Orion Group Financial Statement Release for 2020
ORION CORPORATION FINANCIAL STATEMENT RELEASE 2020 9 FEBRUARY 2021 at 12:00
Orion Group Financial Statement Release for 2020
This is a summary or Orion’s Financial Statement Release for 2020. The complete report is attached to this stock exchange release and is available at https://www.orion.fi/en/Orion-group/investors/financial-reviews-and-presentations/
- Net sales totalled EUR 1,078 million (EUR 1,051 million in 2019).
- Operating profit was EUR 280 (253) million.
- Net sales and operating profit include milestone payments amounting to EUR 42 (51) million.
- Profit before taxes was EUR 278 (251) million.
- Equity ratio was 67% (77%).
- ROCE before taxes was 35% (30%).
- ROE after taxes was 29% (26%).
- Basic earnings per share were EUR 1.56 (1.43).
- Cash flow per share before financial items was EUR 1.85 (1.68).
- The Board of Directors proposes payment of a dividend of EUR 1.50 (1.50) per share.
- Orion estimates that net sales in 2021 will be slightly lower than in 2020 (net sales in 2020 were EUR 1,078 million). Operating profit is estimated to be lower or clearly lower than in 2020 (operating profit in 2020 was EUR 280 million).
|10-12/20||10-12/19||Change %||1-12/20||1-12/19||Change %|
|Net sales, EUR million||255.4||274.5||-7.0%||1,078.1||1,051.0||+2.6%|
|EBITDA, EUR million||47.8||69.5||-31.3%||336.5||308.9||+9.0%|
|% of net sales||18.7%||25.3%||31.2%||29.4%|
|Operating profit, EUR million||34.2||55.0||-37.8%||280.1||252.8||+10.8%|
|% of net sales||13.4%||20.0%||26.0%||24.1%|
|Profit before taxes, EUR million||33.8||54.7||-38.3%||278.3||250.8||+10.9%|
|% of net sales||13.2%||19.9%||25.8%||23.9%|
|Profit for the period, EUR million||25.5||45.2||-43.6%||219.9||200.4||+9.7%|
|% of net sales||10.0%||16.4%||20.4%||19.1%|
|R&D expenses, EUR million||38.4||32.8||+17.0%||123.2||119.3||+3.3%|
|% of net sales||15.0%||11.9%||11.4%||11.3%|
|Capital expenditure, EUR million||18.0||14.5||+24.3%||48.5||42.6||+14.0%|
|% of net sales||7.1%||5.3%||4.5%||4.0%|
|Interest-bearing net liabilities, EUR million||-185.8||-139.1||+33.6%|
|Basic earnings per share, EUR million||0.18||0.32||-43.5%||1.56||1.43||+9.8%|
|Cash flow per share before financial items, EUR||0.33||0.40||-18.3%||1.85||1.68||+9.6%|
|Equity ratio, %||66.7%||76.7%|
|ROCE (before taxes), %||34.8%||29.9%|
|ROE (after taxes), %||29.1%||25.8%|
|Average personnel during the period||3,337||3,251||+2.6%|
President and CEO Timo Lappalainen:
Strong performance amid challenges brought on by COVID-19 pandemic
“The COVID-19 pandemic made 2020 an exceptional and demanding year for Orion and for the world. The strong spike in demand for pharmaceuticals seen in March and April brought challenges to Orion’s production and logistics. However, we prevailed due to the strong commitment and hard work of our people. We strived successfully – and will carry on striving – to ensure that pharmaceuticals manufactured and sold by Orion continue to be available to patients. Our current inventory status is good, but we need to keep working to this effect, as the risk of disruptions in global pharmaceutical supply chains remains higher than usual owing to the pandemic. In the current exceptional circumstances, we have prioritised looking after the health and safety of our employees and ensuring production continuity and patient safety in ongoing clinical trials, and we will continue to do so. Amidst the pandemic, we pushed ourselves to a good performance, for which many thanks are due to our dedicated and adaptable people at Orion as well as our collaboration partners.
