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Notes to the consolidated interim financial statements of the Galenica Group

1. Group organisation

1. Group organisation

General information

Galenica is a fully-integrated healthcare service 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 headquarters 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 2023 on 7 August 2023 for publication.


2. Accounting principles

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 2023, 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 2022 and comply with IAS 34 – Interim Financial Reporting. The consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ending 31 December 2022 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 material for the consolidated interim financial statements.

Discontinued operations

A disposal group is classed as a discontinued operation if it represents a separate major line of business or geographical business unit or if it is part of a single coordinated plan to dispose of a separate major line of business or geographical business unit. Discontinued operations are not included in the result from continuing operations and are reported separately in the consolidated statement of income as profit from discontinued operations. The prior period amounts in the income statement and in the consolidated statement of cash flows are adjusted for comparison purposes. Intercompany transactions with the discontinued operations are treated as third parties transaction in the continuing operation. The figures for January to June 2022 have been restated for the purpose of comparison. The restatement has no effect on the statement of financial position or consolidated statement of comprehensive income.  Further information of the discontinued operation can be found in note 4, Discontinued operations.

Estimation uncertainty, assumptions and judgments

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.

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 associates and joint ventures.

Details of changes in the scope of consolidation in the reporting period are included in note 4, Discontinued operations and in note 5, Business combinations.

Amendments to IFRS

As at 1 January 2023 Galenica adopted the following new International Financial Reporting Standards:

  • Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of accounting policies
  • Amendments to IAS 8 - Definition of accounting estimates
  • Amendments to IAS 12 - Deferred tax related to assets and liabilities arising from a single transaction
  • Amendments to IAS 12 - International tax reform Pillar Two rules

This changes have 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.

Galenica has applied the exception to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two Global Anti-Base erosion rules in accordance with the amendments to IAS 12, which the IASB published in Mai 2023.


3. Operating segment information

3. Operating segment information

Operating segment information first half of 2023

With the creation of the strategic partnership with Redcare Pharmacy N.V., the business unit Mediservice Ltd. (incl. Curarex Swiss Ltd.) which was part of the Products & Care segment, is presented as discontinued operations. Operating segment information for the previous period has been restated to conform to the new presentation and is line with the internal reporting. As a result, net sales to third parties has decreased by CHF 205.7 million and EBIT by CHF 5.0 million in 2022.  Further information of the discontinued operation can be found in note 4, Discontinued operations.

Operating segment information first half of 2023

in thousand CHF

Products & Care

Logistics & IT

Group Services

Eliminations

Galenica Group

Net sales

804,364

1,518,491

25,733

–497,398

1,851,190

Intersegmental net sales

–50,846

–423,283

–23,268

497,398

Net sales to third parties

753,518

1,095,208

2,464

1,851,190

Other income

3,387

3,995

1,971

–1,183

8,170

Share of profit from associates and joint ventures

2,812

8

128

2,948

Earnings before interest, taxes, depreciation and amortisation (EBITDA)

107,842

34,928

1,168

–38 1)

143,900

Depreciation, amortisation and impairment

–34,098

–15,869

–1,530

118

–51,379

Earnings before interest and taxes (EBIT)

73,744

19,058

–362

81 1)

92,521

Interest income

 

 

 

 

1,057

Interest expense

 

 

 

 

–3,564

Other net financial result

 

 

 

 

–471

Earnings before taxes (EBT)

 

 

 

 

89,543

Income taxes

 

 

 

 

–15,056

Profit from continuing operations

 

 

 

 

74,487

 

 

 

 

 

 

Assets

1,807,984

1,048,016

529,011

-576,067 2)

2,808,944

Investments in associates and joint ventures

138,486

91

–1,568

137,009

Liabilities

616,713

681,315

728,105

-546,118 3)

1,480,015

 

 

 

 

 

 

Investments in property, plant and equipment

11,552

5,418

1,669

18,639 4)

Investments in intangible assets

1,041

14,943

–37

15,947 5)

 

 

 

 

 

 

Employees as at 30 June (FTE)

4,081

1,445

232

5,758

1) Including the effects of IAS 19 from defined benefit plans and long-service awards of CHF 1.5 million

2) Of which elimination of intercompany positions of CHF -556.5 million and other unallocated amounts of CHF -19.5 million

