Fagron NV (FAGR) Earnings Call Transcript & Summary

Good day, and welcome to the conference call regarding the 2020 semiannual results of Fagron. Today's conference is being recorded. At this time, I would like to turn the conference over to Fagron. Please go ahead.

Good morning to you all, and thank you for joining the 2020 half year results conference call of Fagron. After positive feedback after our first quarter call, we will start with only a short introduction by our CEO, Rafael Padilla, instead of a full presentation, and then immediately open the lines for Q&A. Next to Rafael, also our CFO, Karin Jong is present, to take your questions. Rafael will conclude the call with some closing remarks. Rafael, please go ahead.

Thank you, Constantijn, and also thank you for preparing. As always, very professional the day of today. And of course, thank you all for joining the conference call today. The first half year of 2020 have been marked by the COVID pandemic. We are very proud of our team, their strong commitment and of course, the collective entrepreneurship that we have shown in managing these unprecedented times. Our strong results also show the strength of our diversity, very important, our diversified product range product portfolio and of course, our geographical spread. This together, provides us resilience and enables us to respond well to the situation. All regions showed strong development, of which the strong improvement in the REBITDA margin in North America, we are very happy for that. And Latin America is most notable, driven, of course, by higher turnover in brand and Essentials, combined, as we said, with effective cost management. Like, we have seen in the first quarter, on the one hand, we have benefit -- Fagron has benefited from higher demand for COVID-related products as reflected in the turnover growth in Brands and Essentials. On the other hand, we faced lower demand for elective care, a development that particularly affected Compounding Services. A very clear response is that we successfully managed the cost of our activities that were affected by this in a very disciplined way without losing our focus on strengthening our position in the long term. This also includes that we'll cautiously and disciplined restart our M&A activities, which, of course, has not been a priority in the last month. To finalize, the COVID pandemic is developing differently in every region. And there are vast as well differences even within the regions, which will also apply to the remainder of the year. Thanks, again, as we said, to our diversified product range, disciplined cost management and of course, proven strategy. We are convinced that we are well positioned to respond effectively to this dynamic situation. So operator, now we can hand over for Q&A.

[Operator Instructions] We will now take our first question from the Matthias Maenhaut from Kepler Cheuvreux.

Yes. I have 3, if I may, I will ask them one by one. First question is actually on the very solid performance of Brands and Essentials in the U.S., continuation of the good performance in Q1. Could you give us a little bit more color on how much of the performance is actually driven by synergies from the Humco integration? And how much is actually the result of increased sales of products on the back of COVID-19? And also, looking at H2, how should we think about this performance going forward? I noticed that you paid the earn-out for Humco. So I guess that was a quite sizable amount of a good incentivization also there for the people. How should we think about H2 with the like the similar incentivization schemes in place? Will there be any changes at Humco post the payout of this earn-out? That would be my first question.

Yes. Thanks a lot, Matthias. Of course, Brands and Essentials in the first half performed extremely well. We are very positive for the second semester. COVID-related products have been important in this development. Nevertheless, nevertheless, as you know very well, we have spoken many times. We -- our name farmaceutische grondstoffen. Pharmaceuticals raw materials in English. And it was for us, for the global leadership team 3 years ago when we started this business journey. It was unacceptable that in the biggest market in the world of Brands and Essentials in personalizing medicine. Compounding, we were #4. Right? So you have MEDISCA, PCCA, Letco and there -- Fagron and B&B at that time. Therefore, we chose to acquire Humco. It has been a great acquisition. As you have said, we paid the full earn-out. So the performance has been extremely, extremely good. We have integrated -- we have integrated the first year, the back-office activities. And also now we work synergistically on the front end, keeping the 3 brands. That's very important. So we have Fagron and Humco and B&B in the market. Though, we are strong on the back office, and we serve our customers. So our customers can choose the essentials and the brands that they may require. They have -- we have a very strong strategy, incentivizing personalizing medicine, and this has brought us to these magnificent results. So we are copy and pasting, what we have done in Europe, and we have done in Brazil. We are doing the same in the U.S. So this will bring us -- we are very confident, this will bring us very good results in the second semester and also in the years to come. Regarding how are we going to incentivize the team of Humco that, by the way, it's a great team. It has a very good spirit. The sales team in Austin, Texas, is marvelous, very result-driven, very happy, right? They are always very happy and passionate. And also our teams in Texarkana, where we have the factory. It's a state-of-the-art facility. We have put incentive in place for Humco going forward within the Fagron family in the U.S. Very nice incentives, totally aligned with our ambitions in the upcoming years for Brands and Essentials in the U.S. markets.

