Earnings Release • Aug 2, 2013
Earnings Release
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Ger van Jeveren, CEO of Arseus: "The results of Arseus for the first six months of 2013 are excellent. Turnover increased by 5.4% to € 282.7 million. Organic turnover growth at constant exchange rates of Arseus was 7.7% in the second quarter of 2013. Consistent optimisation of the product portfolio has resulted in an increase of Arseus' gross margin by no less than 2.9 percentage points in the first six months of 2013 compared with the same period in 2012. All divisions contributed to this increase. Operational excellence and a closely monitored cost policy resulted in a substantial decrease in operating costs as a percentage of turnover. The significant turnover growth, strong increase in the gross margin and lower costs resulted in an impressive increase in the REBITDA, EBITDA, EBIT and net profit. For 2013, we expect healthy organic growth and profitability that grows faster than turnover. We look to the future with great confidence.
The Board of Directors of Arseus recently started an analysis of strategic options, both inside and outside Arseus, for the Healthcare Solutions and Healthcare Specialties divisions. After concluding this analysis, the Board of Directors will announce the results in a press release."
1 This press release was sent out by Arseus NV and Arseus BV.
| Income Statement (x 1,000 euros) | H1 2013 | H1 2012 | Evolution |
|---|---|---|---|
| Net sales | 282,705 | 268,272 | 5.4% |
| Gross margin | 146,690 | 131,449 | 11.6% |
| As % of net sales | 51.9% | 49.0% | |
| Operating costs | -96,279 | -92,629 | 3.9% |
| EBITDA before corporate costs and non recurring result |
50,411 | 38,820 | 29.9% |
| As % of net sales | 17.8% | 14.5% | |
| Corporate costs | -3,703 | -3,447 | 7.4% |
| EBITDA before non-recurring result | 46,707 | 35,373 | 32.0% |
| As % of net sales | 16.5% | 13.2% | |
| Non-recurring result | -2,499 | -2,549 | -1.9% |
| EBITDA | 44,208 | 32,824 | 34.7% |
| As % of net sales | 15.6% | 12.2% | |
| Depreciation and amortisation | -8,637 | -8,362 | 3.3% |
| EBIT | 35,571 | 24,462 | 45.4% |
| As % of net sales | 12.6% | 9.1% | |
| Financial result, excluding revaluation of financial derivatives |
-11,734 | -5,288 | 121.9% |
| Revaluation of financial derivatives | 1,284 | 781 | 64.5% |
| Profit before taxes | 25,121 | 19,955 | 25.9% |
| Taxes | -6,325 | -4,675 | 35.3% |
| Net profit | 18,796 | 15,280 | 23.0% |
| Recurring net profit2 | 19,683 | 16,633 | 18.3% |
| Net profit per share (in euros) | 0.61 | 0.50 | 21.6% |
| Recurring net profit per share (in euros) | 0.64 | 0.55 | 17.1% |
| Average number of shares | 30,696,597 | 30,374,461 |
| Balance sheet (x 1,000 euros) | 30/06/13 | 31/12/12 |
|---|---|---|
| Intangible assets | 501,811 | 417,866 |
| Property, plant and equipment | 59,244 | 59,255 |
| Deferred tax assets | 30,616 | 32,296 |
| Other non-current assets | 2,320 | 1,870 |
| Operational working capital | 66,755 | 51,315 |
| Other working capital | -91,594 | -69,567 |
| Equity | 229,326 | 245,384 |
| Provisions | 8,426 | 8,320 |
| Financial instruments | 2,464 | 3,749 |
| Deferred tax liabilities | 1,734 | 2,466 |
| Net financial debt | 327,201 | 233,117 |
2 Recurring net profit is defined as the net profit before non-recurring items and the revaluation of financial derivatives, after taxes based on the effective tax rate for the group.
