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 September 2023

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

 

 

 

 

 

 

INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K

 

Financial Results for the Three and Six Months Ended June 30, 2023

 

On September 5, 2023, Procaps Group, S.A. (the “Company”) released its unaudited interim financial statements for the three and six months ended June 30, 2023 (the “First Half Financials”). In addition, the Company released certain supplementary financial information relating to the three and six months ended June 30, 2023 (Supplemental Financial Information”).

 

The First Half Financials and the Supplemental Financial Information are attached as Exhibit 99.1 and Exhibit 99.2, respectively, to this Report on Form 6-K and are incorporated by reference herein and into the Company’s Post-Effective Amendment No. 2 to Form F-1 on Form F-3 (File No. 333-261366), filed with the Securities and Exchange Commission.

 

Exhibit Index

 

Exhibit
Number
  Exhibit Title
99.1   Unaudited Interim Financial Statements for the Three and Six Months Ended June 30, 2023
99.2   Supplementary Financial Information Relating to the Three and Six Months Ended June 30, 2023
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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: September 5, 2023

 

2

Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Unaudited Condensed Consolidated Interim Financial Statements

 

For the three and six months ended June 30, 2023 and 2022

 

 

 

 

 

 

 

 

 

1

 

 

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 six months ended June 30, 2023 and 2022 

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

 

      For the three months ended
June 30
   For the six months ended
June 30
 
   Notes  2023   2022   2023   2022 
Revenue  5  $110,057   $112,420   $194,219   $198,050 
Cost of sales      (48,869)   (39,786)   (86,969)   (78,294)
Gross profit      61,188    72,634    107,250    119,756 
                        
Sales and marketing expenses      (21,497)   (25,665)   (42,167)   (45,822)
Administrative expenses      (24,602)   (28,845)   (46,721)   (53,400)
Finance expenses, net  7   (6,780)   (18,791)   (5,131)   (4,209)
Other income (expenses), net  8   29,627    (8,626)   33,585    (3,503)
Income/(Loss) before tax      37,936    (9,293)   46,816    12,822 
                        
Income tax expense  9   (10,981)   2,374    (13,240)   (3,295)
Income/(Loss) for the period     $26,955   $(6,919)  $33,576   $9,527 
                        
Income/(Loss) for the period attributable to:                       
Owners of the Company      26,955    (6,919)   33,576    9,527 
Non-controlling interests      
    
    
    
 
                        
Earnings per share:                       
Basic and diluted, income/(loss) for the period attributable to ordinary equity holders of the Company (USD) 1      0.27    (0.07)   0.33    0.09 

 

1The 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 six months ended June 30, 2023 and 2022. The weighted average number of ordinary shares used as the denominator in calculating basic earnings per share for the three and six months ended June 30, 2023 and 2022 is 101,106,853 and 101,109,572, respectively.

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated 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 six months ended June 30, 2023 and 2022 

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

 

        For the three months ended
June 30
   For the six months ended
June 30
 
        2023   2022   2023   2022 
Income/(Loss) for the period       $26,955   $(6,919)  $33,576   $9,527 
                          
Other comprehensive income/(loss)                         
Items that will not be reclassified to profit or loss:                         
Remeasurement of net defined benefit liability        (83)   
    (83)   
 
Items that will be reclassified subsequently to profit or loss:                         
Exchange differences on translation of foreign operations        2,611    (3,001)   3,039    (767)
Net investment hedge        (2,473)   
    (2,473)   
 
Other comprehensive income/(loss) for the period        55    (3,001)   483    (767)
Total comprehensive income/(loss) for the period       $27,010   $(9,920)  $34,059   $8,760 
                          
Total comprehensive income/(loss) for the period attributable to:                         
Owners of the Company        27,008    (9,929)   34,057    8,750 
Non-controlling interests        2    9    2    10 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.

 

3

 

 

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

Unaudited Condensed Consolidated Interim Statement of Financial Position

As of June 30, 2023 and December 31, 2022

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

 

   Notes   As of
June 30,
2023
   As of
December 31, 2022
 
Assets            
Non-current assets            
Property, plant and equipment, net   11    91,825    73,965 
Right-of-use assets, net        40,771    39,013 
Goodwill        5,791    5,791 
Intangible assets, net   10    39,158    32,208 
Investments in joint ventures        2,079    1,505 
Other financial assets        6,111    210 
Deferred tax assets, net        7,010    6,974 
Other assets        2,424    3,078 
Total non-current assets       $195,169   $162,744 
Current assets               
Cash        11,538    43,003 
Trade and other receivables, net   13    136,541    129,602 
Inventories, net   12    103,475    96,833 
Amounts owed by related parties, net        2,226    2,474 
Current tax assets, net        30,826    21,187 
Other current assets        2,518    4,344 
Other financial assets        8,429    
 
Total current assets       $295,553   $297,443 
Total assets       $490,722   $460,187 
                
Liabilities and Stockholders’ Equity (Deficit)               
Equity (Deficit)               
Share capital        1,011    1,011 
Share premium        377,677    377,677 
Reserves        50,082    45,743 
Accumulated deficit        (362,432)   (391,513)
Accumulated other comprehensive loss        (33,376)   (33,859)
Equity (deficit) attributable to owners of the company       $32,962   $(941)
Non-controlling interest        (935)   (937)
Total equity (deficit)       $32,027   $(1,878)
Non-Current liabilities               
Borrowings   14    169,635    28,410 
Warrant liabilities   16    4,461    10,916 
Shares held in escrow   17    30,399    40,064 
Deferred tax liabilities, net        3,400    7,821 
Other liabilities        6,917    6,480 
Total non-current liabilities       $214,812   $93,691 
Current liabilities               
Borrowings   14    118,684    257,525 
Derivative financial liabilities        2,473    
 
Trade and other payables        85,970    90,187 
Amounts owed to related parties        3,922    2,914 
Current tax liabilities, net        21,841    6,133 
Provisions   15    195    138 
Other liabilities        10,798    11,477 
Total current liabilities       $243,883   $368,374 
Total liabilities and stockholders’ equity (deficit)       $490,722   $460,187 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.

 

4

 

 

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

Unaudited Condensed Consolidated Interim Statement of Changes in Equity

For the six months ended June 30, 2023 and 2022

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

 

   Attributable to equity holders of the Group 
   Issued Capital   Share premium   Treasury shares reserve 1   Reserves 2   Accumulated deficit   Other Comprehensive Income   Total   Non-controlling interest   Total equity (deficit) 
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   
    
    
    
    9,527    
    9,527    
    9,527 
Transfer reserves   
    
    
    2,994    (2,994)   
    
    
    
 
Other comprehensive income   
    
    
    
    
    (777)   (777)   10    (767)
Non-controlling interest   
    
    
    
    
    10    10    
    10 
Balance as of June 30, 2022  $1,011   $377,677   $
   $45,743   $(424,526)  $(28,545)  $(28,640)  $(930)  $(29,570)
                                              
Balance as of January 1, 2023   1,011    377,677    
    45,743    (391,513)   (33,859)   (941)   (937)   (1,878)
Income for the period   
    
    
    
    33,576    
    33,576    
    33,576 
Transfer reserves   
    
    
    4,495    (4,495)   
    
    
    
 
Other comprehensive income   
    
    
    
    
    481    481    2    483 
Non-controlling interest   
    
    
    
    
    2    2    
    2 
Treasury shares acquired   
    
    (156)   
    
    
    (156)   
    (156)
Balance as of June 30, 2023   1,011    377,677    (156)   50,238    (362,432)   (33,376)   32,962    (935)   32,027 

 

1Comprises the cost of the Company’s shares held by the Group. As of June 30, 2023, the Group held 35,798 of the Company’s shares.

 

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 Condensed Consolidated Interim Financial Statements.

 

5

 

 

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

Unaudited Condensed Consolidated Interim Statement of Cash Flows

For the six months ended June 30, 2023 and 2022

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

 

       For the six months ended
June 30
 
   Notes   2023   2022 
Operating activities            
Income for the period       $33,576   $9,527 
Adjustments to reconcile net income with cash flow from operating activities before changes in working capital:               
Depreciation of property, plant and equipment   11    2,662    2,932 
Depreciation of right-of-use assets        3,070    3,005 
Amortization of intangibles   10    2,291    2,436 
Income tax expense   9    13,240    3,295 
Finance expenses, net   7    5,131    4,209 
Unrealized currency exchange rate differences        (15,793)   
 
Share of result of joint ventures        (561)   109 
Net loss (gain) on sale and disposal of property, plant and equipment   11    49    (590)
Net loss on disposal of intangibles   10    51    
 
Inventory provision   12    2,502    1,010 
Provision for bad debt   13    442    1,304 
Provisions   15    91    7 
Cash flow from operating activities before changes in working capital        46,751    27,244 
                
Changes in working capital:               
Trade and other receivables, net        2,054    (3,793)
Amounts owed by related parties, net        675    (1,057)
Inventories, net        3,083    (20,941)
Current tax assets, net        (7,175)   (6,958)
Other current assets        1,822    (3,154)
Trade and other payables        (5,320)   26,648 
Amounts owed to related parties        613    2,030 
Current tax liabilities, net        2,619    (442)
Other liabilities        (1,133)   563 
Provisions   15    (42)   (41)
Other financial assets        (14,328)   12 
Other assets        687    778 
Cash generated from operations        30,306    20,889 
                
Interest paid        (1,879)   (946)
Income tax paid        (4,889)   (3,649)
Cash flow provided by operating activities       $23,538   $16,294 
                
Investing activities               
Acquisition of property, plant and equipment   11    (7,224)   (10,518)
Proceeds from sale of property, plant and equipment        
    2,689 
Acquisition of intangibles   10    (5,496)   (5,106)
Advances to related parties        (182)   (139)
Cash flow used in investing activities       $(12,902)  $(13,074)
                
Financing activities               
Proceeds from borrowings   14    42,137    54,085 
Payments on borrowings   14    (68,201)   (74,242)
Payments to related parties        
    (4,525)
Interest paid on borrowings   14    (15,010)   (8,639)
Payment of lease liabilities   14    (2,374)   (2,867)
Repurchase of treasury shares        (156)   
 
                
Cash flow used in financing activities       $(43,604)  $(36,188)
                
Net decrease in cash        (32,968)   (32,968)
Cash at beginning of the period        43,003    72,112 
Effect of exchange rate fluctuations        1,503    (1,592)
Cash at end of the period       $11,538   $37,552 
                
Non-cash financing and investing activities 1       $23,274   $32,737 

 

1Non-cash investing and financing activities include new lease liabilities $1,063 (for the six months ended June 30, 2022: $7,804), invoices from suppliers financed via reverse factoring classified as Trade and other payables $3,089 (for the six months ended June 30, 2022: $1,013), invoices from suppliers financed via reverse factoring classified as Borrowings $16,649 (for the six months ended June 30, 2022: $23,920) and derivative financial liabilities $2,473 (for the six months ended June 30, 2022: $0).

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.

 

6

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 1. General Company Information

 

Procaps Group, S.A, (the “Company”), a public limited liability company (société anonyme) governed by the laws of the Grand Duchy of Luxembourg and its subsidiaries (collectively “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 June 30, 2023 and December 31, 2022, 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   2023   2022   2023   2022     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   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 Condensed Consolidated Interim Financial Statements of the Group for the three and six months ended June 30, 2023 and 2022 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.

 

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.

 

7

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Ongoing Military Operation in Ukraine and Related Sanctions

 

The ongoing military operation in Ukraine and the related sanctions targeted against the Russian Federation have disrupted international commerce and the global economy. The Group does not have any direct exposure to Ukraine, Russia or Belarus considering there are not any existing operations or sales in those locations.

 

Although the Group does not currently operate in Ukraine or Russia, the duration and severity of the effects on its business and the global economy are inherently unpredictable. Management will continue to monitor the effects of the war in Ukraine and its potential further impacts, including global supply chain disruptions, inflation, and rising interest rates, when making certain estimates and judgments relating to the preparation of the Unaudited Condensed Consolidated Interim Financial Statements of the Group.

 

Grupo Somar and Pearl Mexico Acquisition

 

Refer to the last annual Consolidated Financial Statements as of and for the year ended December 31, 2022 (“last annual financial statements”) for background information on the Acquisition of Grupo Somar and Pearl Mexico. Following the failure of the transaction to close on December 31, 2022, the Group provided the sellers a formal notice on January 1, 2023 terminating the Stock Purchase Agreement (the “SPA”) in accordance with the terms thereof.

 

Bridge Loan Credit Agreement

 

Following the Group’s termination of the SPA, the Group advised the joint arrangers and book runners on January 1, 2023 of its desire to terminate the transaction documents (including, without limitation, the commitments under the bridge credit agreement and, for the avoidance of doubt, any commitments under the commitment letter) and pay all outstanding obligations, amounting to $5,719, under the bridge credit agreement and any other transaction document as of January 10, 2023.

 

Note 2. Basis of preparation and accounting

 

These Unaudited Condensed Consolidated Interim Financial Statements of the Group as of June 30, 2023 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 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 August 29, 2023.

 

8

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 2.1. Going concern

 

Management identified the following events and conditions which cast significant doubt on the Group’s ability to continue as a going concern:

 

As of December 31, 2022, the Group was in breach of certain of the covenants included under the Note Purchase Agreement (“NPA”), the Syndicated Loan Agreement and the BTG Credit Agreement. Refer to the last annual financial statements for further details regarding the breach of each covenant. Although none of the lenders declared an event of default under the applicable agreements, these breaches resulted in the lenders having the right to require immediate repayment of the applicable indebtedness and as a result, the Group classified the respective indebtedness, amounting to $139,155 in the aggregate, to current liabilities as of December 31, 2022.

