Virbac : Sep 19 - 2016 half year results

Monday, September 19, 2016

Public release

Net revenue in the first-half recorded an overall change of -0.5%, negatively impacted by the unfavorable evolution of exchange rates; at constant exchange rates, the growth is +3.6%, of which +3.5% organic. The growth is driven by a good performance of all geographies, except Chile benefiting from the ramp-up of the new parasiticides products for companion animals, recently launched in Europe, the good dynamic of the ranges for food producing animals in emerging countries, and the gradual recovery in sales of historic ranges in the United States.

Presentation of operating profit. Because of the importance of external growth transactions realized in the last years, the amortization expense related to intangible assets valued according to the purchase price allocation of these acquisitions is significant. In order to facilitate the reading of the Group's operating performance, this amortization expense is since June 30, 2015 identified on a separate line in the current operating profit, which is consequently presented adjusted or not from such expense. This item amounted to 8.2 million € in the first-half, compared to 9.6 million € in 2015.
Besides, certain accounting entries resulting from the application of IFRS principles may have an exceptional incidence on operating profit (it is the case in 2015, where a non-recurring expense of 7.9 million € related to the revaluation of finished goods inventories from the Sentinel acquisition at net realisable value, equal to the full-year impact, was recorded in the first-half).

The current operating profit -adjusted, before any impact of the above items amounts to 39.7 million €, a strong growth compared to last year (27.4 million €) due particularly to the improved result of the U.S. subsidiary. In total, the U.S. subsidiary has recorded during this half-year, a positive operating contribution (excluding R & D) of 2.2 million $ (2.0 million €) against - 10.8 million $ (-9.7 million €) in 2015 thanks to improved margins and lower exceptional expenses.

Outside of the United States, the current operating profit - adjusted is growing by around +6.1 million € at comparable rates thanks to the good contributions of Europe, Asia-Pacific and Latin America with the exception of Chile, penalized by the sanitary situation. Conversely the overall evolution of exchange rates since the beginning of the year had a negative impact of around 7 million €.

The net profit - Group share amounts to 13.1 million €, significantly above last year (-3.8 million €). It includes the entries mentioned above related to amortization, as well as financial expenses which have increased as a consequence of the Sentinel acquisition, financed through debt.

From a financial standpoint, Virbac's financial debt was down -25.6 million € compared to the same period of 2015. Due to the seasonality of working capital needs, the Group should significantly decrease its debt during the second part of 2016.

Perspectives
In the United States, as a follow-up of the inspection initiated in December 2014, the FDA (Food and drug administration) has inspected the manufacturing site of St. Louis from August 9 to September 7, 2016. Following this inspection, the FDA has provided the company Virbac Corporation with a 483 report containing five observations. In accordance with standard procedures, the FDA did not make any comment, at this stage, regarding the suspension or not of the warning letter received in December 2015. Virbac has now fifteen days after the receipt of the 483 report to answer to the FDA, which will then decide on the consequences of this inspection within a period that usually ranges from two to six months.

To take into account new elements, in particular the market conditions in Chile and in the United States (increased competition on Sentinel) as well as the unfavorable evolution of exchange rates, and to reflect a residual variability in the manufacturing and commercial activities in the US by the end of December, the Group has decided to update its outlooks as follows:
• organic sales growth is expected to range between 4.5% to 6.5%;
• operating profit - adjusted is expected to be above 10% at constant exchange rates;
• net debt will improve by approximately 50 million € in 2016;
• net debt to EBITDA ratio is expected to be around 4.5 at constant exchange rates.

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