UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 6-K

 

 

 

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the month of November 2022

Commission File Number: 001-40851

 

 

 

Procaps Group, S.A.

(Translation of registrant’s name in English)

 

 

 

9 rue de Bitbourg, L-1273

Luxembourg

Grand Duchy of Luxembourg

R.C.S. Luxembourg: B253360

Tel : +356 7995-6138

(Address of Principal Executive Offices)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F ☒            Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

 

 

 

 

 

INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K

 

Earnings Release

 

On November 14, 2022, Procaps Group, S.A. issued a press release announcing its financial results for the third quarter ended September 30, 2022 and the nine months ended September 30, 2022 (the “Press Release”). A copy of the Press Release is furnished as Exhibit 99.1 to this Report on Form 6-K and incorporated by reference herein.

 

Unaudited Condensed Consolidated Interim Financial Statements

 

The Unaudited Condensed Consolidated Interim Financial Statements of Procaps Group, S.A. as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 are filed as Exhibit 99.2 to this Current Report on Form 6-K and are being incorporated by reference into the Registration Statement on Form F-1 (File No. 333-261366).

 

Exhibit Index

 

Exhibit
Number
  Exhibit Title

99.1

  Press Release of Procaps Group, S.A. dated November 14, 2022 – Procaps Group Reports Third Quarter and Nine Months 2022 Results.
99.2  

The Unaudited Condensed Consolidated Interim Financial Statements of Procaps Group, S.A. as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021.

 

1

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  PROCAPS GROUP, S.A.
     
  By: /s/ Ruben Minski
  Name:  Ruben Minski
  Title: Chief Executive Officer

 

Dated: November 14, 2022

 

 

2

 

Exhibit 99.1

 

 

Procaps Group Reports Third Quarter and Nine Months 2022 Results

 

Constant currency Net Revenues Increased by 15% year-over-year in the 9M22 and by 11% in the 3Q22,
signaling a strong demand across our businesses

 

MIAMI, USA – BARRANQUILLA, COL – November 14, 2022 – Procaps Group S.A. (NASDAQ: PROC) (“Procaps”), a leading integrated LatAm healthcare and pharmaceutical conglomerate, today announced its financial results for the three months ended September 30, 2022 (“3Q22”) and the nine months ended September 30, 2022 (“9M22”).

 

“Demand remains robust for RX and consumer health products as well as for all our CDMO products, and gross margin remained strong despite the challenging macro scenario we have been facing. We have continued to invest and prepare the company for the organic and inorganic growth that is about to come, and we expect to see continued revenue growth and improved operating leverage,” said Rubén Minski, CEO of Procaps.

 

Highlights 9M22 & 3Q22

 

Product Development & Market Expansion

 

Capacity expansion plans in the United States continue as planned with the ongoing construction of the new gummy manufacturing facility in Florida

 

Commencement of operations of West Palm Beach facility providing R&D services

 

Renewal rate of 24% in 9M22

 

140+ products launched during 9M22 in the regions where we operate

 

Expected to close Grupo Somar acquisition before year-end

 

Financial Highlights

 

Net revenues totaled $110 million for 3Q22, an increase of 3% vs.3Q21, and an increase of 11% on a constant currency basis, thanks to the positive performance of RX, OTC and CDMO products. Net revenues totaled $309 million in 9M22, a 9% increase vs. 9M21, and an increase of 15% on a constant currency basis.
   
Gross profit for 3Q22 increased by 9% vs. 3Q21, totaling $68 million, with a 61% gross margin, and a 17% increase in 9M22 vs. 9M21, amounting to $187 million.

 

    3Q22    3Q21    Δ%    9M22    9M21    Δ%  
Net Revenues  110    107    3%   308    283    9%
FX Impact on Net Revenues   (8)   -    -7%   (16)   -    -5%
Constant Net Revenues   118    107    11%   325    283    15%

 

 

 

 

 

Management Commentary

 

Procaps Chief Executive Officer, Ruben Minski, commented:

 

“The third quarter was highlighted by our ongoing pace of innovative new products launches and product rollouts to new regions, as well as increased demand and market share for existing products. Despite macroeconomic headwinds and the depreciation of some local currencies, we continued to make significant progress on our strategy of building an integrated healthcare organization that will capture the benefits of our organic and inorganic growth.

 

“The cadence of new product launches and product rollouts to new regions combined to deliver 11% revenue growth on a constant currency basis during the quarter compared to 3Q21, supported by product development and new launches. With our strong focus on continuous innovation and internationalization, we continue to expand our portfolio within selected therapy areas and geographies. We have launched over 40 products in Colombia during the first nine months of 2022 and continuing with our geo expansion, we have launched approximately 100 products in the rest of the region, in the same period.

 

“We are delivering double-digit growth on a constant currency basis, and those results support our belief that we are making the necessary investment in our business and that the key drivers and competitive advantages are in place to execute our long-term strategy, despite currency headwinds.

 

“Looking ahead, we continue to expect to close on our Grupo Somar acquisition by the end of the year which will represent a significant step forward for our regional consolidation strategy, expanding our reach in Mexico. Our West Palm Beach facility pipeline of RX product development has been growing as expected, and we have a positive perspective for the next twelve months.

 

“In summary, while we are experiencing headwinds in the second half of this year, we believe we are well positioned to build significant momentum in 2023 as we drive growth, expand our portfolio and continue to focus on our roll-up strategy – all with the goal of building sustainable value for our shareholders over the long-term. I look forward to driving new momentum towards the realization of Procaps’s significant potential,” said Minski.

 

Procaps Chief Financial Officer, Patricio Vargas, commented:

 

“We ended the third quarter of 2022 with revenue increase of 11% over the same period of the previous year on a constant currency basis, and 15% in the first nine months, driven by multiple therapeutic areas across the company. We believe our ongoing discipline in the execution of our growth strategy, combined with the soundness of our core business operations, will position us for continued growth as the macroeconomic environment normalizes.

 

Currency devaluation during the last few months in some of our markets negatively impacted our 3Q22 revenues by $8 million compared to the third quarter of 2021 and by $16 million in the first nine months of the year compared to the same period in the prior year.

 

“Our gross margin remains robust at 61% both for the 3Q22 as well as for the 9M22, positively impacted by the portfolio mix during the third quarter.

 

2

 

 

 

To address the specific headwinds, we have been facing in these past months, we have been proactive in seeking out new ways to strengthen our multi-prong growth strategy that we expect will continue to deliver growth in our core markets with strong cash generation to the bottom line.

 

“Our strategy going forward will continue to prioritize high value uses for our capital, with an emphasis on reinvesting in our business by funding our internal R&D and innovation initiatives. With our substantial efforts to establish the necessary building blocks for growth, including our recent acquisition announcement, I’m confident that we are well positioned to achieve our near and long-term goals.

 

“Looking to 4Q22 and 2023, we expect to see continuing challenges and uncertainties, such as a possible recession in the United States and Europe, supply chain disruptions, and the continued depreciation of the currencies in the markets where we operate.

 

Despite these possibilities, we believe the diversified nature of our businesses, our efforts to meet these challenges, and ongoing expansion at every level of the Company, position us to combat potential challenges ahead and to continue our growth. The mid-term outlook for growth is positively driven by our product pipeline which is paramount to sustain our growth.,” concluded Vargas.

 

Innovation & Launches

 

Total R&D expenses, including the amount capitalized as intangible assets, totaled $7 million in 3Q22, 6% of total net revenues in the period. For 9M22, total R&D expenses totaled $20 million (7% of net revenues).

 

Our renewal rate (% of net revenues from new products launched in the last 36 months) was 24% during 9M22. Launches depend on registration approval from regulatory agencies, and we could have phasing from quarter to quarter, depending on the time of the approval. Our goal continues to be at 25%. Looking only at the 3Q22, the renewal rate was 30%.

 

We have registered over 160 products in the region, and we have 180 products under registration process.

 

Ramp up for products launched during the first nine months of the year is going well, highlighted by Aludel, Dolofen Flu, Mentsi and Papilo Care in Colombia. Looking at the geo expansion launches, women health, cardiovascular, and gastro products are also performing well according to the expected ramp up.

 

Third Quarter 2022 & Nine Months 2022 Financial Results

 

Net Revenues

 

Net revenues totaled $110.4 million in 3Q22, compared to net revenues of $106.8 million for 3Q21, representing a growth of 3.3% year-over-year. On a constant currency basis, net revenues increased by 10.9% from 3Q21 to 3Q22.

 

The increase is mainly driven by positive performances in the Nextgel and CASAND business segments, and the quarter was negatively impacted by macroeconomic headwinds, particularly the depreciation of some local currencies in those countries where Procaps operates as well as supply chain challenges, such as higher prices and supplier delivery delays which led to backorders.

 

Net revenues totaled $308.5 million in 9M22, compared to net revenues of $283.2 million for 9M21, increasing 8.9%. On a constant currency basis, net revenues increased by 14.6% from 9M21 to 9M22.

 

3

 

 

 

Net revenue by strategic business segment is shown below:

 

    3Q22    %NR    3Q22*    3Q21    %NR    Δ%    Δ%* 
CAN   14.4    13.1%   14.5    14.1    13.2%   2.3%   2.5%
CASAND   17.7    16.0%   17.9    13.2    12.3%   34.7%   36.2%
Diabetrics   5.0    4.5%   5.7    7.3    6.8%   -31.4%   -21.9%
Nextgel   36.4    33.0%   38.5    31.4    29.4%   15.9%   22.5%
Procaps Colombia   36.8    33.4%   41.9    40.9    38.3%   -9.9%   2.5%
Total Net Revenues   110.4    100.0%   118.5    106.8    100.0%   3.3%   10.9%

 

   9M22   %NR   9M22*   9M21   %NR   Δ%   Δ%* 
CAN   42.5    13.8%   42.6    31.2    11.0%   36.5%   36.7%
CASAND   47.4    15.4%   47.8    38.3    13.5%   23.7%   24.8%
Diabetrics   15.5    5.0%   17.1    20.4    7.2%   -23.8%   -16.1%
Nextgel   94.7    30.7%   97.8    83.9    29.6%   12.9%   16.6%
Procaps Colombia   108.3    35.1%   119.2    109.5    38.6%   -1.1%   8.9%
Total Net Revenues   308.5    100.0%   324.5    283.2    100.0%   8.9%   14.6%

  

*Constant currency basis

 

Central America North (CAN)

 

Net revenues for the CAN business segment were $ 14.4 million in 3Q22, an increase of 2.3% vs. 3Q21, primarily as a result of the performance for Rx products, such as Muvett and Citragel and the roll out of new products. The higher than expected orders from 3Q21 led to a higher comparison basis.

 

Net revenues totaled $42.5 million in 9M22 with an increase of 36.5% versus 9M21, positively impacted by our performance in Guatemala and Nicaragua, which presented double-digit growth in sales and the strengthening of promotional lines by expanding its portfolio, especially in gastrointestinal, cardiovascular, and feminine care therapeutic areas. On a constant currency basis, net revenues increased by 36.7% from 9M21 to 9M22.

 

Central America South and Andean Region (CASAND)

 

Net revenues for the CASAND business segment totaled $ 17.7 million in 3Q22, an increase of 34.7% when compared to 3Q21, mainly due to the continued strengthening of existing brands in key growth markets through increased market share, such as Alercet D and Gestavit DHA and the rollout of new products, such as Fortzink Ultra, Dayflu Active.

 

4

 

 

 

Dominican Republic and Ecuador, among others, showed positive performance, presenting double-digit growth.

 

Net revenues grew 23.7% in 9M22 vs. 9M21, totaling $47.4 million, supported by higher overall demand and roll-out of new products. On a constant currency basis, net revenues increased by 24.8% from 9M21 to 9M22.

 

During 2Q22, we launched a cardio line in several countries, with emphasis on Ferovas, which has patented Unigel technology, and Mentsi. Sales started ramping up during 3Q22.

