Sofgen Pharma S.A 6-K, filed Sep 5, 2023
Sofgen Pharma S.A. (PROCF)
About this 6-K
Sofgen Pharma S.A filed this 6-K on September 5, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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
Commission File Number:
(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 | $ | $ | $ | $ | |||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross profit | ||||||||||||||||||
| Sales and marketing expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Finance expenses, net | 7 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Other income (expenses), net | 8 | ( | ) | ( | ) | |||||||||||||
| Income/(Loss) before tax | ( | ) | ||||||||||||||||
| Income tax expense | 9 | ( | ) | ( | ) | ( | ) | |||||||||||
| Income/(Loss) for the period | $ | $ | ( | ) | $ | $ | ||||||||||||
| Income/(Loss) for the period attributable to: | ||||||||||||||||||
| Owners of the Company | ( | ) | ||||||||||||||||
| Non-controlling interests | ||||||||||||||||||
| Earnings per share: | ||||||||||||||||||
| ( | ) | |||||||||||||||||
| 1 |
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 | $ | $ | ( | ) | $ | $ | ||||||||||||
| Other comprehensive income/(loss) | ||||||||||||||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||||||||
| Remeasurement of net defined benefit liability | ( | ) | ( | ) | ||||||||||||||
| Items that will be reclassified subsequently to profit or loss: | ||||||||||||||||||
| Exchange differences on translation of foreign operations | ( | ) | ( | ) | ||||||||||||||
| Net investment hedge | ( | ) | ( | ) | ||||||||||||||
| Other comprehensive income/(loss) for the period | ( | ) | ( | ) | ||||||||||||||
| Total comprehensive income/(loss) for the period | $ | $ | ( | ) | $ | $ | ||||||||||||
| Total comprehensive income/(loss) for the period attributable to: | ||||||||||||||||||
| Owners of the Company | ( | ) | ||||||||||||||||
| Non-controlling interests | ||||||||||||||||||
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 | |||||||||||
| Right-of-use assets, net | ||||||||||||
| Goodwill | ||||||||||||
| Intangible assets, net | 10 | |||||||||||
| Investments in joint ventures | ||||||||||||
| Other financial assets | ||||||||||||
| Deferred tax assets, net | ||||||||||||
| Other assets | ||||||||||||
| Total non-current assets | $ | $ | ||||||||||
| Current assets | ||||||||||||
| Cash | ||||||||||||
| Trade and other receivables, net | 13 | |||||||||||
| Inventories, net | 12 | |||||||||||
| Amounts owed by related parties, net | ||||||||||||
| Current tax assets, net | ||||||||||||
| Other current assets | ||||||||||||
| Other financial assets | ||||||||||||
| Total current assets | $ | $ | ||||||||||
| Total assets | $ | $ | ||||||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||||||
| Equity (Deficit) | ||||||||||||
| Share capital | ||||||||||||
| Share premium | ||||||||||||
| Reserves | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||
| Equity (deficit) attributable to owners of the company | $ | $ | ( | ) | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||||||
| Total equity (deficit) | $ | $ | ( | ) | ||||||||
| Non-Current liabilities | ||||||||||||
| Borrowings | 14 | |||||||||||
| Warrant liabilities | 16 | |||||||||||
| Shares held in escrow | 17 | |||||||||||
| Deferred tax liabilities, net | ||||||||||||
| Other liabilities | ||||||||||||
| Total non-current liabilities | $ | $ | ||||||||||
| Current liabilities | ||||||||||||
| Borrowings | 14 | |||||||||||
| Derivative financial liabilities | ||||||||||||
| Trade and other payables | ||||||||||||
| Amounts owed to related parties | ||||||||||||
| Current tax liabilities, net | ||||||||||||
| Provisions | 15 | |||||||||||
