Quarterly Report • Feb 5, 2016
Quarterly Report
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In 2015, the trend in Fagron's turnover, at constant exchange rates, was positive on all continents on which Fagron operates, except in the United States. Hospitals are increasingly deciding to outsource their sterile compounding to Fagron Specialty Pharma Services (FSPS). FSPS' activities in Europe, Colombia and South Africa, and FSPS' sterile activities in the United States consequently grew significantly in 2015, while Fagron Essentials and the non-sterile FSPS-activities in the United States experienced a decline in turnover. In 2015, Fagron invested in the construction of a new sterile GMP 503B registered compounding facility in Wichita (Kansas, United States) and an antibiotics compounding facility in Hoogeveen (the Netherlands). In addition, during the year, Fagron strengthened its market leadership in pharmaceutical compounding through the acquisition of AnazaoHealth in the United States and ABC Chemicals in Belgium.
The profitability of the sale of pharmaceutical raw materials (Fagron Essentials) and non-sterile compounding (FSPS) in the United States decreased, forcing the company to take an impairment of €225.6 million as at the end of December 2015.
The full scope of the impact of the changed reimbursement system became clear in the third quarter of 2015. The REBITDA projections for the year were adjusted accordingly. In addition to the measures taken to improve the profitability of the activities in the United States, such as a very stringent cost reduction programme, investments are also being made in a new sales team and we plan to introduce new concepts and trademarks. In addition, a great deal of effort went into getting the company's financial situation into shape. In the second half of 2015, discussions were held with a number of parties about a potential acquisition of the company. After the Board of Directors' decision in December to no longer give this priority, efforts were fully dedicated to negotiations with banks and a possible public or private capital increase. This also resulted in a change to the Board of Directors, whereby Hans Stols, an independent director at the time, succeeded Ger van Jeveren as Fagron's CEO.
The constructive negotiations held with banks have resulted in a waiver of the covenants up to the end of March 2016. The Board of Directors currently is conducting exclusive negotiations with a cornerstone investor and a number of other investors concerning a private capital injection in combination with a public share issue. These negotiations are in an advanced stage but are not yet final. In total, Fagron wants to raise € 220 million. The current intention is that parties in the private capital injection will participate at the share price average of the 30 days prior to the Extraordinary General Meeting of Shareholders, which must approve the capital increase, on the condition that it does not exceed € 7 per share. This principle, the details and time lines will be further worked out over the coming period. Fagron intends to reduce its bank debts with these proceeds to such an extent that the company once again operates within the bank covenants and that it will have a sustainable financing structure.
| Income Statement (x € 1,000) | H 2 2015 | H 2 2014 | 2015 | 2014 | Change |
|---|---|---|---|---|---|
| Net turnover | 229,229 | 237,908 | 472,996 | 447,056 | 5.8% |
| Gross margin | 148,250 | 155,268 | 309,512 | 288,213 | 7.4% |
| As a % of net turnover | 64.7% | 65.3% | 65.4% | 64.5% | |
| Operating costs | $-107,339$ | $-92,488$ | $-202,966$ | $-169,763$ | 19.6% |
| As a % of net turnover | 46.8% | 38.8% | 42.9% | 38.0% | |
| EBITDA before non-recurring result | 40,911 | 62,780 | 106,546 | 118,450 | $-10.0%$ |
| As a % of net turnover | 17.8% | 26.4% | 22.5% | 26.5% | |
| Non-recurring result | $-5,183$ | $-2,573$ | $-7,701$ | $-5,089$ | 51.3% |
| EBITDA | 35,728 | 60,207 | 98,845 | 113,361 | $-12.8%$ |
| As a % of net turnover | 15.6% | 25.3% | 20.9% | 25.4% | |
