Alcon & Its Continuous Loss – Big Loss Three Years In A Row; 2018 – 2019 & 2020
Why in the world this much big loss Alcon had is not a big mystery!
Loss Following three years in a row; 2018, 2019 and 2020. It is nothing but following its spin-off from Novartis, experts say.
Under Novartis, Alcon showed no meaningful margin improvements and margins since the third quarter of 2018, and the Geneva-headquartered company struggled in recent years with moribund sales that required significant investments in marketing and sales staff, affecting profitability.
As a division of Novartis, Alcon historically relied on financial (including financial and compliance controls) and certain legal, administrative, and other resources of Novartis to operate its business.
In particular, Novartis Business Services (“NBS”), the Novartis shared service organization, historically provided Alcon with services across the following service domains: human resources operations, real estate, and facility services, procurement, information technology, commercial and medical support services, and financial reporting and accounting operations.
Since its separation from Novartis, Alcon has continued to expand its own financial, administrative, corporate governance and listed company compliance and other support systems, including for the services NBS had historically provided to Alcon, or have contracted with third parties to replace Novartis systems that Alcon is not establishing internally. This process has been complex, time-consuming, and costly.
In connection with the separation, Alcon entered into a Separation and Distribution Agreement and various other agreements with Novartis, including the Transitional Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Manufacturing and Supply Agreement, and other separation-related agreements.
Alcon’s operating loss for the twelve months in 2020 was $482 million, which includes charges of $1.0 billion from the amortization of certain intangible assets, $217 million of separation costs, $167 million of impairment charges, and $49 million of transformation program costs, partially offset by a $154 million net gain on post-employment benefit plan amendments and a $63 million benefit for fair value adjustments of contingent consideration liabilities.
Excluding these and other adjustments, core operating income in 2020 was $789 million, and core operating margin was 11.7% compared to 17.2% for the same period last year. Foreign exchange had a negative 40 bps impact on the core operating margin.
Alcon’s loss was $390 million in the 2019 period, and the company sales fell to $1.2 billion from $1.9 billion during the same period. Alcon recorded an annual operating loss of $ 248 million in 2018.
Risks Related to the Ownership of Alcon Shares
Your percentage ownership in Alcon may be diluted in the future. In the future, your percentage ownership in Alcon may be diluted because of equity issuances from acquisitions, capital markets transactions, or otherwise, including equity awards that Alcon may grant to its directors, officers, and associates under its associate participation plans.
These additional issuances will have a dilutive effect on its earnings per share, which could adversely affect the market price of its shares.
Alcon’s maintenance of two exchange listings could result in pricing differentials of its ordinary shares between the two exchanges. Its shares trade on the NYSE in US dollars and on the SIX in Swiss francs, which may result in price differentials between the two exchanges for a variety of factors, including fluctuations in the US dollar/Swiss franc exchange rate and differences in trading schedules.
Alcon may not pay or declare dividends. Although Alcon expects that it will recommend the payment of a regular cash dividend based upon the prior year’s core net income, it may not pay or declare dividends in the future.
Due to the economic uncertainties resulting from the COVID-19 pandemic, its Board chose to recommend not paying a dividend in 2020. The declaration, timing, and amount of any dividends to be paid by Alcon will be subject to the approval of shareholders at the relevant General Meeting of shareholders.
The determination by the Board as to whether to recommend a dividend and the approval of any such proposed dividend by the shareholders will depend upon many factors, including its financial condition, earnings, corporate strategy, capital requirements of our operating subsidiaries, covenants, legal requirements and other factors deemed relevant by the Board and shareholders.
In addition, any dividends that Alcon may declare will be denominated in Swiss francs. Consequently, exchange rate fluctuations will affect the US dollar equivalent of dividends received by holders of shares held via DTC or shares directly registered with Computershare Trust Company, N.A. in the US If the value of the Swiss franc decreases against the US dollar, the value of the US dollar equivalent of any dividend will decrease accordingly.