Quarterly Report • Aug 3, 2018
Quarterly Report
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Key points - Financial
Rafael Padilla, CEO of Fagron: "Fagron performed strong in the first semester of 2018. Organic turnover growth at constant exchange rates increased with 8.5% compared to the same period last year. In the second quarter of 2018, we see a clear growth acceleration. Organic turnover at constant exchange rates increased by 10.0% in the second quarter, driven mainly by our operations in North America and South America. The profitability of our activities in Europe and South America remained strong. In North America, we significantly invested in the first semester and recruited 43 new employees to accelerate the product range in the 503B facility in Wichita, to take full advantage of the growth opportunities in the sterile compounding market in the United States.
The sterile activities in the United States performed excellent in the first semester of 2018. Turnover against constant exchange rates increased by 27.5%. The strong growth of the 503B facilities in Wichita is driven by an increase in the number of clients, the accelerated growth of the product range, as well asthe increased monitoring of 503B-facilities on compliance with requirements by the regulatory authorities. We are pleased that the new 503B facility in Wichita in 2018 received licenses from the states of California and Indiana, bringing the number of licenses to 49 now.
The sale of Essentials and Brands for compounding in the US increased by 7.6% in the first semester of 2018 compared to the same period last year. All activities contributed to the increase in turnover. In the second quarter of 2018, we made good progress with the integration of the American Humco, which was acquired by Fagron in early April 2018. With the integration of Humco, we created a strong platform in order to further strengthen our market position in the USA. In the third quarter, the first innovative pharmaceutical branded products and vehicles from Humco will be introduced in Europe and South America.
1 EBITDA before non-recurring result.
The organic turnover growth at constant exchange rates in South America amounted to 13.3% and was mainly driven by the strong growth of the underlying markets and the focus on the development and introduction of innovative products and patented concepts. Thisfocus hasresulted in strong growth of Brandsin the firstsemester of 2018.
The strategic focus initiated at the end of 2017 on the development and introduction of distinctive innovative products is clearly successful in Europe. The percentage of Brands increased from 8.2% to 10.6%. In Europe, we have invested in further increasing the quality of our facilities and processes, a core value on which Fagron distinguishes itself from its competitors.
We look forward with confidence to the remainder of the year and expect that we can continue the positive trend of the first semester in the second semester of 2018."
| Profit and loss account (x € 1,000) | H1 2018 | H1 20172 | Δ |
|---|---|---|---|
| Net turnover | 230,923 | 220,012 | +5.0% |
| Gross margin | 141,929 | 136,888 | +3.7% |
| As % of the net turnover | 61.5% | 62.2% | |
| Operational costs | 93,277 | 88,777 | +5.1% |
| As % of the net turnover | 40.4% | 40.4% | |
| EBITDA before non-recurring result | 48,652 | 48,111 | +1.1% |
| As % of the net turnover | 21.1% | 21.9% | |
| Non-recurring result | -4,666 | -927 | +403.2% |
| EBITDA | 43,986 | 47,183 | -6.8% |
| As % of the net turnover | 19.0% | 21.4% | |
| Depreciation and amortisation | 9,499 | 8,748 | +8.6% |
| EBIT | 34,487 | 38,435 | -10.3% |
| As % of the net turnover | 14.9% | 17.5% | |
| Financial result, excluding revaluation of financial derivatives | -10,474 | -13,298 | -21.2% |
| Revaluation of financial derivatives | 0 | 713 | -100.0% |
| Profit before taxes | 24,013 | 25,850 | -7.1% |
| Taxes | -5,241 | -4,796 | -9.3% |
| Net profit | 18,773 | 21,054 | -10.8% |
| Recurrent net profit3 | 22,252 | 20,879 | +6.6% |
| Net profit per share (€) | 0.26 | 0.29 | -10.3% |
| Recurrent net profit per share (€) | 0.31 | 0.29 | +6.9% |
| Average number of shares | 71,740,277 | 71,740,277 | 0.0% |
3Recurrent net profit is defined as the profit before non-recurring items and the revaluation of financial derivatives, corrected for taxes.
2 The figures for the first semester of 2017 were revised for IFRS 15.
| Balance (x € 1,000) | 30-06-2018 | 31-12-2017 |
|---|---|---|
| Intangible fixed assets | 389,074 | 344,495 |
| Property, plant and equipment | 67,883 | 69,535 |
| Deferred tax assets | 15,232 | 11,355 |
| Financial assets | 2,406 | 2,232 |
| Operational working capital | 43,748 | 36,135 |
| Other operating capital | -56,276 | -25,266 |
| Equity | 183,094 | 184,881 |
| Provisions | 16,894 | 17,210 |
| Deferred tax liabilities | 193 | 198 |
| Net financial debt | 261,885 | 236,197 |
With effect from 1 January 2018, Fagron changed the calculation method for organic growth. In the new method, the total turnover of an acquisition in the first year after consolidation is included as acquisitive growth. In the past, turnover growth of an acquisition in the first year after consolidation was included as organic growth.
