1. Group organisation

General information

Galenica is a fully-integrated healthcare provider in Switzerland. Galenica operates a network of pharmacies, develops and offers own brands and products, exclusive brands and products from business partners as well as a variety of on-site health services and tests for customers. Galenica is also a provider of pre-wholesale and wholesale distribution and database services in the Swiss healthcare market.

The parent company is Galenica Ltd., a Swiss company limited by shares with its head office in Bern. The registered office is at Untermattweg 8, 3027 Bern, Switzerland. Shares in Galenica Ltd. are traded on the SIX Swiss Exchange under securities no. 36067446 (ISIN CH0360674466).

The Board of Directors released the consolidated interim financial statements 2021 on 2 August 2021 for publication.

2. Accounting principles

Basis of preparation

The unaudited consolidated interim financial statements of Galenica are based on the financial statements of the individual companies of Galenica as at 30 June 2021, prepared in accordance with uniform principles. Except for the amendments to International Financial Reporting Standards (IFRS) as detailed below, the ­consolidated interim financial statements have been prepared using the same accounting principles as the consolidated financial statements for the year ending 31 December 2020 and comply with IAS 34 – Interim Financial Reporting. As mentioned in notes 4 and 6 there have been changes to operating segment and net sales information. The consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ending 31 December 2020 as they update previously reported information.

Galenica's consolidated interim financial statements are prepared in Swiss francs (CHF) and, unless otherwise indicated, figures are rounded to the nearest CHF 1,000.

Due to rounding, numbers presented throughout this report may not add up precisely to the totals provided. Totals are calculated using the underlying amount rather than the presented rounded number.

Foreign currencies are not of relevance for the consolidated interim financial statements.

Estimation uncertainty and assumptions

The preparation of the Group's consolidated interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense, and the disclosure of contingent liabilities as at the reporting date. Although these estimates and assumptions are made on the basis of all available infor­mation and with the greatest of care, the actual results may differ.

Seasonal influences on operations

Sales in the business sectors in which Galenica operates are usually not significantly influenced by seasonal or cyclical fluctuations during the financial year. The effect of the COVID-19 pandemic is further explained in note 3.

Income taxes

Current income taxes are based on an estimate of the expected income tax rate for the full year.

Scope of consolidation

The consolidated interim financial statements of Galenica comprise those of Galenica Ltd. and all its ­subsidiaries, including associate companies and joint ventures.

Details of changes in the scope of consolidation in the reporting period are included in note 4, Business combinations.

Amendments to IFRS

As at 1 January 2021 Galenica adopted the following new International Financial Reporting Standards:

• Amendments to IFRS 7, IFRS 9, IAS 39 and IFRS 16 – Interest Rate Benchmark Reform – phase 2 (1 January 2021)
  

This change has no or no material impact on the financial position, financial performance and cash flows of Galenica nor on disclosures in these consolidated interim financial statements. Galenica has not early adopted any other standard or interpretation that has been issued but is not yet effective.

3. COVID-19 pandemic

As expected, the first quarter of 2021 was also difficult for Galenica due to the COVID-19 pandemic. Repercussions of the pandemic, such as the absence of seasonal colds, the lack of any flu epidemic as well as people's continued low mobility had a negative impact on the sales. Sales in pharmacies at high-frequency locations were still around 30% lower than their pre-pandemic level in the first quarter of 2019.

Business improved substantially from April 2021 onward. Galenica Group pharmacies and logistics companies actively supported the federal government and the people of Switzerland in the combat against the COVID-19 pandemic. Various activities and offers connected to these efforts, in particular the distribution of COVID-19 self-test, have strongly contributed to this growth. As a result, the positive impact on net sales and EBIT resulting from the aforementioned COVID-19 initiatives could more than compensate the incurred losses due to COVID-19 in the first half year 2021.

4. Operating segment information

Operating segment information first half of 2021

Based on the changed organisational and management structure of Galenica valid as at 1 January 2021, Galenica has redefined and renamed its segments. Galenica now has the two operating segments Products & Care (largely corresponds to the former operating segment Health & Beauty) and Logistics & IT (largely corresponds to the former operating segment Services).

The CEO of Galenica acting as chief operating decision maker (CODM) allocates resources and monitors performance of the Group's operating segments Products & Care and Logistics & IT on the basis of information prepared in accordance with IFRS with exception of defined benefit plans and long-service awards, which are recognised at Group level.

In the operating segment Products & Care with its large network of pharmacies the accounting for leases is of particular importance. The Group continues to prepare information as if its leases were accounted for as operating leases (e.g. in line with ­Galenica's accounting policies prior to the adoption of IFRS 16). Those figures are relevant for management incentive and remuneration plans. However, Galenica has determined that the figures including the effects of IFRS 16 are used by the CODM for monitoring and resource allocation decisions and therefore presents its segment reporting as above.