| Depreciation and amortisation | $-11,942$ | $-11,859$ | $-23,619$ | $-19,025$ | 24.1% |
| Impairment | $-225,564$ | $-225,564$ | |||
| EBIT | $-201,778$ | 48,348 | $-150,338$ | 94,336 | $-259.4%$ |
| As a % of net turnover | $-88.0%$ | 20.3% | $-31.8%$ | 21.1% | |
| Financial result, excluding revaluation of financial derivatives | $-31,057$ | $-14,062$ | $-45,857$ | $-24,085$ | 90.4% |
| Revaluation of financial derivatives | 371 | 214 | 866 | $-399$ | $-317.1%$ |
| Profit before taxes | $-232,464$ | 34,501 | $-195,329$ | 69.852 | $-379.6%$ |
| Taxes | 5,166 | $-15,799$ | $-6,954$ | $-26,662$ | $-73.9%$ |
| Net result | $-227,298$ | 18,702 | $-202,283$ | 43,190 | $-568.4%$ |
| Result from discontinued operations | $-2,312$ | $-9,154$ | 270 | $-27,033$ | $-101.0%$ |
| Recurring net profit 3 | 18,177 | 20,113 | 44,249 | 46,688 | $-5.2%$ |
| Net profit per share $(\epsilon)$ | $-7.02$ | 0.61 | $-6.23$ | 1.41 | |
| Recurring net profit per share (€) | 0.57 | 0.65 | 1.41 | 1.52 | |
| Average number of shares | 31,697,689 | 30,844,715 | 31,303,765 | 30,758,685 |
| Balance sheet ( $x \in \overline{1,000}$ ) | 31-12-2015 | 31-12-2014 |
|---|---|---|
| Intangible non-current assets | 410,601 | 575,252 |
| Property, plant and equipment | 71,133 | 59,969 |
| Deferred taxes | 13.942 | 22,363 |
| Other non-current assets | 5.859 | 5,065 |
| Operating working capital | 38,298 | 44,078 |
| Other working capital | $-56,111$ | $-139,744$ |
| Assets/liabilities held for sale | 62.595 | |
| Equity | $-64,772$ | 156,948 |
| Long-term provisions | 21,133 | 14.944 |
| Financial instruments | 1.996 | 2,862 |
| Deferred tax liabilities | 1.519 | 6,162 |
| Net financial debt | 523,846 | 448.663 |
The consolidated turnover over 2015 amounted to € 473.0 million, an increase of 5.8% (3.7% at constant exchange rates) compared to 2014. Organic turnover growth amounted to -1.0% (-2.9% at constant exchange rates). The turnover development per segment in 2015 is set out in more detail in the section 'Key Figures per Segment'.
The gross margin increased 7.4% to € 309.5 million. The gross margin as a percentage of turnover increased by 90 base points to 65.4%.
The operating expenses as a percentage of turnover increased by 490 base points to 42.9% in 2015. In the second half of 2015, in response to the changed market conditions in the United States, Fagron initiated a cost reduction programme with the objective of structurally reducing costs by € 10 million per annum. The cost reduction programme resulted in a decrease in the number of FTEs by 9.5% to 2,184, adjusted for acquisitions, in 2015. The impact of this will primarily become visible in 2016.
The EBITDA before non-recurring result (REBITDA) declined by 10.0% to € 106.5 million. This represents 22.5% of the turnover.
The non-recurring result amounted to $\text{\textsterling}$ 7.7 million. The non-recurring result consists of the one-time costs related to dismissals, acquisitions and advisor fees, mainly for the financing of the company, partially offset by the release of an earn-out related to the acquisition of JCB Pharmaceuticals.
The EBITDA declined by 12.8% to €98.8 million in 2015. The operating margin (EBITDA as a percentage of turnover) decreased from 25.4% in 2014 to 20.9% in 2015.
Depreciation and amortisation was -€ 23.6 million; an increase of 24.1% compared to 2014.
As a result of the changed reimbursement system for non-sterile compounding in the United States and the consequences on the profitability of Bellevue Pharmacy, as well as Freedom Pharmaceuticals, Fagron recognised an impairment of € 225.6 million in 2015.
The EBIT amounts to -€ 150.3 million. The EBIT before impairment amounts to € 75.2 million; a decrease of 20.3% in comparison to 2014.
Excluding the revaluation of the financial derivatives, the financial result amounted to $\text{\textsterling}$ 45.9 million. The increase compared to 2014 was in part due to an increase in the net financial debt, higher exchange rate differences, fees related to the waiver granted on 31 December 2015 and the consequences of the revaluation of the financial debt from non-current to current.