Okay. Second question is, I will remain in the U.S., if you allow me to, is on Wichita, Fagron Sterile Services. There you reiterate your target of $100 million sales by 2022. I was just wondering, what gives you the confidence on that $100 million? Because since that target has been issued, a lot has changed, we have now COVID. We also have changes in business models in terms of revenue recognition. So what gives you the confidence on that $100 million?

Sure, Matthias, it's an excellent question because, look, out of the 3 activities that we have in the U.S., Anazao, then Wichita FSS and Brands and Essentials, transition is clear, Wichita, for us, is extremely important. And of course, now we can have -- we may have some delays related to COVID. Though, what we have accomplished in the last months, of course, first of all, the whole ramp up on production, the automatization, then a very important element was the quality control, the in-source of the quality activities. Then we started with the ramp-up of the SKUs at this moment, we're at 128. We are planning to end up this year in a range of 141 to 145 SKUs. So we are investing in new products. And that's, in this business, very important. What keeps us confident is that the main drivers of this market remain, despite the COVID, these drivers remain, and that is the outsourcing of the hospital networks to [ Fagron's delivery ] facilities. This is one. And secondly, of course, we have always stated, and you know that very well, Matthias, is that quality standards raised and this will bring a consolidation within this market. And of course, we are very well positioned because the facility is state-of-the-art. The team is -- yes, it's a very [indiscernible] in that, they are doing good things, right? So this gives us confidence on the -- getting the target in 2022, with -- may some delays with -- because of COVID, we have seen the elective care. And some things have been closed. They are still closed. But when they open, we are ready to rock-and-roll in Wichita.

All right. And then final question from my end is actually on Europe. There, we see a modest impact in the second quarter on Fagron Compounding Services. Now it's also the market where, last year, you have unfortunately lost one of a contract with the distributor. Could you maybe give us a little bit of more quantification? What is the impact of the switch to acute care? Is that the entirety of the sales drop? Or is there also an impact of that loss of contract? That would be my final question.

Sure, Matthias. Regarding the drop, what we have clearly seen the first months of the year is that elective care has really impacted Compounding Services. We have 2 elements in Compounding Services. That is the non-sterile, the non-sterile. Here, we [ think ] on a cream, for example. And then the sterile activities. The sterile activities in Europe have performed well, very well. We are happy on that. Though the non-sterile activities, we have seen a drop. And this is because people, unfortunately, have stayed at home, right? So for example, when you have an exam, we sell out to creams and ointments. We have seen a drop in this segment, right, on the compounding services. On your point of the competitor, as we stated at the beginning of the year, we were saying that there would be a non-materiality in this one. We have seen this non-materiality even below our expectations. So we are happy for that because, of course, we model it, we model the budgets. And we were modeling also a price competition on that. We have always said that this wouldn't be material. We reiterate this. We want to reiterate this and also saying that it has been below -- on a good side, our expectations.

We will now take our next question from Frank Claassen from Degroof Petercam.

Yes. I'm Frank Claassen, Degroof Petercam. Also 3 questions, please. First of all, I noticed that indeed, the margins -- the EBITDA margins in Europe were down despite still nice organic growth. So could you elaborate why that is? Is that indeed a mix effect? Or are there any other factors playing a role? Sort of -- that's the first question. Second question on working capital. Can we expect that also for the second half, you will have higher inventories -- strategic inventories? And what is -- yes, what do you expect for working capital for the second half? And then finally, on Latin America and Brazil, I noticed that Q2 was, yes, way below Q1. So what do you see? What kind of effects do you see from the lockdowns in Brazil? I can imagine that, that had an impact. What is happening on the ground in Brazil? Some words on that, please?

