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Probi — Interim / Quarterly Report 2017
Oct 25, 2017
3099_10-q_2017-10-25_1d9e947f-d36b-4553-8c3a-50c28bf8b1f3.pdf
Interim / Quarterly Report
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Interim report
January – September 2017
Growth and earnings impacted by a major customer's destocking
Highlights and significant events in the third quarter
- Continued destocking by major customer, impacting net sales and earnings during the second half of 2017 and first quarter of 2018
- New FerroSorb® and Digestis® FastMelt product launches in Asia and Europe
- Extension of Ipsen distribution partnership to Italy
- First results of multi-trial programme to develop a new probiotic platform for children show positive and significant results in supporting the immune system and in delaying the onset of gluten intolerance
Financial overview
| Full-year | |||
|---|---|---|---|
| MSEK | 9M 2017 | 9M 2016 | 2016 |
| Net sales | 492.9 | 249.5 | 443.5 |
| Net sales growth, local currency, % | 95.3% | 38.8% | 103.2% |
| Gross margin, % | 46.4% | 68.9% | 60.0% |
| EBITDA | 136.5 | 91.8 | 152.6 |
| EBITDA margin, % | 27.7% | 36.8% | 34.4% |
| Operating profit (EBIT) | 96.4 | 86.7 | 120.0 |
| Net income | 68.1 | 71.7 | 101.8 |
| Earnings per share before and after dilution, SEK | 5.98 | 7.87 | 10.73 |
| Share price on closing day, SEK | 350.00 | 330.22 | 475.50 |
| Market cap on closing day | 3,987.9 | 3,010.1 | 5,417.9 |
See note 5 for definitions of ratios not defined according to IFRS and note 4 for adjustments made to full-year 2016
Invitation to Teleconference Contacts
Date: 25 October 2017 Peter Nählstedt, CEO: Time: 10:00 a.m. Phone: +46 8 50 33 65 62 Participants from Probi: Peter Nählstedt, CEO and Dr Jörn Andreas, CFO
Phone: +46 46 286 89 23 E-mail: [email protected] Dr Jörn Andreas, CFO:
Phone: +46 46 286 89 41 E-mail: [email protected]
The presentation is available at www.probi.se and www.financialhearings.com
About Probi
Probi AB is a Swedish publicly traded bioengineering company. The vision of Probi is to help people live healthier lives by delivering effective and well-documented probiotics, with proven health benefits based on scientific research.
Founded by scientists in Sweden in 1991, Probi is a multinational company with four centres of excellence, active in more than 40 markets around the world and holding over 400 patents worldwide. In 2016, Probi had net sales of MSEK 444. The Probi share is listed on Nasdaq Stockholm, Mid Cap. Probi has about 5,000 shareholders.
probi.com
CEO Comments
Destocking effects overshadow good growth momentum with other customers
As expected, our revenues and earnings were heavily impacted by the destocking of one of our largest customers that could not be offset by continued growth with other customers. This resulted in a decline in organic revenue and profitability during the third quarter of 2017. The destocking will have a significantly stronger negative effect on both revenues and earnings in the fourth quarter of 2017 and then continue into the first quarter of 2018. Reported and local currency revenues increased significantly compared with the same period last year due to the base effects of the Nutraceutix acquisition.
Progress on strategic objectives
We strengthened our commercial footprint in Europe where we extended our agreement with Ipsen to cover Italy. In the US, we drew record attendance at the Supply Side West trade show and our team is now converting opportunities into orders.
Our investments in product development are paying off as we sold our new FerroSorb® platform to our first Asian customer in South Korea. We shipped our brand new Probi Digestis® FastMelt formulation for launching in Sweden, where consumers will now have an opportunity to take their daily probiotic in a new tasty and convenient format.
In a unique probiotic study, we showed that our probiotics can delay the onset of gluten intolerance in children by strengthening the immune system. This important discovery is a cornerstone in our ambition to extend our products into children's health.
Probi has short-term challenges due to one specific customer destocking. We will continue to develop sales, invest in marketing, R&D and manufacturing as we execute the growth strategy of Probi. With our expanding commercial footprint, new products and strong scientific foundation in one of the most interesting health markets in the world, I remain very optimistic about our future.
Peter Nählstedt, CEO
Probi´s offer to customers
Probi offers probiotic expertise and partnership all the way from R&D to finished products for companies within the consumer healthcare and food industry.
Probi manufacturing is GMP-certified and produces proven and effective probiotics in custom-made formats with value-adding delivery technologies.
