Vistin Pharma ASA

OSE:VISTN

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day and thank you for standing by. Welcome to the Vistin Pharma Quarterly Report Q2 2024 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Magnus Tolleshaug, CEO. Please go ahead.

[Magnus Tolleshaug, executive]

Yes. Thank you and welcome all to this second quarter 2024 presentation. I will now go through the highlights of the second quarter 2024 results. The revenue in the second quarter ended at NOK 106 million versus NOK 107 million in the second quarter of 2023. Currency neutral revenue was slightly higher in the quarter compared to the second quarter of 2023 was about 1%. The year-to-date 2024 revenue ended at NOK 210 million compared to NOK 208 million year-to-date last year.

The second quarter ended with a record high EBITDA of NOK 27 million versus NOK 20 million in the second quarter of 2023, an increase of 40%. The EBITDA was positively affected by product mix, favorable material cost prices and good cost control in the quarter. The EBITDA year-to-date ended at NOK 48 million versus NOK 34 million year-to-date at the same time last year, an increase of 42%.

The manufacturing line 2 has been producing according to plan from April, after the unplanned maintenance and repair we had in the first quarter, we also had planned biannual maintenance stop successfully completed in the second quarter. A cash dividend of NOK 0.5 per share was distributed in June 2024 and an additional dividend of NOK 0.5 per share is planned to be distributed in the fourth quarter. The net profit was positively affected with NOK 2.5 million in the quarter by fair value of future currency cash flow hedging contracts. So an unrealized gain, no cash effects in the quarter.

Vistin Pharma, we are pure play Metformin company, supporting diabetes patients worldwide in the growing market. Diabetes is really one of the largest health emergencies in the 21st century. And Metformin is the gold standard treatment of type 2 diabetes that is used as a baseline treatment. And therefore, Vistin Pharma has an attractive growth opportunity, as we are a leading global producer of premium, high-quality Metformin.

Some words about the market. The global market demand for Metformin is expected to grow with about 4% to 6% annually, if you look at the compound annual growth rate forecasted. And Vistin's global market share will be approximately 10%, when the new capacity expansion is fully utilized. So we are growing in a growing market. For those who have been following us as a company, you have seen this slide before. But it is a relevant slide because it shows the magnitude of the diabetes epidemic in the world. The International Diabetes Federation has predicted that the number of people with Diabetes is expected to increase by 50% from 2019 to 2045, up to 750 million people.

So it's really an epidemic. We know that around 550 million people have diabetes today in the world and about 90% of those are type 2 diabetes. We also know that already by 2030, it's projected that we will be at around 640 million people in the world having diabetes. It's also worthwhile to notice that about 3 out of 4 with diabetes live in low and middle-income countries in the world. Vistin Pharma, we are selling our Metformin API, which is the active pharmaceutical ingredient. We sell it globally to typically to reputable international companies who then create and process the final drug product and sell it at least in more than 100 countries that we know of.

So we have our sales, as you can see on the slide, all the way from Japan in the East to U.S. and LatAm in the West. However, the majority of sales or volume is going to Central Europe, where either it's processed into tablets and distributed or where the API is distributed further for manufacturing elsewhere. So it's really a global company in global distribution.

We've had a long and a good track record. And in 2022, we installed our new manufacturing line. So now it's nice to see that the investment is materializing into increased sales, as you can see from the graph. And I think with that, I'd like to hand over to our CFO, Mr. Alexander Karlsen, who will bring us through the details of the financial figures.

[Alexander Karlsen, executive]

Thank you, Magnus. We will start with the sales volume, which ended at 1,250 tons in the quarter, which is an increase of around 4% or from 1,200 tons in the second quarter 2023. The year-to-date sales volume is close to 2,500 tons, how it's impacted by the unplanned stop in the first quarter. We also had some limitations in the volumes available in April due to the mentioned production stop in the first quarter.

Having a look at the revenue, which ended at NOK 106 million compared to NOK 107 million in the same quarter last year. As Magnus mentioned, adjusted FX, the revenue increased by approximately 1%. It's important to emphasize that the global metformin prices has decreased for the past 12 months and stabilized at a low level due to decreased raw material prices.

When it comes to May and June, the available sales volume was according to the plan. Gross margin, we see a positive development. We have had no more stable production in the second quarter and we have seen economies of scale in raw material purchasing and the 64% gross margin in the second quarter is well above our target of 60%. Having a look at the record high EBITDA ended at NOK 27.3 million compared to NOK 19.6 million in the second quarter 2023. It's a 40% increase, which I am very satisfied with. EBITDA is positively affected by product mix, material prices or material costs, as mentioned. And also we have consistent good cost control in the quarter.

I would also mention that we have had a positive development in the margin, which went from 23% in the same quarter last year to 26% this quarter. It shows that Vistin are optimizing the sales prices even with the decrease in global metformin prices. Having a more look at some details in the income statement. We have touched on the revenue and EBITDA and the EBIT ended at NOK 22.3 million after around NOK 5 million in depreciation in the quarter.