Our net sales in 2020 were EUR 1,078 (1,051) million and our operating profit was EUR 280 (253) million. The COVID-19 pandemic had a variety of impacts on our sales. Full-year sales of some pandemic-related products, such as dexmedetomidine products used in intensive care, were clearly above the level estimated at the start of 2020. On the other hand, the sales of some products fell below anticipated levels in part due to restrictive measures put in place in various parts of Europe. The general strong spike in demand for pharmaceuticals in March and April increased sales somewhat at annual level, although demand did level off as expected over the rest of the year. We do not believe that there has been an increase in the basic need for pharmaceuticals other than those used for treating COVID-19 patients; our estimate is that the growth in demand rather reflects customers’ preparation measures and stockpiling. At this point it is difficult to estimate how customers’ stock levels will evolve in the near future. The coronavirus had visible impacts on Orion’s operations, but at the same time it can be said that our business operations developed favourably in many respects also without consideration to the COVID-19 impact.
The growth of operating profit is mostly due to higher net sales than in the previous year and a decrease in operating expenses owing to the pandemic. Gross margin was improved by the high utilisation rate of Orion’s production facilities and reduced waste following continual development of operations, as well as increased sales, although the level of margins in product sales fell late in the year mainly due to the timing of partner deliveries of Parkinson’s drugs and animal sedatives and a decrease in the sales of Simdax®. In the last months of the year, expenses increased relative to preceding months of the year due to new investments in research and development projects as well as sales and marketing. In our estimate, our operating profit was around EUR 40 million stronger than we anticipated at the beginning of 2020, due to the impacts of the COVID-19 pandemic. More than half of this were attributable to the increased international sales of dexmedetomidine products and the rest to lower than anticipated expenses and increased sales of other products.
The net sales of the Dexdor® sedative, used in intensive care and aimed at the European market, decreased slightly from the comparative period due to generic competition, but the decrease was significantly less than we had anticipated at the start of the year due to the increased demand brought on by the COVID-19 pandemic. The formulation patent of Simdax®, a drug used in the treatment of acute decompensated heart failure, expired in key markets in September. Its sales decreased sharply towards the end of the year due to a decrease in planned hospital visits because of the pandemic and, in some markets, due to falling prices. Year-on-year, its sales fell slightly from 2019.
Sales of the Easyhaler® product portfolio for asthma and chronic obstructive pulmonary disease saw expected strong growth until autumn but developed weaker than anticipated in the end of the year. In our estimate, COVID-19 restrictions cut the number of doctors’ appointments around Europe in the second half of the year, and customers used inventories they had stockpiled in the first year-half, which was reflected in the sales of Easyhaler® products. The net sales of the Parkinson’s drugs Stalevo® and Comtess®/Comtan® remained at the previous year’s level, as anticipated. The fluctuating sales in the course of the year were mostly due to the timing of partner deliveries.
In 2020, Orion booked EUR 17 million in net sales of Nubeqa®, a drug indicated for the treatment of non-metastatic castration-resistant prostate cancer. In addition, Orion booked a total of EUR 28 million in milestone payments from first commercial sales of the product in the EU and Japan. In the comparative period in August 2019, Orion booked a EUR 45 million milestone payment for the first commercial sales of the product in the USA.
Net sales of the Specialty Products unit increased slightly, but development was uneven in the course of the year, especially in self-care products, due to the spike in demand caused by the COVID-19 pandemic in spring and subsequent levelling out of demand. In a full-year view, the coronavirus somewhat increased demand, but business developed well even without the pandemic effect. We can be satisfied with the growth in a situation in which the net sales of our biosimilar products fell by more than EUR 20 million and the prices of generic prescription drugs continued to fall.
The Animal Health unit also had a robust year, with net sales reaching their highest level ever so far. In June, the U.S. Food and Drug Administration (FDA) granted a marketing authorisation to Orion’s Clevor®, which will be distributed in the United States by our partner Vetoquinol. Orion’s long-term distribution partnership with the animal health company Zoetis in Denmark, Norway and Sweden came to an end in 2020, as Zoetis decided to set up its own sales organisations in these countries. The change will have a negative impact on the unit’s net sales in 2021, but will have no material impact on Orion Group's operating profit. Demand for Fermion products was at a high level all year and production capacity was nearly fully utilised.
