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Fagron N.V.
Earnings Release • Aug 6, 2020
3949_iss_2020-08-06_4be7cfd0-8402-480a-a4b4-17b52d27aeea.pdf
Earnings Release
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Regulated information Nazareth (Belgium)/Rotterdam (The Netherlands), 6 August 2020
Fagron turnover up 9.1%; REBITDA increased 13.2% to € 62.9 million
Limited impact from COVID-19 pandemic
Highlights H1 2020 – Financial
- Turnover increased 9.1% to € 278.8 million (+14.0% CER1 ); organic growth of 7.2% CER
- REBITDA2 up 13.2% to € 62.9 million (+18.6% CER)
- REBITDA margin improved to 22.6% (H1 2019: 21.8%)
- EBIT up 14.0% to € 46.2 million
- Net profit increased to € 31.6 million (+144.0%)
- Operating cash flow of € 27.2 million
- Net financial debt /REBITDA ratio of 2.35 at 30 June 2020
Strategic and operational highlights
- All regions developed strongly
- The impact of the COVID-19 pandemic remained limited in the second quarter of 2020:
- o Shift in demand from elective care to care related to COVID-19
- o All facilities are fully operational
- o Virtually no disruptions in the supply chain
- o Shift in demand from elective care to care related to COVID-19
- Higher strategic inventories due to COVID-19
- Disciplined cost control in view of ongoing global uncertainty about the impact of COVID-19
Rafael Padilla, CEO of Fagron: "For Fagron, like many other companies, the first half of 2020 was characterized by the COVID-19 pandemic. Our strong results show the strength of our diversity, both regionally and product-wise. We are proud of our team and their utmost commitment in these times that are challenging for everyone. Our resilience and the entrepreneurship that is present throughout the organization enable us to respond well to the situation.
On the one hand Fagron benefited from higher demand for COVID-19-related products, as reflected in the turnover growth in Brands and Essentials. We have made every effort to safeguard the availability of our products to continue to serve our customers as best we can. Our comprehensive global network of suppliers and solid setup of our supply chain were beneficial to this.
On the other hand, we faced lower demand for elective care, a development that particularly affected Compounding Services. Clinics were temporarily closed in many regions and non-critical operations were postponed. Also, there was a clear decline in visits to the doctor. We managed the costs of our activities
1 Constant Exchange Rates 2 EBITDA before the non-recurring result
that were affected by this in a very disciplined way, without losing our focus on strengthening our position in the long term.
All regions developed strongly. In North America and Latin America higher turnover thanks to strong demand in Brands and Essentials combined with effective cost management resulted in a strong improvement in the REBITDA margin.
In the coming half year, we will continue to pursue our policy aimed at making the most of opportunities while being critical of our costs. The COVID-19 pandemic is developing differently in every region and there are vast differences even within regions. In a number of regions, we saw a slight recovery in elective care in June, albeit not yet to the level recorded before the outbreak of COVID-19. In other regions the rate of contamination is still growing. Thanks to our diversified product range and proven strategy we are well-positioned to respond to this evolving situation."
Update on COVID-19
Supply chain
There have been virtually no disruptions to Fagron's supply chain thanks to our global network of suppliers, which provides us with multiple suppliers of each raw material.
Product availability is a critical success factor in the current situation, particularly with respect to products that are facing a shortage due to the sudden increase in demand. Inventory levels are being closely monitored and mitigated by keeping higher inventories of specific products. In addition, Fagron is wellprepared for alternative sourcing scenarios, due in part to its extensive global network of approved suppliers.
Temporary shift in demand for products
The temporary shift in demand as a result of COVID-19 was also evident in the second quarter of 2020. Even though the timing and intensity of COVID-19 related measures differ in the various regions, generally speaking elective care is being postponed or scaled back while demand for specific products in aid of COVID-19 care is exceptionally high. June saw a pickup in demand for elective care in a number of regions, albeit not yet to the level seen before the outbreak of COVID-19. On balance the impact of these shifts on the gross margin was very limited.
Outbreak control measures
The outbreak of the COVID-19 pandemic, along with the measures taken to try to control the spread of the virus, is developing differently in each region. A number of countries where the measures were eased at the start of the summer have reintroduced restrictions. In some regions, particularly in a number of states in the United States and in Brazil, the number of cases is still rising sharply. The picture is therefore extremely varied with a continued high level of uncertainty.
Despite the fact that Fagron currently expects this to have a limited and non-material impact on its performance, the economic uncertainty persists. To mitigate this risk Fagron will continue to manage its cost base, investments and cash flow in a critical and disciplined way. In the past few months Fagron has successfully kept its operating costs under control, for example by temporarily refraining from hiring new staff in non-key positions and slowing down investments. This policy will remain in place throughout the COVID-19 pandemic.
Update on buy-and-build
In the first half of 2020 Fagron completed the acquisition of German company Gako and entered into a partnership with Azelis for the Australian market. Potential acquisitions have not been a priority for the past few months but the focus on possible takeovers is slowly returning. Fagron is keeping an eye on potential acquisition opportunities that may arise in the current market dynamics.
Gako - Germany
Fagron completed the acquisition of the activities of German company Gako at the end of January 2020. Gako is a leading global developer, manufacturer and supplier of mixing equipment that pharmacists can use for the compounding of semi-solid dermatological formulations (primarily creams and ointments) directly in the final packaging or in bulk packaging. The transaction includes all the technologies, scientific data and patents and trademarks, as well as the Gako production facility in Bamberg (Germany). In 2019 Gako realized a turnover of € 4.5 million and an EBITDA margin of approximately 15%.
Azelis partnership - Australia
At the beginning of February 2020 Fagron entered into a partnership with Azelis Australia for the distribution of Essentials and Brands in Australia and New Zealand to strengthen their combined position in the competitive Australian market.
Operational update
Start of construction at new repackaging facility in Poland
Due to the COVID-19 pandemic, the construction of the new GMP facility in Krakow, Poland, for the repackaging of raw materials has been slightly delayed. The new facility is expected to be operational in early 2021 and result in a structural annual margin improvement of € 2 million.
| Income statement (x € 1,000) | H1 2020 | H1 2019 | Δ |
|---|---|---|---|
| Net turnover | 278,750 | 255,399 | +9.1% |
| Gross margin | 166,557 | 155,934 | +6.8% |
| As % of net turnover | 59.8% | 61.1% | |
| Operating costs | 103,623 | 100,344 | +3.3% |
| As % of net turnover | 37.2% | 39.3% | |
| EBITDA before non-recurrent result | 62,934 | 55,590 | +13.2% |
| As % of net turnover | 22.6% | 21.8% | |
| Non-recurrent result | -1,654 | -1,397 | -18.4% |
| EBITDA | 61,280 | 54,193 | +13.1% |
| As % of net turnover | 22.0% | 21.2% | |
| Depreciation and amortization | 15,084 | 13,663 | +10.4% |
| EBIT | 46,196 | 40,530 | +14.0% |
| As % of net turnover | 16.6% | 15.9% | |
| Financial result | -7,172 | -7,045 | -1.8% |
| Profit before taxes | 39,024 | 33,485 | +16.5% |
| Taxes | -7,466 | -6,714 | -11.2% |
| Net profit from continued operations | 31,559 | 26,771 | +17.9% |
| Result from discontinued operations | 0 | -13,839 | |
| Net profit | 31,559 | 12,932 | +144.0% |
| Recurrent net profit3 | 32,822 | 28,006 | +17.2% |
| Net profit from continued operations per share (€) |
0.44 | 0.37 | |
| Recurrent net profit per share (€) | 0.46 | 0.39 | |
| Average number of outstanding shares | 72,075,277 | 71,740,277 |
Income statement and balance sheet
| Balance sheet (x € 1,000) | 30-06-2020 | 31-12-2019 |
|---|---|---|
| Intangible fixed assets | 394,526 | 418,137 |
| Property, plant and equipment | 117,635 | 121,208 |
| Deferred tax assets | 20,133 | 18,420 |
| Financial assets | 3,676 | 4,287 |
| Operational working capital | 60,846 | 44,763 |
| Other working capital | -55,076 | -63,251 |
| Equity | 231,326 | 246,440 |
| Provisions and pension obligations | 9,450 | 11,431 |
| Financial instruments | 548 | 507 |
| Deferred tax liabilities | 1,942 | 339 |
| Net financial debt | 298,476 | 284,847 |
3 Recurring net profit is defined as profit before non-recurring items and the revaluation of financial derivatives, adjusted for tax
Notes to the consolidated results
Income statement
Consolidated turnover amounted to € 278.8 million, an increase of 9.1% (+14.0% at constant exchange rates) compared to the first half of 2019. Organic growth equaled 3.1% (+7.2% at constant exchange rates). More detailed information on turnover development by region can be found under 'Key figures by segment'.
