Vistin Pharma ASA

OSE:VISTN

Earnings Call Transcript 2023-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Vistin Pharma Quarterly Report Q1 2023 Conference Call. [Operator Instructions].I would now like to hand the conference over to your speaker today, Kjell-Erik Nordby, CEO. Please go ahead, sir.

[Kjell-Erik Nordby, executive]

Thank you very much. Welcome to this webcast presenting the first quarter 2023 results in Vistin Pharma. Now we start with the highlights for the quarter. We had a record high revenue in the quarter above NOK100 million in revenue versus NOK33 million in the first quarter last year. This significant increase in revenue is due to the fact that we are now producing material from both production lines, and that has resulted in more volumes available for sale compared to the 8-week production stop that we had in the first quarter last year when we did the MEP installation.This record high revenue also has resulted in a high EBITDA for the quarter compared to the negative EBITDA on -- in first quarter 2022. The EBITDA ended at NOK14 million versus minus NOK18 million last quarter. And the EBITDA was positively affected by increased sales volume, higher average sales prices. And we also -- and you know that we in December 2022, enter into a long-term energy supply contract with Statkraft. That has materialized in the first quarter this year and have significantly reduced electricity costs compared to last -- compared to the same quarter last year.And we see now and the volume is ramping up that the economies of scale has started to materialize, and we expect that to continue throughout the year. Other highlights from the quarter that the net profit was negatively affected with NOK15 million by fair value FX cash flow hedging contracts. However, that has no cash effect in the quarter. We have significantly improved the operational cash flow in the quarter and have reduced our net debt from NOK43.7 million in Q4 last year to NOK20.3 million by end of March. And the Board of Directors has proposed to get the power of attorney from the AGM in May to pay up to NOK0.75 per share in dividend and that power of attorney should be valid until the AGM in 2024.I would also like to take the opportunity that I have informed the Board of Directors that I plan to retire as the CEO in Vistin Pharma at year-end. This is no dramatic beyond that decision and the Board of Directors will start the recruitment process to find my successor. However, I will emphasize that I have a very strong motivation and energy to work hard for delivering a strong 2023 in Vistin and help securing that our ambitious growth strategy is on track.Then I will continue with the operational review and start on the slide that saying something about the Metformin market. As you -- as most of you know, we are a pure play Metformin company. We sell 2 grades of metformin. Metformin is the gold standard treatment for treating diabetes. And diabetes is one of the largest health emergencies in the 21st century. The Metformin is the gold standard. So combining these 2 parameters, the demand for Metformin is expected to grow by 5% to 6% annually. And the MEP project, doubling the capacity. And when we sell that additional capacity, we will have approximately the -- we will have approximately 50% of the share of the total global Metformin market.Metformin is a very efficient product to treat diabetes in the body. The mechanism of action is that it's used to lower glucose below sugar level by both reducing the liver's production of glucose but also delaying and reduces the absorption of glucose from the intestine. The advantage with Metformin that is -- the first Metformin product was launched in the late '60s. So it's a well-known product. It has limited side effects and the long-term safety profile is excellent. Normally, you will be -- when you have diabetes, you will get it in tablet form. And if new generations of Metformin products contain Metformin in combination with other APIs, which are in second and third line treatments.And they are often patent protected and also sold at a higher price than the generic tablets. We call diabetes, a global emergency and a global epidemic, and that is caused by the fact that there is approximately 0.5 billion patients suffering from diabetes today and that is going or it's estimated by WHO to grow by more than 200 million new patients until 2045. So -- and there is also a lot of people that today are living with diabetes and which are not diagnosed. So also when more people are diagnosed with the diabetes, the more people will also receive metformin treatment.Other products are sold to -- as you know, we are a B2B company. We sell our API to a strong regional or multinational companies that includes our API in their final dosage forms. So in this map, it shows where our customers are located. Most of them are in Europe, but we also have customers in Latin America, in Asia, in the U.S. But even though that most of our companies are -- our customers are located in Europe, the products that contain our Metformin are sold throughout the world. So in Norway, Denmark, Finland, Sweden, wherever you receive a Metformin tablet treatment, at least 10% of the product will contain the Metformin from Vistin Pharma.So then I'll leave it to Alexander to go through the financials for the first quarter.

