Improved gross profit and operating income leads to a significant
increase in income from continuing operationsTORONTO, June 12 /CNW/ - Patheon (TSX: PTI) (herein referred to as "the
Company") today announced results for the second quarter ended April 30, 2009.
Total revenues were $167.4 million or 10.0% lower than the same period last
year. Excluding currency fluctuations, current year second quarter revenues
would have decreased by approximately 1.2%.
Operating income for the period increased to $13.4 million from $3.3
million in the same period last year. Included in current period operating
income are $2.9 million in expenses associated with the JLL Offer and $0.8
million in repositioning expenses as compared to repositioning expenses of
$8.3 million in the prior year. The JLL Offer expenses consist primarily of
fees for legal and financial advisors and Special Committee retainers and
meeting expenses. Income from continuing operations of $1.8 million improved
significantly compared to a loss of $6.0 million from the prior year and
Adjusted EBITDA of $20.2 million was down from $23.1 million in the same
quarter last year. All amounts are in U.S. dollars unless otherwise indicated.
"The continuing improvement in profit performance reflects the results of
our ongoing restructuring activities and rigorous cost containment efforts.
These improvements were achieved despite lower revenues due to the stronger
U.S. dollar, some volume declines and ongoing expenses related to the JLL
Offer," said Wes Wheeler, Chief Executive Officer and President of Patheon
Inc.
Second Quarter 2009 Operating Results from Continuing Operations
Gross profit for the second quarter of 2009 increased by $2.1 million to
$42.4 million. Gross profit margin increased to 25.3% from 21.7% in the prior
year second quarter. Margin growth resulted from the improved cost structure
and favorable foreign exchange impact on operating costs.
Selling, general and administrative costs were $28.2 million or 1.8%
lower than prior year. Favorable foreign exchange rates and cost structure
improvements were partially offset by internal costs of $2.9 million
associated with the JLL Offer. Selling, general and administrative costs were
also impacted by $0.5 million of transitional expenses for the opening of the
U.S. headquarters in North Carolina, which was primarily severance.
Repositioning expenses for the three months ended April 30, 2009 were
$0.8 million in connection with the ongoing shut down and transition of
business out of the York Mills facility, which is expected to be completed by
the third quarter of this fiscal year. During the three months ended April 30,
2008, the Company incurred $8.3 million of repositioning expenses in
connection with changes in executive management, a workforce reduction in
Swindon and the manufacturing networks in Puerto Rico and Canada.
Operating income for the second quarter of 2009 increased to $13.4
million or 8.0% of revenues from $3.3 million or 1.8% of revenues in the same
period last year as a result of higher gross profit, lower repositioning
expenses and favorable foreign exchange partially offset by costs associated
with the JLL Offer.
The income from continuing operations for the three months ended April
30, 2009 was $1.8 million, compared with a loss of $6.0 million in the same
period last year. The loss per share from continuing operations, after taking
into account the dividends on the convertible preferred shares, for the
quarter was 2.1 cents compared with a loss of 6.6 cents a year earlier.
Second Quarter 2009 Highlights of Business Segment Results
Commercial Manufacturing - Revenues from commercial operations for the
three months ended April 30, 2009 decreased by 10.6% to $135.2 million. Had
local currencies remained constant to prior year, commercial manufacturing
revenues would have been approximately 1.7% lower than 2008.
North American commercial revenues were $67.0 million or 7.2% less than
2008. Had the Canadian dollar remained constant to the prior year rates, North
American revenues would have been approximately 5.3% lower than 2008. This
reduction was primarily due to reduced customer demand for some products. The
Company expected new product introductions would more than cover normal
business erosion in the quarter, however, they were negatively impacted by
product approval delays and slower prescription uptake for certain new
products from the Whitby and Cincinnati operations. This was partially offset
by higher revenue in the Puerto Rico and Toronto operations.
