Earnings Release • Aug 4, 2022
Earnings Release
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Regulated information Nazareth (Belgium)/Rotterdam (The Netherlands), 4 August 2022 – 7.00 AM CET
Fagron, the leading global player in pharmaceutical compounding today publishes its half year results for the period ending 30 June 2022.
"Our strong focus on execution continued to deliver excellent results in the first half of 2022, despite the challenging macroeconomic environment, with turnover increasing 10.9% at constant exchange rates and growth across all regions, specifically in the US. The sustained commercial momentum and broad-based growth in each region reflects continued strong customer demand across the attractive growth markets we serve. REBITDA increased 13.1%, and as a percentage of turnover decreased 90bps to 19.3%, mainly due to delays in the passing on of cost increases in certain countries in EMEA and increased competition in Latin America, both resulting from inflationary and supply chain pressures.
We remain committed to ensuring quality across all our operations, especially in light of the communication from the FDA regarding the St. Paul facility in June 2022. We have submitted the remedial action plan and are working closely with the FDA to ensure a satisfactory conclusion of the audit.
We have also progressed our buy & build acquisition strategy with the addition of Letco (US), Pharmapack (Belgium), Curaphar (NL) and Hiperscan (Germany) in the first half of the year, followed by the recently announced purchase of a 503B facility in Boston. This acquisition provides us with an exceptional platform to further grow our business on the East Coast. We remain committed to disciplined execution of our M&A strategy as we seek to grow our footprint and capabilities globally.
Another area of key focus for us is driving operational excellence, and to this end I am delighted to welcome Vera Bakker as Fagron's Chief Operating Officer and member of the Executive Leadership Team. Vera joined us from Unilever and stepped down as non-executive director from our Board with immediate effect. As Vera's replacement, the Board is delighted to co-opt Els Vandecandelaere as independent non-executive director, who will strengthen our HR expertise in the Board.
For the second half of the year, we expect continued strong revenue growth and our profitability to improve compared to the first half of the year excluding the temporary dilutive impact of the Boston acquisition. We remain confident in our ability to meet our mid-term guidance as the secular trends and underlying fundamentals in our industry are strong and we are progressing with the implementation of our strategic priorities."
| Revenue by segment | ||||||||
|---|---|---|---|---|---|---|---|---|
| (€ '000) | H1 '22 | H1 '21 | ∆ | ∆ CER | ||||
| Essentials | 167,306 | 140,267 | 19.3% | 11.5% | ||||
| Brands | 55,434 | 51,415 | 7.8% | -0.5% | ||||
| Compounding services1 | 105,826 | 84,906 | 24.6% | 16.7% | ||||
| Total | 328,565 | 276,587 | 18.8% | 10.9% |
| Group | |||||||
|---|---|---|---|---|---|---|---|
| (€ '000) | H1 '22 | H1 '21 | Δ | ||||
| REBITDA | 63,322 | 56,006 | 13.1% | ||||
| REBITDA margin | 19.3% | 20.2% | -90bps | ||||
| EPS | 0.48 | 0.37 | 29.7% | ||||
| Free Cash Flow | 31,906 | 22,114 | 44.3% |
| EMEA | Latin America | North America | |||||||
|---|---|---|---|---|---|---|---|---|---|
| (€ '000) | H1 '22 | H1 '21 | ∆ | H1 '22 | H1 '21 | ∆ | H1 '22 | H1 '21 | ∆ |
| Revenue | 137,709 | 128,866 | 6.9% | 78,561 | 65,428 | 20.1% | 112,294 | 82,293 | 36.5% |
| REBITDA | 28,929 | 28,623 | 1.1% | 13,683 | 13,005 | 5.2% | 20,710 | 14,378 | 44.0% |
| REBITDA Margin |
21.0% | 22.2% | -120bps | 17.4% | 19.9% | -250bps | 18.4% | 17.5% | 90bps |
1 Previously Compounding Services and Premium Pharmaceuticals
| (€ '000) | H1 2022 | H1 2021 | Δ |
|---|---|---|---|
| Net revenue | 328,565 | 276,587 | 18.8% |
| Gross margin | 190,571 | 161,590 | 17.9% |
| As % of net revenue | 58.0% | 58.4% | |
| Operating costs | 126,170 | 103,765 | 21.6% |
| As % of net revenue | 38.4% | 37.5% | |
| Subscription rights costs | 1,079 | 1,819 | -40.7% |
| EBITDA before non-recurrent result | 63,322 | 56,006 | 13.1% |
| As % of net revenue | 19.3% | 20.2% | |
| Non-recurrent result | -800 | -707 | 13.2% |
| EBITDA | 62,522 | 55,299 | 13.1% |
| As % of net revenue | 19.0% | 20.0% | |
| Depreciation and amortization | 15,720 | 14,584 | 7.8% |
| EBIT | 46,801 | 40,715 | 14.9% |
| As % of net revenue | 14.2% | 14.7% | |
| Financial result | -2,186 | -6,097 | -64.1% |
| Profit before taxes | 44,615 | 34,619 | 28.9% |
| Taxes | -9,317 | -7,670 | 21.5% |
| Net profit | 35,299 | 26,949 | 31.0% |
| Net profit per share (€) | 0.48 | 0.37 | 29.7% |
| Average number of outstanding shares | 72,992,654 | 72,430,319 |
Consolidated revenue increased by 18.8% (10.9% at constant exchange rates) compared to the first half of 2021 to €328.6 million. Organic revenue growth was 14.5% (6.9% at constant exchange rates) compared to the first half of 2021.
