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Edited Transcript of FAGR.BR earnings conference call or presentation 5-Aug-19 7:30am GMT

Q2 2019 Fagron NV Earnings Call

Waregem Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Fagron NV earnings conference call or presentation Monday, August 5, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Karin de Jong

Fagron NV - CFO & Executive Director

* Rafael Padilla

Fagron NV - CEO & Director

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Conference Call Participants

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* Anastasia Karpova

Kempen & Co. N.V., Research Division - Research Analyst

* Dylan van Haaften

NIBC Bank N.V. (ESN), Research Division - Former Research Analyst

* Eric Wilmer

ABN AMRO Bank N.V., Research Division - Analyst

* Frank Claassen

Banque Degroof Petercam S.A., Research Division - Analyst

* Lenny Van Steenhuyse

KBC Securities NV, Research Division - Financial Analyst

* Matthias Maenhaut

Kepler Cheuvreux, Research Division - Senior Equity Research Analyst

* Stijn Demeester

ING Groep N.V., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the 2019 semiannual results of Fagron conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Rafael Padilla, CEO. Please go ahead.

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Rafael Padilla, Fagron NV - CEO & Director [2]

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Thank you very much, operator. Welcome. Thank you all for joining the conference call for the first semester of 2019 results of Fagron.

My name is Rafael Padilla, Chief Executive Officer of Fagron. With me here today are Karin de Jong, Chief Financial Officer; and Constantijn Rietschoten, Chief Communications Officer.

Good morning, Karin and Constantijn.

We will elaborate on the results and developments of the first semester, after which, we open the floor for questions.

We are very pleased with the results recorded in the first semester of 2019. We saw good turnover growth of 10.6% on the back of the excellent performance in North America and the solid turnover development in Latin America.

EBITDA in the first semester came in at EUR 54.2 million, an increase of 13.8%. The net profit from continuing operations grew by 44.4% to EUR 26.8 million. It is not only the results that we are pleased about. There were also a number of notable developments in this first semester. We solved legacy issues and we further invested in the strength and capabilities of our company. We will start with our buy-and-build strategy, which we pursued successfully and disciplined. We did a number of acquisitions in Latin America as well as in Europe. Firstly, we already announced acquisition of Cedrosa, ensuring a robust entrance in the Mexican market. This Mexican market for personalized medicine, still being in its infancy, represents a very promising opportunity for Fagron. Furthermore, in Brazil, we enforced our market leadership with the acquisitions of Levviale, Orthofarma Laboratories and Apace.

The unique position of Levviale in excipients and brands is highly complementary to our existing activities and further strengths our portfolio in the attractive branded business. Orthofarma Laboratories, with its proven combination of deep pharmaceutical compound experience and a continuous focus on innovation, is an excellent strategic fit for further expanding our R&D capabilities worldwide.

With the acquisition of Apace, a developer and supplier of packaging materials to compounding pharmacies and pharmaceutical industry in Brazil, we complement our already comprehensive range of raw materials, equipment and brands for compounding.

The 3 Brazilian companies represent an annual turnover of EUR 9.9 million with an EBITDA margin of around 7.4%.

In Europe. We acquired Dr. Kulich Pharma, a supplier of pharmaceutical raw materials, creams, ointments and packaging materials to compounding pharmacies. Dr. Kulich, with an annual turnover of EUR 5.1 million and an EBITDA margin of 17.8% is #2 in the Czech Republic and we expect significant operational synergies from this acquisition.

These acquisitions, and the continuous investments in the organization, strengthened our foundation for further growth.

We also started the construction of our new 5,000 square meter GMP repackaging facility in Poland. The new facility will replace the current Polish one and is also an important step in the process to more centralize the repackaging of raw materials in Europe. The total investment currently estimated at EUR 8 million is expected to bring a structural annual marketing improvement of EUR 2 million starting in 2021. This facility is expected to be operational in the second semester of 2020.

Also in Europe, we were able to start up our sterile compounding facility in the Netherlands again in the second quarter of 2019. The facility was audited and GMP certified by the Dutch Health and Youth Inspectorate in June.

In the first semester, we also announced that we reached an agreement in principle with the U.S. Department of Justice regarding the civil investigation into certain U.S. subsidiaries. We are pleased with the progression in the discussions with the U.S. Department of Justice, bringing us close to leaving these legacy issues behind us. This anticipated settlement would limit uncertainty as well as further legal investigation cost. We expect this settlement will be formalized this year.

