Patheon reports first quarter 2009 results
Improved operating income and gross profit lead to a reduction in loss
from continuing operations of 81% vs. the first quarter last year.
TORONTO, March 6 /CNW/ - Patheon (TSX:PTI) (herein referred to as "the
Company") today announced results for the first quarter ended January 31, 2009
with revenue of $147.2 million, 10.4% lower than last year (2.9% lower in
local currencies). Operating income increased by $7.9 million to $3.9 million
from an operating loss in the same period last year of $4.0 million. The loss
from continuing operations substantially improved, decreasing by $10.3 million
from the prior year, and Adjusted EBITDA increased to $12.8 million from $10.0
million in the prior year quarter. All amounts are in U.S. dollars unless
otherwise indicated.
"The improvement in profit performance this quarter reflects our 2008
restructuring activities and rigorous cost containment efforts. These
improvements were achieved in our seasonally weakest quarter where revenues
were down compared to the prior year largely as a result of the stronger U.S.
dollar versus our other major sales currencies," said Wes Wheeler, Chief
Executive Officer and President of Patheon Inc.
First Quarter 2009 Operating Results from Continuing Operations
Despite lower revenue on a year-over-year basis, gross profit for the
period increased 18.6% to $30.7 million. The improved cost structure, combined
with favorable foreign exchange impact on operating costs and lower inventory
provisions, more than offset the impact of lower revenues. Gross profit margin
for the period increased to 20.9% from 15.8%.
Selling general and administrative costs were $26.3 million or 4.4% lower
than prior year. Favorable foreign exchange rates were partially offset by
higher marketing expenses and professional fees, as well as $0.5 million
associated with the Special Committee that was formed to assess JLL Patheon
Holdings LLC.'s unsolicited proposed offer to acquire any or all of Patheon's
outstanding restricted voting shares that it does not own. SG&A was also
impacted by $1.2 million of transitional expenses for the opening of the US
headquarters in North Carolina, which included severance and relocation
expenses.
Repositioning expenses for the first quarter of 2009 were $0.5 million
compared to $2.4 million in the previous year. Current period expenses related
to the ongoing shut down and transition of business out of the York Mills
facility. The Company expects this transition to be completed by the end of
the fiscal third quarter.
Operating income for the period increased to $3.9 million from a loss of
$4.0 million in the same period last year as a result of the higher gross
profit and lower repositioning expenses.
The loss from continuing operations for the three months ended January
31, 2009 was $1.5 million, compared with a loss of $11.7 million in the same
period last year. The loss per share for the quarter was 5.6 cents compared
with a loss of 12.9 cents a year earlier.
First Quarter 2009 Highlights of Business Segment Results
Commercial Manufacturing - Revenues from Commercial Manufacturing
operations for the three months ended January 31, 2009 decreased by 12%, or
$16.2 million, to $117.7 million from $133.9 million in the same period of
2008. Had the local currencies remained constant to the rates of the prior
year, Commercial Manufacturing revenues would have been approximately 4% lower
than 2008.
Revenues from North American operations declined 16% to $55.3 million in
the quarter primarily due to lower customer demand from the Cincinnati and
Whitby operations partially offset by higher revenue in Puerto Rico. Had the
Canadian dollar remained constant to the rates of the prior year, North
American revenues would have been approximately 12% lower than 2008.
Revenues from the European operations decreased by $6.0 million or 9%
compared to prior year. Had European currencies remained constant to the rates
of the prior year, European revenues would have been approximately 3% higher
than the same period of 2008. Stronger local currency revenues from the
Swindon and Bourgoin operations were the primary drivers for the increase.
Adjusted EBITDA from the Commercial Manufacturing operations for the
three months ended January 31, 2009 increased by 42%, or $4.5 million to $15.2
million from $10.7 million in the same period of 2008. This represents an
Adjusted EBITDA margin of 12.9% compared with 8.0% in the same period last
year. Had the local currencies remained constant to the rates of the prior
year and after eliminating the impact of all foreign exchange gains and
losses, Commercial Manufacturing Adjusted EBITDA would have been approximately
$1.8 million higher than 2008.
North American operations reported an increase of $1.8 million, or 53% in
Adjusted EBITDA compared to prior year. The improvement in Adjusted EBITDA was
driven by Puerto Rico, as a result of higher revenue and cost improvements,
partially offset by weakness in the Canadian and Cincinnati operations. Puerto
Rico Adjusted EBITDA was $0.1 million in the quarter.