Gross margin increased by 17.9% to €190.6 million in the first half of 2022. Gross margin as a percentage of revenue decreased 40 basis points compared to the first half of 2021 to 58.0%. Operating costs excluding the costs of the subscription rights as percentage of revenue was 38.4% in the first half of 2022, an increase of 90bps compared to the first half of 2021. The costs of the subscription rights decreased by 40.7% compared to the first half of 2021 to €1.1 million.
REBITDA (i.e., EBITDA before non-recurring result) increased by 13.1% (5.6% at constant exchange rates) compared to the first half of 2021 to €63.3 million. REBITDA as a percentage of revenue decreased 90 basis points compared to the first half of 2021 to 19.3%. The non-recurring result amounted to €0.8 million in the first half of 2022 and related mainly to acquisition and restructuring costs offset by the release of contingent liabilities related to acquisitions in North America. EBITDA increased by 13.1% compared to the first half of 2021 to €62.5 million. EBITDA as a percentage of revenue decreased 100 basis points compared to the first half of 2021 to 19.0%.
Depreciation and amortization increased by 7.8% compared to the first half of 2021 to €15.7 million.
EBIT increased by 14.9% compared to the first half of 2021 to €46.8 million. EBIT as a percentage of revenue decreased 50 basis points compared to the first half of 2021 to 14.2%.
The result before tax increased 28.9% compared to the first half of 2021 to €44.6 million. The effective tax rate as a percentage of the profit before taxes was 20.9% in the first half of 2022 compared to 22.2% in the first half of 2021. The effective cash tax rate was 19.6% in the first half of 2022 compared to 27.4% in the first half of 2021.
Net profit increased by 31.0% compared to the first half of 2021 to €35.3 million. Earnings per share increased by 29.7% compared to the first half of 2021 to €0.48.
| (€ '000) | 30-06-2022 | 31-12-2021 |
|---|---|---|
| Intangible fixed assets | 469,295 | 411,075 |
| Property, plant, and equipment | 135,668 | 128,626 |
| Deferred tax assets | 24,496 | 22,545 |
| Financial fixed assets | 3,940 | 1,556 |
| Financial instruments | 8,092 | 1,197 |
| Other fixed assets | 3,785 | 1,710 |
| Operational working capital | 79,677 | 59,070 |
| Other working capital | -27,236 | -26,646 |
| Equity | 377,377 | 325,466 |
| Provisions and pension obligations | 6,350 | 6,112 |
| Financial instruments | 2,170 | 103 |
| Deferred tax liabilities | 4,018 | 2,510 |
| Net financial debt | 307,804 | 264,941 |
Operating working capital as a percentage of revenue amounted to 12.1%, an increase of 10 basis points year-on-year and an increase of 180 basis points compared to year-end 2021, driven by inter alia investments in inventories and acquisitions.
Net financial debt increased by €42.9 million to €307.8 million as at 30 June 2022. The net financial debt/REBITDA ratio was 2.2x at 30 June 2022 compared to 2.1x at year-end 2021.
Net operational capex decreased 27.0% compared to the first half of 2021 to €6.7 million (2.0% of revenue). Capex mainly related to investments in existing facilities, new facilities, and software implementations.