[Alexander Karlsen, executive]

Thank you, Kjell-Erik. Let's start looking at the volume. On the right, we have the production volume in the quarter. This was around 1,240 metric tons, which is a new quarterly record. It's also worth mentioning that Line 2 was closed for around 10 days in February for our planned technical improvements as part of the ramp-up. Having a look at -- to the left, we have the quarterly sales volume, 1,112 tons. It's also here worth mentioning that we had around 100 tons that was originally planned for Q1 but was moved to the second quarter.Looking at the revenue. As Kjell-Erik mentioned in the start, around 200% increase versus first quarter last year. Again, as in previous slides, 100 tons moved from first to second quarter. And we also have agreed on negotiated prices or sales prices for 2023, that should reflect the current raw material and freight costs. Having a look at the gross margin. The gross margin in Q1 is positively affected by a weaker NOK compared to euro, however, partly offset by a stronger USD. I think as most of you know, we have most of our sales in euro and purchase our main raw materials in USD. And we see a positive sign in the gross margin. If you have a FX neutral gross margin, we are better in this quarter compared to both Q1 last year and Q4 last year.We continue to see positive signs on decreasing freight and raw materials. And in Q1, we have consumed the remaining of what I would say expensive raw material purchased in Q3 and Q4 last year. And the current raw material at hand that we will use in Q2 and purchases for Q3 onwards are at lower prices, so -- which should have a positive effect on our gross margin development. And as previously mentioned, we have an ambition for a gross margin at above 60%. Looking at the result and the EBITDA ended at NOK14 million compared to minus NOK18 million Q1 last year.Again, more higher sales prices, obviously, much more competitive electricity costs and the FX effect mentioned previously. I would mention that we have a onetime cost of around NOK1.5 million in related to consultancy fees in the quarter, and that will not recur in the quarters coming forward. We do not expect any change in manning for the year. So we expect volume leverage going forward as we continue to ramp up Line #2. An overview of the income statement. I think we've been through most of the numbers on the top. I would mention the depreciation, which has increased from -- in the quarter last year, and that is driven by that we now finalized the capitalization of the net investment and started to depreciate that in full.We also mentioned the net finance cost in the quarter of NOK13.8 million, NOK15 million of that is the unrealized loss of the euro cash flow hedges. But, of course, the IFRS has to value at market value at the end of the quarter. [indiscernible] no cash effect in Q1. That gives a negative result for the period of close to NOK3 million. Going to the balance sheet, first having a look at the assets. Start with the fixed assets increase compared to same quarter last year, driven by the MEP investments. Going down to the current assets, I'd like to mention the inventory. It's significantly above same quarter last year, I would say, on the same level in value at end of year 2022.However, the mix is slightly different now. We have started to reduce the safety stock of the raw materials slightly and we have now much more finished goods in stock compared to previously. At end of year 2022 was mostly raw materials. Now it's a bit less raw materials and more finished goods. And in relation to, I mentioned that we have around 100 metric tons finished goods ready for shipment, which was moved from Q1 to Q2. Having a look at the equity and liabilities, not much changes, I'll go down right to the current liabilities. And as Kjell-Erik mentioned, we had a significant reduction in debt in the quarter, and that's driven by the more stabilized working capital requirements and that the sales and financial results has started to improve as we have more volumes available for sale.I think that was what I had. Kjell-Erik, hand the word back to you.