Sure, Frank. Regarding Brazil, we have seen, of course, in the second quarter, the effects of the lockdown. People didn't go to the doctor. Though there has been a nice wave that has been, of course, everywhere in the world, but we have seen this, specifically in Brazil, of telemedicine of people being consultated via the WhatsApp, the video WhatsApp or other tools, right? So we expect maybe we are, as always, very optimistic, but we expect that Brazil, in the second semester, will be again in the levels that we have seen in the last years, 8 to 10 years. That has been a success story within Fagron. And we expect -- and of course, we are very optimistic always that in the second semester, we will see, again, good developments in this market. Though, we are happy because due to the fact of this lockdown and also the political and social instability, we have performed well, showing growth as well. So we -- all the kudos for the teams there, for Ivan and the teams there, managing the situation very good. Regarding the product diversification on the Brands and Essentials, you also see that we have done good on Essentials. So this also gives us confidence in a structural improvement of our market position because as we have said many times, I remember the first time we met each other, in Amsterdam, in your office, we're explaining about the Brazilian business where importing goods and sourcing goods was critical, even more than selling the goods. And what we see is that our power to bring the goods within Brazil, and in the Essentials developments, this will make us winning some market share that maybe, without COVID, this wouldn't have happened.

That's a clear answer on Brazil.

Thank you, Frank.

And then on the working capital and the margins, Europe, yes.

Yes. Frank, this is Karin speaking. On the margins in Europe, we did see a slight decline in REBITDA margin for the European market. So it's at 24.3%. As you know, our markets in Europe differs strongly from each other, not only in the way and extent they are impacted by COVID-19, but also in product mix, in profitability, market share and regulatory landscape. And in relation to that, the ability to swiftly adapt operations to a new situation. In certain countries with a higher EBITDA contribution, like for instance, the Netherlands, the activities, and then as Rafa already mentioned, mainly the non-sterile compounding part, were more negatively impacted by COVID-19 than in the other countries. So that's basically the reason for the decline in margins in Europe. Expectations going forward is difficult to say because of the ongoing uncertainty related to COVID. And then with relation to your second question on working capital. We invested in the -- mainly in the second quarter in our working capital and mainly in our stock positions. We know that product availability is key and gives us a competitive advantage in different markets. So -- as well in Brazil, but also in Europe. So we decided to invest in that. In general, I think at the end of the year, we were at approximately 8% of working capital. Last year at the same period this time, we were also close to 10%. So in general, for Fagron, a level between 8% and 10% is a normal working capital level. And that's also what we expect going forward. So but for during the COVID times, we decided strategically to have some more stock in certain areas, and that is a mix of products. So that's COVID products, but also some raw materials and some branded products that we see as a potential benefits for the third and the fourth quarter of Fagron.

We will now take our next question from Lenny Van Steenhuyse from KBC Securities.

3 questions from my side. Indeed, as mentioned before, some remarkable performance specifically in the Brands division in the U.S. I was just wondering what is driving the Brands division specifically and which products specifically are contributing to this growth. Secondly, compounding in Europe continues to deteriorate. On the other hand, we hear some signals of recovery as the pandemic gets more under control, specifically in Europe. So I was just wondering what your expectations are in the shorter term for European compounding, if you think there's already going to be some recovery perhaps in the third quarter or if you're still quite cautious on that side? And then as a last question, indeed, margins remained quite strong throughout the semester while the revenues experienced some slight pressure through COVID. I was just wondering if you could give some more color on the specific cost-control measures that were implemented to protect the margins. And how much flexibility is still left on the cost control front?