The consolidated turnover amounted to € 230.9 million, an increase of 5.0% (+12.1% at constant exchange rates) compared to the first semester of 2017. Organic growth amounted to 1.7% (+8.5% at constant exchange rates). The turnover development per segment is explained in more detail in 'Key figures per segment'.
| (x € 1,000) | H1 2018 | H1 2017 | Total growth |
Total growth CER |
Org. growth |
Org. growth CER |
|---|---|---|---|---|---|---|
| Fagron | 227,285 | 216,551 | +5.0% | +12.1% | +1.7% | +8.4% |
| HL Technology | 3,638 | 3,461 | +5.1% | +14.2% | +5.1% | +14.2% |
| Fagron Group | 230,923 | 220,012 | +5.0% | +12.1% | +1.7% | +8.5% |
| (x € 1,000) | Q2 2018 | Q2 2017 | Total growth |
Total growth CER |
Org. growth |
Org. growth CER |
|---|---|---|---|---|---|---|
| Fagron | 119,944 | 109,234 | 9.8% | 17.3% | 3.2% | 9.9% |
| HL Technology | 1,909 | 1,738 | 9.8% | 19.1% | 9.8% | 19.1% |
| Fagron Group | 121,853 | 110,972 | 9.8% | 17.3% | 3.3% | 10.0% |
CER = Constant Exchange Rates
The gross margin increased by € 5.0 million or 3.7% to € 141.9 million. The gross margin as a percentage of turnover decreased by 70 basis points to 61.5% compared to the same period last year. This decrease is mainly caused by the sale of a compounding facility with a high gross margin in Paris (France) in July 2017. The gross margin increases by 70 basis points compared to the second semester of 2017.
The operating costs as a percentage of the turnover remained unchanged and amounted to 40.4% in the first semester of 2018. Operational costs increased by 5.1% or € 4.5 million to € 93.3 million. This increase is caused by the acquisition and integration of Humco (USA) and the growth of the number of employees at the new sterile 503B facility in Wichita (USA).
The EBITDA before non-recurring result increased with € 0.5 million or 1.1% (+6.9% at constant exchange rates) to € 48.7 million. The EBITDA before non-recurring result as a percentage of the turnover decreased with 80 basis points to 21.1%.
The non-recurring result amounted to -€ 4.7 million and consists mainly of the settlement with the former owners of JCB Laboratories in the United States in the first quarter of 2018, dismissal costs and acquisition costs.
The EBITDA decreased by € 3.2 million or 6.8% to € 44.0 million. The EBITDA, as a percentage of the turnover, decreased to 19.0%.
The depreciation and amortization amounted to € 9.5 million, an increase of 8.6% compared to € 8.7 million in the first semester of 2017.
The EBIT amounted to € 34.5 million, a decrease of 10.3% compared to € 38.4 million in the first semester of 2017.
The financial result excluding the revaluation of financial derivatives was -€ 10.5 million, a decrease of 21.2% compared to the first semester of 2017.
The effective tax rate as a percentage of the profit before taxes was 21.8% in the first semester of 2018 compared to 18.6% the same period last year. The effective cash tax rate amounted to 15.1%.
In the first semester of 2018, the net profit amounted to € 18.8 million, a decrease of 10.8% compared to € 21.1 million in the first semester of 2017. The recurring net profit increased by 6.6% to € 22.3 million.
At balance sheet level, the most important changes can be summarised as follows.
The intangible fixed assets increased by € 44.6 million in the first semester of 2018. This increase is mainly caused by the recognition of goodwill as a result of the acquisition of Humco in the United States.
Property, plant and equipment decreased by € 1.7 million in the first semester of 2018. The proceeds of the sale of a business premises in Boom (Belgium) and the depreciation of the Group, were in total higher than the takeover of assets on the acquisition of Humco (USA).
The operational working capital as a percentage of turnover amounted to 9.4%. Adjusted for the takeover of Humco (USA), operational working capital amounted to 8.7%.
The net financial debt increased by € 25.7 million to € 261.9 million in the first semester of 2018. The net financial debt/REBITDA ratio on 30 June 2018 was 2.72, well below the level of 3.25 as determined in the
Revolving Credit Facility and the Note Purchase Agreement. The table below gives an overview of the development of the net financial debt in the first semester of 2018.
| (x € 1,000) | |
|---|---|
| Net financial debt on 31 December 2017 | -236,197 |
| Operational cash flow | +34,416 |
| Acquisitions | -38,787 |
| Investments | -4,169 |
| Dividends paid | -2,767 |
| Net interest | -8,430 |
| Exchange rate differences | -5,951 |
| Net financial debt on 30 June 2018 | -261,885 |
The net operational capex amounted to € 4.2 million (1.8% of turnover) in the first semester of 2018. The capex mainly consists of investments in existing compounding facilities in the United States and the Netherlands, improvements to facilities in Brazil, automation of logistics processes and software implementations.
| (x € 1,000) | H1 2018 | H1 2017 | Change | ||
|---|---|---|---|---|---|
| Turnover | 227,285 | 216,551 | +5.0% | ||
| REBITDA4 | 47,968 | 48,230 | -0.5% | ||
| REBITDA margin | 21.1% | 22.3% |
| Total growth |
Total growth CER |
Org. growth |
Org. growth CER |
|
|---|---|---|---|---|
| Turnover development H1 2018 | +5.0% | +12.1% | +1.7% | +8.4% |
| Turnover development Q2 2018 | +9.8% | +17.3% | +3.2% | +9.9% |
The turnover of Fagron (excluding HL Technology) increased by 5.0% (+12.1% at constant exchange rates) to € 227.3 million in the first semester of 2018. The organic turnover growth was 1.7% (+8.4% at constant exchange rates). The REBITDA decreased by 0.5% to € 48.0 million. The REBITDA as a percentage of turnover decreased by 120 basis points to 21.1%.
The table below provides a summary of the turnover development and currency effects of Fagron (excluding HL Technology) in the first semester of 2018.