COVID-19 also affected Orion’s research and development projects, which experienced some delays due to the situation in 2020. The highest priority, however, was to look after the safety and continued care of patients involved in clinical trials. In July, we completed the Phase III clinical REFALS trial, which unfortunately did not meet its pre-specified endpoints. The trial investigated the efficacy and safety of oral levosimendan in the treatment of amyotrophic lateral sclerosis (ALS).
We are continuing the Phase III clinical ARASENS trial on darolutamide with Bayer, expecting to get results this year, and are jointly initiating the Phase III clinical ARANOTE trial on darolutamide as a new project. The ODM-208 and ODM-209 projects have seen a slight delay due to COVID-19 restrictions, but they are proceeding and ODM-208 has moved on to Phase II clinical trial. Orion’s new Senior Vice President for Research and Development started in her post in June, and in the autumn we renewed the R&D organisation and strategy. The changes are aimed at strengthening the company’s R&D portfolio and speeding up research projects. Orion has also been developing a new-generation dry-powder inhaler, and we have started first product development project using the new device platform.
Orion’s strategic growth target, to reach net sales of EUR 1.5 billion by the end of 2025, remains valid, and we are working determinedly to achieve this target. For example, we have increased resource allocation to business development, and in 2020 we signed several fairly significant in-licensing agreements in the Specialty Products unit. Most of the potential of these agreements can only materialise after 2025. Nevertheless, the agreements indicate that Orion is able to acquire new products to its markets and that it is viewed as an attractive partner.
Orion has systematically invested tens of millions of euros annually in the maintenance, renewing and expansion of its production facilities in Finland. We continued these investments determinedly in 2020, our tangible investments totalling EUR 37 million. A renewal of Orion’s enterprise resource planning system will be one significant investment in 2021–2023. Another major investment, the renovation of Orion’s headquarters in Espoo, will begin in autumn 2021 and be completed in 2023.”
Outlook for 2021
Orion estimates that net sales in 2021 will be slightly lower than in 2020
(net sales in 2020 were EUR 1,078 million).
Operating profit is estimated to be lower or clearly lower than in 2020
(operating profit in 2020 was EUR 280 million).
Basis for outlook in more detail
Collaboration agreements with other pharmaceutical companies are an important component of Orion’s business model. Agreements often include payments recorded in net sales and operating profit that vary greatly from year to year. Forecasting the timing and amount of these payments is difficult. In some cases they are conditional on terms such as research outcomes which are not known until studies have been completed, the progress of research projects or the attainment of specified sales levels. On the other hand, neither the outcome nor the schedule of contract negotiations is generally known before the final signing of the agreement.
In 2020 Orion received a total of EUR 42 million in milestone payments, most of these in connection with the commercialisation of Nubeqa® in Europe and Japan (EUR 28 million in total) and the transfer of distribution rights to Parkinson’s products to new partners around the world. In 2019, Orion received a total of EUR 51 million in milestone payments, of which EUR 45 million in connection with the commercialisation of Nubeqa® in the United States. The net sales and operating profit estimates for 2021 include less than EUR 5 million of milestone payments, a significantly lower figure than in the preceding years.
Orion estimates that its operating profit in 2020 was around EUR 40 million higher due to the impacts of the COVID-19 pandemic than the Company estimated at the beginning of 2020. More than half of this came from the increased international sales of dexmedetomidine products and the rest from lower than anticipated expenses and increased sales of other products. The outlook for 2021 does not contain similar impacts due to the pandemic.
The outlook is based on the assumption that Orion’s own production can continue to operate normally despite the COVID-19 pandemic. This requires, among other things, continued success in employee protection so that absence rates do not significantly increase, that personal protective equipment, starting materials, intermediate products and materials are available and that the logistics chains are sufficiently functional.
The outlook does not include any income or expenses associated with possible product or company acquisitions.