 

Diabetrics

 

Diabetrics net revenues decreased 31.4% when compared with 3Q21. On a constant currency basis, net revenues decreased by 21.9% from 3Q21 to 3Q22

 

We had a 6-month delay in our plant for one of our insulin products, due to problems with the supplier of the device. We have now started to sell the product and the first indications of ramp-up and acceptance of the product are promising.

 

This business segment was also negatively impacted by the delay in Invima (Colombia National Food and Drug Surveillance Institute) to register some products, since they had some cybersecurity issues, and several registration processes were delayed. We were expecting to launch several follow-on products that were going to replace the older versions, and we weren´t able to do so, yet.

 

Due to the currency devaluation and increased costs, we are seeking to develop new channels in the private sector and other EPSs to maintain margins and sustain the business in the long term.

 

Net revenues totaled $15.5 million in 9M22, a decrease of 23.8% when compared to 9M21, for the same reasons explained above. On a constant currency basis, net revenues decreased by 16.1% from 9M21 to 9M22.

 

The roll out of this business model to the other countries is going according to plan and we are expecting launches during the first half of 2023.

 

Nextgel

 

Net revenues for Nextgel business segment were $36.4 million in 3Q22, a 15.9% increase versus 3Q21, supported mainly by the launch of new products with some partners, the increase in sales of existing products and the increase in product development services, which will support our future growth. On a constant currency basis, net revenues increased by 22.5% from 3Q21 to 3Q22

 

Net revenues totaled $94.7 million in 9M22, an increase of 12.9%, highlighted by the strong demand for pharmaceutical manufacturing in the region and portfolio expansion with regional and global current partners. On a constant currency basis, net revenues increased by 16.6% from 9M21 to 9M22.

 

Procaps Colombia

 

Net revenues for the Procaps Colombia segment totaled $36.8 million in 3Q22, a 9.9% decrease versus 3Q21, impacted by the currency devaluation, and the slower pace of sales of the most relevant Clinical Specialties products for the ICU, due to higher than usual inventory cycles in the distributors. On a constant currency basis, net revenues increased by 2.5% from 3Q21 to 3Q22.

 

5

 

 

 

The Farma Procaps and VitalCare business units are growing above 20% in sales in 9M22 when compared with 9M21, primarily due to the demand increase of its leading brands in the market, such as Gestavit, Citragel, Muvett S, and others, as well as the performance of new products.

 

Net revenues totaled $108.3 million in 9M22, a decrease of 1.1%, negatively impacted by the devaluation of Colombian pesos. On a constant currency basis, net revenues increased by 8.9% from 9M21 to 9M22.

 

Gross Profit

 

Gross profit increased by $5.3 million, or 8.5%, to $67.6 million in 3Q22, compared to $62.3 million in 3Q21.

 

Gross profit grew 17.0% in 9M22, totaling $187.3 million in 9M22 from $160.1 million in 9M21.

 

   3Q22   3Q21   Δ%   9M22   9M21   Δ% 
Net Revenues   110.4    106.8    3.3%   308.5    283.2    8.9%
COGS   (42.8)   (44.6)   -3.9%   (121.1)   (123.2)   -1.6%
Gross Profit   67.6    62.3    8.5%   187.3    160.1    17.0%
Gross Margin   61.2%   58.3%   292.0 bps    60.7%   56.5%   421.2 bps 

 

Gross margin was 61.2% in 3Q22 and gross margin for the 9M22 was 60.7%, an increase of 421.2 bps compared to 9M21.

 

Operating Expenses

 

Operating expenses totaled $59.9 million in 3Q22, aligned with our investments in brands to expand market share, build the structure, and prepare the company for future growth. Operating expenses totaled $162.6 million in 9M22.

 

SG&A totaled $50.2 million in 3Q22, an increase of 14.5% vs. 3Q21, representing 45.5% of total net revenues. In 9M22, SG&A totaled $149.4 million, an increase of 18.7% (48.4% of total net revenues).

 

   3Q22   %NR   3Q21   %NR   Δ%   9M22   %RL   9M21   %RL   Δ% 
Sales and marketing expenses   (25.9)   23.4%   (22.8)   21.4%   13.3%   (71.7)   23.2%   (61.2)   21.6%   17.2%
Administrative expenses   (24.3)   22.0%   (21.0)   19.7%   15.8%   (77.7)   25.2%   (64.7)   22.8%   20.2%
Other expenses   (9.7)   8.8%   (75.0)   70.2%   -87.1%   (13.2)   4.3%   (77.1)   27.2%   -82.9%
Total Operational Expenses   (59.9)   54.3%   (118.9)   111.3%   -49.6%   (162.6)   52.7%   (203.0)   71.7%   -19.9%

 

Sales and marketing expenses totaled $25.9 million in 3Q22, an increase of 13.3% vs. 3Q21. In 9M22, the increase was 17.2% totaling $71.7 million from $61.2 million in 9M21. The increase in both periods was mainly due to the return of events and commercial efforts post pandemic, especially in CASAND to support top line growth, and the hiring of personnel for the West Palm Beach plant.

 

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Administrative expenses totaled $24.3 million in 3Q22, an increase of 15.8% vs. 3Q21, primarily driven by increased personnel costs, including costs associated with being a public company, and increased professional fees related to legal and consulting services. It was also impacted by costs associated with the structuring of the company for future growth. During 9M22, total administrative expenses were $77.7 million, an increase of 20.2% when compared to 9M21.

 

Other expenses are related mainly to the impact of exchange rate differences (approximately $13 million) in 3Q22, impacted mostly by approximately 15% depreciation of the Colombian Peso in relation to the US dollar. In 2021, there was a one-time listing expense related to the business combination. It is the deemed listing services received by Procaps from Union, which is the difference between the deemed costs of the Ordinary Shares issued by the Company to Union shareholders in connection with the Business Combination, in excess of the net assets obtained from Union, as required by IFRS 2 Share-based payments.

 

Contribution Margin

 

The Contribution Margin is determined by subtracting sales and marketing expenses from gross profit. This is an important measure to understand each business segment’s performance.

 

   3Q22   %NR   3Q22*   3Q21   %NR   Δ%   Δ%* 
CAN   3.2    7.7%   3.2    5.4    12.8%   -40.6%   -40.6%
CASAND   8.1    19.3%   8.2    4.9    11.6%   65.1%   67.4%
Diabetrics   1.9    4.5%   2.1    1.9    4.6%   -4.1%   5.9%
Nextgel   16.0    38.3%   17.3    17.7    41.9%   -9.6%   -2.0%
Procaps Colombia   12.6    30.2%   15.2    12.3    29.1%   2.6%   23.8%
Total Contribution Margin   41.7    100.0%   45.9    42.1    100.0%   -1.1%   9.0%

 

   9M22   %NR   9M22*   9M21   %NR   Δ%   Δ%* 
CAN   11.6    10.0%   11.6    9.9    10.0%   17.5%   17.7%
CASAND   19.9    17.2%   20.1    13.9    14.0%   43.6%   45.1%
Diabetrics   3.2    2.8%   3.6    4.5    4.5%   -28.5%   -20.2%
Nextgel   43.7    37.7%   45.7    37.8    38.3%   15.4%   20.8%
Procaps Colombia   37.5    32.3%   42.7    33.7    34.1%   11.1%   26.6%
Total Contribution Margin   115.8    100.0%   123.7    98.9    100.0%   17.2%   25.1%

 

*Constant currency basis

 

CASAND, Nextgel and Procaps Colombia business segments have shown significant improvement in contribution margin in 9M22, when compared to 9M21, positively impacted by our ongoing efforts of portfolio profitability evaluation.

 

In 3Q22, Nextgel contribution margin for the quarter was impacted by all the expenses associated with the new production facilities in Florida (Sofgen Pharmaceutical WPB and the Miramar facility for Funtrition) which are in the process of consolidating all its operations. CAN contribution margin was impacted by an increase in marketing and promotion expenses, which includes medical samples, media investments, and the Procaps Experience event (an event to promote the RX portfolio). This was mainly a phasing of expenses that concentrated mostly in the 3Q22, such as events and marketing promotions.

 

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CASAND contribution margins showed significant improvement for the quarter as well, positively impacted by the sale of a better mix in Dominican Republic and the overall increase in revenues. Procaps Colombia showed significant improvement in constant currency. Diabetrics also showed improvement in constant currency, negatively affected by the impact on revenues explained above.

 

EBITDA

 

Adjusted EBITDA1 totaled $22.9 million in 3Q22, a decrease of 9.5% when compared to $25.3 million for 3Q21. In 9M22, adjusted EBITDA totaled $59.6 million, an increase of 3.0% vs. 9M21.

 

Adjusted EBITDA margin was 20.7% for 3Q22, impacted by higher SG&A expenses.

 

   3Q22   3Q21   Δ%   9M22   9M21   Δ% 
Net Income   22.6    (110.8)   n.a.    32.1    (128.5)   n.a. 
Financial expenses   (22.7)   50.7    n.a.    (18.5)   79.2    n.a. 
Income tax   7.8    3.6    118.9%   11.1    6.3    75.0%
D&A   4.0    4.5    -10.0%   12.4    13.4    -7.3%
EBITDA   11.7    (52.2)   n.a.    37.1    (29.5)   n.a. 
Listing expense1   -    73.9    n.a.    -    73.9    n.a. 
FX translation adjustments2   9.0    0.6    1444.4%   12.2    2.3    422.2%
Transaction expenses3   1.3    1.4    -6.2%   7.4    7.2    2.59%
Other expenses4   0.9    1.5    -41.1%   3.0    3.9    -24.6%
Adjusted EBITDA   22.9    25.3    -9.5%   59.6    57.8    3.0%
Adjusted EBITDA margin   20.7%   23.6%   -293.8 bps    19.3%   20.4%   -110.2 bps 

 

Financial Expenses

 

The net financial expenses totaled a gain of $22.7 million in 3Q22, impacted by the net fair value of the Procaps ordinary shares held in escrow, which is a non-cash item. Excluding this effect, net financial expenses totaled $7.0 million, mostly impacted by the interest expenses ($6.3 million in 3Q22).

 

 

1Table above – EBITDA - shows Adjusted EBITDA and a reconciliation of net income, which the Company believes is the most comparable IFRS measure, to Adjusted EBITDA. See under “Reconciliation” on the Appendix for a detailted adjustments explanations.

 

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   3Q22   3Q21   Δ%   9M22   9M21   Δ% 
Banking expenses and fees   (0.3)   (0.5)   -25.8%   (1.1)   (1.8)   -36.8%
Others financial expenses   (0.4)   (0.1)   169.5%   (0.8)   (0.5)   54.9%
Net fair value gain of shares held in escrow   28.6    -    -    36.3    -    - 
Net fair value gain of warrants liabilities   1.2    -    -    1.8    -    - 
Interest expenses   (6.3)   (50.1)   -87.4%   (17.6)   (76.9)   -77.1%
Net Financial Expenses   22.7    (50.7)   n.a.    18.5    (79.2)   n.a. 

 

Net Income

 

Procaps reported a net income of $22.6 million for 3Q22 as compared to a net loss of $110.8 million in 3Q21.

 

Net income totaled $32.1 million for 9M22, compared to a net loss of $128.5 million for 9M21.

 

   3Q22   3Q21   Δ%   9M22   9M21   Δ% 
EBIT   7.6    (56.6)   n.a.    24.7    (42.9)   n.a. 
Net Financial Expenses   22.7    (50.7)   n.a.    18.5    (79.2)   n.a. 
EBT   30.4    (107.3)   n.a.    43.2    (122.1)   n.a. 
Income Tax   (7.8)   (3.6)   119%   (11.1)   (6.3)   75%
Net Income   22.6    (110.8)   n.a.    32.1    (128.5)   n.a. 

