Cost cutting shows Q1 benefits for Patheon; but manufacturing earnings fall

By Gareth Macdonald

- Last updated on GMT

Related tags United states dollar Patheon

Patheon chief Wes Wheeler says the drop in Q1 losses the firm recently reported is due to the “restructuring activities and rigorous cost containment efforts” it enacted towards the end of last year.

The Canadian contracting firm, which recently rejected a hostile takeover bid by private equity group JLL Patheon Holdings, reported a net shortfall of US$6.0m (€4.7m) down from $14.7m in the equivalent quarter last year.

Wheeler said that: “These improvements were achieved in our seasonally weakest quarter where revenues were down compared to the prior year largely as a result of the stronger US dollar versus our other major sales currencies​.”

Despite Wheeler’s generally positive mood, one area of potential concern is Patheon’s contract manufacturing business, revenue from which declined 13 per cent to $117.7m.

The firm said that this was due to lower demand from customers in North America, particularly for its business in Cincinnati and Whitby, but added that this had been partially offset by the improved performance of its Puerto Rican operations.

In Europe the picture was slightly better. While revenues fell some 9 per cent or $6m, at a constant currency rate they would have been 3 per cent higher than last year. However, Europe remains a small part of Patheon's manufacturing business.

Revenues generated by Patheon’s Pharmaceutical Development Service (PDS) service were also down slightly. The firm’s drug development business contributed $29.5m for the period, down 2 per cent for the quarter.

However, Patheon was keen to stress that at constant currency rates PDS revenues were 5 per cent higher than last year which, the firm said, was due to the growth of North American demand for its offering.

Restructuring costs fall

Predictably as a result of its cost reduction efforts, Patheon’s selling general and administrative costs for the period were lower than the first quarter last year, falling some 4.4 per cent to $26.3m.

The firm explained that while the majority of its costs were related to marketing, it did spend $1.2m on its new US headquarters in North Carolina and a further $500,000 on assessing JLL’s unsolicited takeover bid.

In addition, Patheon’s first quarter repositioning costs fell to $500,000 from $2.4m as the planned transition of operations from its York Mills, Ontario facility nears completion.

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