3) Of which elimination of intercompany positions of CHF -556.5 million and other unallocated amounts of CHF 10.4 million

4) Of which non-cash investments of CHF 0.8 million

5) Of which non-cash investments of CHF 3.8 million

Operating segment information first half of 2022

Operating segment information first half of 2022 (restated)

in thousand CHF

Products & Care

Logistics & IT

Group Services

Eliminations

Galenica Group

Net sales

771,689

1,434,631

22,352

–474,464

1,754,208

Intersegmental net sales

–46,092

–407,347

–21,026

474,464

Net sales to third parties

725,598

1,027,284

1,326

1,754,208

Other income

3,992

2,962

1,438

–656

7,736

Share of profit from associates and joint ventures

1,937

20

62

2,019

Earnings before interest, taxes, depreciation and amortisation (EBITDA)

105,468

40,345

242

1,074 2)

147,129

Depreciation, amortisation and impairment

–32,951

–14,963

–1,062

147

–48,830

Earnings before interest and taxes (EBIT)

72,517

25,382

–820

1,221 2)

98,299

Interest income

 

 

 

 

387

Interest expense

 

 

 

 

–2,636

Other net financial result

 

 

 

 

–129

Earnings before taxes (EBT)

 

 

 

 

95,920

Income taxes

 

 

 

 

–16,922

Profit from continuing operations

 

 

 

 

78,998

 

 

 

 

 

 

Assets 1)

1,784,254

921,458

320,811

-413,699 3)

2,612,825

Investments in associates and joint ventures 1)

33,975

82

–1,375

32,682

Liabilities 1)

604,571

524,903

619,655

-385,765 4)

1,363,364

 

 

 

 

 

 

Investments in property, plant and equipment

4,125

13,400

1,127

18,652 5)

Investments in intangible assets

769

11,499

–70

12,198 6)

 

 

 

 

 

 

Employees as at 30 June (FTE)

3,831

1,377

216

5,424

1) Figures as at 31 December 2022

2) Including the effects of IAS 19 from defined benefit plans and long-service awards of CHF 1.4 million

3) Of which elimination of intercompany positions of CHF -395.6 million and other unallocated amounts of CHF -18.1 million

4) Of which elimination of intercompany positions of CHF -395.6 million and other unallocated amounts of CHF 9.8 million

5) Of which non-cash investments of CHF 0.9 million

6) Of which non-cash investments of CHF 1.8 million


4. Discontinued operations

4. Discontinued operations

On 30 March 2023 Galenica announced the combination of the business activities of the specialty pharmacy Mediservice Ltd. (including Curarex swiss Ltd.) and the online pharmacy shop-apotheke.ch in a strategic partnership with Redcare Pharmacy N.V. The closing of the transaction occurred on 16 May 2023.

Through the transaction, Galenica sold 51% of the shares of Mediservice Ltd. to Redcare Pharmacy N.V. The total purchase consideration amounted to CHF 215.5 million, consisting of a 6.1% investment in the listed company Redcare Pharmacy N.V., Netherlands with a fair value of CHF 109.5 million and the retained 49% participation in Mediservice Ltd. (including the online pharmacy shop-apotheke.ch) with a fair value of CHF 106.0 million. The 49% participation in Mediservice Ltd. will be accounted for as an investment in an associate.

The purchase consideration is reduced by an estimated amount of CHF 10.6 million which is contingent on net working capital developments as well as certain market developments and will become due between 2023 and 2026. The transaction resulted in a gain on sale of CHF 111.8 million. As the purchase considerations received are non-cash items, the net cash flow from the disposal amounted to minus CHF 2.1 million which includes CHF 1.3 million cash disposed and CHF 0.8 million transaction costs and is shown as net cash flow form sale of subsidiaries in the consolidated statement of cash flows.

With the transaction Galenica lost control over Mediservice Ltd. (including Curarex swiss Ltd.) and therefore deconsolidated the assets and liabilities of the business unit. The business of Mediservice Ltd. (including Curarex swiss Ltd.) represented a separate major line of business for Galenica and was therefore classified as discontinued operations and the prior period was adjusted accordingly.

