Net sales and operating result
The Services segment generated net sales of CHF 1,286.7 million in the first half of 2020, a strong increase of 7.9% compared to the prior year period. Services thus clearly exceeded the market development of 2.9% (IQVIA, Pharmaceutical Market Switzerland, first half of 2020).
COVID-19 generated an extremely strong demand for medicines in March 2020, which subsequently weakened again. Overall, additional sales contributed an estimated 3% to the increase in sales.
In connection with the new Ordinance on Integrity and Transparency in the Field of Therapeutic Products (OITTP), agreements with suppliers as well as invoicing models were revised in line with the new transparency obligations, which increased sales of the Services segment by 1.9%. Even excluding this technical one-time effect, the Services Business sector posted strong growth of 6.0%. This one-time effect has no impact on the Group’s consolidated sales and EBIT.
The government-mandated price reduction measures continued to have an adverse effect on sales performance, at 1.8%. Excluding these influences, net sales would have risen by as much as 9.7%.
Due to COVID-19, the first half of 2020 saw the postponement of numerous surgeries and procedures in hospitals and by specialist physicians that were not immediately necessary. In contrast to recent years, hospitals (+3.5%, IQVIA, Pharmaceutical Market Switzerland, first half of 2020) and doctors (+2.1%, IQVIA, Pharmaceutical Market Switzerland, first half of 2020) did not develop more strongly than the overall market (+2.9 %, IQVIA, Pharmaceutical Market Switzerland, first half of 2020).
The adjusted1) operating result (EBIT), i.e. excluding the effects of the lease accounting standard IFRS 16, remained on a par with the level of the previous year's period at CHF 22.6 million. In spite of the positive effect on sales, COVID-19 generated considerable additional expenses, such as protective measures for employees and additional staff resources, which in turn had negative impact on EBIT. In addition, due to the constantly increasing risks in connection with cybercrime, further measures were implemented to protect the IT infrastructure and networks. Finally, EBIT was also burdened in the first half of 2020 by the construction work commenced at the Lausanne-Ecublens distribution centre in autumn 2019.
Adjusted1) return on sales (ROS) decreased slightly from 1.9% to 1.8%. While sales generated by doctors in particular posted gains and additional market share was captured especially among specialists, this was largely achieved with high-priced medications offering low margins. Investments in the first half of 2020 totalled CHF 15.8 million (first half of 2019: CHF 16.3 million). They related in particular to the new ERP (enterprise resource planning) software, which is gradually being rolled out at Alloga and Galexis, and to the modernisation and renovation work at the Galexis distribution centre in Lausanne-Ecublens. There were some delays to these projects due to COVID-19, which will result in postponed investments and costs.
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)
Number of employees
"Services clearly exceeded the development postet by the market, increasing sales by 7.9%. However, substantial additional costs were incurred due to COVID-19, which had a negative impact on EBIT."