4 EBITDA before non-recurring result.
| (x € 1,000) | Impact |
|---|---|
| Turnover in H1 2017 | 216,551 |
| Development Europe | +2,278 |
| Development South America | +6,554 |
| Development North America | +8,910 |
| Currency effect Brazilian Real/Euro | -9,261 |
| Currency effect US Dollar/Euro | -5,156 |
| Currency effect other | +246 |
| Contribution of acquisitions | +12,298 |
| Contribution of divestments | -5,134 |
| Turnover in H1 2018 | 227,285 |
In 2017, a strategic decision was taken to register a limited number of non-sterile preparations that are delivered to pharmacies in the Netherlands. The turnover realised with the sale of registered products is reported under Premium Pharmaceuticals.
Fagron Europe5
| (x € 1,000) | H1 2018 | H1 2017 | Change |
|---|---|---|---|
| Turnover | 127,536 | 127,220 | +0.2% |
| REBITDA6 | 32,667 | 32,724 | -0.2% |
| REBITDA margin | 25.6% | 25.7% |
| Total growth |
Total growth CER |
Org. growth |
Org. growth CER |
|
|---|---|---|---|---|
| Turnover development H1 2018 | +0.2% | 0.0% | +2.1% | +1.9% |
| Turnover development Q2 2018 | -1.5% | -1.5% | +0.2% | +0.2% |
6 EBITDA before non-recurring result.
5 The Europe segment includes the Fagron activities in Europe, South Africa and Australia.
The turnover in the Europe segment increased by 0.2% to € 127.5 million in the first semester of 2018. The organic turnover growth amounted to 2.1% (+1.9% at constant exchange rates). The REBITDA decreased by 0.2% to € 32.7 million. The REBITDA as a percentage of turnover decreased by 10 basis points to 25.6%.
The strategic focus on the development and introduction of distinctive innovative products in the first semester of 2018 resulted in a strong increase in turnover of Brands. The turnover decrease in the compounding activities (Compounding Services) is the result of the divestment of a compounding facility in France in July 2017, the strategic decision to register a limited number of non-sterile preparations in the Netherlands, and temporarily reducing the capacity at one of the Dutch compounding facilities to be able to invest in further increasing the quality of the facility and the processes. This project started in April 2018 and is expected to take nine months.
| Fagron South America | |||
|---|---|---|---|
| (x € 1,000) | H1 2018 | H1 2017 | Change |
| Turnover | 48,880 | 49,450 | -1.2% |
| REBITDA7 | 9,691 | 10,054 | -3.6% |
| REBITDA margin | 19.8% | 20.3% |
| Total growth |
Total growth CER |
Org. growth |
Org. growth CER |
|
|---|---|---|---|---|
| Turnover development H1 2018 | -1.2% | +18.7% | -5.7% | +13.3% |
| Turnover development Q2 2018 | +2.9% | +24.4% | -1.8% | +18.7% |
7 EBITDA before non-recurring result.
The turnover in the South America segment decreased by 1.2% (+18.7% at constant exchange rates) in the first semester of 2018 to € 48.9 million. Organic turnover development amounted to -5.7% (+13.3% at constant exchange rates). The REBITDA decreased by 3.6% to € 9.7 million. The REBITDA as a percentage of turnover decreased by 50 basis points to 19.8%.
The strong increase in turnover at constant exchange rates in South America was mainly driven by the strong growth of the underlying markets and the growth of the number of compounding pharmacies in Brazil. The number of compounding pharmacies increased by 8.8% to 7,545 compared to 2017. The focus of Fagron on the development and introduction of innovative products and patented concepts has resulted in strong growth of Brands in the first semester of 2018. The five Fagron companies active in the Brazilian market launched 25 innovations (Brands) during Consulfarma (the largest fair for pharmaceutical compounding worldwide), including Pomage™ (anti-aging) and Pinetonina™ (stress relief and insomnia). Fagron Technologies, market leaderin software and digital solutions for compounding pharmacies, launched new versions of FórmulaCerta™ (software for financial, technical and operational management of pharmacies), mobyPharma™ (software for direct contact with patients, directly linked to FórmulaCerta™), and LogiPrix™ (software to calculate the sales price of compounded products).
In the second quarter of 2018, the integration process of All Chemistry, acquired in October 2017, was completed. The back office of All Chemistry is centralised in the shared services centre of Fagron in São Paulo, while the repackaging activities have been moved to the GMP facilities of Fagron in Anápolis. During the Consulfarma in June 2018, the name change to Organic Compounding and a complete re-branding was introduced.
| Fagron North America | |||||
|---|---|---|---|---|---|
| (x € 1,000) | H1 2018 | H1 2017 | Change | ||
| Turnover | 50,869 | 39,880 | +27.6% | ||
| REBITDA8 | 5,610 | 5,452 | +2.9% | ||
| REBITDA margin | 11.0% | 13.7% |
| . . | ||
|---|---|---|
| Total growth |
Total growth CER |
Org. growth |
Org. growth CER |
|
|---|---|---|---|---|
| Turnover development H1 2018 | +27.6% | +42.6% | +9.4% | +22.3% |
| Turnover development Q2 2018 | +55.4% | +70.1% | +19.0% | +29.4% |
8 EBITDA before non-recurring result.
The turnover in the North America segment increased by 27.6% (+42.6% at constant exchange rates) to € 50.9 million in the first semester of 2018. The organic increase in turnover amounted to 9.4% (+22.3% at constant exchange rates). REBITDA increased by 2.9% to € 5.6 million. REBITDA as a percentage of turnover decreased by 270 basis points to 11.0% compared to the first semester of 2017. This decrease was caused by the growth of the number of employees at the new sterile 503B facility in Wichita (USA). The 43 new employees in Wichita will contribute to an accelerated expansion of the product range to take full advantage of the growth opportunities for sterile compounding in the United States.
