			5.7
Net cash used in financing activities	(40.1		)	(187.1		)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	(2.8		)	(9.2		)
Net increase (decrease) in cash and cash equivalents and restricted cash	32.7			(268.1		)
Cash and cash equivalents and restricted cash at the beginning of the period	424.6			566.0
Cash and cash equivalents and restricted cash at the end of the period	$	457.3		$	297.9
Supplemental schedule of cash flow information
Interest paid, net of amount capitalized	$	112.5		$	142.4
Income taxes paid, net	$	90.4		$	83.7
Accrued capital expenditures	$	1.6		$	2.5

The accompanying notes form an integral part of these condensed consolidated financial statements.

Table of Contents

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Shareholders’ Equity



	Three months ended September 28, 2019

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss			Retained earnings		Total shareholders’ equity			Non- controlling interests			Total equity
As of June 29, 2019	$	2.9	$	2,426.4	$	(835.6	)	$	1,017.1	$	2,610.8		$	371.8		$	2,982.6

Net income	—		—		—			35.5		35.5			1.9			37.4
Other comprehensive loss	—		—		(73.0		)	—		(73.0		)	(11.6		)	(84.6		)
Total comprehensive (loss) income	—		—		(73.0		)	35.5		(37.5		)	(9.7		)	(47.2		)
Other changes in equity:
—Issuance of shares	—		0.1		—			—		0.1			—			0.1
—Share-based compensation	—		4.0		—			—		4.0			—			4.0
—Dividends paid to non-controlling interests	—		—		—			—		—			(9.5		)	(9.5		)
As of September 28, 2019	$	2.9	$	2,430.5	$	(908.6	)	$	1,052.6	$	2,577.4		$	352.6		$	2,930.0



	Three months ended September 29, 2018

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss			Retained earnings		Total shareholders’ equity		Non- controlling interests			Total equity
As of June 30, 2018	$	2.9	$	2,413.4	$	(809.2	)	$	246.7	$	1,853.8	$	402.7		$	2,256.5

Net income	—		—		—			59.9		59.9		6.8			66.7
Other comprehensive income (loss)	—		—		22.0			—		22.0		(13.1		)	8.9
Total comprehensive income (loss)	—		—		22.0			59.9		81.9		(6.3		)	75.6
Other changes in equity:
—Issuance of shares	—		0.4		—			—		0.4		—			0.4
—Share-based compensation	—		1.7		—			—		1.7		—			1.7
—Dividends paid to non-controlling interests	—		—		—			—		—		(7.1		)	(7.1		)
As of September 29, 2018	$	2.9	$	2,415.5	$	(787.2	)	$	306.6	$	1,937.8	$	389.3		$	2,327.1

Table of Contents

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Shareholders’ Equity (Continued)



	Nine months ended September 28, 2019

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss			Retained earnings		Total shareholders’ equity			Non- controlling interests			Total equity
As of December 29, 2018	$	2.9	$	2,416.9	$	(854.3	)	$	381.9	$	1,947.4		$	386.3		$	2,333.7

Net income (loss)	—		—		—			670.7		670.7			(2.0		)	668.7
Other comprehensive loss	—		—		(54.3		)	—		(54.3		)	(7.8		)	(62.1		)
Total comprehensive (loss) income	—		—		(54.3		)	670.7		616.4			(9.8		)	606.6
Other changes in equity:
—Issuance of shares	—		1.7		—			—		1.7			—			1.7
—Share-based compensation	—		10.7		—			—		10.7			—			10.7
—Change in ownership of a controlled subsidiary	—		1.2		—			—		1.2			(1.2		)	—
—Shares issued by a subsidiary to a non-controlling interest	—		—		—			—		—			1.8			1.8
—Dividends paid to non-controlling interests	—		—		—			—		—			(24.5		)	(24.5		)
As of September 28, 2019	$	2.9	$	2,430.5	$	(908.6	)	$	1,052.6	$	2,577.4		$	352.6		$	2,930.0



	Nine months ended September 29, 2018

(dollars in millions)	Share capital		Additional paid-in capital			Accumulated other comprehensive loss			Retained earnings		Total shareholders’ equity			Non- controlling interests			Total equity
As of December 30, 2017	$	2.5	$	1,622.6		$	(747.4	)	$	136.9	$	1,014.6		$	413.8		$	1,428.4

Net income	—		—			—			169.7		169.7			18.9			188.6
Other comprehensive loss	—		—			(39.8		)	—		(39.8		)	(20.1		)	(59.9		)
Total comprehensive (loss) income	—		—			(39.8		)	169.7		129.9			(1.2		)	128.7
Other changes in equity:
—Issuance of shares	0.4		841.2			—			—		841.6			—			841.6
—Share-based compensation	—		4.7			—			—		4.7			—			4.7
—Dividends paid to non-controlling interests	—		—			—			—		—			(23.3		)	(23.3		)
—Cost of shares issued	—		(53.0		)	—			—		(53.0		)	—			(53.0		)
As of September 29, 2018	$	2.9	$	2,415.5		$	(787.2	)	$	306.6	$	1,937.8		$	389.3		$	2,327.1

The accompanying notes form an integral part of these condensed consolidated financial statements.

Table of Contents

Gates Industrial Corporation plc

Notes to the Unaudited Condensed Consolidated Financial Statements

1. Introduction

A. Background

Gates Industrial Corporation plc (the “Company”) is a public limited company that was organized under the laws of England and Wales on September 25, 2017. Prior to the completion of the initial public offering of the Company’s shares in January 2018, the Company undertook certain reorganization transactions such that Gates Industrial Corporation plc became the indirect owner of all of the equity interests in Omaha Topco Ltd. (“Omaha Topco”), and has become the holding company of the Gates business. The previous owners of Omaha Topco were various investment funds managed by affiliates of The Blackstone Group Inc. (“Blackstone” or our “Sponsor”), and Gates management equity holders. These equity owners of Omaha Topco received depositary receipts representing ordinary shares in the Company in consideration for their equity in Omaha Topco, at a ratio of 0.76293 of our ordinary shares for each outstanding ordinary share of Omaha Topco. All share and per share amounts in these condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of this ratio. The reorganization was accounted for as a transaction between entities under common control and the net assets were recorded on the historical cost basis, in a manner similar to a pooling of interests, when Omaha Topco was contributed into the Company. Gates Industrial Corporation plc had no significant business transactions or activities prior to the date of the reorganization transactions, and as a result, the historical financial information for periods prior to those transactions reflects that of Omaha Topco.

In these condensed consolidated financial statements and related notes, all references to “Gates,” “we,” “us,” and “our” refer, unless the context requires otherwise, to Gates Industrial Corporation plc and its consolidated subsidiaries.

B. Accounting periods

The Company prepares its annual consolidated financial statements for the period ending on the Saturday nearest December 31. Accordingly, the condensed consolidated balance sheet is presented as of September 28, 2019 and December 29, 2018 and the related condensed consolidated statements of operations, comprehensive income, cash flows, and shareholders’ equity are presented, where relevant, for the 91 day period from June 30, 2019 to September 28, 2019, with comparative information for the 91 day period from July 1, 2018 to September 29, 2018 and for the 273 day period from December 30, 2018 to September 28, 2019, with comparative information for the 273 day period from December 31, 2017 to September 29, 2018.

C. Basis of preparation

The condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars unless otherwise indicated. The condensed consolidated financial statements and related notes contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position as of September 28, 2019 and the results of its operations and cash flows for the periods ended September 28, 2019 and September 29, 2018. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.

These condensed consolidated financial statements are unaudited and, except as noted below, have been prepared on substantially the same basis as Gates’ audited annual consolidated financial statements and related notes for the year ended December 29, 2018. The condensed consolidated balance sheet as of December 29, 2018 has been derived from those audited financial statements.

These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and related notes for the year ended December 29, 2018 included in the Company’s Annual Report on Form 10-K.

The accounting policies used in preparing these condensed consolidated financial statements are the same as those applied in the prior year, except for the adoption on the first day of the 2019 fiscal year of the following new Accounting Standard Updates (each, an “ASU”):


•	ASU 2016-02 “Leases” (Topic 842)


•	ASU 2018-10 “Leases” (Topic 842): Codification Improvements to Topic 842, Leases

Table of Contents


•	ASU 2018-11 “Leases” (Topic 842): Targeted Improvements


•	ASU 2019-01 “Leases” (Topic 842): Codification Improvements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued an ASU which introduces a lessee model that will bring most leases of property, plant and equipment onto the balance sheet. It requires a lessee to recognize a lease obligation (present value of future lease payments) and also a “right-of-use asset” for all leases. The ASU introduces two models for the subsequent measurement of the lease asset and liability, depending on whether the lease qualifies as a “finance lease” or an “operating lease.” This distinction focuses on whether or not effective control of the asset is being transferred from the lessor to the lessee.

The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU 2018-11, which allows entities an additional, optional transition method of applying the new leases standard at the adoption date with comparative periods continuing to be presented in accordance with prior GAAP (Topic 840 “Leases”). We have adopted Topic 842 using this practical expedient, and, consequently, comparative information in these condensed consolidated financial statements has not been restated.

We applied the following additional practical expedients on transition to Topic 842:


(i)	we did not reassess whether or not any expired or existing contracts were or contained leases;


(ii)	we did not reassess the lease classification for any expired or existing leases (i.e., all existing leases that were classified as operating leases continued to be classified as such under Topic 842, and all existing leases that were classified as capital leases continued to be classified as finance leases); and


(iii)	we did not reassess any initial direct costs for leases existing on the date of adoption of Topic 842.

On transition, we recognized a right-of-use asset of $126.0 million and a lease liability of $132.9 million, with the difference relating primarily to reclassifying deferred rent liabilities that existed under Topic 840 into the new right-of-use asset. Note 11 sets out disclosures related to Topic 842.

The following ASUs that were also adopted on the first day of the 2019 fiscal year did not have a significant impact on our results, financial position or disclosures:


•	ASU 2018-07 “Compensation - Stock Compensation” (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting


•	ASU 2018-16 “Derivatives and Hedging” (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes

In addition, we adopted ASU 2018-02 “Income Statement - Reporting Comprehensive Income” (Topic 220): Reclassification of Certain Tax Effects from Accumulated OCI; however, we have not adopted the policy election outlined therein regarding the reclassification from accumulated other comprehensive income (“OCI”) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The remaining stranded tax effects in OCI will be released upon recognition of the related deferred tax basis differences.

2. Recent accounting pronouncements not yet adopted

The following recent accounting pronouncements are relevant to Gates’ operations but have not yet been adopted.


•	ASU 2016-13 “Financial Instruments” (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued an ASU which broadens the information that an entity must consider when developing its expected credit loss estimate for financial assets. The financial asset must be measured at the net amount expected to be collected.

The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The impact on our consolidated financial statements of adopting this ASU, which may affect the recognition, measurement and presentation of financial assets, is still being evaluated.

Table of Contents


•	ASU 2018-13 “Fair Value Measurement” (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued an ASU to modify the disclosure requirements on fair value measurements in Topic 820 “Fair Value Measurement” including the consideration of costs and benefits. The amendments remove certain disclosures, clarify other disclosure requirements, and add new disclosure requirements that have been identified as relevant.

The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Most of the amendments should be applied retrospectively to all periods presented, but a few amendments should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. Early adoption is permitted and an entity is permitted to early adopt any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The impact on our consolidated financial statements of adopting this ASU, which will affect our fair value disclosures, is still being evaluated.


•	ASU 2018-14 “Compensation - Retirement Benefits - Defined Benefit Plans - General” (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued an ASU to modify the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments remove certain disclosures, clarify other disclosure requirements, and add new disclosure requirements that have been identified as relevant.

The amendments are effective for fiscal years ending after December 15, 2020, and should be applied on a retrospective basis to all periods presented. The impact on our consolidated financial statements of adopting this ASU, which will affect our disclosures, is still being evaluated.


•	ASU 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software” (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the FASB issued an ASU to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement). The guidance permits capitalization of costs associated with the implementation of cloud-based software arrangements and aligns the criteria for capitalization with those for purchased or internally-generated computer software intangible assets. Implementation costs meeting the criteria for capitalization would not be classified as intangible assets but would instead be classified as prepaid expenses that are then amortized over the period of the arrangement as an additional expense consistent with the ongoing costs under the cloud computing arrangement.

The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted and entities may choose to apply the requirements either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The impact on our consolidated financial statements of adopting this ASU, which may affect the recognition, measurement and presentation of cloud computing software arrangements, is still being evaluated.

3. Acquisitions

Description and financial effect of acquisitions

On April 26, 2018, Gates completed the acquisition of Rapro for $50.9 million, net of cash acquired. Rapro is a Turkey-based business that engineers, manufactures and sells molded and branched hoses and other products, the majority of which are sold into replacement markets. Rapro operates out of two facilities in Izmir, Turkey, with its products serving heavy-duty, commercial and light-vehicle applications.

Goodwill of $34.4 million arose from this acquisition and related primarily to the expected benefit from the acceleration of our growth strategy within the Fluid Power product line and expansion of our product range and geographic coverage.

Pro forma information has not been presented for this acquisition because it is not material.

Table of Contents

4. Segment information

A. Background

Topic 280 “Segment Reporting” requires segment information provided in the consolidated financial statements to reflect the information that was provided to the chief operating decision maker for the purposes of making decisions about allocating resources and in assessing the performance of each segment. The chief executive officer (“CEO”) of Gates serves as the chief operating decision maker.

The segment information provided in these condensed consolidated financial statements reflects the information that is used by the chief operating decision maker for the purposes of making decisions about allocating resources and in assessing the performance of each segment. These decisions are based on net sales and Adjusted EBITDA (defined below).

Certain amounts relating to prior periods have been reclassified in this footnote to conform to the current year presentation.

B. Operating segments and segment assets

Gates manufactures a wide range of power transmission and fluid power products and components for a large variety of industrial and automotive applications, both in the aftermarket and first-fit channels, throughout the world.

Our reportable segments are identified on the basis of our primary product lines, as this is the basis on which information is provided to the CEO for the purposes of allocating resources and assessing the performance of Gates’ businesses. Our operating and reporting segments are therefore Power Transmission and Fluid Power.

Segment asset information is not provided to the chief operating decision maker and therefore segment asset information has not been presented. Due to the nature of Gates’ operations, cash generation and profitability are viewed as the key measures rather than an asset base measure.

C. Segment net sales and disaggregated net sales

Sales between reporting segments and the impact of such sales on Adjusted EBITDA for each segment are not included in internal reports presented to the CEO and have therefore not been included below.



	Net Sales
	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Power Transmission	$	474.4	$	512.5	$	1,475.4	$	1,608.1
Fluid Power	272.2		315.9		886.0		947.4
Continuing operations	$	746.6	$	828.4	$	2,361.4	$	2,555.5

The following table summarizes our net sales by key geographic region of origin:



	Net Sales
	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
U.S.	$	284.3	$	326.0	$	909.6	$	973.5
North America, excluding the U.S.	85.1		85.5		263.3		260.4
United Kingdom (“U.K.”)	18.7		23.3		62.6		73.8
Europe, Middle East and Africa (“EMEA”), excluding the U.K.	164.1		183.8		521.7		591.5
East Asia and India	87.9		95.9		274.2		296.9
Greater China	80.6		90.2		253.4		281.7
South America	25.9		23.7		76.6		77.7
Net Sales	$	746.6	$	828.4	$	2,361.4	$	2,555.5

Table of Contents

The following table summarizes our net sales into emerging and developed markets:



	Net Sales
	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Developed	$	486.6	$	558.4	$	1,564.4	$	1,671.1
Emerging	260.0		270.0		797.0		884.4
Net Sales	$	746.6	$	828.4	$	2,361.4	$	2,555.5

D. Measure of segment profit or loss

The CEO uses Adjusted EBITDA, as defined below, to measure the profitability of each segment. Adjusted EBITDA is, therefore, the measure of segment profit or loss presented in Gates’ segment disclosures.

“EBITDA” represents net income for the period before net interest and other (income) expenses, income taxes, depreciation and amortization derived from financial information prepared in accordance with U.S. GAAP.

Adjusted EBITDA represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. During the periods presented, the items excluded from EBITDA in computing Adjusted EBITDA primarily included:


•	the non-cash charges in relation to share-based compensation;


•	transaction-related expenses incurred in relation to business combinations and major corporate transactions, including acquisition integration activities;


•	impairments, comprising impairments of goodwill and significant impairments or write downs of other assets;


•	restructuring expenses;


•	the net gain or loss on disposals and on the exit of businesses; and


•	fees paid to our private equity sponsor for monitoring, advisory and consulting services.

Adjusted EBITDA by segment was as follows:



	Adjusted EBITDA
	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Power Transmission	$	99.7	$	119.0	$	315.2	$	377.6
Fluid Power	45.3		62.2		160.7		192.4
Continuing operations	$	145.0	$	181.2	$	475.9	$	570.0

Table of Contents

Reconciliation of net income from continuing operations to Adjusted EBITDA:



	Three months ended					Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018		September 28, 2019			September 29, 2018
Net income from continuing operations	$	37.5		$	67.0	$	669.3		$	189.3
Income tax expense (benefit)	4.4			7.2		(497.8		)	30.4
Income from continuing operations before taxes	41.9			74.2		171.5			219.7
Interest expense	37.2			40.2		114.5			139.8
Other (income) expenses	(2.4		)	3.4		(7.2		)	17.5
Operating income from continuing operations	76.7			117.8		278.8			377.0
Depreciation and amortization	55.1			53.7		167.4			163.3
Transaction-related expenses ⁽¹⁾	1.0			0.2		0.7			6.2
Impairment of intangibles and other assets	0.7			0.2		0.7			0.6
Restructuring expenses	0.3			1.2		3.9			3.2
Share-based compensation expense	4.1			2.3		10.5			5.5
Sponsor fees (included in other operating expenses)	1.1			1.9		4.9			5.9
Impact of fair value adjustment on inventory (included in cost of sales)	—			—		—			0.3
Inventory impairments and adjustments (included in cost of sales)	1.0			—		1.3			0.8
Duplicate expenses incurred on facility relocation	—			1.5		—			4.6
Severance-related expenses (included in cost of sales)	2.5			—		3.0			—
Other primarily severance-related expenses (included in SG&A)	1.8			0.7		3.0			0.6
Other operating expenses	0.7			1.7		1.7			2.0
Adjusted EBITDA	$	145.0		$	181.2	$	475.9		$	570.0


⁽¹⁾	Transaction-related expenses relate primarily to advisory fees recognized in respect of our initial public offering, the acquisition of businesses and costs related to other corporate transactions such as debt refinancings.

5. Restructuring and other strategic initiatives

Gates continues to undertake various restructuring and other strategic initiatives to drive increased productivity in all aspects of our operations. These actions include efforts to consolidate our manufacturing and distribution footprint, scale operations to current demand levels, combine back-office workgroups and relocate certain operations to lower cost locations. Our recently completed manufacturing footprint investments and other productivity improvements in recent years have helped to position us to accelerate and expand upon our previously announced restructuring program, which is primarily intended to optimize our manufacturing and distribution footprint over the mid-term by removing structural fixed costs, and, to a lesser degree, to streamline our selling, general and administrative (“SG&A”) back-office functions.

Overall costs associated with our restructuring and other strategic initiatives have been recognized in the condensed consolidated statements as set forth below. Expenses incurred in relation to certain of these actions qualify as restructuring expenses under U.S. GAAP.

Table of Contents



	Three months ended					Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018		September 28, 2019			September 29, 2018
Restructuring expenses:
—Severance	$	0.4		$	0.1	$	3.3		$	—
—Professional fees	0.1			0.8		1.4			3.0
—Other restructuring (benefits) expenses	(0.2		)	0.3		(0.8		)	0.2
	0.3			1.2		3.9			3.2
Restructuring expenses in cost of sales:
—Impairment of inventory	1.0			—		1.3			—
Total restructuring expenses	$	1.3		$	1.2	$	5.2		$	3.2

Expenses related to other strategic initiatives:
—Severance costs included in cost of sales	$	2.5		$	—	$	3.0		$	—
—Severance costs included in SG&A	1.8			0.9		3.0			0.3
—Impairment of fixed assets	0.7			—		0.7			—
Total expenses related to other strategic initiatives	$	5.0		$	0.9	$	6.7		$	0.3

Restructuring and other strategic initiatives undertaken during the three months ended September 28, 2019 related primarily to reductions in force, particularly in the U.S. and Asia, and impacts from facility closures and consolidations, primarily the impairment of inventory and fixed assets. Expenses incurred during the prior year period in connection with our restructuring and other strategic initiatives related primarily to the reorganization of our European corporate center and a strategic restructuring of part of our Asian business.

Restructuring and other strategic initiatives undertaken during the nine months ended September 28, 2019 related primarily to reductions in force, across all regions and impairments of inventory and fixed assets related to facility closures in countries including France, the U.S., Turkey and Australia. An additional $1.4 million of professional fees were incurred during the current period, relating primarily to the closure of one of our facilities in France, the reorganization of our European corporate center, and a strategic restructuring of part of our Asian business. Expenses incurred during the prior year period in connection with our restructuring and other strategic initiatives also related primarily to the items described above.

Restructuring activities

As indicated above, restructuring expenses, as defined under U.S. GAAP, form a subset of our total expenses related to restructuring and other strategic initiatives. These expenses include the impairment of inventory, which is recognized in cost of sales. Analyzed by segment, our restructuring expenses were as follows:



	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Power Transmission	$	0.3	$	0.9	$	3.5	$	2.1
Fluid Power	1.0		0.3		1.7		1.1
Continuing operations	$	1.3	$	1.2	$	5.2	$	3.2

Table of Contents

The following summarizes the reserve for restructuring expenses for the nine month periods ended September 28, 2019 and September 29, 2018, respectively:



	Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018
Balance as of the beginning of the period	$	2.6		$	8.6
Utilized during the period	(4.0		)	(8.3		)
Net charge for the period	3.9			3.5
Released during the period	—			(0.3		)
Foreign currency translation	(0.1		)	0.1
Balance as of the end of the period	$	2.4		$	3.6

Restructuring reserves, the majority of which are expected to be utilized during the remainder of 2019 and in 2020, are included in the condensed consolidated balance sheet as follows:



(dollars in millions)	As of September 28, 2019		As of September 29, 2018
Accrued expenses and other current liabilities	$	2.4	$	3.4
Other non-current liabilities	—		0.2
	$	2.4	$	3.6

6. Income taxes

We compute the year-to-date income tax provision by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjust for discrete tax items in the period in which they occur.

For the three months ended September 28, 2019, we had an income tax expense of $4.4 million on pre-tax income of $41.9 million, which resulted in an effective tax rate of 10.5%, compared with an income tax expense of $7.2 million on pre-tax income of $74.2 million, which resulted in an effective tax rate of 9.7% for the three months ended September 29, 2018. For the nine months ended September 28, 2019, we had an income tax benefit of $497.8 million on pre-tax income of $171.5 million, which resulted in an effective tax rate of (290.3%) compared with an income tax expense of $30.4 million on pre-tax income of $219.7 million, which resulted in an effective tax rate of 13.8% for the nine months ended September 29, 2018.

The increase in the effective tax rate for the three months ended September 28, 2019 compared with the prior year period was primarily the result of a $5.3 million increase in discrete tax expense related to changes in previously released valuation allowances during the year, offset by an $8.0 million reduction in tax on ordinary operations.

The decrease in the effective tax rate for the nine months ended September 28, 2019 compared with the prior year period was due primarily to the recognition of a discrete benefit of $605.1 million related to the release of valuation allowances, which occurred during the first quarter, in certain jurisdictions where it was determined that the realization of deferred tax assets was more likely than not. This benefit was offset partially by a discrete expense of $25.1 million related to the reduction in the Luxembourg corporate tax rate, which occurred during the second quarter, as well as a discrete expense of $65.6 million related to unrecognized tax benefits resulting primarily from the European business reorganization (the “Reorganization”), which occurred during the first quarter. In addition, during the prior year period, there was $21.1 million of non-operating costs for which no tax benefit was recognized, and there were no similar costs in the current period, which also contributed to the comparative reduction in the effective tax rate.

Deferred Tax Assets and Liabilities

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under U.S. GAAP and their respective tax bases, and for net operating loss carryforwards and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed.

Table of Contents

Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including:


•	taxable income in prior carry back years if carry back is permitted under the relevant tax law;


•	future reversal of existing temporary differences;


•	tax-planning strategies that are prudent and feasible; and


•	future taxable income exclusive of reversing temporary differences and carryforwards.

After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined that, as of March 30, 2019, it was more likely than not that deferred tax assets in Luxembourg, the U.K., and the U.S. totaling $627.6 million were realizable. Accordingly, we discretely recognized $617.3 million of our deferred tax asset in the first quarter of 2019, while the remaining $10.3 million was to be recognized either during the year through the effective tax rate or in accumulated OCI as a cumulative translation adjustment.

For the period ended September 28, 2019 as a result of changes in the Luxembourg statutory tax rate, which occurred during the second quarter, further refinement of current year estimates and foreign currency movements, we reduced the recognition from $627.6 million to $570.1 million.

Included within the $570.1 million total deferred tax assets are deferred tax assets totaling $564.0 million related to €2.1 billion of indefinite lived net operating losses in Luxembourg for which our evaluation of the positive and negative evidence changed during the first quarter of 2019 due to the implementation of the Reorganization. The Reorganization was implemented in the first quarter of 2019 to centralize and strengthen regional operations in Europe, which thereafter became centrally managed from Luxembourg.

The positive evidence that existed in favor of releasing the allowance as of March 30, 2019 and ultimately outweighed the negative evidence included the following:


•	our profitability in Europe in 2018 and prior years and for the three months ended March 30, 2019, as well as our expectations regarding the sustainability of these profits;


•	the impact of the implementation in the quarter of the Reorganization, which created an expectation of future income in Luxembourg and, thereby, removed negative evidence that supported maintaining the valuation allowance against our deferred tax assets as of December 29, 2018; and


•	the fact that our net operating loss carryforwards in Luxembourg are indefinite lived.

For the period ended September 28, 2019, the recognition of deferred tax assets in Luxembourg was reduced from $615.6 million to $564.0 million primarily as a result of the reduction in the Luxembourg corporate tax rate from 18% to 17%, which occurred during the second quarter. This resulted in a $25.1 million reduction in the previously reported value of our deferred tax asset. The remaining $26.5 million reduction is the result of changes in foreign currency translation during the current period.

Further, as a result of additional financing income realized in the first quarter of 2019 that created taxable profits in the U.K., combined with our estimate that the financing income is likely to remain as a source of income through 2024, our judgment changed regarding valuation allowances totaling $6.2 million related to indefinite lived net operating losses in the U.K. For the period ended September 28, 2019, further refinement of estimated U.K. taxable profits resulted in a reduction of the valuation allowance release related to indefinite lived net operating losses from $6.2 million to $3.4 million.

Finally, as a result of changes in estimates of future taxable profits in the first quarter of 2019, our judgment changed regarding the realizability of $4.3 million of U.S. foreign tax credits with related recorded valuation allowances. For the period ended September 28, 2019, further refinement of estimated U.S. foreign tax credits expected to be utilized in the current year reduced the realizability of U.S. foreign tax credit carry forwards from $4.3 million to $2.7 million, as U.S. foreign tax credits generated in the current year must be utilized before U.S. foreign tax credit carry forwards.

As of each reporting date, management considers new evidence, both positive and negative, that could impact our view with regard to the future realization of deferred tax assets. We will maintain our positions with regard to future realization of deferred tax assets, including those with respect to which we continue maintaining valuation allowances, until there is sufficient new evidence to support a change in expectations. Such a change in expectations could arise due to many factors, including those impacting our forecasts of future earnings, as well as changes in the international tax laws under which we operate and tax planning. It is not reasonably possible to forecast any such changes at the present time, but it is possible that, should they arise, our view of their effect on the future realization of deferred tax assets may impact materially our consolidated financial statements.

Table of Contents

7. Earnings per share

Basic earnings per share represents net income attributable to shareholders divided by the weighted average number of shares outstanding during the period. Diluted earnings per share considers the dilutive effect of potential shares, unless the inclusion of the potential shares would have an anti-dilutive effect. The treasury stock method is used to determine the potential dilutive shares resulting from assumed exercises of equity-related instruments.

The computation of earnings per share is presented below:



	Three months ended				Nine months ended
(dollars in millions, except share numbers and per share amounts)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Net income attributable to shareholders	$	35.5	$	59.9	$	670.7	$	169.7

Weighted average number of shares outstanding	290,109,231		289,783,061		290,032,416		284,750,794
Dilutive effect of share-based awards	1,003,871		8,670,885		1,634,515		8,705,430
Diluted weighted average number of shares outstanding	291,113,102		298,453,946		291,666,931		293,456,224

Basic earnings per share	$	0.12	$	0.21	$	2.31	$	0.60
Diluted earnings per share	$	0.12	$	0.20	$	2.30	$	0.58

For the three months ended September 28, 2019 and September 29, 2018, shares totaling 3,623,701 and 605,164, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive. For the nine months ended September 28, 2019 and September 29, 2018, shares totaling 3,686,986 and 610,039 shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.

8. Inventories



(dollars in millions)	As of September 28, 2019		As of December 29, 2018
Raw materials and supplies	$	129.3	$	152.1
Work in progress	36.6		38.4
Finished goods	341.9		347.1
Total inventories	$	507.8	$	537.6

9. Goodwill



(dollars in millions)	Power Transmission			Fluid Power			Total
Cost and carrying amount
As of December 29, 2018	$	1,374.1		$	671.8		$	2,045.9
Foreign currency translation	(18.4		)	(3.4		)	(21.8		)
As of September 28, 2019	$	1,355.7		$	668.4		$	2,024.1

Table of Contents

10. Intangible assets



	As of September 28, 2019							As of December 29, 2018
(dollars in millions)	Cost		Accumulated amortization and impairment			Net		Cost		Accumulated amortization and impairment			Net
Finite-lived:
—Customer relationships	$	1,998.4	$	(618.8	)	$	1,379.6	$	2,017.4	$	(534.8	)	$	1,482.6
—Technology	90.5		(87.5		)	3.0		90.6		(87.0		)	3.6
—Capitalized software	71.6		(35.4		)	36.2		64.2		(29.2		)	35.0
	2,160.5		(741.7		)	1,418.8		2,172.2		(651.0		)	1,521.2
Indefinite-lived:
—Brands and trade names	513.4		(44.0		)	469.4		513.4		(44.0		)	469.4
Total intangible assets	$	2,673.9	$	(785.7	)	$	1,888.2	$	2,685.6	$	(695.0	)	$	1,990.6

During the three months ended September 28, 2019, the amortization expense recognized in respect of intangible assets was $32.4 million, compared with $32.3 million for the three months ended September 29, 2018. In addition, movements in foreign currency exchange rates resulted in a decrease in the net carrying value of total intangible assets of $21.0 million for the three months ended September 28, 2019, compared with a decrease of $0.2 million for the three months ended September 29, 2018.

During the nine months ended September 28, 2019, the amortization expense recognized in respect of intangible assets was $97.5 million, compared with $98.0 million for the nine months ended September 29, 2018. In addition, movements in foreign currency exchange rates resulted in a decrease in the net carrying value of total intangible assets of $13.0 million for the nine months ended September 28, 2019, compared with a decrease of $18.9 million for the nine months ended September 29, 2018.

