- Solid first quarter sales of $1.8 billion, an
increase of 3%, or 4% constant currency
- Successful launch of PATADAY strengthens Alcon's leadership
in the US OTC allergy market
- Decline in global demand for surgical procedures will
negatively impact second quarter results
- Focus on associate safety, business continuity and financial
flexibility
Alcon (SIX/NYSE:ALC), the global leader in eye care, reported
its financial results for the three months ended March 31, 2020.
For the first quarter of 2020, worldwide sales were $1.8 billion,
an increase of 3% on a reported basis and an increase of 4% on a
constant currency basis(2), as compared to the same quarter of the
previous year. First quarter 2020 diluted losses per share were
$0.12 and core diluted earnings per share were $0.45.
First quarter 2020 key figures
Three months ended March
31
2020
2019
Net sales ($ millions)
1,822
1,777
Operating margin (%)
(1.5)%
(2.7)%
Core operating margin (%)(1)
16.6%
17.7%
(Loss) per share ($)
(0.12)
(0.22)
Core diluted earnings per share ($)(1)
0.45
0.51
"Our first quarter reflects the solid underlying growth
prospects of our business," said David Endicott, Chief Executive
Officer. "We saw strong sales growth in both franchises during the
first two months of the year, led by key growth brands and new
product launches. However, as the COVID-19 outbreak spread
worldwide, the widespread shutdowns negatively impacted demand by
mid-March."
Mr. Endicott continued, “As we navigate these challenging
conditions, we remain focused on the safety of our associates and
supporting our customers. To help contribute to our community
safety, our associates are producing personal protective equipment
and hand sanitizers for first responders, which is a testament to
the resourcefulness of our people. Lastly, we are taking decisive
actions to maintain our global supply chain and control our
expenses and cash flow. Although we expect a significant impact on
second quarter results, the prudent actions we are taking will
prepare us for recovery and preserve the ability to pursue our
long-term goals."
First Quarter 2020 Results
Worldwide sales for the first quarter were $1.8 billion, an
increase of 3%, or 4% on a constant currency basis, compared to the
first quarter of 2019. Sales growth was driven by the Company's key
growth platforms within the Surgical and Vision Care segments:
AT-IOLs, DAILIES TOTAL1 contact lenses and SYSTANE COMPLETE eye
drops. Also contributing to the solid performance in the quarter
was the new launch of PATADAY for ocular allergies, which switched
from prescription to over the counter in the US. Strong top-line
growth in January and February absorbed the sharp decline in late
March as the COVID-19 outbreak affected the US and European
markets.
The following table highlights net sales by segment for the
first quarter of 2020:
Three months ended March
31
Change %
($ millions unless indicated
otherwise)
2020
2019
$
cc(2)
Surgical
Implantables
310
285
9
10
Consumables
519
551
(6
)
(4
)
Equipment/other
155
164
(5
)
(3
)
Total Surgical
984
1,000
(2
)
—
Vision Care
Contact lenses
502
498
1
2
Ocular health
336
279
20
23
Total Vision Care
838
777
8
10
Net sales to third parties
1,822
1,777
3
4
Surgical revenues impacted by COVID-19
Surgical net sales of $984 million, which include implantables,
consumables and equipment/other, decreased 2%, or flat on a
constant currency basis compared to the first quarter 2019. Solid
growth in the implantables subcategory offset the decline in
consumables and equipment/other. Strong demand for PANOPTIX, which
launched last year in the US and Japan, and solid growth in service
revenues were offset by a lower rate of surgical procedures due to
the COVID-19 pandemic, which negatively affected the demand for
consumables and equipment.
Vision Care posted double-digit cc growth
Vision Care net sales of $838 million, which include contact
lenses and ocular health, increased 8%, or 10% on a constant
currency basis compared to first quarter of 2019. Sales were driven
by solid demand for DAILIES TOTAL1, launch momentum for PRECISION1,
stocking related demand in ocular health products, and the
successful launch of PATADAY allergy drops in advance of the US
spring allergy season.