The gross margin increased by 6.8% to € 166.6 million. The gross margin as a percentage of turnover decreased 130 basis points compared to the first half of 2019 to 59.8% but improved by 30 basis points compared to the second half of 2019.
Operating costs as a percentage of turnover were 37.2% in the first half of 2020. This is a drop of 210 basis points compared to 39.3% in the first half of 2019.
EBITDA before the non-recurring result (REBITDA) rose 13.2% to € 62.9 million in the first half of 2020. EBITDA before the non-recurring result as a percentage of turnover increased by 80 basis points to 22.6%.
The non-recurring result was a negative € 1.7 million and related amongst other to restructuring costs and acquisition costs.
EBITDA increased 13.1% to € 61.3 million. EBITDA as a percentage of turnover was up 80 basis points to 22.0%.
Depreciation and amortization equaled € 15.1 million, an increase of 10.4% compared to € 13.7 million in the first half of 2019.
EBIT was € 46.2 million, a rise of 14.0% compared to the first half of 2019. EBIT as a percentage of turnover increased by 70 basis points to 16.6%.
The financial result was a negative € 7.2 million compared to a negative € 7.0 million in the first half of 2019.
The effective tax rate as a percentage of the profit before taxes was 19.1% in the first half of 2020 (H1 2019: 20.1%). The effective cash tax rate was 25.4% in the first half of 2020 (H1 2019: 25.4%).
Net profit was € 31.6 million, an increase of 144.0% compared to the first half of 2019. Recurring net profit amounted to € 32.8 million, a rise of 17.2% compared to € 28.0 million in the first half of 2019.
Balance sheet
The operational working capital as a percentage of turnover amounted to 10.8%, an increase of 270 basis points compared to 31 December 2019. This increase was mainly the result of maintaining higher inventories in Europe aimed at safeguarding the availability of a number of specific products. For strategic reasons Fagron is also keeping higher inventories in North America and Latin America.
Net financial debt increased € 13.6 million in the first half of 2020 to € 298.5 million. The net financial debt/REBITDA ratio was 2.35 at 30 June 2020 (2.33 at 31 December 2019).
The table below shows the development of net financial debt in the first half of 2020.
| (x € 1,000) | |
|---|---|
| Net financial debt on 31 December 2019 | 284,847 |
| Operational cash flow | -27,167 |
| Acquisitions | 8,888 |
| Investments | 9,991 |
| Paid dividend | 3,638 |
| Net interests | 8,242 |
| Exchange rate differences | 7,130 |
| Impact IFRS 16 | 2,907 |
| Net financial debt on 30 June 2020 | 298,476 |
Net operational capex was € 10.0 million (3.6% of turnover) in the first half of 2020, a decline compared to the level reported in the same period in 2019 (€ 10.3 million, 4.0% of turnover). Capex consisted mainly of investments in a new repackaging facility for raw materials in Poland, existing facilities in the United States and Brazil, the automation of logistics processes, and software implementations.
Key figures per segment
| Fagron (excluding HL Technology) | |||
|---|---|---|---|
| (x € 1,000) | H1 2020 | H1 2019 | Δ |
| Turnover | 278,750 | 251,019 | +11.0% |
| REBITDA4 | 62,934 | 54,777 | +14.9% |
| REBITDA margin | 22.6% | 21.8% |
Turnover H1 2019
4 EBITDA before non-recurring result.
The turnover of Fagron (excluding HL Technology, which was sold in October 2019) increased 11.0% in the first half of 2020 (+16.0% at constant exchange rates) to € 278.8 million. Organic turnover growth equaled 3.1% (+7.2% at constant exchange rates). REBITDA was up 14.9% to € 62.9 million. REBITDA as a percentage of turnover increased by 80 basis points to 22.6%.
The table below shows the turnover development and exchange rate effects at Fagron (excluding HL Technology) in the first half of 2020.
| (x € 1,000) | Impact |
|---|---|
| Turnover in H1 2019 | 251,019 |
| 5 Development Europe |
+4,873 |
| Development Latin America | +5,071 |
| Development North America | +8,244 |
| Currency effect BRL/euro | -11,361 |
| Currency effect US\$/euro | +1,987 |
| Currency effect other | -910 |
| Contribution of acquisitions | +19,828 |
| Turnover in H1 2020 | 278,750 |
Fagron Europe 6
| (x € 1,000) | H1 2020 | H1 2019 | Δ |
|---|---|---|---|
| Turnover | 137,549 | 128,677 | +6.9% |
| REBITDA7 | 33,448 | 34,591 | -3.3% |
| REBITDA margin | 24.3% | 26.9% |
The turnover of the Europe segment increased 6.9% (+7.6% at constant exchange rates) in the first half of 2020 to € 137.5 million. Adjusted for the acquisitions of Dr. Kulich Pharma (Czech Republic) and Gako (Germany), organic turnover growth was 3.2% (+3.8% at constant exchange rates). REBITDA as a percentage of turnover decreased by 260 basis points to 24.3%.
Brands and Essentials showed strong growth in the first half of the year while Compounding Services posted a sharp decline. Increased demand at Brands and Essentials for COVID-19-related products contributed to the strong growth of turnover. The acquisitions of Dr. Kulich Pharma in 2019 and Gako in 2020 also contributed to the growth of Brands and Essentials.
5 The Europe segment comprises the Fagron activities in Europe, South Africa and Australia
6 The Europe segment comprises the Fagron activities in Europe, South Africa and Australia
7 EBITDA before non-recurring result
At Compounding Services the impact of the postponement of elective care and doctor's visits was only partly offset by strong demand for sterile compounds used in intensive care units and in palliative care. Elective care slowly started to resume in most markets in early June, but the volumes have not yet returned to the levels seen before the outbreak of COVID-19. The Premium Pharmaceuticals segment performed well in the first half of 2020 despite a delay in several product registrations as a result of COVID-19.
The turnover of the Latin America segment increased by 16.5% in the first half of 2020 (+42.3% at constant exchange rates) to € 61.0 million. Adjusted for the acquisition of Cedrosa in Mexico and Ortofarma, Levviale and Apace (Brazil) turnover decreased 12.2% (+9.7% at constant exchange rates). REBITDA increased 22.8% to € 12.8 million. REBITDA as a percentage of turnover increased by 110 basis points to 20.9%, mainly due to well-managed operating costs.
The share of Essentials rose sharply as a result of both organic growth, largely due to demand for COVID-19-related products, and a strong contribution from the companies acquired in 2019. Brands reported organic turnover growth across the board despite a lower level of activity among prescribers. Some clinics and practices have closed (temporarily) and doctor's visits have been postponed. On balance this was offset by an increase in demand for COVID-19-related products. The activities of Compounding Services in Colombia, a relatively small portion of the total turnover of Latin America, showed a decline in turnover due to the fact that most prescribers are closed due to government measures.