11. Leases

A. Overview

As discussed in note 1, at the beginning of our 2019 fiscal year, we adopted new lease accounting guidance under Topic 842 “Leases”, which brings most leases of property, plant and equipment onto the balance sheet. It requires a lessee to recognize a lease obligation (present value of future lease payments) and also a “right-of-use asset” for all leases, although certain short-term leases are exempted from the standard.

Under Topic 842, we evaluate our contracts and supply arrangements and conclude that they contain a lease at inception where (i) a tangible asset is explicitly or implicitly identified in the contract, (ii) we use the same asset identified over the course of the agreement, (iii) we obtain substantially all of the economic benefits from the use of the underlying asset, and (iv) we direct how and for what purpose the asset is used during the term of the contract. Leases are typically recognized on the balance sheet at their commencement date. However, if we take legal possession and have control over the asset before the commencement date, we would recognize the lease on the balance sheet at the earlier date.

Gates has over 1,000 leases covering a wide variety of tangible assets that are used in our operations across the world. The value of our global leases is concentrated in approximately 80 real estate leases, which accounted for approximately 88% of the lease liability under non-cancellable leases as of September 28, 2019. The remaining leases are predominantly comprised of equipment and vehicle leases.

Options to extend or terminate leases

In determining the lease term, we consider various economic factors, including real estate strategies, the nature, length and underlying terms of the agreement, as well as the uncertainty of the condition of leased equipment at the end of the lease term. Based on these factors, where a contract has a renewal option, we generally assume with reasonable certainty that we will renew real estate leases and will not renew equipment, vehicles or any other leases.

Table of Contents

Variable payments

We sometimes make payments under our lease agreements that are excluded from the measurement of our right-of-use assets and lease liabilities and are recognized instead as variable payments in the period in which the obligation for those payments is incurred. These costs include common area maintenance, insurance, taxes, utility costs, etc. A number of our leases, particularly real estate leases, include base rent escalation clauses. The majority of these are based on the change in a local consumer price or similar index. Payments that vary based on an index or rate are included in the measurement of our right-of-use assets and lease liabilities at the rate as of the commencement date with any subsequent changes to those payments being recognized as variable payments in the period in which they occur.

Residual value guarantees, restrictions or covenants, and leases that have not yet commenced

Gates does not have any significant leases containing residual value guarantees, restrictions or covenants. Additionally, as of September 28, 2019, there were no significant new leases that have not yet commenced.

B. Significant assumptions and judgments

Discount rate

The discount rate used to calculate the present value of the future minimum lease payments is the rate implicit in the lease, when readily available. As most of our leases do not have a readily determinable implicit rate, we discount the future minimum lease payments using an incremental borrowing rate which represents the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. We determine this rate at a country or lower level and take into account factors including currency, country risk premium, industry risk and adjustments for collateralized debt. Appropriate yield curves are used to derive different debt tenors to approximate the applicable lease term.

The discount rate is reassessed when there is a remeasurement of the lease liability, which happens predominantly when there is a contract modification and that modification does not result in a separate contract.

Elections and practical expedients

The following practical expedients have been adopted as part of our accounting policy on leases:


(i)	we will not separate the lease component from the non-lease component for all asset classes. We have therefore not allocated consideration in a contract between lease and non-lease components; and


(ii)	we recognize the payments on short-term leases (leases with terms at inception of 12 months or fewer) in net income on a straight-line basis over the lease term. No amount is recognized on the balance sheet with respect to these leases.

Table of Contents

C. Quantitative disclosures



(dollars in millions)	Three months ended September 28, 2019		Nine months ended September 28, 2019
Lease expenses
Operating lease expenses	$	7.6	$	22.6
Finance lease amortization expenses	0.1		0.2
Short-term lease expenses	1.3		3.2
Variable lease expenses	2.2		4.9
Sublease income	—		(0.1		)
Total lease expenses	$	11.2	$	30.8

Other information
Right-of-use assets obtained in exchange for new operating lease liabilities	$	4.6	$	6.6

Cash paid for amounts included in the measurement of lease liabilities:
—Operating cash flows from operating leases			$	20.1
—Financing cash flows from finance leases			0.3
			$	20.4
Weighted-average remaining lease term — finance leases			9.0 years
Weighted-average remaining lease term — operating leases			10.3 years
Weighted-average discount rate — finance leases			2.6		%
Weighted-average discount rate — operating leases			5.7		%

Maturity analysis of liabilities



(dollars in millions)	Operating leases		Finance leases ⁽¹⁾
Next 12 months	$	25.3	$	0.5
Year 2	21.1		0.5
Year 3	17.3		0.5
Year 4	14.4		0.3
Year 5	12.6		—
Year 6 and beyond	83.7		—
Total lease payments	174.4		1.8
Interest	46.7		0.1
Total present value of lease liabilities	$	127.7	$	1.7


⁽¹⁾	Although our finance leases have a weighted average remaining lease term of 9.0 years, the primary lease includes a ten year rent-free period at the end of the contract such that there will be no lease payments made beyond December 2022.

Balance sheet presentation of leases as of September 28, 2019



(dollars in millions)	Operating leases		Finance leases
Right-of-use assets	$	117.3	$	3.0

Short-term lease liabilities (included in “Accrued expenses and other current liabilities”)	$	19.2	$	0.9
Long-term lease liabilities	108.5		0.8
Total lease liabilities	$	127.7	$	1.7

Table of Contents

Right-of-use assets arising under finance leases are presented in the property, plant and equipment, net line item in the condensed consolidated balance sheet.

Topic 840 Disclosures

Future minimum lease payments under operating and finance leases that had initial or remaining non-cancelable lease terms in excess of one year as of December 29, 2018 were as follows:



(dollars in millions)	Operating leases		Finance leases		Total
Fiscal year
2019	$	25.0	$	0.3	$	25.3
2020	21.3		0.3		21.6
2021	18.2		0.3		18.5
2022	14.4		0.3		14.7
2023	12.6		0.4		13.0
2024 and beyond	86.5		0.4		86.9
Total	$	178.0	$	2.0	$	180.0

12. Derivative financial instruments

We are exposed to certain risks relating to our ongoing business operations. From time to time, we use derivative financial instruments, principally foreign currency swaps, forward foreign currency contracts, interest rate caps (options) and interest rate swaps, to reduce our exposure to foreign currency risk and interest rate risk. We do not hold or issue derivatives for speculative purposes and monitor closely the credit quality of the institutions with which we transact.

We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheet. We designate certain of our currency swaps as net investment hedges and designate our interest rate caps and interest rate swaps as cash flow hedges. The gain or loss on the designated derivative instrument is recognized in OCI and reclassified into net income in the same period or periods during which the hedged transaction affects earnings.

Derivative instruments that have not been designated in an effective hedging relationship are considered economic hedges, and their change in fair value is recognized in net income in each period.

The period end fair values of derivative financial instruments were as follows:



	As of September 28, 2019													As of December 29, 2018
(dollars in millions)	Prepaid expenses and other assets		Other non- current assets		Accrued expenses and other current liabilities			Other non- current liabilities			Net			Prepaid expenses and other assets		Other non- current assets		Accrued expenses and other current liabilities			Other non- current liabilities			Net
Derivatives designated as hedging instruments:
—Currency swaps	$	4.6	$	—	$	—		$	(14.1	)	$	(9.5	)	$	5.4	$	—	$	—		$	(27.5	)	$	(22.1	)
—Interest rate caps	—		—		(4.8		)	(3.2		)	(8.0		)	3.5		1.6		—			(10.9		)	(5.8		)
—Interest rate swaps	—		—		(2.0		)	(33.8		)	(35.8		)	—		—		(0.3		)	(2.6		)	(2.9		)

Derivatives not designated as hedging instruments:
—Currency swaps	0.1		—		—			—			0.1			—		—		—			—			—
—Currency forward contracts	1.3		—		(0.5		)	—			0.8			1.3		—		(0.4		)	—			0.9
	$	6.0	$	—	$	(7.3	)	$	(51.1	)	$	(52.4	)	$	10.2	$	1.6	$	(0.7	)	$	(41.0	)	$	(29.9	)

Table of Contents

A. Instruments designated as net investment hedges

We hold cross currency swaps that have been designated as net investment hedges of certain of our European operations. As of September 28, 2019 and December 29, 2018, the notional principal amount of these contracts was $270.0 million. During July 2019, we extended the maturity of these contracts from March 2020 to March 2022. In addition, we have designated €75.5 million of our Euro-denominated debt as a net investment hedge of certain of our European operations.

The fair value gains (losses) before tax recognized in OCI in relation to the instruments designated as net investment hedging instruments were as follows:



	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Net fair value gains (losses) recognized in OCI in relation to:
—Euro-denominated debt	$	3.2	$	0.3	$	2.5	$	(11.5	)
—Designated cross currency swaps	10.1		3.5		11.6		16.2
Total net fair value gains	$	13.3	$	3.8	$	14.1	$	4.7

During the three and nine months ended September 28, 2019, a net gain of $1.9 million and a net gain of $6.1 million, respectively, was recognized in interest expense in relation to our cross currency swaps that have been designated as net investment hedges, compared with a net gain of $0.7 million during the three and nine months ended September 29, 2018.

B. Instruments designated as cash flow hedges

We use interest rate swaps and interest rate caps as part of our interest rate risk management strategy to add stability to interest expense and to manage our exposure to interest rate movements. These instruments are all designated as cash flow hedges. As of September 28, 2019 and December 29, 2018, we held three pay-fixed, receive-floating interest rate swaps with an aggregate notional amount of $870.0 million, which run from June 30, 2020 through June 30, 2023. Our interest rate caps involve the receipt of variable rate payments from a counterparty if interest rates rise above the strike rate on the contract in exchange for a premium. As of September 28, 2019 and December 29, 2018, the notional amount of the interest rate cap contracts outstanding was $1.7 billion and $2.7 billion, respectively.

The periods covered by our interest rate caps and their notional values are as follows:



(in millions)	Notional value
June 30, 2017 to June 30, 2020	$	200.0
June 28, 2019 to June 30, 2020	$	1,000.0
July 1, 2019 to June 30, 2023	€	425.0

The movements before tax recognized in OCI in relation to our cash flow hedges were as follows:



	Three months ended					Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018		September 28, 2019			September 29, 2018
Movement recognized in OCI in relation to:
—Fair value (loss) gain on cash flow hedges	$	(4.9	)	$	3.6	$	(32.8	)	$	13.3
—Deferred premium reclassified from OCI to net income	0.9			1.0		1.2			4.5
Total movement	$	(4.0	)	$	4.6	$	(31.6	)	$	17.8

During the three and nine months ended September 28, 2019, a net expense of $0.4 million and net expense of $1.2 million, respectively, was reclassified to interest expense in relation to our cash flow hedges, compared with net expense of $1.0 million and net expense of $4.5 million, respectively, during the three and nine months ended September 29, 2018.

Table of Contents

C. Derivative instruments not designated as hedging instruments

We do not designate our currency forward contracts, which are used primarily in respect of operational currency exposures related to payables, receivables and material procurement, or the currency swap contracts that are used to manage the currency profile of Gates’ cash as hedging instruments for the purposes of hedge accounting.

As of September 28, 2019, the notional principal amount of outstanding currency swaps that are used to manage the currency profile of Gates’ cash was $26.4 million, compared with $0 as of December 29, 2018.

As of September 28, 2019, the notional amount of outstanding currency forward contracts that are used to manage operational foreign exchange exposures was $71.6 million, compared with $108.0 million as of December 29, 2018.

The fair value gains recognized in net income in relation to derivative instruments that have not been designated as hedging instruments were as follows:



	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Fair value gains recognized in relation to:
—Currency forward contracts recognized in SG&A	$	0.3	$	0.9	$	2.0	$	1.7
—Currency swaps recognized in other expenses	1.0		0.1		1.0		0.6
Total	$	1.3	$	1.0	$	3.0	$	2.3

13. Fair value measurement

A. Fair value hierarchy

We account for certain assets and liabilities at fair value. Topic 820 “Fair Value Measurements and Disclosures” establishes the following hierarchy for the inputs that are used in fair value measurement:


•	“Level 1” inputs are unadjusted quoted prices in active markets for identical assets or liabilities;


•	“Level 2” inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and


•	“Level 3” inputs are not based on observable market data (unobservable inputs).

Assets and liabilities that are measured at fair value are categorized in one of the three levels on the basis of the lowest-level input that is significant to its valuation.

B. Financial instruments not held at fair value

Certain financial assets and liabilities are not measured at fair value; however, items such as cash and cash equivalents, restricted cash, revolving credit facilities and bank overdrafts generally attract interest at floating rates and accordingly their carrying amounts are considered to approximate fair value. Due to their short maturities, the carrying amounts of accounts receivable and accounts payable are also considered to approximate their fair values.

The carrying amount and fair value of our debt are set out below:



	As of September 28, 2019				As of December 29, 2018
(dollars in millions)	Carrying amount		Fair value		Carrying amount		Fair value
Current	$	43.5	$	43.0	$	51.6	$	50.4
Non-current	2,909.8		2,903.2		2,953.4		2,873.2
	$	2,953.3	$	2,946.2	$	3,005.0	$	2,923.6

Table of Contents

Debt is comprised principally of borrowings under the secured credit facilities and the unsecured senior notes. Loans under the secured credit facilities pay interest at floating rates, subject to a 1% LIBOR floor on the Dollar Term Loan and a 0% EURIBOR floor on the Euro Term Loan. Their principal amounts, derived from a market price, discounted for illiquidity, are considered to approximate fair value. The unsecured senior notes have fixed interest rates, are traded by “Qualified Institutional Buyers” and certain other eligible investors, and their fair value is derived from quoted market prices.

C. Assets and liabilities measured at fair value on a recurring basis

The following table categorizes the assets and liabilities that are measured at fair value on a recurring basis:



(dollars in millions)	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)			Total
As of September 28, 2019
Available-for-sale securities	$	1.0	$	—		$	1.0
Derivative assets	$	—	$	6.0		$	6.0
Derivative liabilities	$	—	$	(58.4	)	$	(58.4	)

As of December 29, 2018
Available-for-sale securities	$	0.8	$	—		$	0.8
Derivative assets	$	—	$	11.8		$	11.8
Derivative liabilities	$	—	$	(41.7	)	$	(41.7	)

Available-for-sale securities represent equity securities that are traded in an active market and therefore are measured using quoted prices in an active market. Derivative assets and liabilities included in Level 2 represent foreign currency exchange forward and swap contracts, and interest rate derivative contracts.

We value our foreign currency exchange derivatives using models consistent with those used by a market participant that maximize the use of market observable inputs including forward prices for currencies.

We value our interest rate derivative contracts using a widely accepted discounted cash flow valuation methodology that reflects the contractual terms of each derivative, including the period to maturity. The methodology derives the fair values of the derivatives using the market standard methodology of netting the discounted future cash payments and the discounted expected receipts. The inputs used in the calculation are based on observable market-based inputs, including interest rate curves, implied volatilities and credit spreads.

We incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

Transfers between levels of the fair value hierarchy

During the periods presented, there were no transfers between Levels 1 and 2, and Gates had no assets or liabilities measured at fair value on a recurring basis using Level 3 inputs.

D. Assets measured at fair value on a non-recurring basis

Gates has non-recurring fair value measurements related to certain assets, including goodwill, intangible assets, and property, plant, and equipment. No significant impairment was recognized during either the nine months ended September 28, 2019 or the year ended December 29, 2018.

Table of Contents

14. Debt



(dollars in millions)	As of September 28, 2019			As of December 29, 2018
Secured debt:
—Dollar Term Loan	$	1,703.4		$	1,716.4
—Euro Term Loan	704.3			742.1
Unsecured debt:
—Dollar Senior Notes	568.0			568.0
—Other loans	0.2			0.6
Total principal of debt	2,975.9			3,027.1
Deferred issuance costs	(41.5		)	(48.7		)
Accrued interest	18.9			26.6
Total carrying value of debt	2,953.3			3,005.0
Debt, current portion	43.5			51.6
Debt, less current portion	$	2,909.8		$	2,953.4

Gates’ secured debt is jointly and severally, irrevocably and fully and unconditionally guaranteed by certain of its subsidiaries and is secured by liens on substantially all of their assets.

Gates is subject to covenants, representations and warranties under certain of its debt facilities. During the periods covered by these condensed consolidated financial statements, we were in compliance with the applicable financial covenants. Also under the agreements governing our debt facilities, our ability to engage in activities such as incurring certain additional indebtedness, making certain investments and paying certain dividends is dependent, in part, on our ability to satisfy tests based on measures determined under those agreements.

Debt redemptions

On January 31, 2018, we redeemed in full our outstanding €235.0 million Euro Senior Notes, plus interest accrued up to and including the redemption date of $0.7 million. The Euro Senior Notes were redeemed at a price of 102.875% and a redemption premium of $8.4 million was therefore paid in addition to the principal of $291.7 million.

In addition, on February 8 and February 9, 2018, we redeemed Dollar Senior Notes with a principal of $522.0 million and $100.0 million, respectively. Both of these calls were made at a price of 103.0%, incurring redemption premiums of $15.6 million and $3.0 million, respectively. Interest accrued of $2.0 million and $0.4 million, respectively, was also paid on these dates.

All of the above prepayments, totaling $913.7 million in principal, $27.0 million in redemption premiums and $3.1 million in accrued interest, were funded primarily by the net proceeds from our initial public offering, with the remainder of the funds coming from cash on hand. As a result of these redemptions, the recognition of $15.4 million of deferred financing costs was accelerated and recognized in interest expense in the first three months of 2018.

In addition, in connection with certain reorganization transactions, a wholly-owned U.S. subsidiary of Gates Global LLC, has entered into intercompany agreements pursuant to which it became the principal obligor under the Term Loans and Senior Notes for U.S. federal income tax purposes and agreed to make future payments due on these tranches of debt. As a result, interest received by lenders of these debt tranches is U.S. source income.

Dollar and Euro Term Loans

Our secured credit facilities include a Dollar Term Loan credit facility and a Euro Term Loan credit facility that were drawn on July 3, 2014. The maturity date for each of the term loan facilities is March 31, 2024, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time. These term loan facilities bear interest at a floating rate, which for U.S. dollar debt can be either a base rate as defined in the credit agreement plus an applicable margin, or at our option, LIBOR plus an applicable margin. The Euro Term Loan bears interest at Euro LIBOR subject to a floor of 0%, plus a margin of 3.00%.

Table of Contents

On January 29, 2018, the applicable margin on each of the term loans was lowered by 0.25% following the successful completion of our initial public offering. The Dollar Term Loan interest rate is currently LIBOR, subject to a floor of 1.00%, plus a margin of 2.75%, and as of September 28, 2019, borrowings under this facility bore interest at a rate of 4.79% per annum. The Dollar Term Loan interest rate is re-set on the last business day of each month. As of September 28, 2019, the Euro Term Loan bore interest at Euro LIBOR, which is currently below 0%, subject to a floor of 0%, plus a margin of 3.00%. The Euro Term Loan interest rate is re-set on the last business day of each quarter.

Both term loans are subject to quarterly amortization payments of 0.25%, based on the original principal amount less certain prepayments with the balance payable on maturity. During the nine months ended September 28, 2019, we made amortization payments against the Dollar Term Loan and the Euro Term Loan of $13.0 million and $5.5 million, respectively. During the nine months ended September 29, 2018, we made amortization payments against the Dollar Term Loan and the Euro Term Loan of $13.0 million and $5.8 million, respectively.

Under the terms of the credit agreement, we are obliged to offer annually to the term loan lenders an “excess cash flow” amount as defined under the agreement, based on the preceding year’s final results. Based on our 2018 results, the leverage ratio as defined under the credit agreement was below the threshold above which payments are required, and therefore no excess cash flow payment is required to be made in 2019.

During the periods presented, foreign exchange gains were recognized in respect of the Euro Term Loans as summarized in the table below. As a portion of the facility was designated as a net investment hedge of certain of our Euro investments, a corresponding portion of the foreign exchange gains (losses) were recognized in OCI.



	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Gain recognized in statement of operations	$	24.5	$	3.5	$	29.8	$	32.6
Gain (loss) recognized in OCI	3.2		0.3		2.5		(6.5		)
Total gains	$	27.7	$	3.8	$	32.3	$	26.1

Subsequent to our initial public offering, the above net transactional foreign exchange gains recognized in the other (income) expenses line of the condensed consolidated statement of operations have been substantially offset by net foreign exchange movements on Euro-denominated intercompany loans as part of our overall hedging strategy.

Unsecured Senior Notes

As of September 28, 2019, there were $568.0 million of Dollar Senior Notes outstanding. These notes are scheduled to mature on July 15, 2022 and bear interest at an annual fixed rate of 6.00% with semi-annual interest payments. As noted above, on January 31, 2018, we redeemed in full our outstanding €235.0 million Euro Senior Notes and made partial redemptions of the Dollar Senior Notes totaling $622.0 million.

Up to the date of their redemption, foreign exchange losses of $9.2 million were recognized in respect of the Euro Senior Notes. Of these losses, $5.0 million was recognized in OCI for the period during which the facility was designated as a net investment hedge of certain of our Euro investments, and $4.2 million was recognized in the statement of operations.

We may redeem the Dollar Senior Notes, at our option, in whole at any time or in part from time to time, at 100% of their principal value, plus accrued and unpaid interest to the redemption date.

In the event of a change of control over the Company, each holder will have the right to require Gates to repurchase all of such holder’s notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase, except to the extent that Gates has previously elected to redeem the notes.

Revolving credit facility

We also have a secured revolving credit facility, maturing on January 29, 2023, that provides for multi-currency revolving loans up to an aggregate principal amount of $185.0 million, with a letter of credit sub-facility of $20.0 million. The facility matures on January 29, 2023, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time.

Table of Contents

As of both September 28, 2019 and December 29, 2018, there were no drawings for cash under the revolving credit facility and there were no letters of credit outstanding.

Debt under the revolving credit facility bears interest at a floating rate, which can be either a base rate as defined in the credit agreement plus an applicable margin or, at our option, LIBOR, plus an applicable margin.

Asset-backed revolver

We have a revolving credit facility backed by certain of our assets in North America. The facility allows for loans of up to a maximum of $325.0 million ($309.2 million as of September 28, 2019, compared with $325.0 million as of December 29, 2018, based on the values of the secured assets on those dates) with a letter of credit sub-facility of $150.0 million within this maximum. The facility matures on January 29, 2023, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time.

As of both September 28, 2019 and December 29, 2018, there were no drawings for cash under the asset-backed revolver, but there were letters of credit outstanding of $50.2 million and $57.8 million, respectively.

Debt under the facility bears interest at a floating rate, which can be either a base rate as defined in the credit agreement plus an applicable margin or, at our option, LIBOR, plus an applicable margin.

15. Post-retirement benefits

Gates provides defined benefit pension plans in certain of the countries in which it operates, in particular, in the U.S. and U.K. All of the defined benefit pension plans are closed to new entrants. In addition to the funded defined benefit pension plans, Gates has unfunded defined benefit obligations to certain current and former employees.

Gates also provides other post-retirement benefits, principally health and life insurance coverage, on an unfunded basis to certain of its employees in the U.S. and Canada.

Net periodic benefit cost

The components of the net periodic benefit cost for pensions and other post-retirement benefits were as follows:



	Three months ended September 28, 2019									Three months ended September 29, 2018
(dollars in millions)	Pensions			Other post-retirement benefits			Total			Pensions			Other post-retirement benefits			Total
Reported in operating income:
—Employer service cost	$	1.3		$	—		$	1.3		$	1.3		$	—		$	1.3
Reported outside of operating income:
—Interest cost	5.8			0.6			6.4			5.8			0.6			6.4
—Expected return on plan assets	(7.0		)	—			(7.0		)	(5.6		)	—			(5.6		)
—Net amortization of prior period losses (gains)	0.2			(0.3		)	(0.1		)	—			(0.1		)	(0.1		)
—Settlements and curtailments	—			—			—			0.1			—			0.1
Net periodic benefit cost	$	0.3		$	0.3		$	0.6		$	1.6		$	0.5		$	2.1

Contributions	$	1.9		$	0.8		$	2.7		$	1.7		$	1.2		$	2.9

Table of Contents



	Nine months ended September 28, 2019									Nine months ended September 29, 2018
(dollars in millions)	Pensions			Other post-retirement benefits			Total			Pensions			Other post-retirement benefits			Total
Reported in operating income:
—Employer service cost	$	4.1		$	—		$	4.1		$	4.0		$	—		$	4.0
Reported outside of operating income:
—Interest cost	17.6			1.7			19.3			17.7			1.7			19.4
—Expected return on plan assets	(20.9		)	—			(20.9		)	(17.0		)	—			(17.0		)
—Net amortization of prior period losses (gains)	0.6			(0.9		)	(0.3		)	0.1			(0.5		)	(0.4		)
—Settlements and curtailments	(0.7		)	—			(0.7		)	0.4			—			0.4
Net periodic benefit cost	$	0.7		$	0.8		$	1.5		$	5.2		$	1.2		$	6.4

Contributions	$	5.3		$	2.8		$	8.1		$	5.7		$	3.2		$	8.9

The components of the above net periodic benefit cost for pensions and other post-retirement benefits that are reported outside of operating income are all included in the other (income) expenses line in the condensed consolidated statement of operations.

For 2019 as a whole, we expect to contribute approximately $4.6 million to our defined benefit pension plans and approximately $6.7 million to our other post-retirement benefit plans.

16. Share-based compensation

The Company operates a share-based incentive plan over its shares to provide incentives to Gates’ senior executives and other eligible employees. During the three and nine months ended September 28, 2019, we recognized a charge of $4.1 million and $10.5 million, compared with $2.3 million and $5.5 million, respectively, in the prior year period.

Share-based incentive awards issued under the 2014 Omaha Topco Ltd. Stock Incentive Plan

Gates has a number of awards in issue under the 2014 Omaha Topco Ltd. Stock Incentive Plan, which was assumed by the Company and renamed the Gates Industrial Corporation plc Stock Incentive Plan in connection with our initial public offering in January 2018. No new awards have been granted under this plan since 2017. The options are split equally into four tiers, each with specific vesting conditions. Tier I options vest evenly over 5 years from the grant date, subject to the participant’s continuing to provide service to Gates on the vesting date. Tier II, III and IV options vest on achievement of specified investment returns by Blackstone at the time of a defined liquidity event, which is also subject to the participant’s continued provision of service to Gates on the vesting date. The performance conditions associated with Tiers II, III and IV must be achieved on or prior to July 3, 2022 in order for vesting to occur. All the options expire ten years after the date of grant.

Due to Chinese regulatory restrictions on foreign stock ownership, awards granted under this plan to Chinese employees have been issued as stock appreciation rights (“SARs”). The terms of these SARs are identical to those of the options described above with the exception that no share is issued on exercise; instead, cash equivalent to the increase in the value of the shares from the date of grant to the date of exercise is paid to the employee. These awards are therefore treated as liability awards under Topic 718 “Compensation - Stock Compensation” and are revalued to their fair value at each period end.

In addition to the above, in 2017, under the same plan, the Company issued 76,293 restricted stock units (“RSUs”). These RSUs vest evenly over three years from the date of grant, subject to the participant’s continued provision of service to Gates on the vesting date. The awards expire ten years after the date of grant, in December 2027. There were no movements in these RSUs during the current period.

Changes in the awards granted under this plan are summarized in the tables below.

Share-based incentive awards issued under the Gates Industrial Corporation plc 2018 Omnibus Incentive Plan

In conjunction with the initial public offering in January 2018, Gates adopted a new equity-based compensation plan, which is a market-based long-term incentive program that allows for the issue of a variety of equity-based and cash-based awards, including stock options, SARs and RSUs.

Table of Contents

The SARs and the majority of the share options issued under this plan vest evenly over either three years or four years from the grant date. The remainder of the options, the premium-priced options, vest evenly over a three year period, starting two years from the grant date. All options vest subject to the participant’s continued employment by Gates on the vesting date and expire ten years after the date of grant.

The RSUs issued under the plan consist of time-vesting RSUs and performance-based RSUs (“PRSUs”). The time-vesting RSUs vest evenly over either one or three years from the date of grant, subject to the participant’s continued provision of service to Gates on the vesting date. The PRSUs provide that 50% of the award will generally vest if Gates achieves a certain level of average annual adjusted return on invested capital as defined in the plan (“Adjusted ROIC”) and the remaining 50% of the PRSUs will generally vest if Gates achieves certain relative total shareholder return (“Relative TSR”) goals, in each case, measured over a three year performance period and subject to the participant’s continued employment through the end of the performance period. The total number of PRSUs that vest at the end of the performance period will range from 0% to 200% of the target based on actual performance against a pre-established scale.

New awards and movements in existing awards granted under this plan are summarized in the tables below.

Table of Contents

Summary of movements in options outstanding



	Nine months ended September 28, 2019
	Number of options		Weighted average exercise price $
Outstanding at the beginning of the period:
—Tier I	4,212,537		$	7.03
—Tier II	4,837,780		$	6.97
—Tier III	4,837,780		$	6.97
—Tier IV	4,837,780		$	10.46
—SARs	724,372		$	8.17
—Share options	582,717		$	17.14
	20,032,966		$	8.16
Granted during the period:
—SARs	71,150		$	16.46
—Share options	1,099,505		$	16.46
—Premium-priced options	796,460		$	19.00
	1,967,115		$	17.49
Forfeited during the period:
—Tier I	(102,135	)	$	6.62
—Tier II	(391,792	)	$	6.59
—Tier III	(391,792	)	$	6.59
—Tier IV	(391,792	)	$	9.88
—Share options	(44,895	)	$	17.03
	(1,322,406	)	$	7.92
Expired during the period:
—Share options	(1,250	)	$	17.72
	(1,250	)	$	17.72
Exercised during the period:
—Tier I	(257,322	)	$	6.58
	(257,322	)	$	6.58
Outstanding at the end of the period:
—Tier I	3,853,080		$	7.07
—Tier II	4,445,988		$	7.00
—Tier III	4,445,988		$	7.00
—Tier IV	4,445,988		$	10.51
—SARs	795,522		$	8.91
—Share options	1,636,077		$	16.69
—Premium-priced options	796,460		$	19.00
	20,419,103		$	9.10

Exercisable at the end of the period	2,838,515		$	7.36

As of September 28, 2019, the unrecognized compensation charge relating to the nonvested options other than Tier II, Tier III and Tier IV options, was $11.2 million, which is expected to be recognized over a weighted-average period of 2.7 years. The unrecognized compensation charge relating to the nonvested Tier II, Tier III and Tier IV options was $29.0 million, which will be recognized on occurrence of a liquidity event as described above.

Table of Contents

During the three and nine months ended September 28, 2019, cash of $0 and $1.6 million, respectively, was received in relation to the exercise of vested options. The aggregate intrinsic value of options exercised during the three and nine months ended September 28, 2019 was $0 and $2.0 million, respectively.