Core operating income
First quarter 2020 operating loss was $28 million, which
includes charges of $259 million from the amortization of certain
intangible assets, $71 million of separation costs and $7 million
of transformation program costs. Excluding these and other
adjustments, first quarter 2020 core operating income was $302
million, which includes $19 million in provisions related to
COVID-19. First quarter core operating margin of 16.6% decreased by
110 bps, including an unfavorable impact of 50 bps from foreign
exchange, as well as planned increases in research and development
projects, compared to the first quarter of 2019.
Diluted loss/earnings per share (EPS)
First quarter 2020 diluted losses per share were $0.12. Core
diluted earnings per share were $0.45 for the first quarter,
including $0.04 per share of interest on financial borrowings.
Balance sheet highlights
The Company ended the first quarter with a cash position of $760
million. Debt totaled $3.5 billion as of March 31, 2020, including
$1.5 billion in borrowings executed immediately prior to the
Spin-Off and $2.0 billion in senior notes issued in September 2019.
The Company ended the first quarter with a net debt(3) position of
$2.7 billion to refinance certain pre Spin-off borrowings. The
Company continues to have $1 billion available in its existing
revolving credit facility as of May 12, 2020.
Financial Outlook
Due to the uncertain scope and duration of the ongoing COVID-19
outbreak, the Company is unable to provide an estimate for
financial results for the full year 2020.
The Company is actively managing working capital, cash flow and
expenses and prioritizing capital allocation needs to preserve
liquidity. In addition, the Company is focused on inventory
management and preparing its commercial programs to support
customer and patient needs as markets reopen.
While second quarter results will be negatively impacted by the
health crisis, given the critical nature of eye care, customer
demand is expected to resume when underlying conditions normalize
and gradually lead to an improvement in the back half of the
year.
To learn more about Alcon's efforts in COVID-19, read our
statement on alcon.com.
Webcast and Conference Call
Instructions
The Company will host a conference call on May 13 at 2:00 p.m.
Central European Time / 8 a.m. Eastern Time to discuss its first
quarter 2020 earnings results. The webcast can be accessed online
through Alcon's Investor Relations website, investor.alcon.com.
Listeners should log on approximately 10 minutes in advance. A
replay will be available online within 24 hours after the
event.
The Company's interim financial report and supplemental
presentation materials can be found online through Alcon's Investor
Relations website,
https://investor.alcon.com/financials/quarterly-results/, at the
beginning of the conference, or by clicking on the link:
https://investor.alcon.com/news-and-events/events-and-presentations/event-details/2020/Alcons-First-Quarter-2020-Earnings-Conference-Call/default.aspx
Footnotes (pages 1-3)
(1)
Core results, such as core
operating margin and core EPS, are non-IFRS measures. For
additional information, including a reconciliation of such core
results to the most directly comparable measures presented in
accordance with IFRS, see the explanation of non-IFRS measures and
reconciliation tables in the 'Non-IFRS measures as defined by the
Company' and 'Financial Tables' sections.
(2)
Constant currency (cc) is a
non-IFRS measure. Growth in constant currency (cc) is calculated by
translating the current year’s foreign currency items into US
dollars using average exchange rates from the prior year and
comparing them to prior year values in US dollars. An explanation
of non-IFRS measures can be found in the 'Non-IFRS measures as
defined by the Company' section.
(3)
Net (debt)/liquidity is a
non-IFRS measure. For additional information regarding net
(debt)/liquidity, which is a non-IFRS measure, see the explanation
of non-IFRS measures and reconciliation tables in the 'Non-IFRS
measures as defined by the Company' and 'Financial Tables'
sections.