Net finance positive with NOK 2.2 million, mainly driven by the unrealized gain on the FX forward contracts. Profit before tax ended at NOK 24.6 million, while net profit for the period ended at NOK 19.2 million. These taxes are still nonpayable for us due to the deferred tax assets we have from the Vistin trading time.

Going into the balance sheet, starting with the assets. Total noncurrent assets of close to NOK 250 million, mainly the fixed assets related to the production plant in Kragerø. Total current assets of around NOK 155 million, mainly inventory and receivables, giving a total assets of around NOK 403 million. It was also mentioned that, as probably most of you have seen or through the media that there are still reduced transportation to the Suez Canal and as we purchase raw materials from Asia, we see that the freight lead times has increased significantly. However, it has not been an impact on the production in the first half of the year as we have [indiscernible] safety stock of critical raw materials locally. And I believe we will continue that with the volatility we see out there.

Having a look at the equity and liability side of the balance sheet. Total equity of around NOK 294 million which gives an equity ratio of 73%, which is strong. The share premium has slightly decreased. This is driven by the dividend payouts this year. Total noncurrent assets of NOK 10 million, while current assets at around NOK 98.7 million. We have moved from a net cash position as of end 2023 to a net debt position as of end June of NOK 34 million and that's mainly driven by the dividend payouts in January and June and acquisition of 15% in CF Pharma.

We do, however, have additional credit facilities, if needed. This brings the total equity and liabilities to NOK 403 million as of end June. I think that was all from me, Magnus, and I will give the word back to you.

[Magnus Tolleshaug, executive]

Yes. Thank you, Alexander. I will do a summary of the presentation. We delivered an all-time high EBITDA of NOK 27.3 million in the second quarter of 2024, with a gross margin of 64%. The metformin market is expected to continue to grow by a compound annual growth rate of 4% to 6% annually in the foreseeable future. As Alexander mentioned, the situation in the Red Sea and the Suez Canal makes the shipments of raw material longer and the route goes through the southern parts of Africa and also, therefore, the freight prices has gone up during the second quarter. So we can see that the freight prices are expected to gradually increase during 2024 due to this spike.

There are 4 months left of the quarter. So now sales prices and volume for the remaining 2024 are booked. The long-term renewable energy supply agreement that we signed with Statkraft until 2032, provides predictable costs and also secures 100% green hydro power long term. And this is important for us to be as environmentally sustainable as possible and also secure stable access to power long term.

We have an attractive metformin growth potential to be realized when the remaining manufacturing capacity is fully available and utilized. In Vistin, we are strategically well positioned as a leading European clients, they typically prefer high-quality supplies, nearshore production and an attractive ESG profile. Vistin have an ambition to pay out 50% of the net annual profit as dividend, of course, balanced against the company's financial strength at any given time and capital requirements for future growth.

After the purchase of 15% of CF Pharma in Hungary in Q1, we are exploring our various strategic options for further growth. And I think with that, we are done with the second quarter 2024 presentation and we are ready to open up for questions.

[Operator]

[Operator Instructions] There are no questions on the phone at this time. I would like to hand over for any webcast questions.

[Alexander Karlsen, executive]

Yes, I think we have received a couple of questions. And there are one question about dividend. The question is, will the next dividend be classified as a return of capital?

As income, I think we will communicate the details when relevant, but I think it's likely to believe that it will be done at the same matter as previously, which are repayment of the share premium.

We also received a question regarding the cost saving products for the recycling of water, which is a significant product for us and also give significantly savings. We had our planned maintenance stop in April and have interfaced the recycling equipment. And this will be started up in August/September and have a test period during September. So we expect savings from that project soon. Yes, you can comment on some questions on the CF Pharma, Magnus?

[Magnus Tolleshaug, executive]

Yes, sure. There is a question here about our plans with the ownership of CF Pharma. Yes, so in the first quarter, we bought 15% of CF Pharma in Hungary. CF Pharma is a European reputable API, CDMO with a big customer base. And of course, buying 15%, we are now looking into different strategic options, as mentioned. But of course, we cannot go into any details about what we are thinking. But in general terms, you could say that Vistin Pharma, we are opportunistic when it comes to growth. So at any given time, we are looking at different options to grow for the benefit of our shareholders. But as for now, we don't have any concrete more information. .

[Alexander Karlsen, executive]

And we have a question on the production levels and -- expect to reach -- sorry, 7,000 metric tons yearly production. I would say that we are now ramping up the production according to the sales forecasts and what we expect to sell. So it's progressing. I will also say that the first half, both sales and production volumes are affected by the unplanned stop in Q1. So both the sales and production volume would have been higher if we had not had the unplanned stop. .

[Magnus Tolleshaug, executive]

Yes, there's another question here about if we could elaborate on the strategic options based on the CF Pharma. I think we have commented on that. But of course, as mentioned, CF Pharma is a European, well-reputed CDMO with global sales. So there are several options, both for collaborations or ownership or different options. But as mentioned, we are looking into our strategic options at the moment, but we don't have anything more concrete to say at this point. .

[Alexander Karlsen, executive]

I think that was all the questions we have received. So I think now we can close the call, please.

[Operator]

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