Fagron's sterile compounding activities in the United States realized a turnover increase at constant exchange rates of 27.5% (Q2-18: 34.6%) in the first semester of 2018. Growth at constant exchange rates of Fagron's facilities in Wichita amounted to 76.2% (Q2-18: 90.9%). The strong acceleration in growth of the 503B facilities in Wichita is driven by an increase in the number of customers, the accelerated growth of the product range, as well as the increased monitoring of 503B-facilities on compliance with requirements by the regulatory authorities.
The sterile activities are developing in line with expectations. In the first semester of 2018,the new 503B facility in Wichita received licenses from California and Indiana, bringing the number of licenses received from the new 503B facility in Wichita to 49. The license of the District of Columbia was also received. It is expected that the remaining license from the State of North Dakota will be received in the course of 2018. The other 503B facility in Wichita and the 503B facility in Las Vegas both have all licences.
The sale of Essentials and Brands for compounding increased by 67.4% (+87.2% at constant exchange rates) in the first semester of 2018 compared to the first semester of 2017. The organic growth at constant exchange rates amounted to 7.6%. All activities contributed to the growth in turnover.
In early April 2018, Fagron announced the acquisition of the American Humco, a leading developer, manufacturer and supplier of innovative patented vehicles (including topical and transdermal creams, syrups and suspensions) and pharmaceutical branded products that are paid in cash by the customer (no reimbursement). Established in 1872, Humco realised a turnover of approximately US\$ 32 million in 2017 (approximately € 26 million). Good progress was realized in the second quarter of 2018 with the integration of Humco.
In the second quarter of 2018, Fagron started activities in Canada. The Canadian compounding market has developed significantly in recent years and offers considerable growth potential for the Essentials and Brands of both Fagron and Humco.
| (x € 1,000) | H1 2018 | H1 2017 | Change |
|---|---|---|---|
| Turnover | 3,638 | 3,461 | +5.1% |
| REBITDA9 | 685 | -119 | +675.1% |
| REBITDA margin | 18.8% | -3.4% |
The turnover in the HL Technology segment increased by 5.1% (+14.2% at constant exchange rates) to € 3.6 million in the first semester of 2018. REBITDA increased by € 0.8 million to € 0.7 million or 18.8% ofthe turnover. The growth in both turnover and profitability was mainly driven by the optimisation of the production process and the strengthening of the underlying markets.
The board of directors is deeply touched by the sudden death of Mrs Nathalie Clybouw. As non-executive director of Fagron, Mrs Clybouw has made a significant contribution to the development and growth of Fagron the past years.
The board of directors decided, in accordance with article 15 of the articles of association of Fagron, to co-opt Mrs Judy Martins as non-executive director of Fagron. The final appointment of Mrs Martins will be submitted to the next general meeting of shareholders of Fagron.
Mrs Martins has been working at Waterland since 2006 and currently fulfils the role of general counsel and compliance officer of the Waterland Group. Before this, she worked for ten years in the trust sector, at Rokin Corporate Services (Stibbe) and ATC Trustees (now Intertrust). She studied Dutch Law (Corporate Law) at the Free University of Amsterdam. Before the Dutch Law degree, she completed the propaedeutic course in Cultural Anthropology at the University of Amsterdam and subsequently followed higher education Culture, Organization and Management, at VU University Amsterdam with a focus on change management.
Rafael Padilla (CEO) and Karin de Jong (CFO) will present the results for the first semester of 2018 during an analyst meeting today. The analysts' meeting starts at 11.00 a.m. CET and can be followed via a live video webcast. The details of the video webcast can be found on the website (click here).
11 October Trading update, third quarter 2018
Results and trading updates are published at 7:00 a.m. CET.
In case of differences between the English translation and the Dutch original of this press release, the latter will prevail.
9 EBITDA before non-recurring result.
Constantijn van Rietschoten Chief Communications Officer Tel. +31 6 53 69 15 85 [email protected] investors.fagron.com
Fagron is a leading global company active in pharmaceutical preparations and focuses on delivering personalized pharmaceutical care to hospitals, pharmacies, clinics and patients in 35 countries worldwide.
The Belgian company Fagron NV is located in Nazareth and is listed on Euronext Brussels and Euronext Amsterdam (stock exchange code 'FAGR'). The Dutch company Fagron BV directs Fagron's operational activities. Fagron BV's headquarters is located in Rotterdam.
Certain statements in this press release might be considered to be future-oriented. Such future-oriented statements are based on current expectations and are influenced by various risks and uncertainties. Fagron therefore can not guarantee that such future-oriented statements will materialise and does not undertake any obligation to update or revise any future-oriented statement, whether as a result of new information, future events or any other reason.
| 1. Interim management report | |
|---|---|
| 2. Condensed consolidated income statement | |
| 3. Condensed consolidated statement of comprehensive income | |
| 4. Condensed consolidated statement of financial position | |
| 5. Condensed consolidated statement of changes in equity | |
| 6. Condensed consolidated statement of cash flows | |
| 7. Notes to the interim financial information | |
| 8. Financial result | |
| 9. Earnings per share | |
| 10. Non-recurring result | |
| 11. Segment information | |
| 12. Provisions | |
| 13. Borrowings | |
| 14. Business combinations | |
| 15. Related parties | |
| 16. Subsequent events | |
| 17. Effective tax rate |
The undersigned hereby declare that, to the best of their knowledge, the condensed consolidated financial statements for the six-month period ended 30 June 2018, 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
A detailed report on the turnover of the first semester of 2018 can be found in the Fagron press release of the 3rd of August 2018.