Orion continues persistent actions to generate growth more rapidly than growth of the market in the long term. However, in 2021 net sales will be negatively affected by significantly lower milestone payments than in the previous years, generic competition and expiration of a major distribution agreement in the Animal Health unit. In addition, the COVID-19 pandemic significantly increased the demand for some Orion products in 2020, but similar added sales beyond normal demand are not anticipated for the same products in 2021, which negatively affects net sales in comparison with 2020.
Sales of Orion’s Dexdor® and Simdax® will decrease due to generic competition. In 2020, the sales of Dexdor® remained at the previous year’s level due to the increased demand caused by the COVID-19 pandemic, but in 2021 its sales are expected to decline.
Nubeqa®, the drug developed by Orion in collaboration with Bayer, received marketing authorisation in the United States in 2019 and in the EU and Japan in 2020. Nubeqa® has now been approved in several other countries as well, and marketing authorisation application filings in other regions are underway or planned by Bayer. The outlook anticipates that the net sales of Nubeqa® booked by Orion will clearly increase in 2021. Orion’s estimate is based on forecasts received from its partner Bayer.
The sales of the Easyhaler® product portfolio will continue to grow also in 2021 due to combined formulations (budesonide-formoterol and salmeterol-fluticasone) launched in the past few years. However, growth is expected to be slower than in the preceding years. The sales of Orion’s branded Parkinson’s drugs (Comtess®, Comtan® and Stalevo®) are estimated to remain at the same level as in the previous year.
The Scandinavian distribution agreement between Orion’s Animal Health unit and the animal health company Zoetis, in effect for several years, terminated at the end of 2020. As a consequence, the net sales of Orion’s Animal Health unit in 2021 will decrease clearly from the previous year. Distribution of Zoetis products contributed around EUR 28 million to Orion’s net sales in 2020.
Sales of generic products account for a significant proportion of Orion’s total sales. Decline in the price of generic drugs and availability disruptions due to causes other than the COVID-19 pandemic have impacted Orion’s net sales negatively in the past few years. However, the combined negative impact of price decline and product shortages is estimated to be clearly smaller in 2021 than in the previous years. The demand for some generic drugs sold by Orion exceeded normal levels in 2020 due to the COVID-19 pandemic, but the demand for these products is estimated to return to a more normal level this year, negatively affecting net sales development in 2021 in comparison with 2020.
The outlook for 2021 includes under EUR 5 million in milestone payments, which is clearly less than what was booked in 2020 (EUR 42 million) or 2019 (EUR 51 million).
Orion anticipates clearly lower milestone payments in 2021 than in 2020, and the Company’s net product sales are expected to decrease slightly from 2020. Operating profit will also be affected by declining sales of the proprietary products Dexdor® and Simdax® due to generic competition. Growing sales of products like Easyhaler® product portfolio or Nubeqa® will not be able to compensate for the resulting decline in operating profit. Orion therefore estimates that operating profit will be lower or clearly lower than in 2020.
Orion anticipates that operating expenses will remain at a similar level with the previous year. Depreciations related to the acquisition of sales and distribution rights for the Parkinson’s drugs were booked for the final time in 2020, and this will reduce sales and marketing expenses by around EUR 12 million. At the same time, increasing investments are made in the sales and marketing of products that are experiencing growth. Expenses that saw a decline due to the COVID-19 pandemic are anticipated to return to a more normal level in the second half of 2021. R&D expenses are estimated to remain at a similar level as in the previous year.
The Group’s total capital expenditure in 2021 is expected to be more than in 2020, when capital expenditure was EUR 49 million. However, the COVID-19 pandemic may slow down the implementation of planned investments. Orion has launched a project to renew its enterprise resource planning (ERP) system, and renovations of the Company head office in Espoo will also commence in 2021. Most of the investments in these projects will materialise in 2022–2023.