 

On March 28, March 31 and May 2, 2023 the Group obtained Waiver Agreements (“Waivers” or “Waiver”) from each lender under the NPA, the Syndicated Loan Agreement and the BTG Credit Agreement for the applicable covenant breaches. Under the terms of the Waivers, the lenders permanently waived their rights to accelerate the repayment of the loans related to the events of default as of December 31, 2022. In addition, the Group executed Waivers with the lenders to adjust the applicable covenant ratios for the periods ending March 31, June 30, and September 30, 2023, if applicable, as noted further within Note 14. Borrowings. For the period ending December 31, 2023, the applicable covenant ratios in the original borrowing arrangements are unmodified.

 

On June 30, 2023, the Group obtained an Additional Waiver under the NPA (the “Additional Waiver”) in anticipation of a potential breach of the Indebtedness Indicator and EBITDA Interest Coverage ratios contained within the March 31, 2023 Waiver. The Additional Waiver with the lenders adjusts the Indebtedness Indicator and EBITDA Interest Coverage ratios for the periods ended June 30, and September 30, 2023, as further noted within Note 14. Borrowings. Since the Additional Waiver was obtained as of June 30, 2023 and the Group was in compliance with the new covenants, the outstanding balance of $115,000 remains classified as non-current borrowing.

 

Working capital

 

As of June 30, 2023, the Group had a net working capital surplus (excess of current assets over current liabilities) of $51,670 (working capital deficit of $70,931 as of December 31, 2022).

 

Management’s assessment

 

Management assessed the Group’s cash flow projections, ability to meet future covenants and other measures of liquidity for the next twelve months from the balance sheet date. Based on the Group’s cash flow projections and adjusted financial covenant ratios as a result of the Waivers and Additional Waiver, Management believes they will have sufficient funds to repay their obligations as they fall due and to meet its financial covenants. However, due to the uncertainty caused by current economic conditions, including rapid growth in inflation, increasing interest rates, global disruption to the supply chain, volatility in foreign exchange rates and industry price regulations, there is material uncertainty regarding the Group’s ability to meet its financial covenants. The Group’s failure to comply with such financial covenants would result in an event of default, which if that were to occur would materially and adversely affect the Group’s business, financial condition, liquidity and results of operations. In that event, the Group would seek additional waivers or alternative financing arrangements. As a result of these material uncertainties, Management concluded the above conditions and events raise significant doubt about the Group’s ability to continue as a going concern.

 

9

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Management has implemented or is in the process of implementing the following plans to mitigate the effect of these events and conditions:

 

Cost saving and revenue growth

 

The Group has implemented certain measures with an aim to reduce its operating costs and generate additional revenue in 2023 including: 1) strict controlling and reducing business marketing and advertising expenses; 2) reducing headcount across multiple business units; and 3) focus on increasing sales volumes for core products and sell trademarks and sanitary records to generate additional revenue.

 

Renegotiation of existing loans

 

On August 16, 2023, the Group successfully renegotiated the terms of the Syndicated Loan Agreement with Bancolombia and Davivienda, which extends the payment terms for a six-year period. In addition, on August 18, 2023, the Group renegotiated their short-term loan with BTG into a thirty-month period loan. Refer to Note 14. Borrowings and Note 20. Events after the reporting period for further details regarding these renegotiated loans. The Group has the ability to further renegotiate existing loans to maintain and meet its liquidity needs and requirements. However, the Group’s ability to renegotiate with its lenders is not within the Group’s control. As of the date of these Unaudited Condensed Consolidated Interim Financial Statements, the Group cannot assure that it will be able to reach an agreement with its lenders, or to waive any potential non-compliance.

 

Additional measures

 

If the above actions do not generate sufficient liquidity for the Group to meet its contractual obligations, Management has identified additional measures which could be implemented to further reduce costs and increase total revenues in order to provide sufficient cash flow to meet obligations as they fall due including: 1) reduce discretionary spending on research and development, marketing and capital expenditures; 2) sell additional trademarks and sanitary records; and 3) further reduce headcount.

 

Summary

 

Management has evaluated the Group’s capital position, its ability to continue in the normal course of business for the foreseeable future and ability to meet its financial obligations for the next twelve months from the balance sheet date. While Management believes that their cost savings, revenue growth, and loan renegotiation will allow the group to be able to meet its financial obligations and finance its growth, there is no assurance that these plans can be successfully implemented to generate the liquidity required to meet the Group’s need. Failure to successfully implement these plans may have a material adverse effect on the Group’s business, results of operations and financial position, and may materially adversely affect its ability to continue as a going concern. As a result, Management concluded there is material uncertainty related to the events and conditions noted above that cast significant doubt on the entity’s ability to continue as a going concern.

 

However, Management believes that the Group will be successful in implementing the above plan and, accordingly, have prepared the Unaudited Condensed Consolidated Interim Financial Statements on a going concern basis. As a result, the Unaudited Condensed Consolidated Interim Financial Statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Group be unable to continue as a going concern.

 

10

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 3. Summary of significant accounting policies

 

Note 3.1. Change in accounting policy

 

Except as described below, the accounting policies applied in these Unaudited Condensed Consolidated Interim Financial Statements are the same as those applied in the Group’s last annual financial statements.

 

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.

 

Note 3.1.1. Derivative financial instrument and hedge accounting

 

Derivative financial instruments are initially measured at fair value. Subsequent to initial recognition, they are measured at fair value, and changes therein are generally recognized in profit or loss.

 

The Group designates certain derivatives as hedging instruments to hedge foreign currency exposure related to net investments in foreign operations. At the inception of the hedge relationship, the Group documents the economic relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking the hedge.

 

Hedges of net investments in foreign operations

 

When a derivative instrument or a non-derivative financial liability is designated as the hedging instrument in a hedge of a net investment in a foreign operation, the effective portion of changes in the fair value of a derivative or foreign exchange gains and losses for a non-derivative is recognized as Exchange differences on translation of foreign operations in Other Comprehensive Income and presented under such concept within Equity. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the ‘Other income (expense), net’ line item. Gains and losses on the hedging instrument accumulated in Other Comprehensive Income are reclassified to profit or loss on the disposal or partial disposal of the foreign operation.

 

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

 

Certain new accounting standards, interpretations or amendments to accounting standards are effective for annual periods beginning after January 1, 2023. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective in the preparation of these Unaudited Condensed Consolidated Interim Financial Statements.

 

The Group adopted the following accounting standard amendments from January 1, 2023. The evaluation performed by management determined that these amendments did not result in a significant impact in relation to the Group’s Unaudited Condensed Consolidated Interim Financial Statements.

 

Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) - Effective January 1, 2023

 

The amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements provide guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.

 

11

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

The amendments had no impact on the Group’s Unaudited Condensed Consolidated Interim Financial Statements, but are expected to affect the accounting policy disclosures in the Group’s annual Consolidated Financial Statements.

 

Definition of Accounting Estimate (Amendments to IAS 8) - Effective January 1, 2023

 

The amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. The distinction between the two is important because changes in accounting policies are applied retrospectively, whereas changes in accounting estimates are applied prospectively.

 

The Group has determined the amendment has no significant impact in its Unaudited Condensed Consolidated Interim Financial Statements.

 

Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income Taxes - Effective January 1, 2023

 

The amendments to IAS 12 Income Tax narrow the scope of the initial recognition exception, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences such as leases and decommissioning liabilities. The amendments had no impact on the Group’s Unaudited Condensed Consolidated Interim Financial Statements.

 

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 last annual financial statements.

 

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 six months ended June 30, 2023 includes $1,298 and $2,080 (for the three and six months ended June 30, 2022: $7,545 and $8,848) 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.

 

12

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

For the three months ended June 30  Reportable segments     
2023  NextGel   Procaps
Colombia
   CAN   CASAND   Diabetrics   Total 
                         
Segment revenue   62,678    38,067    18,471    25,285    9,945    154,446 
Inter-segment revenue   (30,698)   (25)   (4,658)   (4,267)   (4,741)   (44,389)
Revenue from contracts with customers   31,980    38,042    13,813    21,018    5,204    110,057 
                               
Timing of revenue recognition                              
Goods transferred at a point in time   30,682    38,042    13,813    21,018    5,204    108,759 
Services transferred over time   1,298    
    
    
    
    1,298 
Total revenue from contracts with customers   31,980    38,042    13,813    21,018    5,204    110,057 

 

For the three months ended June 30  Reportable segments     
2022  NextGel   Procaps
Colombia
   CAN   CASAND   Diabetrics   Total 
                         
Segment revenue   64,883    41,253    22,122    22,666    12,143    163,067 
Inter-segment revenue   (31,960)   (1,658)   (5,287)   (5,566)   (6,176)   (50,647)
Revenue from contracts with customers   32,923    39,595    16,835    17,100    5,967    112,420 
                               
Timing of revenue recognition                              
Goods transferred at a point in time   29,045    38,187    14,576    17,100    5,967    104,875 
Services transferred over time   3,878    1,408    2,259    
    
    7,545 
Total revenue from contracts with customers   32,923    39,595    16,835    17,100    5,967    112,420 

 

For the six months ended June 30  Reportable segments     
2023  NextGel   Procaps
Colombia
   CAN   CASAND   Diabetrics   Total 
                         
Segment revenue   107,432    67,834    33,618    44,994    16,760    270,638 
Inter-segment revenue   (50,491)   (236)   (10,239)   (7,954)   (7,499)   (76,419)
Revenue from contracts with customers   56,941    67,598    23,379    37,040    9,261    194,219 
                               
Timing of revenue recognition                              
Goods transferred at a point in time   54,861    67,598    23,379    37,040    9,261    192,139 
Services transferred over time   2,080    
    
    
    
    2,080 
Total revenue from contracts with customers   56,941    67,598    23,379    37,040    9,261    194,219 

 

13

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

For the six months ended June 30  Reportable segments     
2022  NextGel   Procaps
Colombia
   CAN   CASAND   Diabetrics   Total 
                         
Segment revenue   123,038    72,802    37,522    39,191    19,737    292,290 
Inter-segment revenue   (64,778)   (1,349)   (9,417)   (9,529)   (9,167)   (94,240)
Revenue from contracts with customers   58,260    71,453    28,105    29,662    10,570    198,050 
                               
Timing of revenue recognition                              
Goods transferred at a point in time   53,531    70,045    25,846    29,210    10,570    189,202 
Services transferred over time   4,729    1,408    2,259    452    
    8,848 
Total revenue from contracts with customers   58,260    71,453    28,105    29,662    10,570    198,050 

 

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.

 

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

 

   NextGel   Procaps Colombia   CAN   CASAND 
Three months ended
June 30, 2023
  Total  

Inter- segment

eliminations

   External   Total  

Inter- segment

eliminations 

   External   Total  

Inter- segment

eliminations

   External   Total  

Inter- segment

eliminations

   External 
Revenue   62,678    (30,698)   31,980    38,067    (25)   38,042    18,471    (4,658)   13,813    25,285    (4,267)   21,018 
Contribution margin 1   12,473    (926)   11,547    11,389    (133)   11,256    5,214    622    5,836    5,847    4,286    10,133 

 

14

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

 

 

Diabetrics

   Corporate   Total 
Three months ended 
June 30, 2023
  Total  

Inter- segment

eliminations 

   External   Total  

Inter- segment

eliminations 

   External   Total  

Inter- segment

eliminations 

   External 
Revenue   9,945    (4,741)   5,204    
    
    
    154,446    (44,389)   110,057 
Contribution margin1   201    (133)   68    700    151    851    35,824    3,867    39,691 
Administrative expenses   
    
    
    25,150    (548)   24,602    25,150    (548)   24,602 
Finance expenses   
    
    
    6,739    41    6,780    6,739    41    6,780 
Other (income) expenses, net   
    
    
    (31,681)   2,054    (29,627)   (31,681)   2,054    (29,627)
Income (loss) before tax                                 35,616    2,320    37,936 

 

   NextGel   Procaps Colombia   CAN   CASAND 
Three months ended 
June 30, 2022
   Total  

Inter- segment

eliminations

   External   Total  

Inter- segment

eliminations

   External   Total  

Inter- segment

eliminations

   External   Total  

Inter- segment

eliminations

   External 
Revenue    64,883    (31,960)   32,923    41,253    (1,658)   39,595    22,122    (5,287)   16,835    22,666    (5,566)   17,100 
Contribution margin1    18,044    (552)   17,492    15,804    (695)   15,109    6,280    (20)   6,260    4,443    2,505    6,948 

 

  Diabetrics   Corporate   Total 
Three months ended
June 30, 2022
  Total  

Inter-segment

eliminations 

   External   Total  

Inter-segment

eliminations

   External   Total  

Inter-segment

eliminations

   External 
Revenue   12,143    (6,176)   5,967    
    
    
    163,067    (50,647)   112,420 
Contribution margin1   1,383    40    1,423    441    (704)   (263)   46,394    575    46,969 
Administrative expenses   
    
    
    28,844    1    28,845    28,844    1    28,845 
Finance expenses   
    
    
    18,791    
    18,791    18,791    
    18,791 
Other (income) expenses, net   
    
    
    8,626    
    8,626    8,626    
    8,626 
Income (loss) before tax                                 (9,868)   574    (9,293)