 

Indebtedness

 

As of September 30, 2022, our total gross debt was $253.9 million, compared to $253.4 million as of December 31, 2021.

 

Gross debt consisted mainly of the Senior Notes in the amount of $113.3 million; other loans in the amount of $61.2 million and the syndicated loan in the amount of $40.4 million. The total gross debt is at an average cost of 8.5%.

 

Cash totaled $27.2 million as of September 30, 2022, as compared to $72.1 million as of December 31, 2021, impacted mainly by the increase in working capital to mitigate some supply chain challenges (approximately $10 million), increased expenses for being a listed public company and financing and M&A projects (approximately $15 million) and expansion CAPEX (approximately $7 million) to support future growth.

 

9

 

 

 

Total net debt as of September 30, 2022, totaled $226.6 million, of which approximately 67.3% consisted of long-term obligations.

 

   9M22   YE 2021 
Short Term   83.0    74.6 
Long Term   170.8    178.7 
Gross Debt   253.9    253.4 
Cash and cash equiv.   27.2    72.1 
Net Debt   226.6    181.3 
Adjusted EBITDA LTM   101.4    99.7 
Net Debt / Adj. EBITDA   2.2x   1.8x

 

Net debt/Adjusted EBITDA for the last 12 months (“LTM”) was 2.2x for 3Q22, compared to 1.8x for the year ended December 31, 2021.

 

Capital Expenditures (“CAPEX”)

 

As of September 30, 2022, CAPEX totaled $23.1 million, comprising of $15.3 million of property, plant & equipment (“PP&E”) (5.0% of net revenues) and $7.8 million of intangible CAPEX (2.5% of net revenues).

 

PP&E CAPEX refers mainly to the construction of the new Miramar site for Funtitrion, the increase of installed capacity in our plants and the expansion of analytical lab capacity.

 

Intangible CAPEX refers mainly to investments in the development of new products and product´s sanitary registration fees.

 

The investments are aligned with our strategic growth plan to increase production capacity, facilities improvement and increase capacity to develop new products.

 

   9M22   % NR   2021   % NR   Δ% 
Intangible CAPEX   7.8    2.5%   5.9    1.4%   31.5%
PP&E CAPEX   15.3    5.0%   10.9    2.7%   39.9%
Total CAPEX   23.1    7.5%   16.8    4.1%   36.9%

 

10

 

 

 

Cash Flow

 

Cash flow from operating activities during 9M22 was $22.0 million, mainly impacted by changes in working capital especially due to the increase in inventories, CAPEX and R&D investments.

 

   9M22   9M21   Δ% 
Accounting EBITDA   37.1    (29.5)   n.a. 
Other adjustments to cash flow   4.1    79.4    -94.9%
Changes in working capital   (13)   4.8    n.a. 
Cash from operations   27.9    54.7    -49.0%
Interest paid   (1.3)   (1.4)   -8.2%
Dividends received   -    0.3    n.a. 
Income tax paid   (4.6)   (2.7)   69.3%
Operating Cash Flow   22.0    50.9    -56.7%
CAPEX and R&D investments   (20.5)   (16.8)   22.2%
Free Cash Flow   1.5    34.1    -95.6%
Financing Cash Flow   (41.5)   76.4    n.a. 
Increase (Decrease) in Cash   (40.0)   110.6    n.a. 

 

Cash conversion cycle was 111 days ($134.4 million). 

 

(days)  4Q21   1Q22   2Q22   3Q22 
Account receivables (DSO)   103    96    100    107 
Inventories (DIO)   70    85    83    83 
Suppliers (DPO)   75    78    76    79 
Working Capital   98    103    107    111 

 

About Procaps Group

 

Procaps Group, S.A. ("Procaps”) (NASDAQ: PROC) is a developer of pharmaceutical and nutraceutical solutions, medicines, and hospital supplies that reach more than 50 countries in all five continents. Procaps has a direct presence in 13 countries in the Americas and more than 5,300 employees working under a sustainable model. Procaps develops, manufactures, and markets over the counter (OTC) pharmaceutical products and prescription pharmaceutical drugs (Rx), nutritional supplements and high-potency clinical solutions. For more information, visit www.procapsgroup.com or Procaps Group’s investor relations website investor.procapsgroup.com.

 

11

 

 

 

 

APPENDIX

 

Use of Non-IFRS Financial Measures

 

Our management uses and discloses EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Net Debt-to-Adjusted EBITDA ratio, Contribution Margin and net revenue on a constant currency basis, which are non-IFRS financial information to assess our operating performance across periods and for business planning purposes. We believe the presentation of these non-IFRS financial measures is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate our business. These non-IFRS measures are not meant to be considered in isolation or as a substitute for financial information presented in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board and should be viewed as supplemental and in addition to our financial information presented in accordance with IFRS.

 

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Net Debt-to- Adjusted EBITDA ratio

 

We define EBITDA as profit (loss) for the period before interest expense, net, income tax expense and depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to exclude certain isolated costs incurred as a result of the COVID-19 pandemic, certain transaction costs incurred in connection with the business combination (“Business Combination”) with Union Acquisition Corp. II (“Union”), certain listing expenses incurred in connection with the Business Combination, certain costs related to business transformation initiatives, certain foreign currency translation adjustments and certain other finance costs, and other nonrecurring nonoperational or unordinary items as the Company may deem appropriate from time to time. We also report Adjusted EBITDA as a percentage of net revenue as an additional measure so investors may evaluate our Adjusted EBITDA margins. None of EBITDA, Adjusted EBITDA or Adjusted EBITDA margin are presented in accordance with generally accepted accounting principles (“GAAP”) or IFRS and are non-IFRS financial measures.

 

We use EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, and Net Debt-to-Adjusted EBITDA ratio for operational and financial decision-making and believe these measures are useful in evaluating our performance because they eliminate certain items that we do not consider indicators of our operating performance. EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and Net Debt-to-Adjusted EBITDA ratio are also used by many of our investors and other interested parties in evaluating our operational and financial performance across reporting periods. We believe that the presentation of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and Net Debt-to- Adjusted EBITDA ratio provides useful information to investors by allowing an understanding of key measures that we use internally for operational decision-making, budgeting, evaluating acquisition targets, and assessing our operating performance.

 

EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, and Net Debt-to- Adjusted EBITDA ratio are not recognized terms under IFRS and should not be considered as a substitute for net income (loss), cash flows from operating activities, or other income or cash flow statement data. These measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under IFRS. We strongly encourage investors to review our financial statements in their entirety and not to rely on any single financial measure.

 

Because non-IFRS financial measures are not standardized, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, and Net Debt-to-Adjusted EBITDA ratio, as defined by us, may not be comparable to similarly titled measures reported by other companies. It, therefore, may not be possible to compare our use of these non-IFRS financial measures with those used by other companies.

 

Appendix A-1

 

 

 

Portfolio Overview

 

Procaps´s portfolio is comprised by 5 business lines: Nextgel, Diabetrics, Farma Procaps, Clinical Specialties, and Vital Care.

 

Nextgel

 

Nextgel is the iCDMO (integral contract development and manufacturing organization) arm of Procaps. We develop and manufacture proprietary Softgel technology, such as Unigel, Versagel, Chewgel, G-tabs and specialized gummies. We export to over 50 countries and partner with global and regional pharmas. This is exclusively a B2B channel.

 

Diabetrics

 

Diabetrics is a health solution for diabetes patients. It is a patient-centric solution, offering a comprehensive portfolio of products and differentiated services. This solution is offered in Colombia, and we expect to launch in Central America and Mexico beginning in 2023.

 

Farma Procaps

 

Farma Procaps formulates, manufactures and markets branded prescription drugs. It represents a high-growth portfolio that focuses on nine therapeutic areas: feminine care products, pain relief, skin care, digestive health, growth and development, cardiology, vision care, central nervous system and respiratory.

 

Clinical Specialties

 

Clinical Specialties business line develops, manufactures, and markets high-complexity drugs for hospitals and clinics, such as antibiotics, blood clots, immunosuppressants, oncology, and analgesics products.

 

VitalCare

 

VitalCare business line develops, manufactures, and markets OTC consumer healthcare products through an extensive portfolio focused on high-prevalence therapeutic areas, including gastrointestinal, skin care, cough, and cold, analgesics, urological, and vitamins, minerals, and supplements.

 

Our Farma Procaps, VitalCare and Clinical Specialties business units are part of three business segments: CAN, CASAND, and Procaps Colombia.

 

Procaps Colombia primarily serves the Colombian market; CAN primarily serves the Honduras, Nicaragua, El Salvador, United States, and Guatemala markets; and CASAND primarily serves the Panama, Costa Rica, Ecuador, Dominican Republic, Peru, and Bolivia markets.

 

Appendix A-2

 

 

 

 

Reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

 

for the three and nine months ended September 30, 2022 and 2021

 

    3Q22   3Q21   Δ%    9M22   9M21   Δ% 
Net Income   22.6    (110.8)   n.a.    32.1    (128.5)   n.a. 
Financial expenses   (22.7)   50.7    n.a.    (18.5)   79.2    n.a. 
Income tax   7.8    3.6    118.9%   11.1    6.3    75.0%
D&A   4.0    4.5    -10.0%   12.4    13.4    -7.3%
EBITDA   11.7    (52.2)   n.a.    37.1    (29.5)   n.a. 
Listing expense1   -    73.9    n.a.    -    73.9    n.a. 
FX translation adjustments2   9.0    0.6    1444.4%   12.2    2.3    422.2%
Transaction expenses3   1.3    1.4    -6.2%   7.4    7.2    2.59%
Other expenses4   0.9    1.5    -41.1%   3.0    3.9    -24.6%
Adjusted EBITDA   22.9    25.3    -9.5%   59.6    57.8    3.0%
Adjusted EBITDA margin   20.7%   23.6%   -293.8 bps    19.3%   20.4%   -110.2 bps 

 

 

(1)Listing expenses of $73.9 million associated with the deemed listing services received by Procaps from Union, which is the difference between the deemed costs of the Ordinary Shares issued by the Company to Union shareholders in connection with the Business Combination, in excess of the net assets obtained from Union, as required by IFRS 2 Share-based payments

 

(2)Foreign currency translation adjustments represent the reversal of exchange losses we recorded due to foreign currency translation of monetary balances of certain of our subsidiaries from U.S. dollars into the functional currency of those subsidiaries as of September 30, 2022 and 2021

 

(3)Transaction expenses primarily include (i) consulting and legal fees and expenses related to operations in the amount of $3.3 million (ii) consulting and legal fees and expenses related to acquisitions and other transactions in the amount of $2.3 million, (iii) incremental director & officer policy insurance costs incurred of $0.9 million in connection with the Business Combination.

 

(4)Other expenses consist of business transformation initiatives implemented during the six months ended September 30, 2022.

 

Use of Constant Currency

 

As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of certain financial metrics and results on a constant currency basis in addition to the IFRS reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information is non-IFRS financial information that compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. We currently present net revenue on a constant currency basis. We calculate constant currency by calculating nine month-end period for the nine months ended September 30, 2022 using prior-period (nine months ended September 30, 2021) foreign currency exchange rates. The functional foreign currencies for the primary regional markets where we operate, such as the Colombian Peso and the Brazilian Real, were adjusted on a constant currency basis at the exchange rates of COP $3,697.10 per U.S. $1.00 and R$5.3317 per U.S. $1.00, respectively, for the nine months ended September 30, 2021. We generally refer to such amounts calculated on a constant currency basis as excluding the impact of foreign exchange. These results should be considered in addition to, not as a substitute for, results reported in accordance with IFRS. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with IFRS.

 

Contribution Margin

 

We define Contribution Margin as gross profit less selling expenses. Contribution Margin is one of the key performance indicators we use in evaluating our profitability. We believe Contribution Margin is useful to investors in evaluating our operating performance compared to other companies in the pharmaceutical industry, as similar measures are commonly used by companies in this industry.