The revaluation of the financial derivatives amounted to $\epsilon$ 0.9 million. This revaluation was the result of an upward trend in the interest rate. This interest rate hedge does not qualify for hedge accounting according to IAS 39. As a non-cash item, it has been deducted from the financial result and is recognised separately in the income statement.
The effective tax rate as a percentage of the profit before taxes and before impairment was 23.0%. Taxes in 2015 decreased to €7.0 million from € 26.7 million in 2014. This is primarily due to the decline in profitability from the activities in the United States.
Due to the impairment the net loss amounted to $\in$ 202.0 million. The recurring net profit amounted to $\in$ 44.2 million; a decrease of 5.2% compared to the recurring net profit of $\epsilon$ 46.7 million in 2014.
The main changes at balance-sheet level can be summarised as follows.
The intangible non-current assets decreased by $\epsilon$ 164.7 million in 2015. The decrease in intangible noncurrent assets was primarily due to the impairment of Bellevue Pharmacy and Freedom Pharmaceuticals. This is offset by the recognition of goodwill and other intangible non-current assets as a result of the acquisition of AnazaoHealth (€ 42.2 million) in the United States, ABC Chemicals (€ 11.5 million) in Belgium, and some smaller acquisitions.
The intangible non-current assets increased by € 11.2 million. This increase was due to the takeover of assets as part of acquisitions and the construction of new compounding facilities in the Netherlands and the United States.
Equity declined by € 221.7 million to -€ 64.8 million. The decline in equity is primarily due to the net loss in 2015 (€ 202.0 million), exchange rate differences (€ 26.3 million), the dividend payment (€ 31.2 million) and the result on treasury shares (€ 3.4 million). An increase in capital (€ 26.1 million), share-based payments (€ 9.2 million) and the purchase of treasury shares ( $\in$ 4.8 million) had a positive effect on equity.
The operating working capital decreased by 13.1% to $\epsilon$ 38.3 million in 2015. The operating working capital as a percentage of turnover decreased from 9.1% in 2014 to 7.9% in 2015.
The net financial debt increased by $\in 75.2$ million to $\in$ 523.8 million in 2015. This increase can largely be explained by the payment of acquisitions and earn-outs, and investments in R&D, automation and new compounding facilities in the United States and the Netherlands. On 31 December 2015, Fagron received a waiver from its financiers concerning the financial covenants on the revolving credit facility and the US private placement. This waiver is valid to the end of March 2016. During this period, Fagron will not be required to fulfil the financial covenants applying to the loans.
The net operational capex of Fagron and HL Technology came to € 22.1 million (4.7% of the turnover). The capex includes investments in R&D and automation, and the investment in the new compounding facilities in the United States and the Netherlands.
| $(X \in 1,000)$ | $\vert$ H2 2015 H2 2014 Change | 2015 | 2014 | Change | ||
|---|---|---|---|---|---|---|
| Turnover | 225.181 | 234.348 | $-3.9\%$ | 463.449 | 438.479 | 5.7% |
| REBITDA 4 | 40.801 | 62.867 | $-35.1%$ | 105.353 | 117.748 | $-10.5%$ |
| REBITDA margin | 18.1% | 26.8% | 22.7% | 26.9% |
Fagron's turnover increased 5.7% (3.9% at constant exchange rates) to €463.4 million in 2015. Organic turnover growth amounted to -1.2% (-2.9% at constant exchange rates). REBITDA decreased by 10.5% to € 105.4 million. The REBITDA as a percentage of turnover decreased to 22.7%.
In 2015, the trend in Fagron's turnover, at constant exchange rates, was positive on all continents on which Fagron operates, except in the United States. The decision in May 2015, to change the reimbursement system for non-sterile compounding had a negative impact on turnover and the profitability of the sale of pharmaceutical raw materials (Fagron Essentials) and of non-sterile compounding (Fagron Specialty Pharma Services) in the United States.