European Adjusted EBITDA increased by $2.7 million, or 37% for the three
months ended January 31, 2009. This increase was due to higher Adjusted EBITDA
at Swindon as a result of favorable foreign exchange and revenue mix and
improved operating performance.
Pharmaceutical Development Services (PDS) - PDS revenues for the three
months ended January 31, 2009 decreased by 2%, or $0.8 million, to $29.5
million from $30.3 million in the same period of 2008. Had the local
currencies remained constant to the rates of the prior year, PDS revenues
would have been approximately 5% higher than 2008. This increase was primarily
due to strength in the North American PDS business.
Adjusted EBITDA from the PDS operations for the three months ended
January 31, 2009 decreased by 2%, or $0.1 million to $5.8 million from $5.9
million in the same period of 2008. Had the local currencies remained constant
to the rates of the prior year and after eliminating the impact of all foreign
exchange gains and losses, PDS Adjusted EBITDA would have been approximately
$0.7 million lower than 2008.
Update on Carolina Facilities
As previously announced, the Company elected to close its Carolina
facility in Puerto Rico and as of January 31, 2009, no further products were
manufactured, packaged or shipped from the facility. As a result of the
closure, $3.3 million of severance and other closure costs were accrued during
the three months ended January 31, 2009.
Update on Announced Intention by JLL to make an unsolicited offer
On December 8, 2008, JLL Patheon Holdings LLC ("JLL") announced its
intent to make an unsolicited offer to acquire any or all of the outstanding
restricted voting shares of the Company that it does not own. As no offer has
been made, there is no need for shareholders to act at this time. If an offer
is made, the Company expects to issue a Directors' Circular in which the Board
will provide its perspective on any such offer.
The first quarter results issued by the Company today are consistent with
the information previously provided to BMO Capital Markets in connection with
the preparation of its independent valuation report dated February 19, 2009.
Outlook Discussion
The Company indicated in its MD&A for the year ended October 31, 2008
that it anticipated a slight decline in revenues for the first quarter of 2009
versus the same quarter last year due to the strengthening of the U.S. dollar.
Adjusted EBITDA was expected to be comparable with the first quarter of 2008,
reflecting the normal seasonality in the business due to the December holiday
shutdowns and customer purchasing practices around the calendar year-end.
These forecasts were qualified as being subject to the strength of the U.S.
dollar relative to the Canadian dollar, euro and pounds sterling. Revenues
reported in the first quarter of 2009 were lower than first quarter of 2008 by
$17.0 million, representing a decrease of 10% (2.9% in local currencies).
Adjusted EBITDA reported in first quarter of 2009 was higher than first
quarter of 2008 by $2.8 million, representing a 28% increase.
Webcast Conference Call with Analysts
Patheon Inc. will host a webcast conference call with financial analysts
on its first quarter on Friday, March 6, 2008 at 10:00 a.m. (Eastern Time).
The call will begin with a brief presentation, followed by a
question-and-answer period with investment analysts. Interested parties are
invited to access the live call, via telephone, in listen-only mode, at (416)
644-3418 (Toronto and International) or toll free at (800) 732-6179 (U.S.,
including Puerto Rico). Listeners are encouraged to dial in five to 15 minutes
in advance to avoid delays. A live audio webcast will also be available via
the web at www.patheon.com. An archived version of the Q1 webcast will be
available on www.patheon.com for three months.
ABOUT PATHEON
Patheon Inc. (TSX:PTI; www.patheon.com) is a leading global provider of
contract development and manufacturing services to the global pharmaceutical
industry. Patheon prides itself in providing the highest quality products and
services to more than 300 of the world's leading pharmaceutical and
biotechnology companies. Patheon's services range from preclinical development
through commercial manufacturing of a full array of dosage forms including
parenteral, solid, semi-solid and liquid forms. Patheon uses many innovative
technologies including single-use disposables, liquid-filled hard capsules and
a variety of modified release technologies. Patheon's comprehensive range of
fully integrated Pharmaceutical Development Services includes pre-formulation,
formulation, analytical development, clinical manufacturing, scale-up and
commercialization. Patheon can take customers direct to clinic with global
clinical packaging and distribution services and Patheon's Quick to Clinic(TM)
programs can accelerate early phase development project to clinical trials
while minimizing the consumption of valuable API. Patheon's integrated
development and manufacturing network of 10 facilities, and 6 development
centers across North America and Europe, strives to ensure that customer
products can be launched with confidence anywhere in the world.