Gain on sale of discontinued operations

in thousand CHF

16.5.2023

Fair value of received equity instruments

109,456

Fair value of retained at equity investment in former subsidiary

106,011

Contingent considerations

–10,594

Total considerations received / interest retained

204,873

 

 

Carrying amount of net assets disposed

–86,776

Transaction costs

–755

Income taxes related to the sale of the discontinued operations

–5,515

 

 

Gain on sale of discontinued operations

111,827

The table below shows the financial performance of the discontinued operations.

Statement of income of discontinued operations

in thousand CHF

1.1.– 16.5.2023

1.1.– 30.6.2022

Net sales

164,487

215,250

Other income

18

21

Expenses

–163,238

–210,316

Earnings before tax (EBT) from discontinued operations

1,266

4,954

 

 

 

Income taxes

–251

–828

 

 

 

Net profit from discontinued operations

1,015

4,127

The table below shows the financial position of Mediservice Ltd. (including Curarex swiss Ltd.) at the date of disposal.

Financial position of the discontinued operation at the time of disposal

in thousand CHF

16.5.2023

Cash and cash equivalents

1,330

Trade and other receivables

49,444

Inventories

18,168

Other current assets

2,583

Current Assets

71,525

 

 

Property, plant and equipment

681

Right-of-use assets

4,025

Intangible assets

67,517

Financial assets

50

Other non-current assets

43

Non-current assets

72,316

 

 

Total disposed assets

143,841

 

 

Financial liabilities

24,143

Lease liabilities

647

Trade and other payables

24,817

Other liabilities

1,999

Current liabilities

51,607

 

 

Lease liabilities

3,581

Deferred tax liabilities

1,637

Employee benefit liabilities

240

Non-current liabilities

5,458

 

 

Total disposed liabilities

57,065

 

 

Disposed net assets

86,776


5. Business combinations

5. Business combinations

In the first half of 2023, the scope of consolidation has changed as a result of the following transactions:

Acquisition of Padma AG. On 30 January 2023, Galenica acquired 100% of the shares in the Swiss company Padma AG. Padma AG is the parent company of the Padma Group with its two operating companies Padma Europe GmbH (Austria based) and Padma Deutschland GmbH (Germany based). Padma specialises in the manufacture and distribution of herbal formulations derived from Tibetan medicine.

The total purchase considerations amounted to CHF 23.3 million, of which CHF 20.9 million was settled in cash. A contingent consideration in the amount of CHF 2.4 million was recognised, which is due in 2026 if certain financial and operational targets are achieved. The fair value of the net identifiable asset amounted to CHF 14.2 million at the acquisition date. The goodwill of CHF 9.1 million was allocated to the operating segment Products & Care and corresponds to added value based on the acquirer-specific synergies expected to arise from the acquisition in expanding its complementary medicine portfolio and expanding its range of reimbursable medicines and the know-how of the employees gained. Transaction costs were not material. 

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

The total purchase consideration amounted to CHF 9.7 million, of which CHF 9.1 million was settled in cash. A deferred consideration in the amount of CHF 0.6 million was recognised, which is due in the second half year of 2023.  The fair value of the provisional net assets amounts to CHF 0.8 million at the acquisition date. The goodwill of CHF 8.9 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 not material.

Business combinations

in thousand CHF

Padma

Pharmacies

Total

Cash and cash equivalents

3,170

600

3,770

Trade receivables

1,156

210

1,366

Inventories

3,362

676

4,039

Property, plant and equipment

177

177

Right-of-use assets

3,815

1,873

5,687

Intangible assets

9,333

9,333

Other current and non-current assets

275

88

363

Trade payables

–418

–450

–868

Lease liabilities

–3,815

–1,873

–5,687

Net deferred tax assets/(liabilities)

–1,871

–1,871

Employee benefit liabilities

–378

–378

Other current and non-current liabilities

–596

–282

–878

Fair value of net assets

14,211

842

15,053

Goodwill

9,074

8,863

17,937

Purchase consideration

23,285

9,705

32,990

Cash acquired

–3,170

–600

–3,770

Deferred consideration

–630

–630

Contingent consideration

–2,385

–2,385

Net cash flow from current business combinations

17,730

8,476

26,206

Pro forma figures for acquisitions made in the first half of 2023

Since their inclusion in Galenica's scope of consolidation, the businesses acquired contributed net sales of CHF 6.3 million and an operating result (EBIT) of CHF 0.4 million to the Group's results. If these acquisitions had occurred on 1 January 2023, they would have contributed additional net sales of CHF 1.8 million without a material effect on EBIT.


