For the sixth consecutive quarter I’m pleased to report record high sales for the quarter. We are also reporting sequential improvement of sales, profitability and cash flow. Net sales increased 10 per cent compared to Q2 2018, corresponding to the net of acquisitions and discontinuing operations. EBITDA increased by 15 per cent and in addition to acquisitions we report good contributions from serialisation, new sterile products in new capacities and our new global development organisation while non-lyophilized injectables and oral solids underperformed during the quarter. EBITDA margin in the quarter increased to 19 per cent, 20 per cent excluding discontinuing operations. Changed accounting standard contributed 1.2 percentage points. /.../ Our current structure has considerable potential for growth and improved performance, also in the short term, but I’m not satisfied with the organic growth in the quarter. We know what to do and expect the increased business momentum we began to see towards the end of the second quarter to continue and strengthen during the rest of the year. We are well on track to reach our overall targets.
The Recipharm team has a long history in inhalation drug product development and manufacturing. This heritage, combined with market demand, made the launch of Recipharm Inhalation Solutions™ a logical step for us. Our team has the depth of knowledge required to overcome the challenges associated with developing and manufacturing these types of products. We also understand the hurdles on the path to commercialisation and are well placed to manage complexity and risk along this journey.
We are delighted to present the 2018 award to Bryan Brooks. His work, which explores the potential effects and risks of contaminants, including pharmaceuticals, on the environment is widely recognised in our industry and beyond. This research will help to build a greater understanding of the impact of certain contaminants on the environment and could potentially provide invaluable guidance on how to reduce any negative effects.
I am humbled and honored to receive this award from Recipharm, which I warmly accept on behalf of our current and former students. I am grateful for support from Baylor University, my long time collaborators Prof. Kevin Chambliss and Dr. Duane Huggett, and other close colleagues with whom we are engaging research on six continents. /.../ Our research examines interfaces among environment and health with a goal of understanding and managing challenges that affect us all, so we’re delighted to be acknowledged for our team’s contributions.
Recipharm is committed to the ongoing development of its sustainability standards. Achieving ISO 45001 at our first site demonstrates that we can perform to the highest standards when it comes to occupational health and safety. We now start the roll-out across our other facilities as we work towards ensuring we have state-of-the-art management systems in place to manage not only occupational health and safety, but also other areas such as the environmental impact.
I’m pleased with our achievements during 2018 and we are well positioned to explore further opportunities. Leverage ratios are good and will continue to improve during 2019, following improved profit and decreased capex. The temporary effects we saw during the fourth quarter will disappear during coming quarters and we expect to see a steady development going forward. Net sales grew by 20 per cent in 2018 and with current structure we expect to continue to show good growth in 2019, towards reaching our SEK 8 billion sales target by 2020. At 15.5 per cent in 2018 we didn’t quite reach our EBITDA-margin target of at least 16 per cent while for 2019 we expect to reach our target.
Recipharm has been very committed to meeting compliance deadlines, establishing a dedicated task force three years ago. A lot of time and effort has gone into our preparations so it’s rewarding to report that we are ready, especially ahead of the enforcement date. Standardising our serialisation capabilities has enabled us to provide a seamless and flexible service to our customers, across multiple markets.
We are thrilled to welcome Kieran to the Recipharm team to help drive sales and business development activity in North America. We are fully committed to achieving our goals there by offering first class development and manufacturing services. I am certain Kieran’s experience will be an asset to the team throughout that journey.
Recipharm’s knowledge and end-to-end offering means it can cater for customised and challenging projects, which will be a great asset in the North American market in the coming years. I’m delighted to be joining the team in its quest for growth and global expansion.