8 EBITDA before non-recurring result
The turnover of the North America segment increased by 14.6% in the first half of 2020 (+11.8% at constant exchange rates) to € 80.2 million due to a strong performance of Brands and Essentials. REBITDA increased 70.7% to € 16.7 million. REBITDA as a percentage of turnover was up 690 basis points to 20.9% compared to the first half of 2019, mainly as result of strict cost control, the phasing out of a number of loss-making nuclear products at AnazaoHealth, a changed product mix and the utilization of economies of scale and synergy benefits following the integration of Humco.
Fagron's sterile activities (Compounding Services) in the United States reported a slight decline of 3.3% (-5.7% at constant exchange rates) and accounted for a lower share of total turnover due to the strong growth of Brands and Essentials. Fagron Sterile Services realized a 2.3% increase in turnover (-0.2% at constant exchange rates). AnazaoHealth reported a 7.3% decline in turnover (-9.6% at constant exchange rates).
The increased turnover of Fagron Sterile Services was hampered by the (temporary) closure of clinics, the postponement of elective care, and a decline in doctor's visits due to COVID-19. The sterile compounding facilities in Wichita are still on track to achieve the stated long-term turnover target. The pace at which this happens may, however, be delayed depending on the further development of COVID-19. At AnazaoHealth the (temporary) closure of clinics resulted in a decline in turnover in the first half of 2020. Furthermore, a number of nuclear products with low margins are no longer being compounded as a result of the product refocus we introduced at the end of 2019.
Brands and Essentials were able to continue to achieve strong turnover growth in the second quarter of 2020. This resulted in an increase in turnover of 43.6% (+40.0% at constant exchange rates) in the first half of 2020. The activities performed strongly across the board and the commercial synergies and economies of scale as a result of the intensive cooperation between Fagron and Humco, which it acquired in April 2018, contributed to this positive development. In addition, demand for a number of specific COVID-19-related products was higher.
9 EBITDA before non-recurring result.
Subscription rights plan 2020
On 4 August 2020, the board of directors of Fagron approved Subscription rights plan 2020, intended for employees of the company and its subsidiaries, within the framework of the authorized capital. Under the new Subscription rights plan, 2,600,000 subscription rights were created, subject to acceptances, and will be offered to the beneficiaries of the plan. The subscription rights have an exercise term of ten years as of the date of the offer. The subscription rights are not transferable and in principle cannot be exercised prior to August 2023. Each subscription right gives the right to subscribe to one new Fagron share. Should the subscription rights be exercised, Fagron will apply for the listing of the resulting new shares on Euronext Brussels/Amsterdam. The subscription rights as such will not be listed on any stock market.
The total share capital of Fagron currently amounts to € 496,496,586.18; the total number of voting securities is 72,178,904, which is also the total number of voting rights (the "denominator"). The total number of subscription rights to subscribe to not yet issued securities is 1,247,500 under several outstanding employee warrant and subscription right plans, which equals 1,247,500 voting rights that may result from the exercise of those warrants/subscription rights. This excludes the 2,600,000 subscription rights of Subscription rights plan 2020, which were created subject to acceptance. Fagron does not have any convertible bonds or shares without voting rights outstanding.
Conference call
Fagron is organizing a conference call today to elaborate on the results for the first half of 2020. The conference call will begin at 9.30 am CET. You will be able to call in using the following numbers and the confirmation code 10 minutes prior to the start of the conference call:
| Belgium/Europe | +32 2 404 0659 |
|---|---|
| The Netherlands | +31 20 703 8211 |
| Spain | +34 91 419 2307 |
| United Kingdom | +44 330 336 9128 |
| United States | +1 323 794 2575 |
| Confirmation code | 8266351 |
The conference can be played back or downloaded from the Fagron website (http://investors.fagron.com/) from Friday 7 August 2020.
Financial calendar 2020
13 October Trading update on third quarter of 2020
The trading update will be published at 7.00 am CET.
Further information
Constantijn van Rietschoten Chief Communications Officer Tel. +31 6 53 69 15 85 [email protected]
Fagron profile
Fagron is a leading global company active in pharmaceutical compounding focused on delivering personalized pharmaceutical care for hospitals, pharmacies, clinics and patients in 36 countries around the world.
Belgian company Fagron NV is located in Nazareth and is listed on Euronext Brussels and Euronext Amsterdam under the ticker symbol 'FAGR'. Fagron's operational activities are managed by the Dutch company Fagron BV. Fagron BV's head office is located in Rotterdam.
Important information regarding forward-looking statements
Certain statements in this press release could be considered to be forward looking. Such forward-looking statements are based on current expectations and are influenced by various risks and uncertainties. Consequently, Fagron cannot provide any guarantees that such forward-looking statements will, in fact, materialize and cannot accept any obligation to update or revise any forward-looking statement as a result of new information, future events or for any other reason.
In the event of differences between the English translation and the Dutch original of this press release, the latter prevails.
Interim Financial Statements First semester of 2020
| 1. Interim management report 4 | |
|---|---|
| 2. Condensed consolidated income statement 4 | |
| 3. Condensed consolidated statement of comprehensive income 5 | |
| 4. Condensed consolidated statement of financial position 6 | |
| 5. Condensed consolidated statement of changes in equity 7 | |
| 6. Condensed consolidated statement of cash flows 8 | |
| 7. Notes to the interim financial information 9 | |
| 8. Services and other goods 10 | |
| 9. Depreciation and amortization 11 | |
| 10. Earnings per share 11 | |
| 11. Non-recurring result 11 | |
| 12. Result discontinued operations 12 | |
| 13. Segment information 12 | |
| 14. Goodwill 13 | |
| 15. Borrowings 14 | |
| 16. Contingencies 14 | |
| 17. Total adjustments for non-cash items 14 | |
| 18. Total changes in working capital 14 | |
| 19. Business combination 15 | |
| 20. Related parties 16 | |
| 21. Subsequent events 17 | |
| 22. Update COVID-19 17 | |
| 23. Effective tax rate 17 | |
| 24. Alternative performance measures 18 |
The undersigned hereby declare that, to the best of their knowledge, the condensed consolidated financial statements for the six-month period ended 30 June 2020, which have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit and loss of the company and the undertakings included in the consolidation as a whole, and that the interim management report includes a fair review of the important events that have occurred during the first semester of the financial year and of other legal necessary information.
Rafael Padilla, CEO Karin de Jong, CFO
1. Interim management report
A detailed report on the turnover of the first semester of 2020 can be found in the Fagron press release of the 6 th of August 2020.
2. Condensed consolidated income statement
| (x 1,000 euros) | Note | June 2020 | June 2019 |
|---|---|---|---|
| Operating income | 279,330 | 255,976 | |
| Turnover | 278,750 | 255,399 | |
| Other operating income | 580 | 577 | |
| Operating expenses | 233,134 | 215,446 | |
| Trade goods | 112,193 | 99,465 | |
| Services and other goods | 8 | 42,586 | 40,168 |
| Employee benefit expenses | 62,300 | 61,262 | |
| Depreciation and amortization | 9 | 15,084 | 13,663 |
| Other operating expenses | 971 | 888 | |
| Operating profit | 46,196 | 40,530 | |
| Financial income | 453 | 610 | |
| Financial expenses | -7,625 | -7,655 | |
| Profit before income tax | 39,024 | 33,485 | |
| Taxes | 23 | 7,466 | 6,714 |
| Net profit (loss) from continued operations | 31,559 | 26,771 | |
| Net result from discontinued operations | 12 | -13,839 | |
| Net result | 31,559 | 12,932 | |
| Attributable to: | |||
| Equity holders of the company (net result) | 31,266 | 12,710 | |
| Non-controlling interest | 293 | 222 | |
| Earnings (loss) per share from continued and discontinued operations attributable to the shareholders during the period |
|||
| Profit (loss) per share (in euros) | 10 | 0.44 | 0.18 |
| From continued operations | 10 | 0.44 | 0.37 |
| From discontinued operations | 10 | 0.00 | -0.19 |
| Diluted profit (loss) per share (in euros) | 10 | 0.44 | 0.18 |
| From continued operations | 10 | 0.44 | 0.37 |
| From discontinued operations | 10 | 0.00 | -0.19 |
3. Condensed consolidated statement of comprehensive income
| (x 1,000 euros) | June 2020 | June 2019 |
|---|---|---|
| Net result for the period | 31,559 | 12,932 |
| Other comprehensive income: | ||
| Items that may be subsequently reclassified to profit or loss | ||
| Currency translation differences | -41,462 | 3,577 |
| Other comprehensive income for the period | -41,462 | 3,577 |
| Total comprehensive income for the period | -9,904 | 16,508 |
| Attributable to: | ||
| Equity holders of the company | -9,973 | 16,242 |
| Non-controlling interest | 69 | 266 |
| Total comprehensive income for the period attributable to equity holders of the company: |
||
| From continued operations | -9,973 | 30,082 |
| From discontinued operations | -13,839 | |
The unrealized currency translation differences in 2020 of -41.5 million euros are mainly due to the weakening of the Brazilian real against the euro at 31 December 2019.