Free cash flow increased 44.3% compared to the first half of 2021 to €31.9 million.
| (€ '000) | H1 '22 | H1 '21 | ∆ | ∆ CER | Organic ∆ |
Organic ∆ CER |
|---|---|---|---|---|---|---|
| Essentials | 77,104 | 71,723 | 7.5% | 7.0% | 4.0% | 3.5% |
| Brands | 23,003 | 20,649 | 11.4% | 10.8% | 2.0% | 1.4% |
| Compounding services | 37,603 | 36,494 | 3.0% | 1.7% | 0.4% | -1.0% |
| Total revenue | 137,709 | 128,866 | 6.9% | 6.1% | 2.6% | 1.9% |
| (€ '000) | H1 '22 | H1 '21 | ∆ | |||
| REBITDA | 28,929 | 28,623 | 1.1% | |||
| REBITDA Margin | 21.0% | 22.2% | -120bps |
Organic revenue growth in the EMEA region was 1.9% at CER with total growth at CER of 6.1% (reported 6.9%) to €137.7 million. This demonstrates further stabilization of performance in the region following various management actions taken over recent quarters. In particular, the performance in the Netherlands is progressing in line with expectations and has been bolstered by recent multi-year contract renewals. Elsewhere in the region, we have also witnessed solid growth in our smaller markets in line with our strategy to continue to diversify revenue across the region.
The increase in the Brands and Essentials revenue was supported by increased demand for COVID tests, innovative product launches and improved product availability as the transition to the GMP repackaging facility in Poland was completed at the end of the first half year. The increase in the Compounding Services revenue is reflective of the normalization of the market and was also supported by the acquisition of Curaphar, partly offset by the phasing out of our alternative branded products.
Supply chain and inflationary pressures remained heightened and our REBITDA margin was largely impacted by the delay in passing on price increases linked to the longer-term contracts that are more common in Europe than in other regions we operate in.
| (€ '000) | H1 '22 | H1 '21 | ∆ | ∆ CER | Organic ∆ |
Organic ∆ CER |
|---|---|---|---|---|---|---|
| Essentials | 55,482 | 47,490 | 16.8% | 1.3% | 16.8% | 1.3% |
| Brands | 21,695 | 16,756 | 29.5% | 10.7% | 29.5% | 10.7% |
| Compounding services | 1,385 | 1,182 | 17.1% | 14.7% | 17.1% | 14.7% |
| Total revenue | 78,561 | 65,428 | 20.1% | 4.0% | 20.1% | 4.0% |
| (€ '000) | H1 '22 | H1 '21 | ∆ | |||
| REBITDA | 13,683 | 13,005 | 5.2% | |||
| REBITDA Margin | 17.4% | 19.9% | -250bps |
Organic revenue growth in the Latin American region was 4.0% at CER (20.1% reported) to €78.6 million and performance was further supported by the positive exchange rate impact sustained into the second quarter of 2022. However, on the flip side given our elevated inventory levels to ensure product availability we have felt a negative impact as the Brazilian Real has rallied on the back of the commodity price boom and high interest rates.
From a segmental perspective, Brands and Essentials revenue showed solid organic growth at constant exchange rates with a further strengthening of the Brands contribution, supported by innovative product launches. Compounding Services continued its revenue growth, supported by customer wins and increasing orders from existing customers.
The underlying performance in the region reflects the impact of a challenging economic environment as the inflationary impact on consumer spending came through. This, allied to an increasingly competitive environment, had an impact on pricing and we continue to monitor the situation closely to protect our market leading position.
| (€ '000) | H1 '22 | H1 '21 | ∆ | ∆ CER | Organic ∆ |
Organic ∆ CER |
|---|---|---|---|---|---|---|
| Essentials | 34,720 | 21,054 | 64.9% | 49.6% | 22.2% | 10.8% |
| Brands | 10,736 | 14,010 | -23.4% | -30.5% | -6.0% | -14.7% |
| Compounding services | 66,838 | 47,229 | 41.5% | 28.4% | 41.5% | 28.4% |
| Total revenue | 112,294 | 82,293 | 36.5% | 23.8% | 30.3% | 18.2% |
| (€ '000) | H1 '22 | H1 '21 | ∆ | |||
| REBITDA | 20,710 | 14,378 | 44.0% | |||
| REBITDA Margin | 18.4% | 17.5% | 90bps |
Organic revenue growth in the North American region was 18.2% at CER with total growth at CER of 23.8% (reported 36.5%) to €112.3 million, representing an exceptional performance in the world's largest compounding market. This was achieved despite the increased syringe shortages caused by the global vaccination programs and further re-enforces our strengthening position in the region.
Brands and Essentials revenue growth was supported by the acquisition of Letco, partly offset by the divestment of our CMO business. Organic revenue growth of Compounding Services was 28.4% at CER, driven by strong revenue growth at both FSS US and Anazao despite the global syringe shortages.
With a run-rate of US\$83 million (annualized) in June 2022 and automatic labelling plus the implementation of a third shift planned for second half of the year, FSS US is on track to realize the run rate of US\$125 million (annualized) at year end 2022. The start of the automated visual inspection has been delayed towards the first half of 2023 due to ongoing supply chain issues.
The REBITDA margin improved by 90bps to 18.4% as we have been able to pass on most of the inflationary increases to our customers.