Use of Non-GAAP Financial Measures
References in this Press Release to "Adjusted EBITDA" are to loss from
continuing operations before repositioning expenses, interest expense, foreign
exchange losses reclassified from other comprehensive income, refinancing
expenses, gains and losses on sale of fixed assets, gain on extinguishment of
debt, income taxes, asset impairment charge, depreciation and amortization.
"Adjusted EBITDA margin" is Adjusted EBITDA as a percentage of revenues.
Since Adjusted EBITDA is a non-GAAP measure that does not have a
standardized meaning, it may not be comparable to similar measures presented
by other issuers. Readers are cautioned that these non-GAAP measures should
not be construed as alternatives to net earnings (loss) determined in
accordance with GAAP as indicators of performance. Adjusted EBITDA is used by
management as an internal measure of profitability. The Company's major credit
facilities also have certain covenant calculations that are based on Adjusted
EBITDA. The Company has included these measures because it believes that this
information is used by certain investors to assess financial performance of
the Company, before non-cash charges and large non-recurring costs. Please see
Note 5 of the consolidated interim financial statements for an Adjusted EBITDA
bridge.
Caution Concerning Forward-Looking Statements
This press release contains forward-looking statements which reflect
management's expectations regarding the Company's future growth, results of
operations, performance (both operational and financial) and business
prospects and opportunities. All statements, other than statements of
historical fact, are forward-looking statements. Wherever possible, words such
as "plans", "expects" or "does not expect", "forecasts", "anticipates" or
"does not anticipate", "believes", "intends" and similar expressions or
statements that certain actions, events or results "may", "could", "would",
"might" or "will" be taken, occur or be achieved have been used to identify
these forward-looking statements. Although the forward-looking statements
contained in this press release reflect management's current assumptions based
upon information currently available to management and based upon what
management believes to be reasonable assumptions, the Company cannot be
certain that actual results will be consistent with these forward-looking
statements. Current material assumptions relate to customer volumes,
regulatory compliance and foreign exchange rates. Forward-looking statements
necessarily involve significant known and unknown risks, assumptions and
uncertainties that may cause the Company's actual results, performance,
prospects and opportunities in future periods to differ materially from those
expressed or implied by such forward-looking statements. These risks and
uncertainties include, among other things: regulatory approval of and market
demand for client products; general economic risks; credit and client
concentration; the ability to identify and secure new contracts; regulatory
matters, including compliance with pharmaceutical regulations; international
operations risks; exposure to foreign currency risks; competition; product
liability claims; intellectual property; environmental, health and safety
risks; substantial financial leverage; interest rates; initiatives to reduce
operating expenses; use of non-GAAP financial measures, significant
shareholders; ability to redeem Convertible Preferred Shares when due; risks
associated with information systems; and supply arrangements. For additional
information regarding risks and uncertainties that could affect our business,
please see the "Description of the Business - Risk Factors" section in our
Annual Information Form, and the "Risk Factors" section in our MD&A for the
year ended October 31, 2008, both of which are available on SEDAR at
www.sedar.com. Although the Company has attempted to identify important risks
and factors that could cause actual actions, events or results to differ
materially from those described in forward-looking statements, there may be
other factors and risks that cause actions, events or results not to be as
anticipated, estimated or intended. There can be no assurance that
forward-looking statements will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such
statements. Accordingly, readers should not place undue reliance on
forward-looking statements. These forward-looking statements are made as of
the date of this press release and, except as required by law, the Company
assumes no obligation to update or revise them to reflect new events or
circumstances.
Patheon Inc.
Consolidated Statements of Loss
(unaudited) Three months ended January 31,
2009 2008
-------------------------------------------------------------------------
(in millions of U.S. dollars,
except loss per share) $ $
-------------------------------------------------------------------------
Revenues 147.2 164.2
Cost of goods sold 116.5 138.3
----------------------
Gross profit 30.7 25.9
Selling, general and administrative expenses 26.3 27.5
Repositioning expenses 0.5 2.4
----------------------
Operating income (loss) 3.9 (4.0)
Interest expense, net 4.5 8.0
Foreign exchange loss (gain) 1.5 (0.6)
----------------------
Loss from continuing operations
before income taxes (2.1) (11.4)
(Recovery of) provision for income taxes (0.6) 0.3
----------------------
Net loss from continuing operations (1.5) (11.7)
Loss from discontinued operations (4.5) (3.0)
----------------------
Loss for the period (6.0) (14.7)
Dividends on convertible preferred shares 3.6 -
----------------------
Loss attributable to restricted
voting shareholders (9.6) (14.7)
----------------------
----------------------
Basic and diluted loss per share
From continuing operations ($0.056) ($0.129)
From discontinued operations ($0.050) ($0.033)
----------------------
($0.106) ($0.162)
----------------------
Patheon Inc.