The unrealized currency translation differences in 2019 of 3.6 million euros were mainly due to the strengthening of the Brazilian real against the euro at 31 December 2018.
4. Condensed consolidated statement of financial position
| (x 1,000 euros) | Note | June 2020 | December 2019 |
|---|---|---|---|
| Non-current assets | 535,971 | 562,052 | |
| Goodwill | 14 | 369,521 | 389,326 |
| Intangible fixed assets | 25,005 | 28,811 | |
| Property, plant and equipment | 85,917 | 87,606 | |
| Leasing and similar rights | 31,718 | 33,601 | |
| Financial fixed assets | 3,676 | 4,287 | |
| Deferred tax assets | 20,133 | 18,420 | |
| Current assets | 274,982 | 239,189 | |
| Inventories | 94,875 | 77,479 | |
| Trade receivables | 51,908 | 44,588 | |
| Other receivables | 15,733 | 10,438 | |
| Cash and cash equivalents | 112,467 | 106,684 | |
| Total assets | 810,953 | 801,240 | |
| Equity | 231,326 | 246,440 | |
| Shareholders' equity (parent) | 226,844 | 242,028 | |
| Non-controlling interest | 4,482 | 4,413 | |
| Non-current liabilities | 338,034 | 363,029 | |
| Provisions | 3,618 | 5,653 | |
| Pension obligations | 5,832 | 5,778 | |
| Deferred tax liabilities | 1,942 | 339 | |
| Borrowings | 15 | 300,046 | 322,619 |
| Lease Liabilities | 26,596 | 28,189 | |
| Financial instruments | 451 | ||
| Current liabilities | 241,594 | 191,771 | |
| Borrowings | 15 | 77,799 | 34,119 |
| Lease liabilities | 6,501 | 6,604 | |
| Trade payables | 85,937 | 77,303 | |
| Tax liabilities for the current year | 8,864 | 9,736 | |
| Other current taxes, remuneration and social security | 25,520 | 22,106 | |
| Other current payables | 19 | 36,425 | 41,847 |
| Financial instruments | 548 | 56 | |
| Total liabilities | 579,628 | 554,800 | |
| Total equity and liabilities | 810,953 | 801,240 |
5. Condensed consolidated statement of changes in equity
| (x 1,000 euros) | Share capital & share premium |
Other reserves |
Treasury shares |
Retained earnings |
Total | Non control ling interest |
Total equity |
|---|---|---|---|---|---|---|---|
| Balance as of 1 January 2019 |
507,670 | -244,085 | -18,823 | -38,921 | 205,841 | 3,875 | 209,716 |
| Profit for the period | 0 | 0 | 0 | 12,710 | 12,710 | 222 | 12,932 |
| Other comprehensive income | 0 | 3,533 | 0 | 0 | 3,533 | 44 | 3,577 |
| Total comprehensive income for the period |
0 | 3,533 | 0 | 12,710 | 16,242 | 266 | 16,508 |
| Declared dividends | 0 | 0 | 0 | -8,621 | -8,621 | 0 | -8,621 |
| Share-based payments | 0 | 596 | 0 | 0 | 596 | 0 | 596 |
| Balance at of 30 June 2019 | 507,670 | -239,956 | -18,823 | -34,833 | 214,058 | 4,141 | 218,199 |
| Profit for the period | 0 | 0 | 0 | 28,346 | 28,346 | 263 | 28,609 |
| Other comprehensive income | 0 | -3,435 | 0 | 0 | -3,435 | 9 | -3,426 |
| Total comprehensive income for the period |
0 | -3,435 | 0 | 28,346 | 24,911 | 272 | 25,183 |
| Capital increase | 2,472 | 0 | 0 | 0 | 2,472 | 0 | 2,472 |
| Declared dividends | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Share-based payments | 0 | 586 | 0 | 0 | 586 | 0 | 586 |
| Balance at of 31 December 2019 |
510,142 | -242,805 | -18,823 | -6,486 | 242,028 | 4,413 | 246,440 |
| Profit for the period | 0 | 0 | 0 | 31,266 | 31,266 | 293 | 31,559 |
| Other comprehensive income | -41,238 | 0 | 0 | -41,238 | -224 | -41,462 | |
| Total comprehensive income for the period |
0 | -41,238 | 0 | 31,266 | -9,973 | 69 | -9,904 |
| Declared dividends | 0 | 0 | 0 | -5,774 | -5,774 | 0 | -5,774 |
| Share-based payments | 0 | 563 | 0 | 0 | 563 | 0 | 563 |
| Balance at of 30 June 2020 | 510,142 | -283,480 | -18,823 | 19,005 | 226,844 | 4,482 | 231,326 |
6. Condensed consolidated cash flow statement
| (x 1,000 euros) | Note | June 2020 | June 2019 |
|---|---|---|---|
| Operating activities | |||
| Profit before income taxes from continued operations | 39,024 | 33,485 | |
| Profit before income taxes from discontinued operations | -13,839 | ||
| Taxes paid | -9,900 | -8,516 | |
| Adjustments for financial items | 7,172 | 7,052 | |
| Total adjustments for non-cash items | 17 | 15,635 | 28,027 |
| Total changes in working capital | 18 | -24,764 | -8,819 |
| Total cash flow from operating activities | 27,167 | 37,390 | |
| Investment activities | |||
| Capital expenditure | -9,991 | -10,338 | |
| Investments in existing shareholdings (subsequent payments) and in new holdings |
-8,888 | -1,536 | |
| Total cash flow from investment activities | -18,878 | -11,874 | |
| Financing activities | |||
| Dividends paid | -3,638 | -3,473 | |
| New borrowings | 46,000 | 68,164 | |
| Reimbursement of borrowings | -28,762 | -65,952 | |
| Interest received | 453 | 610 | |
| Interest paid | -8,695 | -7,688 | |
| Total cash flow from financing activities | 5,358 | -8,338 | |
| Total net cash flow for the period | 13,646 | 17,179 | |
| Cash and cash equivalents – start of the period | 106,684 | 77,579 | |
| Gains (or losses) from currency translation differences | -7,864 | 630 | |
| Cash and cash equivalents – end of the period | 112,467 | 95,387 | |
| Changes in cash and cash equivalents | 13,646 | 17,179 | |
| Net cashflow from discontinued operations | |||
| Total cashflow from operating activities | 0 | -150 | |
| Total cashflow from investment activities | 0 | 0 | |
| Total cashflow from financing activities | 0 | 0 | |
| Total cashflow from discontinued operations | 0 | -150 |
7. Notes to the interim financial information
1. General information
Fagron is a leading global company active in pharmaceutical compounding, focusing on delivering personalized medicine to hospitals, pharmacies, clinics and patients in 36 countries around the world.