Finally, following the correspondence from the FDA regarding the GMP repackaging facility in St. Paul, we have submitted the remedial action plan whilst also accelerating the integration of Letco.
Integration of the acquisitions closed in the first half of the year namely Letco (USA), Pharma-Pack (Belgium), Curaphar (NL), and Hiperscan (Germany), are progressing in line with expectations.
With the recent acquisition of the 503B facility in Boston, we have taken another important step towards meeting the continuously growing demand for sterile outsourcing services in the US market,
and significantly strengthened our geographic proximity towards existing and potential customers on the East Coast. We expect the transition of the facility to Fagron processes to take approximately 12 to 18 months and the facility to start making a positive contribution to results in the second half of 2023.
We remain committed to our disciplined acquisition strategy which is an important part of Fagron's growth strategy in all regions where we are active.
Vera Bakker has been appointed as Chief Operating Officer and member of the Executive Leadership Team and stepped down as non-executive director from our Board of Directors with immediate effect. Vera joined us from Unilever where she worked 25 years.
The Board of Directors, on the advice of its Nomination and Remuneration Committee, has decided to co-opt Els Vandecandelaere as independent non-executive director. Her appointment is subject to the approval of Fagron's general meeting of shareholders. Els (1971 - Belgian nationality) is currently the Global Head of HR Integrated Supply Chain, Quality & Regulatory, Services & Solutions Delivery at Philips. She joined Philips in 2021 and is based in the US, having started her professional career at Johnson & Johnson, holding various leadership roles of increasing responsibility in HR in Belgium, the US, the UK, and Switzerland.
The Board of Directors has appointed Ann Desender as chair of the Audit Committee.
Area Leader EMEA and member of the Executive Leadership Team, Constantijn van Rietschoten has decided to leave Fagron. To allow for a sound transition he will remain associated with Fagron until 1 December 2022. In August, Maarten Pouw will start as Area Leader EMEA. He worked 16+ years at DSM and Centrient and brings a wealth of experience in the pharmaceutical raw materials business.
| Climate impact (Scope 1, 2 and business travel) | H1 '222 | 20193 | Δ | Unit |
|---|---|---|---|---|
| Greenhouse gas intensity (location-based) | 20.2 | 25.7 | -21.5% Kt of CO2 eq per million € revenue | |
| at CER |
Assuming no significant changes in current market conditions and excluding the temporary dilutive impact of the Boston acquisition, we expect FY 2022 revenue of between €670 and €690 million and a higher REBITDA margin in the second half of the year compared to the first half of the year.
Our medium-term objectives remain unchanged.
Rafael Padilla (CEO) and Karin de Jong (CFO) will elaborate on the first semester 2022 results in a webcast starting at 9.30 AM CET. Registration to the webcast is available via this link. The presentation by means of which they will explain the developments will be available to download from the Fagron website from 9.00 AM CET.
2 Preliminary results: FY numbers will be reviewed prior to publication of Annual Report.
3 All environmental targets are versus financial year 2019.
Financial calendar 2022 13 October 2022 Trading update third quarter 2022
Results and trading updates are published at 7.00 AM CET.
Karen Berg Global Investor Relations Manager Tel. +31 6 53 44 91 99 [email protected]
Fagron is a leading global company active in pharmaceutical compounding, focusing on delivering personalized medicine to hospitals, pharmacies, clinics, and patients in 35 countries around the world.
Belgian company Fagron NV has its registered office in Nazareth and is listed on Euronext Brussels and Euronext Amsterdam under the ticker symbol 'FAGR'. Fagron's operational activities are managed by the Dutch company Fagron BV, which is headquartered in Rotterdam.
Certain statements in this press release may be deemed to be forward-looking. Such forward-looking statements are based on current expectations and are influenced by various risks and uncertainties. Consequently, Fagron cannot provide any guarantee that such forward-looking statements will, in fact, materialize and cannot accept any obligation to update or revise any forward-looking statement as a result of new information, future events or for any other reason.
In the event of differences between the English translation and the Dutch original of this press release, the latter prevails.
The table below shows the development of net financial debt in the first half of 2022.
| (€ '000) | |
|---|---|
| Net financial debt on 31 December 2021 | 264,941 |
| Operational cash flow | -38,587 |
| Capital increases | -453 |
| Acquisitions and subsequent payments for acquisitions | 48,834 |
| Proceeds for shareholdings sold | -3,226 |
| Investments | 6,681 |
| Paid dividend | 9,955 |
| Net interests | 5,023 |
| Exchange rate differences | 9,899 |
| Impact IFRS 16 | 4,736 |
| Net financial debt on 30 June 2022 | 307,804 |
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