European commercial revenues were $68.2 million or 13.6% lower than last
year. Had European currency rates remained constant from the prior year,
European revenues would have been approximately 1.9% higher than the same
period of 2008. The primary drivers for the increase in local currency were
stronger revenues from Swindon and Ferentino partially offset by lower volumes
in Bourgoin.
Adjusted EBITDA from the commercial operations for the three months ended
April 30, 2009 decreased by 7.1% to $19.6 million. This represents an Adjusted
EBITDA margin of 14.5% compared with 13.9% in the prior year. Had local
currencies remained constant to prior year rates and after eliminating the
impact of all foreign exchange gains and losses, commercial manufacturing
Adjusted EBITDA would have been approximately $1.2 million lower than 2008.
North American operations reported an Adjusted EBITDA increase of 8.2% to
$6.8 million. The improvement in Adjusted EBITDA was driven by improvements in
Puerto Rico, partially offset by weakness in the Canadian operations. Although
Puerto Rico reported significantly improved results versus prior year, it did
generate a loss for the quarter due to operational issues.
European operations reported an Adjusted EBITDA decrease of 13.6% to
$12.8 million. This decrease was due to lower results in Bourgoin partially
offset by better results in Swindon and Ferentino.
Pharmaceutical Development Services ("PDS") - PDS revenues for the three
months ended April 30, 2009 decreased by 7.6% to $32.2 million. Had the local
currencies remained constant to prior year rates, PDS revenues would have been
approximately the same as 2008. This reflects a slowdown in demand for
development activity due to general market conditions.
Adjusted EBITDA from the PDS operations for the three months ended April
30, 2009 decreased by 9.1% to $8.7 million. Had local currencies remained
constant to prior year rates 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.
Second Quarter YTD 2009 Operating Results from Continuing Operations
Revenues for the period were $314.6 million, which was down 10.2% from
the prior period. Excluding currency fluctuations, current year revenues would
have decreased by approximately 2.4%. Revenues from commercial manufacturing
decreased 11.3% to $252.9 million from $285.2 million in the prior period. PDS
also saw a reduction in revenues of 5.2% to $61.7 million from $65.0 million
in the prior period.
Gross profit for the period increased 10.3% to $73.2 million. Gross
profit margin for the period increased to 23.3% from 18.9% in the first half
of 2008. Margin growth resulted from favorable foreign exchange impact on
operating costs, improved cost structure and lower inventory reserves.
Selling, general and administrative costs were $1.8 million or 3.1% lower
than the prior year. Favorable foreign exchange rates and cost structure
improvements were partially offset by higher marketing costs as well as
internal costs of $3.4 million associated with the JLL Offer. Selling, general
and administrative costs were also impacted by $1.7 million of transitional
expenses for the opening of the U.S. headquarters in North Carolina, which
included severance and relocation expenses.
Repositioning expenses for the six months ended April 30, 2009 were $1.3
million in connection with the ongoing shut down and transition of business
out of the York Mills facility. During the first half of 2008, the Company
incurred $10.6 million of expenses in connection with changes in executive
management, and a workforce reduction in Swindon and the Puerto Rico and
Canadian manufacturing networks.
Operating income for the six months ended April 30, 2009 increased to
$17.4 million or 5.5% of revenues from a loss of $0.6 million or (0.2)% of
revenues in the same period last year as a result of higher gross profit,
lower repositioning expenses and favorable foreign exchange partially offset
by costs associated with JLL Offer.
The income from continuing operations for the six months ended April 30,
2009 was $0.5 million, compared with a loss of $17.6 million in the same
period last year. The loss per share from continuing operations, after taking
into account the dividends on the convertible preferred shares, for the six
months ended April 30, 2009 was 7.5 cents compared with a loss of 19.4 cents a
year earlier.