| Other liabilities | ||||||||||||
| Total current liabilities | $ | $ | ||||||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||||||
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 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Income for the period | ||||||||||||||||||||||||||||||||||||
| Transfer reserves | ( | ) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Non-controlling interest | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Balance as of January 1, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Income for the period | ||||||||||||||||||||||||||||||||||||
| Transfer reserves | ( | ) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||
| Non-controlling interest | ||||||||||||||||||||||||||||||||||||
| Treasury shares acquired | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| 1 |
| 2 |
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 | $ | $ | ||||||||||
| Adjustments to reconcile net income with cash flow from operating activities before changes in working capital: | ||||||||||||
| Depreciation of property, plant and equipment | 11 | |||||||||||
| Depreciation of right-of-use assets | ||||||||||||
| Amortization of intangibles | 10 | |||||||||||
| Income tax expense | 9 | |||||||||||
| Finance expenses, net | 7 | |||||||||||
| Unrealized currency exchange rate differences | ( | ) | ||||||||||
| Share of result of joint ventures | ( | ) | ||||||||||
| Net loss (gain) on sale and disposal of property, plant and equipment | 11 | ( | ) | |||||||||
| Net loss on disposal of intangibles | 10 | |||||||||||
| Inventory provision | 12 | |||||||||||
| Provision for bad debt | 13 | |||||||||||
| Provisions | 15 | |||||||||||
| Cash flow from operating activities before changes in working capital | ||||||||||||
| Changes in working capital: | ||||||||||||
| Trade and other receivables, net | ( | ) | ||||||||||
| Amounts owed by related parties, net | ( | ) | ||||||||||
| Inventories, net | ( | ) | ||||||||||
| Current tax assets, net | ( | ) | ( | ) | ||||||||
| Other current assets | ( | ) | ||||||||||
| Trade and other payables | ( | ) | ||||||||||
| Amounts owed to related parties | ||||||||||||
| Current tax liabilities, net | ( | ) | ||||||||||
| Other liabilities | ( | ) | ||||||||||
| Provisions | 15 | ( | ) | ( | ) | |||||||
| Other financial assets | ( | ) | ||||||||||
| Other assets | ||||||||||||
| Cash generated from operations | ||||||||||||
| Interest paid | ( | ) | ( | ) | ||||||||
| Income tax paid | ( | ) | ( | ) | ||||||||
| Cash flow provided by operating activities | $ | $ | ||||||||||
| Investing activities | ||||||||||||
| Acquisition of property, plant and equipment | 11 | ( | ) | ( | ) | |||||||
| Proceeds from sale of property, plant and equipment | ||||||||||||
| Acquisition of intangibles | 10 | ( | ) | ( | ) | |||||||
| Advances to related parties | ( | ) | ( | ) | ||||||||
| Cash flow used in investing activities | $ | ( | ) | $ | ( | ) | ||||||
| Financing activities | ||||||||||||
| Proceeds from borrowings | 14 | |||||||||||
| Payments on borrowings | 14 | ( | ) | ( | ) | |||||||
| Payments to related parties | ( | ) | ||||||||||
| Interest paid on borrowings | 14 | ( | ) | ( | ) | |||||||
| Payment of lease liabilities | 14 | ( | ) | ( | ) | |||||||
| Repurchase of treasury shares | ( | ) | ||||||||||
| Cash flow used in financing activities | $ | ( | ) | $ | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||||||
| Cash at beginning of the period | ||||||||||||
| Effect of exchange rate fluctuations | ( | ) | ||||||||||
| Cash at end of the period | $ | $ | ||||||||||
| Non-cash financing and investing activities 1 | $ | $ | ||||||||||
| 1 |
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.