The consolidated turnover in the first six months of 2013 amounted to € 282.7 million, an increase of 5.4% (7.1% at constant exchange rates) compared with the first six months of 2012. Organic growth in the first six months of 2013 was 4.2% (5.9%). The consolidated turnover in the second quarter of 2013 increased by 8.9% (10.1%) to € 149.4 million. Organic growth in the second quarter was 6.5% (7.7%).
| (x 1,000 euros) | H1 2013 | H1 2012 | Growth | Org. growth |
|---|---|---|---|---|
| Turnover | 282,705 | 268,272 | 5.4% (7.1%) | 4.2% (5.9%) |
| Q2 2013 | Q2 2012 | |||
| Turnover | 149,419 | 137,228 | 8.9% (10.1%) | 6.5% (7.7%) |
By optimising the product portfolio and constantly developing and introducing innovative products and concepts, the gross margin increased by 11.6% to € 146.7 million in the first six months of 2013. Compared with the first six months of 2012, gross margin as a percentage of turnover increased by 2.9 percentage points to 51.9%.
Operational excellence and a tightly monitored cost policy resulted in a decrease in operating costs as a percentage of turnover. In the first six months of 2013, operating costs as a percentage of turnover decreased 0.4 percentage points to 34.1%.
The strong turnover growth, higher gross margin and lower costs resulted in a REBITDA3 that increased significantly faster than turnover, by 29.9% to € 50.4 million.
Corporate costs as a percentage of turnover remained unchanged at 1.3%.
The non-recurring result amounted to -€ 2.5 million. This result primarily consists of acquisition costs, integration costs and reorganisation costs.
EBITDA increased in the first six months of 2013 by 34.7% to € 44.2 million. The operational margin (EBITDA as a percentage of turnover) increased by 3.4 percentage points to 15.6%.
The depreciation and amortisation amounted to € 8.6 million, an increase of € 0.3 million or 3.3% compared to the same period in 2012.
EBIT amounted to € 35.6 million, an increase of 45.4% in comparison with the first six months of 2012.
Excluding the revaluation of the financial derivatives, the financial result amounted to -€ 11.7 million. The increase compared to the first six months of 2012 is due to an increase in the net financial debt, higher currency exchange rate differences and higher interest rates resulting from the refinancing and issue of a bond loan in July 2012.
3 EBITDA before corporate costs and non-recurring result.
The revaluation of financial derivatives amounted to € 1.3 million. This positive revaluation reflects an upward trend in the interest rate. This interest hedging instrument 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 shown separately in the income statement.
The effective tax rate, as a percentage of the profit before taxes, was 25.2% in the first half of 2013, compared to 23.4% in the same period last year. The effective cash tax rate4 for the Arseus Group was 17.2% in the first six months of 2013.
In the first half of 2013, the net profit increased 23.0% to € 18.8 million, despite the increase in the financial result and a higher tax rate. The net profit per share amounted to € 0.61.
The most important changes on balance sheet level can be summarised as follows.
The intangible assets increased by € 83.9 million. This increase was largely due to the recognition of goodwill relating to the acquisition of US-based Freedom Pharmaceuticals, and the R&D activities of Corilus and Arseus Dental Technology.
The operational working capital5 increased by 9.0% to € 66.8 million, compared to 30 June 2012. With turnover growth of 5.4%, the accounts receivable decreased by 7.2% and the stock increased by 10.8%. In South America the stock was increased to improve product availability for Fagron's customers.
The net financial debt6 increased by € 94.1 million in the first six months of 2013, to € 327.2 million. This increase is due to the acquisitions of US-based Freedom Pharmaceuticals and Belgian Soft33, subsequent payments and paid earn-outs of approximately € 15 million for earlier acquisitions, and investments in R&D and automation, among other things. At the end of June 2013 the net financial debt / annualised REBITDA ratio was 3.14. It is expected that this ratio will decrease substantially towards the end of the year, as it has in previous years.
The net operational capex7 amounted to € 10.5 million, representing 3.7% of turnover in the first six months of 2013. The capex consists of, among other things, investments in R&D and automation.