Summary of movements in RSUs and PRSUs outstanding



	Nine months ended September 28, 2019
	Number of awards		Weighted average grant date fair value $
Outstanding at the beginning of the period:
—RSUs	81,800		$	17.13
	81,800		$	17.13
Granted during the period:
—RSUs	728,436		$	16.28
—PRSUs	248,550		20.07
	976,986		$	17.25
Forfeited during the period:
—RSUs	(34,573	)	$	16.67
	(34,573	)	$	16.67
Vested during the period:
—RSUs	(19,250	)	$	17.21
	(19,250	)	$	17.21
Outstanding at the end of the period:
—RSUs	756,413		$	16.33
—PRSUs	248,550		20.07
	1,004,963		$	17.25

As of September 28, 2019, the unrecognized compensation charge relating to nonvested RSUs and PRSUs was $11.3 million, which is expected to be recognized over a weighted average period of 2.3 years, subject, where relevant, to the achievement of the performance conditions described above. The aggregate intrinsic value of RSUs and PRSUs vested during the three and nine months ended September 28, 2019 was $0.1 million and $0.3 million, respectively.

Table of Contents

Valuation of awards granted during the period

The fair value of the options at their grant date was measured using a Black-Scholes valuation model in the case of SARs and share options. RSUs are valued at the share price on the date of grant. The premium-priced options and PRSUs were valued using Monte Carlo simulations. The weighted average fair values and relevant assumptions were as follows:



	Nine months ended September 28, 2019
Fair value:
—SARs	$	5.88
—Share options	$	5.88
—Premium-priced options	$	5.65
—RSUs	$	16.28
—PRSUs	$	20.07

Inputs to the model:
—Expected volatility - SARs, share options and premium-priced options	31.9		%
—Expected volatility - PRSUs	32.8		%
—Expected option life for SARs and share options	6.0
—Expected option life for premium-priced options	7.0
—Risk-free interest rate:
SARs and share options	2.51		%
Premium-priced options	2.53		%
PRSUs	2.48		%
—Expected dividends	—

17. Equity

In January 2018, Gates completed an initial public offering of 38,500,000 shares at $19.00 each. Shortly thereafter, the underwriters of the initial public offering exercised their over-allotment option for a further 5,775,000 shares, also at $19.00 each. Movements in the Company’s number of shares in issue for the nine month periods ended September 28, 2019 and September 29, 2018, respectively, were as follows:



	Nine months ended
(number of shares)	September 28, 2019	September 29, 2018
Balance as of the beginning of the fiscal year	289,847,574	245,474,605
Issuance of shares	—	44,275,000
Exercise of share options	257,322	58,545
Vesting of restricted stock units, net of withholding taxes	13,229	—
Balance as of the end of the period	290,118,125	289,808,150

The Company has one class of authorized and issued shares, with a par value of $0.01, and each share has equal voting rights.

Table of Contents

18. Analysis of accumulated other comprehensive (loss) income

Changes in accumulated other comprehensive (loss) income by component, net of tax, were as follows:



(dollars in millions)	Available-for- sale investments			Post- retirement benefit			Cumulative translation adjustment			Cash flow hedges			Accumulated OCI attributable to shareholders			Non- controlling interests			Accumulated OCI
As of December 30, 2017	$	(0.3	)	$	13.2		$	(742.8	)	$	(17.5	)	$	(747.4	)	$	(25.5	)	$	(772.9	)
Foreign currency translation	—			—			(58.7		)	—			(58.7		)	(20.0		)	(78.7		)
Cash flow hedges movements	—			—			—			19.8			19.8			—			19.8
Available-for-sale investment movements	(0.4		)	—			—			—			(0.4		)	(0.1		)	(0.5		)
Post-retirement benefit movements	—			(0.5		)	—			—			(0.5		)	—			(0.5		)
Other comprehensive (loss) income	(0.4		)	(0.5		)	(58.7		)	19.8			(39.8		)	(20.1		)	(59.9		)
As of September 29, 2018	$	(0.7	)	$	12.7		$	(801.5	)	$	2.3		$	(787.2	)	$	(45.6	)	$	(832.8	)



(dollars in millions)	Available-for- sale investments		Post- retirement benefit			Cumulative translation adjustment			Cash flow hedges			Accumulated OCI attributable to shareholders			Non- controlling interests			Accumulated OCI
As of December 29, 2018	$	—	$	7.6		$	(850.0	)	$	(11.9	)	$	(854.3	)	$	(43.6	)	$	(897.9	)
Foreign currency translation	—		—			(27.7		)	—			(27.7		)	(7.8		)	(35.5		)
Cash flow hedges movements	—		—			—			(26.4		)	(26.4		)	—			(26.4		)
Post-retirement benefit movements	—		(0.2		)	—			—			(0.2		)	—			(0.2		)
Other comprehensive loss	—		(0.2		)	(27.7		)	(26.4		)	(54.3		)	(7.8		)	(62.1		)
As of September 28, 2019	$	—	$	7.4		$	(877.7	)	$	(38.3	)	$	(908.6	)	$	(51.4	)	$	(960.0	)

19. Related party transactions

A. Entities affiliated with Blackstone

In January 2018, Gates and Blackstone Management Partners L.L.C. (“BMP”) and Blackstone Tactical Opportunities Advisors L.L.C., each affiliates of our Sponsor (the “Managers”), entered into a new Transaction and Monitoring Fee Agreement (the “New Monitoring Fee Agreement”). Under this agreement, Gates Industrial Corporation plc and certain of its direct and indirect subsidiaries (collectively the “Monitoring Service Recipients”) engaged the Managers to provide certain monitoring, advisory and consulting services in the following areas:


•	advice regarding financings and relationships with lenders and bankers;


•	advice regarding the selection, retention and supervision of independent auditors, outside legal counsel, investment bankers and other advisors or consultants;


•	advice regarding environmental, social and governance issues pertinent to our affairs;


•	advice regarding the strategic direction of our business; and


•	such other advice directly related to or ancillary to the above advisory services as we may reasonably request.

In consideration of these oversight services, Gates agreed to pay BMP an annual fee of 1% of a covenant EBITDA measure defined under the agreements governing our senior secured credit facilities. In addition, the Monitoring Service Recipients agreed to reimburse the Managers for any related out-of-pocket expenses incurred by the Managers and their affiliates. During the three months ended September 28, 2019, Gates incurred $1.1 million, compared with $1.9 million during the prior year period, and during the nine months ended September 28, 2019, Gates incurred $4.9 million, compared with $5.9 million during the prior year period, in respect of these oversight services and out-of-pocket expenses, of which there was no amount owing at September 28, 2019 or December 29, 2018.

Table of Contents

The New Monitoring Fee Agreement terminates upon the earlier to occur of (i) the second anniversary of the closing date of the initial public offering of Gates or (ii) the date our Sponsor beneficially owns less than 5% of our ordinary shares and such shares have a fair market value of less than $25.0 million. Following termination of the New Monitoring Fee Agreement, the Managers will refund us any portion of the monitoring fee previously paid in respect of fiscal quarters that follow the termination date.

In addition, in connection with the initial public offering, we entered into a new Support and Services Agreement with BMP, under which Gates Industrial Corporation plc and certain of its direct and indirect subsidiaries reimburse BMP for customary support services provided by Blackstone’s portfolio operations group to the Company at BMP’s direction. BMP will invoice the Company for such services based on the time spent by the relevant personnel providing such services during the applicable period and Blackstone’s allocated costs of such personnel. During the periods presented, no amounts were paid or outstanding under this agreement. This agreement terminates on the date our Sponsor beneficially owns less than 5% of our ordinary shares and such shares have a fair market value of less than $25.0 million, or such earlier date as may be chosen by Blackstone.

In connection with our initial public offering in January 2018, Blackstone Advisory Partners L.P., an affiliate of Blackstone, received underwriting fees of $3.2 million.

B. Equity method investees

Sales to and purchases from equity method investees were as follows:



	Three months ended						Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Sales	$	0.4		$	0.3		$	1.1		$	1.4
Purchases	$	(3.9	)	$	(4.8	)	$	(11.9	)	$	(11.3	)

Amounts outstanding in respect of these transactions were payables of $0.2 million as of September 28, 2019, compared with $0.1 million as of December 29, 2018. During the three months ended September 28, 2019, we received dividends of $0 from our equity method investees, compared with $0 in the prior year period. During the nine months ended September 28, 2019, we received dividends of $0 from our equity method investees, compared with $0.4 million in the prior year period.

C. Non-Gates entities controlled by non-controlling shareholders

Sales to and purchases from non-Gates entities controlled by non-controlling shareholders were as follows:



	Three months ended						Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Sales	$	12.7		$	13.7		$	38.5		$	45.4
Purchases	$	(5.0	)	$	(5.5	)	$	(15.3	)	$	(16.0	)

Amounts outstanding in respect of these transactions were as follows:



(dollars in millions)	As of September 28, 2019			As of December 29, 2018
Receivables	$	4.4		$	0.6
Payables	$	(5.4	)	$	(0.3	)

D. Majority-owned subsidiaries

We finalized an agreement with the non-controlling interest holder in certain of our consolidated, majority-owned subsidiaries, regarding the scope of business of such subsidiaries, which will result in a smaller share of net income allocated to non-controlling interests. This change is retrospectively effective from the beginning of 2019 and includes a one-time adjustment of $15.0 million, which has been recorded in the first quarter of 2019.

Table of Contents

20. Commitments and contingencies

A. Performance bonds, letters of credit and bank guarantees

As of September 28, 2019, letters of credit totaling $50.2 million were outstanding against the asset-backed revolving facility, compared with $57.8 million as of December 29, 2018. Gates had additional outstanding performance bonds, letters of credit and bank guarantees amounting to $3.8 million, compared with $3.4 million as of December 29, 2018.

B. Contingencies

Gates is, from time to time, party to general legal proceedings and claims, which arise in the ordinary course of business. Gates is also, from time to time, party to legal proceedings and claims in respect of environmental obligations, product liability, intellectual property and other matters which arise in the ordinary course of business and against which management believes Gates has meritorious defenses available.

While it is not possible to quantify the financial impact or predict the outcome of all pending claims and litigation, management does not anticipate that the outcome of any current proceedings or known claims, either individually or in aggregate, will materially affect Gates’ financial position, results of operations or cash flows.

C. Warranties

The following summarizes the movements in the warranty liability for the nine month periods ended September 28, 2019 and September 29, 2018, respectively:



	Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018
Balance as of the beginning of the fiscal year	$	14.3		$	14.1
Charge for the period	10.2			9.2
Payments made	(7.4		)	(7.3		)
Released during the period	(1.0		)	(0.6		)
Foreign currency translation	(0.1		)	(0.2		)
Balance as of the end of the period	$	16.0		$	15.2

Item 2: Management’s Discussion and Analysis

of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements” above.

Table of Contents

Our Company

We are a global manufacturer of innovative, highly engineered power transmission and fluid power solutions. We offer a broad portfolio of products to diverse replacement channel customers and to original equipment (“first-fit”) manufacturers as specified components, with the majority of our revenue coming from replacement channels. Our products are used in applications across numerous end markets, which include construction, agriculture, energy, automotive, transportation, general industrial, consumer products and many others. We sell our products globally under the Gates brand, which is recognized by distributors, equipment manufacturers, installers and end users as a premium brand for quality and technological innovation; this reputation has been built for over a century since Gates’ founding in 1911. Within the diverse end markets we serve, our highly engineered products are often critical components in applications for which the cost of downtime is high relative to the cost of our products, resulting in the willingness of end users to pay a premium for superior performance and availability. These applications subject our products to normal wear and tear, resulting in a natural replacement cycle that drives high-margin, recurring revenue. Our product portfolio represents one of the broadest ranges of power transmission and fluid power products in the markets we serve, and we maintain long-standing relationships with a diversified group of blue-chip customers throughout the world. As a leading designer, manufacturer and marketer of highly engineered, mission-critical products, we have become an industry leader across most of the regions and end markets in which we operate.

Business Trends

Our net sales have historically been highly correlated with industrial activity and utilization and not with any single end market given the diversification of our business and high exposure to replacement channels. This diversification limits our exposure to trends in any given end market. In addition, a majority of our sales are generated from customers in replacement channels, who serve primarily a large base of installed equipment that follows a natural maintenance cycle that is somewhat less susceptible to various trends that affect our end markets. Such trends include infrastructure investment and construction activity, agricultural production and related commodity prices, commercial and passenger vehicle production, miles driven and fleet age, evolving regulatory requirements related to emissions and fuel economy and oil and gas prices and production. Key indicators of our performance include industrial production, industrial sales and manufacturer shipments.

During the nine months ended September 28, 2019, sales into replacement channels accounted for approximately 63% of our total net sales. Our replacement sales cover a very broad range of applications and industries and, accordingly, are highly correlated with industrial activity and utilization and not a single end market. Replacement products are principally sold through distribution partners that may carry a very broad line of products or may specialize in products associated with a smaller set of end market applications.

During the nine months ended September 28, 2019, sales into first-fit channels accounted for approximately 37% of our total net sales. First-fit sales are to a variety of industrial and automotive customers. Our industrial first-fit customers cover a diverse range of industries and applications and many of our largest first-fit customers manufacture construction and agricultural equipment. Among our automotive first-fit customers, a majority of our net sales are to emerging market customers, where we believe our first-fit presence provides us with a strategic advantage in developing those markets and ultimately increasing our higher margin replacement channel sales. First-fit automotive sales in developed markets represented approximately 7% of our total net sales for the nine months ended September 28, 2019, with first-fit automotive sales in North America contributing less than 3% of total sales. As a result of the foregoing factors, we do not believe that our historical net sales have had any meaningful correlation to global automotive production but are positively correlated to industrial production.

Our recently completed manufacturing footprint investments and other productivity improvements in recent years have helped to position us to accelerate and expand upon our previously announced restructuring program, which is primarily intended to optimize our manufacturing and distribution footprint over the mid-term by removing structural fixed costs, and, to a lesser degree, to streamline our SG&A back-office functions. We anticipate that most of the costs associated with these actions will be incurred during 2020 and 2021. Some of these costs will, in accordance with U.S. GAAP, be classified in cost of sales, negatively impacting gross margin, but due to their nature and impact of hindering comparison of the performance of our businesses on a period-over-period basis or with other businesses, they will be excluded from Adjusted EBITDA, consistent with the treatment of similar costs in the current and prior years.

Table of Contents

Results for the three and nine months ended September 28, 2019 compared with the results for the three and nine months ended September 29, 2018

Summary Gates Performance



	Three months ended						Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Net sales	$	746.6		$	828.4		$	2,361.4		$	2,555.5
Cost of sales	474.2			501.2			1,480.3			1,534.9
Gross profit	272.4			327.2			881.1			1,020.6
Selling, general and administrative expenses	191.9			202.7			590.4			621.1
Transaction-related expenses	1.0			0.2			0.7			6.2
Impairment of intangibles and other assets	0.7			0.2			0.7			0.6
Restructuring expenses	0.3			1.2			3.9			3.2
Other operating expenses	1.8			5.1			6.6			12.5
Operating income from continuing operations	76.7			117.8			278.8			377.0
Interest expense	37.2			40.2			114.5			139.8
Other (income) expenses	(2.4		)	3.4			(7.2		)	17.5
Income from continuing operations before taxes	41.9			74.2			171.5			219.7
Income tax expense (benefit)	4.4			7.2			(497.8		)	30.4
Net income from continuing operations	$	37.5		$	67.0		$	669.3		$	189.3

Adjusted EBITDA⁽¹⁾	$	145.0		$	181.2		$	475.9		$	570.0
Adjusted EBITDA margin	19.4		%	21.9		%	20.2		%	22.3		%


⁽¹⁾	See “—Non-GAAP Measures” for a reconciliation of Adjusted EBITDA to net income from continuing operations, the closest comparable GAAP measure, for each of the periods presented.

Net sales

Net sales during the three months ended September 28, 2019 were $746.6 million, down by 9.9%, or $81.8 million, compared with net sales during the prior year period of $828.4 million. Our net sales in the three months ended September 28, 2019 were adversely impacted by movements in average currency exchange rates of $11.1 million compared with the prior year period, due principally to the strengthening of the U.S. dollar against a number of currencies, in particular the Euro ($5.4 million) and the Chinese Renminbi ($2.3 million). Excluding this impact, core sales decreased by $70.7 million, or 8.5%, during the three months ended September 28, 2019 compared with the prior year period. Of this decrease, $86.1 million was driven by lower volumes, offset partially by a $15.4 million benefit from favorable, inflation-mitigating pricing actions.

Core sales in our Power Transmission and Fluid Power businesses declined by 6.0% and 12.7%, respectively, in the three months ended September 28, 2019. The majority of the total decline was driven by continued weakness in the industrial channels with sales to industrial replacement and industrial first-fit customers declining by 13.0% and 12.5%, respectively, in the three months ended September 28, 2019 compared with the prior year period. This weak industrial demand was most significant in North America, where sales to industrial end markets declined by 12.7%, or $35.0 million, during the three months ended September 28, 2019 compared with the prior year period, impacting both our first-fit and replacement channels. We saw particular end market weakenss in mobile equipment driven by the construction and agriculture end markets, as well as the general industrial end market. China and East Asia & India industrial end markets also continued to decelerate during the quarter, particularly in the construction end market, impacted by the ongoing trade tensions with the U.S. and broader market softness in Asia, declining by 16.1% and 12.8%, respectively, during the current quarter compared with the prior year period. Sales into the automotive replacement channel declined globally by 2.8%, primarily in North America and EMEA, offsetting solid growth in China and South America. Automotive first-fit sales declined by 7.4% globally during the three months ended September 28, 2019 compared with the prior year period, with declines in EMEA and China of 16.3% and 13.5%, respectively, offsetting growth of 8.2% in North America.

Table of Contents

Overall, core sales into emerging and developed markets were lower by 5.4% and 10.1% in the three months ended September 28, 2019, respectively, compared with the prior year period, driven in both cases by declines in sales to the automotive and construction end markets. Developed markets were also impacted by a 13.5%, or $16.4 million, decline in sales to the general industrial end market, predominantly in North America.

Net sales during the nine months ended September 28, 2019 were $2,361.4 million, down by 7.6%, or $194.1 million, compared with net sales during the prior year period of $2,555.5 million. Our net sales for the nine months ended September 28, 2019 were adversely impacted by movements in average currency exchange rates of $70.8 million compared with the prior year period, due principally to the strengthening of the U.S. dollar against a number of currencies, including the Euro ($26.9 million), the Chinese Renminbi ($13.3 million), the Canadian dollar ($5.7 million) and the Brazilian Real ($5.7 million). In addition, the acquisition of Rapro in April 2018 contributed $7.5 million to our net sales for the nine months ended September 28, 2019. Excluding these impacts, core sales decreased by $130.8 million, or 5.1%, during the nine months ended September 28, 2019 compared with the prior year period. This decrease was due primarily to lower volumes of $181.0 million, offset partially by a $50.1 million benefit from favorable, inflation-mitigating pricing actions.

Core sales in our Power Transmission and Fluid Power businesses declined by 5.0% and 5.4%, respectively, for the nine months ended September 28, 2019. Globally, these declines came broadly equally from sales to our industrial and automotive customers, but Power Transmission was particularly impacted by decelerating sales to the automotive end markets, particularly in EMEA, and Fluid Power’s declines were focused in industrial first-fit sales, particularly to the construction and agriculture end markets. Global industrial first-fit and replacement sales declined by 4.9% and 5.1%, respectively, during the nine months ended September 28, 2019 compared with the prior year period, driven most notably by declines in the agriculture and general industrial end markets in North America. Sales to industrial end markets in China were down by 9.0% during the nine months ended September 28, 2019 compared with the prior year period, driven by the general industrial and transportation end markets, with increasing weakness in construction equipment sales as the year has progressed. This was more than offset by growth in sales to industrial end markets in EMEA, with growth across all end markets except for agriculture. Sales to the automotive end markets declined by 7.5% during the nine months ended September 28, 2019 compared with the prior year period, driven by sales to first-fit customers, which declined by 10.5%. The decline in automotive end market sales was driven mostly by the broad economic softness in EMEA, with sales from this region declining by 17.3%, or $70.6 million, during the nine months ended September 28, 2019 compared with the prior year period. Growth in all other regions declined by low single digits on a percentage basis as compared with the prior year period.

Cost of sales

Cost of sales for the three months ended September 28, 2019 was $474.2 million, a decrease of 5.4%, or $27.0 million, compared with $501.2 million for the prior year period. The decrease was driven primarily by lower volumes of $38.4 million and a $9.8 million benefit from our procurement initiatives. These decreases were offset partially by $13.1 million of unfavorable wage and material inflation and an impact of $8.1 million from lower manufacturing performance driven by the lower absorption of fixed costs on lower production volumes and some variable costs as we continued to adjust our production costs to the current demand levels.

Cost of sales for the nine months ended September 28, 2019 was $1,480.3 million, a decrease of 3.6%, or $54.6 million, compared with $1,534.9 million for the prior year period. The decrease was driven primarily by lower volumes of $80.4 million, favorable movements in average currency exchange rates of $46.4 million, and $23.7 million of benefits from our procurement initiatives. Similar to the quarter, these decreases were offset primarily by $43.0 million of a combination of wage and material inflation and $35.0 million from lower manufacturing performance driven by the lower absorption of fixed costs on lower production volumes and some excess variable costs as we continued to adjust our production costs to the current demand levels. Beginning in the second quarter of 2019, and continuing through the current quarter, we reduced our variable production costs to align these resource levels to the current demand outlook. In addition, cost of sales for the nine months ended September 28, 2019 were adversely impacted by $8.2 million of increases in tariffs and $6.3 million of higher depreciation relating primarily to the new facilities opened in 2018, compared with the prior year period.

Table of Contents

Gross profit

Gross profit for the three months ended September 28, 2019 was $272.4 million, down 16.7% from $327.2 million for the prior year period. The decrease was driven primarily by the decreases in volumes of $47.7 million, combined with unfavorable net impacts of movements in average currency exchange rates of $3.5 million and $13.1 million of unfavorable wage and material inflation. In addition, as discussed above, cost of sales was impacted by lower manufacturing performance of $8.1 million, driven by lower fixed cost absorption on lower production volumes, and some excess variable costs, reducing gross profit. This was offset partially by a $15.4 million benefit from favorable, inflation-mitigating pricing actions. Our gross profit margin dropped by 300 basis points to 36.5% for the three months ended September 28, 2019. Excluding the impact of facility closure-related inventory impairments of $1.0 million and $2.5 million of involuntary termination benefits paid in relation to permanent reductions in force, primarily in Asia and North America, gross margin was 37.0%, down from 39.5% for the prior year period. The decline in gross margin is a result of the decelerating demand environment through the quarter discussed above and the lag in our ability to reduce manufacturing costs in the same timeframe, leading to the under absorption of manufacturing costs. We believe that the lower demand environment with which we exited the third quarter will remain for the foreseeable future and we therefore continue to implement cost reduction actions.

Gross profit for the nine months ended September 28, 2019 was $881.1 million, down 13.7% from $1,020.6 million for the prior year period. Our gross profit margin dropped by 260 basis points to 37.3% for the nine months ended September 28, 2019. Excluding the impact of facility closure-related inventory impairments of $1.3 million and $3.0 million of involuntary termination benefits paid in relation to permanent reductions in force, primarily in Asia and North America, gross margin was 37.5%, down from 39.9% for the prior year period. In both cases, these decreases were driven broadly by the same factors described above.

Selling, general and administrative expenses

SG&A expenses for the three months ended September 28, 2019 were $191.9 million compared with $202.7 million for the prior year period. This decrease of $10.8 million was driven by $6.3 million of labor-related benefits and cost reductions and $2.3 million of favorable impacts from movements in average currency exchange rates.

SG&A expenses for the nine months ended September 28, 2019 were $590.4 million compared with $621.1 million for the prior year period. This decrease of $30.7 million was driven primarily by $17.6 million of favorable impacts from movements in average currency exchange rates and $13.5 million of labor-related benefits and cost reductions.

Transaction-related expenses

Transaction-related expenses for the three months ended September 28, 2019 were $1.0 million, related primarily to corporate filings and transactions completed during the quarter to provide the Company with flexibility for future raising of capital and debt, share buybacks and dividend payments, compared with an expense of $0.2 million for the prior year period.

Transaction-related expenses for the nine months ended September 28, 2019 were $0.7 million compared with an expense of $6.2 million for the prior year period. Net expenses for the nine months ended September 28, 2019 related primarily to the corporate filings and transactions described above, offset partially by the release of an accrual from a prior period acquisition. The transaction-related expenses incurred in the prior year period included $4.2 million related to our initial public offering and a further $0.3 million related to the extension in January 2018 of the maturity of our two revolving credit facilities. The remainder of the transaction-related expenses in the prior year period related to the recent business acquisitions.

Restructuring expenses

As described further under the “Business Trends” section of this report, we are accelerating and expanding upon our previously announced restructuring program, which is primarily intended to optimize our manufacturing and distribution footprint over the mid-term by removing structural fixed costs, and, to a lesser degree, to streamline our SG&A back-office functions.

Restructuring expenses of $1.3 million were recognized during the three months ended September 28, 2019, relating primarily to an impairment of inventory of $1.0 million due to facility closures and consolidations, which is included in cost of sales. Restructuring expenses of $1.2 million were recognized during the prior year period, relating primarily to the reorganization of our European corporate center and a strategic restructuring of part of our Asian business.

Table of Contents

Restructuring expenses of $5.2 million were recognized during the nine months ended September 28, 2019, including an impairment of inventory of $1.3 million due to facility closures and consolidations, which is included in cost of sales. The remainder of the expenses related primarily to severance costs, predominantly due to the closure of one of our facilities in France, and a strategic restructuring of part of our Asian business. Restructuring expenses of $3.2 million were recognized during the prior year period, relating primarily to the items described above.

Interest expense

Our interest expense was as follows:



	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Debt:
Dollar Term Loan	$	20.1	$	23.0	$	62.0	$	67.5
Euro Term Loan	5.6		5.5		16.7		17.3
Dollar Senior Notes	8.5		8.1		25.5		28.4
Euro Senior Notes	—		—		—		1.3
Other loans	—		—		0.3		—
	34.2		36.6		104.5		114.5
Amortization of deferred issuance costs	2.5		2.5		8.0		23.1
Other interest expense	0.5		1.1		2.0		2.2
	$	37.2	$	40.2	$	114.5	$	139.8

Details of our long-term debt are presented in note 14 to the condensed consolidated financial statements included elsewhere in this report.

Interest on debt for the three and nine months ended September 28, 2019 decreased when compared with the equivalent prior year periods due primarily to the interest savings from debt repayments, in particular, for the nine month period, the repayment of $913.7 million of senior notes in the first quarter of 2018 in conjunction with our initial public offering, in addition to margin reductions that came into effect partway during the prior year period. The amortization of deferred issuance costs was significantly lower in the nine months ended September 28, 2019, due to the acceleration in the prior year period of $15.4 million of deferred issuance cost amortization as a consequence of the repayment of debt during the first quarter of 2018.

Other (income) expenses

Our other (income) expenses were as follows:



	Three months ended						Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Interest income on bank deposits	$	(1.2	)	$	(1.0	)	$	(3.4	)	$	(2.7	)
Foreign currency (gain) loss on net debt and hedging instruments	(0.4		)	3.9			(1.0		)	(8.4		)
Premiums paid on debt redemptions	—			—			—			27.0
Net adjustments related to post-retirement benefits	(0.7		)	0.8			(2.6		)	2.4
Other	(0.1		)	(0.3		)	(0.2		)	(0.8		)
	$	(2.4	)	$	3.4		$	(7.2	)	$	17.5

Other income for the three months ended September 28, 2019 was $2.4 million, compared with an expense of $3.4 million in the prior year period. This change was driven primarily by net foreign currency gains of $0.4 million on net debt and hedging instruments for the three months ended September 28, 2019, compared with net losses of $3.9 million in the prior year period. Higher expected returns on plan assets based on the most recent actuarial valuations drove a further $1.5 million increase in other income during the three months ended September 28, 2019 compared with the prior year period.

Table of Contents

Other income for the nine months ended September 28, 2019 was $7.2 million, compared with an expense of $17.5 million in the prior year period. This change was driven primarily by the payment in the prior year period of $27.0 million of redemption premiums on repayment of the Euro Senior Notes and Dollar Senior Notes in January and February of 2018. Partially offsetting this cost in the prior year period was a $5.8 million gain on a derivative used to lock in the exchange rate used to repay the Euro Senior Notes. Higher expected returns on plan assets based on the most recent actuarial valuations drove the majority of the remaining increase in other income during the nine months ended September 28, 2019 compared with the prior year period.

Income tax expense

Deferred Tax Assets and Liabilities

Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including:


•	taxable income in prior carry back years if carry back is permitted under the relevant tax law;


•	future reversal of existing temporary differences;


•	tax-planning strategies that are prudent and feasible; and


•	future taxable income exclusive of reversing temporary differences and carryforwards.

Table of Contents

The positive evidence that existed in favor of releasing the allowance as of March 30, 2019 and ultimately outweighed the negative evidence included the following:


•	our profitability in Europe in 2018 and prior years and for the three months ended March 30, 2019, as well as our expectations regarding the sustainability of these profits;


•	the impact of the implementation in the quarter of the Reorganization, which created an expectation of future income in Luxembourg and, thereby, removed negative evidence that supported maintaining the valuation allowance against our deferred tax assets as of December 29, 2018; and


•	the fact that our net operating loss carryforwards in Luxembourg are indefinite lived.

Adjusted EBITDA

Adjusted EBITDA for the three months ended September 28, 2019 was $145.0 million, a decrease of 20.0% or $36.2 million, compared with the prior year period Adjusted EBITDA of $181.2 million. The Adjusted EBITDA margin was 19.4% for the three months ended September 28, 2019, a 250 basis point decrease from the prior year period margin of 21.9%. The decrease in Adjusted EBITDA was driven primarily by reduced gross profit of $54.8 million, which was the result of lower sales of $81.8 million as described above. Partially offsetting this decrease were SG&A savings as noted above.

Table of Contents

Adjusted EBITDA for the nine months ended September 28, 2019 was $475.9 million, a decrease of 16.5% or $94.1 million, compared with Adjusted EBITDA of $570.0 million for the prior year period. Adjusted EBITDA margin was 20.2% for the nine months ended September 28, 2019, a 210 basis point decrease from the prior year period margin of 22.3%. Similar to the quarter, the decrease in Adjusted EBITDA was driven primarily by reduced gross profit of $139.5 million, which was the result of lower sales of $194.1 million, as well as the impact of lower fixed cost absorption on cost of sales as described above. Partially offsetting this decrease were lower SG&A expenses as noted above.

For a reconciliation of net income to Adjusted EBITDA for each of the periods presented and the calculation of the Adjusted EBITDA margin, see “—Non-GAAP Measures.”

Analysis by Operating Segment

Power Transmission (63.5% and 62.5%, respectively, of Gates’ net sales for the three and nine months ended September 28, 2019)



	Three months ended
(dollars in millions)	September 28, 2019			September 29, 2018			Period over Period Change
Net sales	$	474.4		$	512.5		(7.4	%)
Adjusted EBITDA	$	99.7		$	119.0		(16.2	%)
Adjusted EBITDA margin	21.0		%	23.2		%



	Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018			Period over Period Change
Net sales	$	1,475.4		$	1,608.1		(8.3	%)
Adjusted EBITDA	$	315.2		$	377.6		(16.5	%)
Adjusted EBITDA margin	21.4		%	23.5		%

Net sales in Power Transmission for the three months ended September 28, 2019 were $474.4 million, a decrease of 7.4%, or $38.1 million, when compared with prior year period net sales of $512.5 million. Excluding the adverse impact of movements in average currency exchange rates of $7.6 million, core sales decreased by 6.0%, or $30.5 million, compared with the prior year period. The majority of this decrease was due to lower sales volumes of $36.6 million, offset partially by benefits from favorable, inflation-mitigating pricing actions.