 

   NextGel   Procaps Colombia   CAN   CASAND 

Six months ended

June 30, 2023

   Total  

Inter- segment eliminations

   External   Total  

Inter- segment eliminations

   External   Total  

Inter- segment eliminations

   External   Total  

Inter-segment eliminations

   External 
Revenue    107,432    (50,491)   56,941    67,834    (236)   67,598    33,618    (10,239)   23,379    44,994    (7,954)   37,040 
Contribution margin1    21,564    (1,591)   19,973    20,393    (67)   20,326    7,267    1,371    8,638    8,518    8,152    16,670 

 

15

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

  Diabetrics   Corporate   Total 
Six months ended
 June 30, 2023
  Total  

Inter-segment eliminations

   External   Total  

Inter- segment eliminations

   External   Total  

Inter-segment eliminations

   External 
Revenue   16,760    (7,499)   9,261    
    
    
    270,638    (76,419)   194,219 
Contribution margin1   (12)   (420)   (432)   (14,075)   13,983    (92)   43,655    21,428    65,083 
Administrative expenses   
    
    
    2,545    44,176    46,721    2,545    44,176    46,721 
Finance expenses   
    
    
    8,408    (3,277)   5,131    8,408    (3,277)   5,131 
Other (income) expenses, net   
    
    
    (27,003)   (6,582)   (33,585)   (27,003)   (6,582)   (33,585)
Income (loss) before tax                                 59,705    (12,889)   46,816 

 

   NextGel   Procaps Colombia   CAN   CASAND 
Six months ended
 June 30, 2022
   Total  

Inter- segment eliminations 

   External   Total  

Inter- segment eliminations 

   External   Total  

Inter- segment eliminations 

   External   Total  

Inter- segment eliminations 

   External 
Revenue    123,038    (64,778)   58,260    72,802    (1,349)   71,453    37,522    (9,417)   28,105    39,191    (9,529)   29,662 
Contribution margin1    35,775    (8,071)   27,704    24,705    155    24,860    9,045    (651)   8,394    6,037    5,810    11,847 

 

  Diabetrics   Corporate   Total 
Six months ended
June 30, 2022
  Total  

Inter- segment eliminations 

   External   Total  

Inter- segment eliminations 

   External   Total  

Inter- segment eliminations 

   External 
Revenue   19,737    (9,167)   10,570         
         292,290    (94,240)   198,050 
Contribution margin1   1,432    (93)   1,339    1,937    (2,147)   (210)   78,930    (4,996)   73,934 
Administrative expenses   
    
    
    53,400    
    53,400    53,400    
    53,400 
Finance expenses   
    
    
    4,209    
    4,209    4,209    
    4,209 
Other (income) expenses, net   
    
    
    3,503    
    3,503    3,503    
    3,503 
Income (loss) before tax                                 17,817    (4,996)   12,822 

 

1Contribution margin is determined by subtracting sales and marketing expenses from gross profit. The Group’s customer revenue recognition (external revenue) policy has been consistent with inter-segment revenue generated.

 

Major customer

 

The Group does not have revenue from a single customer comprising more than ten percent of its consolidated revenue.

 

16

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Geographical information

 

In presenting geographical information, the Group’s revenue is based on the geographical location of the customers.

 

   For the three months ended
June 30
   For the six months ended
June 30
 
   2023   2022   2023   2022 
South America  $75,362   $73,956   $135,104   $133,156 
Central America   23,733    26,265    39,480    42,546 
North America   9,136    9,072    16,562    17,304 
Europe   1,826    3,127    3,073    5,044 
Total  $110,057   $112,420   $194,219   $198,050 

 

Seasonality of operations

 

The Group has been subject to normal seasonal fluctuations that generate less income during the first half of the year. In general, there are no significant variations on sales to customers throughout the year.

 

Note 7. Finance expenses, net

 

   For the three months ended
June 30
   For the six months ended
June 30
 
   2023   2022   2023   2022 
Banking expenses  $(564)  $(58)  $(787)  $(374)
Bank fees   (295)   (304)   (502)   (411)
Other financial expenses1   (315)   (280)   (611)   (429)
Net fair value gain/(loss) of warrant liabilities2   2,510    (1,092)   6,456    636 
Net fair value gain/(loss) of shares held in escrow2   2,460    (10,778)   9,665    7,732 
Interest expense   (10,576)   (6,279)   (19,352)   (11,363)
Total  $(6,780)  $(18,791)  $(5,131)  $(4,209)

 

1For the three and six months ended June 30, 2023, interest on lease liabilities amounted to $315 and $611 (for the three and six months ended June 30, 2022: $248 and $429).
2Refer to Note 16. Warrant liabilities, Note 17. Shares in escrow and Note 18. Financial instruments for further information related to net fair value gains for the six months ended June 30, 2023.

 

Net fair value gains recognized in Finance expenses, net for the three and six months ended June 30, 2023 and 2022 are unrealized.

 

17

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 8. Other income (expenses), net

 

   For the three months ended
June 30
   For the six months ended
June 30
 
   2023   2022   2023   2022 
Currency exchange rate differences1  $10,464   $(8,357)  $14,394   $(3,188)
Economic emergency contribution expenses   (320)   (407)   (637)   (680)
Fines, surcharges, penalties and taxes assumed   (40)   (13)   (120)   (95)
Donations   (160)   (93)   (315)   (173)
Other2   19,683    244    20,263    633 
Total  $29,627   $(8,626)  $33,585   $(3,503)

 

1The increase in currency exchange rate differences income (expense) for the three and six months ended June 30, 2023 is mainly related to a decrease of 10% and 13% (increase for the three and six months ended June 30, 2022 11% and 4%) in the Colombian Pesos/USD exchange rate for the period and the Group’s Colombian entities’ liability position towards USD.
2Includes income from a legal settlement with a third party to recover costs incurred relating to a business opportunity with such third party. The open receivable balance as of June 30, 2023 is included within Other financial assets in the Consolidated Interim Statement of Financial Position. The amount, counter party and any further details can’t be disclosed due to contractual restrictions within the settlement agreement.

 

Note 9. Income tax

 

Income tax recognized through profit or loss

 

Income tax expense is recognized at an amount determined by multiplying the profit before tax for the interim reporting period by management’s best estimate of the weighted-average annual income tax rate expected for the full financial year, adjusted for the tax effect of certain items recognized in full in the interim period. As such, the effective tax rate in the condensed consolidated interim financial statements may differ from management’s estimate of the effective tax rate for the annual financial statements.

 

The Group’s consolidated income (loss) before tax for the three and six months ended June 30, 2023 amounts to $37,936 and $46,816(for the three and six months ended June 30, 2022: $(9,293) and $12,822). The income tax expense for the three and six months ended June 30, 2023 was $(10,981) and $(13,240) (for the three and six months ended June 30, 2022: $2,374 and $(3,295)). The Group’s consolidated effective tax rate with respect to continuing operations for the six months ended June 30, 2023 was 28.28% (for the six months ended June 30, 2022: 25.64%) The change in the consolidated effective tax rate was mainly caused by the following factors: (i) Optimization of the use of tax credits, tax rate changed from 25% up to 30% in Colombia, and (ii) by concentration of profits in countries where the tax rate is higher.

 

The tax rate used for the six months ended June 30, 2023 represents the tax rate of 35% (for the six months ended June 30, 2022: 35%) on the taxable income payable by the most representative entities of the Group in Colombia, in accordance with the tax laws of said jurisdiction. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.

 

18

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 10. Intangible assets, net

 

Cost  Total 
Balance as of January 1, 2022  $53,926 
Additions   860 
Additions from internal developments   4,246 
Foreign currency exchange   (1,687)
Balance as of June 30, 2022  $57,345 
      
Balance as of January 1, 2023  $57,831 
Additions   1,465 
Additions from internal developments   4,031 
Derecognition of assets   (51)
Foreign currency exchange   6,535 
Transfers   113 
Balance as of June 30, 2023  $69,924 

 

Accumulated amortization  Total 
Balance as of January 1, 2022  $23,755 
Amortization expense   2,436 
Foreign currency exchange   (723)
Balance as of June 30, 2022  $25,468 
      
Balance as of January 1, 2023  $25,623 
Amortization expense   2,291 
Foreign currency exchange   2,852 
Balance as of June 30, 2023  $30,766 
      
As of June 30, 2022     
Net book value  $31,877 
As of June 30, 2023     
Net book value  $39,158 

 

For the three and six months ended June 30, 2023 and 2022, amortization expenses were recognized within the Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income as administrative expenses.

 

Foreign currency exchange corresponds to the effect of translating the intangible asset amounts attributable to the subsidiaries of the Group whose functional currencies are different from that of the Group.

 

19

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 11. Property, plant and equipment, net

 

Cost  Total 
Balance as of January 1, 2022  $116,654 
Additions   10,518 
Disposals   (2,275)
Effect of exchange differences in foreign currency   (2,544)
Transfers   (54)
Balance as of June 30, 2022  $122,299 
      
Balance as of January 1, 2023  $121,898 
Additions   13,110 
Disposals   (276)
Effect of exchange differences in foreign currency   12,664 
Transfers   (116)
Balance as of June 30, 2023  $147,280 

 

Accumulated depreciation  Total 
Balance as of January 1, 2022  $44,016 
Disposals   (174)
Depreciation expense   2,932 
Effect of exchange differences in foreign currency   (1,071)
Balance as of June 30, 2022  $45,703 
      
Balance as of January 1, 2023  $47,933 
Disposals   (227)
Depreciation expense   2,662 
Effect of exchange differences in foreign currency   5,125 
Transfers   (38)
Balance as of June 30, 2023  $55,455 
      
As of June 30, 2022     
Net book value  $76,596 
As of June 30, 2023     
Net book value  $91,825 

 

For the six months ended June 30, 2023, depreciation expense was recognized as follows: $2,061 was recognized as cost of goods sold (for the six months ended June 30, 2022: $1,678) and $601 for the six months ended June 30, 2022: $1,254) within administrative expense.

 

Financial Commitments

 

As of June 30, 2023, the Group has commitments to acquire capital expenditures for $6,110 (as of June 30, 2022: $9,229).

 

20

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 12. Inventories, net

 

   As of
June 30,
2023
   As of
December 31,
2022
 
Raw materials and supplies  $50,371   $42,701 
Products in process   6,600    7,412 
Finished products and merchandise   42,094    41,492 
Inventory in transit   9,950    11,531 
Subtotal  $109,015   $103,136 
Less: Provision   (5,540)   (6,303)
Total  $103,475   $96,833 

 

Inventories recognized as cost of goods sold for the six months ended June 30, 2023 amounted to $86,969 (for the six months ended June 30, 2022: $78,294). Inventories used as samples for the six months ended June 30, 2023 amounted to $3,026 (for the six months ended June 30, 2022: $4,068), were recognized as marketing expenses.

 

Write-downs of inventories to net realizable value and obsolescence adjustments for the six months ended June 30, 2023 amounted to $2,502 (for the six months ended June 30, 2022: $1,010), were recognized within sales expenses.

 

Note 13. Trade and other receivables, net

 

   As of
June 30,
2023
   As of
December 31,
2022
 
Trade receivables, net of discounts 1  $137,587   $126,456 
Other receivables   12,860    15,211 
Impairment of trade and other receivables 2   (13,906)   (12,065)
Trade receivables, net of discounts and impairment  $136,541   $129,602 

 

1Discount and return provision amounts to $14,793 (as of December 31, 2022: $13,443).
2Total impairment balance is comprised of $11,744 (as of December 31, 2022: $10,768) for trade receivables and $2,162 (as of December 31, 2022 $1,297) for other receivables.

 

Refer to Note 18. Financial instruments for the Group’s disclosures on credit risk management and expected credit losses.

 

The Group has entered into factoring arrangements to sell certain trade receivables to third parties under recourse programs, retaining all risk and rewards incidental to the trade receivables, so no derecognition of the financial assets has been performed. Trade receivables which collateralize factoring obligations as of June 30, 2023 amounts to 4,225 (as of December 31, 2022: $2,547).

 

21

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 14. Borrowings

 

   As of
June 30,
2023
   As of
December 31,
2022
 
Borrowings at amortized cost(a)        
Syndicated term loan (1)  $40,191   $38,626 
Other term loan (2)   93,788    95,720 
Lease liabilities (3)   34,966    34,192 
Factoring obligations (4)   4,017    2,317 
Bank overdrafts (5)   357    80 
Notes (6)   115,000    115,000 
Total Interest bearing liabilities  $288,319   $285,935 
           
Current   118,684    257,525 
Non- Current  $169,635   $28,410 

 

(a)Borrowings at amortized cost are unsecured, with the exception of factoring obligations which are collateralized by trade receivables. Refer to Note 13. Trade and other receivables, net.