4 The effective cash tax rate is defined as the taxes paid divided by the profit before taxes.
5 The operational working capital is defined as the sum of stock and trade receivables less the trade payables.
6 The net financial debt is the sum of long-term and short-term financial liabilities (excluding financial instruments) less cash and cash equivalents.
7 Net operational capex is defined as the acquired and produced intangible assets and property, plant and equipment (excluding acquisitions), less assets sold.
Fagron
| (x 1,000 euros) | H1 2013 | H1 2012 | Evolution |
|---|---|---|---|
| Turnover | 158,158 | 141,065 | 12.1% |
| REBITDA | 38,749 | 29,051 | 33.4% |
| REBITDA margin | 24.5% | 20.6% | |
| Q2 2013 | Q2 2012 | Evolution | |
| Turnover | 86,585 | 72,450 | 19.5% |
In the first six months of 2013 Fagron further strengthened its worldwide market leadership in the niche market for pharmaceutical compounding. Turnover increased by 12.1% (15.3% at constant exchange rates) to € 158.2 million. Organic turnover growth amounted to 10.2% (13.3%). Fagron's turnover increased by 19.5% (21.8%) in the second quarter of 2013. Organic turnover growth in the second quarter was no less than 15.6% (17.7%).
Fagron's impressive organic growth is due to the successful optimisation and innovation of pharmaceutical compounding to fulfil the worldwide growing need for tailor-made medication, the investment in innovation and product development and the introduction of new products, concepts and formulations for pharmaceutical compounding on the market. This strategic focus, combined with the use of a uniform ERP system and teams active worldwide in the areas of procurement, quality, marketing and innovation and working closely with the local organisations, resulted in a strong increase of the REBITDA margin by 3.9 percentage points in the first six months of 2013, to 24.5%.
In April 2013 Fagron acquired US-based Freedom Pharmaceuticals. Freedom Pharmaceuticals is a leading supplier of pharmaceutical raw materials, excipients, bases and capsules to independent compounding pharmacies in the United States. The acquisition of Freedom Pharmaceuticals created nationwide coverage in the United States, enabling Fagron to immediately provide its customers with extra value. With locations in St. Paul (Minnesota), Aurora (Colorado), Scottsdale (Arizona), Tucson (Arizona) and Tulsa (Oklahoma), Fagron is perfectly positioned to provide compounding pharmacies in the United States with innovative products and concepts, as well as value added services and training.
Fagron is active in 30 countries worldwide. In 2013, Fagron will further strengthen its position as global market leader through an active buy-and-build strategy, starting up greenfields and robust organic growth.
Detailed information on the acquisition of US-based Freedom Pharmaceuticals can be found in the press release of 25 April 2013. This press release can be downloaded at www.arseus.com.
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| Corilus | |||
|---|---|---|---|
| (x 1,000 euros) | H1 2013 | H1 2012 | Evolution |
| Turnover | 20,453 | 17,853 | 14.6% |
| REBITDA | 5,358 | 4,622 | 15.9% |
| REBITDA margin | 26.2% | 25.9% | |
| Q2 2013 | Q2 2012 | Evolution | |
| Turnover | 10,177 | 8,877 | 14.6% |
The turnover of Corilus grew by 14.6% to € 20.5 million in the first six months of 2013, while the REBITDA increased by 15.9% to € 5.4 million. Organic turnover growth amounted to 11.1%. This good result can be explained by the further strengthening of Corilus' market leadership position as a supplier of unique integrated ICT solutions with added value for medical specialists in Belgium, France and the Netherlands. Thanks to strong organic growth combined with the acquisition of Soft33, Corilus saw its customer base grow by 3,000, to just over 29,000.
Hector, the in-house developed communication software between hospitals, doctors, laboratories, radiologists and dentists, is currently being used in more than 60% of the hospitals in Flanders. Many hospitals and laboratories now already reach more than 70% of health care providers via this channel. Hector is the first solution to make full use of the eHealthBox system provided by the Belgian federal government's eHealth platform. Hector is integrated in all software packages available in the Belgian EMD market.
