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Second-quarter report 2020

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Q2, April - June

  • Net sales amounted to MSEK 688.9 (387.4). This corresponds to an increase of 78% for the period. The organic growth during the second quarter was -10%, currency impact 0% and 88% relates to the acquisition of Trimb in 2019 and the acquired product portfolios Proct® from Leo Pharma and Pevaryl® from Johnson & Johnson (see below).
  • EBIT (Operating Profit) amounted to MSEK 98.6 (20.3) corresponding to a 385% growth.
  • Adjusted EBITDA* amounted to MSEK 213.7 (137.8) corresponding to a 55% growth. This excluding non-recurring items related to a new valuation method of inventory (see note 1) totalling MSEK -12.4 (35.3).
  • The gross margin was 60.8% (54.5%) for the quarter. The margin was affected by a positive product mix and a new valuation of inventory. The gross margin without this effect was 59,0%.
  • Cash flow from operating activities amounted to MSEK 171.0 (111.8).
  • Earnings per share was SEK 0.11 (-0.04).
  • 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.

Summary of half-year result, January - June

  • Net sales amounted to MSEK 1 482.5 (808.2). This corresponds to an increase of 83% for the period. The organic growth during the first half of the year was 7%, currency impact -1% and 77% relates to the acquisition of Trimb in 2019 and the acquired product portfolios Proct® from Leo Pharma and Pevaryl® from Johnson & Johnson (see below).
  • EBIT (Operating Profit) amounted to MSEK 202.6 (107.7) corresponding to 88% growth.
  • Adjusted EBITDA* amounted to MSEK 426.9 (290.8) corresponding to a 47% growth. This excluding non-recurring items related to the acquisitions and the valuation of inventory (see note 1) totalling MSEK -8.5 (35.3).
  • The gross margin was 57.1% (55.2%) for the period. The margin was affected by a positive product mix and a new valuation of inventory. The gross margin without this effect was 56,3%.
  • Cash flow from operating activities amounted to MSEK 161.3 (203.6).
  • Earnings per share was SEK 0.50 (0.21).
  • 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.
  • At the end of the period, cash and cash equivalents and other current investments amounted to MSEK 390.4 (248.8 at December 31, 2019) and net debt to MSEK 5 536.4 (5028.9 at December 31, 2019).

* Alternative Financial Ratios (APM), note 4 for further information.

  
Comments by CEO Christoffer Lorenzen

Karo Pharma realized growth of 78% in Q2. The growth was driven by the acquisitions completed over the last 12 months: Trimb (September 2019), Proct® brand portfolio (March 2020) and the Pevaryl® brand portfolio (April 2020). Karo Pharma generated organic growth of 7% during H1 2020.

The Q2 performance was negatively impacted by the COVID-19 pandemic. As anticipated, and as communicated in the Q1 financial report, Q1 was positively impacted by a one-off build-up of inventories across the supply chain at the wholesaler, pharmacy, and consumer level. The Q1 build-up was partially rebalanced in Q2, particularly in the pain, cough & cold category and in the specialty Rx category. We expect to see further rebalancing in H2, but to a lesser extent than during Q2. Further normalization of inventories will of course depend on the development of COVID-19 across geographies.

Karo Pharma’s business continues to prove robust and resilient despite the difficult market environment. In collaboration with our partners across contract manufacturing, logistics and distribution, we have been able to address the challenges as they have emerged. The supply chain has only been affected by minor disruption and thanks to a close dialogue with our suppliers, we have kept delivery performance at acceptable levels, in line with targets.

We continue to execute in accordance with our long-term strategy and vision for the business. In the beginning of Q2 we announced the acquisition of the remaining European rights to the Pevaryl® brand portfolio from Johnson & Johnson. The acquisition confirms our commitment to M&A driven growth and business building. The transaction was 100% debt financed by our partner banks, Swedbank, SEB and DNB NOR.

The Pevaryl® brand portfolio adds approximately 20 MEUR of sales to our business, consolidates European ownership of the Pevaryl® brand with Karo Pharma and expands Karo Pharma’s European reach outside of the Nordic region, in particular in Italy. Additionally, the acquisition adds critical mass in two focus categories, intimate health, and foot care.

We are also continuing to streamline and optimize our business. The explorations of strategic alternatives for the Hospital Supply business, Swereco AB, which were previously announced are progressing to plan and we expect to conclude that evaluation during H2. Post transaction our business will be more streamlined and focused. We are also taking steps on a product portfolio level to optimize. In early July we divested three smaller brands - Suscard®, Digoxin® and Egazil® to Evolan AB. The brands generated 13 MSEK in revenues in 2019 and are not material to our results, but we believe the brands have found a better owner.

Christoffer Lorenzen                    

CEO
 
 
Significant events after period end

July 1, 2020 Karo Pharma divested the three brands Digoxin, Egazil and Suscard to Evolan due to production challenges. From both a patient as well as a society perspective it is better to divest than to prune these products. The total turnover of the three brands 2019 was 13 MSEK.
 

Auditors’ review

The interim report has not been the subject to auditors' review.
 

Financial Calendar

Interim report Jan-Sep 2020 Oct 30, 2020
Year-end report 2020 Feb 18, 2021

The Annual Report 2019 was released April 1, 2020 and the Annual General Meeting was held May 25, 2020 at Näringslivets Hus, Stockholm.

 
For further information, please contact

Christoffer Lorenzen, CEO, +46 73-501 76 20, christoffer.lorenzen@karopharma.com 
Jon Johnsson, CFO, +46 73-507 88 61, jon.johnsson@karopharma.com
 

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 July 21, 2020 at 08.00 CET.

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Karo Pharma Q2 2020

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