 

1. Syndicated term loan

 

   Currency  Range of
Interest
  Maturity
Year
  As of
June 30,
2023
   As of
December 31,
2022
 
Syndicated term loan  COP  IBR + 5.30%  2023-2025  $40,652   $39,156 
Amortized cost  COP  N/A  2023   (461)   (530)
Total Syndicated term loan           $40,191   $38,626 

 

On November 20, 2018, Procaps S.A. entered into a syndicated term loan agreement the “Syndicated Loan Agreement”) with the following banks: Portion in Colombian pesos (COP) - Davivienda and Bancolombia; US dollar portion (USD) - Banco de Credito del Peru, Bancolombia Panama and Banco Sabadell. The total value of the syndicated loan amounts to $200,434 million COP (portion in COP) and $35 million USD (portion in USD), Fiduciaria Bancolombia acts as the agent of the loan. C.I. Procaps S.A., Procaps S.A. de C.V, Biokemical S.A., Pharmarketing S.A. (Panama), Pharmarketing Salvador S.A. de C.V., Pharmarketing S.A. (Guatemala S.A.), C.D.I. Salvador S.A. de C.V., C.D.I. Nicaragua S.A., C.D.I. Guatemala S.A., Pharmarketing Dominicana SRL, and Pharmarketing Costa Rica S.A., act as co-debtors, while Pharmayect S.A., Inversiones Crynssen S.A.S., Inversiones Ganeden S.A.S., Inversiones Henia S.A.S., Inversiones Jades S.A.S., and Industrias Kadima S.A.S., act as guarantors.

 

The resources obtained were used for advance payment and/or novation of some obligations to be refinanced. The conditions of the loan had a term of 5 years for installment payments and the interest rates agreed are as follows: IBR + 5.30% for the portion in COP and Libor + 4.80% for the USD portion.

 

22

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

The significant covenants required by the Syndicated Loan Agreement are as follows:

 

Financial covenants

 

Indebtedness Indicator (Indebtedness/EBITDA) as of June 30 and December 31 of each year, during the loan term, must be less than or equal to 3.5 times. If the indicator is greater than 3.0 and less than 3.5, it proceeds to the extent that this value is originated by causes other than additional debt and the justification of the increase must be presented to the agent.

 

Short-term leverage ratio < 1.0 on the last day of each semester.

 

EBITDA ratio / financial expenses = or > 3.0 on the last day of each semester.

 

Other covenants

 

The Syndicated Loan Agreement establishes that each of the jointly obligated parties, unless they have the express, prior and written authorization of the Agent, will refrain from incurring any type of financial debt when the proforma indebtedness indicator, once acquired the additional financial debt, is greater than 3.0 times and maintaining any type of financial debt when the pro forma indebtedness indicator, once the national debt is acquired, is greater than 3.5 times.

 

Each of the joint obligated parties, except with express, prior and written authorization of the Agent to do otherwise, will refrain from contracting finance and/or operating lease obligations with purchase option with a joint balance payable greater than $85,000,000 (Eighty-Five Billion Pesos, local currency) or its equivalent in another currency. For purposes of clarity, the reclassification of obligations as financial lease obligations by application of the Accounting Standards will not consume the balance set forth herein and may not be renewed.

 

The payment of dividends is restricted to anyone other than the jointly obligated parties.

 

The Syndicated Loan Agreement establishes that, in the event of breach of covenants by the debtor, the lenders shall be entitled to declare early maturity of the debts.

 

As mentioned in Note 2.1. Going concern, as of December 31, 2022, the Group was not in compliance with certain covenants under the Syndicated Loan Agreement. As a result, as of December 31, 2022, $19,665 unpaid principal balance previously classified as non-current borrowings, was reclassified to current borrowings within the Group’s Consolidated Statement of Financial Position.

 

On May 2, 2023 the Group obtained a Waiver for the loan covenant breaches described above. Under the terms of the Waiver, the lenders agreed to waive the event of default as of December 31, 2022.For the period ending June 30, 2023, as part of the Waiver negotiations, the lenders agreed to adjust the convent ratios as noted below (the covenants will return to the original terms from December 31, 2023, onwards):

 

Indebtedness Indicator (Indebtedness/EBITDA) must be less than or equal to 4.5 times (original covenant: less than or equal to 3.5 times).

 

Short-term leverage ratio less than 1.6 (original covenant: less than 1.0).

 

EBITDA ratio / financial expenses greater than or equal to 1.8 (original covenant: greater than or equal to 3.0).

 

As a result, the unpaid principal balance is classified as non-current borrowings as of June 30, 2023.

 

23

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Additionally, as mentioned in Note 2.1. Going concern, on August 16, 2023, the Group renegotiated the terms of the Syndicated Loan Agreement which extends the payment terms for a six-year period. Refer to Note 20. Events after the reporting period for further details regarding the renegotiation.

 

2. Other term loan

 

   Currency  Range of Interest  Maturity
Year
  As of
June 30,
2023
   As of
December 31,
2022
 
Other term loan  COP  IBR+ 9.0%, 23.5%
(2022: IBR+ 5.0%, DTF+ 3%, 13.99%-25.3%)

  2022-2025  $12,407   $9,549 
   COP  IBR + 2.25%- IBR 7.95%
(2022: IBR+2.25%-10.2%)

  2022-2025   23,342    21,267 
   Soles  8.0% - 14.50% (Fixed)
(2022: 8.0% - 12.79% (Fixed))

  2022-2024   6,619    6,837 
   Reales  9.84% - 18% N.A.  2023-2024   1,137    2,176 
   USD  SOFR+ (5.80%-7.00%), SOFR6M + (2%-3%)
(2022: SOFR+ (4.80%-5.80%))

  2023   24,669    23,454 
   USD  6.5%-16.8% N.A.
(2022: 6.36%-16.8%)

  2022-2025   25,614    32,437 
Total Other term loans           $93,788   $95,720 

 

On June 28, 2022, Procaps, S.A. (the “Company”) entered into a credit agreement with BTG to borrow $8,672. The covenants required by the loan contract are:

 

The Company’s consolidated Indebtedness Indicator (Indebtedness / EBITDA) should not be greater than 3.5x.

 

The Company’s consolidated EBITDA/Finance expense should not be less than 3x.

 

As mentioned in Note 2.1. Going concern, as of December 31, 2022, the Group was not in compliance with the loan covenants related to the BTG Credit Agreement. As a result, the $4,490 unpaid principal balance previously classified as a non-current borrowings, was reclassified to current borrowings within the Group’s Consolidated Statement of Financial Position as of December 31, 2022.

 

On March 28, 2023 the Group obtained a Waiver for the loan covenant breach. Under the terms of the Waiver, BTG Pactual agreed to waive the event of default as of December 31, 2022. For the period ending June 30, 2023, as part of the Waiver negotiations, the lenders agreed to adjust the covenant ratios as noted below (the covenants will return to the original terms from December 31, 2023, onwards):

 

The Company’s consolidated Indebtedness Indicator (Indebtedness / EBITDA) must not be greater than 4.5x (original covenant: greater than 3.5x).

 

24

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

  The Company’s consolidated EBITDA/Finance expense must not be less than 1.8x (original covenant: less than 3.0x).

 

As a result, the unpaid principal balance is classified as non-current borrowings as of June 30, 2023.

 

Along with the BTG Credit Agreement, the Group borrowed $19,000 on October 14, 2022 as part of a short-term agreement with BTG Pactual which is payable in 2023. Additionally, as mentioned in Note 2.1. Going concern, on August 18, 2023, the Group renegotiated their short-term agreement with BTG into a thirty-month period loan. Refer to Note 20. Events after the reporting period for further details regarding the renegotiation.

 

3. Lease liabilities

 

   Currency  Range of  Interest  Maturity
Year
  As of
June 30,
2023
   As of
December 31,
2022
 
Lease liabilities  COP  IBR+(3.82%-7.3%), DTF + 5.5%
(2022: DTF + (5,18% - 10,11%) T.A., IBR+7.5%)
  2022-2030  $10,170   $10,475 
   COP  IBR+ (4.2%-8.2%)
(2022: DTF+ 4.54%-10.42 T.A.
  2022-2025   3,944    3,653 
   USD  0.75%-21.48%, DTF+5.50%, IBR+4.10% (2022: 0.75%-21.48%)  2023-2032   20,852    14,787 
   COP  1.91%-12.23%, IBR+4.68%  2023       4,703 
   Reales  0.70-8.72% (Fixed)  2023-2024       574 
Total Lease Liabilities           $34,966   $34,192 

 

4. Factoring obligations

 

   Currency  Range of Interest  Maturity
Year
  As of
June 30,
2023
   As of
December 31,
2022
 
Portfolio factoring  COP  DTF+7% (2022: DTF+8%)  2023  $1,583   $1,508 
   COP  2% - 22.4% (2022: 15.0% - 27% N.A.)  2023   2,434    809 
Total Factoring           $4,017   $2,317 

 

5. Bank overdraft

 

   Currency  Range of Interest  Maturity
Year
  As of
June 30,
2023
   As of
December 31,
2022
 
Overdrafts and credit cards  COP  19.68% - 32% E.A.  (Fixed)  2023  $357   $80 

 

25

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

6. Notes

 

On November 12, 2021, the Group closed the private placement offering of $115 million aggregate principal amount of 4.75% guaranteed senior notes (the “Senior Notes”) issued by Procaps, S.A., a subsidiary of the Group, due November 12, 2031, pursuant to the NPA entered into on November 5, 2021 with The Prudential Insurance Company of America, Prudential Annuities Life Assurance Corporation, Healthspring Life & Health Insurance Company, Inc. and Cigna Health and Life Insurance Company Inc.

 

The Senior Notes are a senior unsecured obligations of Procaps, S.A. and unconditionally guaranteed by Procaps Group, S.A. and the following subsidiaries of the Group: C.I. Procaps, S.A., Diabetrics Healthcare S.A.S., Pharmayect S.A., Procaps, S.A. de C.V., Biokemical, S.A. de C.V., Colbras Indústria e Comércio Ltda., and Sofgen Pharmaceuticals LLC.

 

Debt issuance costs related to the Senior Notes of $2,142, comprised of commissions payable to the initial purchasers of $1,390 and attorneys’ costs of $752, were allocated to the liability of the Notes based on their relative values. Issuance incremental costs are part of the effective rate and amortized to interest expense using the effective interest method over the contractual term.

 

As mentioned in Note 1. General Company Information, the Notes Payoff did not occur on or prior to November 30, 2022, therefore triggering the 3.75% per annum waiver fee on the outstanding principal amount of Senior Notes, raising the interest rate from 4.75% to 8.50%. As a result, the Group has treated the rate increase as a debt extinguishment, derecognised a liability in the amount of $113,400, expensed $1,600 in unamortized transaction costs, and recognized a new liability in the amount of $115,000 as of December 31, 2022.

 

The Senior Notes require Procaps, S.A., the Group and the following subsidiaries of the Group: C.I. Procaps, S.A., Diabetrics Healthcare S.A.S., Pharmayect S.A., Procaps, S.A. de C.V., Biokemical, S.A. de C.V., Colbras Indústria e Comércio Ltda., and Sofgen Pharmaceuticals LLC. to comply with the following financial ratios:

 

The consolidated total debt of Procaps, S.A., the Group and the other obligors thereunder to consolidated EBITDA for the last twelve months of 3.50:1.00 or less (Indebtedness Indicator), measured at certain dates of determination and;

 

An EBITDA interest coverage ratio (calculated as the consolidated EBITDA for the last twelve months of Procaps, S.A. and the other obligors thereunder divided by the consolidated interest expenses of Procaps, S.A. and the other obligors thereunder) in excess of, or equal to, 3.00:1.00, calculated at certain dates of determination.

 

Short-term leverage ratio equal to or less than 1.00

 

Complying with the Note Purchase Agreement protocols and as a result of the more favorable provisions of the Syndicated Loan Agreement, the Group gave notice on April 7, 2022 that specific provisions related to reporting covenants, affirmative covenants, negative covenants, events of default, and mandatory prepayment events, as set forth in the Syndicated Loan Agreement, shall apply to the Senior Notes.

 

As mentioned in Note 2.1. Going concern, as of December 31, 2022, the Group was not in compliance with the financial covenants related to the Senior Notes. As a result, the $115,000 unpaid principal balance previously classified as a non-current borrowings, was reclassified to current borrowings within the Group’s Consolidated Statement of Financial Position as of December 31, 2022.

 

26

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

On March 31, 2023 the Group obtained a Waiver for the NPA covenant breaches described above. Under the terms of the Waiver, the noteholders agreed to waive the event of default as of December 31, 2022. For the periods ending March 31, June 30 and September 30, 2023, as part of the Waiver negotiations, the lenders agreed to adjust the covenant ratios as noted below (the covenants. will return to the original terms from December 31, 2023, onwards):

 

The consolidated total debt of Procaps, S.A., the Group and the other obligors thereunder to consolidated EBITDA for the last twelve months of 4.00:1.00 or less (original covenant: 3.50:1.00 or less).

 

An EBITDA interest coverage ratio in excess of, or equal to, 2.20:1.00 (original covenant: in excess of, or equal to, 3.00:1.00).

 

Short-term leverage ratio equal to or less than 1.60:1:00 (original covenant: equal to or less than 1.00:1.00).

 

As mentioned in Note 2.1. Going concern, as of June 30, 2023 the Group obtained an Additional Waiver under the NPA in anticipation of a potential breach of the covenant ratios contained within the March 31, 2023 Waiver. For the periods ending June 30 and September 30, 2023, the lenders agreed to adjust the covenant ratios as noted below (the covenants will return to the original terms from December 31, 2023, onwards):

 

The consolidated total debt of Procaps, S.A., the Group and the other obligors thereunder to consolidated EBITDA for the last twelve months of 4.30:1.00 or less (original covenant: 3.50:1.00 or less).

 

An EBITDA interest coverage ratio in excess of, or equal to, 1.90:1.00 (original covenant: in excess of, or equal to, 3.00:1.00).