Operating segment information first half of 2020

The operating segment information 2020 has been restated to the changed organisational and management structure and the internal financial reporting to the chief operating decision maker (CODM).

5. Business combinations

In the first half of 2021, the scope of consolidation has changed as a result of the following transactions:

Acquisition of pharmacies. Galenica acquired 100 % of the interests in pharmacies in various locations in Switzerland. Upon acquisition, most of these pharmacies were merged with Galenicare Ltd.

The purchase consideration amounted to CHF 3.6 million and was fully settled in cash. The fair value of the provisional net assets amounts to CHF 0.3 million at the acquisition date. The goodwill of CHF 3.3 million was allocated to the operating segment Products & Care and corresponds to the added value of the pharmacies based on their locations. Transaction costs were insignificant.

Acquisition of the pharma business of Dr. Wild & Co. AG. On 27 May 2021, Galenica acquired the range of pharmaceutical products of the Swiss company Dr. Wild & Co. AG, including the well-known brands Vitamin D3 Wild Oil^® and VI–DE 3^®. In addition, the experienced physician field service of Dr. Wild & Co. AG was transferred to Verfora.

The purchase consideration amounted to CHF 34.7 million and was fully settled in cash. The fair value of the net identifiable assets amounted to CHF 26.8 million at the acquisition date. The goodwill of CHF 7.9 million was allocated to the operating segment Products & Care and corresponds to the added value based on the acquirer-specific synergies expected to arise from the acquisition in strengthening its leading position in the Swiss consumer healthcare (CHC) market and the know-how of the employees gained. Acquired intangible assets include trademarks with an indefinite useful life of CHF 22.8 million. As the acquisition date was recent, the purchase price allocation is yet to be finalised. Transaction costs were insignificant.

Pro forma figures for acquisitions made in the first half of 2021

Since their inclusion in Galenica's scope of consolidation, the businesses acquired contributed net sales of CHF 3.2 million and an operating result (EBIT) of CHF 0.6 million to the Group's results. If these acquisitions had occurred on 1 January 2021, they would have contributed additional net sales of CHF 4.5 million and increased EBIT by CHF 1.0 million.

6. Net sales

Net sales first half of 2021

Based on the changed organisational and management structure of Galenica valid as at 1 January 2021, the internal reporting and disaggregation of net sales has been adjusted accordingly. Net sales information for the previous period has been restated to conform to the new presentation.

Net sales first half of 2020

7. Financial assets and financial liabilities measured at fair value

With the exception of non-current financial liabilities the carrying amounts of all financial instruments approximate to the fair value or fair value disclosure is not required (lease liabilities).

8. Employee benefit assets

Galenica realised in the consolidated statement of comprehensive income a remeasurement gain of CHF 79.8 million which is due to the positive market developments on plan assets and actuarial gains (change in demographic and financial assumptions). As a result Galenica has net employee benefit assets of CHF 18.1 million as at 30 June 2021 (as at 31 December 2020: employee benefit liabilities of CHF 57.4 million).

Due to the remeasurement gain a deferred tax expense of CHF 14.4 million has been recorded in the consolidated statement of comprehensive income, which also resulted in a respective decrease of deferred tax assets and increase of deferred tax liabilities.

9. Contingent liabilities and commitments

Galenica signed purchase agreements to acquire pharmacies and other businesses in the next few years. The purchase prices will be fixed at the time of transfer of ownership on the basis of net asset value and discounted cash flows. The unrecognised commitments are expected to involve payments of CHF 7.8 million at the most. The purchase rights have an estimated volume of CHF 10.4 million. These purchase rights or obligations fall due between 2021 and 2023.

10. Subsequent events

The following business combinations occurred between 30 June 2021 and 2 August 2021, the date that the consolidated interim financial statements were released for publication.

Acquisition of pharmacies. Galenica acquired 100 % of the interests in pharmacies at various locations in Switzerland. The purchase consideration was CHF 5.9 million, the fair value of the provisional net assets resulting from these additions was estimated at CHF 3.3 million at the acquisition date. Since the transactions were concluded shortly before the consolidated interim financial statements were issued, it was not possible to disclose the additional information required by IFRS.

Acquisition of Lifestage Solutions AG. On 26 July 2021, Galenica acquired 100 % of the shares of the Swiss based Lifestage Solutions AG. Lifestage Solutions develops and operates a fully integrated digital trading platform for home care organisations and care homes. The purchase consideration amounts to CHF 48.8 million maximum, of which CHF 24.8 million was settled in cash. The contingent purchase price consideration of up to CHF 24.0 million falls due in 2024.

Due to the fact that the acquisition took place only a short time before the release of the interim consolidated financial statements, the fair value of the provisional net assets at the acquisition date cannot yet be assessed with sufficient reliability. Transaction costs were insignificant.

There were no further significant events after the reporting date.