Key Developments in the Group
During the third quarter of 2017, Probi was informed that one of its largest customers in the North American market is continuing its previously introduced destocking programme due to over-purchasing and safety stock reduction. According to information from the customer, it is expected that the destocking will continue until the first quarter of 2018. In the third quarter, net sales were impacted by less than MSEK 50 compared with the prior-year period. The impact on net sales and earnings will be significantly greater in Q4 2017 due to the large campaign volumes delivered to the customer in the prior-year quarter and a seasonally weaker fourth quarter. The destocking effect was partly offset by organic growth, i.e. excluding the acquired business, with other customers of 37% during the first nine months of 2017.
Probi has continued to invest in broadening its offering and adapting the organisation to enable an even stronger focus on customers and market activities in each region. North America, Probi's largest market, is expected to grow at a rate of 5-6% this year while growth is higher in channels such as multi-level marketing (MLM) and e-commerce. Probi has closed deals with customers in the growing MLM segment during the year and is benefitting from its turnkey manufacturing capability, which is highly attractive for innovative brands marketing probiotics over the internet. Earlier this year, the Probi Select™ product range was launched in North America and was very well received by our customers. Probi Select™ comprises three of Probi's existing patent-protected and clinically documented probiotic platforms supporting immune and digestive health.
Market growth in Europe is still moderate, but Probi has now extended the Ipsen distribution partnership to Italy, one of the most important and largest markets showing the highest consumption per capita in the region. Probi® FastMelt, a stick pack for convenient consumption of probiotics, was introduced to the market to meet the demand for new and innovative application formats. The first consumer product with the new formulation will be launched in Sweden by as early as October this year under the ProbiMage® brand, the leading probiotic supplement brand in Sweden.
Probi's most recent premium product, FerroSorb® for improved iron absorption, will be launched in South Korea by the end of the fourth quarter of 2017. Women's health is important in the field of probiotics and Probi's iron uptake concept is a unique value proposition. Also, Probi's patent on iron absorption, supporting the probiotic FerroSorb® concept, has now been granted in the US. During the fourth quarter, Probi will resubmit a new health claim application in the EU on its iron absorption concept based on a recently completed and highly supportive supplementary study.
Probi's ambitious and innovative R&D programme, including clinical trials within both new and existing indication areas, is making major progress. Two projects in totally new areas – acute stress and the effect of probiotic strains on physical performance – have entered clinical phase. During the third quarter, Probi presented study results showing that probiotics from Probi support the immune system and may delay the onset of gluten intolerance in children. These results, together with two other studies close to completion focusing on children, will enable Probi to establish a product platform for children.
Sales Development
Current Quarter
Probi's net sales for the third quarter amounted to MSEK 133.5 (89.2), representing a total increase of MSEK 44.3 or 50% compared with the third quarter of 2016. Based on exchange rates from the preceding year, net sales for the third quarter were MSEK 3.9 higher, corresponding to net sales growth of 54% yearon-year. Sales from the acquired operations contributed MSEK 66.4 to the Group in the third quarter of 2017.
Year-to-Date
During the first nine months of the year, Probi's net sales amounted to MSEK 492.9 (249.5). The overall increase was MSEK 243.4 or 98% compared with the first nine months of 2016. Based on constant exchange rates, net sales for the first nine months were MSEK 5.6 lower, corresponding to net sales growth of 95% year-on-year. Sales from the acquired operations amounted to MSEK 223.9 and organic growth to MSEK 19.5, representing an 8% increase over the first nine months of the preceding year.
Net Sales by Segment
Probi's business operations are organised in two business segments, each with its own operational management: Consumer Healthcare (CHC) and Functional Food (FF). The Consumer Healthcare segment develops, manufactures and markets Probi's probiotics to pharmaceutical companies and other companies specialised in probiotics and self-care products. Revenue is derived from the sale of goods in bulk and consumer packaging. The acquired operations are included in their entirety in CHC. The Functional Food segment develops food containing Probi's probiotics in partnership with leading food companies. Revenue mainly comprises royalties from partner-generated sales. No business transactions are conducted between the two segments.
| 9M 2017 | 9M 2016 | |||||
|---|---|---|---|---|---|---|
| KSEK | CHC | FF | Total | CHC | FF | Total |
| Net sales | 466,660 | 26,228 | 492,888 | 223,108 | 26,388 | 249,496 |
| Operating expenses | -378,467 | -17,977 -396,444 | -136,074 | -26,680 | -162,754 | |
| Operating profit (EBIT) | 88,193 | 8,251 | 96,444 | 87,034 | -292 | 86,742 |
| Financial net | — | — | -10,496 | — | — | 8,629 |
| Earnings before income taxes | — | — | 85,948 | — | — | 95,371 |
Net sales in Consumer Healthcare during the first nine months of 2017 rose MSEK 243.6 to MSEK 466.7 (223.1). The acquired operations accounted for MSEK 223.9 of this increase. Sales growth in Consumer Healthcare during the year continued to be driven by the North American and European markets, by both new and existing customers.