The Belgian company Fagron NV is located in Nazareth and is listed on Euronext Brussels and Euronext Amsterdam under the ticker symbol 'FAGR'. Fagron's operational activities are driven by the Dutch company Fagron BV. Fagron BV's head office is located in Rotterdam.
These consolidated financial statements were approved for publication by the Board of Directors on the 4 th of August 2020.
In the event of differences between the English translation and the Dutch original of the interim financial statements, the latter prevails.
2. Summary of the most important basis for the condensed consolidated interim financial information
This condensed consolidated interim financial information for the first semester of 2020, including the comparative figures for 2019, has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The condensed consolidated interim financial information must be read in conjunction with the annual financial statements for the year 2019 (including the principles for financial reporting) which are available at www.fagron.com.
3. Summary of the most important accounting policies
The most important accounting policies used to prepare the consolidated interim financial statements for the first semester of 2020 are consistent with those applied in the Fagron consolidated financial statements for the year ended 31 December 2019.
A summary of the most important accounting policies can be found in the 2019 annual report. The annual report can be consulted on www.fagron.com.
This condensed consolidated interim financial information has been prepared in accordance with IFRS standards and IFRIC interpretations that apply, or which are applied early, as of 30 June 2020 and which have been endorsed by the European Union.
Standards and interpretations applicable for the annual period beginning on or after 1 January 2020
- Amendments to IAS 1 and IAS 8 Definition of Material
- Amendments to IFRS 3 Business Combinations: Definition of a Business
- Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform
- Amendments to references to the Conceptual Framework in IFRS standards
Standards and interpretations published, but not yet applicable for the annual period beginning on 1 January 2020:
- Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (the effective date has been deferred indefinitely, and therefore the endorsement in the EU has been postponed).
- IFRS 14 Regulatory Deferral Accounts (applicable for annual periods beginning on or after 1 January 2016, but not yet endorsed in the EU).
- IFRS 17 Insurance Contracts (applicable for annual periods beginning on or after 1 January 2021, but not yet endorsed in the EU).
- Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Noncurrent (applicable for annual periods beginning on or after 1 January 2023, but not yet endorsed in the EU)
- Amendments to IAS 16 Property, Plant and Equipment: Proceeds before Intended Use (applicable for annual periods beginning on or after 1 January 2022, but not yet endorsed in the EU)
- Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts Cost of Fulfilling a Contract (applicable for annual periods beginning on or after 1 January 2022, but not yet endorsed in the EU)
- Amendments to IFRS 3 Business Combinations: Reference to the Conceptual Framework (applicable for annual periods beginning on or after 1 January 2022, but not yet endorsed in the EU)
- Amendment to IFRS 16 Leases: Covid-19-Related Rent Concessions (applicable for annual periods beginning on or after 1 June 2020, but not yet endorsed in the EU)
- Annual Improvements to IFRS Standards 2018–2020 (applicable for annual periods beginning on or after 1 January 2022, but not yet endorsed in the EU)
4. Seasonality
Turnover and operating result of the Group are limitedly impacted by seasonal influences.
8. Services and other goods
| (x 1,000 euros) | June 2020 | June 2019 |
|---|---|---|
| Sales and distribution costs | 15,210 | 14,038 |
| Contracted Services | 12,793 | 11,200 |
| Other services and goods | 14,583 | 14,930 |
| Total services and other goods | 42,586 | 40,168 |
Other services and various goods cover a wide range of services and goods such as maintenance, utilities, office supplies and travel costs.
9. Depreciation and amortization
The increase in depreciation and amortization is largely explained by depreciation in acquired companies.
10. Earnings per share
| (x 1 euro) | June 2020 | June 2019 |
|---|---|---|
| Basic earnings (loss) per share | 0.44 | 0.18 |
| From continued operations | 0.44 | 0.37 |
| From discontinued operations | 0.00 | -0.19 |
| Diluted earnings (loss) per share | 0.44 | 0.18 |
| From continued operations | 0.44 | 0.37 |
| From discontinued operations | 0.00 | -0.19 |
The earnings used in the calculations are as follows:
| (x 1,000 euros) | June 2020 | June 2019 |
|---|---|---|
| Profit (loss) attributable to equity holders of the company | 31,559 | 12,710 |
| From continued operations | 31,559 | 26,549 |
| From discontinued operations | 0 | -13,839 |
The weighted average number of ordinary shares used in the calculations is as follows:
| (number of shares x 1,000) | June 2020 | June 2019 |
|---|---|---|
| Weighted average number of ordinary shares | 72,075 | 71,740 |
| Effect of warrants and stock options | 385 | 417 |
| Weighted average number of ordinary shares (diluted) | 72,460 | 72,157 |
On 30 June 2020, the capital represented 72,178,904 shares, of which 103,627 are treasury shares held by Fagron NV.
11. Non-recurring result
A non-recurring item is an event or transaction that is considered abnormal, not related to ordinary company activities, and unlikely to recur in the foreseeable future. This can be a gain or a loss. The total non-recurring result included in EBITDA amounts to -1.7 million euros (June 2019: -1.4 million euros). In 2020, non-recurring costs include primarily restructuring costs and acquisition costs. The 2019 non-recurring costs include primarily restructuring costs and acquisition costs.
12. Result discontinued operations
In June 2019, Fagron reached a settlement in-principle with the US Department of Justice regarding the previously announced civil investigation in the context of the sector-wide investigation into the pricing of pharmaceutical products. The settlement in-principle consists of a payment by Fagron of 22.3 million US dollars. The result of discontinued operations in the first semester of 2019 reflects the difference between the earlier provisioned amount, the amount of settlement in-principle and legal costs.
13. Segment information
Fagron's divisional structure is tailored to the various activities of Fagron and supports also effective decisionmaking and individual responsibility. This is in accordance with IFRS 8, which states that the operational segments must be determined based on the components used by the Executive Committee to assess the performance of the operational activities and on which the decisions are based. Fagron reports according to the following segments: Fagron Europe, Fagron North America, and Fagron Latin America.
On 10 October 2019, Fagron signed an agreement with the management of HL Technology concerning the sale of the activities. The transaction was completed on 24 October 2019. HL Technology was deconsolidated as at 1 October 2019.
| (x 1,000 euros) | Fagron Europe |
Fagron North America |
Fagron Latin America |
Total |
|---|---|---|---|---|
| Turnover | 137,549 | 80,156 | 61,045 | 278,750 |
| Intersegment turnover | 221 | 188 | 32 | 442 |
| Total turnover | 137,771 | 80,344 | 61,077 | 279,192 |
| Operating result per segment | 27,245 | 8,637 | 10,314 | 46,196 |
| Financial result | -7,172 | |||
| Profit before taxes | 39,024 | |||
| Taxes on profits | 7,466 | |||
| Net result from continued operations |
31,559 |
The segment results for the reporting period ending 30 June 2020 are as follows:
The segment results for the reporting period ending 30 June 2019 are as follows:
| (x 1,000 euros) | Fagron Europe |
Fagron North America |
Fagron Latin America |
Fagron Total |
HL Technology |
Total |
|---|---|---|---|---|---|---|
| Turnover | 128,677 | 69,924 | 52,417 | 251,019 | 4,380 | 255,399 |
| Intersegment turnover | 143 | 125 | 28 | 295 | 0 | 295 |
| Total turnover | 128,819 | 70,050 | 52,445 | 251,314 | 4,380 | 255,694 |
| Operating result per segment | 28,493 | 3,107 | 8,348 | 39,948 | 581 | 40,530 |
| Financial result | -7,045 | |||||
| Profit before taxes | 33,485 | |||||
| Taxes on profits | 6,714 | |||||
| Net result from continued operations |
26,771 |
A detailed explanation of the segment results and disaggregated turnover are provided in the press release of the 6 th of August 2020.