Near-term risks and uncertainties
The outlook is based on the assumption that Orion’s own production can continue to operate normally despite the COVID-19 pandemic. The sales of Orion-manufactured products depend on the ability of production and the entire supply chain to operate at the planned level. This involves numerous pandemic-related risks that may cause even material production disruptions. Such risks include the infection of employees, poor availability of personal protective equipment, poorer availability of starting materials and intermediate products as well as logistics chain disruptions.
In the course of 2020, as the agreement with Novartis expired, Orion transferred the distribution of the Parkinson’s drugs Stalevo® and Comtan® to new partners in most non-European markets with the exception of Japan. Orion started to sell these products on its own in Singapore, Malaysia and Thailand and continues to sell them in Europe. These changes, as well as continued generic competition affecting sales negatively, have been factored into the outlook for the current year. However, they still entail uncertainty that may materially affect the accuracy of the estimate made at this stage.
The basic patents for Dexdor® and Simdax® have expired and generic competition on these products has begun. In 2020, the COVID-19 pandemic strongly increased the demand for intensive care sedatives, and therefore the sales of Dexdor® decreased far less than anticipated. Its sales are estimated to notably decrease in 2021, but this estimate is subject to substantial uncertainty due to the pandemic situation. Generic competition to Simdax® started in the first markets in 2020. In 2021, net sales of Simdax® are estimated to decrease, but it is difficult to make exact estimates of sales at this point. Actual sales will be affected, among other things, by the timing of the beginning of generic competition in the various markets and the intensity of this competition.
Sales of individual products and also Orion’s sales in individual markets may vary, for example depending on the extent to which the ever-tougher price and other competition prevailing in pharmaceutical markets in recent years will specifically focus on Orion’s products. Product deliveries to key partners are based on timetables that are jointly agreed in advance. Nevertheless, they can change, for example as a consequence of decisions concerning adjustments of stock levels. In addition, changes in market prices and exchange rates affect the value of deliveries. The COVID-19 pandemic significantly increased the demand for some Orion products in 2020, but similar added sales beyond normal demand are not anticipated for the same products in 2021. There is uncertainty around this estimate, since the path of the pandemic and its impacts on the demand for Orion’s products are difficult to assess with any precision. On the other hand, Orion is unaware of how much of the stockpiles acquired by customers in 2020 are remaining and when customers might start using inventories that exceed normal stock levels.
The structural exchange rate risk due to the US dollar has decreased in recent years because the share of Orion’s net sales invoiced in dollars has fallen to below ten per cent and at the same time the value of purchases in dollars has increased. The weight of the US dollar will increase due to increasing sales of Nubeqa®. The greatest exchange rate risk at present relates to European currencies such as the Swedish and Norwegian crown and British pound. However, the overall effect of the risk due to currencies of European countries will be abated by the fact that Orion has organisations of its own in most of these countries, which means that in addition to sales income, there are also costs in these currencies. The exchange rate performance of the Japanese yen is significant due to increased sales of Parkinson’s drugs in Japan. The exchange rate effect related to the Russian rouble has increased due to the strong volatility of the currency. However, Russian sales are not a significant portion of Orion’s entire net sales.
Orion’s broad product range may cause risks to the delivery reliability and make it challenging to maintain the high quality standard required in production. The impact of availability disruptions on the Company’s net sales has increased in the past few years. The ongoing COVID-19 pandemic has clearly ramped up this risk, as restrictions on travel and other operations and the increase in sick leaves in different parts of the world may cause delayed disruptions in pharmaceuticals’ global distribution and logistics chains. In Orion’s estimate, the COVID-19 pandemic will not significantly affect the availability of Company products in the first half of 2021, but there is a risk of poorer product availability in the second half of the year. Authorities and key customers in different countries carry out regular and detailed inspections of drug development and manufacturing at Orion’s production sites. Any remedial actions that may be required may at least temporarily have effects that decrease delivery reliability and increase costs. Orion’s product range also contains products manufactured by other pharmaceutical companies and products that Orion manufactures on its own but for which other companies deliver active pharmaceutical or other ingredients. Possible problems related to the delivery reliability or quality of the products of those manufacturers may cause a risk to Orion’s delivery reliability. The single-channel system used for pharmaceuticals distribution in Finland, in which Orion’s products have been delivered to customers through only one wholesaler, may also cause risks to delivery reliability.