Cautionary Note Regarding
Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. Forward-looking
statements can be identified by words such as: “anticipate,”
“intend,” “commitment,” “look forward,” “maintain,” “plan,” “goal,”
“seek,” “target,” “assume,” “believe,” “project,” “estimate,”
“expect,” “strategy,” “future,” “likely,” “may,” “should,” “will”
and similar references to future periods. Examples of
forward-looking statements include, among others, statements Alcon
makes regarding its liquidity, revenue, gross margin, effective tax
rate, foreign currency exchange movements, earnings per share, its
plans and decisions relating to various capital expenditures,
capital allocation priorities and other discretionary items, and
generally, its expectations concerning its future performance and
the effects of the COVID-19 pandemic on its businesses.
Forward-looking statements are neither historical facts nor
assurances of future performance. Instead, they are based only on
Alcon’s current beliefs, expectations and assumptions regarding the
future of its business, future plans and strategies, and other
future conditions. Because forward-looking statements relate to the
future, they are subject to inherent uncertainties and risks that
are difficult to predict. Such forward-looking statements are
subject to various risks and uncertainties facing Alcon, including:
the effect of the COVID-19 pandemic as well as other viral or
disease outbreaks; the commercial success of its products and its
ability to maintain and strengthen its position in its markets; the
success of its research and development efforts, including its
ability to innovate to compete effectively; its success in
completing and integrating strategic acquisitions; pricing pressure
from changes in third party payor coverage and reimbursement
methodologies; global economic, financial, legal, tax, political,
and social change; the ability to obtain regulatory clearance and
approval of its products as well as compliance with any
post-approval obligations, including quality control of its
manufacturing; ongoing industry consolidation; its ability to
properly educate and train healthcare providers on its products;
changes in inventory levels or buying patterns of its customers;
its reliance on sole or limited sources of supply; ability to
service its debt obligations; the need for additional financing
through the issuance of debt or equity; its reliance on outsourcing
key business functions; its ability to protect its intellectual
property; the impact on unauthorized importation of its products
from countries with lower prices to countries with higher prices;
the effects of litigation, including product liability lawsuits;
its ability to comply with all laws to which it may be subject;
effect of product recalls or voluntary market withdrawals; data
breaches; the implementation of its enterprise resource planning
system; its ability to attract and retain qualified personnel; the
accuracy of its accounting estimates and assumptions, including
pension plan obligations and the carrying value of intangible
assets; legislative and regulatory reform; the ability of Alcon
Pharmaceuticals Ltd. to comply with its investment tax incentive
agreement with the Swiss State Secretariat for Economic Affairs in
Switzerland and the Canton of Fribourg, Switzerland; its ability to
operate as a stand-alone company; whether the transitional services
Novartis has agreed to provide Alcon are sufficient; the impact of
being listed on two stock exchanges; the ability to declare and pay
dividends; the different rights afforded to its shareholders as a
Swiss corporation compared to a US corporation; and the effect of
maintaining or losing its foreign private issuer status under US
securities laws. Additional factors are discussed in Alcon’s
filings with the United States Securities and Exchange Commission,
including its Form 20-F. Should one or more of these uncertainties
or risks materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those
anticipated. Therefore, you should not rely on any of these
forward-looking statements.
Forward-looking statements in this press release speak only as
of the date of its filing, and Alcon assumes no obligation to
update forward-looking statements as a result of new information,
future events or otherwise.
Intellectual Property
This report may contain references to our proprietary
intellectual property. All product names appearing in italics or
ALL CAPS are trademarks owned by or licensed to Alcon Inc.
Non-IFRS measures as defined by the
Company
Alcon uses certain non-IFRS metrics when measuring performance,
including when measuring current period results against prior
periods, including core results, constant currencies, net
(debt)/liquidity, and free cash flow.
Because of their non-standardized definitions, the non-IFRS
measures (unlike IFRS measures) may not be comparable to the
calculation of similar measures of other companies. These
supplemental non-IFRS measures are presented solely to permit
investors to more fully understand how Alcon management assesses
underlying performance. These supplemental non-IFRS measures are
not, and should not be viewed as, a substitute for IFRS
measures.