Greenock, state-of-the-art pharmacy software developed in house by Corilus, continues its successful advance. In 2013 Corilus successfully launched Morion, software for opticians, in Belgium. In France, the Centre Hospitalier Sud Francilien selected Softalmo, thereby confirming the package's indisputable position as market leader in ophthalmology in French hospitals.
In the second quarter of 2013 Corilus acquired Belgian company Soft33. Soft33 is an important provider of software for homecare nurses. Soft33 has more than 2,000 homecare nurses as customers. The software of Soft33 is complimentary to Infiplus from Corilus. With more than 3,800 users, Infiplus is the most commonly used software in Belgium for both independent nurses and those working as part of a group.
| (x 1,000 euros) | H1 2013 | H1 2012 | Evolution |
|---|---|---|---|
| Turnover | 45,436 | 47,454 | -4.3% |
| REBITDA | 5,583 | 5,565 | 0.3% |
| REBITDA margin | 12.3% | 11.7% | |
| Q2 2013 | Q2 2012 | Evolution | |
| Turnover | 22,802 | 23,535 | -3.1% |
Healthcare Specialties focuses on developing and launching innovative dental and medical solutions and products. Healthcare Specialties incorporates Arseus' activities aimed at dental laboratories, the activities aimed at the production of precision components and orthopaedic tools for dental and medical professionals (Hader), the activities aimed at digital dental imaging and complete software for dental practices (Julie-Owandy) and the surgical solutions offered by Duo-Med. In the first six months of 2013, Healthcare Specialties achieved turnover of € 45.4 million and a REBITDA margin which increased by 0.6 percentage points to 12.3%, thanks to a strict focus on gross margin and cost control.
In the activities focused on dental laboratories (Arseus Dental Lab), the own brands Novux (CAD/CAM concept), Selexion (products used daily in dental laboratories) and Ceka-Preciline (leading in dental attachments) saw strong growth in the first six months of 2013. Dental laboratories however showed a reluctance to invest due to the lack of clarity in Western Europe concerning the reimbursement of dental charges. During the International Dental Show (IDS) in Cologne, Arseus was appointed as the exclusive distributor of the entire product range of AmannGirrbach in Belgium, the Netherlands, France and Luxembourg.
The French company Julie-Owandy achieved good organic growth in the first six months of 2013. During the IDS held in March, Julie-Owandy successfully launched Opteo, an in-house developed innovative intra-oral sensor. The Swiss company Hader suffered from a sober investment climate and the strong Swiss franc, which adversely affected the international competitive position. In line with the strategy of innovation, Hader has developed and launched new dental and medical orthopaedic products with added value, such as the Hader Lucky, in 2013 also. Hader Lucky is the latest surgical torque wrench and is a high precision dental instrument used by dental surgeons for tightening dental implants.
In the first six months of 2013, Duo-Med, which supplies doctors and hospitals in the Benelux with innovative products, solutions and services, conducted a comprehensive evaluation of its product range. The emphasis in this was on attracting innovative products and solutions with high added value and to phase out distributions with a lower margin in the areas of radiology and endoscopy. The emphasis in the second half of 2013 will be on the introduction of the Microcutter from Cardica. The MicroCutter offers patients numerous benefits. The MicroCutter allows smaller incisions to be made and that means faster recovery, less pain and less risk of infections.
| (x 1,000 euros) | H1 2013 | H1 2012 | Evolution |
|---|---|---|---|
| Turnover | 58,658 | 61,900 | -5.2% |
| REBITDA | 721 | -417 | 272.8% |
| REBITDA margin | 1.2% | -0.7% | |
| Q2 2013 | Q2 2012 | Evolution | |
| Turnover | 29,855 | 32,366 | -7.8% |
Healthcare Solutions, the division focusing on the dental and medical distribution activities of Arseus, achieved organic growth of -5.2% in the first six months of 2013, while the REBITDA margin increased by 1.9 percentage points to 1.2%, thanks to a strict focus on gross margin and cost control. The distribution activities aimed at hospitals and nursing homes achieved strong turnover growth. During the first half of 2013, the distribution activities aimed at dental practices
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were affected by the lack of clarity in Western Europe concerning the reimbursement of dental charges.