 

Appendix A-3

 

 

 

 

The following table provides a reconciliation from gross profit to Contribution Margin for the three months and nine months ended September 30, 2022 and 2021.

 

USD$MM   3Q21   9M22   3Q22   9M22
                     
Nextgel                    
Net Revenues   31.4    83.9    36.4    94.7 
COGS   (13.8)   (39.1)   (16.8)   (41.7)
Gross Profit   17.7    44.8    19.6    53.0 
Gross margin %   56.2%   53.4%   53.8%   56.0%
Sales and marketing expenses   (2.7)   (9.7)   (3.6)   (9.3)
Contribution margin   14.9    35.1    16.0    43.7 
Contribution margin %   47.6%   41.9%   43.8%   46.1%
         -         - 
Procaps Col                    
Net Revenues   40.9    109.5    36.8    108.3 
COGS   (20.4)   (54.4)   (16.8)   (48.9)
Gross Profit   20.4    55.1    20.1    59.4 
Gross margin %   50.0%   50.3%   54.4%   54.9%
Sales and marketing expenses   (8.1)   (21.3)   (7.4)   (21.9)
Contribution margin   12.3    33.7    12.6    37.5 
Contribution margin %   30.1%   30.8%   34.2%   34.6%
         0        0
CAN                    
Net Revenues   14.1    31.2    14.4    42.5 
COGS   (4.1)   (9.5)   (5.6)   (15.5)
Gross Profit   10.1    21.7    8.8    27.1 
Gross margin %   71.3%   69.5%   61.2%   63.6%
Sales and marketing expenses   (4.7)   (11.8)   (5.6)   (15.5)
Contribution margin   5.4    9.9    3.2    11.6 
Contribution margin %   38.1%   31.6%   22.1%   27.2%
         0         0 
CASAND                    
Net Revenues   13.2    38.3    17.7    47.4 
COGS   (2.5)   (8.4)   (1.7)   (6.8)
Gross Profit   10.7    29.9    16.0    40.6 
Gross margin %   81.3%   78.1%   90.3%   85.7%
Sales and marketing expenses   (5.8)   (16.0)   (7.9)   (20.7)
Contribution margin   4.9    13.9    8.1    19.9 
Contribution margin %   37.1%   36.2%   45.5%   42.0%
         0         0 
Diabetrics                    
Net Revenues   7.3    20.4    5.0    15.5 
COGS   (3.8)   (11.8)   (1.9)   (8.3)
Gross Profit   3.4    8.6    3.1    7.3 
Gross margin %   47.0%   42.2%   61.8%   46.8%
Sales and marketing expenses   (1.5)   (4.1)   (1.2)   (4.1)
Contribution margin   1.9    4.5    1.9    3.2 
Contribution margin %   26.7%   21.9%   37.3%   20.6%
         0         0 
Total                    
Net Revenues   106.8    283.2    110.4    308.5 
COGS   (44.6)   (123.2)   (42.8)   (121.1)
Gross Profit   62.3    160.1    67.6    187.3 
Gross margin %   58.3%   56.5%   61.2%   60.7%
Sales and marketing expenses   (22.8)   (63.9)   (25.9)   (71.7)
Contribution margin   39.4    96.1    41.7    115.6 
Contribution margin %   36.9%   34.0%   37.8%   37.5%

 

Appendix A-4

 

 

 

 

Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

 

For the three and nine months ended September 30, 2022 and 2021

 

(In thousands of United States Dollars, unless otherwise stated)

 

   For the three months ended
September 30
   For the nine months ended
September 30
 
   2022   2021   2022   2021
As restated1
 
Revenue  $110,403   $106,829   $308,453   $283,206 
Cost of sales   (42,845)   (44,577)   (121,139)   (123,152)
Gross profit   67,558    62,252    187,314    160,054 
                     
Sales and marketing expenses   (25,875)   (22,841)   (71,697)   (61,191)
Administrative expenses   (24,337)   (21,011)   (77,737)   (64,670)
Finance income/(expense), net   22,748    (50,651)   18,539    (79,242)
Other expenses, net   (9,706)   (75,024)   (13,209)   (77,096)
Income/(Loss) before tax   30,388    (107,275)   43,210    (122,145)
                     
Income tax expense   (7,808)   (3,566)   (11,104)   (6,342)
Income/(Loss) for the period  $22,580   $(110,841)  $32,106   $(128,487)
                     
Income/(Loss) for the period attributable to:                    
Owners of the Company   22,580    (110,897)   32,106    (128,865)
Non-controlling interests       56        378 
                     
Earnings per share:                    
Basic, income/(loss) for the period attributable to ordinary equity holders of the Company2   0.22    (1.14)   0.32    (1.32)

 

 

Appendix A-5

 

 

 

 

Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

 

For the three and nine months ended September 30, 2022 and 2021

 

(In thousands of United States Dollars, unless otherwise stated)

 

   For the three months ended September 30   For the nine months ended September 30 
   2022   2021   2022  

2021

As restated1

 
Income/(Loss) for the period  $22,580   $(110,841)  $32,106   $(128,487)
                     
Other comprehensive (loss)/income                    
Items that will not be reclassified to profit or loss:                    
Remeasurement of net defined benefit liability               84 
Income tax relating to items that will not be reclassified subsequently to profit or loss               (29)
Net of Tax               55 
Items that will be reclassified subsequently to profit or loss:                    
Exchange differences on translation of foreign operations   (3,513)   567    (4,279)   (3,949)
Other comprehensive (loss)/income for the period, net of tax   (3,513)   567    (4,279)   (3,894)
Total comprehensive income/(loss) for the period  $19,067   $(110,274)  $27,827   $(132,381)
                     
Total comprehensive income/(loss) for the period attributable to:                    
Owners of the Company   19,077    (110,330)   27,827    (132,759)
Non-controlling interests   (10)   56        378 

 

1Refer to Note 2.2. Restatement of Previously Issued Financial Statements

  

Appendix A-6

 

 

 

 

Unaudited Condensed Consolidated Interim Statement of Financial Position

 

As of September 30, 2022 and December 31, 2021

 

(In thousands of United States Dollars, unless otherwise stated)

 

   As of September 30,
2022
   As of December 31,
2021
 
Assets        
Non-current assets        
Property, plant and equipment, net   74,128    72,638 
Right-of-use assets   41,039    40,167 
Goodwill   6,668    6,803 
Intangible assets   31,278    30,171 
Investments in joint ventures   2,195    2,443 
Other financial assets   220    256 
Deferred tax assets   7,839    7,067 
Other assets   4,448    4,531 
Total non-current assets  $167,815   $164,076 
Current assets          
Cash   27,215    72,112 
Trade and other receivables, net   129,284    117,449 
Inventories, net   100,361    79,430 
Amounts owed by related parties   2,698    1,147 
Current tax assets   32,155    22,082 
Other current assets   11,643    5,839 
Total current assets  $303,356   $298,059 
Total assets  $471,171   $462,135 
           
Liabilities and Stockholders’ Equity (Deficit)          
Equity (Deficit)          
Share capital   1,011    1,011 
Share premium   377,677    377,677 
Reserves   45,743    42,749 
Accumulated deficit   (401,947)   (431,059)
Accumulated other comprehensive loss   (32,057)   (27,778)
Equity (deficit) attributable to owners of the company  $(9,573)  $(37,400)
Non-controlling interest   (940)   (940)
Total equity (deficit)  $(10,513)  $(38,340)
Non-Current liabilities          
Borrowings   170,818    178,720 
Warrant liabilities   21,325    23,112 
Shares held in escrow   65,543    101,859 
Deferred tax liabilities   2,409    6,070 
Other liabilities   2,138    2,750 
Total non-current liabilities  $262,233   $312,511 
Current liabilities          
Borrowings   83,039    74,646 
Trade and other payables, net   95,272    85,381 
Amounts owed to related parties   3,523    8,450 
Current tax liabilities   21,080    11,756 
Provisions   111    501 
Other liabilities   16,426    7,230 
Total current liabilities  $219,451   $187,964 
Total liabilities and stockholders’ equity (deficit)  $471,171   $462,135 

 

Appendix A-7

 

 

 

 

Procaps Group S.A. and subsidiaries (The Group)

 

Unaudited Condensed Consolidated Interim Statement of Cash Flows

 

For the nine months ended September 30, 2022 and 2021

 

(In thousands of United States Dollars, unless otherwise stated)

 

   For the nine months ended
September 30
 
   2022  

2021
As restated1

 
Operating activities        
Income/(Loss) for the period  $32,106   $(128,487)
Adjustments to reconcile net gain (loss) with net cash from operating activities:          
Depreciation of property, plant and equipment   4,481    4,184 
Depreciation of right-of-use assets   4,539    3,281 
Amortization of intangibles   3,365    5,892 
Income tax expense   11,104    6,342 
Finance (income)/expense   (18,539)   79,242 
IFRS 2 Share-based payment expense (listing expense)       73,917 
Share of result of joint ventures   239    (371)
Net (gain)/loss on sale of property, plant and equipment   (503)   710 
Inventory provision   2,475    3,263 
Provision for bad debt   1,830    741 
Provisions   9    1,182 
Cash flow from operating activities before changes in working capital   41,106    49,896 
           
(Increase)/decrease in operating assets and liabilities:          
Trade and other receivables   (13,020)   (14,271)
Amounts owed by related parties   (1,555)   (835)
Inventories   (22,851)   (15,523)
Current tax assets   (10,073)   (4,540)
Other current assets   (5,803)   (563)
Trade and other payables   32,800    23,435 
Amounts owed to related parties   1,637    (252)
Current tax liabilities   (1,625)   (1,120)
Other liabilities   7,573    20,309 
Provisions   (408)   (1,182)
Other financial assets   36    321 
Other assets   83    (946)
Cash generated from operations   27,900    54,729 
           
Interest paid   (1,261)   (1,373)
Dividends received       300 
Income tax paid   (4,589)   (2,711)
Cash flow provided by operating activities  $22,050   $50,945 
           
Investing activities          
Acquisition of property, plant and equipment   (15,293)   (10,933)
Proceeds from sale of property, plant and equipment   2,653    26 
Acquisition of intangibles   (7,757)   (5,898)
Advances to related parties   (138)    
Cash flow used in investing activities  $(20,535)  $(16,805)
           
Financing activities          
Proceeds from borrowings   77,253    125,335 
Payments on borrowings   (97,290)   (115,642)
Payments to related parties   (6,625)   (3,577)
Interest paid on borrowings   (10,028)   (10,316)
Payment of lease liabilities   (4,858)   (4,354)
Redeemed shares       (45,000)
Cash obtained in acquisition       129,986 
           
Cash flow (used in) generated from financing activities  $(41,548)  $76,432 
           
Net (decrease) increase in cash   (40,033)   110,572 
Cash at beginning of the period   72,112    4,229 
Effect of exchange rate fluctuations   (4,864)   (14,609)
Cash at end of the period  $27,215   $100,192 
           
Non-cash financing and investing activities2  $42,328   $44,137 

 

Appendix A-8

 

 

 

 

Forward-Looking Statements

 

This press release contains “forward-looking statements.” Forward-looking statements may be identified by the use of words such as “forecast,” “intend,” “seek,” “target,” “anticipate,” “believe,” “expect,” “estimate,” “plan,” “outlook,” and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Such forward-looking statements include expectations related to the timing and completion of the acquisition of Grupo Somar; expectations related to the integration of Grupo Somar and Procaps’ presence in Mexico; estimated percentage of total revenues of the combined companies to be generated by Grupo Somar following the consummation of the acquisition; expectations regarding the pipeline of Rx products; expectations regarding the construction of a new gummy manufacturing facility; expectation regarding the increase in Procaps’ product development capabilities due to the operation of the West Palm Beach facility; expectations regarding a recession in the United States and Europe, depreciation of currencies in markets where we operate and supply chain disruptions; expectations regarding the launch of the Diabetrics solution in in El Salvador, Peru, and Mexico; and expectations regarding Procaps’ roll-up strategy and a multi-prong growth strategy of innovative pharmaceutical solutions and new expansion initiatives. Such forward-looking statements concerning revenues, earnings, performance, strategies, synergies, prospects and other aspects of the businesses of Procaps are based on current expectations that are subject to risks and uncertainties. Several factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. These statements involve risks, uncertainties, and other factors that may cause actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this press release, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. We cannot assure you that the forward-looking statements in this press release will prove to be accurate. These forward-looking statements are subject to a number of significant risks and uncertainties that could cause actual results to differ materially from expected results, including, among others, the ability to recognize the anticipated benefits of the acquisition of the Grupo Somar , the impact of COVID-19 on Procaps’ business, costs related to the acquisition and integration of the Grupo Somar, changes in applicable laws or regulations, the possibility that Procaps may be adversely affected by other economic, business, and/or competitive factors, and other risks and uncertainties, including those included under the header “Risk Factors” in Procaps’ annual report on Form 20-F filed with the U.S. Securities and Exchange Commission (“SEC”), as well as Procaps’ other filings with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. Accordingly, you should not put undue reliance on these statements.