| (x 1,000 euros) | Note | June 2018 | June 2017 1 |
|---|---|---|---|
| Operating income | 231,576 | 222,172 | |
| Turnover | 230,923 | 220,012 | |
| Other operating income | 652 | 2,161 | |
| Operating expenses | 197,088 | 183,737 | |
| Trade goods | 89,228 | 83,336 | |
| Services and other goods | 40,625 | 39,378 | |
| Employee benefit expenses | 53,894 | 51,864 | |
| Depreciation and amortization | 9,499 | 8,748 | |
| Other operating expenses | 3,843 | 411 | |
| Operating profit | 34,487 | 38,435 | |
| Financial income | 8 | 399 | 2,117 |
| Financial expenses | 8 | $-10,873$ | $-14,702$ |
| Profit before income tax | 24,013 | 25,850 | |
| Taxes | 17 | 5,241 | 4,796 |
| Net result | 18,773 | 21,054 | |
| Attributable to: | |||
| Equity holders of the company (net result) | 18,604 | 20,704 | |
| Non-controlling interest | 169 | 351 | |
| Earnings (loss) per share attributable to owners of the | |||
| parent entity during the period | |||
| Profit (loss) per share (in euros) | 9 | 0.26 | 0.29 |
| Diluted profit (loss) per share (in euros) | 9 | 0.26 | 0.29 |
<sup>1 The condensed consolidated income statement has been revised for the application of IFRS 15.
| (x 1,000 euros) | June 2018 | June 2017 |
|---|---|---|
| Profit for the period | 18,773 | 21,054 |
| Other comprehensive income: | ||
| Items that may be subsequently reclassified to profit or loss | ||
| Currency translation differences | $-13,605$ | $-9,625$ |
| Other comprehensive income for the period | $-13,605$ | $-9,625$ |
| Total comprehensive income for the period | 5,168 | 11,429 |
| Attributable to: | ||
| Equity holders of the company | 5,068 | 11,152 |
| Non-controlling interest | 100 | 277 |
The unrealised currency translation differences in 2018 of 13.6 million euros are mainly due to the weakening of the Brazilian real against the euro at 31 December 2017.
| 4. Condensed consolidated statement of financial position | |||
|---|---|---|---|
| (x 1,000 euros) | Note | June 2018 | December 2017 |
|---|---|---|---|
| Non-current assets | 474,595 | 427,617 | |
| Intangible fixed assets | 389,074 | 344,495 | |
| Property, plant and equipment | 67,883 | 69,535 | |
| Financial fixed assets | 2,406 | 2,232 | |
| Deferred tax assets | 15,232 | 11,355 | |
| Current assets | 204,469 | 166,430 | |
| Inventories | 75,628 | 62,865 | |
| Trade receivables | 43,036 | 32,220 | |
| Other receivables | 9,376 | 10,574 | |
| Cash and cash equivalents | 76,428 | 60,771 | |
| Total assets | 679,063 | 594,047 | |
| Equity | 183,094 | 184,881 | |
| Shareholders' equity (parent) | 179,511 | 181,398 | |
| Non-controlling interest | 3,583 | 3,483 | |
| Non-current liabilities | 300,557 | 300,925 | |
| Provisions | 12 | 12,073 | 12,476 |
| Pension obligations | 4,821 | 4,733 | |
| Deferred tax liabilities | 193 | 198 | |
| Borrowings | 13 | 283,470 | 283,518 |
| Current liabilities | 195,413 | 108,241 | |
| Borrowings | 13 | 54,844 | 13,450 |
| Trade payables | 74,917 | 58,950 | |
| Taxes, remuneration and social security | 30,505 | 27,168 | |
| Other current payables | 14 | 35,148 | 8,673 |
| Total liabilities | 495,970 | 409,166 | |
| Total equity and liabilities | 679,063 | 594,047 |
| Share capital & |
Non- control- |
||||||
|---|---|---|---|---|---|---|---|
| (x 1,000 euros) | share premium |
Other reserves |
Treasury shares |
Retained earnings |
Total | ling interest |
Total equity |
| Balance at 1 January 2017 | 561,852 | $-218,174$ | $-18,823$ | $-175,063$ | 149,792 | 3,083 | 152,875 |
| Profit for the period | 0 | 0 | $\Omega$ | 20,704 | 20,704 | 351 | 21,054 |
| Other comprehensive income |
$\mathbf 0$ | $-9,552$ | $\mathbf 0$ | 0 | $-9,552$ | $-73$ | $-9,625$ |
| Total comprehensive income for the period |
$\mathbf 0$ | $-9,552$ | $\mathbf 0$ | 20,704 | 11,152 | 277 | 11,429 |
| Dividends | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | $\overline{0}$ | $\mathbf 0$ | $\overline{0}$ |
| Share-based payments | $\mathbf 0$ | 408 | $\mathbf 0$ | $\mathbf 0$ | 408 | $\overline{O}$ | 408 |
| Reclassification | $\mathbf 0$ | $\mathbf 0$ | $\overline{0}$ | $\mathbf 0$ | $\overline{0}$ | $\mathbf 0$ | $\Omega$ |
| Balance at 30 June 2017 | 561,852 | $-227,318$ | $-18,823$ | $-154,359$ | 161,352 | 3,360 | 164,712 |
| Profit for the period | $\overline{0}$ | $\mathbf 0$ | $\mathbf 0$ | 25,954 | 25,954 | 38 | 25,993 |
| Other comprehensive income |
$\mathbf 0$ | $-5,870$ | $\mathbf 0$ | 0 | $-5,870$ | 83 | $-5,786$ |
| Total comprehensive income for the period |
$\mathbf 0$ | $-5,870$ | $\mathbf 0$ | 25,954 | 20,084 | 121 | 20,207 |
| Dividends | $\overline{O}$ | $\Omega$ | $\overline{0}$ | $\Omega$ | $\Omega$ | $\overline{0}$ | $\Omega$ |
| Share-based payments | $\overline{O}$ | $-38$ | $\mathbf 0$ | $\overline{0}$ | $-38$ | $\overline{O}$ | $-38$ |
| Reclassification | $-54,182$ | $\overline{O}$ | $\mathbf 0$ | 54,182 | $\overline{0}$ | $\overline{O}$ | $\Omega$ |
| Balance at 1 January 2018 | 507,670 | $-233,226$ | $-18,823$ | $-74,223$ | 181,398 | 3,483 | 184,881 |