We have taken this decision as there is no likely prospect of the facility in Ashton-under-Lyne being able to deliver an acceptable return in the medium term. It has clearly been a difficult choice as any closure will affect approximately 140 of our employees who have demonstrated commitment and hard work to provide high quality products and services. It is our intention to ensure fair and respectful treatment to all throughout this process and redeploy people where possible within the Group in the event of closure. Such a change will enable us to focus our attention on the most competitive and efficient manufacturing facilities in our Group. At a strategic level, we continue to pursue our mission to develop and manufacture pharmaceuticals for demanding customers for global use. As such, our financial objectives remain unchanged.
The global ADHD market amounts to just over 10bn USD and there is strong demand for new solutions to help better manage this condition that affects a broad patient population. We are very proud to be able to work with OnDosis on such an important project and we believe that our excellent capabilities in drug formulation using coated pellets in Pessac, France, will be very valuable assets throughout the partnership.
ADHD is a disease area with a significant unmet medical need. It has been confirmed in dialogue with patients and healthcare professionals that ADHD is an area which can gain significant benefits from the new treatment regimen made possible by OnDosis technology. The decision to commence development of a formulation, which will be integrated with OnDosis technology, marks an important milestone for our company and we’re delighted to be working with Recipharm on this critical development work.
This is an important recognition of the scientific value of our molecule and it has been achieved thanks to the outcomes of the recent clinical studies which proved Erdosteine to be effective in the treatment of COPD patients. We are confident that Erdosteine is going to play an increasing role in the treatment of this pathology.
There are only personal financial reasons behind the decision to sell a small portion of my shares in Recipharm. I have no intention to sell any additional shares in the Company. The shareholding in Recipharm represents by far my largest investment. Recipharm is in a very strong position and I see many exciting opportunities to further develop. I look forward to leading the organisation on our continued successful journey.
In the third quarter of 2018, we increased net sales to SEK 1,421 million, with a currency-adjusted growth in continuing operations of 14 per cent, and improved EBITDA by SEK 48 million to SEK 151 million and EBITDA margin to 10.6 per cent (8.6). As usual the third quarter was strongly affected by maintenance and vacation shut-downs. Although this is the best third quarter ever for Recipharm, it does not mean that we have reached our full potential. Our expanded capacities, extensive technology range and global reach will drive further improvements going forward. /.../ We expect good contributions from recent important capacity expansion investments to continue over the next years. We also continue to see material contributions to group growth from our India based operations. In the short term we expect the good growth we have also seen in the Solids and Others segment to continue. Our objectives and strategies remain unchanged and we are working hard to reach our overall and long-term goals.
The decision to stay in Höganäs is a consequence of the increased demand for the technology and capacity we can offer. This has been somewhat unexpected, but we are of course pleased to see new customers entering in Höganäs and that we by this also are able to continue the services to existing customers. We expect to see volume growth already in 2019 and it will allow Recipharm to continue to offer an extensive and competitive manufacturing structure for powders and granules. I am also glad that our highly skilled workforce will have continued employment with Recipharm. They have shown a high level of commitment during this period.
Over recent years Recipharm has become known for leading the way in meeting the serialisation challenge. We are proud to have reached this milestone four months before the FMD deadline and anticipate that all our facilities will meet compliance by the end of the year. Recipharm is keen to aid companies in meeting compliance on time and ultimately help to create a safer global medicine supply.
Treatments for asthma and chronic obstructive pulmonary disease (COPD) are in high demand and are therefore key growth areas for our business. This new capability allows us to expand our offering to customers developing novel respiratory products by adding additional expertise and manufacturing capacity to Recipharm. We look forward to growing this side of our business and continuing to enhance our wider development services offering.
The process of connecting to the EU Hub should not be underestimated as it takes a lot of time and effort to complete. We began the connection process in October 2017 and the past 10 months have involved a series of contractual and technical on-boarding steps. This project milestone reaffirms Recipharm’s global leadership in serialisation and our commitment to meeting the compliance requirements well ahead of the February 2019 deadline. We will be using our knowledge to advise our customers on their own connections over the coming months in line with EMVO’s requirements.
