UPDATE 1-Arseus sees profit growth with new focus on medical compounds

Fri Feb 7, 2014 4:59am EST

* Arseus to focus on two higher margin units

* Expects margins to increase to 26 percent in 2014

* Says Brazilian economic slowdown not an issue

* Shares up 4.7 pct to all-time high of 28.70 euros

By Robert-Jan Bartunek

BRUSSELS, Feb 7 (Reuters) - Belgium's Arseus forecast further earnings growth in 2014 and said it would divest all of its lower-margin dental and medical supplies units over the course of the year.

The group will now focus its business on two units, its medical compounds unit Fagron, which supplies pharmacies with ingredients for bespoke medicines, and medical IT unit Corilus.

"We are transforming from Arseus with four units to Arseus with two units. We are expecting all remaining dental and medical units to be sold in 2014," Chief Executive Ger van Jeveren told Reuters.

In 2012, the businesses to be divested made up 40 percent of sales, but only 13 percent of core profit (EBITDA).

For 2014 the company said revenues would be at least 480 million euros ($652.8 million) with a recurring core profit margin of 26 percent. This compares with the 386 million euros revenues and a 25.4 percent margin in 2013, excluding the operations to be sold.

The company took a 58.9 million euro goodwill impairment on divested units, which sold items ranging from dental chairs to hospital gloves, leading to a loss of 75.8 million euros for the discontinued operations, Van Jeveren said.

With its renewed focus, Arseus also announced the acquisition of two factories for medical compounding in the United States and Europe and an agreement to buy three further U.S. facilities.

Arseus paid 160 million euros for the acquisitions and said they would contribute 30 million euros to its core profit, because the acquisition of latter three factories would come during the year, it would book about 21 million in 2014.

The group's shares rose as much as 4.7 percent on Friday to all all-time high of 28.70 euros, making them the best performer on Euronext Brussels..

"The divestment of the low-margin businesses is something that investors have asked for for a long time so it's a clear positive," said KBC analyst Jan De Kerpel.

Fagron had a core profit margin of 25.4 percent in 2013 and grew profits by 31.9 percent over the course of the year, with the United States and Brazil being important drivers of this growth.

The Brazilian real lost some 20 percent of its value against the euro over the course of 2013 in spite of repeated interest rate hikes, as economic growth slowed.

Analysts estimate Brazil makes up some 30 percent of Fagron.

Van Jeveren said the stuttering Brazilian economy was not an immediate concern, but the weak Brazilian real had had an impact on Arseus's numbers.

"We are growing rapidly in Brazil so the economy is not an issue. Forex is, however," Van Jeveren said. "We hope this will stabilise after the elections and that the government will support the currency."

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