Update on Announced Intention by JLL to Make an Unsolicited Offer
On March 11, 2009, JLL announced by way of press release that it was
commencing its unsolicited offer (the "JLL Offer") to acquire any or all of
the outstanding restricted voting shares of Patheon that it does not already
own at a price of US$2.00 per share in cash and filed an Offering Circular on
SEDAR. In response to JLL's Offer, 33,667,752 Restricted Voting Shares in the
capital of Patheon have been deposited and taken up by JLL as of 6:00pm on
June 1, 2009, the second expiry date of JLL's Offer. The offer has been
further extended and will now expire on June 15, 2009. JLL now holds
35,317,752 outstanding restricted voting shares or 38.7% of the outstanding
amount.
Webcast Conference Call with Analysts
Patheon Inc. will host a webcast conference call with financial analysts
on its second quarter on Friday, June 12, 2009 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)
644-3414 (Toronto and International) or toll free at (800) 733-7560 (U.S.,
including Puerto Rico). Listeners are encouraged to dial in five to fifteen
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 Q2
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 ten facilities, and six 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 income
(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 income (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 Income (Loss)
(unaudited)
Three months ended Six months ended
April 30, April 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
(in millions of U.S. dollars,
except income (loss) per share) $ $ $ $
-------------------------------------------------------------------------
Revenues 167.4 186.0 314.6 350.2
Cost of goods sold 125.0 145.7 241.4 283.9
------------------------------------------
Gross profit 42.4 40.3 73.2 66.3
Selling, general and
administrative expenses 28.2 28.7 54.5 56.3
Repositioning expenses 0.8 8.3 1.3 10.6
------------------------------------------
Operating income (loss) 13.4 3.3 17.4 (0.6)
Interest expense, net 3.6 7.8 8.1 15.8
Foreign exchange loss (gain) 4.1 (0.4) 5.5 (1.0)
Gain on sale of fixed assets - (0.4) - (0.4)
------------------------------------------
Income (loss) from continuing
operations before income taxes 5.7 (3.7) 3.8 (15.0)
Provision for income taxes 3.9 2.3 3.3 2.6
------------------------------------------
Income (loss) before
discontinued operations 1.8 (6.0) 0.5 (17.6)
Loss from discontinued
operations (1.3) (2.0) (5.8) (5.0)
------------------------------------------
Net income (loss) for the
period 0.5 (8.0) (5.3) (22.6)
------------------------------------------
Dividends on convertible
preferred shares 3.7 - 7.3 -
------------------------------------------
Loss attributable to
restricted voting
shareholders (3.2) (8.0) (12.6) (22.6)
------------------------------------------
------------------------------------------
Basic and diluted loss per
share
From continuing
operations ($0.021) ($0.066) ($0.075) ($0.194)
From discontinued
operations ($0.014) ($0.022) ($0.064) ($0.055)
------------------------------------------
($0.035) ($0.088) ($0.139) ($0.249)
------------------------------------------
Average number of shares
outstanding during
period - basic and
diluted (in thousands) 91,149 90,633 91,149 90,629
--------------------------------------------
--------------------------------------------
Patheon Inc.