Core results
Alcon core results, including core operating income and core net
income, exclude all amortization and impairment charges of
intangible assets, excluding software, net gains and losses on fund
investments and equity securities valued at fair value through
profit and loss (FVPL), fair value adjustments of financial assets
in the form of options to acquire a company carried at FVPL,
obligations related to product recalls, and certain acquisition
related items. The following items that exceed a threshold of $10
million and are deemed exceptional are also excluded from core
results: integration and divestment related income and expenses,
divestment gains and losses, restructuring charges/releases and
related items, legal related items, gains/losses on early
extinguishment of debt or debt modifications, impairments of
property, plant and equipment and software, as well as income and
expense items that management deems exceptional and that are or are
expected to accumulate within the year to be over a $10 million
threshold.
Taxes on the adjustments between IFRS and core results take into
account, for each individual item included in the adjustment, the
tax rate that will finally be applicable to the item based on the
jurisdiction where the adjustment will finally have a tax impact.
Generally, this results in amortization and impairment of
intangible assets and acquisition-related restructuring and
integration items having a full tax impact. There is usually a tax
impact on other items, although this is not always the case for
items arising from legal settlements in certain jurisdictions.
Alcon believes that investor understanding of its performance is
enhanced by disclosing core measures of performance because, since
they exclude items that can vary significantly from period to
period, the core measures enable a helpful comparison of business
performance across periods. For this same reason, Alcon uses these
core measures in addition to IFRS and other measures as important
factors in assessing its performance.
A limitation of the core measures is that they provide a view of
Alcon operations without including all events during a period, such
as the effects of an acquisition, divestment, or
amortization/impairments of purchased intangible assets and
restructurings.
Constant currencies
Changes in the relative values of non-US currencies to the US
dollar can affect Alcon financial results and financial position.
To provide additional information that may be useful to investors,
including changes in sales volume, we present information about
changes in our net sales and various values relating to operating
and net income that are adjusted for such foreign currency
effects.
Constant currency calculations have the goal of eliminating two
exchange rate effects so that an estimate can be made of underlying
changes in the consolidated income statement excluding:
- the impact of translating the income statements of consolidated
entities from their non-US dollar functional currencies to the US
dollar; and
- the impact of exchange rate movements on the major transactions
of consolidated entities performed in currencies other than their
functional currency.
Alcon calculates constant currency measures by translating the
current year's foreign currency values for sales and other income
statement items into US dollars, using the average exchange rates
from the prior year and comparing them to the prior year values in
US dollars.
Free cash flow
Alcon defines free cash flow as net cash flows from operating
activities less cash flow associated with the purchase or sale of
property, plant and equipment. Free cash flow is presented as
additional information because Alcon management believes it is a
useful supplemental indicator of Alcon's ability to operate without
reliance on additional borrowing or use of existing cash. Free cash
flow is not intended to be a substitute measure for net cash flows
from operating activities as determined under IFRS.
Net liquidity/(debt)
Alcon defines net liquidity/(debt) as current and non-current
financial debt less cash and cash equivalents, current investments
and derivative financial instruments. Net liquidity/(debt) is
presented as additional information because management believes it
is a useful supplemental indicator of Alcon's ability to pay
dividends, to meet financial commitments and to invest in new
strategic opportunities, including strengthening its balance
sheet.
Growth rate and margin
calculations
For ease of understanding, Alcon uses a sign convention for its
growth rates such that a reduction in operating expenses or losses
compared to the prior year is shown as a positive growth.
Gross margins, operating income/(loss) margins and core
operating income margins are calculated based upon net sales to
third parties unless otherwise noted.
Reconciliation of guidance for
forward-looking non-IFRS measures
The forward-looking guidance included in this press release
cannot be reconciled to the comparable IFRS measures without
unreasonable efforts, because we are not able to predict with
reasonable certainty the ultimate amount or nature of exceptional
items in the fiscal year. These items are uncertain, depend on many
factors and could have a material impact on our IFRS results for
the guidance period.