TraceLink’s history integrating with the EU Hub dates back two years, with nearly 650,000 serial numbers submitted to the EU Hub by our customers since 2016. Today, while other solution providers are in the midst of conducting pilot tests, TraceLink customers are out front, already live in production with serialisation and officially approved to submit data to the EU Hub. Recipharm is a great example of an organisation that is taking a proactive approach to serialisation compliance and it was a pleasure to support the team with their connection to the EU Hub.
We are benefitting from our global reach and our competitive value proposition to customers. With our important investments and acquisitions we are taking leadership in selected markets. Our objectives and strategies remain unchanged. We will continue to build powerful, long lasting partnerships with strategically important customers, in addition to adding further technologies and differentiating businesses, based on customer needs.
This new offering is the latest phase in our company-wide serialisation project which was launched in 2016 following a EUR 40 million investment. In recent years, Recipharm has become known for taking a lead in the serialisation challenge. As the deadline gets closer we’re seeing more and more companies ask if we can provide an outsourced serialisation service that caters for the new requirements, even if the product itself is not manufactured within Recipharm it made sense to allow customers who were struggling with their existing provider to get access to our solution. Implementing these measures independently across packaging lines to ensure compliance is a relatively straightforward process when using offline equipment. Our experience of serialisation means we can ensure compliance quickly and efficiently for our customers.
We are very pleased to have reached this agreement with SERB as we believe they are far better placed to maximize the potential of ThyroSafe® by including it within their portfolio of emergency products. Many countries stockpile potassium iodide products to have as a preventive measure in case of sudden radiation exposure, but there are still many countries that have not taken sufficient action in this area. I am confident that SERB will be able to grow the volumes of the product. We are also delighted that we will continue to provide our expertise in the manufacture of ThyroSafe® in the long term.
Holmes Chapel brings Recipharm an ideal opportunity to accelerate its offering to customers with access to novel respiratory products. As an already successful CMO with several clients, we look forward to introducing new contracts to Holmes Chapel by utilising our growing franchise in development services. Treatments for asthma and chronic obstructive pulmonary disease (COPD) are growing at a fast rate and we see many opportunities. The experienced management team and staff have already successfully attracted new customers and we look forward to building on this from the well invested facility.
We are delighted that the Holmes Chapel site is being bought by a company who will further develop the site and its employees, and bring opportunities to utilise the existing technologies and capabilities.
Holmes Chapel brings Recipharm an ideal opportunity to accelerate its offering to customers with access to novel of respiratory products. As an already successful CMO with several clients, we look forward to introducing new contracts to Holmes Chapel by utilising our growing franchise in development services. Treatments for asthma and chronic obstructive pulmonary disease (COPD) are growing at a fast rate and we see many opportunities. The experienced management team and staff have already successfully attracted new customers and we look forward to building on this from the well invested facility.
Recipharm’s presence in both the UK and mainland Europe means we are well positioned to support our customers post-Brexit. We are also adept at streamlining processes across geographies and dealing with third party importations into Europe due to our global facilities. Brexit has the potential to bring about additional resource demands. We are focused on ensuring our team is equipped to handle the potential challenges so that our customers continue to receive the same level of service. We also expect to see a greater demand for outsourced manufacturing services from UK-based marketing authorisation holders (MAHs) wishing to supply to Europe and are preparing our team to meet this demand.
The partnership will support business growth in Israel, giving Recipharm access to the majority of the clinical trials taking place in the country. While the field of chemistry services is relatively new to this market, the growth potential is substantial, with more than 800 biotech companies in Israel and the number and size of these companies continuing to grow. By collaborating with one of the most prestigious hospitals in the region and its commercial arm, we believe this will support our goal to become the most trusted CDMO in the region.
Through the partnership we will be able to offer a full service for the synthesis and testing of compounds. Working with Recipharm, our team will gain professional input regarding the compounds that Hadassah researchers and Hadasit companies are developing, including synthesis and medicinal chemistry challenges. We are looking forward to a mutually beneficial long-term partnership which will ultimately help both companies to grow and support the pharmaceutical industry in Israel.