Net sales in Power Transmission for the nine months ended September 28, 2019 were $1,475.4 million, a decrease of 8.3%, or $132.7 million, when compared with the prior year period net sales of $1,608.1 million. Excluding the adverse impact of movements in average currency exchange rates of $52.6 million, core sales decreased by 5.0%, or $80.1 million, compared with the prior year period. The majority of this decrease was due to lower sales volumes of $102.3 million, offset partially by benefits from favorable, inflation-mitigating pricing actions.

Power Transmission’s lower core growth was driven by sales to automotive first-fit customers, which declined by 7.4% and 10.4% during the three and nine months ended September 28, 2019 compared with the prior year periods, due primarily to weak demand in Europe, North America and China resulting from a combination of market softness, macroeconomic headwinds and continuing trade tensions. Sales to automotive replacement customers also contributed to the decline, but less significantly, with core growth lower by 3.2% and 3.5% during the three and nine months ended September 28, 2019 compared with the prior year periods. Sales to industrial first-fit customers were relatively flat during the three months ended September 28, 2019, but grew by 5.5% during the nine months ended September 28, 2019, compared with the prior year periods. Sales to industrial replacement customers declined by 12.6% and 7.1% during both the three and nine months ended September 28, 2019 compared with the prior year periods.

Overall, industrial sales declined across most end markets during the three months ended September 28, 2019 compared with the prior year period, predominantly in the general industrial and energy end markets, driven by weakness in North America, EMEA and China. Agricultural end markets were broadly flat for the quarter, with growth in North and South America offsetting most of the declines in Europe and China. Conversely, during the nine months ended September 28, 2019, sales to most industrial end markets grew compared with the prior year period.

Table of Contents

Our Power Transmission Adjusted EBITDA for the three months ended September 28, 2019 was $99.7 million, a decrease of 16.2% or $19.3 million, compared with prior year period Adjusted EBITDA of $119.0 million. The decrease in Adjusted EBITDA was driven primarily by lower volumes of $19.3 million, $9.5 million related to lower manufacturing performance, in particular, lower fixed cost absorption on lower production volumes and some excess variable costs, as well as $8.1 million of inflation. These decreases were offset partially by $8.8 million of benefits from our procurement initiatives and lower SG&A expenses of $6.4 million. Adjusted EBITDA margin for the three months ended September 28, 2019 was 21.0%, a 220 basis point decline from the prior year period Adjusted EBITDA margin of 23.2%, driven by the impacts described above.

Our Power Transmission Adjusted EBITDA for the nine months ended September 28, 2019 was $315.2 million, a decrease of 16.5% or $62.4 million, compared with the prior year period Adjusted EBITDA of $377.6 million. Movements in average currency exchange rates drove $10.0 million of this decrease. Excluding this impact, the decrease in Adjusted EBITDA was driven by similar factors as for the quarter as described above with lower volumes and lower manufacturing performance resulting in decreases in Adjusted EBITDA of $53.7 million and $22.1 million, respectively. Raw material and labor inflation contributed a further $27.1 million of the decrease in Adjusted EBITDA as compared with the prior year period. Partially offsetting these decreases were benefits from favorable, inflation-mitigating pricing actions of $22.3 million, lower SG&A spending of $15.2 million and benefits from procurement initiatives of $16.7 million. Adjusted EBITDA margin for the nine months ended September 28, 2019 was 21.4%, a 210 basis point decline from the prior year period Adjusted EBITDA margin of 23.5%, driven by the impacts described above.

Fluid Power (36.5% and 37.5%, respectively, of Gates’ net sales for the three and nine months ended September 28, 2019)



	Three months ended
(dollars in millions)	September 28, 2019			September 29, 2018			Period over Period Change
Net sales	$	272.2		$	315.9		(13.8	%)
Adjusted EBITDA	$	45.3		$	62.2		(27.2	%)
Adjusted EBITDA margin	16.6		%	19.7		%



	Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018			Period over Period Change
Net sales	$	886.0		$	947.4		(6.5	%)
Adjusted EBITDA	$	160.7		$	192.4		(16.5	%)
Adjusted EBITDA margin	18.1		%	20.3		%

Net sales in Fluid Power for the three months ended September 28, 2019 were $272.2 million, a decrease of 13.8%, or $43.7 million, compared with net sales during the prior year period of $315.9 million. Excluding the adverse impact of movements in average currency exchange rates of $3.5 million, core sales decreased by 12.7%, or $40.2 million, compared with the prior year period. This decrease was driven primarily by lower volumes of $49.4 million, offset partially by benefits from favorable, inflation-mitigating pricing actions.

Net sales in Fluid Power for the nine months ended September 28, 2019 were $886.0 million, a decrease of 6.5%, or $61.4 million, compared with net sales during the prior year period of $947.4 million. Excluding the adverse impact of movements in average currency exchange rates of $18.2 million and the benefit of $7.5 million from the acquisition of Rapro in April 2018, core sales decreased by 5.4%, or $50.7 million, compared with the prior year period. This decrease was due primarily to lower volumes of $78.7 million, offset partially by benefits from favorable, inflation-mitigating pricing actions.

The lower core sales growth in both the three and nine months ended September 28, 2019 was driven almost exclusively by sales to industrial end markets, which declined by 14.9% and 6.4%, respectively, during the three and nine months ended September 28, 2019 compared with the prior year periods. Industrial sales into the agriculture end market were particularly weak during both the three and nine months ended September 28, 2019, declining by 18.6% and 18.5%, respectively, compared with the prior year periods, driven primarily by North America. As expected, global construction end markets have continued to be challenging, with sales declining during both the quarter and the nine months ended September 28, 2019, compared with the prior year periods, in both cases driven by North America and China. Fluid Power’s sales to automotive end markets were broadly stable during both the three and nine months ended September 28, 2019 compared with the prior year periods, with mid-single digit growth on a percentage basis in emerging markets during both periods.

Table of Contents

Adjusted EBITDA for the three months ended September 28, 2019 was $45.3 million, a decrease of 27.2%, or $16.9 million, compared with the prior year period Adjusted EBITDA of $62.2 million. The decrease in Adjusted EBITDA was driven primarily by lower volumes of $26.7 million and a $5.0 million adverse impact from inflation. Partially offsetting these declines were benefits from favorable, inflation-mitigating pricing actions of $9.2 million, lower SG&A expenses of $3.2 million and decreased inbound freight costs. The Adjusted EBITDA margin consequently decreased by 310 basis points.

Adjusted EBITDA for the nine months ended September 28, 2019 was $160.7 million, a decrease of 16.5%, or $31.7 million, compared with the prior year period Adjusted EBITDA of $192.4 million. Similar to the quarter, the decrease in Adjusted EBITDA was driven primarily lower volumes of $42.8 million, a $15.9 million adverse impact from inflation and manufacturing performance impacts of $12.9 million driven by lower fixed cost absorption on lower volumes and some excess variable costs. These impacts were offset partially by a $27.9 million benefit from favorable, inflation-mitigating pricing actions and a $6.9 million benefit from our procurement initiatives. The Adjusted EBITDA margin consequently decreased by 220 basis points.

Liquidity and Capital Resources

Treasury Responsibilities and Philosophy

Our primary liquidity and capital resource needs are for working capital, debt service requirements, capital expenditures, facility expansions and acquisitions. We expect to finance our future cash requirements with cash on hand, cash flows from operations and, where necessary, borrowings under our revolving credit facilities. We have historically relied on our cash flow from operations and various debt and equity financings for liquidity.

From time to time, we enter into currency derivative contracts to manage currency transaction exposures. Similarly from time to time, we may enter into interest rate derivatives to maintain the desired mix of floating and fixed rate debt.

As market conditions warrant, we and our majority equity holders, Blackstone and its affiliates, may from time to time, seek to repurchase securities that we have issued or loans that we have borrowed in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any such purchases may be funded by existing cash or by incurring new secured or unsecured debt, including borrowings under our credit facilities. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may relate to a substantial amount of a particular tranche of debt, with a corresponding reduction, where relevant, in the trading liquidity of that debt. In addition, any such purchases made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which may be material, and result in related adverse tax consequences to us.

It is our policy to retain sufficient liquidity throughout the capital expenditure cycle to maintain our financial flexibility. We do not anticipate any material long-term deterioration in our overall liquidity position in the foreseeable future, and we believe that as of September 28, 2019, we have adequate liquidity and capital resources for the next twelve months.

Cash Flow

Nine months ended September 28, 2019 compared with the nine months ended September 29, 2018

Cash provided by operations was $145.2 million during the nine months ended September 28, 2019 compared with cash provided by operations of $142.3 million during the prior year period. Operating cash inflow before movements in operating assets and liabilities was $210.0 million during the nine months ended September 28, 2019 compared with $359.3 million during the prior year period, a decrease of $149.3 million which was due largely to the lower operational performance which adversely impacted operating income. The movement in taxes payable, which was $54.6 million higher during the nine months ended September 28, 2019 compared with the prior year period, was due primarily to a non-cash increase in tax contingencies associated with our business reorganization in Europe. Movements in operating assets and liabilities other than taxes payable during the nine months ended September 28, 2019 gave rise to a decrease of $113.0 million in cash compared with a decrease of $210.6 million in the prior year period. The decrease, or further use of cash, during the current period was driven primarily by the decreases in trade accounts payable and inventories, both linked to lower production volumes. During the prior year period, the decrease was due primarily to increases in accounts receivable and inventories due to the strong demand environment.

Table of Contents

Net cash used in investing activities during the nine months ended September 28, 2019 was $69.6 million, compared with $214.1 million in the prior year period. Capital expenditures decreased by $96.4 million from $154.9 million in the nine months ended September 29, 2018 to $58.5 million in the nine months ended September 28, 2019, driven primarily by expenditures in the prior year period related to the expansion of one of our existing facilities and construction of two new facilities. During the nine months ended September 28, 2019, we invested $11.7 million of cash in interest-bearing investments in order to improve return on available cash. Net cash used in investing activities in the prior year period included $50.9 million of cash paid in relation to the acquisition of Rapro in April 2018.

Net cash used in financing activities was $40.1 million during the nine months ended September 28, 2019, compared with $187.1 million in the prior year period. This net outflow in the nine months ended September 28, 2019 related primarily to quarterly amortization payments under the term loans, together with $24.5 million of dividend payments to non-controlling shareholders of certain majority-owned subsidiaries. In the prior year period, net cash used in financing activities related primarily to the net cash received from our initial public offering of $799.1 million and the use of those funds (in addition to a portion of cash on hand) to redeem debt of $913.7 million and to pay premiums thereon of $27.0 million. In addition, during the prior year period, we made $23.3 million of dividend payments to non-controlling shareholders of certain majority-owned subsidiaries.

Indebtedness

Our long-term debt, consisting principally of two term loans and two unsecured notes, was as follows:



	Carrying amount				Principal amount
(dollars in millions)	As of September 28, 2019		As of December 29, 2018		As of September 28, 2019		As of December 29, 2018
Debt:
—Secured
Term Loans (U.S. dollar and Euro denominated)	$	2,384.6	$	2,428.7	$	2,407.7	$	2,458.5
—Unsecured
Senior Notes (U.S. dollar and Euro denominated)	568.5		575.7		568.0		568.0
Other debt	0.2		0.6		0.2		0.6
	$	2,953.3	$	3,005.0	$	2,975.9	$	3,027.1

Details of our long-term debt are presented in note 14 to the condensed consolidated financial statements included elsewhere in this quarterly report.

During January 2018, upon completion of our initial public offering, the applicable margins on each of the term loans was reduced by a further 0.25%, as agreed as part of the refinancing completed in November 2017.

During the first quarter of 2018, we redeemed in full our outstanding €235.0 million of Euro Senior Notes and made partial redemptions of the Dollar Senior Notes. All of these prepayments, totaling $913.7 million in principal, $27.0 million in redemption premiums and $3.1 million in accrued interest, were funded by the net proceeds from our initial public offering, with the remainder of the funds coming from cash on hand.

Table of Contents

Dollar and Euro Term Loans

Our secured credit facilities include a Dollar Term Loan credit facility and a Euro Term Loan credit facility that were drawn on July 3, 2014. These facilities mature on March 31, 2024, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time. These term loan facilities bear interest at a floating rate. As of September 28, 2019, borrowings under the Dollar Term Loan facility, which currently bears interest at LIBOR, subject to a floor of 1.00%, plus a margin of 2.75%, bore interest at a rate of 4.79% per annum. The Dollar Term Loan interest rate is re-set on the last business day of each month. As of September 28, 2019, the Euro Term Loan bore interest at Euro LIBOR, which is currently below 0%, subject to a floor of 0%, plus a margin of 3.00%. The Euro Term Loan interest rate is re-set on the last business day of each quarter.



	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Gain recognized in statement of operations	$	24.5	$	3.5	$	29.8	$	32.6
Gain (loss) recognized in OCI	3.2		0.3		2.5		(6.5		)
Total gains	$	27.7	$	3.8	$	32.3	$	26.1

During the three and nine months ended September 28, 2019, the above net transactional foreign exchange gains recognized in the other (income) expenses line have been substantially offset by net foreign exchange movements on Euro-denominated intercompany loans as part of our overall hedging strategy.

Unsecured Senior Notes

The Euro Senior Notes were redeemed in full in January 2018 and as of September 28, 2019, there were $568.0 million of Dollar Senior Notes outstanding. These Dollar Senior Notes are scheduled to mature on July 15, 2022 and bear interest at an annual fixed rate of 6.00% with semi-annual interest payments.

Revolving Credit Facility

We also have a secured revolving credit facility, maturing on January 29, 2023, that provides for multi-currency revolving loans up to an aggregate principal amount of $185.0 million, with a letter of credit sub-facility of $20.0 million. This facility matures on January 29, 2023, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time.

As of both September 28, 2019 and December 29, 2018, there were no drawings for cash under the revolving credit facility and there were no letters of credit outstanding.

Table of Contents

Asset-Backed Revolver

Non-guarantor subsidiaries

The majority of the Company’s U.S. subsidiaries are guarantors of the senior secured credit facilities.

For the nine months ended September 28, 2019, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 69% of our net sales and 61% of our EBITDA as defined in the financial covenants attaching to the senior secured credit facilities. As of September 28, 2019, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 80% of our total assets and approximately 66% of our total liabilities. After adjusting for intercompany loans payable and receivable by Finco Omaha Limited, a non-guarantor intermediate holding company, and certain changes in intercompany relationships related to our IPO structure, our non-guarantor subsidiaries represented approximately 69% of our total assets and approximately 21% of our total liabilities. The intercompany loan asset and liability held by Finco Omaha Limited largely offset each other.

Net Debt

During the nine months ended September 28, 2019, our net debt decreased by $83.9 million from $2,603.7 million as of December 29, 2018 to $2,519.8 million as of September 28, 2019. Excluding changes in foreign currency exchange rates, the decrease in net debt during the nine months ended September 28, 2019 was driven primarily by the increase in cash, a function of cash provided by operating activities of $145.2 million, offset partially by capital expenditures of $58.5 million and dividends paid to non-controlling shareholders of $24.5 million.

Movements in foreign currency exchange rates had a favorable net impact of $29.5 million on net debt during the nine months ended September 28, 2019, with the majority of the movement relating to the impact of the weakening of the Euro against the U.S. dollar on our Euro-denominated debt.

Borrowing Headroom

As of September 28, 2019, our asset-backed revolving credit facility had a borrowing base of $309.2 million, being the maximum amount we can draw down based on the current value of the secured assets. The facility was undrawn for cash, but there were letters of credit outstanding against the facility amounting to $50.2 million. We also have a secured revolving credit facility that provides for multi-currency revolving loans up to an aggregate principal amount of $185.0 million.

In total, our committed borrowing headroom was $444.0 million, in addition to cash balances of $456.1 million.

Distributable Reserves

Under the laws of England and Wales, future dividend payments or share repurchases may only be made out of “distributable reserves” on the Company’s statutory balance sheet. During August 2019, the High Court of Justice in London sanctioned a reduction in the Company’s statutory capital for the purpose of creating distributable reserves by approving the cancellation of the deferred shares in issue and the cancellation of the entire amount standing to the credit of the Company’s share premium account, creating $5.5 billion of distributable reserves. These transactions, which have no impact on the consolidated U.S. GAAP financial statements, facilitate the possible future payment of dividends to shareholders of the Company or possible future share repurchases.

Table of Contents

Non-GAAP Measures

EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP measure that represents net income or loss for the period before the impact of income taxes, net interest and other expenses, depreciation and amortization. EBITDA is widely used by securities analysts, investors and other interested parties to evaluate the profitability of companies. EBITDA eliminates potential differences in performance caused by variations in capital structures (affecting net finance costs), tax positions (such as the availability of net operating losses against which to relieve taxable profits), the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense).

Management uses Adjusted EBITDA as its key profitability measure. This is a non-GAAP measure that represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. We use Adjusted EBITDA as our measure of segment profitability to assess the performance of our businesses, and it is used for total Gates as well because we believe it is important to consider our profitability on a basis that is consistent with that of our operating segments, as well as that of our peer companies with a similar leveraged, private equity ownership history. We believe that Adjusted EBITDA should, therefore, be made available to securities analysts, investors and other interested parties to assist in their assessment of the performance of our businesses.

During the periods presented, the items excluded from EBITDA in computing Adjusted EBITDA primarily included:


•	the non-cash charges in relation to share-based compensation;


•	transaction-related expenses incurred in relation to business combinations and major corporate transactions, including acquisition integration activities;


•	impairments, comprising impairments of goodwill and significant impairments or write downs of other assets;


•	restructuring expenses;


•	the net gain or loss on disposals and on the exit of businesses; and


•	fees paid to our private equity sponsor for monitoring, advisory and consulting services.

Differences exist among our businesses and from period to period in the extent to which their respective employees receive share-based compensation or a charge for such compensation is recognized. We therefore exclude from Adjusted EBITDA the non-cash charges in relation to share-based compensation in order to assess the relative performance of our businesses.

We exclude from Adjusted EBITDA acquisition-related costs that are required to be expensed in accordance with U.S. GAAP. In particular, we exclude the effect on cost of sales of the uplift to the carrying amount of inventory held by entities acquired by Gates. We also exclude costs associated with major corporate transactions because we do not believe that they relate to our performance. Other items are excluded from Adjusted EBITDA because they are individually or collectively significant items that are not considered to be representative of the performance of our businesses. During the periods presented, we excluded restructuring expenses that reflect specific, strategic actions taken by management to shutdown, downsize, or otherwise fundamentally reorganize areas of Gates’ business; the net gain or loss on disposals of assets other than in the ordinary course of operations and gains and losses incurred in relation to non-Gates businesses disposed of in prior periods; and significant impairments of intangibles and of other assets, representing the excess of their carrying amounts over the amounts that are expected to be recovered from them in the future.

EBITDA and Adjusted EBITDA exclude items that can have a significant effect on our profit or loss and should, therefore, be used in conjunction with, not as substitutes for, profit or loss for the period. Management compensates for these limitations by separately monitoring net income from continuing operations for the period.

Table of Contents

The following table reconciles net income from continuing operations, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA:



	Three months ended				Nine months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019			September 29, 2018
Net income from continuing operations	$	37.5	$	67.0	$	669.3		$	189.3
Income tax expense (benefit)	4.4		7.2		(497.8		)	30.4
Net interest and other expenses	34.8		43.6		107.3			157.3
Depreciation and amortization	55.1		53.7		167.4			163.3
EBITDA	131.8		171.5		446.2			540.3
Transaction-related expenses	1.0		0.2		0.7			6.2
Impairment of intangibles and other assets	0.7		0.2		0.7			0.6
Restructuring expenses	0.3		1.2		3.9			3.2
Share-based compensation expense	4.1		2.3		10.5			5.5
Sponsor fees (included in other operating expenses)	1.1		1.9		4.9			5.9
Impact of fair value adjustment on inventory (included in cost of sales)	—		—		—			0.3
Inventory impairments and adjustments (included in cost of sales)	1.0		—		1.3			0.8
Duplicate expenses incurred on facility relocation	—		1.5		—			4.6
Severance-related expenses (included in cost of sales)	2.5		—		3.0			—
Other primarily severance-related expenses (included in SG&A)	1.8		0.7		3.0			0.6
Other operating expenses	0.7		1.7		1.7			2.0
Adjusted EBITDA	$	145.0	$	181.2	$	475.9		$	570.0

Adjusted EBITDA Margin

Adjusted EBITDA margin is a non-GAAP measure that represents Adjusted EBITDA expressed as a percentage of net sales. We use Adjusted EBITDA margin to measure the success of our businesses in managing our cost base and improving profitability.



	Three months ended						Nine months ended
(dollars in millions)	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Net sales	$	746.6		$	828.4		$	2,361.4		$	2,555.5
Adjusted EBITDA	$	145.0		$	181.2		$	475.9		$	570.0
Adjusted EBITDA margin	19.4		%	21.9		%	20.2		%	22.3		%

Core growth reconciliations

Core sales growth is a non-GAAP measure that represents net sales for the period excluding the impacts of movements in average currency exchange rates and the first-year impacts of acquisitions and disposals. We present core growth because it allows for a meaningful comparison of year-over-year performance without the volatility caused by foreign currency gains or losses or the incomparability that would be caused by impacts of acquisitions or disposals. Management believes that this measure is therefore useful for securities analysts, investors and other interested parties to assist in their assessment of the operating performance of our businesses. The closest GAAP measure is net sales.

Table of Contents



	Three months ended September 28, 2019

(dollars in millions)	Power Transmission			Fluid Power			Total
Net sales	$	474.4		$	272.2		$	746.6
Impact on net sales of movements in currency rates	7.6			3.5			11.1
Core revenue	$	482.0		$	275.7		$	757.7

Net sales for the three months ended September 29, 2018	512.5			315.9			828.4
Decrease in net sales on a core basis (core revenue)	$	(30.5	)	$	(40.2	)	$	(70.7	)

Core revenue growth	(6.0		%)	(12.7		%)	(8.5		%)



	Nine months ended September 28, 2019

(dollars in millions)	Power Transmission			Fluid Power			Total
Net sales	$	1,475.4		$	886.0		$	2,361.4
Impact on net sales of movements in currency rates	52.6			18.2			70.8
Impact on net sales from recent acquisitions	—			(7.5		)	(7.5		)
Core revenue	$	1,528.0		$	896.7		$	2,424.7

Net sales for the nine months ended September 29, 2018	1,608.1			947.4			2,555.5
Decrease in net sales on a core basis (core revenue)	$	(80.1	)	$	(50.7	)	$	(130.8	)

Core revenue growth	(5.0		%)	(5.4		%)	(5.1		%)

Net Debt

Management uses net debt, rather than the narrower measure of cash and cash equivalents and restricted cash which forms the basis for the condensed consolidated statement of cash flows, as a measure of our liquidity and in assessing the strength of our balance sheet.

Management analyzes the key cash flow items driving the movement in net debt to better understand and assess Gates’ cash performance and utilization in order to maximize the efficiency with which resources are allocated. The analysis of cash movements in net debt also allows management to more clearly identify the level of cash generated from operations that remains available for distribution after servicing our debt and post-employment benefit obligations and after the cash impacts of acquisitions and disposals.

Net debt represents the net total of:


•	the principal amount of our debt; and


•	the carrying amount of cash and cash equivalents.

Net debt was as follows:



(dollars in millions)	As of September 28, 2019		As of December 29, 2018
Principal amount of debt	$	2,975.9	$	3,027.1
Cash and cash equivalents	456.1		423.4
Net debt	$	2,519.8	$	2,603.7

Table of Contents

The principal amount of debt is reconciled to the carrying amount of debt as follows:



(dollars in millions)	As of September 28, 2019			As of December 29, 2018
Principal amount of debt	$	2,975.9		$	3,027.1
Accrued interest	18.9			26.6
Deferred issuance costs	(41.5		)	(48.7		)
Carrying amount of debt	$	2,953.3		$	3,005.0

Adjusted EBITDA adjustments for ratio calculation purposes

The financial maintenance ratio in our revolving credit agreement and other ratios related to incurrence-based covenants (measured only upon the taking of certain actions, including the incurrence of additional indebtedness) under our revolving credit facility, our term loan facility and the indenture governing our outstanding notes are calculated in part based on financial measures similar to Adjusted EBITDA as presented elsewhere in this quarterly report, which financial measures are determined at the Gates Global LLC level and adjust for certain additional items such as severance costs, the pro forma impacts of acquisitions and the pro forma impacts of cost-saving initiatives. These additional adjustments during the last 12 months, as calculated pursuant to such agreements, resulted in a net benefit to Adjusted EBITDA for ratio calculation purposes of $15.0 million.

Gates Industrial Corporation plc is not an obligor under our revolving credit facility, our term loan facility or the indenture governing our outstanding notes. Gates Global LLC, an indirect subsidiary of Gates Industrial Corporation plc, is the borrower under our revolving credit facility and our term loan facility and the issuer of our outstanding notes. The only significant difference between the results of operations and net assets that would be shown in the consolidated financial statements of Gates Global LLC and those for the Company that are included elsewhere in this quarterly report is a receivable of $8.7 million and $11.8 million as of September 28, 2019 and December 29, 2018, respectively, due to Gates Global LLC and its subsidiaries from indirect parent entities of Gates Global LLC and additional cash and cash equivalents held by the Company of $1.3 million and $1.1 million as of September 28, 2019 and December 29, 2018, respectively.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

Our market risk includes the potential loss arising from adverse changes in foreign currency exchange rates, interest rates and commodity prices. From time to time, we use derivative financial instruments, principally foreign currency swaps, forward foreign currency contracts, interest rate caps (options), and interest rate swaps to reduce our exposure to foreign currency risk and interest rate risk. We do not hold or issue derivatives for speculative purposes and monitor closely the credit quality of the institutions with which we transact. Our objective in managing these risks is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rate movements. For a discussion of quantitative and qualitative disclosures about market risk, please refer to our annual report from which our exposure to market risk has not materially changed.

Item 4: Controls and Procedures

Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that, as of September 28, 2019, the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Table of Contents

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1: Legal Proceedings

Information regarding legal proceedings is incorporated into this Part II, Item 1 from note 20 of the notes to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A: Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in Gates’ annual report, which could materially affect the Company’s business, financial condition, operating results or liquidity or future results. The risks described in the annual report are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its results of operations, financial condition or liquidity. There have been no material changes to the risk factors disclosed in the annual report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds



Purchases of Equity Securities by Affiliated Purchasers⁽¹⁾
Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽²⁾	Maximum number of shares that may yet be purchased under the plans or programs
6/30/2019 - 7/31/2019	—	$	—	N/A	N/A
8/1/2019 - 8/31/2019	1,161,708	$	8.18	N/A	N/A
9/1/2019 - 9/28/2019	117,100	$	8.65	N/A	N/A
Total	1,278,808	$	8.22	N/A	N/A

⁽¹⁾

The table reflects open market purchases of our common stock by Omaha Aggregator (Cayman) L.P. (“Omaha”), an entity affiliated with Blackstone, and is based upon Omaha’s filings with the SEC. Under Exchange Act Rule 10b-18, Omaha may be deemed to be an “affiliated purchaser” because it may be considered to be under common control with us. We did not repurchase any shares of our common stock during the periods reflected in the table.


⁽²⁾	No purchases reflected in the table were made pursuant to a publicly announced plan or program.

Table of Contents

Item 6: Exhibits



Exhibit No.	Description
3.1	Certificate of Incorporation of Gates Industrial Corporation plc (incorporated by reference from Exhibit 3.1 to the registrant’s Amendment No. 1 to its Registration Statement on Form S-1, filed on January 8, 2018 (File No. 333-222310)).
3.2	Articles of Association of Gates Industrial Corporation plc, effective October 7, 2019*
31.1	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101	The following financial information from Gates Industrial Corporation’s Quarterly Report on Form 10-Q for the three and nine months ended September 28, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Operations for the three and nine months ended September 28, 2019 and September 29, 2018, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 28, 2019 and September 29, 2018, (iii) Condensed Consolidated Balance Sheets as of September 28, 2019 and December 29, 2018, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 28, 2019 and September 29, 2018, (v) Condensed Consolidated Statements of Shareholders’ Equity, and (vi) Notes to the Condensed Consolidated Financial Statements.*

* Filed herewith.