 

The Additional Waiver was obtained on June 30, 2023, therefore, the unpaid principal balance is classified as non-current borrowings as of June 30, 2023.

 

   Currency  Range of
Interest
  Maturity
Year
  As of
June 30,
2023
   As of
December 31,
2022
 
The Prudential Insurance Company Of America  USD  8.50% (Fixed)  2031  $60,020   $60,020 
Prudential Annuities Life Assurance Corporation  USD  8.50% (Fixed)  2031   29,980    29,980 
Healthspring Life & Health Insurance Company, Inc  USD  8.50% (Fixed)  2031   18,350    18,350 
CIGNA Health and Life Insurance Company  USD  8.50% (Fixed)  2031   6,650    6,650 
Total Senior Notes           $115,000   $115,000 

 

27

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 15. Provisions and contingencies

 

   2023   2022 
Contingencies        
Balance as of January 1  $138   $501 
Effect of changes in foreign exchange rates   8    28 
Provisions made   91    7 
Provisions used   (42)   (41)
Balance as of June 30  $195   $495 

 

The Group recognizes provisions for contingencies that are probable of requiring an outflow of resources due to adverse effects. The Group recognized the estimated probable losses against the company for labor, administrative and tax litigation, which are calculated based on the best estimate of the disbursement required to cancel the obligation. Such contingencies are disclosed with possible adverse effects for the entity, as follows:

 

Legal provisions

 

Softcaps legal proceedings - The total balance of $73 (as of June 30, 2022: $448) is comprised of labor, administrative, and civil ligation. As of June 30, 2022, balance for tax litigation amounted to $372, there are no tax litigation provisions recognized as of June 30, 2023.

 

The remaining balance of 122 (as of June 30, 2022: 47) is for labor litigation in the following entities: Procaps, S.A., Unimed del Perú, CDI Nicaragua, and Diabetrics.

 

Contingencies

 

Procaps SA de CV legal proceedings - The General Tax Directorate of El Salvador (DGII), determined that the company failed to declare taxable and presumed income from revenue obtained and loans made to non-domiciled companies in 2018, the proposed tax charge and sanction amounts to $1,087. Also, the DGII determined that the company incurred in the infraction of non-intentional evasion due to the incorrect filing of the “VAT” declarations for 2019. The proposed tax charge and penalty amounts to $348.

 

However, the Group’s external advisor indicates that it is not probable for this claim to proceed, therefore, there is no provision for the effect of this contingency.

 

Note 16. Warrant liabilities

 

   As of
June 30,
2023
   As of
December 31,
2022
 
Public warrants  $3,800   $9,200 
Private warrants1   661    1,716 
   $4,461   $10,916 

 

1Private warrants include 2,875,000 held by the former SPAC sponsors deposited in an escrow account.

 

28

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 16.1. Public warrants

 

   As of
June 30,
2023
   As of
December 31,
2022
 
As of January 1  $9,200   $16,000 
Acquired public warrants   
    
 
Fair value remeasurement   (5,400)   (6,800)
Balance as of June 30/December 31  $3,800   $9,200 

 

The fair value of the Public Warrants decreased for the six months ended June 30, 2023 by $5,400 (decreased for the year ended December 31, 2022: $6,800). Refer to Note 7. Finance expenses, net.

 

Note 16.2. Private warrants

 

   As of
June 30,
2023
   As of
December 31,
2022
 
As of January 1  $1,716   $7,112 
Acquired private warrants   
    
 
Fair value remeasurement   (1,055)   (5,396)
Balance as of June 30/December 31  $661   $1,716 

 

The fair value of the Private Warrants decreased for the six months ended June 30, 2023 by $1,055 (decreased for the year ended December 31, 2022: $5,396). Refer to Note 7. Finance expenses, net.

 

Note 17. Shares in escrow

 

   As of
June 30,
2023
   As of
December 31,
2022
 
As of January 1  $40,064   $101,859 
Escrowed shares   
    
 
Fair value remeasurement   (9,665)   (61,795)
Balance as of June 30/December 31  $30,399   $40,064 

 

The fair value of the Shares in escrow decreased for the six months ended June 30, 2023 by $9,665 (decreased for the year ended December 31, 2022: $61,795). Refer to Note 7. Finance expenses, net.

 

Note 18. Financial instruments

 

18.1 Accounting classification and fair value

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When measuring fair value, the Group uses observable market data whenever possible. Fair values are categorized into different levels in a hierarchy based on the inputs used in the valuation techniques as follows:

 

Level 1: inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2: inputs are observable either directly (e.g. as prices) or indirectly (e.g. derived from prices).

 

Level 3: fair value measurements incorporate significant inputs that are based on unobservable market data.

 

29

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

The following table shows the carrying amounts of financial assets and financial liabilities. The amortized cost basis of the financial assets and liabilities not measured at fair value approximates their fair value.

 

   As of June 30, 2023   As of December 31, 2022 
   FVTPL1   FVOCI2   Amortized cost3   FVTPL1   Amortized cost3 
Financial assets not measured at fair value                         
Trade and other receivables, net  $
   $
   $136,541   $
   $129,602 
Amounts owed by related parties, net   
    
    2,225    
    2,474 
Cash   
    
    11,537    
    43,003 
Other financial assets   
    
    14,538    
    210 
Total financial assets not measured at fair value  $
   $
   $164,841   $
   $175,289 
                          
Financial liabilities measured at fair value                         
Warrant liabilities  $4,461   $
   $
   $10,916   $
 
Shares held in escrow   30,399    
    
    40,064    
 
Derivative financial liabilities   
    2,473    
    
    
 
Total financial liabilities measured at fair value  $34,860   $2,473   $
   $50,980   $
 
Financial liabilities not measured at fair value                         
Borrowings   
    
    288,319    
    285,934 
Trade and other payables   
    
    85,970    
    90,187 
Amounts owed to related parties   
    
    3,922    
    2,914 
Total financial liabilities not measured at fair value  $
   $
   $378,211   $
   $379,035 

 

1The fair value of the exhibited figures as of June 30, 2023 is comprised of $3,800 Level 1 (as of December 31, 2022: $9,200) and $31,060 Level 3 (as of December 31, 2022: $41,780).
2The fair value of the exhibited figures as of June 30, 2023 is Level 2.
3The fair value of the exhibited figures is similar to their amortized cost as of June 30, 2023 and December 31, 2022, respectively.

 

30

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

18.2 Measurement of fair values

 

The following tables show the valuation techniques used in measuring Level 3 fair values for financial instruments in the Unaudited Condensed Consolidated Interim Statement of Financial Position, as well as the significant unobservable inputs used.

 

       Significant unobservable  Relationship between significant unobservable  Sensitivity of  significant unobservable input
to fair value
 
Type  Fair value   Valuation Technique  input  input to fair value   +5%    -5%
Private warrants  $100   The fair value of the Private Warrants is estimated using the Black-Scholes option pricing formula for European calls, since the underlying stock is not expected to pay dividends over the term of the Warrants.  Volatility of 36.6% (2022: 36.6%)  The higher (lower) the volatility, the higher (lower) the fair value.  $155   $55 
Private warrants in escrow   561   The fair value of the Private Warrants in escrow is estimated using Monte Carlo simulation in a risk-neutral framework assuming a Geometric Brownian Motion for the future stock price.  Volatility of 36.6% (2022: 37.5%)  The higher (lower) the volatility, the higher (lower) the fair value.   877    316 
Shares held in escrow   30,399   The fair value of the shares to be delivered  is estimated using Monte Carlo simulation in a risk-neutral framework assuming a Geometric Brownian Motion for the future stock price.  Volatility of 41.0% (2022: 36.5%)  The higher (lower) the volatility, the higher (lower) the fair value.   30,737    29,999 

 

18.3 Financial risk management

 

The Group has exposure to the following risks arising from financial instruments:

 

Credit risk

 

Liquidity risk

 

Market risk, including currency and interest rate risk

 

18.3.1. Credit risk

 

Exposure to credit risk

 

The carrying amount of financial assets represents the maximum credit exposure of the Group. The carrying amount is presented net of impairment losses. None of the receivable balances as of June 30, 2023 and December 31, 2022 constitutes a significant concentration of credit risk. There are no other single customers representing more than 10% of total gross trade receivables as of June 30, 2023 and December 31, 2022.

 

Expected credit losses

 

The average credit period on the sale of medicines is 60 to 120 days. In some cases, depending on market conditions and strategy, longer payment periods are granted. No interest surcharge is made on commercial accounts receivable.

 

The Group has recognized a provision for doubtful accounts. The Group evaluates the impairment of its accounts receivable for the expected credit loss model, where it determines its value based on the probability of default, the loss due to default (i.e., the extent of the loss in case of default) and the exposure, by the application of the ‘simplified method’ for trade receivables without a significant financing component. The assessment of the probability of default and the loss due to default is mainly based on historical data and adjust historical loss rates to reflect information about current conditions and reasonable and supportable forecasts of future economic conditions.

 

31

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

June 30, 2023  Current
(not past due)
   1-30 days past due   31-60 days past due   61-90 days past due   91-120 days past due   More than 120 days
past due
   Total 
Weighted-average loss rate   0.36%   2.43%   5.26%   7.34%   12.04%   84.44%   14.34%
Gross carrying amount   120,839    16,815    8,524    3,162    1,620    28,420    179,380 
Impairment loss allowance   (441)   (408)   (448)   (232)   (195)   (23,997)   (25,721)
   $120,398   $16,407   $8,076   $2,930   $1,425   $4,423   $153,659 

 

December 31, 2022  Current
(not past due)
   1-30 days past due   31-60 days past due   61-90 days past due   91-120 days past due   More than 120 days
past due
   Total 
Weighted-average loss rate   0.39%   3.42%   4.50%   14.25%   19.89%   83.88%   14.07%
Gross carrying amount   124,219    11,816    3,864    1,958    890    26,605    169,352 
Impairment loss allowance   (483)   (404)   (174)   (279)   (177)   (22,317)   (23,834)
   $123,736   $11,412   $3,690   $1,679   $713   $4,288   $145,518 

 

As of June 30, 2023 no impairment losses were recognized for balances in connection with related parties. However, as of June 30, 2023 and December 31, 2022, an allowance is maintained for open balances referred to goods sold to Industrias Intercaps de Venezuela C.A. and Laboratorios Vivax Pharmaceuticals C.A., due to the critical political and social situation that the location country of precedence is experiencing.

 

18.3.2.Market Risk

 

Net Investment Hedges

 

A foreign currency exposure arises from the Group’s net investment in its subsidiary Procaps, S.A., that is a Colombian Peso functional currency entity. The risk arises from the fluctuation in spot exchange rates between the Colombian Peso and the USD, which causes the amount of that net investment to vary.

 

Part of the Group’s net investment in Procaps, S.A. is hedged by average rate forward contracts (pay Colombian Peso and receive USD), which mitigates the foreign currency risk arising from the subsidiary’s net assets. The forward contracts are designated as hedging instruments for the changes in the value of the net investment that are attributable to changes in the Colombian Peso/USD spot rate. The counterparty is a top-tier financial institution with low credit risk.

 

The hedged risk in the net investment hedge is the risk of a weakening Colombian Peso against the USD that will result in a reduction in the carrying amount of the Group’s net investment in Procaps, S.A. The Group has established a hedge ratio of 1:1 where the notional amounts of the hedging instruments match the carrying amount of the hedged net investment.

 

The Group assesses hedge effectiveness qualitatively, as the critical terms (i.e., the notional amount and underlying exchange rate) of the hedging instruments are closely aligned with those of the hedged net investment in Procaps, S.A. It is expected that the value of the hedging instruments and the value of the hedged net investment will systematically change in opposite directions in response to movements in the Columbian Peso/USD exchange rate.

 

The main potential sources of ineffectiveness identified by the Group in these hedging relationships are timing mismatches, forward points used to calculate the settlement amount of the hedging instruments which are not reflected in the value changes of the hedged net investment, and changes in the Group’s and/or derivative counterparty’s credit that would result in movements in fair value of the hedging instruments that would not be reflected in the movements in the value of the hedged net investment.

 

32

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

The amounts related to items designated as hedging instruments were as follows:

 

Average Currency Forward Contracts (Sell COP)  Settlement Date  Forward Exchange rate   Notional amount (COP)   Notional amount (USD) 
Less than 3 months  7/6/2023   4,625    36,110,000,000    8,649,102 
3-6 months  10/3/2023   4,715    42,800,000,000    10,251,497 
Over 6 months  1/3/2024   4,791    48,837,000,000    11,697,485 

 

   As of June 30, 2023 
   Carrying amount   Line item in the statement of financial position
where the hedging instrument
 

Change in value used for

calculatinghedge

 
Average Currency Forward Contracts (Sell COP)  Assets   Liabilities   is included 

ineffectiveness

 
Less than 3 months   
    368   Derivative Financial Liability   368 
3-6 months   
    1,019   Derivative Financial Liability   1,019 
Over 6 months   
    1,086   Derivative Financial Liability   1,086 

 

   As of June 30, 2023
Average Currency Forward Contracts (Sell COP)  Change in value of hedging instruments recognized in OCI   Hedge ineffectiveness recognized in PL   Line item in profit or loss that includes hedge ineffectiveness
Less than 3 months   368    
   Other income (expenses), net
3-6 months   1,019    
   Other income (expenses), net
Over 6 months   1,086    
   Other income (expenses), net

 

The amounts related to items designated as hedged items were as follows:

 

   As of June 30, 2023 
    Change in value used for calculating hedge ineffectiveness    Foreign currency translation reserve for continued hedges    Balances remaining in the foreign currency translation reserve from hedging relationships for which hedge accounting is no longer applied   
Net Investment in Procaps S.A.   2,473    2,473    
 

 

33

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

Note 19. Key management personnel

 

Transactions with directors and executive board management members

 

Total management compensation included in the Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income are as follows:

 

   For the three months ended June 30   For the six months ended
June 30
 
   2023   20221   2023   20221 
Short-term employee benefits   758    598    1,510    1,133 
Consulting fees   658    1,126    1,233    1,739 
   $1,416   $1,724   $2,743   $2,872 

 

1The Group corrected the disclosure of short-term employee benefits and consulting fees for the three and six months periods ended June 31, 2022. The correction does not impact the results presented in the prior period.

