Patheon fourth quarter revenues increase to $181.6 million

Dec 19 2011

Patheon Inc. (TSX: PTI), a leading provider of contract development and manufacturing services to the global pharmaceutical industry, announced today full year and fourth quarter results.  For the full year:

• Revenues were $700.0 million versus $671.2 million in the same period last year.   Excluding currency fluctuations, revenues would have been approximately 3.0 percent higher than in the same period last year.
• Operating income was $10.9 million compared to $27.6 million in the same period last year.
• The loss before discontinued operations was $16.2 million compared to a loss before discontinued operations of $3.3 million in the same period last year.
• Adjusted EBITDA was $73.0 million compared to $91.7 million in the same period last year.

For the fourth quarter:

• Revenues were $181.6 million versus $177.7 million in the same period last year.   Excluding currency fluctuations, revenues would have been approximately 1.1 percent higher than in the same period last year.
• Operating loss was $3.7 million compared to operating income of $13.3 million in the same period last year.
• The loss before discontinued operations was $5.3 million compared to a loss before discontinued operations of $0.9 million in the same period last year.
• Adjusted EBITDA was $17.3 million compared to $28.6 million in the same period last year.

In commenting on the financial results, James C. Mullen, Patheon's Chief Executive Officer said, "Our pipeline of business is up and key internal performance metrics are improving. Underlying performance in the fourth quarter was impacted by the non-recurrence in 2011 of $11.2 million of deferred revenue at our U. K. facility in 2010.  SG&A costs, which have increased due to consulting expenses associated with our transformation efforts, should become less of a factor in the fourth quarter of fiscal 2012."

He added, "As we move forward in fiscal 2012 we are successfully executing on our transformation.  In the locations where we have rolled out our operational excellence programs, we have already realized enhanced capacity, decreased cycle times and improved efficiency.  We will continue to focus on what matters most to our customers; quality, on time delivery and right first time results.   Our European site rollout should begin in January and I would expect the same results."

Full Year Fiscal 2011 Operating Results from Continuing Operations

Gross profit for fiscal 2011 decreased to $138.1 million from $145.0 million in the 2010 fiscal year. The decrease in gross profit was due to a reduction in gross profit margin to 19.7 percent for fiscal 2011 from 21.6 percent for fiscal 2010, partially offset by higher revenues.  The decrease in gross profit margin was due to unfavorable foreign exchange impact on cost of goods sold related to the weakening of the U.S. dollar, higher labor costs, increase in supplies and maintenance, higher inventory write-offs, and the impact of the prior year's research and development investment tax credits taken in fiscal 2010.  These were partially offset by favorable mix resulting from the reservation fee and higher deferred revenue amortization related to the amended manufacturing and supply agreement in the U.K.

Selling, general and administrative expenses in fiscal 2011 increased to $120.2 million from $110.6 million for fiscal 2010. The increase was primarily due to higher consulting and professional fees of $12.8 million, higher costs related to the former CEO's severance of $1.1 million, higher stock based compensation of $1.4 million, partially offset by elimination of costs associated with the special committee of independent directors (the "Special Committee") of $3.0 million for fiscal 2010, and lower depreciation of $3.0 million.  The impact of unfavorable foreign exchange rates on SG&A expense was approximately $3.4 million versus prior year.

Operating income for fiscal 2011 decreased $16.7 million to $10.9 million (1.6 percent of revenues), from $27.6 million (4.1 percent of revenues) for fiscal 2010 as a result of the factors discussed above.

As  of  October 31, 2011,  the company was holding cash and cash equivalents of  $33.4 and had undrawn lines of credit available to it of $94.9 million.

Fiscal 2011 Highlights of Business Segment Results

Commercial Manufacturing - Revenues for fiscal 2011 were $572.6 million up from $545.3 million for fiscal 2010. Had local currency exchange rates remained constant with the rates of fiscal 2010, CMO revenues for fiscal 2011 would have been approximately 3.6 percent higher than the prior fiscal year.  The increase was primarily due to higher revenues in the United Kingdom from the reservation fee and accelerated deferred revenue related to the amended manufacturing supply agreement and stronger performance in Puerto Rico.