| 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. | % | % | % | % | |||||||||
| C.I. Procaps S.A. | % | % | % | % | |||||||||
| Procaps S.A. de C.V | % | % | % | % | |||||||||
| Softcaps - Colbras | % | % | % | % | |||||||||
| Diabetrics Healthcare S.A.S. | % | % | % | % | |||||||||
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 $ |
| ● | The date on which the Group has issued more than $ |
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 $
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 $
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 $
Working capital
As of June
30, 2023, the Group had a net working capital surplus (excess of current assets over current liabilities) of $
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 $
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 | ||||||||||||||||||||||||
| Inter-segment revenue | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Revenue from contracts with customers | ||||||||||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||||||||||
| Goods transferred at a point in time | ||||||||||||||||||||||||
| Services transferred over time | ||||||||||||||||||||||||
| Total revenue from contracts with customers | ||||||||||||||||||||||||
| For the three months ended June 30 | Reportable segments | |||||||||||||||||||||||
| 2022 | NextGel | Procaps Colombia | CAN | CASAND | Diabetrics | Total | ||||||||||||||||||
| Segment revenue | ||||||||||||||||||||||||
| Inter-segment revenue | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Revenue from contracts with customers | ||||||||||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||||||||||
| Goods transferred at a point in time | ||||||||||||||||||||||||
| Services transferred over time | ||||||||||||||||||||||||
| Total revenue from contracts with customers | ||||||||||||||||||||||||
| For the six months ended June 30 | Reportable segments | |||||||||||||||||||||||
| 2023 | NextGel | Procaps Colombia | CAN | CASAND | Diabetrics | Total | ||||||||||||||||||
| Segment revenue | ||||||||||||||||||||||||
| Inter-segment revenue | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Revenue from contracts with customers | ||||||||||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||||||||||
| Goods transferred at a point in time | ||||||||||||||||||||||||
| Services transferred over time | ||||||||||||||||||||||||
| Total revenue from contracts with customers | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||
| Inter-segment revenue | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Revenue from contracts with customers | ||||||||||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||||||||||
| Goods transferred at a point in time | ||||||||||||||||||||||||
| Services transferred over time | ||||||||||||||||||||||||
| Total revenue from contracts with customers | ||||||||||||||||||||||||
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.
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Contribution margin 1 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
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 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Contribution margin1 | ( | ) | ||||||||||||||||||||||||||||||||||
| Administrative expenses | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Finance expenses | ||||||||||||||||||||||||||||||||||||
| Other (income) expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Income (loss) before tax | ||||||||||||||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Contribution margin1 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Contribution margin1 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Administrative expenses | ||||||||||||||||||||||||||||||||||||
| Finance expenses | ||||||||||||||||||||||||||||||||||||
| Other (income) expenses, net | ||||||||||||||||||||||||||||||||||||
| Income (loss) before tax | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Contribution margin1 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
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 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Contribution margin1 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Administrative expenses | ||||||||||||||||||||||||||||||||||||
| Finance expenses | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Other (income) expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Income (loss) before tax | ( | ) | ||||||||||||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Contribution margin1 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Contribution margin1 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Administrative expenses | ||||||||||||||||||||||||||||||||||||
| Finance expenses | ||||||||||||||||||||||||||||||||||||
| Other (income) expenses, net | ||||||||||||||||||||||||||||||||||||
| Income (loss) before tax | ( | ) | ||||||||||||||||||||||||||||||||||
| 1 |
Major customer
The Group does not have revenue from a single
customer comprising more than
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
| For the three months ended June 30 | For the six months ended June 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| South America | $ | $ | $ | $ | ||||||||||||
| Central America | ||||||||||||||||
| North America | ||||||||||||||||
| Europe | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Bank fees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other financial expenses1 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net fair value gain/(loss) of warrant liabilities2 | ( | ) | ||||||||||||||
| Net fair value gain/(loss) of shares held in escrow2 | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 1 |
| 2 |
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 | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Economic emergency contribution expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Fines, surcharges, penalties and taxes assumed | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Donations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other2 | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| 1 |
| 2 |
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 $
The tax rate used for the six months ended June
30, 2023 represents the tax rate of
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 | $ | |||
| Additions | ||||
| Additions from internal developments | ||||