 

Note 20. Events after the reporting period

 

Management has considered subsequent events through the date these Unaudited Condensed Consolidated Interim Financial Statements were issued and identified the following events that require disclosure.

 

Syndicated Loan Refinancing

 

On August 16, 2023, Procaps S.A. and other subsidiaries of the Group as guarantors (collectively, the “Obligors”) entered into a Credit Agreement with Bancolombia S.A. and Banco Davivienda S.A (the “New Banco Credit Agreement”). The New Banco Credit Agreement provides for a loan of up to $247,817 million COP and the proceeds are to be used exclusively for the prepayment of existing indebtedness of the Group, including the Syndicated Loan Agreement. The New Banco Credit Agreement provides for a term of six-years, and interest accrues thereunder at a rate equal to the Colombian Central Bank’s reference rate (for a three-month tenor) plus 8.50% per annum.

 

The New Banco Credit Agreement contains customary affirmative and negative covenants, including limitations on the ability of the Group to incur additional debt, guarantee other obligations, grant liens on assets, make investments or acquisitions, dispose of assets, pay dividends or other payments on capital stock, make restricted payments, engage in mergers or consolidations, engage in transactions with affiliates, and enter into certain restrictive agreements.

 

Additionally, the New Banco Credit Agreement requires the Group’s compliance with the following financial covenants, each measured on a trailing twelve-month basis on the final day of each fiscal quarter of the Group:

 

Consolidated debt to consolidated EBITDA ratio of no greater than 3.50:1:00 (other than for the twelve-month period ended September 30, 2023, for which the ratio shall be no greater than 4.30:1.00); and

 

Ratio of consolidated EBITDA to consolidated interest expense of greater than 3.00:1.00 (other than for the twelve-month period ended September 30, 2023, for which the ratio shall be greater than 1.90:1.00).

 

Additionally, the Obligors are required to maintain combined total assets and combined EBITDA equal to no less than 80% of the Group’s consolidated total assets and consolidated EBITDA, respectively, as of June 30 and December 31 of each year.

 

BTG Refinancing

 

On August 18, 2023, the Group entered into a Credit Agreement with Banco BTG Pactual S.A.-Cayman Branch. (the “New BTG Credit Agreement”). The New BTG Credit Agreement provides for a loan of up to $19 million USD and the proceeds are to be used exclusively for the prepayment of existing indebtedness of the Group, including short term debt dated October 13, 2022. The New BTG Credit Agreement provides for a term of 30 months, and interest accrues thereunder at a rate equal to SOFR (for a three-month tenor) plus 5.80%.

 

34

 

 

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

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023 and 2022

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

 

The New BTG Credit Agreement requires the Group’s compliance with the following financial covenants, each measured on a trailing twelve-month basis on the final day of each fiscal quarter of the Group:

 

Consolidated debt to consolidated EBITDA ratio of no greater than 3.50:1:00 (other than for the twelve-month period ended September 30 and December 31, 2023, for which the ratio shall be no greater than 4.30:1.00); and

 

Ratio of consolidated EBITDA to consolidated interest expense of greater than 3.00:1.00 (other than for the twelve-month period ended September 30 and December 31, 2023, for which the ratio shall be greater than 1.90:1.00).

 

As of the date of the issuance of these Unaudited Condensed Consolidated Interim Financial Statements, the Group is in the process of performing the required analysis to determine if the debt refinancing described above constitutes an extinguishment or modification of the debt under IFRS 9.

 

 

35

 

 