To absorb the negative impact of the changed reimbursement system in the United States, Fagron has implemented the following measures:
The following table summarises the turnover development and currency effects of Fagron (exclusive of HL Technology) in 2015.
| $(x \in 1,000)$ | Impact |
|---|---|
| Turnover 2014 | 438,479 |
| Development Europe | 10,754 |
| Development South America | 14,357 |
| Development Rest of World | 1,623 |
| Development North America - Essentials and FSPS non-sterile | $-49,076$ |
| Development North America - FSPS sterile | 8,719 |
| Currency effect BRL/Euro | $-14,635$ |
| Currency effect USD/Euro | 22,720 |
| Currency effect other | $-38$ |
| Contribution of acquisitions | 30,546 |
| Turnover 2015 | 463,449 |
| $(x \in 1,000)$ | H 2 2015 | $\vert$ H2 2014 Change | 2015 | 2014' | Change | |
|---|---|---|---|---|---|---|
| Turnover | 95.727 | 90.426 | 5.9% | 187.894 | 147.780 | 27.1% |
| REBITDA 5 | 15.458 | 27.209 | -43.2% | 41.110 | 43.343 | $-5.2\%$ |
| REBITDA margin | 16.1% | 30.1% | 21.9% | 29.3% |
In 2015, the turnover of Fagron Specialty Pharma Services (FSPS) increased by 27.1% (17.8% at constant exchange rates) to €187.9 million. Organic turnover growth amounted to 7.0% (-0.8% at constant exchange rates). In 2015, REBITDA decreased 5.2% to € 41.1 million or 21.9% of turnover.
Fagron's FSPS activities in Europe, Colombia and South Africa, and Fagron's FSPS sterile activities in the United States experienced strong growth in 2015. In 2015, there was a 24.6% (-37.0% at constant exchange rates) decrease in the turnover of Bellevue Pharmacy in the United States due to the changed reimbursement system for non-sterile compounding.
5 EBITDA before non-recurring result.
Globally, it is becoming more and more difficult for hospitals to meet the increasingly stringent quality requirements for the production of sterile medicines. They increasingly decide to outsource their sterile compounding to FSPS. In 2015, Fagron invested in the construction of a new sterile GMP 503B registered compounding facility in Wichita (Kansas, United States) and an antibiotics compounding facility in Hoogeveen (the Netherlands). The new compounding facility in Wichita is operational and, after completing the last validation processes, will deliver the first products to its customers in March. The new antibiotics compounding facility is expected to be able to meet the needs of the Dutch market starting at the beginning of June.
| $(x \in 1,000)$ | $H2 2015$ $H2 2014$ Change | 2015 | 2014 | Change | ||
|---|---|---|---|---|---|---|
| Turnover | 24.792 | 22.974 | 7.9% | 50.343 | 45.652 | 10.3% |
| REBITDA 6 | 6.530 | 7.305 | $-10.6\%$ | 15.639 | 14.414 | 8.5% |
| REBITDA margin | 26.3% | 31.8% | 31.1% | 31.6% |
In 2015, the turnover of Fagron Trademarks increased by 10.3% (16.1% at constant exchange rates) to € 50.3 million. The REBITDA increased 8.5% to €15.6 million or 31.1% of turnover in 2015.
Innovation is the driving force behind the steady growth of Fagron Trademarks. In close cooperation with pharmacists, physicians and universities, locally as well as globally, new and innovative products and concepts are being developed to satisfy the growing demand for individualised patient care.
In addition to the successful global Fagron Trademarks, such as SyrSpend® SF, Pentravan® and CapsiCards® System, the global rollout of EPIfactor® and the Alopecia concept was initiated as part of Fagron Advanced Derma during the second semester of 2015.
<sup>6 EBITDA before non-recurring result.
| Fagron Essentials | |
|---|---|
| -- | -------------------------- |
| $(x \in 1,000)$ | H 2 2015 | H 2 2014 | Change | 2015 | 2014 | Change |
|---|---|---|---|---|---|---|
| Turnover | 104.663 | 120.949 | $-13.5\%$ | 225.212 | 245.047 | $-8.1\%$ |
| REBITDA 7 | 18.813 | 28.352 | $-33.6\%$ | 48.604 | 59.991 | -19.0% |
| REBITDA margin | 18.0% | 23.4% | 21.6% | 24.5% |
| $(x \in 1,000)$ | H 2 2015 | H 2 2014 | Change | 2015 | 2014 | Change |
|---|---|---|---|---|---|---|
| Turnover | 4.048 | 3.559 | 13.7% | 9.547 | 8.577 | 11.3% |
| REBITDA 8 | 110 | -87 | 227.9% | 1.193 | 701 | 70.2% |
| REBITDA margin | 2.7% | $-2.4\%$ | 12.5% | 8.2% |
In 2015, HL Technology, the segment that focuses on the development, production and introduction of innovative precision components and orthopaedic tools for the dental and medical industry, achieved a turnover of € 9.5 million; an increase of 11.3% (-2.1% at constant exchange rates) in comparison to 2014. The REBITDA increased by 70.2% from € 0.7 million in 2014 to € 1.2 million in 2015.