** Furnished herewith.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



GATES INDUSTRIAL CORPORATION PLC (Registrant)
By:	/s/ David H. Naemura
	Name:	David H. Naemura
	Title:	Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)

Date: November 6, 2019

THE COMPANIES ACT 2006

PUBLIC COMPANY LIMITED BY SHARES

_________________________________________________________________

ARTICLES OF ASSOCIATION

Gates Industrial Corporation plc

Company number: 10980824

As at October 7, 2019

_________________________________________________________________

TABLE OF CONTENTS

Table of Contents



		Page
TABLE OF CONTENTS		1
1	Preliminary	2
2	Interpretation	2
3	Liability of members	5
4	Change of name	5
SHARE CAPITAL		5
5	Allotment of shares and special rights	5
6	Commissions on issue of shares	6
7	Reduction of capital	6
8	Fractions arising on consolidation or subdivision	6
9	Capitalization of profits and reserves	7
10	Trusts not recognized	8
SHARE CERTIFICATES		8
11	Issue of share certificates	8
12	Form of share certificate	9
13	Replacement of share certificates	9
14	Consolidated and balance share certificates	9
SHARES NOT HELD IN CERTIFICATED FORM		10
15	Uncertificated shares	10
CALLS ON SHARES		11
16	Sums due on shares	11
17	Power to differentiate between holders	11
18	Calls	11
19	Liability for calls	12
20	Interest on overdue amounts	12
21	Payment of call in advance	12
FORFEITURE AND LIEN		12
22	Notice on failure to pay a call	12
23	Forfeiture for non-compliance	13
24	Disposal of forfeited shares	13
25	Holder to remain liable despite forfeiture	13
26	Lien on partly-paid shares	14
27	Sale of shares subject to lien	14
28	Evidence of forfeiture	15
VARIATION OF SHARES		15
29	Manner of variation of rights	15
30	Matters not constituting variation of rights	16
TRANSFER OF SHARES		16
31	Form of transfer	16
32	Right to refuse registration	17
33	No fee on registration	17
TRANSMISSION OF SHARES		18
34	Persons entitled to shares on death	18



35	Election by persons entitled by transmission	18
36	Right of persons entitled by transmission	18
37	Prior notices binding	18
UNTRACED SHAREHOLDERS		18
38	Untraced shareholders	19
GENERAL MEETINGS		20
39	Annual General Meetings	20
40	Convening of General Meetings	20
NOTICE OF GENERAL MEETINGS		20
41	Length and form of notice	20
PROCEEDINGS AT GENERAL MEETINGS		21
42	Chairperson	21
43	Requirement of Quorum	21
44	Adjournment	22
45	Notice of adjourned meeting	22
46	Amendments to resolutions	22
47	Security arrangements and orderly conduct	23
48	Satellite meeting places	23
48A	Electronic meetings	24
POLLS		24
49	Demand for poll	25
50	Procedure on a poll	25
51	Timing of poll	26
VOTES OF MEMBERS		26
52	Votes attaching to shares	26
53	Votes of joint holders	26
54	Validity and result of vote	26
PROXIES AND CORPORATE REPRESENTATIVES		27
55	Appointment of proxies	27
56	Multiple Proxies	27
57	Form of proxy	27
58	Deposit of form of proxy	27
59	Rights of proxy	28
60	Termination of proxy's authority	28
61	Corporations acting by representatives	29
DEFAULT SHARES		29
62	Restriction on voting in particular circumstances	29
DIRECTORS		31
63	Number of Directors	31
64	Share qualification	31
65	Remuneration of Directors	31
66	Directors' expenses	31
67	Director's pensions and other benefits	31
68	Appointment of executive Directors and Chairperson	31
69	Powers of executive Directors	32
APPOINTMENT AND RETIREMENT OF DIRECTORS		32



70	Methods of appointing Directors	32
71	Retirement at Annual General Meetings	33
72	Termination of office	34
73	Removal of Director by resolution of Company	35
MEETINGS AND PROCEEDINGS OF DIRECTORS		35
74	Convening of meetings of Directors	35
75	Quorum	35
76	Chairperson	35
77	Number of Directors below minimum	36
78	Directors' written resolutions	36
79	Validity of proceedings	36
DIRECTORS' INTERESTS		36
80	Authorization of Directors' interests	36
81	Permitted Interests	37
82	Investor Directors	38
83	Restrictions on quorum and voting	39
84	Confidential Information	41
85	Directors' interests - general	41
POWERS OF DIRECTORS		41
86	General powers	42
87	Provision for employees on cessation or transfer of business	42
88	Bank mandates	42
89	Borrowing	42
DELEGATION OF POWERS		42
90	Appointment and constitution of committees	42
91	Local boards and managers	43
92	Appointment of attorney	43
93	Alternate Directors	43
SECRETARY		44
94	Secretary	44
95	The Seal	44
AUTHENTICATION OF DOCUMENTS		45
96	Authentication of documents	45
OVERSEAS BRANCH		45
97	Overseas branch	45
DIVIDENDS		45
98	Declaration of final dividends	46
99	Fixed and interim dividends	46
100	Distribution in specie	46
101	Randing of shares for dividend	46
102	Manner of payment of dividends	47
103	Record date for dividends	47
104	No interest on dividends	48
105	Retention of dividends	48
106	Unclaimed dividend	48
107	Waiver of dividend	48



108	Calls or debts may be deducted	49
SCRIP DIVIDENDS		49
109	Scrip dividends	49
ACCOUNTS		50
110	Accounting records	50
COMMUNICATIONS WITH MEMBERS		50
111	Service of notices	50
112	Communication with joint holders	51
113	Deceased and bankrupt members	52
114	Failure to supply address	52
115	Suspension of postal services	53
116	Signature or authentication of documents sent by electronic means	53
117	Statutory provisions as to notices	53
WINDING UP		53
118	Directors' power to petition	53
DESTRUCTION OF DOCUMENTS		53
119	Destruction of documents	54
DIRECTORS' LIABILITIES		54
120	Indemnity	55
121	Insurance	55
122	Defence expenditure	56
123	Forum	57
124	Depositary interests other than DTC	57

The Companies Act 2006

PUBLIC COMPANY LIMITED BY SHARES

ARTICLES OF ASSOCIATION

of Gates Industrial Corporation plc

(the “Company”)


1	PRELIMINARY

Neither the regulations in The Companies (Model Articles) Regulations 2008 nor any other articles or regulations prescribing forms of articles which may apply to companies under the Act or any former enactment relating to companies shall apply to the Company.


2	INTERPRETATION


2.1	In these Articles (if not inconsistent with the subject or context):

“Act” means the Companies Act 2006;

“address” means any address or number (including, in the case of any Uncertificated Proxy Instruction, an identification number of a participant in the relevant system) used for the purposes of sending or receiving notices, documents or information by electronic means and/or by means of a website;

“Affiliate” has the meaning given to it in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date hereof;

“Annual General Meeting” means a General Meeting held as the Company's annual general meeting in accordance with section 336 of the Act;

“Beneficially Own” has the meaning given to it in Rule 13d-3 promulgated under the Exchange Act;

“Board” means the Board of Directors of the Company from time to time;

“clear days” means a period of notice of the specified length excluding the day on which the notice is served or deemed to be served and the day for which the notice is given;

“Company Communications Provisions” has the same meaning as in section 1143 of the Act;

“Depositary” means any depositary, clearing agency, custodian, nominee or similar entity appointed under arrangements entered into by the Company or otherwise approved by the Board that holds, or is interested directly or indirectly, including through a nominee, in, shares, or rights or interests in respect thereof, and which issues certificates, instruments, securities or other documents of title, or maintains accounts, evidencing or recording the entitlement of the holders thereof, or account holders, to or to receive such shares, rights or interests;

“Depositary Interest” means any certificate, instrument, security, depositary receipt, or other document of title issued or created, or interest recorded in an account maintained, by a Depositary to evidence or record the entitlement of the holder, or account holder, to or to receive shares, or rights or interests in respect thereof;

“Depositary Interest Holder” means the holder of a Depositary Interest;

“Directors” means the Directors of the Company;

“DTC” means The Depository Trust Company and any Affiliate or nominee therefore, including Cede & Co., and any successors thereto;

“electronic form” has the same meaning as in section 1168 of the Act;

“electronic General Meeting” means a General Meeting hosted on an electronic platform, whether that General Meeting is physically hosted at a specific location simultaneously or not;

“electronic means” has the same meaning as in section 1168 of the Act;

“electronic platform” means any form of electronic platform and includes, without limitation, website addresses, application technology and conference call systems;

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time;

“General Meeting” means any general meeting of the Company, including any General Meeting held as the Company's Annual General Meeting;

“Group” means the Company and every subsidiary and holding company of the Company and of each such subsidiary and holding company;

“hard copy form” has the same meaning as in section 1168 of the Act;

“holder” means, in relation to shares, the person whose name is entered in the register of members as the holder of the shares;

“holding company” has the meaning given in section 1159 of the Act;

“in writing” means written or produced by any substitute for writing (including anything in electronic form) or partly one and partly another;

“Investor Designator” means the Investor, or any group of Investors collectively, then holding a majority of Ordinary Shares held by all Investors;

“Investor Designee” has the meaning set given to it in Article 70.3;

“Investor Entities” means the Investors and their Affiliates and their respective successors;

“Investors” means the parties to any shareholders’ agreement in respect of the Company entered into from time to time, and “Investor” means any one of them;

“IPO” the underwritten initial public offering by the Company of its Ordinary Shares;

“month” means calendar month;

“Office” means the registered office of the Company for the time being;

“Operator” means the operator of a relevant system (as defined in the Uncertificated Securities Regulations) or the transfer agent of the Company (as applicable);

“Ordinary Shares” means the ordinary shares of $0.01 each in the capital of the Company, and any securities issued in respect thereof, or in substitution therefor, in connection with any share split, dividend or combination, or any reclassification, recapitalization, merger, consolidation or similar transaction;

“paid” means paid or credited as paid;

“participating security” means a share or other security which is permitted to be transferred by means of a relevant system;

“person entitled” in relation to a share means a person entitled to that share by reason of the death or bankruptcy of a member or otherwise by operation of law;

“Pre-IPO Owners” means (a) the Investor Entities and (b) any other holders of Ordinary Shares in issue immediately prior to the closing of the IPO and, in each case, any Affiliate of any such holder that shall become a holder of any Ordinary Shares;

“Register” means the register of members of the Company;

“relevant system” means any computer-based system, and procedures, permitted by the Uncertificated Securities Regulations or other applicable regulations, which enable title to shares or other securities to be evidenced and transferred without a written instrument and which facilitate supplementary and incidental matters;

“Rights” has the meaning given to it in Article 5.1;

“Seal” means the common seal of the Company;

“Secretary” means the secretary of the Company and any person appointed by the Directors to perform any of the duties of the secretary, including a joint, assistant or deputy secretary;

“Securities Seal” means an official seal kept by the Company for sealing securities issued by the Company, or for sealing documents creating or evidencing securities so issued, as permitted by the Act;

“subsidiary” has the meaning given in section 1159 of the Act;

“these Articles” means these Articles of Association as from time to time altered;

“Total Number of Directors” means the total number of Directors from time to time;

“Transfer Office” means the place where the Register is situated for the time being;

“Uncertificated Proxy Instruction” means a properly authenticated dematerialized instruction, and/or other instruction or notification, sent by means of a relevant system to a participant in that system acting on behalf of the Company as the Directors may prescribe, in such form and subject to such terms and conditions as may from time to time be prescribed by the Directors (subject always to the facilities and requirements of the relevant system);

“Uncertificated Securities Regulations” means the Uncertificated Securities Regulations (2001) (as amended);

“United States” means the United States of America;

“year” means calendar year.


2.2	Any reference to issued shares of any class (whether of the Company or of any other company) shall not include any shares of that class held as treasury shares except where the contrary is expressly provided.


2.3	Words denoting the singular shall include the plural and vice versa. Words denoting the masculine shall include the feminine. Words denoting persons shall include bodies corporate and unincorporated associations.


2.4	References to an Article are to a numbered paragraph of these Articles.


2.5	The words “including” and “include” and words of similar effect shall not be deemed to limit the general effect of the words which precede them.


2.6	References to any statute or statutory provision shall be construed as relating to any statutory modification or re-enactment thereof for the time being in force (whether coming into force before or after the adoption of these Articles).


2.7	References to a share (or to a holding of shares) being in certificated or uncertificated form are references, respectively, to that share being a certificated or an uncertificated unit of a security for the purposes of the Uncertificated Securities Regulations.


2.8	Subject to Article 29.2, the provisions of these Articles relating to General Meetings and to the proceedings at such meetings shall apply to separate meetings of a class of shareholders.


2.9	References to a person being present at a General Meeting include a person present by corporate representative.


2.10	Except as provided above, any words or expressions defined in the Act or the Uncertificated Securities Regulations shall (if not inconsistent with the subject or context) bear the same meanings in these Articles.


2.11	A reference to writing or written includes references to any method of representing or reproducing words in a legible and non-transitory form whether sent or supplied in an electronic form or otherwise.


3	LIABILITY OF MEMBERS

The liability of each member is limited to the amount (if any) for the time being unpaid on the shares held by that member.


4	CHANGE OF NAME

The Company may change its name by resolution of the Directors.

SHARE CAPITAL


5	ALLOTMENT OF SHARES AND SPECIAL RIGHTS

5.1

In accordance with section 551 of the Act, the Directors are generally and unconditionally authorized to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company (the “Rights”) up to an aggregate nominal amount of $30,000,000.00, provided that this authority shall, unless renewed, varied or revoked by the Company, expire on the date which is five years from the date of the adoption of these Articles, save that the Company may, before such expiry, make an offer or agreement which would or might require shares to be allotted or Rights to be granted and the Directors may allot shares or grant Rights in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired.

5.2

The Directors are generally empowered to allot equity securities (as defined in section 560 of the Act) as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall: (i) be limited to the allotment of equity securities up to an aggregate nominal amount of $30,000,000.00; and (ii) unless renewed, varied or revoked by the Company, expire on the date which is five years from the date of the adoption of these Articles, save that the Company may, before such expiry, make an offer or agreement which would or might require equity securities to

be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this resolution has expired.


5.3	The provisions set forth in Articles 5.1 and 5.2 may be renewed at any meeting of the members of the Company.

5.4

Without prejudice to any rights attached to any existing shares and subject to the Act, the Company may issue any shares, with nominal value in any currency and with, or attach to them, such powers, designations, preferences, voting rights, rights and terms of redemption and relative participating, optional or other special rights and qualifications, limitations and restrictions attaching thereto as the Directors may determine, including rights to (a) receive dividends (which may include rights to receive preferential or cumulative dividends), (b) distributions made on a winding up of the Company and (c) be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of shares, at such price or prices (subject to the Act) or at such rates of exchange and with such adjustments as may be determined by the Directors.


5.5	Subject to the Act, these Articles and any resolution of the Company, the Directors may offer, allot (with or without conferring a right of renunciation), grant options over or otherwise deal with or dispose of any shares to such persons, at such times and generally on such terms as the Directors may decide.


5.6	The Company may issue any shares which are to be redeemed, or are liable to be redeemed at the option of the Company or the holder, on such terms and in such manner as may be determined by the Directors and the Directors may determine the terms, conditions and manner of redemption of any such shares.


6	COMMISSIONS ON ISSUE OF SHARES

The Company may in connection with the issue of any shares or the sale for cash of treasury shares exercise all powers of paying commission and brokerage permitted by the Act. Such payment may be in cash, by allotting fully or partly paid shares or other securities, or partly in one way and partly in the other.


7	REDUCTION OF CAPITAL

The Company may by special resolution reduce its share capital, share premium account, capital redemption reserve or redenomination reserve in any way permitted by the Act.


8	FRACTIONS ARISING ON CONSOLIDATION OR SUBDIVISION

8.1

If, as the result of consolidation, consolidation and division or sub division of shares, members would become entitled to fractions of a share, the Directors may on behalf of the members deal with the fractions as they think fit. Subject to the Act, the Directors may, in effecting divisions and/or consolidations, treat a member’s shares held in certificated form and uncertificated form as separate holdings. In particular, the Directors may:


8.1.1	aggregate fractional entitlements and sell any resulting shares to a person or persons (including, subject to the Act, to the Company) and distribute the net proceeds of sale in due proportion amongst the persons entitled or, if the Directors decide, some or all of the sum raised on a sale may be retained for the benefit of the Company; or

8.1.2

subject to the Act, allot or issue to a member credited as fully paid by way of capitalization the minimum number of shares required to round up his holding of shares to a number which, following consolidation, consolidation and division or sub division, leaves a whole number of shares (such allotment or issue being deemed to have been effected immediately before consolidation, consolidation and division or sub division, as the case may be).

8.2

To give effect to a sale pursuant to Article 8.1.1 above the Directors may arrange for the shares representing the fractions to be entered in the register as certificated shares. The Directors may also authorize a person to transfer the shares to, or to the direction of, the purchaser. The purchaser is not bound to see to the application of the purchase money and the title of the transferee to the shares is not affected by an irregularity or invalidity in the proceedings connected with the sale.

8.3

If shares are allotted or issued pursuant to Article 8.1.2 above, the amount required to pay up those shares may be capitalized as the Directors think fit out of amounts standing to the credit of reserves (including a share premium account, capital redemption reserve and profit and loss account), whether or not available for distribution, and applied in paying up in full the appropriate number of shares. A resolution of the Directors capitalizing part of the reserves has the same effect as if the capitalization had been declared by ordinary resolution of the Company pursuant to Article 9. In relation to the capitalization the Directors may exercise all the powers conferred on it by Article 9 without an ordinary resolution of the Company.


9	CAPITALIZATION OF PROFITS AND RESERVES


9.1	If so authorized by an ordinary resolution, the Directors may:


9.1.1	capitalize any sum standing to the credit of any of the Company's reserve accounts (including any share premium account, capital redemption reserve or any other reserve or fund (whether or not it is available for distribution)); and


9.1.2	capitalize any sum standing to the credit of the profit and loss account that is not required for payment of any preferential dividend.

9.2

Unless the ordinary resolution passed in accordance with Article 9.1 states otherwise the Directors shall set aside such capitalized sum for the holders of ordinary shares (“entitled members”), in proportion to the number of ordinary shares held by them on the date that the resolution is passed in accordance with Article 9.1 or such other date as set out in or calculated in accordance with such resolution, or in such other proportions as stated, or fixed as stated, in the resolution.

9.3

The Directors may apply such capitalized sum in paying up new ordinary shares (or, subject to any special rights previously conferred on any shares or class of shares, new shares of any other class). The Company shall then allot such shares credited as fully paid to the entitled members or as they may direct. For the purposes of this Article 9.3, unless the ordinary resolution passed in accordance with Article 9.1 provides otherwise, if the Company holds treasury shares on the date determined in accordance with Article 9.3.2,


9.3.1	it shall be treated as an entitled member; and


9.3.2	all ordinary shares held by it as treasury shares shall be included in determining the proportions in which the capitalized sum is set aside.


9.4	To the extent a capitalized sum is appropriated from profits available for distribution it may also be applied:


9.4.1	in or towards paying up any amounts unpaid on existing shares held by the entitled members; or


9.4.2	in paying up new debentures of the Company which are then allotted credited as fully paid to the entitled members or as they may direct; or


9.4.3	a combination of the two.


9.5	The Directors may:


9.5.1	make such provisions as they think fit for any fractional entitlements which might arise on a capitalization (including to disregard fractional entitlements or for the benefit of them to accrue to the Company); and


9.5.2	authorize any person to enter into an agreement with the Company on behalf of all of the entitled members in relation to the issue of shares or debentures pursuant to this Article 9. Any agreement made under such authority shall be binding on the entitled members.


10	TRUSTS NOT RECOGNIZED

Except as required by law and these Articles, the Company is not obliged to recognize any person as holding any share upon any trust nor any other right in respect of any share, except the holder's absolute right to the share and the rights attaching to it.

SHARE CERTIFICATES


11	ISSUE OF SHARE CERTIFICATES


11.1	The Company shall issue a share certificate to every person whose name is entered in the Register in respect of shares in certificated form, except where the Act allows the Company not to issue a certificate.


11.2	Subject to Article 13, the Company shall issue share certificates without charge.


11.3	The Company shall issue certificates within the time limit prescribed by the Act or, if earlier, within any time limit specified in the terms of the shares or under which they were issued.


11.4	Where shares are held jointly by several persons, the Company is not required to issue more than one certificate in respect of those shares, and delivery of a certificate to one joint holder shall be sufficient delivery to them all.


11.5	Each certificate must be in respect of one class of shares only. If a member holds more than one class of shares, separate certificates must be issued to that member in respect of each class.


11.6	Every share certificate sent in accordance with these Articles will be sent at the risk of the member or other person entitled to the certificate. The Company will not be responsible for any share certificate lost or delayed in the course of delivery.


12	FORM OF SHARE CERTIFICATE


12.1	Every share certificate shall be executed by the Company by affixing the Seal or the Securities Seal (or, in the case of shares on a branch register, an official seal for use in the relevant territory) or otherwise in any manner permitted by the Act.


12.2	Notwithstanding the foregoing, any signatures on any share certificates need not be autographic but may be applied to the certificates by some electronic, mechanical or other means or may be printed on them.


12.3	Every share certificate shall specify the number and class of shares to which it relates, the nominal value of those shares, the amount paid up on them and any distinguishing numbers assigned to them.


13	REPLACEMENT OF SHARE CERTIFICATES


13.1	A member who has separate certificates in respect of shares of one class may request in writing that it be replaced with a consolidated certificate. The Company may comply with such request at its discretion.


13.2	A member who has a consolidated share certificate may request in writing that it be replaced with two or more separate certificates representing the shares in such proportions as the member may specify. The Company may comply with such request at its discretion.


13.3	If a share certificate is damaged or defaced or alleged to have been lost, stolen or destroyed, the member shall be issued a new certificate representing the same shares upon request.


13.4	No new certificate will be issued pursuant to this Article 13 unless the relevant member has:


13.4.1	first delivered the old certificate or certificates to the Company for cancellation; or


13.4.2	complied with such conditions as to evidence and indemnity as the Directors may think fit; and


13.4.3	paid such reasonable fee as the Directors may decide.


13.5	In the case of shares held jointly by several persons, any request pursuant to this Article 13 may be made by any one of the joint holders.


14	CONSOLIDATED AND BALANCE SHARE CERTIFICATES


14.1	If a member's holding of shares of a particular class increases, the Company must issue that member with either:


14.1.1	a consolidated certificate in respect of all of the shares of that class held by that member; or


14.1.2	a separate certificate in respect of only the number of shares of that class by which that members holding has increased.


14.2	If only some of the shares comprised in a share certificate are transferred, or the member's holding of those shares is otherwise reduced, the Company shall issue a new certificate for the balance of such shares.


14.3	No new certificate will be issued pursuant to this Article 14 unless the relevant member has:


14.3.1	first delivered any old certificate or certificates that represent any of the same shares to the Company for cancellation; or


14.3.2	complied with such conditions as to evidence and indemnity as the Directors may think fit and paid such reasonable fee as the Directors may decide.

SHARES NOT HELD IN CERTIFICATED FORM


15	UNCERTIFICATED SHARES


15.1	In this Article 15, the “relevant rules” means:


15.1.1	any applicable provision of the Act and the Uncertificated Securities Regulations about the holding, evidencing of title to, or transfer of shares other than in certificated form; and


15.1.2	any applicable legislation, rules or other arrangements made under or by virtue of such provision.


15.2	The provisions of this Article 15 have effect subject to the relevant rules. To the extent any provision of these Articles is inconsistent with the applicable relevant rules it must be disregarded.


15.3	Any share or class of shares of the Company may be issued or held on such terms, or in such a way, that:


15.3.1	title to it or them is not, or must not be, evidenced by a certificate; or


15.3.2	it or they may or must be transferred wholly or partly without a certificate.


15.4	The Directors have power to take such steps as they think fit in relation to:


15.4.1	the evidencing of and transfer of title to uncertificated shares (including in connection with the issue of such shares);


15.4.2	any records relating to the holding of uncertificated shares;


15.4.3	the conversion of certificated shares into uncertificated shares; or


15.4.4	the conversion of uncertificated shares into certificated shares.


15.5	The Company may by notice in writing to the holder of a share require that share:


15.5.1	if it is uncertificated, to be converted into certificated form; or


15.5.2	if it is certificated, to be converted into uncertificated form,

to enable it to be dealt with in accordance with the Articles.


15.6	If:


15.6.1	the Articles give the Directors power to take action, or require other persons to take action, in order to sell, transfer or otherwise dispose of shares; and


15.6.2	uncertificated shares are subject to that power, but the power is expressed in terms which assume the use of a certificate or other written instrument,

the Directors may take such action as is necessary or expedient to achieve the same results when exercising that power in relation to uncertificated shares.


15.7	The Directors may take such action as they consider appropriate to achieve the sale, transfer, disposal, forfeiture, re-allotment or surrender of an uncertificated share or otherwise to enforce a lien in respect of it. This may include converting such share to certificated form.


15.8	Unless the Directors resolve otherwise, shares which a member holds in uncertificated form must be treated as separate holdings from any shares which that member holds in certificated form.


15.9	A class of shares must not be treated as two classes simply because some shares of that class are held in certificated form and others are held in uncertificated form.

15.10

The Company may be entitled to assume that entries on any record of securities maintained by it in accordance with the Uncertificated Securities Regulations and regularly reconciled with the relevant Operator register of securities are a complete and accurate reproduction of the particulars entered in the Operator register of securities, and shall accordingly not be liable in respect of any act or thing done or omitted to be done by or on behalf of the Company in reliance on such assumption. Any provision of these Articles which requires or envisages that action will be taken in reliance on information contained in the Register shall be construed to permit that action to be taken in reliance on information contained in any relevant record of securities (as so maintained and reconciled).

CALLS ON SHARES


16	SUMS DUE ON SHARES


16.1	For the purposes of these Articles, any sum (whether on account of the nominal value of the share or by way of premium) which by the terms of allotment of a share becomes payable upon allotment, or at any fixed date, shall be deemed to be a call duly made and payable on the date on which it is payable.


16.2	In case of non-payment, all the relevant provisions of these Articles as to payment of interest and expenses, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.


17	POWER TO DIFFERENTIATE BETWEEN HOLDERS

On the allotment of shares, the Directors may provide that the amount of calls to be paid on those shares and the times of payment are different for different holders of those shares.


18	CALLS


18.1	Subject to the terms of allotment of the shares, the Directors may make a “call” by requiring a member to pay to the Company any money that is payable on the shares such member holds as at the date of the call.


18.2	A call shall be deemed to have been made at the time when the resolution of the Directors authorizing the call was passed.


18.3	Notice in writing of a call must be given to the relevant member and may specify the time or times and place where payment is required to be made.


18.4	A call may be made payable by instalments.


18.5	A member must pay to the Company the amount called on such member's shares at the time or times and place specified, but is not required to do so until fourteen days have passed since the notice of call was sent.


18.6	A call may be wholly or partly revoked or postponed at any time before payment of it is made, as the Directors may decide.


19	LIABILITY FOR CALLS


19.1	The joint holders of a share shall be jointly and severally liable to pay all calls in respect of such share.


19.2	A person on whom a call is made remains liable for the call notwithstanding the subsequent transfer of the shares in respect of which the call was made.


20	INTEREST ON OVERDUE AMOUNTS


20.1	If a sum called in respect of a share is not paid by the time it is due for payment, the member from whom the sum is due shall pay interest on the sum from the time payment was due to the time of actual payment at such rate (not exceeding fifteen per cent per annum) as the Directors decide.


20.2	The Directors may waive payment of such interest wholly or in part at their discretion.


21	PAYMENT OF CALLS IN ADVANCE


21.1	Any member may pay to the Company all or any part of the amount (whether on account of the nominal value of the shares or by way of premium) uncalled and unpaid upon the shares held by such member. The Directors may accept or refuse such payment, as they think fit.


21.2	Any payment in advance of calls shall, to the extent of such payment, extinguish the liability upon the shares in respect of which it is made.


21.3	The Company may pay interest upon the money so received (until the same would but for such advance become payable) at such rate as the member paying such sum and the Directors may agree.

FORFEITURE AND LIEN


22	NOTICE ON FAILURE TO PAY A CALL


22.1	If a member fails to pay in full any call or instalment of a call on or before the due date for payment, the Directors may at any time serve a notice in writing on such member requiring payment of:


22.1.1	so much of the call or instalment as is due but unpaid;


22.1.2	any interest which may have accrued on the unpaid amount; and


22.1.3	any expenses incurred by the Company by reason of such non-payment.


22.2	The notice shall state:


22.2.1	a date (not being less than seven days from the date of service of the notice) on or before which the payment is to be made;


22.2.2	the place where the payment is to be made; and


22.2.3	that in the event of non-payment the shares on which the call has been made will be liable to be forfeited.


23	FORFEITURE FOR NON-COMPLIANCE


23.1	If the requirements of any notice given pursuant to Article 22 are not complied with and all calls and interest and expenses due in respect of such share remain unpaid, any share in respect of which such notice has been given may be forfeited by a resolution of the Directors to that effect.


23.2	Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before forfeiture.


23.3	Where for the purposes of its disposal a forfeited share is to be transferred to any person:


23.3.1	in the case of a share in certificated form, the directors may authorize any person to execute an instrument of transfer and take such other steps (including the giving of directions to or on behalf of the holder, who shall be bound by them) as they think fit to effect the transfer; and


23.3.2	in the case of a share in uncertificated form, the directors may:


23.3.2.1	to enable the Company to deal with the share in accordance with the provisions of this article, require or procure any relevant person or the Operator (as applicable) to convert the share into certificated form; and


23.3.2.2	after such conversion, authorize any person to execute an instrument of transfer and take such other steps (including the giving of directions to or on behalf of the holder, who shall be bound by them) as they think fit to effect the transfer.


24	DISPOSAL OF FORFEITED SHARES


24.1	A share forfeited or surrendered shall become the property of the Company and may be sold, re-allotted or otherwise disposed of to any person (including the person who was before such forfeiture or surrender the holder of that share or entitled to it) on such terms and in such manner as the Directors shall think fit.


24.2	At any time before a sale, re-allotment or disposal, the forfeiture or surrender may be cancelled (and any expenses in respect of the share waived) on such terms as the Directors think fit.


24.3	The Directors may authorize any person to transfer a forfeited or surrendered share pursuant to this Article 24.


25	HOLDER TO REMAIN LIABLE DESPITE FORFEITURE


25.1	A person whose shares have been forfeited or surrendered shall:


25.1.1	cease to be a member in respect of those shares;


25.1.2	in the case of shares held in certificated form, surrender to the Company for cancellation the certificate for such shares; and


25.1.3	remain liable to pay to the Company all moneys which at the date of forfeiture or surrender were payable by such person to the Company in respect of the shares together with interest on such sum at a rate of fifteen per cent per annum (or such lower rate as the Directors may decide) from the date of forfeiture or surrender until the date of actual payment.


25.2	The Directors may at their absolute discretion enforce payment without any allowance for the value of the shares at the time of forfeiture or surrender or for any consideration received on their disposal. They may also waive payment in whole or in part.


26	LIEN ON PARTLY-PAID SHARES


26.1	The Company shall have a lien on every share that is not fully-paid for all moneys in respect of the share's nominal value, or any premium at which it was issued, that have not been paid to the Company and are payable immediately or at a fixed time in the future, whether or not a call has been made on such sums.


26.2	The Company's lien over a share takes priority over the rights of any third party and extends to any dividends or other sums payable by the Company in respect of that share (including any sale proceeds if that share is sold by the Company pursuant to these Articles).


26.3	The Directors may waive any lien which has arisen and may resolve that any share shall be exempt wholly or partially from the provisions of this Article 26 for such period as the Directors decide.


27	SALE OF SHARES SUBJECT TO LIEN


27.1	The Company may sell, in such manner as the Directors decide, any share in respect of which an enforcement notice has been given if that notice has not been complied with.


27.2	An enforcement notice:


27.2.1	may only be given if a sum in respect of which the lien exists is due and has not been paid;


27.2.2	must specify the share concerned;


27.2.3	must require payment of the sum due on a date not less than fourteen days from the date of the notice;


27.2.4	must be in writing and addressed to the holder of, or person entitled to, that share; and


27.2.5	must give notice of the Company's intention to sell the share if the notice is not complied with.


27.3	Where for the purposes of its sale the said share is to be transferred to any person:


27.3.1	in the case of a share in certificated form, the Directors may authorize any person to execute an instrument of transfer and take such other steps (including the giving of directions to or on behalf of the holder, who shall be bound by them) as they think fit to effect the transfer; and


27.3.2	in the case of a share in uncertificated form, the Directors may:


(i)	to enable the Company to deal with the share in accordance with the provisions of this article, require or procure any relevant person or the Operator (as applicable) to convert the share into certificated form; and


(ii)	after such conversion, authorize any person to execute an instrument of transfer and take such other steps (including the giving of directions to or on behalf of the holder, who shall be bound by them) as they think fit to effect the transfer.


27.4	The net proceeds of such sale (after payment of the costs of the sale and of enforcing the lien) shall be applied:


27.4.1	first, in or towards payment or satisfaction of the amount in respect of which the lien exists, to the extent that amount was due on the date of the enforcement notice; and


27.4.2	secondly, to the person entitled to the shares immediately prior to the sale, provided that:


(i)	that person has first delivered the certificate or certificates in respect of the shares sold to the Company for cancellation or complied with such conditions as to evidence and indemnity as the Directors may think fit; and


(ii)	the Company shall have a lien over such proceeds (equivalent to that which existed upon the shares prior to the sale) in respect of sums which become or became due after the date of the enforcement notice in respect of the shares sold.


27.5	The transferee of the shares has no obligation to ensure that the purchase money is distributed in accordance with the Articles.


27.6	The transferee's title to the shares shall not be affected by any irregularity in or invalidity of the forfeiture, surrender or sale proceedings.