Net sales in Functional Food totalled MSEK 26.2 (26.4). During the first nine months of 2017, a lower royalty rate in an agreement offset the favourable underlying volume development across all regions, particularly in Sweden, where volume growth of ProViva increased during the third quarter of 2017.
Net Sales by Region
| KSEK | 9M 2017 | 9M 2016 | Full-year 2016 |
|---|---|---|---|
| Sweden | 40,390 | 38,744 | 54,905 |
| Rest of Europe | 30,536 | 15,656 | 22,505 |
| North America | 382,620 | 171,196 | 337,059 |
| Rest of World | 39,342 | 23,900 | 29,006 |
| Total | 492,888 | 249,496 | 443,475 |
The favourable sales growth trend in Rest of Europe, continues and amounted to an increase of 95% compared with the year-earlier period. This was primarily driven by a new agreement signed in the preceding year and favourable underlying volume growth with existing customers. Sales in North America included a contribution of MSEK 223.9 from acquired operations. Excluding the acquisition, sales in North America decreased by 7% or MSEK -11.2 compared with the year-earlier period due to destocking by one of Probi's largest customers. Sweden increased 4% compared with the first nine months of the preceding year, mainly due to sales growth in the Costumer Healthcare segment following the Digestis® FastMelt product launch. The increase was 65% in Rest of World driven by sales campaigns in the Asian market.
Earnings
Operating Profit
During the first nine months of 2017, operating expenses amounted to MSEK 396.4 (162.8), up 144%, due to consolidation of the acquired operations in the US and additional amortisation charges related to the purchase price allocation (PPA) amounting to MSEK 26.4 year-to-date. Cost of goods sold amounted to MSEK 264.0 (77.6), driven by higher overall sales of Probi Group and an unfavourable product mix towards turnkey consumer packed solutions in the US operations during the third quarter of 2017. Sales and marketing expenses amounted to MSEK 60.5 (27.2), up 122%, mainly due to additional costs for the US sales organisation. Also, part of the incremental PPA-related amortisation is charged to sales and marketing. Administrative expenses amounted to MSEK 45.5 (34.4). Research and development expenditure amounted to MSEK 27.7 (23.6), reflecting the continued execution of our ambitious clinical trial programme.
Operating profit (EBIT) for the first nine months for the Consumer Healthcare business area totalled MSEK 88.2 (87.0), up 1%, representing an operating profit (EBIT) margin of 19% (39). The decrease in operating profit margin compared with the preceding year is driven by the acquisition of Nutraceutix, where gross margins are structurally lower than under Probi's previous business model, and higher overhead allocation reflecting the consolidation of the acquired operations.
Operating profit (EBIT) for the Functional Food business area totalled MSEK 8.3 (-0.3), representing an operating profit (EBIT) margin of 31% (-1). The increase in operating profit compared with the preceding year is mainly due to lower overhead allocation and reduced marketing investment.
Consolidated operating profit (EBIT) for the first nine months totalled MSEK 96.4 (86.7). Adjusted for currency effects, operating profit (EBIT) totalled MSEK 96.3.
Financial results
The interest result for the first nine months of 2017 was MSEK -4.6 (-) due to increased interest expenses relating to borrowings in connection with the acquisition of Nutraceutix in 2016.
Exchange gains and losses incurred in connection with the revaluation of the loan, cash holdings in foreign currency or market valuation and realisation of forward contracts, are recognised in the exchange result from financing activities. A loss of MSEK -5.9 (8.7) arose during the first nine months of 2017, mainly due to depreciation of the US dollar against the Swedish kronor. The positive exchange result from financing activities in the preceding year included a MSEK 7.3 gain resulting from the market valuation of a currency forward contract.
Profit after tax
Profit after tax for the first nine months amounted to MSEK 68.1 (71.7). Tax expense was MSEK 17.8 (23.6).
Earnings per share
Earnings per share for the first nine months amounted to SEK 5.98 (7.87).
Cash Flow and Financial Position
Capital Expenditure
During the nine months of 2017, investments in intangible assets amounted to MSEK 14.1 (13.2), of which MSEK 2.4 (3.4) pertained to patents and MSEK 11.7 (9.8) to capitalised development expenditure. Capitalised development expenditure during the third quarter was related to clinical trials in immune function, digestive health and nutrient absorption. Investments in tangible assets amounted to MSEK 6.4 (0.5).
Change in cash and cash equivalents
Cash and cash equivalents increased MSEK 39.8 (824.6) during the first nine months of 2017, amounting to MSEK 142.9 (967.6) at the end of the reporting period. The main reason for the higher cash holdings in the preceding year was the borrowing of funds of MSEK 801.5 for the acquisition of Nutraceutix made on 3 October 2016.