Consolidated Balance Sheets
(unaudited)
As of As of
April October
30, 2009 31, 2008
-------------------------------------------------------------------------
(in millions of U.S. dollars) $ $
-------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents 22.3 20.2
Accounts receivable 135.6 141.6
Inventories 76.6 67.0
Prepaid expenses and other 6.2 7.8
----------------------
Total current assets 240.7 236.6
----------------------
Capital assets 442.2 428.5
Intangible assets 3.9 4.9
Future tax assets 44.5 35.9
Goodwill 2.9 2.9
Investments 3.6 1.7
Long-term assets held for sale 1.9 1.9
----------------------
Total assets 739.7 712.4
----------------------
Liabilities and shareholders' equity
Current
Bank indebtedness 13.2 9.0
Accounts payable and accrued liabilities 158.4 174.9
Income taxes payable 2.1 2.6
Current portion of long-term debt 10.3 10.2
----------------------
Total current liabilities 184.0 196.7
----------------------
Long-term debt 228.6 200.5
Deferred revenues 23.0 22.5
Future tax liabilities 45.5 39.1
Other long-term liabilities 22.8 16.4
----------------------
Total liabilities 503.9 475.2
----------------------
Shareholders' equity
Convertible preferred shares 156.5 149.2
Restricted voting shares 393.5 393.5
Contributed surplus 7.6 6.7
Deficit (320.4) (309.3)
Accumulated other comprehensive loss (1.4) (2.9)
----------------------
Total shareholders' equity 235.8 237.2
----------------------
Total liabilities and shareholders' equity 739.7 712.4
----------------------
----------------------
Patheon Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three months ended Six months ended
April 30, April 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
(in millions of U.S. dollars) $ $ $ $
-------------------------------------------------------------------------
Operating activities
Income (loss) from continuing
operations 1.8 (6.0) 0.5 (17.6)
Add (deduct) charges to
operations not requiring a
current cash payment
Depreciation and amortization 10.0 11.1 19.9 22.2
Foreign exchange loss on debt - 0.8 - 2.8
Accreted interest on
convertible preferred shares - 3.8 - 7.4
Other non-cash interest 0.2 0.1 0.3 0.3
Change in other long-term
liabilities 0.5 (1.0) (0.3) (1.6)
Future income taxes 0.6 (2.1) (2.8) (5.6)
Amortization of deferred
revenues (0.2) (0.5) (0.3) (1.0)
Gain on sale of fixed assets - (0.4) - (0.4)
Stock-based compensation
expense 0.4 0.6 0.9 1.5
Other (0.3) 0.1 (0.5) (0.1)
--------------------- --------------------
13.0 6.5 17.7 7.9
Net change in non-cash working
capital balances related to
continuing operations (14.4) (13.9) (11.5) (14.1)
Increase in deferred revenues 4.7 1.5 4.1 1.5
--------------------- --------------------
Cash provided by (used in)
operating activities of
continuing operations 3.3 (5.9) 10.3 (4.7)
Cash used in operating
activities of discontinued
operations (3.3) (1.7) (6.6) (6.2)
--------------------- --------------------
Cash (used in) provided by
operating activities - (7.6) 3.7 (10.9)
--------------------- --------------------
Investing activities
Additions to capital assets (12.7) (10.7) (21.2) (18.9)
Proceeds on sale of capital
assets - 12.1 - 12.1
Net increase in investments (0.5) - (0.2) (0.4)
--------------------- --------------------
Cash (used in) provided by
investing activities of
continuing operations (13.2) 1.4 (21.4) (7.2)
Cash provided by investing
activities of discontinued
operations - 2.2 - 10.4
--------------------- --------------------
Cash (used in) provided by
investing activities (13.2) 3.6 (21.4) 3.2
--------------------- --------------------
Financing activities
Increase in bank indebtedness 3.4 6.8 3.9 8.1
Increase in long-term debt 20.8 4.2 40.7 15.9
Repayment of long-term debt (16.1) (8.6) (25.2) (15.6)
--------------------- --------------------
Cash provided by financing
activities of continuing
operations 8.1 2.4 19.4 8.4
Cash used in financing
activities of discontinued
operations - (0.1) - (0.2)
--------------------- --------------------
Cash provided by financing
activities 8.1 2.3 19.4 8.2
--------------------- --------------------
Effect of exchange rate
changes on cash and cash
equivalents 3.4 0.2 0.5 (0.4)
--------------------- --------------------
Net (decrease) increase in
cash and cash equivalents
during the period (1.7) (1.4) 2.1 0.2
Cash and cash equivalents,
beginning of period 24.0 32.2 20.2 30.6
--------------------- --------------------
Cash and cash equivalents,
end of period 22.3 30.8 22.3 30.8
--------------------- --------------------
--------------------- --------------------%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