And very recently, last Friday, we entered into a new credit facility of EUR 375 million, not only an improved terms, the facility is also called Sustainability Linked Loan. This means that the interest rate is dependent on the Fagron achieving its sustainability goals of reducing greenhouse gas emissions by 30% in 2026. This new sustainability credit facility is an important element of our sustainability strategy that we take very seriously.

Based on the results achieved and developments that we just explained, we are convinced that we are well positioned to fully benefit from substantial growth opportunities in the markets for personalized medicine. And more in the short term, we are confident that we will realize a nice increase of turnover and profitability in the second semester of 2019 compared to 2018.

This concludes our introduction. Now time for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question today from Matthias Maenhaut from Kepler Cheuvreux.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [2]

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Yes. Matthias Maenhaut, Kepler Cheuvreux. First question is actually on the guidance, and so you guide for growth both in turnover and profitability. But could you be a little bit more specific? We have seen organic growth slowing slightly in the second quarter of 2019. What should we expect in terms of the second half? Do you see a reacceleration of organic growth? And what is going to be the key drivers, and maybe also on the margin? And there has been an 80 basis points margin erosion in the first half. So what should we expect in terms of margin erosion for the second half? That's my first question.

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Rafael Padilla, Fagron NV - CEO & Director [3]

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Thank you, Matthias. As we reiterated, we gave guidance on the turnover and growth. We are very confident on the second semester. Regarding the turnover, we will see nice developments. And regarding the profitability, of course, as you have seen in the U.S, we will also see nice developments there. So we're very confident with a lot of confidence, again, that the second semester will see a nice development on both turnover and EBITDA.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [4]

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All right. I have 2 more, so I will ask them one by one. On Wichita. You state that you will introduce 36 SKUs in the second half. Can you maybe give us a little bit more color or flavor on what is -- what kind of addressable market that represents? And is it actually correct to assume that there has been actually limited product introductions in the first half? So how does that compare? And what do we expect to see also there? The growth slowing? Can you maybe -- you stated there has been a lot of automation and there has been a lot of investments in automation and a lot of audits, I would say. Could you maybe quantify on which magnitude that impacted the growth in the second quarter?

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Rafael Padilla, Fagron NV - CEO & Director [5]

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Yes. As you just said, in the first semester, we invested a lot in quality and automation. Of course, we also saw nice quarter-on-quarter growth. So we could be able to manage both things. There is a nice video made by the team so you can all see these developments. Of course, we're launching 35 new products. The market that we're addressing is the same so is the outsourced [factory B] market that we are addressing. And we expect nice developments because, of course, when we're launching these 35 new products and of course, with new contracts in the pipeline, we see -- we foresee nice growth developments in Wichita, for sure.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [6]

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And maybe just a followup. How many products were launched the first half?

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Rafael Padilla, Fagron NV - CEO & Director [7]

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In the first half, we were launching approximately from 8 to 10 products regarding the SKUs, right? So 8 based SKUs -- products, sorry, with 10 different SKUs, so that's what we launched. And of course, in the second semester, 35, as we said before. So we are very confident about Wichita and the nice work made by the team for sure.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [8]

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Can you still see the USD 100 million? You still see that as achievable at this point in time?

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Rafael Padilla, Fagron NV - CEO & Director [9]

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For sure. For sure.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [10]

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Okay. Then maybe one last question is on Humco. I noticed that from the cash outflow from acquisitions that it seems that the earn-out for the Humco acquisition was not paid.

Can you give a little bit more color on what has been the driver, what has been the performance of Humco, and how that earn-out was structured with that -- if you hit the target, then you pay, and if you don't hit the target, you don't pay? Or was it more gradual? Can you just elaborate on those 2 points? So the performance of Humco and why the earn-out was not paid, and how it's actually structured?

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Karin de Jong, Fagron NV - CFO & Executive Director [11]

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Yes. So thank you, Matthias, for the question. Regarding Humco, we are very positive on the developments of all our activities in the U.S. and the collaboration between Humco and the other Brands and Essentials companies is going very well, and we see a lot of future potential. Humco reported strong turnover growth in the second quarter of 2019. And when we look at the earn-out, as you know, the former owners of Humco had the potential for performance-linked earn-out get at USD 22.5 million and the earn-out will be paid when certain EBITDA-related milestones were achieved, and they were basically formed on the years 2018 and 2019, and 2019 and 2020. And as indicated earlier, the earn-out milestone for the first year was very challenging and was not achieved by Humco. So there was no earn-out paid.