 

 

Appendix A-9

 

 

Exhibit 99.2

 

 

 

 

 

 

 

Procaps Group S.A. and subsidiaries (The Group)

 

Unaudited Condensed Consolidated Interim Financial Statements for the three and

 

nine months ended September 30, 2022 and 2021

 

 

 

 

 

 

 

 

 

 

 

Procaps Group S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

      For the three months ended
September 30
   For the nine months ended
September 30
 
   Notes  2022   2021   2022   2021
As restated1
 
Revenue  5  $110,403   $106,829   $308,453   $283,206 
Cost of sales      (42,845)   (44,577)   (121,139)   (123,152)
Gross profit      67,558    62,252    187,314    160,054 
                        
Sales and marketing expenses      (25,875)   (22,841)   (71,697)   (61,191)
Administrative expenses      (24,337)   (21,011)   (77,737)   (64,670)
Finance income/(expense), net  7   22,748    (50,651)   18,539    (79,242)
Other expenses, net  8   (9,706)   (75,024)   (13,209)   (77,096)
Income/(Loss) before tax      30,388    (107,275)   43,210    (122,145)
                        
Income tax expense  9   (7,808)   (3,566)   (11,104)   (6,342)
Income/(Loss) for the period     $22,580   $(110,841)  $32,106   $(128,487)
                        
Income/(Loss) for the period attributable to:                       
Owners of the Company      22,580    (110,897)   32,106    (128,865)
Non-controlling interests          56        378 
                        
Earnings per share:                       
Basic, income/(loss) for the period attributable to ordinary equity holders of the Company2      0.22    (1.14)   0.32    (1.32)

 

 

1Refer to Note 2.2. Restatement of Previously Issued Financial Statements

 

2The Group reports net earnings per share in accordance with IAS 33 - Earnings Per Share. Basic income/(loss) per share is calculated by dividing the income/(loss) attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the period. No dilutive effect has been identified for the three and nine months ended September 30, 2022 and 2021. The weighted average number of ordinary shares used as the denominator in calculating basic earnings per share for the three and nine months ended September 30, 2022 is 101,109,572 (for the three and nine months ended September 30, 2021: 97,143,272).

 

The accompanying notes are an integral part of these unaudited consolidated condensed interim financial statements.

 

2

 

 

Procaps Group S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

   For the three months ended
September 30
   For the nine months ended
September 30
 
   2022   2021   2022   2021
As restated1
 
Income/(Loss) for the period  $22,580   $(110,841)  $32,106   $(128,487)
                     
Other comprehensive (loss)/income                    
Items that will not be reclassified to profit or loss:                    
Remeasurement of net defined benefit liability               84 
Income tax relating to items that will not be reclassified subsequently to profit or loss               (29)
Net of Tax               55 
Items that will be reclassified subsequently to profit or loss:                    
Exchange differences on translation of foreign operations   (3,513)   567    (4,279)   (3,949)
Other comprehensive (loss)/income for the period, net of tax   (3,513)   567    (4,279)   (3,894)
Total comprehensive income/(loss) for the period  $19,067   $(110,274)  $27,827   $(132,381)
                     
Total comprehensive income/(loss) for the period attributable to:                    
Owners of the Company   19,077    (110,330)   27,827    (132,759)
Non-controlling interests   (10)   56        378 

 

 

1Refer to Note 2.2. Restatement of Previously Issued Financial Statements

 

The accompanying notes are an integral part of these unaudited consolidated condensed interim financial statements.

 

3

 

 

Procaps Group S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Financial Position

As of September 30, 2022 and December 31, 2021

(In thousands of United States Dollars, unless otherwise stated)

 

   Notes  As of
September 30,
2022
   As of
December 31,
2021
 
Assets           
Non-current assets           
Property, plant and equipment, net  11   74,128    72,638 
Right-of-use assets      41,039    40,167 
Goodwill      6,668    6,803 
Intangible assets  10   31,278    30,171 
Investments in joint ventures      2,195    2,443 
Other financial assets      220    256 
Deferred tax assets      7,839    7,067 
Other assets      4,448    4,531 
Total non-current assets     $167,815   $164,076 
Current assets             
Cash      27,215    72,112 
Trade and other receivables, net  13   129,284    117,449 
Inventories, net  12   100,361    79,430 
Amounts owed by related parties      2,698    1,147 
Current tax assets      32,155    22,082 
Other current assets      11,643    5,839 
Total current assets     $303,356   $298,059 
Total assets     $471,171   $462,135 
              
Liabilities and Stockholders’ Equity (Deficit)             
Equity (Deficit)             
Share capital      1,011    1,011 
Share premium      377,677    377,677 
Reserves      45,743    42,749 
Accumulated deficit      (401,947)   (431,059)
Accumulated other comprehensive loss      (32,057)   (27,778)
Equity (deficit) attributable to owners of the company     $(9,573)  $(37,400)
Non-controlling interest      (940)   (940)
Total equity (deficit)     $(10,513)  $(38,340)
Non-Current liabilities             
Borrowings  14   170,818    178,720 
Warrant liabilities  16   21,325    23,112 
Shares held in escrow  17   65,543    101,859 
Deferred tax liabilities      2,409    6,070 
Other liabilities      2,138    2,750 
Total non-current liabilities     $262,233   $312,511 
Current liabilities             
Borrowings  14   83,039    74,646 
Trade and other payables, net      95,272    85,381 
Amounts owed to related parties      3,523    8,450 
Current tax liabilities      21,080    11,756 
Provisions  15   111    501 
Other liabilities      16,426    7,230 
Total current liabilities     $219,451   $187,964 
Total liabilities and stockholders’ equity (deficit)     $471,171   $462,135 

 

The accompanying notes are an integral part of these unaudited consolidated condensed interim financial statements.

 

4

 

 

Procaps Group S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Changes in Equity

For the nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

   Attributable to equity holders of the Group 
   Issued
Capital
As restated1
   Share
premium
As restated1
   Reserves 2   Accumulated
deficit
As restated1
   Other
Comprehensive
Income
   Total
As restated1
   Non-
controlling
interest
   Total equity
(deficit)
As restated1
 
Balance as of January 1, 2021  $2,001   $54,412   $39,897   $(327,344)  $(24,421)  $(255,455)  $777   $(254,678)
Loss for the period               (128,865)       (128,865)   378    (128,487)
Transfer reserves           (8)   8                 
Other comprehensive income                   (3,894)   (3,894)       (3,894)
Non-controlling interest               378        378        378 
Termination of put option agreement   903    297,796                298,699        298,699 
Subtotal  $2,904   $352,208   $39,889   $(455,823)  $(28,315)  $(89,137)  $1,155   $(87,982)
Capital restructuring of Crynssen Pharma Group Limited (at exchange ratio of 1:33.4448)   (1,933)   1,933                         
Subtotal - Restructured  $971   $354,141   $39,889   $(455,823)  $(28,315)  $(89,137)  $1,155   $(87,982)
Acquisition of Union Acquisition Corp. II   202    174,738                174,940        174,940 
Shares held in Escrow   (117)   (106,247)               (106,364)       (106,364)
Redemption of redeemable shares   (45)   (44,955)               (45,000)       (45,000)
Balance as of September 30, 2021  $1,011   $377,677   $39,889   $(455,823)  $(28,315)  $(65,561)  $1,155   $(64,406)
                                         
Balance as of January 1, 2022   1,011    377,677    42,749    (431,059)   (27,778)   (37,400)   (940)   (38,340)
Income for the period               32,106        32,106        32,106 
Transfer reserves           2,994    (2,994)                
Other comprehensive income                   (4,279)   (4,279)       (4,279)
Balance as of September 30, 2022   1,011    377,677    45,743    (401,947)   (32,057)   (9,573)   (940)   (10,513)

 

 

1Refer to Note 2.2. Restatement of Previously Issued Financial Statements

 

2Includes the appropriate values from net income to comply with legal provisions related to asset protection according to applicable jurisdictions with cumulative earnings.

 

The accompanying notes are an integral part of these unaudited consolidated condensed interim financial statements.

 

5

 

 

Procaps Group S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Cash Flows

For the nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

      For the nine months ended
September 30
 
   Notes  2022   2021
As restated1
 
Operating activities           
Income/(Loss) for the period     $32,106   $(128,487)
Adjustments to reconcile net gain (loss) with net cash from operating activities:             
Depreciation of property, plant and equipment  11   4,481    4,184 
Depreciation of right-of-use assets      4,539    3,281 
Amortization of intangibles  10   3,365    5,892 
Income tax expense  9   11,104    6,342 
Finance (income)/expense  7   (18,539)   79,242 
IFRS 2 Share-based payment expense (listing expense)  8       73,917 
Share of result of joint ventures      239    (371)
Net (gain)/loss on sale of property, plant and equipment  11   (503)   710 
Inventory provision  12   2,475    3,263 
Provision for bad debt  13   1,830    741 
Provisions  15   9    1,182 
Cash flow from operating activities before changes in working capital      41,106    49,896 
              
(Increase)/decrease in operating assets and liabilities:             
Trade and other receivables      (13,020)   (14,271)
Amounts owed by related parties      (1,555)   (835)
Inventories      (22,851)   (15,523)
Current tax assets      (10,073)   (4,540)
Other current assets      (5,803)   (563)
Trade and other payables      32,800    23,435 
Amounts owed to related parties      1,637    (252)
Current tax liabilities      (1,625)   (1,120)
Other liabilities      7,573    20,309 
Provisions  15   (408)   (1,182)
Other financial assets      36    321 
Other assets      83    (946)
Cash generated from operations      27,900    54,729 
              
Interest paid      (1,261)   (1,373)
Dividends received          300 
Income tax paid      (4,589)   (2,711)
Cash flow provided by operating activities     $22,050   $50,945 
              
Investing activities             
Acquisition of property, plant and equipment  11   (15,293)   (10,933)
Proceeds from sale of property, plant and equipment      2,653    26 
Acquisition of intangibles  10   (7,757)   (5,898)
Advances to related parties      (138)    
Cash flow used in investing activities     $(20,535)  $(16,805)
              
Financing activities             
Proceeds from borrowings  14   77,253    125,335 
Payments on borrowings  14   (97,290)   (115,642)
Payments to related parties      (6,625)   (3,577)
Interest paid on borrowings  14   (10,028)   (10,316)
Payment of lease liabilities  14   (4,858)   (4,354)
Redeemed shares          (45,000)
Cash obtained in acquisition          129,986 
              
Cash flow (used in) generated from financing activities     $(41,548)  $76,432 
              
Net (decrease) increase in cash      (40,033)   110,572 
Cash at beginning of the period      72,112    4,229 
Effect of exchange rate fluctuations      (4,864)   (14,609)
Cash at end of the period     $27,215   $100,192 
              
Non-cash financing and investing activities2     $42,328   $44,137 

 

 

1Refer to Note 2.2. Restatement of Previously Issued Financial Statements

 

2Non-cash investing and financing activities include acquisition of right-of-use assets $8,793 (for the nine months ended September 30, 2021: $948), invoices from suppliers financed via reverse factoring classified as Trade and other payables $3,427 (for the nine months ended September 30, 2021: $846) and invoices from suppliers financed via reverse factoring classified as Borrowings $30,108 (for the nine months ended September 30, 2021: $42,343).