28	EVIDENCE OF FORFEITURE

A statutory declaration that the declarant is a Director or the Secretary and that a share has been duly forfeited or surrendered or sold to satisfy a lien of the Company on a date stated in the declaration shall be conclusive evidence of the facts stated in it as against all persons claiming to be entitled to the share. Subject to compliance with any other transfer formalities required by the Articles or by law, such declaration shall constitute a good title to the share.

VARIATION OF RIGHTS


29	MANNER OF VARIATION OF RIGHTS


29.1	Whenever the share capital of the Company is divided into different classes of shares, the special rights attached to any class may be varied or abrogated:


29.1.1	with the consent in writing of the holders of three-quarters in nominal value of the issued shares of that class, excluding any shares held as treasury shares; or


29.1.2	with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class,

and may be so varied or abrogated either whilst the Company is a going concern or during or in contemplation of a winding-up.


29.2	The provisions of these Articles relating to General Meetings and to the proceedings at such meetings shall apply to separate meetings of a class of shareholders (with only such changes as are necessary), except that:


29.2.1	the necessary quorum at a separate meeting shall be at least two persons, holding or representing by proxy at least one-third in nominal value of the issued shares of the class;


29.2.2	at any adjourned meeting any holder of shares of the class present in person or by proxy shall be a quorum;


29.2.3	any holder of shares of the class present in person or by proxy may demand a poll;


29.2.4	every such holder shall on a poll have one vote for every share of the class held by the holder; and


29.2.5	if a meeting is adjourned for any reason including a lack of quorum, the adjourned meeting may be held less than ten clear days after the original meeting notwithstanding Article 43.2.


29.3	The provisions of this Article 29 shall apply to the variation or abrogation of the special rights attached to some only of the shares of any class as if each group of shares of the class differently treated form a separate class the special rights of which are to be varied.


30	MATTERS NOT CONSTITUTING VARIATION OF RIGHTS

For the avoidance of doubt, the rights attached to a class of shares are not, unless otherwise expressly provided for in the rights attaching to those shares, deemed to be varied by the creation, allotment or issue of further shares ranking in priority to, pari passu with or subsequent to them or by the purchase or redemption by the Company of its own shares in accordance with the Act.

TRANSFER OF SHARES


31	FORM OF TRANSFER


31.1	All transfers of shares which are in certificated form may be effected by transfer in writing in any usual or common form or in any other form acceptable to the Directors.


31.2	The instrument of transfer shall be signed by or on behalf of the transferor and, if any of the shares are not fully-paid shares, by or on behalf of the transferee.


31.3	The transferor shall remain the holder of the shares concerned until the name of the transferee is entered in the Register in respect of those shares.


31.4	All instruments of transfer which are registered may be retained by the Company.


31.5	Where any class of shares is, for the time being, a participating security, title to shares of that class which are recorded on an Operator register of members as being held in uncertificated form may be transferred by means of the relevant system concerned. The transfer may not be in favour of more than four transferees.


32	RIGHT TO REFUSE REGISTRATION


32.1	The Directors may decline to register any transfer of shares in certificated form unless:


32.1.1	the instrument of transfer is in respect of only one class of share;


32.1.2	the instrument of transfer is lodged at the Transfer Office accompanied by the relevant share certificate(s) or such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer or, if the instrument of transfer is executed by some other person on the transferor's behalf, the authority of that person to do so;


32.1.3	it is fully paid;


32.1.4	it is for a share upon which the Company has no lien; and


32.1.5	it is duly stamped or duly certificated or otherwise shown to the satisfaction of the Directors to be exempt from stamp duty (if so required).


32.2	The Directors may also refuse to register an allotment or transfer of shares (whether fully paid or not) in favour of more than four persons jointly.


32.3	The directors may refuse to register a transfer of a share in uncertificated form to a person who is to hold it thereafter in certificated form in any case where the Company is entitled to refuse (or is excepted from the requirement) under the Uncertificated Securities Regulations or other applicable regulations to register the transfer.


32.4	When a transfer of shares has been lodged with the Company, the Company must either:


32.4.1	register the transfer, or


32.4.2	give the transferee notice of refusal to register the transfer, together with its reasons for the refusal,

as soon as practicable and in any event within two months after the date on which the transfer is lodged with it.

32.5

If the Directors refuse to register the transfer of a share, they shall as soon as reasonably practicable following the date on which the instrument of transfer was lodged with the Company (in the case of a transfer of a share in certificated form) or the date on which transfer instructions were received by the Company or the Operator (in the case of a transfer of a share in uncertificated form to a person who is to hold it thereafter in certificated form) send to the transferee the notice of refusal, together with their reasons for the refusal, within the time limit prescribed by the Act.


33	NO FEE ON REGISTRATION

No fee will be charged by the Company in respect of the registration of any transfer or other document relating to or affecting the title to any shares or otherwise for making any entry in the Register affecting the title to any shares.

TRANSMISSION OF SHARES


34	PERSONS ENTITLED TO SHARES ON DEATH


34.1	If a member dies the only persons the Company shall recognise as having any title to such member's interest in the shares shall be:


34.1.1	the survivors or survivor where the deceased was a joint holder; and


34.1.2	executors or administrators of the deceased where the deceased was a sole or only surviving holder.


34.2	Nothing in this Article 34 shall release the estate of a deceased member (whether sole or joint) from any liability in respect of any share held by such member.


35	ELECTION BY PERSONS ENTITLED BY TRANSMISSION


35.1	A person becoming entitled to a share in consequence of the death or bankruptcy of a member or otherwise by operation of law may either:


35.1.1	be registered as holder of the share upon giving to the Company notice in writing to that effect; or


35.1.2	transfer such share to some other person,

upon supplying to the Company such evidence as the Directors may reasonably require showing such person's title to the share.


35.2	All the limitations, restrictions and provisions of these Articles relating to the right to transfer and the registration of transfers of shares shall apply to any such notice or transfer as if the notice or transfer were a transfer made by the member registered as the holder of any such share.


36	RIGHTS OF PERSONS ENTITLED BY TRANSMISSION


36.1	A person becoming entitled to a share in consequence of the death or bankruptcy of a member or otherwise by operation of law:


36.1.1	subject to Article 36.1.2, shall be entitled to the same dividends and other advantages as a registered holder of the share upon supplying to the Company such evidence as the Directors may reasonably require to show such person's title to the share; and


36.1.2	shall not be entitled to exercise any right in respect of the share in relation to General Meetings until such person has been registered as a member in respect of the share.


36.2	A person entitled to a share who has elected for that share to be transferred to some other person pursuant to Article 36.1.2 shall cease to be entitled to any rights or advantages in relation to such share upon that other person being registered as the holder of that share.


37	PRIOR NOTICES BINDING

If a notice is given to a member in respect of a share, a person entitled to that share is bound by the notice if it was given to the member before the name of the person entitled was entered into the Register.

UNTRACED SHAREHOLDERS


38	UNTRACED SHAREHOLDERS


38.1	The Company shall be entitled to sell the shares of a member, or a person entitled to those shares, if and provided that:


38.1.1	during the period of twelve years prior to the date of the publication of the advertisements referred to in Article 38.1.2 (or, if published on different dates, the first of them) at least three dividends in respect of the shares have become payable and no dividend in respect of those shares has been claimed;


38.1.2	the Company has inserted advertisements in both (i) a national newspaper in the United States and (ii) a newspaper circulating in the area in which the last known postal address of the member or other address for service notified to the Company is located, giving notice of its intention to sell the shares; and


38.1.3	during the period of three months following the publication of such advertisements the Company has received no communication from such member or person.


38.2	If the Company is entitled to sell any shares pursuant to Article 38.1, it shall do so at the best price reasonably obtainable at the time of sale.

38.3

Where a power of sale is exercisable over a share pursuant to this Article (a “Sale Share”), the Company may at the same time also sell any additional share issued in right of such Sale Share or in right of such an additional share previously so issued provided that the requirements of paragraphs 38.1.1 of this Article (as if the words “during the period of twelve years prior to the date of the publication” were omitted from paragraph 38.1.1 of this Article) shall have been satisfied in relation to the additional share.


38.4	To give effect to any such sale pursuant to this Article:


38.4.1	in the case of a share in certificated form, the directors may authorize any person to execute an instrument of transfer of the share to the purchaser or a person nominated by the purchaser and take such other steps (including the giving of directions to or on behalf of the holder, who shall be bound by them) as it thinks fit to effect the transfer; and


38.4.2	in the case of a share in uncertificated form, the directors may:


38.4.2.1	to enable the Company to deal with the share in accordance with the provisions of this article, require or procure any relevant person or the Operator (as applicable) to convert the share into certificated form; and


38.4.2.2	after such conversion, authorize any person to execute an instrument of transfer of the share to the purchaser or person nominated by the purchaser and take such other steps (including the giving of directions to or on behalf of the holder, who shall be bound by them) as it thinks fit to effect the transfer.


38.5	For the purpose of giving effect to any such sale the Directors may authorize any person to transfer the shares sold to the purchaser or its nominee.


38.6	The transferee's title to the shares shall not be affected by any irregularity in or invalidity of the sale proceedings.


38.7	The transferee of the shares has no obligation to ensure that the purchase money is distributed in accordance with the Articles.

38.8

The net proceeds of such sale (after payment of the costs of the sale) shall belong to the Company. The Company shall be obliged to account to the former member or other person previously entitled for an amount equal to such proceeds and shall enter the name of such former member or other person in the books of the Company as a creditor for such amount. No trust shall be created in respect of the debt and no interest shall be payable in respect of it. The Company shall not be required to account for any money earned on the net proceeds, which may be employed in the business of the Company or invested in such investments as the Directors may from time to time think fit.

GENERAL MEETINGS


39	ANNUAL GENERAL MEETINGS

The Directors shall convene and the Company shall hold Annual General Meetings in accordance with the Act.


40	CONVENING OF GENERAL MEETINGS

The Directors shall determine whether a General Meeting is to be held as a physical General Meeting and/or an electronic General Meeting. The Directors may, and shall, on requisition in accordance with the Act, proceed to convene a General Meeting whenever and at such time and place, including on an electronic platform, as they shall determine.

NOTICE OF GENERAL MEETINGS


41	LENGTH AND FORM OF NOTICE


41.1	Notices of General Meetings shall include all information required to be included by the Act.

41.2

An Annual General Meeting shall be called by not less than 21 clear days’ notice. Subject to the Act, all other General Meetings shall be convened by not less than 14 clear days’ notice in writing, subject to compliance with the provisions of section 307A of the Act. Subject to the Act, the notice shall specify whether the General Meeting shall be a physical General Meeting and/or an electronic General Meeting. The notice shall also specify the time, date and place and/or electronic platform(s) of the General Meeting, which electronic platform(s) may vary from time to time and from meeting to meeting as the Directors, in their sole discretion, see fit.

41.3

A notice calling an Annual General Meeting shall state that the meeting is an annual general meeting and a notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as such and shall include the text of the resolution. Where the Company has given an electronic address in any notice of meeting, any document or information relating to proceedings at the meeting may be sent be electronic means to that address, subject to any conditions or limitation specified in the relevant notice of meeting.

41.4

Subject to the Act, to the provisions of these Articles and to any restrictions imposed on any shares, notice shall be given to every member and every director. The Company may determine that only those persons entered on the Register at the close of business on a day decided by the Company, such day being no more than twenty-one days before the day that notice of the meeting is sent, shall be entitled to receive such a notice. If a member is added to the Register after the day determined by the Company under this Article, this shall not invalidate the service of the notice, nor entitle such member to receive notice of the meeting.

41.5

For the purposes of determining which persons are entitled to attend or vote at a meeting, and how many votes such persons may cast, the Company must specify in the notice of the meeting a time, which shall not be more than 60 days (or, if less, the maximum period permitted by the Act) nor less than 10 days (or, if the maximum period permitted by the Act is less than 10 days, such date that is the maximum period permitted by the Act) before the date of the holding of such meeting, by which a person must be entered on the Register in order to have the right to attend or vote at the meeting.


41.6	Subject to the Act, if the Directors, in their absolute discretion, consider that it is impractical or unreasonable for any reason to hold a General Meeting:


41.6.1	on the date or at the time stated in the notice calling the meeting,


41.6.2	in the case of a physical General Meeting, at the place stated in the notice calling the meeting; or


41.6.3	in the case of an electronic General Meeting, on the electronic platform(s) stated in the notice calling the meeting,

they may move and/or postpone the General Meeting to another time and/or place and/or, if applicable, electronic platform(s). Subject to the Act, when a meeting is so moved and/or postponed, notice of the time and place and/or, if applicable, electronic platform(s) of the moved and/or postponed meeting shall (if practical) be placed in at least two national newspapers in the United States. Notice of the business to be transacted at such moved and/or postponed meeting is not required. The Directors must take reasonable steps to ensure that members trying to attend the General Meeting at the original time and/or place or on the original electronic platform(s) are informed of the new arrangements for the General Meeting. Proxy forms can be delivered as specified in Article 57. Any postponed and/or moved meeting may also be postponed and/or moved under this Article 41.

PROCEEDINGS AT GENERAL MEETINGS


42	CHAIRPERSON

The Chairperson of the Directors shall preside as Chairperson of any General Meeting at which he/she is present (as long as he/she is willing to do so). If he/she is not present or is unwilling, a Deputy Chairperson, failing whom any Director present and willing to act and, if more than one, chosen by the Directors present at the meeting, shall preside as Chairperson. If no Director is present within ten minutes after the time appointed for holding the meeting and willing to act as Chairperson, a member may be elected to be the Chairperson by a resolution of the Company passed at the meeting.


43	REQUIREMENT FOR QUORUM


43.1	No business other than the appointment of a Chairperson shall be transacted at any General Meeting unless a quorum is present at the time when the meeting proceeds to business. A quorum shall be present if members who together represent at least the majority of the voting rights of all the members entitled to vote at the relevant meeting are present in person or by proxy.

43.2

If within five minutes from the time appointed for a General Meeting (or such longer interval as the Chairperson of the meeting may think fit to allow) a quorum is not present, or if during the meeting a quorum ceases to be present, the meeting, if convened on the requisition of members, shall be dissolved or in any other case it shall stand adjourned to such day, time and place and/or electronic platform(s) as may have been specified for the purpose in the notice convening the meeting or (if not so specified) as the Directors may decide, provided that the adjourned meeting shall be held not less than ten clear days after the original General Meeting.


44	ADJOURNMENT


44.1	The Chairperson of any General Meeting at which a quorum is present may adjourn the meeting if:


44.1.1	the members consent to an adjournment by passing an ordinary resolution;


44.1.2	the Chairperson considers it necessary to restore order or to otherwise facilitate the proper conduct of the meeting; or


44.1.3	the Chairperson considers it necessary for the safety of the people attending the meeting (including if there is insufficient room at the meeting venue to accommodate everyone who wishes to, and is entitled to, attend).


44.2	The Chairperson of any General Meeting at which a quorum is present must adjourn the meeting if requested to do so by the meeting.


44.3	If the Chairperson adjourns a meeting the Chairperson may specify the time and place and/or electronic platform(s) to which it is adjourned. Where a meeting is adjourned without specifying a new time and place and/or electronic platform(s), the time and place and/or electronic platform(s) for the adjourned meeting shall be fixed by the Directors.


44.4	No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting from which the adjournment took place.


45	NOTICE OF ADJOURNED MEETING

When a meeting is adjourned for thirty days or more or without specifying a new time, not less than ten clear days' notice of the adjourned meeting shall be given in accordance with Article 43 (making such alterations as necessary). Otherwise it shall not be necessary to give any such notice.


46	AMENDMENTS TO RESOLUTIONS


46.1	A special resolution to be proposed at a General Meeting may be amended by ordinary resolution provided that no amendment may be made other than an amendment to correct a patent, grammatical or clerical error or as may otherwise be permitted by law.


46.2	An ordinary resolution to be proposed at a General Meeting may be amended by ordinary resolution provided that:


46.2.1	in the opinion of the Chairperson of the meeting the amendment is within the scope of the business of the meeting as described and does not impose further obligations on the Company; and


46.2.2	notice in writing of the proposed amendment is given to the Company by a person entitled to vote at the General Meeting in question at least forty eight hours before the meeting or adjourned meeting (as the case may be) or the Chairperson in his absolute discretion decides that the amendment may be considered or voted on.


46.3	If an amendment is proposed to any resolution under consideration but is in good faith ruled out of order by the Chairperson of the meeting, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling.


47	SECURITY ARRANGEMENTS AND ORDERLY CONDUCT


47.1	The Directors may put in place such arrangements or restrictions as they think fit to ensure the safety and security of the attendees at a General Meeting and the orderly conduct of the meeting, including requiring attendees to submit to searches.


47.2	The Directors may refuse entry to, or remove from, a General Meeting any member, proxy or other person who fails to comply with such arrangements, restrictions or searches.


47.3	The Chairperson of a General Meeting may take such action as the Chairperson thinks fit to maintain the proper and orderly conduct of the meeting.


47.4	At any electronic General Meeting, the Chairperson may make any arrangement and impose any requirement or restriction as is:


47.4.1	necessary to ensure the identification of those taking part and the security of the electronic communication, and


47.4.2	proportionate to those objectives.

In this respect, the Directors are able to authorise any voting application, system or facility for electronic General Meetings as they see fit.


48	SATELLITE MEETING PLACES


48.1	Without prejudice to Article 48A, to facilitate the organization and administration of any General Meeting, the Directors may decide that the meeting shall be held at two or more locations.


48.2	For the purposes of these Articles any General Meeting taking place at two or more locations shall be treated as taking place where the Chairperson of the meeting presides (the “principal meeting place”) and any other location where that meeting takes place is referred to in these Articles as a “satellite meeting”.


48.3	A member present in person or by proxy at a satellite meeting may be counted in the quorum and may exercise all rights that they would have been able to exercise if they were present at the principal meeting place.


48.4	The Directors may make and change from time to time such arrangements as they shall in their absolute discretion consider appropriate to:


48.4.1	ensure that all members and proxies for members wishing to attend the meeting can do so;


48.4.2	ensure that all persons attending the meeting are able to participate in the business of the meeting and to see and hear anyone else addressing the meeting;


48.4.3	ensure the safety of persons attending the meeting and the orderly conduct of the meeting; and


48.4.4	restrict the numbers of members and proxies at any one location to such number as can safely and conveniently be accommodated there.


48.5	The entitlement of any member or proxy to attend a satellite meeting shall be subject to any such arrangements then in force and stated by the notice of meeting or adjourned meeting to apply to the meeting.

48.6

If there is a failure of communication equipment or any other failure in the arrangements for participation in the meeting at more than one place, the Chairperson may adjourn the meeting in accordance with Article 44.1.2. Such an adjournment will not affect the validity of such meeting, or any business conducted at such meeting up to the point of adjournment, or any action taken pursuant to such meeting.

48.7

A person (a “satellite chairperson”) appointed by the Directors shall preside at each satellite meeting. Every satellite chairperson shall carry out all requests made of the satellite chairperson by the Chairperson of the General Meeting, may take such action as the satellite chairperson thinks necessary to maintain the proper and orderly conduct of the satellite meeting and shall have all powers necessary or desirable for such purposes.


48A	ELECTRONIC MEETINGS

(a)

Without prejudice to Article 48, the Directors may resolve to enable persons entitled to attend an electronic General Meeting to do so by simultaneous attendance by electronic means with no member necessarily in physical attendance at the electronic General Meeting. The members or their proxies present shall be counted in the quorum for, and entitled to vote at, the General Meeting in question, and that meeting shall be duly constituted and its proceedings valid if the Chairperson of the General Meeting is satisfied that adequate facilities are available throughout the electronic General Meeting to ensure that members attending the electronic General Meeting who are not present together at the same place may, by electronic means, attend and participate in the business of the General Meeting. Nothing in these Articles prevents a General Meeting being held both physically and electronically.


(b)	If it appears to the Chairperson of the General Meeting that:


(i)	the electronic platform facilities at the principal meeting place or any satellite meeting place, or


(ii)	the electronic platform facilities or security at the electronic General Meeting,

have become inadequate for the purposes referred to in Article 48 or paragraph (a) above, then the Chairperson may, without the consent of the meeting, interrupt or adjourn the General Meeting. All business conducted at that General Meeting up to the time of that adjournment shall be valid. The provisions of Articles 44 and 45 shall apply to that adjournment.


(c)	In relation to an electronic General Meeting, the right of a member to participate in the business of any General Meeting shall include, without limitation, the right to speak, vote on a poll, be represented by a proxy and have access (including electronic access) to all documents which are required by the Act or these Articles to be made available at the meeting.

POLLS


49	DEMAND FOR POLL


49.1	For so long as any shares are held in a settlement system operated by DTC, any resolution put to the vote at a General Meeting must be decided on a poll.


49.2	All resolutions put to the members at electronic General Meetings shall be voted by poll, which poll votes may be cast by such electronic means as the Directors in their sole discretion deem appropriate for the purposes of the meeting.


49.3	Subject to Article 49.1, the Directors may decide in advance of any General Meeting that some or all of the resolutions to be put to the vote at a General Meeting will be decided on a poll.


49.4	At a physical General Meeting any resolution put to the vote shall be decided on a show of hands unless the Directors have decided pursuant to Article 49.3 (subject always to Article 49.1) that it will be decided on a poll or a poll is (before the resolution is put to the vote on a show of hands, or on the declaration of the result of the show of hands) demanded by:


49.4.1	the Chairperson of the meeting;


49.4.2	not less than five members present in person or by proxy and entitled to vote;


49.4.3	a member or members present in person or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting (excluding the rights attaching to any shares held as treasury shares); or


49.4.4	a member or members present in person or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right (excluding any such shares held as treasury shares).


49.5	A demand for a poll may be withdrawn before the poll is taken but only with the consent of the Chairperson. A demand so withdrawn shall not be taken to have invalidated the result of a show of hands declared before the demand was made.

49.6

Unless a poll is demanded (and the demand is not duly withdrawn), a declaration by the Chairperson that the resolution has been carried, or carried by a particular majority, or lost or not carried by a particular majority, or an entry in respect of such a declaration in minutes of the meeting recorded in accordance with the Act shall be conclusive evidence of the fact without proof of the number or proportion of the rates recorded in favor of or against the resolution.


50	PROCEDURE ON A POLL


50.1	A poll shall be taken in such manner (including by use of ballot or voting papers or electronic means, or any combination of means) as the Chairperson of the meeting may direct.


50.2	The Chairperson of the meeting may appoint scrutineers (who need not be members) and may decide how and when the result of the poll is to be declared.


50.3	The result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.


50.4	On a poll, votes may be given either personally or by proxy and a person entitled to more than one vote need not use all his/her votes or cast all the votes he/she uses in the same way.


51	TIMING OF POLL


51.1	A poll demanded on the choice of a Chairperson or on a question of adjournment shall be taken immediately. A poll demanded on any other question shall be taken either immediately or at such subsequent time (not being more than thirty days from the date of the meeting) and place as the Chairperson may direct.


51.2	No notice need be given of a poll not taken immediately if the time and place at which it is to be taken are announced at the meeting at which it is demanded. In any other case, at least seven days' notice must be given specifying the time and place at which the poll is to be taken.

VOTES OF MEMBERS


52	VOTES ATTACHING TO SHARES


52.1	Subject to Article 41.3 and to any special rights or restrictions as to voting attached by or in accordance with these Articles to any shares or any class of shares:


52.1.1	on a show of hands at a physical General Meeting, every member who is present in person and, subject to Article 52.1.2, every proxy present who has been duly appointed shall have one vote;


52.1.2	on a show of hands at a physical General Meeting, a proxy has one vote for and one vote against the resolution if the proxy has been duly appointed by more than one member entitled to vote on the resolution, and the proxy has been instructed:


(i)	by one or more of those members to vote for the resolution and by one or more other of those members to vote against it; or


(ii)	by one or more of those members to vote either for or against the resolution and by one or more other of those members to use his/her discretion as to how to vote, and


52.1.3	on a poll, every member who is present in person or by proxy shall have one vote for every share of which such member is the holder.


52.2	A proxy shall not be entitled to vote on a show of hands or on a poll where the member appointing the proxy would not have been entitled to vote on the resolution had such member been present in person.


53	VOTES OF JOINT HOLDERS

In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names appear in the Register in respect of the share.


54	VALIDITY AND RESULT OF VOTE


54.1	No objection shall be raised as to the qualification of any voter or the admissibility of any vote except at the meeting or adjourned meeting at which the vote is tendered. Every vote not disallowed at such meeting shall be valid for all purposes. Any such objection shall be referred to the Chairperson of the meeting, whose decision shall be final and conclusive.


54.2	On a vote on a resolution at a meeting on a show of hands, a declaration by the Chairperson that the resolution:


54.2.1	has or has not been passed; or


54.2.2	has been passed with a particular majority,

or an entry in respect of such declaration in the minutes of the meeting recorded in accordance with the Act shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favor of or against the resolution. This Article 54 does not have effect if a poll is demanded in respect of the resolution (and the demand is not subsequently withdrawn).

PROXIES AND CORPORATE REPRESENTATIVES


55	APPOINTMENT OF PROXIES


55.1	A member is entitled to appoint a proxy to exercise all or any of such member's rights to attend and to speak and vote at a General Meeting.


55.2	A proxy need not be a member of the Company.


56	MULTIPLE PROXIES

A member may appoint more than one proxy in relation to a meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by such member.


57	FORM OF PROXY


57.1	The appointment of a proxy must be in writing in any usual or common form or in any other form which the Directors may approve and:


57.1.1	in the case of an individual must either be signed by the appointer or the appointer’s attorney or authenticated in accordance with Article 116; and


57.1.2	in the case of a corporation must be either given under its common seal or be signed on its behalf by an attorney or a duly authorized officer of the corporation or authenticated in accordance with Article 116.


57.2	Any signature on or authentication of such appointment need not be witnessed. Where an appointment of a proxy is signed or authenticated in accordance with Article 116 on behalf of the appointer by an attorney, the Company may treat that appointment as invalid unless the power of attorney or a notarially certified copy of the power of attorney is submitted to the Company.


58	DEPOSIT OF FORM OF PROXY


58.1	The appointment of a proxy must be received in the manner set out in or by way of note to, or in any document accompanying, the notice convening the meeting (or if no address is so specified, at the Transfer Office):


58.1.1	in the case of a meeting or adjourned meeting, not less than forty eight hours (excluding any part of a day that is not a working day) before the commencement of the meeting or adjourned meeting to which it relates;


58.1.2	in the case of a poll taken following the conclusion of a meeting or adjourned meeting, but not more than forty eight hours (excluding any part of a day that is not a working day) after it was demanded, not less than forty eight hours before the commencement of the meeting or adjourned meeting at which the poll was demanded; and


58.1.3	in the case of a poll taken more than forty eight hours (excluding any part of a day that is not a working day) after it was demanded, not less than twenty four hours before the time appointed for the taking of the poll,

and in default shall not be treated as valid.

58.2

In relation to any shares in uncertificated form the Directors may permit a proxy to be appointed by electronic means or by means of a website in the form of an Uncertificated Proxy Instruction and may permit any supplement to, or amendment or revocation of, any Uncertificated Proxy Instruction to be made by a further Uncertificated Proxy Instruction. The Directors may prescribe the method of determining the time at which any Uncertificated Proxy Instruction is to be treated as received by the Company. The Directors may treat any Uncertificated Proxy Instruction purporting or expressed to be sent on behalf of a holder of a share as sufficient evidence of the authority of the person sending the instruction to send it on behalf of that holder.


58.3	Unless the contrary is stated on the proxy form, the appointment of a proxy shall be as valid for any adjournment of a meeting as it is for the meeting to which it relates.

58.4

The Directors may (and shall for so long as any shares are held in a settlement system operated by DTC or if and to the extent that the Company is required to do so by the Act) allow an appointment of proxy to be sent or supplied in electronic form subject to any conditions or limitations as the Directors may specify. Where the Company has given an electronic address in any instrument of proxy or invitation to appoint a proxy, any document or information relating to proxies for the meeting (including any document necessary to show the validity of, or otherwise relating to, an appointment of proxy, or notice of the termination of the authority of a proxy) may be sent by electronic means to that address, subject to any conditions or limitations specified in the relevant notice of meeting.


59	RIGHTS OF PROXY

Subject to the Act, a proxy shall have the right to exercise all or any of the rights of the proxy's appointor, or (where more than one proxy is appointed by a member) all or any of the rights attached to the shares in respect of which such person is appointed the proxy to attend, and to speak and vote, at a General Meeting.


60	TERMINATION OF PROXY'S AUTHORITY

60.1

Neither the death or insanity of a member who has appointed a proxy, nor the revocation or termination by a member of the appointment of a proxy (or of the authority under which the appointment was made), shall invalidate the proxy or the exercise of any of the rights of the proxy, unless notice of such death, insanity, revocation or termination shall have been received by the Company in accordance with Article 60.2.

60.2

Any such notice of death, insanity, revocation or termination must be in writing and be received at the address or one of the addresses (if any) specified for receipt of proxies in, or by way of note to, or in any document accompanying, the notice convening the meeting to which the appointment of the proxy relates (or if no address is so specified, at the Transfer Office), not later than the last time at which an appointment of proxy should have been delivered or received in order to be valid for use at the relevant meeting or adjourned meeting or (in the case of a poll taken otherwise than at the meeting or on the same day as the meeting or adjourned meeting) for use on the holding of a poll at which the vote is cast.


61	CORPORATIONS ACTING BY REPRESENTATIVES

Subject to the Act, any corporation which is a member of the Company may by resolution of its Directors or other governing body authorize a person or persons to act as its representative or representatives at any General Meeting. A Director, the Secretary or another person authorized for the purpose by the Secretary may require a representative to produce a certified copy of the resolution of authorization before permitting him to exercise his powers.

DEFAULT SHARES


62	RESTRICTION ON VOTING IN PARTICULAR CIRCUMSTANCES


62.1	Unless the Directors resolve otherwise, no member shall be entitled in respect of any share held by such member to vote either personally or by proxy or to exercise any other right conferred by membership in relation to General Meetings if any call or other sum due from such member to the Company in respect of that share remains unpaid.


62.2	If any member, or any other person appearing to be interested in shares (within the meaning of Part 22 of the Act) held by such member, has been duly served with a notice under Section 793 of the Act and is in default for a period of fourteen days in supplying to the Company the information required by that notice, then (unless the Directors otherwise determine) in respect of:


62.2.1	the shares comprising the shareholding account in the Register which comprises or includes the shares in relation to which the default occurred (all or the relevant number as appropriate of such shares being the “default shares”, which expression shall include any further shares which are issued in respect of such shares); and


62.2.2	any other shares held by the member,

the member shall not (for so long as the default continues) nor shall any transferee to whom any of such shares are transferred (other than pursuant to an approved transfer or pursuant to Article 62.3.2) be entitled to attend or vote either personally or by proxy at a General Meeting or to exercise any other right conferred by membership in relation to General Meetings.


62.3	Where the default shares represent 0.25 per cent or more of the issued shares of the class in question, the Directors may in their absolute discretion by notice in writing (a “direction notice”) to such member direct that:


62.3.1	any dividend or part of a dividend (including shares to be issued in lieu of a dividend) or other money which would otherwise be payable in respect of the default shares shall be retained by the Company without any liability to pay interest on it when such dividend or other money is finally paid to the member; and/or


62.3.2	no transfer of any of the shares held by such member shall be registered unless the transfer is an approved transfer or:


(i)	the member is not in default as regards supplying the information required; and


(ii)	the transfer is of part only of the member's holding and, when presented for registration, is accompanied by a certificate by the member in a form satisfactory to the Directors to the effect that after due and careful enquiry the member is satisfied that none of the shares that are the subject of the transfer are default shares,

provided that, in the case of shares in uncertificated form, the Directors may only exercise their discretion not to register a transfer if permitted to do so by the Act.