Financial tables
First quarter 2020 net sales by region
Three months ended March
31
($ millions unless indicated
otherwise)
2020
2019
United States
792
43
%
737
41
%
International
1,030
57
%
1,040
59
%
Net sales to third parties
1,822
100
%
1,777
100
%
Consolidated income statement (unaudited)
Three months ended March
31
($ millions except (loss) per share)
2020
2019
Net sales to third parties
1,822
1,777
Other revenues
19
47
Net sales and other revenues
1,841
1,824
Cost of net sales
(952
)
(925
)
Cost of other revenues
(17
)
(47
)
Gross profit
872
852
Selling, general & administration
(677
)
(656
)
Research & development
(139
)
(146
)
Other income
9
12
Other expense
(93
)
(110
)
Operating (loss)
(28
)
(48
)
Interest expense
(31
)
(9
)
Other financial income & expense
(10
)
(8
)
(Loss) before taxes
(69
)
(65
)
Taxes
12
(44
)
Net (loss)
(57
)
(109
)
(Loss) per share
Basic
(0.12
)
(0.22
)
Diluted
(0.12
)
(0.22
)
Weighted average number of shares
outstanding (millions)(1)
Basic
488.6
488.2
Diluted
488.6
488.2
(1)
For periods prior to the spin-off, the
denominator for basic and diluted earnings per share was calculated
using the 488.2 million shares of common stock distributed in the
Spin-Off.
Balance sheet highlights
($ millions)
March 31, 2020
December 31, 2019
Cash and cash equivalents
760
822
Current financial debts
296
261
Non-current financial debts
3,157
3,218
Free cash flow
The following is a summary of Alcon free cash flow for the three
months ended March 31, 2020 and 2019, together with a
reconciliation to net cash flows from operating activities, the
most directly comparable IFRS measure:
Three months ended March
31
($ millions)
2020
2019
Net cash flows from operating
activities
30
30
Purchase of property, plant &
equipment
(90
)
(99
)
Free cash flow
(60
)
(69
)
Net (debt)/liquidity
($ millions)
At March 31, 2020
Current financial debt
(296
)
Non-current financial debt
(3,157
)
Total financial debt
(3,453
)
Less liquidity:
Cash and cash equivalents
760
Derivative financial instruments
1
Total liquidity
761
Net (debt)
(2,692
)
Reconciliation of IFRS to Core Results
Three months ended March 31, 2020
($ millions except
(loss)/earnings per share)
IFRS Results
Amortization of Intangible
Assets(1)
Impairments(2)
Separation Costs(3)
Transformation
Costs(4)
Other Items(5)
Core Results
Gross profit
872
252
16
3
—
(10
)
1,133
Selling, general & administration
(677
)
—
—
3
—
—
(674
)
Research & development
(139
)
7
—
—
—
(20
)
(152
)
Other income
9
—
—
—
—
—
9
Other expense
(93
)
—
—
65
7
7
(14
)
Operating (loss)/income
(28
)
259
16
71
7
(23
)
302
(Loss)/income before taxes
(69
)
259
16
71
7
(23
)
261
Taxes(6)
12
(44
)
(4
)
(13
)
(1
)
8
(42
)
Net (loss)/income
(57
)
215
12
58
6
(15
)
219
Basic (loss)/earnings per share
(0.12
)
0.45
Diluted (loss)/earnings per share
(0.12
)
0.45
Basic - weighted average shares
outstanding(7)
488.6
488.6
Diluted - weighted average shares
outstanding(7)
488.6
491.2
(1)
Includes recurring amortization
for all intangible assets other than software.
(2)
Includes impairment charges
related to intangible assets.
(3)
Separation costs are expected to
be incurred over the two to three-year period following the
completion of the Spin-off from Novartis and primarily include
costs related to IT and third party consulting fees.
(4)
Transformation costs, primarily
related to restructuring and third party consulting fees, for the
multi-year transformation program.
(5)
Gross profit includes fair value
adjustments of contingent consideration liabilities. Research &
development includes a $34 million fair value adjustment of a
contingent consideration liability partially offset by $14 million
in amortization of option rights. Other expense primarily includes
fair value adjustments of a financial asset.