 

The accompanying notes are an integral part of these unaudited consolidated condensed interim financial statements.

 

6

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

Note 1. General Company Information

 

Procaps Group S.A., a public limited liability company (société anonyme) governed by the laws of the Grand Duchy of Luxembourg and its subsidiaries (“the Group”) primarily engages in developing, producing, and marketing pharmaceutical solutions. Further information about the Group’s business activities, reportable segments and key management personnel of the Group is included in Note 5. Revenue, Note 6. Segment reporting and Note 19. Key management personnel, respectively.

 

The Group’s principal subsidiaries as of September 30, 2022 and December 31, 2021, are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business.

 

     Ownership interests held by:    
   Place of
business/country
  The Group   Non-controlling
interests
    
Name of entity  of incorporation  2022   2021   2022   2021   Principal activities
Procaps S.A.  Colombia   100%   100%          %           %  Manufacturing and distribution of prescription and over-the-counter pharmaceutical products.
C.I. Procaps S.A.  Colombia   100%   100%   %   %   
Procaps S.A. de C.V (previously Laboratorios Lopez S.A. de C.V.)  El Salvador   100%   100%   %   %   
Softcaps - Colbras  Brazil   100%   100%   %   %   
Diabetrics Healthcare S.A.S.  Colombia   100%   100%   %   %  Diabetes solutions and chronic disease management tool.

 

There are no significant restrictions on the ability of the Group to access or use assets to settle liabilities.

 

The unaudited consolidated condensed interim financial statements of the Group for the three and nine months ended September 30, 2022 and 2021 comprise the Group and its interest in joint ventures, investments and operations.

 

The unaudited condensed consolidated interim financial statements are presented in USD (the Group’s presentation currency) and all amounts are rounded to the nearest thousands of USD, unless otherwise stated.

 

Reverse reorganization

 

On September 29, 2021, Crynssen Pharma Group Limited, a private limited liability company registered under the laws of Malta with company registration number C59671 and with registered office at Ground Floor, Palace Court, Church Street, St. Julians STJ 3049, merged with Union Acquisition Corp, a special purpose acquisition company (“SPAC’) domiciled in the Cayman Islands, and Procaps Group, S.A, the ultimate parent company after the merger and which ordinary shares are listed and traded under ‘PROC’ at the NASDAQ in New York City, NY, USA (the “Transaction”).

 

7

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

Emerging Growth Company Status

 

The Group is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The Group will remain an emerging growth company until the earliest of:

 

The last day of the first fiscal year (a) following the fifth anniversary of a public equity offering, (b) in which its annual gross revenue totals at least $1.07 billion or (c) when the Group is deemed to be a large, accelerated filer, which means the market value of the Group’s ordinary shares held by non-affiliates exceeds $700.0 million as of the prior June 30th; and

 

The date on which the Group has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

 

Ongoing Military Operation in Ukraine and Related Sanctions

 

The ongoing military operation in Ukraine and the related sanctions targeted against the Russian Federation may have an impact on the European economies and globally. The Group does not have any significant direct exposure to Ukraine, Russia or Belarus considering there are not any existing operations or sales in those locations.

 

However, the impact on the general economic situation may require revisions of certain assumptions and estimates. This may lead to material adjustments to the carrying value of certain assets and liabilities including property plant and equipment, intangible assets, goodwill, warrant liabilities and shares held in escrow within the next financial year. At this stage, management is not able to reliably estimate the impact as events are unfolding day-by-day, but to date, the impact, if any, has not been significant.

 

The longer-term impact may also affect trading volumes, cash flows and our supply of critical components among our manufacturing facilities in El Salvador, Colombia, Brazil, and the U.S. Such disruptions could negatively affect our ability to provide critical components to affiliates or produce pharmaceutical products for customers, which could increase our costs, require capital expenditures, and harm our results of operations and financial condition.

 

Nevertheless, at the date of these financial statements, the Group continues to meet its obligations as they fall due and therefore, continues to apply the going concern basis of preparation.

 

8

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

Grupo Somar and Pearl Mexico Acquisition

 

On May 16, 2022, Procaps Group, S.A. entered into a Stock Purchase Agreement (the “SPA”) with AI Global Investments PCC Limited (Netherlands), a protected cell company limited by shares organized under the laws of the Island of Guernsey (“PCC”), acting for and on behalf of the Soar Cell, Triana Capital S.A. de C.V., a corporation organized under the laws of Mexico (“Triana”), AI Pearl (Netherlands) B.V., a private limited company (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of the Netherlands (“Pearl Holding Seller”), Perrigo Ireland 7 DAC, a company duly organized and validly existing under the laws of the Republic of Ireland (“Pearl Ireland”, and together with PCC, Triana and Pearl Holding Seller, each a “Seller” and collectively, the “Sellers”), AI Soar (Netherlands) BV, a (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of the Netherlands (“Somar Holding Company”), Química y Farmacia S.A. de C.V., a Sociedad Anónima de Capital Variable duly organized and validly existing under the laws of Mexico (“Quifa”), PDM Acondifarma S.A. de C.V., a Sociedad Anónima de Capital Variable duly organized and validly existing under the laws of Mexico (“PDM”), Gelcaps Exportadora de México S.A. de C.V., a Sociedad Anónima de Capital Variable duly organized and validly existing under the laws of Mexico (“Gelcaps”, and together with Quifa and PDM, “Pearl Mexico”) and Grupo Farmacéutico Somar S.A.P.I. de C.V., a Sociedad Anónima Promotora de Inversión de Capital Variable organized under the laws of Mexico (“Somar” and together with Somar Holding Company, “Grupo Somar”, and together with Pearl Mexico, the “Targets”).

 

Somar specializes in the production of generic and own-brand pharmaceutical products, sold mainly to the private sector, with most of its operations within Mexico. Pearl Mexico specializes in the production and sale of pharmaceutical products, organic chemicals, biological products and over the counter products, with most of its operations within Mexico.

 

Pursuant to the SPA, the Group will acquire all of the issued and outstanding capital stock of the Targets from the Sellers, in exchange for an estimated upfront consideration in the form of:

 

a.An aggregate amount of cash in U.S. dollars equal to approximately $303.0 million, subject to customary adjustments for working capital, net debt and other items (the “Closing Cash Consideration Payment”), which will be allocated to each Seller in accordance with the percentages set forth in the SPA; and

 

b.A vendor loan receivable in an aggregate amount in U.S. dollars equal to approximately $24.3 million (the “Stock Consideration Receivables” and together with the Closing Cash Consideration Payment, the “Closing Consideration Payments”), which will be allocated to Triana and PCC in accordance with the percentages set forth in the SPA.

 

On the closing (the “Closing”) of the transactions contemplated by the SPA (the “Acquisition”), the Group shall issue to PCC and Triana, pursuant to the terms of the SPA and those certain Stock Consideration Subscription Agreements to be entered into on or about the date of the Closing, between the Group and each of PCC and Triana (the “Stock Consideration Subscription Agreements”), approximately 3,081,730 ordinary shares of the Group, nominal value $0.01 per share (the “Ordinary Shares”), based on a price per Ordinary Share of $7.8878 (the volume-weighted average price per share, rounded to the nearest four decimal points, of Ordinary Shares quoted on the Nasdaq (as reported on Bloomberg L.P. under the function “VWAP”), for the period of 30 consecutive trading days ending on the trading day immediately prior to the date of the SPA) (the “Closing Stock Consideration Payment”), which shall be paid-up by each of PCC and Triana by way of set-off against the respective portions of the Stock Consideration Receivables held by PCC and Triana against the Group, in accordance with article 420-23 of the Luxembourg Law on Commercial Companies dated 10 August 1915, as amended.

 

9

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

Additionally, at the Closing, the Group shall pay the Sellers an aggregate amount of cash in U.S. dollars, as converted based on the exchange rate of MXN$20.5693 to US$1.00 (the “Applicable Exchange Rate”), equal to 70.0% of PCC’s good faith estimate of the valued added tax receivables of Pearl Mexico and its subsidiaries that have been reported to the tax authorities as a result of the filing of any value-added tax return on or prior to the date of the Closing (the “Filed VAT Receivables”), minus MXN$48,177,093, and subject to certain adjustments set forth in the SPA.

 

In addition to the upfront consideration paid or issued at the Closing, the Sellers have a right to receive a contingent payment in U.S. dollars, as converted based on the Applicable Exchange Rate, in the amount by which the gross profit of Targets and its subsidiaries for the fiscal year ended December 31, 2022 exceeds MXN$1,490,000,000, multiplied by 3.85, with a maximum amount payable of MXN$300,000,000.

 

The transaction, which has been approved by the board of directors of the Group and the Sellers, is expected to close in the fourth quarter of 2022, subject to the satisfaction or waiver of customary closing conditions at or prior to the closing of the transaction, including the receipt of all consents, approvals, orders and authorizations of any governmental authority required in connection with the execution or performance of the SPA, including any regulatory antitrust approvals.

 

Debt Commitment Letter

 

Concurrently with the execution of the SPA, the Group, as borrower, entered into a Commitment Letter with Bank of America, N.A., BofA Securities, Inc., JPMorgan Chase Bank, N.A. and Morgan Stanley Senior Funding, Inc. (“Commitment Letter”) for a bridge loan of up to $485 million (the “Bridge Loan”), which will be guaranteed by each existing and future direct and indirect material subsidiary of the Group, and the Targets and each of their subsidiaries upon the Closing. The Bridge Loan will also be secured by a pledge from the Group of its shares in the Targets. The proceeds of the Bridge Loan will be used, together with the Group’s cash on hand, to finance the cash portion of the purchase price of the Acquisition (including related fees and expenses) and, in the event necessary, to prepay certain of the Group’s existing debt. The Bridge Loan will accrue interest at a rate of Term SOFR plus a spread between 5.00%-7.25%, determined according to the time the Bridge Loan has been outstanding and the credit rating of the Group, and will mature 12 months after the initial disbursement to the Group in connection with the Acquisition.

 

10

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

Pursuant to the terms of the Commitment Letter, while the Bridge Loan is outstanding, the Group, as the borrower, and the subsidiary guarantors, will be subject to customary affirmative, negative and financial covenants which will, among other things, (i) restrict, subject to certain exceptions, the Group’s ability to incur debt or grant liens; sell or transfer title to operating assets; pay dividends and distributions; engage in mergers and consolidations; guarantee, indemnify or assume the liabilities of third parties; change its fiscal year reporting; engage in certain transactions with affiliates; change its lines of business; or amend its organizational documents, and (ii) require the Group and the subsidiary guarantors to maintain a minimum interest coverage ratio of 3.0x EBITDA at all times, and a maximum leverage ratio of 4.25x to 4.75x EBITDA, according to the time the Bridge Loan has been outstanding, calculated on an annual basis. Additionally, the Bridge Loan may be prepaid by the Group or refinanced at any time, without penalty. The Group must prepay the Bridge Loan with, (i) subject to certain exceptions, all proceeds from asset sales or the occurrence of debt by the Borrower and its subsidiaries, and (ii) 75% of net cash proceeds from any issuances of equity or equity-like instruments by the Group.

