Regulated information Nazareth (Belgium)/Rotterdam (The Netherlands), 6 August 2020
Fagron turnover up 9.1%; REBITDA increased 13.2% to € 62.9 million
Limited impact from COVID-19 pandemic
Highlights H1 2020 – Financial
Turnover increased 9.1% to € 278.8 million (+14.0% CER1); organic growth of 7.2% CER
REBITDA2 up 13.2% to € 62.9 million (+18.6% CER)
REBITDA margin improved to 22.6% (H1 2019: 21.8%)
EBIT up 14.0% to € 46.2 million
Net profit increased to € 31.6 million (+144.0%)
Operating cash flow of € 27.2 million
Net financial debt /REBITDA ratio of 2.35 at 30 June 2020
Strategic and operational highlights
All regions developed strongly
The impact of the COVID-19 pandemic remained limited in the second quarter of 2020:
Shift in demand from elective care to care related to COVID-19
All facilities are fully operational
Virtually no disruptions in the supply chain
Higher strategic inventories due to COVID-19
Disciplined cost control in view of ongoing global uncertainty about the impact of COVID-19
Rafael Padilla, CEO of Fagron: “For Fagron, like many other companies, the first half of 2020 was characterized by the COVID-19 pandemic. Our strong results show the strength of our diversity, both regionally and product-wise. We are proud of our team and their utmost commitment in these times that are challenging for everyone. Our resilience and the entrepreneurship that is present throughout the organization enable us to respond well to the situation.
On the one hand Fagron benefited from higher demand for COVID-19-related products, as reflected in the turnover growth in Brands and Essentials. We have made every effort to safeguard the availability of our products to continue to serve our customers as best we can. Our comprehensive global network of suppliers and solid setup of our supply chain were beneficial to this.
On the other hand, we faced lower demand for elective care, a development that particularly affected Compounding Services. Clinics were temporarily closed in many regions and non-critical operations were postponed. Also, there was a clear decline in visits to the doctor. We managed the costs of our activities that were affected by this in a very disciplined way, without losing our focus on strengthening our position in the long term.
All regions developed strongly. In North America and Latin America higher turnover thanks to strong demand in Brands and Essentials combined with effective cost management resulted in a strong improvement in the REBITDA margin.
In the coming half year, we will continue to pursue our policy aimed at making the most of opportunities while being critical of our costs. The COVID-19 pandemic is developing differently in every region and there are vast differences even within regions. In a number of regions, we saw a slight recovery in elective care in June, albeit not yet to the level recorded before the outbreak of COVID-19. In other regions the rate of contamination is still growing. Thanks to our diversified product range and proven strategy we are well-positioned to respond to this evolving situation.”
Update on COVID-19 Supply chain
There have been virtually no disruptions to Fagron’s supply chain thanks to our global network of suppliers, which provides us with multiple suppliers of each raw material.
Product availability is a critical success factor in the current situation, particularly with respect to products that are facing a shortage due to the sudden increase in demand. Inventory levels are being closely monitored and mitigated by keeping higher inventories of specific products. In addition, Fagron is well-prepared for alternative sourcing scenarios, due in part to its extensive global network of approved suppliers.
Temporary shift in demand for products The temporary shift in demand as a result of COVID-19 was also evident in the second quarter of 2020. Even though the timing and intensity of COVID-19 related measures differ in the various regions, generally speaking elective care is being postponed or scaled back while demand for specific products in aid of COVID-19 care is exceptionally high. June saw a pickup in demand for elective care in a number of regions, albeit not yet to the level seen before the outbreak of COVID-19. On balance the impact of these shifts on the gross margin was very limited.
Outbreak control measures The outbreak of the COVID-19 pandemic, along with the measures taken to try to control the spread of the virus, is developing differently in each region. A number of countries where the measures were eased at the start of the summer have reintroduced restrictions. In some regions, particularly in a number of states in the United States and in Brazil, the number of cases is still rising sharply. The picture is therefore extremely varied with a continued high level of uncertainty.
Despite the fact that Fagron currently expects this to have a limited and non-material impact on its performance, the economic uncertainty persists. To mitigate this risk Fagron will continue to manage its cost base, investments and cash flow in a critical and disciplined way. In the past few months Fagron has successfully kept its operating costs under control, for example by temporarily refraining from hiring new staff in non-key positions and slowing down investments. This policy will remain in place throughout the COVID-19 pandemic.
Update on buy-and-build In the first half of 2020 Fagron completed the acquisition of German company Gako and entered into a partnership with Azelis for the Australian market. Potential acquisitions have not been a priority for the past few months but the focus on possible takeovers is slowly returning. Fagron is keeping an eye on potential acquisition opportunities that may arise in the current market dynamics.
Gako - Germany
Fagron completed the acquisition of the activities of German company Gako at the end of January 2020. Gako is a leading global developer, manufacturer and supplier of mixing equipment that pharmacists can use for the compounding of semi-solid dermatological formulations (primarily creams and ointments) directly in the final packaging or in bulk packaging. The transaction includes all the technologies, scientific data and patents and trademarks, as well as the Gako production facility in Bamberg (Germany). In 2019 Gako realized a turnover of € 4.5 million and an EBITDA margin of approximately 15%.
Azelis partnership - Australia
At the beginning of February 2020 Fagron entered into a partnership with Azelis Australia for the distribution of Essentials and Brands in Australia and New Zealand to strengthen their combined position in the competitive Australian market.
Operational update Start of construction at new repackaging facility in Poland Due to the COVID-19 pandemic, the construction of the new GMP facility in Krakow, Poland, for the repackaging of raw materials has been slightly delayed. The new facility is expected to be operational in early 2021 and result in a structural annual margin improvement of € 2 million.
1 Constant Exchange Rates 2 EBITDA before the non-recurring result