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0001863362 ifrs-full:UnallocatedAmountsMember 2023-04-01 2023-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:NextGelMember 2022-04-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:NextGelMember 2022-04-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:NextGelMember 2022-04-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:ProcapsColombiaMember 2022-04-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:ProcapsColombiaMember 2022-04-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:ProcapsColombiaMember 2022-04-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:CANMember 2022-04-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:CANMember 2022-04-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:CANMember 2022-04-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:CASANDMember 2022-04-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:CASANDMember 2022-04-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:CASANDMember 2022-04-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:DiabetricsMember 2022-04-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:DiabetricsMember 2022-04-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:DiabetricsMember 2022-04-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:CorporateSegmentsMember 2022-04-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:CorporateSegmentsMember 2022-04-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:CorporateSegmentsMember 2022-04-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember 2022-04-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember 2022-04-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember 2022-04-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:NextGelMember 2023-01-01 2023-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:NextGelMember 2023-01-01 2023-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:NextGelMember 2023-01-01 2023-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:ProcapsColombiaMember 2023-01-01 2023-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:ProcapsColombiaMember 2023-01-01 2023-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:ProcapsColombiaMember 2023-01-01 2023-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:CANMember 2023-01-01 2023-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:CANMember 2023-01-01 2023-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:CANMember 2023-01-01 2023-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:CASANDMember 2023-01-01 2023-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:CASANDMember 2023-01-01 2023-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:CASANDMember 2023-01-01 2023-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:DiabetricsMember 2023-01-01 2023-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:DiabetricsMember 2023-01-01 2023-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:DiabetricsMember 2023-01-01 2023-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:CorporateSegmentsMember 2023-01-01 2023-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:CorporateSegmentsMember 2023-01-01 2023-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:CorporateSegmentsMember 2023-01-01 2023-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember 2023-01-01 2023-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember 2023-01-01 2023-06-30 0001863362 ifrs-full:UnallocatedAmountsMember 2023-01-01 2023-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:NextGelMember 2022-01-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:NextGelMember 2022-01-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:NextGelMember 2022-01-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:ProcapsColombiaMember 2022-01-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:ProcapsColombiaMember 2022-01-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:ProcapsColombiaMember 2022-01-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:CANMember 2022-01-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:CANMember 2022-01-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:CANMember 2022-01-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:CASANDMember 2022-01-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:CASANDMember 2022-01-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:CASANDMember 2022-01-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:DiabetricsMember 2022-01-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:DiabetricsMember 2022-01-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:DiabetricsMember 2022-01-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember proc:CorporateSegmentsMember 2022-01-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember 2022-01-01 2022-06-30 0001863362 ifrs-full:EliminationOfIntersegmentAmountsMember 2022-01-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember 2022-01-01 2022-06-30 0001863362 proc:TotalBeforeEliminationOfIntersegmentAmountsMember proc:CorporateSegmentsMember 2022-01-01 2022-06-30 0001863362 ifrs-full:UnallocatedAmountsMember proc:CorporateSegmentsMember 2022-01-01 2022-06-30 0001863362 proc:SouthAmericanMember 2023-04-01 2023-06-30 0001863362 proc:SouthAmericanMember 2022-04-01 2022-06-30 0001863362 proc:SouthAmericanMember 2023-01-01 2023-06-30 0001863362 proc:SouthAmericanMember 2022-01-01 2022-06-30 0001863362 proc:CentralAmericanMember 2023-04-01 2023-06-30 0001863362 proc:CentralAmericanMember 2022-04-01 2022-06-30 0001863362 proc:CentralAmericanMember 2023-01-01 2023-06-30 0001863362 proc:CentralAmericanMember 2022-01-01 2022-06-30 0001863362 proc:NorthAmericanMember 2023-04-01 2023-06-30 0001863362 proc:NorthAmericanMember 2022-04-01 2022-06-30 0001863362 proc:NorthAmericanMember 2023-01-01 2023-06-30 0001863362 proc:NorthAmericanMember 2022-01-01 2022-06-30 0001863362 proc:EuropeanMember 2023-04-01 2023-06-30 0001863362 proc:EuropeanMember 2022-04-01 2022-06-30 0001863362 proc:EuropeanMember 2023-01-01 2023-06-30 0001863362 proc:EuropeanMember 2022-01-01 2022-06-30 0001863362 ifrs-full:TopOfRangeMember 2023-01-01 2023-06-30 0001863362 ifrs-full:BottomOfRangeMember 2023-01-01 2023-06-30 0001863362 ifrs-full:GrossCarryingAmountMember 2021-12-31 0001863362 ifrs-full:GrossCarryingAmountMember 2022-01-01 2022-06-30 0001863362 ifrs-full:GrossCarryingAmountMember 2022-06-30 0001863362 ifrs-full:GrossCarryingAmountMember 2022-12-31 0001863362 ifrs-full:GrossCarryingAmountMember 2023-01-01 2023-06-30 0001863362 ifrs-full:GrossCarryingAmountMember 2023-06-30 0001863362 ifrs-full:AccumulatedDepreciationAmortisationAndImpairmentMember 2021-12-31 0001863362 ifrs-full:AccumulatedDepreciationAmortisationAndImpairmentMember 2022-01-01 2022-06-30 0001863362 ifrs-full:AccumulatedDepreciationAmortisationAndImpairmentMember 2022-06-30 0001863362 ifrs-full:AccumulatedDepreciationAmortisationAndImpairmentMember 2022-12-31 0001863362 ifrs-full:AccumulatedDepreciationAmortisationAndImpairmentMember 2023-01-01 2023-06-30 0001863362 ifrs-full:AccumulatedDepreciationAmortisationAndImpairmentMember 2023-06-30 0001863362 ifrs-full:OtherPropertyPlantAndEquipmentMember 2023-01-01 2023-06-30 0001863362 ifrs-full:OtherPropertyPlantAndEquipmentMember 2022-01-01 2022-06-30 0001863362 ifrs-full:OtherPropertyPlantAndEquipmentMember 2023-06-30 0001863362 ifrs-full:OtherPropertyPlantAndEquipmentMember 2022-06-30 0001863362 ifrs-full:GrossCarryingAmountMember ifrs-full:LandAndBuildingsMember 2021-12-31 0001863362 ifrs-full:GrossCarryingAmountMember ifrs-full:LandAndBuildingsMember 2022-01-01 2022-06-30 0001863362 ifrs-full:GrossCarryingAmountMember ifrs-full:LandAndBuildingsMember 2022-06-30 0001863362 ifrs-full:GrossCarryingAmountMember ifrs-full:LandAndBuildingsMember 2022-12-31 0001863362 ifrs-full:GrossCarryingAmountMember ifrs-full:LandAndBuildingsMember 2023-01-01 2023-06-30 0001863362 ifrs-full:GrossCarryingAmountMember ifrs-full:LandAndBuildingsMember 2023-06-30 0001863362 ifrs-full:AccumulatedDepreciationAndAmortisationMember ifrs-full:LandAndBuildingsMember 2021-12-31 0001863362 ifrs-full:AccumulatedDepreciationAndAmortisationMember ifrs-full:LandAndBuildingsMember 2022-01-01 2022-06-30 0001863362 ifrs-full:AccumulatedDepreciationAndAmortisationMember ifrs-full:LandAndBuildingsMember 2022-06-30 0001863362 ifrs-full:AccumulatedDepreciationAndAmortisationMember ifrs-full:LandAndBuildingsMember 2022-12-31 0001863362 ifrs-full:AccumulatedDepreciationAndAmortisationMember ifrs-full:LandAndBuildingsMember 2023-01-01 2023-06-30 0001863362 ifrs-full:AccumulatedDepreciationAndAmortisationMember ifrs-full:LandAndBuildingsMember 2023-06-30 0001863362 ifrs-full:LandAndBuildingsMember 2022-06-30 0001863362 ifrs-full:LandAndBuildingsMember 2023-06-30 0001863362 ifrs-full:TradeReceivablesMember 2023-01-01 2023-06-30 0001863362 ifrs-full:TradeReceivablesMember 2022-01-01 2022-12-31 0001863362 proc:OtherReceivableMember 2023-01-01 2023-06-30 0001863362 proc:OtherReceivableMember 2022-01-01 2022-12-31 0001863362 2022-07-01 2022-12-31 0001863362 2018-11-01 2018-11-20 0001863362 proc:COPAndLiborMember 2023-06-30 0001863362 proc:SyndicatedLoanAgreementMember 2022-01-01 2022-12-31 0001863362 2022-06-28 0001863362 proc:BTGCreditAgreementMember 2022-01-01 2022-12-31 0001863362 proc:BTGCreditAgreementMember 2022-10-14 0001863362 2021-11-01 2021-11-12 0001863362 2022-11-30 0001863362 ifrs-full:BottomOfRangeMember 2022-11-30 0001863362 ifrs-full:TopOfRangeMember 2022-11-30 0001863362 proc:SeniorNotesRequireProcapsSAMember 2023-01-01 2023-06-30 0001863362 proc:SyndicatedTermLoanOneMember 2023-01-01 2023-06-30 0001863362 proc:SyndicatedTermLoanOneMember 2023-06-30 0001863362 proc:SyndicatedTermLoanOneMember 2022-12-31 0001863362 proc:AmortizedCostMember 2023-01-01 2023-06-30 0001863362 proc:AmortizedCostMember 2023-06-30 0001863362 proc:AmortizedCostMember 2022-12-31 0001863362 proc:OtherTermLoanOneMember 2023-01-01 2023-06-30 0001863362 proc:OtherTermLoanOneMember 2023-06-30 0001863362 proc:OtherTermLoanOneMember 2022-12-31 0001863362 proc:OtherTermLoanTwoMember 2023-01-01 2023-06-30 0001863362 proc:OtherTermLoanTwoMember 2023-06-30 0001863362 proc:OtherTermLoanTwoMember 2022-12-31 0001863362 proc:OtherTermLoanThreeMember 2023-01-01 2023-06-30 0001863362 proc:OtherTermLoanThreeMember 2023-06-30 0001863362 proc:OtherTermLoanThreeMember 2022-12-31 0001863362 proc:OtherTermLoanFourMember 2023-01-01 2023-06-30 0001863362 proc:OtherTermLoanFourMember 2023-06-30 0001863362 proc:OtherTermLoanFourMember 2022-12-31 0001863362 proc:OtherTermLoanFiveMember 2023-01-01 2023-06-30 0001863362 proc:OtherTermLoanFiveMember 2023-06-30 0001863362 proc:OtherTermLoanFiveMember 2022-12-31 0001863362 proc:OtherTermLoanSixMember 2023-01-01 2023-06-30 0001863362 proc:OtherTermLoanSixMember 2023-06-30 0001863362 proc:OtherTermLoanSixMember 2022-12-31 0001863362 proc:LeaseLiabilitiesOneMember 2023-01-01 2023-06-30 0001863362 proc:LeaseLiabilitiesOneMember 2023-06-30 0001863362 proc:LeaseLiabilitiesOneMember 2022-12-31 0001863362 proc:LeaseLiabilitiesTwoMember 2023-01-01 2023-06-30 0001863362 proc:LeaseLiabilitiesTwoMember 2023-06-30 0001863362 proc:LeaseLiabilitiesTwoMember 2022-12-31 0001863362 proc:LeaseLiabilitiesThreeMember 2023-01-01 2023-06-30 0001863362 proc:LeaseLiabilitiesThreeMember 2023-06-30 0001863362 proc:LeaseLiabilitiesThreeMember 2022-12-31 0001863362 proc:LeaseLiabilitiesFourMember 2023-01-01 2023-06-30 0001863362 proc:LeaseLiabilitiesFourMember 2022-12-31 0001863362 proc:LeaseLiabilitiesFiveMember 2023-01-01 2023-06-30 0001863362 proc:LeaseLiabilitiesFiveMember 2022-12-31 0001863362 proc:PortfolioFactoringOneMember 2023-01-01 2023-06-30 0001863362 proc:PortfolioFactoringOneMember 2023-06-30 0001863362 proc:PortfolioFactoringOneMember 2022-12-31 0001863362 proc:PortfolioFactoringTwoMember 2023-01-01 2023-06-30 0001863362 proc:PortfolioFactoringTwoMember 2023-06-30 0001863362 proc:PortfolioFactoringTwoMember 2022-12-31 0001863362 proc:OverdraftsAndCreditCardsMember 2023-01-01 2023-06-30 0001863362 proc:OverdraftsAndCreditCardsMember 2023-06-30 0001863362 proc:OverdraftsAndCreditCardsMember 2022-12-31 0001863362 proc:ThePrudentialInsuranceCompanyOfAmericaMember 2023-01-01 2023-06-30 0001863362 proc:ThePrudentialInsuranceCompanyOfAmericaMember 2023-06-30 0001863362 proc:ThePrudentialInsuranceCompanyOfAmericaMember 2022-12-31 0001863362 proc:PrudentialAnnuitiesLifeAssuranceCorporationMember 2023-01-01 2023-06-30 0001863362 proc:PrudentialAnnuitiesLifeAssuranceCorporationMember 2023-06-30 0001863362 proc:PrudentialAnnuitiesLifeAssuranceCorporationMember 2022-12-31 0001863362 proc:HealthspringLifeHealthInsuranceCompanyIncMember 2023-01-01 2023-06-30 0001863362 proc:HealthspringLifeHealthInsuranceCompanyIncMember 2023-06-30 0001863362 proc:HealthspringLifeHealthInsuranceCompanyIncMember 2022-12-31 0001863362 proc:CIGNAHealthAndLifeInsuranceCompanyMember 2023-01-01 2023-06-30 0001863362 proc:CIGNAHealthAndLifeInsuranceCompanyMember 2023-06-30 0001863362 proc:CIGNAHealthAndLifeInsuranceCompanyMember 2022-12-31 0001863362 2023-03-31 0001863362 2022-09-30 0001863362 2022-10-01 2022-12-31 0001863362 ifrs-full:Level1OfFairValueHierarchyMember 2023-01-01 2023-06-30 0001863362 ifrs-full:Level1OfFairValueHierarchyMember 2022-01-01 2022-12-31 0001863362 ifrs-full:Level3OfFairValueHierarchyMember 2023-01-01 2023-06-30 0001863362 ifrs-full:Level3OfFairValueHierarchyMember 2022-01-01 2022-12-31 0001863362 proc:FVTPLMember 2023-06-30 0001863362 proc:FVOCIMember 2023-06-30 0001863362 proc:AmortizedCostMember 2023-06-30 0001863362 proc:FVTPLMember 2022-12-31 0001863362 proc:AmortizedCostOneMember 2022-12-31 0001863362 proc:FVTPLMember 2023-01-01 2023-06-30 0001863362 proc:FVOCIMember 2023-01-01 2023-06-30 0001863362 proc:AmortizedCostMember 2023-01-01 2023-06-30 0001863362 proc:FVTPLMember 2022-10-01 2022-12-31 0001863362 proc:AmortizedCostOneMember 2022-10-01 2022-12-31 0001863362 proc:PrivateWarrantsMember ifrs-full:Level3OfFairValueHierarchyMember 2023-01-01 2023-06-30 0001863362 proc:PrivateWarrantsMember proc:IncreaseFiveMember 2023-01-01 2023-06-30 0001863362 proc:PrivateWarrantsMember proc:DecreaseFiveMember 2023-01-01 2023-06-30 0001863362 proc:PrivateWarrantsInEscrowMember ifrs-full:Level3OfFairValueHierarchyMember 2023-01-01 2023-06-30 0001863362 proc:PrivateWarrantsInEscrowMember proc:IncreaseFiveMember 2023-01-01 2023-06-30 0001863362 proc:PrivateWarrantsInEscrowMember proc:DecreaseFiveMember 2023-01-01 2023-06-30 0001863362 proc:SharesHeldInEscrowMember ifrs-full:Level3OfFairValueHierarchyMember 2023-01-01 2023-06-30 0001863362 proc:SharesHeldInEscrowMember proc:IncreaseFiveMember 2023-01-01 2023-06-30 0001863362 proc:SharesHeldInEscrowMember proc:DecreaseFiveMember 2023-01-01 2023-06-30 0001863362 proc:CurrentnotPastDueMember 2023-01-01 2023-06-30 0001863362 proc:OneThirtyDaysPastDueMember 2023-01-01 2023-06-30 0001863362 proc:ThirtyOneSixtyDaysPastDueMember 2023-01-01 2023-06-30 0001863362 proc:SixtyOneNinetyDaysPastDueMember 2023-01-01 2023-06-30 0001863362 proc:NinetyOneOneHundredTwentyDaysPastDueMember 2023-01-01 2023-06-30 0001863362 proc:MoreThanOneHundredTwentyDaysPastDueMember 2023-01-01 2023-06-30 0001863362 proc:CurrentnotPastDueMember 2022-01-01 2022-12-31 0001863362 proc:OneThirtyDaysPastDueMember 2022-01-01 2022-12-31 0001863362 proc:ThirtyOneSixtyDaysPastDueMember 2022-01-01 2022-12-31 0001863362 proc:SixtyOneNinetyDaysPastDueMember 2022-01-01 2022-12-31 0001863362 proc:NinetyOneOneHundredTwentyDaysPastDueMember 2022-01-01 2022-12-31 0001863362 proc:MoreThanOneHundredTwentyDaysPastDueMember 2022-01-01 2022-12-31 0001863362 proc:LessThan3MonthsMember 2023-01-01 2023-06-30 0001863362 proc:ThreeToSixMonthsMember 2023-01-01 2023-06-30 0001863362 proc:Over6MonthsMember 2023-01-01 2023-06-30 0001863362 proc:ChangeInValueUsedForCalculatingHedgeIneffectivenessMember 2023-06-30 0001863362 proc:ForeignCurrencyTranslationReserveForContinuedHedgesMember 2023-06-30 0001863362 proc:BalancesRemainingInTheForeignCurrencyTranslationReserveFromHedgingRelationshipsMember 2023-06-30 0001863362 proc:EventsAfterTheReportingPeriodMember 2023-08-16 0001863362 proc:SyndicatedLoanAgreementMember 2023-01-01 2023-06-30 0001863362 2022-10-13 0001863362 proc:BTGCreditAgreementMember 2023-06-30 iso4217:USD iso4217:USD xbrli:shares xbrli:pure iso4217:COP xbrli:shares

Exhibit 99.2

 

 

Second Quarter 2023 Financial Results

 

Net Revenues

 

Net revenues totaled $110.1 million in 2Q23, compared to net revenues of $112.4 million for 2Q22, a decrease of 2.1% year-over-year. On a constant currency basis, net revenues increased 4.3% from 2Q22 to 2Q23, totaling $117.3 million. In 2Q22 there was a recognition of sales of brands in the amount of approximately $3.5 million, leading to a higher comparison base.

 

The YoY decrease was mainly driven by the impact of the devaluation of some local currencies totaling $7.2 million (particularly in Colombia) as well as CDMO order phasing, especially for U.S. clients, a decrease in sales related to Rymco ceased operations, and a decrease of sales in the OTC market in El Salvador.

 

Net revenues from 2Q23 increased by 30.8% when compared with 1Q23, positively impacted by an increase in sales of (i) $8.5 million in Procaps Colombia, (ii) $7.0 million in Nextgel; (iii) $5.0 million in CASAND; (iv) $4.2 million in CAN, and (v) $1.1 million in Diabetrics. This reflects an uptake of sales in all regions and business segments.

 

In terms of business lines, Rx (approximately 46% of total net revenues) presented the highest growth for 1H23, followed by Clinical Specialties (approximately 7% of total net revenues) and OTC (approximately 18% of total net revenues).

 

Net revenues totaled $194.2 million in 1H23 and $211.9 million on a constant currency basis, an increase of 7.0% from 1H22.

 

Net revenues by strategic business segment are shown below:

 

U$ million   2Q23   %NR    2Q23*   2Q22   %NR    Δ%    Δ%* 
CAN   13.8    12.6%   13.9    16.8    15.0%   -18.0%   -17.6%
CASAND   21.0    19.1%   20.9    17.1    15.2%   22.9%   22.4%
Diabetrics   5.2    4.7%   5.9    6.0    5.3%   -12.8%   -1.6%
Nextgel   32.0    29.1%   33.5    32.9    29.3%   -2.9%   1.9%
Procaps Colombia   38.0    34.6%   43.1    39.6    35.2%   -3.9%   8.8%
Total Net Revenues   110.1    100.0%   117.3    112.4    100.0%   -2.1%   4.3%

 

U$ million   1H23   %NR    6M23*   1H22   %NR    Δ%    Δ%* 
CAN   23.4    12.0%   23.5    28.1    14.2%   -16.8%   -16.3%
CASAND   37.0    19.1%   37.3    29.7    15.0%   24.9%   25.7%
Diabetrics   9.3    4.8%   10.8    10.6    5.3%   -12.4%   1.8%
Nextgel   56.9    29.3%   61.3    58.3    29.4%   -2.3%   5.2%
Procaps Colombia   67.6    34.8%   79.0    71.5    36.1%   -5.4%   10.6%
Total Net Revenues   194.2    100.0%   211.9    198.0    100.0%   -1.9%   7.0%

 

*Constant currency basis

 

 

 

 

 

 

Central America North (CAN)

 

Net revenues for the CAN business segment were $13.8 million in 2Q23, an increase of 44.4% versus 1Q23, and a decrease of 18.0% versus 2Q22. 2Q23 followed the same trend as 1Q23, which was impacted mainly by a decrease in the OTC VitalCare segment in El Salvador. Also, 2Q22 was positively impacted by the sales of brand in the amount of approximately $3.5 million.

 

Net revenues for 1H23 were impacted by the effects mentioned above, reaching $$23.4 million in 1H23, a decrease of 16.8% in the period.

 

We reinforced our sales force in El Salvador, focusing on opening new distributors for the OTC market and we can see the improvement from 1Q23 to 2Q23.

 

The Rx portfolio grew approximately 5.7% in 2Q23, and Clinical Specialties more than doubled. Nicaragua and Honduras have shown significant improvement from 2Q22, growing approximately 25.6% and 69.8%, respectively, in the period.

 

Central America South and Andean Region (CASAND)

 

Net revenues for the CASAND business segment totaled $ 21.0 million in 2Q23, an increase of 31.2% versus 1Q23 and an increase of 22.9% when compared to 2Q22, mainly due to the positive performance of new products launched in the region, such as Dol B-vit, Fortzink and Dexkedol; and a sales increase in the existing product portfolio, such as Merobac, Dayflu, Alercet D, Albisec, among others. On a constant currency basis, net revenues increased by 22.4% in the quarter.