Cash flow from operating activities during the first nine months of 2017 was MSEK 75.8 higher year-onyear, mainly due to the large increase in sales and improved working capital, but was adversely impacted by an increase of MSEK 9.7 in income taxes paid.
Research and Development
Probi continues to make progress with its pipeline and is on track executing the clinical programme aimed at expanding the product portfolio in both existing and new indication areas. Most studies are now in the clinical phase and the teams are focused on clinical operational excellence, regulatory engagement and data evaluation.
At the International Celiac Disease Symposium in New Delhi, India, the company presented the first results of its multi-trial programme to develop a new probiotic platform for children. The randomised, double-blind and placebo-controlled intervention study evaluated the effect of probiotics from Probi in children genetically predisposed for gluten intolerance (Celiac Disease). The study showed consistent and statistically significant results that probiotics from Probi support the immune system and may delay the onset of gluten intolerance in children. The results have been well received and sparked significant interest among researchers dealing with autoimmune metabolic disorders, as well as the paediatric medical community. In parallel, two additional clinical trials focusing on children in existing indication areas are now in the final phase and close to completion.
Two projects in new indication areas have transitioned into the clinical phase. In one of the projects, which is conducted in collaboration with a major customer, the effects of probiotic strains on physical performance is being evaluated, expanding Probi's area of expertise into sports nutrition. The other project is a study of the link between gut and brain, based on promising results in an earlier pilot study. The focus is to demonstrate the effects of Probi's probiotics on acute stress and is run in collaboration with researchers at Lund University in Sweden. Both studies are randomised, placebo-controlled and double-blind.
Probi has performed an additional study in response to the negative opinion on Probi's application for a health claim in the EU on increased iron absorption. The study results demonstrate that no systematic bias can be expected from the design used and will now be used in a new health claim application on iron absorption.
Probi's patent on iron absorption, supporting the probiotic FerroSorb® concept, was granted in the US during the summer. The patent relates to methods of treating anaemia and increasing the absorption of nonheme iron by administration of Lactobacillus plantarum 299v (DSM 9843). To compensate for the long processing time, Probi was given an extra 1,450 days of patent term, which means the patent will be valid until 2030.
Probi's probiotic strains for use in the treatment or prevention of osteoporosis have now been granted patent protection in Russia. This is the fourth grant/allowance in this product family of applications, following the grants in New Zealand, Japan and Australia.
Employees
At the end of the period, Probi had 196 (38) employees, of whom 91 (25) were women and 105 (13) men. The average number of employees during the first nine months of 2017 was 196 (37).
Significant Risks and Uncertainties
The risks and uncertainties to which Probi's operations are exposed are described on pages 47-48 of the printed 2016 Annual Report. At 30 September 2017, no significant changes were considered to have occurred in these risks or uncertainties.
Parent Company
Parent Company operating revenue increased to MSEK 271.0 (249.6). Income for the year was MSEK 73.1 (83.4). The Parent Company's investment in tangible and intangible assets during the first nine months amounted to MSEK 16.1 (13.6). In other aspects, please refer to information for the Group.
Financial Calendar
Year-end report, 2017 25 January 2018 Interim report Q1, 2018 2 May 2018 Annual General Meeting for 2017 2 May 2018 Interim report Q2, 2018 13 August 2018 Interim report Q3, 2018 6 November 2018 Year-end report, 2018 13 February 2019
Annual General Meeting
The Annual General Meeting for 2017 will be held in Lund on Wednesday 2 May 2018 at 3:00 p.m. The venue is to be announced. Shareholders who wish to have matters considered at the AGM are requested to notify the Chairman of the Board by Friday, 3 March 2018. Such proposals should be e-mailed to [email protected] or posted to: Annual General Meeting, Probi AB, Att: Sofie Forsman, Ideon Gamma 1, SE-223 70 Lund, Sweden.
Assurance by the Board of Directors
The Board of Directors and the CEO provide their assurance that this interim report gives a true and fair view of the Parent Company's and the Group's operations, financial position and revenue, and describes the risks and uncertainties facing the Parent Company and the Group.
Lund, 25 October 2017
Jean-Yves Parisot Anna Malm Bernsten Chairman of the Board Board member
Board member Board member
Jan Nilsson Jonny Olsson Board Member Board Member
Peter Nählstedt CEO
Scott Bush Charlotte Hansson
The interim report has not been the subject of audit review procedures by an auditor.
