Karo Pharma publishes third-quarter report 2020 and resolves on sale of own shares
Q3, July – September
- Net sales amounted to MSEK 679.1 (443.7). This corresponds to an increase of 53% for the period. Following very strong growth in the first quarter the organic growth during the third quarter was -10% which follows the same pattern as during the second quarter of the year. The currency impact in the quarter was 0% while the acquisition of Trimb in 2019 and the acquired product portfolios Proct® from Leo Pharma and Pevaryl® from Johnson & Johnson generate growth of 63%.
- EBIT (Operating Profit) amounted to MSEK 43.7 (56.2) corresponding to a -22% decline.
- Adjusted EBITDA* amounted to MSEK 193.0 (156.9) corresponding to growth of 23% excluding non-recurring items related to acquired product portfolios totalling MSEK -18.1 (-28.2).
- The gross margin, defined as gross profit divided by net sales, was 57.8% (52.8%) for the quarter. The margin was affected positively by the acquired product portfolios.
- Cash flow from operating activities amounted to MSEK 63.2 (-85.9).
- Earnings per share was SEK -0.01 (-0.01), before and after dilution.
- During the period Karo Pharma divested the three brands – Suscard, Egazil and Digoxin – to Evolan. The transaction closed on July 1, 2020 and the effect on the result is not significant on the period. According to the agreement Karo Pharma has received parts of the purchase price at closing of the transaction and will receive remaining part at completion of future milestones linked to the commercial take-over of the products.
- Based on the authorization from the 2020 Annual General Meeting, the Board of Directors has resolved to sell up to 2,464,990 own shares to expand the company’s financial flexibility. The sale of own shares shall be effected – on one or several occasions before the 2021 Annual General Meeting, where a new mandate should be requested if necessary – at Nasdaq Stockholm at a price within the effective registered price interval on Nasdaq Stockholm.
Summary of result, January – September
- Net sales amounted to MSEK 2 161.6 (1 251.9). This corresponds to an increase of 73% for the period. The organic growth during the first nine months of the year was 0%, currency impact -1% and 73% relates to the acquisition of Trimb in 2019 and the acquired product portfolios Proct® from Leo Pharma and Pevaryl® from Johnson & Johnson.
- EBIT (Operating Profit) amounted to MSEK 246.4 (163.9) corresponding to 50% growth.
- Adjusted EBITDA* amounted to MSEK 619.9 (447.7) corresponding to a 38% growth, excluding non-recurring items of -22 MSEK related to the acquisitions and the changed valuation of inventory from Q2 12.4 MSEK (see note 1), totalling MSEK -9.6 (-63.5).
- The gross margin, defined as gross profit divided by net sales, was 57.3% (54.3%) for the period. The margin was affected by a positive product mix from the acquired portfolios and a new valuation of inventory.
- Cash flow from operating activities amounted to MSEK 224.5 (117.7).
- Earnings per share was SEK 0.49 (0.20), before and after dilution.
- During the period, the Proct® portfolio was acquired from Leo Pharma with all related rights and assets. The transaction closed on March 2, 2020.
- During the period Karo Pharma acquired Hygis SA, a Swiss distributing company with exclusive distribution rights to Karo’s brands MultiGyn® and MultiMam® in Switzerland. The transaction closed on April 1, 2020
- During the period, the Pevaryl® portfolio was acquired from Johnson & Johnson with all related rights and assets. The transaction consolidates the ownership of the Pevaryl® brand portfolio in Europe with Karo Pharma.The transaction closed on May 8, 2020.
- During the period Karo Pharma divested the three brands – Suscard, Egazil and Digoxin – to Evolan Pharma. The transaction closed on July 1, 2020 and the effect on the result is not significant on the period. According to the agreement Karo Pharma has received parts of the purchase price at closing of the transaction and will receive remaining part at completion of future milestones linked to the commercial take-over of the products.
- Based on the authorization from the 2020 Annual General Meeting, the Board of Directors has resolved to sell up to 2,464,990 own shares to expand the company’s financial flexibility.
- At the end of the period, cash and cash equivalents and other current investments amounted to MSEK 365.3 (248.8) and net debt to MSEK 5 481.4 (5028.9).
* Alternative Financial Ratios (APM), note 4 for further information.
Comments by CEO Christoffer Lorenzen
Karo Pharma realized net sales growth of 53% in Q3 compared to the same quarter previous year. The growth was driven by the Proct® portfolio (March 2020) and the Pevaryl® portfolio (April 2020). Trimb (September 2019) also contributed to growth, however, reached its one-year anniversary and its impact on absolute growth therefore declined compared to previous years. During the first nine months of the year, Karo Pharma generate net sales growth of 73%. Looking exclusively at organic growth (i.e. business that Karo owned 12 months ago), this amounted to -10% in Q3 and 0% in the first nine months of the year.
Our business continues to be impacted by the COVID-19 pandemic. Thus, the Q3 performance saw a continuation of the pattern from Q2 where Karo’s net sales were suppressed by a rebalancing and normalization of inventories in the pharmacy chains, notably in Scandinavia. We expect that the rebalancing is now completed, but still expect the pandemic to have a net negative effect on net sales and growth. While certain Karo Pharma categories and brands benefit from COVID-19, a larger proportion of brands suffer (e.g. because of lower traffic in the pharmacies, fewer visits to doctors, or lowered infection rates (other than COVID-19) in societies.
Karo Pharma’s business operations continues to prove robust and resilient despite the difficult market environment. Performance across the supply chain is solid and we are strengthening the dialogue and interaction with key our key supply chain partners. We are progressing tech transfer projects related to our acquisitions and are also running gross margin improvement programs across the entire portfolio. As a combined result of these activities and mix effects, we are seeing improvements in gross margins.
We continue to monitor the market developments closely and have contingency plans in place to reduce costs if the markets deteriorate as result of the COVID-19 second wave and if our net sales come under further pressure. The COVID-19 pandemic does not imply any changes to the strategy or long-term ambitions of Karo. We will continue to pursue a dual strategy of developing and optimizing our existing portfolio of brands and markets and add on value-adding acquisitions that generate scale and are synergistic to our existing business.
In 2020, we have invested into the business and what we label the scalable platform. This includes our systems landscape as well as personnel in key functions. These investments will help us drive the business more effectively in the long-term. We have also invested into the integration of our acquisitions. The Trimb integration is now almost complete and our focus turns to the integration of the Proct® and Pevaryl® portfolios.
In Q3 we saw an increase in our adjusted EBITDA of 23% and for the first nine months of 38%. As a result of our scalable platform investments the EBITDA margins declined, however, we expect to see improvements from the efficiency gains that our platform investments will generate going forward.
Christoffer Lorenzen, CEO
Significant events after period end
Nothing to report
Year-end report 2020 , Feb 18, 2021
For further information, please contact
Christoffer Lorenzen, CEO
+46 73-501 76 20
Jon Johnsson, CFO
+46 73-507 88 61
About Karo Pharma
Karo Pharma offers “Smart choices for everyday healthcare”. We own and commercialize reliable original brands within prescription drugs and over over-the-counter consumer products. Our products are available in over 60 countries with the core in Europe and the Nordics region. The headquarter of Karo Pharma is in Stockholm and the company is listed on Nasdaq Stockholm, Mid Cap.
This information is information that Karo Pharma AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, on October 30, 2020 at 08.00 CET.