 

Net revenues for 1H23 reached $37.0 million, an increase of 24.9%. On a constant currency basis net revenues increased by 25.7%.

 

Panama and Dominican Republic performed well, with net revenues growth of approximately 40.0% and 65.1%, from 2Q22 to 2Q23, respectively.

 

Diabetrics

 

Diabetrics net revenues totaled $5.2 million, an increase of 28.3% from 1Q23, and a decrease of 12.8% when compared with 2Q22, mainly impacted by currency devaluation of approximately $0.7 million. On a constant currency basis, net revenues decreased 1.6% from 2Q22 to 2Q23.

 

2023 is a transition year for this business unit. We are working on several G&A synergies, such as integrating the back office and sales force with Procaps Colombia.

 

Net revenues for 1H23 reached $9.3 million, and $10.8 million on a constant currency basis, an increase of 1.8% versus 1H22.

 

We have launched in El Salvador and Ecuador, and we are receiving registration approvals for different products in Mexico, where we expect to launch a more complete portfolio by the end of 2024.

 

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Nextgel

 

Net revenues for the Nextgel business segment were $32.0 million in 2Q23, an increase of 28.1% versus 1Q23, and a decrease of 2.9% versus 2Q22, impacted mainly by currency devaluation of approximately $1.6 million. On a constant currency basis, net revenues increased by 1.9%, compared to 2Q22.

 

The quarter was negatively impacted mainly by order phasing from some of our U.S. clients in gummies and soft gels, phasing of product development services, the ongoing impact of the change of manufacturing site of dronabinol, and the ongoing bioequivalence test for progesterone. We expect to see a positive effect in the second half of the year.

 

Net revenues for 1H23 totaled $56.9 million, and $61.3 million on a constant currency basis, an increase of 5.2% versus 1H22, positively impacted by the portfolio increase from existing partners from Latin America.

 

Procaps Colombia

 

Net revenues for the Procaps Colombia segment totaled $38.0 million in 2Q23, an increase of 28.7% from 1Q23, and a decrease of 3.9% versus 2Q22, impacted by the currency devaluation of approximately $5.0 million and the decrease in sales of the Rymco ceased operations.

 

The RX Farma Procaps sales grew approximately 14.4% in 2Q23 versus 2Q22, Clinical Specialties grew approximately 9.0% and the OTC VitalCare business unit grew approximately 7.6%, primarily due to the demand increase of its leading brands in the market as well as the positive rollout of new products. Approximately 21% of total net revenues came from new products launched in the last 36 months.

 

Net revenues for 1H23 totaled $67.6 million, and $79.0 million on a constant currency basis, for an increase of 10.6% in comparison with 1H22, on a constant currency basis.

 

Gross Profit

 

Gross profit totaled $61.2 million in 2Q23, with a 55.6% gross margin, and $107.3 million in 1H23, with a 55.2% gross margin for the period.

 

Gross profit was negatively impacted by currency devaluation of approximately $4.0 million, higher COGS negatively affected by the mix of products sold and the decrease of product development services. There was also a higher comparison base from 2Q22, when there were sales of brands that affected gross profit by approximately $3.5 million.

 

U$ million   2Q23   2Q22   Δ%    1H23   1H22   Δ% 
Net Revenues   110.1    112.4    -2.1%   194.2    198.0    -1.9%
COGS   (48.9)   (39.8)   22.8%   (87.0)   (78.3)   11.1%
Gross Profit   61.2    72.6    -15.8%   107.3    119.8    -10.4%
Gross Margin   55.6%   64.6%   -901.2 bps    55.2%   60.5%   -524.6 bps 

 

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Operating Expenses

 

Operating expenses totaled $16.5 million in 2Q23, a decrease of 73.9% versus 2Q22, mainly due to the positive Other Expenses.

 

SG&A totaled $46.1 million in 2Q23, a decrease of 15.4% versus 2Q22, representing 41.9% of total net revenues. On a constant currency basis, SG&A decreased 10.0% in the quarter. The decrease was a consequence of the ongoing efforts related to the value creation initiatives.

 

SG&A totaled $88.9 million in 1H23, a decrease of 10.4% versus 1H22, representing 45.8% of total net revenues. On a constant currency basis, SG&A decreased 2.6% in 1H23.

 

 

U$ million   2Q23   %NR    2Q22   %NR    Δ% 
Sales and marketing expenses   (21.5)   19.5%   (25.7)   22.8%   -16.2%
Administrative expenses   (24.6)   22.4%   (28.8)   25.7%   -14.7%
Other expenses   29.6    -26.9%   (8.6)   7.7%   n.a. 
Total Operational Expenses   (16.5)   15.0%   (63.1)   56.2%   -73.9%

 

U$ million   6M23   %NR    6M22   %NR    Δ% 
Sales and marketing expenses   (42.2)   21.7%   (45.8)   23.1%   -8.0%
Administrative expenses   (46.7)   24.1%   (53.4)   27.0%   -12.5%
Other expenses   33.6    -17.3%   (3.5)   1.8%   n.a. 
Total Operational Expenses   (55.3)   28.5%   (102.7)   51.9%   -46.2%

 

Sales and marketing expenses totaled $21.5 million in 2Q23, a decrease of 16.2% versus 2Q22, mainly due to the efforts of the value creation initiatives. For 1H23, sales and marketing expenses totaled $42.2 million.

 

Administrative expenses totaled $24.6 million in 2Q23, a decrease of 14.7% versus 2Q22, mainly driven by the execution of the value creation initiatives. For 1H23, expenses totaled $46.7 million, a decrease of 12.5% versus 1H22.

 

Other expenses for 2Q23 and 1H23 are related mainly to the impact of exchange rate differences from the balance sheet that is reflected in the P&L of approximately $10.5 million and the one-time settlement with third parties with respect to certain matters in favor of the Company of approximately $19.3 million.

 

Financial Expenses

 

Net financial expenses totaled $6.8 million in 2Q23 and $5.1 million in 1H23, negatively impacted mainly by interest expenses.

 

There was a positive impact related to the net fair value gain of the Procaps ordinary shares held in escrow and warrants liabilities, which are non-cash items. Excluding this effect, net financial expenses totaled $11.8 million in 2Q23 and $21.3 million in 1H23, mostly impacted by interest expense ($10.6 million in 2Q23 and $19.4 million in 1H23).

 

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U$ million   2Q23   2Q22   Δ%    1H23   1H22   Δ% 
Banking expenses and fees   (0.9)   (0.4)   137.3%   (1.3)   (0.8)   64.1%
Others financial expenses   (0.3)   (0.3)   12.5%   (0.6)   (0.4)   42.4%
Net fair value gain/loss of warrants liabilities   2.5    (1.1)   n.a.    6.5    0.6    914.9%
Net fair value gain/loss of shares held in escrow   2.5    (10.8)   n.a.    9.7    7.7    25.0%
Interest expenses   (10.6)   (6.3)   68.4%   (19.4)   (11.4)   70.3%
Net Financial Expenses   (6.8)   (18.8)   -63.9%   (5.1)   (4.2)   21.9%

 

Net Income

 

Procaps reported net income of $27.0 million for 2Q23 and a loss of $6.9 million for 2Q22. Non-cash items totaled $5.0 million in 2Q23 and $11.9 million in 2Q22.

 

Net income for 1H23 totaled $33.6 million, an increase from $9.5 million in 1H22. Non-cash items totaled $16.1 million in 1H23 and $8.4 million in 1H22.

 

U$ million

   2Q23   %NR    2Q22   %NR    Δ%    1H22   %NR    1H22   %NR    Δ% 
EBIT   44.7    40.6%   9.5    8.4%   370.9%   51.9    26.7%   17.0    8.6%   205.0%
Net Financial Expenses   (6.8)   -6.2%   (18.8)   -16.7%   -63.9%   (5.1)   -2.6%   (4.2)   -2.1%   21.9%
EBT   37.9    34.5%   (9.3)   -8.3%   n.a.    46.8    24.1%   12.8    6.5%   265.2%
Income Tax   (11.0)   -10.0%   2.4    2.1%   n.a.    (13.2)   -6.8%   (3.3)   -1.7%   301.9%
Net Income   27.0    24.5%   (6.9)   -6.2%   n.a.    33.6    17.3%   9.5    4.8%   252.5%

 

Indebtedness

 

As of June 30, 2023, our total gross debt was $288.3 million, compared to $285.9 million as of December 31, 2022.

 

Gross debt consisted mainly of Senior Notes in the amount of $115.0 million; other loans in the amount of $93.8 million, a syndicated loan in the amount of $40.2 million, and lease liabilities in the amount of $35.0 million. Total gross debt is carried at an average cost of 13.3%.

 

The Senior Notes have a fixed interest rate of 8.5% and mature in 2031. Other loans consist of loans in different currencies (COPs, Soles, Brazilian Reais and USD) with differing interest rates, some with variable rates. The syndicated loan is in COPs, with a variable interest rate of IBR+5.30% and maturity by 2025.

 

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Cash totaled $11.5 million as of June 30, 2023. Cash decrease was impacted mainly by changes in the working capital and the payment of short term debts that were not rolled over.

 

Total net debt as of June 30, 2023, totaled $276.8 miAllion, of which approximately 29% consisted of short-term obligations.

 

U$ million  1H23   2022   1H22 
Short Term   118.7    257.5    75.7 
Long Term   169.6    28.4    181.8 
Gross Debt   288.3    285.9    257.5 
Cash and cash equiv.   11.5    43.0    37.6 
Net Debt   276.8    242.9    220.0 

 

On August 16, 2023, we entered into a Credit Agreement with Bancolombia and Banco Davivienda, as lenders. The Credit Agreement provides for a loan of up to COP$247,817,751,759.49. The proceeds of the loan are to be used exclusively for the prepayment of existing indebtedness of the Company and its subsidiaries, including the full repayment of the outstanding indebtedness under the syndicated loan agreement. The Credit Agreement provides for a term of six years, and interest accrues thereunder at a rate equal to the Colombian Central Bank’s reference rate (for a three-month tenor) plus 8.50%.

 

Capital Expenditures (“CAPEX”)

 

As of June 30, 2023, CAPEX totaled $12.7 million, comprised of $7.2 million of property, plant & equipment (“PP&E”) and $ 5.5 million of intangible CAPEX.

 

PP&E CAPEX refers mainly to the construction of the new Miramar site for Funtrition, 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 sanitary registration fees.

 

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

 

U$ million

 1H23  % NR   1H22  % NR   Δ% 
Intangible CAPEX  5.5   2.8%  5.1   2.6%  7.6%
PP&E CAPEX  7.2   3.7%  10.5   5.3%  -31.3%
 Total CAPEX  12.7   6.5%  15.6   7.9%  -18.6%

 

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Cash Flow

 

Cash flow from operating activities during 2Q23 was $30.3 million, mainly impacted by changes in working capital.

 

U$ million   1H23   1H22   Δ% 
Net Income   33.6    9.5    252.5%
D&A   8.0    8.4    -4.2%
Income Tax expenses   13.2    3.3    301.8%
Finance expenses   5.1    4.2    21.9%
Other adjustments   (13.2)   1.8    n.a. 
Changes in working capital   (16.4)   (6.4)   158.8%
Cash from operations   30.3    20.9    45.1%
Interest paid   (1.9)   (0.9)   98.6%
Income tax paid   (4.9)   (3.6)   34.0%
Operating Cash Flow   23.5    16.3    44.5%
CAPEX and R&D investments   (12.9)   (13.1)   -1.3%
Free Cash Flow   10.6    3.2    230.4%
Financing Cash Flow   (43.6)   (36.2)   20.8%
Increase (Decrease) in Cash   (33.0)   (33.0)   20.8%

 

Cash conversion cycle was 137 days ($154.0 million).

 

(days)   4Q21   1Q22   2Q22   3Q22   4Q22   1Q23   2Q23
Acounts receivables (DSO)   103    96    100    107    114    103    121.0 
Inventories (DIO)   70    85    83    83.1    85.0    87.4    91.7 
Accounts payable - suppliers (DPO)   75    78    76    78.8    79.2    70.4    76.2 
Working Capital   98    103    107    111    120    120    137 

 

Board of Director Update

 

Effective August 29, 2023, Mr. Alejandro Weinstein respectfully resigned from the board of directors (the “Board”) of Procaps Group, S.A. (the “Company”). Mr. Weinstein decided to resign based on disagreements with the Board regarding the strategic priorities and direction of the Company.

 

Alberto Eguiguren Correa, who was originally appointed to the Board pursuant to the nomination rights of Hoche Partners Pharma Holding S.A. (of which Mr. Weinstein is the sole beneficial owner), shall continue his service on the Board.

 

The Company is considering and evaluating potential candidates for a successor to Mr. Weinstein.

 

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 5,500 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.

 

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APPENDIX

Portfolio Overview

 

Procaps´ 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.

 

Use of Non-IFRS Financial Measures

 

Our management uses and discloses EBITDA, Contribution Margin, Contribution Margin on a constant currency basis 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.

 

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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 three month-end period for the three months and six months ended June 30, 2023 using prior-period (three months and six months ended June 30, 2022) 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$3,914.46 per U.S. $1.00 and R$5.0782 per U.S. $1.00, for the three months and six months ended June 30, 2022. 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.