| Profit for the period | $\mathbf 0$ | $\mathbf 0$ | $\overline{0}$ | 18,604 | 18,604 | 169 | 18,773 |
| Other comprehensive income |
$\mathbf 0$ | $-13,536$ | $\mathbf 0$ | 0 | $-13,536$ | $-68$ | $-13,605$ |
| Total comprehensive income for the period |
$\mathbf 0$ | $-13,536$ | $\mathbf 0$ | 18,604 | 5,068 | 100 | 5,168 |
| Dividends | $\overline{0}$ | $\mathbf 0$ | $\mathbf 0$ | $-7,184$ | $-7,184$ | $\mathbf 0$ | $-7,184$ |
| Share-based payments | $\overline{O}$ | 229 | $\overline{0}$ | $\Omega$ | 229 | $\overline{O}$ | 229 |
| Balance at 30 June 2018 | 507,670 | $-246,533$ | $-18,823$ | $-62,804$ | 179,511 | 3,583 | 183,094 |
| (x 1,000 euros) | June 2018 | June 2017 |
|---|---|---|
| Operating activities | ||
| Profit before income taxes | 24,013 | 25,850 |
| Taxes paid | $-3,630$ | 7,537 |
| Adjustments for financial items | 10,474 | 12,585 |
| Total adjustments for non-cash items | 9,265 | 8,415 |
| Total changes in working capital | $-5,707$ | $-4,886$ |
| Total cash flow from operating activities | 34,416 | 49,501 |
| Investment activities | ||
| Capital expenditure | $-4,169$ | $-5,066$ |
| Proceeds from sold shareholdings | $\Omega$ | 6,400 |
| Investments in existing shareholdings (subsequent payments) | ||
| and in new holdings | $-38,787$ | $-1,437$ |
| Total cash flow from investing activities | $-42,957$ | $-103$ |
| Financing activities | ||
| Dividends paid | $-2,767$ | $\mathcal{O}$ |
| New borrowings | 39,058 | 29,021 |
| Reimbursement of borrowings | $-1,300$ | $-64,905$ |
| Interest received | 399 | 2,117 |
| Interest paid | $-8,829$ | $-14,787$ |
| Total cash flow from financing activities | 26,561 | $-48,553$ |
| Total net cash flow for the period | 18,020 | 845 |
| Cash and cash equivalents - start of the period | 60,771 | 295,585 |
| Gains or losses from currency translation differences | $-2,363$ | $-2,910$ |
| Cash and cash equivalents - end of the period | 76,428 | 293,520 |
| Change in cash and cash equivalents | 18,020 | 845 |
Fagron is a leading global company active in pharmaceutical preparations and focuses on delivering personalized pharmaceutical care to hospitals, pharmacies, clinics and patients in 35 countries worldwide.
The Belgian company Fagron NV is located in Nazareth and listed on Euronext Brussels and Euronext Amsterdam (stock exchange code 'FAGR'). The Dutch company Fagron BV directs Fagron's operational activities. Fagron BV's headquarters is located in Rotterdam.
These consolidated financial statements were approved for publication by the Board of Directors on the 2nd of August 2018.
In the event of differences between the English translation and the Dutch original of the interim financial statements, the latter prevails.
This condensed consolidated interim financial information for the first semester of 2018, including the comparative figures for 2017, 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 2017 (including the principles for financial reporting) which is available at www.fagron.com.
The most important accounting policies used to prepare the consolidated interim financial statements for the first semester of 2018 are consistent with those applied in the Fagron consolidated financial statements for the year ended 31 December 2017.
The accounting policies were consistently applied for all periods presented.
A summary of the most important accounting policies can be found in the 2017 annual report. The annual report can be consulted through the following web link: 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 2018 and which have been endorsed by the European Union.
IFRS 15 'Revenue from contracts with customers' relates to the recording of revenue from contracts with customers. The application of IFRS 15 is obligatory as of the 1st of January 2018 and this application has only a negative effect on the presentation hereof of less than one percent of the turnover and no impact on the operating profit. The comparable figures of 2017 have been restated for this.
IFRS 9 'Financial instruments' covers financial instruments on both the asset as well as the liability side and describes the criteria for recognition, classification and derecognition of such instruments, in addition to the allowed measurement methods. The application of IFRS 9 is obligatory as of the 1st of January 2018 and this application has no material impact on the consolidated figures of Fagron.
IFRS 16 'Leases' replaces the current standard (IAS 17). IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In the first semester of 2018 Fagron has largely conducted a detailed analysis of the impact of IFRS 16. As a result of this analysis Fagron expects that the total assets will increase with less than 5%. The final impact will depend on the number, the size, the remaining duration and possible extension options of the lease contracts on the moment of implementation. The application of IFRS16 will be effective as of the 1st of January 2019.