62.4	The Company shall send a copy of the direction notice to each other person appearing to be interested in the shares the subject of that direction notice, but the failure or omission by the Company to do so shall not invalidate such notice.

62.5

Any direction notice shall have effect in accordance with its terms for so long as the default in respect of which the direction notice was issued continues. Any direction notice shall cease to have effect at such time as the Directors decide. Within a period of one week of the default being duly remedied, the Directors shall decide that the relevant direction notice shall cease to have effect and shall give written notice of that fact to the member as soon as reasonably practicable.


62.6	Any direction notice shall cease to have effect in relation to any shares which are transferred by such member by means of an approved transfer or in accordance with Article 62.3.2.


62.7	For the purposes of this Article 62:

62.7.1

a person shall be treated as appearing to be interested in any shares if the member holding such shares has been served with a notice under section 793 of the Act and either (i) the member has named such person as being so interested or (ii) (after taking into account the response of the member to the said notice and any other relevant information) the Company knows or has reasonable cause to believe that the person in question is or may be interested in the shares, and


62.7.2	a transfer of shares is an “approved transfer” if:


(i)	it is a transfer of shares to an offeror by way or in pursuance of acceptance of a takeover offer (as defined in section 974 of the Act); or

(ii)

the Directors are satisfied that the transfer is made pursuant to a genuine sale of the whole of the beneficial ownership of the shares to a party unconnected with the member, or with any person appearing to be interested in such shares, including any such sale made through an investment exchange that has been granted recognition under the Financial Services and Markets Act 2000 or through a stock exchange outside the United Kingdom of Great Britain and Northern Ireland on which the Company's shares are normally traded. For the purposes of this Article 62 any associate (as that term is defined in section 435 of the Insolvency Act 1986) shall be included amongst the persons who are connected with the member or any person appearing to be interested in such shares.


62.8	The provisions of this Article 62 are in addition and without prejudice to the provisions of the Act.

DIRECTORS


63	NUMBER OF DIRECTORS

Unless and until otherwise decided by the Company by ordinary resolution, the number of directors must not be less than two and is not subject to a maximum number.


64	SHARE QUALIFICATION

A Director shall not be required to hold any shares of the Company by way of qualification. A Director who is not a member of the Company shall nevertheless be entitled to attend and speak at General Meetings.


65	REMUNERATION OF DIRECTORS

Any Director who holds any executive office (including for this purpose the office of Chairperson or Deputy Chairperson whether or not such office is held in an executive capacity), or who serves on any committee of the Directors, or who otherwise performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director, may be paid such extra remuneration by way of salary, commission or otherwise or may receive such other benefits as the Directors may determine.


66	DIRECTORS' EXPENSES

The Company may repay to any Director all such reasonable expenses as that Director may incur in attending and returning from meetings of the Directors or of any committee of the Directors or General Meetings or separate meetings of any class of members or debentures or otherwise in connection with the business of the Company.


67	DIRECTORS' PENSIONS AND OTHER BENEFITS

The Directors shall have power to pay and agree to pay remuneration, including gratuities, allowances, pensions or other retirement, superannuation, death, sickness or disability benefits, to, or to any person in respect of, a Director.


68	APPOINTMENT OF EXECUTIVE DIRECTORS AND CHAIRPERSON

68.1

The Directors may from time to time appoint one or more of them to be the holder of any executive office (or, where considered appropriate, the office of Chairperson or Deputy Chairperson) on such terms and for such period as they may (subject to the provisions of the Act) resolve and, without prejudice to the terms of any contract entered into in any particular case, may at any time revoke or vary the terms of any such appointment.

68.2

The appointment of any Director to any other executive office shall not automatically terminate if such Director ceases to be a Director for any reason, unless the contract or resolution under which such Director holds office shall expressly state otherwise, in which event such termination shall be without prejudice to any claim for damages for breach of any contract of service between such Director and the Company.


69	POWERS OF EXECUTIVE DIRECTORS

The Directors may entrust to and confer upon any Director holding any executive office any of the powers exercisable by them as Directors upon such terms and conditions and with such restrictions as they think fit, and either collaterally with or to the exclusion of their own powers. They may from time to time revoke, withdraw, alter or vary all or any of such delegated powers.

APPOINTMENT AND RETIREMENT OF DIRECTORS


70	METHODS OF APPOINTING DIRECTORS


70.1	Any person who is willing to act as a Director, and is permitted by law to do so, may be appointed to be a Director by the Company by ordinary resolution, provided that the appointment does not cause the number of Directors to exceed any fixed number as the maximum number of Directors.

70.2

The Investor Designator shall have the right, but not the obligation, to designate, and the individuals nominated for election as Directors by or at the direction of the Board or a duly-authorized committee thereof shall include, a number of individuals such that, following the election of any Directors and taking into account any Director continuing to serve as such without the need for re-election, the number of Investor Designees serving as Directors will be equal to: (i) if the Pre-IPO Owners collectively Beneficially Own 50 per cent. or more of the Ordinary Shares in issue as of the record date for such meeting, the lowest whole number that is greater than 50 per cent. of the Total Number of Directors; (ii) if the Pre-IPO Owners collectively Beneficially Own at least 40 per cent. (but less than 50 per cent.) of the Ordinary Shares in issue as of the record date for such meeting, the lowest whole number that is greater than 40 per cent. of the Total Number of Directors; (iii) if the Pre-IPO Owners collectively Beneficially Own at least 30 per cent. (but less than 40 per cent.) of the Ordinary Shares in issue as of the record date for such meeting, the lowest whole number that is greater than 30 per cent. of the Total Number of Directors; (iv) if the Pre-IPO Owners collectively Beneficially Own at least 20 per cent. (but less than 30 per cent.) of the Ordinary Shares in issue as of the record date for such meeting, the lowest whole number that is greater than 20 per cent. of the Total Number of Directors; and (v) if the Pre-IPO Owners collectively Beneficially Own at least 5 per cent. (but less than 20 per cent.) of the Ordinary Shares in issue as of the record date for such meeting, the lowest whole number (such number always being equal to or greater than one) that is greater than 10 per cent. of the Total Number of Directors.

70.3

If at any time the Investor Designator has designated fewer than the total number of individuals that the Investor Designator is then entitled to designate pursuant to Article 70.2, the Investor Designator shall have the right, at any time and from time to time, to designate such additional individuals which it is entitled to so designate, in which case, any individuals nominated by or at the direction of the Board or any duly-authorized committee thereof for election as Directors to fill any vacancy on the Board shall include such designees, and the Company shall use its best efforts to (x) effect the election of such additional designees, whether by increasing the size of the Board or otherwise, and (y) cause the election of such additional designees to fill any such newly-created vacancies or to fill any other existing vacancies. Each such individual whom the Investor Designator shall actually designate pursuant to this Article 70 and who is thereafter elected and qualifies to serve as a Director shall be referred to herein as a “Investor Designee”.

70.4

In the event that a vacancy is created at any time by the death, disability, retirement, removal or resignation of any Investor Designee, any individual nominated by or at the direction of the Board or any duly-authorized committee thereof to fill such vacancy shall be, and the Company shall use its best efforts to cause such vacancy to be filled, as soon as possible, by a new designee of the Investor Designator, and the Company shall take or cause to be taken, to the fullest extent permitted by law, at any time and from time to time, all actions necessary to accomplish the same.

70.5

The Company shall, to the fullest extent permitted by law, include in the slate of nominees recommended by the Board at any meeting of members called for the purpose of electing Directors, the persons designated by the Investor Designee pursuant to this Article 70 and use its best efforts to cause the election of each such designee to the Board, including nominating each such individual to be elected as a Director as provided herein, recommending such individual’s election and soliciting proxies or consents in favor thereof. In the event that any Investor Designee shall fail to be elected to the Board at any meeting of members called for the purpose of electing Directors, the Company shall use its best efforts to cause such Investor Designee (or a new designee of the Investor Designator) to be elected to the Board as soon as possible and the Company shall take or cause to be taken, to the fullest extent permitted by law, at any time and from time to time, all actions necessary to accomplish the same, including, without limitation, actions to effect an increase in the Total Number of Directors.

70.6

In addition to any vote or consent of the Board or the members of the Company required by applicable law or these Articles or other organizational document of the Company, and notwithstanding anything to the contrary in any shareholders’ agreement in respect of the Company entered into from time to time, for so long as any such shareholders’ agreement is in effect, any action by the Board to increase or decrease the Total Number of Directors (other than any increase in the Total Number of Directors in connection with the election of one or more Directors elected exclusively by the holders of one or more classes of the Company’s shares other than Ordinary Shares) shall require the prior written consent of the Investor Designator.


70.7	Where two or more individuals are proposed to be appointed at a General Meeting of the Company pursuant to Article 70.1, unless the members have previously approved otherwise at that General Meeting, the appointments must not be proposed as a single resolution and must be proposed as separate resolutions in accordance with section 160 of the Act.

70.8

The Company may by ordinary resolution elect, and the Directors shall have the power at any time to appoint, any person to be a Director to fill a casual vacancy, provided that: (i) if the Pre-IPO Owners collectively Beneficially Own less than 30 per cent. of the Ordinary Shares for the time being in issue then a casual vacancy may only be filled by the Directors (and not by the Company by ordinary resolution); and (ii) the Total Number of Directors shall not exceed the maximum number (if any) fixed by or in accordance with these articles.


71	RETIREMENT AT ANNUAL GENERAL MEETINGS


71.1	At each Annual General Meeting, each Director then in office shall retire from office with effect from the conclusion of the meeting. A retiring Director shall be eligible for re-election.


71.2	Where a Director retires at an Annual General Meeting in accordance with Article 71.1, or otherwise, the Company may at the meeting by ordinary resolution fill the office being vacated by electing the retiring Director. In the absence of such a resolution the retiring Director shall nevertheless be deemed to have been re-elected except in any of the following cases:


71.2.1	where at such meeting a resolution for the re-election of such Director is put to the meeting and lost;


71.2.2	where such Director is ineligible for re-election or has given notice in writing to the Company that he/she is unwilling to be re-elected; or


71.2.3	where a resolution to elect such Director is void by reason of contravention of section 160 of the Act (whereby at a General Meeting a motion for the appointment of two or more persons as Directors by a single resolution must not be made unless a resolution that it should be made has first been agreed to by the meeting without any vote being given against it).


71.3	The retirement shall not have effect until the conclusion of the meeting except where a resolution is passed to elect some other person in the place of the retiring Director or a resolution for the retiring Director's re-election is put to the meeting and lost. Accordingly a retiring Director who is re-elected or deemed to have been re-elected will continue in office without a break.


72	TERMINATION OF OFFICE


72.1	The office of a Director is terminated if:


72.1.1	the Director becomes prohibited by law from acting as a Director or ceases to be a Director by virtue of any provision of the Act;


72.1.2	the Company has received notice in writing of the Director's resignation or retirement from office and such resignation or retirement from office has taken effect in accordance with its terms;


72.1.3	the Director has retired at an Annual General Meeting in accordance with Article 71.1, or otherwise, and any of Articles 71.2.1, 71.2.2 or 71.2.3 applies;


72.1.4	the Director has a bankruptcy order made against him/her, compounds with his/her creditors generally or applies to the court for an interim order under section 253 of the Insolvency Act 1986 in connection with a voluntary arrangement under that Act or any analogous event occurs in relation to the Director in another country;


72.1.5	an order is made by any court claiming jurisdiction in that behalf on the ground (however formulated) of mental disorder for the Director's detention or for the appointment of another person (by whatever name called) to exercise powers with respect to the Director's property or affairs;


72.1.6	the Director is absent from meetings of the Directors for six consecutive months without permission and the Directors have resolved that the Director's office be vacated;


72.1.7	notice in writing of termination is served or deemed served on the Director and that notice is given by all the Director's co-Directors for the time being; or


72.1.8	in the case of a Director other than any Director holding an executive office, if the Directors resolve to require the Director to resign and the Director fails to do so within thirty days of notification of such resolution being served or deemed served on the Director.


72.2	If a Director holds an appointment to an executive office which automatically terminates on termination of the Director's office as Director, the Director's removal from office pursuant to this Article 72 shall be deemed an act of the Company and shall have effect without prejudice to any claim for damages for breach of any contract of service between the Director and the Company.


73	REMOVAL OF DIRECTOR BY RESOLUTION OF COMPANY

In accordance with and subject to the provisions of the Act, the Company may remove any Director from office by ordinary resolution of which special notice has been given and elect another person in place of a Director so removed from office. Such removal may take place notwithstanding any provision of these Articles or of any agreement between the Company and such Director, but shall be without prejudice to any claim the Director may have for damages for breach of any such agreement.

MEETINGS AND PROCEEDINGS OF DIRECTORS


74	CONVENING OF MEETINGS OF DIRECTORS

74.1

Subject to the provisions of these Articles, the Directors may meet together for the despatch of business, adjourn and otherwise regulate their proceedings as they think fit. At any time any Director may, and the Secretary at the request of a Director shall, call a meeting of the Directors by giving notice to the other Directors. Notice need not be in writing and may be given personally or by word of mouth or sent (including by electronic means) to any address provided by the Director.


74.2	Any Director may waive notice of any meeting and any such waiver may be retroactive.


74.3	The Directors shall be deemed to meet together if they are in separate locations, but are linked by conference telephone or other communication equipment which allows those participating to hear and speak to each other.


75	QUORUM


75.1	The quorum necessary for the transaction of business of the Directors shall be a majority of the Directors then in office. A meeting of the Directors at which a quorum is present shall be competent to exercise all powers and discretions for the time being exercisable by the Directors.

75.2

If a quorum is not present within half an hour of the time appointed for the meeting or if a quorum ceases to be present during the course of the meeting, the Director(s) present shall adjourn the meeting to a specified time and place not less than one day after the original date. The quorum necessary for the transaction of business of the Directors at such adjourned meeting may be fixed from time to time by the Directors and unless so fixed at any other number shall be two.


76	CHAIRPERSON

76.1

The Directors may elect from their number a Chairperson, a Deputy Chairperson (or two or more Deputy Chairmen) and a Senior Independent Director, and decide the period for which each is to hold office. If no Chairperson or Deputy Chairperson has been appointed or if at any meeting of the Directors no Chairperson or Deputy Chairperson is present within five minutes after the time appointed for holding the meeting, the Senior Independent Director shall be chairperson of the meeting, or, if no Senior Independent Director has been appointed or the Senior Independent Director is not present at such time, the Directors present may choose one of their number to be chairperson of the meeting.


76.2	If at any time there is more than one Deputy Chairperson the right, in the absence of the Chairperson, to preside at a meeting of the Directors or of the Company shall be determined as between the Deputy Chairmen present (if more than one) by seniority in length of appointment or otherwise as resolved by the Directors.


77	NUMBER OF DIRECTORS BELOW MINIMUM

If and so long as the number of Directors is reduced below the minimum number fixed by or in accordance with these Articles the continuing Directors or Director may act for the purpose of appointing such number of additional Directors as is required to meet the minimum or of summoning General Meetings, but not for any other purpose. If no Directors or Director is able or willing to act, then any two members may summon a General Meeting for the purpose of appointing Directors.


78	DIRECTORS' WRITTEN RESOLUTIONS


78.1	Any Director may, and the Secretary at the request of a Director shall, propose a written resolution by giving written notice to the other Directors.


78.2	A Directors' written resolution is adopted when all the Directors who would have been entitled to vote on such resolution if it had been proposed at a meeting of the Directors have:


78.2.1	signed one or more copies of it; or


78.2.2	otherwise indicated their agreement to it in writing.


78.3	A Directors' written resolution is not adopted if the number of Directors who have signed it is less than the quorum for Directors' meetings.


78.4	Once a Directors' written resolution has been adopted, it must be treated as if it had been a resolution passed at a Directors' meeting in accordance with the Articles.


79	VALIDITY OF PROCEEDINGS

All acts done by any meeting of Directors, or of any committee or sub-committee of the Directors, or by any person acting as a member of any such committee or sub-committee, shall as regards all persons dealing in good faith with the Company be valid, notwithstanding that there was some defect in the appointment of any Director or any such persons, or that any such persons were disqualified or had vacated office, or were not entitled to vote.

DIRECTORS' INTERESTS


80	AUTHORIZATION OF DIRECTORS' INTERESTS


80.1	For the purposes of section 175 of the Act, the Directors shall have the power to authorize any matter which would or might otherwise constitute or give rise to a breach of the duty of a Director to avoid a situation in which the Director has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company.


80.2	Authorization of a matter under this Article 80 shall be effective only if:


80.2.1	the matter in question shall have been proposed for consideration at a meeting of the Directors, in accordance with the Directors’ normal procedures or in such other manner as the Directors may resolve;


80.2.2	any requirement as to the quorum at the meeting of the Directors at which the matter is considered is met without counting the Director in question and any other interested Director (together the “Interested Directors”); and


80.2.3	the matter was agreed to without the Interested Directors voting or would have been agreed to if the votes of the Interested Directors had not been counted.


80.3	Any authorization of a matter under this Article 80 may:


80.3.1	extend to any actual or potential conflict of interest which may arise out of the matter so authorized;


80.3.2	be subject to such conditions or limitations as the Directors may resolve, whether at the time such authorization is given or subsequently; and


80.3.3	be terminated by the Directors at any time,

and a Director shall comply with any obligations imposed on the Director by the Directors pursuant to any such authorization.


80.4	A Director shall not, save as otherwise agreed by such Director, be accountable to the Company for any benefit which the Director (or a person connected with the Director) derives from any matter authorized by the Directors under this Article 80 and any contract, transaction or arrangement relating to such a matter shall not be liable to be avoided on the grounds of any such benefit.


81	PERMITTED INTERESTS


81.1	Subject to compliance with Article 81.2, a Director, notwithstanding such Director's office, may have an interest of the following kind:


81.1.1	where a Director (or a person connected with the Director) is a director or other officer of, or employed by, or otherwise interested (including by the holding of shares) in any Relevant Company (as defined below);


81.1.2	where a Director (or a person connected with the Director) is a party to, or otherwise interested in, any contract, transaction or arrangement with a Relevant Company, or in which the Company is otherwise interested;


81.1.3	where the Director (or a person connected with the Director) acts (or any firm of which the Director is a partner, employee or member acts) in a professional capacity for any Relevant Company (other than as Auditor) whether or not the Director (or such person or firm) is remunerated for such work;


81.1.4	where a Director is or becomes a director or officer of any other body corporate in which the Company does not have an interest if that cannot reasonably be regarded as likely to give rise to a conflict of interest at the time of the Director's appointment as director or officer of that other body corporate;


81.1.5	where a Director has an interest which cannot reasonably be regarded as likely to give rise to a conflict of interest;


81.1.6	where a Director has an interest, or a transaction or arrangement giving rise to an interest, of which the Director is not aware; or


81.1.7	where a Director has any other interest authorized by ordinary resolution.

No authorization under Article 80 shall be necessary in respect of any such interest.


81.2	A Director shall declare the nature and extent of any interest permitted under Article 81.1, and not falling within Article 81.3, at a meeting of the Directors or in such other manner as the Directors may resolve.


81.3	No declaration of an interest shall be required by a Director in relation to an interest:


81.3.1	falling within Article 81.1.5 or Article 81.1.6;


81.3.2	if, or to the extent that, the other Directors are already aware of such interest (and for this purpose the other Directors are treated as aware of anything of which they ought reasonably to be aware); or


81.3.3	if, or to the extent that, it concerns the terms of the Director service contract (as defined in section 227 of the Act) that have been or are to be considered by a meeting of the Directors, or by a committee of Directors appointed for the purpose under these Articles.

81.4

A Director shall not, save as otherwise agreed by the Director, be accountable to the Company for any benefit which the Director (or a person connected with the Director) derives from any such contract, transaction or arrangement or from any such office or employment or from any interest in any Relevant Company or for such remuneration, each as referred to in Article 81.1, and no such contract, transaction or arrangement shall be liable to be avoided on the grounds of any such interest or benefit.


81.5	For the purposes of this Article 81, “Relevant Company” shall mean:


81.5.1	the Company;


81.5.2	a subsidiary undertaking of the Company;


81.5.3	any holding company of the Company or a subsidiary undertaking of any such holding company;


81.5.4	any body corporate promoted by the Company; or


81.5.5	any body corporate in which the Company is otherwise interested.


82	INVESTOR DIRECTORS


82.1	In addition to the provisions of Article 81 and subject to article 82.3, a Director who is not an employee of the Group shall be authorized for the purposes of section 175 of the Act to act or continue to act as a Director of the Company notwithstanding that at the time of his appointment or subsequently he also:


82.1.1	holds office as a Director of an Investor or of an Affiliate of that Investor;


82.1.2	holds any other office, employment or engagement with an Affiliate of that Investor; or


82.1.3	is interested directly or indirectly in any shares or debentures (or any rights to acquire shares or debentures) in an Investor or an Affiliate of that Investor.


82.2	A Director who is not an employee of the Group shall be authorized for the purposes of section 175 of the Act to act or continue to act as a Director of the Company, notwithstanding his role as a representative of the Investor for the purposes of monitoring and evaluating its investment in the Company.


82.3	For the avoidance of doubt, this Article 82 does not authorize a Director who is not an employee of the Group for the purposes of section 175 of the Act where:


82.3.1	he or she holds office as a director of an Affiliate of an Investor; and


82.3.2	such Affiliate is considered, following determination by the other Directors at the relevant time, to be in direct competition with the business of the Company or any member of the Group.

82.4

Any determination as to whether an Affiliate of an Investor is in direct competition with the business of the Company or any member of the Group will be effective only if at the meeting at which the matter is considered any requirement as to quorum is met without counting the Director in question or any other Director interested in the matter under consideration and the matter was agreed to without such Director voting. A directorship of an Affiliate of an Investor determined to be in direct competition with the business of the Company or any member of the Group and held by a Director who is not an employee of the Group will be considered in accordance with Article 80.


83	RESTRICTIONS ON QUORUM AND VOTING

83.1

Save as provided in this Article 83, and whether or not the interest is one which is authorized pursuant to Article 80 or permitted under Article 81, a Director shall not be entitled to vote on any resolution in respect of any contract, transaction or arrangement, or any other proposal, in which the Director (or a person connected with the Director) is interested. Any vote of a Director in respect of a matter where the Director is not entitled to vote shall be disregarded.


83.2	A Director shall not be counted in the quorum at a meeting of the Directors in relation to any resolution on which the Director is not entitled to vote.


83.3	Subject to the provisions of the Act, a Director shall (in the absence of some other interest than is set out below) be entitled to vote, and be counted in the quorum, in respect of any resolution concerning any contract, transaction or arrangement, or any other proposal:


83.3.1	in which the Director has an interest of which the Director is not aware;


83.3.2	in which the Director has an interest which cannot reasonably be regarded as likely to give rise to a conflict of interest;


83.3.3	in which the Director has an interest only by virtue of interests in shares, debentures or other securities of the Company, or by reason of any other interest in or through the Company;

83.3.4

which involves the giving of any security, guarantee or indemnity to the Director or any other person in respect of (i) money lent or obligations incurred by the Director or by any other person at the request of or for the benefit of the Company or any of its subsidiary undertakings or (ii) a debt or other obligation of the Company or any of its subsidiary undertakings for which the Director has assumed responsibility in whole or in part under a guarantee or indemnity or by the giving of security;


83.3.5	concerning an offer of shares or debentures or other securities of or by the Company or any of its subsidiary undertakings (i) in which offer the Director is or may be entitled to participate as a holder of securities or (ii) in the underwriting or sub-underwriting of which the Director is to participate;

83.3.6

concerning any other body corporate in which the Director is interested, directly or indirectly and whether as an officer, shareholder, creditor, employee or otherwise, provided that the Director (together with persons connected with the Director) is not the holder of, or beneficially interested in, one per cent or more of the issued equity share capital of any class of such body corporate or of the voting rights available to members of the relevant body corporate;


83.3.7	relating to an arrangement for the benefit of the employees or former employees of the Company or any of its subsidiary undertakings which does not award the Director any privilege or benefit not generally awarded to the employees or former employees to whom such arrangement relates;


83.3.8	concerning the purchase or maintenance by the Company of insurance for any liability for the benefit of Directors or for the benefit of persons who include Directors;


83.3.9	concerning the giving of indemnities in favor of Directors where all other Directors are also being offered indemnities on substantially the same terms;


83.3.10	concerning the funding of expenditure by any Director or Directors (i) on defending criminal, civil or regulatory proceedings or action against the Director or Directors, (ii) in connection with an application to the court for relief, or (iii) on defending the Director or Directors in any regulatory investigations, where all other Directors are being offered substantially the same arrangements;


83.3.11	concerning the doing of anything to enable any Director or Directors to avoid incurring expenditure as described in Article 83.3.10, where all other Directors are being offered substantially the same arrangements; and


83.3.12	in respect of which the Director's interest, or the interest of Directors generally, has been authorized by ordinary resolution.

83.4

Where proposals are under consideration concerning the appointment (including fixing or varying the terms of appointment) of two or more Directors to offices or employments with the Company or any body corporate in which the Company is interested, the proposals may be divided and considered in relation to each Director separately. In such case each of the Directors concerned (if not debarred from voting under Article 83.1) shall be entitled to vote, and be counted in the quorum, in respect of each resolution except that concerning the Director's own appointment or the fixing or variation of the terms of the Director's own appointment.

83.5

If a question arises at any time as to whether any interest of a Director prevents the Director from voting, or being counted in the quorum, under this Article 83, and such question is not resolved by the Director voluntarily agreeing to abstain from voting, such question shall be referred to the Chairperson of the meeting and the Chairperson's ruling in relation to any Director other than the Chairperson shall be final and conclusive except in a case where the nature or extent of the interest of such Director has not been fairly disclosed. If any such question shall arise in respect of the Chairperson of the meeting, the question shall be decided by resolution of the Directors and the resolution shall be conclusive except in a case where the nature or extent of the interest of the Chairperson of the meeting (so far as it is known to the Chairperson) has not been fairly disclosed to the Directors.


84	CONFIDENTIAL INFORMATION


84.1	Subject to Article 84.2, if a Director, otherwise than by virtue of the Director's position as Director, receives information in respect of which the Director owes a duty of confidentiality to a person other than the Company, the Director shall not be required:


84.1.1	to disclose such information to the Company or to the Directors, or to any Director, officer or employee of the Company; or


84.1.2	otherwise to use or apply such confidential information for the purpose of or in connection with the performance of the Director's duties as a Director.


84.2	Where such duty of confidentiality arises out of a situation in which the Director has, or can have a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company, Article 84.1 shall apply only if the conflict arises out of a matter which has been authorized under Article 80 or falls within Article 81.


84.3	This Article 84 is without prejudice to any equitable principle or rule of law which may excuse or release the Director from disclosing information, in circumstances where disclosure may otherwise be required under this Article 84.


85	DIRECTORS' INTERESTS - GENERAL


85.1	For the purposes of Articles 80 to 85, a person is connected with a Director if that person is connected for the purposes of Section 252 of the Act.

85.2

Where a Director has an interest which can reasonably be regarded as likely to give rise to a conflict of interest, the Director may, and shall if so requested by the Directors, take such additional steps as may be necessary or desirable for the purpose of managing such conflict of interest, including compliance with any procedures laid down from time to time by the Directors for the purpose of managing conflicts of interest generally and/or any specific procedures approved by the Directors for the purpose of or in connection with the situation or matter in question, including:


85.2.1	not attending any meetings of the Directors at which the relevant situation or matter falls to be considered; and


85.2.2	not reviewing documents or information made available to the Directors generally in relation to such situation or matter and/or arranging for such documents or information to be reviewed by a professional adviser to ascertain the extent to which it might be appropriate for the Director concerned to have access to such documents or information.


85.3	The Company may by ordinary resolution ratify any contract, transaction or arrangement, or other proposal, not properly authorized by reason of a contravention of any provisions of Articles 80 to 85 or suspend or relax the provisions of Articles 80 to 85 to any extent.

POWERS OF DIRECTORS


86	GENERAL POWERS

The Directors shall manage the business and affairs of the Company and may exercise all powers of the Company other than those that are required by the Act or by these Articles to be exercised by the Company in General Meeting. No alteration of these Articles and no direction given by the Company shall invalidate a prior act of the Directors which would have been valid if the alteration had not been made or the direction had not been given. The provisions of these Articles giving specific powers to the Directors do not limit the general powers given by this Article.


87	PROVISION FOR EMPLOYEES ON CESSATION OR TRANSFER OF BUSINESS

The Directors may make provision for the benefit of persons employed or formerly employed by the Company or any of its subsidiaries (other than a Director, former Director or shadow director) in connection with the cessation or transfer to any person of the whole or part of the undertaking of the Company or that subsidiary.


88	BANK MANDATES

The Directors may by resolution authorize such person or persons as they think fit to act as signatories to any bank account of the Company and may amend or remove such authorisation from time to time by resolution.


89	BORROWING

Subject to these Articles and the Act, the Directors may exercise all powers of the Company to borrow money, to guarantee, to indemnify, to mortgage or charge its undertaking, property, assets (present and future) and called capital, and to issue debentures and other securities whether outright or as collateral security for any debt, liability or other obligation of the Company or any third party.

DELEGATION OF POWERS


90	APPOINTMENT AND CONSTITUTION OF COMMITTEES

90.1

The Directors may delegate any of their powers or discretions (including all powers and discretions whose exercise involves or may involve the payment of remuneration to or the conferring of any other benefit on all or any of the Directors) to such person (who need not be a Director) or committee (composing any number of persons, who need not be Directors) and in such manner as they think fit. Any such delegation may be either collaterally with or to the exclusion of their own powers and the Directors may revoke or alter the terms of any such delegation. Any such person or committee shall, unless the Directors otherwise resolve, have power to sub-delegate any of the powers or discretions delegated to them.


90.2	Any reference in these Articles to the exercise of a power or discretion by the Directors shall include a reference to the exercise of such power or discretion by any person or committee to whom it has been delegated.


90.3	The Directors may make regulations in relation to the proceedings of committees or sub-committees. Subject to any such regulations, the meetings and proceedings of any committee or sub-committee consisting of two or more persons shall be governed by the provisions of these Articles regulating the meetings and proceedings of the Directors (with such amendments as are necessary).


91	LOCAL BOARDS AND MANAGERS


91.1	The Directors may establish any local boards or appoint managers or agents to manage any of the affairs of the Company, in any location they think fit, and may:


91.1.1	appoint any persons to be managers or agents or members of such local boards, and may fix their remuneration;


91.1.2	delegate to any local board, manager or agent any of the powers, authorities and discretions vested in the Directors, with power to sub-delegate;


91.1.3	remove any person so appointed, and may annul or vary any such delegation; and


91.1.4	authorize the members of any local boards, or any of them, to fill any vacancies on such boards, and to act notwithstanding vacancies.


91.2	Any such appointment or delegation may be made upon such terms and subject to such conditions as the Directors may think fit.