Thanks a lot, Lenny, for your nice questions. Regarding Europe, we are cautious. You said that we're cautious. We are cautious because, of course, as you said, the pandemic is more in control, and people are going out to the doctor that they haven't gone in the last month. Though, we don't see the levels that we saw pre-pandemic. And of course, we all have been in the doctor office this time. I mean, all that we are in this segment, right? So I was meeting personally a doctor yesterday, and you see all the measures, people -- less people waiting in the waiting room. So of course, the quantity of patients going to the doctors is lesser. So we want to be cautious there. Though we are very optimistic and ambitious organization, and we also pursue growth. And we have, as we said, a very diversified portfolio, also in Europe, so our focus lies on growth. Regarding the U.S., we have 2 kinds of brands in the U.S. before Humco, we only have brands for personalizing medicine, for compounding we have seen grown during the first semester in these brands. And these are brands that is being used for syrups, as an example. So the product ready in order to be compounded to add an API [indiscernible], and that is the best brand that we have. We have seen traction on these brands. We have also seen traction in brands also in this segment for dermatological applications in the U.S. And then you may -- or we may say or we may say, okay, there has been less elective care. Yes, indeed, it has been less electric care, though we have gained market share. Because the U.S. is a market where brands are very much used within the compounding pharmacy in the U.S. And again, MEDISCA, PCCA, Letco, other competitors, they all have great products and the pharmacies in the U.S. use also all brands, not only Fagron. We estimate 9% of market share in the U.S. So we have gained market share from our competitors rather than, of course, seeing traction in the market. That's the first kind of brands. Then -- and the second one, of course, one of the drivers or one of the motivations of the acquisition of Humco was that we would immediately reach the retail market in the U.S. Because Humco, as you all know, it was born, it was a second pharmaceutical company in Texas. It's very nice to see the photo of Mr. Hutchinson with the horses. And I don't know how do you say the cart with the wheels selling the magic oil in 1879, right? So Humco is a very well-known mark -- mark -- brand sorry, it was brand in the U.S. So we have now wait -- the wave in -- sail the wave, all the COVID products, that's alcogels, alcohol, disinfectants. So our Texarkana facility that already had these products in portfolio has also had a tailwind in these brands as well. So not really compounded-related, but our own brands in this kind of applications. So both brands have seen tailwinds then. And the third will be for Karin, of course.

Yes. So if we look at our margins and our OpEx, indeed, margins, despite that we see a shift in demand for certain product groups, our margins remain relatively stable. We took, at the end of the first quarter, some precautionary measures and there was also including a greater focus on cost control. What you see is that our OpEx dropped to 37.2% of sales. We temporarily refrain from hiring new staff in non-key positions, and we have also slowed down some non-strategical investments. And furthermore, we spent, of course, less on business travel, marketing expenses and some of the trade shows that were postponed. Although certain costs will return when business is getting back to normal. We have also learned to manage some of these activities more efficiently, including more focus on virtual meetings and events, on digital marketing. And I think this is something we will continue going forward. So when corona is still there and for the third quarter, that still will be the case. We continue with strict cost control on hirings and additional spend.

We will now take our next question from Stijn Demeester from ING.

3 questions, if I may. The first one is on the U.S. compounding business. You are vertically integrated versus your -- a lot of your peers who are not vertically integrated. Has this given you an advantage in the recent quarter? And have you been able to extend the range of hospitals you are supplying to because of more supply -- certainty of supply. Can you comment on that commercial evolution?

We have -- at the beginning in the U.S., we have all our activities like splited satellite, so not really vertically integrated, our sales activities. What we have done in the last 3 years, we first of all, integrated our back office, so North American service center. We like the service centers that serve the business, very tight, light and business-oriented organization there in the back office. And then first of all, we have integrated the Brands and Essentials. As we said before, the B&B, Fagron and Humco brands. Now we are in the face-off, as we speak, we are in the face of things also integrating the go-to-market activities or mainly the GPOs because you go into GPO and you offer the full portfolio, right? You offer the raw materials. You also offer the devices, we have devices there. And also the compounding. So we have seen -- yes, we have seen traction in this respect, even though it has been some little amounts of that, but the focus will lie now in the U.S. in order to integrate also the sales activities.

Yes, sure. I don't -- maybe I didn't phrase correctly. My question was more on the U.S. compounding business specifically. So your process is non-sterile to sterile. And that puts you potentially at an advantage versus peers. So specifically on, given COVID, did that increase in more parties that you are talking to, more hospitals that you are potentially supplying to?