 

Note 2. Basis of preparation and accounting

 

These unaudited consolidated condensed interim financial statements of the Group as of September 30, 2022 have been prepared on a going concern basis, and in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group’s last annual consolidated financial statements as at and for the year ended December 31, 2021 (“last annual financial statements”). They do not include all of the information required for a complete set of financial statements prepared in accordance with IFRS Standards. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements.

 

These unaudited condensed consolidated interim financial statements were authorized for issue by the Group’s Audit Committee on November 10, 2022.

 

Note 2.1. Going concern

 

Management has, at the time of approving the accompanying unaudited consolidated condensed interim financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thereby these unaudited consolidated condensed interim financial statements have been prepared on a ‘going concern’ basis.

 

As of September 30, 2022, the following matters have been considered by management in determining the reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

 

As of September 30, 2022, the Group retains a negative equity position of $10,513 while it improved significantly during the period (as of December 31, 2021: negative equity of $38,340). This improvement is related to the comprehensive income for the nine months ended September 30, 2022 of $27,827. The negative equity balance as of September 30, 2022 is primarily driven by the classification of the Holdco Ordinary Shares held in escrow as a financial liability and does not impact the Group’s future operations and there are no further obligations to the Group.

 

11

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

For the nine months ended September 30, 2022, the Group recognized income of $32,106 (for the nine months ended September 30, 2021: a loss of $128,487). The Group generated $22,050 of cash in operating activities for the nine months ended September 30, 2022 (for the nine months ended September 30, 2021: $50,945) after changes in working capital. As of September 30, 2022, the Group reported positive working capital of $83,905 (as of December 31, 2021: $110,095).

 

As of September 30, 2022, the Group had cash of $27,215 (as of December 31, 2021: $72,112). Currently, the Group maintains financing lines, which, together with the expected internal generation of funds, will allow it to finance its growth and working capital needs.

 

Management has evaluated its capital position and its ability to continue its normal course of business for the foreseeable future and ability to meet its financial obligations for the next twelve months. The Group projects it will generate excess cash over its current financial obligations through its current cash position and operating cash generated. The excess cash will be available to meet the Group’s investment and capital expenditure objectives.

 

Note 2.2 Restatement of Previously Issued Financial Statements

 

Factoring and reverse factoring arrangements

 

Subsequent to the issuance of the Group’s Unaudited Condensed Consolidated Interim Financial Statements for the periods ended September 30, June 30 and March 31, 2021, the Group revisited the classification of factoring and reverse factoring arrangements previously classified as part of Trade and other payables, net. As a result, management has identified the following errors that were concluded to be material to the previously issued financial statements.

 

The Group’s factoring arrangements with recourse are treated as ’secured borrowing’ transactions since the Group has not transferred substantially all risks and rewards. A secured borrowing transaction is to be classified together with other borrowings. Previously, the Group classified certain factoring arrangements as Trade and other payables, net. Upon reassessing the facts and circumstances, the Group concluded that these should be reclassified to Borrowings (current). Based on this analysis of the factoring arrangements, the Group made the following adjustments to correct the errors identified:

 

As of September 30, 2021, the Group decreased Trade and other payables, net and increased Borrowings (current) by $5,885.
   
For the nine months ended September 30, 2021, the Group reclassified the cash flow impacts of the factoring arrangements from operating cash flows (net cash flow impact of $1,455), to Proceeds from borrowings (cash flow impact of $3,293) and to Payments on borrowings (cash flow impact of $1,838).

 

12

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021
(In thousands of United States Dollars, unless otherwise stated)

 

The Group’s reverse factoring arrangements have both characteristics of operating and financing. Under IFRS 9 there is no explicit guidance as to when to classify a reverse factoring arrangement as operating or financing debt. The assessment involves judgment and careful consideration of all relevant facts and circumstances per arrangements. Previously, the Group classified all reverse factoring arrangements as Trade and other payables, net. Upon reassessing the facts and circumstances, the Group concluded that some reverse factoring arrangements are more akin to financing arrangements due to the fact the Group pays interest which it normally does not to suppliers. Therefore, the Group has reclassified such arrangements from Trade and other payables, net to Borrowings (current). Based on this analysis of the reverse factoring arrangements, the Group made the following adjustments to correct the errors identified:

 

As of September 30, 2021, the Group decreased Trade and other payables, net and increased Borrowings (current) by $17,863.

 

For the nine months ended September 30, 2021, the Group reclassified the $33,703 cash flow impact related to the reverse factoring arrangements that possess financing characteristics from operating to financing cash flows.

 

Reverse reorganization

 

Subsequent to the issuance of the Group’s Unaudited Condensed Consolidated Interim Financial Statements for the periods ended September 30, June 30 and March 31, 2021, the Group revisited the appropriate accounting for the Transaction mentioned in Note 1. General Company Information. As a result, management has identified the following errors that were concluded to be material to the previously issued financial statements.

 

The Transaction would be appropriate to account for as a restructuring using book value accounting in Procaps Group, S.A. (“Holdco”) consolidated financial statements, on the basis that there has been no business combination between Crynssen Pharma Group Limited (“OpCo”) and Holdco. Shareholders’ equity of the Group prior to the Transaction is retrospectively adjusted as a capital restructuring for the equivalent number of shares received and on a pro rata basis for prior reporting periods, for purposes of calculating earnings per share. Retained earnings and relevant reserves of the Group are carried forward after the transaction. Simultaneously, on the effectiveness of the Transaction, September 29, 2021, the put option agreements were terminated in exchange for new equity instruments in Procaps Group SA. The fair value of the OpCo was estimated using a combination of a market and income approach under IFRS 13. The excess between the fair value of the shares and equity instruments issued and the net assets acquired is treated as an expense under IFRS 2 (the “listing expense”). Any difference to shareholders’ equity of the Group arising from the restructuring of share capital and equity instruments issued is recorded in equity under share premium. Based on these conclusions, the Group made the following adjustments to correct the errors identified:

 

For the nine months ended September 30, 2021, the Group increased the loss for the period by $73,917

 

As of September 30, 2021, the Group decreased total equity and increased total liabilities by $100,711.

 

For the nine months ended September 30, 2021, the Group reclassified the $6,599 cash flow impact related to the reverse reorganization from financing to operating activities.

 

The following tables reflect the impact of corrections discussed above, related to factoring, reverse factoring and reverse reorganization, to the specific financial statements line items presented in the Group´s previously reported unaudited consolidated interim financial statements, as “Restatement Adjustments”.

 

13

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

  

I. Effect of the restatement

 

The restatement of the Consolidated Statement of Profit or Loss for the historical interim periods resulted in the following impacts:

 

  

Unaudited Condensed Consolidated Interim Statement of Profit or Loss
For the nine months ended September 30, 2021

 
Profit or loss, restated  As reported   Restatement Adjustments   As restated 
Other expenses, net   (3,179)   (73,917)   (77,096)
(Loss)/Income before tax   (48,228)   (73,917)   (122,145)
(Loss)/Income for the period   (54,570)   (73,917)   (128,487)

 

The restatement of the Consolidated Statement of Changes in Equity for the historical interim periods resulted in the following impacts:

 

  

Unaudited Condensed Consolidated Interim Statement of Changes in Equity
For the nine months ended September 30, 2021

 
   As reported 
   Issued Capital   Share premium   Accumulated deficit   Total   Total equity (deficit) 
Loss for the period           (54,948)   (54,948)   (54,570)
Share redemption and issuance in business combination   (873)   201,304    148,638    349,069    349,069 
Balance as of September 30, 2021   1,128    255,716    (233,268)   35,150    36,305 

 

  

Unaudited Condensed Consolidated Interim Statement of Changes in Equity
For the nine months ended September 30, 2021

 
   Restatement Adjustments 
   Issued Capital   Share premium   Accumulated deficit   Total   Total equity (deficit) 
Loss for the period           (73,917)   (73,917)   (73,917)
Share redemption and issuance in business combination   873    (201,304)   (148,638)   (349,069)   (349,069)
Termination of put option agreements1   903    297,796         298,699    298,699 
Subtotal   1,776    96,492    (222,555)   (124,287)   (124,287)
Capital restructuring of Crynssen Pharma Group Limited (at exchange ratio of 1:33.4448)1   (1,933)   1,933             
Subtotal - restructured   (157)   98,425    (222,555)   (124,287)   (124,287)
Acquisition of Union Acquisition Corp. II1   202    174,738        174,940    174,940 
Shares held in escrow1   (117)   (106,247)       (106,364)   (106,364)
Redemption of redeemable shares1   (45)   (44,955)       (45,000)   (45,000)
Balance as of September 30, 2021   (117)   121,961    (222,555)   (100,711)   (100,711)

 

  

Unaudited Condensed Consolidated Interim Statement of Changes in Equity
For the nine months ended September 30, 2021

 
   As restated 
   Issued Capital   Share premium   Accumulated deficit   Total   Total equity (deficit) 
Loss for the period           (128,865)   (128,865)   (128,487)
Termination of put option agreements1   903    297,796        298,699    298,699 
Subtotal   2,904    352,208    (455,823)   (89,137)   (87,982)
Capital restructuring of Crynssen Pharma Group Limited (at exchange ratio of 1:33.4448)1   (1,933)   1,933             
Subtotal - restructured   971    354,141    (455,823)   (89,137)   (87,982)
Acquisition of Union Acquisition Corp. II1   202    174,738        174,940    174,940 
Shares held in escrow1   (117)   (106,247)       (106,364)   (106,364)
Redemption of redeemable shares1   (45)   (44,955)       (45,000)   (45,000)
Balance as of September 30, 2021   1,011    377,677    (455,823)   (65,561)   (64,406)

 

 
1For further details, refer to Note 23.1 in the Group’s consolidated financial statements for the year ending December 31, 2021.

 

14

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

The restatement of the Consolidated Statement of Financial Position for the historical interim periods resulted in the following impacts:

 

  

Unaudited Condensed Consolidated Interim Statement of Financial Position
As of September 30, 2021

 
       Restatement Adjustments     
Balance Sheet, restated  As reported   Factoring and reverse factoring   Reverse reorganization   As restated 
Non-Current liabilities                    
Warrant liabilities   33,950         (4,987)   28,963 
Shares held in escrow            105,698    105,698 
Total non-current liabilities   151,696        100,711    252,407 
Current liabilities                    
Borrowings   116,713    23,748         140,461 
Trade and other payables, net   132,462    (23,748)        108,714 
Total current liabilities   276,747            276,747 

 

The restatement of the Cash Flow Statement for the historical interim periods resulted in the following impacts:

 

   Unaudited Condensed Consolidated Interim Statement of Cash Flows 
   For the nine month period ending September 30, 2021 
       Restatement Adjustments     
   As reported   Factoring and reverse factoring1   Reverse reorganization   As restated 
Operating activities                
Loss for the period   (54,570)        (73,917)   (128,487)
Adjustments to reconcile net loss with net cash from operating activities:                    
IFRS 2 Share-based payment expense (listing expense)           73,917    73,917 
(Increase)/decrease in operating assets and liabilities:                    
Trade and other payables   (10,975)   34,410        23,435 
Other liabilities   13,710        6,599    20,309 
Interest paid       (1,373)       (1,373)
Cash flow provided by (used in) operating activities   11,309    33,037    6,599    50,945 
                     
Financing activities:                    
Proceeds from borrowings   122,042    3,293        125,335 
Payments on borrowings   (80,101)   (35,541)       (115,642)
Interest paid on borrowings   (9,527)   (789)       (10,316)
Redeemed shares           (45,000)   (45,000)
Cash obtained from acquisition   91,585        38,401    129,986 
Cash Flow generated from (used in) financing activities   116,068    (33,037)   (6,599)   76,432 

 

 
1The restatement adjustment related to Trade and other payables consists of errors related to reverse factoring of $33,703, factoring of $(1,455), interest paid on reverse factoring of $789 and interest paid on lease liabilities of $1,373.