Consolidated Balance Sheets
(unaudited) As of As of
January 31, October 31,
2009 2008
-------------------------------------------------------------------------
(in millions of U.S. dollars) $ $
-------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents 24.0 20.2
Accounts receivable 128.0 141.6
Inventories 73.3 67.0
Prepaid expenses and other 9.4 7.8
----------------------
Total current assets 234.7 236.6
----------------------
Capital assets 419.8 428.5
Intangible assets 4.4 4.9
Future tax assets 38.6 35.9
Goodwill 2.8 2.9
Investments 1.5 1.7
Long-term assets held for sale 1.9 1.9
----------------------
Total assets 703.7 712.4
----------------------
----------------------
Liabilities and Shareholders' equity
Current
Bank indebtedness 9.5 9.0
Accounts payable and accrued liabilities 166.9 174.9
Income taxes payable 8.0 2.6
Current portion of long-term debt 10.0 10.2
----------------------
Total current liabilities 194.4 196.7
----------------------
Long-term debt 210.2 200.5
Deferred revenues 21.4 22.5
Future tax liabilities 38.4 39.1
Other long-term liabilities 16.1 16.4
----------------------
Total liabilities 480.5 475.2
----------------------
Shareholders' equity
Convertible preferred shares 152.8 149.2
Restricted voting shares 393.5 393.5
Contributed surplus 7.2 6.7
Deficit (317.4) (309.3)
Accumulated other comprehensive loss (12.9) (2.9)
----------------------
Total shareholders' equity 223.2 237.2
----------------------
Total liabilities and shareholders' equity 703.7 712.4
----------------------
----------------------
Patheon Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three months ended January 31,
2009 2008
-------------------------------------------------------------------------
(in millions of U.S. dollars) $ $
-------------------------------------------------------------------------
Operating activities
Loss from continuing operations (1.5) (11.7)
Add (deduct) charges to operations
not requiring a current cash payment
Depreciation and amortization 9.9 11.0
Foreign exchange loss on debt - 2.0
Accreted interest on
convertible preferred shares - 3.7
Other non-cash interest 0.1 0.1
Employee future benefits,
net of contributions (0.9) (0.6)
Future income taxes (3.4) (3.5)
Amortization of deferred revenues (0.1) (0.5)
Stock-based compensation expense 0.5 0.9
Other - (0.1)
----------------------
4.6 1.3
Net change in non-cash working capital
balances related to continuing operations 3.0 (0.2)
Decrease in deferred revenues (0.6) -
----------------------
Cash provided by operating activities
of continuing operations 7.0 1.1
Cash used in operating activities
of discontinued operations (3.3) (4.5)
----------------------
Cash provided by (used in) operating activities 3.7 (3.4)
----------------------
Investing activities
Additions to capital assets (8.5) (8.2)
Net decrease (increase) in investments 0.3 (0.4)
----------------------
Cash used in investing activities
of continuing operations (8.2) (8.6)
Cash provided by investing activities
of discontinued operations - 8.2
----------------------
Cash used in investing activities (8.2) (0.4)
----------------------
Financing activities
Increase in bank indebtedness 0.5 1.3
Increase in long-term debt 19.8 11.8
Repayment of long-term debt (9.1) (7.0)
----------------------
Cash provided by financing activities
of continuing operations 11.2 6.1
Cash used in financing activities
of discontinued operations - (0.1)
----------------------
Cash provided by financing activities 11.2 6.0
----------------------
Effect of exchange rate changes
on cash and cash equivalents (2.9) (0.6)
----------------------
Net increase in cash and cash
equivalents during the period 3.8 1.6
Cash and cash equivalents, beginning of period 20.2 30.6
----------------------
Cash and cash equivalents, end of period 24.0 32.2
----------------------
----------------------
%SEDAR: 00001700E
For further information: Mr. Wes Wheeler, President & Chief Executive
Officer, Tel: (919) 226-3200, Email: wes.wheeler@patheon.com; Mr. Eric Evans,
Chief Financial Officer, Tel: (919) 226-3204, Email: eric.evans@patheon.com;
Ms. Jean Treadwell, Investor Relations, Tel: (905) 816-8344, Email:
jean.treadwell@patheon.com
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