Revenue and operating result of the Group are limitedly impacted by seasonal influences.
| $(x 1,000 \text{ euros})$ | June 2018 | June 2017 |
|---|---|---|
| Financial income | 399 | 2,117 |
| Financial expenses | 10.873 | 14.702 |
| Financial result | 10.474 | 12,585 |
The financial income decreased compared to the previous year. In 2018 there were no outstanding financial derivatives whereas in 2017 a revaluation of the financial derivatives resulted in an income of 0.7 million euros. The income on interests were also higher in 2017 due to amongst other interest on the restricted funds as a result of the capital increases.
The decrease of the financial expenses can mostly be explained by lower interest expenses on the borrowings, partly offset by exchange rate differences.
| (x1euro) | June 2018 | June 2017 |
|---|---|---|
| Basic earnings (loss) per share | 0.26 | በ 29 |
| Diluted earnings (loss) per share | 0.26 |
The earnings used in the calculations are as follows:
| $(x 1,000 \text{ euros})$ | June 2018 | -lune 2017 |
|---|---|---|
| Profit (loss) attributable to equity holders of the company | 18.604 | 20.704 |
The weighted average number of ordinary shares used in the calculations are as follows:
| $\left($ number of shares x 1,000) | June 2018 | June 2017 |
|---|---|---|
| Weighted average number of ordinary shares | 71.740 | 71.740 |
| Effect of warrants and stock options | 172 | 296 |
| Weighted average number of ordinary shares (diluted) | 71.912 | 72.036 |
On 30 June 2018 the capital represented 71,843,904 shares, of which 103,627 are treasury shares held by Fagron NV.
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 -4.7 million euros (June 2017: -0.9 million euros). The 2018 non-recurring costs include primarily a settlement with the previous owners of JCB Laboratories, restructuring costs and acquisition costs. The 2017 non-recurring costs include primarily restructuring costs, legal costs and the destruction of inventory related to Freedom Pharmaceuticals.
Fagron's divisional structure is tailored to the various activities of Fagron and also supports effective decisionmaking and individual responsibility. This is in accordance with IFRS 8, which states that the operational segments must be determined on the basis of the components that the Executive Committee applies 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, Fagron South America and HL Technology.
| $(x 1,000 \text{ euros})$ | Fagron Europe |
Fagron North America |
Fagron South America |
Fagron Total |
HL Technology |
Total |
|---|---|---|---|---|---|---|
| Turnover | 127,536 | 50,869 | 48,880 | 227,285 | 3,638 | 230,923 |
| Intersegment turnover | 172 | 106 | 16 | 294 | $\Omega$ | 294 |
| Total turnover | 127,707 | 50,975 | 48,897 | 227,579 | 3,638 | 231,217 |
| Operating result per segment |
28,282 | $-1,783$ | 8,329 | 34,828 | -340 | 34,487 |
| Financial result | $-10,474$ | |||||
| Profit before taxes | 24,013 | |||||
| Taxes on profits | 5,241 | |||||
| Net result | 18,773 |
The segment results for the reporting period ending 30 June 2018 are as follows:
The segment results for the reporting period ending 30 June 2017 are as follows:
| Fagron | Fagron North |
Fagron South |
Fagron | HL. | ||
|---|---|---|---|---|---|---|
| (x 1,000 euros) | Europe | America | America | Total | Technology | Total |
| Turnover | 127,220 | 39,880 | 49,450 | 216,551 | 3,638 | 220,012 |
| Intersegment turnover | 197 | 81 | 28 | 306 | $\mathcal{O}$ | 306 |
| Total turnover | 127,417 | 39,961 | 49,478 | 216,857 | 3,638 | 220,318 |
| Operating result per | ||||||
| segment | 29,961 | 1,158 | 8,421 | 39,539 | $-1,104$ | 38,435 |
| Financial result | $-12,585$ | |||||
| Profit before taxes | 25,850 | |||||
| Taxes on profits | 4,796 | |||||
| Net result | 21,054 |
| (x 1.000 euros) | Fagron Europe |
Fagron North America |
Fagron South America |
HL Technology |
Unallocated/ inter segment elimination |
Total |
|---|---|---|---|---|---|---|
| Total assets | 290,137 | 202,773 | 130,159 | 5,600 | 50,395 | 679,063 |
| Total liabilities | 70.121 | 168,420 | 28,511 | 1,301 | 227,616 | 495,970 |
| Capital expenditure | 1,965 | 1,574 | 1.261 | 37 | 0 | 4,837 |
On 30 June 2018, the assets and liabilities, as well as the capital expenditures (investments) are as follows:
The gross capital expenditure in the first semester of 2018 mainly relates to facility improvements in the United States and Brazil and software implementations. The Group is currently engaged in various small investment projects. The capex excludes the change in investment payables for 0.4 million euros, mainly related to the investments mentioned above. The unallocated assets include primarily cash and cash equivalents. The unallocated liabilities include primarily the borrowings.
On 31 December 2017, the assets and liabilities, as well as the capital expenditures (investments) are as follows:
| (x 1.000 euros) | Fagron Europe |
Fagron North America |
Fagron South America |
HL Technology |
Unallocated/ inter segment elimination |
Total |
|---|---|---|---|---|---|---|
| Total assets | 290,159 | 126,423 | 133,786 | 5,507 | 38,172 | 594,047 |
| Total liabilities | 78,687 | 90,653 | 25,800 | 897 | 213,130 | 409,166 |
| Capital expenditure | 4,054 | 2,502 | 2,603 | 447 | 0 | 9,607 |
The gross capital expenditure in 2017 mainly relates to building and production facilities improvements in all regions and ERP implementations. The capex excludes the change in investment payables for 2.0 million euros, mainly related to the investments mentioned above. The unallocated assets include primarily cash and cash equivalents. The unallocated liabilities include primarily the borrowings.