However, we do see the potential for good results in the second earn-out period, so that's 2019, 2020. And when they achieve that EBITDA milestone, they can still earn full earn-out of $22.5 million. So we're very positive and we see the -- a good development at Humco. They didn't reach the first ambitious EBITDA targets, but we're positive that they can reach the second one.

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Operator [12]

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Our next question today comes from Frank Claassen from Degroof Petercam.

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Frank Claassen, Banque Degroof Petercam S.A., Research Division - Analyst [13]

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Frank Claassen from Degroof Petercam. 3 questions also on Wichita. I remember with Q1 that there was also a supplier issue with one of your SKUs. Was that also impacting the growth rate in the second quarter? And secondly, on Europe. I also remember from the call that you were still confident to reach, let's say, at least the same organic growth level in Europe as in the -- in '18, so the 2.7%. Do you still feel comfortable on that? And what are the main drivers? And then finally, I saw that the gross margin declined 40 bps. What are the main drivers behind this decline? And don't you expect and uplift especially from the more own brands in the mix?

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Rafael Padilla, Fagron NV - CEO & Director [14]

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Thank you, Frank. Regarding Wichita, as you said, we had an issue with the delivery of one of our first 3 products in our portfolio. That is soft, and we started in the market again during the second quarter. But that's totally solved. Second, on the European business, we confirm that we will have a nice growth and that is, as we said, regarding the last year growth, we are going to confirm this again, so we are very confident.

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Karin de Jong, Fagron NV - CFO & Executive Director [15]

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And then finally related to the gross margin. When you look at the different regions, we see Brazil impacting slightly our gross margin, and it has to do with the fair, which last year was in June, this year, it's in July. So we see our Essentials sales doing really good, but we see a delay in sales for branded products, which we are going to sell -- we sold in July during one of the biggest compounding fairs in Brazil. So that impacted slightly our margin, and also the Dutch situation regarding the facility, the temporary reduction of products there going to market impacted also slightly our margins. So those are the 2 main reasons for the margin going slightly down.

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Operator [16]

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Our next question today comes from Lenny Van Steenhuyse from KBC Securities.

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Lenny Van Steenhuyse, KBC Securities NV, Research Division - Financial Analyst [17]

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On the acquisitions in Brazil. These are businesses now with significantly lower margins than you have at this point. I was wondering what the goals are for these acquisitions, margin-wise. And what time frame that you believe these to be achievable? That's my first question. Perhaps also, you could elaborate a bit on the products offering from Levviale and how exactly this complements what you already have in-house? And then as a last question, I was wondering about the contribution of Fagron Genomics in Europe, and how do you see that ramp-up going forward, as it was quite strong up to now?

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Rafael Padilla, Fagron NV - CEO & Director [18]

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Thank you, Lenny. So regarding M&A in Brazil, and this is also what we experienced in the last 9 years, we see that in 2 to 3 years, we can bring these companies up at an average REBITDA margin, so we are very confident, of course. Now we have practiced a lot. So we hope that it's more 2 than 3, right? So we will see that developments there. Regarding Levviale. That's a very good question because Levviale has a nice product range. Levviale is a company that is focused on the development of excipients and very high quality added excipients. And we have already started investigating whether we can start selling them in the U.S. So that's very promising, we would say. And of course, when we open a range for the APIs, right, for the Essentials at the Levviale range, they have very nice sales team. So we expect a lot from Levviale. Regarding Genomics. That's true, we had a very strong second quarter. We see that we have now 1 product in market, Tricho, and we have 2 products in the pipeline that we'll be launching in September. That is the [nutrigene] and the TELOTEST as we were discussing in the last meeting. So we see a strong traction. And of course, more important than that is that genomics is a very big driver for our branded business, right? So what we see is that one genomic test result generates 4 prescriptions of our branded products, and we see traction also there. So we're very happy with both Levviale and Genomics for sure.

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Operator [19]

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Our next question today comes from Anastasia Karpova from Kempen.