92	APPOINTMENT OF ATTORNEY

92.1

The Directors may from time to time and at any time appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit.


92.2	Any such appointment may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit.


92.3	The Directors may also authorize any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in the attorney.


93	ALTERNATE DIRECTORS

93.1

Any Director may at any time appoint any person (including another Director) to be the Director's alternate Director and may at any time terminate such appointment. Such appointment or termination of appointment must be made by notice in writing signed by the Director concerned and deposited at the Office or delivered at a meeting of the Directors. Unless previously approved by the Directors or unless the appointee is another Director, the appointment of an alternate shall have effect only once it has been approved and such person has consented to act as an alternate.


93.2	The appointment of an alternate Director shall terminate:


93.2.1	on the happening of any event referred to in Articles 72.1.1, 72.1.4 or 72.1.5 in relation to that alternate Director; or


93.2.2	if the alternate's appointor ceases to be a Director, otherwise than by retirement at a General Meeting at which the appointor is re-elected.

93.3

An alternate Director shall be entitled to receive notices of meetings of the Directors and shall be entitled to attend and vote as a Director at any such meeting at which the Director appointing the alternate is not personally present and generally at such meetings to perform all functions of the appointor as a Director. For the purposes of the proceedings at such meetings, the provisions of these Articles shall apply as if the alternate (instead of the appointor) were a Director.


93.4	If an alternate is also a Director or shall attend any such meeting as an alternate for more than one Director, the alternate's voting rights shall be cumulative but the alternate shall not be counted more than once for the purposes of the quorum.


93.5	If the alternate's appointor is for the time being temporarily unable to act through ill health or disability or is otherwise unavailable for any reason an alternate's signature to any resolution in writing of the Directors shall be as effective as the signature of the appointor.


93.6	This Article 93 shall also apply (with such changes as are necessary) to such extent as the Directors may from time to time resolve to any meeting of any committee of the Directors of which the appointor of an alternate Director is a member.


93.7	Except as otherwise provided in this Article 93, an alternate Director shall not have power to act as a Director, nor shall the alternate be deemed to be a Director for the purposes of these Articles, nor shall the alternate be deemed to be the agent of the appointor.


93.8	An alternate Director shall be entitled to contract and be interested in and benefit from contracts or arrangements or transactions and to be repaid expenses and to be indemnified to the same extent as if the alternate were a Director.


93.9	An alternate shall not be entitled to receive remuneration from the Company in respect of the alternate's appointment as alternate Director except to the extent the alternate's appointor directs the Company by written notice to pay to the alternate some of the remuneration otherwise payable to that Director.

SECRETARY


94	SECRETARY

The Secretary shall be appointed by the Directors on such terms and for such period as they may think fit. Any Secretary so appointed may at any time be removed from office by the Directors, but without prejudice to any claim for damages for breach of any contract of service between the Secretary and the Company. If thought fit, two or more persons may be appointed as Joint Secretaries. The Directors or the Secretary may also appoint from time to time, on such terms as they or he may think fit, one or more Deputy and/or Assistant Secretaries.


95	THE SEAL


95.1	The Directors shall provide for the safe custody of the Seal and any Securities Seal and neither shall be used without the authority of the Directors or of a committee authorized by the Directors for that purpose. The Securities Seal shall be used only for sealing securities issued by the Company and documents creating or evidencing securities so issued.

95.2

Every instrument to which the Seal or the Securities Seal shall be affixed (other than a certificate for or evidencing shares, debentures or other securities (including options) issued by the Company) shall be signed autographically by one Director and the Secretary or by two Directors or by a Director or other person authorized for the purpose by the Directors in the presence of a witness unless the Directors decide, either generally or in a particular case, that a signature may be dispensed with or affixed by mechanical means.


95.3	The Company may exercise the powers conferred by the Act with regard to having an official seal for use abroad and such powers shall be vested in the Directors.


95.4	Any instrument signed by:


95.4.1	one Director and the Secretary; or


95.4.2	by two Directors; or


95.4.3	by a Director in the presence of a witness who attests the signature,

and expressed to be executed by the Company shall have the same effect as if executed under the Seal.

AUTHENTICATION OF DOCUMENTS


96	AUTHENTICATION OF DOCUMENTS


96.1	Any Director or the Secretary or any person appointed by the Directors for the purpose shall have power to authenticate:


96.1.1	any document affecting the constitution of the Company;


96.1.2	any resolution passed at a General Meeting or at a meeting of the Directors or any committee; and


96.1.3	any book, record, document or account relating to the business of the Company, and to certify copies or extracts as true copies or extracts.


96.2	Where any book, record, document or account is elsewhere than at the Office the local manager or other officer of the Company having the custody of it shall be deemed to be a person appointed by the Directors for the purpose of Article 96.1.


96.3	A document purporting to be a copy of any such resolution, or an extract from the minutes of any such meeting, which is certified shall be conclusive evidence in favor of all persons dealing with the Company that such resolution has been duly passed or, as the case may be, that any minute so extracted is a true and accurate record of proceedings at a duly constituted meeting.

OVERSEAS BRANCH


97	OVERSEAS BRANCH

The Company, or the directors on behalf of the Company, may cause to be kept in any territory an overseas branch register of members resident in any such territory, and the directors may make, and vary, such arrangements as they may think fit in relation to the keeping of any such register.

DIVIDENDS


98	DECLARATION OF FINAL DIVIDENDS


98.1	The Company may by ordinary resolution declare final dividends.


98.2	No dividend shall be declared unless it has been recommended by the Directors and does not exceed the amount recommended by the Directors.


99	FIXED AND INTERIM DIVIDENDS


99.1	If and so far as in the opinion of the Directors the profits of the Company justify such payments, the Directors may:


99.1.1	pay the fixed dividends on any class of shares carrying a fixed dividend expressed to be payable on fixed dates on the dates prescribed for the payment of such dividends; and


99.1.2	pay interim dividends on shares of any class of such amounts and on such dates and in respect of such periods as they think fit.


99.2	Provided the Directors act in good faith they shall not incur any liability to the holders of any shares for any loss they may suffer by the lawful payment of any fixed or interim dividend on any other class of shares having rights ranking after or equal with those shares.


100	DISTRIBUTION IN SPECIE


100.1	Without prejudice to Article 99, the Company may by ordinary resolution direct payment of a dividend in whole or in part by the transfer of specific assets, or by procuring the receipt by shareholders of specific assets, of equivalent value (including paid-up shares or debentures of any other company) and the Directors shall give effect to such resolution.


100.2	Where any difficulty arises in regard to such distribution, the Directors may make such arrangements as they think fit, including:


101.2.1	issuing fractional certificates (or ignoring fractions);


101.2.2	fixing the value of any of the assets to be transferred;


101.2.3	paying cash to any member on the basis of the value fixed for the assets in order to adjust the rights of members; and


101.2.4	vesting any assets in trustees.


101	RANKING OF SHARES FOR DIVIDEND


101.1	Unless and to the extent that the rights attached to any shares or the terms of issue of those shares provide otherwise, all dividends shall be:


101.1.1	declared and paid according to the amounts paid up on the shares on which the dividend is paid; and


101.1.2	apportioned and paid proportionately to the amounts paid on the shares during any portion or portions of the period in respect of which the dividend is paid.


101.2	If the terms of issue of a share provide that it ranks for dividends as from a particular date then that share will rank for dividends as from that date.


101.3	For the purposes of this Article 101, no amount paid on a share in advance of the date on which such payment is due shall be treated as paid on the share.


102	MANNER OF PAYMENT OF DIVIDENDS


102.1	Any dividend or other sum payable on or in respect of a share shall be paid to:


102.1.1	the holder of that share;


102.1.2	if the share is held by more than one person, whichever of the joint holders' names appears first in the Register;


102.1.3	if the member is no longer entitled to the share, the person or persons entitled to it; or


102.1.4	such other person or persons as the member (or, in the case of joint holders of a share, all of them) may direct,

and such person shall be the “payee” for the purpose of this Article 102.


102.2	Such dividend or other sum may be paid:


102.2.1	by cheque sent by post to the payee or, where there is more than one payee, to any one of them at the address shown in the Register or such address as that person notifies the Company in writing;


102.2.2	by bank transfer to such account as the payee or payees shall in writing direct;


102.2.3	(if so authorized by the holder of shares in uncertificated form) using the facilities of a relevant system (subject to the facilities and requirements of the relevant system); or


102.2.4	by such other method of payment as the payee or payees and the Directors may agree.


102.3	Subject to the provisions of these Articles and to the rights attaching to any shares, any dividend or other sum payable on or in respect of a share may be paid in such currency as the Directors may resolve, using such exchange rate for currency conversions as the Directors may reasonably select.


102.4	Every cheque, warrant or money order sent by post is sent at the risk of the person entitled to the payment. If payment is made by bank or other funds transfer, by means of a relevant system or by another method at the direction of the person entitled to payment, the Company is not responsible for amounts lost or delayed in the course of making that payment.


103	RECORD DATE FOR DIVIDENDS

103.1

Notwithstanding any other provision of these Articles, but subject to the Act and rights attached to shares, the Company or the Directors may fix any date as the record date for a dividend, distribution, allotment or issue. The record date may be on or at any time before or after a date on which the dividend, distribution, allotment or issue is declared, made or paid. The power to fix any such record date shall include the power to fix a time on the chosen date.


104	NO INTEREST ON DIVIDENDS

The Company shall not pay interest on any dividend or other sum payable on or in respect of a share unless the terms of issue of that share or the provisions of any agreement between the Company and the holder of that share provide otherwise.


105	RETENTION OF DIVIDENDS


105.1	The Directors may retain all or part of any dividend or other sum payable on or in respect of a share on which the Company has a lien in respect of which the Directors are entitled to issue an enforcement notice.


105.2	The Company shall apply any amounts retained pursuant to Article 105.1 in or towards satisfaction of the moneys payable to the Company in respect of that share.


105.3	The Company shall notify the person otherwise entitled to payment of the sum that it has been retained and how the retained sum has been applied.


105.4	The Directors may retain the dividends payable upon shares:


105.4.1	in respect of which any person is entitled to become a member pursuant to Article 35 until such person shall become a member in respect of such shares; or


105.4.2	which any person is entitled to transfer pursuant to Article 35 until such person has transferred those shares.


106	UNCLAIMED DIVIDEND

106.1

The Company may cease to send any cheque, warrant or order (or other means of payment) by post for any dividend on any shares which is normally paid in that manner if in respect of at least two consecutive dividends payable on those shares the cheque, warrant or order has been returned undelivered or remains uncashed but, subject to the provisions of these Articles, shall recommence sending cheques, warrants or orders in respect of the dividends payable on those shares if the holder of or person entitled to them claims the arrears of dividend and does not instruct the Company to pay future dividends in some other way.


106.2	Any unclaimed dividends may be invested or otherwise applied for the benefit of the Company until they are claimed.


106.3	The payment by the Directors of any unclaimed dividend or other sum payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect of that amount.


106.4	If a dividend remains unclaimed after a period of twelve years from the date on which it was declared or became due for payment the person who was otherwise entitled to it shall cease to be entitled and the Company may keep that sum.


107	WAIVER OF DIVIDEND

A shareholder or other person entitled to a dividend may waive it in whole or in part. The waiver of any dividend shall be effective only if such waiver is in writing and signed or authenticated in accordance with Article 116.1 by the shareholder or the person entitled to the dividend and delivered to the Company.


108	CALLS OR DEBTS MAY BE DEDUCTED

The Directors may deduct from a dividend or other amounts payable to a person in respect of a share amounts due from him to the Company on account of a call or otherwise in relation to a share.

SCRIP DIVIDENDS


109	SCRIP DIVIDENDS


109.1	The Directors may offer to ordinary shareholders the right to elect to receive an allotment of new ordinary shares (“Scrip Shares”) credited as fully paid in lieu of the whole or part of a dividend.


109.2	The Directors shall not allot Scrip Shares unless so authorized by ordinary resolution. Such a resolution may give authority in relation to particular dividends or may extend to all dividends declared or paid in the period specified in the resolution. Such period may not be longer than five years from the date of the resolution.


109.3	The Directors may, without the need for any further ordinary resolution, offer rights of election in respect of any dividend declared or proposed after the date of the adoption of these Articles and at or prior to the next Annual General Meeting.


109.4	The Directors may offer such rights of election to shareholders either:


110.4.1	in respect of the next dividend proposed to be paid; or


110.4.2	in respect of that dividend and all subsequent dividends, until such time as the election is revoked or the authority given pursuant to Article 109.2 expires without being renewed (whichever is the earlier).

109.5

The number of the Scrip Shares to be allotted in lieu of any amount of dividend shall be decided by the Directors and shall be such whole number of ordinary shares as have a value equal to or as near as possible to but in no event greater than such amount. For such purpose, the value of an ordinary share shall be the average of the quotations of an ordinary share on the New York Stock Exchange on each of the first five trading days on which the ordinary shares are quoted as being “ex” the relevant dividend. No fraction of an ordinary share shall be allotted.

109.6

If the Directors resolve to offer a right of election they shall give written notice of such right to the ordinary shareholders specifying the procedures to be followed in order to exercise such right. No notice need be given to a shareholder who has previously made, and has not revoked, an earlier election to receive ordinary shares in lieu of all future dividends, but the Directors shall instead send such shareholder a reminder of the election made, indicating how that election may be revoked in time for the next dividend proposed to be paid.

109.7

If a member has elected to receive Scrip Shares in place of a dividend, that dividend (or that part of the dividend in respect of which a right of election has been given) shall not be payable on ordinary shares in respect of which the share election has been duly exercised and has not been revoked (the “elected Ordinary Shares”). In place of such dividend, the following provisions shall apply:


109.7.1	such number of Scrip Shares as are calculated in accordance with Article 109.5 shall be allotted to the holders of the elected Ordinary Shares;


109.7.2	unless the Uncertificated Securities Regulations require otherwise, if the elected Ordinary Shares are in uncertificated form on the record date then the Scrip Shares shall be issued as uncertificated shares;


109.7.3	if the elected Ordinary Shares are in certificated form on the Record Date then the Scrip Shares shall be issued as certificated shares;


109.7.4	the Directors shall capitalize in accordance with the provisions of Article 9 (without the need for a separate ordinary resolution) a sum equal to the aggregate nominal amount of the Scrip Shares to be allotted and shall apply that sum in paying up in full the appropriate number of new ordinary shares for allotment and distribution to and amongst the holders of the elected Ordinary Shares; and


109.7.5	the Scrip Shares allotted shall rank equally in all respects with the fully paid ordinary shares then in issue save only as regards participation in the relevant dividend.


109.8	No fraction of an ordinary share shall be allotted. The Directors may make such provision as they think fit for any fractional entitlements including that the whole or part of the benefit of those fractions accrues to the Company or that the fractional entitlements are accrued and/or retained on behalf of any ordinary shareholder.


109.9	In relation to any particular proposed dividend, the Directors may in their absolute discretion resolve and shall so resolve if the Company has insufficient reserves or otherwise does not have the necessary authorities or approvals to issue new ordinary shares:


109.9.1	that shareholders shall not be entitled to make any election to receive shares in place of a cash dividend and that any election previously made shall not extend to such dividend; or


109.9.2	at any time prior to the allotment of the ordinary shares which would otherwise be allotted in lieu of that dividend, that all elections to take shares shall be treated as not applying to that dividend,

and if so the dividend shall be paid in cash as if no elections had been made in respect of it.

ACCOUNTS


110	ACCOUNTING RECORDS

Accounting records sufficient to show and explain the Company’s transactions and otherwise complying with the Act shall be kept at the Office, or at such place as the Directors think fit. No person shall have any right simply by virtue of being a member to inspect any account or book or document of the Company except as conferred by the Act or ordered by a court of competent jurisdiction or authorized by the Directors.

COMMUNICATIONS WITH MEMBERS


111	SERVICE OF NOTICES


111.1	The Company may, subject to and in accordance with the Act and these Articles, send or supply all types of notices, documents or information to members by electronic means and/or by making such notices, documents or information available on a website.


111.2	The Company Communications Provisions have effect, subject to the provisions of Articles 111 to 114, for the purposes of any provision of the Act or these Articles that authorizes or requires notices, documents or information to be sent or supplied by or to the Company.

111.3

Any notice, document or information (including a share certificate) which is sent or supplied by the Company in hard copy form, or in electronic form but to be delivered other than by electronic means, and which is sent by pre-paid post and properly addressed shall be deemed to have been received by the intended recipient at the expiration of twenty four hours after the time it was posted (or forty eight hours where first class mail or an equivalent service is not employed for members with a registered address in the UK). In proving such receipt it shall be sufficient to show that such notice, document or information was properly addressed, pre-paid and posted.


111.4	Any notice, document or information which is sent or supplied by the Company by electronic means shall be deemed to have been received by the intended recipient twenty four hours after it was transmitted, and in proving such receipt it shall be sufficient to show that such notice, document or information was properly addressed.


111.5	Any notice, document or information which is sent or supplied by the Company by means of a website shall be deemed to have been received when the material was first made available on the website or, if later, when the recipient received (or, in accordance with this Article 111, is deemed to have received) notice of the fact that the material was available on the website.


111.6	Any notice, document or information which is sent or supplied by the Company by means of a relevant system shall be deemed to have been received by the recipient twenty four hours after the Company or any sponsoring system-participant acting on the Company’s behalf sends the issuer-instruction relating to the notice, document or information.


111.7	An accidental failure to send or late sending of, or non-receipt by any person entitled to, any notice of or other document or information relating to any meeting or other proceeding shall not invalidate the relevant meeting or proceeding.


111.8	The provisions of this Article 111 shall have effect in place of the Company Communications Provisions relating to deemed delivery of notices, documents or information.


111.9	A notice, document or information served or delivered by the Company by any other means authorized in writing by the member concerned is deemed to be served when the Company has taken the action it has been authorized to take for that purpose.


111.10	A member present at a General Meeting of the Company is deemed to have received due notice of the meeting and, where required, of the purposes for which it was called.


112	COMMUNICATION WITH JOINT HOLDERS


112.1	Anything which needs to be agreed or specified by the joint holders of a share shall for all purposes be taken to be agreed or specified by all the joint holders where it has been agreed or specified by the joint holder whose name stands first in the Register in respect of the share.


112.2	If more than one joint holder gives instructions or notifications to the Company pursuant to these Articles then save where these Articles specifically provide otherwise, the Company shall only recognize the instructions or notifications of whichever of the joint holders' names appears first in the Register.


112.3	Any notice, document or information which is authorized or required to be sent or supplied to joint holders of a share may be sent or supplied to the joint holder whose name stands first in the Register in respect of the share, to the exclusion of the other joint holders.


112.4	The provisions of this Article 112 shall have effect in place of the Company Communications Provisions regarding joint holders of shares.


112.5	If two or more persons are registered as joint holders of any share, or are entitled jointly to a share in consequence of the death or bankruptcy of the holder or otherwise by operation of law, any one of them may give instructions to the Company and give effectual receipts for any dividend or other moneys payable or property distributable on or in respect of the share.


113	DECEASED AND BANKRUPT MEMBERS


113.1	A person who claims to be entitled to a share in consequence of the death or bankruptcy of a member or otherwise by operation of law shall supply to the Company:


113.1.1	such evidence as the Directors may reasonably require to show such person's title to the share; and


113.1.2	an address at which notices may be sent or supplied to such person.


113.2	Subject to complying with Article 113.1, such a person shall be entitled to:


113.2.1	have sent or supplied to such address any notice, document or information to which the relevant member would have been entitled. Any notice, document or information so sent or supplied shall for all purposes be deemed to be duly sent or supplied to all persons interested in the share (whether jointly with or as claiming through or under such person); and


113.2.2	give instructions or notifications to the Company pursuant to these Articles in relation to the relevant shares and the Company may treat such instruction or notification as duly given by all persons interested in the share (whether jointly with or as claiming through or under such person).

113.3

Unless a person entitled to the share has complied with Article 113.1, any notice, document or information sent or supplied to the address of any member pursuant to these Articles shall be deemed to have been duly sent or supplied in respect of any share registered in the name of such member as sole or first-named joint holder. This Article shall apply notwithstanding even if such member is dead or bankrupt or in liquidation, and whether or not the Company has notice of such member's death or bankruptcy or liquidation.


113.4	The provisions of this Article 113 shall have effect in place of the Company Communications Provisions regarding the death or bankruptcy of a member.


114	FAILURE TO SUPPLY ADDRESS

114.1

The Company shall not be required to send notices, documents or information to a member who (having no registered address within the United States) has not supplied to the Company either a postal address within the United States or an electronic address for the service of notices. Any notice that, notwithstanding this Article 114, is sent to a member whose registered address is not within the United States shall be deemed to have been sent for information purposes only.


114.2	If the Company sends more than one document to a member on separate occasions during a twelve month period and each of them is returned undelivered then that member will not be entitled to receive notices from the Company until the member has supplied a new postal or electronic address for the service of notices.


115	SUSPENSION OF POSTAL SERVICES

115.1

Where, by any suspension or curtailment of postal services, the Company is unable effectively to give notice of a general meeting, or meeting of the holders of any class of shares, the directors may decide that the only persons to whom notice of the affected general meeting must be sent are the directors, the Company’s auditors, those members to whom notice to convene the general meeting can validly be sent by electronic means and those members to whom notification as to the availability of the notice of meeting on a website can validly be sent by electronic means. In any such case the Company shall also:


115.1.1	advertise the general meeting in at least two national daily newspapers published in the United Sates; and


115.1.2	send or supply a confirmatory copy of the notice to members in the same manner as it sends or supplies notices under article 88 if at least seven clear days before the meeting the posting of notices again becomes practicable.


116	SIGNATURE OR AUTHENTICATION OF DOCUMENTS SENT BY ELECTRONIC MEANS

Where these Articles require a notice or other document to be signed or authenticated by a member or other person, then any notice or other document sent or supplied in electronic form is sufficiently authenticated in any manner authorized by the Company Communications Provisions or in such other manner as may be approved by the Directors. The Directors may designate mechanisms for validating any such notice or other document, and any such notice or other document not so validated by use of such mechanisms shall be deemed not to have been received by the Company.


117	STATUTORY PROVISIONS AS TO NOTICES

Nothing in any of these Articles shall affect any provision of the Act that requires or permits any particular notice, document or information to be sent or supplied in any particular manner.

WINDING UP


118	DIRECTORS' POWER TO PETITION


118.1	The Directors shall have power in the name and on behalf of the Company to present a petition to the Court for the Company to be wound up.

118.2

On a voluntary winding up of the Company the liquidator may, on obtaining any sanction required by law, divide among the members in kind the whole or any part of the assets of the Company, whether or not the assets consist of property of one kind or of different kinds, and vest the whole or any part of the assets in trustees upon such trusts for the benefit of the members as he, with the like sanction, shall determine. For this purpose the liquidator may set the value he deems fair on a class or classes of property, and may determine on the basis of that valuation and in accordance with the then existing rights of members how the division is to be carried out between members or classes of members. The liquidator may not, however, distribute to a member without his consent an asset to which there is attached a liability or potential liability for the owner.

DESTRUCTION OF DOCUMENTS


119	DESTRUCTION OF DOCUMENTS


119.1	The Company may destroy:


119.1.1	all instruments of transfer or other documents which have been registered or on the basis of which registration was made at any time after the expiration of six years from the date of registration;


119.1.2	all dividend mandates and notifications of change of address at any time after the expiration of two years from the date of recording of them;


119.1.3	all share certificates which have been cancelled at any time after the expiration of one year from the date of the cancellation;


119.1.4	all proxy appointments from one year after the end of the meeting to which the appointment relates; and


119.1.5	any other document on the basis of which any entry in the register is made at any time after ten years from the date an entry in the register was first made in respect of it.


119.2	It shall conclusively be presumed in favor of the Company that:


119.2.1	every entry in the Register purporting to have been made on the basis of an instrument of transfer or other document so destroyed was duly and properly made;


119.2.2	every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered;


119.2.3	every share certificate so destroyed was a valid and effective certificate duly and properly cancelled; and


119.2.4	every other document mentioned in this Article 119 so destroyed was a valid and effective document in accordance with the recorded particulars in the books or records of the Company.


119.3	The provisions of this Article 119:


119.3.1	shall apply only to the destruction of a document in good faith and without notice of any claim to which the document might be relevant; and


119.3.2	shall not be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than provided by this Article 119 or in any other circumstances, which would not attach to the Company in the absence of this Article 119.


119.4	Any document referred to in this Article 119 may, subject to the Act, be destroyed before the end of the relevant period so long as a copy of such document (whether made electronically or by any other means) has been made and is retained until the end of the relevant period.


119.5	References in this Article 119 to the destruction of any document include references to its disposal in any manner.

DIRECTORS' LIABILITIES


120	INDEMNITY


120.1	So far as may be permitted by the Act every Relevant Officer may be indemnified by the Company out of its own funds against:


120.1.1	any liability incurred by or attaching to the Relevant Officer in connection with any negligence, default, breach of duty or breach of trust by the Relevant Officer in relation to the Company or any Associated Company (as defined below) of the Company other than:


(i)	any liability to the Company or any Associated Company; and


(ii)	any liability of the kind referred to in Section 234(3) of the Act; and


120.1.2	any other liability incurred by or attaching to the Relevant Officer in relation to or in connection with the Relevant Officer's duties, powers or office, including in connection with the activities of the Company or an Associated Company in its capacity as a trustee of an occupational pension scheme, subject to the limitations provided for in section 234(3) of the Act.


120.2	Where a Relevant Officer is indemnified against any liability in accordance with this Article 120, such indemnity may extend to all costs, charges, losses, expenses and liabilities incurred by the Relevant Officer in relation thereto.


120.3	In this Article 120:


120.3.1	“Associated Company” shall have the same meaning as in Section 256 of the Act, and


120.3.2	“Relevant Officer” means a Director or former Director of the Company or of an Associated Company of the Company.


121	INSURANCE


121.1	Without prejudice to Article 120, the Directors shall have power to purchase and maintain insurance for or for the benefit of:


121.1.1	any person who is or was at any time a Director or Secretary of any Relevant Company (as defined in Article 121.2); or


121.1.2	any person who is or was at any time a trustee of any pension fund or employees' share scheme in which employees of any Relevant Company are interested,

including insurance against any liability (including all costs, charges, losses and expenses in relation to such liability) incurred by or attaching to such person in relation to such person's duties, powers or offices in relation to any Relevant Company, or any such pension fund or employees' share scheme.


121.2	For the purpose of Article 121.1, “Relevant Company” shall mean:


121.2.1	the Company;


121.2.2	any holding company of the Company;


121.2.3	any other body, whether or not incorporated, in which the Company or such holding company or any of the predecessors of the Company or of such holding company has or had any interest whether direct or indirect or which is in any way allied to or associated with the Company; or


121.2.4	any subsidiary undertaking of the Company or of such other body.


122	DEFENCE EXPENDITURE


122.1	So far as may be permitted by the Act, the Company may:


122.1.1	provide a Relevant Officer with funds to meet expenditure incurred or to be incurred by the Relevant Officer:


(i)	in defending any criminal or civil proceedings in connection with any negligence, default, breach of duty or breach of trust by the Relevant Officer in relation to the Company or an Associated Company of the Company; or


(ii)	in connection with any application for relief under the provisions mentioned in section 205(5) of the Act; and


122.1.2	do anything to enable any such Relevant Officer to avoid incurring such expenditure.


122.2	The terms set out in section 205(2) of the Act shall apply to any provision of funds or other things done under Article 122.1.


122.3	So far as may be permitted by the Act, the Company:

122.3.1

may provide a Relevant Officer with funds to meet expenditure incurred or to be incurred by the Relevant Officer in defending himself/herself in an investigation by a regulatory authority or against action proposed to be taken by a regulatory authority in connection with any alleged negligence, default, breach of duty or breach of trust by the Relevant Officer in relation to the Company or any Associated Company of the Company; and


122.3.2	may do anything to enable any such Relevant Officer to avoid incurring such expenditure.


122.4	In this Article 122:


122.4.1	“Associated Company” shall have the same meaning as in section 256 of the Act; and


122.4.2	“Relevant Officer” means a Director, former Director or Secretary of the Company or of an Associated Company of the Company.


123	FORUM

Unless the Company by ordinary resolution consents in writing to the selection of an alternative forum, the courts of England and Wales shall have exclusive jurisdiction to determine any dispute brought by a member in that member’s capacity as such, or related to or connected with any derivative claim in respect of a cause of action vested in the Company or seeking relief on behalf of the Company, against the Company and/or the board and/or any of the directors, former directors, officers or other employees or members individually, arising out of or in connection with these Articles or (to the maximum extent permitted by applicable law) otherwise. To the fullest extent permitted by law, any person purchasing or otherwise acquiring any interest in shares in the capital of the Company shall be deemed to have notice of and consents to the provisions of this Article 123.

The governing law of these Articles is the law of England and Wales and these Articles shall be interpreted in accordance with the laws of England and Wales.


124	DEPOSITARY INTERESTS OTHER THAN DTC


124.1	The Directors shall, subject always to applicable law and the provisions of these Articles, have power to implement or approve (or both) any arrangements which they may, in their absolutely discretion, think fit in relation to (without limitation) the evidencing of title to and transfer of Depositary Interests or similar interests in shares.

124.2

The Directors may from time to time take such actions and do such things as they may, in their absolute direction, think fit in relation to the operator of any such arrangements under Article 124.1 including, without limitation, treating Depositary Interest Holders as if they were holders directly of the shares or interests in shares represented thereby for the purposes of compliance with any obligations imposed under these Articles on members.


124.3	If and to the extent that the Directors implement or approve (or both) any arrangements in relation to the evidencing of title to and transfer of Depositary Interests or similar interests in shares in accordance with Articles 124.2 and 124.3, the Directors shall ensure that such arrangements provide (in so far as is practicable):


124.3.1	a Depositary Interest Holder with the same or equivalent rights as a member of the Company, including, without limitation, in relation to the exercise of voting rights and provision of information;


124.3.2	the Company and the Directors with the same or equivalent powers as given under these Articles in respect of a member of the Company, including, without limitation, the powers of the Directors under Article 62, so that such power may be exercised against a Depositary Interest Holder and the shares or interest in shares represented by such Depositary Interest Holder or similar interests.


124.4	Articles 124.1 to 124.3 shall not apply to any Depositary Interests held in a settlement system operated by DTC.

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Ivo Jurek, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 28, 2019 of Gates Industrial Corporation plc (the “registrant”);


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.




Date:	November 6, 2019

/s/ Ivo Jurek
Ivo Jurek
Chief Executive Officer
(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, David H. Naemura, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 28, 2019 of Gates Industrial Corporation plc (the “registrant”);


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.




Date:	November 6, 2019

/s/ David H. Naemura
David H. Naemura
Chief Financial Officer
(Principal Financial Officer)

Exhibit 32.1

Certification pursuant to

18 U.S.C. Section 1350,

as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Gates Industrial Corporation plc (the “Company”) for the period ended September 28, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certifies, in his capacity as an officer of the Company and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:


(i)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(ii)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




/s/ Ivo Jurek
Ivo Jurek
Chief Executive Officer
(Principal Executive Officer)
Date:	November 6, 2019

/s/ David H. Naemura
David H. Naemura
Chief Financial Officer
(Principal Financial Officer)
Date:	November 6, 2019

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.