January - March
Net sales amounted to MSEK 793.6 (420.8). This corresponds to an increase of 89% for the period. The organic growth during the first quarter was 27%, currency impact -1% and 63% relates to the acquisition of Trimb in 2019 and the product portfolio acquired from Leo Pharma (see below).
EBIT amounted to MSEK 104.1 (87.4) corresponding to a 19% growth.
Adjusted EBITDA* amounted to MSEK 213.2 (153.0) corresponding to a 39% growth. This excluding non-recurring, costs related to the acquisition of the Leo Pharma portfolio totalling MSEK 3.9 (0.0).
The gross margin was 53.9% (55.8%) for the period. The margin for the period was negatively affected by a change in product mix coming from the Trimb acquisition.
Cash flow from operating activities amounted to MSEK -9.8 (91.8). The negative cash flow has been affected by a fast growth of working capital, primarily trade receivables after an exceptional level of sales in March.
Earnings per share was SEK 0.39 (0.25) before and after dilution.
During the period, a product portfolio was acquired from Leo Pharma with all related rights and assets. The transaction closed on March 2, 2020.
At the end of the period, cash and cash equivalents and other current investments amounted to MSEK 277.7 (248.8 at December 31, 2019) and net debt to MSEK 5 029.
* Alternative Financial Ratios (APM), note 4 for further information.
Comments by CEO Christoffer Lorenzen
During Q1 Karo Pharma realized growth of 89%, primarily driven by the acquisition of Trimb, which was completed in September 2019. Additionally, Karo Pharma generated organic growth of 27%, which was positively impacted by the COVID-19 crisis driving increased sales from selected Karo Pharma products during the period, notably within the Pain, Cough & Cold, Dermatology and Rx Pharma categories. There has been large variation in performance across markets and categories. For example, the Pain, Cough & Cold category grew by 77% in Q1 whereas the Footcare category contracted by 9%.
Our view is that the strong sales growth reflects a modest increase in actual market demand and consumption, while the main driver was build-up of inventories across wholesalers, pharmacies, and private homes. We expect that this one-off effect partially will be reversed in the remaining three quarters of the year, notably in Q2.
Karo Pharma’s business model has proven robust and resilient in a difficult market environment. Supply performance from our CMO partners has been reliable considering the circumstances and our relationships with channel partners and commercial partners have helped us to respond effectively to volatile market conditions. However, uncertainties and risks are elevated, and we are yet to experience and evaluate the long-term impacts of economic slowdown and negative GPD growth on spending and general consumption patterns. We are monitoring the markets continuously and have developed a response plan, with relevant cost and risk reduction measures, which are being executed and will be further escalated should we see a slow-down in business activity.
In parallel we are continuing to develop the business and are continuing to execute in accordance with our long-term strategy and vision for the business. The integration of the Trimb transaction is progressing and we have launched a common purpose ‘smart choices for everyday healthcare’ as well as shared values for the new Karo. We are also continuing our work to integrate systems and processes and create a scalable business platform.
We have also been active in new business development and expansion and are executing on repatriations in Germany, Austria and the UK. We closed the acquisition of a portfolio of products from Leo Pharma in Q1, which will strengthen our position in the intimate care and dermatology spaces and improve our geographical footprint. We also acquired our Swiss distribution partner, Hygis SA, in order to serve the Swiss market directly.
Our continued investments into the business and its development translate into higher operating expenditures and increases in net working capital, which impact EBITDA margins and cash flow for the quarter and thereby the cash balance. The increased investments support our growth agenda and are required to build a scalable and efficient pan-European platform.
Significant events after period end
April 1, 2020 Karo Pharma acquired Hygis SA, a Swiss distributing company with exclusive distribution rights to Karo’s brands MultiGyn® and MultiMam®. Hygis’ operations are limited to the distribution of these brands and the acquisition gives Karo Pharma control over the direct sales of these brands. Karo Pharma expects to reach annual net sales related to the two brands of MEUR 1.3 in Switzerland. Additionally, we see potentials to capture synergies related to other brands currently sold in the Swiss market.