| Foreign currency exchange | ( | ) | ||
| Balance as of June 30, 2022 | $ | |||
| Balance as of January 1, 2023 | $ | |||
| Additions | ||||
| Additions from internal developments | ||||
| Derecognition of assets | ( | ) | ||
| Foreign currency exchange | ||||
| Transfers | ||||
| Balance as of June 30, 2023 | $ | |||
| Accumulated amortization | Total | |||
| Balance as of January 1, 2022 | $ | |||
| Amortization expense | ||||
| Foreign currency exchange | ( | ) | ||
| Balance as of June 30, 2022 | $ | |||
| Balance as of January 1, 2023 | $ | |||
| Amortization expense | ||||
| Foreign currency exchange | ||||
| Balance as of June 30, 2023 | $ | |||
| As of June 30, 2022 | ||||
| Net book value | $ | |||
| As of June 30, 2023 | ||||
| Net book value | $ | |||
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 | $ | |||
| Additions | ||||
| Disposals | ( | ) | ||
| Effect of exchange differences in foreign currency | ( | ) | ||
| Transfers | ( | ) | ||
| Balance as of June 30, 2022 | $ | |||
| Balance as of January 1, 2023 | $ | |||
| Additions | ||||
| Disposals | ( | ) | ||
| Effect of exchange differences in foreign currency | ||||
| Transfers | ( | ) | ||
| Balance as of June 30, 2023 | $ | |||
| Accumulated depreciation | Total | |||
| Balance as of January 1, 2022 | $ | |||
| Disposals | ( | ) | ||
| Depreciation expense | ||||
| Effect of exchange differences in foreign currency | ( | ) | ||
| Balance as of June 30, 2022 | $ | |||
| Balance as of January 1, 2023 | $ | |||
| Disposals | ( | ) | ||
| Depreciation expense | ||||
| Effect of exchange differences in foreign currency | ||||
| Transfers | ( | ) | ||
| Balance as of June 30, 2023 | $ | |||
| As of June 30, 2022 | ||||
| Net book value | $ | |||
| As of June 30, 2023 | ||||
| Net book value | $ | |||
For
the six months ended June 30, 2023, depreciation expense was recognized as follows: $
Financial Commitments
As of June
30, 2023, the Group has commitments to acquire capital expenditures for $
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 | $ | $ | ||||||
| Products in process | ||||||||
| Finished products and merchandise | ||||||||
| Inventory in transit | ||||||||
| Subtotal | $ | $ | ||||||
| Less: Provision | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Inventories recognized as cost of goods sold for
the six months ended June 30, 2023 amounted to $
Write-downs of inventories to net realizable value
and obsolescence adjustments for the six months ended June 30, 2023 amounted to $
Note 13. Trade and other receivables, net
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| Trade receivables, net of discounts 1 | $ | $ | ||||||
| Other receivables | ||||||||
| Impairment of trade and other receivables 2 | ( | ) | ( | ) | ||||
| Trade receivables, net of discounts and impairment | $ | $ | ||||||
| 1 |
| 2 |
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
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) | $ | $ | ||||||
| Other term loan (2) | ||||||||
| Lease liabilities (3) | ||||||||
| Factoring obligations (4) | ||||||||
| Bank overdrafts (5) | ||||||||
| Notes (6) | ||||||||
| Total Interest bearing liabilities | $ | $ | ||||||
| Current | ||||||||
| Non- Current | $ | $ | ||||||
| (a) |
1. Syndicated term loan
| Currency | Range of Interest | Maturity Year | As of June 30, 2023 | As of December 31, 2022 | ||||||||||
| Syndicated term loan | $ | $ | ||||||||||||
| Amortized cost | ( | ) | ( | ) | ||||||||||
| Total Syndicated term loan | $ | $ | ||||||||||||
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 $
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
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
| ● | 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
| ● | 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, $
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 | (2022: IBR+ 5.0%, DTF+ 3%, 13.99%-25.3%) | $ | $ | |||||||||||
(2022: IBR+2.25%-10.2%) | ||||||||||||||
(2022: 8.0% - 12.79% (Fixed)) | ||||||||||||||
(2022: SOFR+ (4.80%-5.80%)) | ||||||||||||||
(2022: 6.36%-16.8%) | ||||||||||||||
| Total Other term loans | $ | $ | ||||||||||||
On June 28, 2022, Procaps, S.A. (the “Company”)
entered into a credit agreement with BTG to borrow $
| ● | 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 $
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):
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 $
3. Lease liabilities
| Currency | Range of Interest | Maturity Year | As of June 30, 2023 | As of December 31, 2022 | ||||||||||
| Lease liabilities | (2022: DTF + (5,18% - 10,11%) T.A., IBR+7.5%) | $ | $ | |||||||||||
(2022: DTF+ 4.54%-10.42 T.A. | ||||||||||||||
| — | ||||||||||||||
| — | ||||||||||||||
| Total Lease Liabilities | $ | $ | ||||||||||||
4. Factoring obligations
| Currency | Range of Interest | Maturity Year | As of June 30, 2023 | As of December 31, 2022 | ||||||||||
| Portfolio factoring | $ | $ | ||||||||||||
| Total Factoring | $ | $ | ||||||||||||
5. Bank overdraft
| Currency | Range of Interest | Maturity Year | As of June 30, 2023 | As of December 31, 2022 | ||||||||||
| Overdrafts and credit cards | $ | $ | ||||||||||||
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 $
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 $
As mentioned in Note 1. General Company Information,
the Notes Payoff did not occur on or prior to November 30, 2022, therefore triggering the
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:
| ● | 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 $
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 | $ | $ | ||||||||||||
| Prudential Annuities Life Assurance Corporation | ||||||||||||||
| Healthspring Life & Health Insurance Company, Inc | ||||||||||||||
| CIGNA Health and Life Insurance Company | ||||||||||||||
| Total Senior Notes | $ | $ | ||||||||||||
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 | $ | $ | ||||||
| Effect of changes in foreign exchange rates | ||||||||
| Provisions made | ||||||||
| Provisions used | ( | ) | ( | ) | ||||
| Balance as of June 30 | $ | $ | ||||||
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 $
The remaining balance of
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 $
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 | $ | $ | ||||||
| Private warrants1 | ||||||||
| $ | $ | |||||||
| 1 |
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.