 

Note 3. Summary of significant accounting policies

 

Note 3.1. Change in accounting policy

 

The accounting policies applied in these unaudited condensed consolidated interim financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ended December 31, 2021. The policy for recognizing and measuring income taxes in the interim periods is consistent with that applied in the previous interim period and is described in Note 9. Income tax.

 

15

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

Note 3.2. New and amended IFRS Standards that are effective for the current period

 

The Group adopted the following accounting standard amendments from January 1, 2022. The evaluation performed by management determined that these amendments did not result in a significant impact in relation to the Group as of September 30, 2022

 

Reference to the Conceptual Framework – Amendments to IFRS 3 - Effective January 1, 2022

 

Minor amendments were made to IFRS 3 Business Combinations to update the references to the Conceptual Framework for Financial Reporting and add an exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IFRIC 21 Levies. The amendments also confirm that contingent assets should not be recognized at the acquisition date.

 

No business combinations were consummated for the nine months ended September 30, 2022 and therefore, this amendment has not impacted the Group.

 

Onerous Contracts – Cost of Fulfilling a Contract - Amendments to IAS 37 - Effective January 1, 2022

 

The amendment to IAS 37 clarifies that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts. Before recognizing a separate provision for an onerous contract, the entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract.

 

Due to the nature of contractual arrangements with customers, this amendment has not impacted the Group.

 

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) - Effective January 1, 2022

 

The amendment to IAS 16 Property, Plant and Equipment (“PP&E”) prohibits an entity from deducting from the cost of an item of PP&E any proceeds received from selling items produced while the entity is preparing the asset for its intended use. It also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it assesses the technical and physical performance of the asset. The financial performance of the asset is not relevant to this assessment.

 

Entities must disclose separately the amounts of proceeds and costs relating to items produced that are not an output of the entity’s ordinary activities.

 

The Group did not sell any items produced by PP&E while the entity was preparing such asset for its intended use and therefore, this amendment has not impacted the Group.

 

16

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

Annual Improvements to IFRS Standards 2018-2020 - Effective January 1, 2022

 

The following improvements were finalized in May 2020:

 

IFRS 9 Financial Instruments – clarifies which fees should be included in the 10% test for the derecognition of financial liabilities. No significant financial instruments were modified during the nine months ended September 30, 2022 and therefore, this improvement has not impacted the Group.

 

IFRS 16 Leases – amendment of illustrative example 13 to remove the illustration of payments from the lessor relating to leasehold improvements in order to remove any confusion about the treatment of lease incentives. No payments were received from lessors related to leasehold improvements during the nine months ended September 30, 2022 and therefore, this amendment has not impacted the Group.

 

Note 3.3. Recent accounting pronouncements not yet adopted

 

Certain new accounting standards and interpretations have been published that are not mandatory for the nine months ended September 30, 2022 and have not been early adopted by the Group. As of the issue date of these unaudited condensed consolidated interim financial statements, the following new and revised IFRS standards have been issued, which will impact the Group’s unaudited financial statements upon adoption, but are not yet effective:

 

Classification of Liabilities as Current or Non-current (Amendments to IAS 1) - Effective January 1, 2023

 

The narrow-scope amendments to IAS 1 Presentation of Financial Statements clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date (e.g. the receipt of a waiver or a breach of covenant).

 

The amendments also clarify what IAS 1 means when it refers to the ’settlement’ of a liability. The amendments could affect the classification of liabilities, particularly for entities that previously considered management’s intentions to determine classification and for some liabilities that can be converted into equity.

 

The amendments must be applied retrospectively in accordance with the normal requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The Group is in the process of performing its assessment of the impacts of the new standard and anticipate a change in the classification of warrants and shares held in escrow upon adoption from non-current to current liabilities. However, early adoption was not elected.

 

Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) - Effective January 1, 2024

 

The amendments require a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognize any amount of the gain or loss that relates to the right of use it retains. The new requirements do not prevent a seller-lessee from recognizing in profit or loss any gain or loss relating to the partial or full termination of a lease. The Group is in the process of performing its assessment of the impacts of the new standard. However, early adoption was not elected.

 

17

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

Note 4. Critical accounting judgements and key sources of estimation uncertainty

 

In preparing these unaudited condensed consolidated interim financial statements, management has made judgments, estimates and assumptions about the carrying amounts of the assets and liabilities that are not readily observable in other sources. The estimates and underlying assumptions are based on historical experience and other relevant factors. Actual results may differ from these estimates.

 

The significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those described in the Group’s consolidated financial statements as at and for the year ended December 31, 2021.

 

Note 5. Revenue

 

The Group recognizes its revenues from the transfer of goods and services to the fulfillment of its performance obligations. The Group’s revenue for the three and nine months ended September 30, 2022 includes $2,585 and $11,433, respectively, (for the three and nine months ended September 30, 2021: $1,048 and $2,158, respectively) in revenue recognized from intellectual property licensing and dossier generation.

 

Disaggregation of revenue from contracts with customers

 

Revenue from contracts with customers is disaggregated by primary geographical market and major products (refer to Note 6. Segment reporting) and by timing of revenue recognition in the table below.

 

  Reportable segments     
For the three months ended September 30 2022  NextGel   Procaps Colombia   CAN   CASAND   Diabetrics  

 

Total

 
                         
Segment revenue   68,373    38,020    23,564    22,311    6,770    159,038 
Inter-segment revenue   (31,939)   (1,179)   (9,122)   (4,599)   (1,796)   (48,635)
Revenue from contracts with customers   36,434    36,841    14,442    17,712    4,974    110,403 
                               
Timing of revenue recognition                              
Goods transferred at a point in time   33,754    36,911    14,442    17,737    4,974    107,818 
Services transferred over time   2,680    (70)       (25)       2,585 
Total revenue from contracts with customers  $36,434   $36,841   $14,442   $17,712   $4,974   $110,403 

 

  Reportable segments     
For the three months ended September 30 2021  NextGel   Procaps Colombia   CAN   CASAND   Diabetrics   Total 
                         
Segment revenue   65,835    41,281    19,949    16,790    10,086    153,941 
Inter-segment revenue   (34,401)   (408)   (5,830)   (3,640)   (2,833)   (47,112)
Revenue from contracts with customers   31,434    40,873    14,119    13,150    7,253    106,829 
                               
Timing of revenue recognition                              
Goods transferred at a point in time   30,386    40,873    14,119    13,150    7,253    105,781 
Services transferred over time   1,048                    1,048 
Total revenue from contracts with customers  $31,434   $40,873   $14,119   $13,150   $7,253   $106,829 

 

18

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

  Reportable segments     
For the nine months ended September 30, 2022  NextGel   Procaps Colombia   CAN   CASAND   Diabetrics   Total 
                         
Segment revenue   191,411    110,822    61,086    61,502    26,507    451,328 
Inter-segment revenue   (96,717)   (2,528)   (18,539)   (14,128)   (10,963)   (142,875)
Revenue from contracts with customers   94,694    108,294    42,547    47,374    15,544    308,453 
                               
Timing of revenue recognition                              
Goods transferred at a point in time   87,285    106,956    40,288    46,947    15,544    297,020 
Services transferred over time   7,409    1,338    2,259    427        11,433 
Total revenue from contracts with customers  $94,694   $108,294   $42,547   $47,374   $15,544   $308,453 

 

  Reportable segments     
For the nine months ended September 30, 2021  NextGel   Procaps Colombia   CAN   CASAND   Diabetrics   Total 
                         
Segment revenue   170,997    110,450    42,547    48,032    31,211    403,237 
Inter-segment revenue   (87,097)   (992)   (11,371)   (9,750)   (10,821)   (120,031)
Revenue from contracts with customers   83,900    109,458    31,176    38,282    20,390    283,206 
                               
Timing of revenue recognition                              
Goods transferred at a point in time   81,742    109,458    31,176    38,282    20,390    281,048 
Services transferred over time   2,158                    2,158 
Total revenue from contracts with customers  $83,900   $109,458   $31,176   $38,282   $20,390   $283,206 

 

Revenue recognized from goods transferred at a point in time include revenues related to “sales of goods” and “sales of trademarks and sanitary provisions”. Revenue recognized from services transferred over time include revenues related to “intellectual property licensing” and “dossier generation”. Revenues, other than sales of goods, are not material to the group.

 

Note 6. Segment reporting

 

Segment information is presented at a combination of geographical segments and business units, consistent with the information that is available and evaluated regularly by the chief operating decision maker.

 

The Group operates its business through five segments which are its reportable segments for financial reporting purposes: Procaps Colombia, Central America North (“CAN”), Central America South and North Andes (“CASAND”), NextGel and Diabetrics. Segment management, the respective Vice Presidents, are responsible for managing performance, underlying risks and operations. Management uses a broad set of performance indicators to measure segment performance and to make decisions around resource allocation.

 

19

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

The Group’s customer revenue recognition (external revenue) policy has been consistent with inter-segment revenue generated.

 

  NextGel   Procaps Colombia   CAN   CASAND 
For the three months
ended September 30, 2022
  Total  

Inter-

segment
eliminations

   External   Total  

Inter-

segment
eliminations

   External   Total  

Inter-

segment
eliminations

   External   Total  

Inter-

segment
eliminations

   External 
Revenue   68,373        (31,939)   36,434    38,020    (1,179)   36,841    23,564    (9,122)   14,442    22,311    (4,599)   17,712 
Contribution margin 1   16,605    (644)   15,961    12,605    1    12,606    5,051    (1,854)   3,197    3,523    4,535    8,058 

 

  Diabetrics   Corporate   Total 
For the three months ended September 30, 2022  Total  

Inter-

segment
eliminations

   External   Total  

Inter-

segment
eliminations

   External   Total  

Inter-

segment
eliminations

   External 
Revenue   6,770    (1,796)   4,974                159,038    (48,635)   110,403 
Contribution margin 1   1,834    23    1,857    (2,666)   2,670    4    36,952    4,731    41,683 
Administrative expenses               24,337        24,337    24,337        24,337 
Finance expenses               (22,748)       (22,748)   (22,748)       (22,748)
Other expenses               9,706        9,706    9,706        9,706 
Income (loss) before tax                                 25,657    4,731    30,388 

 

  NextGel   Procaps Colombia   CAN   CASAND 
For the three months ended September 30, 2021  Total  

Inter-

segment
eliminations

   External   Total  

Inter-

segment
eliminations

   External   Total  

Inter-

segment
eliminations

   External   Total  

Inter-

segment
eliminations

   External 
Revenue   65,834    (34,400)   31,434    41,281    (408)   40,873    19,949    (5,830)   14,119    16,790    (3,640)   13,150 
Contribution margin 1   17,054    (2,105)   14,949    12,399    (116)   12,283    5,180    203    5,383    1,639    3,240    4,879 

 

  Diabetrics   Corporate   Total 
For the three months ended September 30, 2021  Total  

Inter-

segment eliminations

   External   Total  

Inter-

segment eliminations

   External   Total  

Inter-

segment eliminations

   External 
Revenue   10,086    (2,833)   7,253                153,940    (47,111)   106,829 
Contribution margin 1   1,926    11    1,937    (238)   218    (20)   37,960    1,451    39,411 
Administrative expenses               21,011        21,011    21,011        21,011 
Finance expenses               50,651        50,651    50,651        50,651 
Other expenses               75,024        75,024    75,024        75,024 
Income (loss) before tax                                 (108,726)   1,450    (107,275)

 

20

 

 

Procaps Group S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022 and 2021

(In thousands of United States Dollars, unless otherwise stated)

 

  NextGel   Procaps Colombia   CAN   CASAND 
For the nine months ended September 30, 2022  Total  

Inter-segment