On 30 June 2020, the assets and liabilities, as well as the capital expenditures (investments) are as follows:
| (x 1,000 euros) | Fagron Europe |
Fagron North America |
Fagron Latin America |
Unallocated /inter segment elimination |
Total |
|---|---|---|---|---|---|
| Total assets | 345,914 | 240,133 | 158,303 | 66,602 | 810,953 |
| Total liabilities | 77,968 | 186,960 | 42,470 | 272,229 | 579,628 |
| Capital expenditure | 2,969 | 2,493 | 2,612 | 8,074 |
On 31 December 2019, the assets and liabilities, as well as the capital expenditures (investments) are as follows:
| (x 1,000 euros) | Fagron Europe |
Fagron North America |
Fagron Latin America |
HL Technology |
Unallocated /inter-segment elimination |
Total |
|---|---|---|---|---|---|---|
| Total assets | 329,234 | 240,399 | 189,212 | 42,395 | 801,240 | |
| Total liabilities | 72,486 | 194,340 | 43,470 | 244,505 | 554,800 | |
| Capital expenditure | 9,000 | 12,518 | 5,296 | 891 | 0 | 27,706 |
Gross capital expenditures in the first half of 2020 mainly relate to investments in a new production plant in Poland, and existing facilities in the United States and Latin America. The investment expenditure excludes the change in investment obligations. The unallocated assets and liabilities mainly relate to cash and cash equivalents and financial debts respectively.
14. Goodwill
The decrease in goodwill is largely explained by the weakening of the Brazilian real against the euro as of 31 December 2019.
15. Borrowings
In the first semester of 2020, no new long-term debts have been incurred. Additional amounts were added using the existing credit facilities. As of 30 June 2020, short-term debt includes US \$60 million 5.78% Series F Senior Notes. The notes will mature in March 2021.
All financial instruments are valued at amortised cost except for derivative financial instruments and contingent considerations for acquisitions, which are valued at fair value. The fair value approximates the carrying amount.
On 30 June 2020, the net financial debt / EBITDA ratio equals 2.35. The EBITDA / net interest expense ratio is equal to 8.39. Fagron is in compliance with the financial covenants.
16. Contingencies
Fagron faces certain risks for which no provision has been made because it is unlikely that these risks will have a negative impact for the group. There were no material changes to these risks.
17. Total adjustments for non-cash items
| (x 1,000 euros) | June 2020 | June 2019 |
|---|---|---|
| Amortisation of intangible fixed assets | 5,119 | 4,218 |
| Depreciation of property, plant and equipment | 8,679 | 8,309 |
| Write down on inventories and receivables | 1,285 | 1,136 |
| (Profit) / Loss on sale of fixed assets | 439 | -38 |
| Movements in provisions | -450 | 13,805 |
| Share-based payments | 563 | 596 |
| Total adjustments for non-cash items | 15,635 | 28,027 |
18. Total changes in working capital
| (x 1,000 euros) | June 2020 | June 2019 |
|---|---|---|
| Changes in operational working capital | -20,021 | -5,020 |
| Changes in other working capital | -4,743 | -3,799 |
| Total changes in working capital | -24,764 | -8,819 |
19. Business combination
Fair value of the acquired assets and liabilities of Cedrosa
For the acquisition of Cedrosa in Mexico in 2019, the acquisition amount is approximately 20.8 million in cash and cash equivalents, representing an increase in goodwill of 9.8 million euros. The goodwill is expected not to be taxdeductible. The final fair value of the acquired assets and liabilities is detailed below.
| Fair value of the acquired assets and liabilities (x 1,000 euros) |
2020 | 2019 |
|---|---|---|
| Intangible fixed assets | 6,187 | 6,187 |
| Property, plant and equipment | 678 | 678 |
| Inventories | 5,645 | 5,645 |
| Trade receivables | 3,238 | 3,238 |
| Other receivables | 124 | 124 |
| Cash and cash equivalents | 639 | 639 |
| Total assets | 16,512 | 16,512 |
| Borrowings | 1,045 | 1,045 |
| Lease liabilities | 359 | 359 |
| Deferred tax liabilities | 1,778 | 0 |
| Trade payables | 1,227 | 1,227 |
| Other current payables | 1,171 | 1,079 |
| Total liabilities | 5,579 | 3,709 |
| Net acquired assets | 10,933 | 12,803 |
| Goodwill | 9,841 | 7,971 |
| Total acquisition amount | 20,774 | 20,774 |
Fair value of the acquired assets and liabilities of other companies
In the first semester of 2020, some smaller companies and activities were acquired. The total net assets acquired, before allocation of the acquisition price, amounted to 5.7 million euros and is detailed below:
| Fair value of the acquired assets and liabilities (x 1,000 euros) |
2020 | |
|---|---|---|
| Intangible fixed assets | 999 | |
| Property, plant and equipment | 4,192 | |
| Inventories | 588 | |
| Trade receivables | 75 | |
| Other receivables | 1 | |
| Total assets | 5,855 | |
| Lease liabilities | 8 | |
| Trade payables | 91 | |
| Other current payables | 27 | |
| Total liabilities | 126 | |
| Net acquired assets | 5,729 | |
| Goodwill | 2,456 | |
| Total acquisition amount | 8,184 |
Contingent considerations
At the semester closing, the Group had 28.4 million euros in contingencies. These fees payable to former shareholders were determined based on business plans at the time of acquisition.
The deferred payments for business combinations relate to Mexico, Brazil, Croatia and the United States. It is expected that these will be paid in 2020 and 2021.
The contingent considerations relate primarily to the United States and Brazil and vary between 0 euros and a maximum of 28.4 million euros. The considerations are measured at the fair value at the moment of acquisition. This is estimated based on the maximum compensation if the conditions are met.
20. Related parties
The members of the Executive Committee, the CEO and the non-executive directors are considered as related parties. The remuneration policy is described in the Corporate Governance Statement which is part of the 2019 annual report. The remuneration is determined on a yearly basis; therefore, no further details are provided in these interim financial statements.
21. Subsequent events
In July 2020 Fagron made a retrospective payment of 17.8 million euros in respect of the acquisition of Humco in April 2018.
22. Update COVID-19
Since the start of 2020, the impact of the COVID-19 virus has created a new reality. This applies both to the setup of our operations and the demand for and availability of our products. At the time of publication, we classify the ultimate impact of COVID-19 virus on the performance of Fagron as immaterial. The impact in the medium to long term is currently difficult to predict due to the fact that the evolution of the virus, and the measures in place to manage it, differ across the regions in which we are active. The COVID-19 virus therefore represents an uncertainty and a risk to the company's financial performance.
Supply chain
There have been virtually no disruptions to Fagron's supply chain thanks to our global network of suppliers, which provides us with multiple suppliers of each raw material.
Product availability is a critical success factor in the current situation, particularly with respect to products that are facing a shortage due to the sudden increase in demand. Inventory levels are being closely monitored and mitigated by keeping higher inventories of specific products. In addition, Fagron is well-prepared for alternative sourcing scenarios, due in part to its extensive global network of approved suppliers.
Temporary shift in demand for products
The temporary shift in demand as a result of COVID-19 was also evident in the second quarter of 2020. Even though the timing and intensity of COVID-related measures differ in the various regions, generally speaking elective care is being postponed or scaled back while demand for specific products in aid of COVID-19 care is exceptionally high. June saw a pickup in demand for elective care in a number of regions, albeit not yet to the level seen before the outbreak of COVID-19. On balance the impact of these shifts on the gross margin was very limited.
Impact on valuation
Despite the economic uncertainty, Fagron currently has experienced limited and non-material impact on its performance and does not consider COVID-19 as a triggering event for impairment. We will continue to closely monitor the evolution of the virus and financial impact taking measures as appropriate to mitigate the risk, including keeping operating costs under control and timing investments.