Consolidated Statement of Comprehensive Income
| KSEK | Notes | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|---|
| Net sales | 133,501 | 89,208 | 492,888 | 249,496 | |
| Cost of goods sold | 2 | -77,083 | -27,523 | -263,958 | -77,607 |
| Gross profit | 56,418 | 61,685 | 228,930 | 171,889 | |
| Sales and marketing expenses | -19,467 | -11,818 | -60,523 | -27,225 | |
| Research and development expenses | -6,797 | -6,411 | -27,674 | -23,645 | |
| Administration expenses | -14,640 | -12,751 | -45,491 | -34,425 | |
| Other operating income | 1,118 | 3 3 |
1,202 | 148 | |
| Other operating expenses | — | — | — | — | |
| Operating Profit/EBIT | 16,632 | 30,738 | 96,444 | 86,742 | |
| Financial income | 112 | — | 212 | 5 | |
| Financial expenses | -1,650 | -39 | -4,846 | -44 | |
| Exchange result financing activities | 3 | -4,396 | 8,165 | -5,862 | 8,668 |
| Financial result | -5,934 | 8,126 | -10,496 | 8,629 | |
| Earnings before income taxes | 10,698 | 38,864 | 85,948 | 95,371 | |
| Income taxes | -1,888 | -11,152 | -17,817 | -23,645 | |
| Net income | 8,810 | 27,712 | 68,131 | 71,726 | |
| Other comprehensive income | |||||
| Components to be reclassified to net income | |||||
| Exchange rate differences resulting from the translation of foreign operations | -29,429 | 409 | -74,985 | 432 | |
| Cash flow hedge (currency hedges) | -1,056 | — | 349 | — | |
| Income taxes payable on these components | 232 | — | -143 | — | |
| Sum of other comprehensive income | -30,253 | 409 | -74,779 | 432 | |
| Total comprehensive income | -21,443 | 28,121 | -6,648 | 72,158 | |
| Number of outstanding shares at end of the reporting period | 11,394,125 | 9,115,300 11,394,125 | 9,115,300 | ||
| Average number of shares | 11,394,125 | 9,115,300 11,394,125 | 9,115,300 | ||
| Earnings per share before and after dilution | 0.77 | 3.04 | 5.98 | 7.87 |
Net income and total comprehensive income are attributable in their entirety to the Parent Company's shareholders. Since the company has no outstanding convertible loans or outstanding warrants, no dilution effect arose.
In 2011, Probi bought back company shares and at the end of the reporting period owned 250,000 treasury shares, corresponding to 2.1% of the total number of shares, with a quotient value of SEK 5.00 per share.
Consolidated Statement of Financial Position
| KSEK | 30 September 2017 | 31 December 2016 |
|---|---|---|
| Capitalised Development Cost | 38,428 | 29,692 |
| Customer base | 308,839 | 365,048 |
| Technology and other intangible assets | 140,129 | 164,618 |
| Goodwill | 275,549 | 308,802 |
| Property, plant and equipment | 35,171 | 41,490 |
| Deferred tax assets | 10,161 | 8,478 |
| Non-current assets | 808,277 | 918,128 |
| Inventories | 72,866 | 72,752 |
| Trade receivables | 65,664 | 78,903 |
| Other assets and receivables | 22,098 | 37,036 |
| Cash and cash equivalents | 142,894 | 103,136 |
| Current assets | 303,522 | 291,827 |
| Total assets | 1,111,799 | 1,209,955 |
| Total equity | 874,026 | 892,067 |
| Other non-current liabilities | 5,480 | 5,796 |
| Non-current liabilities | 5,480 | 5,796 |
| Borrowings | 173,077 | 225,762 |
| Trade payables | 34,494 | 45,570 |
| Other current liabilities | 24,722 | 40,760 |
| Current liabilities | 232,293 | 312,092 |
| Total liabilities | 237,773 | 317,888 |
| Liabilities and equity | 1,111,799 | 1,209,955 |
See Note 4 for adjustments made to full-year 2016.