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Anastasia Karpova, Kempen & Co. N.V., Research Division - Research Analyst [20]

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I have a couple of questions. What would be the margin for the U.S. operation if you remove the API shortage or the shortage of specific product that impacted the top line? And regarding the new acquisitions. I understand it's a mix, but on a margin level, it seems slightly more expensive than you did in the past, at least multiple-wise. I was wondering, there is more competition for such kind of asset? Or it's a shortage of assets? Or you're just moving to maybe more expensive line of the acquisition?

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Rafael Padilla, Fagron NV - CEO & Director [21]

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Okay. Thank you, Anastasia. Regarding the first question on the margin. Of course, we have seen now that we are back on this product, in this product with the shortage of the raw material. The top line sales, so the sales line at the last of the second quarter increasing. So that's good. It has a direct impact on the whole P&L. For us, quantifying that now is not -- but we will see nice developments, of course, in the second semester as this product comes back for sure.

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Karin de Jong, Fagron NV - CFO & Executive Director [22]

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Yes. And regarding your -- oh, sorry.

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Anastasia Karpova, Kempen & Co. N.V., Research Division - Research Analyst [23]

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Sorry, but barring this shortage, would the margin in H1 would be higher than H2 last year?

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Rafael Padilla, Fagron NV - CEO & Director [24]

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Bearing in mind, again, we have seen good development there on the full P&L. Of course, when we take into account all the actions and activities that we have been taken, we see that good developments will occur and we are totally on track also with the FDA development in Wichita for sure.

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Karin de Jong, Fagron NV - CFO & Executive Director [25]

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Yes. And then regarding the second one, Anastasia, on the multiples. I think if you look at the acquisitions we did in the first semester, starting with the one in Mexico and a big one for Fagron. I think it was, again, attractive multiples of a little over 5. And acquisitions we now have done are around 6, which we believe is a fair value for those companies if we see the added value and the potential we can have for those acquisitions.

So we believe that we paid an attractive price for those, seeing the synergies and the potentials those companies offer for Fagron. So for instance, the Brazilian ones, we acquired Orthofarma, which brings us a lot of new products, innovative ideas, which we can leverage throughout Brazil. So that's the reason why we are willing to pay a little bit extra, but we do see that potential going forward, for the entire Brazilian market.

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Operator [26]

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Our next question comes from Stijn Demeester from ING.

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [27]

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I have a number of -- a number. I will ask them one by one. So the first one is on Wichita. So in the beginning of the year, if I'm right, you targeted 115 to 130 SKUs by mid-year. You're now at 80, targeting 115 by the end of the year.

So could you talk about what has changed in the first half that you have adjusted this SKU target? And how should we see the impact on sort of the sales development toward the targets going further? So that's my first question.

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Rafael Padilla, Fagron NV - CEO & Director [28]

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Yes. Sure, Stijn. Regarding the SKU at SSS U.S., we are on track. So we'll end up the year approximately with 115 or 120 SKUs, and this has of course, fraction on the sales, right?

So we expect nice launches during the second semester. And of course, we will see the developments on the top line there. So we are totally on track regarding the new SKUs, of course.

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [29]

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Sure. But what was the reason to adjust this target from mid-year to the end of the year?

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Rafael Padilla, Fagron NV - CEO & Director [30]

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Well again, when you have a total portfolio pipeline in this segment, this sterile segment where you're doing stability studies, product design development in-sources of the laboratory because we are doing the laboratory test in-house, we have a range.

We have given a range. Of course, this is very ambitious. But again, we keep saying 115, it's the target. It's also how the teams are working on. So that's what we are aiming. And we see, of course, the traction in the sales. So very positive.

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [31]

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Sure. But there hasn't been anything that happened in the first half that made you adjust the target?

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Rafael Padilla, Fagron NV - CEO & Director [32]

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No. Sure, not. Sure, not.

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [33]

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So second one on Wichita, a clarification. So in the first half, I remember the impact of the supplier issue was around EUR 300,000 sales per month.

Did you have this impact for the full second quarter? So EUR 300,000 per month to around EUR 0.9 million?

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Karin de Jong, Fagron NV - CFO & Executive Director [34]

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No. It's only for a part of the second quarter. So not the entire second quarter.

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [35]

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Okay. Then on the acquisitions. Have there been any contribution of the Brazilian acquisitions in the first half in your numbers? Because the Czech acquisition was closed in July, but you don't mention anything on the Brazilian acquisition.