Mr Jacob Jackson (President Fagron North America) has indicated that, with immediate effect, he is relinquishing his mandate for health reasons. Mr Hans Stols (CEO) will assume his responsibilities until a successor to Mr Jackson has been appointed.
As at 31 December 2015, Fagron held 327,760 treasury shares; a decrease of 249,719 in comparison to 31 December 2014. In 2015, Fagron purchased 54,000 treasury shares. In addition, 289,625 shares were transferred in relation to the exercise of share options and 14,094 shares were transferred to the management of Freedom relating to the payment of the earn-out.
Fagron's Board of Directors will propose to the General Meeting of Shareholders of 9 May 2016 to not pay a dividend over the 2015 financial year and to give priority to reducing the financial debt and to strengthening Fagron's balance sheet.
The statutory auditor, PwC Bedrijfsrevisoren BCVBA, represented by Peter Van den Eynde, has confirmed that the audit, which is substantially complete, has not to date revealed any material misstatement in the draft consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity and consolidated statement of cash flows. Without qualifying this confirmation, the statutory auditor draws attention to note 'Basis of preparation and Going concern' in the press release, in which the existence of a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern is described. Furthermore, the statutory auditor confirms that the accounting data reported in the press release is consistent, in all material respects, with the draft consolidated income statement, consolidated statement of comprehensive income, consolidated
<sup>8EBITDA before non-recurring result.
statement of financial position, consolidated statement of changes in equity and consolidated statement of cash flows from which it has been derived.
Hans Stols (CEO) and Jan Peeters (CFO) will provide further details on the results for 2015 today in a conference call. The conference call begins at 9:30 CET. From 5 to 10 minutes in advance you will be able to call in using the numbers and confirmation code below:
The Netherlands: +31 (0)20 713 2790 Belgium/Europe: +32 (0)2 789 2126 United States: +1 212 444 0481 United Kingdom: +44 (0)20 3427 1907 Confirmation code: 5119479
The presentation will be posted on http://investors.fagron.com at 9:00 CET.
From 10:30 CET, the conference call can be heard on:
The Netherlands: +31 (0)20 708 5013 Belgium/Europe: +32 (0)2 789 7487 United States: +1 347 366 9565 United Kingdom: +44 (0)20 3427 0598 Code to listen to the call: 5119479
Effective from 8 February 2016, the conference call can be heard or downloaded from Fagron's corporate website (http://investors.fagron.com/).
| 12 April | Trading update, first quarter 2016 |
|---|---|
| 9 May | General Meeting of Shareholders |
| 5 August | Half-year figures 2016 |
| 12 October | Trading update, third quarter 2016 |
The results and trading updates are published at 7:00 CET.
In the event of differences between the English translation and the Dutch original of this press release, the latter prevails.
Fagron is a scientific pharmaceutical R&D business focused on optimising and innovating personalised pharmaceutical care. Fagron provides Fagron Specialty Pharma Services, Fagron Trademarks and Fagron Essentials to pharmacies, clinics and hospitals in 32 countries worldwide.
The Belgian company Fagron NV is located in Waregem and is listed on Euronext Brussels and Euronext Amsterdam. The operational activities of Fagron are driven by the Dutch company Fagron BV. The head office of Fagron BV is located in Rotterdam.