Arseus divested Belgium based Dorge Medic at the beginning of July. Detailed information on the sale of Belgium based Dorge Medic can be found in the press release of 4 July 2013. This press release can be downloaded at www.arseus.com.
On 31 December 2012, Arseus owned 651,775 treasury shares. As a result of the purchase of 968,522 treasury shares, the exercise of 1,210,500 stock options by directors, members of the Executive Committee and employees of Arseus and the disposal of 28,419 shares as a subsequent payment for acquisitions, Arseus held 381,378 treasury shares on 30 June 2013.
On 13 June 2013, Arseus issued 79,844 new shares as a result of the exercise of warrants. Following the issue of these new shares, the number of Arseus shares with voting rights increased to 31,358,358. The total number of voting rights (denominator) is 31,358,358. The authorised capital is € 321,384,974.57. Detailed information can be found in the press release by Arseus of 13 June 2013, which can be downloaded at www.arseus.com.
Based on the current view and the existing Arseus portfolio, for 2013 as a whole management is expecting healthy organic growth and profitability that grows faster than turnover.
It was decided in mutual consultation that Mr (Frank) Verbakel will resign from the Executive Committee of Arseus as of 31 August 2013. The Board of Directors of Arseus thanks Mr Verbakel for his valued contribution to the success of Arseus over the past 7 years.
From 1 September 2013 the Arseus Executive Committee of Arseus is composed as follows:
| Ger van Jeveren | CEO Arseus and CEO Fagron |
|---|---|
| Jan Peeters | CFO Arseus |
| Mario Huyghe | CEO Healthcare Solutions |
| Dirk Van Lerberghe | CEO Corilus |
For the complete interim financial information in accordance with IAS 34 and the corresponding statement from the statutory auditor, which is a statement without any particular comments, see the annex to this press release.
Ger van Jeveren (CEO) and Jan Peeters (CFO) will provide further details on the results for the first half of 2013 today in a conference call. The conference call starts at 9:30 a.m. You can join
8 This press release contains data related to the future based on the current internal estimates and forecasts in addition to market forecasts. The statements concerning the future contain inherent risks and are only applicable on the date on which they are issued. There may be substantial differences between the actual results and the results cited in the statements about the future.
from 09:15 a.m. onwards by calling +31 10 713 72 95 (the Netherlands) or +32 2 404 03 34 (Belgium). From 10:30 a.m., the conference call can be heard on +31 20 713 34 87 with access code 437927#. From Monday, 5 August 2013 the conference call may be listened to or downloaded from the corporate website of Arseus (www.arseus.com).
The trading update on the third quarter of 2013 will be published at 07:30 a.m. on 8 October 2013. Ger van Jeveren (CEO) and Jan Peeters (CFO) will provide further details on this trading update in a conference call on 8 October. This conference call starts at 09:30 a.m.
Constantijn van Rietschoten Director of Corporate Communications +31 88 33 11 222 (Office) +31 6 536 91 585 (Mobile) [email protected]
In the event of any discrepancy between the English translation and the original Dutch version of this press release, the latter shall prevail.
Arseus is a multinational group of companies that supplies products, services and concepts to professionals and institutions in the healthcare sector in 30 countries worldwide. Arseus is subdivided into four divisions and operates in the markets for pharmaceutical compounding for pharmacies, dental products, medical and surgical products, and medical ICT solutions. The Belgian company Arseus NV is located in Waregem, and is listed on NYSE Euronext Brussels and NYSE Euronext Amsterdam. The operational activities of the Arseus group are driven by the Dutch company Arseus BV. The head office of Arseus BV is located in Rotterdam.
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