We see solid growth and performance in our ongoing manufacturing and development business, while we are just beginning to deliver from major expansion investments. Sales for the quarter was an all-time high and first time ever over SEK 1.5 billion. Growth in continuing operations, adjusted for currency translation effects and acquisitions was about 10 per cent. All segments report organic growth and improved EBITDA-margin. EBITDA was the highest ever for a quarter and SEK 90 million higher than any previous first quarters. EBITDA-margin for the group increased to 16.5 per cent. /.../ The markets we operate in remain challenging, but I am convinced that we will benefit from the global reach and our competitive value proposition to customers. With our important investments we are taking leadership in selected markets and we will explore opportunities to add further technologies and differentiating businesses to our customer offering. There are tremendous opportunities in our global structure and we are determined to explore these.
We’re delighted to have again been rewarded for our efforts as part of the CMO Leaderships Awards. These awards in particular allow us to gain an uncensored insight into how our customers feel we’re performing so it’s great to be recognised year on year. At Recipharm, we’re dedicated to offering not only quality development and manufacturing services, but also ensuring our customers benefit from our expertise and wide-ranging capabilities, so to be recognised in all six categories this year is a fantastic achievement for us.
Recipharm has only owned the facility for two years and during that time have taken some very fast and positive decisions to invest in Kaysersberg. We have worked hard to develop a flexible service that can cater for even the most complex of projects. Adding the line to our facility will allow us to take on new customer projects more quickly, as well as continue to meet our current customers’ requirements. The additional space we’ve added also means we are also well positioned for further growth in line with future customer demand.
We are delighted to present the 2017 award to Karen Kidd. Her work, which explores the potential effects and risks of contaminants on fish and whole ecosystems, is truly impressive. This research will no doubt be essential in building commitment towards environmental matters and provides valuable guidance for future actions in order to decrease or avoid the negative effects of chemical contamination.
The combination of amazing research facilities like the IISD Experimental Lakes Area, considerable support from the federal government and private sector, and an outstanding group of collaborators have enabled us to advance the knowledge on how widely-used chemicals, including pharmaceuticals, are impacting the health and sustainability of aquatic systems. My experiences have absolutely reinforced the idea that collectively we can accomplish so much more towards solving pressing environmental issues and minimizing our impacts on water quality and aquatic ecosystems. I am very honoured to receive this award and thank Recipharm for the recognition of our research.
This collaboration is an exciting step for Recipharm, enabling us to bring innovative drug delivery technologies to our customers and ultimately develop novel, safer and cost effective new products. We look forward to working with Altus to increase the use of its technologies in Europe.
We are delighted to enter into this agreement and look forward to co-developing a range of patent protected, label differentiated new products with Recipharm and its customers.
During his time with Recipharm, Henrik has, amongst other things, further developed the Group’s financing as well as finance function, in terms of both its organization and competence. We are highly grateful for his contribution and wish him all the best for the future.
We had a positive finish of the year, a year characterized by solid underlying demand but also delays in important projects and other issues. /.../ Our expansion projects will start to deliver towards the end of the first quarter and we will see a gradual ramp-up during the next 4-6 quarters. As projects finish we will see less capex and supported by increased profit, leverage will gradually decrease. Ending operations in the two Swedish facilities is painful. However, with the addition of a modern well invested facility in Spain and competitive operations in India we will get a streamlined and efficient structure, well suited to support our demanding customers’ needs globally. I am confident that we will reach our SEK 8 billion sales target by 2020 and have an EBITDA-margin target of at least 16 per cent.
I am delighted to announce the appointment of Bernard Pluta as President, Development Services. Bernard has managed our operations in Pessac with great success. His industry expertise and solid business competence will play a key role in transforming our development services and ensuring a seamless end to end offering. By providing a wide range of development services we are well positioned to manage challenging projects and complexity on behalf of our customers.