Constantijn van Rietschoten Chief Marketing Officer / Investor Relations ad interim Tel. +31 6 53 69 15 85 [email protected] investors.fagron.com
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. The Company consequently cannot provide any guarantees that such forward-looking statements will in fact materialise 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.
| $(x \in 1,000)$ | 2015 | 2014 |
|---|---|---|
| Operating income | 481,664 | 450,409 |
| Turnover | 472,996 | 447,056 |
| Other operating income | 8,668 | 3,353 |
| Operating expenses | 632,002 | 356,073 |
| Trade goods | 164,166 | 158,843 |
| Services and other goods | 88,957 | 76,067 |
| Employee benefit expenses | 125,385 | 101,642 |
| Depreciation and amortisation | 23,620 | 19,025 |
| Impairment | 225,563 | |
| Other operating expenses | 4,311 | 496 |
| Operating profit | (150, 338) | 94,336 |
| Financial income | 2,013 | 731 |
| Financial expenses | (47,004) | (25, 215) |
| Profit before income tax | (195, 329) | 69,852 |
| Taxes | 6,954 | 26,663 |
| Profit for the year from continuing operations | (202, 283) | 43,190 |
| Profit (loss) for the year from discontinued operations | ||
| (attributable to equity owners of the company) | 270 | (27, 033) |
| Profit (loss) for the year | (202, 012) | 16,156 |
| Profit (loss) attributable to: | ||
| Equity holders of the company (net result) | (195, 103) | 16,226 |
| Non-controlling interest | (6, 910) | (70) |
| Earnings per share from continuing and discontinued operations: attributable to owners of the parent during the year |
||
| Profit (loss) for the year per share (in euros) | (6.23) | 0.53 |
| From continuing operations | (6.24) | 1.41 |
| From discontinued operations | 0.01 | (0.88) |
| Diluted profit for the year per share (in euros) | (6.21) | 0.52 |
| From continuing operations | (6.22) | 1.39 |
| From discontinued operations | 0.01 | (0.87) |
| $(x \in 1,000)$ | 2015 | 2014 |
|---|---|---|
| Profit for the year | (202, 012) | 16,156 |
| Other comprehensive income: | ||
| Items that will not be reclassified to profit or loss | ||
| - Remeasurements of post-employment benefit obligations | 791 | (1,906) |
| - Tax relating to items that not will be reclassified | 264 | (635) |
| Items that may be subsequently reclassified to profit or loss | ||
| - Currency translation differences | (26, 335) | 5,973 |
| Other comprehensive income for the year net of tax | (25, 280) | 3,432 |
| Total comprehensive income for the year | (227, 292) | 19,588 |
| Attributable to: | ||
| Equity holders of the company | (220, 447) | 19,686 |
| Non-controlling interest | (6, 845) | (98) |
| Total comprehensive income for the year | (227, 292) | 19,588 |
| Total comprehensive income for the year attributable to equity holders of the company: |
||
| From continuing operations | (220, 717) | 46,719 |
| From discontinued operations | 270 | (27, 033) |
| Total comprehensive income for the equity holders | (220, 447) | 19,686 |
| $(x \in 1,000)$ | 2015 | 2014 |
|---|---|---|
| Non-current assets | 501,535 | 662,649 |
| Intangible assets | 410,601 | 575,252 |
| Property, plant and equipment | 71,133 | 59,969 |
| Financial assets | 5,859 | 5,064 |
| Deferred tax assets | 13,942 | 22,363 |
| Current assets | 187,846 | 228,114 |
| Inventories | 67,251 | 65,181 |
| Trade receivables | 34,090 | 36,337 |
| Other receivables | 11,031 | 18,043 |
| Cash and cash equivalents | 75,474 | 108,552 |
| Assets held for sale | $\overline{0}$ | 82,989 |
| Total assets | 689,381 | 973,752 |
| Equity | (64, 772) | 156,948 |
| Shareholders equity (parent) | (60, 247) | 154,630 |
| Non-controlling interest | (4, 525) | 2,317 |
| Non-current liabilities | 27,064 | 575,472 |
| Provisions | 15,987 | 8,891 |
| Pension obligations | 5,146 | 6,053 |
| Deferred tax liabilities | 1,519 | 6,162 |
| Borrowings | 4,411 | 551,504 |
| Financial instruments | $\Omega$ | 2,862 |
| Current liabilities | 727,090 | 220,938 |
| Borrowings | 594,908 | 5,710 |
| Trade payables | 63,043 | 57,440 |
| Taxes, remuneration and social security | 25,282 | 38,668 |
| Other current payables | 41,859 | 119,120 |
| Financial instruments | 1,996 | 0 |
| Liabilities directly associated with assets classified as held for | ||
| sale | $\overline{0}$ | 20,394 |
| Total liabilities | 754,154 | 816,804 |
| Total equity and liabilities | 689,381 | 973,752 |