Consolidated Changes in Equity
| KSEK | Share capital |
Other contributions received |
Cumulative translation differences |
Other reserves |
Accumulated profit |
Total equity |
|---|---|---|---|---|---|---|
| Opening balance, 1 January 2016 | 46,827 | 21,140 | - 4 |
— | 119,276 | 187,239 |
| Net income | — | — | — | — | 71,726 | 71,726 |
| Other comprehensive income | — | — | 432 | — | — | 432 |
| Total Comprehensive Income | — | — | 432 | — | 71,726 | 72,158 |
| Dividends | — | — | — | — | -9,116 | -9,116 |
| Total transactions with shareholders | — | — | — | — | -9,116 | -9,116 |
| Closing balance, 30 September 2016 | 46,827 | 21,140 | 428 | 0 | 181,886 | 250,281 |
| KSEK | Share capital |
Other contributions received |
Cumulative translation differences |
Other reserves |
Accumulated profit |
Total equity |
| Opening balance, published 31 December 2016 | 58,221 | 600,205 | 21,430 | 299 | 218,675 | 898,829 |
| Change | — | — | -42 | — | -6,719 | -6,761 |
| Opening balance, adjusted 1 January 2017 | 58,221 | 600,205 | 21,387 | 299 | 211,955 | 892,067 |
| Net income | — | — | — | — | 68,131 | 68,131 |
| Other comprehensive income | — | — | -74,985 | 207 | — | -74,778 |
| Total Comprehensive Income | — | — | -74,985 | 207 | 68,131 | -6,647 |
| Dividends | — | — | — | — | -11,394 | -11,394 |
| Total transactions with shareholders | — | — | — | — | -11,394 | -11,394 |
| Closing balance, 30 September 2017 | 58,221 | 600,205 | -53,598 | 506 | 268,692 | 874,026 |
See Note 4 for adjustments made to full-year 2016.
Consolidated Statement of Cash Flows
| KSEK | 9M 2017 | 9M 2016 |
|---|---|---|
| Net income | 68,131 | 71,726 |
| Adjustments to reconcile net income to cash provided from operating activities | ||
| Income taxes | 17,817 | 26,645 |
| Interest result | 4,152 | -39 |
| Amortisation, depreciation and impairment of non-current assets | 40,071 | 5,064 |
| Other non-cash expenses and income | 26,241 | 60 |
| Cash flow before working capital changes | 156,412 | 100,456 |
| Change in trade receivables and other current assets | 23,047 | -4,229 |
| Change in inventories | -7,710 | -44,168 |
| Change in trade payables and other current liabilities | -21,968 | 12,231 |
| Income taxes paid | -26,062 | -16,396 |
| Cash flow from operating activities | 123,719 | 47,894 |
| Payments for investing in intangible assets | -14,135 | -13,159 |
| Payments for investing in property, plant and equipment | -6,381 | -487 |
| Divestments of tangible assets | — | 134 |
| Cash flow from investing activities | -20,516 | -13,512 |
| Interest paid | -3,957 | — |
| Interest received | 212 | — |
| Proceeds from bank borrowings | — | 798,895 |
| Redemption of bank borrowings | -32,063 | — |
| Dividends paid | -11,394 | -9,116 |
| Cash flow from financing activities | -47,202 | 789,779 |
| Net change in cash and cash equivalents | 56,001 | 824,161 |
| Effects of changes in exchange rates | -16,243 | 427 |
| Total changes | 39,758 | 824,588 |
| Cash and cash equivalents as of 1 January | 103,136 | 143,024 |
| Cash and cash equivalents as of 30 September | 142,894 | 967,612 |
Summary Parent Company Financial Statements
| KSEK | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Operating revenue | 66,334 | 89,219 | 270,980 | 249,643 |
| Cost of goods sold | -23,150 | -27,371 | -90,380 | -77,606 |
| Gross profit | 43,184 | 61,848 | 180,600 | 172,036 |
| Operating profit/EBIT | 18,397 | 34,985 | 96,696 | 98,366 |
| Result from financial income and expenses | -4,415 | 8,126 | -2,832 | 8,629 |
| Income before tax | 13,981 | 43,112 | 93,863 | 106,995 |
| Income for the year | 10,888 | 33,607 | 73,124 | 83,350 |
| Other comprehensive income | -824 | — | 206 | — |
| Total comprehensive income for the year | 10,064 | 33,607 | 73,330 | 83,350 |
| 30 September | 30 September | 31 December | ||
| KSEK | 2017 | 2016 | 2016 | |
| Fixed assets | 1,007,39 | 982,616 | 1,000,693 | |
| Current assets | 158,043 | 143,477 | 182,171 | |
| Total assets | 1,165,433 | 1,126,093 | 1,182,864 | |
| Equity | 943,707 | 258,205 | 881,770 | |
| Untaxed reserves | 470 | 555 | 470 | |
| Total long-term liabilities | 4,036 | 4,036 | 4,036 | |
| Current liabilities | 217,220 | 863,297 | 296,588 | |
| Total equity and liabilities | 1,165,433 | 1,126,093 | 1,182,864 |
Notes
1. Accounting and Measurement Policies
The Group
The consolidated financial statements have been prepared in accordance with the Swedish Annual Accounts Act, "RFR 1 Supplementary Accounting Regulations for Groups – January 2017", the International Financial Reporting Standards (IFRS) and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), as adopted by the European Union. This interim report has been prepared in accordance with IAS 34 – Interim Financial Reporting and the Swedish Annual Accounts Act. The condensed financial statements in the interim report encompass pages 8-15. Disclosures according to IAS 34 – Interim Financial Reporting are provided both here and elsewhere in the interim report. ESMA Guidelines on Alternative Performance Measures are applied.