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Karin de Jong, Fagron NV - CFO & Executive Director [36]

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There's a small contribution of EUR 1.3 million in the first 6 months of 2019 for the Brazilian ones. So those are -- the Mexican one will be consolidated as the 1st of July, so there's no impact of that one. Same is for the one in the Czech Republic. This recently closed and will be consolidated as of the 1st of August.

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [37]

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The EUR 1.3 million in sales in the first half in Brazil?

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Karin de Jong, Fagron NV - CFO & Executive Director [38]

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Yes. Correct.

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [39]

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Okay. All right. Could you split out the consideration between the Brazilian acquisitions and the Czech acquisition?

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Karin de Jong, Fagron NV - CFO & Executive Director [40]

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You mean in price?

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [41]

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Yes.

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Karin de Jong, Fagron NV - CFO & Executive Director [42]

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Yes, I can. So for the one in Czech Republic, we pay EUR 5.5 million, which will be paid in the second semester and the rest is for the Brazilian ones, in which we only pay the small amount in the first semester and the main part will be paid in the second semester.

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [43]

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Okay, understood. Last one is on PharMEDium. They recently announced that -- the owner has recently announced that they are evaluating all strategic options for the 2 remaining compounding facilities. What is your view on that situation? And could you be tempted to have a look at the file?

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Rafael Padilla, Fagron NV - CEO & Director [44]

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No. We don't make comments on -- in this one, right? So...

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Stijn Demeester, ING Groep N.V., Research Division - Research Analyst [45]

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So no comment also in the market impact of their ongoing issues?

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Rafael Padilla, Fagron NV - CEO & Director [46]

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No. No comments.

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Operator [47]

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Our next question is from Dylan Van Haaften from NIBC.

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Dylan van Haaften, NIBC Bank N.V. (ESN), Research Division - Former Research Analyst [48]

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Most have been answered so I guess I just have one. Could you help me sort of understand what significant means in terms of context of the Consulfarma phasing? Does that mean you incrementally expect higher growth towards the second half? Or -- yes, if you'd just help me flesh that out.

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Rafael Padilla, Fagron NV - CEO & Director [49]

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Sure, Dylan. So regarding, Consulfarma. Consulfarma is a fair -- it's a compounding fair in Brazil. And it's a fair where we are -- we and also the whole market are showing launches and developments but also a lot of business is being done. So you take the orders there in the booth. Normally it's in the month of July. Last year, it was in the month of June because of the World Cup, and Brazilians like their football a lot. So it had -- it was done in the month of June. And this year, it has been done in the first week of July, and it's a fair where all the teams are preparing during the whole year -- are being prepared for this event. And we saw very nice developments in our business during this first week of July, it's because of the Consulfarma. There is a video also there. It's a very nice, detailed video with all the companies and all the brands that we have in Brazil that gives you an overview of the business there. So we were very much satisfied in the month of July.

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Dylan van Haaften, NIBC Bank N.V. (ESN), Research Division - Former Research Analyst [50]

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Is there anything more explicit you could say in terms of sort of relevant growth? Or is that all you can tell us?

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Karin de Jong, Fagron NV - CFO & Executive Director [51]

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We do expect, of course, to see impact of that in -- we see it already in the July numbers. And we saw the impact in our first semester numbers, if you look at the sales contribution for Brazil in the second quarter. So we do expect the positive impact in the second semester for Brazil. But further than that, we cannot quantify.

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Operator [52]

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Our next question comes from Eric Wilmer from ABN AMRO.

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Eric Wilmer, ABN AMRO Bank N.V., Research Division - Analyst [53]

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Two questions. It seems that in absolute terms, sales in Europe were down by EUR 2 million year-on-year for the Essentials business. What was the main cause for the decrease? And the second question, your CapEx seems to be more front-end loaded compared to last year. What are the key elements there?

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Karin de Jong, Fagron NV - CFO & Executive Director [54]

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So maybe to start with the second question on the CapEx. So if you look at the CapEx, we already started with the new Polish facility, and you will see that reflecting in our CapEx number for the first semester. So there's already around EUR 2.5 million of that falling in the CapEx for the first semester. That's the reason that it's a bit higher than normal. So we do expect to have 3% to 3.5% of sales on CapEx. But the Polish -- the contribution of the Polish company, that's basically the reason why it's a bit higher for the first semester. The first question, can you repeat for...