| $(x \in 1,000)$ | Share capital & share premium |
Other reserves |
Treasury shares |
Retained earnings |
Total | Non- control- ling interest |
Total equity |
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2014 |
318,927 | (230, 499) | (21, 842) | 84,966 | 151,553 | 3,615 | 155,168 |
| Profit for the year | 16,226 | 16,226 | (70) | 16,156 | |||
| Other comprehensive income for the year |
3,460 | 3,460 | (28) | 3,432 | |||
| Total comprehensive income for the year |
3,460 | 16,226 | 19,686 | (98) | 19,588 | ||
| Capital increase | 733 | 733 | 733 | ||||
| Purchase of treasury shares |
5,350 | 5,350 | 5,350 | ||||
| Result on treasury shares | (3, 743) | (3, 743) | (3, 743) | ||||
| Dividends relating to 2013 result |
(22, 209) | (22, 209) | (22, 209) | ||||
| Share-based payments | 2,060 | 2,060 | 2,060 | ||||
| Change in non-controlling interests |
1,198 | 1,198 | (1, 198) | ||||
| Balance at 31 December 2014 |
319,660 | (223,781) | (20, 235) | 78,983 | 154,628 | 2,319 | 156,948 |
| Profit for the year | (195, 103) | (195, 103) | (6, 910) | (202, 013) | |||
| Other comprehensive income for the year |
(25, 344) | (25, 344) | 64 | (25, 280) | |||
| Total comprehensive income for the year |
(25, 344) | (195, 103) | (220, 447) | (6, 846) | (227, 293) | ||
| Capital increase | 26,101 | 26,101 | 26,101 | ||||
| Purchase of treasury shares |
4,792 | 4,792 | 4,792 | ||||
| Result on treasury shares | (3,380) | (3,380) | (3,380) | ||||
| Dividends relating to 2014 result |
(31, 156) | (31, 156) | (31, 156) | ||||
| Share-based payments | 9,216 | 9,216 | 9,216 | ||||
| Change in non-controlling interests |
|||||||
| Balance at 31 December | |||||||
| 2015 | 345,760 | (239, 909) | (18, 823) | (147, 276) | (60, 248) | (4,525) | (64, 772) |
| $(x \in 1,000)$ | 2015 | 2014 |
|---|---|---|
| Operating activities | ||
| Profit before income tax | (195, 329) | 46,299 |
| Paid taxes | (19, 413) | (11, 370) |
| Adjustments for financial items | 44,991 | 26,730 |
| Total adjustments for non-cash items | 241,241 | 44,267 |
| Total changes in working capital | 1,820 | (4, 229) |
| Total cash flow from operating activities | 73,311 | 101,696 |
| Investment activities | ||
| Capital expenditure | (22, 052) | (20, 656) |
| Investments in existing shareholdings (subsequent payments) and in new holdings |
(96, 674) | (196, 171) |
| Proceeds from disposal of assets | 72,450 | 23,042 |
| Total cash flow from investing activities | (46, 276) | (193, 785) |
| Financing activities | ||
| Capital increase | 107 | 733 |
| Sale (purchase) of treasury shares | 1,412 | 1,339 |
| Dividends paid | (31, 366) | (22, 199) |
| New borrowings | 100,289 | 355,488 |
| Reimbursement of borrowings | (100, 917) | (245, 703) |
| Interest received | 2,013 | 842 |
| Interest paid | (32,998) | (25, 510) |
| Total cash flow from financing activities | (61, 460) | 64,990 |
| Total net cash flow for the period | (34, 426) | (27,099) |
| Cash and cash equivalents - start of the period | 108,552 | 135,412 |
| Gains or losses on exchange on liquid assets | (1, 349) | (238) |
| Cash and cash equivalents - end of the period | 75,474 | 108,552 |
| Change in cash and cash equivalents | (34, 426) | (27,099) |
| Cash flows from discontinued operations | ||
| Cash flow from operating activities | $\mathsf{O}\xspace$ | 11,172 |
| Cash flow from investing activities | $\mathsf{O}\xspace$ | (13, 322) |
| Cash flow from financing activities | 0 | 3,660 |
| Total net cash flow from discontinued operations | $\mathbf 0$ | 1,510 |
The consolidated financial statements of Fagron NV and its subsidiaries have been prepared on the going concern basis which assumes that the company will continue to be able to meet its liabilities as they fall due for the foreseeable future. Due to the change in the reimbursement system in the USA, the EBITDA of the group has dropped. This change in reimbursement system impacted the results of Fagron North America, specifically Freedom Pharmaceuticals and Bellevue Pharmacy which led to an impairment. The net result for 2015 equals -€ 202 million which results in a negative equity at 31 December 2015 of -€ 65 million. While the company remains cash generative and profitable before non-recurring items and an impairment loss, the company as of 31 December 2015 was not able to comply with certain covenant tests contained within its core bank facilities.