Yes. Sorry, my excuse, if I didn't understand you correctly, if it was all related to compounding activities. Yes, we have seen new partners coming to us, yes. So both actively because we have been -- in these times, we have kept the visits, of course, more virtually than physically. But also physically, we have been able to get new customers actively. Also, also on products related to treat the patients that were in intensive care and you're may think on sedatives, on painkillers. So we have seen traction in these kind of products in the U.S. We've also gained new accounts also passively. So customers that have reached us in order to see whether we had those products in our portfolio.

Okay. That's helpful. Then also on U.S. compounding, if I may continue, the FDA recently reviewed its policies for both compounders. They have now seems introduced different categories of bulk drugs, which can or cannot be used to compound. In what way should this impact the Sterile Services business? Do you see it as a tightening of standards, potentially driven by lobbyism of your competitors who have this different process? How should we look at this recent evolution?

Yes. So these months have shown us, in the U.S., also in the other regions, but in the U.S., the importance of compounding and also the importance of API-to-sterile as now you were referring to. So the -- particularly the FDAs. FDA has also given the important statement, the importance of that API-to-sterile is an important element in the pharmaceutical preparation, right? On the other hand, we also have the offering of the sterile-to-sterile activities to the customers, so we can offer both. And we have seen also, again, in the products that were not for the elective care, that has not been the case. So some clinics were closed. But in the other kind of products COVID-related, pandemic-related, we have seen a traction both API-to-sterile and sterile-to-sterile. Going forward, of course, as we offer the 2 options, even we offer a third option that you know very well. We said that this some months ago or some 2, 3 quarters ago regarding the business model where we receive the goods from the customer, we compound and we give them back. We also give this third option to the customer, so the customer feels free to choose the modality that he or she wants.

Okay. But do you see it as a tightening of standards because the list of APIs that is on the noncompound list is actually quite long. Could this impede you, in some way, to reach your number of products?

Yes, we don't see as a tight factor. We don't see it. We really don't see it.

Okay. All right. Then a final question is on Europe, on the Dutch compounding business. There's this deterioration in the second quarter. A number of players, including Fagron have indicated to look more at registrations in that market to sort of defend their market share. There's also newcomers in that market. A recent example was the registration of [indiscernible], which was a quite big selling product last year. How should we look at this trend? If -- I mean, if everybody starts to register this project, the level-playing field only gets smaller. So you see this as a positive? Or in a way, negative pointing to a mature and declining market?

Yes, that's a great question, Stijn, because this is the dynamic of a mature market, right? Nevertheless, this has always been the case in the Netherlands. So how it works, you start with the individual compounding, when it's big enough, goes to stock compounding, that is a really Dutch event. And then when it's big, some parties register it. As you know very well, 3, 4 years ago, we decided also to enter in this segment with the premium pharmaceuticals category where we see good development. So we register the big compounded products. So we do that. Also other parties do that as well. So this is a trend that has come to stay. And we are also doing the activity, the registration activity nevertheless. What we also do, and we are very happy of, is that we introduce always, we have a full pipeline of new compounded medication. Of course, individual that in the future will go to stock, and we want also to focus in innovation. So yes, we do see effect of the registrations, both ourselves and others. We do have a registration strategy. We do have it. So we have products in the pipeline in order to be registered, and you see it back in the category premium pharmaceuticals in the Netherlands. Also, we also focus on bringing new compounds into our compounding portfolio.

So and if I may follow-up on that. What is -- how does impact pricing? And how does pricing work for the compounds, where I think there's no price regulation? And how does then this work for the licensed or registered products? Is there a price regulation then, which should then, yes, sort of reflect in the margin?

Yes. Indeed, the compounded medication, the margin is more attractive. You are right, yes. Therefore, we always have a very filled and fueled, if I may, speaking this correctly, pipeline of new compounds.

We will now take our next question from Eric Wilmer from ABN AMRO.

2 questions from high side. On Wichita, you stated the pace of achieving the $100 million run rate sales target may be impacted by COVID-19. Would you -- would it be possible to provide some more background as per when you expect to have more visibility on this? Just to be sure, just to be 100% sure, actually, do I understand correctly that the 2022 target may not be met? And secondly, you mentioned that Fagron is keeping an eye on potential acquisition opportunities following the current market dynamics. Could you perhaps elaborate, which markets are currently providing such opportunities, especially in the context of COVID?