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Eric Wilmer, ABN AMRO Bank N.V., Research Division - Analyst [55]

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Yes. So In absolute terms, it seems that sales in Europe for the Essentials business, they were down by some EUR 2 million year-on-year. So basically, if you look at your presentation and if you look at the differences between last year and this year's first half, you present a pie chart with the percentages and if you calculate it, you see that the Essentials sales seems to be down by some EUR 2 million.

I'm just wondering what would be the reason behind this.

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Karin de Jong, Fagron NV - CFO & Executive Director [56]

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Yes. We see basically a timing impact. We see a lot of sales in the brands. We invest in that. We see a bit less of Essentials falling through, so -- but that's not a structural reason for that.

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Operator [57]

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We have a follow-up question now from Anastasia Karpova from Kempen.

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Anastasia Karpova, Kempen & Co. N.V., Research Division - Research Analyst [58]

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Just a quick follow-up more in a broad colors regarding the U.S. compounding market, and specifically outsourcing.

Do you see any trends with hospital in-sourcing more of the compounding within their own facilities to avoid all the issues that clogged the industry? For example, for medium manufacturing issues and things like that? So can you elaborate a little bit more how do you see the outsourcing trend developing, especially in the last 18 months?

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Rafael Padilla, Fagron NV - CEO & Director [59]

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Yes. Thanks, Anastasia. We see it as the trend is outsourcing. We see new hospitals and new IDNs coming by, as we said, with a nice pipeline. We also ask around, of course, in the industry, and we see also other of these growing out on top line sales. So the trend is to outsource rather than in-source, and this is the reason that these investments that the hospitals and hospital's groups need to make in order to make these sterile products. So we see it the other way around and that's, of course, very, very positive for us.

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Operator [60]

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(Operator Instructions) We'll take a follow-up question now from Matthias Maenhaut from Kepler Cheuvreux.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [61]

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Two follow-ups from mine, actually. On the acquisitions announced today, could you maybe elaborate a little bit on the historical growth profile of those businesses? Maybe talking about the Czech Republic and then the 3 Brazilian ones combined?

Can you also state if management stays onboard? And then a second question was actually on the financing. You mentioned improved terms. Can you give us a little bit more color on what that actually implies, those improved terms?

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Rafael Padilla, Fagron NV - CEO & Director [62]

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Thank you, Matthias. Regarding the acquisitions, we see first in Europe and the Czech Republic, the historical growth profiles are in average of our business there. So the Czech compounding market is quite attractive. Of course, it is not as significant as other markets in Europe, but we see a lot of potential, nice sales growth figures. And the management, of course, stay onboard. We're going to have a multi-branded strategy also in the Czech Republic and we're going to leverage operational synergies there.

Regarding Brazil, the 3 acquisitions there, those acquisitions are also growing as we're growing, the same average rates that we have seen in the past. And of course, management is staying, right? So -- and as we were saying before with Orthofarma, that's has -- that is very important for us as our R&D capabilities will boost significantly.

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Karin de Jong, Fagron NV - CFO & Executive Director [63]

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And then in the final question on the financing, Matthias. So indeed, we have a new facility, which is a sustainable loan facility, which has additional conditions with regard to some sustainability targets we set. And then if we reach those targets, then we get an additional discounts on all pricing. If you look in -- on pricing in general, I think with the former financing facility we had, we already have very nice pricing. We improved a little bit. But on the actual pricing grids, I cannot give you any information. So we will see a decrease in interest. But seeing that the former financing already was really good, it will be a slight improvement.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [64]

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May I have one follow-up on the financial results? The minus EUR 7 million, how much of that is interest expenses?

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Karin de Jong, Fagron NV - CFO & Executive Director [65]

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I think we pay on average the former, it's around 3% of our average financing, and that's basically the financial interest in the finance cost you see on that line.

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Operator [66]

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It appears that there are no further questions at this time. Mr. Padilla, I'd like to turn the conference back to you for any additional or closing remarks.

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Rafael Padilla, Fagron NV - CEO & Director [67]

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Thank you, operator. Again, thank you all, again, for your interest in Fagron and we wish you a nice day. Thank you very much.

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Operator [68]

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Thank you. That would conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.