Health & Beauty
Net sales and operating result
The Health & Beauty segment generated net sales of CHF 803.4 million (+2.8%) in the first half of 2020, of which CHF 747.4 million was accounted for by the Retail Business sector and CHF 54.6 million by the Products & Brands Business sector.
In spite of the negative impact of COVID-19, the Health & Beauty segment was able to increase its adjusted1) operating result (EBIT), i.e. excluding the effects of the lease accounting standard IFRS 16, by 2.5% to CHF 61.7 million, and keep its adjusted1) return on sales (ROS) stable at 7.7%. This result was achieved in particular thanks to encouraging expansion activities – in both the Retail and Products & Brands Business sectors.
EBIT was negatively impacted above all by the drop in sales at pharmacies in high-frequency locations and for beauty products, as well as by the temporary closure of perfumery departments mandated by the authorities. At the same time, additional costs were incurred by pharmacies, for example to roll out protection measures for employees and customers and to maintain operations. Investments in the Health & Beauty segment totalled CHF 11.1 million (first half of 2019: CHF 8.6 million). This figure was slightly higher than in the previous year due to investments in ERP system replacements.
1) Excluding the effects of IAS 19 and IFRS 16 (refer to chapter Alternative performance measures provided in the half year report 2020 of the Galenica Group from page 27 onwards)
Advice and support in a challenging environment
Net sales development
The Retail Business sector increased net sales in the first half of 2020 by 2.9% to CHF 747.4 million (excluding Coop Vitality). The positive sales performance is attributable to the acquisition of the Bichsel Group on 1 May 2019 and the expansion of the pharmacy network.
The expansion – including the Bichsel Group – accounted for 4.3% of the sales growth. Organic growth, excluding expansion effects, was –1.4%.
Excluding the effect of the government-mandated price reduction measures for medications of –1.9%, organic growth would have amounted to +0.5%.
In addition, sales performance in the first half of 2020 was impaired by a onetime effect. Various intra-Group commodity transactions were discontinued as of the start of 2020 as part of a process optimisation programme, which reduced the sales of the Retail Business sector by 1.3% year-on-year. Excluding price reductions and this one-time effect, organic growth would have amounted to a pleasing 1.8%.
Finally, generic substitution, which is actively promoted by Galenica, also curbed sales because of the lower medication prices. The generic substitution rate was increased again in the period under review, from 70% to 72%.
Although the Amavita and Sun Store pharmacies achieved a massive increase in sales in March, the sales losses in the following months caused by COVID-19 measures were higher, so that COVID-19 had a negative impact of an estimated 1% on overall sales growth. The reasons were the nationwide lockdown with the temporary, officially ordered closure of perfumery departments and the slump in customer frequency, particularly in pharmacies in shopping centres, train stations and airports. Since many doctors’ practices did not operate at full capacity for several weeks, fewer prescription drugs were dispensed in pharmacies.
This decline in sales was more than offset by a good three-fold increase in online sales generated by the e-shops of Amavita and Sun Store and the pleasing growth of the Mediservice specialty pharmacy (+3.2%).
By comparison, medication sales (prescription (Rx) and OTC products) in the Swiss pharmacy market posted growth of 2.8% over the same period (IQVIA, Pharmaceutical Market Switzerland, first half of 2020). Sales of other products (non-medications) increased by 0.8% over the same period (IQVIA, Personal, Patient Care and Nutrition, first half of 2020).
Growth driven by probiotics and acquisitions
Net sales development
The Products & Brands Business sector, which mainly comprises the business activities of Verfora, reported a slight increase in net sales of +1.0% to CHF 54.6 million. The sales growth was mainly driven by the export business.
Given the challenging environment resulting from COVID-19, sales in the Swiss market declined by 2.6% to CHF 41.3 million. By comparison, the Swiss consumer healthcare market increased by 3.9% in the year under review (IQVIA, Consumer Health Market Switzerland, first half of 2020).
Sales in Switzerland were positively supported by expansion activities, which contributed 2.6% to the sales development. These included, in particular, the successful start to taking over distribution of the Omni-Biotic® brand from Institut Allergosan.
Due to COVID-19, demand for individual products – in particular disinfectant products from Septo Clean® – jumped almost overnight in March 2020. Algifor® also recorded an initial high increase in sales; however, demand declined sharply in the second quarter 2020.
Overall, however, the sales of Verfora were negatively affected by COVID-19. The various beauty products in particular suffered from the lockdown. But also products such as Itinerol® and Anti-Brumm®, which are typically part of a travel first aid kit, were bought less. Sales of products such as Perskindol® were also negatively impacted by lower frequencies in pharmacies.
Export sales totalled CHF 13.3 million, +14.0% more than in the first half of 2019 – primarily due to inventory purchases of Perskindol® triggered in view of the introduction of the new Medical Device Regulation in the EU.
Number of employees