23. Effective tax rate
Recognised income tax expenses are based on management's best estimate of the weighted average effective income tax rate of 19.1% for 2020 (S1 2019: 20.1%).
24. Alternative performance measures
In addition to the performance measures defined in IFRS, other measures are also used in these interim financial statements. These "alternative performance measures" are set out below:
| (x 1,000 euros) | June 2020 | June 2019 |
|---|---|---|
| Operating profit (EBIT) | 46,196 | 40,530 |
| Depreciation and amortization | 15,084 | 13,663 |
| EBITDA | 61,280 | 54,193 |
| EBITDA | 61,280 | 54,193 |
| Non-recurring result | 1,654 | 1,397 |
| REBITDA | 62,934 | 55,590 |
| Net financial debt | ||
| Borrowings non-current | 300,046 | 309,575 |
| Lease liabilities - non-current | 26,596 | 28,105 |
| Borrowings - current | 77,799 | 27,594 |
| Lease liabilities - current | 6,501 | 6,516 |
| Cash and cash equivalents | 112,467 | 95,387 |
| Total net financial debt | 298,476 | 276,403 |
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Fagron turnover up 9.1%; REBITDA increased 13.2% to € 62.9 million
Regulated information Nazareth (Belgium)/Rotterdam (The Netherlands), 6 August 2020
Fagron turnover up 9.1%; REBITDA increased 13.2% to € 62.9 million
Limited impact from COVID-19 pandemic
Highlights H1 2020 – Financial
- Turnover increased 9.1% to € 278.8 million (+14.0% CER1 ); organic growth of 7.2% CER
- REBITDA2 up 13.2% to € 62.9 million (+18.6% CER)
- REBITDA margin improved to 22.6% (H1 2019: 21.8%)
- EBIT up 14.0% to € 46.2 million
- Net profit increased to € 31.6 million (+144.0%)
- Operating cash flow of € 27.2 million
- Net financial debt /REBITDA ratio of 2.35 at 30 June 2020
Strategic and operational highlights
- All regions developed strongly
- The impact of the COVID-19 pandemic remained limited in the second quarter of 2020:
- » Shift in demand from elective care to care related to COVID-19
- » All facilities are fully operational
- » Virtually no disruptions in the supply chain
- Higher strategic inventories due to COVID-19
- Disciplined cost control in view of ongoing global uncertainty about the impact of COVID-19
Rafael Padilla, CEO of Fagron: "For Fagron, like many other companies, the first half of 2020 was characterized by the COVID-19 pandemic. Our strong results show the strength of our diversity, both regionally and product-wise. We are proud of our team and their utmost commitment in these times that are challenging for everyone. Our resilience and the entrepreneurship that is present throughout the organization enable us to respond well to the situation.
On the one hand Fagron benefited from higher demand for COVID-19-related products, as reflected in the turnover growth in Brands and Essentials. We have made every effort to safeguard the availability of our products to continue to serve our customers as best we can. Our comprehensive global network of suppliers and solid setup of our supply chain were beneficial to this.
On the other hand, we faced lower demand for elective care, a development that particularly affected Compounding Services. Clinics were temporarily closed in many regions and non-critical operations were postponed. Also, there was a clear decline in visits to the doctor. We managed the costs of our activities that were affected by this in a very disciplined way, without losing our focus on strengthening our position in the long term.
All regions developed strongly. In North America and Latin America higher turnover thanks to strong demand in Brands and Essentials combined with effective cost management resulted in a strong improvement in the REBITDA margin.
In the coming half year, we will continue to pursue our policy aimed at making the most of opportunities while being critical of our costs. The COVID-19 pandemic is developing differently in every region and there are vast differences even within regions. In a number of regions, we saw a slight recovery in elective care in June, albeit not yet to the level recorded before the outbreak of COVID-19. In other regions the rate of contamination is still growing. Thanks to our diversified product range and proven strategy we are well-positioned to respond to this evolving situation."
Update on COVID-19
Supply chain
There have been virtually no disruptions to Fagron's supply chain thanks to our global network of suppliers, which provides us with multiple suppliers of each raw material.
Product availability is a critical success factor in the current situation, particularly with respect to products that are facing a shortage due to the sudden increase in demand. Inventory levels are being closely monitored and mitigated by keeping higher inventories of specific products. In addition, Fagron is well-prepared for alternative sourcing scenarios, due in part to its extensive global network of approved suppliers.
Temporary shift in demand for products
The temporary shift in demand as a result of COVID-19 was also evident in the second quarter of 2020. Even though the timing and intensity of COVID-19 related measures differ in the various regions, generally speaking elective care is being postponed or scaled back while demand for specific products in aid of COVID-19 care is exceptionally high. June saw a pickup in demand for elective care in a
number of regions, albeit not yet to the level seen before the outbreak of COVID-19. On balance the impact of these shifts on the gross margin was very limited.
Outbreak control measures
The outbreak of the COVID-19 pandemic, along with the measures taken to try to control the spread of the virus, is developing differently in each region. A number of countries where the measures were eased at the start of the summer have reintroduced restrictions. In some regions, particularly in a number of states in the United States and in Brazil, the number of cases is still rising sharply. The picture is therefore extremely varied with a continued high level of uncertainty.
Despite the fact that Fagron currently expects this to have a limited and non-material impact on its performance, the economic uncertainty persists. To mitigate this risk Fagron will continue to manage its cost base, investments and cash flow in a critical and disciplined way. In the past few months Fagron has successfully kept its operating costs under control, for example by temporarily refraining from hiring new staff in non-key positions and slowing down investments. This policy will remain in place throughout the COVID-19 pandemic.
Update on buy-and-build
In the first half of 2020 Fagron completed the acquisition of German company Gako and entered into a partnership with Azelis for the Australian market. Potential acquisitions have not been a priority for the past few months but the focus on possible takeovers is slowly returning. Fagron is keeping an eye on potential acquisition opportunities that may arise in the current market dynamics.
Gako - Germany
Fagron completed the acquisition of the activities of German company Gako at the end of January 2020. Gako is a leading global developer, manufacturer and supplier of mixing equipment that pharmacists can use for the compounding of semi-solid dermatological formulations (primarily creams and ointments) directly in the final packaging or in bulk packaging. The transaction includes all the technologies, scientific data and patents and trademarks, as well as the Gako production facility in Bamberg (Germany). In 2019 Gako realized a turnover of € 4.5 million and an EBITDA margin of approximately 15%.
Azelis partnership - Australia
At the beginning of February 2020 Fagron entered into a partnership with Azelis Australia for the distribution of Essentials and Brands in Australia and New Zealand to strengthen their combined position in the competitive Australian market.
Operational update
Start of construction at new repackaging facility in Poland
Due to the COVID-19 pandemic, the construction of the new GMP facility in Krakow, Poland, for the repackaging of raw materials has been slightly delayed. The new facility is expected to be operational in early 2021 and result in a structural annual margin improvement of € 2 million.