6. Net sales

6. Net sales

Net sales first half of 2023

Based on the classification of the business unit Mediservice (incl. Curarex swiss) as discontinued operation, 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. Further information of the discontinued operation can be found in note 4, Discontinued operations.

Net sales first half of 2023

in thousand CHF

Sale of goods

Sale of services

Total net sales

Intersegmental net sales

Total net sales to third parties

of which sale of goods to third parties

of which sale of services to third parties

Local Pharmacies

599,617

40,534

640,151

264

640,416

599,893

40,523

Pharmacies at Home

36,864

2,197

39,060

–125

38,935

36,738

2,197

Retail (B2C) 1)

636,355

42,731

679,086

265

679,351

636,631

42,719

Products & Brands

89,190

808

89,998

–41,807

48,191

47,383

808

Services for Professionals

30,516

8,108

38,623

–12,664

25,960

24,303

1,656

Professionals (B2B) 1)

119,721

8,905

128,627

–54,476

74,150

71,687

2,464

Products & Care 1)

754,684

49,680

804,364

–50,846

753,518

708,334

45,184

Wholesale

1,452,285

4,999

1,457,284

–398,552

1,058,732

1,054,982

3,749

Logistics & IT Services

169

70,249

70,418

–33,942

36,477

169

36,307

Logistics & IT 1)

1,452,455

66,037

1,518,491

–423,283

1,095,208

1,055,152

40,057

Group Services

25,733

25,733

–23,268

2,464

2,464

Eliminations 2)

–443,657

–53,741

–497,398

497,398

Galenica Group

1,763,482

87,708

1,851,190

1,851,190

1,763,482

87,708

1) Including eliminations of intercompany net sales

2) Eliminations of intersegmental net sales

Net sales first half of 2022

Net sales first half of 2022 (restated)

in thousand CHF

Sale of goods

Sale of services

Total net sales

Intersegmental net sales

Total net sales to third parties

of which sale of goods to third parties

of which sale of services to third parties

Local Pharmacies

590,444

37,503

627,947

–12

627,935

590,432

37,503

Pharmacies at Home

35,076

2,273

37,349

–188

37,161

34,888

2,272

Retail (B2C) 1)

625,417

39,776

665,192

–97

665,096

625,321

39,775

Products & Brands

74,136

960

75,097

–38,302

36,794

35,834

960

Services for Professionals

27,075

7,169

34,244

–10,660

23,584

21,672

1,913

Professionals (B2B) 1)

101,250

8,091

109,341

–48,963

60,378

57,506

2,873

Products & Care 1)

725,103

46,586

771,689

–46,092

725,598

682,850

42,748

Wholesale

1,374,463

4,963

1,379,426

–385,819

993,607

990,615

2,991

Logistics & IT Services

325

63,469

63,794

–30,117

33,677

324

33,353

Logistics & IT 1)

1,374,789

59,841

1,434,631

–407,347

1,027,284

990,940

36,344

Group Services

22,352

22,352

–21,026

1,326

1,326

Eliminations 2)

–426,104

–48,361

–474,464

474,464

Galenica Group

1,673,789

80,419

1,754,208

1,754,208

1,673,789

80,419

1) Including eliminations of intercompany net sales

2) Eliminations of intersegmental net sales


7. Fair values of financial assets and financial liabilities

7. Fair values of financial assets and financial liabilities

Fair value 

 

 

30.06.2023

 

31.12.2022

in thousand CHF

Carrying amount

Fair value

Carrying amount

Fair value

Bond (fair value level 1)

419,872

419,820

380,194

370,830

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

As per 30 June 2023 Galenica holds equity instruments designated at fair value through other comprehensive income including a 7.9% (previous year: none) investment in the listed (level 1 of the fair value hierarchy) company Redcare Pharmacy N.V., Netherlands, with a fair value of CHF 148.8 million (previous year: none) and other investment in non-listed (level 3 of the fair value hierarchy) companies with a fair value of CHF 6.3 million (previous Year: CHF 4.6 million). These investments were irrevocably designated at fair value through other comprehensive income as Galenica considers these investments to be strategic in nature. Galenica recognised in the consolidated statement of comprehensive income a remeasurement gain of CHF 10.6 million (previous year: none).