I have been particularly pleased with the way the performance in Nitin Lifesciences has developed since it became part of the Recipharm Group. Both sales and margins have grown in the business despite the recent macro-economic volatility in India and we foresee this favorable development to continue. The transaction will allow us to combine and better exploit operational synergies with our other Indian business. The equity investment will align interests of the Sobti family. As such, I have great pleasure in announcing that current chief executives and members of the founding family Dr Chetan Sobti and Mr Nitin Sobti shall not only continue to spearhead the current business but also in addition take on the responsibility to develop and grow Recipharm’s total business in the Indian and emerging markets.
We are continuing to gain momentum in the CDMO market and this latest agreement is another demonstration of this. I welcome our new colleagues in Spain and look forward to providing Roche with first-class CDMO services.
I am honoured that Recipharm has been acknowledged for our decade-long commitment to France. We have been very pleased with the development of our business there and I would like to thank the Swedish Chamber of Commerce in France for recognising this.
We’ve taken a very proactive approach to tackling serialisation as we understand the critical role that contract manufacturers must play in ensuring continuous supply of vital medicines in key markets. In addition to equipping nine of our sites ahead of the EU deadline and the new US enforcement date, we’ve also introduced a serialisation task force to ensure a consistent roll out of our standard solution across all of our facilities.
We continue to work hard to deliver on our strategies and to meet our targets. We invest heavily to take leadership in markets where demand is expected to be high. We perform optimisation and improvements of our structure in order to increase profitability and offer our customers attractive solutions. We receive positive feedback from our customers both in terms of our long-term strategy and of our current work. We see good opportunities to initiate and deepen important long-term relations with key customers. I therefore feel confident that we will reach our overall financial targets and be a leading global CDMO.
The intended changes will enable us to serve our customers with best in class service and value. We will see immediate efficiency improvements from this change and in the long term, it will allow Recipharm to offer a more competitive manufacturing structure for oral solids. While this is a strategic choice made to optimize our manufacturing, it is a difficult decision as the closure affects approximately 225 of our Swedish employees, who have demonstrated commitment and hard work to provide high quality products and services. It is of course our intention to ensure fair and respectful treatment to all throughout this process. Moving forward, the planned changes will enable us to focus our attention on the most competitive and efficient manufacturing facilities in our group. At a strategic level, we continue to pursue our mission to develop and manufacture pharmaceuticals for demanding customers for global use. As such, our financial objectives remain unchanged.
Recipharm recognised the complexity of implementing serialisation at a very early stage and so we’ve been preparing for the new regulations in the US and Europe for a long time now. The Lisbon facility brings us to over a third of the way through our implementation project and is an important milestone in our journey.
We are continuing to gain momentum in the CDMO market through our various profitable growth initiatives. I am therefore delighted to announce this long-term agreement with Roche. It has become clear during our interactions with Roche that we are closely aligned in our ways of doing business, and we look forward to developing this relationship further by providing high-quality, reliable supplies from Leganés in future. In addition, we see a highly interesting business development opportunity to add new customers.
We are happy to be able to contribute to the development of a new drug with the potential to be of great medical value. We have extensive experience in developing drugs for clinical trials as well as commercial manufacture and this will be very valuable in the collaboration with Kancera.
The decision to commence development of capsules for an active dosage of KAND567 shows that Kancera has reached an important milestone in the Fractalkine project. We are delighted to now be collaborating with Recipharm to produce the pharmaceutical product that will be used to study how KAND567 can help patients.
Our customers often face problems in terms of meeting timelines, adhering to changing regulations and managing trial complexity and it is our job to guide them through the process. Quite simply, Recipharm’s Pathway to Clinic™ service means we take responsibility for the full phase I programme, from formulation to clinical trial implementation with patients. Managing the different aspects of phase I, while reducing risk, time and cost, requires a clear roadmap and close collaboration between the different disciplines. Through partnering with CTC, we have complete control over all the links in the chain so can adjust at each step to avoid delays, meet deadlines and build value for our customers.