Research projects always entail uncertainty factors that may either increase or decrease estimated costs. The projects may progress more slowly or faster than assumed, or they may be discontinued. Nonetheless, changes that may occur in ongoing clinical studies, for example due to the COVID-19 pandemic, are reflected in costs relatively slowly and are not expected to have a material impact on earnings in the current year. Owing to the nature of the research process, the timetables and costs of new studies that are being started are known well in advance. They therefore typically do not lead to unexpected changes in the estimated cost structure. Orion often undertakes the last, in other words Phase III, clinical trials in collaboration with other pharmaceutical companies. Commencement of these collaboration relationships and their structure also materially affect the schedule and cost level of research projects.
Collaboration arrangements are an important component of Orion’s business model. Possible collaboration and licensing agreements related to these arrangements also often include payments to be recorded in net sales that may materially affect Orion’s financial results. In 2014–2020 the annual payments varied from EUR 5 million to EUR 51 million. The payments may be subject to conditions relating to the progress of research projects or sales or to new contracts to be signed, and whether these conditions or contracts materialise and what their timing is will always entail uncertainties.
Proposal by the Board of Directors: dividend EUR 1.50 per share
The parent company's distributable funds are EUR 477,075,050.26 or EUR 3.40 per share. This includes EUR 216,389,442.49 or EUR 1.54 per share, of profit for the financial year. These per share amounts are calculated excluding treasury shares held by the Company. The Board of Directors proposes payment of a dividend of EUR 1.50 (1.50) per share from the parent company’s distributable funds.
No dividend shall be paid on treasury shares held by the Company on the dividend distribution record date. On the day when the profit distribution was proposed, the number of shares conferring entitlement to receive dividend totalled 140,463,196, on which the total dividend payment would be EUR 210,694,794.00. The Group’s payout ratio for the financial year 2020 would be 95.9% (105.2%) The dividend payment date would be 7 April 2021, and shareholders registered in the Company’s shareholder register on 29 March 2021 would be entitled to the dividend payment.
The Board of Directors further proposes that EUR 350,000 (250,000) be donated to medical research and other purposes of public interest in accordance with a separate decision by the Board and that EUR 266,030,256.26 remain in equity.
News conference and conference call
A webcast and a conference call for analysts, investors and media will be held on Tuesday, 9 February 2021 at 13.30 EET. The event will be held only online and by conference call.
A link to the live webcast will be available on Orion's website at www.orion.fi/en/investors. A recording of the event will be available on the website later the same day.
To participate the conference call, please dial:
Finland: +358 9 817 103 10
Sweden: +46 8 566 426 51
UK: +44 333 300 0804
USA: +1 631 913 1422
|Annual General Meeting 2021||Planned to be held on Thursday 25 March 2021|
|Interim Report January-March 2021||Tuesday 27 April 2021|
|Half-Year Financial Report January-June 2021||Monday 19 July 2021|
|Interim Report January-September 2021||Wednesday 20 October 2021|
The Financial Statements and the Report by the Board of Directors for 2020 will be published on the Company's website at the latest in week 9/2021.
Espoo, 9 February 2021
Board of Directors of Orion Corporation
For additional information about the report:
Jari Karlson, CFO tel. +358 50 966 2883
Tuukka Hirvonen, Investor Relations tel. +358 10 426 2721 or +358 50 966 2721
Orion is a globally operating Finnish pharmaceutical company – a builder of well-being. Orion develops, manufactures and markets human and veterinary pharmaceuticals and active pharmaceutical ingredients. The company is continuously developing new drugs and treatment methods. The core therapy areas of Orion's pharmaceutical R&D are neurological disorders, oncology and respiratory diseases for which Orion develops inhaled pulmonary medication. Orion's net sales in 2020 amounted to EUR 1,078 million and the company had about 3,300 employees at the end of the year. Orion's A and B shares are listed on Nasdaq Helsinki.
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