1 Constant Exchange Rates
2 EBITDA before the non-recurring result
Please open the link below for the full press release: Fagron turnover up 9.1%; REBITDA increased 13.2% to € 62.9 million
Please open the link below for the interim financial statements: Interim Financial Statements H1 2020
Omzetstijging van 9,1%; REBITDA steeg 13,2% naar € 62,9 miljoen
Gereglementeerde informatie Nazareth (België)/Rotterdam (Nederland), 6 augustus 2020
Omzetstijging van 9,1%; REBITDA steeg 13,2% naar € 62,9 miljoen
Impact COVID-19 pandemie beperkt
Hoofdpunten S1-2020 – Financieel
- Omzet steeg 9,1% naar € 278,8 miljoen (+14,0% CER1 ); organische groei van 7,2% CER
- REBITDA2 steeg 13,2% naar € 62,9 miljoen (+18,6% CER)
- REBITDA marge verbeterde naar 22,6% (S1-2019: 21,8%)
- EBIT steeg met 14,0% naar € 46,2 miljoen
- Nettowinst steeg naar € 31,6 miljoen (+144,0%)
- Operationele kasstroom van € 27,2 miljoen
- Netto financiële schuld/REBITDA-ratio van 2,35 per 30 juni 2020
Strategisch – Operationeel
- Alle regio's lieten een sterke ontwikkeling zien
- COVID-19 heeft ook in het tweede kwartaal van 2020 een beperkte invloed gehad:
- » Verschuiving van vraag gerelateerd aan planbare zorg naar COVID-19 gerelateerde zorg
- » Alle faciliteiten zijn volledig operationeel
- » Nagenoeg geen verstoringen in de supply chain
- Hogere strategische voorraden vanwege COVID-19
Gedisciplineerde kostenbeheersing met oog op aanhoudende wereldwijde onzekerheid over gevolgen COVID-19
Rafael Padilla, CEO van Fagron: "Het eerste semester van 2020 werd ook voor Fagron getekend door de COVID-19 pandemie. Onze sterke resultaten laten de kracht van onze diversificatie zien, zowel wat betreft regio's als producten. Wij zijn trots op ons team en hun maximale inzet in deze voor iedereen uitdagende tijden. Onze veerkracht en het ondernemerschap dat binnen de gehele onderneming aanwezig is, stellen ons in staat goed op de situatie in te spelen.
Fagron kon enerzijds profiteren van een hogere vraag naar corona-gerelateerde producten, zoals de omzetgroei van Brands en Essentials laten zien. We hebben ons tot het uiterste ingespannen om de productbeschikbaarheid te waarborgen om onze klanten optimaal te kunnen blijven bedienen. Daarbij profiteerden wij van ons brede wereldwijde netwerk van leveranciers en de solide inrichting van onze supply chain.
Anderzijds kregen we te maken met een lagere vraag naar planbare zorg, wat met name een impact heeft op Compounding Services. In veel regio's zijn klinieken tijdelijk gesloten en zijn niet-kritische operaties uitgesteld. Ook nam de afgelopen maanden het doktersbezoek duidelijk af. Bij de activiteiten die hierdoor geraakt werden, hebben we zeer gedisciplineerd onze kosten gemanaged, zonder focus te verliezen op het versterken van onze positie op de lange termijn.
Alle regio's laten een sterke ontwikkeling zien. In Noord-Amerika en Latijns-Amerika heeft de hogere omzet dankzij de sterke vraag in Brands en Essentials in combinatie met effectief kostenmanagement geresulteerd in een sterk verbeterde REBITDA-marge.
Ook voor het komende semester zullen we ons beleid van het maximaal benutten van kansen en het kritisch blijven op kosten voortzetten. De COVID-19 uitbraak ontwikkelt zich in elke regio anders, en zelfs binnen regio's zijn de verschillen groot. In een aantal regio's zagen we in juni enig herstel optreden in planbare zorg, echter nog niet naar het niveau van voor de COVID-19 uitbraak. In andere regio's zien we de besmettingsgraad nog altijd oplopen. Dankzij onze productdiversificatie en bewezen strategie zijn wij goed gepositioneerd om op deze dynamische situatie in te spelen."
Update COVID-19
Supply chain
De supply chain van Fagron ondervindt nagenoeg geen verstoringen, mede dankzij ons wereldwijde netwerk van leveranciers waardoor wij over meerdere leveranciers per grondstof beschikken.
Productbeschikbaarheid is onder de huidige omstandigheden een kritische succesfactor, met name van producten waar een tekort aan dreigt door de plotselinge toename in de vraag. Voorraadniveaus worden nauwlettend gemonitord en gemitigeerd door het aanhouden van hogere voorraden voor specifieke producten. Daarnaast is Fagron goed voorbereid op alternatieve sourcing scenario's, onder meer dankzij haar uitgebreide wereldwijde netwerk van goedgekeurde leveranciers.
Tijdelijke verschuiving in vraag naar producten
De tijdelijke verschuiving in de vraag als gevolg van COVID-19 zagen we ook in het tweede kwartaal van 2020. Hoewel de maatregelen als gevolg van COVID-19 zich anders in tijd en intensiteit voordoen in de verschillende regio's, is het algemene beeld dat planbare zorg wordt uitgesteld of afgeschaald, terwijl de vraag naar specifieke producten ten behoeve van de COVID-19 zorg uitzonderlijk hoog is. In juni was in een aantal regio's herstel in de vraag naar planbare zorg zichtbaar, echter nog niet naar het niveau van voor de COVID-19 uitbraak. Per saldo is de impact van deze verschuivingen op de brutomarge zeer beperkt.
Maatregelen
De uitbraak van het virus, alsmede de maatregelen om het virus onder controle te krijgen, laat in iedere regio een andere ontwikkeling zien. In een aantal landen waar de maatregelen aan het begin van de zomer versoepeld werden, worden opnieuw restricties ingevoerd. In sommige regio's, met name in een aantal staten in de Verenigde Staten en in Brazilië, neemt het aantal besmettingen nog sterk toe. Er is dan ook sprake van een zeer diffuus beeld waarbij de onzekerheid groot blijft.
Ondanks dat Fagron op dit moment een beperkte en niet-materiële impact ziet op haar performance blijft de economische onzekerheid aanhouden. Om dit risico te mitigeren zal Fagron kritisch en gedisciplineerd haar kostenbasis, investeringen en cash flow blijven managen. Fagron heeft in de afgelopen maanden haar operationele kosten met succes onder controle gehouden door onder andere tijdelijk geen nieuwe werknemers aan te nemen op niet-sleutelposities en investeringen te temporiseren. Dit beleid zal gedurende de COVID-19 pandemie gehandhaafd blijven.
Update buy-and-build
In het eerste semester van 2020 heeft Fagron de overname van het Duitse Gako afgerond en is het partnership met Azelis voor de Australische markt tot stand gekomen. De afgelopen maanden zijn potentiële acquisities geen prioriteit geweest maar de focus op mogelijke overnames is voorzichtig aan het terugkeren. Fagron is alert op acquisitiekansen als die zich in de huidige marktdynamiek ontwikkelen.
Gako - Duitsland
Eind januari 2020 heeft Fagron de overname van de activiteiten van het Duitse Gako afgerond. Gako is wereldwijd een toonaangevende ontwikkelaar, fabrikant en leverancier van mengapparaten waarmee halfvaste dermatica, met name crèmes en zalven, direct in de eindverpakking of in een voorraadverpakking kunnen worden bereid door de apotheker. De transactie omvat alle technologieën, wetenschappelijke data en patenten en handelsmerken, evenals de productiefaciliteit van Gako in Bamberg (Duitsland). Gako realiseerde in 2019 een omzet van € 4,5 miljoen en een EBITDA-marge van ongeveer 15%.
Partnership Azelis - Australië
Begin februari 2020 is Fagron een partnership aangegaan met Azelis Australië voor de distributie van Essentials en Brands in Australië en Nieuw-Zeeland, om de gezamenlijke positionering in de competitieve Australische markt te versterken.
Update operationeel
Start bouw nieuwe herverpakkingsfaciliteit in Polen
Door COVID-19 is de realisatie van de nieuwe GMP-faciliteit voor het herverpakken van grondstoffen in Krakau, Polen iets vertraagd. Naar verwachting zal de nieuwe faciliteit begin 2021 operationeel zijn, waarna een structurele jaarlijkse margeverbetering van € 2 miljoen wordt verwacht.
1 Constant Exchange Rates of constante wisselkoersen.
2 EBITDA voor niet-recurrent resultaat.
Open onderstaande link voor het volledige persbericht: Omzetstijging van 9,1%; REBITDA steeg 13,2% naar € 62,9 miljoen
Open onderstaande link voor de tussentijdse financiële informatie: Tussentijdse Financiële Informatie S1-2020