Adjusted EBITDA for fiscal 2011 was $80.0 million up from $72.3 million for fiscal 2010. This represents an Adjusted EBITDA margin of 14.0 percent for fiscal 2011 compared to 13.3 percent for fiscal 2010. Had local currencies remained constant to prior year rates, and after eliminating the impact of all foreign exchange gains and losses, Adjusted EBITDA for fiscal 2011 would have been approximately $2.3 million higher. The increase in Adjusted EBITDA was driven by the higher revenues, partially offset by  $5.0 million in consulting fees related to the strategic initiatives, prior year's recognition of accelerated deferred revenue of $4.2 million in Cincinnati, and weaker performance across Europe excluding the U.K.

Pharmaceutical Development Services ("PDS") - Revenues for fiscal 2011 were $127.4 million up from $125.9 million for fiscal 2010. Had the local currency rates remained constant to fiscal 2010, PDS revenues for fiscal 2011 would have increased approximately 0.2 percent from fiscal 2010.

Adjusted EBITDA for fiscal 2011 was $29.9 million down from $46.8 million for fiscal 2010. Had 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 for fiscal 2011 would have been approximately $2.2 million higher than reported. PDS Adjusted EBITDA for fiscal 2011 included $5.8 million of research and development investment tax credits compared to $10.8 million in fiscal 2010. In addition, lower than expected sales at certain sites resulting from project cancellations related to customer regulatory approvals, clinical trial outcome issues, and industry consolidation contributed to the reduction in Adjusted EBITDA.

Corporate - Corporate costs for fiscal 2011 were $36.9 million up from $27.4 million for fiscal 2010. The increase was primarily due to unfavorable foreign exchange of $3.4 million, $4.4 million of higher advisor fees due to registration with the SEC and corporate strategy initiatives, expenses related to the change in our CEO of $3.3 million and higher compensation expenses. These were partially offset by the non-recurrence of $3.0 million in Special Committee costs incurred in fiscal 2010.

Fourth Quarter Operating Results from Continuing Operations

Revenues for the fourth quarter 2011 were $181.6 million up from $177.7 million for the same period last year. Excluding currency fluctuations, revenues would have been approximately 1.1 percent higher than the same period of the prior year.

Gross profit was $35.7 million down from $42.8 million in the same period last year. The decrease in gross profit was primarily due to a reduction in gross profit margin to 19.7 percent for the fourth quarter from 24.1 percent for the same period in 2010, partially offset by higher volumes. The decrease in gross profit margin was primarily due to unfavorable mix resulting from the reduction of take or pay and deferred revenue recognition in the United Kingdom and the unfavorable foreign exchange impact related to the weakening of the U.S. dollar, partially offset by lower depreciation primarily from winding down of the accelerated depreciation in Puerto Rico.

Selling, general and administrative expenses in the quarter were $35.9 million up from $28.5 million for the same period last year. The increase was primarily due to higher consulting fees for strategy and operational initiatives. The unfavorable foreign exchange impact on selling, general and administrative expense included above was approximately $0.8 million.

Repositioning expenses for the fourth quarter were $3.5 million up from $1.0 million for same period last year. The increase was due to costs associated with repositioning expenses in Zug and Swindon partially offset by lower expenses in connection with the Caguas closure and consolidation in Puerto Rico.

Operating loss in the fourth quarter was $3.7 million, or -2.0 percent of revenues, from operating income of $13.3 million, or 7.5 percent of revenues, for the same period last  year as a result of the factors discussed above.

Fiscal 2012 Outlook

The company believes that fiscal year 2012 revenues will be modestly higher than fiscal year 2011.

SOURCE Patheon Inc.