Yes, sure. Regarding the target, again, we have shown strong profitability on the U.S. So we have always stated that in 2022, 2023, we would be on the group average level. So we have accomplished before our plans, and kudos for teams there. And Wichita has been a very important driver for this. So we have chosen, of course, so it also with Anazao, right, when we were disposing the nuclear activities. So we have chosen for profitability, also, of course, for Wichita. And this gives us confidence because now we can fuel the growth. During this month that we have seen many of our customers, many of our customers, unfortunately, not having their activities, right? And those customers, they have their own clinics. So we understand how important it is for them to have the daily revenues, to pay the bills at the end of the month. Because they are -- these companies of course, they need customers and they need patients and the patients are very happy to go there. So this has been slowed down. On the other side, the other group of customers that we have at the sterile facilities that are the integrated networks, hospital networks, also the GPOs, big hospitals, of course, on the elective surgeries. And here we may see on a hip surgery, right, or knee surgery. This has been, yes, slowed down a lot. On the other hand, the products related to the intensive care, unfortunately, have increased, right? So the whole mix gives us confidence in the sense of that we have set to ourselves, let's prepare for the future. Let's develop new SKUs. As we said always, now we face the 150. We have strengthen the sales team. We have added also new good resources, experienced resources to the sales team as well, right? So this gives us confidence that the performance will be good. We may face some delay. Of course, we don't want to say it because we want to have the team totally focused on the target despite the situation. And of course, what, for us, makes us also confident that is internally, but also externally, the drivers are there, right? So the outsourcing is there -- is here to stay. And the main reason is quality and the upgrade of quality of the facilities that many hospitals will not do. And we are one of, of course, there are very good companies in the 503B environment, but we can say that we are one of the high-quality choices for activities in the U.S.

And then regarding the second question -- sorry, Eric.

No problem. No problem.

Go on. Yes. So maybe regarding your second question, Eric, on the acquisitions. So as you know, the potential acquisitions have not been a key priority the last couple of months. However, we do see that there are some possibilities, and markets are slowly opening again. We also see that COVID has, so far, a nonmaterial impact on Fagron. So we are looking at some smaller acquisitions in the coming months that's basically in the European markets and the U.S. market. I think we show that we have strong cash flows. We have enough room on our facilities. So adding some smaller acquisitions that are in line with the Fagron strategy is an option for the next coming months.

Very clear. And then maybe if I may squeeze one last question. Following the upgrade of your Hoogeveen facility, some Dutch competitors have become more aggressive to take share, is my understanding, potentially even selling below cost. Is this something you are still seeing? Or has this trend been normalizing?

Yes, regarding our Hoogeveen FSS, NL facility, we are happy -- very happy with the developments of the first semester. Of course, we restarted with some internal delay. We expected that the restart -- catching back the business would be easier, right? We are proud and happy to say that we have state-of-the-art GMP facility, and we have always said that investment in quality gives a long-term performance. And this is what we now see in FSS, NL, right? So we will see the volumes increasing also in the sterile activities there, right, Eric.

[Operator Instructions] We will now take our next question from Alex Cogut from Kempen.

I just have a question regarding M&A, which you talked about already a little bit. But in which geographies, business categories are you seeing most opportunities? And how has the change compared to pre-COVID times?

Yes, Alex. So the M&A, what we usually do when we enter new markets or new countries, we usually start in the Brands and Essentials. That's our history. I think we have the most experience there. There is easily synergies, which we can handle. A good example is, of course, Mexico. So when we enter new countries, we usually look at Brands and Essentials. For existing markets that are more material, and we are already in the Brands and Essentials part, we look at compounding. Of course, there's a regulatory framework there, which we need to consider when we enter those markets. But in fact, those are the biggest ones. I think if you look in general, I think it's too early to say if there's a huge impact on multiples with regard to those companies, that's, I think, at this point, a little bit too early to say. You see that companies like us do not have a material impact. We see a shift in demand. So I expect that similar companies will experience the same. So I think it's too early now to say if there's a big impact on multiples that we're going to pay in the future.