The US government is conducting an investigation into the pricing of pharmaceutical products in the period primarily prior to the acquisition of Bellevue Pharmacy and Freedom Pharmaceuticals. The investigation relates to the sector as a whole. In order to limit the uncertainty and further attorneys' fees and (internal) investigation costs, Fagron is considering reaching a settlement with the government. The opening balance sheet of Bellevue Pharmacy included a provision of 10 million US dollars for costs arising from this investigation. The provision is an estimate of attorneys' fees, (internal) investigation costs and the costs of a possible settlement with the government. At the end of the first semester in 2018, the provision amounts to 6.9 million euros.
The Group has a number of other small, immaterial provisions mostly relating to product liability claims and employment matters in the ordinary course of business.
In the first semester of 2018 no new borrowings were acquired. The 15.0 million euros 4.04% Serie C Senior Notes, the 5.0 million euros Floating Rate Serie D Senior Notes and the 20.0 million US dollars 5.07% Serie E Senior Notes were classified as short term borrowings. These borrowings will be repaid on the 15th of April 2019.
On 5 May 2016 Fagron received Long Term Waivers under the Revolving Credit Facility and the Note Purchase Agreement. The financial covenants were adjusted to give Fagron extra latitude with respect to the original levels of the financial covenants. The extra latitude in the financial covenants decreases with each six-months test period, starting with the first test period on 31 December 2016 until the test period ending on 30 June 2018. The test periods and accompanying levels are shown below. As of the 1st of July 2018 the original levels of the financial covenants are again in effect.
| Financial covenants | |||||
|---|---|---|---|---|---|
| Test period | Net financial debt / REBITDA | REBITDA / net interest expenses | |||
| 30 June 2018 | Max. 3.60x | Min. 2.80x | |||
| After 30 June 2018 | Max. 3.25x | Min. $4.00x$ |
On 30 June 2018 the net financial debt / REBITDA is equal to 2.72. The REBITDA / net interest expenses is equal to 5.80.
In the first semester of 2018 Fagron acquired a company. Full control was acquired of this company. As the acquired activities were immediately $-$ in their entirety or to a significant degree $-$ integrated in existing entities of Fagron, their respective contribution to the profit of Fagron have not been reported separately.
On April 2018, Fagron announced the acquisition of Humco, a leading developer, manufacturer and supplier of innovative patented pharmaceutical delivery vehicles (suspensions) and pharmaceutical branded products supplied to more than 45,000 pharmacies in the United States. The acquisition amounted to approximately 57.8 million euros, representing an increase in goodwill of 44.0 million euros. Expectation is that the goodwill will be fully tax deductible. The provisional fair value of the acquired assets and liabilities was determined as detailed below:
| Fair value of the acquired assets and liabilities $(x 1,000$ euros) | |
|---|---|
| Intangible fixed assets | 6,628 |
| Property, plant and equipment | 1,446 |
| Inventories | 4,626 |
| Trade receivables | 3,406 |
| Other receivables | 293 |
| Cash and cash equivalents | 996 |
| Total assets | 17,394 |
| Borrowings | $-39$ |
| Trade payables | 2,153 |
| Other current payables | 1,483 |
| Total liabilities | 3,598 |
| Net acquired assets | 13,796 |
| Goodwill | 43,973 |
| Total acquisition amount | 57,769 |
The determination of the fair value of the assets and liabilities in 2017 did not result in an adjustment of the goodwill.
At the semester closing the Group had 20.2 million euros in contingencies. These fees payable to former shareholders were determined on the basis of business plans at the time of acquisition. The increase of these contingent considerations is related to the acquisition of Humco. This is also the primary reason for the increase of other current payables.
The contingent considerations relate primarily to North America and vary between 0 euros and a maximum of 20.2 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.
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 2017 annual report. The remuneration is determined on a yearly basis, therefore no further details are provided in these interim financial statements.
Fagron received in July 2018 a tax assessment of 15.4 million euros regarding the amortization of goodwill as a result of mergers in Brazil. We are contesting this. Fagron will object to the imposed assessment and did not create a provision for this.
Recognised income tax expenses are based on management's best estimate of the weighted average annual income tax rate of 21.8% for 2018 (S1 2017: 18.6%).
To the Board of Directors Fagron NV
We have reviewed the accompanying consolidated condensed statement of financial position of Fagron NV and its subsidiaries as of 30 June 2018 and the related condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the 6-month period then ended, as well as the explanatory notes. The board of directors is responsible for the preparation and presentation of this consolidated condensed financial information in accordance with IAS 34, as adopted by the European Union. Our responsibility is to express a conclusion on this consolidated condensed financial information based on our review.
We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated condensed financial information is not prepared, in all material respects, in accordance with IAS 34, as adopted by the European Union.
Antwerp, 2 August 2018
PwC Reviseurs d'Entreprises sccrl / Bedrijfsrevisoren bcvba Represented by
Peter Van den Eynde Réviseur d'Entreprises
PwC Bedrijfsrevisoren cvba, burgerlijke vennootschap met handelsvorm - PwC Reviseurs d'Entreprises scrl, société civile à forme commerciale - Financial Assurance Services Maatschappelijke zetel/Siège social: Woluwe Garden, Woluwedal 18, B-1932 Sint-Stevens-Woluwe Vestigingseenheid/Unité d'établissement: Generaal Lemanstraat 67, B-2018 Antwerpen T: +32 (0)3 259 3011, F: +32 (0)3 259 3099, www.pwc.com BTW/TVA BE 0429.501.944 / RPR Brussel - RPM Bruxelles / ING BE43 3101 3811 9501 - BIC BBRUBEBB / BELFIUS BE92 0689 0408 8123 - BIC GKCC BEBB
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