The loan facilities that contain cross default clauses, replicating the same covenants, are: the retail bond of € 225 million, the multicurrency credit facility of € 220 million; and the senior unsecured notes originally dated 15 April 2014, which included \$45.0 million 4.15% Series A Senior Notes due 15 April 2017, €22.5 million 3.55% Series B Senior Notes due 15 April 2017, € 15.0 million 4.04% Series C Senior Notes due 15 April 2019, € 5.0 million Floating Rate Series D Senior Notes due 15 April 2019, \$ 20.0 million 5.07% Series E Senior Notes due 15 April 2019 and \$60.0 million 5.78% Series F Senior Notes due 15 April 2021.
On 30 December 2015, anticipating the covenant testing date, the company has been granted a waiver by the lenders in respect of the financial covenants of the multicurrency credit facility and the senior unsecured notes. The waiver postpones the covenant testing, in respect of the financial covenants, from the original testing date on 31 December 2015 to 31 March 2016. Hereby ensuring that there will be no event of default on the financial covenants at 31 December 2015 and therefore no cross default will be triggered in respect of the retail bond as well. The company will be in breach of its financial covenants on 31 March 2016 if a further amendment of the waiver is not granted by the lenders. Whilst agreement on the refinancing has not been reached yet, and there is no clear consensus regarding solutions, the lenders have confirmed to stay committed to the process and the directors believe that an agreement can be reached which is acceptable. But as a consequence the retail bond of € 225 million, the multicurrency credit facility of € 199 million and the senior unsecured notes of €167 million are included within the current borrowings on the balance sheet at 31 December 2015.
In tandem with the discussions mentioned above, the company is exploring several options to deleverage and comply with its financial covenants. The first option is a private capital raise, as the case may be in combination with a rights issue. At the moment the company is engaged in exclusive negotiations with a cornerstone investor and other investors concerning a private capital injection combined with a public share issue (rights issue). These negotiations are in an advanced stage but not final. The company aims to raise a total of € 220 million. The current intention is that the parties in the private capital injection will participate at the share price average of the 30 days prior to the extraordinary general meeting of shareholders which must approve the capital increase, on the condition that the price does not exceed $\epsilon$ 7 per share.
The second option is an equity capital raise based upon a standby commitment. The company is confident that the option to raise equity will be supported and underwritten by one or more reputable banks and that the proceeds are guaranteed in volume.
As the combination and timing of the above mentioned options are not entirely in control of Fagron, the directors indicate that there is an existence of material uncertainty which may cast doubt on the company's ability to continue as a going concern. Although no decision has been made yet on the described scenarios, the directors are confident that one of the options will be successfully conducted.
Consequently based on the above described options, the directors have a reasonable expectation that Fagron will have adequate resources to continue in operational existence for the foreseeable future. For this reason the company continues to adopt the going concern basis in preparing the financial information. The financial information does not include any adjustments that would result from the going concern basis of preparation being inappropriate.
Any securities mentioned in this press release have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.
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