The accounting policies applied when these consolidated financial statements were prepared were consistent for all presented periods, unless otherwise stated. The complete accounting policies can be found on pages 58-61 of the printed 2016 Annual Report.
The Parent Company's functional currency is the Swedish krona, which is also the reporting currency for both the Parent Company and the Group. All amounts stated have been rounded off to the nearest thousand SEK, unless otherwise stated.
Amounts and figures in parentheses pertain to comparative figures for the year-earlier period. Amounts are stated in Swedish kronor (SEK), thousands of Swedish kronor (KSEK) or millions of Swedish kronor (MSEK) according to that which is stated.
Parent Company
The Parent Company applies the same accounting policies as the Group, with the exceptions and supplements stipulated in RFR 2 Accounting for legal entities – January 2017. This interim report complies with the Swedish Annual Accounts Act.
Presentation of foreign currency translation
The company has decided to change the presentation of currency effects from transactions that are designated in foreign currencies. Any currency translations resulting from operating activities are recognised as cost of goods sold. In previous reports, currency translation gains from operating activities were recognised as other revenue, and currency translation losses from operating activities as other operating expenses. The change in presentation does not affect operating profit. Historic comparative figures have been adjusted accordingly. The impact arising from currency translation from financing activities remain unchanged and are recorded in the financial result.
Financial Instruments – Hedge Accounting
All derivatives relate to currency hedging contracts for currency exposure as a result of customer payments in US dollars and are initially and subsequently measured at fair value in the balance sheet. When applying hedge accounting, the relationship between the hedging instrument and the hedged item is documented, as well as an assessment of hedge effectiveness, at both the inception of the transaction and on an ongoing basis. Effectiveness refers to the degree to which fair value and cash flow changes in the hedging instrument offset corresponding changes in the hedged item.
If the hedge accounting criteria are met, the effective portion of change in fair value when derivatives held for cash flow hedges are remeasured is recognised in other comprehensive income and accumulated in the hedging reserve in equity. The cumulative hedging gain or loss recognised in the hedging reserve is reversed to profit or loss in the same period that the hedged cash flow affects profit or loss. Any ineffective portion of the change in value is recognised immediately in profit or loss.
Measurement gains/losses from the derivative financial instrument will be reclassified to sales or cost of goods sold depending on the underlying transaction (trade payables or receivables in foreign currency). After reclassification, hedging gains and losses will be balanced out with the actual currency gains and losses from operating business in cost of goods sold.
Measurement gains/losses are recognised in the financial result insofar as currency risk hedges are used to hedge financial activities.
If the hedging relationship is interrupted but cash flow is still expected to occur, the cumulative change in value is recognised in the hedging reserve until the underlying cash flow for the hedging transaction is no longer expected to occur, and the cumulative change in value recognised in the hedging reserve is immediately transferred to profit or loss.
2. Currency translation from operating activities
The following table shows the exchange result from operating activities that has been recognised as cost of goods sold:
| KSEK | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Exchange gains operating activities | 5,303 | 871 | 11,883 | 3,455 |
| Exchange losses operating activities | -6,091 | -265 | -14,130 | -1,934 |
| Exchange result operating activities | -788 | 606 | -2,247 | 1,521 |
3. Currency translation from financing activities
The following table shows the exchange result from financing activities that has been recognised as exchange result from financing activities:
| KSEK | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Exchange gains financing activities | 13,884 | 8,175 | 75,174 | 9,954 |
| Exchange losses financing activities | -18,280 | -10 | -81,036 | -1,286 |
| Exchange result financing activities | -4,396 | 8,165 | -5,862 | 8,668 |
4. Purchase Price Allocation Nutraceutix
On 3 October 2016, Probi acquired the Nutraceutix operations and relevant assets in the form of an asset acquisition. As a result of the acquisition, Probi is expected to become a globally leading probiotics group and will significantly strengthen its position in the North American market. The transaction was described in the previous annual consolidated financial statements in the notes under note 5 (Acquisitions).
The following table reproduces the final results of the purchase price allocation as previously presented in the Q2 2017 interim report with regards to the consideration paid for Nutraceutix and the amounts of the assets acquired and liabilities assumed recognised at the acquisition date:
| KUSD | Recognised amounts of identifiable assets acquired and liabilities assumed |
|---|---|
| Trade receivables | 5,079 |
| Inventories | 6,605 |
| Intangible assets | 58,362 |
| Property, plant and equipment | 4,306 |
| Other assets | 228 |
| Other liabilities | 1,748 |
| Total identifiable net assets | 72,831 |
| Total consideration transferred | 106,473 |
| Goodwill | 33,642 |
The fair value of the acquired identifiable intangible assets is KUSD 58,362 and consists of the customer base (KUSD 40,808), technologies (KUSD 10,558) and other intangible assets (KUSD 6,996).