We will now take our next question from [indiscernible].

[indiscernible]. I have a follow-up question, if I may. You mentioned that you strategically invested in stocks in Q2. Some of your competitors in Germany have seen problems in supplying themselves because some suppliers would have put some quota there. Did you have any -- these kind of problems in Germany or elsewhere in Europe, some quota by suppliers and some difficulties in having stocks?

No, we don't experience that in the German market.

[Operator Instructions] We will now take our next question from [ Justin Skosh ] from [ Ladenburg group.]

Yes. I would like to pick up on a question that was asked earlier about whether the impact of COVID-19 on your U.S. sterile compounding business. You mentioned that providing some of the sedatives and other COVID-19 products gave you access to hospital customers that you hadn't previously been customers. Do you think you'll be able to convert some of those customers, which have initially come to you for COVID products into your wider range of outsourcing products when COVID is over?

[ Justin ], yes, we are sure of, for sure. We're also very -- of course, the situation is not to be happy. And that's, let's say, is very clear. Though the number of customers -- our customer portfolio has increased, yes, in the last months at FSS U.S.

So just tied into that, does that make you more or less optimistic? I was trying to understand your comment about the slowdown in reaching the $100 million target. Do you mean that it just a slowdown in this year? Or that you still think you can get to the target in 2022?

Yes, again, of course, the situation is a bit this unprecedented situation, right? And we don't know how long this will take, and how the countries in different measures in the countries will evolve and even in the States that it is a very big country within the States itself, right? So we are confident. We are very much confident that when our customers, the elective care, of course, customers, restart their practices. Some of them have restarted already. So in the last weeks, we see some traction, of course, not at the levels of the pre-COVID, of course, but that we are very well better prepared. Let's say this way, we are better prepared in terms of product offering. So we have more products in our line, in our assortment. Next to this, we have also gained new customers from the other group of customers. Those are the integrated, as you said, the integrated networks, hospital networks. So we have new leads. Of course, one of the comments some minutes ago was that we are also verticalizing our product offering with the other activities that we have in the U.S., especially the Brands and Essentials. So we'll have more sales capillarity when we see -- and when we visit GPOs, to be more specific act. So when we put all those ingredients together, we are optimistic that despite the station now. And of course, 2022, we may have some delay. Though we don't want to say very hard or we don't want to say also publicly because, of course, our teams also hear what we say. And of course, we're very proud that we all follow-up what we say, and the target is clear for everyone. So we want to stick to that one, all right? I hope I made myself clear, [ Justin. ]

Yes, I was more driving at post-COVID, presumably electives bounce back. And therefore, the question is, post-COVID, are you stronger in your distribution than pre-COVID? Obviously, I understand how COVID affects elective, I'm just trying to understand post-COVID, and I'm assuming by 2022, we're post-COVID.

Yes, we are. We are, indeed, yes. To be specifically to your question, yes, we are much more prepared. In different aspects of the company, product development, right, because quality and operations are, of course, we are a very humble company, but we may say that are really on track, right? So they are there. And now, of course, the focus on innovation of new products. We all understand how important that is and also on approaching the market. So we are much well prepared. Yes, indeed.

One final quick question. On Brazil, in Brazil, are you seeing any shift in the product mix temporarily due to COVID? What is stronger during COVID? And what is weaker?