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| As of January 1 | $ | $ | ||||||
| Acquired public warrants | ||||||||
| Fair value remeasurement | ( | ) | ( | ) | ||||
| Balance as of June 30/December 31 | $ | $ | ||||||
The fair value of the Public Warrants decreased
for the six months ended June 30, 2023 by $
Note 16.2.
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| As of January 1 | $ | $ | ||||||
| Acquired private warrants | ||||||||
| Fair value remeasurement | ( | ) | ( | ) | ||||
| Balance as of June 30/December 31 | $ | $ | ||||||
The fair value of the Private Warrants
decreased for the six months ended June 30, 2023 by $
Note 17. Shares in escrow
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| As of January 1 | $ | $ | ||||||
| Escrowed shares | ||||||||
| Fair value remeasurement | ( | ) | ( | ) | ||||
| Balance as of June 30/December 31 | $ | $ | ||||||
The fair value of the Shares
in escrow decreased for the six months ended June 30, 2023 by $
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)
| 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Amounts owed by related parties, net | ||||||||||||||||||||
| Cash | ||||||||||||||||||||
| Other financial assets | ||||||||||||||||||||
| Total financial assets not measured at fair value | $ | $ | $ | $ | $ | |||||||||||||||
| Financial liabilities measured at fair value | ||||||||||||||||||||
| Warrant liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| Shares held in escrow | ||||||||||||||||||||
| Derivative financial liabilities | ||||||||||||||||||||
| Total financial liabilities measured at fair value | $ | $ | $ | $ | $ | |||||||||||||||
| Financial liabilities not measured at fair value | ||||||||||||||||||||
| Borrowings | ||||||||||||||||||||
| Trade and other payables | ||||||||||||||||||||
| Amounts owed to related parties | ||||||||||||||||||||
| Total financial liabilities not measured at fair value | $ | $ | $ | $ | $ | |||||||||||||||
| 1 |
| 2 |
| 3 |
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
| 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 | $ | $ | $ | |||||||||||||||
| Private warrants in escrow | ||||||||||||||||||
| Shares held in escrow | ||||||||||||||||||
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
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 | % | % | % | % | % | % | % | |||||||||||||||||||||
| Gross carrying amount | ||||||||||||||||||||||||||||
| Impairment loss allowance | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| 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 | % | % | % | % | % | % | % | |||||||||||||||||||||
| Gross carrying amount | ||||||||||||||||||||||||||||
| Impairment loss allowance | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
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)
| Average Currency Forward Contracts (Sell COP) | Settlement Date | Forward Exchange rate | Notional amount (COP) | Notional amount (USD) | ||||||||||
| Less than 3 months | ||||||||||||||
| 3-6 months | ||||||||||||||
| Over 6 months | ||||||||||||||
| 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 | ||||||||||||||
| 3-6 months | ||||||||||||||
| Over 6 months | ||||||||||||||
| 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 | ||||||||||
| 3-6 months | ||||||||||
| Over 6 months | ||||||||||
| 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. | ||||||||||||
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
| For the three months ended June 30 | For the six months ended June 30 | |||||||||||||||
| 2023 | 20221 | 2023 | 20221 | |||||||||||||
| Short-term employee benefits | ||||||||||||||||
| Consulting fees | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 1 |
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 $
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:
| ● | 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 $
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
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.
2
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.
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