Fair value of financial instruments (level 3 of the fair value hierarchy)

Fair value of contingent consideration liabilities from business combinations (level 3 of the fair value hierarchy)

in thousand CHF

30.06.2023

31.12.2022

1 January

49,180

24,000

Arising from business combinations

2,385

26,256

Change in fair value (recognised in profit and loss)

–2,061

–1,077

30 June / 31 December

49,504

49,180

Fair value of equity instruments designated at fair value through other comprehensive income (level 3 of the fair value hierarchy)

in thousand CHF

30.06.2023

31.12.2022

1 January

4,561

Addition

1,950

4,561

Change in fair value (recognised in other comprehensive income)

–193

30 June / 31 December

6,318

4,561

Fair value and sensitivity analysis of contingent consideration liabilities from discontinued operations

Determining the contingent consideration liability in connection with the sale of Mediservice forecasted gross margin and further development of net working capital of the discontinued operation were identified as key assumptions. Galenica has recorded the amount of CHF 2.9 million as other liability based on the expected future gross margin for the years 2024-2026. The future cash outflows range between zero and CHF 3.1 million. Furthermore, Galenica has recorded the amount CHF 7.7 million as other liability based on the expected further development of the net working capital of the discontinued operation which will be due in the second half year of 2023. Further information of the discontinued operation can be found in note 4, Discontinued operations.

Sensitivity analysis of contingent consideration liabilities from business combinations (level 3 of the fair value hierarchy)

Sensitivity analysis of contingent consideration liabilities from business combinations (level 3 of the fair value hierarchy)

in thousand CHF

Lifestage Solutions

Bahnhof Apotheke Langnau

Aquantic

Padma

Fair value of contingent considerations

20,914

22,916

3,275

2,399

Minimal payout

Maximal payout

24,000

29,000

5,500

4,000

Key assumption

forecasted net sales 1)

forecasted net sales 1)

forecasted EBITDA 1)

forecasted sell out prices 1)

Year of relevance

2024

2026+2027

2025+2026

2025

Sensitivity analysis

 

 

 

 

Impact on fair value by 5% increase of key assumption

2,220

2,000

400

1,000

Impact on fair value by 5% decrease of key assumption

–2,220

–2,000

–400

–1,000

1) of the acquired business


8. Contingent liabilities and commitments

8. Contingent liabilities and commitments

In March 2017, the Swiss Competition Commission (COMCO) issued a ruling, which imposed a fine of up to CHF 4.5 million on Galenica. The ruling relates to an investigation from 2012. Galenica regards the ruling issued by COMCO as incorrect in fact and in law. Galenica has taken the ruling to the Federal Administrative Court. With a decision delivered in February 2022, the Federal Administrative Court reduced the fine to around CHF 3.8 million. Galenica has taken this case to the Swiss Federal Supreme Court. Although the case is still pending before the Federal Supreme Court, COMCO obliged Galenica to pay the CHF 3.8 million penalty in June 2023 and therefore Galenica expensed the amount. Galenica remains confident of winning the case before the Federal Supreme Court.

In September 2020, the Swiss Competition Commission (COMCO) opened an investigation against Markant Handels- und Industriewaren-Vermittlungs AG and its customers, inter alia Galexis Ltd. The COMCO secretariat presented its preliminary findings at the end of June 2023. On this basis, Galenica estimates the amount of a possible sanction, including legal costs, to be around CHF 3.5 million. As Galenica remains convinced that a sanction is not justified, Galenica will not raise a corresponding provision until further notice.


9. Subsequent events

9. Subsequent events

The following business combinations occurred between 30 June 2023 and 7 August 2023, the date that the consolidated interim financial statements were released for publication.

Acquisition of pharmacies. Galenica signed contracts to acquire 100% of the interests in pharmacies at various locations in Switzerland. The net assets of these acquisitions will be consolidated beginning on the date control will be obtained. The total purchase considerations is estimated to CHF 11.1 million and are due with the closing of the transactions. Since the transactions were not concluded yet, it is not possible to disclose the additional information required by IFRS.

There were no further significant events after the reporting date.


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