(6)
Total tax adjustments of $54
million include tax associated with operating income core
adjustments and discrete tax items. Tax associated with operating
income core adjustments of $330 million totaled $64 million with an
average tax rate of 19.4%.
Core tax adjustments for discrete items
totaled $10 million, primarily related to tax expense from the
delayed spin of a legal entity.
(7)
Core basic earnings per share is
calculated using the weighted-average shares of common stock
outstanding during the period. Core diluted earnings per share also
contemplate dilutive shares associated with unvested equity-based
awards as described in Note 5 to the Condensed Consolidated Interim
Financial Statements.
Reconciliation of IFRS to Core Results
(continued)
Three months ended March 31, 2019
($ millions except
(loss)/earnings per share)
IFRS Results
Amortization of Intangible
Assets(1)
Separation Costs(2)
Transformation
Costs(3)
Legal Items(4)
Other Items(5)
Core Results
Gross profit
852
250
—
—
—
8
1,110
Selling, general & administration
(656
)
—
—
—
—
7
(649
)
Research & development
(146
)
5
—
—
—
7
(134
)
Other income
12
—
—
—
—
(3
)
9
Other expense
(110
)
—
—
—
32
56
(22
)
Operating (loss)/income
(48
)
255
—
—
32
75
314
(Loss)/income before taxes
(65
)
255
—
—
32
75
297
Taxes(6)
(44
)
(34
)
—
—
(8
)
36
(50
)
Net (loss)/income
(109
)
221
—
—
24
111
247
Basic (loss)/earnings per share
(0.22
)
0.51
Diluted (loss)/earnings per share
(0.22
)
0.51
Basic - weighted average shares
outstanding(7)
488.2
488.2
Diluted - weighted average shares
outstanding( 7)
488.2
488.2
(1)
Includes recurring amortization
for all intangible assets other than software.
(2)
Separation costs are expected to
be incurred over the two to three-year period following the
completion of the Spin-off from Novartis and primarily include
costs related to IT and third party consulting fees.
(3)
Transformation costs, primarily
related to restructuring and third party consulting fees, for the
multi-year transformation program.
(4)
Includes legal settlement costs
and certain external legal fees.
(5)
Gross Profit and Selling, general
& administration include spin readiness costs. Research &
development includes $17 million amortization of option rights and
expenses for integration of recent acquisitions, partially offset
by a $10 million fair value adjustment of a contingent
consideration liability. Other income and expense primarily
includes spin readiness costs.
(6)
Total tax adjustments of $6
million include tax associated with operating income core
adjustments and discrete tax items. Tax associated with operating
income core adjustments of $362 million totaled $57 million with an
average tax rate of 15.7%.
Core tax adjustments for discrete items
totaled $51 million and primarily include tax expense related to
rate changes in the US following legal entity reorganizations
executed related to the Spin-off partially offset by net changes in
uncertain tax positions.
(7)
For periods prior to the
Spin-off, the denominator for both core basic and diluted earnings
per share was calculated using the 488.2 million shares of common
stock distributed in the Spin-off.
About Alcon
Alcon helps people see brilliantly. As the global leader in eye
care with a heritage spanning more than seven decades, we offer the
broadest portfolio of products to enhance sight and improve
people’s lives. Our Surgical and Vision Care products touch the
lives of more than 260 million people in over 140 countries each
year living with conditions like cataracts, glaucoma, retinal
diseases and refractive errors. Our more than 20,000 associates are
enhancing the quality of life through innovative products,
partnerships with eye care professionals and programs that advance
access to quality eye care. Learn more at www.alcon.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20200512005891/en/
Investor Relations Christina
Cheng + 41 589 112 110 (Geneva) + 1 817 615 2789 (Fort Worth)
investor.relations@alcon.com
Media Relations Wes Warnock
+ 41 589 112 111 (Geneva) + 1 817 615 2501 (Fort Worth)
globalmedia.relations@alcon.com
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