[Kjell-Erik Nordby, executive]

Yes. Then I'll try to summarize. We are very satisfied with the start of 2023 and I'm quite optimistic about the path forward. In 2022, we had kind of a perfect storm throughout the year with high electricity costs and higher raw material and price cost, and we do not expect that to repeat itself this year. So we are quite optimistic for the future. And also looking at the long-term aspects of our business, the Metformin market will continue to grow. There is no sign that, that will slow down. It will grow by 5% to 6% annually. And that throw attractive growth potential to be realized when the additional manufacturing capacity is fully available.We are already ramping up and have -- are now producing at a significantly higher level than we did before the MEP project and the ramp-up plan to go up to 7,000 metric tons per year is on track. Large pharma companies are still looking for lower risk supply chains, and we believe that we are strategically well positioned as many European clients prefer high-quality suppliers with short travel distances and lower risk supply chains. I mentioned that the project to increase the capacity to 7,000 metric tons is progressing.The long-term renewable energy supply agreement signed with Statkraft, that lasts until 2032, will significantly improve our competitive position going forward. And you have seen that we already see the result from that agreement in the EBITDA result for the first quarter. Alexander mentioned that freight and raw material prices are gradually decreasing during 2023. And we'll hope we then normalize now after the post-COVID period. And as Alexander said, that we are -- we have now bleeded out, if you can call it like that, most of the expensive raw materials both last year and are now starting to harvest or see the benefits from a lower price and raw material costs.Last is that the ambition in Vistin is to pay out 50% of the net annual profit as dividend. Of course, that -- the size of the dividend will be dependent on the company's financial capability and capital requirements for future growth.So that is the summary of the quarter and how we -- and the outlook. I would like to finish the Q1 presentation by inviting you all to Vistin's Capital Markets Day. We will invite all interested partners to our plants in Fikkjebakke close to Kragero on June 14, where we will present both our Vistin's long-term strategy in more detail. We will present our Metformin business, how we see the business. We will also present the Fikkjebakke plant operation and the strategy for further streamlining the production site. And you will all be invited to our plant too. So that's it, please, we will welcome you to our state-of-the-art plant, and we are proud to show you our plant which I think will be interesting to all of you that we like to see how pharmaceutical manufacturing plants operates and look like.Thank you very much. Then I think we leave it for the Q&A session before we close the first quarter presentation.

[Operator]

[Operator Instructions] I will hand the call over for the webcast questions.

[Kjell-Erik Nordby, executive]

There is one question about what projects that we have in the pipeline to ensure further growth in the years to come.I think that our top priority and focus is to achieve the 7,000 tons -- metric tons production volume and fill that volume with customer contracts. I think that's -- we have previously said that, that gives us a significant scale economy effect and will be very positive for the company. In parallel, we are, of course, looking at other growth opportunities beyond that achievement. But I think that, first of all, let's be sure that we deliver on the MEP business case.I have a question that if I'm leaving for another company or retiring, I'm going salmon fishing. So I'm retiring. So well, I don't think that I want to leave the pharmaceutical business completely. I have been in the industry all my life. But I have -- I'm not leaving for any other company. I think I enjoy my life in Vistin so much that it would be no interest for me to leave for another company.There's a question here regarding sales prices per ton on average for the quarter, which are at a high level.I think it's worth mentioning that we have had a rather weak NOK compared to the euro, which boosts our sales prices in NOK. But I think that going forward, we have fixed prices with most of our customers. So as raw materials and freight decrease, that will give us leverage. However, we [ have ] for some customers, we have quarterly negotiations. So if raw material freight costs go down, they all have to take -- get part of that benefit. But again, I think as direct answered that question, most of the sales prices is fixed throughout the year.There's a question about maintenance stops in Q2. We will have -- we have normally 2 annually maintenance stops. We will have 1 week stop now in April or we had now in April and we have one in October. And that's normal maintenance recurring for both lines.There's also a question about other current manufacturing installed manufacturing capacity by end of first quarter. And it's approximately 6,000 metric tons.There's a question about electricity consumption and prices in the long-term agreement with Statkraft. When we produce close to 7,000 tons, we will use in the range of 15 million to 20 million kilowatt or 15 gigawatts to 20 gigawatts per year, again, depending on temperature outside, et cetera. When it comes to the price for the supply agreement, that's confidential. But I can say that there are some government initiatives out there that you can secure your electricity cost to fuel craft our other suppliers at 7 years. But what we pay is less than that to give you a signal on what we pay.I think that completes the Q&A session. And we, therefore, thank you for your attention. And we will come back when we have the Q2 presentation later. Thank you very much.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.