Yes, we see [ Justin ]. So we have seen in the first semester, an increase on products related to treatment. You will all know about the chloroquine and hydroxychloroquine. We have sold -- or we have -- the market has received from us thousands of kilos, thousands of kilos. The team there, Ivan and the sourcing team there, they played extremely well having stocked on those products in forehand. Of course, being a global company helps you to see things. So we have seen an increase in the demand of these products. Of course, Brazil is a country where there is, unfortunately, a big social discrepancy, and people that can afford have been investing a lot in products for prevention and making supplements, food supplements, vitamins, minerals, vitamin D. We have seen an enormous increase of vitamin D, vitamin C, right? So all the products to regulate, to modulate, to boost their immune system. And on the other hand, unfortunately, we have seen a decrease in our lovely brands, but we have been investing in the last years, right? So the brands used for personalizing medicine and here, we have seen, for example, BHRT Bioidentical hormone replacement therapy. That is very strong in Brazil, as it is in the U.S. We have seen a decrease in those brands. Fortunately, when we make this all go at the end of the exercise, we see a positive development in the performance in the top line and also bottom line. And it's also something that is relevant to say. I know it's not your question, but it's relevant to say that the bottom line of Latin America, even that we have had some dilution from Mexico, Cedrosa that they have done enormously good and the small acquisitions that we did last year, that, of course, they always come with a lower EBITDA. We have been able -- Ivan and the team, they have been able to perform extremely well also on REBITDA levels.

[ Justin ], are you still there? [ Justin] ?

Yes.

See -- we didn't hear you. Can you please repeat?

On the M&A front, you mentioned Europe and U.S. In the U.S., would you -- are you looking at ways of building out your sterile compounding SKUs and strength by M&A? Or is the M&A looking in the U.S. at Brands and Essentials?

For the U.S., we are indeed looking more at the compounding part than in the Brands and Essentials. At Brands and Essentials, we have a good position to grow organically, and we showed that the last couple of quarters. So we are looking at compounding, adding maybe some additional SKUs or a new [indiscernible]. So that's the main focus for acquisitions in the U.S.

[Operator Instructions] We will now take a follow-up question from Stijn Demeester from ING.

Yes. I would like to follow-up on your comment on Wichita, on the sales target. Do I understand correctly that you retain this target for internal incentivization reasons or motivational reasons? Alternatively, do you see this guidance as still helpful or relevant target to guide the financial market, looking at the road ahead?

That's a great question, Stijn. And again, let's be also very clear, right? We are a very transparent company. We have shown this since we started our business journey 3 years ago. It's 12 quarters in a row that we have shown how transparent we are, and we are going to be both with our colleagues and the Fagron heroes, as we've said, but also with the financial markets, right? We understand that this is extremely important, right? And the target remains, of course, internally, but also externally, right? When we say something, we go for it, and we are committed to it, right? So yes, it's for the financial market as well. The target remains the same, Stijn.

We will now take a follow-up question from Matthias Maenhaut from Kepler Cheuvreux.

Maybe a follow-up question on your M&A strategy. I know historically, I recall, you're making acquisitions at 5 to 8x EBITDA. Now looking that you're going to move into U.S. compounding and more specifically, 503B, do you think you will pay similar multiples? Or do you think those acquisitions, given the attractive fundamentals of that business are going to come more expensive than the historical acquisition range?

Yes. If we look indeed [ 5VB ] compounding in the U.S. and the added value it can give, it can be the case that we decide to pay a higher multiple. I don't see us paying over 10x, but it depends, of course, on the benefits, the synergies we see from that different company and the growth potential it has. So those elements will weigh in when determining the multiple. I think indeed that 5x is too low and is probably not realistic for U.S. compounder, and that is more in the range of 8 to 10, specifically for the U.S. and then specifically for 503B, but of course, that depends on future potential of that company. We see and the benefits and synergies we can achieve with that specific acquisition in U.S.

There appears to be no further question at this time. I would like to turn the conference back to the host for any additional or closing remarks.

Yes. Thank you. Thank you all your questions and your interest in Fagron. I would like to give the floor back to Rafael for his closing remarks. Rafael?

Yes, sure, Constantijn. And thanks, again, all of you, for participating, and the questions, of course. And just saying that we have shown a strong performance in these 6 months in this turbulent times, unfortunately. Our teams globally have shown its resilience and also very entrepreneurship with strong responsibility, and we want to thank everyone. Therefore, all of us. We stated in the 2019 full year results' presentation that in 2020, we would see good developments both in turnover and profitability. And our business diversification, of course, together with a clear focus on quality and innovation, will secure this journey. Our purpose is that together, we create the future of personalizing medicine together, of course, with our colleagues, with our business partners, with our customers, but of course, also with all of you today present. Thank you very much. Operator?

This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.