The goodwill of KUSD 33,642 arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of Probi and Nutraceutix. The goodwill recognised is expected to be deductible for local income tax purposes but will be neutral on the Group's net income.
With the completion of the purchase price allocation in accordance with IFRS 3, adjustments were recognized in the current and previous full-year's reporting period that relate to the business combination that occurred on 3 October 2016.
The tables on page 17 provide information about the effects on the items in the statement of comprehensive income and the statement of financial position from the previous full-year 2016 to evaluate the adjustments resulting from the business combination.
Since the business combination occurred on 3 October 2016, no adjustments were made to the previous interim reporting period of the first nine months of 2016.
Statement of Comprehensive Income as of 31 December 2016
| KSEK | Published | Change | Adjusted |
|---|---|---|---|
| Cost of goods sold | -172,873 | -4,538 | -177,411 |
| Sales and marketing expenses | -47,131 | -7,642 | -54,773 |
| Administration expenses | -52,924 | 1,796 | -51,128 |
| Operating Profit/EBIT | 130,349 | -10,383 | 119,966 |
| Income taxes | -28,461 | 3,625 | -24,836 |
| Net income | 108,567 | -6,720 | 101,847 |
| Other comprehensive income | |||
| Components to be reclassified to net income | |||
| Exchange rate differences resulting from the translation of foreign operations | 21,384 | -42 | 21,342 |
| Total comprehensive income | 130,250 | -6,761 | 123,488 |
| Earnings per share before and after dilution | 11.43 | -0.71 | 10.73 |
Statement of Financial Position as of 31 December 2016
| KSEK | Published | Change | |
|---|---|---|---|
| Customer base | — | 365,048 | 365,048 |
| Technology and other intangible assets | 46,312 | 118,306 | 164,618 |
| Goodwill | 799,740 | -490,938 | 308,802 |
| Deferred tax assets | 4,554 | 3,924 | 8,478 |
| Trade receivables | 78,039 | 864 | 78,903 |
| Other assets and receivables | 35,470 | 1,566 | 37,036 |
| Total assets | 1.211,210 | -1,255 | 1.209,955 |
| Total equity | 898,832 | -6,765 | 892,067 |
| Other non-current liabilities | — | 5,796 | 5,796 |
| Other current liabilities | 40,527 | 233 | 40,760 |
| Liabilities and equity | 1.211,210 | -1,255 | 1.209,955 |
5. Definition of ratios not defined according to IFRS
The company presents certain financial ratios in the interim report that are not defined according to IFRS. The company believes that these ratios provide valuable supplementary information to investors and company management. Since companies do not all calculate financial ratios in the same way, these ratios are not always comparable with those used by other companies. Accordingly, these financial ratios are not to be considered to replace key ratios as defined according to IFRS.
The following ratios are presented in the interim report:
Operating Profit / EBIT
Operating Profit / EBIT is defined as net income before financial income and expenses and tax for the period.
| KSEK | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Net income | 8,810 | 27,712 | 68,131 | 71,726 |
| Income taxes | 1,888 | 11,152 | 17,817 | 23,645 |
| Financial result | 5,934 | -8,126 | 10,496 | -8,629 |
| Operating Profit / EBIT | 16,632 | 30,738 | 96,444 | 86,742 |
EBITDA
EBITDA is defined as Operating Profit / EBIT before depreciation, amortisation and impairment.
| KSEK | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Operating Profit / EBIT | 16,632 | 30,738 | 96,444 | 86,742 |
| Depreciation and amortisation | 12,808 | 1,779 | 40,071 | 5,064 |
| Impairment | — | — | — | — |
| EBITDA | 29,440 | 32,517 | 136,515 | 91,806 |
EBIT margin
EBIT margin is defined as Operating Profit/EBIT divided by net sales.
EBITDA margin
EBITDA margin is defined as EBITDA divided by net sales.
Gross margin
Gross margin is defined as gross profit divided by net sales.
Market capitalisation at closing day
Market capitalisation at closing day is defined as share price at the end of the period multiplied by number of shares outstanding.
Net sales growth, local currency
Net sales growth, local currency, is defined as net sales for the year translated at the preceding year's exchange rates divided by the preceding year's net sales.
Operating expenses
Operating expenses are defined as the sum of costs of goods sold, sales and marketing expenses, research and development expenses, administration expenses, other operating income and other operating expenses.